Peter Hentges (jbru) wrote,
Peter Hentges

Two economic thoughts

$700 billion seems like a lot of money. It seems particularly a large amount of money to use in making bad investments. Please correct me if I'm wrong, but isn't that what's being suggested? My impression is that places like AIG and Lehman Bros. are in trouble because they bought a bunch of mortgage-backed securities that are no longer worth as much as they used to be. So our plan to fix this is to buy those poor-performing investments? Why not skip the middle-man and simply buy the houses that have been foreclosed on? Turn them into public housing for the homeless. That would shore up the mortgage-backed securities because now those mortgages would be paid off (or being paid off; it might make more sense to assume the mortgages than make out-right purchases). Better yet, how about using that $700 billion in a program so that people who are defaulting on their mortgages can get caught up and get into a mortgage plan they can afford?

Which leads me to my second thought: President Bush told us last night this was at least partially about providing capital so that banks could make loans. Seems to me, the banks in question were making loans that got us into this mess in the first place. So why not take that $700 billion and build a new bank? Don't give the money to these failing banks that made bad decisions, but find some new bankers to do the job right and get them started with some new capital. Then build in a plan where said bankers use their profits to buy back the government interest in their corporation over time, slowly becoming an independent entity. That seems to me like it would get the capital necessary for driving the economy back into circulation and would give the government oversight into how things were run to avoid a similar problem in the future.

I'm guessing I'm highly naive about how these things work, but it is frustrating to hear that the options are to either bail out the fuck-ups or the global economy goes boom. Surely there are some other options.

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