Now that the first bailout plan has been defeated in the house and assuming that any potential second vote will not occur (or succeed), I think (and hope) that the powers that be will consider what I
suggested earlier: A debt-for-equity swap.
The procedural upside is that this likely would not need approval from congress, as it likely within the fed's current power scheme. Beyond, the procedural upside, many benefits can come from this. First, the duration of this process will likely be shorter than no plan and the bankruptcy process, thereby hopefully shortening any economic pain on a grand scale. Second, while this plan still must confront the difficulty in valuing the toxic assets, it is better than letting the government try to value assets -- who would likely overvalue the assets, thereby enriching the owners/managers of the banks and costing the taxpayers. If, on the other hand, our government correctly pays the actual value of the assets, what good has it done... it has only exchanged one type of capital for another. This approach, after determining the worst-case scenario as the starting value, would create a new second-market value that will be determined by private parties. Third, a debt-for-equity swap in certain situations would benefit both debtholders and equity holders. Forth, it does not socialize losses.
There are more upsides, but those are what I consider the most prevalent; I also recognize that there are several downsides (e.g., valuation), and would like to hear your opinions/objections on the matter. I sincerely hope that the powers that be consider this option... even if it is eventually dismissed for the relief of a better plan. And, notably, this would be the first-step of a long-term solution (not the fix-all). I believe that this may be a decent approach (perhaps one that could be conbined with others), but what do I know; I am, as one poster amusingly suggests, simply a bartending gynecologist.
🙄
