Here are the key housing bailout questions no one is asking


Here’s a heretical notion: How much CEOs get from the bailout doesn’t matter. It’s a smokescreen, red meat being tossed to the public to make it seem as though the bad guys won’t get away scott-free.

While limits on pay packages for executives whose firms seek assistance from the government will be part of the whatever settlement gets reached, it will have no real impact on the bailout. But it will give the politicians something to beat their chests about and say that they have stood up to Big Business.

Don’t believe a word of it. This is a perfect example of what H.L. Mencken meant when he wrote, “The whole aim of practical politics is to keep the populace alarmed by menacing it with an endless series of hobgoblins, all of them imaginary.” While there’s no doubt that we face a crisis there is plenty of doubt about whether or not this bailout is the right solution. We have yet to see anything resembling a logical, detailed and convincing case for the bailout, just a lot of smoke and noise.

So what are the real issues? In a post at Poynter – a website for journalists, Pulitzer-prize winning financial reporter David Cay Johnston has provided us all with a nice set of questions that haven’t been asked. Johnston points out that the bailout is “the equivalent of a one-time 55 percent income tax surcharge. (Instead the money will be borrowed, so ask from whom and how this much can be raised so quickly if the credit markets are nearly seized up with fear.)”

Ask this question – are the credit markets really about to seize up?

If they are then lots of business owners should be eager to tell how their bank is calling their 90-day revolving loans, rejecting new loans and demanding more cash on deposit. I called businessmen I know yesterday and not one of them reported such problems. Indeed, Citibank offered yesterday to lend me tens of thousands of dollars on my signature at 2.99 percent, well below the nearly 5 percent inflation rate. That offer came after I said no last week to a 4.99 percent loan.

Some other essential questions that Johnston hasn’t seen answers for:

  • If the problem is toxic mortgages then how come they are still being offered all over the Internet?
  • How does the proposal help Joe and Mary Sixpack who can afford their current monthly payment, but not the increased interest rate that has been or soon will take effect?
  • How will adding $700 billion to the national debt ease strains on the credit markets?
  • How do we know this will not just be a down-payment on a much bigger bailout?
  • Is there a solution that provides direct help to those who took out these loans, rather than those who sold them?
  • If AIG and others are too big to fail, what does that tell us about government anti-trust policy and regulatory policy and inaction?
  • Why have both Goldman Sachs and Morgan Stanley made clear that they want IN on this deal?

Johnston rightfully compares the press’ performance during the crisis to its abysmal performance during the run-up to the war in Iraq

This guest post is from: Constantine von Hoffman, a veteran business journalist who writes the blog, a humorous look at marketing, business and his dog.

Article Courtesy of Morgan Brown, Blown Mortgage.  Read more here.

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