Prof. Zingales ofers this very commonsensical approach to the problem. All we really have here is debtors with claims on stockholders. Congress can grant incentives to get all of these companies into receivership, and then let the judges freeze prices, cancel debt in a huge round robin (most of this debt is owed between these same companies), and then swap out debt for equity when the dust settles. Equity holders will be wiped out, as they should be. Debt holders will take their lumps, too. The companies will emerge from bankruptcy court with clean balance sheets, but they'll be owned by responsible debtors, at least over all.
This is the way to go, folks.
The way I understand it is the basic Paulson plan would have the Federal government buy up the 5% of the mortgages that are bad. That is where the $700 billion number comes from. So then the Feds would be in the mortgage business until the collect the revenue from them.
It is also quite possible that a lot of those mortgages could become good and the Feds could sell them for a profit. It is entirely possible to recover the whole $700 billion over time and maybe even a small profit could be had.
They can all ef themselves as far as I am concerned if credit dries up who the hell cares they shouldn’t be borrowing anyway.....doesn’t the Bible say neither a borrower nor a lender be? And if they lent money to people they shouldn’t have isn’t that their own frickin fault? And why the hell should I caare? Let them fail and let credit dry up. Let the thing crumble and do whatever it will do and that will teach them that every frickin body that shows up is not entitled to credit.
However, if these banks actually file for bankruptcy, then there will be runs on the banks and the federal government will have a several trillion dollar FDIC bailout on its hands rather than a 700 billion bank bailout.
The debt needs to be restructured without calling it a bankruptcy.
did anyone hear rush this morning mention a u.s. congressman
that wants to eliminate corporate taxes for 2 years
in order to make the economy boom and to pay for this?
save
That is, the immediate and most pressing problem is not whether some companies are short of cash (liquidity crisis), or have more debts than assets (solvency crisis.)
The immediate crisis is a mutual lack of financial trust between the various large financial players. That trust is the very life blood of the world's greatest economy, of the world's dominant currency, the dollar, the world's biggest economic market and the world's biggest, safest, most liquid investment market ... the United States.
Anyone controlling large amounts of assets is starting to hoard that money, rather than engaging in routine business transactions, for fear the other guy won't be good for it.
Without that trust, we're all a lot poorer.
Questions of what to do with individual companies are secondary.
It is not, but it will be if not addressed, and there is no way to process thousands of large bankruptcies, much less find work for the millions unemployed.
This article was posted yesterday, BTW. I ripped them and I'll rip it again.
Well you can make a case for bankruptcy. Of course some of us recognize that WE, our representative, under the threat of federal investigation pushed lenders to make unsound loans.
I personally think we should buy up the bad paper we forced out there. You may think tough luck for the owners of a business we regulated into losses. Neither way is the free market. We can not go back and have free market home loans over the past 15 years.