Business will not occur when both parties do not know the extent their future partner is exposed to toxic assets. Only after these toxic assets are gone the economy will recover.
Democrats have always been saying the Bush Administration was criminal. They are right. The mess companies like AIG and Merrill Lynch got this country into was criminal behavior. But this type of corporate malfeasance was smiled upon and embraced by the Bush Administration. Even the great economists like Greenspan endorsed AIGs business model that relied on accounting ideas that produced money without work.
AIG's business model was to basically sell insurance on the same property dozens of times. Of course they fooled anyone who bothered to talk to them with imaginary words like "Credit Default Swaps" but thats all they were doing was selling insurance on a mortgage over and over again. Normally this Ponzi scheme would have been busted by a regulator years ago, but when we had a republican house, senate, and executive branch of government, along with a Supreme Court who's most famous decision in the last 9 years was "Bush vs. Gore" so we all know which side of the political spectrum our Supreme Court rested with, we knew the Republican mantra of no regulation would prevail.
So Bush let the economy run with an anything goes attitude, and the economy crashed, what are we to do? Capitalism dictates that the investors should lose out of all their investment in a failed business. However the investors of these businesses that are hundreds of billions in debit were a large fraction of the population. Most notably baby boomer's 401ks portfolios are at a risk to firms that have toxic assets. Long term plans in the American economy depend on baby boomers spending their 401k.
Should Barack Obama tell all the investors of these companies that they are out of luck for having the misfortune of putting their money into a company that would normally have their criminal behavior stopped by a Security Exchange Commission run by Bush? That would make the fault of the victim of criminal behavior that was unfortunately NOT against the law during the Bush presidency.
Barack Obama is doing the only sensible thing. Obama is removing these toxic assets from the market. This is the correct decision. With this potential black hole of debit floating around in the marketplace, investors will be too afraid to give anyone any money, for fear of their investment disappearing to pay for some toxic asset. This fear will continue until these assets are out of the marketplace. So they will have to eventually be taken out of the marketplace, either now, or by the next administration. Or the administration after that. What is certain is that because of this fear in the marketplace, the economy will not recover until these toxic assets are gone.
Yes removing toxic assets will be costly. However, the potential to devalue the dollar is not as big as it is claimed. The one good thing in Obama's favor is that most every other currency in the world is exposed to these toxic assets like we are, and their government is already putting into motion bailout plans, stimulus plans, and soon buying up of toxic assets plans, so our devaluation will be met by other currencies being devalued too.
There is also the claim "If we do this now, whats to prevent us from having to do the same thing all over again in a few years." The only way to stop the AIGs of the world is by regulation. Obama's regulatory measures being put into place are the most severe in many decades.
I support Geitner's toxic asset plan. This diary is against Nobel Prize winner Paul Krugman. Krugman is full of crap in his shortsighted, doom and gloom scenario. Krugman makes no mention of what a economy looks like with these toxic assets in existence. And this is intentional, because Krugman dosn't even know. But alot of people do. An economy with the amount of toxic assets in existence that we have now - looks like the recession we are in now, a recession with no end in sight. Until these toxic assets are gone, the economy will not improve. And the sooner they are gone, the better.
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