On FOX Business News this morning, former Fed Governor Lyle Gramley said Congress needs to impose a special tax to allow the goverment to step in and buy all the sub-prime-debt in the system. And it needs to do it now.
Yes. That was a former fed governor coming right out with it. Dispensing with the usual palaver about the banks rescuing people, he cut to to the quick with refreshing frankness – time for the people (otherwise known as savers, tax-payers, pensioners, and other assorted naifs and bag-holders) to rescue the banks.
I don’t get it. The people who got us all into this mess in the first place walks away with sky high compensation and do not need to face the consequences while the rest of the people get screwed twice.
Well, there are people who look at it differently. If you check out John Mauldin’s, latest Inside the Box, he (and others) write that it isn’t so much a bail out of the banks as of ordinary people who would suffer from a sudden decline of the stock market (some say as much as 20%). That would destroy trillions in equity and send businesses into slump and consequently hiring. I do understand that but think maybe that potential effect could be counteracted in other ways – like increasing social support services at that point.
Mauldin argues that the moral hazard problem (insuring risk so it encourages more risk taking) should have been faced two years ago not now. It’s a valid point.
Lila