This bailout plan is the worst thing we could have done

Spinning just paraphrased and told me in a PM that it said, "Vote Obama."

 

Got it. I apologize. I didn't bother to read the story first, which is embarrassing.

The story itself is simplistic. The point isn't whether "the government is making a good investment or not." The government doesn't belong here. There is no market competition. If the government doesn't do this, there will be buyers. Everything has a price. And the price for those assets will be exactly where it belongs. What the government trying to play the role of white angel does, has disastrous effects. It chokes off our private markets. We all suffer from that.

 

Guys, Warren Buffett has a tremendous track record of making investments that benefit Warren Buffett. And this is no different. Buffett stepped in and invested $5 billion in Goldman Sachs. It made a huge statement. It was Warren Buffett -- who people blindly worship, the way you two just did -- giving his stamp of approval to the U.S. Financial Sector. He could have been selling short, but instead he was stepping up and saying that he felt there was money to be made there -- and since he is Warren Buffett, therefore, inspiring confidence in others to do the same.

Buffett also was counting on that $700 billion package. He made a bet that the plan would pass through Congress, so OF COURSE, he was out there saying we need it. He'd have been an idiot not to be on TV calling for it. $5 billion of his money is on the line. It was a win-win bet, in a way, which is a Buffett kind of bet. He was fairly sure the package would pass, and that benefits his investment. But even if it hadn't, he had Goldman shareholder's equity as insurance and he got such favorable terms that he was the first in line to get paid back. Again, he got a deal that you or I never could. Clearly, though, he was personally better off with the U.S. government insuring his investment.

Buffett may be a smart man, but also keep a few other things in mind. Plenty of other investors stepped in and offered to provide liquidity to Goldman Sachs at more favorable terms to Goldman than Buffett got. They were turned away. Buffett has cachet. His name endorsing Goldman's solvency could make or break the value of Goldman preferred stock. Goldman knew this, so they let him basically rob them in order to gain an association with him. He cashed in on his name to get a deal that the average investor could never get. Regardless of the U.S. giving firms like Goldman a $700 billion free ride, if you look at the reality, Goldman giving Buffett a sweetheart deal in order to use his name to inspire confidence isn't a sign that you or I (or the U.S. government with taxpayer dollars) should be loading up financial stocks. And it wasn't a particularly gutsy bet by Buffett. He got a deal that none of us could get, by virtue of who he is. Congrats to him.

 

Lolly, When the economy is going into the tank, the government can't buy it's way out of the economic downturn. We are in a recession, in which more people are going to be losing their jobs. There's no avoiding it. Sorry. This is just going to prolong that and create a host of other problems that are an anchor on the economy. It is going to take what might have been another 18-months of recession and turn it into a decade-long mess.

Explain to me how the government buying assets with our taxpayer money at inflated prices (prices they can not fetch on their own in the market) is a good idea? And explain the provisions that will pay us back if these assets turn out to be worthless? Are they going to hire David Blaine to hang upside down and create a trillion dollars out of thin air?

Also, look at the realities of the U.S. financial sector. $700 billion isn't enough to fully clean this mess. It's the most short-sighted thinking. What the government now hijacking the markets will do is slow the markets from finding the appropriate clearing prices of these packaged securities. Uncertainty is going to continue after the initial feeling of security this causes, and what the government action will do is have the opposite effect they are selling to everyone: It is actually going to hinder banks' efforts to recapitalise and put them at the mercy of a bunch of legislators who don't have a clue!

This needed a free market solution. It would have been UGLY solution, but it would have been the lesser of all evils. You are getting candy-coated BS right now that is going to be MUCH uglier in the long-run than if we had just swallowed our medicine. You have a financial mess on your hands. You can't take a pile of dung and create the Mona Lisa out of it. Why won't people accept something they acknowledge in every day situations?

If the government was REALLY interested in the banks recapitalising (and I don't advocate this either, because it is a non-market solution), it would have gotten a lot more bang for OUR buck, by just investing directly in the banks. They could have done it at onerous terms (these institutions have no choice at this point). This would have had its own set of problems, but it would have been the lesser of two government-intervention evils.

But having the government buy assets at inflated prices is a bad idea, no matter how you slice it. First, it chokes off a free market--the most important free market to our economy. You might as well tie an anchor to our economy. It creates a short-sighted feeling of security, but taxpayers are going to take a shellacking and the boost to the economy is going to be short. The negative effects with be lasting.

Moreover, $700bn probably isn't enough to fully clean up the mess. It will merely slow the markets from finding the appropriate clearing prices of the crap these institutions are holding. And if uncertainty continues, it will hinder banks' efforts to adequately recapitalise.

This is just such a bad idea in every way possible, and most of the people who made it happen know it, but they are like children -- they want their candy now. Where are the adults to tell them that too much candy causes cavities?

My advice to everyone is to buy gold bricks and stash them in your cellar. I am only half joking.