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Missing The Point — Why Now?
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Missing The Point

The New York Times offers “News Analysis”: A $700 Billion Rescue Plan for Wall St., but Will It Work?

“It goes a long way; it ameliorates it very substantially,” said Alan S. Blinder, an economist at Princeton and a former vice chairman of the board of governors at the Federal Reserve, who has said for months that the government must step in forcefully to buy mortgage-linked investments.

If the plan works, it will attack the central cause of American economic distress: the continued plunge in housing prices. If banks resumed lending more liberally, mortgages would become more readily available. That would give more people the wherewithal to buy homes, lifting housing prices or at least preventing them from falling further. This would prevent more mortgage-linked investments from going bad, further easing the strain on banks. As a result, the current downward spiral would end and start heading up.

“It’s easy to forget amid all the fancy stuff — credit derivatives, swaps — that the root cause of all this is declining house prices,” Mr. Blinder said. “If you can reverse that, then people start coming out of their foxholes and start putting their money in places they have been too afraid to put it.”

If this passes as analysis by a former vice chairman of the Federal Reserve it is rather obvious how we got into this mess, having idiots like this in charge. He wants the taxpayers to put in place price supports for home prices, preventing the prices from falling back to where they belong. Until the price of houses is affordable, people can’t buy them. All of these “sub-prime mortgages” were necessary because the price of houses was too high, and they helped to drive them even higher. Wall Street turned the housing market into a Ponzi scheme, and they are asking for tax money to keep it going.

6 comments

1 cookie jill { 09.21.08 at 6:13 pm }

Pelosi is coming out with a big “thanks…but no thanks” to this handout. Seems it is coming down to Pelosi vs. Schumer. Could make for some interesting mud wrestling.

http://www.calitics.com/showDiary.do?diaryId=6996

2 Bryan { 09.21.08 at 7:24 pm }

No money without regulations and people willing to enforce them, in place.

Let these banks fill out the same forms used by people applying for food stamps, at the same place. Then make them pick up the money at Wal-Mart or the Dollar Store. Let them see how people who need money to feed their kids get treated by the government.

3 Badtux { 09.21.08 at 10:15 pm }

Uhm, the problem isn’t that housing prices are falling. The problem is that housing prices rose so far in the first place — so far that the only way people could afford a home was to take out one of these “toxic” mortgages and hope that housing prices kept rising. Housing prices have to return to the affordability level that they were at in 1998 before the system unlocks and starts operating normally again in a market where people make real down payments on real mortgages for payments they can afford on real homes. Once again the New York Times proves that they have no idea what the fuck they’re talking about, just like when they were writing screeds about Saddam’s scary WMD program.

As for the bailout program, something has to be done about those toxic mortgages. Unless you take those off the books once and for all and re-capitalize the financial system, you risk a 1930-1932 style meltdown. But I swear, the Busheviks just can’t resist the urge to loot. Even when we’re talking about avoiding a new Great Depression, they’re looking around and saying, “now, how can I fix this so that my cronies in private enterprise get loot from the public treasury?”. I was not too upset about the AIG bailout because at least the Fed got ownership of AIG and could give the boot to the managers who had engaged in the risky practices, and make sure they didn’t happen again. But this latest bailout… the more I read about it, the more it’s like, “who the fuck are they kidding?” I mean, it allows the Treasury Secretary to just throw money at anybody, anywhere, as long as he claims it’s “mortgage related”. Talk about a leopard not changing its spots…

– Badtux the Finance Penguin

4 Bryan { 09.21.08 at 10:30 pm }

There’s no doubt that the mortgages need to be bought up, but they keep talking only about the paper that is based on the mortgages. If you don’t get the mortgages, you can’t “fix” anything.

In addition, if somebody doesn’t pay the taxes, a lot of these places are going to be sold at tax auctions. No one needs that additional complication.

Something needed to have been done for quite some time, but they stalled until the situation became critical and now the people who have been telling us that “the fundamentals are strong” are saying if they don’t get a blank check with no oversight the world will collapse.

We need what we had in the 1930s, because we know that worked. This is no time to try something new.

5 mapaghimagsik { 09.22.08 at 2:25 pm }

You know, I’m kind of in the same position. I have no problem helping the real poor, but am not a fan of bailouts.

So, if there’s a poor CEO living on the street who needs a sammich, I’ll buy him one. Just don’t give the CEO money, he’ll blow it all on booze.

6 Bryan { 09.22.08 at 2:49 pm }

Paulson made $38 million as CEO of Goldman Sachs in his last year before becoming Secretary of the Treasury. He can kick that into the bailout pot for his buddies.

Apparently each of us is going to be responsible for an additional $2,000 in debt for this bail out. If they are going to hand out $2K with my name on it, it shouldn’t be to pay private school tuition for a Wall Street broker’s kid or to put fuel in his private jet.

My “illiberal view” of this attempt was expressed some time ago”

“Are there no prisons?” asked Scrooge.

“Plenty of prisons,” said the gentleman, laying down the pen again.

“And the Union workhouses?” demanded Scrooge. “Are they still in operation?”

“They are. Still,” returned the gentleman, “I wish I could say they were not.”

“The Treadmill and the Poor Law are in full vigour, then?” said Scrooge.

“Both very busy, sir.”

“Oh! I was afraid, from what you said at first, that something had occurred to stop them in their useful course,” said Scrooge. “I’m very glad to hear it.”

I’ve seen no earnest effort by the denizens of Wall Street to correct their own affairs by a reduction of salaries of top management and a reform of practices. Talk to me after that has been attempted.