Tuesday, September 23, 2008

Halliburton was just practice!

Don't you think this bailout plan is going to make Halliburton look like small change?
It basically says George Bush - a lame duck president - and Paulson - lame duck treasury secretary - can give away any amount of money to anybody with absolutely no recourse (no payback required, no criminal or civil penalties against the government executives who make the call). The giveaway is not restricted to financial institutions or to US institutions.
It's not restricted to securities (any undervalued "asset"). They could give a billion to Goldman for impaired "goodwill" if they wanted to. No standard is set for price. Paulson says he wants it to be "clean" -- meaning the US gets no stake in the bailed companies.

It's lunacy. Plus, Paul Krugman, in the NYT, made a good argument that the bailout will have little effect precisely because it's so broad. The idea is supposed to be largely to support the prices of the depressed assets that are in free fall (like mortgage backed securities). But if you're using the money to buy all sorts of assets, no single assets will get enough of a bedrock to keep the price up. You've got a $100 Trillion asset market and $700 Billion to float.
That would work if you were just trying to keep treasury bonds up -- or even Mortgage backed securities (US) only.
But not for all assets. Not if they are going to try to hold up the housing market too (which they say they will).
It's lunacy.

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