Tags: bailout

Ritholz: Bailout Will Cost At Least $1.5 Trillion

Wednesday, 01 Oct 2008 10:17 AM

Economist and Fusion IQ CEO Barry Ritholz says the Treasury bailout will cost at least $1.5 trillion, twice what Secretary Treasury Henry Paulson says it will.

Even worse, the Treasury can just keep writing checks without oversight, let alone penalties for overdrawing its account.

"In golf, if you hit a slice into the woods you can take the stroke penalty and start over," Ritholz told Forbes magazine in an interview.

"With the bailout, there's basically no penalty. They get to take all these bad trades and make them the taxpayers' problem."

Ritholz agrees there is a danger of U.S markets collapsing, but he says that Paulson's plan is rushed and fails to address the underlying issue which is that the housing sector, which exploded for five or six years, is now coming down.

"We have to let that process continue to work, to let the market move the four or five million people now living in homes they just can't afford into homes they can afford," Ritholz says.

"Throwing money at people who made bad investment decisions, who basically acted with excessive recklessness and complete and total disregard for normal standards of lending and prudent investing, is no solution at all," Ritholz says.

Worst of all, he says, is that the proposed bailout will encourage continued reckless financial behavior. As evidence, he points to the bailout of Long Term Capital Management 10 years ago.

"LTCM was under-capitalized and used a tremendous amount of leverage to buy thinly traded paper that was very hard to value, Does that sound familiar at all?" Ritholz says.

"Here we are, 10 years later, and it's the same exact problem. Then it was one hedge fund. Now it's every hedge fund, every bank, every brokerage firm. The lesson wasn't learned."

Treasury's plan has absolutely nothing to do with addressing the root cause of our financial system's stresses as Paulson claims, according to Mike Stathis, principal of Apex Venture Advisors.

"The root cause is embedded in America's Ponzi scheme economy and an unregulated financial system filled with greedy and dishonest individuals who do not feel the threat of criminal prosecution," Stathis told the UK's Market Oracle.

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Economist and Fusion IQ CEO Barry Ritholz says the Treasury bailout will cost at least $1.5 trillion, twice what Secretary Treasury Henry Paulson says it will. Even worse, the Treasury can just keep writing checks without oversight, let alone penalties for overdrawing its...
bailout
360
2008-17-01
Wednesday, 01 Oct 2008 10:17 AM
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