On fifth read of the Professor Moron’s article, I cannot believe you actually agree with his opinion. He is so out of touch with the real world, it makes me sick. Just look at these zingers:
The obvious alternative to a bailout is letting troubled financial institutions declare bankruptcy. Bankruptcy means that shareholders typically get wiped out and the creditors own the company.
The largest shareholder is Average Joe. I don’t know the logic behind a 50-year-old working class guy seeing his $200,000 IRA and 401K wiped out only because he may pay the maximum of $2,300 in extra taxes over the next 5-10 years (worst case scenario on the 700 billion plan). I am sorry, but this makes absolutely NO sense.
Bankruptcy does not mean the company disappears; it is just owned by someone new (as has occurred with several airlines). Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable.
Is he nuts?!? Did he just not see Wachovia disappear overnight?!? Doesn’t mr. Moron understand that there are tens of thousands of creditors to a big company, who are far from being able to run the company they now own, even if they are able to get together and try to keep the company in business? All the creditors own are assets, which they will likely try to sell in order to minimise their loss. Doesn’t he realize that those big companies employ hundreds of thousands of people, who will now be without jobs? Which in turn will hurt any other business, otherwise with good balance sheet?
If financial institutions cannot make productive loans, a profit opportunity exists for someone else.
Who? Who is this someone else? Who else is the business of commercial paper? I just don’t see who else could fork out trillions of dollars in loans overnight…Oh, wait, I found one – the TAXPAYERS.
Further, the current credit freeze is likely due to Wall Street’s hope of a bailout; bankers will not sell their lousy assets for 20 cents on the dollar if the government might pay 30, 50, or 80 cents.
What? The current freeze is due to the fact that the banks have no idea how much those assets are worth and they don’t want to take the risk and lend out to other banks. The credit was frozen BEFORE talks of bailout began.
The administration’s claim is that many mortgage assets are merely illiquid, not truly worthless, implying taxpayers will recoup much of their $700 billion. If these assets are worth something, however, private parties should want to buy them, and they would do so if the owners would accept fair market value.
Private parties don’t want to buy those assets because they don’t have the holding power to make them profitable. The government on the other side can hold the assets without problem until the market stabilizes, i.e. until they are worth something. There is no such thing as worthess house. The property alone costs something.
By the way, I hope Dominique is FOR the bailout plan. Dom, you just said “If you have money set aside, one good idea is to invest in real estate in a while.” That’s exactly what the Treasury was trying to do. If you see it as opportunity – you also should agree that taxpayers can make money out of this.