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We Don't Really Need a Bailout

With investment banks dead, the point of this is ... what, exactly?

By Kevin Spak, Newser Staff

Posted Sep 25, 2008 1:22 PM CDT

(Newser) – Now that all the big investment firms are no more, why exactly do we need a bailout? Paulson’s plan involves buying assets that are illiquid, but not worthless. “But regular banks hold assets like that all the time,” writes James Galbraith in the Washington Post. “They’re called ‘loans.’” Runs on non-investment banks only occur when investors panic. Eliminate the arbitrary $100,000 cap on FDIC insurance, and there will be no reason to panic.

The government could toss, say, $500 billion into the FDIC as a “cosmetic gesture” Galbraith says, leaving $200 billion for strategic preferred stock buys, like the one Warren Buffett just completed with Goldman Sachs. Leave hedge funds alone: “You can’t save everyone, and those investors aren’t poor.” This plan wouldn’t revive the economy overnight, but it would do what a bailout wouldn’t: eliminate the systematic financial threat.

[Images (3)]

[Quotes (1)]

Treasury Secretary Henry Paulson, Jr. speaks during a news conference in Washington, Sunday, Sept. 7, 2008 on the bailout of mortgage giants Fannie Mae and Freddie Mac. (AP Photo/Susan Walsh)

The building on Broad Street in New York's Financial District that houses brokerage firm Goldman Sachs is shown in this June 12, 2007 file photo. (AP Photo/Richard Drew, file)

The current amount of the U.S. national debt is shown on the National Debt Clock in New York, Tuesday Sept. 23, 2008. (AP Photo)

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The financially challenged customer isn't Uncle Sam. He's up on Wall Street,
where deregulation, greed
and fraud ran wild. - James Galbraith

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We Don't Really Need a Bailout