No Bailout
| Mon Sep. 29, 2008 12:18 PM PDT
NO BAILOUT....The bailout bill has failed. Two-thirds of the House GOP caucus — primarily the lunatics in the Republican Study Committee, I assume — voted against it. I have a feeling we might now get a bunch of emergency nationalizations whether we like it or not.
Our current financial crisis has never been explained well to the public because (a) it's mind-bogglingly complex and (b) even the experts don't entirely know what's going on. And the Paulson plan was never sold well because (a) the initial draft was indefensible and (b) the theory underlying it was uncertain and complicated. So Lou Dobbs and his brand of populist yahooism won out instead.
I don't know what happens next. Hopefully we'll get another bite at the apple, but with Congress adjourning and elections approaching, action is only going to get harder, not easier. In the meantime, I guess we just have to pray that all the Chicken Littles like me are worrying too much.
On another note, an upcoming debate whose main attraction is the possibility of Sarah Palin melting down amusingly is suddenly less appealing than it used to be. I'm not really in the mood for bread and circuses right now.
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Comments
Submitted by Keith M Ellis (not verified) on Mon Sep. 29, 2008 6:25 PM PDT.
What lampwick said. It's very strange to keep hearing people say that it won't affect them. The collapse of the whole credit system won't affect them? And all those stupid people who got ARMs and bought homes they couldn't afford, when they lose their homes and start trying to rent, that won't affect the rental rates that slammin' sammy is paying?
There's a huge amount of ignorance displayed in this thread with regard to economic interconnectedness, especially the financial system. It's not insane to be ignorant, just irresponsible.
Those of us who aren't economists can still understand that this is a serious problem simply because we've paid attention to economic and finance news our entire adult lives. I've watched countless times things which are very distant from my daily life ultimately affect me as the ripples spread. Are the skeptics just very young? Maybe I would have thought the same way when I was 22. Maybe not, but I've lived long enough to have read the papers about arcane economics statistics that, a year later, profoundly affected my live.
But it's not going to take a year for the effects of this collapse to be seen by the average American. The forces involved here are the forces that create depressions, as distinct from recessions. If you don't know the difference, you owe it to yourself to consult Wikipedia or some other reference. A tightening, or much worse, a collapse of the credit system in a time of a recession?which we're in, or about to be in?is the worst possible combination. It's the combination that eventually affects individual consumers the most negatively.
I certainly agree that this bill wasn't ideal, or that any particular bill couldn't be better. But the claim that we have plenty of time to do this the right way is false. People forget that a big portion of economic conditions is simply psychology?the closer to careening over the brink we come, the more inevitable going over the brink becomes. And the more calamitous an economic catastrophe is, the longer it takes to recover from it. Time is of the essence because every tick of the clock makes the situation worse and means two clicks of the clock, later, before things get better. Ideally, we'd pass the best possible bill in the shortest possible amount of time. In reality, though, we need to pass almost any sort of bill we can pass as soon as possible, and then change and refine government's response as time goes on.
Submitted by Keith M Ellis (not verified) on Mon Sep. 29, 2008 6:25 PM PDT.
What lampwick said. It's very strange to keep hearing people say that it won't affect them. The collapse of the whole credit system won't affect them? And all those stupid people who got ARMs and bought homes they couldn't afford, when they lose their homes and start trying to rent, that won't affect the rental rates that slammin' sammy is paying?
There's a huge amount of ignorance displayed in this thread with regard to economic interconnectedness, especially the financial system. It's not insane to be ignorant, just irresponsible.
Those of us who aren't economists can still understand that this is a serious problem simply because we've paid attention to economic and finance news our entire adult lives. I've watched countless times things which are very distant from my daily life ultimately affect me as the ripples spread. Are the skeptics just very young? Maybe I would have thought the same way when I was 22. Maybe not, but I've lived long enough to have read the papers about arcane economics statistics that, a year later, profoundly affected my live.
But it's not going to take a year for the effects of this collapse to be seen by the average American. The forces involved here are the forces that create depressions, as distinct from recessions. If you don't know the difference, you owe it to yourself to consult Wikipedia or some other reference. A tightening, or much worse, a collapse of the credit system in a time of a recession?which we're in, or about to be in?is the worst possible combination. It's the combination that eventually affects individual consumers the most negatively.
I certainly agree that this bill wasn't ideal, or that any particular bill couldn't be better. But the claim that we have plenty of time to do this the right way is false. People forget that a big portion of economic conditions is simply psychology?the closer to careening over the brink we come, the more inevitable going over the brink becomes. And the more calamitous an economic catastrophe is, the longer it takes to recover from it. Time is of the essence because every tick of the clock makes the situation worse and means two clicks of the clock, later, before things get better. Ideally, we'd pass the best possible bill in the shortest possible amount of time. In reality, though, we need to pass almost any sort of bill we can pass as soon as possible, and then change and refine government's response as time goes on.
Submitted by Carl Nyberg (not verified) on Mon Sep. 29, 2008 12:19 PM PDT.
Here's what caused me to dig in my heals against it.
Nobody in power (executive branch, Congress or financial sector) was being asked to suffer an iota.
Did Bush say this was important enough to increase taxes?
Did Bush admit he got it wrong on Iraq?
Did Bush fire anybody who was negligent? Did he call out for executive branch appointees?
Did anyone in Congress take responsibility? Offer to resign? Did Pelosi or Reid yank anybody's committee chairmanship?
Did the plan have any downside for the people who engaged in widespread negligence, if not outright fraud?
If this is a serious national "crisis" then why aren't the big fish asked to suffer even the indignity of resigning?
"Two-thirds of the Republican caucus in the House voted against it."
Oh, Kevin, I can hope you're not going to try to make the absurd claim that the failure to pass this abomination was the fault of the GOP that your successor at the Political Animal is trying to make.
Credit for that has to go to Nancy Pelosi and the rest of the Democratic Leadership who brought to the floor a bill that was rejected by 40% of their own members. What incompetence. But then again, they're Democrats so no big surprise there. LOL
I just don't get why it's a bad thing for this "Socialism for the rich" to go down to defeat. Anyone who has all their money tied up in stocks is going to get hurt, but who's so irresponsible to invest entirely in stocks?
You, Kevin, seem to think that everything Bush/Paulson say about the dire need for this bailout is gospel truth.
One great idea I read somewhere was to use 300 billion to save ALL the at-risk mortgages. That would put some big bucks into the hands of these financial institutions.
While I am not one who needs my mortgage saved, I could certainly support saving all the at risk mortgages for less than 1/2 the price of this obscene Wall St bail out.
In the meantime, I guess we just have to pray that all the Chicken Littles like me are worrying too much.
Kevin: I don't think you're worrying too much. I just think you're worrying about the wrong thing. What I'm worried about is that a trillion and a half or so of taxpayer subsidies for Wall Street will cripple a President Obama's plans for healthcare, energy research, and infrastructure development. It's critical to make the bailout as efficient and as economically sensible as possible. Swedish-style restructuring is the way to go. I'm willing to wait until after the election if need be to do it right. I don't want an intensification of our current troubles, but if it's only temporary, and it helps more Democrats win seats in Congress, I'll take it. And again, it's not like people and businesses are unable to get credit -- they're just (in some cases) paying higher rates. And as far as I know the fed will continue to act as an interbank lender of last resort for the forseeable future if need be, so interbank lending is not going to seize up, despite the hyperventilating from Bush, Paulson et al.
Kevin Drum: The bailout bill has failed.
Good.
Two-thirds of the Republican caucus in the House voted against it.
Another couple of votes like this, and I'll seriously consider voting Republican in congressional races.
I have a feeling we might now get a bunch of emergency nationalizations
Like the horribly disruptive WaMu receivership?
Better for the taxpayers to own the banks than keep alive a bunch of irresponsible deadbeats with my money. Go Sweden!
Kevin Drum: Lou Dobbs and his brand of populist yahooism won out instead.
See Dean Baker's Why Bail? The Banks Have a Gun Pointed at Their Head and Are Threatening to Pull the Trigger.
Who knew that folks like Dean Baker and Nouriel Roubini were in cahoots with the likes of Lou Dobbs and the House Republicans.
Kevin,
I think it would go a long way for you to explain in detail (and without the condecesion of your last several posts) why this particular bailout package is a must at this particluar point.
I am not arguing that you're wrong. I honestly don't have the knowledge in this area to make any kind of educated argument one way or another. But I think what a lot of people are really upset about is the cavalier nature of how some people some to think that giving $700B of tax payer money to the same guys that got us into this mess is a good idea. Convince me--without resorting to reductive reasoning.
And if you care to do that do one other thing: explain why Congress couldn't just give $100B or $150B to the treasury in order to "do something now" and then really study the alternatives while waiting to get the input of a future administration.
I don't think anyone has made a positive case for why that would be insufficent and I think that has a lot to do with the resistence you see from the general public for this plan.
You might be right but proclaiming so doesn't exactly make me very inclined to agree with you.
Kevin Drum >"...I'm not really in the mood for bread and circuses right now."
I don`t think many of us are but it is a sure bet that "We the people..." are going to see way more than we have lately.
Get ready.
"Radix malorum est cupiditas" - Latin saying
The bill failed.
The world still spins.
Yes, more banks will fail.
Yes, the Dow Jones will yo-yo for the next few months.
Yes, we will have recession.
Yes, the next congress will pass better regulations for Wall Street.
Life goes on.
Hey all you tin-hat revolutionaries:
The TED spread is currently at 3.59... and rising.
http://www.bloomberg.com/apps/quote?ticker=.TEDSP:IND
You know what that means? That means we're about one fucking inch from the goddamn abyss.
See you in hell.
Submitted by coyote (not verified) on Mon Sep. 29, 2008 12:57 PM PDT.
I just floors me that you (and much of the Democratic Party) accept the Bush Administration's scare-mongering on this issue at face value.
This is a bunch of guys who got rich for years living off the risk-premium from highly leveraged assets, and now don't want to bear that risk that they have been paid for now that it arrives.
What Bush and Paulson are doing on this issue is exactly the same as Iraq. Hurry up everyone, its an emergency, its the end of life as we know it, hurry, sign here, trust us, hurry. This is the Iraq resolution without the body bags. Its even about the same amount of money.
And it is disheartening to me that for the second time, Democrats have gotten stampeded into going along with this BS. What, as a party the Democrats are going to challenge Bush on every piddling little issue but whenever a $700 billion commitment comes up, they are going to roll over in a matter of days??
After voting for this bill, can the Democrats ever say "corporate welfare" again with a straight face?
Good! Since I don't have stock and live week to week, this doesn't effect me a bit. If the bailout went through, my dollars would have been worth less. I'm glad congress finally has my best interests in mind. Soon all Americans will be like me: no stock, living week to week.
lampwick: You know what that means? That means we're about one fucking inch from the goddamn abyss.
It means that Wall St. is panicking. The same financial geniuses that got us in to this mess. Maybe next they'll threaten to hold their breath.
See my Dean Baker link above. Great imagery in the title. Reminds me of the scene in Blazing Saddles where Cleavon Little holds a gun to his own head and threatens to "shoot the n*****".
You know what that means? That means we're about one fucking inch from the goddamn abyss...See you in hell.
Lampwick: A recession -- even a relatively severe one -- is not the same as the "abyss" or "hell." We've survived something like nine recessions since World War II. And I think the odds of a 1930s style debacle are vanishingly small. For one thing, we have many programs and tools at our disposal (Medicare, Social Security, FDIC, etc.) to cushion the blow of a severe downturn. Secondly, even if a plan isn't immediately passed -- and we fail to prevent the onset of a serious slump -- we'll have a new president and congress in a few short months who can take action in January.
"Lampwick: You know what that means? That means we're about one fucking inch from the goddamn abyss.
It means that Wall St. is panicking. The same financial geniuses that got us in to this mess. Maybe next they'll threaten to hold their breath."
You, sir, are wrong! Spectacularly wrong! It means that banks are very close to being unable to give any money to anybody - big companies, little companies, big people, little people, any people at all!
And won't that be fun!
For you of course - since your employer pays you in gold bullion!
The Dean Baker link was interesting. So too this letter linked to from Dennis Kucinch's note this morning.
Dear Colleague:
If you are tempted to vote for this legislation because you think it will keep people in their homes, think again: in fact, Treasury will not be able to change the terms of bad mortgages because the Act does not require Treasury to purchase a controlling share in the underlying mortgage backed securities and collateralized debt obligations. The Secretary will be powerless to make any real and substantive change in the terms of mortgage. The Secretary will have NO power to avoid foreclosures and keep families in their homes.
I commend to your attention a letter I received last night from Frank Alexander, Professor of Law at Emory University. Professor Alexander testified before my Subcommittee on Domestic Policy on targeting federal assistance to help neighborhoods affected by the foreclosure crisis. He is an expert on housing law and community development.
Professor Alexander clearly demonstrates that the Emergency Economic Stabilization Act will not fulfill its stated goal of preserving homeownership. Unless the Secretary of the Treasury is required to prioritize assets that will give the Treasury a controlling share in the underlying whole mortgage, the Secretary will hold bad assets with no power to make them solid again.
By buying the troubled assets, we the people, only get small slices of each mortgage, not enough to give the people the ability to rewrite loans.
After voting for this bill, can the Democrats ever say "corporate welfare" again with a straight face?
Can us Democrats force the passage of this stupid and unpopular vote to snatch defeat from the jaws of victory? Win this week, lose in November?
Wow, there are some real yahoos here!
That stench you smell is "Eau de Failure", and everybody is wearing it. Bush couldn't deliver the Republicans, Hoyer couldn't deliver the Dems, Pelosi ran the vote at best not having a positive nose count, McCain couldn't save the Congress -- nobody has any shine from this debacle.
And all the weenies here who think this was a good thing don't know where their money comes from or goes to...
Elections have consequences Kevin - and if McCain wins there is a real chance that Palin could be President.
Given that the VP debate just got a whole lot more important, and we are entitled to expect coherent answers from Palin.
If she can't provide them - that isn't bread and circuses. It's an indication that one of the slates is unfit for the office.
lampwick: It means that banks are very close to being unable to give any money to anybody
Maybe it's time for a Bank Holiday. Good timing - Rosh Hashanah starts tonight.
Tell Helicopter Ben to get the rotors spinning. Be prepared for more receiverships. Hey, didn't WaMu's demise destroy our system? Or did anybody notice it.
After irrational exuberance, panic is Wall Street's favorite operating mode. There are mechanisms in place to deal with that. Let's use them instead of feeding into their panic and giving away $700B in my (and your) money.
Don't forget, that $700B handout is from the folks that brought you the Iraq War, and was approved by the same jellyfish in congress.
Submitted by low-tech cyclist (not verified) on Mon Sep. 29, 2008 1:32 PM PDT.
Our current financial crisis has never been explained well to the public because (a) it's mind-bogglingly complex and (b) even the experts don't entirely know what's going on.
If they know what's going on well enough to commit $700B of our money, then they can at least explain what they do know to the rest of us.
Some questions I'd like answered, but don't have high expectations of getting answers:
1. How will the Democrats'/Paulson's bailout proposal keep the credit markets from freezing up?
2. Is it the end of the world if Congress waits until after the election to deal with the bailout?
3. Who is getting bailed out, and why them? If Lehman's already gone bust, Bear Stearns, AIG, and Fannie/Freddie have already been bailed out, Merrill Lynch has been bought by Bank of America, and Warren Buffett's just put $5 billion into Goldman Sachs, that just leaves Morgan Stanley, and they can't possibly need $700 billion worth of rescuing, right?
4. Why $700 billion? How'd they come up with that? ("It's not based on any particular data point," a Treasury spokeswoman told Forbes.com Tuesday. "We just wanted to choose a really large number." OK, I guess we know the answer to that one.)
5. The Paulson and Democratic bailouts both depend on Uncle Sam paying a good deal more for mortgage-backed securities (MBS) than anyone else wants to pay for them. What sort of sense does this make? The assumption seems to be that, post-bailout, they'll be worth enough so the government will come out OK in the end. Does Uncle Sam really know more about how to value these things than the market does, especially given that a year ago, Uncle Sam didn't even see this coming?
6. Why not do a bottom-up bailout, by mandating a nationwide renegotiation of excessive mortgage rates? To the extent that the underlying problem is a big pile of MBS which may not have much value because people are unable or unwilling to make the payments, just force a writedown that enables people to make the payments. (If your house payments are greater than, say, 38% of what your income was at the time you got the loan, then mandate the conversion into a 30-year fixed mortgage with the payments set at the 38% level.) This would cost the government nothing, but it would keep people in their homes, and it would stabilize the value of the mortgage-backed securities at a decent level, thereby unfreezing the credit markets. The holders of the MBS would take a bit of a writedown, but right now those securities are nearly worthless.
7. Rather than borrowing the $700B for the bailout, why don't we decide upfront who's going to pay for it through tax increases? Why should Joe and Jane Sixpack be stuck with the bill down the road by default if the bailout doesn't miraculously pay for itself?
8. Why is the GOP so strongly opposed to restructuring people's mortgages, even when they favor a bailout for the banks?
9. How would the "Swedish (temporary nationalization) plan" work?
10. If we're going to commit to spending $700 billion, there are probably a number of alternative plans that might accomplish the underlying objective of preventing the credit markets from freezing up. Why isn't the discussion ranging a bit wider than it is?
Wow, there are some real yahoos here!
That stench you smell is "Eau de Failure", and everybody is wearing it. Bush couldn't deliver the Republicans, Hoyer couldn't deliver the Dems, Pelosi ran the vote at best not having a positive nose count, McCain couldn't save the Congress -- nobody has any shine from this debacle.
And all the weenies here who think this was a good thing don't know where their money comes from or goes to...
When you put it that way MikeMike, I have to say I can feel your pain that you are forced to live in a stupid yahoo weenie democracy.
I read Nancy Pelosi's speech introducing the legislation and nowhere did I find anything remotely partisan which could be contrued as insulting to the Republican House members. This is a lame excuse to justify their inability to lead on this issue. To be honest, however, I can't stand Bush to such a degree, that I secretly hoped that nothing is done so that his legacy remain intact as the worst President ever.
Doesn't seem that Wall St. has many friends these days. Doesn't seem that lots of folks feel they've benefited from there being a Wall St. Could it be that we can get along without these investment banks and hedge fund conglomerates?
The way I look at it is that all Wall Street does is flip papers and enter arcane formulas into spreadsheets. They don't make anything (that's the Chinese). They just sit at their computers and click and sure enough they take some junk mortgage and slice and dice it and turn it into AAA rated securities. They're alchemists, really--they eagerly take toxic junk mortgages handed out to anyone with a pulse and turn them into gold. Then everything gets leveraged--a dollor's worth of crap in leveraged into 30 dollars of gold. I ask, why do we need these guys?
One further thought - was it really a good idea for this thing to be pitched as the only solution / critical / indispensible / the only thing standing between us and chaos, etc?
How much of the post-defeat crisis now has to be tied to the (failed) selling job? After all, folks have basically been instructed to panic now!
Having just gotten thru Ike, here in Houston, many of us are a little weary of adventure.
I work for a company that provides services for companies big and small and we are afraid of a one...two punch. We need happy corporations feeling like they have a little $$ to spend.
Not that I liked the bill, but for pure reasons of temporary market calmness, I could live with it. I think there are better ways to deal with this, but god knows it will be beyond the willingness and ability of our leadership to do much of anything - then again - that may be good enough for the long term. The short term, though, may well suck.
Mando: This is a lame excuse to justify their inability to lead on this issue.
True. They should have been working on proposals six months ago instead of making the usual lame, last minute, purely reactionary and cosmetic changes to a Bush initiative.
Bush couldn't even get his own party on board, but the Democratic lapdogs are always reliable.
Maybe the Dems could have even tapped some of their own, like Nouriel Roubini. Uh-oh, he was prematurely right - he's been predicting this meltdown for quite some time. Obviously not a serious man.
See Roubini's Is Purchasing $700 billion of Toxic Assets the Best Way to Recapitalize the Financial System? No! It is Rather a Disgrace and Rip-Off Benefitting only the Shareholders and Unsecured Creditors of Banks.
To be honest, however, I can't stand Bush to such a degree, that I secretly hoped that nothing is done so that his legacy remain intact as the worst President ever.
I despise Bush too, but I'm not willing to cut off my nose to spite my face.
Thursday becomes even better.
The sooner we have Ms. Shit for Brains' meltdown, the sooner we can put a fork in the farce that is the McCain campaign.
And the sooner we can all know Mr. Obama will be president, the sooner we can all think about saying goodbye to the odious Republican government.
McCain live on the radio now.
He started out sounding like an old man who wants to cry, but his reading got more feisty and solid as it went on.
What'd he say? Senator Obama and his allies... partisan... Now is not the time to fix the blame. Now is time to fix the problem.
Oppps, I apologise for the double post. Guess I got caught up in a period where the server was wacked out.
Again my apology.
"A little patience, and we shall see the reign of witches pass over, their spells dissolve, and the people, recovering their true sight, restore their government to it's true principles. It is true that in the mean time we are suffering deeply in spirit, and incurring the horrors of a war & long oppressions of enormous public debt." Thomas Jefferson
It's amazing how cavalier people are about the whole situation. I presume that people here haven't lived through the Great Depression - but read some of the history of how it first came into effect in 1930 and 1931 and just snowballed out of control - and the parallels to today (and the attitude of Republicans who put ideology and principle above everything else) are amazing. This really is unlike anything that we've faced since the Depression - the potential is real for economic catastrophe - and once jobs and businesses are gone they don't just magically reappear like mushrooms after a rain.
See Roubini's Is Purchasing $700 billion of Toxic Assets the Best Way to Recapitalize the Financial System? No! It is Rather a Disgrace and Rip-Off Benefitting only the Shareholders and Unsecured Creditors of Banks.
Apparently Roubini is a weenie yahoo who doesn't know where his money comes from.
(Thanks for the link.)
Great Depression? Again, I ask someone to tell me how this creates a Great Depression?
I know we piss on Keynes but have we shiat completely on all of his works?
How is it that we turn into a bunch of hooverites?
The scaremongers are the ones that tell you this leads to a Great Depression. But let me tell you, since the 80s, many of us engineers and manufacturers have already lived the recent depression, to be told by the economists: tsk, tsk, tsk, your jobs are all going to be replaced by financial sector jobs which are better anyway.
Tell me how we get a Great Depression out of this.
