Calling all economists.
I have been trying to pay close attention and still I can't figure out what the consequences are if we neglect to hand over $1tril. I haven't come down entirely against the concept, but I'm extremely skeptical about it given the dearth of information I have on the possible consequences.
In order to have a proper opinion on the bailout, we really deserve a better explanation of exactly why we're doing it and what the risks and rewards are. Surely nobody can ever know for sure, but a few "this might happen" scenarios is all I'm looking for.
In fact, a clear understanding of the goal of the bailout would seem to be the bare minimum We, The People need to have in order to make an informed opinion...
So if there are any economists out there, please help me out. Here's my reading:
If we fail to bail out the banks, one or more of them will find itself unable to cover its debts and will have to file for bankruptcy protection. Other banks will swoop in and buy pieces of the failed bank and leave the pieces that it doesn't want. Those pieces of the failed bank which don't get bought will have to close down. In a perfect "invisible hand" world, this is actually the desired scenario because it'll effectively eliminate the bad paper.
This being a decidedly imperfect world, I suppose a major downside to the scenario above would be that we open our entire economy to foreign investment and there are probably national security and even sovereignty issues at stake. (Funny how we never let the IMF or World Bank have such considerations in other countries' economic crises!)
So my new bailout plan would be to take the money Paulson and Bernanke want to spend in secret and put it out in the open. A bank goes Chapter 11, the bankruptcy court is able to use those funds to preserve a majority stake for the People in any assets where sovereignty is at stake.
An aside: Architects refuse to put a 13th floor in a building, but publishing companies don't mind printing Chapter 11?