Mother Jones - Comments for "Staring Into the Abyss"

if you want credit to
flow....raise interest rates

who today wants to
loan out money a 6 percent

Almost from the start, they concluded the best systemic solution was to buy hard-to-sell mortgage-backed securities.

And of course the article has absolutely no explanation of why they thought this was the best approach. The only reasonable conclusion that I can come to is because self-reliant, free-market-cheering, hard-nosed bankers just love government handouts!

"I gulped," Mr. Schumer said.

That's ok, Chuck Schumer has had lots of practice. Our beloved NY senator will always get down on his knees for Wall St.

At least Chuck and Hillary can count Wall St. as part of their constituency. What's everybody else's excuse?

The article made interesting reading because it illuminated how the situation suddenly became a crisis and threatened to spin out of control with potentially devastating consquences. Regardless of what one thinks about the merits of the Paulson plan and how it was handled (badly, to be sure), the fact is that the situation was extrememly dangerous and getting more dangerous by the hour - and the article attempts to detail that for those who have no idea how the world of finance and banking actually work and insist on viewing these things through their own prism or morality.

The fact is, before the "Great Depression" came along, these events, leading to periodic economic ruin for many used to be called "Panics" - and each caused years of dislocation and hardship in the economy and for ALL of the people - not just the fat cats. We had serious "Panics" in 1819, 1837, 1857, 1873, and 1893 (the last ushering it what was know until the 1930s as the "Great Depression").
The article did a good behind the scenes job of explaining how the dominoes started falling and the whole thing started to spin out of control (and still may do so).

regardless of the merits of the Paulson proposal, we should all be aware and cognizant of this stuff.

If you want to scare the hell out of Bernanke, Paulson and the scum fucking bankers, withdraw your deposits. Start a bank run and W. will wet his pants.

rational:

Washington is still beholden to failed neo-classical economic ideology, therefore we get the same old crap.

I used to hear the phrase: "credit is the life-blood of the economy," and I really didn't understand what it meant. Now I do.

I agree that we will need a huge public infrastructure program to get the economy back on its feet. But first we have to put in place a functioning financial system. Otherwise the multiplier effects of the stimulus will be lost. That's probably one reason that the impact of this year's ill-conceived stimulus checks was so small.

So the first step is a govt recapitalization plan for sick financial institutions. Something like AIG, but on a wider scale.

Bernanke and Paulson are totally incomptent for letting the financial markets arrive at this situation, and should be sacked immediately. They should be thoroughly investigated for collusion with the banks to freeze the lending of Americans' deposits to create this 'crisis' so that the banks could loot the future earnings of Americans with their proposed bailout.

g. powell, I agree credit is freezing up. I have been reading a few folks who were warning us of this possibility, so this is not a surprise. I'm extremely pissed off that our "adults" had no effing clue and they woke up last week to ram through an urgent bailout.

If this crisis is so bad, why do they need so much crap attached to the bill to entice a plurality to pass it? If this crisis is so bad, why aren't banks and financial institutions forced into bankruptcy as a condition of bailing them out? If this crisis is so bad, why aren't we enticed to save (offer better interest rates instead of lowering them to bailout speculators in stock market)? If this crisis is so bad, why isn't the government rolling out job creation programs the old fashioned way, rather than roll out hundreds of billions of dollars to buy up bad assets and trusting the same people who got us here to get us back to a healthy economy?

Why can't the government identify a few important projects such as building infrastructure and taking care of the environment and create jobs there to absorb losses from other places? I know this is called "welfare" and "central planning", but this is nowhere near as bad as the corporate welfare and fed/treasury led central planning of the economy and markets.

If things are so bad in the economy, why the eff is Washington going the same old tired crappy path, but with huge momentum? This tells me this is a misguided bailout passed out of fear than out of rational thinking.

Kevin, your morning reading assignment includes Glenn Greenwald:

http://www.salon.com/opinion/greenwald/2008/10/01/pearlstein/index.html

Who details the many many credible economists and others who oppose this bailout. And he details the corruption involved in letting Lehman fail and saving AIG. One is a Goldman competitor, the other is a Goldman creditor. And the choice was made by former Goldman CEO Paulson, in conference with current Goldman CEO.

I understand Paulson is your uncle, but you may wish to rethink some of your gushing love.

Well, I'm having a change of heart about Paulson. I used to support it -- like an hour ago -- as a bridge to a better plan, but looking at the market today, I think it may be irrelevant. The financial system may be so broken that Paulson doesn't mean a thing anymore. I wouldn't be surprised to see a govt takeover of the financial system by the end of year.

I just hope we fall into a recession and not a depression. Good luck to everyone, we have very tough days ahead. The scale of the GOP's failure is really astounding.

"best systemic solution was to buy hard-to-sell mortgage-backed securities"

I have read hardly anybody who believes this was the "best" approach.

The Senate tossed aside the Sanders amendment because the leadership had already made a deal to vote on their Bush-Paulson bill with no amendments (although they themselves added some candy amendments!).

What's wrong with the bill?

The $700B is obviously a fantasy. The American public has made itself clear. They don't want to pay for this handout. They can't afford it. And, as has been suggested, the government could simply pay $100K on every troubled mortgage and still not reach $300B. Why $700B?

The main financial markets problems are toxic mortgages which can't be valued and that is making it impossible for firms to borrow from banks or for banks to borrow from the Fed.

To solve that problem you'd think mortgage holders would take every opportunity to sell their bad mortgages or refinance them or get other government help with them. Are they doing that?

CNN says the mortgage holders WON'T utilize the FHA's new HOPE program because it would mean losing 10% off the principal of their mortgage loans. Would they rather lose 90%? Apparently they're betting they can get a bailout from government and avoid losing anything.

It would become VERY VERY clear they are in league with the banks to hold the economy hostage in an effort to force government to give them money.

For banks the mark-to-market evaluation of the toxic assets makes them look bad and it leaves those banks under-capitalized, so they're not getting Fed funds. Perhaps the Fed can or Congress should ease that restriction for a while -- since we're facing a crisis.

In the longer run the toxic mortgages have to be replaced with sound ones. FHA's HOPE program enables some of that, but there needs to be a bigger push to get these firms off the dime and continuing to offer them the hope of a bailout doesn't do it. Perhaps the sight of bankruptcy on the horizon would.

For homeowners it's crucial that they not be foreclosed on and be given a chance to renegotiate their mortgages at reasonable house values and interest rates.

Keep cash flowing to businesses, but don't help them too much. Force them and homeowners to refinance their toxic mortgages!

Sure, the Fed should offer money, but the rest of government should be very hesitant to become involved and change normal market forces. A 'bailout' 'rescue' might discourage businesses from working toward a real permanent solution to their problems.

Sounds like you are unaware of the alternative proposal put forward on Tuesday by progressive Democratic representatives Peter DeFazio

I have heard this plan. What I have not heard is any economist evalutate it. The best I have is a bunch of Democratic blogs propping it up. Have any links to a substantive discussion of it?

Rational: I don't argue with your basic point. It's the old moral hazard argument. We rescue those who behave stupidly, thereby encouraging stupid behavior. Consequently, we find ourselves in this fucked-up situation. No argument from me.

But you want to make a stand now? This is not a question of propping up a few weak institutions. The whole system is crashing down and will take a lot of innocent people and otherwise strong firms that made wise choices with it. That's a market failure of vast scale.

I'm sorry, but anyone on the left or right who suggest that we just aside and let the market play out is to my mind a fool. Sure, it sounds good on paper, but it's a little to reminiscent of Hoover for my taste.

Paulson stinks, but it may buy us some time before we do what is really needed -- take temporary public ownership of these institutions.

Sojourner: "... it seems there isn't a debate on the matter because no other politicians have a real solution. The best we've had was the fake House Republican alternative, which was discarded all too quickly."

Sounds like you are unaware of the alternative proposal put forward on Tuesday by progressive Democratic representatives Peter DeFazio, Marcy Kaptur and others.

It's not surprising that you would be unaware of it, since the corporate media has not covered it at all -- though they have covered Republican counter-proposals -- and "sensible liberal" bloggers like Kevin Drum and Steve Benen simply refuse to acknowledge that any progressive Democratic counterproposals even exist, let alone analyze and critique them vs. the Bush-Paulson proposal.

Kevin quotes the Times:

... they did it mainly "to scare the hell out of everybody," as one official put it.

And just as with the Patriot Act and the authorization to invade Iraq, "sensible liberals" were obediently scared, and ran around screaming that there was "no choice" but to support the Bush administration's kleptocratic power-grabbing bailout, while disparaging, marginalizing and ridiculing any progressive Democrats who had other ideas.

Once again, the Democratic leadership and the "sensible liberal" establishment are pathetic enablers of the worst excesses of the CheneyBush gang. Business as usual.