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Wednesday, September 24, 2008

Analyzing the Republican Study Committee Alternative to the Bailout

The Republican Study Committee released an alternative plan to the bailout. There is a lot to like in it though there are a couple of things that are puzzling.

1) Suspend the capital gains tax for two years.

The committee claims that this will encourage companies to sell unwanted assets, however that is simply not accurate. Most of the unwanted assets wouldn't have any capital gains taxes since they are heavy in losses. The right way to do this, in my opinion, is to suspend capital gains taxes on any investment done in the next two years no matter when the gain is realized. This will have negligible effect since most of the bad assets have no capital gains.

2) Schedule Fannie/Freddie for privatization

That's a great idea however that only solves one of two problems. They should definitely be privatized however if there are still only two of them, there is still a major structural problem with the two. They also need to be broken up. Furthermore, while they privatize, the group also says this

focus their mission on affordable housing only, not profit making,

Hold on a minute. The point of a private company is to maximize profits. This group wants to send these two into thr private world no longer an extension of the government but still wants to tell them their mission. That's not how this works. If they are private, their one and only mission is to make money. That's how this works.

3) Stabilize the Dollar

I wonder how Steve Forbes feels about that idea. If you know anything about Forbes, you know the answer to that. I think stabilizing the Dollar is something that should have been done long ago, and I am glad to see that someone is taking notice.

4) Suspend FASB 157

This is an excellent idea and it must be done. This so called "marked to market" causes much of these mortgage bonds to be written down. It forces sell offs when an institution could possibly hold onto them for the long term and wait for a turnaround.

All in all, these are good ideas and because the Republicans came out first with a bold idea, I think this gives them the opportunity to take control of the issue. Now, they can't rest on their laurels. They must go out and do press conferences, commercials, interviews, and write editorials. The public must know this plan.

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