A bailout, reconsidered
10/1/08 | 9 comments
Editorial

A bailout, reconsidered


By BDN Staff
BDN Staff

Here’s some perspective on Congress’s failure to pass a financial rescue plan: As soon as the House vote was announced Monday, the stock market plummeted, falling nearly 800 points and wiping out more than $1 trillion in assets.

Many will point out that the market “losses” were only on paper and that the market rebounded a bit on Tuesday. This is true. But the $700 billion price of the bailout was only on paper, too. And, on paper, it appears the cost of doing nothing was more than the cost of the bailout.

The bigger message is that financial systems — around the world; this mess isn’t just clobbering Wall Street — crave certainty. With House rejection of the rescue plan, certainty — or at least some level of it — vanished, causing a massive sell-off.

Public outrage over the bailout is understandable. Big investment companies made bad decisions and put trillions of dollars into investments that even analysts can’t explain. Why should their mistakes be remedied with taxpayer dollars when no one is offering rescue plans to homeowners who were talked into mortgages they couldn’t understand?

One answer, that is far from satisfactory, is that the stakes — further erosion of the U.S. economy — are too high to not have the government buy up the troubled assets.

The other, which is troublingly vague, is that the bailout won’t cost $700 billion. When the government, sometime in the future, sells the securities after markets have stabilized, much of the $700 billion, perhaps all of it or even more if they sell for a profit will be returned to the treasury. The Congressional Budget Office, in a recent analysis, says the bailout likely won’t cost taxpayers $700 billion, but it refused to hazard a guess as to where between zero and $700 billion the program would actually cost.

This vagueness, and the lack of consideration of alternatives, prompted 2nd District Rep. Mike Michaud, along with 94 other Democrats, to vote against the bill. “In the end, after a very careful review and meetings with top economists and financial experts, I concluded that the package as presented to the House for a vote did not adequately protect the taxpayer,” he said Monday.

For 1st District Rep. Tom Allen the risk of inaction was the deciding factor in his vote for the plan. “It is unconscionable that the House failed to reach consensus on legislation to stabilize financial markets as America stands on the brink of the worst economic crisis since the 1930s,” he said. “The jobs, the savings, the homes, the educational opportunities and the retirement security of millions of Americans are at risk.”

Both perspectives are right. The difficulty for lawmakers as they try to craft a more palatable package is to accommodate both. Cutting capital gains taxes (people and companies that are losing money don’t have gains to tax) as House Republicans have suggested isn’t a solution, nor is solely increasing the amount of savings deposits that are insured as Democrats have pushed.

In the absence of realistic alternatives, a phased rescue plan with strong oversight must be passed soon.

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Comments
9 comments on this item
On 10/1/08 at 6:15 AM, ShawnDaily wrote:         Repeated separate thumbs down will cause comment to be hidden

Again the Bangor Daily News could not be more in the tank for Democrats. Allen votes for the bailout and Michaud votes against it. In your view both are correct. Way to go out on a limb there guys. Maybe you should rename your newspaper the Bangor Democrat News.

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On 10/1/08 at 8:02 AM, Coolfusion wrote:         Repeated separate thumbs down will cause comment to be hidden

Once more the BDN distorts the facts. The DOW dropped 11,120 to 10,800 (320 points) HOURS BEFORE THE VOTE BELIEVING IT WOULD PASS .. and then another 480 points after the vote OF WHICH WAS RESTORED YESTERDAY when sounder minds prevailed. In fact the DOW is higher today than any day last week when contrived panic being generated by self-serving politicians and wall street insiders was the mood of the day. It's clear.. the free market believes that the bailout bill is a fraud, ill-advised, and dangerous to the economic future of the united states.

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On 10/1/08 at 3:25 PM, glenna wrote:         Repeated separate thumbs down will cause comment to be hidden

What I found interesting was - before the vote McCain was telling us that the bill about to be voted on in the House was "great" - and then NOT ONE of the Representatives from Arizona (McCain's state) voted for it. So who was McCain talking to last week (remember all those press pictures of him in the halls of Congress with his cell phone pressed to his ear)? His broker, do you think?

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On 10/1/08 at 6:19 PM, WRofGlenburn wrote:         Repeated separate thumbs down will cause comment to be hidden

It sounds to me that Tom Allen is little more than a hysterical twit. I think his wheels are coming off! I don't necessarily agree with Mike Michaud but at least he sounds like an adult.

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On 10/2/08 at 1:45 PM, deace1 wrote:         Repeated separate thumbs down will cause comment to be hidden

Would it really be a death sentence for us to just let the banks and morgage companies deal with their own financial mess? Sure it would be tough for awhile but in the long run corporate America might come to the stark realization that the taxpayers are not a "bailout" coffer. This might make some of these spoiled, overcompensated, sniveling CEO's think twice about playing outside the box if they realize that they have to pay the piper in the end.

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On 10/2/08 at 1:55 PM, deace1 wrote:         Repeated separate thumbs down will cause comment to be hidden

I don't have a significant "nest egg", a 401K, or any other hidden wealth. I do have a job. I pay my bills. I don't finance more than I can comfortably pay installments on. If corporate america goes belly up tomorrow I will survive. Oh, I know that I would have to for go some luxuries like Electricity, Gasoline, Mail service, etc... I could just fish and hunt for food. Raise a garden. Share and swap with my neighbors. Maybe buy a horse to get to town. My kids would have to survive with only one or two pairs of shoes/sneakers. Certainly no cell phone, internet or cable TV. We could play monopoly or cribbage in the evening. Maybe a softball game on Sunday afternoon. Yes...the Waltons way of life. Plunking my little tushy down on a frosty two holer on a February morning. Using wood for heat and cooking. I think that after only a year or two of that lifestyle we could really negotiate with oil companies and other big business because they would be struggling right along with us.

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On 10/3/08 at 7:17 PM, ambajejuslake wrote:         Repeated separate thumbs down will cause comment to be hidden

I'm against the $85,000,000,000.00 bailout of AIG.

Instead, I'm in favor of giving $85,000,000,000 to America in a We Deserve It Dividend.

To make the math simple, let's assume there are 200,000,000 bonafide U.S. Citizens 18+.

Our population is about 301,000,000 +/- counting every man, woman and child. So 200,000,000 might be a fair stab at adults 18 and up..

So divide 200 million adults 18+ into $85 billion that equals $425,000.00.

My plan is to give $425,000 to every person 18+ as a We Deserve It Dividend.

Of course, it would NOT be tax free.

So let's assume a tax rate of 30%.

Every individual 18+ has to pay $127,500.00 in taxes.

That sends $25,500,000,000 right back to Uncle Sam.

But it means that every adult 18+ has $297,500.00 in their pocket.

A husband and wife has $595,000.00.

What would you do with $297,500.00 to $595,000.00 in your family?

Pay off your mortgage - housing crisis solved.

Repay college loans - what a great boost to new grads

Put away money for college - it'll be there

Save in a bank - create money to loan to entrepreneurs.

Buy a new car - create jobs

Invest in the market - capital drives growth

Pay for your parent's medical insurance - health care improves

Enable Deadbeat Dads to come clean - or else

Remember this is for every adult U S Citizen 18+ including the folks who lost their jobs at Lehman Brothers and every other company that is cutting back. And of course, for those serving in our Armed Forces.

If we're going to re-distribute wealth let's really do it...instead of trickling out a puny $1000.00 ( 'vote buy' ) economic incentive that is being proposed

by one of our candidates for President.

If we're going to do an $85 billion bailout, let's bail out every adult U S Citizen 18+!

As for AIG - liquidate it.

Sell off its parts.

Let American General go back to being American General.

Sell off the real estate.

Let the private sector bargain hunters cut it up and clean it up.

Here's my rationale. We deserve it and AIG doesn't.

Sure it's a crazy idea that can 'never work.'

But can you imagine the Coast-To-Coast Block Party!

How do you spell Economic Boom?

I trust my fellow adult Americans to know how to use the $85 Billion

We Deserve It Dividend more than I do the geniuses at AIG or in Washington DC

And remember, The Birk plan only really costs $59.5 Billion because $25.5 Billion is returned instantly in taxes to Uncle Sam.

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On 10/4/08 at 5:39 PM, Harrry wrote:         Repeated separate thumbs down will cause comment to be hidden

A reply to ambajejuslake: True, it will not fly, however had you factored in a certain contribution to each of our elected leaders then it might work. 'We the people', should not have to bail out any bunch of crooks.

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On 10/7/08 at 7:50 AM, Coolfusion wrote:         Repeated separate thumbs down will cause comment to be hidden

AMBAJEJUSLAKE.. Just one problem with your contrived plan.. $85 Billion divided by 300 Million is $425. not $425,000. Are you a MMA graduate?

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