Notes on the Bailout
| Mon Sep. 29, 2008 8:35 PM PDT
NOTES ON THE BAILOUT....Sorry for the radio silence this afternoon. I spent most of the day feeling about the same way I did on 9/11, consumed with a debilitating combination of fury and despair. I don't feel much better tonight, but here are a few thoughts on the failure of the bailout bill anyway:
The Republican Party is now officially hostage to a band of primitive conservative ideologues whose knowledge of economics was already outdated when Christians were being fed to lions. They are simply beyond belief.
I'm not much happier with the Jello-like support the bailout bill got from many of our leading liberals. Unfortunately, I include Brad DeLong in this group, but he's certainly right when he says, "This Republican Party needs to be burned, razed to the ground, and the furrows sown with salt..."
John McCain deserves to be tarred and feathered. His behavior over the past week has been almost unbearably craven.
Barack Obama's behavior has been a little better. But only a little. He hasn't exactly displayed a backbone of steel on this issue.
An awful lot of people really, really still don't get it. I swear, if I hear one more blogger or pundit suggesting that maybe it's actually a good thing the bailout bill failed because now we have a chance to pass an even better bill, I'm going to scream.
After the failure of the bill, the GOP leadership invented a fairy tale about Nancy Pelosi being at fault for the vote debacle because she gave a partisan speech on the floor of the House. The press is almost unanimously reporting this seriously. If Republicans had blamed it on Santa Claus, I guess they would have reported that seriously too.
Do you know the old saying about credit? "It's like oxygen. You don't know how much you need it until it's gone." We're about to go into financial hypoxia, and it's not the millionaires who are going to suffer most from this.
There are many of you who probably think I'm overreacting. I hope you're right.
And if you think this post is too caustic and bleak — well, you should have seen the first draft that Windows ate. This is the toned down version.
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Comments
You see now the hidden genius behind picking Sarah Palin for VP? She can teach Americans all the survivalist skills they'll need when her party has reduced us to premodern living conditions.
People have watched too many episodes of Lost and other survival shows; it gives them a bad nonchalance about the destruction of the institutions of ordinary life.
Kevin assumes the bill was a good idea. We have no choice but to trust our political process. We have a bill that can pass with just 12 more votes and, in the meantime, we can watch what happens and factor that into what needs to be done.
Submitted by Jassalasca Jape (not verified) on Mon Sep. 29, 2008 8:43 PM PDT.
The search for scapegoats has only just begun. Come back after folks have had a couple of weeks on the rollercoaster.
You would think by now that the dwindling but influential adult wing of the GOP would step in and take away the keys before Sonny makes the next moonshine run.
You would think--but today there's David Brooks telling us all how like a moral titan is Big John. What I wouldn't give to strap him down Clockwork Orange style to watch the collected interviews of Sarah Palin, or to be the editor who gives him the task of writing a description of McCain's behavior during the bailout crisis.
I don't think there ARE any adults left in the GOP--just various reenactors in the Snopes Family Pageant.
C'mon, Kevin, breathe! This may be the end of the world as we know it, but probably not. Yes, our political system is failing us, but hell, this isn't exactly new. Or have you not been paying attention for the past 8 years?
So, maybe the stock market will have to drop another thousand or few off the Dow. That might concentrate a few minds in Congress. Yes, unemployment will spike higher as a result. But chances are at least decent that something will be done before it snowballs completely out of control.
The bigger problem is that the US is pissing away its future by not investing wisely but just consuming. That problem underlies this credit crisis but cannot even be acknowledged, much less addressed.
Kevin, what happened to the Macbook?
Seriously, I see where you're coming from, but once the shock wears off, Wall St will send their lobbyists back to the Hill, and something will get done. In the meantime, credit will be harder to get, but not impossible. The systems been broke for a while, and my hunch is that a good bill is still probably better than a quick one.
With the election only 5 weeks away, I think fear is a huge factor for any Congress person who finds himself in a tight rece.
However after the election this pretty much goes away. So then at that point the Dems should be able to pass pretty much whatever they want... assuming the credit markest can wait that long.
Submitted by O (not verified) on Mon Sep. 29, 2008 8:47 PM PDT.
Kevin,
You're right: This is all about credit. It's important to keep the entire credit channel functioning properly, but specifically, it's all about the commercial paper market. If it tanks, then layoffs will be fast and furious.
Some people think this is a "Wall Street" problem only, but it could hit "Main Street" in a matter of weeks.
Brian: That assumes that the movement towards a new bill will be made by changing the bill. My guess is that if at least 12 of the votes were the result of negative feedback from constituents on the 'bailout', then there can be movement on the same bill once there is pushback from constituents on the failure to pass a bill... assuming that the views (and level of motivations) of constituents changes as a result of more negative economic news between now and Thursday.
My guess is that it would be difficult to get 12 more votes for a bill that is specifically different from this one. Any movement towards the left will lose votes on the right, and vice-versa. The only way that a bill like this can get passed is if the level of support from both parties is approximately even, and the press reports out of the weekend made it sound like that was the understanding of the negotiators on both sides. My guess is that the only thing that can get passed at this point is something close to almost the same bill, with some very small cosmetic changes to convince GOP reps that they won't lose face by changing their vote on the same bill in two days.
Kevin,
You really haven't made clear your thoughts about why *this* bill and no others. And you do lose credibility in not addressing any of Nouriel Roubini's, Dean Baker's, or David Cay Johnston's complaints.
You stand tall as "random tech d00d with blog", but there are plenty of other people, good credible people, who disagree with you, that you do need to address why your concerns outweigh Roubini's.
Anyway, I haven't seen such a fine Ellen Feiss, since the original, lo those many years ago.
I swear, if I hear one more blogger or pundit suggesting that maybe it's actually a good thing the bailout bill failed because now we have a chance to pass an even better bill, I'm going to scream.
Why? You'd rather have a inferior bill on September 29th than a better one on, say, October 7th? I don't get this at all.
I think a lot of people are under the impression that our current troubles are like some kind of ticking bomb scenario. You know, if we act too slowly we'll reach some kind of moment of no return and then it's a straight shot to The Grapes of Wrath. I don't see it like this at all. I do see the prospect of largeish equity market declines. But I think we'll be able to muddle through -- at least for a few more weeks and probably (if we have to) until January. Surely it will take several months for things to get really grim. I mean, the US government isn't going to stop collecting taxes, or lose its ability to borrow money between now and then. Credit is getting much tougher to find (for some), but meanwhile gas prices continue to decline, and the dollar is getting stronger. Your unemployment check isn't going to bounce. And the FDIC will see to it that your checking account is safe. And plenty of banks are still solid. And the Fed is alive and well and pumping hundreds of billions into the global finanical system.
We took all of what, five or six business days to a discuss gargantuan proposal to save the finanical world? Surely it wouldn't be imprudent to take a few more days, perhaps even -- heaven forbid -- consult some economists. Anyway, Robert Reich is saying we'll probably get a scaled-down, interim measure passed. Given the stakes, I'd feel more comfortable with a much smaller bill now -- while Bush is still in office -- and pass a larger, more comprehensive measure after his successor takes charge. Better that than be hamstrung over the long term by the (possibly misguided) actions of a lame duck administration.
"This Republican Party needs to be burned, razed to the ground, and the furrows sown with salt..." I have this dreadful feeling that there are a lot of crazies on the right and some on the left that hope the country burns to the ground and, when those that are left emrge from the ashes, the crazies can rebuild the country any way the crazies want. Unfortunately, I think the people, the ones who will lose their jobs and not quite understand why, will discover a savior to ease their distress in a Juan Peron or Antonio Salazar. I'm 67 and I've seen learned one thing: It's always darkest just before it goes PITCH BLACK.
Aside from some House Republicans who hold a legitimate if ill-considered aversion to this level of government involvement in the economy, hasn't the response from these guys that the speech by Pelosi was what caused them to vote it down revealed them to be little more than partisan, entirely politically motivated hacks? If they had a legitimate excuse that wouldn't sound like, "So what if a lot of people suffer? I need to stand up for my ideals..." wouldn't they, you know, actually use it?
It doesn't look like the Democrats showered themselves in glory this past week, but they are running for reelection, too. At least they are trying to get something done. A low bar, to be sure, but when you're not a Republican legislator, you can clear that bar easily.
Drum, it is you and your sycophants that don't 'get it'. This is what is called a 'market correction'. Very wealthy investors got really greedy and did a lot of stupid things. Of those being foreclosed, the vast majority bought more home than they could afford, often with little or no money down. This led to real estate speculation.
Why should I have any sympathy for these people? I've saved all my life and lived within my means. Let the chips fall where they may.
All this bailout will achieve is to reward risky, negligent behaviour. It will not solve the root of the problem.
No one will starve. The FDIC insures 100K of savings. For those getting booted from your homes, most of you deserve it. Do what your parents did: learn to save for a downpayment. Rent and learn to save for a 20% or more downpayment. Get a home you can really afford instead of a McMansion. Cut up your damn credit cards.
Enough is enough.
Kevin, sorry, disagree with you. This plan was proposed by the same people who didn't see the problem coming and who kept pumping easy money into the system.
If banks are in such a bad shape, how come most of their shareholders haven't been reduced to zero? Banks should be raising more cash by selling more stock, even if it dilutes existing shareholders massively. That has to come before any taxpayer funded charity.
I know this sounds harsh, but for those of us who have been paying attention to the inflating credit bubble and have been responsible with risk, the bailout is a slap in our collective face. We sat out of the bubble and the bubblemeisters have the guts to force us to bail them out with our hard earned money?
Kevin, I certainly understand your frustration but really do you think this bill should have passed as a result of say 80 - 85 % of dems voting yes while only 30% of repubs? I mean if we are going to HAVE to have the dems being the only responsible party in town then take a listen to what master Krugman is saying.
Forget this bill and focus on recapitalizing banks, let the prices and valuations collapse, just keep the liquidity there so that the investors can get the credit they need to rebuild from the ashes, get help to homowners and other bankruptcy reforms.
Thirdly, remind yourself what we are really seeing here. It is the implosion of the modern republican party. Look at what happened today the President said pass it, his top economic leutenants said pass it, the Repulican Senate (with John McCain in charge) said pass it, the house leadership said they would pass it, if even 40-45% of the repulican members had voted yes it would be law, but no they are determined to humiliate Bush and destroy the McCain candidacy all in the name not of ideology but in saving their own sorry asses with the furious public.
Sadly, all is not lost, wait until the furious public finds out the consequences of their previous fury and then turns it on those who voted no
Political theater in extermis and full-on CYA mode.
House members up for election were inundated by public messages of "No!"
Now they can crow how they did what the public "demanded" and then show up on Thursday, after moving a comma or two around in the bill and vote Yes (thereby claiming they were not voting on the same bill), all before the public, for better or worse, has a chance to gear up another anti-fest. Thus, unfortunately also, bailing a floundering vessel but still not attending to the leak.
Whether the credit markets maintain enough minimal elasticity to stretch another 48-60 hours is absolutely iffy at best, but don't discount the administration (in full panic mode) once again crying "National Security" and pulling cascading rivulets of "emergency" stopgap funding out of existing programs, whether directly contrary to assignment of funds within the budget or not.
slammin' sammy, your ignorance practically radiates from the screen.
The issue is not rescuing foreclosed homeowners, or banks, or wall street firms, or whatever. The issue is that the whole financial system is on the verge of collapse, and if the normal wheels of credit collapse, the economy won't be able to work, and we'd be facing an incredibly terrible economic situation, which would hurt everyone.
The short-sightedness of this kind of attitude is astonishing.
(One can certainly argue, of course, that the credit situation is not as dire as Kevin seems to think. But to actually dispute Kevin's point in a credible way you have to, you know, have some idea of what the real issues are, not just knock down straw men).
John,
I guess you must know better than all those economists that are against this bailout.
This is just mass hysteria being fobbed off on the US taxpayer by those who lsot their shirts because of their utterly negligent and reckless investments and spending. It appears you may be one of them. This a severe market correction, and one that is sorely needed.
The market dropped 9+% today. The Asian markets opened markedly lower. I bet another 10% drop in the Dow gets the attention of the Republican Neanderthals. All those high fives from the Republicans will fade as the reality of the depression sinks in.
All that said, the bill that failed was a bad bill. The best the bill would have accomplished was kick the can down the road. Of course, with the election 5 weeks away that might have been enough.
I do think that the Democratic negotiators gave too much to the Republicans. There should have been some real consumer protection and relief for struggling home owners. Don't forget Democrats lost 40% of their members.
Kevin,
I used to enjoy your postings before the move to Mother Jones. I didn't always agree with you, but you always had something intelligent to say and you often made me think.
But now the histrionics have gotten to be too much. Today made you feel like you did on 9/11? Sheesh.
I miss reading what you once were.
Funny, I was feeling the same way I felt after the passing of the patriot act, the war authorization and the wiretapping amnesty bill, that we were passing another bad bill that would irrevocably damage this country. I felt nothing but relief when this failed.
The idea of propping up these businesses which do nothing productive and yet siphon billions into the tanks of the ultra wealthy was always the worst idea. The idea that congress could create a bill based on the ideas of a person who is himself responsible for making these same bad investments and has spent a year failing to do anything about it, that could do anything good was always foolish.
Submitted by Anon (not verified) on Mon Sep. 29, 2008 9:41 PM PDT.
Its interesting to speculate what will happen as other countries actively intervene to consolidate their financial corporate arrangements (eg. Belgium with Fortis, UK with Santander and B&B) while the US drifts into draconian austerity through inaction. I would speculate that US assets are going to be picked over by foreign corporations and the good bits picked off while the rest, the garbage, will become a charge on US taxpayers one way or another, either through bailouts or nationalization. The most likely outcome in my opinion is the considerable impoverishment of all Americans. You have to think that the cretins who voted against the bailout really do believe that ideology trumps reality, the ultimate in post-modernist nonsense. Either that or they are exemplars of the failure of public education to leave even the most rudimentary understanding of fiscal and monetary policies on the C students of the United States.
Pitiful helpless giant, again; its getting to be the norm. You won't like being a middle power and being dissed by the Chinese and the Brazilians and the Saudis and even the Mexicans, nope, not at all.
So why not do a Security Turnover Excise Tax (STET)? This is a proposal put forward by Thom Hartmann among others. It sounds like a far more reasonable solution than the taxpayers holding the bag without any ownership or real regulatory measures in place. Congress creates an agency that borrows the money for the bailout from the Treasury; Wall Street gets its money as a loan; every action in the market has a small tax on it (he proposes .25%); that tax money goes back to the treasury to pay off the loan to Wall Street. For some reason, this simple measure sounds quite sensible to me. Because the tax goes on every transaction, it will stop some of the speculators from doing their thing and screwing things up which will reduce market volatility. Investors will feel a little more secure about their money going into the stock market. Best of all, those who did the bad thing, pay for it, not the rest of us. I would also want a hell of a lot more regulation; CEOs to be tossed to the sharks; stringent congressional oversight; and no insiders having control over anything. Like a lot of people, I am sick of this free market crap that we get thrown at us, then when it hits the fan for the big guys, the little guys have to bail them out. Enough already!
I swear, if I hear one more blogger or pundit suggesting that maybe it's actually a good thing the bailout bill failed because now we have a chance to pass an even better bill, I'm going to scream.
Okay, I'll bite. Why, exactly, is that a bad thing to suggest?
Count me in as one of the "screw Wall Street" crowd, but for the sake of argument, could someone... please tell me why...
What exactly is going to happen if we don't?
Starving people? I doubt it
10% unemployment? Most of them bankers and real estate agents.
Mass riots? Not going to happen.
The whole thing is so idiotic.
Not a single blogger or media figure has offered a descriptive account of what we are to be scare of.
BTW, pretty stupid to be blaming this on republicans when over 40% of the people who voted no were Democrats.
If it had passed with the same percentage of votes, it would of been billed as bipartisan.
Sorry, Kevin, but you'll have to scream. I don't expect this defeat to lead to a better bill, but it does (1) triple-cross the GOP that planned to double-cross Pelosi by attacking vulnerable Democrats after the bill passed by a tiny margin and (2) lets the Democrats craft a more liberal bill that can bring the liberal Dems on board (mortgage adjustment in BK would be a big start). I wouldn't expect that bill to pass; the Senate GOP might filibuster and Lame Duck Clown might veto, but it would be good for the Democrats. We won't see a total melt-down; if it starts, the bill will come back.
rory, don't be a moron. The Republicans were the ones who killed the bill. What they were trying to do was the monumentally dishonest tactic of claiming it was the "Bush/Democrats" bill. A bill made necessary by the long history of incompetence and malice by Republicans including the head of their party - George W. Bush. After eight years of giving Bush everything he wanted, now the liars in the Republican Party are trying to make him a Democrat.
It won't work.
There is a dilemma here. There is no way that Paulson, who lied about what he was asking Congress to give him, is an honest enough broker to be given the power in this bill. But there is a real need to do something.
The problem is, how can we trust those who created this mess to make it any better? Any solution that the Republican President George W. Bush would sign will loot the treasury for the benefit of rich Republicans at the expense of real Americans.
Our government is broken. It is broken because it has too many Republicans.
"Kevin Drum is usually an optimist."
Have you read Kevin Drum much?
Also, I'm a D and of the opinion that the Rs are mostly to blame for the failed vote. And I don't really know how much Pelosi's speech had to do with anything. But gven the far right's behavior, I wouldn't doubt that it's partially to blame for lost votes. SIlly as that seems though, and not to redirect the blame, but I listened to that speech, at least about two minutes, and I have to wonder whether that was really the place and time to lambast the rights' economic policies to the degree she did. Clearly she's right, but did she really have to rub their faces in it THEN? Seems to me that was grandstanding which could have waited until after the fickle far right cast their votes. I could be wrong, maybe there's another reason. But still... doesn't seem smart to me.
The Republican Party is now officially hostage to a band of primitive conservative ideologues whose knowledge of economics was already outdated when Christians were being fed to lions.
It's true. The first thing Nero did after the fire was slash capital gains taxes to get the Roman economy roaring again.
Rory, the people hurt will be working stiffs that make an hourly wage. They'll get laid off or their employers will fold. Companies rely on access to credit to finance their operations. If the credit markets freeze up, where will the cash come from? How many companies have the cash reserves to self-finance their operations?
I take it that you've never been affected by a significant economic downturn. People may not starve, but they will face significant hardships. It will be a life altering experience. I hope that you're well positioned if it comes to that.
Thank you Mark, I think we have a thread winner.
To all those worried about Kevin, no frets, this time Thursday, we'll have rescued the bankers with a bill we will have a long time to regret.
In the meantime, we still won't have any decent reason for US kids to study the sciences or engineering as a good career option.
I take it that you've never been affected by a significant economic downturn. People may not starve, but they will face significant hardships. It will be a life altering experience. I hope that you're well positioned if it comes to that.
When you and others put it like that AK Liberal, I have to confess it paints a picture of a very fragile economic world. One entirely too fragile for us to trust to the random and chaotic motions of a free market. I for one join your call to plan each five year economic period out in full, assigning each sector various resources and quotas for production.
This free market, why it can't possibly work!
One thing I think Kevin (and others) miss, is that we're still in something close to a democracy. That means that if you try to pull off a major initiative without public support (or in this case, in the teeth of large and deep public opposition) you aren't likely to succeed. The reason this thing was barely passing even if the Republicans had kept their word is that there was no consensus behind it, nor is there a credible executive branch in place that could ask people to trust them to do the right thing.
Moreover, if this problem were to be solved neatly and relatively painlessly, it would only encourage speculators to go do the same thing again in a few years.
The Great Depression (perhaps in years ahead destined to be know as the First Great Depression) was a horrible, stunting experience for those who had to live through it, but it had the virtue of putting enough fear into the political system that we took around seventy years to remove enough of the regulatory safeguards so as to recreate a similar disaster.
If we get to live through a meltdown of our credit systems, we'll probably end up reregulating heavily, and it'll be many decades before everybody who lived through (and were traumatized by) the initial economic shocks dies off and some new generation invents reasons why they're immune from the business cycle.
I sadly concur with Kevin's sentiment.
I would also add this point. Don't be fooled into thinking that somehow the stock market is what's worrying people. Yes, the stock market lost a lot of money today, but people should think even more seriously about the basic gears that make our economic engine run - the credit market, inter-lending arrangements between banks, the repercussions that has on currency markets, and ultimately the impact that banking, currency, and lending have on the basic things we see everyday in consumer goods, commodities, etc.
I can understand why some people want to take a breath and wait it out. I was a skeptic of the Iraq War, too, and we skeptics were proven right by history. But this isn't the same. This is a fire that needs to be put out right now.
And the House Republicans are playing with fire. Yes, it's Pelosi's House, but Boehner leads his caucus and Blunt is called the Whip for a reason. If they don't have the temerity to rally their own caucus, then they have reason to be in government.
One last thought. I haven't taken a close look into the the members that constitute the 2/3 of House GOP that opposed this bill. But how many of these members were voted in on culture-wedge issues? How many have any background in economics or the financial markets? Is this the time when our society goes through a massive adjustment, where just as the post-modern era began to question the nihilism of modernity, our current situation is putting to question the wisdom of electing the Sarah Palin archetype (familiar, easy to understand, easy to define, and easy to sympathize with due to their lack of extraordinary-ness)?
Is this the return of the technocrat, the thinker, the nuanced-leader?
And with only a month left until election day, do we have enough time to answer this question as a country?
This free market, why it can't possibly work!
Not without the confidence that if I loan you money that you will pay me back with interest. That's the heart of the problem as I understand it. The people with the money to loan can't figure out if they'll get paid back, so they don't loan or they make loana at unaffordable rates. I think it's really that simple.
Companies rely on access to credit to finance their operations.
Companies rely on short-term credit (90-day payments) to finance purchases and such, but that is so deeply ingrained in the system that I don't see that changing.
Corporate initiatives and expansions are largely self-funded. But, even if a company needs to go outside to get money to expand, as long as it is a stable company with a good plan, they should be able to find money somewhere. Ask Buffet for some, he's looking for good investments. And the Asians still have too much money to know what to do with.
Submitted by low-tech cyclist (not verified) on Tue Sep. 30, 2008 3:25 AM PDT.
I swear, if I hear one more blogger or pundit suggesting that maybe it's actually a good thing the bailout bill failed because now we have a chance to pass an even better bill, I'm going to scream.
Well, Kevin, fucking scream already, OK? Because that's exactly where I stand. This bill was more a hope that throwing money at Wall Street would fix things, than an actual plan.
And hope is not a plan, OK? We've been there.
Second, nobody's ever answered the question of HOW SOON we need how much bailout, and why. So I'm operating under the assumption that we've got a week or two to put together a better plan. If that's not the case - well then, somebody's got to SAY SO.
Third, is it too much to expect that the Democrats actually put together a Democratic bailout, when they've actually got a majority? It's not like the Blue Dogs would have any reason to vote against the Swedish Plan + 'second stimulus' + tax on super-rich to pay for it all.
So fucking yeah, I want a better bailout.
