[wideawake]

The idea is largely sound.

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.

[yldstrk]

Yoou are all nuts. this thing is a sham

[org.whodat]

The debt needs to be restructured without calling it a bankruptcy.

Ok, lets start by having all the companies top officials pay back 80% of their salaries for the past ten years, then we check their balance sheet.

[Wallace T.]

During all the panics of the 19th Century and the early 20th Century up through 1920-21, the Federal government basically took a laissez faire attitude toward the crisis, as did state and local governments, with the exception of possibly providing some temporary relief to specific groups, like farmers or unemployed workers. Most of the economic downturns were short lived, lasting at most two years During the Great Depression, both the Hoover and Roosevelt Administrations took an interventionist approach with the creation of the Reconstruction Finance Corporation and numerous other agencies. The result was that the 1929 Crash led to a decade long depression.

In the words of Andrew Mellon, Secretary of the Treasury in 1929: "Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people." Unfortunately, President Hoover did not take this sound advice. Nor have George W. Bush and the leaders of both parties.

[supercat]

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.

Collapse is coming. I'd rather the government not make it worse by inflating the bubble even further.

[Erskine Childers]

The debt needs to be restructured without calling it a bankruptcy.

Good point. The author (professor at University of Chicago Business School) mentioned this same point today on the radio. After all, boilerplate contract provisions would require acceleration of debts when a bankruptcy proceeding is filed. That could be handled by provisions in the law suspending those provisions for companies that avail themselves of the program. Ultimately, all we're really talking about is changing the capital structure, swapping out debt for equity. We can call it whatever we'd like and handle it perhaps under a special administrative forum.

I would say that the panic aspect stems largely from not knowing. Investors panic when they don't know what will happen. The main thing now is to let the market understand that the government is ready to take effective action. If tat action turns out to be bankruptcy under government incentives, then it will hurt but at least they'll know what's going to happen, and there will likely not be anything approaching a panic.

The beauty of this is that the current equity holders get wiped out, and the folks who punted on the related credit swaps take their lumps. It wouldn't cost the taxpayer much if anything to do.

But it's politically undesireable to revolving-door types like Paulson. He's obviously there to advance the cause of Goldman Sachs, and feather his own post-Bush nest by buying favors with that $700 billion. The bankruptcy option avoids all of that and places the reorganization in the courts or in some similar administrative setting where it belongs.

In short, it's a way to handle this mess without caving to the "moral hazard" temptation that Wall Street and their lackeys in the government want. We need to get this Luigi fellow testifying before Congress NOW.