The bailout

Well I don't understand what those fools in Washington are doing. The subprime mortgage mess introduced a lot of debt into the system that got resold. The risk on this debt is unknown because the initial lenders did not do the proper vetting before granting the loans. Then they took these turds and rolled them into bigger turds and sold them to investment banks and foreign investors. Well the investors quit buying when they saw the writing on the wall and stuck the investment banks with the remaining crap loans. The only way we are going to get out of this mess is for all that 'bad debt' to get classified. Sure some of the homeowners that got those crazy loans will default, but not all. Once the risk is measurable then the banks will start lending to each other because their assets will be transparent. The banks will trust each other, what a novel concept! In the mean time, since banks aren't lending, business are burning stored capital (e.g. GM). To squelch this torrent, they are closing down lines, laying off and coming to the government with hat in hand.

My biggest concern in the whole fiasco is that our leaders will take the route of just throwing our hard earned tax money at it and hoping it will go away. Ladies and gentlemen of the Senate and House I hope you have more respect for my taxes than that. Initially, it was going to be a big handout. Then Paulson saw that the Brits were investing in their banks, and expecting some sort of return down the road. Well and good maybe we will get something for our money. Not that I like de facto nationalization of companies much more.

So what to do.

1. Setup a clearinghouse for troubled loans. This agency (yuck more government) would be able to take a adjustable rate loan that someone is having trouble meeting @ prime plus and convert it into a fixed rate that is tiered based on applicant credit score. Didn't we do something like this for the S&L mess?

2. At some point you have to make money more expensive (higher interest rates) to properly compensate investors for the risk in the system. Right now they have lowered the Fed funds rate to get banks to lend but that is not working. Rate is commensurate with risk. If there is more risk in the system then the rate must go up (duh)!

3. Let's face it we are in for a long hard season of layoffs. There are two tools that government uses to get the economy going again. The first is start a war... Well that's not an option. The second is start some infrastructure projects. The 30s saw TVA, dams, WPA etc. I'm not sure we need something to that scale, yet... but how about building out a high speed rail link to Chicago from New York? What about wind farms in Kansas? Let's put some of that American innovation to work.

As Oscar Rodgers of SNL Weekend update said so eloquently...

FIX IT! Strap it down and FIX IT! Now!