No More Bailouts!

Congress should unleash the private sector to address the current financial meltdown

Anthony Randazzo | September 23, 2008

Treasury Secretary Henry Paulson, President George W. Bush, and Congress are getting ready to try an experimental procedure on America and it's going to cost Main Street big time. As the nation's economic doctor, Secretary Paulson gave the United States just a few months to live unless the federal government conducts radical surgery to rid us of the subprime mortgage cancer. Unfortunately, no one seems to want a second opinion. It's bailout or bankruptcy for all.

Conservative estimates put the cost of a meltdown at $14 trillion in losses-the size of the entire U.S. economy. Paulson is offering a fix that would cost $700 billion, a real bargain if the entire economy falls to Depression-era levels.

Paulson says he doesn't want to offer a massive Wall Street bailout, but he sees no alternatives. But there are. Some of them would even produce a faster short-term recovery while also benefiting America in the long-term. Releasing the private sector in response to this crisis would promote innovation instead of being complacently reactionary.

The immediate concern is lack of liquidity in today's markets. Paulson's believes the "illiquid assets" (assets no wants in today's market such as securitized subprime mortgages or homes that can't be sold) of America's financial institutions are the source of our banking woes. His plan is to buy up their bad loans, allowing banks to take these underperforming assets off their books. This would allow them to begin lending again to borrowers with a stronger financial track record and generate profits. Meanwhile, the federal government—U.S. taxpayers—are stuck with managing the old bad loans. That's the bailout.

Secondary concerns from Congress are centered on corporate liability. Democrats want a compensation cap leveled on Wall Street CEOs. Republicans don't want to reward their failed investments with a get-out-of-bankruptcy-free card. The details are still being debated in Congress, but these battles are primarily political, not economic. Limiting pay to punish executives wouldn't solve anything. It would only serve to drive good talent from top-level jobs while firms find loopholes to provide compensation in other ways (such as a company car or stock options). Moreover, the top executives at Lehman and AIG lost millions in their corporate failures. That's market accountability, not political grandstanding.

All this begs the $700 billion question: Is a federal bailout of the financial services industry necessary? The Founding Fathers used the Constitution to purposefully create a slow moving Congress. They didn't want it to make rash decisions. While the legislative branch is supposed to keep taxpayer interests first, they are also supposed to be a check on executive branch authority—not a rubber stamp on an imperial presidency.

Several alternative actions could be taken to meet both immediate and secondary concerns raised by the current financial turmoil:

First, Congress could eliminate or reduce the capital gains tax. Cutting federal taxes on corporations would allow them to use those funds they would have given the government to cover illiquid asset losses. This would protect taxpayers from loses if the Treasury were to buy up the bad illiquid assets and keep firms accountable for their actions.

Beyond allowing financial institutions to retain capital, cutting capital gains taxes would allow for firms not under pressure from subprime-related losses to grow larger, creating a more competitive market. These bigger firms could even become a source of private sector bailouts of failing firms through mergers and acquisitions. The more products and services offered to the economy, the greater consumption and import/export levels rise, increasing federal revenue.

Second, Congress could cut corporate taxes and small business taxes in general. Trimming taxes for "the rich" opens up new capital to be invested in a struggling economy. At a time when investor confidence in the stock market is low, a tax cut for businesses would encourage innovation and entrepreneurial activity. The effects would be similar to that of a stimulus package, only without the government's involvement or a redistribution of wealth.

Third, the SEC should suspend the "mark-to-market" accounting rules for long-term assets that are driving firms into bankruptcy. Essentially, these regulatory rules are forcing firms to value their assets at much lower prices than what they would be worth long-term. The intent of mark-to-market regulation was to keep firms from overvaluing themselves and deceiving investors. Instead the law has artificially devalued financial institutions as a whole, which hurts their investors. As Steve Forbes noted recently, "The mark-to-market mania of regulators and accountants is utterly destructive. It is like fighting a fire with gasoline."

This accounting clause has significantly contributed to the bankruptcies (or near bankruptcies) of Lehman Brothers, Merrill Lynch, AIG, Bear Stearns, Morgan Stanley, Citigroup, Washington Mutual, and many others. In order to keep firms from overvaluing themselves, Newt Gingrich has proposed a three-year rolling average mark-to-market policy.

Fourth, Congress should repeal Sarbanes-Oxley, which is driving away entrepreneurial spirit. This law, passed in the wake of the Enron and WorldCom collapses, was intended to rein in corporate fraud. But the rules it put in place have not protected America from perverse profit motives brought on by the "too big to fail" philosophy. It has instead frightened off new business ideas with bureaucratic nightmares—$3 million per startup annual accounting fees—that are weakening the economy.

Ultimately, the debate over what to do comes down to a threshold of pain and perspective. Capitalist philosophy suggests that short-term financial pain—even a great degree of pain—will prevent long-term financial destruction. The markets, in other words, are going through a cleansing process. But this is not acceptable to many, particularly the politically motivated, who always prefer to solve future problems at a later date.

Here's the issue: Are we willing to consider all treatment options, or will we dive for the quick, easy, and untested procedure and then hope for the best?

Anthony Randazzo is a research associate at the Reason Foundation.

Comments

|9.23.08 @ 3:24PM|#

Points 1) and 2) would feed money to struggling business without any strings attached. But it has to be asked whether: a) that approach would feed money fast enough to solve the problem, and b) whether money should be given without strings attached given irresponsible behavior during a time of great liquidity led to the meltdown in the first place. Even if you consider b) a nonissue, a) is still of crucial importance and would seem to count against a tax break approach (wouldn't buying equity be faster?).

Point 3) requires some links for justification. If these firms are, in fact, significantly undervalued then they shouldn't have had so much trouble avoiding bankruptcy, right? BofA passed on Lehman for a reason, after all. But I may just not understand all the implications of mark-to-market. The example Forbes uses doesn't help -- why is the bank assessing the "fire sale" cost of my home in the first place?

Anon

|9.23.08 @ 3:34PM|#

I'm sick of all this whining. We all love free markets but you have to admit we have massive market failure now and the entire world is on the verge of collapsing if Goldman Sachs and JP Morgan go bankrupt! We must not quible over details. You are either with us or your against us and Main Street will suffer a long bloody death if the populists in this country don't cough up their fair share to support JP Morgan! Don't test your masters, obey CNBC and send in promisary notes on the future labor of your first born child, they OWE us after all we have done for them. You had better cooperate!

I, Kahn O\'Clast|9.23.08 @ 3:46PM|#

Points 1 and 2 do nothing to solve the immediate credit crunch. Point 3 is poison: Mark to Market is critical for the system to work in the long haul. You cannot have firms like these price junk as if it were gold.... that's fraud.

Sarbox should go. I think that that's a case of the "cure" being worse than the disease.

Just nationalize all the mortgages and be done with it.

kablammo|9.23.08 @ 3:48PM|#

"Point 3) requires some links for justification. If these firms are, in fact, significantly undervalued then they shouldn't have had so much trouble avoiding bankruptcy, right?"

Point 3 doesn't require justification, its just plain crap. The market automatically prices in for future expectations. Look at the stock market; shorts expect future decreases in value, longs expect increases. The current problem with mark to market for MBS & derivatives is that no one knows how to value a derivative when they can't analyze each of the mortgages comprising the derivative, figure a reasonably accurate failure rate, and seperate the good from the failing or questionable mortgages. Thus no one wants to buy into a derivative for anything more than a fire sale price since they don't know how to value it.

|9.23.08 @ 3:50PM|#

a tax cut for businesses would encourage innovation and entrepreneurial activity

Not disputing this, because while this is used fairly frequently for justifying tax cuts for business (and the famous "Top 1%"), but I have never seen any data that proves it. Can anyone provide some data supporting it to put any questions about its veracity to rest?

As an aside, it's kind of amusing to read an article promoting less regulation to solve a problem that less regulation seems to have created. But economics isn't my strong suit, so more data is, again, appreciated.

|9.23.08 @ 3:52PM|#

We all love free markets but you have to admit we have massive market failure now

Could be. Or it could be that the capital markets were so crippled and distorted by government interference that this isn't really a market failure so much as it is a government-induced crisis. Of course, since this is a mixed economy, both sides can dismiss the other's claims as being based on unverifiable counterfactuals ("this wouldn't have happened without Fannie and Freddie" v. "this wouldn't have happened if Glass-Steagall hadn't been repealed", or whatever).

|9.23.08 @ 3:56PM|#

I don't get the meme that this happened due to a lack of government intervention. The Fed, the SEC, the GSEs, reams of laws and regulations, SOX, etc., etc., ad infinitum. Egad.

Teresa|9.23.08 @ 3:59PM|#

It is, perhaps, a mark of just how NOT conservative this administration is that its first reaction is to tax to solve the problem rather than to cut taxes and "free" the market more. Is the power grab not obvious to everyone? Hasn't the Constitution taken enough damage?

I'm reminded of the panic after 911 when we were beseiged with dire warnings to hand over all checks and balances for the good of the country. We got the Patriot Act.

Then the country got dire warnings that nuclear attack was imminent at Saddam's hands and we must hand over all our surplus for the next generation. We got the War on Terror, a war without end.

Now we're given dire warnings that the economy will fail and depression looms unless we hand over our children's future to a despotic treasury because the financial markets are too complex for any of us to understand.

Once fooled, shame on you. Twice fooled...

Paul|9.23.08 @ 4:02PM|#

Pro:

It's a moving target. It's not regulation writ large, but lack of regulation on that particular set of debt instruments used by these particular corporations at this particular time under these particular circumstances.

Ignore the fact that markets are always creating new ways to make money, and regulation will always lag. Always remember, any unregulated holes in a market are a time bomb, waiting to go off.

Oh and something about enforcement and oversight on existing regulations... or something.

The Extispicator|9.23.08 @ 4:08PM|#

Big red flags go up for me when I see their response to criticism as "Dammit, don't ask questions! There isn't time to think about all this! Just hurry up and give us the money and we'll figure it out"

|9.23.08 @ 4:10PM|#

We have more regulations and laws than we have people to review, enforce, and revise them. Government failures always seem to get ignored when they result in massive disasters--why, I have no clue. Government "involvement" also tends to encourage risky behavior, because people assume safeguards and oversight that don't actually exist.

classwarrior|9.23.08 @ 4:14PM|#

Of course! The solution to this problem (as it is for all problems) is lower taxes! How could we have been so blind?

|9.23.08 @ 4:15PM|#

Paul:
It wasn't the lack of regulations on MBS that caused the problem. It was the intentional expansion of the money supply and easy credit terms in the hopes of "reflating" the economy after 9/11. The artificially low interest rates got the real esatate market moving, then the Greenspand the Fed, Fannie Mae Freddie mac analyst, the stock analysts for homebuilders, the dealers in MBS(goldman, morgan, lehman, bear stearns)...they ALL started promoting the lie that real estate can't go down and the MBS were good invesments and since the rising markets made the economy look good congress and the executive branch chearleaded along with the media.

If the "ideal" regulations in mortgages had made all of this impossible, the easy money would have seaped through somewhere else just like water sitting on a flat roof...that was the whole reason the fed was pumping! they want to create garbage bubbles to put off the day of reckoning.

|9.23.08 @ 4:15PM|#

the issue goes beyond financial institutions. when our economy is so fundamentally flawed that the collapse of a few corporations teeters our entire system on the verge of collapse, we have to dig down to the root and pull it out. tax breaks, law repeals, etc., won't make a dent. businesses will continue to find ways to manipulate their bottom line to artificially inflate their earnings. businesses are in the business of making money, and they'll do that in any way they can, and will forever find loopholes to make it happen.

one possible solution is to limit corporations' lives, just as a human. capping a corporation's "life" at 50 or 75 years, for example, would limit the evolution of behoemoths in the first place. just as a person, the corporation would "die" at a set time, and all the assets would be dissolved.

there's certainly a lot more thought needed in this argument, but the only solution i see to this problem is some type of anti-monopoly system that prevents businesses from becoming large enough to bring down everyone else.

Kolohe|9.23.08 @ 4:19PM|#

Count me as another who is pro-'mark to market'.

Heck, market fundementalism says that something is only worth what someone is willing to pay for it (and what someone else is willing to sell it for).

If you can't assess the market price of something does it really have value? (more precisely, if you can't put a market price on something you say you own, can you really say it has value to someone else?)

|9.23.08 @ 4:20PM|#

Has anyone considered the option of do nothing and let the banks fail? I know this sounds harsh but its not as if there is a literal collapse. What does "collapse" mean anyway? So the banks don't exist as they currently stand, and we go into a recession for a year.

In terms of true growth to the economy banks/financial institutions play a vital role as middle man between investor and lender. The only way we learn to guard against risk is to feel the pain during those times that it hits us.

Anyone and everyone who invested in anything risky, from a money market on up needs to understand those risks or pay someone that they trust who does.

A quick comment about the mark to market. Who's to say the the value of the mark isn't too high? It could still go further down. If all this paper is backed by housing, is everyone convinced that housing can't go even further down. Check real estate prices in San Francisco today vs 8 years ago. We still have plenty of room on the down side

|9.23.08 @ 4:21PM|#

Those poor burdened corporations (many of whom pay virtually nothing in taxes anyway). We have gilded age levels of income inequality in this country and taxes on the wealthiest sectors are still too high? I'm sure they'd spend the extra few bucks on innovating our way out of this mess rather than even more outrageous golden parachutes and even riskier investments in pyramid schemes.

Wouldn't economic growth occur much more rapidly by lessening the tax burden on those who would actually use the difference to buy real goods and services? It might have just delayed the inevitable, but perhaps fewer mortgages would have defaulted if wages and job creation had increased as much as they did during that evil era when things were more regulated.

Robert Brown|9.23.08 @ 4:28PM|#

Please consider UNIFIEDMARKETS.

A turn-key solution. Taking all types of financial inventory for raising capital and secondary trading worldwide.

rEVOLution|9.23.08 @ 4:31PM|#

"The Founding Fathers used the Constitution to purposefully create a slow moving Congress. They didn't want it to make rash decisions. While the legislative branch is supposed to keep taxpayer interests first, they are also supposed to be a check on executive branch authority-not a rubber stamp on an imperial presidency."

Yes,but originally in the Constitution ther were two important distinctions that we don't live under now.

1. Senators are supposed to be elected by the state legislatures, not popularly elected

2. The money to pay for the Federal government was to come from the States not from individuals.

Therefore you had this situation. The States were paying the Federal expenses and they had a say in how that money was spent. This is why we need to repeal the 17th and 23rd amendments. The way the government works now is absolutely not how the Founders wanted it to work.

|9.23.08 @ 4:37PM|#

I just heard Paulsen claim that, without the bailout, the credit markets would freeze up. But he didn't say WHICH credit markets. If he means banks and investors lending to each other, that's freezing up anyway because no one trusts anyone; they're all lying about their assets. Does he mean credit extended to consumers? I don't think so. Don't you all get daily offers for free credit cards? I have terrible credit and I just got a car loan. The bailout is just another scam for the rich to take our money.

|9.23.08 @ 4:37PM|#

"Government failures always seem to get ignored when they result in massive disasters--why"

I'll tell you why, it is part of the system that rulers of the world learned long ago.

The Problem Reaction Solution Paradigm (The Hegelian Dialectic)
1) The government creates or exploits a problem blaming it on others
2) The people react by asking the government for help willing to give up their rights
3) The government offers the solution that was planned long before the crisis

The people who benefit are all members of the same clubs(CFR) is one of them. GE, NYT, Washington Post, Westinghouse and Rupert Murdoch serve them well in their propaganda efforts and they get their backs scratched in return.

They clearly state they will use the problems of Terror, Drugs, Climate change to help move the policies in favor of creating institutuions that have greater ability to increase global governence.

"Big red flags go up for me when I see their response to criticism as "Dammit, don't ask questions! There isn't time to think about all this! Just hurry up and give us the money and we'll figure it out"

anyone who doesn't feel this way has a defective brain in my opinion.

Jim Taggart|9.23.08 @ 4:49PM|#

At a time like this, we can't afford the luxury of thinking!!

kablammo|9.23.08 @ 5:19PM|#

"We have gilded age levels of income inequality in this country and taxes on the wealthiest sectors are still too high?"

"perhaps fewer mortgages would have defaulted if wages and job creation had increased as much as they did during that evil era when things were more regulated."




I think you made a wrong turn somewhere - you do realize this isn't democratic underground?

DannyK|9.23.08 @ 5:31PM|#

"What are we going to do tonight, Brain?"
"Same as every night, Pinky -- deregulate and cut taxes!"

A bit of advice,Mr. Randazzo: mix up your talking points once in a while. When you just cut and paste them from Larry Kudlow, it shows.

Another bit of free advice: find some other economic experts to cite than Steve Forbes and Newt Gingrich.

|9.23.08 @ 5:49PM|#

classwarrior writes: Of course! The solution to this problem (as it is for all problems) is lower taxes! How could we have been so blind?

Not just any old taxes, but capital gains taxes! We wouldn't want anyone with mere "earned income" to benifit!

Alan|9.23.08 @ 5:59PM|#

RE: The way the government works now is absolutely not how the Founders wanted it to work.

Of course, the idea of a globaly connected financial market where "conservative estimates" put the cost of a meltdown at $14 trillion in losses wasn't on the Founder's radar screen. I wonder what $14 trillion would have bought back in those days?

So yes, lets run the country the way the Founders wanted it to work. First step, cut the population down to the level it was in 1776. That would help to make things managable.

|9.23.08 @ 6:01PM|#

Points 1 and 2 have it backwards. The mortgage tax deduction (which includes home equity loans) and lower capital gains taxes caused a lot of this problem.

Congress's first step should be to eliminate any tax benefits for owning a home. Step two, equalize capital gains and labor income taxes (btw, we don't have a capital gains tax, we have an income tax and a capital gains benefit.)

This is real econ. and tax law 101. We've gotten it backwards for so long that we can't even recognize the problem.

|9.23.08 @ 6:03PM|#

The bailout isn't the only problem. Some parties in Congress are looking to use the crisis to push through a change in bankruptcy rules to permit judges to rewrite mortgages. I guarantee that if a judge is given the right to rewrite a mortgage to have any terms he thinks are "fair", no bank anywhere lends to a borrower that isn't A++. The risk is too great that the stiffer terms the borrower is paying in order to offset the increased risk of lending to them will be rewritten to prime or better than prime terms. Strategic bankruptcy for that very purpose would likely be commonplace.

voxpo|9.23.08 @ 6:38PM|#

Kolohe,
if you can't put a market price on something you say you own, can you really say it has value to someone else?
If you can't assess the market price of something with confidence, why would you buy it? Fortunately, it takes two to strike a deal. Unfortunately, diluting (e.g., socializing) responsibility favors happy hours over due diligence.

Alan, yes, and the Founders had no concept of electromagnetic waves, so why heed their principles when, say, banning TV ads that mention a candidate 59 days before an election?

DannyK|9.23.08 @ 6:44PM|#

Bob Smith,
the core problem is that interventions are like potato chips, it's easier to refuse them entirely than to try just one. Once you have the government bail out rich bankers, why not bail out some poor homeowners, too? They vote too, and you get a lot more of them for a billion dollars.

CL|9.23.08 @ 7:35PM|#

Bob Smith: "The bailout isn't the only problem. Some parties in Congress are looking to use the crisis to push through a change in bankruptcy rules to permit judges to rewrite mortgages. I guarantee that if a judge is given the right to rewrite a mortgage to have any terms he thinks are "fair", no bank anywhere lends to a borrower that isn't A++."

Ah, but you forgot the last part of the illogical puzzle - mandating that lenders loan to people with bad credit. Wait a few years, maybe a decade, and you'll have another crop of "illiquid assets" for the government to socialize "right now, or else."

Colonel_Angus|9.23.08 @ 7:55PM|#

It seems like what has happened is that the market is too tweaked to continue to sustain with manipulation much longer. Each time the government comes up with a way to solve an old problem it just creates a bigger one later. So maybe we can bullshit our way through this latest banking issue, but in a few years something else will come up while the debt is larger and we have more of a command economy from the last crisis. Also, a billion small things that seems unrelated to this banking issue are actually making it worse.

And it sounds like a lot of people involved in the financial industry actually like bureaucracy and regulation instead of an actual free market. I have seen it a lot lately in articles and comments (including on reason) and on TV like that msn stock channel where they act like this is part of a game and it just needs more tweaking. For example, "bring back the uptick rule!!!!" Why would it matter if someone chooses to sell their stock for lower than the (manipulated) "market value" whether the price is increasing or decreasing?

Why can't we just stop thinking of complicated ways to manipulate the market with taxes, subsidies, benefits, regulations, and coercion, since all this shit is part of a reoccurring cycle of the same problems.

Income taxes and capital taxes should just be a fixed percentage for everyone, instead of this "progressive" bullshit. If the income tax is 10%, you just pay 10% of what you earned whether you made $10,000 or $10,000,000,000. Same should go for businesses no matter how large they are. Of course, government on all levels should also reduce spending on shit like social programs and subsidies and other garbage to avoid increasing debt which everyone pays for through inflation.

The other thing is that taxes should stop being used for market manipulation. No more tax benefits or discounts for owning a house, driving a hybrid, employee pensions, healthcare, hiring blind people, or choosing to build your factory in Blowville. No more subsidies for ethanol or farming or loaning money to deadbeat chumps. Why should any person or business deserve gifts for participating in some subjective desirable activity? On the same idea, why should certain products be taxed higher than others?

Regulations are another thing that distort the market. Sometimes they are a necessary evil such as preventing fraud or blatant safety hazards. On the other hand, financial regulations, paternalist regulations, and protectionist regulations just end up being a minor inconvenience for established businesses while totally fucking the smaller ones.

What I am saying is the market has become too much of a patch work of regulation and coercion that it is in an out of control cycle. Every miniscule thing needs a nudge from the law. Everyone just wants to be taken care of. Average Joe Fuckhead is just as much to blame as businesses are.

|9.23.08 @ 8:39PM|#

"Why can't we just stop thinking of complicated ways to manipulate the market with taxes, subsidies, benefits, regulations, and coercion, since all this shit is part of a reoccurring cycle of the same problems."

Amen, brother Angus.

I don't agree with everything you said, (progressivity is not, necessarily a form of market manipulation), but this little snippet of your post says it all.

Have we forgotten this? Let's start over. Bye bye subsidies, tax breaks, loopholes and differential treatment of income and certain forms of taxes. Why the heck is there a "payroll tax" AND "income tax"?

Alan|9.23.08 @ 10:29PM|#

RE: The way the government works now is absolutely not how the Founders wanted it to work.
RE: Alan, yes, and the Founders had no concept of electromagnetic waves, so why heed their principles when, say, banning TV ads that mention a candidate 59 days before an election?

I guess we should go back to having state legislatures select Senators?

RE: This is why we need to repeal the 17th and 23rd amendments.

Oh jeez, I said that as a joke, but, there is the "libertarian" actually suggesting it!

This must be why I keep hearing libertarians called LOSERtarians.

|9.23.08 @ 11:09PM|#

I guess we should go back to having state legislatures select Senators?

Not a bad idea, really. Having the state elect Senators meant that the states, as states, had representation in Washington, and did a lot, in retrospect, to keep the federal government small and on its own, delegated-powers, turf.

|9.23.08 @ 11:17PM|#

"It has instead frightened off new business ideas with bureaucratic nightmares-$3 million per startup annual accounting fees"

And we have this on good authority because... Newt Gingrich said so!!! Wow, if I were a research associate like Tony Randazzo I certainly wouldn't consider actually researching this to see if it was, you know, correct.

First off, I'm neither for nor against Sarbox. I simply don't know enough about it to have an educated opinion. But $3 million annually for a startup sure as hell sounds wrong. I've worked at several startups, and would have taken up our entire budgets. But then again, we were privately held, like just about every other startup, so Sarbox didn't apply to us!

According to a poll by Financial Executives International* average annual compliance costs were $1.7 million. And these are not "startups." The responding companies had average annual revenues of $4.7 billion.

Sarbox may well be a totally stupid waste of resources -- I'm not arguing against that -- but it's a far cry from claiming $3 million in annual accounting fees for a startup.

I can understand Newt Gingrich saying what he said. No one in their right mind trusts him anyway. I can understand New Republic printing it. Ditto. But honestly, I expect better journalism from Reason. And to think, I was going to go back and click on the "donate" button. Good thing I read the article first.

* I'm assuming that this is a legitimate source. If anyone has reason to believe otherwise or conflicting data from elsewhere please let me know.

|9.24.08 @ 12:06AM|#

I am a simpleton but tell me how this isn't the case.

A large part of problem is:
1) a failure of nasdaq and NYSE to have reasonable rules for leverage in derivatives.

meaning simply if you don't have enough to cover (in fucking cash) at any given time you sell your contract at a loss. TOo much shit going on with no real cash.


2) no need for new rules or regs--many people at many times and different places commited fraud.

We need to simplify the fraud rules for accounting.
If we try and make new rules every time some Jimmy comes up with a new accounting trick the rules will never end. Sorry Jimmy it's fraud your assets are liquidated and you are going to jail.

I hate how now this $700 billion is going to happen (don't kid yourself) and worse still is it will be corporatist horseshit. Handouts to the nutbags who screwed it up by the nutbags who said it was alright. Shit--this just caem in--I hacked paulson and Dupya's phones--Here is the SMS xchange-- Fed left the pres:

W-going 2 congress 2 get chk for 700B! Wow--LOL that is a lot of money! $ ) Hope they don't ask q's?! : (

W back....

Don't worry-they are stoopid like me :D Just use scare tactics--worked for me in Iraq! LOL : p

If it is going to be taxpayer money then the
deal cut should be similar to the exchange that Buffet made. Ron Paul is the only one with balls enough to say NO loudly.

Husserliana|9.24.08 @ 10:02AM|#

I wanted to point out how ridiculous the AIG bailout was. AIG posted a
dividend on 9/3/2008 and got money from the federal reserve 2 or 3
days later. We should all be so lucky as to suck Warren Buffet's dick.
Now the FBI is going to "investigate" companies that shorted during
the bailout. Feel free to join my group at
http://groups.yahoo.com/group/libertariananarchist/

epoche*

Invisible Finger|9.24.08 @ 11:41AM|#

Thus no one wants to buy into a derivative for anything more than a fire sale price since they don't know how to value it.

Today, it's fraud. 3 years ago when people were doing cash-out re-fi's on their mortgages everyone including joesixpack loved it.

Invisible Finger|9.24.08 @ 11:44AM|#

one possible solution is to limit corporations' lives, just as a human. capping a corporation's "life" at 50 or 75 years

Corporate term limit used to be 40.

Invisible Finger|9.24.08 @ 11:53AM|#

Congress's first step should be to eliminate any tax benefits for owning a home.

There aren't any! The tax "benefit" is for having to pay interest. And that USED to be for ALL interest, not just mortgages. Congress has whittled down that interest deduction to where the only thing left of it is mortgage interest.

Thanks to history-challenged assholes like you, we're going to lose that one too.

shane in wva|9.24.08 @ 12:04PM|#

"Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."

Need i say more?

Badger|9.24.08 @ 12:18PM|#

One more thing:

Why should the government encourage (or discourage) borrowing?

Interest is something that free market participants assess to give them comfort when lending money. If a free person wants to pay that interest, great. Let him. We shouldn't give him a nudge towards taking on interest payments by saying that he can write it off on his taxes.

Really, isn't this obvious to someone reading Reason?

Badger|9.24.08 @ 12:20PM|#

Invisible Finger,

Here are the ways a person can reduce or exclude income because of owning a home.

1. Mortgage Interest
2. Points
3. Equity Loan Interest
4. Home Improvement Loan Interest
5. Property Taxes
6. Home Office Deduction
8. Capital Gains Exclusion
9. Moving Costs
10. Mortgage Tax Credit

Seriously, if you don't understand how this can skew a market, you should change your handle.

shane in wva|9.24.08 @ 12:21PM|#

"Congress's first step should be to eliminate any tax benefits for owning a home."

Are you aware that if you didn't pay over approx. $200,000 for your house, you get no tax benefits at all because the intrest paid isn't enough to beat the $10,700 standard deduction, depending of course on your loan %, etc. I guess maybe I should have gone ahead and bought a home I could not afford so that I could get a tax break as well as some of that sweet bail-out money.

Badger|9.24.08 @ 12:26PM|#

Shane in wva,

You said, "I guess maybe I should have gone ahead and bought a home I could not afford so that I could get a tax break as well as some of that sweet bail-out money."

That's my point.

What really should happen is that you should save for a house. Then go to the bank. The bank will say, here is how much we will loan you and the interest we will charge. You will say, "hmmm, I can/can't afford that." End of story.

Taxes shouldn't matter at all.

shane in wva|9.24.08 @ 12:39PM|#

Badger,

I could not agree more. I was being completely facetious and probably should watch my tongue this week. I am sure people are really feeling the sting now.

I bought my first home 2 years ago for just over $100,000 and waited until I was 35 years old to do it. I never even lived in an owned home growing up either.

My brother is stuck in a bad loan in D.C. in a crappy house he never should have bought, but wanted in on the "action" everyone else was cashing in on. I will be mildly PISSED to say the least if I have to subsidize his bad descision.

I am hoping people are taking notice that our government is out of control and needs to have its hands slapped...hard!

Paulson ran Goldman with a disgusting severance package, will probably be running it again in 4 months and is giving his company billions of dollars. Anyone see a problem with this?

shane in wva|9.24.08 @ 12:48PM|#

This is Reason right? I mean the libertarian magazine I fell in love with back in 1990 when I was just a young lad.

What has happened to our movement? The front page of Reason online reads like a McCain advertisement, covering groundbreaking stories of why McCain is a good choice and why Obama is a bad one. What about the fact that both choices are basically the same?!?!?!

I know the republicans preach to practice capitalism, but come on! Their libertarianism ends before the words leave their mouths.

Ron Paul a republican? Bob Barr a libertarian? WTF???

Badger|9.24.08 @ 12:57PM|#

Shane in wva,

I thought you might be pulling my leg, but I wasn't sure.

I should add, that the money gained from eliminating such deductions should be used to reduce all other taxes.

The sooner we can move away from all this game playing that goes along with taxes, the sooner people will recognize that eliminating confiscatory taxes is important. When people think, "I can reduce MY taxes by doing XYZ" they forget that we're paying too much in taxes in the first place.

|9.25.08 @ 3:18AM|#

Badger, good luck on having a tax increase for one group resulting in tax reductions for the rest of us.