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On “The Bailout”, Part 5: Ideas I hate

Remember the short-term goal is to have bank lending at reasonable levels so that the wheels of American commerce can continue to spin.

Nothing in that goal requires American Taxpayers to take on (hah…”purchase”) the complex Mortgage securities.

Another major major problem is that between the bad and fraudulent loan data and the flawed risk models, currently, complex mortgage securities can not be valued with any reasonable accuracy.

So, any public policy plan that involves the transfer or purchase of these securities by the US Gov aka taxpayers (or some other transitory body) are flawed.

I reject those options out of hand.

Those options transfer all risk to USGOV with out a need since other options exist.


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4 Responses

  1. Not only does nothing in the situation require the mortgage purchase, nothing in mortgage purchases guarantees it will achieve the short-term objective.

    Notice the complete silence on the issue of eminent domaining these supposedly toxic mortgages, though if the issue was toxic land it would be an obvious approach. Wall Street wants a windfall, not just capital.

  2. I did read your mention of the eminent domain idea on the securities.

    I did read somewhere of a related idea using eminent domain to take the properties and knock down the houses (reduce supply) so that the fall in hosing prices stops. I hate that idea. I want housing to be cheaper; I don’t want to destroy existing things. I rent. I made an economic decision not to buy a house based on the soaring house prices that seemed nonsensical to me (and the fact I don’t want shovel snow)

    However, I am intrigued by the idea (yours I think) of using eminent domain power and seizing the mortgage based securities at (a deep discount value of 5% or the like) for the public good.

    That would wipe them off the bank’s books. These could be ripped apart and put back together in such ways that they could be valued again and then sold off. There is a nugget of an idea to explore here. This would be an additiopn to everything else.

  3. It seems every time I turn it on, the pro-bailout CNBC tries to assure its viewers that there is no way the government will attempt to recoup its costs, as the purpose is to recapitalize banks, and not just liquidize assets. Except when they interview politicians, and they let the claims that ‘we might end up making money’ go by without a word.

    There’s a story in this double-speak, and no one is one it.

  4. Part of the problem might be that all supporters are not supporting it for the same reason.

    The other is that there is a lack of financial/economic understanding among all classes of people. They are hard subject.

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