I caught Jack Welch, Chuck Schumer and a self-described “fiscal conservative” economist from Harvard on Charlie Rose last night.
As early as one week ago, I was beginning to “lean” into the concept of “bad” banks as being perhaps the best option (only option, really) on the table; they are going to spend our money anyway, and everyone who has ever studied the “great” depression knows we simply must regain confidence in the banks.
So, I figured, why not consolidate the bad paper in one “socialist, bad” bank, let the others attend to the business of keeping our businesses running, and then PRAY that the “bad” nationalized bank is able to recoup at least some losses on the toxic paper they hold.
I feel as if I’m talking to an unruly dog. “Bad” dog (“bad” bank).
Well, I actually heard something that sounded like semi-good sense coming from the Harvard economist (and I apologize to all – did not catch his name, and it is not published on the PBS website).
His idea was to put enough money into the system to insure that no-one’s mortgage “goes negative” – in other words, do not eradicate the toxic debt, but rather, put enough into the system to insure that the over-all home values do not fall (essentially the toxicity makes all the properties as worthless as the notes). More or less, he is talking about a buffer designed to keep the value of the homes greater than the losses incurred by the worthless loans out there.
Put enough money into the system to insure those people who are paying their notes and then keep them viable so that their investment is not dragged into the waste pond with the rest of the polluted loans.
This seems more reasonable than using a central bank to essentially “wipe away” the toxic issues. I can’t help but think this scenario does nothing more than create public housing all across our great land, essentially turning everything that the housing boom built into bright shining ghettos.
It may very well be smoke and mirrors, but I tend to think the old boy was telling the truth. He said that as a fiscal conservative he doesn’t like it. I get the real sense that we are at a point where we simply have to do something, as the saying goes, “even if it is wrong”.
There simply are not a lot of good options here…but we should try and minimize the damage caused.
These guys (save for Schumer, naturally) have some good ideas. Practice triage, minimize the impact, quarantine. Do what you would do if the predicted “pandemic” hit our country.
I am quite certain that Schumer would rather see all of houses in the U.S. go toxic so that the government can then absorb them in the same manner that they are swallowing up the banks – this way everyone would live in the public housing ghetto.
The other concept that was mentioned that appeals to this conservative is the idea of breaking this problem down into a rate concept.
As in business, one looks for the rate of return on an investment; our leaders will have to look for a similar rate based on the positive business impact the bailout moneys will have – in other words, how many jobs will the moneys “create” (or sustain) but then further, how do those jobs feed back into the system in terms of revenues collected and the contribution (especially the contribution) that the created job made to the Gross National Product and the over-all value of our economy.
Add “worth” to it.
I think the guys may in fact be on the right track now.
Jack Welch also had a really good point in that what happens at the round-table of most corporations is (and if you have ever sat in a meeting, I know you’ve witnessed this attitude) “admittedly, the company is doing poorly, but my division had a record quarter”. And then, what spins from this “That Bluestein fellow is really on the ball. We need a fellow like that in our division (or, here at corporate). Let’s give him a bonus and promote him”.
What is happening here is that essentially the forest is dying, and with each successive tree death, a new tree becomes the tallest.
What should be happening is a situation whereby the other managers learn from the one who is doing well, thus elevating tree height and health across the forest and in turn adding to the health of the whole. It would seem that Darwinian engineering is winning, even though its effect is to kill the species.
The really bad news from the show was the same economist seems to think it may be 2010 before we actually see any results and that what we are doing in terms of bailouts is simply, not enough.
Brother, can you spare a job?