Steveaz:
Some sort of bailout may be necessary, just not this bailout. With this bailout there is no accountability, no checks and balances, and it rewards the flagrant disregard for risk the Big Wall Street firms have adopted over the last few years. This cozy “too big to fail” relationship between the Federal Government and Wall Street is a big part of the problem, and this bailout as outlined so far only reinforces that problem.
This bailout could be done piecemeal. That would give some time to better sort out the problems and propose appropriate solutions with a thorough debate, without the extortion that the Democrats are trying to pull. Newt’s recommendations if enacted, which Wretchard posted yesterday, would surely rally the markets and mitigate some of the financial distress. By doing a piecemeal bailout, there would be time for the Republicans to build support for those pro -growth measures.
Bernacke’s and Paulsen’s argument is that doing it all at once are necessary to restore confidence to the markets. However, if many credible people have concerns over the propriety of this bailout, the confidence of the Federal Reserve will be undermined and confidence in the markets will not be restored but weakened. A measured, well thought out approach that addresses the weaknesses in system, and that has the ability to be tweeked and improved over time while addressing defaults as they come up, also could restore confidence in the markets.
The biggest fear right now is that Paulsen and Bernacke in their actions implied there is some impending major financial collapse possible, if action isn’t taken in the next few days. By the nature of their actions alone, the financial markets have become severely distressed. I’m not sure a financial collapse is imminent, because of the high handed nature of their proposal and the fact that we have not been given the evidence of the reason for this immediate financial collapse.
Your point is an interesting one. I’m not sure it is completely correct. Russia and China hold over a trillion dollars of securities from Freddie and Fannie that were not explicitly backed by the Federal Government. If Freddie and Fannie default, I don’t think they have any guaranteed recourse. That is not to say though, that a default on those securities would not have a tremendous impact, with severe financial and foreign policy implications. A default surely would.
The weakness in financial markets needs to be addressed. But this bailout proposal could lead to even bigger problems and massive financial manipulation leaving the Country in a condition much worse than today, particularly if Obama becomes President.
