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There's only one reason that Congress passed the financial bailout measure this past week: Wall Street and politicians kept warning of an impending credit collapse that could be solved only by rescuing some irresponsible investment banks and by purchasing securities that have become "bad paper."
Don't believe the lies!
Pouring money into the investment banks at all - and especially by buying up their bad paper - is not a good way to maintain liquidity and credit. Fed and Treasury money should be used more directly to avert any potential financial collapse.
If the Fed needs to inject liquidity into the market, there is a conventional way to do that: providing funds for the money market by making loans or buying good (emphasize "good") securities of commercial banks and similar financial institutions. To begin by providing $700 billion to risk-taking financial institutions is an indirect, inefficient and inequitable solution to any impending "credit crunch."
Perhaps the most confusing thing for us on Main Street is the supposed link between the mortgage-backed credit securities and the regular credit that affects our everyday lives and American businesses. What's the direct connection?
There is none! We repeat: There is no direct connection between the credit represented by mortgage-backed securities and the other credit markets that affect our everyday lives. The normal credit extended by banks to businesses and households in good credit standing has nothing to do with these "credit derivatives" - the bad securities that Congress has authorized the Treasury to purchase.
It is true that some large institutions lost a considerable amount of money. However, it is a fact that they lost that money on mortgage-backed securities. Most of these instruments represented pure gambles against homeowners' defaulting on their mortgages. As far as the public should be concerned, one can just as well think of these financial institutions as having lost the money betting on mortgage defaults in Las Vegas. Today, however, having suffered such massive losses, these banks are unwilling to extend normal loans to businesses and households.
Or so the banks claim!
The mortgage credit crisis has put some investment banks at a huge loss over the derivative investments, and has made them less willing to make conventional loans because of it. That overly risk-taking institutions lost money on "credit derivatives" is irrelevant; again, there is no direct connection between the credit of mortgage-backed securities and other credit markets.
The so-called rescue plan does not address liquidity directly. Instead, it seeks mainly to bail out some irresponsible financial institutions. The rationale for the bailout measure is that, if the government buys up these sour securities, the banks will no longer be operating at an enormous loss and will once again be willing to make loans. But not all the banks are failing, and the Fed has better ways to inject liquidity into the market so that banks will still give sufficient loans to individuals and institutions in good credit standing.
Saving a few financial institutions - at American taxpayers' expense - will not necessarily help the credit situation. There is no guarantee that the rescued institutions will even participate in the loans customarily made to people and businesses.
The only thing the Fed will be sure of accomplishing is buying up crummy paper!
Source: http://www. | 
