10 Trillion Reasons

10 Trillion Reasons, originally uploaded by dfb.

In all this talk about bailing out Wall Street (let’s all call a pig a pig; this is a bailout) nobody is really talking about how we will pay for it. Are those assets really worth $700 billion dollars? I don’t think that anyone can say they certainly are worth that, let alone half that much.

The value of those assets is at the heart of the credit crisis. Banks and other financial firms world-wide do not trust lending to each other because nobody knows how much they really are worth. And because nobody knows what they are worth, they are no longer acceptable collateral to use in securing additional debt obligations, even if for the short term. Which brings me back to my initial point. Nobody is really talking about how we will ultimately pay for this bail out. Who, really, will pay? That’s right, regular tax payers.

Fiscal responsibility seems to escape politicians and Wall Street alike.

I do not understand why the Federal Government needs to pay
for toxic securities, or at least pay up front for them. Why can’t the program accept full portfolios of these fancy securities with no known value, and take on all the risk. If that wipes out the capital of an institution, so be it. The Feds will sort everything out, unbundling the securities and re-packaging them into fully transparent securities that can be adequately valued. Those transparent securities will be sold off. Fifty percent (50%) of the value, after factoring in cost of the program, will go to the Federal Government for taking on the risk. The other 50% to the previous holder of the securities or their creditors.

Every bailout must come with some serious revenge, otherwise what is to stop this same issue from happening again. CEO pay caps and small equity stakes in the firms are a good start. But if we really want them to pay for this and to give strong incentive against future, similar behavior, we need to make them pay more. And in the meantime, maybe, just maybe we can pay down the debt a little and not leave it to our children and grandchildren. Oh, that’s right, wishful thinking. The big spenders in both major parties are more interested in waging war, porking it up, and spreading the wealth around, than in responsibly running our government.

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