Bailout 2008 - What should we do?
I’ve spent hours combing over articles in the Wall Street Journal, New York Times, CNN, and blogs. It seems to me that this Paulson Plan is pretty far from getting any sort of okay from Congress, and I honestly hope it stays that way. Purchasing all this costs way too much money when all we really need to do is get the market for this stuff moving.
Of everything I’ve read, I find the proposal of top economist, Brian Wesbury. The plan has been most promoted by Dave Ramsey, the “Get out of Debt Guy.” While I sometimes question Dave’s macroeconomic theories, I think he’s made an excellent choice in going towards Brian’s (and likely other economists’) plan.
The Revised Bailout Plan
- Suspend Mark-to-Market Accounting
- Insures sub-prime mortgages, similar to FHA loans.
While Mark-to-Market sounds great in reality, in practice it has a major exception that causes it to fail. Unfortunately, we’ve hit that failure. Mark-to-market accounting requires companies to “mark” assets to their current value on the marketplace. This works great for assets that are sold on a day to day basis like stocks, bonds, mutual funds, etc. However, there is currently no market for sub-prime instruments. Nobody will buy them. Therefore, when Merrill Lynch was forced to sell its sub-prime assets for 22 cents on the dollar it became apparent that mark-to-market was vastly undervaluing the “true” value of the assets.
Furthermore, we don’t need to buy all these assets - we simply need to create a market for them. Instead of buying toxic assets, lets allow the federal government to insure the loans. These assets will then become “un-toxic” to an extent and the market should restart.The best part of this plan is that it will cost around $35-40 billion to insure these loans.
While I don’t like bailing out people, it’s apparent something is going to happen and I think this is the best proposal that has a chance as getting through Congress.
Suggested Bailout Reading
- Cost of the Bailout - New York Times
- Dave Ramsey’s Bailout Plan - Dave Ramsey
- Obama’s Four Bailout Conditions - New York Times (The Caucus)
- Economist Wesbury on Mark-to-Market - Brian Wesbury [PDF]
- Worth of assets government would purcahse - New York Times
Tags: Congress, money, New York Times, obama, The Caucus
