Why Don't We Use What We Learned From The Savings And Loan Crisis?
Nicole Gelinas writes at City Journal about an alternative to the government (i.e., us taxpayers) paying full price for a bunch of crap in a bailout:
William Seidman headed the FDIC in the eighties and later, as head of the federal Resolution Trust Corporation, handled the S&L aftermath. During that crisis, the U.S. government closed down failed S&L institutions and had to sell off their holdings. These holdings consisted of $600 billion in diverse assets, including office buildings, hotels, golf courses, and apartment complexes. "There was no real market" for such assets, Seidman said at Monday's conference. "We decided we had to create a market. We said, we're going to start selling these properties at whatever price we could get."And what did the private owners of similar assets do when the feds started their initial sales? They howled. "You can imagine the reception: 'You're driving the market down,'" Seidman said mildly. Many of the critics were on Capitol Hill. "Congress asked us to keep the assets for five years to get prices up. I said if I'm sitting here just waiting to sell my assets . . . the price isn't going to go up." Selling at distressed prices initially was "the only way you could get it done. We began to sell." Investors who bought assets at rock-bottom prices found--through their own diligence, asset management, and early resales--that there was real value there, which encouraged investors to purchase more of the assets, increasing demand and raising the prices at future sales. Within a year, the market had begun to recover, with many formerly distressed properties approaching 70 percent of their original values.
The Big 3 have some world-class assets with real value (the Corvette, the Mustang, etc.). If someone could buy up these choice assets at a good price and dump the dead weight & the UAW, this whole sad saga could actually have a happy ending.
But that makes too much sense. Instead Congress & Obama will toss them a lifeline, while ordering them to make ugly pseudo-Priuses that no one will want to buy, the UAW will keep sucking blood from the corpse, and Motor City will sink to the bottom of the Detroit River, taking billions in taxpayer's money with it.
Sigh.
Martin at November 19, 2008 9:27 AM
this has been the thing that mystified me throughout. I had a friend who worked for resolution trust, and it seemed to work in it's way. Why are we relearning these lessons? And that doesn't cover the automakers. Their market cap is what $7B or something. Why spend $25B for $7B worth? The day we learn that NOBODY is too big to fail, is the day it comes back in vogue to NOT fail.
SwissArmyD at November 19, 2008 12:17 PM
For one thing, you're talking about tens of thousands of various assets (S&L) versus as much as tens of millions of houses. It can be done, but it's a much bigger job.
And winding up a failed S&L is a whole lot easier than winding up AIG, which has connections in a whole lot of places and industries. I suspect the feds think it's a lot easier to keep the place running, and impose some discipline to get the house back in order. Because if AIG suddenly went down, there's whole industries that could grind to a halt.
Gordon at November 21, 2008 10:31 PM
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