I admit that I am not a finance expert. Neither are the vast majority of people whose tax dollars are going to be spent bailing out institutions that took on risks that they should have known were bad. Therefore this distinction makes sense to me: Have the government buy equity in the banks; don't just buy their $#!+.
That is, instead of simply buying up all the bad debt from banks that acted foolishly (which won't somehow become better debt simply by being paid for), we should buy equity in the banks, thereby stabilizing them and getting some upside from their future recovery. That is, instead of just straight-up socialized
risk hell, outright failure combined with privatized gain … we should own a good chunk of that gain.
How about it, Barney Frank? Or is this just another round of soak the taxpayers so that rich people can get away with financial murder?
Update: Krugman says no deal.
Another update: OK, I've heard, read, and talked a bit more about this, and from what I understand, here are a few important things to know.
- The $700 billion is not just a flat-out expenditure. It's buying assets — distressed assets, but assets nonetheless, presumably with a non-zero value.
This amount of money is vast, frequently compared to the defense outlay for the year. But that's really not an apples-to-apples comparison, since theoretically there's a “something” that we're paying for — something of value the government could eventually sell off.
- The main question is how much the assets are worth, and how much we'd be paying for them.
- The assets would be sold to the government in sort of a “reverse auction”: The government might set a budget for buying certain classes/kinds of assets, and the banks price their assets in the hope that the government can fit them into that budget. So it's kind of like a contract-bidding system: If a bank asks too much for its share of the $#!+pile, then the gov't doesn't buy it. Theoretically.
Therefore the question of how much the assets are worth is dependent on a.) How much the banks want to be rid of them, and b.) How much the government can/wants to pay for them. The “can” part is the practical ability of the gov't to come up with the money; the “want-to” depends on how much the gov't thinks is necessary to stabilize the situation.
Another update: Bob Reich sets some conditions. While these sound good, I'd like to know what our priorities are.
Even yet still more update: Dean Baker sets a lot more conditions.
By the way, right now, tonight, I am a hell of a lot less interested in what party and which individual politicians are more at fault, than in what our goals and standards ought to be for the coming legislation. This is going down right now; there's plenty of time for assessing credit and blame between now and November.
We'll get to that, with a vengeance. But right now we need to make sure our political culture doesn't screw this up — again.