Two Cents On The Financial Issue (Update)

Let me start off with what I consider required reading for everyone as much of what is in the newspapers and on TV hits the tops of the waves and, typically, misses the current cause of the credit crunch.

First, read the Big Lizards post.  It (particularly the first half) will give you some excellent background understanding  and helps bring you up to speed on the currently proposed ‘bailout’ legislation as well as some of the proposed pitfalls associated with it.

Next, I recommend reading Dave Ramsey and Newt Gingrich for an alternative solution worth considering.

Finally, read Jubak’s recent post for a good wrap up and recommendation.

Now my opinion:

1. Jubak is right.  We don’t want to rush this.  Sarbanes-Oxley was rushed and has had some unintended consequences which have played a role (mark to market) in the current problem we face.  Panicky “do something!” legislation involving complex issued (especially financial issues which affect us all) are never a good thing.

2. Big Lizards seemed tepidly supportive of the $700B, provided the pitfalls are blocked .  However, Big Lizards failed to take note of an ominous long term problem (besides those raised by Gingrich):

IF, the money is made back on the $700B taxpayer infusion, bureaucrats and spendthrift politicians would be happy to claim that a $700B (or greater) “unexpected budget surplus” has appeared and blow the money as government does best.

A clause must be added in the proposed legislation, should it go forward, to require that all funds gained through the program are used to retire US debt and nothing else.

3. My preference is the Gingrich-Ramsey approach.  No or limited tax funds are used and it should resolve the mark to market problem as well as get the US companies on more even footing in global markets.  The measure should also free up credit (particularly between financial institutions) with limited government involvement.

Nevertheless, it is clear that whatever action is taken to this complex issue, a rushed action is not appropriate or desirable.

Lastly, as Jubak stated, this is also the time to take decisive action against policies and those who enabled and protected this whole fiasco.  Interestingly they are those who are the most vocal about the issue.  “Methinks the [congressmen] doth protest too much”:

UPDATE:Two more good reads. A great example of how we got to the credit-market meltdown (provides more good backgound on how we got here.

Another good read is from Andy Kessler – The Paulson Plan Will Make Money For Taxpayers

The problem is the plan uses taxpayer money for an investment, which Kessler admits has risk.  Kessler also overlooks the probability of Congress attempting to gain ownership influence in financial institutions who accept the bailout and ignores that politicians, if things work out, then can claim trillions in extra revenue to spend (possibly affecting inflation) rather than retiring debt.  The bill, as it stands, fails to fix the root causes of the situation we face – it’s just a band-aid.  Jubak is right, we have the leverage to address the causes – take care of it, rather than applying a hasty band-aid.

I also dislkie Kessler’s premise that government should play the market with tax funds and with its own set of rules (he, appropriately, calls it “cheating”).  Congress should fix the mess it created but that doesn’t mean it should also meddle in markets the private sector is capable of handling (especially, when government meddling caused the problems).

I prefer Ramsey’s plan (or a variant, therof) – it, primarily, lets the market fix itself and addresses some of the root causes.

Final warning: Watch for Congress pumping pork into the bill.   I would highly recommend contacting your Representative and Senators on this issue.

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4 thoughts on “Two Cents On The Financial Issue (Update)

  1. Pingback: Burning Down the House: The Financial Fiasco in Under Ten Minutes « Utah Rattler

  2. Pingback: Back To The House: Call Now on Bailout (Update: Perspective) « Utah Rattler

  3. Pingback: Just An Arbitrary Question: Where Did The Bank Bailout Money Go? « Utah Rattler

  4. Pingback: An Unheeded Stimulus Warning And Ignored Financial Lessons « Utah Rattler

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