‹ A “rescue” without help from the government? What’ll they think of next? •
The Paulson “rescue” plan has been approved by Congress. Before the vote, the Dow was up a couple of hundred points. After the vote, it ended down 150 points, spooked in part by this ourageously stupid comment from Harry Reid about the solvency of insurers. Shades of Chuck Schumer about banks a few weeks back. So much for the wonderful elixir this would be, judging by the hype from some quarters. Earlier, when the House rejected the bill we were promised Armageddon. Armageddon was postponed when the markets, after an initial drop that was part of a negative trend even before that “nay” vote, basically yawned.
Now there is talk everywhere that the bill won’t be enough, just as the skeptics predicted would happen!
This article makes a lot of sense about the real problems of banks, their solvency, and the liquidity issues that surround that. If the problem is short-term financing for business, let the banks borrow, from the Fed if necessary, but from other banks if possible. If banks fail, so be it, but it likely won’t be. Note, for example, the continuing contest to buy Wachovia. Or, let them raise capital, as happened when Warren Buffett stepped in with Goldman. If the asset is valued properly, there seem to be buyers with capital willing to take the risk. At the most, have the government directly recapitalize the banks by buying senior preferred shares, as several of these experts recommend. Again, not a great solution, but I think better than the Paulson plus sweeteners plan just passed, because it gives more protection to taxpayers and deals more directly with the problem of short-term liquidity.
On the recapitalization approach, if you want “expert opinions” and proposals, follow the links from this post.
“The facts of life are conservative.” - Margaret Thatcher
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