Leave it up to an opinion column in Bloomberg to perfectly articulate what I’ve had brewing in my head.
I kept thinking, “How does putting money into the banks fix the problem that these assets are overvalued?” Unless we are buying these securities, and then writing them down to a corrected value, nothing is fixed. It’s quintessentially anti-market. The properties aren’t allowed to go down in value.
Ron Paul hit it on the head, it’s price-fixing. As with most of Ron Paul’s theories, I don’t completely agree with his solution (i.e. the Federal Reserve and paper currency is the root of all evil). I think that there’s a balance to be struck between letting banks set prudent interest rates and preventing a predatory banker’s trust to form again. Pure-free-market types often forget that freedom, liberty, and justice are rarely selected by the market.
At any rate, it appears that this has been solved before by buying an interest in the bad securities, rather than just extending the failing banks more credit (i.e. letting them dig the hole deeper). Despite a deep understanding of all of the issues, this solution already is a favorite on Main Street.
The right solution seems to have worked for other people before, where the wrong solution didn’t work so well. Of course, they eventually figured it out and appear to have learned something in the process.