>i was following the conversations, but i never got a good handle on why
>people were opposed to the bailout. i am trying to see if i can sum of the
>various classes of argument, and you can correct me:
> what were some other arguments?
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1. That the fund should primarily be aimed at assisting homeowners and
resolving the housing crisis rather than at purchasing mortgage-backed
securities at above market prices from the banks. The root of the financial
crisis is the housing crisis. Stop foreclosures and put a floor under
housing prices and the distressed MBS's would rise in value, so the theory
goes, as surely as the government buying them at auction, improving bank
balance sheets and (presumably) their willingness to lend.
2. It rewards rather than penalizes bank shareholders. The plan is unlike most bailouts in that it doesn't require the state to take a controlling equity stake in the banks in return for relieving them of their debts. Shareholders will not see their equity diluted, they will continue to receive dividends, and they will be the primary beneficiaries in any financial sector recovery. The taxpayers will be left with a larger fiscal deficit. The Swedish recapitalization of its banking sector in the early 90s is viewed as the better model.
3. It is indiscriminate and inefficient. The government will absorb the losses of stronger banks like JPMorgan Chase, Citi, B of A, Wells Fargo, and USBancorp as well as those of weaker ones threatened with insolvency. It should instead be closing down the "zombie" banks and allowing the stronger banks to work off their debt on their own while it focuses on reviving the housing market, restructuring and reregulating the financial sector, and promoting economic recovery by boosting mass purchasing power.
The next administration will almost certainly be forced to move in this direction because of the inadequacies of the current program.