Lot’s of people are talking about the bailout the government has proposed. However with the exception of this article and (for a slightly more scholarly look) this article, few sensible words have been spoken. The plan proposed by the Bush administration would be acceptable if there was enough oversight built into the proposal. It would be inappropriate to give unchecked powers to any individual or entity. There needs to be oversight and accountability. If this oversight is built into the system then the proposed bailout would probably be successful.
Further, this is not the time to either punish those CEOs and and corporate leaders who helped to create our current situation. Neither is this the time to bail out individual home owners who are stressed. Those are both propositions that should be worked out in the due course of legislative time. I think the corporate leaders who stepped over the line of legality need to be prosecuted. Those home owners who purchased houses they could not afford should not be bailed out. This will be a painful time for lots and lots of people, but capitalism is based on occasional painful periods of correction; our society has worked to establish enough safeguards to make these periods painful but not fatal.
This enterprise would be better termed an investment than a bailout. It is true that this will ultimately cost the taxpayer a great deal of money, but, if done properly, it will not cost $700 billion. The government will be purchasing risky assets. It will then renogiate what it can, take the losses it must, and hold on to the assets until they either die off or return to productivity. They government will then sell off the healthy assets. Done properly the initial investment of $700 billion should only cost the taxpayers $100 billion. This is still a substantial sum, but will save the taxpayer much more in economic growth and recovery.
Finally, I do not believe this situation is as dire as the casual observer believes. This is part of a normal market correction. This correction has the potential to be devastating, but I do not believe it will create the downward spiral necessary to plunge us into a recession (much less a depression). It may hurt portfolios in the short term, but in the long run it will only be a faint blip. I reject Barack Obama’s assertion that this is evidence that markets need more regulation. The markets need just enough regulation to keep it honest. Our credit markets do not need a massive overhaul; they just need a minor tweak.
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