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Solution Stinks; Alternative Is Worse

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By TOM JACKSON

The Tampa Tribune

Published: September 26, 2008

As acts of Congress go, the one hacked out in hopes of staving off Great Depression 2008, Return to Misery, appears to be an equal-opportunity offender. Left, right, center or blissfully uninvolved, everyone is bound to identify something about the $700 billion package that stinks like backwoods roadkill on a summer night.

About the only thing that renders it even remotely tolerable is the overarching conviction that Something Had To Be Done, Or Else. Or else what? In the worst-case scenario, a 1930s-redux global economic collapse. That one was resolved only by the Allies' victory in a world war triggered, substantially, by international hard times.

Ultimately, deal-makers (assuming there is a deal) could not allow fears of lurching socialism or populist anger at Wall Street to open that door. History is watching. Whether it will judge harshly only time and subsequent events will tell. But given all the available evidence and alternate remedies, approving the so-called bailout seems the right and necessary course.

So says syndicated radio talker Bruce Williams, the Oracle of New Port Richey. "It's like some senator said: 'I don't like this choice, but what choice do I have?'"

His experience is instructive. A board member of a New Jersey bank, Williams has witnessed balance sheets devoured by souring mortgage loans, leaving nothing available with which to create new loans.

Consider the vicious cycle, Williams says. When credit freezes, business retracts; when business retracts, employees lose jobs; when home-buying employees lose their jobs in tight markets, mortgage payments often get missed, and yet another lender's asset slides into the category of "nonperforming," completing the wheel.

Lots Not To Like

"A lot of things about this I don't like," Williams says. "I don't like rewarding guys for being pigs." An item in the Wall Street Journal caught his eye. "Guy makes a quarter-million a year cryin' because he's going to lose his house worth $2.5 million. That's 10 times his salary. He should never have been granted a mortgage in the first place.

"So there are pigs at the upper end, too; it's not just people in $50,000 houses."

That said, "The reality is, the more people we can keep in their houses and keep sending checks, the quicker this turns around."

Relying on the most onerous facet of market systems - foreclosure and resale - might have satisfied old-school scolds, but the process would have been prolonged and metastasizing, punishing not only the guilty-greedy, but honest players with their 20 percent down, 30-year fixed-rate loans who already were seeing hard-earned equity slashed to zero.

Striking Gold?

Besides, it's not like the Fed plan equates with pouring gold dust into quicksand. Instead, it represents an investment in temporarily devalued assets. Former hedge-fund manager Andy Kessler wrote in Thursday's Journal that Treasury Secretary Hank Paulson could wind up buying more than $2 trillion in distressed securities, draining toxicity from the financial system while setting the stage for as much as a three-fold return as the economy rebounds and Paulson's successors sell all that rehabilitated paper back to private investors.

Kessler calls it potentially "the greatest trade ever." Beside the point, says the Oracle. Whatever happens on the backside, the front end demanded resolution.

Sometimes, you just have to hold your nose.

Tom Jackson can be reached at (813) 948-4219.

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