I don't pretend to understand the finance system any better than the average Wall Street trader, but it seems to me the White House and Congress are stuck in 1930s-era thinking and are bulking up their bail-out unnecessarily. Couldn't we get the data to apply our precious public funds more effectively?
As I understand it, the proposed bail-out is shooting seven hundred billion dollar-sized bullets into the dark. We'll hit our targets, but most bullets will be wasted.
We're being asked to prop up the most egregious companies with the worst history of decision-making. But it's not because we care about those companies--it's because their demise would drag down other companies that invested in them. Or so we are told.
The danger is real. This crisis draws the government together because it's about protecting the whole financial system, not just a few cronies. Washington Mutual collapsed just yesterday because it had invested inordinately in subprime mortgage bonds.
But that underscores my point: the danger is not spread around evenly. The White House and Congress think they have to inject one huge investment--huge beyond the scope of human comprehension--to protect the whole system. Why can't we intervene more selectively and over a longer period of time?
Banks know where their money is. I believe a lot of that information is already public--and if the financial institutions want bail-outs, they can make more of it public.
We could figure out exactly how risky each asset is, exactly how much exposure each institution has to bad loans or collapsing stocks and bonds, and what the overall health of each institution is. Even Freddie Mac and Fannie Mae are important are constituted of hundreds of thousands of individual, small loans.
We don't necessarily have to shore up a large institution that has acted recklessly (not to mention unethically). We could trace the other companies that depend on that institution and apply the same analysis to them. If someone acted in good faith and has demonstrable signs of distress, we could provide relatively small loans to keep them from failing. This applies to everyone from a condo owner with a skyrocketing mortgage rate to a bank or corporation. We could spider the net of financial investments the way search engines spider the Web, and triage our efforts.
I don't know what criteria the Treasurer wants to use to invest the nation's money, but I bet the criteria could be a whole lot smarter. If we're creating a small board with the power to hand out billions of dollars, transparency is a top concern--and rigorous data analysis will support that.
Naturally, financial institutions want to hide as much of their operations and holdings as they can. But they can't afford to do that any longer. Our nation certainly can't.