Should government buy toxic debt?
The bailouts so far haven't generated much of a bump on Wall Street, but the proposal for the government to buy and hold $800 billion in "toxic debt" is well-received. Scott Jagow asks an expert what's up.
A trader works on the floor of the New York Stock Exchange. (Spencer Platt/Getty Images)
More on The Economy, Wall Street, Fed. Budget/Govt. Spending, America's Financial Crisis
TEXT OF STORY
Scott Jagow: Let's look into this a little more. We're joined by David Buik, a partner with the brokerage firm, BGC Partners in London. David, so far, the stock markets have barely responded to all these government bailouts. Why is this plan, even though we don't have the details, getting such a positive reaction?
David Buik: The difference is, Scott, is the fact that supposedly using the euphemism "a bad bank" will be set up whereby all the banks can drop their toxic debts into it to the tune of perhaps $800 billion together with $450 billion worth of insurance, on, you know, to cover that risk. You can say it's pretty cosmetic, but what I think everybody is extremely concerned about is the length of time it's taking for the banks to be in a position to say that they don't have to write down debt. As we know with this toxic debt, somebody is going to make a king's ransom out of it, eventually.
Jagow: So, who's going to benefit? If the government buys them up, will the government benefit?
Buik: The government will buy them up, but it won't be cost free, and one has to hope that because the U.S. taxpayer has been absolutely asked to stand behind Fannie and Freddie, as well as Bear Stearns and as well as AIG for the time being means that they've paid their debt to society. And they want their money back, and there're totally justified in thinking that.
Jagow: Does it seem like to you that the U.S. government is trying to speed up this process of healing here and get to the end of the tunnel?
Buik: Yes. And I also think it's trying to stabilize the market. And at the moment it's working. But the problems we need to know are not over. This is a magical and a very sharp relief rally. But anybody who thinks it's all over by the shouting. Get real, because it isn't.
Jagow: All right, David. Thanks for joining us.
Buik: Pleasure.
Comments
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From Hamilton, MA, 09/19/2008
Both OBama and McCain address that they want to help small business. The reason for this downfall is due to the government helping out big business, big government and huge corporate monopolies. My business did best under fair trade. Today the big manufacturers in Japan such as Yamaha, Toyota, Nissan, Honda dictate who represents their trade named product. Years ago everyone had a chance on a level playing field to represent any and all products and manufacturers. Today only a select few are allowed to represent Yamaha pianos, Toyota automobiles or Honda Motorcycles. As a result of deregulation, Manufacturers can dictate the minimum retail selling price. No dealership can go below the minimum retail selling price or the dealership will be terminated. From a Yamaha trumpet or grand piano to a Honda automobile or a Toyota automobile people can no longer shop competetively due to price fixing, restraint of trade and violations to the Sherman AntiTrust Act enacted to protect consumers and offer product for sale by small business. The Sherman AntiTrust Act guaranteed that the manufacturers would not have control over a products selling price and that the market would find its' level in the market place and the consumer would win by having products of the utmost quality compete for their dollars through a network of small and in many cases famiily owned businesses. These businesses over the past forty years have been driven out of business due to deregulation, allowing manufacturer control the price and dictate who and whom will sell their product. In other words, built in descrimination and profit only goes to the big business and corporations which are large enough to take advantage of the lower buy-ins on inventory. These buy in are much lower than an independant business would buy in on inventory.
Bill Scotti
09/19/2008
Ofcourse govt should by toxic debt from private banks. Year end is coming and bankers need their bonuses to feed their families. You cant let their families starve.
For eople thinking about free market principles: Dont worry!!! They are still intact. Free markets apply when you buy potatoes at the supermarket. The potato price is determined by supply and demand. At the same time you cant apply the free markets the privileged bankers. They are the life blood of capitalism and they need to be taken care of, when there are hiccups.
From Denver, CO, 09/19/2008
GREAT .. the American middle class gets to reap once again, the cost of the Republican deregulation and trickle down experiments. They’re still ringing that bell of ‘change’ for the middle class and like dogs we are salivating.
As a independent who is taxed to death on property taxes, income taxes, and every other tax corporate American avoids I am nauseated.
From Laguna Hills, CA, 09/19/2008
The US is supposed to be a FREE MARKET SOCIETY. The markets will work out the problems. People need to feel pain as well as gain. These same people certainly rode a high too long – they reaped the benefits from questionable and illegally manufactured gains by selling bad products taking advantage of every possible ill-advised angle conceivable.
THESE GREEDY CROOKS NEED TO BE IN JAIL. The BUSH/CHENEY/McCAIN bailout due to lack of a policy must be stopped. Hank Greenberg, former CEO of AIG was so proud to have hired the people who bankrupted Drexel Lambert with questionable and illegal products. Let Greenberg and these people pay – instead of bailing out their greedy companies and giving them Millions of dollars – HUNDREDS of millions of dollars in salaries and benefits. Paulson is a sad puppet. Stop him now. We need transparency.
The middle class cannot take this burden. We are headed for a depression of epic proportions.
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