The Mutt & Jeff bailout plan…

So, what does it take to get me to crawl out of my blogging hidey-hole?  Oh, nothing much, just a near total collapse of the [tag]US credit & financial system[/tag].

Seriously folks, this is very, very bad.  And naturally, since it’s very, very bad, the Government needs to get involved in order to make it truly, horribly bad.  Here’s a very good summary (in layman’s terms) of what’s happening:

Money quote:

3. Promulgated a temporary ban on naked shortselling for about 800 financial stocks (in related news, the new recommended medical practice when you discover that you have a fever is to smash the thermometer against the wall, since this makes the problem go away).

And [tag]Paul Krugman[/tag], who has, by the way, been trying to tell us this particular sky was going to fall for, oh, four or five years now, has chimed in to explain exactly why this massive bailout plan is a bad deal all around:

Here’s the thing: historically, financial system rescues have involved seizing the troubled institutions and guaranteeing their debts; only after that did the government try to repackage and sell their assets. The feds took over S&Ls first, protecting their depositors, then transferred their bad assets to the RTC. The Swedes took over troubled banks, again protecting their depositors, before transferring their assets to their equivalent institutions.

The Treasury plan, by contrast, looks like an attempt to restore confidence in the financial system — that is, convince creditors of troubled institutions that everything’s OK — simply by buying assets off these institutions. This will only work if the prices Treasury pays are much higher than current market prices; that, in turn, can only be true either if this is mainly a liquidity problem — which seems doubtful — or if Treasury is going to be paying a huge premium, in effect throwing taxpayers’ money at the financial world.

And there’s no quid pro quo here — nothing that gives taxpayers a stake in the upside, nothing that ensures that the money is used to stabilize the system rather than reward the undeserving.

Of course no one should really be surprised that the Bush Administration would have no intention of in any way punishing the cretins who caused this problem.  The line I’ve heard over and over since this [tag]bailout plan[/tag] was leaked on Friday is that this plan is a perfect example of Bush era economics – privatize the profits when things are going well and socialize the consequences when things are going badly.

Somehow I don’t think [tag]Milton Friedman[/tag] would be too happy about this.

Ok, all right, I know.  This crisis has the potential, if the Government did nothing, to be devastating for the average schlubs of America (and actually most of the world, since financial markets are so entwined with one another).  But and however, the solutions so far offered by the Bush Administration are near completely letting the architects of this mess off the hook.  [tag]The S&L crisis[/tag] of the late 80’s was bad for taxpayers, but ultimately the actions of the Government in that situation were the prudent and sensible ones, and the individuals responsible were punished (a certain sibling of the current President included – [tag]Neil Bush[/tag] has been barred for participating in any banking activities since).  If the current plan of the Government to handle this crisis is the sum total of what we can expect to be done then the perpetrators of this mess will continue in their jobs, no doubt patting themselves on the backs for getting the taxpayers to absorb a good portion of their losses.

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