Just sent emails to Kerry, Kennedy, and Capuano

[prog]

I urge my fellow Americans to join with me on this action. You can find your state's senators here and find your district's representative here.

I dashed this off myself in a minute. You can copy it if you'd like, but I encourage you to come up with your own words, too.

Dear $TITLE $LASTNAME

Comments

[gemini6ice]

What companies are you talking about, exactly? I'm talking about AIG, for one. Which is a loan.

Banks like Merrill Lynch and WaMu? The government is doing no more than assisting in finding buyers.

Freddie Mac and Fannie Mac? The mortgage interest rates have settled down since they took over... which leads to (probably) fewer foreclosures and, consequently, the gov't seeing its investments returned over time with income on top.

The proposed "bad debt entity"? Yes, I agree with you, that would be a form of a hand-out if unnecessary premium prices were paid. But that isn't what we're talking about... I thought. However, the point of a bad debt entity is just to get these troublesome securities temporarily out of circulation... Why can't the gov't purchase them at market prices?

Krugman says "And even if the vicious circle is limited, the financial system will still be crippled by inadequate capital. [P] Or rather, it will be crippled by inadequate capital unless the federal government hugely overpays for the assets it buys, giving financial firms - and their stockholders and executives - a giant windfall at taxpayer expense." I have not seen any evidence that the federal plan actually entails inflated prices. This sounds like an assumption on Krugman's part.

If it's at market price they can sell it in the market

[radtea]

If purchasing bad debt at market price would be adequate to salvage these incompetently managed companies then there would be no need for a bailout because the companies could sell their debt in the market at the market price. That's not an assumption, it's a tautology!

There is a price at which this toxic paper will circulate, and that's the market price. It's just way below what the incompetents need to survive.

So either the bailout plan is a needless waste of taxpayer money, buying debt that could be sold in the market at exactly the same price without putting the taxpayer on the hook for anything, or it will involve buying debt with taxpayer's money at inflated prices.

If the former, then obviously no bailout is needed and spending public rather than private dollars is unconsionable.

If the latter, then the taxpayer is paying incompetents a premium for the assurance that those self-same incompetents will prosper to screw up another day. As a free bonus they also get a huge power-grab by the Secretary of the Treasury, who wants the power to command without judicial oversight.

[radtea]

Here's another commentator making the same point in somewhat different language:

http://www.247wallst.com/2008/09/paulson-plan-sh.html

It took me a while to get my head around Krugman's point, and I think McIntyre says it more clearly.