If we throw a TARP over everything, will it all get better?

The problem with “quick fixes” is that the ramifications aren’t necessarily apparent at the beginning

FDIC

The FDIC has finally come up with a plan for mortgages. It addresses the realities of the mortgage market and the need to clean up underwater loans for the greater good of the economy. Although some will protest that it’s a giveaway to banks and imprudent borrowers, the facts are that recasting the mortgages so that they reflect good underwriting will be better for financial markets and will help the economy. Non-performing loans will become performing again and their values can be quantified, something that has been lacking.

Treasury

The new Treasury proposals are a perfect example of flailing about. First, they were going to buy nonperforming loans from banks to give liquidity to the market. Then they changed that to capital infusions. Then they realized that they needed to put restrictions on that capital so that it would be used in a manner that would have a positive effect on the economy, rather than to give banks the money needed for acquisitions, bonuses, and dividends. Most recently, they are looking at using the money that Congress allocated to free up consumer credit.

All good things, but they are coming in dribs and drabs. It appears that they didn’t really have a plan at the beginning, and are reacting, rather than being proactive. Don’t they have people who can see ramifications?

Automaker bailouts

The US automakers, over many decades, got themselves into their current situation by ignoring market trends and being greedy. Although there is a fear that they have to be “saved” so that unemployment won’t worsen, that’s a bad solution. In decades past, the “Big Three” constituted a major share of the county’s industrial output and were too big to fail. No longer. If they can’t compete in the market, they should fail. It wouldn’t be the worst thing. In their present configurations, they have too many remnants of the days when they only competed between themselves. If they had no choice but to go into bankruptcy, they, or their successors, would have the opportunity to delete redundant products, renegotiate franchise and labor contracts, and again become competitive. They may not survive as independent entities, but how important is that, really?