Here's Michael Hudson's analysis. Quoting the Financial Times, he writes:
“The simplest way to recapitalize institutions,” He concludes, is “by forcing them to raise equity and halt dividends. If that did not work, there could be forced conversions of debt into equity. The attraction of debt-equity swaps is that they would create losses for creditors, which are essential for the long-run health of any financial system.” This is the key: if debts cannot be paid, then creditors must take losses.
That's the point, to recapitalize institutions, so that they can resume lubricating the economy with their loans. The Bush plan, the only one on the table, is not meant to do this, and if any recapitalization happens, it's marginal and by the way. The main point is to throw money down the toilet bowl, as they did/are doing in Iraq, and if some of it goes into the pockets of their cronies, their base, that's well and good. But their main objective is to destroy, and once again, they've cleverly forced Congress and Obama (advised by Robert Rubin) to go along with it.
(Latest sound bite: Schumer wants it done today.)
The Big Bank Job
The Insanity of the $700 Billion Giveaway
September 25, 2008
By MICHAEL HUDSON
As Financial Times columnist Martin Wolf noted on Wednesday, Sept. 24, the problem is that the face value of mortgage loans and a raft of other bad loans far exceeds current market prices or prices that are likely to be realized this year, next year or the year after that. They are packaged into what the financial press rightly calls “toxic.” The bailout is not efficient, he writes, “because it can only deal with insolvency by buying bad assets at far above their true value, thereby guaranteeing big losses for taxpayers and providing an open-ended bail-out to the most irresponsible investors.” “The simplest way to recapitalize institutions,” He concludes, is “by forcing them to raise equity and halt dividends. If that did not work, there could be forced conversions of debt into equity. The attraction of debt-equity swaps is that they would create losses for creditors, which are essential for the long-run health of any financial system.” This is the key: if debts cannot be paid, then creditors must take losses.
These bad loans are toxic because they can only be sold at a loss – if at all, because foreign investors no longer trust the U.S. investment bankers or money managers to be honest. That is the problem that Congress is not willing to come out and face. Many of these loans are outright fraudulent. And they are being sold by crooks. Crooks who work for banks. Crooks who use accounting fraud – such as the fraud that led to the firing of Maurice Greenberg at A.I.G. and his counterparts at Fannie Mae, Freddie Mac and other companies engaging in Enron-type accounting.
We’re done for. They’re determined to get it done this week or weekend, It’s going to be $700 billion. Will it include immunity? Any Congressional oversight will be meaningless – Bush would veto anything useful. It’s clearly going to do long term harm which is the point. Cheney and Bush are already chortling over another trillion added to the national debt. ( At the G8 Climate Summit in Japan in July, Bush joked to fellow leaders: “Goodbye from the world's biggest polluter.”)
One question is whether the bailout of the criminals will do any short term good.
The only possible silver lining is that McCain’s attempt at a bum rush into passing this thing may backlash.
But we’ve got to concede that they have handled this public relations job with malevolent brilliance. McCain’s numbers had been tanking -–who knows if this will stop the slide temporarily or not. But their main objective, to destroy the economy, to force Congress into doing the worst possible thing, barring some miracle, will have been accomplished. And this despite the whole country’s desperate anger over such a giveaway to the villains. Even worse, the Democrats and Obama are going to be seen as enablers at the very least.
Here's Michael Collins
Stunning ripoff isn't it. They threaten us with deprivation, then demand $700 billion. Who do they think they're kidding.
Peace, Michael Collins
The Money Party (7):
Bailout Blackmail - Just Say No!
By Michael Collins
Thursday, 25 September 2008,Wash. DC
We're being blackmailed into accepting the responsibility and debt for the worst managed financial institutions in the history of this country. The starting price, our debt, is $700 billion dollars.
What's really about to happen is that the failed financial institutions will be rewarded for their bad behavior. As a result, they and others will be encouraged to do it again. It's just a matter of time.
Link @ "Scoop": http://www.scoop.co.nz/stories/HL0809/S00311.htm
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