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  1. Wealth
September 30, 2008

The bail-out that flared out

By Spear's

An unseemly brawl aboard the $700bn super jumbo.

No sooner had Capt. Hank Paulson lined up his $700 billion super-jumbo for take-off, than an unseemly brawl broke out in the back of the plane and it had to return to the terminal. This brawl was mainly Republicans fighting Republicans and will manage to deck whole plane-loads of American bankers forever, unless the Captain can quickly get the plane and his passengers under control.

What went wrong on this specially-chartered flight, designed to give thousands of bankers an unearned holiday from the Credit Crunch, which has ruined their prime time in the office away from their families? As Paulson revved up for take-off, he spotted that some dunder-head had fixed the wings on upside-down. It was a no-brainer: this plane would, instead of flying, have ploughed itself deeply into the ground and landed everyone in the proverbial. This plane just didn’t address the basic rules of flight:

·        How do you clip the outlandish pay of those who screwed the system to the point where it itself was totally screwed up?

·        How do you price and buy tons and tons of toxic waste when there is no market and no price?

 ·        How do you manage all this sh*t when you’ve bought it – from Ben Bernanke’s garage?

 ·        How do you show the fleeced taxpayer that he got value for money by being fleeced for a second time round?

 ·        The idea of a democratic government evicting voters who can’t pay their mortgage as a result of the government’s own regulatory failures is totally flawed.

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 ·        Finally, it does not address the issue of the illiquidity and frozen state of the inter-bank markets.

There is a simpler and much better way of dealing with all these issues that should have occurred to Paulson, especially as it was the structure used in the AIG bail-out: leave the toxic waste where it is and where there is already management in place, buy shares in the troubled banks, put someone on the board with plenipotentiary powers to control the remuneration committee, and sell the shares in 5 to 7 years time at a good profit for the taxpayer.

This approach would be manifestly fair to all parties and would deliver the right level of pain to the culprits and potentially the right level of reward over time to the taxpayer at a transparent risk, namely as visible in the stock price, and all at the smallest cost in terms of overhead. It’s called taking a stake at an opportune price, Capt. Paulson. This idea will definitely fly…

 What do you think? What better solution is there?

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