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.
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.
· 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
· Why did new Treasury Secretary Timothy Geithner continue to
allocate $350 billion in bailout money instead of spinning off new
· 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
· 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?