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Financial people--tell me why this won't work?
I got a "C" by sheer luck in economics in college. I think the house Repubs have a great idea in alleviating some of the taxes of financial institutions to fund the bailout. Why am I wrong? Am I reading it wrong? Please put it in simple terms, if possible. 
http://www.msnbc.msn.com/id/26894553/
GOP conservatives present rescue alternative
Plan promises to remove the burden from taxpayers to Wall Street
WASHINGTON - A group of conservative Republicans in the House on Thursday proposed a financial rescue package of tax breaks and a new government-sponsored insurance program for mortgage-backed securities as an alternative to President Bush?s proposed $700 billion bailout of Wall Street.
Instead of the government buying the toxic mortgage securities, banks, financial firms and other investors holding them would pay premiums to the Treasury to finance the insurance coverage.
The idea is that the insurance would give investors enough confidence to buy the illiquid securities and establish a market for them.
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?Instead of a purchase scenario where you have the government injecting $700 billion right up front into the markets, what you have here is an insurance plan,? Cantor told reporters. ?In order to get this insurance, the banks with these failed assets would have to pay for the government backing, pay for the insurance.?
The plan emerged after it became clear that House Republicans in large numbers weren?t coming around to the approach favored by Treasury Secretary Henry Paulson, which is to have the government buy up the troubled securities, hold them, and eventually sell them off.
Under the House conservatives? plan, institutions holding stronger assets would pay lower premiums for the government backing; higher-risk securities would require higher premiums.
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Robert Litan, an expert on banking and finance at the Brookings Institution, called the framework unworkable, saying it would not achieve the basic goal of creating a market ? and establishing prices ? for mortgage securities no one?s willing to buy.?Everything depends on how you value the security,? Litan said. ?If you do the deposit insurance scheme, there?s nobody out there to know what the right price is.
The House conservatives? plan also would:
- Offer temporary tax relief to free up capital for companies to lend one another.
- Temporarily suspend dividend payments by financial institutions.
- Require participating firms to disclose to the Treasury Department the value of mortgage assets on their books, private bids on them in the past year and their last audit reports.
- Forbid government-sponsored mortgage giants Fannie Mae and Freddie Mac from issuing securities on unsound mortgages.
- Require the Securities and Exchange Commission to investigate the performance of credit-rating agencies.
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Re: Financial people--tell me why this won't work?
The gist of the argument I've heard against this is that it doesn't do enough quickly enough, and also that a lot of the bad debt is already insured by Fannie and Freddie, but that wasn't enough to keep the credit markets loose. ?Also there's something to be said for the idea that if we are going to take on all the risks (which we would as the insurer), then we might as well own all the assets so we can also recognize any gains.?
Now that the House Republicans have finally been included in the talks and had a chance to meet with Paulson, I think most of them have backed off of this as the meat of a plan and are instead backing the idea that you could do a limited bailout plus give Paulson the option to use the insurance thing instead.
Larry Kudlow does a good job explaining here:?http://corner.nationalreview.com/post/?q=MmYyNGU3OGMxZjY3MmQ2ZjhkY2Q3YzcwMTFjZmVmZjY=?
Deductive reasoning isn't a conservative or liberal attribute. ~epphd
Thanks, yeah4me, that helped a lot!
It will now be very interesting to see the final draft/what passes.
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(disclaimer - i have no $ background - seriously, I'm probably not qualified to even comment here, but here I go)
"banks with these failed assets would have to pay for the government backing, pay for the insurance.?
How do the banks with failed assets pay at all and pay an extra premium for the MOST risky securities if the banks themselves are... failing? I thought the point was that they arent' liquid enough to cover to securities - are they liquid enough to pay for the insurance?
Or perhaps I'm just not getting it at all
I am a runner, knitter, scientist, DE-IVF veteran, and stage III colon cancer survivor.
My understanding (with the original house repub plan) the funds would come by freeing up some of the $$ that these banks would usually pay in the form of taxes.
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The problem with these assets is that at the moment they aren't worthy anything. By stabilizing the market their value should go up, which would enable them to trade/sell them without the gov't (us) being forced to buy them.?