Solutions to Weekend Fiscal Blues
When the latest attraction coming to American television is financial collapse, many people are hoping that the economy does not collapse before the weekend is over. Much to the disgust of the American people, Congress is being dragged kicking and screaming into an $800 billion bailout of Wall Street. The way I see it, nobody should be rewarding bad behavior. CEO’s and investment bankers at these companies have been doing very well these past few years, and it should not be the business of taxpayers to subsidize bad business.
I have a counter proposal; sorry it’s not my idea. It belongs to Andrew Feldstein of the Blue Mountain Capital Management. You see, nobody wants to purchase radioactive assets from struggling banks; it violates every rule of sound economics. Very few people even know what they are worth; these assets are complex derivatives of mortgages. They were bought as individual mortgages, cut into pieces, before finally being consolidated into stocks. They will likely be worth far less than the government will be asked to purchase, to the profit of the crony capitalists.
Instead of bailing them out, we let them sit on their pile of radioactive fiscal waste; it is their mess after all. Put the $800 billion where it will do some good, into good investments. There must still be some prime mortgages out there. The government establishes a provisional bank to handle lending with quality assets until this whole thing is over. Once the markets stabilize in a few months or a year, they always do. Solvent banks can buy out the good capital and business can return to normal. It is certainly a better concept than the original.