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MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

Bank Bailouts have it upside down

Posted by WARREN MOSLER on January 30th, 2009


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>   On Thu, Jan 29, 2009 at 8:52 PM, Russell wrote:
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Bank Bailout Could Cost Up to $4 Trillion: Economists

Jan 29 (Reuters) — Goldman Sachs estimated that it would take on the order of $4 trillion to buy troubled mortgage and consumer debt. That number could shrink if the program were limited to only certain loans or banks, but it could also grow if other asset classes such as commercial real estate loans were included.

That would also shrink if there was a payroll tax holiday and the states were given $300 billion on a per capita basis as delinquencies would subside and asset quality restored.

This problem is best addressed from the bottom up by enhancing the income of borrowers, not from the top down by assisting the lenders.

The Wall Street Journal said government officials had discussed spending $1 trillion to $2 trillion to help restore banks to health, citing people familiar with the matter….

The government would not necessarily have to spend the full $4 trillion to buy the assets. If it follows the model used in a Federal Reserve program to support consumer and small business loans, the government could potentially put up just 10 percent of the total.


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3 Responses to “Bank Bailouts have it upside down”

  1. Dave Begotka Says:

    This problem is best addressed from the bottom up by enhancing the income of borrowers, not from the top down by assisting the lenders.<<<<This is great!!

    From BUKAKA’s dirt level view, this is the smartest thing I have seen on the bail out! How can it be so simple but NEVER happen? Crooked greedy people running the show!

    Reply

  2. warren mosler Says:

    same with the car companies.

    the problem is potential car buyers don’t have enough income to spend on cars, even if they wanted one. loaning car companies money doesn’t address this. my full payroll tax holiday does.

    Reply

  3. AKrizik Says:

    http://faculty.chicagobooth.edu/john.cochrane/research/Papers/fiscal2.htm

    …Essay that is making the rounds. Fama rejoins here:

    http://www.dimensional.com/famafrench/2009/01/bailouts-and-stimulus-plans—addendum-12809.html#more

    Reply

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