The Bail-Out of Wall Street Will Not Bail-Out Main Street!

The claims by Bernanke (Fed) and Paulson (Treasury) that the best way to open-up the credit markets is to recapitalize financial institutions through buying-up their toxic waste has absolutely no basis in fact.

This method of recapitalization is a total rip-off of Americans ... pure and simple! All this plan does is to provide a massive bail-out of the common and preferred shareholders and unsecured creditors of banks and other financial institutions and will do very little to open credit markets. Because at the end of the day, even assuming that all of the toxic waste has been snapped-up by your tax dollars, a large number of banks will still remain under capitalized, as they have been since 2007.

Also, it does nothing to resolve the severe stress in money markets and interbank markets which are now on the edge of a systematic meltdown. It does little to resolve the debt burden of millions of distressed homeowners, and the cost of borrowing $700billion to Americans will go right through the roof.

Paulson's Plan is a total and unmitigated disgrace. If its intent was to Bail-Out Main Street instead of the gypsies, tramps and thieves on Wall Street, then why have we not seen simple, yet cost-effective strategies, such as;

• public injection of preferred shares into distressed financial institutions.
• the mandated matching of capital by current shareholders to ensure that shareholders take the first loss. Why should non-investors be on the hook for reckless behaviour. They haven't speculated nor invested money so why should they now have to cover investor losses. Doesn't sound like a free market economy to me.
• suspension of all dividend payments.
• conversion of some of the unsecured debt into equity via a debt for equity swap.

In this way shareholders and creditors are forced to contribute to the recapitalization of affected financial institutions, and now, the $700billion bailout becomes a $350billion taxpayer bailout with only 50% used to buy toxic assets with the other 50% taking the form of public capital injection.

It is absolutely pathetic that the only financial strategy which Congress is looking at is Paulson's and Bernanke's Plan. Unless both are the world's foremost financial minds, Congress should also be seeking the advice of world-class economists and financial experts on behalf of the American people, to evaluate alternative plans which could possibly be more efficient and less costly in resolving this huge crisis.

In my opinion, the bottom-line on the bail-out package, as it currently stands, will privilege the gains and socialize the losses!