"Emancipate yourself from mental slavery, none but ourselves can free our mind.” - Bob Marley

Wednesday, October 1, 2008

House was Right to Reject the Fatally Flawed Paulson Bailout

The modifications made to the original Paulson 3 page diktat were cosmetic.

Time to shit-can this plan and start over - this time with help from respected outside economists - not just discredited hacks like Paulson and Bernanke.

See here for information from a real expert, Nouriel Roubini on how various bailouts work - and why the Paulson plan is one of the worst possible ways to do it. Roubini has been called Dr. Doom for years as he has explicitly predicted these problem before most others.

Everything in this plan that Paulson put there must go. And Paulson must go, too. He is so clearly the wrong person to manage any part of this. His background is Wall Street - he managed Goldman Sachs at the exact time that they and others were creating this "crisis".

The bailout still has too little protect taxpayers from the inevitability that Paulson will overpay. All "oversight" is provided after the fact by people with neither the time nor qualifications to be effective.

The so-called insurance is *optional*.

Overpaying for toxic sludge securities - many if not most already rendered worthless by defaults that have already occurred is the only mechanism by which this plan helps the banks and other institutions. See here for an explanation of why the lower tranches - those often retained by Banks selling the Asset Backed Securities - are much more heavily impacted by relatively low default rates. See here for why the default rates are so much higher than those used for the original creation of these securities and the results on the securities.

Still unaddressed is the impact on the credit markets - or the impact on the dollar- of $700 Billion of *additional* US borrowing. Uncle Benny thought he'd get a freebie lowering interest rates to take the sting out of ARMs, but the dollar swooned *and* LIBOR has now disconnected from Fed Funds. These are the kinds of unintended consequences that come from winging it.

It is worth noting that on Tuesday the market indices reclaimed 2/3s of what was lost Monday. Congress does more harm dithering on this piece of crap bailout than if they would take the time to get real experts in there and do it right.

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About Me

I'm a 57 year old geek. I voted Democratic for 20 years, because I disliked the Republicans more. But now, nobody really speaks for me. I'm for Guns, for more correct government regulation of the financial world, against illegal immigration and amnesty. (in 2008 I ended up voting Republican - too many questions about Obama, and voting against anybody who voted for TARP 1.) In 2010 I voted a stright republican ticket because the Democrats have completely lost their minds.