Is there an upside here for taxpayers?
Host Scott Jagow turns to Fortune magazine's Allan Sloan to get his take on the administration's $700 billion mortgage bailout plan. Sloan says he's outraged that there's no obvious plus for taxpayers.
Allan Sloan is a senior editor-at-large at Fortune (APM)
More on The Economy, Politics, America's Financial Crisis
TEXT OF STORY
Scott Jagow: You know who we haven't talked to in a while. Mr. Sloan's been a little busy with covering Wall Street. But I finally caught up with him at home. Allan, when you heard about this $700 billion bailout. What did you think?
Allan Sloan: I was outraged and I said, Are they crazy? Have they lost their minds? They're going to buy $700 million of stuff from banks, undoubtedly more than the market price, because otherwise the banks have no reason to sell to them. This is somehow going to get banks to loan again? This sounded to me like the biggest trickle-down theory in history, and it made absolutely no sense. Here are we, the taxpayers, and we're supposed to end up with this garbage to help the banks and nowhere was there any mention of us, the taxpayers, have any upside or any stake in the bank.
Jagow: But if the government buys up this bad debt and then later it increases in value and the government sells it, won't taxpayers benefit?
Sloan: Well it would, but I think the odds of that are vanishingly small. And my theory is that there are endless things that no one is using. There's this special borrowing mechanism the Fed set up where you could bring your garbagey assets, borrow against them at a rate that's now 2.5 percent and that way you would have plenty of money. So, what I was wondering was how come very few institutions and maybe none are borrowing at the Fed and borrowing money that way and using that money to roll over their short-term loans.
Jagow: All right, but now we're in this situation, instead of buying up bad mortgages, what would you have Congress do if there is going to be a bailout?
Sloan: Instead of buying these assets at too much money and being stuck with them what we could do as taxpayers is put money into the banks and invest in their stock. OK, these banks all need new capital, let's buy the capital and that way there's an upside. I'd much rather as a taxpayer have a piece of the upside than these assets.
Jagow: Allan, you've been covering Wall Street for a long time, how does this situation compare to previous times when we've had calamity, like the S&L debacle, for example.
Sloan: I have never ever seen anything like this. Never. And I've been doing this for 40 years. I have never seen such disruption and disaster and potential for even more disaster. I suspect that things were like this before the Great Depression, though I don't think a great depression is coming. But I was not alive to see that lead-up, so I can't say from personal experience.
Jagow: All right, we'll check back with you in a few days, Allan. Allan Sloan from Fortune magazine, thanks.
Sloan: My pleasure, Scott.
Comments
Comment | Refresh
From freeport, ME, 09/29/2008
Thanks to Marketplace for tracking down Allan, and getting his views on air (and on tape). I heard about :30 of this last week, and sat down this morning to read-up on the proposed bailout legislation, contact my representative in the House, and try to find some reason to hope in the remnants of our Representative Democracy.
This service helped in these endeavors.
Thanks, again, for providing it.
From Tucson, AZ, 09/24/2008
This plan is Welfare for Warren Buffett. Does anyone else find it obscene that he gets a sweetheart deal while we taxpayers are expected to buy Goldman's trash at prices nobody else will pay?
If the banks are insolvent, they should fail. The government needs to seize them, not just "take an equity stake."
From Caribou, ME, 09/24/2008
I would like to know what the name is of the special borrowing mechanism at the Fed that gives you the 2.5% interest rate with garbage assets. Its very interesting that none of the banks are taking advantage of this. It seems like there are lots of peculiar little details that turn up when someone knowledgeable starts taking a look at the details behind this "crisis".
From Boiling Spgs, PA, 09/24/2008
I appreciate Mr. Sloan's suggestion. It has much merit & certainly should be considered as an alternative to the $700 billion bailout. Mr. Buffet's investment is a good example to follow & goes along with Mr. Sloan's idea.
09/24/2008
Thank you Allan for bring some sense into this debate. …. I believe you comment about encouraging people to take an equity stake in these companies who are in this message is an excellent idea. Rather than just give them handouts we could give tax payers some refund (for a limited time) to take equity stakes in these companies. These will take the short seller out of the market because they will be fearful to further short these assets and it will stabilize the market. I think rather than giving them fish lets help them to fish for themselves.
09/24/2008
Thank you Allan for bring some sense into this debate. …. I believe you comment about encouraging people to take an equity stake in these companies who are in this message is an excellent idea. Rather than just give them handouts we could give tax payers some refund (for a limited time) to take equity stakes in these companies. These will take the short seller out of the market because they will be fearful to further short these assets and it will stabilize the market. I think rather than giving them fish lets help them to fish for themselves.
From New York, NY, 09/24/2008
What price is the Fed proposing for these MBS (on average)? LoneStar bought ML's at 22 cents on the dollar. Is the Fed/Treasury getting a better deal than that? I am hesitant to buy into Mr. Sloan's "vanishingly small" odds until knowing the purchase price.
From Annapolis, MD, 09/24/2008
This is the clearest explanation of alternatives to the bailout I've heard. Thanks to Scott and Allan. I'm send the link to my Senators and Representative.
From Menlo, GA, 09/24/2008
Thanks for the insight Scott & Allan, I just hope our elected officials are listening.
From Baton Rouge, LA, 09/24/2008
This was by far my favorite segment. I had concerns about the bailout before this segment and Mr. Sloan gave me more information to chew on.
Post a Comment: Please be civil, brief and relevant.
Email addresses are never displayed, but they are required to confirm your comments. All comments are moderated. Marketplace reserves the right to edit any comments on this site and to read them on the air if they are extra-interesting. Please read the Comment Guidelines before posting.
You must be 13 or over to submit information to American Public Media. The information entered into this form will not be used to send unsolicited email and will not be sold to a third party. For more information see Terms and Conditions and Privacy Policy.