I am very glad that you identified that this is a financial and liquidity crises not an economic crises.
I would feel much better if a few of these people who were supposed to be regulating all of this were saying we will pass this legislation and then resign (no I am not holding my breath on this one).
This is the question I have which is the greatest evil the economic blow of adding over a trillion dollars to the national debt or this bailout plan? I mean does anyone really believe that the Democrats won’t load this bill with enough pork to give every man, woman, and child in this country clogged arteries for generations to come.
From my seat I would prefer that the Federal Government stand behind the banks and let them recapitalize then take on $600 billion of bad paper.
I agree that something has to be done but I do not believe that the bailout is the right way to do it.

the government is the best agent to do this? The banks and investment houses have a liquidity problem more then anything else.

Why not just guarantee their stability and give them enough money to recapitalize and allow them to work off the bad debt they have created?

Why should the federal government and the taxpayers actually the become the largest landlords in the history of the planet?

I do not doubt the urgency or the immediacy of this or that it is a crises. I do doubt and have serious qualms about writing a blank check to the same people who squandered their money and now they want even more money (my money) to screw with.

Paulson was the former CEO of Goldman Sachs and now I read that Goldman Sachs and J P Morgan will be considered Bank Holding Companies, what does that mean for Goldman Sachs in particular?

You said that this bailout plan will be purchasing “assets.” Aren’t they buying only the “toxic debts” of the companies involved, as the valuation of the bad mortgages has not been determined? What is happening to the true assets of these companies such as AIG?

While I am no fan of Barney Frank, shouldn’t there be some fair way of determining the compensation of those that will be involved? Wasn’t it a major problem with the compensation of the Fannie and Freddy heads to begin with? Also, who will choose those people to accomplish these goals? Cronyism has been a major problem with this administration, and who knows what favors will be handed out by the next administration.

Paulson will be gone in about 3 months unless the next president keeps him on. I have a problem with him asking for massive powers in order to accomplish his goals. He is growing the government and instituting more government institutions. Yes, I see that as Socialism in your face. Obviously the Democrats want our country Socialized in every way ASAP.

I have a problem with this “Plan” in that they want no oversight, and it is above any court of law including the Supreme Court!

Just where does this majority Democrat Congress think the additional monies will come from for their goodies such as ACORN support? Our debt was massive to begin with and we just keep going out in the back yard and plucking more greenbacks from the tree. Our currency will soon be worth very little.

Is this “plan” another bailout for the foreign investors such as China, as was the Fanny and Freddie bailout?

My fear is that the Democrats will add a provision in this bill to extend the ban in off-shore drilling. They know Bush is desperate for this bill to pass, and I can see him giving in to them.

We should not forget that the government encouraged home ownership by those unable to handle it economically. Perhaps it is fitting, albeit extremely troubling, that the ball now rests back on the government’s plate.

Let’s face it, credit has been extended to people who have no business being that deep in debt. It all may look good on someone’s balance sheet, but at the end of the day it is either a good loan or a bad loan and the risk should justify the reward.

Well… now we, the taxpayers, are going to take a risk and hopefully at the end of the day when these loans and/or assets are eventually sold, we may make money or we will have done the MOAB as you state. The jury will be out for a while.

As a conservative I am predisposed against big government regulation, but we had better take a good hard look at the rules of this game. I have a problem when a company that is publicy traded and does not perform rewards its staff and top executives in the manner in which some have been rewarded. There is a degree of accountability to the shareholders, ie. us.
www.edmartinonline.com

Are accounting rules a fundamental cause of the current crisis?

http://online.wsj.com/article_email/SB122178603685354943-lMyQjAxMDI4MjIxMjcyODI2Wj.html

http://www.redstate.com/diaries/jsobieski/2008/sep/22/is-the-financial-crisis-the-result-of-account/

Drudge has a link to an article about that. That got me to thinking….

Didn’t our buddy George Soros make a mint by articifically driving down the price of the pound and then scooping up pounds at low prices to drive it back up again? Are there any foreign entities – China, Middle East, maybe even Russia – who have enough power in our market to do something similar but at a grander scale?

Francis,

I am one of those conservatives you mentioned that are very concerned about the TARP. I am not an economist by any stretch of the imagination, but I try to stay informed and I have a few questions.

• You mentioned that the this is probably the most “free-market” way to go about fixing the current situation. To quote you: “It’s not a bailout if the valuation is done correctly. If Treasury overpays, then it’s a bailout and the taxpayers will have subsidized the loss that should be born by Wall St.” Honestly, I understand, and even like the explanation that you gave there. Sounds very “free-market”. But…

Then subsequently, you expressed the same concern I have had all along: “But if Congress gets their mitts on it, in any way, shape or form, it will be a massive, overvalued bailout.”

So, clearly if congress gets involved, the “valuation” won’t be correct and the tax payers are up a creek, so-to-speak. If this happens (congressional fouling), is the TARP still the best approach?

• This question will highlight my general economic ignorance. Sorry for that.

I keep hearing that NOT fixing this issue would be bad. Really, really bad. But I don’t know what that actually means. Are we talking about a crash so bad that it shuts down every major industry in the country, or would it be confined to the financial sector? Don’t get me wrong, I know that a crash of the financial sector would be terrible and everyone else would feel it, but if the rest of the economy would survive, perhaps its worth the pain to rebuild the financial sector to keep government’s greedy hands out of things.

The general tenet is that nothing is worth giving in on the principals of conservatism, even if it means a disruption of our way of life. However, I don’t think anyone would say that destroying the country is the best approach to defending conservatism. So, at least for me, it would be VERY helpful to understand what would happen if we let the market play itself out without government intervention.

• I know there isn’t one at the moment, but what would it take for a private entity to provide a “solution” instead of the government doing it? Is it even possible (to say nothing of feasibility)?

and also lost my respect when he professed support on FOX for the potentially $50 billion Democrat giveaway plan.

If anyone could have connected the dots for financial neophytes on how recent action did bail out everyday people, it was Hank.

In my estimation, Paulson blew it and that makes me strangely curious about his motives. It also makes me believe we should have left another crater on the Street, namely Bear Stearns. Further on that, who, in this environment, would sell MBS because of value concerns then give implicit credit guarantees to the buyer vis a vis CDS? Now that’s greed.

I would also blame Paulson for not pushing Congress hard enough on Fannie/Freddie reforms and not having the stones to loudly proclaim their inaction was nothing more than politics which greatly engangered our financial stability.

The third crisis, as you mention in a response to a comment, is a solvency crisis. Many, if not most, of these massive banks are effectively insolvent because of the massive losses they’ve incurred on heavily leveraged investments, although that insolvency is not yet reflected on their official balance sheets because the bad investments have not been marked all the way down or realized in the market.

Insolvency is bad for them, but also bad for the rest of us, because the economy needs a functioning banking system.

As you note, this whole scheme depends on the price at which toxic assets are purchased. As you note, it’s very near impossible to say what’s a fair price if you have concluded that the market is not functioning for that class of assets.

It seems at least possible to me that someone has decided that we really can’t do without a banking sector, and if we have to shovel a few hundred billion to them in order to restore their solvency, it’s better than letting them fail. It’s a huge reverse Robin Hood – taxing the poor to prop up the rich – but sometimes the poor need the institutions of the rich.

To do this openly, of course, would be politically unfeasible. That may be why it’s being handled the way it is being handled, where the government funded recapitalization gets buried in setting a price on assets without a clear market price.

If it were a wash for the banks – just fixing a liquidity trap – I don’t think the lobbyists would be out in force so strong and so fast. I think their taking charge of the process so openly signals that there may be more at issue here than just a temporary bridge that gets paid back with profit later.

Of course, I could be wrong, but the story as presented by Paulson just does not quite add up.

My biggest concern over this plan is the speed at which it is being put together. I just can’t fathom something that will cost this amount being thrown together so quickly. Will it have loopholes? Lack of oversight? Or just not enough details in it?

Maybe I’m wrong, but it feels like the government is running to the ATM, grabbing as much cash as they can, and just giving it to their friend in need. I would hope that something this massive that puts us at this much risk is being treated with the utmost care.

The whole thing has me pessimistic.

“Spengler” at Asia Times states that banks and hedge funds offer a price MUCH greater than zero for the assets in question — 25 to 50% less than the value on the banks’ books. If so, why the need for a bailout? Just take the losses and move on.

Or are Spengler’s statements in your opinion simply false?

http://www.atimes.com/atimes/Global_Economy/JI23Dj06.html

Here is another exceptional article from John P. Hussman, PhD on the crisis that not only addresses major concerns and asks many critical questions about TARP, but also proposes a very insightful solution.

In my view this article is a must read!

http://www.hussman.net/wmc/wmc080922.htm

First of all, I’m a stay-at-home mom who probably spends too much time on Redstate, but I have really appreciated your insights during all of this financial upheaval. I try to glean as much info as I can possibly understand.

Earlier today, on Fox News, they had a contributor (not sure who it was because I was in the other room) say that he believes that nearly 1,000 banks will fail before this is all over and that the impact on the average person is unknown. Being one of those “average persons”, what might we expect to happen? What can we do at this point to protect our family? What should we be doing, if anything? I’m trying not to be afraid, but comments like that run the risk of causing panic, I think.

Thanks, again!

I’ve been doing some thinking about this bailout and I don’t like it and think it’s beyond a lousy idea.

No matter how you slice and dice it, it’s increasing taxes when we’re sliding into a recession. (I don’t care how this is structured, Congress is going to screw this up)
I’ve come to the conclusion that everyone is looking at this the wrong way. For some reason, our government has tunnel vision and thinks the only way out is via taxes. Government is rarely, if ever, the solution to a problem like this.

I propose, as does Newt Gingrich, a complete elimination of the Cap Gains tax.

If you want to jump start the economy, I think this is the way to go. There is no way on God’s green earth I want government to have more of our tax dollars to throw away.

Rather than have government collect taxes to bail out business, how about letting business keep their money? Eliminate the middle man, so to speak.

If we take anti-capitalist measures to save these banks, then the banks lose the claim to ownership implied by capitalism. Their assets can and should be assigned by the government as it sees fit. That many of these banks will fail should be a goal, not something to be avoided.

Keep in mind, this crisis didn’t fall out of the blue. That there was a housing bubble was obvious for years. These institutions were either grossly negligent, or they intended to stick someone else with the eventual large bill. We would be better off with more competent and/or honest replacements. Let the old, diseased pines die so the seedlings can have some sun.

IMO, Congress would be better off making exceptional measures to handle these bankruptcies. Where possible, trading partners should come out intact. That, and the money market fund guarantee, should be enough for short-term stability.