Markets to Congress: Bailout -- or blowout
Members of Congress shocked the world today by voting down legislation aimed at resolving the U.S. credit crisis, evidently determining that it was far from the comprehensive bailout or rescue plan that its promoters claimed and instead was little more than a larger version of several failed attempts that have come before. Investors responded by throwing a fit, punching the Dow Jones Industrial Average down 600 points by 3:30 p.m. ET.
The House move was one part nihilism, one part bluff-calling and one part an expression of total constituent outrage, and only history will be able to judge if representatives' snub of their political leadership will rank among the greatest blunders of all time or a brave move of principle. Both views will have their day in court, for dispassionate analysis of the $700-billion bailout plan reveals that it was in fact deeply flawed -- failing to provide a solution to the big problems that plague the banks while at the same time affronting the deep sense of exasperation among ordinary Americans that they were being asked to pay for the sins of the wealthy. One bank analyst said taxpayer sentiment was not 9-1 against, or 70-1, but rather, "there is no 1."
Putting aside the moral issues, here was the problem with the proposed law:
For the 15 months, the Federal Reserve has been trying to turn banks' bad mortgage loans into cash by allowing them to turn them in as collateral for Federal loans. With each new program with names like "term auction facility," the Fed has lowered its requirements for the quality of the loans it would take, widened the number of financial institutions eligible for the program, and stretched out the amount of time the institutions could keep the laundered money.
The only change in the new plan -- called the "troubled asset recovery program," or TARP -- is that the Fed will accept almost any kind of loan, from virtually any financial institution, and now it is just giving the money away rather than making a loan. That's why this one costs so much more. But it still doesn't get at the two root problems in the banking system. Read More...
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The Nazis, Fascists and Communists were political parties before they became enemies of liberty and mass murderers.
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