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Robert Trigaux

Put Gordon Gekko in charge of bailout

17

October

Wake up and good morning. So... if Treasury Secretary Henry Paulson were a kid and presented this federal bailout package for Show n' Tell, how would it be received? With spitballs. The reviews of the government's actions to stabilize Wall Street and unglue the gummed-up credit markets are starting to pour in and there are critics aplenty. Paulson's "let's try this and this and mabe this" style: Is it flexibility or is he just winging it? NPR offers a round-up of assessments including this one from longtime financial observer Bob Litan, a former member of the Council of Economic Advisers and Brookings who helped shape the government's response in the 1980s to the S&L crisis:

"I think history is going to say that Secretary Paulson was doing New Deal experimentation on Internet time," Litan says.

Here's one worry. Is Treasury seemingly humongous bailout -- $700-billion and counting -- soon to be overwhelmed by the size of the hole we've dug financially? The rescue plan would spread $125-billion in new money to help recapitalize big banks, and another $125-billion to other banks (at least those deemed healthy enough to deserve it). BUT consider: Since mid-2007, when the credit crisis erupted, the country’s nine largest banks have written down the value of their troubled assets by a combined $323-billion. And that raises this question, explored in today's New York Times story: Will lenders deploy their new-found capital quickly, as the Treasury hopes, and unlock the flow of credit through the economy? Or will they hoard the money to protect themselves? The answer seems to be that it may take "quarters not months" before at least some of that money flows out in the form of new loans. Ouch.

Another argument explored in this AP analysis is: Why give more money to the very banks that helped get us in this fix? Is this throwing gasoline on a fire? Darn good question since each of the nine banks has received between $3-billion and $25-billion in taxpayer money so far. What do you think? Let's see some of your comments.

Here's one comment to get things started from economist Mark Zandi at Moody's Economy.com:

"The extraordinary government intervention is necessary at this time given the absolute loss of trust and confidence in the financial system." He adds: "We don't have the luxury to debate the issue of moral hazard at the time of panic."

Hmm. I don't know about you but in these nasty economic times I increasingly employ gut checks and sniff tests. I'm not liking the feedback. And speaking of moral hazard, what better time to revive Wall Street's ultimate symbol: Gordon "Greed Is Good" Gekko?  Reports say 20th Century Fox is apparently moving forward with a sequel to “Wall Street,” Oliver Stone’s 1987 Academy Award film of malevolent corporate raiders. Maybe the sequel will win in the documentary category.

All of this is happening while Florida wrestles with its own economic demon: Slow going until 2011. In St. Petersburg yesterday, a group of Florida business executives heard a rough outlook from a pair of economists. The state's economy already was in trouble from the housing market bust when the national financial system meltdown added to our woes, University of Florida economist Dave Denslow told the board of Enterprise Florida, our statewide economic development agency at its quarterly meeting. Here are two takes on that meeting from the St. Petersburg Times and the Miami Herald.

Hey, let's start this beautiful Friday on a lighter note. As area public relations honcho John Heagney offers, in passing this joke along, we could all use a laugh these days:

Within the past 30 days, the following came to pass: If you had purchased $1,000 of Delta Air Lines stock one year ago, you would have $49 left. With Fannie Mae, you would have $2.50 left of the original $1,000. With AIG, you would have less than $15.
But, if you had purchased $1,000 worth of beer one year ago, drunk all of the beer, then turned in the cans for the aluminum recycling REFUND, you would have $214 in cash.
Based on the above, the best current investment advice is to drink heavily and recycle.
It's called the 401-Keg.

Have a great day and weekend.

-- Robert Trigaux, Times Business Columnist

[Last modified: Tuesday, June 1, 2010 12:22pm]

    

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