A Better Bailout

The Nation
by Joseph E. Stiglitz

09/26/08

The champagne bottle corks were popping as Treasury Secretary Henry Paulson announced his trillion-dollar bailout for the banks, buying up their toxic mortgages. To a skeptic, Paulson’s proposal looks like another of those shell games that Wall Street has honed to a fine art. Wall Street has always made money by slicing, dicing and recombining risk. This ‘cure’ is another one of these rearrangements: somehow, by stripping out the bad assets from the banks and paying fair market value for them, the value of the banks will soar. There is, however, an alternative explanation for Wall Street’s celebration: the banks realized that they were about to get a free ride at taxpayers’ expense. No private firm was willing to buy these toxic mortgages at what the seller thought was a reasonable price; they finally had found a sucker who would take them off their hands: the American taxpayer...

http://www.thenation.com/doc/20081013/stiglitz


Informant: Thomas L. Knapp

--------

Treasury Will Emerge With Vast New Power

Floyd Norris, The New York Times: "During its weeklong deliberations, Congress made many changes to the Bush administration’s original proposal to bail out the financial industry, but one overarching aspect of the initial plan that remains is the vast discretion it gives to the Treasury secretary. The draft legislation, which will be put to a House vote on Monday, gives Treasury Secretary Henry M. Paulson Jr. and his successor extraordinary power to decide how the $700 billion bailout fund is spent. For example, if he thinks it wise, he may buy not only mortgages and mortgage-backed securities, but any other financial instrument."

http://www.truthout.org/092908M



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