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Technology Stocks : Semi Equipment Analysis -- Ignore unavailable to you. Want to Upgrade?

To: The Ox who wrote (40671)	10/8/2008 1:40:24 AM
From: The Ox	2 Recommendations Read Replies (1) \| Respond to of 95617

Message 25037754 Entire article at the above link...long but worth the read,imo. <snip>Stiglitz says: “There is a growing consensus among economists that any bail-out based on Paulson’s plan won’t work. If so, the huge increase in the national debt and the realization that even $700bn is not enough to rescue the US economy will erode confidence further and aggravate its weakness.” Stiglitz’s point is proven by the fact that the Dow Jones cratered after reports circulated that the House had passed the bailout. Paulson’s fiasco has not calmed the markets at all; in fact, investors have begun to race for the exits. Confidence is draining from the system faster than the deposits in the dwindling money market accounts. Stiglitz adds: This is not a good bill . . . It is based on “trickle down” economics which says that is you throw enough money at Wall Street and than some of it will go into ways that help the economy, but it is not really doing what needs to be done to recapitalize the banking system, stem the hemorrhaging of foreclosures, and deal with the growing unemployment. . . . We have seen these problems with banks before we know how to repair them. [Stiglitz worked with the World Bank during many similar crises] So why didn’t they use these “tried and proven” methods? They (Paulson) decided that rather than a capital injection; they would try the almost impossible task of buying up all these bad assets, millions of mortgages and complex products, and hope that this will somehow solve the problem. It doesn’t fix the big hole in the banks balance sheets, unless they vastly overpay for these products (Mortgage-backed securities) This isn’t rocket science. Many of the economists who disapproved of the bill have been through this drill before and they know what to do. The way to proceed is to have the US Treasury buy preferred shares in the banks that are not already technically insolvent. (The insolvent banks will have to be unwound by the FDIC) This will give the banks the capital they need to continue operations while protecting the taxpayer who gets an equity share with “upside potential” when the bank starts making profits again. This is how one goes about recapitalizing the banking system IF that is the real intention. Paulson’s phony-baloney operation suggests he has something else up his sleeve: some ulterior motive like rewarding his friends on Wall Street with boatloads of taxpayer money or buying-back the toxic mortgages from foreign investors so they don’t stop buying US debt. Here’s how Bloomberg’s Jonathan Weil sums it up: If the government wants to save dying banks before they take others down with them, it should choose the clean and direct path: Inject capital into them. Take ownership stakes in return. And, where that’s not feasible, seize them and sell their assets in an orderly way, just as the Resolution Trust Corp. did after the 1980s savings-and-loan crisis. Infusing capital directly, though, was too simple for Paulson. It lacked subterfuge. He decided the way to save the financial system from the evils of structured finance was through more structured finance. Instead of asking Congress to let Treasury recapitalize needy banks, he proposed buying some of their troubled assets at above-market prices. This would have let other banks create phony capital by writing up the values of similar assets on their own balance sheets, using Treasury’s prices as their guide. Small Wonder. In short, Paulson’s plan was one part robbery (with the banks doing the robbing) and one part accounting sleight of hand. No wonder House members rejected it. (at first) If Paulson or congressional leaders devise a Plan B, they should look to the example of Fortis, Belgium’s biggest financial-services company. This week, the governments of Belgium, the Netherlands and Luxembourg invested 11.2 billion euros ($16.3 billion) in Fortis. In exchange, they got ownership of almost half its banking business. That’s how a government intervention is supposed to work. The company gets fresh capital, which has the added benefit of not being fake. The buyers get equity. Legacy shareholders get slammed with dilution. And if the company recovers, the government can sell shares to the public later, maybe even at a profit.” Direct capital injections is the best way to recapitalize the banks and save the taxpayer money. Paulson’s plan is just more flim-flam intended to reflate the value of sketchy assets. So far, investors and taxpayers are equally skeptical about the bill’s prospects. Interbank lending remains clogged and the VIX, the “fear gauge,” is still rising to record levels. Paulson hasn’t fooled anyone. This bill does nothing to reduce foreclosures, reassure the markets, decrease unemployment, unfreeze the bond market, increase consumer spending, or put a floor under the stumbling dollar. All it does is hand out a few ripe plums to Paulson’s buddies on Wall Street while (temporarily) soothing the frayed nerves of China’s Finance Minister. That doesn’t mean that China will be increasing its stash of US Treasuries or other US financial assets anytime soon. As the saying goes: “Fool me once, shame on you. Fool me twice . . .” <snip>