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Wednesday, September 24, 2008

Let’s Talk Bailout Plans

posted by on September 24 at 14:00 PM

First: What in the fuck is the McCain campaign thinking? No good can come from adding political instability on top of the financial crisis. The election should go as absolute clockwork, with every step happening on time and as planned. I’m getting more and more concerned about the health of the US Treasury’s financial reputation if stunts like this continue.

But McCain wants to take a break to think about how to handle the financial crisis? Fine.

The more I read about this bailout fiasco, the more I dislike it. (For now, support Dodd and the congressional democrats, who are at least trying to protect your financial interests as a taxpayer.)

Much has been made of the Sweden model.

Sweden did not just bail out its financial institutions by having the government take over the bad debts. It extracted pounds of flesh from bank shareholders before writing checks. Banks had to write down losses and issue warrants to the government.

That strategy held banks responsible and turned the government into an owner. When distressed assets were sold, the profits flowed to taxpayers, and the government was able to recoup more money later by selling its shares in the companies as well.

The AIG “bailout” was in this vein—and the Dodd plan asks for more of the same.

I think we should grab the regulatory meat cleaver and forcibly recreate the regulations of the Glass-Steagal act—separating by regulatory force (the dispensable) investment banks from the (essential for the economy) commercial and retail banks. Right now. Investment banks are, in my mind, useless drags on our real economy. Why should we allow them to be tied to the critical banking functions done by banks making loans to corporations and individuals (the real drivers of the economy)?

Of course, the government is busy doing the exact opposite—forcing these investment banks to become bullshit commercial banks, further eroding worldwide confidence in the US banks we actually need to save the useless casino banks that created this whole mess in the first place. Write to your representative right now, telling them to cut this crap out.

If we’re throwing around hundreds of billions of dollars to save institutions of questionable societal value, might I suggest the following bailouts to regular people?

1. Extend Medicare to everyone. Eliminate the age floor and instantly create a national healthcare system. This would cost less than the AIG bailout (for the next year) and help every responsible company (that has to pay for health insurance) in the US economy become more competitive.

A lot of people are about to lose their jobs, if this continues. We might as well ease this by finally ridding ourselves of the crumbling and already failed employer-based health care system.

2. Massively boost funding to the governmental student loan programs. If you really want to be smart, even pay off a bunch of student loans (for people who did the right thing, but cannot get jobs because the economy is taildiving.)

3. Make it easier for people to avoid bankruptcy, and easier to get out of bankruptcy if they do fall.

That means rolling back the draconian bankruptcy bill forced on us by the credit industry (the people who created this crisis), renegotiating mortgage terms to payments people can make (something last done during the Great Depression), giving those with high-interest credit card debt access to low-interest government loans (allowing them to finally pay down the principle.)

If we’re doing it for poorly managed banks, we should do it for common US citizens. A little bit of amnesty to our fellow Americans could save us all a ton of money and headache.

4. Create the Complement Cooperative.

(Read that link, or this one to include the slog discussion when I first wrote about the concept. This might be the smartest idea I’ve had.)

Your wishlist?

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Re. number two on your wishlist: the feds actually did boost funding for federal student loans in May -- everybody eligible for Stafford loans is getting $2000 more in unsubsidized loans per academic year than they were last year, which has helped out the students at the school where I'm a financial aid officer in huge, huge numbers. The same bill (H.R. 5715) also got everybody eligible for the Pell grant $500 more per year than the Department of Ed had budgeted for.

I'd maybe edit your wishlist a little on this one -- start targeting private student loans from lenders like Sallie Mae, AES, and Wells Fargo for payoff, expand Pell and Perkins eligibility, and increase subsidized Stafford funding, if you really want to help out students.

Posted by Sweeney Agonistes | September 24, 2008 2:12 PM

Smartest yet most out of reach.

Further, the second that a swedish model plan is rolled out, i'm buying as much SKF as possible. Crashing the prices of financial equities is going to make mint.

Posted by Bellevue Ave | September 24, 2008 2:14 PM

McCain is thinking if he had a little more free time, he could cook up another Chewbacca moment like Palin and score a late October bounce.

Posted by K | September 24, 2008 2:17 PM

Writing to your elected official is ok. I think your socialist agenda might require a bit more than that, though.

Posted by Trevor | September 24, 2008 2:25 PM

After sitting through a boring as hell benefits meeting yesterday, I'm all for nationalizing health care.

Posted by Mike of Renton | September 24, 2008 2:27 PM

I'm with my man Barack: cut taxes for the middle class.

Oh yeah, and locally don't vote to impose taxes on the middle class (all three measures on the ballot this November should be rejected).

Be like Barack!

Posted by Redhooker | September 24, 2008 2:31 PM

Equity! I want some fucking equity! If you participate, I want warrants issued that would allow for the purchase of 5% of all authorized shares at 50% of the 52 week low price on the day the bill passes, with the right to exercise them beginning in two years, no expiration for at least ten years. It imposes some pain by being pleasantly dilutive, gives us some stake in the companies, and if the whole thing works, in two years, we might actually turn a profit.

Posted by Gitai | September 24, 2008 3:21 PM


I'm with you. Of the plans swirling around Washington, which do you think does the best job of achieving that?

Posted by Jonathan Golob | September 24, 2008 3:26 PM

Thanks for bringing up Glass-Steagle--I read that in the NY Times a couple days ago, and the assumption seemed to be that since the last investment banks would merge with commercial banks, that was somehow better. What? Is it any surprise that less than a decade since we deregulated the banking industry that it collapses?

Posted by Jeremy | September 24, 2008 4:15 PM

Why does nobody mention that President Obama will REDUCE TAXES for 95 PERCENT of all Americans, while President McCain would RAISE TAXES for 95 PERCENT of all Americans?

Posted by Will in Seattle | September 24, 2008 11:19 PM

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