As Charles Morris pointed out on our site Thursday, the markets are giddy over a possible Resolution Trust Corp.-like solution to this week’s big meltdown on Wall Street. The only problem, Morris explained, is that the RTC wasn’t actually a bailout and didn’t buy up bad mortgages from ailing banks.
The details don’t seem to matter on Wall Street. Bank shares are rising and the financial sector is pinning all its hopes on the biggest bailout in U.S. history as the only way out of a credit crunch that threatens to take down the market and the entire economy.
But slow down. Outside Wall Street, not everyone is impressed. As federal officials and Congress work to put together a plan, critics are claiming the whole thing is a huge mistake. In the blogosphere, even people who don’t particularly like economist and former Labor secretary Robert Reich are citing this essay, in which he calls the Bailout of All Bailouts a bad idea.
A better idea would be for the Fed and Treasury to organize a giant workout of Wall Street — essentially, a reorganization under bankruptcy, for whatever firms wanted to join in. Equity would be eliminated, along with most preferred stock, creditors would be paid off to the extent possible. And then the participants would start over with clean balance sheets that reflected new, agreed-upon rules for full disclosure, along with minimum capitalization. Everyone would know where they stood. Bad debts would be eliminated. Taxpayers wouldn’t get left holding the bag. And there would be no “moral hazard” incentive for future financial wizards to take giant risks with other taxpayers’ money. Congress, the Fed, and the administration shouldn’t be giving more help to Wall Street. Policy-makers should focus instead on people who really need a safety net right now — workers who have lost or are about to lose their jobs, who need extended unemployment insurance and health insurance for themselves and their families; homeowners who have lost or are likely to lose their homes, who need additional help meeting mortgage payments and reorganizing their debts; and people who have lost or are in danger of losing their savings or pensions, who need better insurance against possible loss.
They’ll be more of this today, even before a plan gets put together. I’d expect a backlash because any bailout will appear to let banks off the hook for their egregious and greedy behavior.
It will be interesting to see if the Federal Reserve and Congress can come up with something that also makes the financial sector seem to share in the pain before it can get rescued by the taxpayers yet again.
Pentagon Shooter Exploited Gun-Show Loophole
John Patrick Bedell, who shot and wounded two police officers near the Pentagon earlier this month, bought at least one of his 9 mm guns at a Nevada gun show,
MA-Sen: 150 Conservative Bloggers Fan Out, Looking for Scandals
BOSTON -- The mysterious Election Journal blog, which first released the infamous 2008 video of two bumbling New Black Panther Party members waving nightsticks
MA-Sen: Brown Wins
BOSTON -- At 9:20, the first rumors of Scott Brown’s victory in the Massachusetts Senate race started to work around the room. A moment later, Doug Flutie
MA-Sen: 66 to 19
BOSTON -- That, via Alex Isenstadt and Josh Kraushaar, is the number that defined the Massachusetts Senate race more than anything else. From the primary
MA-Sen: A Text Message From Scott Brown
BOSTON -- Having signed up for Scott Brown’s text message service for election day, I just got this text: Are you about to have lunch? It’s a great time to
MA-Sen: Out-of-Staters for Brown
BOSTON -- A surprising discovery at yesterday’s People’s Rally in Worcester was just how many people had traveled into the state to assist, in whatever way,
MA-Sen Photos: ‘Paint the Town Red! Croakley’s Dead!’
Below are some photos of yesterday’s People’s Rally in Worcester, the rally that Brown held to counter-program the Obama rally in Boston. The crush of
Menendez, Lautenberg to Continue BP-Lockerbie Investigation
Sens. Robert Menendez and Frank Lautenberg, both New Jersey Democrats, will continue to seek details about BP’s alleged involvement in the release last year of
Net Investors Bullish on Palin’s Prospects for Staying on Ticket
Just for fun, the Internet prediction Website Intrade has opened a contract on whether Alaska Gov. Sarah Palin will be withdrawn as McCain’s running mate.
No Experience Necessary
Gov. Sarah Palin’s a middle-class hockey mom, but does that really qualify her to be vice president?