Dean, you're an economist, so let me ask you, why don't people like you propose an alternative?

Why is it so hard to suggest that these be buyouts instead of bailouts?

Other private institutions do this by buying the failing institutions on the cheap - eminent domain allows the public to do the same? So why doesn't someone suggest making these checks for payment in full, instead of blank checks for nothing in return?

These institutions will continue to make huge profits after they are rescued. Why should those profits be public revenue, since it's the publc that has invested in making the continuation of profitability possible?

Those profits going forward could augment tax revenue, maybe eventually replace it. Then we would truly be moving toward an "ownership society."

We have every right to insist on transfer of ownership of these institutions, instead of just giving them gifts to the tune of thousands of dollars per citizen.

Fill the vaccum, Dean. Don't just complain, propose an alternative. "Buyout, not bailout," would be a good start in my opinion.

It's just this: 'Henry, we beg of you, please do whatever you think is best to make this all just go away--we will give you as much money and a completely free hand to do what you want--all we ask is that you tell us what you have been doing once or twice a year.'

Hail the new Caesar!

anyone having trouble posting?

Falling House Prices Didn’t Cause The Crisis, and The Flip Side of Moral Hazard

“Falling house prices.” That’s usually cited as the reason for the financial crisis. I beg to differ. Before house prices started falling, they rose at an unprecedented rate, unhinged from any reasonable reckoning as to their intrinsic value. The inflation of the bubble is the cause, not the bubble’s pop. Why is this important? Because the government is about to attempt repairing the American financial system. If the government regards falling house prices as the cause of the crisis, then the government will move to prop up house prices. That would only prolong and deepen the crisis. House prices in many metro areas are still well beyond the means of typical families, often in markets affordable only five years ago. Housing investments can still not be supported by rental income. The recovery cannot begin in earnest until house purchasers have the incentive and the means to buy. And recovery does not have to involve increasing house prices, but just an improvement in sales and a decline in foreclosures. Remember, much of what financed the continuing bubble was profits from bubble sales. Now we need housing to get back to being affordable for wage earners.

Given that housing prices need to fall, what will follow? Families will lose homes to foreclosure. They are newsworthy victims; the family upheavals bring an emotional response and a desire to do something. And something should be done. If a house is beyond the means of a family, after fairly valuing the house and assessing income, then they will need to be evicted and given relocation assistance. Not fun, but families might not lose financially, with 100% financing and interest-only payments common in bubble era mortgages.

Foreclosures don’t just affect the evicted families, they also reduce values in the neighborhood. Neighbors who bought before the bubble will be unhappy with their paper losses, but will probably still have a house valued higher than what they paid. Those hit hardest are recent high down payment purchasers who may see their equity wiped out. These folks probably won’t get help, it’s too hard to evaluate their losses, they probably won’t lose their houses, and no one is lobbying for them. But they are the responsible people who tried to play by the rules, even if the banks didn’t. That’s the unseen side of moral hazard, responsibility doesn’t always pay. Possibly a tax deduction could be enacted for homeowners who do not relocate, but can demonstrate a decline in house value that wiped out part or all of their equity in the past two years.

Unwinding the housing bubble will be costly. But how will this cost be paid? The optimistic scenario is that confidence will be restored and the bulk of the mortgage-based securities will be resold into the private market at a gain. This could happen, but only if the government acquires the securities at a substantial discount. Such a discount would encourage lenders to work out distressed mortgages before selling to the Feds, and would leave room for government profits later. The government must be the buyer of last, not first, resort. Otherwise, the cost will probably be paid in future inflation, as taxes are out of fashion. And that would hurt another responsible group, those who have savings.

Heck of a job Paulie!

Krugman: "No Deal".

I just tried to phone my Congresscritter, but no one answers the phone on weekends, crisis or no crisis. So, I emailed my Congresswoman, emailed Pelosi at her Speaker of the House address, and emailed the one senator I have who is rational, all asking that they not act in panic, but set up an expedited hearing process to get the facts out in public. And, only then begin considering what must be done.

This all kinda makes the Bush administrations place in history be somewhere south of that of the Hoover administration. So far every single thing Bush has done has resulted in some kind of disaster, with this being possibly the biggest disaster. One can only hope voters keep this in mind when deciding whether to vote for another mentally challenged candidate, who is so old he isn't likely to survive his administration, and who has a VP candidate who makes him look intelligent. But, I know that won't work that way.

The bailout will be nothing more than a $700,000,000,000 parting gift from Bush to the people he has helped enrich in the past 8 years...and as is par for the course courtesy of the US taxpayers. George Bush, Paulson and Bernacke are saying the upper 1-5% of wage earners are more needy and therefore deserve the help more than the rest of us. If this bailout goes through I doubt a president Obama will even be able to pass universal health care legislation, and a whole host of other programs, to help the American people because the money will have already been used.

Debt -- in all its forms -- caused this. Like Nouriel Roubini on Charlie Rose the other night (link below), I believe this is not done until a great deal of debt is wiped from investments, corporations, and households.

http://www.charlierose.com/shows/2008/09/15/1/a-discussion-about-the-crisis-on-wall-street

They will tell you that debt = expansion. But they are lying. Debt = destruction, as we just learned this week.

The Debtor Barrons must pay. So let's find ways to limit debt. Start by killing Pay Day Lending Companies, and severely limiting Credit Card companies vulture practices -- about 90% of their business is predatory (I'd like to see them ended).

Finally, the destruction of the middle class needs to be halted. We can start by capping CEO & Senior Management pay at some reasonable percentage of their company's actual profits. It should not pay to load up your company with debt, then cash out on the way out the door.

PS - Make all Senior Management compensation REACH BACK-ABLE - meaning, if your company blows up (even within 5-10 years after you left), then your compensation and assets (ie - 7+ houses) are all subject to be siezed in the company's bankruptcy.

This is the domestic equivalent of the Iraq war authorization.

Over at Atrios someone called it the Authorization to Use Monetary Force.