Pass the Effin Bill
| Sat Sep. 27, 2008 5:57 PM PDT
PASS THE EFFIN BILL....You would think that the imminent collapse of our financial system, much like a firing squad, would concentrate our collective minds wonderfully. You would be wrong. Ten days after the credit markets nearly seized up completely, nine days after Henry Paulson and Ben Bernanke finally decided to press the big red financial panic button and propose a systemic bailout plan to replace a year's worth of fingers in the dike, we're pretty much back where we started. Washington Mutual has gone bust. Wachovia is in trouble. Over in Europe, Bradford & Bingley has imploded and Fortis is on life support. The TED spread is once again bobbing around at just under 300 basis points. Solidly profitable companies trying to float bonds are having to offer premiums of 300-400 basis points just to find willing buyers.
And what's happened in the meantime? The good news is that Paulson's original bailout proposal has been improved. Hooray. The bad news is a little more extensive. John McCain decided that his campaign might benefit from gumming up the negotiations a bit, so he swooped into Washington and did just that. House Republicans, who apparently earned their high school degrees from a rack of gumball machines, decided to hold their breath and stamp their feet unless capital gains taxes were eliminated, a lunatic proposal that has exactly nothing to do with our current problems. A band of Democrats (I can only pray it was a small one), in an apparent effort to prove that idiocy is not confined to one party, decided that this was the right time to insist that all profits from the plan be plowed into housing programs. Profits! You betcha. Meanwhile, outside Congress, every pundit, academic, and blogger in the country seemed determined to prove their manhood by proposing that we ditch the Paulson plan and instead spend our time considering some shiny new idea that they insisted was way more bitchin' than anything coming from all those other guys.
Sure, why not? We've got plenty of time, after all. If a few more banks crumble, no biggie. A couple extra points of unemployment? Whatevs. A global credit contraction at just the time when our economy is teetering into recession anyway? Yawn. It probably won't affect most of us well-off pundit types anyway. But it'll sure provide plenty of opportunity for finger pointing later on, and that's what really counts, isn't it?
Look: there's now pretty broad agreement on issues of oversight, CEO compensation, and equity sharing. So how about if we concentrate on that stuff, cut all the extraneous crap, and pass the fucking bill? It's not like it'll be carved in stone. We can always take additional swings later if we have to.
Now go read Joe Nocera and Bruce Bartlett.
Continues Below
Continued From Above
Comments
All very good comments. However?
As evil as the system is, or is perceived to be, the unfortunate reality is that the time of SHTF is possibly here. Or as the various collapse conspiracy sites abbreviate TEOTWAWKI.
It will interesting to see how the Left or Right Blogosphere responds to scenes of $50/lb for a bag of rice,
assuming that the electricity is still on for the Internet to function.
I can only assume the Survivalists are at a near state of joy, seeing their long feared (or hoped for) scenario come to reality.
All very good comments. However?
As evil as the system is, or is perceived to be, the unfortunate reality is that the time of SHTF is possibly here. Or as the various collapse conspiracy sites abbreviate TEOTWAWKI.
It will interesting to see how the Left or Right Blogosphere responds to scenes of $50/lb for a bag of rice,
assuming that the electricity is still on for the Internet to function.
I can only assume the Survivalists are at a near state of joy, seeing their long feared (or hoped for) scenario come to reality.
Want to bet on how far down the Dow futures trade after the House Republicans kill the deal?
I bet it will drop 1100 points. Or that is my over/under line.
I hope that the House Republicans wake up before the drop but I don't think it is very likely
Submitted by Calvin Jones and the 13th Apostle (not verified) on Sat Sep. 27, 2008 6:22 PM PDT.
KD:
I am sure you can understand why it isn't getting passed yet. Democrats aren't going to pass squat until a bunch of Republicans vote for it(including McCain). You know damn well that if the Republicans had their way, they'd throw Bush under the bus, vote against it, and then run against the Democrats that vote for it as a bunch of corporate whores. The Democrats, rightly for once, aren't going to fall into that trap. Will we get a bill that is any good? I don't know.
Submitted by David K. Levine (not verified) on Sat Sep. 27, 2008 6:24 PM PDT.
I don't usually comment on blogs, but...
"Ten days after the credit markets nearly seized up completely, nine days after Henry Paulson and Ben Bernanke finally decided to press the big red financial panic button and propose a systemic bailout plan to replace a year's worth of fingers in the dike, we're pretty much back where we started. Washington Mutual has gone bust. Wachovia is in trouble. Over in Europe, Bradford & Bingley has imploded and Fortis is on life support. The TED spread is once again bobbing around at just under 300 basis points. Solidly profitable companies trying to float bonds are having to offer premiums of 300-400 basis points just to find willing buyers."
Wow, sounds like World War III. Good reason to panic and spend 700 billion dollars without even holding Congressional hearings or discussing alternatives. Heck ten days is plenty of time to decide to spend 700 billion. Why in the next month more insolvent banks (Wachovia) will probably go bust. Oh they will go bust even with the bailout? Drat.
Heck, what do economists know anyway? That the banking system took four years to collapse during the Great Depression? That the Federal Reserve today is doing the opposite of what the Fed did then? Who cares, that was a long time ago. After all Ben Bernanke has all sorts of information the rest of us don't. He just can't tell us about it because he doesn't want to jeopardize national security.
Well the bailout plan may give a lot of money to rich bankers without solving the problem, but at least it is systematic stupidity, not the fly by the seat of your pants kind. Nah, that's not fair. We are responsible adults, we haven't been railroaded by phony tales of immediate disaster by the guys who brought you...
I'll leave that to your imagination.
Want to bet on how far down the Dow futures trade after the House Republicans kill the deal?
I bet it will drop 1100 points. Or that is my over/under line.
We could go from 1929 (crash) to 1932 (election), telescoped into four weeks. Prepare for instant breadlines!
david k levine, stick to not commenting.
there is a non-trivial chance that the system seizes up any day now: i'm willing to play chicken to a point, but not endlessly.
meanwhile, your characterization of the proposal has very little to do with reality. we're not "spending" $700B dollars, and it isn't being "handed" to rich bankers.
if you're going to comment, have something informed to say.
And people wonder why the Democrats are consistently seen as weak. Kevin, when you go to buy a car do you start by telling the salesman that you are under tremendous pressure to bring a new car home today and you will do whatever it takes to make a deal? Followed by meaningless attempts to "negotiate" the terms of the deal that was already fixed when you opened with that display of weakness?
Personally, I have a hard time understanding why Wall Street gets bailed out but American manufacturing, which was destroyed on the orders of Wall Street, does not.
Cranky
Submitted by Jassalasca Jape (not verified) on Sat Sep. 27, 2008 6:35 PM PDT.
Exasperation suits you, Kevin.
Submitted by Dennis (not verified) on Sat Sep. 27, 2008 6:36 PM PDT.
I still don't see what the rush is. It's more important to take the time to get it right, and no one seems to like the Paulson plan. So what if a few more banks fail? I would bet that the vast majority of all depositors would be fully insured by the FDIC, especially considering that there are many ways to game the insurance to get your deposits fully covered.
The only argument that I've remotely heard that makes any sense is that businesses can't get a loan and this will push us into recession. But by all accounts (except NBER's), we're already in a severe recession. I'd rather get it right the first time then prolong the suffering if we make mistakes.
Submitted by David K. Levine (not verified) on Sat Sep. 27, 2008 6:38 PM PDT.
You have a point: we don't know how much we will wind up spending or how it will be spent. Is that a good thing?
Cranky, wall street gets special breaks because the entire finance system is more important than any given manufacturing sector, which was largely destroyed on the orders of the american consumer, who didn't want to pay the price for the quality product available.
david k levine, that's why the negotiations include tranches so that we can assess what actually is happening and whether it's working.
Submitted by David K. Levine (not verified) on Sat Sep. 27, 2008 6:45 PM PDT.
Breathing a sigh of relief. It's true, according to news reports they can only get $350 billion with no questions asked ($250 billion up front, and another $100 billion if the Secretary of the Treasury says it is necessary). Glad you cleared that up.
I really wish that people would stop saying that this bill is going to give lots of money to rich bankers. The money is not going to the bankers. It is going to the banks, who are then going to use it to start the short term credit flow that keeps all businesses running, and all individuals getting their paychecks.
This bill only changes who pays the bill, not whether a bill will be do or change the amount of the bill. Just saw an article in the NY Times about AIG and who was set to take the brunt of the losses. Maybe a former, and in all likelihood future, treasury secretary's employer.
I believe we should nationalize the banking system. This really is just giving money away.
PASS THE EFFIN BILL....You would think that the imminent collapse of our financial system, much like a firing squad, would concentrate our collective minds wonderfully.
Jesus. Get a grip. Our multi-trillion dollar economy is not going to collapse in a week's time. Several economists have said that there isn't that degree of urgency just for the sake of ramming any old thing through.
I guess you've already forgotten what grand successes the rushed Patriot Act and the rush to invade Iraq have brought us.
100% correct. I work as far inside the belly of the beast as is possible, and can tell you that the "adults" are panicked. This gets passed, and we might avoid a systemic meltdown. (The "might" is intentional.) This doesn't, and we won't.
It is important that a plan get passed.
And it appears that hope in its passage is keeping the system going right now; the markets weren't terrible-terrible this week.
So I say: let them take their time and do it right; the market has waited this long, and can wait a little longer.
What should be avoided are stunts like McCain's, which suggest that passage of a plan is suddenly uncertain.
Kevin,
Now go read Soros:
http://www.ft.com/cms/s/0/ecd19642-8a9a-11dd-a76a-0000779fd18c.html?ncli...
> Cranky, wall street gets
> special breaks because the
> entire finance system is more
> important than any given
> manufacturing sector,
Well, Wall Street tells us that (1) the entire American finance structure is at risk (2) bailing out Wall Street is equivalent to reinforcing the entire American finance structure (3) that only pure money with no restrictions will do the job (and stop looking at those salaries and bonuses! Hands off!).
Of course, Wall Street is also filled to the brim with the exact same self-styled "smartest guys in the room" who _brought us to this point_. But this time I am supposed to believe that they _really_ know what they did wrong and how to fix it.
Yeah, I'm buyin' that one. Funny that at no point over the last 5 years did these Wall Street geniuses, including Paulson, recognize that they were doing anything wrong, making any mistakes, or taking actions with bad side effects. Not once did they notice it (unless they just forget to tell their customers or the public). But now they know. Yup, this time now they know. That will be $700 billion on my children's credit cards. And for the last time STOP TALKING ABOUT CLAWING BACK THOSE SALARIES! IT WON'T HAPPEN!
Cranky
100% correct. I work as far inside the belly of the beast as is possible, and can tell you that the "adults" are panicked. This gets passed, and we might avoid a systemic meltdown. (The "might" is intentional.) This doesn't, and we won't.Posted by: Matt
Your problem, if your bone fides are to be believed, may be that you are too far in the belly of the beast.
Most people working for and running Wall Street are neither Masters of the Universe and certainly not the proverbial rocket scientist. Comments from them need to be taken with not just a grain of salt but a shaker full.
Take another week, at least, to think this thing through so we are not stuck with the results of a plan created under duress. If they get it wrong out of the gate, as they did with probably 75% of the Patriot Act, what are the chances that they will go back and fix the mistakes?
> 100% correct. I work as far
> inside the belly of the beast
> as is possible, and can tell
> you that the "adults" are
> panicked. This gets passed,
> and we might avoid a systemic
> meltdown. (The "might" is
> intentional.) This doesn't,
> and we won't.
I know it is really, really impolitic to ask (just as it is impolite to ask McCain about the Keating Five), but, um, aren't these the same "grown-ups" who made the decisions that caused this problem?
What exactly are these "grown-ups" saying about the possibility of clawing back all salaries and bonuses above, say, $500,000/year from the affected entities for the last 5 years. Just seems to me that "grown ups" with a sense of responsibility would admit that they had made massive, massive mistakes over the last 5 years and had not actually earned any of that money that they skimmed off the phony transactions. Right?
Cranky
Submitted by David K. Levine (not verified) on Sat Sep. 27, 2008 7:16 PM PDT.
I'll give this one more try, because I hate to see people panicked into imagining things that will not happen by irresponsible but well known people. There have been numerous financial crises throughout the world and throughout time. Here is some data on per capita GDP in Argentina from http://www.nationmaster.com/time.php?stat=eco_gdp_pur_pow_par_percap-pur...
2005 $14,024.26
2004 $14,161.54
2003 $14,298.07
2002 $14,435.93
2001 $14,578.37
2000 $14,728.00
1999 $14,885.85
1998 $15,051.81
As you can see it fell relatively slowly but steadily over this period. Here it the thing: in 2002 Argentina defaulted on their foreign dept. That froze up short term lending in the country - to businesses and consumers. Exactly the "systemic failure" everyone is concerned about. Does it look to you like that caused a catastrophic crash of the Argentinian economy in 2002? This is but one of hundreds of similar examples. Even such economic catastrophes as the Great Depression and the collapse in Zimbabwe have unfolded over years not days.
There is certainly danger of a prolonged and painful recession. But that will not happen overnight, nor in the next month, leaving adequate time to discuss whether the current bailout plan makes sense and what the alternatives might be.
more alarmist nonsense from Drum. Very typical. Like the other poster said, I bet Drum wrote the same thing about the Patriot Act.
This bailout plan stinks. 700 billion is only the beginning. I say let the banks fail, let the market determine the true value of these mortgages.
All this bailout does is reward speculative investors and greed. 70% of those who are foreclosed bought more home than they could afford with no equity in the property. Many of the rest refinanced for some stupid consumer purchase like a trip to Europe, a hot tub, or that lovely 2007 Escalade.
Let the bubble burst, go through the pain, and allow sanity back into the housing markets. And then maybe, just maybe, Americans will learn to stop living beyond their means.
Any bill that targets "liquidity" will not help the financial crisis. It only postpones the eventual breakdown (in increasingly shorter intervals) and worsens the situation. The issue is solvency, not liquidity. "Pass the Effin Bill" is the equivalent of "Drill, Baby, Drill!"
I spent several hours today looking over econono blogs today (the link roll at AngryBear is a good starting place).
There are a lot of scared economists out there and they've infected me with fear. There are also a few contrarians, sure. Always are. In some ways, the election is a sideshow, except insofar that it is mucking up the response. There are a large number of plausible proposals out there, including some that would be easy patches on the legislation in progress. I assume congressional staffers are digesting all these and consulting with lots of experts. If they are not working 16 hour days they should be demoted.
You are going to get your wish Kevin. They are going to pass the EFFING bill. Nancy Pelosi just announced that the democrats are folding like a cheap suit. The rich guys are getting everything and the rest of us get the tab and little else.
Pelosi's recent announcement tells me just why I sometimes hate being a Democrat. What a bunch of pussies.
Sorry, I'm against the plan too. I've been burned by believing the Bush Administration too many times, and if they were really serious they wouldn't have sat on a plan for months and then hit us with an unreviewable ask for enough money to derail health care and everything else we wanted. This was another power grab. I wont give up health care for Wall Street. Maybe I'm wrong, but we used that "what if we're wrong" before with the Patriot Act and Iraq. The purpose of the Bush Administration has always been to enrich their friends; everything from Iraq on has had that at its heart. Not this time. Now, if I'm wrong and things turn south, then the public will be behind a plan instead of it being a political albatross for tying Democrats to Bush. But for now, either the Republicans share the heat or no deal as far as I'm concerned.
For all those seething at the injustice of a bailout, consider the natural division of labor:
Punishing the fat cats? A job for the FBI. Who are on the case, as a matter of fact.
Warding off a financial apocalypse? The
job of Congress and the President.
Submitted by tpx (not verified) on Sat Sep. 27, 2008 8:00 PM PDT.
For the past couple of decades the growth of the economy has not been shared with the lower 80% of the age earners. Most of the economic surplus since Reaganomics became enacted has gone to the top income earners without hardly any trickle down of increased economic prosperity for anyone else. The economic activity of the finance industry no longer affects the well being of most people. None of that economic activity is going to benefit them, none of it has benefited them, which is why they reject cries from the wolves and the already well off to save it with a trillion dollar bailout. If the failure of the finance industry will truly be cataclysmic, then the best way to deal with it is with welfare and relief for food and shelter.
The markets will rebuild themselves, and should do so well regulated. Those who gambled and lost will be replaced. There is an unfathomable amount of greenbacks in this world. The foreigners will be happy to replace all of the American failed banks so they can put their dollars to work.
If the prospects get really dire, I expect to see Bill Clinton and George H. W. Bush fly in to round up support.
The real monkeywrench so far has been that Bush has no sway over his own caucus; he may need his dad to impress on Republicans the gravity of the situation.
To repeat (slightly reworded):
Passing the bailout bill may be the right solution (debatable) to a serious problem (debatable), but until American voters show they reward good governance - meaning they are willing to make some short term sacrifices for long-term improvements at the behest of their leaders, it makes no sense to pass this bill without the Repukes on board. Otherwise this becomes a repeat of the 93 budget bill. Remember that? Bush's support does not provide the Democrats any kind of cover - independents hate him and Repukes are well on their way to convincing themselves he is a closet liberal. Either the Repukes come on board over the weekend or Reid and Pelosi should adjourn forwith.
I'd also like to point out there is still no mention of a way to PAY FOR THIS CRAP. The idea that government will "make money" on this is just laughable.
Submitted by Frank Miller (not verified) on Sat Sep. 27, 2008 8:52 PM PDT.
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Best,
Frank Miller
http://www.theoffshorebankaccount.com
I spoke a few tabs too soon. Apparently the Dems have proposed implementing a transaction tax 5 years from if the bailout costs taxpayers money.
http://www.reuters.com/article/bondsNews/idUSWBT00986620080927
Once again, I can only wish that Cranky Observer would get a blog. 100% right.
Kevin, you need to rewatch the Jon Stewart comparison of the Bush Wall Street Speech and the Bush Iraq Speech.
No one has made clear that the likely downsides to this bill aren't worse than the likely costs of doing exactly nothing.
Please provide the expected values of a) passing the bill, and b) doing nothing, as well as the various parameters of the distributions of each.
In my line of work, when something becomes too big to fail, we intentionally break it up into smaller pieces. We don't toss more mud at the levee saying, "this levee is too big to fail."
Near as I can tell, doing precisely nothing for Wall Street, and arranging safety nets now for the rest of us, quite likely has a better long term outcome.
PK is against the Paulson Plan but does seem to think the Congressional Plan has some merit. I think your time would be better spent understanding and punditing that detail.
The real monkeywrench so far has been that Bush has no sway over his own caucus; he may need his dad to impress on Republicans the gravity of the situation.
Posted by: lampwick
His "caucus" does not care about "the gravity of the situation," and has said so. They care about the politics of it, and the big money interests they represent. Do you think big business wants to see more regulation out of this? Given the choice between the chance of a depression and the certainty of greater regulation, big money would as soon roll the dice. They'll weather a depression fine -- it's the little people who would get hurt the worst.
The only thing pushing Bush's Congressional ex-allies to get something done is the fact that the media are not reporting this their way, and they are afraid of a public backlash if the shit should hit the fan and they get the blame. If they knew they could engineer a disaster and hang the blame on the Democrats, I'm sure plenty of members of Bush's "caucus" would try to do it.
Anybody on this thread remember the Great Depression? Me neither, but my dad turns eighty-five tomorrow and he sure does. He would be dismayed to see the cavalier attitude of those that are willing to play chicken with the economy. He would have no patience with those willing to let the economy crater in order to stick it to the "fat cats." On behalf of the old man and my three year old daughter, let me second KD and say pass the fucking bill!
FWIW, I sent a message to my Congressman, Don Young, urging him to support the bail out package and to encourage other members of his caucus to support it...for all the good that will do.
The 'Let It Break And Spend Money On A Safety Net' position is incredibly foolish.
Spending $700B to stave off the $20T in losses that could result from a collapse is a bargain, when you consider that spending $700B on amelioration after that collapse wouldn't do that much good.
An ounce of prevention etc.
KD: Profits! You betcha.
I appreciate you walking back your earlier post on how, financially, this bailout is "an easy bet". Regardless of whether one is inclined toward plan A vs. plan B, one thing we should all be able to agree on is that the U. S. of A. will lose big on this trade. Pass the f-ing plan, but let's at least go into this eyes wide open...
Submitted by lambert strether (not verified) on Sat Sep. 27, 2008 9:24 PM PDT.
And we get?
Gee, it's a shame that Obama took mortgage relief off the table right away, but maybe now that I'm part owner of an insurance company, I can get some health care?
No?
Would someone who fears this could turn into the Great Depression explain to me why all the economics we've learned since then would evaporate and how we would just turn into Hoovers?
I think we're already in that next Depression. I fail to see why the outcome should be the same old winners rewarded out of a fear that we would all become Hoover.
MG: Given the choice between the chance of a depression and the certainty of greater regulation, big money would as soon roll the dice. They'll weather a depression fine -- it's the little people who would get hurt the worst.
Big money is Paulson's and Bush's constituency, don't you think? They don't believe the free-market BS anymore than we do. But, the congress-critters they helped elect actually drink the kool-aid and that's the problem.
I say that big money takes a bath along with the rest of us and that's what has everyone panicked. We'll all adjust our lifestyles down a notch or two. Of course, for the some that might mean giving up the private jet. For others it might mean living in the family car, so I get your point on that account.
I am not quite sure why another financial meltdown isn't such a bad idea.
I doubt people would starve to death, and perhaps another "new deal" wouldn't be such a bad idea.
All a bailout is going to do is permanently delay meaningful reform.
Do you really think that appropriate regulation is going to happen if the bailout works?
I find it completely insane that Democrats a supporting GWB in a plan that will perpetuate Wall Streets piss poor decision making.
Any bill is going to have unintended consequences, and I guarantee they won't be for the benefit of the working class.
When K. Drum speaks, Congress listens:
Submitted by AK Liberal (not verified) on Sat Sep. 27, 2008 9:47 PM PDT.
Jerry, I'm no economist, but my understanding is that the credit markets are on the verge of freezing up. If that happens, businesses can't borrow money to finance operations and they close down throwing people out of work. We are not in a depression yet, at least not in the sense of the Great Depression.
Submitted by Carl Nyberg (not verified) on Sat Sep. 27, 2008 9:52 PM PDT.
Did the Bear Stearns bailout prevent the need for future bailouts?
Did the Fannie/Freddie bailout control the "crisis"?
How did that AIG bailout work?
So, how do we know were getting a fix that works for $700 billion?
Any bailout needs to include criminal fucking penalties for people who committed fraud and people committed bad acts.
There should be tax increases.
I want members of Congress to promise to retire/resign if this bailout doesn't work.
I want members of Congress who had oversight positions to resign.
I want to feel like the people with power are suffering too.
If no suffering for the elites then I'm not persuaded I need to suffer to give them money.
Submitted by Carl Nyberg (not verified) on Sat Sep. 27, 2008 9:55 PM PDT.
Kevin Drum, do you consider accountability for creating the problem to be extraneous?
Do you consider regulation to prevent the problem from recurring to be extraneous?
What guarantees do we have that the financial institutions won't continue to write fraudulent loans and put more crap on the books b/c they can sell it to the government?
