As a matter of implementation, the effort by Paulson and Bernanke to get a $700 billion blank check with no oversight should make one suspicious. There is no reason for them not to have oversight — as Paulson subsequently acknowledged. Given the Bush administration’s history of lying on the most important issues of the day, this request is a red flag. Any deal should include strict oversight (for example, weekly reports by the administration to Congress combined with money in installments) and complete transparency (for example, publication on the web of disbursements from this appropriation every 24 hours, seven days a week). Dick Cheney and his pals can get through a big chunk of $700 billion by 20 January.
David Leonhardt gets it exactly right in this piece today, which is a must-read:
Economists overwhelmingly agree that the risk facing the economy is serious enough to need quick, bold action. Yet they’re deeply skeptical that Mr. Paulson’s plan is the right one. Mr. Buffett’s deal nicely highlights their two main worries.
The first is that the Paulson plan may not have the best chance of success. Mr. Buffett’s deal with Goldman injects $5 billion in cash into the firm, and those dollars strengthen Goldman’s balance sheet. Goldman will then presumably become more willing to lend money, and the credit crisis will be one small step closer to lifting. …
Now, what would Mr. Buffett have said if Goldman asked for his money and wouldn’t let him share in the upside? “He would have said ‘no deal!’ ” said Daniel Alpert, of Westwood Capital, an investment firm. “And that is what Congress must say as well in defense of the American people.”
Equity, support for people, oversight, and transparency. Those should be the watchwords of any solution. Let’s see what the legislation says.
A more serious criticism is that buying assets is an inefficient way to recapitalise the banking system. Better, many argue, to inject cash directly into weakened banks. A dollar of new equity could support $10 in assets, reducing the pressure to deleverage. Moreover, since the price of banks’ shares are less arbitrary and more homogeneous than those of illiquid mortgage securities, the process would be far more transparent, says Doug Elmendorf of the Brookings Institution. But banks might not volunteer to sell equity to the government before they reach death’s door; and the prospect of share dilution could discourage private investors. In any event, the Treasury plan could be flexible enough to permit such capital injections.
swamp-yank says
From what I see in the resolution, Congress caved more completely than a sandcastle in a tsunami. Few surprises there. Our Democratic leadership tends to huff and puff about the Republicans, but shows no backbone to stand against them. After all the years of administration deceit, cover up and corruption, our Democratic politicians can still pretend that they were fooled. The act never gets old.
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p>They are only enablers. Congress no longer represents the will of their constituents, only their corporatist masters.
<
p>The Dowd document’s oversight itself is a disgrace. It puts oversight to three wolves and 2 civilians. So, even if the two civilians get cold feet about selling their fellow countrymens’ future, they will be outvoted. True, the administration has been working on their bailout for months, but had the Democrats been serious, they could have come up with better. But, that is not their intent. They only go through these gyrations to appear different from the Republicans. When all is said and done, more will be said than done.
john-beresford-tipton says
There are some great quotes here.
ryepower12 says
some of these ideas: http://www.dailykos.com/storyo…
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p>if the stock investors who created this mess want a bail out, tax each stock transaction. A 25 cent tax per share, per transaction would amount to $240 billion a year. If it’s so desperate Wall Street be bailed out, let them bail themselves out.
<
p>That would be a great alternative to some of the other ideas I liked (Obama’s plan of a band aid approach while we really dig our teeth into things and come up with a more permanent solution which will avoid these problems in the future and not be the administration’s last gasp at stealing as much of the loot as it can before the gig is up).
ryepower12 says
never finished that last sentence. This is an example of “read what you post before you post it”)
<
p>Anyway, I was going to say that what I’ve heard Obama say on this subject has been pretty much spot on. Don’t do anything rash now, just keep them affloat while we really assess what’s going on and what’s needed to fix it.
<
p>But pretty much anything is better than the Bush/Paulson plan. Or McCain’s plan, which calls for less regulation and more corporate tax breaks (I kid you not).
ruppert says
mcrd says
I haven’t been able to find them.
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p>I saw newt Gingrich’s plan. Seemed reasonable. Perhaps the house of cards needs to come down and we start anew. I’ve been through worse than this.
ruppert says
weare-mann says
To believe that they represent anything more than the people that send them the big bucks is naive. FDR referred to the finance/banking people as “banksters”. The accessories to the banksters are the elected officials. One doesn’t exist without the other.
<
p>I see the banksters elected officials are pulling the plug on helping the suckers keep their homes. Way to go Dems! Are they different than the Republicans, or what? What?
<
p>Does it not seem odd that more truth is given out on the Jon Stewart Show on the Comedy Channel than in what passes for legitimate news?
swamp-yank says
Is here.
hammermass1 says
Should government really be the business of purchasing and owning stock or equity in companies? Who is in charge of determining when to sell? And at what price?
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p>Loans make much more sense. It prevents the government from being held hostage to the stock market, and with the right terms can both recapitalize and punish those who made mistakes. AIG-style.
hoyapaul says
Not really sure what you mean here. Given that some of the loans the government makes to these firms would likely never be paid back, the interest rate the Fed would have to set would have to be quite high to insure that taxpayers would ultimately not be paying anything.
<
p>If this interest rate is indeed set high, then how does this help the situation? The firms would still possess the mountains of bad debt at the heart of the problem. If you add a large chunk of debt repayment to the Fed to these firms’ balance sheets, how does this solve the liquidity problem, and how would this restore confidence in the market?
<
p>If the interest rate is set low, then all this does is make it seem that taxpayers are not paying the cost, when in fact they will when many (most?) of the loans are not paid back.
<
p>What am I missing here?
<
p>I share some of your concerns about the equity plan, but it’s looking more and more like the best option, unless of course one considers the onset of a worldwide financial depression acceptable.
mcrd says
How is it that most politicians go to congress having only moderate means and leave at fat cats? Why does congress have a luxurious pension and medical plan—-and we don’t?
<
p>It’s all the Republicans? I don’t think so? Not to beat a dead horse, the Republicans may have carried the kindling—-the democrats lit the fire then threw gasoline on it!
woburndem says
Guess what the reason the fire got out of control is the Republicans and got rid of the fire Department because it cost to much. Wild fires happen when you let forests self regulate
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p>Best to All
centralmassdad says
that is applicable to runaway point-counterpoint metaphors?
gary says
If you think the Democrats threw the gas, and the Republicans closed the fire department, and the public provided the kindling while the investment banks added large logs while the regulatory gave instructions how to make the flame burn hotter, then which party is going to act like Smokey the Bear, when the Bull market goes down faster than a fire in a chimney with a closed damper.
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p>Who for god’s sake!!!
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p>Best to All
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p>
summer says
Debt is always repaid before equity.
<
p>If a company’s assets are worth less than they were before (for example, because more homeowners look like they might foreclose), then the debt will be repaid first.
<
p>Warren Buffett bought Goldman because he thought they were strong enough to support their debt, and he stands to make a lot of money if he’s right.
<
p>But not all companies are strong enough to support their debt, and when they aren’t, the equity holders’ claims go to zero. Even government isn’t immune to this rule, which is why our government should definitely in most cases be buying debt and not equity.
<
p>~S
libby-rural says
Calmer heads are prevailing
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p>Barney Frank’s head is exploding
<
p>But McCain and the American people will NOT
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p>Let America down
woburndem says
I wish I could post one-liners that explain the entire economy but they may sound like
<
p>”Wall Street commits fraud on American people”
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p>Free Marketers McCain/Gramm torch regulations on Wall Street, Wall Street CEO’s then torch Main Street”
<
p>Look one lines are great the American people love everything summed up in 1 or 2 syllables so they can get on with surviving can you blame any one of them. I can’t survival is taking every thing we have these days. Yet what needs to be explained and has been lost is understanding the Foundations of our Economy called Capitalism, Simply put we are running out of cash on hand to continue to keep the engine running Dollars go into the system and they are invested to build wealth which is then rolled back into the system over and over it goes. Wall Street bet just like you and I that the mortgage commodities would keep rolling along in the same process with little new technology emerging and a lack of higher interest rates in other investments it seemed simple to continue to ride the wave the problem was the wave kept growing. Well the wave crested and nothing else has come to replace it, investors lost that wealth they were building to reinvest and now the economy is starving for cash and none is coming. How does this effect you and I. Simple INDIRECTLY most businesses carry a line of credit which is cash that they can draw on as needed to a certain limit agreed to usually to meet bills and payroll as receipts lag. How many of you have held a bill to the last minute to pay it well by the time it gets thought the processing mill more time lapses all the while a payroll must be issued their bills need to be paid and so on. If those lines of credit dry up because banks don’t have the cash you company may (please read May) not make it’s payroll they may issue you your check but when you go to the bank they say something like sorry their is no money in that account. How about the company stops paying a bill say for raw materials to produce the product what happens your on an assembly line and nothing comes down the line for you to do your function on instead you get a pink slip in a plain white envelope.
<
p>OK it really is not this simple it has layer upon layer upon layer that may take as long to peel back as we have time left in our generation. So it is reduced to simpler terms of which I agree with some of them and disagree with others. I feel this that the government should not reward the Wall Street companies which include Commercial banks Hedge funds mutual funds and insurance companies that invested in growing this wave to the point that when the crest was reached their was no where to go. No I do not want to see a single employee lose his job so we must rescue them but I think that Every member of management should have their compensation lowered to 40 times the average employees compensation not the 400+ times currently that no golden parachutes be given ZERO NONE and that if they retire they take no retirement from an rescued company that has not been stabilized and fully repaid the American taxpayer for the bail out funds. That the government thought the already seized Freddie and Fanny use the majority of the $700 Billion to buy only once again ONLY mortgages and that any in foreclosure or scheduled to reset an interest rate be renegotiated with the goal to keep 80-90% of these loans continuing to be affordable and being paid by the borrower. We are looking at 20 – 30 year terms that will repay the government on average 5.5% for helping them on 30-year t-bills that we are then paying 4.5% on average right now on. Yes this is a profit to cover the operating costs of Freddie and Fannie to close out these mortgages and all the rest they own that are paying month in and month out. Last and most importantly we need regulations (call them guidelines that wall street must live with regarding how you handle investments Bundling needs strict regulations to prevent poor performers being bundled with AAA value notes. and we can not buy insurance that guarantees these bundles and the levels of repayment. We need to have it clearly stated, as you and I already know here on Main Street that if you invest in Wall Street it is not guaranteed. Don’t get in to the markets if you can’t afford to lose it all and any company that makes any promise that breaks this commandment be held and tried for fraud.
<
p>Wow see not a one liner it’s just to big an issue and as a working Economist with 30+ years experience even my head hurts trying to keep it all straight. So no one should feel this is to complicated to understand because it really is. Yet it is important to try and understand that yes it can affect us.
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p>No we can not let Wall Street figure it out why you ask because they have tried and now they are the swimmers yelling for help just like you and I have been doing for the last year so the lifeline needs to be thrown to us and them unfortunately but we need to say who gets into the boat first.
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p>Best to all
Thank you
annem says
Now I feel a little less overwhelmed trying to get my head around it all.
libby-rural says
“No we can not let Wall Street figure it out why you ask because they have tried and now they are the swimmers yelling for help just like you and I have been doing for the last year so the lifeline needs to be thrown to us and them unfortunately but we need to say who gets into the boat first”
<
p>I would take the soundbite over this run on disaster
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p>DEMS SUPPORT THE BAILOUT OF WALL STREET – REPUBLICANS SUPPORT THE PEOPLE!
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p>”Don’t get in to the markets if you can’t afford to lose it all”
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p>How about;
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p>Don’t get a mortgage if you can’t afford to lose it all
gary says
The Democrats either have forgotten in their negotiations that they are in the majority or else they’re having buyers’ remorse about their majority status.
<
p>Interesting that the Dems are more politically aligned with the President Bush on the most important event right before the election. Maybe it’s Obama who is 4 more years.
mr-lynne says
see below
mr-lynne says
… to anything yet. They recognize the ‘biter pill’ nature of what the administration is proposing and are being cautious on giving in:
<
p>
(emphasis mine)
<
p>With the house GOP refusing to take ownership the Democratic Leadership will likely hold off on any agreement until the GOP gets their internal revolution straightened out. I think McCain did a bit of a disservice in that I think his presence may have encouraged the House dissenters.
mcrd says
The stock market opens in two minutes and the free fall into Armegeddon begins. Kinda like the birth of a new star.
Something dies and something is born.
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p>Today will be an interesting day. My life savings out the window in two hours——-What’s the expression? Shit happens?
dweir says
And — what’s this?
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p>Nothing unusual.
<
p>Down at the opening? Yes, but not the worst opening even in recent weeks.
<
p>Watching the ticker. Some stocks are up, many are down.
<
p>But if this is a crash, it’s not happening yet.
<
p>Strange to see so many Democrats following Bush’s lead.
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p>I think the delay of congressional involvement is the best thing that could happen. BRAVO, BRAVE MCCAIN!!! Let the Warren Buffets of the world take the risk and reap the rewards they are trying to sell to the taxpayer.
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p>Congress should wait and see what happens.
<
p>Get it RIGHT. No just get it done. Nothing is stopping congress from working for agreement on all the regulation and oversight parts, and later — like in a week or more — talk about the money (if it’s still needed).
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p>The proposals on the table are nothing but opportunism from those who make easy money from a bailout.
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p>Go market, go!
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p>
woburndem says
Your President, your secretary of the Treasury and your appointed head of the Federal Reserve. It is the Democrats that said no last week even with knowing the seriousness of the crisis but they did enter into negotiations with the Republican administration and Republican leadership in good faith. Do you remember Sec Paulson running around last week saying the sky is falling? Let see Republican administration Republican George Bush saying Dire remember?
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p>Please don’t add more lies Republican creds are already in the gutter and Senator McFlipFlop the white Knight LOL he’s been the problem for 24 years as a deregulator ad in his future Treasury Secretary Former Senator Gramm were like Parents who turned the house over to a bunch of Teens for a frat bash and we are surprised by the mess left and the fact the police were called LOL. Face it Republicans can not run from a problem they caused by being irresponsible Parents and please don’t suggest these Captains of Industry on Wall Street were adults because, that is just closing your eyes to the kind of actions we have seen the last decade from them not to mention can you hear them coming home to Jesus this last week and begging for help the crying is a torrent and the wailing is deafening. I just waiting to see the CEO line up for the next visit of the Pope to the US it should be 2 Trillion miles long.
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p>Best to All
libby-rural says
Obama would rather win an election that help the economy
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p>He is so full of shit about not making this political.
bob-neer says
I know it is a challenge, when you write things like this that have no facts to support them, but please try if you want to convince anyone other than yourself.
libby-rural says
Isn’t it obvious?
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p>I mean Pelosi, Frank et al are ready to sign our lives away and McCain and Republicans say no.
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p>The MSM keeps running debate ads, David Letterman is somehow now relevant.
<
p>Obama tells us this is no time for partisan politics, yet
Obama’s first words about McCains planned campaign suspension and possible debate delay, were “well I called him that morning at 8:30am to talk about issuing a joint statement”
<
p>Nah nah nah nah nah – I did it first – or “We don’t need to be there” we can multi task – Like you SHOULD multitask a debate and resolving the financial crisis. Like they carry the same weight.
<
p>Or Blarney Frank’s photo op comments
mr-lynne says
… finally disowned the Bush administration. You do realize that it’s the Bush administration’s proposal on the table, right?
libby-rural says
and they are going to PAY for it politically
dweir says
What’s with this “your president” bs?
<
p>Bush and the Congress both have approval ratings in the gutter. The congressional Dems and many — but not all — Republicans want the bailout. And they want it fast. There’s plenty of garbage to go around, so let’s all sink together — a group CYA.
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p>Until I see something which is going to protect the taxpayers from this happening in the future — going back to 20% down, 3 years of pay stubs/income tax returns, etc.. I don’t want to see a bailout.
<
p>I don’t think the rush is partisan. I think it’s being pushed by those in bed with Fannie, Freddie, Goldman et al.
john-beresford-tipton says
Look up the donations (legal bribes) paid by banks and financial industries to the senators and congressmen involved in the negotiation. Millions to these people. Who do you think they will serve? I doubt it will be the people. They tell us everybody thinks this is a good idea. Some don’t. But, the economists don’t donate big. Think of all this as buzzards arguing over the best cuts in the body politic as she crawls through the desert.
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p>Do you want to have your eyes pecked out by a Republican or Democratic buzzard?
mcrd says
To enable a giveaway program for Illegal aliens, scammers, folks who are intellectually challenged, the unemployed and unemployable——how about all registered democrats in USA be assessed a twenty five thousand dollar surcharge to the income tax. The assessment will be increased according to net worth ie John Kerry can cough up 5 million bucks.
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p>You wanted this—–YOU pay for it. Why do I, as a taxpayer, have to bear the liability for illegal aliens who scammed the system? I don’t want them here—under any circumstance. Why do I have to bear any burden for an indivudual who can not read nor understand a contract or a mortgage?
<
p>Why?
dca-bos says
deja vu all over again.
woburndem says
You hypothesis needs work I am afraid. I think you need to review a few facts. It was not until the Republican led congress took the regulations off of Wall Street and the mortgage industry that the house of cards began to shake. Obviously you think that one group that you would seemingly don a white hood and chase out of our country is solely responsible for this credit melt down. You really need to read something other then Republican propaganda. May I suggest you try the Economist.
<
p>The Assumption that the mortgage markets have run amok are not actually correct currently according to the Federal Reserve 85% of all Mortgages are on time and value still exceeds notes. What is being lost maybe because it is so hidden in the deep operating basements of Wall Street is the fact that investment bankers in order to spread out high risk mortgages and to enhance low risk mortgages with Higher Interest rate averages they mixed good with bad and fixed with adjustable mortgages into these massive investment bonds. This bundling as it is being called has led the investors to challenge and question the entire value of all mortgages. Thus investors trying to cash out of a system they have lost faith in. The Bundling began the cracks in our foundations the loss of faith in these notes and the chief reason for investors running from all American investment grade paper. Now for round two you had Wall Street who had some idea that this may happen and that it was a risk to do take this action in order to maximize profits so they created another new system to insulate their own industry from a perfect storm and provide a safety net incase investors began to understand what they had done Wall Street ( Bear Sterns, Lehman, Goldman, JPMorgan, Merrill and the rest of the investment banks) created and purchased an insurance policy market they pay insurance companies based on actuary tables for a perfect storm Insurance companies looking at this new Economic model assessed it and sold insurance against the perfect storm. What we are now just learning is that what they called the perfect storm was little more then a simple head cold. So insurance companies that now had to pay out on these huge policies began to find out that they underestimated the risks and the amounts that could be cashed out. So the run was on the investment houses to the point that no new capitol was going into them because investors did not believe what they were saying about what they were trying to sell now and the investors who on paper were losing money put in claims on the insurance policies they had to protect them from this very thing. This now destabilized the insurance industry by drawing out more cash then they had on hand. In these facts I do not see the thesis you suggest that the blame is solely on illegal aliens, or the average homeowner who is paying his mortgage. In years past before this exotic time for mortgages we usually see about 3-5% of mortgages foreclosed on year to year this is the average. 13-15% currently is a large jump but still a small % of all mortgages and certainly not a reason to run from the majorities that are good mortgages
<
p>AIG should ring a bell it is the largest Insurance Company in the WORLD and the massive bail out for this Insurance giant was the signal that the foundation of our economy was in serious trouble because investors world wide had lost faith. I think you can easily Google AIG and see that the majority of their business is sound and functioning properly it is these exotic insurance policies that Banks and investors are trying to collect on that has put them in a negative cash position and as a result destabilized and under collateralized another key element of our economy and further eroded investor faith
<
p>Your suggesting that the problem is related to a race or class of people here in the USA is pure paranoia and clearly demonstrates you have little understanding of the facts. Your need to lash out at what you do not understand and directing it toward those you do not understand suggest your lack of knowledge and willingness to recognize the facts of the situation. Your hatred must be great for all things different then you and your fear of the unknown is clearly consuming you.
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p>Your point on Democrats being a key to your frustration is also unsubstantiated by the facts they have only had control of the ability to introduce legislation before Congress for 20 Months the mortgage melt down started almost 2 and ½ years ago and are based on changes to regulations that are linked to the Republican legislative agenda most recently in the Gramm/Leech/Blithly act of 2000.
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p>This week Democrats have stood up to try and craft a plan that has the greatest possibility to stabilize our economic foundation, a problem not of their making, yet as the party in charge they have not run from the responsibility to propose debate and craft a solution. Their standing up is a result of their understanding the depth and width of the problem and the risks that to avoid crafting a solution risks a result that would devastate our country by a resulting Depression. The Solution currently is still a best guess we all are in uncharted territory the last time we stood at this point was 1928 with a Republican President and a Republican controlled House under Speaker Nicholas Longworth of Ohio and we failed to take action and for a decade we suffered the economic effects. To date your Republican Standard bearer John McFlipFlop has done little to help find solutions point in fact his wish to continue policies like tax cuts for the rich and cuts to infrastructure and support programs are right on track with Herbert Hoover in 1929. We know that it took FDR and a massive increase in our national debt and a World Conflict to pull us out of the economic malaise the latter should not be an alternative once again. So you tell us all here on BMG why we should believe McFlipFlop is really still a Maverick and not just another Scoundrel.
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p>Best to ALL
swamp-yank says
“This week Democrats have stood up to try and craft a plan that has the greatest possibility to stabilize our economic foundation, a problem not of their making, yet as the party in charge they have not run from the responsibility to propose debate and craft a solution.”
<
p>The battle for the people was lost when the media first gave out the quote, “Something has to be done.” No real identification of what that something is was made. Now parroted by so many, this mantra of bailout has enabled the hounds of Wall Street and the kleptocracy advocates to dip into the pocket and purse of the We The People for whatever they want. Both our Republican thieves and their Democratic accessories are now only intent on divvying up the loot for their paymasters.
<
p>Of course we could just do nothing. Let the market sort itself out. A bailout institutionalizes the problem. We need it to end.
<
p>$700B is the tip of the iceberg. The big 3 automakers want their own $50B and now the builders association wants $90B and Rudolph Guiliani’s law firm is poised to make a killing on funneling the loot. Hey!, my grandfather’s buggywhip business hasn’t been profitable in 100 years. Apply for a bailout?
<
p>”Fats” Pino would be envious.