An argument I continue to hear in support of the $700 billion dollar bailout has been that because assets are clogging up the system, credit could be very difficult to obtain if the federal government doesn't step in, quickly. I wonder if easy access to credit, or desire for that credit, wasn't the problem in the first place. From Naked Capitalism,
The US needs to wean itself of unsustainable overconsumption, and since consumption has come to depend on growth in indebtedness, a reversal, however painful, is necessary. Our excesses have been so great that there is no way out of this that does not lead to a general fall in living standards (note that the officialdom in the UK is willing to say that, but since perpetual prosperity is a God-given right in America, admitting we will be getting poorer is verboten). Thus, a sharp contraction in lending seems inevitable; the trick is to prevent it from crossing the tipping point into a vicious, accelerating downward spiral.Naked Capitalism goes on to summarized two problems with the proposed legislation. The first comes from the direct wording of the bill, "Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency." So, this bill grants the Secretary of the Treasury power that would exempt him from judicial or legislative review? Not a huge fan.
Secondly, the bill does NOT require the federal government to pay market value for these mortgages. Imagine that, lenders holding the federal government hostage, extracting top dollar for toxic mortgages, while tax payers flip the bill.
While such a bailout may be a necessary evil, hopefully the government does not make a bad situation worse in haste.
(The proposed $700 billion legislation is too dense to read myself, but have at it here if you'd like.)