Paulson’s rescue plan is insane.
As stated there is no way if could work; if he buys the securities at market prices then the investment banks must realize the loss and they are insolvent, if they could sell them at market value they would have no problem doing so in the existing market it is the need to sell them at above market value that makes them illiquid. On the other hand if Paulson buys them at above market prices to recapitalize the banks then we get left holding the bag and the federal government is not big enough to sweep this under the rug.
The money must come from somewhere and we don’t have the savings to do it, so our creditors get a veto too. Why would anyone finance the recapitalization of insolvent firms, to do so is to throw ones money away? Moreover, if the dollar starts to tank the first ones out the door will be better off then those who come later. Thus, there is no reason to expect anything other than a mad rush to the door once it becomes apparent that the US is insolvent and this has the potential to make us insolvent.
When someone drops a knife the prudent thing to is get out of the way and let it find the floor all by itself, and that is what I am asking you to consider doing. There is no need to fly off the precipice in a mad panic as a herd of buffalos will.
If the government is to have a roll in this mess let it rebuild our infrastructure. It is sorely needed and unlike throwing good money after bad it will generate real wealth while simultaneously putting a floor in leaving us better off on the other side of the recession. It will help keep the economy moving while changing perceptions about the future allowing us to maintain our credit rating and borrow at rates approaching zero as we will have a prudent plan amongst the turmoil. It seems that it will be all but impossible to do nothing thus if we are going to take on debt at least get real assets in return.
It could be the difference between an L shaped recession where the economy goes down and stays down and a V shaped recession where it comes back.
As stated there is no way if could work; if he buys the securities at market prices then the investment banks must realize the loss and they are insolvent, if they could sell them at market value they would have no problem doing so in the existing market it is the need to sell them at above market value that makes them illiquid. On the other hand if Paulson buys them at above market prices to recapitalize the banks then we get left holding the bag and the federal government is not big enough to sweep this under the rug.
The money must come from somewhere and we don’t have the savings to do it, so our creditors get a veto too. Why would anyone finance the recapitalization of insolvent firms, to do so is to throw ones money away? Moreover, if the dollar starts to tank the first ones out the door will be better off then those who come later. Thus, there is no reason to expect anything other than a mad rush to the door once it becomes apparent that the US is insolvent and this has the potential to make us insolvent.
When someone drops a knife the prudent thing to is get out of the way and let it find the floor all by itself, and that is what I am asking you to consider doing. There is no need to fly off the precipice in a mad panic as a herd of buffalos will.
If the government is to have a roll in this mess let it rebuild our infrastructure. It is sorely needed and unlike throwing good money after bad it will generate real wealth while simultaneously putting a floor in leaving us better off on the other side of the recession. It will help keep the economy moving while changing perceptions about the future allowing us to maintain our credit rating and borrow at rates approaching zero as we will have a prudent plan amongst the turmoil. It seems that it will be all but impossible to do nothing thus if we are going to take on debt at least get real assets in return.
It could be the difference between an L shaped recession where the economy goes down and stays down and a V shaped recession where it comes back.
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