Bailout dilemma: How hard to squeeze the banks on loans?

How much should the Treasury pay banks to take bad mortgages off their books? Eighty cents on the dollar? Fifty cents? Ten cents?

Just asking the question exposes the real nightmare of the Bush administration's $700-billion financial-system bailout proposal: The government will be trying to decide on the true value of myriad loans and securities whose worth remains a mystery to the Wall Street rocket scientists who created them.

Testifying before the Senate on Tuesday, Federal Reserve Chairman Ben S. Bernanke made the case for paying the banks more than what a normal buyer would in this situation -- assuming that a normal buyer would pay as little as possible, to minimize his risk.

Bernanke presumably will make the same argument when he and Treasury Secretary Henry M. Paulson testify before a House panel today.

Bernanke asserts that it would do no good to hurt the banks more than they’ve already been hurt by the real estate bust, if the goal is to climb out of this mess sooner than later.

At least he’s being honest: This bailout program is all about getting the most cash possible to the banks, relieving them of lemon loans they made or bought, and thereby getting lenders to lend again -- or so the government hopes.

As the new owner of some gigantic number of troubled loans, the government also would be in a position to order loan modifications that could forestall foreclosures. If that shrinks the glut of homes on the market, it could brake the decline in prices. And if people begin to believe the bottom has been reached in housing, confidence in the economy and the financial system should improve.

This may be a great plan for current homeowners. But if you're a renter -- and you believe that housing prices should fall further -- the proposed bailout is the worst kind of market interference. The government would be setting an artificial clearing price for distressed mortgage assets instead of letting the market decide.

Is Bernanke all wet? Writing on the Economist's View website, Mark Thoma played devil’s advocate in backing the Fed chief's argument for paying banks close to "hold-to-maturity" prices for their assets -- prices that (hopefully) reflect how much of a loan is likely to be repaid in time -- instead of fire-sale prices of the moment.  It's a bit wonkish, but I like his main points:

For markets to function according to competitive ideals, full information must be available to all market participants. When information is lacking, or when it is asymmetric, the outcome is inefficient relative to the full information outcome. The nature of these assets -- their opacity as it has come to be called -- makes full information unavailable. . . . This is market failure due to lack of full information, and asymmetric information to the extent it does exist, is depressing prices. The idea is for the government to hold the assets while the information is revealed, and then resell them later at closer to their full information price.

I think of bank asset portfolios as containing bombs, but nobody knows for sure where the bombs are hidden (though the banks may have a slightly better idea than outsiders). At some point, they will explode and cause big disruptions. The idea is for the government to gather up these assets, put them in the bomb-containment chambers, and let the ones that are going to explode do so. This reveals the information that is lacking, the ones that don't blow up after a certain time period are just fine, and these will be sold at their "hold-to-maturity" prices.

But how to arrive at fair "hold-to-maturity" prices for Treasury to pay for this stuff? For one, the government (and its advisors) will have to be very good at estimating the recovery values of homes already in default or those likely to end up in default. Yet this is something the marketplace itself is having a terrible time figuring out.

If the Treasury overpays for loans, the final taxpayer bill for this bailout will rise.

Economist Arnold Kling on Econlog.com says the risk of further home price declines argues for conservative "hold-to-maturity" prices in valuing bad loans:

The probability that you will default depends on the distribution of possible paths of future home prices. Along paths of falling home prices, defaults are much more likely than along paths of stable or rising prices. It's hard to know how home prices will behave, but right now if I were pricing the risk (something I used to do for a living, unlike the key decision-makers in this bailout), I would include a lot of paths where prices go down. That would make the "hold-to-maturity" prices of the mortgage securities, properly calculated, pretty low in many cases.

I sure hope that Bernanke and Paulson know what business they're getting into. Part of me thinks they don't know. Part of me thinks they don't even care. They're so desperate to try to make the mess go away that they don't think little details matter.

Finally, New York Times columnist Paul Krugman seems to back Bernanke’s idea for paying better-than-fire-sale prices for the debt, but wants something more in return for relieving the banks of their dreck. He suggests that the government take ownership stakes in the banks, which might one day be sold at a gain for taxpayers:

If the price Treasury pays is very low -- anything comparable to what financial institutions are able to sell the stuff for now -- it's going to do nothing for confidence and capital. If the price is high, confidence and capital will improve, but taxpayers may well take a big loss. The premise of the Paulson plan, though never stated bluntly, is that these assets are hugely underpriced, so that Uncle Sam can buy them at prices that help the financial industry a lot, without big losses for taxpayers. Are you prepared to bet $700 billion on that premise?

But how can we help the financial situation without making that bet? By taking an equity stake. That way, if it turns out that the feds are pumping money in at above-fair prices, at least they get ownership, just as a private white knight would have. There is no, repeat no justification for refusing to grant equity warrants that provide some taxpayer protection. This is, for me, an absolute deal or no-deal point.

Except that taking equity stakes in hundreds or thousands of banks, brokerages and other financial institutions on behalf of taxpayers seems like a bureacratic nightmare in and of itself.

But maybe it's inevitable that government involvement in capital markets on the scale the Bush administration proposes can't help but lead to much more of the same. Wall Street brought this on itself.

Photo: Treasury Secretary Paulson and Federal Reserve Chairman Bernanke testifying before the Senate Banking Committee on Tuesday. Susan Walsh / Associated Press

Comments

[Joshua]

You know what is the funniest thing? The FED is not even an government entity. It is conceived through some scam and owned by big banks. It is a cartel of private banks. What do u expect now?

Of course the FED is coming out to scare the hell out of the taxpayer to convince them that unless Wall street survive, Main Street is history. Bullshit. The bankers screw up. The FED in itself is a con job. Do not reward these bankster with the taxpayers money.

Did u not see the haughtiness and cockiness of Bernanke when asked if the Wall Street owed the people an apology. He just rolled his eyes and spilled out some nonsense.

They want to save the system, not the banks, they claimed. Well if the system is sick, let it die a natural death. Who knows where this 700B is going except to save their own cronies' asses.

[cliff]

Let the banks rot in stew that they created which was backed by governments which had special interest such as higher taxes on property.

The stock market means nothing to me. Baseball trading cards have more value than the stock market or one of it's other twisted markets.

The people who traded had so much money they did not know what to do with it.
It appears they have something to do with it now; place the fiat paper money near bowl where all of the other human waste goes.

[BS]

Been in the banking business for a long time. Federal depository institutions don't hold a lot of this stuff.

Check out the FFIEC website as it holds the quarterly regulatory filings. Investments are about 15% of their balance sheets. MBS are a portion of that. Last updated 6/30/2008.

If the government makes the price too low & other issues too expensive banks won't play. They will just wait it out. Which will be good for them but bad for the economny.

As Lochhart has said several times... they didn't take over Fannie & Freddie because they were going bankrupt. They took them over because if they weren't going to grow.

http://biz.yahoo.com/ap/080923/housing.html

[paul]

I hope people are paying attention..

The bailout is bad idea because of real world situation, that housing is still too expensive in this country ,, housing pricing rose 85% in the last 10 years nationally. and so far the country has only dropped 20 percent.

let free market work.

Also if goverment wants to help ban all speculators in oil and food commodity markets only producers and consumers should be in those markets

this would lower cost of living and put much more confidence back into peoples hearts and spur broader markets..

[Robert LaughingPNW Trojan]

Good piece, Tom! Now, please REFRESH our PAIN from the S&L BAILOUT; how the Party BOSSES, stuck the taxpayer for the TOXIC stuff, then HANDED OVER, for pennies on the dollar, to the Hunt Bros and many other Repub AND Dem Party Faithful (read FINANCIAL BACKERS) and they took the creme de la creme, and gave taxpayers, the spoiled 'milk.' Were not Feinstein and Boxer, and Barney Frank and Chris Dodd, IN ON THIS? I don't KNOW which Republicans were, outside of McCain, John Glenn (D- OHIO) and 3 IMMEDIATE others, with Lincoln S&L (Charles 'the beast!') Keating. Oh, and didn't Judge Lance Ito make a 'mistake' that got Keating outta prison? History Repeats Itself, like our dopey voters.

[TomER6]

The banks should be squeezed so hard their eyes pop out. They tried to do it to us through predatory lending practices, and it didn't work, and now they want to get at our money by alternately groveling and terrifying us. I say let 'em sink.

[Gary%20Noel]

I think the real point is that they are trying to save the system. The constitution of the US is written to establish democracy. Please show me where it is written to establish capitalism. We crowed when the Soviet Union fell apart from the weakness in its financial system. Now we are seeing some very serious cracks in our own system.

The financial system supports the greater system of corporatism, and our laws have been designed since WWII to promote corporatism and instutionalism throughout our society. Of course, the power to implement this radical change from a traditional society was the power of oil. Our entire country and its systems of manufacturing, housing, finance, military, and transportation have been designed and controlled by the power and money derived from oil. That immense power has created an oligarchy focused on controlling and maintaining that power.

Now we are past peak oil. The system based on oil is going to contract no matter what, there will be 4% less oil per year, even if we tap every drop form Alaska and offshore. It is a losing proposition. That is the effect we really need to be looking at. The neocons are clearly myopic, they simply can't or refuse to see what is happening. Throwing money at mortgage losses is not the answer, the housing system that the oil powered system has created is not sustainable. We would be far better to spend $700B on things like bullet trains, investment in thin film solar production, and recovering the materials in those desert houses to rebuild the inner cities.

The entire bailout discussion is misguided. We should not try to save the present system. Just like the soviet union, the leaders of our country and institutions have blown it. We need to accept that and realize we really don't want to save the system, we need to develop a new one. We had better start working on that now, before the last of the oil and the power it provides is so costly that we are unable to do so. Then we really would have to revert to the lifestyle of what we call the third world (which really was the first world.)

[Drew]

Until you realize that Democrats and Republicans are the SAME nothing is going to change. Obama and McCain agree on 95% of the issues, what is the choice again? We voted the Dems in to stop the war and what happened? NOTHING. It is called a ponzi scheme to make you think you have some power and choice, that was stripped from us long ago, go listen to Kennedy’s speech regarding secret societies, Woodrow Wilson’s farewell addreass, etc. they have told us throughout history but we have ignored it because they have kept us fat and happy so we have not cared. We have a constitution that tells us how to run our government and it is supposed to limit them not the people.

[Drew]

The Federal Reserve is a PRIVATE bank that has NO OVERSIGHT.

If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them (around the banks), will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered. - Thomas Jefferson

“If Tyranny and oppression come to this land; it will be under the guise of fighting a foreign enemy” – James Madison 4th U.S. President

“The Constitution is not an instrument for the government to restrain the people, it is an instrument for the people to restrain the government – lest it come to dominate our lives and interests.” – Patrick Henry

The strongest reason for the people to retain their right to keep and bear arms is a last resort to protect themselves against tyranny in government.-Thomas Jefferson

To announce that there should be no criticism of the President, or that we are to stand by the President, right or wrong, it is not only UN-PATRIOTIC and servile, but it is morally treasonable to the American people. -Teddy Roosevelt

Sometimes it is said that man cannot be trusted with the government of himself. Can he, then, be trusted with the government of others? – Thomas Jefferson (1801)

[Sheryl]

Senators, Please do NOT vote for the bailout. The provisions such as mark to maturity are ridiculous, as well as other provisions. The banks with bad paper can hire Goldman Sachs to sell the paper for them at pennies on the dollar. Once sold and off the books, they can borrow or take capital again. People can start lending each other money. Just imagine if $700 billion were divided amond all Americans - we could put that money to good use and spur the economy. Other industries are making money and will survive. No one forced these financial institutions to make these marginal loans and no one forced people to borrow money they couldn't repay. VETO BAILOUT, PLEASE. Thanks.

[mschliebs]

The agreement as written so far allows for 700 billion OUSTANDING AT ANY TIME. This bill does not limit what the Democrat controlled Senate and House of Represtatives can give away. The money that the banks lost is somewhere, unless of course, it was purely fictional money. Even if we were dealing with Monopoly money, someone still has it all. The big dealing, highly sophisticated money people need to simply look around at them selves to find the money they want. It is a silly proposition for the American people to give this money to these guys simply so We The People can borrow it back from them, and in the process make the lenders ever richer.

[mark]

What about using the $700 billion dollars to charter new banks, without the legacy debt of the existing banks. As these new banks became profitable, they could sell stock and privatize, thus recouping the money for the taxpayers.

[George]

You can't have smaller government and a $700,000,000,000.00 bailout of wall steet. How many billions are going to go to CEO's?

[lourdes portillo]

Let the market take it's course. The American taxpayers are not responsible for the excesses and greed of a few. Do not even look their way! they are trying to frighten everyone as they have during the Republican administration, that is how they are trying to rob everyone again, as they have before. Let them Rot!

[RB]

Does this bailout even have consequences for the poor decision making that got us to this point? If I max out my credit card or spend my kid's college tuition in Las Vegas, there is no bailout for me, just a string of consequences. I say we stick to the same philosophy and institute consequences.

[Tannim]

The answer is ZERO cents on the dollar. This is a typical government "solution" that rewards the fraudsters and penalizes the innocent.

Bail out no lenders, no Wall Street firms, no borrowers that took out these NINJA loans.

Instead, bail out the rest of us: the people in fixed-rate, income-verified, stable loans that have seen our own equity go straight down the drain. We deserve it for making the sound calls. We should not get punished with a $700B bill (this round) because we were smart and others were stupid!

Paulson wants thtis bailout to frre up more credit liquidity to get the marlets moving again. This is equivalent to stopping a gasoline station fire by turing on the pumps. Credit is the PROBLEM, not the solution!

The only real solution is to eliminate the credit problems at their source by helping consumers eliminate their debt. You do that by decreasing their tax burden and cost-of-living burden through more take-home pay and lower costs for gas and groceries, giving people more money to invest in the economy and pay off debts.

Only 5% of all mortgages are these NINJA frauds. Nail them, and help the rest of us. Then quit bundling debts and selling them as assets ala Enron!

$700B to homeowners means about $3500-7000 per homeowner. That's a lot of debt-payoff right there.

[George McDuffee]

What goes around comes around. Let the banks get the same terms they give their credit card holders including the late fees and over limit charges. If the existing banks can't cut it, then let them go broke and use the 700 billion to pay off their depositors through the FDIC. Let the bank stockholders and other creditors eat the losses. The new banks will be more careful, at least for a while.

[Ruth]

The banks and the entire financial community should be squeezed till they bleed. Do what the Repubs believe in -- Let the free market work out the mess that its 'brilliant' greedy leaders got themselves into. If anyone should be helped, it should be the duped borrowers that they fleeced. The Repub crooks kept on manipulating till they got what they wanted and did as they pleased. Now, let them reap what they sowed! So the world suffers as a result, but it is not the fault of the American John Q Public who are the victims. Make the fat cats cough up their assets to fix their mess instead of continuing to make suckers out of the American Taxpayer. They think they know everything. Our government and the fat cats have kicked the American Taxpayer around for long enough. So we all suffer, but not as much as the fat cats. The rest of us have been suffering all the time. We are used to it! Perhaps going back to square one will be the best thing that's happened since 1929!

[PNW Trojan]

I called our Senators and left a message about 'HANGING them out to dry if they bail out Wall Street, Clinton, Dood and Barney. Remember the S&L fraud...and history repeats.

PLEASE,CALL YOUR SENATOR'S TELEPHONE in WASHINGTON DC; let them know THEY, ARE ACCOUNTABLE for this outcome. Most have a toll free line or email them...do it quickly ,to show them WE ARE UNITED!

[Dan]

I believe the crisis is manufactured to quite an extend and now we're going to throw $700 Billion at the problem just before the end of the term of Bush and his cronies. It would not be hard to lose 10 billion here and another 10 billion there. Without heavy oversight this could turn into the biggest robbery of all time.

And if it did got through yes, the government should get a major equity stake in the companies. Don't give me any crap about socialism either. It is collateral and punishment for screwing up so bad. Besides, the free market people had no trouble with the government holding stocks when it came to their attempt to privatize social security a few years ago.

[tonye]

On the one hand, it is satisfying to see Wall Street hang out to dry.

OTOH, the problems were created by Congress ( unregulated overseas OTC trading ) and the Fed ( lazy oversight of lending practices ).

This has little to do with Bush and a lot to do with Congress, the Fed and Wall Street.

So, now we have a dilemma. Do we let Wall Street croak? If we do so we throw the baby with the bathwater and we need the baby.

I think that paying 30 cents to the dollar makes sense as it assumes that that paper is has gone down 70% in value. Effectively this destroys money just as the underlaying collateral has been destroyed. Doing so keeps the pool of money smaller and protects the dollar.

Longer term we must bring back regulation into the markets to introduce transparency in trades. That is, no more off the record trading on global OTC markets ( London..... ).

And the corrupt idiots in Congress who allowed and fostered this, such as the likes of Senator Dodd, chairman of the Banking Committee, should be forced to resign. It is on Dodd, his buddies and Greenspan that the blame is to be laid on.

[Jeff]

It is an insult to actual rocket scientists to use the term "Wall Street rocket scientists."

The correct phrase would be "arrogant, smart enough to be dangerous, Wall Street employees."

Real rocket scientists have a much firmer grasp on risk.

[jdj]

What good will it do to set a floor under home prices if that floor is still way too high to be affordable with new tighter lending requirements? This would just cause inventory to rise.

Calculated Risk is showing that Wells Fargo is charging 9.0% for a 30-yr fixed rate jumbo loan -- which is almost every house on the westside unless you're putting 20-30% down.

http://calculatedrisk.blogspot.com/2008/09/wells-fargo-30-year-jumbo-mortgage.html

[Michael Smith]

Let's see, I've an adjustable mortgage. I've never missed a payment. It's going to re-adjust soon. The house is worth less than the loan. The bank is unwilling to help me in any way and states that I don't qualify for a new loan. Personally, I'm walking away. They can rot for all I care. Keep my home, lose your money, and oh, bring down the rest of the economy in the process. You want to help? Help people that are willing to hold on to their homes. Period. It's simple.

End of story.

[Dallas Baker]

SOLUTION TO THE FINANCIAL CRISIS

THE BIG IDEAS
* Buy real estate directly and then convert that real estate to work-force and affordable housing. The credit markets get a shot in the arm, the glut on the housing market is reduced, families can get back in homes, and the tax payers make the money back over time in rent payments.

* Dramatically expand government spending on infrastructure. This will get money into the system, create jobs, and rebuild the crumbling roads, levees, power grids, and other infrastructure in our nation.

OTHER SHORT-TERM IDEAS
* Shot-in-the-arm to Wall Street (not a bailout)
* Spend money in phases (so there is time for over-sight and a chance to see what works)
* Equity stake for the tax-payers (so we get something back for our investment)

OTHER LONG-TERM IDEAS
* Reform financial regulations at the top
* Reform bankruptcy laws to allow restructuring of loans for primary residences

[Paul Wasko]

JUST SAY 'NO' TO BAILOUT!!!

I am a responsible tax-paying citizen who has not bought a house because I cannot afford one even at today's inflated prices. We all knew that prices were exceeding people's earning abilities and they could not afford what they bought. They all thought they would 'flip it' to make money, the bottom had to fall out at some point. They lied on their loan applications and the funding companies allowed and encouraged them to do so. They are both at fault, let them foreclose, let the finance institutions write off the debt. Things will eventually bottom out, level out and then start up again, giving us all a chance to buy a home at a price we can afford to make the payments.

I am not interested in taking on any more tax burden and/or helping out people in foreclosure or the institutions holding the fraudulent loans.

[The Shark]

Let ALL the banks fail. Their thievery of the ordinary citizen has gone far enough. The reason the banks are failing is because millions of people refuse to "bank" with them and instead cash their checks at a check cashing store. Over-draft fees has basically impoverished thousands of people. The people are fighting back and shunning the banks, thus their failure to serve the people. Banks disgustingly serve themselves and only themselves through Greed and Prejudicial policies. Let the Banks Fail, then perhaps we can get real banking with Extreme Government oversight. BAN Overdraft Fees and the banking sector will survive.

[READ THIS]

Banking industry expert, Bert Ely, who has a stellar track record in predicting crises and calling false alarms says that the banking industry can handle this mess internally and does not need subsidies.

http://us1.institutionalriskanalytics.com/pub/IRAMain.asp

[Carol Bateson]

I sent emails to my Senator and Congressman today to ask them to make this proposal: The U.S. Treasury should LOAN the $700billion that Wall Street banks and investment companies are asking for and charge them interest for the money.

The Wall Street companies responsible for this economic mess should be made accountable for it. They are in this financial crisis because they made complicated sub-prime mortgage loans filled with tricks and traps to people who didn't understand what they were getting into. The lenders and mortgage brokers made a ton of money. And when the mortgages where bundled, sliced, diced and sold as securities to anyone, anywhere who could pay them, once again Wall Street made millions and Main Street was snookered.Why, then should middle class tax payers bail out the people who exploited them in the first place?

We should insist that any money given to the Wall Street banks or investment companies be in the form of a LOAN and not a handout!

[bernadette]

NO on Bailouts.... THIS IS NOT the Tax Payers fault. What about all the millions of dollars these CEOs have in their BANK Accounts? GREED got us into this mess and for once - the GREEDY should be responsible ... This is going to lead to a TAX Revolt in America - hummmm reminds me of a very famous Tea Party...

[david'61]

I think the $700m infusion is a bad idea. Any money the govt spends sghould but equity in the banks - ownership. The executives that ran the ships aground should provide assets as well - personal assets. If not then let the mess just play out. These thieves should be made to squeal like a pig.

[wcmillionairre]

What would a "normal buyer" pay? The answer is clear...NOTHING!

[ccl]

My Dad, may he rest in peace, would be appalled with what I am reading. There is way too much pointing of fingers and Mc Cain and Obama, who cannot solve the financial problems happening now. Is there no way for all of us, the people of the United States of America, to bring together the brightest minds in the country, in order to find the solution to this financial mess? If congress had a clue, this apparent crisis would never have happened in the first place and for us to leave it up to them to find the solution now is just stupid. We do not need more government intervention since they helped us all get into this mess by putting their collective head’s in the sand for the past several years. We need fresh ideas and solutions and there are people in our country that can do that.

[Philip]

Banks should be squeezed very head. Bank of America to just charge me over $350 in overdraft fees, generated from a .56 cents overdraft--overdraft on overdraft fees--its complicated but reall. They must be doing this to everyone!

We need more then change, we need change now. And now McCain wants a time-out after Obama suggested that they talk--so much for "straight-talk" !

[foreclosed]

The banks should be squeezed as hard as they squeezed us during a forecloseure or reposition.

[Aussie Realist]

You Americans think your banks are greedy. How about this one. The National Bank of Australian made a profit of $4.8 billion last year (in a country of 21 million people). Their management was dumb enough to buy one billion dollars worth of U.S. subprime mortgages. Now they say they will apply to recover it (through a US subsidiary) from U.S. taxpayers bailout funds.
Is there no end to the gall of greedy banks? I see lots of you are emailing your congressmen opposing the bailout. Better make your lawmakers aware of rip-off merchants like the National Australia Bank who are picking the pockets of U.S. taxpayers.

[Michael Campbell]

Here are my questions regarding the bailout:
Why aren't the board members of these companies being held accountable? Isn't it their resposnibility to oversee the "big picture"? If I owned a company and the person I trusted ran my company into finacial ruin, that person would be fired and I would hold myself to blame for not overseeing the person properly - can't let the fox run the hen house all by itself. What I do not understand is that these knuckle heads are the people who created the problem. They are getting paid way too much to navigate these big companies. The specific job is to prevent such things happening. Where is their accountability? Are they shucking out part of their multi-million dollar earnings to save there companies? Let them throw in the first dollar and then we can decide if we will help them out. One other thing, where is the money going to come from to bail out these Bozo's? Last I heard it does not grow on trees. So, we borrow from the Russians or the Chinese? Sounds like a fiscally responsible thing to do. Why can my goverment not be fiscally responsible yet it expects me to be finacially mature?

Just plain amazed and frustrated!

[Major Dani]

NO bail out for Wall St. or the banks. Let them eat the bad loans they created by lending to the unqualify. If this corrupt administration wishes to end the financial crisis, they should HELP the little guys to pull ahead. Most people can not repay the money they own right now therefore I do not think they will be able to secure new loans for the time being. Let the banks with toxic papers go down and rest assure that the banks without bad loans will continue to loan money to the ones that will be able to pay it back.

[GI Joe]

EVERYONE, PLEASE CALL YOU CONGRESSMEN TOMORROW! NO BAILOUT FOR RICH WALL STREET FOLKS!!!

Bernanke and Paulson have only the interests of Wall Street and the banks in mind, because their rich friends have been calling them for a bail-out.

Who will bail out the average folks when we lose our jobs? NO ONE.

The Wall Street banks are the biggest speculators in the real estate bubble. They dug this big hole themselves. Let them go bankrupt. Let their investors and lenders go bankrupt.

Small speculators got no help. The big guys should get nothing also.

THAT'S THE AMERICAN WAY.

[Adam M]

How about using the $700 billions to set up a new bank to give credit and liquidity to good and responsible banks and businesses. There are a lot of banks and businesses that can give us transparancy and solid balance sheets.