DarkSteven
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quote:
ORIGINAL: cjan
Here's an interesting and insightful article on the situation in today's New York Times
http://www.nytimes.com/2008/09/24/business/24leonhardt.html?hp
I disagree with the NYT article.
1. "There are really only two [pertinent questions]: What steps are most likely to solve the immediate crisis? And how can the long-term cost to taxpayers be minimized? Everything else — reducing executive pay on Wall Street, changing the bankruptcy laws, somehow slowing the descent of home prices — is either a detail or a distraction."
Bull. Show me a doctor that's only concerned with fending off immediate death and doesn't care how the condition came to be.
This "crisis" was not even recognized until less than a week ago. As soon as it was announced, there was such a sense of urgency that no time for reflection was available. The problem's been known for years. There's nothing in Paulson's proposal that creates a crisis where none had been before.
2. "The credit markets are nearly dysfunctional, leaving the economy at risk of falling into a downturn unlike any most of us have lived through, and the government is about to commit billions of dollars after only a week of political debate. There’s no time to waste."
Translation - we NEED to take action NOW! Later we can figure ut whether it made any sense. Again, bull.
3. "The first thing to understand is that a bailout plan doesn’t have to cost anywhere close to $700 billion, so long as it’s designed well. The $700 billion number that you see everywhere is an estimate of how much the government would spend to buy deteriorating assets now held by banks. Eventually, the government will turn around and sell these assets, for a price almost certain to be greater than zero. So this $700 billion is very different from $700 billion spent on a war or on Medicare."
Um, let me get this straight. The author is claiming that a government program is likely to cost less than its initial price tag? When the hell did THAT last happen?
4. "It clearly shouldn’t pay 75 cents on the dollar, or anything close to it. That would mean the Treasury Department — which, in the end, is really you and me — was assuming nearly all the risk. But it probably can’t pay 25 cents. That might fail to fix the credit markets, because it would do relatively little to improve financial firms’ balance sheets. Firms might then remain unwilling to lend money to businesses and households, which is the whole problem the bailout is meant to solve."
Dead wrong. There is NOT a huge block of securities all valued at 35% or 50% or whatever. There are bunches of securities valued all over the map, including some that have no value at all.
The firms are not dummies. If we offer them 30% of face, they will sell us everything worth less than 30%. Keeping the amount low will minimize the hit we have to take.
5. "
One of the fashionable ideas of the week, supported by both Democratic leaders in Congress and John McCain, is to limit the pay of top executives at any Wall Street firm that sells assets to the government. In effect, this is an attempt to tell Wall Street how to split up a government subsidy among its various employees and shareholders. Personally, I couldn’t care less how much of the subsidy goes to Wall Street’s chief executives and how much goes to Wall Street’s shareholders. I care about the size of the subsidy that we taxpayers are paying. And in a frenzied week, any time spent on talking about C.E.O. pay is time not spent on designing the toughest possible bailout package. I found it telling that the relentlessly pro-business United States Chamber of Commerce has saidit can support executive pay restrictions. The efforts to punish executives and help Main Street are based on a worthy instinct — to address not just the crisis but also larger problems like inequality. The best way to solve those problems, though, is to make sure the government spends as little possible on an effective bailout."
Paying top execs huge salaries while their firms founder violates a tenet of capitalism. It also ensures that C level execs will continue to take ridiculous risks. In addition, it might be politically necessary.
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