A depression (actully reccesiion) at this state would be global and since so many economies are tied together and diversified a truncated reccession would be much better than a long drawn out one. Bailing out the investment banks now will do nothing but postpone the inevitable. No one is looking at the real issue of derivatives and credit default swaps which stands to be much greater debt than sub-prime mortgages.
I can’t argue against your point because I lack the knowledge and I can’t find any consensus among pundits I find credible that the bailout will work or will not work.
It may be a foregone conclusion that the financial system will collapse and the bailout will be ineffective.
That said, are Paulson and Bernanke morons to not see that, with all of their experience? Are they just trying to delay until after the elections? Are they hoping against hope the bailout will work?
Ever hear of Nouriel Roubini. He has been way, way out ahead of everybody but Meredith Whitney on the systemic financial risk in our economy and he has been rabidly bearish on the state of our finances. He believes the bailout will lead to a sharp V-shaped recession of 18-months rather than an L-shaped recession like Japan’s lost decade? Do you think Roubini is also dumb to believe the bailout, targeted correctly, could reduce the impact of the financial risk?
http://money.cnn.com/2008/09/24/news/economy/Roubini_on_bailout/index.htm
“The recession train has already left the station,” said Nouriel Roubini, professor of economics at NYU’s Stern School of Business during a conference call Wednesday. “What this plan can avoid is a Japan-like, L-shaped recession,” where the economy sinks and stays sunk, “that could last a decade or more.”
“He said a well-implemented plan could limit the heavy bleeding to 18-months.
“To do it right, according to Roubini, the toxic credit held by banks would have to be bought up and taken off balance sheets so banks can start to lend again.
“For the government to make that kind of investment, he added, it had to get something in return. Roubini suggested that should be preferred shares in the companies that later would convert to common stock.
“Roubini also had a solution for the housing market: Reduce mortgage balances to market prices and refinance them to lower mortgage payments.”
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TO BE FAIR, Meredith Whitney seems to be against the bailout...
http://www.hispanicbusiness.com/news/2008/9/24/bailout_little_hope_of_improving_fundamentals.htm
“The credit crisis that began last summer has intensified so much that any U.S. government bailout plan has “little hope” of improving core fundamentals over the near and medium term, said analyst Meredith Whitney.”