This story has been recommended by 816 CNN readers. What's this?

Commentary: Bankruptcy, not bailout, is the right answer

cnn.com — Congress has balked at the Bush administration's proposed $700 billion bailout of Wall Street. Under this plan, the Treasury would have bought the "troubled assets" of financial institutions in an attempt to avoid economic meltdown.

Mixx Poll

California is teetering on the brink of bankruptcy. What should they do to raise money?

Suggested by: acrossad

View more polls

Explore Mixx

British sculptor brings Obama down to size ... micro-sculpture the eye of a needle

Talented micro-sculptor Willard Wigan has carved Barack Obama and his family into the eye of ...

Open the pod bay doors, HAL.

Related By Keyword

Comments (34)

- hmdicowii
Yeah, what he said!

Nobama in November, no way, no how!
- (0 Kudos received)
- xdaddy
I agree. Those who took excessive risks upon themselves, out of greed, should be ready to pay. And the time has come. I strongly oppose government's bailout plan becasue I think they are doing this to make sure there is enough dough to go around in Wall street. How come the government never thought of coming up with 700 Billion for National healthcare?
- (1 Kudos received)
1. - fkovacs24
  @xdaddy - It IS an EXCELLENT article, and every American should read this.
  As to try to answer you on your questions, simple. "We picked 700 billion because it was just a really huge number" , said Henry Paulson.
  He pulled that number out of his ass without any data to back it up.
  Not to mention that 200 billion is all that is needed for nationalized healthcare.
  Add to the fact that most personal bankruptcy is due to unpaid medical bills- no assets to pick up on.
  - (0 Kudos received)
- k_marvolo
Excellent Article. I have gotten really sick of all the articles that I have read lately, where they throw in so many financial world terms that no one can understand what they are saying. I am sure that they do that on purpose, to distract us from the real issues. I like the part best where the author says, "Talk of Armageddon, however, is ridiculous scare-mongering."
The politicians are trying to scare us into one more big transfer of wealth from the tax payer to the wall street fat cats, before Bush leaves office.
- (2 Kudos received)
- prader
WOW the first article I've read that sounds sensible. It's written in a manner that exhibits a calmness that can only come from complete understanding of the situation. I wish the fear mongers would go away. In business just as in life there are survivors and failures. Let the failures fail and the survivors will pick up the pieces. Sometime it's important for a wildfire to happen so that new growth can happen. we are experiencing a wall street wildfire. The weeds and the brush will be burned away so that new plants can grow. Yes there will be some unfortunate collateral damage but eventually we will all be stronger.

Just my 2 cents.
- (3 Kudos received)
- greggseipp
This approach was tried once before. The result was called the Great Depression. Here's the problem. The market is going to panic badly on the downside. That means it will overcorrect badly and take down, not only bad companies, but good ones as well. The same will happen to good families. As they lose jobs, they will no longer be able to make their mortgages.
Listen, don't get me started about how angry that this issue was just suddenly raised by the Treasury...they clearly had many warnings that it was coming. Maybe they were hoping it would work out. Well, hope is not a strategy and so now we're stuck with that pill. So what do we do now? I believe that the head of the SEC should revoke the Mark-to-Market rule immediately. (Why hasn't he done this already?!) That rule is driving down the value of existing good mortgages that these banks are holding and will, by itself, mitigate this problem. The House should also deliver the rescue plan. I like the phased rollout of the initial $350 billion because that gives them time to work on other options that may mitigate the need for the rest of the money.
One more point. There are MANY non-partisan economists that say that this is the right thing to do to mitigate this meltdown. We need to listen to these non-partisans and not the people with political interests. The vitrial being thrown out by them is causing a confusing mess so that people can't see what is really happening here.
- (2 Kudos received)
1. - fkovacs24
  @greggseipp
  
  Good rebuttal, makes sense. However, I do hope every American of voting age remembers this nightmare on November 4th, what they did to us, and votes every one of those 18+ year Senate and 8+ year Representative incumbents from both parties out of office.
  - (0 Kudos received)
- Basye
Finally, someone who gets it!
- (0 Kudos received)
- terriwood
Confusion is the word. This is premeditated and "We the People" should dig and dig until we find out what is really going on. There is a subversive plan going on.
- (0 Kudos received)
- greggseipp
This article neglects to mention one important point. The US is a corporation too and one with a lot of debt. Who will buy it if the financial system melts down (and the nonpartisan signs are pointing that way). Don't panic but don't ignore the effect of panic. Companies will close and people will be laid off. When that happens then the nation's tax income will shrink and much more of its income will have to be focused on repaying that debt. In addition, foreign nations will stop investing in us and will stop loaning us money. Listen to the nonpartisans...Susan Orman, Warren Buffet, Cramer on CNBC. There are a host more. Listen, I can't pretend to make this easy to understand and saying 'it's complicated' is just condescending. The best nonpartisan article I have seen on the issue is here...http://www.investorsinsight.com/blogs/thoughts_from_the_frontline/archive/2008/09/27/who-s-afraid-of-a-big-bad-bailout.aspx. It's not an easy read but the charts say a lot. Newsweek also has an article that blasts credit default swaps which you can find at www.newsweek.com. It'll make you mad but it will also make you realize that this is a crisis and it can be mitigated. The people in the middle are making a lot of sense. They know there's blame but they're not focusing on that. They're just telling the truth. We need to do what we can do to help ourselves. I hope this helps.
- (2 Kudos received)
- Troshia
I heard a pretty interesting idea to add to the "Bailout" proposal. If us tax payers must pay for this mess then I agree that we should reap some benefit. This one would raise tax payer approval!
Every American Tax Payer should recieve shares / stock in those companies being bailed out. This ownership of shares / stocks would, of course correspond to how much each tax payer pays in taxes. This will make the ones that are there looking for the bail out to fork over more of thier money and it will make these companies truly American owned. I mean, we should get something, right!
- (1 Kudos received)
1. - calinazaret
  @Troshia exactly, but under the legislation we get nothing except the bill as far as I've been told.
  - (0 Kudos received)
- katkat
He sounds right to me.

Also, we can’t compare this with great depression. The situation is not exactly the same. During that time, there were no computers. Information was limited, so people reacted to the panic the same way. But now, people equip with more information due to the advance of computer may react individually to the problem.
- (0 Kudos received)
- pinkiemarie
The government did not stand back during the great depression, in fact they tried to fix prices and artificially increase employment with make work programs. There was no way that the stock market could have been bailed out ahead of the 1929 crash, at least not in any sustainable way. The same is true today. Wall Street and Main Street have both relied heavily on over borrowing to support themselves, and this is simply a natural correction. We'll live I promise. Recessions happen. They aren't the Black Plague even if they aren't much fun.
- (0 Kudos received)
- Troshia
I agree, we will survive. Those of us who don't play with our money will see prices go up, but we won't loose as much as the people with involvement. But, Don't you think the tax payer should reap benefits of paying for this? I think that those who are paying for the bail outs should share in ownership of them.
- (0 Kudos received)
- competenceblog
There is no merit in comparing this financial crisis to the Great Depression. And there is no merit in predicting the outcome of this financial crisis based on the sequence of events that caused the Great Depression.

I would not discount what the professor says about credit drying up. Let the banks that do not want to lend to their customers do exactly that. And let those who do want to lend despite the opinions of amateur economists do exactly that.

There's a very simple reason why banks do not want to lend to each other these days. They know potential counterparts are lying about the troubled assets they're holding, just like they themselves are lying.

It's not more complicated than this.
- (0 Kudos received)
DRAKOUSKAS left a comment and deleted it .
DRAKOUSKAS left a comment and deleted it .
- DRAKOUSKAS
The Congressmen and financial executives had a rigged game for many years for which they answered to nobody. They will point fingers at each other and attempt to sweep the whole mess under the rug by passing the bill along to the U.S. Taxpayer. The game changed to musical chairs starting with the credit markets in the Summer of 2006. Thus far, each time the music stopped, another banker, financial executive, or Fannie and Freddie executive is left without a chair to sit in which is appropriate given their short-term thinking (Make sure I get my bonus in cash before I am booted out the door). Now it is time for the voting public in the U.S.A. to take a seat at the table from the government officials put into office to make sure this did not take place. Find out which of your local Congressmen didn't do their job and fire them now. VOTE AGAINST EVERY CONGRESSMAN SERVING ON THE COMMITTEES CHARGED IN OVERSEEING THE FINANCIAL SERVICES INDUSTRY AND BANKING INDUSTRY THE NEXT TIME THEY ARE UP FOR RE-ELECTION! Next, let's turn our attention to the flip side of the coin. Until we force executives of public companies (the vast majority of which are owned by the taxpayers via pension plans, , 401(k) plans, 457 plans, etc.) to be paid their exorbitant bonuses in severely restricted common stock (i.e. MUST hold it for no less than 5 years) they will continue to loot the shareholder's money (i.e. your money and mine). Don't let them do it twice - once through their bonus and again through this bailout. Once is enough. Far too often Comensation Committees are rigged so that either they don't question executives enough, or they take advice from consultants paid to give out exorbitant pay packages so they continue to be paid their own exhorbitant consulting fees. If an executive is rewarded for short term results, and can take the money and run, then shame on us for allowing it. Vote out Compensatoin Committee members who allow executives to be paid cash with none of their own skin in the game. If we cannot change the game through common stock voting rights, then pressure your Congressmen to change the Internal Revenue Code to disallow tax deductions for any performance based compensation paid in cash which exceeds $1 million if it is more than 10%. In other words, 90% of excessive pay should be restricted stock which will only be worth the market price of the stock no less than 5 years from the date of issuance. Do you think these executives will continue to make decisions which run the companies we own into the ground soon after they exit the building? If they have to hold onto their equity for five years, which mens their big bonus is at stake, they will think twice about playing games with your money. TAKE ACTION NOW AS A CITIZEN, VOTER, AND SHAREHOLDER!!
- (0 Kudos received)
- allen_mvp
I agree wholeheartedly, but you think those maroons in Washington will listen?

Sigh, ten years ago I believed those in Washington knew what they were doing and were looking out for our best interests. Today I think Congress is the biggest circle-jerk asshat idiots that ever lived on this planet and their only allegiance is to Big Oil, Big Banks and Big Business....

Yeah I said it, but I bet you were thinking it....
- (0 Kudos received)
1. - kjherman
  @allen_mvp Awesome description. A little unexpected, but accurate in my mind.
  
  I actually do support a bailout, but one in the form of the AIG takeover -- "Sure, you can have $75 billion, but we now own 80% of your company". In the case of AIG, that was a big deal, as AIG actually does have valuable assets in addition to their funny money credit swaps. The other key ingredient to me to the AIG bailout was that the CEO got canned, and replaced with someone that the government chose -- someone expected to run the business the right way.
  
  So my response to any company that feels the need to be bailed out is... sure, if you fire your CEO and CFO, give us the substantial majority of your outstanding common stock. And oh by the way, we are going to use our voting shares to completely oust your board. Still want the money?
  - (0 Kudos received)
- allen_mvp
I am happy to say my congressman (John Barrow) voted against the bailout. w00t!

http://www.savannahnow.com/node/583295
- (0 Kudos received)
- rayflo
If this is so great a crisis, why is the smart money not going to safe havens.
Gold and Silver is dropping and that should not be happening.
- (0 Kudos received)
- allencharlesreport
A better plan to stabilize the financial markets is to simply let the Federal Deposit Insurance Corporation take over the insolvent companies and form a holding company and reopen as one large institution. Just as when the FDIC takes over smaller banks the same rules should apply here. The new holding company can then operate the new banks keeping the good accounts and spinning the bad ones to a second operating company to work through them eventually restoring some of them and liquidating the rest. If any legitimate debt holders are established then stock could be issued to these legitimate debt holders ( likely bond holders). After a period of time this new company could do a stock offer selling the entire company back into the private sector. Problems solved, seven hundred billion of tax payers money would be saved. The cost of the new company would be returned back to the taxpayers from proceeds of the sell of the stock at the return to the private sector from government operation. The fat cats on Wall Street could be returned to work for the new company but like all reorganizations at a lower cost to the new company allowing it to return to health much faster.

The changeover could be done over a weekend without any disruption of any kind. Each of the banks taken over would continue to operate under it present name and
corporate structure except that the boards would become advisory only with the final authority being held with the new holding company. Over time most of the banks could be either spun off or several combined under a new corporate configuration and then spun off or sold. The stability of the entire banking system would be the most important goal.

The Federal Reserve System looks at all the deposits at all the banks as one total, so this new bank would not alter the loan patterns from what it would be with if all these various banks that would be part of the new holding company were operating separately. All the bad things being claimed by Mr. Paulson would be avoided with this plan and the best part of this plan are NO TAXPAYER costs beyond the administrative cost of the new bank holding company.

This plan takes a second look at the way the taxpayers money is used and avoids benefiting those that caused the problem to begin with. They took unnecessary risk and have lost so the bailout should take the control of the future out of these either corrupt or incompetent executives hands and allow a time out for our banking system to stabilize and get back on track.

The one caveat I have for the new Holding company, which plans to put these bad debt mortgages in, is that a provision in the restructuring should provide a way for people that are in these mortgages to be able to stay in the home. One idea would be to renegotiate the value of the property back to an equity position with the caveat that they could not sell their home, for eight to ten years or some other appropriate time frame. The reason that I would like to see this put into the terms for use of this agency to stabilize the mortgage market is that if something isn’t done the power structure that will be controlling this new agency will likely sell off these homes at a larger loss than leaving people in the homes or working out something for them. If this doesn’t happen many insiders, the money crowd, Wall Street types you know the folks that got us in this mess to start with will come in and buy these properties up for pennies to the dollar at taxpayer expense leaving the homeowner homeless the taxpayer on the hook for the costs and the rest us no better off than we are now. There could be a deed restriction on these homes that required them to pay the proceeds out of the home or of the equity of the home as a penalty for moving too fast. The whole idea for this bailout is to stabilize the mortgage market, financial market, and the economy.
- (1 Kudos received)
- rayflo
Well no body came back at my first comment.
Here is my take...We are going to war or some other thing is going to happen and the system is setting itself up with capital. October surprise!!!
- (0 Kudos received)
- Cre8something
What we need is another “Surge”. This time on U.S. Soil! McCain was right before, and he’ll be right again. All we need to do is attack Wall Street with a massive infusion of cash. Our numbers have to be so unimaginably great that Wall Street will have no other choice but to capitulate to the sheer economic force it will face from the constant , unrelenting “surge” of money the American public is willing to throw at it. Sure, Democrats will want an early withdrawal before the job is finished, but the beauty of the “Financial Surge” is that there will be no money left for anyone to withdrawal from anywhere. We will replace millions of bullets with billions of dollars. We will replace smart bombs with bailout bonds. And then, when Wall Street and the banking industry has recovered, like all great nations, we will forgive their debt because we are the greatest nation to ever exist.

Oops, I got to run to the bank and withdrawal some cash before this thing goes nuclear.
- (1 Kudos received)
1. - fkovacs24
  @Cre8something
  THANK YOU-- someone still has sense.
  
  People- this could set a precedent for these government asswipes to dip into the coffers of the general population whenever they want- all they have to do is yell fire.
  - (0 Kudos received)
- cpwhitley
This is a complicated issue, one not easily understood be the lay person. I personally feel like the bailout is a horrible idea in principal, but how to get out of this mess in the short-term is the issue. Also, I heard that the reason why things are frozen is because these financial institutions are waiting for the government to pay a higher amount on the mortgage securities. Why should they settle for 20 or 30 cents on the dollar, when the government is going to pay 50 cents? There are institutions willing to pay for these "toxic" mortgages, but the financial institutions are waiting for more money, and hence take a smaller loss. This is driven by greed. The government should make these institutions take the loss and move on.
- (1 Kudos received)
- wtammelleo
Idiot; we have a bankruptcy on our hands, your free market religion has hit the fan and its all over your face.
- (0 Kudos received)
- marc22501
I couldn't agree more. We need to let these companies fail and be forced to sell of the parts for the market value. Any amount the government places on the value will not be what the the natural market price would be, and would just be prolonging the pain of actually hitting bottom. We have seen many large, troubled mortgage pools move for 30 to 40 cents on the dollar and how could the general puplic possibly know if what the government is paying is actually fair market value? What if what they are about to pay is to much? I think these guys sould be forced to face the situation head on and let the market sort it out with out any intervention. Why throw good money after bad to fix a problem that was a flawed idea from the start????
- (0 Kudos received)
- fkovacs24
As for their "modified" bill, It's still 700 billion in taxpayer dollars.
Take that pitbull with lipstick everybody's been talking about- add earrings, a tiara and high heels- it's still a fucking pitbull.
NO TAXPAYER-SPONSORED BAILOUTS.
- (0 Kudos received)
- TightBlueJeans
Well being from Canada, I have been watching what is being said on both sides of the border. There is alot of information from both sides and I must admit, it's not easy to come tot a conclusion as both have pros and cons. Am still not sure what the answer is, but something has to be done and it will take time to fix.
- (0 Kudos received)
A Mixx administrator removed this comment.
- rayflo
The FDIC to save you by increasing the insurance to $250,000..Not to much money in savings account.
It will help some senior citizens...but the young do not save.

Feels save now? Right.......WRONG!!!!!

IRA 's and 401K are investments plans and are not FDIC insured. REPEAT LAST SENTENCE

Mine were not.....smoke and mirrors.....Make sure the bail out includes IRA'S and 401K's cause that is where the people's money is.

good luck cause it is worst than you think....
- (0 Kudos received)