Dear Mr. Baker,
I was wondering if you could explain why was Goldman Sachs and Morgan Stanley were converted to bank holding companies? Do you suppose that if they had not, they would not have been eligible for the government bailout? Was Paulson taking care of his friends?

Thank you in advance for your response.

Dean, following up on John's question, can Goldman Sachs and Morgan Stanley, etc. simply DECLARE themselves bank holding companies? Don't they have to go through some federal and/or state legal/procedural hurdles?

In addition, huge KUDOS to you for your clear and sensible comments about "the BAILOUT" on Amy Goodman's program yesterday.

What bailouts ? Do what FDR did.

We need to do what FDR did ... Nationalize, declare a bank holiday, liquidate, merge bad banks with good banks.

Net all derivatives and set up a regulated system. These financial weapons of mass destruction must be defused.

Paulson's Plan does little to stop the seizures in the credit markets.

Do what FDR did , cleanse the system.

Unfortunately the bailout is being converted from a market fix to a socialist program especially if everyone gets into the give-away "save the borrower" pork barrel bandwagon.

Paulson's plan is pretty simple. As the Treasury starts purchasing vintage 2003-2007 loan pools at a discount below performing rate of default (total loss severity of say 80%) it will re-set the mark to market (higher) and lower the bank's capital requirements -- freeing up lending liquidity for the banks. Then the markets start moving again. The market needs buyers, not sellers. The Treasury is likely to make money on this investment unless they get into the welfare business with the Congressional mandate to do so. The Treasury pools would become cash positive within 18 months, or sooner.

There should be no bailout for the borrower. If they can't pay, they will have to return to the rental market, or to a home better suited to their financial structure. Otherwise this is welfare.

In California home prices have fallen about 25%. 50% of all home sales in California are sold to former renters locked out by high prices. Today, a foreclosure property usually has three or four offers from borrowers with 700 credit scores and $50,000 in cash reserves. This has slowed housing price decline there.

Otherwise, we should leave Paulson alone wherein paragraph two (above) will reset the market, leaving private equity the chance to replace the government as the buyer giving them the opportunity to make a profit commensurate with the risk of the trade.

Saving the deadbeat borrowers will cost us $2 trillion.

"The Treasury pools would become cash positive within 18 months, or sooner."

Ed, I presume you have loaded up on investment bank paper yourself - you should make a killing if you're right. Actually, there are so many people who profess to believe that this stuff is undervalued that I wonder whether this is not a self-negating prophecy - if all these people have put their money where their mouth is, the prices should be near break-even levels.

Ed DeShields wrote, The Treasury is likely to make money on this investment...

If so, then why haven't private actors started buying it up?

Furthermore, given the complexity of the instruments and the lack of good data---some of the reasons that are driving the crisis---it will be too easy for the banks to game the system Paulson is proposing.

I agree that there shouldn't be a bailout of homeowners. What I don't understand is why you think that there should be a bailout of banks, when any idiot can see that while homeowners are responsible for their choices, the banks are even more so.

I agree that the same boot used to kick the CEO's in the teeth, should be used to kick borrowers who overextended. Seems fair.

Can someone explain (in language a non-economist can umderstand) Ed DeShield's paragraph 2 above. If the government buys up loan pools at 20 cents on the dollar, how do they increase in value ? Are these loan pools the root problem or is ther a derivative element as well? Just trying to understand

Anonymous wrote, I agree that the same boot used to kick the CEO's in the teeth, should be used to kick borrowers who overextended. Seems fair.

I don't think borrowers are as culpable as the parasites in the finance sector.

However, I completely agree that most of these borrowers (with some exceptions) are not victims and don't deserve a bailout.

"It is possible that it will be structured so that most of the burden will be placed on the banks."

That's a joke right?

Well, Warren Buffet apparently agrees to some extent that investment bank securities are undervalued (but perhaps on the assumption that Paulson will buy up the really bad stuff?).

But since he has got equity in exchange he has basically done what Dean recommended, not what Paulson demanded to be able to do.

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