Without a Bailout Plan, What Will the Cost Be? It's possible the bill will actually be larger

[DeepModem Mom]

TIME: Without a Bailout Plan, What Will the Cost Be?
By Justin Fox Monday, Sep. 29, 2008


(House of Representatives/AP)

By voting down the proposed $700 billion financial bailout package — and causing a spectacular stock market rout — a majority of members in the House of Representatives made a clear statement that they didn't want to put taxpayers on the hook for the failures of financial institutions.

But there's a catch: taxpayers are already on the hook for the failures of financial institutions, and it's possible that the bill will actually be larger without bailout legislation than with it. That's because the regulators who mind the financial industry — the Federal Reserve, Treasury and FDIC — will keep doing what they've been doing: stepping in to prevent the chaotic failure of banks and other large financial institutions. This means continuing to put hundreds of billions of taxpayer dollars at risk, but in a way that adheres to no clear plan of action and doesn't require members of Congress to explicitly approve their actions....

So what happens now? On Capitol Hill, House leaders said they'll try again soon. Treasury Secretary Henry Paulson practically begged for a revised deal in his brief appearance after the market carnage. "Our tool kit is substantial but insufficient," he said. The market's traumatized reaction today may change some minds and some votes. In asking Congress 11 days ago for the authority to spend up to $700 billion to buy troubled assets, Paulson and Fed Chairman Ben Bernanke were hoping to share some of the responsibility and the blame — and get the freedom to boost companies that weren't already on the brink of failure. Instead, they're back to being crisis managers for the moment — and maybe for the duration of the crisis.

That's not all bad, especially now that most of the endangered financial institutions are commercial banks. The Federal Government has clearly defined that authorities take them over, merge them out of existence or shut them down — whereas it had to make things up as it went along with investment banks Bear Stearns and Lehman Brothers and insurer AIG. That's why the demise of giant banks Washington Mutual and Wachovia, arranged over the past week by the FDIC, occurred in a far more orderly fashion than the non-bank meltdowns. But orderly isn't the same as cheap. To get Citigroup to absorb Wachovia, the FDIC agreed to share the risk on a $312 billion portfolio of loans (Citi has to eat the first $42 billion in potential losses; anything above that hits the FDIC fund)....

Federal authorities are going to keep doing whatever they can to keep the financial system from collapsing. Taxpayers will bear the risks and the costs of that, whether Congress votes to put them there or not. And it's possible — although nobody can know for sure — that this ad hoc approach will end up costing more than an up-front $700 billion bailout.

http://www.time.com/time/nation/article/0,8599,1845609,00.html?cnn=yes

[Tuesday Afternoon]

1. we can't win for losing...

either way we are fucked.

[livelongandprosper]

2. self-delete

[babylonsister]

3. 'Mom, I love you. You

keep some forums going.

And I do hear the concern, and have read about it. While the rethugs are jacking around, there's a lot of places tanking.

[DeepModem Mom]

6. To be honest, in this area, I'm trying to educate myself! Like John McCain...

economics is not my strong suit -- but it is By Gosh the story of the moment. DeepModem Dad is actually expert, but the subject is not something I've spent a lot of time thinking, or even talking, about.

[stillcool]

4. Okay..now I'm more confused..

what's the point?

[provis99]

5. why the hell did the feds protect Citigroup from losses absorbing Wachovia?

if Citigroup wanted Wachovia, they should have bought Wachovia fair and square. Why the hell did we subsidize Citigroup to do this?

The FDIC covers the first $100,000 of a depositor's money; that's all us small fry. The only ones who will benefit from this Citigroup-Wachovia deal are the massive investors in Citigroup, who also get to shuffle off debt to the FDIC, which goes beyond the FDIC mandate. The taxpayer will be out of luck.

If there isn't a criminal investigation by the FBI into the Treasury, the FDIC, and Citigroup over this deal, it's time for the revolution.

[KT2000]

7. the dispute is about

is what has taken place over years - the damage has been done. We cannot now wish the problem away.

The problem is - how do we fix this so the average person does not suffer terribly.
It may be that the bill is the least painful because we would have a stake in the future sales.

I think the Dems need to hammer through some more punitive measures in the bill so those responsible are made to pay something - not just their golden parachutes. That might make it more palatable to the American people. Right now they feel like they are saving scoundrels and thieves. They have to understand we are saving ourselves.

[DCKit]

8. $700 billion is 1.1% of the $62 TRILLION derivatives market.

They need to get Congress committed to the bailout, then they'll set the hook and go after Social Security as the only possible solution.

And is anyone else disturbed that these takeovers (Wachovia, et al) are further consolidating already huge, unregulated financial institutions?

Too big to fail is too big to exist.