Wall Street Bail-Out is a Trap

Of the many excellent articles available regarding our prospective bail-out of Wall Street, I have found these three paragraphs from economist Nomi Prins, formerly of Bear Stearns, to be the most insightful:

The $700 Billion Bailout Plan's Fine Print Commentary: A reformed Wall Streeter sifts through the details of the Troubled Asset Relief Program.
By Nomi Prins September 24, 2008

"Treasury Sec. Hank Paulson's $700 billion bailout plan now has a name: the Troubled Asset Relief Program, or TARP. But even as Capitol Hill debates TARP, few seem to have noticed the proposal item that puts taxpayers on the hook for future bailouts. It's in Section 6, and the key phrase is this: 'The Secretary's authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time.'

"What does "at any one time" actually mean to economists? It means that if everything we American taxpayers buy re-evaluates down to zero, we get to buy more. That's hardly taxpayer 'protection.'"

"In 1999, [Senator Byron] Dorgan had the foresight to vote against the Gramm-Leach-Bliley Act that repealed the financial protections put in place following the Great Depression. He warned then that a 'financial swamp' would result from 'the casino-like prospect of merging banking with the speculative activity of real estate and securities,' and that 'the bill will raise the likelihood of future massive taxpayer bailouts.'"

It's a trap! Better to scuttle the whole thing: Let the investment banks liquidate what they can, write down what they can and beg their stockholders and executives to give back some dough. (BTW: If you're not solvent enough to pay what you owe, you have no business distributing dividends or executive bonuses.)

It would be far more efficient and economy-stimulating for the government to 1) pass a law that freezes all sub-prime mortgages, providing a deadline by which time all sub-primes must be re-written in a way that keeps the families in their homes, and 2) print $700 billion to: A) directly help past, present and future sub-primes keep their homes, reacquire, replace or repair the damage done to their foreclosed homes, then B) build dormitories for the homeless people, and C) begin a government-sponsored down-payment-assistance program for first-time home-buyers.

That should get the housing market back on its feet and stimulate local economies a little.

With what is left over, the government can fast-track solar-electric cars, sponsor a trade-in rebate and distribute solar roof-panels instead of oil-stimulus-checks. That would create some good jobs while helping to get the utility companies and their stock-holders off people's backs.