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Bank Bailouts... |
Problem: OK. So there's a financial crisis: no liquidity (even AAA-rated companies can't get an overnight loan) and no confidence on Wall Street (the stock market is cratering). So what does Washington do? In September 2008, Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke lead an effort to prop up financial firms by using $700 billion to purchase toxic assets and bad debt. In October 2008, Paulson even forced taxpayer money onto banks that didn't want it. In spite of the bailouts, regional and small banks continue to fail throughout 2009, largely due to bad mortgages. Solution: Incredibly, there was a simple and cheap solution to the financial crisis and Henry Paulson knew what it was. Keep in mind, previously, Henry Paulson was Chairman and CEO of Goldman Sachs. One of the services Goldman Sachs offers is underwriting and coordinating initial public offerings (IPOs) for companies. Paulson would have immediately thought of capitalizing and spinning off several new banks, because IPOs was his old line of business. The government could have taken $50 or $100 billion, capitalized a bank, hired a CEO and made an IPO. Wall Street would have loved investing in new banks with absolutely no toxic loans on the books, instilling confidence in the stock market. The liquidity crisis is averted as decent companies can once again get overnight loans to make payroll. Banks that are 'too big to fail' can go ahead and fail with no ill effects on the economy. And the taxpayers get all of their money back as the IPO revenue goes straight back to the Treasury. You can even re-use the same money and spin off a number of banks in this manner. The only expense is the investment banker's IPO underwriting fee. Crisis averted. Don't listen to anybody who says 'it's not that simple'. It is that simple. Make them explain why not. |
Questions: · What happened to the bailout money? · Were the bailouts loans or gifts? · Is all of the money accounted for? · Why didn't Paulson implement the new-bank IPO plan? · Didn't outgoing president Bush or incoming president Obama or their advisers think of this plan? · Was the new-bank IPO plan discussed and dismissed for some political reason? · Why did new Treasury Secretary Timothy Geithner continue to allocate $350 billion in bailout money instead of spinning off new banks? · Aren't we still left with banks that are 'too big to fail'? · So then, for all this money we spent, the financial crisis can happen again? · While we are at it, was anyone tried and convicted for securities fraud for falsifying loan ratings and selling dubious loans, which helped create the crisis in the first place? |