[shakespear1]

The grilling by senator Jim Bunning of Paulson and Bernanke shows that perhaps the Senate has finally understood the dimensions of the economic problem. The social consequences of this are huge.

Grilling

Paulson has a problem saying "The tax payer will take care of this. Just pass the bill."

[Cashmere]

Paulson is an interesting part of the disease, but, in a roundabout way, what he was saying was accurate.

If you listen closely, you can ferret out Paulson's point, which is . . .

"The taxpayers are going to pay for this mess one way or the other - it is my opinion that a direct equity buy out by the taxpayer and an explicit guarantee of the GSE debt would, in the end, be less costly to the taxpayer than seeing the entire housing market implode because we let these beasts fail."

And, as distasteful as I find it, I'd have to agree. Completely.

[Kingcoal]

When you borrow a million and can't pay it back, you have a problem. When you borrow a billion and can't pay it back, the bank has a problem. That is the problem. Taxpayers are the bank and Paulson wants to borrow trillions from them to save the day. That gives taxpayers a problem, a big problem.

Paulson comes from corporate America and thus has a corporate mindset. He wants a blank check from Congress, but I highly doubt that is going to happen.

[Cashmere]

When you borrow a million and can't pay it back, you have a problem. When you borrow a billion and can't pay it back, the bank has a problem. That is the problem. Taxpayers are the bank and Paulson wants to borrow trillions from them to save the day. That gives taxpayers a problem, a big problem.

Paulson comes from corporate America and thus has a corporate mindset. He wants a blank check from Congress, but I highly doubt that is going to happen.

Maybe not carte blanche, but, in the end, Paulson is right, whether he's a corporate stooge or not - the taxpayer <i>will</i> foot the bill for this mess; the only remaining question is - "how do we keep that bill as small as possible?"

[MrBill]

Paulson is an interesting part of the disease, but, in a roundabout way, what he was saying was accurate.

If you listen closely, you can ferret out Paulson's point, which is . . .

"The taxpayers are going to pay for this mess one way or the other - it is my opinion that a direct equity buy out by the taxpayer and an explicit guarantee of the GSE debt would, in the end, be less costly to the taxpayer than seeing the entire housing market implode because we let these beasts fail."

And, as distasteful as I find it, I'd have to agree. Completely.

BINGO! That is twice in one day (and a half). There is a huge VOID between 'moral hazard' on one hand and 'systemic bank collapse' on the other. Believe me, if you're in charge of public policy, you do not want to go there. It is The Valley of Death. If you throw $1 trillion at a $5 trillion problem. You lose. If you throw $4 trillion at a $5 trillion problem. You lose. If you throw $6 trillion at a $5 trillion problem you may may come away beaten and bloodied, but the prospect of a systemic financial collapse would make the subprime meltdown look like a warm-up act.

Lesson number one: Don't get in this mess in the first place. Implicit guarantees DO become explicit guarantees. Lesson number two: when you're in the shit do not cut-off your nose to spite your face. These Depression Era institutions were set-up to avoid a second Depression. Do not cut them off at the knees when they are needed the most. Lesson number three: Learn from your mistakes (twice) and do not repeat them (thrice)!

Senate and Congress as well as the White House are as complicate in this as both the Fed and the Treasury. To try to blame it on Paulson or Bernanke is like blaming a bad play on the relief pitcher that comes in at the bottom of the ninth in an attempt to salvage a losing game.

[Starvid]

There is a huge VOID between 'moral hazard' on one hand and 'systemic bank collapse' on the other. Believe me, if you're in charge of public policy, you do not want to go there. It is The Valley of Death.

I agree completely.

But bailouts can be very costly. I was just a kid back in the days of the Swedish bakning crisis. I remember the day the economy had recovered so much that we could afford milk for the school lunches instead of just water.

The trick is to have the State (ie the people) get something back from the bailouts. The Swedish state inserted huge amounts of money into our banks, and got bank equity in return. The venerable Wallenberg capitalist dynasty franticly spent the next decade buying back the shares of the family bank SEB from the State (at a profit for the State) and to this day the State owns a large minority position in the bank Nordea.

The current government is trying to privatize it, and when they eventually sell it it will be for a much bigger sum than the State invested in it during the early 90's.

[MrBill]

I have problem with the state buying cheap assets in a crisis and then making a profit for the taxpayer by selling them off more expensively later. So long as it is done in a transparent way with no under the table subsidies. This is effectively what the HKMA did during the Asian Crisis. But there is a huge difference between Skandinavian standards of good governance and accountability and the type of crony capitalism practiced elsewhere, so I would not advocate this model everywhere.

[Starvid]

the type of crony capitalism practiced elsewhere

Like in China, Russia and the US?

[NTBKtrader]

My father has heart issues and has had two open heart surgeries in 5 years by the most renowned surgeons in the US. However, still to this day he eats steak and potatoes 3 times a week and drinks like a fish.

I agree with the analysis of saving the patient but the conclusion will remain the same unless DRASTIC action is taken by the patient.

I worked in S Fl. real estate and I saw, literally, crack houses in the ghetto falling apart going for over $300k. Now tell me that the loan isn't part of a AAA rated CDO/RMBS somewhere. Tell me the big boys, so eager to compete, aren't still trying to do anything and everything just to gain a slight edge w/ WS/analysts. It has become so competitive that firms/people are so eager to outdo one another, to boost themselves over their competitors, that they will take risks that threaten their own existence. If we are bailed out the mindset doesn't change. If those that took on those risks are bailed out and the natural recession isn't allowed to wash out those who made mistakes, if we do recover from this, I can guarantee you the next one is the one that leads us politically into dictatorship and you can kiss your ....goodbye.

[MrBill]

It took a Great Depression and two World Wars before we learned some fundamental lessons. Now we have been unlearning those lessons and may need to be taught them once again. The lesson may be more or less harsh than the originals. But as we have not remembered those lessons we must repeat them. I am not looking forward to that eventuality. I am dreading it. However, what is unsustainable must by definition come to an end sooner or later. I am not sure if we are seeing the limits to growth, but we are seeing the end of this type of growth both economically and environmentally. Therefore, the future will not look like the past. I think we are living through History!

[cube]

...
Grilling

Paulson has a problem saying "The tax payer will take care of this. Just pass the bill."

ha ha yeah it may be fun to hear these men stutter and speak in such a small voice.
but aside from giving us psychological pleasure it does nothing else.

I would NOT give Sen. Jim Bunning too much credit.
It's very easy to talk like a BIG Man right now (like he's sticking up for the little guy) but where was he and all the other politicians who supposedly represent us when the disaster was being created hmmm?

[vaseline2008]

Politicians...are there any good ones?

Check out who gave the most PAC money to Sen. Jim Bunning

Open Secrets

Feel free to check out the other tabs too.