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View Diary: Carnegie Mellon Professor: No bailout needed (305 comments)

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  •  Exactly! LEND instead of GIVE them the money. (1+ / 0-)
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    Somebody please explain the downside of that.

    Explain why this isn't an option.

    •  Because (0+ / 0-)

      realizing the long term value of the mortgages and structured securities currently on bank balance sheets is going to take years.  If you lend to the banks, which is exactly what the Fed's emergency lending facility did months ago (which didn't solve the problem), you continue focusing bank activity on managing the existing  risk, instead of freeing up capital  for normal lending activity.  This crappy paper is a rat in a snake's belly that ain't going anywhere. By purchasing these assets (at a huge discount), the institution, if still solvent is free to extend credit again.  They get capital inflow in exchange for taking a big hit on the asset sale price.  That gives them a painful opportunity to start fresh.  We, hopefully, buy the assets at the right level and realize returns over time (years).  So you see, we're not "giving them the money", we're buying stuff with it.

      "Those dunes are to the Midwest what the Grand Canyon is to Arizona and the Yosemite is to California." - Carl Sandburg

      by Critical Dune on Tue Sep 30, 2008 at 11:19:44 AM PDT

      [ Parent ]

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