Saturday, October 4, 2008

The Bank Bond Approach

I've been doing a lot of reading this week trying to follow this finance mess, and more importantly, trying to see where we're headed. Now that we taxpayers have loaned ourselves a $700 billion line of credit, what do we do with our new found "wealth".

Rather than buy toxic paper of unknown value, a better idea proposed by Judge Richard Posner suggests we play a little hardball with the banks. Buying a bond with a long maturity date issued by a troubled bank stands a good chance of providing a win/win situation.

With the Mortgage Backed Securities (MBS's) seeming to be the root of all evil, let the banks keep them. Instead we taxpayers would offer to let the banks issue us a bond with transparency rules and enforcement procedures attached. It would be a take it or leave it proposition. If they're really in such trouble, then they're in no position to bargain.

With their new liquidity, they could begin making loans again. This would also give them time to untangle themselves from the MBS's at an orderly pace. Meanwhile, we taxpayers would be earning interest on the bonds, and after the bank gets its affairs in order we would have the choice of putting the bonds on the open market, holding them to maturity, or selling them back to the bank. Whichever is best for us.

It may already be too late for something like this. Secretary Paulson, now having virtually unlimited power, has little to no incentive to do what is best for the taxpayers. The good news and bad news in all this is that it's a long way from over. Keeping the heat on our representatives is as important as ever.

4 comments:

http://texex-xpress.blogspot.com/ said...

You can forget anything so rational happening.

This was like a mob smashing the windows and breaking into the U.S. Treasury to loot it for a TRILLION dollars.

My butt hurts.

Conservative said...

Nobody even mentions what Bill Clinton did to this country in respect ot the Fanny may Freddie mac thing.... And I sure don't like what the left wingers in congress have done for the past 2 years to this country. Bush covered their butts on this bailout. This congress guys couldn't balance a budget to a ice cream shoppe. Your guys Dodd, Franks should be jail. . The blame Bush thing is old. McCain is a moderate. And no matter how they want to spin it, what we will get with McCain is a million and one time better than the alternative with Obama

Local So-and-so said...

Welcome to my little corner of the world Conservative. When you say "Your guys Dodd, Franks", I'm not sure who you're refering to. I'm a Republican, Tex is a Democrat. We just happen to agree on the Bail-out/Rescue/Give-away deal. Our congressman Dean Heller voted against it twice. God bless him.

http://texex-xpress.blogspot.com/ said...

Agreed somebody out to be in jail over this. But take off those dark glasses and you might see the light it is Bush et al. and not Clinton that's been responsible for fiscal policy the last eight years.

Agreed Boss Reid should have stopped Bush on this quite transparent effort to save his legacy but I've never said Reid had any gonads.

Bottom line is a bipartisan agreement that looted the Treasury of $1.8 TRILLION last week. It's not going to help Bush but Reid will reel in megabucks in contributions.

And all Americans, Rs and Ds alike, are left to clean out the outhouse where this smell is coming from.