ABG

Curing the Credit Crisis: A Better Alternative Plan

Yes. Left-coaster, I do want to fix blame. Blame MUST be fixed upon the guilty. Those that caused so many problems for everyone else cannot be allowed to prosper, by being subsidized by the rest of us.

Moral hazard is not only theoretically bad, but it also can cause recessions and depressions, both inflationary and deflationary.

Anger and resentment by the majority of the population must be capped by appropriate remedial action to insure that those who caused these problems do not walk away "scot free". If that is allowed to happen, loss of faith in our way of life will course through the population. Faith is what determines, ultimately, whether or not there is recessions, depressions or boom times, not the mathematical amount of money that we throw at a problem. Indeed, money is merely an abstraction, representing storage units for past work that give you the right to purchase someone else's work in the future.

Loss of faith will torpedo the American economy more thoroughly than any amount of bailout money can fix, no matter how we give it out as gifts to financial institutions or others. You cannot simply throw money at this problem and hope it goes away, as the Bush Administration apparently wants to do.

This problem needs to be solved in a way that appears fair to the American people. That includes fixing blame upon the guilty, recognizing incompetence, and insuring that there are some consequences for bad or inept behavior.

I do not claim to have the perfect plan. It is only a framework for an alternative. Some comments to this article are very good, and could improve the basic concept. However, simply printing and then throwing money onto a problem, like this, without imposing any consequences, subsidizes of incompetence and malfeasance. That will injure the soul of our nation a generation, or, maybe, longer.

Curing the Credit Crisis: A Better Alternative Plan

Invest On Fundamentals,

I disagree. It is clear from what Bernanke said, that the Treasury intends to pay very near full price, if not full price. You ought to do some research yourself.

The Federal Reserve has already been paying very close to full price, with respect to very similar mortgage backed securities that Mr. Bernanke has polluted its balance sheet with. They take a very small "haircut" to the par value, but it is insignificant compared to the nature of what they have accepted in exchange for good collateral in the form of Treasury bills.

We must not rush out and do the first thing that comes into the minds of Paulson & Bernanke. They have both already been proven to be wrong, time and time again. There is no reason to believe they are correct, now. They had 1 year and 2 months to come up with a well planned vision of what to do, and to bring it to Congress. Why, then, the rush?

The problem is that they had no vision, then, and they have no vision, now. Their "plan" is is just plain wrong headed. Far more permanent damage will be done by rushing into throwing away $700 billion, than can possibly be done by debating the issues adequately.

Dollar Bulls and Bears Struggle for Dominance

I should note that they sold $9 billion worth of euros to perform the dollar pump which started on July 15, 2008, but ran out of them last week. Now, they've bought more, but they've got precious few euros left, so they won't be able to do this much longer. Beyond that, the euros are quickly exhausted when you use them up to buy derivatives. Unlike China, the USA does not hold enough foreign currency reserves to really affect the currency markets without the use of leveraged derivatives.

Dollar Bulls and Bears Struggle for Dominance

Sorry, but there are no real dollar bulls, except for simple people who don't know much about the market for currencies. Everyone who understands the currency market is a bear on the dollar. The only bull is the United States ESF (exchange stabilization fund) which sold another $900 million in euros, and is now using them to buy dollar denominated derivatives to keep part of the existing dollar supply from rising. That is the only reason the dollar is showing strength. As soon as they run out of the money, they won't be able to pay interest anymore on a trillion or so worth of dollars, and the dollar will collapse.

Curing the Credit Crisis: A Better Alternative Plan

dbjn, I agree that the mismanagement of the American economy has been bipartisan, over 21 years, and not the fault of Republicans alone. That being said, George Bush (not necessary alot of other Republicans -- Senator Bunning and Ron Paul being Republicans also!) has run a crony capitalist administration, with little regard for right and wrong, and high regard for satisfying the greed of those who are his allies.

Curing the Credit Crisis: A Better Alternative Plan

Jakester, you make a very good point. Limiting bank insurance to the contracted amount of $100,000 might be a better choice. We might use the extra funds to give some type of limited insurance up to $100,000 in money market accounts.

You comment illustrates the thoughtfulness of the American people, and their willingness and courage to think for themselves! It also shows the need to take the time to debate even the best intentioned rescue plan, in order to make sure it is workable and wise, rather than ramrodding it through Congress.

What Effect Will Hyperinflation Have?

There are differences between America, today, and Germany of the early 1920s. For one thing, the German mark was not the international exchange currency back then. The British pound was. The fact that so many foreign nations are dependent on the value of their U.S. dollar reserves means we will get more a lot help from abroad than the Germans got.

So, the article does not propose that we will have hyperinflation of the same extent as Weimar Germany. Weimar Germany is simply the most studied example of hyperinflation. I consider rates of 20-30% per year to be hyperinflation.

I don't see the dollar at 1 trillionth of its present value by 2011. But, I do think that a 75% devaluation is very reasonable, given the circumstances. Weimar Germany is used as a model, in this article, not for the numbers, but, rather, for the type of behavior leading to high inflation.