Bailout or No Bailout?

I get the sense that opinions on any kind of bailout, or rescue plan, of Wall Street run the gamit around here, whether you are a Republican or Democrat, whether you are a liberal, moderate or conservative.    It is much like the immigration issue, where there really was never any unified Democratic v. Republican stance on the issue.  Both parties were, and are, divided against each other.  

The American people seem to think something has to be done, but they hate the Bush/Paulson plan:

“Do you think the government should use taxpayers’ dollars to rescue ailing private financial firms whose collapse could have adverse effects on the economy and market, or is it not the government’s responsibility to bail out private companies with taxpayers’ dollars?”
Use Taxpayer Dollars 31%–55% Not Government’s Responsibility

“As you may know, the government is potentially investing billions to try and keep financial institutions and markets secure. Do you think this is the right thing or the wrong thing for the government to be doing?”
Right Thing 57%–30% Wrong Thing

As you may know, the Bush administration has proposed a plan that would allow the Treasury Department to buy and re-sell up to $700 billion of distressed assets from financial companies. What would you like to see Congress do — [ROTATED: pass a plan similar to what the Bush administration has proposed, take action but pass something different from what the Bush administration has proposed, (or) not take any action on this matter]?

Pass Bush Plan – 22%
Pass Different Plan – 56%
Take No Action – 11%

I want everyone who reads and contributes to let me know their thoughts on a proposed bailout.  

Here are my thoughts below:

• Something has to be done, if only to instill confidence in the market and in the banks.  We are currently in the midst of a bank panic.   The markets are collapsing.  If they completely collapse, we will be in the midst of a depression.  There will be a massive loss of wealth and jobs.
• The Bush/Paulson bailout plan is unacceptable.  It is a nonstarter.  Tear up those three pages.
• The $700 billion dollar bailout figure is unacceptable, for it was literally drawn from thin air.   There is no reason the bailout has to be $700 billion.    Indeed, at most, we should break this down into installments.   $150 billion to start, and then if more is needed, then we will revisit it at that time.
• Any plan must include equity for the taxpayer.  
• Any plan must include some kind of programs to help keep people from defaulting on their ARM mortgages.  
• Any plan must include reinstituting all regulations over the markets that have been removed during the last thirty years of Reaganism.  
• There must be criminal investigations into the failures of the investments.
• Not one corporate executive should receive a dime.  In fact, I think they all should be fired without severance.   And if they cannot be fired, then they should be made to suffer the same indignities that your average American suffers when they file for bankruptcy, like attending credit counseling.   

James Glabraith has another idea:

Now that all five big investment banks — Bear Stearns, Merrill Lynch, Lehman Brothers, Goldman Sachs and Morgan Stanley — have disappeared or morphed into regular banks, a question arises.

Is this bailout still necessary?

The point of the bailout is to buy assets that are illiquid but not worthless. But regular banks hold assets like that all the time. They’re called “loans.”

With banks, runs occur only when depositors panic, because they fear the loan book is bad. Deposit insurance takes care of that. So why not eliminate the pointless $100,000 cap on federal deposit insurance and go take inventory? If a bank is solvent, money market funds would flow in, eliminating the need to insure those separately. If it isn’t, the FDIC has the bridge bank facility to take care of that.

Next, put half a trillion dollars into the Federal Deposit Insurance Corp. fund — a cosmetic gesture — and as much money into that agency and the FBI as is needed for examiners, auditors and investigators. Keep $200 billion or more in reserve, so the Treasury can recapitalize banks by buying preferred shares if necessary — as Warren Buffett did this week with Goldman Sachs. Review the situation in three months, when Congress comes back. Hedge funds should be left on their own. You can’t save everyone, and those investors aren’t poor.

Galbraith then details a plan to invest in the infrastructure for renewable energy, which will create jobs that will help us 1) get off foreign oil, 2) clean up the environment, 3) lower fuel costs, and 4) create jobs that will help pull us out of the coming severe recession.    I think this is a great idea.   And it is something to do that will instill confidence.