Since the Federal government is and has been operating on a fiscal deficit, these funds can only come out of future tax revenue and/or more fiscal deficits.
Regional banks are particularly clogged with whole residential mortgage loans that have not been securitized and sold to dispersed investors. This team is working with bank regulators to identify which types of loans to purchase first, how to value them, and which purchase mechanism will best meet policy objectives "to protect taxpayers by making the best use of their money".
The Treasury's insurance program on troubled assets looks like an attempt to insure losses that have already occurred, in violation of the basic principle of insurance.
The FDIC, invoking a "systemic risk" clause in Federal banking law, will provide unlimited insurance to all non-interest-bearing accounts primarily used by businesses. The cost of this insurance will come from user fees paid by banks outside of the $700 billion TARP. It appears that the US has joined the global race to guarantee bank deposits to prevent US bank deposits from fleeing to countries with safer guarantee levels. This is billed as a global coordination of all central banks while in reality is a sign of rising financial nationalism.
Learn something new everyday. Other side of the Lookingglass, Alice?
It is not possible to help distressed homeowners and protect taxpayer
money at the same time. [I'm actually NOT in favor of helping homeowners who bit off more than they could chew on speculation of ever-rising prices and refinance as you go ploys. If I'd gotten reassigned to a location I couldn't afford to buy with a 30-year mortgage with fixed interest rate, I'd have become a renter again rather than saddle myself with excessive cumulative mortgage interest. The possibility loomed for me between 2003-2006.]
Exxon shows how
The use of defeasance in modern corporate finance began in 1982 [when interest rates were skyhigh thanks to Volker to get inflation under control] when Exxon bought and put into an irrevocable trust $312 million of US government securities yielding 14% to provide for the repayment of principal and interest on $515 million of old debt
paying 5.8% to 6.7% and maturing in 2009. Exxon removed the defeased debt from its balance sheet and added $132 million - the after tax difference between $515 million and $312 million - to its earnings in that quarter. In-substance defeasance may well the magic bullet to get out from the curse of over leverage.
Markets are not the best intermediaries of long-term value because, for market economies, markets are the prime intermediaries of short-term value. This is why economist Hyman Minsky thought that a substantial public sector is needed to moderate short-term volatility in the private market sector. When the private market sector dominates the economy, the price regime will be excessively tilted by short-term conditions.
When market power is not equally distributed among market participants, a free market is replaced by a coerced market. A coerced market is one when one side, either buyers or seller, has more market power. Uneven market power distorted prices to generate market inefficiency. A failed market is one when there are no buyers or sellers at any price.
The ultimate coerced market is one where the government, which by definition possesses overwhelming market power by virtue of its ability to print money by fiat, is the only buyer or seller.
Market fundamentalists are right in their belief that government should stay away from the market to avoid destroying the market. Yet they are wrong in thinking that government should deregulate markets to keep it free. And above all, they are dangerously wrong in thinking that markets can satisfy all economic needs.
The market was more honest than most paid pundits and special interest policymakers. Market participants knew the crisis was not merely a passing liquidity crunch but a widespread insolvency created by excessive asset value unsupported by compensatory revenue. Insolvency will translate into sharp declines in asset price. The government can destroy the market in the name of saving it but the laws of market cannot be negated by government intervention.
Government does some things better
The truth is that there are large segments of the economy that only government can handle effectively and efficiently, As Minsky insightfully pointed out, the public sector performs a much-needed function in stabilizing the business cycle in the private sector. A society without an adequate public sector leans towards economic anarchy that will eventually implode. [I guess right-sizing the government is a better goal than "small government", eh?]
Some critics have mistakenly complained that the US government has turned to socialism for a solution to the current financial crisis in a capitalistic system. Yet
what the US government has done is merely turn failed market capitalism into state capitalism. Nationalization alone does not lead to socialism.
In a capitalist state, state-owned enterprises do not entertain such populist goals.
State capitalism continues to oppress workers for the benefit of capital while the state represents the interest of capitalists rather than workers. State capitalism subscribes to the trickle-down theory - saving the banks to save the citizenry. What is needed is for government to save the citizenry by direct assistance with job creation and wage guarantees, not inter-bank loan guarantees.
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Re: outlook - darkness, and regret
Originally Posted by amoeba
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Unfettered capitalism, we luv you.
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