Instead of tapping the taxpayers for the $700 billion, how about given the central bank ownership of the oil rights to the off-shelf and ANWAR oil fields. In the oil business right now the only companies making money are the ones with rights to the oil in the ground. Those funds might cover the bill … not come from the taxpayer directly … and in the short term help oil supplies and prices.
Hmm. Interesting?
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I’ve been thinking about this…maybe you and others can help tighten these thoughts out:
1. We have money that has to go somewhere. This is from countries like China and Saudi Arabia, millions of 401K accounts, cash balances in checking accounts, businesses currently running cash surpluses, casinos taking in buckets of quarters and so on.
2. We have financial institutions which normally would take that money. But those institutions hold exotic assets whose value is unknown. Why unknown? Because it doesn’t trade on an organized market and the only way to price it is to employ theoretical models or guess. If we take the hard assumption that these assets are worth $0 then many of those institutions will be bankrupt and why put your money in a place that may not be able to return it? (FDIC insurance is only for individuals and only for $100K. If you’re sitting on millions of dollars…even just in an operating checking account….you need to think carefully where you keep that).
3. So this plan is give money $700B of treasury bills which they will like because US gov’t debt is seen as super safe these days compared to the local bank. Then the Treasury gives the $700B to the financial institutions.
Here’s my take:
$700B cannot be stored in a mattres. The money has to find its way to financial institutions or new institutions will be made to fill the gap. It seems like you can save a lot if you just concentrated on borrowing to cover the FDIC deposits of failing banks & some other strategic sectors and maybe provided people with reasonable credit a way to escape sub-prime adjustable mortgages and switch into normal fixed ones.
The ‘exotic assets’ held by the financial institutions sooner or later will play out. Since the adjust rate mortgages were created with an eye for refinance later on, people redeeming them for new fixed mortgages will generate income to those holding the assets. The financial institutions will sooner or later be able to figure out how to price them in a normal market or hold them until they turn into cash again (and/or shrink as a portion o their balance sheet).