Shelby: Bailout Just Codifies Ad Hoc Approach

Reader Comments
Back to blog

I hate to say it, but the entire general public is perceiving this situation absolutely wrong. First, and foremost, this 700 billion dollars is not a bailout, it is a risky investment. The "ASSETS" which the government will be purchasing will still continue to be ASSETS and at a later date be sold back into the market. There is no better customer of these assets than the government. They have all the tools necessary to take a long term approach to re-stabilizing the US economy and then in turn delivering and selling these assets back into the market. The government in this case will most likely make somewhere in the rage of -30% to plus 350% on this investment. The current value off these assets are somewhere in the range of 30 cents on the dollar.
Please take that in for a second. The government is purchasing an asset portfolio that was once worth aproximately 2.3 Trillion dollars, 2300 Billion dollars at a flea market price of 700 Billion. Now, for a normal investor buying something like this is a huge risk because they cannot control the direction of the economy and have to hope that their government will. But, if the government is the investor, they have a vested interest to bring the economy "actually" back to it's feet. When I say actually, I specifically mean the numbers in the general publics bank accounts, the homeowners and families. Following this "investment" the government is now financially viable internally for the success of the most general American families. I think this is going to lead to extreme levels of accountability within the government, as the government themselves has financial mirrored themselves to the state of general american families. Therefore, the 3-5 year outlook for the general and wide spread mainstream demographic of American Families will become the sole interest of the government. I know I have re-iterated that a few times, but understanding that connection is vital to understanding why this investment is great for Americans from a long-term perspective.
Let's look at an example. Say the government is faced with a similar situation as the Iraq war decision. Considering the situation, the government now has to make the absolute best decision for the general public and not thier own political aggenda. If entering a war is going to hurt the general American family then it will hit the Government, leading the government to only enter into a war that is absolutely necessary. This investment or bailout will hold the government far more accountable for their decisions and the effects of their decisions.
Also, this is not a bailout of wallstreet. Yes CEO's gained tons of money while managing these companies but they didn't do it illegally, and anyone of us could have done it if we baught stock options in these companies. Ultimately I do agree with having future restrictions on CEO's short terms bonus packages, but rather it is the regulations agencies that allowed the leverage.

Matt 2:46PM September 26, 2008

let the market crash and prices drop so the young people of today and people who didn't take advantage of the system can afford a home (probably 50% lower) then they dont need credit cards to pay their bills and all is good. The sooner we stay out of the way and let it happen, the sooner it is over. WAKE UP PEOPLE! You can't cure a credit bubble with more credit and borrowing. The only answer is to let prices crash all across the board and start over from a sound foundation.

Steve of OR 5:26PM September 25, 2008

This is corporate socialism at its worst. I can't believe that all these educated senators are falling for this. OK, we need to have active credit markets, but this is just absolutely crazy. Why not try something a little more reasonable, let's say $ 150B to start with in exchange for the fire sale assets and an equity position in the companies that we bail-out.
What I would like to see is a large group of auditors tear into all these derivative investments and try and make sense out of them. How bad are they really? We need to work with facts rather than emotion.
Bernanke says that we buy the distressed assets at fair market prices and hold them for a period of time. IF that's such a good idea then why can't the banks do that as well.
Also I would like to hear from political leaders about the actions that the average American can do to help this situation. Do we just sit by and blindly trust the execs at Wall Street, the Fed Reserve and the Treasury Secretary. Is there some reasonably safe place that the average person can put their money, that would contribute to liquidity. Maybe buy stock in Wells Fargo or something.
I also think that many of the posters in blogs have been blaming one party or the other party but the truth is that both parties have been equally complicit in allowing the deregulation of the mortgage industry.
Bill Clinton said some really good things on the daily show about how to handle a situation like this. For instance having the govt. refinance a homeowner's loan with new terms that they can actually afford which keeps them in their home rather than a foreclosure.
I also think there's something to be said for where to put our attention and our good energy. Do we bailout/rescue the cocaine addict son or daughter or do we give money to the son or daughter who's going to college and/or working a good paying job. I say that even if we did have money to give, which BTW, we don't, we use it to support the industries that are actually creating good paying American jobs. The big irony is that companies like Toyota, Honda and Subura come to America, build a factory and hire good employees, take good care of them and listen to their concerns, and build a good product using TQM. Why is that so hard for other companies to do.

Ralph Williams of CA 4:44PM September 25, 2008

Why are these guys including the federal reserve not being prosecuted by the RICO act?
Ron Paul was right, and yet they laughed.
I await the day the Fed is dissolved, by our government or by our people. I guess they have got to learn the real purpose of the 2nd amendment.
Armed hungry people are hard to dismiss.

Tom Atkins of AL 11:40AM September 25, 2008

It is absolutely disgusting to think that this is happening. I think it’s a travesty that “Bazooka” and “helicopter” claim the markets need this to operate effectively; it seems to me the markets are operating as effectively as ever by pricing this garbage out of the system.
The fact GS and MS changed status is indicative of the wontoness to move items off balance sheet and into a mark to maturity model. We taxpayers are screwed; why on earth would banks/brokerages/holding companies sell us anything less than the worst/non performing of their CDO’s?

lever of NY 10:17PM September 23, 2008

Shelby is right on the money. This bailout is a horrible idea coming out of a rattled Bush administration and a Democrat congress looking to cast off blame in this election year. It was not lack of regulation that led to this banking situation. The most heavily regulated banks made the most high risk loans. This bailout will only protect the easy money and high risk credit that caused this problem in the first place. We need to move this country back to an economy of real assets and hard cash. John McCain saw this coming and put forth legislation to stop this but Chris Dodd and others stood in the way and Democrats blocked the reforms on a party line vote so as to protect the easy high risk credit for their constitutes.

Mael of VA 4:37PM September 23, 2008