To Bail or Not To Bail, Banking Edition

This was a bad day for the market and a very bad day for banking; the credit default swap spread for at least one major bank rose above 400 basis points – a level of implied default probability that we have not seen since mid-October. 

Mr. Paulson suggested earlier this week that the government’s Troubled Asset Relief Program (TARP) take a break from bank recapitalizations, through at least January 20th (listen to today’s NPR story).  After today, I seriously doubt this is a good idea.  And I sincerely hope that the administration is preparing (another) policy U-turn. 

Potentially more sustainable approaches are suggested in my previous post (and the associated article).  Don’t be shy.  Congress in particular needs to hear your suggestions – post them here or call your favorite representative.  Just don’t urge inaction.

5 thoughts on “To Bail or Not To Bail, Banking Edition

  1. Paulson is not making it work and he has a bushel of money to play with. I suggest he divides up the 700 billion amoung all of us main-streeters. that would give each of us about 300,000 dollars with change left over for Paulson. We know what to do with that money. Many of us would put it in the bank in CD’s and saving accounts. That alone would jump start the economy. But you can bet this will never be done because us main-streeters are just there for pandering politicians to use during an election.


    It is very unfortunate that this country is heading into the most critical period of its worst recession in 70 years, and there is now a transition in political leadership. Just when strong leadership is absolutely required, we have political stalemate and inaction. It seems a bit of the “perfect economic storm”.

    Paul Krugman in his latest op-ed, “The Lame Duck Economy”, poignantly describes the dangers we face and reinforces the message of the Johnson/Boone article.

    Krugman states, “economic policy, rather than responding to the threat, seems to have gone on vacation. In particular, panic has returned to the credit markets, yet no new rescue plan is in sight. On the contrary, Henry Paulson, the Treasury secretary, has announced that he won’t even go back to Congress for the second half of the $700 billion already approved for financial bailouts.”

    And “nothing is happening on the policy front that is remotely commensurate with the scale of the economic crisis. And it’s scary to think how much more can go wrong before Inauguration Day.”

    It’s an excellent editorial. Please see

    I would like to ask Mr. Henry Paulson, “Hank, do you think, now that you have essentially completed the initial allocation of the TARP money, you can just sit on your hands and dream about what you will do in retirement? Is this the best way to serve America?”

    I would like to ask members of Congress, “Just because we are heading into the holidays do you expect that you should take the next two months off while the country is quickly going to hell in a hand basket? Wouldn’t it be more appropriate to spend Thanksgiving in DC and work around the holidays?”

    If America truly had dedicated political leadership, this leadership would spend the next two months doing its best to blunt the worst effects of this recession and financial crisis we are in. I won’t expect that, however. Over the last six to eight years I have learned that Americans are very poorly served by their political leaders in Washington, DC, both Democrats and Republicans.

    Tom Krebsbach (Seattle area)

  3. people really think that 700billion devided by 300,000 is like 250 million people? i swear people dont check thair numbers and it happens all the time. read an article once in reuters. it said that the top 1% of the world population controlled some filthy amount of trillions(dollars) and that was only counting people that made MORE than 3million a year… only when you broke the number down 1% of 6billion /stupid trillion the number was like 2.3 million? and this was in a reputed news outlet so. as it imposible for people to count thair toes i would say paulson is of the same vein as these. and what we are looking at is infact not some super complicated readjustment taking place. rather compound interest(figure manuipulation on above mentioned scale) that has been moved off the balance sheets for decades and burried under debt. we can talk about economys for people or the people that tell them what to do. but these dudes do not deserve to be rich. rather i supose that they cant count to a billion and have no idea how much money that is. that is thair drive and as long as people have email and cant think(and the pay is good) we will never get to the basics of job=value rather a mutaion of blame and excess followed by bursting bubbles where the rich loose less and less of more.

  4. I agree with the authors and the second suggestion found here in the comments – It would be most beneficial if the administration cut short the Christmas break and sunk their teeth into considering these unpalatable but necessary suggestions in the WSJ article.

    Miss MarketCrash

  5. Miss MarketCrash is close. It would be most beneficial if the Administration just went ahead and cancelled Christmas. ‘Cause we’re all doomed anyway, but at least then we’d have a clear target for our anger.

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