I’m angry enough about the prospect of a stupidly conceived financial industry bailout that I wrote the following letter to my state Representative, Jackie Speier, as well as Senators Dianne Feinstein, Barbara Boxer, Barack Obama and John McCain. I would have sent a copy to Rep. Barney Frank as well, since he is playing a key role in the bailout, but his website doesn’t accept email from people outside of his district.
I urge you not to support any bailout deal that involves purchasing or insuring bad debt.
This is the wrong approach. It rewards financial mismanagement and creates a state-run market for bad debt (thus encouraging corruption and further mismanagement). Worst of all, it leaves U.S. taxpayers holding the bag for someone else’s mistakes.
And when the financial industry turns around, we’ll still be holding a bunch of bad debt, which we’ll be paying off for years.
Instead, I urge you to direct the $700 billion bailout towards purchasing preferred stock in the companies at risk.
This is the strategy used in the bailout of Fannie Mae and Freddie Mac, as well as that used by Warren Buffett in shoring up Goldman Sachs.
This approach will recapitalize the companies and give them the breathing room they need. And when they turn themselves around, the U.S. government will get its money back — or perhaps even turn a profit, as the Hong Kong government did in the late 1990s when it purchased preferred stock in Hang Seng Index composite companies, in order to forestall a market crisis.
I’m not the only one to hold this point of view. One of the most popular opinion articles on the Wall Street Journal web site right now is “The Public Deserves a Better Deal,” published Friday, Sept 26. It makes the same point: The Treasury should be purchasing preferred stock, not bad debt.
I am not opposed to a bailout of the financial industry. I am, however, opposed to a one-sided bailout that rewards financial mismanagement while providing no benefit to the American taxpayer.
Sincerely,
Dylan Tweney
San Mateo, California
