Department of Silver Linings: the bailout will at least reduce the immediate economic damage, AND, at the same time, it will NOT reduce the extent to which regular folks are feeling alienated from, and angry at, Wall Street and the plutocrats running our government. To the contrary, it will magnify this anger. This combination is not such a bad thing. Less damage, more anger.

The repudiation of the Republican legacy is already underway, manifesting itself in so many different ways. Just an example I enjoyed lately is this dumb/brilliant anti-McCain spot that's been popping up all over the place:

http://www.youtube.com/watch?v=iz4Z6L4u8E4

Any number of concern trolls will tell you that nailing McCain just for being rich is bad strategy. But the fact that this kind of strategy is even making sense right now tells you something about the direction our culture is moving.

More importantly perhaps, the use of the term “bailout” is a sad and counterproductive misnomer in this particular case. Go with me a moment to see why, despite the fact that it is almost always dangerously foolish for the government to meddle in the affairs of its people, this is one particular form of meddling for which government is most uniquely qualified.

When almost any party to a contract (such as the paper so injudiciously bought and sold these last few years), including you and I (and any business, banking or other financial institution signs on the line, they will find a clause therein, stating that “Time is of the essence of this agreement.” It is this principle that makes all that paper “toxic” if the payor is not timely in his/her payments. It is the time requirements that all but force foreclosure on those instruments.

Mindless (or more likely mercenary) political rhetoric aside, what we are asking our government to do here is not to simply throw money into a pot for fat cats to play with. We are asking it to BUY ASSETS AT WELL BELOW WHAT THEIR VALUE WOULD BE IN A STABLE MARKET. We do this for two reasons:

• One, taking those assets out of the hands of those who must try to foreclose on them to try and keep their cash flow moving will help to stabilize the bloodletting that the “time” element of those contracts were requiring of the firms holding the paper.

• Two, since the government is the only entity which can print its own money, it alone can afford to weather the cash flow issues delinquencies create in such contracts, UNTIL THE MARKET HAS SUFFICIENTLY STABILIZED FOR THE VALUE OF THESE ASSETS TO FAR EXCEED THEIR PURCHASE PRICE!

In this particular moment, because of its ability to virtually ignore the “time” element of those contracts, only the government has the means (can literally print the resources to afford) to wait out the storm and PROFIT from these severely under priced assets. That this amounts to a totally unfair advantage is but the first reason that government should never, under normal circumstances, insert itself into the marketplace. But we give our law enforcement, our military and other governmental authorities resources and capabilities regular citizens do not have for precisely the reason that it has a legitimate need to act on occasion to provide for our security and domestic tranquility, do we not?.

There are two reasons why it is a dangerous proposition for government to exorcize such capabilities. First, that it has such an unfair advantage, with such tremendous potential for abuse, that anyone given such power to wield can easily become comfortable with it and become loath to give it up…in fact will tend to want to expand it. (Witness Fanny Mae and Freddie Mac.) Secondly, government, precisely because it lacks the market imperatives that discipline business in general, it is ill motivated to be efficient in the exercise of such business and, long term, is all but doomed to go the way of Fannie and Freddie (and the Post Office too, till FedEx, UPS and Worldwide, etc. scared it into a modicum of efficiency to deal with the competition).

So is this huge purchase of assets necessary? I fear it is, but like any domestic police or military intervention, the government should be demanded to complete its business in as swift and limited a means possible and get out and “return to barracks” as soon as possible to restore the situation to the free exercise of the people’s rights as soon as possible. So buy the bad debt, get the market stabilized and turn those purchases around and sell those assets as soon as can be done at a reasonable market rate.

If you want to worry about “bailouts,” take a closer look at the pork that had to be handed out to buy the votes of those mercenary enough to hold out on this measure, screaming their rhetoric only ‘till they got a favor to buy their vote. If anything deserves your ire and concern, it should be those “purchases.”

I wish Triptych weren't full of wishful thinking. The treasury isn't buying assets at values well below what they would be in a stable market. Thanks to tranche-structuring and the leverage inherent in multiple layers of swaps, the treasury will be buying lots of assets whose value is just plain zero.

Where is your evidence for "Armageddon?" This ship is going down no matter what is done at this point. This bailout with do just that, bail out a little water from a sinking ship. It certainly won't stop the sinking. I guess it's just a matter of how far down we will go. It should be interesting to watch if nothing else. We will be living in exciting times.

Sortition, Disintermediation, Incrementalism

Obviously, there are businesses and individuals that need emergency relief
from the credit crisis. Some individuals are trapped into mortgages
they cannot afford but are in reasonable-sized homes for their families.
Most, if not all, Americans want to give them a hand.

Let juries of American Taxpayers approve the benefits to those who need them.
No loan or relief without approval by a jury. (This is known as sortition,
letting randomly chosen groups of citizens or taxpayers make decisions.)
Those who are hurting throw themselves on the
mercy of the American Taxpayer juries. Give them only what they need for
this month and come back again each month in later months. Don't worry about
whether it a loan or a grant right now.

We have millions of unemployed hard working Americans. They should be
required to serve full-time on these juries and should be paid to do so--no
unemployment. Everyone else should be strongly encouraged
to volunteer. Give each the group to help out those who need help,
especially if they are providing an essential service. (Some things
can wait. Mr. McCain mentioned that franchisees of a hamburger chain
have their remodelling loans held up. The American Tax Juries might decide
that giving money to an exporter to purchase raw materials for orders in
hand might be more urgent.)

In throwing themselves at the mercy of the American Taxpayers, they agree
to pay whatever amount of taxes that jury asks for later, regardless of
the tax laws. (They may be able to appeal to another tax jury, but not
a judge). That amount would
depend upon how fast they pay back the money given to them, whether they
truly and accurately and completely described their economic plight when
they originally asked for help in plain English, and their ability to pay.
The taxpayer juries would also have the power to assess special taxes on those
employees earning about $100,000.00 at these firms.
(Only about ten percent of Americans earn this much so the average person
doesn't need to worry.)

That way, we ensure that those operations that need money
or credit to make important things happen get credit.
We bypass the obviously dysfunctional financial system and put the money
where it is needed, a stimulus by any other name.

We can sort out blame and repayment terms later, when people go before
tax juries later. Some individuals will quickly pay back their loans or
grants and will be released back to te market. Others will have to explain
each month why they wasted the money for the rest of their lives.

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