i wasnt sure where to put this article, as i cant see a news section here at ASF. perhaps there could be one?
Chaos on Wall Street
The big banks' fear of big losses is threatening to bring down the entire system, with dire consequences for all of us. Here's what's going on, and what we can do about it.
By Allan Sloan, senior editor at large
THE BAILOUT BOYS: S.E.C. Chairman Christopher Cox (left) with Paulson, President Bush and Bernanke.
POINT MAN: New York Fed President Geithner
Chaos on Wall Street
The last days of Bear Stearns
An accident waiting to happen
More VideosNow what?
How would I mop up this mess? I have no magic cures, but I can offer a few modest suggestions.
If we taxpayers are going to subsidize Wall Street, as we're now doing, the Fed - or some agency the government sets up - should get a piece of the action for us in return for saving those firms.
Model: the $1.2 billion of Chrysler loans the Treasury guaranteed in 1980 and 1981. Chrysler repaid the loans, and the government made $311 million from stock-purchase warrants it extracted for issuing the guarantee.
If firms can't raise the capital they need, Uncle Sam himself should recapitalize them, as Israel did for its banks in the 1980s, with an eye toward making a profit by selling stock when things improve.
If Wall Street is going to create its own banking system, let's regulate it - especially the hedge funds - or restrict what it can do. Otherwise, how can regulated banks, which need to follow rules and have capital, compete with the cowboys that don't have to worry about either?
Wall Street has made tons of money by selling and trading esoteric securities without informing investors in any meaningful way about the mortgages or other assets that underlie them. It's now in everyone's interest to disclose more, so these securities can be analyzed and trust in the market restored.
I'd start with Richard Field, founder of TYI - it stands for "trust your input." TYI's programs let you track individual assets like auto loans, credit card debts, and medical receivables that are in collateral pools. It's worth a look.
The one thing I won't try to do is solve the home mortgage problem that started all this. I'd like to save the truly innocent homeowners, while punishing speculators and imprudent lenders. Alas, I have no idea how to do that quickly, cost-effectively, or well.
What in the world is going on here? Why is Washington spending billions to bail out Wall Street titans while leaving struggling homeowners to fend for themselves? Why are the Federal Reserve and the Treasury acting as if they're afraid the world may come to an end, while the stock market seems much less concerned? And finally, what does all this mean to those of us who aren't financial professionals?
Okay, take a few breaths, pour yourself a beverage of your choice, and I'll tell you what's happening - and what I think is going to happen. Although I expect these problems will resolve themselves without a catastrophic meltdown, I'll also tell you why I'm more nervous about the world financial system now than I've ever been in my 40 years of covering business and markets.
Finally, I'll tell you why I fear that