Daddy-O à Go-Go (rpkrajewski) wrote,
Daddy-O à Go-Go
rpkrajewski

Doom

So, can anybody explain to me why the Treasury is in such a rush to ask for $700 billion to bail out the financial system ?

I've read a lot about this, and I understand the issues (I think) about the bailout itself. I don't know exactly how CDOs and credit default swaps work, but in some ways neither did a lot of people who were supposed to know that stuff for a living, and that's a big part of the problem.

But what I haven't really read anywhere is exactly what happens if there's no bailout. Most sources just say There Will Be Blood, and that is that. Or, perhaps, in more detail, that banks would stop lending, but in no more detail than that. But right now you can still get a mortgage and I haven't heard of any problems with short-term credit lines for businesses being taken away. In fact, companies with a lot of cash (like Microsoft) still have access to cheap credit and are using it to buy back their stock.

It's not that I don't think the situation is serious, it's that I am very suspicious of the motives of the financial sector. While Treasury Secretary Paulson thinks he is acting with the best interests of the country at heart, you also have to remember that as head of Goldman Sachs, he helped fuel the popularity of the use of CDOs (and made a pretty penny himself while doing it). I would rather have this thing worked out and the alternatives looked at so that we understand exactly what's at stake, and have it done in a way that befits a republic instead of a special subcommittee that serves at the pleasure of Wall Street.
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