US government promises to beat the crisis. But how? No ideas...

The new administration of the U.S. is discussing possible options of rescuing the economy and experts expect that the government’s intervention into the financial market could require more money. The situation is that the government is facing two serious issues that include continued deterioration of the financial sector along with the decrease of American citizens’ confidence in the industry that is directly proportional to the crisis worsening.

Thus the Obama’s administration will have to solve the problem of relieving troubled assets of banks while at the same time encouraging them to begin lending again and investors to put private capital back into financial institutions. Still another side of the issue is that the government needs to evade owning these financial institutions as a result of large investments.

By the moment three topics are most popular and more often harped on in the higher echelons. One of them is that the government is considering the creation of the so called ‘bad bank’ or ‘aggregator bank’ that would buy bad assets with $100 billion to $200 billion from the TARP funds being seeded into it for these purposes. Besides, the U.S. administration is seeking effective ways to bring more money to banks and one of the possible solutions offered is to buy common shares of the banks. So far government has been purchasing only preferred shares so as to avoid diluting existing shareholders' stakes. But this raises the problem of nationalizing the banks. In this regard there is another proposal for the government to purchase convertible bonds -- in which the government would be paid interest now but have the option to get common equity later. This way banks would be able to pay back the bonds as they recover, and avoid government control.

Meantime Luigi Zingales, a professor at the University of Chicago's Booth School of Business, and Paola Sapienza, a professor at Northwestern's Kellogg School of Management, conducted a study last month to check the Americans’ attitude towards the TARP bailout program and financial structures on the whole. The survey showed that nearly 60% of respondents find the financial system to be unfair with about 80% of those responding said the government's methods made them less confident in the market. And the results are not surprising because while the government is struggling to keep the banks head over the water their bailout investments in some cases exceed the real level of the support needed. This is well illustrated by the recent Citi’s reversal of their plans to buy a corporate jet. While having received more than $300 billion of federal capital infusions and loan guarantees Citigroup was about to purchase a $45 million aircraft. This is incredible! I wonder what a hell taxpayers are slaving their guts out for?

The government needs not only to repair the institutions, it needs to realize unrealizable things – to repair people’s mentality. While Merrill Lynch after posting a $27 billion loss for 2008 paid out $4 billion in year-end bonuses! Well, that is all right! There is absolutely nothing criminal in it, why! America is a rich country and nothing will happen to Americans if they spend one or two additional trillions of dollars to help their beloved banks to stay alive. Government officials have discussed spending another $1 trillion to $2 trillion to help restore banks to health.

Yet, the most interesting thing in all the mess and the ways out of it that are being widely considered is that we are trying to restore the system that proved millions of times to be fundamentally inefficient! Pah! We came to the crisis because we borrowed too much and have too many debts and now the government want us, ordinary people, to borrow again while simultaneously invest into the industry of lending, the industry that destroys the economy. Well, maybe these are just temporary measures for the initial period of revival and later we will finally face another rearranged economy scheme?! Who knows…