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It appears from today's Senate Finance Committee testimony that Hank Paulson and Ben Bernanke are getting eaten alive on both sides of the aisle. Since the world has not ended since Sunday night passed without another weekly multi-billion bailout, it looks like their desperate pleas for unfettered authority to spend $700 billion of our money are not working.
I was just watching the hearings and Paulson and Bernanke are looking like they have no idea what they are talking about. They keep mentioning how 'market mechanisms' will help people want to buy toxic waste when such mechanisms failed before their proposed $700 billion plan. They want to hire people from Wall Street to run 'reverse auctions' which will ask banks to compete to sell their toxic waste -- whoever is willing to sell for the lowest price wins.
This is an idea that comes from Bernanke because he thinks auctions work, based on academic research. But the simple fact is that the banks will need to write down their assets and raise capital if they sell below book value. So they will not participate in the auction.
Meanwhile, Congress is asking how this will work and whether taxpayers will lose money and if so, how much. Paulson and Bernanke cannot answer. If they had more to show for all their various efforts so far to save the system besides spending $800 billion of our money and a continued collapse in the housing and stock markets, their "trust me" argument might hold water.
But I think it's time for them to stop wasting Congress's time and our money and come up with a plan that will actually work. Although we are looking more and more like Venezuela every week, we are still a democracy the last time I checked. Let's give him the benefit of the doubt and say he is tired after spending every weekend coming up with another multi-billion dollar bailout that ultimately fails.
Perhaps it's time for Hank to get some sleep and then go back to the drawing board.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.
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Reader Comments (Page 1 of 1)
9-23-2008 @ 7:28PM
LiliMoM said...
Wake Up People ---- We are ALL getting the SHAFT ---- repubs and Dems alike from those who love no country ------ ONLY MONEY !Good Grief --- the money grubing financeers love that BIG INTEREST money they get from credit cards and inflated mortgage interest ---UP FRONT----the middle class started running out of equity --- so the big money grubbers lobbied to expand loans to people who would eventually default ---- that was the plan --- suck the last cent of interest out of people and then skim off their big payoffs and then default --- let the government come in and bail it out and then they turn around and buy up property/securites for pennies on the dollar and start all over again ---------- WHAT IS WRONG WITH PEOPLE That they can not figure out what the heck is going on!!!????!!!
9-23-2008 @ 11:37PM
BABS said...
I would feel better if I knew members of Congress were reading your blogs, Peter. I cannot imagine how paying anything but fire sale prices for these securities could protect the taxpayer. And why the rush? Are we to believe the banks will simply stop doing business until they are bailed out? Sounds like blackmail to me. Is anyone willing to call their bluff?