The Bailout Round II: Adult Version?
In spite of its best efforts, the Bush administration failed to push through a $700 billion give away to Wall Street. President Bush conjured up scary images of the Great Depression on national television. He even partially backed away from his initial demand for a complete blank check for Henry Paulson. But the public refused to send their tax dollars to Wall Street banks run by incompetent bankers, and they insisted that their representatives in Congress listen to their wishes.
While the editorialists are busy denouncing members of Congress for surrendering to the vulgar masses, it's a good time to quickly check the score card. The United States is in a recession and facing the worst financial crisis in almost 80 years because the folks currently in charge were out to lunch.
They allowed an $8 trillion housing bubble ($110,000 for every homeowner) to grow unchecked. People like Henry Paulson, Ben Bernanke, and Alan Greenspan repeatedly insisted that there was no housing bubble as house prices got ever further out of line with fundamentals. President Bush regularly boasted about record rates of homeownership as the sleazes at outfits like Countrywide, IndyMac, and New Century pushed predatory mortgages on moderate income families, many of whom were black or Hispanic.
It just took a little common sense to see that a disaster was imminent, even if the exact timing and course could not be predicted. But, our elites lacked commonsense, and that is why we now face such a dire economic situation.
The main cause of the economy's weakness is not insolvent banks and lack of credit; it's the loss of $4 trillion to $5 trillion in housing equity as a result of the bubble's partial deflation. Families used their equity to support their consumption in the years from 2002 to 2007, as the savings rate fell to almost zero.
With much of this equity now eliminated by the collapse of the bubble, many families can no longer sustain their levels of consumption. The main reason that banks won't lend to these families is that they no longer have home equity to serve as collateral. It wouldn't matter how much money the banks had, they are not going to make mortgage loans to people who have no equity.
And house prices are not going to come back. This is like Pets.com. We are not going to get the price of $200,000 homes in central California back up to $500,000.
The main problem in recovering from the recession will be finding ways to boost demand other than household consumption. In the longer run, this will mean reducing imports and increasing exports. In the short-run, we will have to rely on government stimulus to help spur growth and reduce unemployment. The Democratic demands for stimulus were not extraneous to the legitimate goal of a bank bailout bill. Fiscal stimulus must be central to any serious effort to boost the economy.
The weakness of the banks contributes to the downturn, but they are not the core of the problem. We would still be facing a recession even if all our banks were flush with cash. Hence the hype about the urgency of the bailout was an invention. It would be good to get our banks in order, but it also would be good to send $100 billion to state and local governments to support infrastructure projects and other spending.
How do we go about getting the banks in order? Almost every economist I know rejects the Paulson approach and argues instead for directly injecting capital into the banks. The taxpayers give them the money and then we own some, or all, of the bank. (That's what Warren Buffet did with Goldman Sachs.)
This isn't about begging for a sliver of equity as a concession for a $700 billion bailout, this is about constructing a bank rescue the way that business people would do it. We have an interest in a well-operating financial system. There is zero public interest in giving away taxpayer dollars to the Wall Street banks and their executives.
If Secretary Paulson constructed a package that was centered around buying direct equity stakes in the banks, he could quickly garner large majority support in both houses. Better yet, Congress could just construct its own package centered on buying equity stakes and send it to President Bush. If he balks, we can just threaten him with stories about the Great Depression.
It still isn't clear to me and perhaps it can't be made clear just what the long term effect would be of a bailout, of doing nothing except beefing up existing safety nets for banks, of the US taking equity positions in banks, etc. All of this needs a lot of study, followed by clear explanations to we who will foot the bill, and only then by congressional action.
I plant to email my congressional representative asking her to vote against the bail out plan unless the above steps are taken first.
September 29, 2008 9:05 PM | Reply | Permalink
When you say "bank", what do you mean? Just banks and entities that have recently become banks, or are you taking the position that if it walks like a duck and quacks like a duck the government is darn well going to take an equity position and regulate it like a duck? Can we do this without unwinding and regulating the shadow banking system, perhaps just by letting it wither away?
September 29, 2008 9:19 PM | Reply | Permalink
Good question -- makes us think.
Definition: "Shadow banking system" -- any unregulated institution or activity which can create "money." For purposes of discussion includes off-balance sheet bank assets (SIVs, SPEs, etc.), insurance companies, hedge funds -- any unregulated activity that relies on borrowing short, lending long, and leveraging up.
The hedge funds should be allowed to die. Most will get in trouble at some time; the banks will demand further security; the hedge funds won't be able to provide it; the banks will sell the securities they hold; and "poof." Good bye hedge funds.
But banks and insurance companies must be supported -- see below.
The question, though, is what does this do to the money supply. And is the money supply currently too large and can stand some shrinkage?
September 29, 2008 9:55 PM | Reply | Permalink
Most of us on this board have been saying it for over a week, now, but it probably bears repeating.
Everyone wants credit to be available to the real economy -- and perhaps, the virtual economy, as well. Currently, the big banks are either insolvent or capital constrained.
Everyone knows the solution -- infuse capital. The banks must borrow and/or issue equity. If it isn't available from private investors, we the taxpayers must loan* them the money or buy their preferred stock (at 10% or so and no cm. stk. dividends to be paid until the pfd. stk. was retired).
We know why Bush and Paulson don't like the idea. They think it's socialistic (they're correct) and it won't help Bush's "base" and Hank's buddies.
But what's with Dodd and Frank? And why can't Reed and Pelosi get those two under control? Is it that the proper way of doing this "bailout" couldn't pass Congress?
* Just a note -- the loans would be made only after the bankruptcy law was amended to provide these "super loans" with priority over all other creditors -- secured and unsecured.
September 29, 2008 9:37 PM | Reply | Permalink
But what's with Dodd and Frank? And why can't Reed and Pelosi get those two under control? Is it that the proper way of doing this "bailout" couldn't pass Congress?
Isn't it precisely that, Ellen? Listen to Barney Frank's closing remarks today just before the vote.
I have heard many of the postmortems from House members who voted "no" today. They assure us that something is going to be worked out, and we will get a better bill passed soon. The curious thing is that the Republican nay voters are convinced we are going to get a more free market oriented bill, while Democratic nay voters are convinced we are going to get a more socialistic ("progressive") bill.
I don't see how either of these things can come to pass. For every Democrat who is brought on board to support the "Swedish approach" or some other nationalization plan, we lose a Republican or conservative Democrat. And for every Republican who is brought on board to support a new bill that leaves it to financial institutions to work their own way out of the crisis armed with only a few new tax incentives and accounting rules changes, we lose a Democrat.
Of course, this is an excellent reason for electing a Democratic president and huge Democratic majorities in both houses. That way we can get what we really want in a crisis like this. But you go to the economic barricades with the government you've got, not the government you wish you had.
Unless a few more days of unhinged market calamity push the House to pass roughly the same bill later this week, what we are likely to get now is either nothing, or a pile of demagogic crap with something for everyone, and that accomplishes nothing. Maybe Republicans get their irrelevant capital gains tax cut, and new hand soap bars in the House rest rooms shaped like Margaret Thatcher; and maybe Democrats get some emotionally satisfying executive salary caps, or a new seven dollar bill with Che Guevara's picture on it. But that looks like it's where we might be headed: unresponsive, populist junk legislation filled with eye-catching baubles for the true believers on all sides.
September 29, 2008 10:27 PM | Reply | Permalink
How is it "socialistic", Dan? the means of production stays on Wall Street with this scheme - it doesn't go to the people. Private Property is augmented, not eliminated. Perhaps you're speaking figuratively.
The Maggie T. soap idea is hot, however. Unfortunately Snuffy Smith's visage is already on the $7 bill.
September 29, 2008 10:59 PM | Reply | Permalink
Neohobo, as I understand it, Dean Baker's alternative to the current Treasury Department proposal for the public purchase of troubled assets is that "the taxpayers give them [the banks] the money and then we own some, or all, of the bank." If the US government, or "the people" collectively, come to assume ownership over what are now major private corporations, I would say that is a move in a more socialistic direction.
But hey, I'd be in, if we could get it. If we had a Democratic president and a Democratic Treasury Secretary, and a Democratically-appointed Fed Chairman, and large Democratic majorities in both houses of Congress, then we might have seen such a proposal brought forward in response to the current crisis. If we lived in one of the Social Democratic societies of Scandinavia, we might see such proposals brought forward.
As it happens, we live in America, and have a bunch of laissez faire Republicans in both houses, including an evenly divided Senate. Many of them are very radical defenders of private property, free markets and minuscule government. Many adhere to various forms of libertarianism, Chicago School or Austrian School economics. Some don't even like the Post Office or the Federal Reserve System. They want to privatize and deregulate everything, even to some extent the armed services. They would think the sky is falling if the government so much as tried to nationalize a Quickie Mart, much less a major financial institution.
September 30, 2008 12:32 AM | Reply | Permalink
After the bailout failure yesterday:
Representative Darrell Issa, a Republican, said he was “resolute” in his opposition to the measure because it would betray party principles and amount to “a coffin on top of Ronald Reagan’s coffin.”
We should only be so lucky.
Early in the House debate, Jeb Hensarling, Republican of Texas, said he intended to vote against the package, which he said would put the nation on “the slippery slope to socialism.”
Those Republicans have more slippery slopes than a water-themed park.
September 30, 2008 11:14 AM | Reply | Permalink
If there is no prospect of Republican votes resulting in a net gain of yes votes with adjustments to the proposal, or if the House Democratic leadership decides it wants to go in the direction of a more Krugman-like bill on the second try, and if public pressure builds to do something if the market tanks over the next day or two, there *might* be enough Dems to pass it in the House.
At least the Dem leadership could be reasonably sure that their whip count would bear a close relationship to the final vote. They know the stated Republic whip count may bear no relationship whatsoever to the final Republican vote.
The larger impediment to getting a better bill is that, if Senator Dodd is to be believed, the Senate appears ready to pass tomorrow what the House rejected yesterday.
If members of the House favoring something closer to Krugman's proposal think they wouldn't be able to prevail in the conference committee with the Senate, they might think they have less reason to vote for a proposal like that, when they know Republicans are going to try to make hay with the "socialist" card against them for the duration if they do so.
September 30, 2008 2:48 PM | Reply | Permalink
Ellen, this is just to say I appreciate your constructive contributions in this and other threads on the financial situation. (Especially when I understand them. I like it when you work at keeping it relatively simple.)
You're able to hold your own with anyone on the board and I hope we can get replies to what I expect will be your excellent questions if management is successful in soon getting, as I believe they are trying to, additional heavyweights to share with us their thoughts.
I'd have sent this as a private email if we had that option.
September 30, 2008 1:44 PM | Reply | Permalink
This alternative has merit. The problem remains of determining a fair price for equity given the nature of the "troubled assets." Banks, though, are not in a great position. If they can't meet capitalization requirements, the FDIC steps in and anyone invested in the bank is likely to get zip.
The banks themselves are also in the best position to determine the value of the underlying mortgages because banks and savings and loans originate real estate loans and are familiar with local markets. I don't know quite how that could be made to work but if you've got a list of addresses, it should not be a big problem to figure out who has a presence in the region and get a grounded sense of property values. A recent poster pointed out that it is not a big deal to do due diligence on the borrowers.
All this is not much different from what the FDIC has to do when they take over an institution and, surprise, surprise, they know how to do i, have people trained to do it and probably have training programs and manuals. It seems like being offered a chance to stay afloat and losing some equity versus having the FDIC show up and losing all the equity would be attractive. If they fail anyhow, the FDIC will show up and I would hope we are first in line behind depositors when it comes to what's left.
Some these really big banks may be so big that they should fail and be turned into smaller banks. Nothing is as monolithic as it seems when it comes to this business. Wait and see how many WaMu branches JP Morgan closes over time. They won't close the good one's.
Paulson's proposal has never made any sense other than as the last sale in a Ponzi finance scheme with the citizens holding the bag. It was a bubble. The prices were as bogus as the loans. I do not see what qualifies Paulson or the firms that securitized these turkeys to sort things out. There is no way to recoup the losses due to the bubble. Investors will end up eating them. That happens when you take risk.
September 29, 2008 9:47 PM | Reply | Permalink
I agree with pretty much your entire argument, but I'm not sure you need or should bring the FDIC into the discussion.
The problem is not that these "insolvent" banks will go out of business (they can "zombie" along for years) but that in the absence of recapitalization they will hoard capital and refuse to make it available to the real economy.
Valuing common stock in the form of a new offering is difficult, and I don't know where the government could get a disinterested "bank appraiser" (Blackstone? ha ha?) to do it. That's why taking preferred stock is probably the better course. And maybe, a straight-up loan is the best.
September 29, 2008 10:06 PM | Reply | Permalink
Your point is well taken, Ellen.
My basic point is that a coherent solution needs to be articulated and communicated. It seems possible. I just sketched some mechanics and mentioned the FDIC simply to highlight that it's not like humans don't know how to sort this out. My "proposal" can be wrong. I was throwing out ideas. What I would say, though, is that the solution has to be explained in a simple way. I'm not sure how many people know what preferred stock is. That may be the way to go and preferred stock can be explained in a sentence.
It also occurred to me that banks at risk for depositor flight, wrongly or rightly, face a pretty grim alternative that might inspire cooperation.
I would note that housing sales are up in California because prices have started to adjust. Some institutions are making loans. Some people have jobs. Real life goes on. Real economic activity goes on although unemployment is high here.
What is most needed is to get out of panic mode so that rational decisions can be made. There are plenty of people who know how to sort out the details but that takes time, real expertise and probably some pressure.
I am just thinking out loud when it comes to details--trying to simulate responses like yours. My thoughts may well be the wrong ones. To get support, though, I think some details need to be made clear enough so people can understand how and why it will work start to finish. I'm okay with knocking down any straw man. I'm concerned that any proposal that is not explicit about the exit strategy won't sell. Can an alternative be explained in 2.5 pages of double spaced text and turned into a 100 page bill and a few simple talking points that address key concerns?
September 29, 2008 10:34 PM | Reply | Permalink
Good post, Ellen, but i think you still may be flying blind like the rest of us, because we don't know the ratio of good to bad banks. There are plenty of regionals that are not caught up in the mess at all and are cranking out profits and dividends.
It's easy to Monday morning quarterback the Cowboys, because i saw every play they made. I have no idea how bad this situation is, really, but i do have several regional bank stocks that are rock solid. One thing i do know -- I'm not going to trust Paulson or anybody else in Washington to tell me it's a disaster. We've got a government more insolvent than most banks.
September 29, 2008 10:36 PM | Reply | Permalink
I'm not Ellen... she may disagree... but...
There was a housing bubble. Prices of some assets were inflated. There will be losses. Some on paper. Some will be real, i.e., not just paper profit. The upper number is in the trillions.
Anyone who thinks there is a way to keep that from hitting the book in real terms needs to think again. That is/will be a problem for some that will not go away. The immediate problem is to keep everything that is healthy going without making the outcome even worse. Any approach is going to involve a certain amount of flying blind.
For all I know, they may just add another 50 pages to the current proposal and pass it. I'd rather see a viable alternative get considered.
September 30, 2008 12:50 AM | Reply | Permalink
the market where i live is stable now. Homes that have been on the market for a year or more are starting to sell. If you've got money -- real estate is the best place to be right now. Home prices will be rising again nationally over the next 2 years.
September 30, 2008 8:53 AM | Reply | Permalink
Good, thoughtful piece. Thank you.
On the political side, I still cannot imagine what was in Nancy Pelosi's mind, or her speech writer's, today, when she attacked the people she needed to pass the damn the bill.
I'm sorry that we are witness to this bit of history.
September 29, 2008 10:22 PM | Reply | Permalink
Amen, Kent! Pelosi demo'd why Congress has an approval rating in the teens. We are sick of this bickering. See my blog on Nancy's Kill Bill moment.
September 29, 2008 10:37 PM | Reply | Permalink
I might not have understood an earlier report, dealing with the timeline leading to the vote.
So correct me if I misunderstood
It was reported that Speaker Pelosi was very active in rounding up her side and kept looking for some signs of life from the Republican side.
Seeing that it looked like it may not have been a done deal from the other side, she was talking to her own base, reminding them, how they could vote for a bill no one wanted and she gave her side cover or a reasonable explanation for voter consideration.
By doing so she delivered what she could.
The Republicans shafted her and the American people.
September 29, 2008 11:05 PM | Reply | Permalink
Pelosi had been promised 80 to 90 Republican votes. When she got word that this wasn't going to happen, she told the Democratic whips to pass it around to the Democrats that they were free to vote their conscience. Result is a the Democrats didn't hold either and now it seems Pelosi will be unable to hold them together going forward.
Or, in other words, the deal is dead.
September 29, 2008 11:33 PM | Reply | Permalink
Really? So, now there is a financial crisis, eh?
And there wasn't one earlier today (http://tpmcafe.talkingpointsmemo.com/2008/09/29/why_bail/)
And there wasn't one yesterday (http://tpmcafe.talkingpointsmemo.com/2008/09/28/financial_meltdown_the_day_aft/)
You people are fucking morons.
September 29, 2008 10:23 PM | Reply | Permalink
Mr. Congeniality, welcome back.
September 29, 2008 10:30 PM | Reply | Permalink
oh please, Tom. You don't get anywhere with sunshine and caressing strokes.
September 29, 2008 10:53 PM | Reply | Permalink
Considering the lessons of coercive vs. confidence-building interrogation I think we can say you do get somewhere with civilized behavior.
September 29, 2008 11:36 PM | Reply | Permalink
How do we go about getting the banks in order? Almost every economist I know rejects the Paulson approach and argues instead for directly injecting capital into the banks. The taxpayers give them the money and then we own some, or all, of the bank. (That's what Warren Buffet did with Goldman Sachs.)
Well, if the Democrats weren't able to get even 75 Republicans to support a purchase of assets, I don't see how we can possibly get such a number to support the government buying actual ownership shares in banks. You seem to be assuming we can pick up substantial numbers of progressive Democrats who voted "no" without losing equal numbers of Republicans and conservative Democrats. Fat chance. The Republicans are ideological radicals out to defend the ghost of Ronald Reagan and prevent a New New Deal. There is no way any sizable number of them are going to vote for government bank nationalization or part ownership.
Hence the hype about the urgency of the bailout was an invention. It would be good to get our banks in order, but it also would be good to send $100 billion to state and local governments to support infrastructure projects and other spending.
You'll be singing a different tune if we have another day of two like we had today. By then, panicked constituents will be begging their representatives to save their jobs and their retirement accounts, and they'll be wondering why they ever listened to all those yammering, accountability-free rabble-rousers on the blogs and talk radio, including ostriches who were telling them, "There is no crisis; and even if there is a crisis, we will avoid the worst; and even if we don't avoid the worst, the worst isn't so bad; and even if the worst is very bad after all, maybe bad is good."
September 29, 2008 10:52 PM | Reply | Permalink
Exactly. No one can fire a blogger.
September 29, 2008 10:55 PM | Reply | Permalink
I went to cash last week.
Hope you're comfortably in cash too. Though the question of the value of the US dollar three to six months out remains one that troubles me.
Any thoughts from your end on Euro cds?
September 29, 2008 11:39 PM | Reply | Permalink
Sorry. Week before last, during the sucker's rally.
September 29, 2008 11:44 PM | Reply | Permalink
I can write a one paragraph bill, Dan K.
The Treasury Secretary is authorized to raise funds sufficient to establish a $700 billion fund for the purpose of loaning such funds to such banks as he and the Fed Chairman shall determine are undercapitalized and are critically necessary to the smooth functioning of the American economy.
1) interest shall be charged at the rate paid by Fannie/Freddie,
2) they shall be callable in 24 months unless the date shall be extended by the Congress, and
3) the loans shall have priority in bankruptcy over both secured and unsecured private loans of the borrower.
Simple. Quick. Put it to a vote and let the Republicans explain what's wrong with it.
September 29, 2008 11:44 PM | Reply | Permalink
It is still not clear to me what exactly Paulson is planning to do. If the idea is to recapitalize banks, loaning $700 billion will have zero effect.
Buying the unwanted assets:
*at CMV will have no effect on capital because with mark-to-market accounting, losses have already been booked. Those and other losses are a major reason the banks are undercapitalized.
*at a discount from CMV will create an additional loss and reduce capital even more.
*at a premium will improve bank capital but seems like a really imprudent way to do it. Taking an equity position makes more sense.
Arnold Kling suggested simply easing capital requirements temporarily. That might be difficult since there are international capital requirements that some, maybe all, of the banks are required to meet.
September 30, 2008 3:14 AM | Reply | Permalink
It occurs to me that Paulson's panic/rush may have been to do something before quarter-end accounting is closed. That would be today.
September 30, 2008 3:30 AM | Reply | Permalink
Confirmation of premise via Krugman
September 30, 2008 1:36 PM | Reply | Permalink
What's wrong is, that this is the same model that the Japanese attempted. As someone downthread mentions $630 billion has already been injected into the system to no avail. The essential stumbling block is a hoarding mentality. A hoarding mentality that can't be exorcised while distrust of financial institutions and their assets is foremost.
There is liquidity galore available at near record low rates, but everyone wants to keep it to themselves, not lend it out. Not lending it out is the blockage of credit markets.
We are in a liquidity trap just like Japan's with their 0% rates and no resulting stimulus. Until trust is restored in the soundness of institutions by removing the now notorious derivatives, throwing money at this will just disappear into the black hole of fear.
September 30, 2008 7:23 AM | Reply | Permalink
I think you've been drinking the Kool Aid, shooter242.
T'aint true.
Note: Your parallel with Japan is not correct. It was not a matter of fear generating hoarding. Japanese banks didn't lend, because at the extremely low loan rates they were getting it was more profitable to buy JGBs.
September 30, 2008 12:12 PM | Reply | Permalink
Hear, hear!
That's what I'm thinking now as well. A straight loan program. I'd add some strings -- no executive bonuses while loans are outstanding, e.g. Basically the model used by Chile years ago (20 years ago?).
-- ARG
September 30, 2008 7:37 AM | Reply | Permalink
"There is zero public interest in giving away taxpayer dollars to the Wall Street banks and their executives."
Bravo Professor! Very well put indeed! I am astounded that it has taken so long for this posture toward the massive giveaway to find it's voice. I am also delighted this is so since a week ago no such viewpoint was being heard and now you and many others across the political spectrum are expressing the same kinds of concerns.
Here's a question for you that I have seen no one with your expertise discuss:
Why is there no serious discussion of directly funding/refinancing the mortgages of homeowners nationally at a low fixed interest rate and adjusting troubled mortgages though some process whether a bankruptcy court or a federal agency established for that purpose? Seems to me people could refinance at the lower rates and meet their payments while keeping their homes. The old mortgage would be paid off or far closer to it than if a foreclosure took place and the mortgage market, at least, would be stabilized. This doesn't seem terribly complicated in theory anyway and certainly no more than any of the other proposals I've read about. The only dfference is that here, the taxpayer/homeowner is a major, direct and immediate beneficiary. This approach would also avoid additional waves of bad loans when ARM's adjust, etc...
I also like the talk I've heard the past couple of days of nationalization and socialization of the banks at least to the extent that our money is used to stabilize and rescue them. I think the objection most people have whether left or right to the idea of socialism for Wall Street is that everyone knows that socialism is not intended only to benefit the rich and powerful. If our government was bold enough to move to nationalize the banks that need assistance, the public could then see that it isn't an instrument of the devil as most Americans have been brought up to believe, but a tool the public can use for the benefit of the public.
It makes good business sense really. If the public money is not utilized on behalf of the taxpayer the same way it would be for any wealthy investor or investment group then it seems that is a sure sign of a bad deal for the taxpayer.
One can see how and why a government might provide taxpayer funds with few or no strings attached to assist the poor or help the young attain an education because they don't have the resources to achieve certain desirable ends on their own without assistance. But we aren't discussing anything like that at all. In this financial "crisis" we are talking about helping very wealthy and powerful, for-profit businesses regain their stability and return to profitability. Why would the investor who made that possible not get a generous return in repayment of that crucial infusion of capital? Without that return, it seems to me, any assistance to the banks is a sham.
September 29, 2008 11:15 PM | Reply | Permalink
The old mortgage would be paid off [at] or far closer to it [face value] than if a foreclosure took place . . . .
I continue in my befuddlement.
Why do liberals want to use taxpayer monies -- for which there are many other better uses -- to pay off a bunch of irresponsible where not fraudulent lenders?
September 30, 2008 12:27 PM | Reply | Permalink
You assume that everyone who is now in trouble on their mortgage or soon will be is "irresponsible" and that simply isn't the case. there are a vast range of reasons why people walk away from their mortgages or lose their homes. I think it is easily areed that it was the people in the finncial indutry (bankers, etc...) who were extremely irresponsible, knew what they were doing when they sold people the idea they could afford the mortgages they were signing on for. Most people, including well-educated folks, don't have the first idea what is going on when they sign a mortgage. They trust the banker or broker they are dealing with.
The individual homeowners who find themselves in trouble now are where the problem starts as I understand it. Fixing the problem is what all this discussion is about, no? Those people (and many like them) are going to be hit up to pay the tab on whatever results from all this bailout activity in Washington. Seems reasonable to me for someone to discuss why it would or would not be a good idea to help people at the font end as opposed to letting all those families go by the wayside into economic disaster and instead clean up the back end of the mess which is far more complicated, expensive and benefits the irresponsible lenders--who certainly knew what they were doing from day one--immensely.
Perhaps it is a bad idea, but I dont think that is why it isn't being discussed. I think it isn't being discussed because the people who are supposed to be representing the average Americans out there are the members of Congress and they serve the interests of the wealthy and powerful first, as it has always been and without regard to party. I'd simply like someone to talk about the pros and cons of such an option. That seems perfectly reasponable to me particularly when it would be providing direct relief to the people who will end up paying the bill anyway.
I don't understand why that is hard to understand at least in concept.
September 30, 2008 2:42 PM | Reply | Permalink
You assume that everyone who is now in trouble on their mortgage or soon will be is "irresponsible" . . . .
I don't know where you came up with that conclusion, oleeb.
In my comment the adjective "irresponsible" pretty clearly modifies "lenders" -- as in "irresponsible where not fraudulent lenders." (emphasis added)
September 30, 2008 5:10 PM | Reply | Permalink
Was in a hurry and misunderstood. My bad.
September 30, 2008 10:09 PM | Reply | Permalink
"While the editorialists are busy denouncing members of Congress for surrendering to the vulgar masses, it's a good time to quickly check the score card. The United States is in a recession and facing the worst financial crisis in almost 80 years because the folks currently in charge were out to lunch."
It isn't like this hasn't been said many times, right to the faces of countless millions of Americans in the debates to-date.
I guess that people just like to get pissed on and believe that it is raining while the editorialists scramble for a grip on the piss hose.
September 29, 2008 11:27 PM | Reply | Permalink
Yeh.
What with these talking heads screaming about the end of TWAWKI, I'm afraid this bailout bill's "got legs."
September 29, 2008 11:50 PM | Reply | Permalink
Possibly not. http://www.prospect.org/cs/articles?article=what_now_08
September 30, 2008 12:09 AM | Reply | Permalink
Yeah but Wall Street wasn't singing 'Just Got Paid Today' after the vote. I agree with anna...I think the R's just gave the D's all the cover they need to put their own plan forward as opposed to the D-Paulson/Bernanke hybrid.
September 30, 2008 12:29 AM | Reply | Permalink
"What with these talking heads screaming about the end of TWAWKI..."
Oh, what a display! It's been a propaganda fear storm nobody could miss. There are absolutely no dissenting voices in the MSM's well orchestrated campaign to stoke doom and fear. Clearly they are attempting to reverse the massive public outcry against this rushed bailout.
The one-sided media histrionics seem extreme enough to even clue-in Americans who haven't figured out that the talking heads and experts are shameless tools working hard to encourage taxpayers to rush and blindly give large amounts of their money away.
I mostly caught CNN and couldn't believe how extreme it was, right down to not-so-cleverly blaming the failure of the bailout on problems people have been having for a very long time. (they threw in the whole kitchen sink on this--loss of jobs, housing values, etc.)
September 30, 2008 10:43 AM | Reply | Permalink
A typical lede:
The stock market posted is worst one-day percent decline in 21 years after the House of Representatives rejected the $700 billion financial relief plan.
Referring to October 1987's Black Monday -- but not mentioning that in the two weeks before that day the stock market fell 15% and then, another 22% that Monday -- a loss of 34% in 10 trading days.
September 29, 2008 is hardly in the same class.
September 30, 2008 12:35 AM | Reply | Permalink
Fear not, our Federal Reserve just issued $630,000,000,000 to support the system! Problem solved and no new pesky laws to worry about.
September 30, 2008 12:19 AM | Reply | Permalink
People are starting to notice that bailing out the banks is sort of like chasing the bad boy while the borrower next door pines away at home. I sense a delayed populist uprising coming on. Is it possible that ordinary voters will begin to think about demanding a bailout that works for them and their neighbors?
September 30, 2008 12:55 AM | Reply | Permalink
Google NSPD51 That designation represents a bill passed a couple of years ago that, evidently, gives the President authoity to unilateraly declare martial law if the country is in a severe crisis. The bill specifically mentions economic disruptions as one of the reasons this law can be enacted. Crazy? Yes. Speculative? Yes. Possible? I have come to believe anything is possible with this administration.
September 30, 2008 1:20 AM | Reply | Permalink
And, I forgot to say, many conclude that NSPD51 gives the President authority to cancel elections until the crisis is resolved.
September 30, 2008 1:22 AM | Reply | Permalink
ThanksHank.org
September 30, 2008 1:34 AM | Reply | Permalink
I think the time has come when the money has just piled up at the rich end of the scale so that there is simply not enough money to go around any more. Why else would a bank not extend credit? they are simply out of money because it is all in the pockets of the rich.
September 30, 2008 2:02 AM | Reply | Permalink
No more money left
September 30, 2008 2:18 AM | Reply | Permalink
(To Erica and others:)
Check out Bernie Sanders' website.
September 30, 2008 6:47 AM | Reply | Permalink
Please excuse any ignorance, for I am certainly not an econ prof, and make no claims to expertise. But from what I've been reading the last few weeks and months, isn't the problem with the unregulated, opaque, $50+ trillion credit default swap market, and not the (still very serious) $11+ trillion housing/mortgage market? Isn't that what has banks and Waa Street quaking? I appreciate all posts above and any response I get.
September 30, 2008 2:03 PM | Reply | Permalink
I have a question that requires I babble a bit.
Let's assume we have a 1929'ish collapse, or something similar.
The U.S. is in a very different position than it was in the 1930's. At that time we were the world's largest oil producer. We were a manufacturing powerhouse, with plants, factories, skilled labor, and so on. We were a creditor nation with productive assets (real wealth).
In 2008 we import our energy, we've de-industrialized, and we are the largest debtor in recorded history. We resemble Weimar Germany in the latter respect. Additionally we are fighting two major wars in Iraq and Afghanistan (and 2 as yet minor ones in Somalia and Pakistan). The economic stimulus given by the military spending of WWII is already being used in other words.
So...babbling done, to my question. Given the above, are New Deal solutions viable? Can we save capitalism (or save the capitalists from themselves a la Roosevelt) and save innocent bystanders from bankruptcy, homelessness, and joblessness at the same time?
September 30, 2008 6:14 PM | Reply | Permalink