Peter Pays Paul

According to the WSJ.com in Condo King Corus Weighs Its Options, Corus Bankshares, Inc.

is one of the few lenders to report that the Treasury Department intends to reject the bank’s application for funds from the Troubled Asset Relief Program, or TARP.

Ouch! The bank must be in trouble if they are admitting that they were rejected by the Treasury Department.

Corus has about $2 billion in unfunded construction commitments and that in the event of a federal takeover, regulators wouldn’t be obligated to fund these commitments.

This would be a major disaster. The article doesn’t specify how many projects this is spread over, but imagine if all of them were forced to stop mid-project.

Corus funded condo projects nationwide could come to a standstill. Depending on the FDIC’s decision, some of these projects could languish incomplete for a long time.

This is shaping up to be a huges mess.

The WSJ.com is reporting that the banking bailout is luring thousands of banks to apply for some of the $700 billion the government is handing out.

Why are the banks lining up for the funds?

Now institutions across the U.S. worry that if they don’t try for the money, the market will judge them as too unhealthy to qualify, or lacking the savvy to deploy cheap government capital on acquisitions and investments.

Is this what the government had in mind when they intervened in the banking system?

Rescue Cash Lures Thousands of Banks – WSJ.com.

Through the use of a clever experiment with a skating rink, John Stossel argues the faults of central planning.

The “bailout” or “rescue” is the hot topic on most lips these days. In fact it is hard to escape on any of the media outlets.

Below are a few articles for you to ponder on this issue.

Is Purchasing $700 billion of Toxic Assets the Best Way to Recapitalize the Financial System?

Nouriel Roubini argues against the proposed plan. He summarizes, “Thus, the Treasury plan is a disgrace: a bailout of reckless bankers, lenders and investors that provides little direct debt relief to borrowers and financially stressed households and that will come at a very high cost to the US taxpayer.”

You Can’t Rescue the Financial System If You Can’t Read a Balance Sheet

John Hussman details the reasons that the current plan only provides a benefit if the Treasury pays above market value for the value of the securities, a very reassuring thought (sic). (HT:Naked Capitalism)

Bankruptcy, not bailout, is the right answer

Jeffrey Miron from Harvard argues that the government should do nothing and let the companies that invested in the bad investments go bankrupt. He states, “Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable.” He argues that bad government policy should not be fixed with more government. He also reasons that credit markets are frozen is likely caused by the current owners of bad securities being unwilling to sell them at the offered price, because they are waiting for Uncle Sam to come in and pay a higher price.