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Tuesday, September 30, 2008

The Economy

Check out this "common sense fix" for the economy, an alternative to the $700 billion bailout plan. What do you think?


justin said...

I strongly encourage #1.

I respect Dave but I think it is too little to late for his plan.

1)The "insurance" route unfortunately has already been considered and rejected by the Fed and Treasury. Additionally there is a possibility that it could end up being more costly, I think more than Dave believes. Treasury is putting a ‘kind of insurance’ in place for AIG and Fannie and Freddie securities, and would probably do so with anyone else that gets bailed out. It's a long-term fix, not something that can be used for the immediate results wanted. Else, they would already have done it.

2)Too much hinges on mark-to-market that getting rid of the rules would have huge repercussions.

3)Eliminating the capital gains tax is the best part of this plan, but investors have to believe it is permanent and there is no way that is going to happen.

To be sure there are serious people here working on the issue and are offering serious solutions. You are not going to get a ‘silver bullet’ in this political climate no matter how often you here the word “bipartisan” describe a plan.

But please do pray. Everybody involved has a serious flaw: we are sinners and this affects everything. Pray for God’s grace and blessing, and remember that we live in a world that is not our own. We are just pilgrims traveling from this world to the next.

Nathan Talbot said...

I mostly agree with Justin on this.

I fully agree with the praying part.

I mostly agree with the insurance part.

I disagree on mark to market.

I agree on repealing capital gains.

The problem in the market is liquidity. Insuring these securities is not going to provide adequate liquidity to truly "heal" the problem.

Mark to market is a big issue in my mind. I think they should suspend the mark to market rules and go to a three rolling average. Mark to market over estimates values in the good times and underestimates them in the bad times. It is wreaking havoc on these lending institutions balance sheets right now and is a major cause of the liquidity problem.

Bernanke and Paulson have inadvertantly admitted as much by saying they believe they are buying these assets under market value. There are two factors for that. They believe these assets will increase in value as the market stabilizes over time, and mark to market is accounting rules had them undervalued.

I would love to see a bill that brought liquidity into the market more in terms of a loan workout for these companies. That repealed Sarbanes-Oxley which is really hampering foreign investment as well as new companies going public, and is causing the mark to market situation. It was a knee jerk reaction and has been a failure and needs to be repealed.

Along with those two things repeal capital gains permantly.

If this happened the markets would get the much needed liquidity they need. We could see as many as 20 companies go public in 09 and that would further flood the market with private capital.

However, I don't think this can be accomplished because of the politics of the situation and the fact that the dems control the house.

The original bill proposed last Thursday was atrocious. This one they voted on was far better, but still had way too much tax liability for the American taxpayer and not nearly enough control of the funds and how they would be dispersed. In short if gave way too much control to one man, Paulson.

However, since it failed there is a real possibility we will get an even worse bill. Something has to be done and sooner (hopefully) or later they are going to pass a bill. House democrats are now trying to go back and get the ridiculous spending/payouts tied back to this legislation. If they are able to do that and there is enough pain in the market it just may pass.

My sincere hope is that they continue to make this a better bill and not a worse one for when it finally passes. I just don't know if that is possible at this point. There were lots of dems who voted this down and they did so because they didn't get what they wanted more spending and more control of private entities.

I am as conservative as they come. I have been disgusted by my own party of late and their spending tactics and loss of a wonderful opportunity to really get this country going on the right track when they controlled the congress and the White House. That said we need a workout to bring stability into the market. This is not to save fat cats on wall street this is to sustain main street America and stave of a credit freeze.

Nathan Talbot said...

Please excuse the typos and grammar. I failed to edit befor hitting post.

portorikan said...

I am not knowledgeable enough in these economic matters to know whether Dave's plan is a good plan or not. I do know, for individuals he seems to have some good ideas that work.

It was a one page plan, generally speaking, the shorter the better but again, I'm not well versed in these economic matters.

I don't think his plan will come across anyone's desk or be taken seriously though.

Elizabeth said...

I'm not a super genius when it comes to the economy (mainly because I don't have a mortgage or all the other fancy stuff that comes with graduating college), but from what I do know and understand about the situation, Dave's idea doesn't see too far off. I think some tweaking could happen on the mark to market, but I do enjoy a plan that only takes up a page. I'm all about short, sweet, and too the point (except, this post doesn't really show that).

tanner said...

What is being overlooked here is the fact that this is a part of a patern.
First: Acorn (with the help of Obama) created a precarious situation by using force to help under qualified individuals acquire mortgages. They threatened bank executives' families, fabricated discrimination lawsuits... the list is still growing. Had this been Sarah Palin, she would have already been crucified.

Second: When congress realized the situation with under qualified mortgage holders they tried to "fix" the situation by forming Fannie and Freddie to buy the loans up. They should have shut the whole situation down right then.

Third: When the banks saw the opportunity to sell these high risk but also high profit mortgages to F&F they realized that they could get the reward and pass on the risk to the government (in case you have not figured it out yet, that means you). Greed took over and a virtual feeding frenzy ensued. They knew from the start that it would end this way, it had to.

Now: After padding their own pockets for more than ten years, these fat cows are moving off shore along with their money and have kissed America good bye both figuratively and literally. This is not the beginning by any stretch of the imagination. If you have done any traveling to the myriad of tropical getaways in the past ten years you might have noticed the trend. Expatriates on the beach with martini's.

The problem with the bailout is that it continues the cycle. Until we chain the captains to their ships they will continue to take the life raft and go start over. The scary thing is, it gets bigger every time. What scares me is not 700 billion, or anything else that is happening now. It is how big this will be the next time.
In our pride and arrogance, we have ignored history in this generation and as the famed quote says; " those who ignore history are doomed to repeat it". If you look at the roaring 20's, it is clear to see that it was not a lack of intelligence that brought on the great depression, nor was it the weather. What brought on the great depression was moral depravity in the form of greed, laziness, cheating, lying, stealing, etc. The same characteristics that you will find in any land with a poor economy. It is not God's judgment that brings down an immoral country, the people themselves tear it down. Morality is the fuel of economies. An economy can no more survive without morality, than a man without bread. We do not have an economic crisis, we have a moral crisis.