The senate must think we're not that bright

[FelixEstrella]

Linky(yes, I wrote it so all typos are mine)

As you may have heard, the senate just passed the "bailout plan". It's on to the house and I hope reps. get their ears pasted back by their constituents prior to a vote, and toss this thing down the nearest sewer.

Like a parent trying to get a fearful child to take some bitter tasting medicine, the senate "sweetened" the deal:

* An increase from $100k to $250k in the value of deposit accounts insured by the FDIC
* Tax cuts

Does the senate really think "We the People" are that stupid? The net affect of the above two changes is to increase federal liabilities and reduce funding for these liabilities. Huh?

Mark my words: the bailout is BAD BAD BAD!!! Without a doubt, some banks will (and should fail) because of toxic investments in their portfolios. Bad choices will and must have consequences in a free market economy.

One problem with the bailout plan is that it essentially gives the Treasury Secretary the power to choose which banks get to fail and which get to live on. He gets to choose which of an array of toxic investments he buys on the taxpayers dime. Not all banks are in bad shape, and most will survive after this is all over, bailout or no bailout. But placing the power over "life and death" in the hands of one man who now gets to choose which banks die and which survive worries me immensely. As ex-CEO of Goldman Sachs, I'm sure Mr. Paulson has the unbiased experience and will do the right thing. Uh huh!

The other essential problem with the bailout plan is that it delays the inevitable and thus delays recovery. These toxic investments move from private hands (banks) into public hands (taxpayers ... er ... federal government). In private hands, these investments would be written down, mortgages would be foreclosed and remaining funds recovered. In public hands, (there's no incentive for the Treasury to even buy them at market value) these investments will not be flushed because which politician has the needed courage to start foreclosing on "over their heads" home owners (interesting perversion of the word, no, when these owners own zero equity in the homes they currently occupy?) and recover remaining funds. No, the investments will be kept in the hopes that their value will rise. Right! The housing bubble has burst, folks, and these toxic securities will never regain the value they had when the banks that securitized mortgages believed in infinite bubble expansion.

Some experts are chastising us lumpen proletariat as lacking in understanding of how the financial system works. They're saying we should stop calling this a bailout plan and call it a credit flow rescue plan. Excuse me, but a plan that bails out, er ... rescues, some banks at the expense of others, at the discretion of the Treasury Secretary can't be impartially called anything but a "buddy bailout" plan. A plan that bails out, er ... rescues, some banks while leaving the taxpayer holding a bunch of "underwater" investments that will never regain their value is a "buddy bailout" plan.

Let the recovery begin now! Vote this sucker down. The result will be the same, it will just take longer if this thing is allowed to pass.

[Aglifter]

I would support increasing the insured amount to 250K, along w. streamlining the recovery process, and requiring banks to actually make their insurance payments -- some of the larger ones had stopped, claiming they were "too big to fail"... It doesn't take too big a business to need to have an account larger than 100K, and adjusted for inflation from when the 100K cap was first established, 250K is probably a bit low...

[FelixEstrella]

The problem with the FDIC is that when banks start to fail, a lot of them fail at the same time leaving the government with another huge unfunded liability.

The senate could raise the limit to $1,000k, it still won't matter. FDIC can't actually cover a huge loss if banks start failing en masse. The FDIC is there to give depositors confidence and prevent runs on banks. And it relies on depositors believing that Uncle Sugar will cover their losses. And Uncle Sugar will .... with their own money. Funny how that works.

[Aglifter]

Er... eliminating the FDIC would have a cooling effect on the economy, and a heck of a disruption -- whether or not you think that's worth it, or not, would be something else.

Essentially, every business would have to shop for stability on where to place their accounts. This would probably curtail their borrowing ability, as companies usually keep their accounts where they have there loans -- at least until the notes are sold off... It's an interesting idea, in a way -- w. the advent of computer based banking, and the i-net, it could be done, provided a ready market is maintained for the banks to sell off notes, and the barriers to entering the capital market is lowered... It would result in some brutal runs, etc which would hammer small depositors -- essentially, any commercial accounts would probably hire someone to monitor the bank's health, and if it approaches some criteria, immediately pull their funds.

[FelixEstrella]

Agreed! But an increase in the protection limits is a feel-good gesture at best, with little teeth.

[DougWojtowicz]

Agreed! But an increase in the protection limits is a feel-good gesture at best, with little teeth.

Those feel good measures make the idiots in the pits not pull stupid shit like trashing the stock market.

'Course, dimension lumber upside the head would also work wonders for those chowderheads.

[Aglifter]

That the regs are stupid, agreed. That the way the market has changed, to everything having to show a return in 5 years, tops is stupid, agreed... But, er... the fellows on the 'street tend to pretty much be extremely bright, very driven Type-As... No other personality can hack that environment...

[DwightG]

In response to the original statement that they must not think we're too bright...

They KNOW for CERTAIN that we (the public in general that is) aren't too bright simply from the fact that we elected and continue to re-elect THEM. What else could they think?

[Termite]

Er... eliminating the FDIC would have a cooling effect on the economy, and a heck of a disruption -- whether or not you think that's worth it, or not, would be something else.

Essentially, every business would have to shop for stability on where to place their accounts.

Well gee, fancy that.... I do believe that was the norm manymany years ago. It's still the norm in some countries, like.........Switzerland, Liechenstein, etc. And in other news, it's a really bad idea to make "Ninja"* loans.
If banks knew they weren't going to be bailed out by the dot-gov(read: taxpayers) for buying really toxic/exotic commercial paper investments, and for making stupid-stupid loans, maybe they would be just a wee bit more careful who they do business with.
Ya know, some folks really are too stupid/irresponsible to be home owners. The grandfathers of today's bankers knew that, and would probably like to take said modern bankers "out behind the woodshed" for some full-contact counseling.



*No income, No job/assets