Bush's Bailout for the Birds

Someone with way more knowledge than me needs to explain to me the point of this bailout. The way I see it, the problem is two-fold: (1) bad people on wall street did some highly risky things that were not really regulated because the laws were playing catch up to financial innovations in the securities market and (2) banks overextended themselves with bad loans and bad investments in bad loans. As for number one, the bailout does nothing. That bill -- a new wall street regulatory bill -- is required and must be worked on slowly and with careful consideration and balancing as to its effect and purpose under the next administration.

So I assume the second point is what the bailout is supposed to address. As far as banks extending bad loans, well, I think the market just corrected that. Banks will be much more careful going forward. End of story. So really, the bailout is just about bailing out banks that made bad investments in financial products that no one really understood. I wrote a whole article on the subprime mortgage crisis and how the loss of confidence in mortgage backed securities had a domino effect that resulted in a liquidity crisis and credit crunch in the asset-backed securities market, so I get the general approach that if the government replaces all of those "bad" assets underlying the securities market with cold hard cash, that will theoretically restore the market's confidence in the quality of these securities and in turn loosen up credit, saving these failing banks. But who cares about the failing banks. If what you are concerned about is that banks will stop lending altogether, then why not address the problem directly. Backstop the borrower at the consumer level by creating a Governmental Credit Institution to operate on a limited basis over the next few months or years while the private markets recover from the current subprime crisis. Some banks are still lending -- Chase, Wells Fargo, Bank of America, etc. And some banks will need to die because they made bad bad decisions -- Merrill, Lehman, Bear Stearns, etc. I just don't get attempting to solve the problem by injecting more cash into companies with failed investment strategies BEFORE you've passed the regulatory bill designed to prevent them from doing this same exact thing all over again. To me, that seems like putting good money after bad. It's like taking a full swing from the rough in the trees when what is required is a little chip shot to the fairway - there's a chance you'll cream it through the 2x2 square of daylight in the branches and land on the green, but more likely than not, you'll flub it, catch your club head in the muck, hit a tree and end up still in the trees further away from the green than when you started and with one more stroke to show for it. I say, address the problem at the root, or don't address it at all.

I am with the arch conservatives on this one -- trash Bush's Bailout Bill altogether and start working now on a consumer mortgage bailout bill which (a) forgives bad mortgages at the consumer level by replacing them with government funded fixed rate mortgages, (b) grants a period of interest rate amnesty at the consumer mortgage level to encourage good credit purchasers (like me) to buy homes at lower interest rates and (c) makes direct government funded loans to loosen up the credit crunch for small and large businesses while letting those comapnies that are no longer viable as a result of bad investment decisions fail. In the meantime, start work now on a new regulatory structure with strong oversight controls over the securities markets and new securities products to prevent risky trading in things that people don't really understand and to prevent CEOs from getting off scott free for driving perfectly good companies into the ground while lining their pockets.

But maybe I'm missing the point here....