Should Obama support this RTC bailout of banks?

[Alhena]

I've been doing some research and McCain proposed yesterday that the Resolution Trust Corp be re-formed, and the Bush administration appears to be in favor of it. That would seem to leave an opening for Obama to come out in favor of the taxpayers and not spending hundreds of billions of their dollars to bail out banks.

The only problem is that Senate Banking Committee Chairman Chris Dodd is on the record as supporting the idea, so it may be the case that this is simply a bi-partisan good idea that Obama will have to embrace. My gut feeling and that of people I've talked to is to oppose a massive taxpayer bailout of banking crooks who were making bad loans and raking in profits. But I'm not sure Obama can take that position with Dodd supporting the idea. What do you guys think?

[Kurt_and_Hunter]

1. If Obama came out against it he would lose, and deserve to

Only hard-core wing-nuts will oppose a "RMT' solution.

The hope is that McCain will be the one pretending to stand up for the taxpaters by opposing it. That would eliminate all 'opinion-making class' support and turn all of wall street against him.

[Alhena]

2. McCain has already come out in support of it

[Newsjock]

4. And why is that?

Why should I be paying with *my* financial future to bail out irresponsible Wall Street fat cats who gambled and lost, and now might lose their precious $5 million co-ops on Fifth Avenue?

"Because not doing so would only make it worse" is not an answer. The people who profited from this bubble should be the ones paying for it, right down to seizure of ill-gotten assets if necessary.

I don't want my money to turn into Zimbabwe dollars, thank you.

[Kurt_and_Hunter]

10. "Because not doing so would only make it worse" is the only reason for the gov. to do anything

[MercutioATC]

12. I disagree. Obama should push the "fiscal responsibility/no government intervention" theme.

Merited or not, Democrats are the "tax and spend liberals". Make McCain the guy who advocates spending our tax dollars to bail out big business while screwing the average American.

In this situation, al solutions are painful. Let US be the ones arguing for fiscal responsibility.

[Mojambo]

3. It's one of those lesser of two evils things

We have to save a bunch of irresponsible billionaires to keep the rest of us from suffering through a huge depression.

30 years of Reaganomics have tied the economy to the interests of the uber-rich. It sucks.

[Alhena]

5. Why not just let the FDIC handle bank failures as they happen?

That will ensure the little guy keeps his up to 100k in deposits. You can kiss universal health care goodbye if we're spending a few hundred billion on this crap, even if Obama wins.

[Mojambo]

8. Personally I'd love to see it play out that way

But if Obama advocated it I think it would be seen as too passive a response to the situation.

[Alhena]

9. Maybe among the elites, I suspect the guy on the street would support him

[ProgressiveEconomist]

11. The devil is in the details of any bailout plan. The RTC of the 80s and 90s did not have to BUY

the assets it then liquidated. Back then, bankks could not easily "lay off" their bad loans entirely, the way they can now. So when the FDIC took over a failed bank, it automatically came into possession of a portfolio of bad loans.

Since the advent of almost complete separation of "loan origination" by banks from ownership of portfolios of bad loans, any financial bailout would have to be much more complex than was RTC. Most of the bad loans would have to be BOUGHT from a variety of financial sources, including investment banks, big brokers, hedge funds, and other entities.

If, as Jim Cramer has suggested, a new RTC simply offered 30 cents on the dollar to all comers, I would oppose such a plan. The value of assets held by failing institutions would sometimes be much more and sometimes be much less than 30 cents on the dollar. The institutions that would sell to the Treasury voluntarily would naturally be those whose assets truly were worthless. Taxpayers would stand to get NOTHING back for potential socialization of trillions in losses, paid to those who already had made trillions in ill-gotten profits.

But if a new RTC would pay fair prices for assets of failing institutions, get control of most possible future net income of those institutions, and ultimately stand to make profits to offset potential trillions in bailout costs, I'd look on such a plan more favorably.

Other aspects of a plan I'd support would be substantial attention to the plight of millions of homeowners delinquent on their mortgages or already in foreclosure, loans rather than asset purchases for institutions who just need to slow down their own liquidation of illiquid assets, and purchase of some financial and other assets by hard-assets Social Security and Medicare Trust Funds.

[mohc]

6. The concept flies in the face of the core principles of Republicans

Obama needs to frame this as the Republicans causing this mess, having no solution of their own, constantly decrying the fallacy of government intervention, and then in the end taking a liberal approach to the solution. He should say while he thinks it may be the only solution right now, the real problem was letting it get this bad in the first place. People have already lost their homes, jobs, and health care. The time for action has long past and the only bright lining here is that the Republicans have admitted their utter failure and taken a more "Democratic" approach to things.

[Runcible Spoon]

7. nothing but a sweeping nationalization of the banking system will change anything

I'm curious to see how many banks will fall before voters get sick of everything else being cut to bail them out. Small deposits need to be kept insured and guaranteed, failed banks need to have their liquid assets sold off, majority shareholders and CEOs who made these horrific decisions should lose every stake in the company, not walk away with tens of millions.