Enough!

It seems like the only solutions proposed are all just wild shots in the dark.
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So let me offer my own wild-shot "Fix" for the economy:

Forgive mortgage payments of everyone who makes under 50K a year, for one calandar year. Simple, just do it. Reimburse banks as necessary to keep them floating. People stay in homes, home values stabilize. People spend the money on things instead, boosting other areas of the economy. The buying of automobiles would look attractive and possible at this time...boosting another key element of the economy...

But that helps the little guy. And that is the ONLY thing wrong with it. Instead, you will see blind gifting to the rich until we reach the stage where France was at in the late 1700s.

It's either help the little guy now, or the rich are going down with all of us. No consumers = no rich people. Do the math for once Congress.

Mikkel, I agree with you. The way the bailout of the financial institutions has occurred is not really solving the problem. I understand that financial institutions can not spend the second half (actually less than half since) of the bailout money on dividends. At least that's what the Dems in the Senate required.

I also agree with you that the government should not buy massive amounts bad debt. That inherently is wrong. What I mean by that is if the debt is bad then in order for any such purchase to be effective the government would have to pay more to the financial institutions that what that debt is worth. All that does is subsidizes those financial institutions that sold the debt and received a nice premium from the government. It might make sense if the government insisted on warrants or something to give the government ownership in those financial institutions... the amount tied directly to how much debt the government bought. Perhaps if the government bought $100 face value of mortgages from a financial institution and paid $60 for it, then the government should insist on stock worth $60 in that institution. Whatever the figure is it should be a high cost to the financial institutions. They are the ones who made the business decisions to extend those mortgages, and if they want a bailout, then it should cost them. The benefit is that they will have to take a loss on their bad investments, but that loss is known and they can plan accordingly. Also the financial institutions should be able to tap into that multiple times. It's not a one time take-or-leave-it proposition.

It's interesting how many analysts and bank executives claim that the problems are worse than they expected. Didn't they get a college degree from somewhere? We knew that the recession is deepening and it doesn't take a whole lot of brainpower to realize that as the unemployment rate goes up that more defaults will happen on home mortgages.... Ken Lewis ought to be kicked out of BofA and not receive any compensation.

in this article I love the fact that Ken Lewis still received bonuses even though BofA significantly missed their own targets...

http://www.wcnc.com/localbusiness/localbusiness...

http://seekingalpha.com/article/98880-bank-of-a...

On the subject of nationalizing the banks. I think it's clear that Citi should be nationalized. Their market cap is $19 billion and the government has already given them double that amount under TARP. (I know it's more complicated than that, but essentially the government has given C more money than C is worth). Of course I don't expect that to happen since Saudi Prince Alwaleed Bin Talal Bin Abdulaziz Alsaud owns 5% of Citi. And he had just increased his stake in Citi by 1% in Nov.

I also think the government should nationalize Bank of America. But JPMorgan and Wells should not be nationalized since they are far superior companies. The only reason Wells got bailout money is because they were forced to take it by the government. Wells did not want it. One would think that the government would actually give bailout money to companies that actually needed to be bailed out.... That's not to say that neither Wells nor JPMorgan don't have problems- they both do.... and they may need bailout money before all this is over.... But when JPMorgan bought Bear and then took over WaMu, and then when Wells bought Wachovia, both banks knew that they would take a hit to their ratings and both banks planned on writing down tens of billions of losses... Wells planned on taking $70 billion in write-offs over the next year or so on the Wachovia purchase.

Anyway, I think the government does need to address the economic crisis and they are not going about it the best way.

I wish I could agree with you on Wells and JPM. JPM has trillions of CDS that are going to be triggered in greater numbers and tons of consumer debts going bad, both of which are increasing. With the next wave of foreclosures coming in Alt-A mortgages the purchases of Wachovia and Wamu are going to lead to at least 2-3x worse writedowns than anticipated. Remember to that most of their current projections assume that the recession will end by Q3 of this year and unemployment will top out at around 8%. I think realistically we're looking best case at recession lasting only another year, with unemployment topping low 10-11%.

Also, with all of the European banks just beginning this process, where they have MUCH bigger problems than us (like the top 10 banks are all larger than their countries GDP) the amount of international financial pain is way understated. Man, a 2/3 GDP bailout already in Britain and they are a few innings earlier than us.

All in all, I will be amazed if any major bank remains strong enough to avert nationalization.

I have a minor question I hope someone can answer. How genuine is the assurance that bailout money (second round) won’t be used for dividends? Is it even remotely realistic to think that the companies receiving bailouts can’t engage in some clever or even not so clever budgeting that shows, on paper, that none of the bailout funds went to dividends, yet which in reality made possible dividend payments that otherwise would not have been made absent the bailout funds? Dollar bills all act the same, whether they come from the treasury or from the late payment penalty on a credit card account. In organizations intrinsically engaged in enormous flows of money what can possibly prevent ex post facto accounting that is nothing more than a show for taxpayers (and a shield for legislators). I’ve had the opportunity to see how budgets in even a small and relatively simple organization can be shuffled between different accounts and different purposes to meet the letter of the law on restricted spending of a designated portion, enabling expenditures outside the restrictions. Let’s just say that I am extraordinarily skeptical of assurances that bailout funds won’t in fact make possible any dividend payments that otherwise would not have been paid.

mikkel, I'm not saying things will go according to plan for both JPMorgan and Wells, especially (as you rightly point out) if the credit default swaps are triggered at JPM. My comment was more to point out that both JPMorgan and Wells plan on writing down tens of billions of dollars over the next year or so as a result of their respective mergers. It will be very easy for investors and Wall St. analysts to see tens of billions of losses at these two companies and shout out how "bad" the management of these companies are and how they are going down the drain. When in fact large write-downs are already being planned by those companies.

Part of what I learned the past year is how investors can ruin a company (I'm thinking banks) that otherwise might have been able to withstand the balance book pressures of that time. Once investors lose confidence in a company they start selling their stock and it has a snowball effect.... and then as big drama happens over the fall of that stock, customers with accounts at that bank start pulling money out, which leads to more media coverage, more drama and more customers leaving. Two snowball effects, investors and customers fleeing, bringing down a company that might otherwise have lasted. I'm not saying the institution would have survived until the end of the recession, but I think some deaths of some financial institutions were premature.

And if conditions continue to deteriorate then JPMorgan could very well be nationalized. That's true of any company, depending on how bad the environment becomes. But both JPMorgan and Wells are better-run than other banks in their ranks. While Wells does have toxic crap on their books, its far less than JPMorgan's exposure.