Bailout

According to Blackhedd, the TARP plan being pushed by Secretary Paulson and Chairman Bernanke is, in fact, a bailout. He goes into the details here, but the gist of it, as I understand it, is as follows:

The government will set up a new entity (the First National "Bad Bank") that will purchase all of Wall Street's investments in bad loans. This will allow the banks to get their bad debts off of their balance sheets, and hopefully let them start pumping money back into our economy through making loans, etc. The word is that if this doesn't happen, many banks will fail, and others will stop making loans altogether, shaking the foundations of our economy, leading to deflation, loss of jobs, bad things in general...

The problem, and where this plan becomes either a bailout of Wall Street, or a necessary intervention by the government for stability, is in the actual valuation of the mortgage-based assets being purchased. According to Blackhedd, if the government purchases these assets at too low a price, the banks (at least those who made bad loans) will lose too much money, and collapse anyway. If the valuation is too high, the banks make out like bandits, basically being rewarded for bad behavior, and inflation will occur in the general economy.

From the testimony to congress yesterday, it sounds like the current plan is to err on the side of inflation, and overvalue the assets. This is not sitting well with conservatives (myself included) as it is basically proof that the administration wants to "bail out" the Wall Street executives. I don't think that's their underlying motive - as Blackhedd points out, Bernanke is a student of the Great Depression, and knows all about the dangers of deflation - they are most likely ensuring that the economy stays strong overall. But this looks very bad in the eyes of the general public. The Republicans are helping out their rich, evil CEO buddies on Wall Street, at the expense of us poor folks.

Politically, this is very bad for the GOP. If we oppose the plan on principle, we risk a serious depression in the economy, for which Republicans will take the blame. If we support it, we play in to the left's stereotypes of handouts for the rich. Overall, I think this dangerous step towards socialism is going to be a necessary evil. The capitalist in me wants the government to take a hands-off approach to this - allowing those who take foolish risks to reap their just rewards. But the father/husband/employee in me doesn't want to see the overall economy spiral into a depression, with banks unable to make loans, companies unable to expand and grow, and people losing their jobs left and right.

The scariest part of this is that we are delving into the world of socialism, while teetering dangerously close to electing a socialist in Obama, who will have to deal with this in the immediate future. A government with this much influence in the "free market" needs a leader who will work to get us back to where we started before all this happened, not someone whose instincts are to take us further down the road to socialism.