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Thursday, October 16, 2008

The Bailout will not be Successful

The Treasury's latest plan (following the recent British action) of taking equity positions in commercial banks is yet another attempt to avoid dealing with the central problem that precipitated the crisis.

The plan is unlikely to be successful in injecting new equity into the markets and freeing up funds for lending. Like our $600 stimulus checks, the new funds will go to paying off old debts rather than resulting in new lending.

Furthermore with the government taking equity positions in the banks, the equity of current shareholders will be diluted. This will contribute to the stock market's downward spiral.

The solution to the crisis is to make the mortgages whole.

Sent to the New York Times

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