Tuesday, September 30, 2008


A bailout reader

by Larry Geller

Here are snippets from three alternative bailout plans collected by MR Zine (the Monthly Review Foundation), and one detailed discussion of how other countries have handled their financial crises:

A Bailout We Don't Need
by James K. Galbraith

Now that all five big investment banks -- Bear Stearns, Merrill Lynch, Lehman Brothers, Goldman Sachs and Morgan Stanley -- have disappeared or morphed into regular banks, a question arises.

Is this bailout still necessary?

The point of the bailout is to buy assets that are illiquid but not worthless.  But regular banks hold assets like that all the time.  They're called "loans."

With banks, runs occur only when depositors panic, because they fear the loan book is bad.  Deposit insurance takes care of that.  So why not eliminate the pointless $100,000 cap on federal deposit insurance and go take inventory?  If a bank is solvent, money market funds would flow in, eliminating the need to insure those separately.  If it isn't, the FDIC has the bridge bank facility to take care of that.
. . .

Michael Perelman is professor of economics at California State University at Chico, and the author of fifteen books.

An Alternative Bailout Plan
by Michael Perelman

Instead of giving a couple trillion dollars to the financial institutions, how about instituting a financial holiday -- something like what FDR did -- and using the trillions of dollars to create infrastructure and affordable housing?

We could also raise some more money by ending the wars and cutting back military spending.

Some of the money would be left over to create national health care, alternative energy, and tuition support.

If we needed more money beyond that, we could raise taxes.  With all the spying on ordinary people, the NSA must certainly know where the fat cats are hiding their money in tax shelters.
. . .


Travis Fast is a political scientist.

Simple Solution to a Financial Crisis
by Travis Fast

Seeing how the Democrats seem incapable of figuring out the boondoggle Bernake and Paulson are in the process of engineering, I thought I might outline a modest proposal for a fair resolution to the present financial crisis.

Buy two trillion dollar toxic sub-prime at 40 cents on the dollar; disaggregate, repackage and sell back to existing home owner for 50 cents of the original face value.  The taxpayer realizes a 25% ROI, and average Joe gets his house for half the price of its originally bloated asking price.  That effectively puts a floor on valuations and ensures that those who took the risks suffer the losses.

Maybe the haircut could be a little less severe, say 60 cents and resold at 70 cents for an ROI to the taxpayer of 16.66%.  But whatever the discount, the plan covers all the bases: it both socializes the risks and the profits.

The plan can be defended against all criticism by simply repeating the following phrase:

It might be costly but it is less costly than doing nothing.


Dan La Botz is a Cincinnati-based teacher, writer, and activist.

The Financial Crisis:
Will the U.S. Nationalize the Banks?

by Dan La Botz

. . .
The political conflict over the Bush administration's plan for a bailout of the banks, brought about both by differences with the Democrats and even more intensely with rightwing Republicans, makes it highly unlikely that Congress will be able to pass a bailout plan that can stabilize the financial situation along the lines that Secretary of the Treasury Henry Paulson originally asked for.
. . .

When Governments Nationalize the Banks

In recent history governments have nationalized banks when the pressures of internationalized financial markets and international competition have made it difficult for them to control and stabilize their finances and currency.  During the last couple of decades, countries as different as Mexico, France, Sweden, and Japan carried out partial or more or less complete bank nationalizations to regain control of the financial situation.

Japan's experience more than a decade ago was much like that of the United States in many ways.  After a period of great productivity and prosperity in the 1980s, in the early 1990s, Japan's housing bubble burst, leaving Japanese banks holding sheaves of bad loans.  The Japanese housing boom collapsed just as China began to become an export competitor.1  After neglecting the problem for some time the Japanese government intervened, spending $440 billion dollars of its taxpayers' money to nationalize the weakest banks, infuse capital into the stronger banks, and to protect depositors.2  Japanese banks were required to create a Business Revitalization Plan, at the center of which was a capital/asset ratio.  Some economists and journalists have suggested that Japan's solution -- partial nationalization and partial financial support for private banks -- could provide a model for the United States in the current crisis.
. . .


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