Noteworthy Comments on the Bailout

Here are a few exquisitely penned quotes from the financial blogs this morning regarding the government's latest bailout chapter:

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"This is still, at the core, very much like having a burst water pipe in the basement and the government's solution is to keep buying more paper towels to soak up the water. The water keeps coming and the government keeps buying more towels, which is not enough to keep the furniture from being destroyed. After a while, the basement becomes full of soaking wet paper towels and the leak is still going and the foundations are rotting - at which point the government announces they are out of paper towels and you are on your own. Right about then, someone may suggest calling a plumber to stop the leak but, unfortunately, all the money was spent on paper towels so a plumber is no longer a viable option!" - Options Trader: Outlook for Turnaround Tuesday

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"Read the stitches on the fast ball. Goldman Sachs transforms itself into a bank holding company during talks with the treasury. The treasury convinces Congress to give it $700 billion to buy bad assets from banks. The treasury decides not to buy bad assets but preferred stock in banks. Goldman Sachs, Henry Paulson's former employer, just happens to be a bank now. After the stock jumps by 87%, the treasury decides it is time to buy. The tax payers are on the line to bailout Henry Paulson's buddies." – comment by Yes Man at Preview of the Bank Buy-In

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"But that one-size-fits-all approach, especially when it's combined with the present bank management which got us all into this mess to begin with, is a recipe for hail-Mary passes and other forms of counterproductive risk taking.

If you're running an insolvent bank, and you get a slug of equity from Treasury, your shareholders will thank you if you use that equity to take some very large risks. If they pay off and you make lots of money, then their shares are really worth something; if they fail and you lose even more money, well, there was never really any money for them to begin with anyway…

There's no sure way to prevent such risk-taking altogether. But if you go the UK route and insist on board seats and the ouster of failed executives, it helps. That's what Treasury did with AIG, and they should do the same with the banks they're rescuing. If they don't, they're basically getting all of the downside of nationalization with none of the upside." – The Weakness of the Treasury's New Bailout Plan

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"To stimulate lending, the bailout plan will attempt to recapitalize banks. The method of recapitalization is best described as robbing Taxpayer Pete to pay Wall Street Paul. In essence, money is taken from the poor (via taxes, printing, and weakening of the dollar) and given to the wealthy so the wealthy supposedly will have enough money to lend back (at interest) to those who have just been robbed." - The Main Problem with the Office of Financial Stability Is Needing It in the First Place

"The genius of our ruling class is that it has kept a majority of the people from ever questioning the inequity of a system where most people drudge along, paying heavy taxes for which they get nothing in return." -Gore Vidal