Cook's Journal

You know, a commenter at HuffPo made a tongue-in-cheek suggestion, but it actually has some merit. He suggested that rather than giving the banks 700 billion dollars, the government (or more accurately, the taxpayers) give each taxpayer in the U.S. one million dollars each. Additional commenters suggested details like: (1) each taxpayer would be required to use the money to pay off their mortgages and credit debt, and (2) would only be allowed to save or invest $50,000 of the million. The rest would have to be spent on tangible goods to boost the retail sector. That would in turn give Congress enough time to come up a value to place on all the worthless debt that the banks want us to assume, formulate a reasonable bail-out, and would have the added benefit of reducing the necessary bail-out.

Whether or not that would work, I'm not certain, but it certainly sounds more reasonable than blindly handing over 700 billion dollars just because George Bush's administration says it must be done.

(sorry - edited because trillion and billion are not the same thing. ~sighs~)

Edited at 2008-09-24 05:01 pm (UTC)

~snicker~ I know. I'd certainly happily agree to that one.

It is a promising sign that Congress is at least putting up token resistance to the deal. If any money is used to prop up the investment banks, and something ought to be done to keep as many from collapsing as possible, it should be in the form of a loan with oodles of strings attached. I'm glad that people are also considering more seriously the exorbitant salaries top management are paid- they'd better, if we're being asked to foot the bill! My favorite response has been a letter to the editor in the San Diego Union Tribune:

As a somewhat frugal American who is driving two old paid-off cars, I would like to request some collateral for the loan I am about to make to our downtrodden Wall Street types. Please deliver one Rolls-Royce, preferably silver with low miles, to my address. You should have no trouble finding my home. I only have one.

Without wishing to put too much of a downer on it - and without defending the bailout, which I think needs a heck of a lot more thought - the credit markets are the inter-bank markets, not the loan-to-customer markets. The following is based on the UK bank market, as that's what I work with, but what I've seen from US colleagues indicates that things aren't very different elsewhere.

The banks are not lending to each other, principally because they're mostly scared witless about the risk exposure because no-one knows how to value the assets of a bank at the moment (quick clue: not very highly). Banks aren't calling in the revolving loans because they're not making significant numbers of new loans and so don't need the capital - they haven't run out of money, they just aren't cross-lending.

They are continuing with business to some extent and so are making loans to customers they perceive as a good risk because they also need the cashflow from repayment, and most banks still have some sort of cushion.

That said, it's a lot harder to get loans right now: the flow of transactions in the market is substantially down because businesses can't get new financing for strategic transactions on terms that make any sense. I work in a corporate department and have a backlog of transactions on hold because the finance has dried up - and these are substantial businesses, which would normally have no problems.

As for the toxic mortgage on the internet, try actually applying for one and see whether you get anywhere ... advertising and the truth are rather different animals, and much online advertising is set up months in advance and runs regardless.