Bailout plan failed

The house rejected the bailout plan today and Dow plunged over 700 points, losing over one trillion dollars. Wachovia was sold to Citigroup in a deal brokered by the FDIC and the DOW finished lower than when George W. Bush first took office in 2001. Sounds scary huh? Sounds like something needs to happen in Washington, this according t a couple of wall street executives..

`They’ve got to come up with something or the damage is unimaginable,” said Henry Herrmann, Overland Park, Kansas-based president and chief executive officer of Waddell & Reed Financial Inc., which manages $70 billion

`There’s a real opportunity for this thing to totally unwind into chaos if we can’t get some real direction from Washington,” said Russ Kamp, chief executive officer of Invesco Quantitative Strategies, which manages about $461 billion in New York.

Doom and gloom..doom and gloom, but are these executives urging for something to happen for selfish reasons and to protect their own butts? Dean Baker, co-director of the Center for Economic and Policy Research, doesn’t think we need this bailout plan in an op-ed,

The basic argument for the bailout is that the banks are filled with so much bad debt that the banks can’t trust each other to repay loans. This creates a situation in which the system of payments breaks down. That would mean that we cannot use our ATMs or credit cards or cash checks.

That is a very frightening scenario, but this is not where things end. The Federal Reserve Board would surely step in and take over the major money center banks so that the system of payments would begin functioning again. The Fed was prepared to take over the major banks back in the 80s when bad debt to developing countries threatened to make them insolvent. It is inconceivable that it has not made similar preparations in the current crisis.

In other words, the worst case scenario is that we have an extremely scary day in which the markets freeze for a few hours. Then the Fed steps in and takes over the major banks. The system of payments continues to operate exactly as before, but the bank executives are out of their jobs and the bank shareholders have likely lost most of their money. In other words, the banks have a gun pointed to their heads and are threatening to pull the trigger unless we hand them $700 billion.

Economists and others don’t agree on the bailout plans, but they all agree that something will need to happen.

These economists and financial executives concede their proposals have serious flaws, and some of the ideas, not surprisingly, are self-serving. But with the financial crisis worsening, they said Washington should act quickly with some plan to bolster public confidence.

Hum..I don’t know..I really don’t know..I think if the bailout plan contained stronger binding languages on CEO pays and golden parachutes, more protection for tax payers money and help for the mortgage situation that many homeowners are facing, I can support it more strongly.

There are several alternatives floating out there, some of which is listed in David Sirota’s article, including the idea of simply using the 700 billion dollars to help relief homeowners struggling with their mortgage. That would stablize the banks’ mortgage backed assets, thus allieviating the crisis. It’s an interesting concept, no less fair than giving Wall street the money. I don’t know which plan is the best, but I know that something needs to be done.

In light of the economic crisis – I shall suspend my partisanship and attack on Republicans to focus on our economic crisis or until the Thursday VP debate between Biden and Palin.

Out