Alright, Baker, why was it then, that a little more than 10 days ago when Paulson initially announced his plan, you came here and wrote a very long piece arguing for a different plan with many of the provisions that will be passed by Congress?

What has changed you mind in the past few days?

Right now, I don't see any reason to think that any of you economists and financial experts, left or right, have a single goddamn clue. Do any of you know what you're talking about, or are all of making it up as you go along?

I would like to believe that some of you know something, since that would mean that we can actually make some decent policy. But if you don't, then we're all screwed.

If nothing else, help me out: Help me to understand how I can tell who I should listen to. How do I know which "experts" I can trust? You're seemingly random position changes is making it difficult for me to trust your substantive judgment.

If we are not worried about this worst case scenario (to be clear, I wouldn't want to see it), then why should we do the bailout?

In other words, the worst case scenario is that we have an extremely scary day in which the markets freeze for a few hours.

This is past irresponsible, and on to criminal.

There are two reasons why I have changed my view of the bailout. First, as I have tried to make as clear as possible, the worst case scenario (which I do not think will happen) is not the disaster I had earlier feared.

In fact, if the Fed does its job well, we would not even notice the disruption. They could bring about the orderly change in control as has been done at many banks that have failed and taken over by the FDIC. But of course that cannot be guaranteed.

The second reason is that the conditions that I described as necessary to make a bailout acceptable have not been met. This is still a party for wall Street. That is not a good use of taxpayer dollars.

I gree heartily with you Mr. Baker!

I have written Obama's Senate office in strong opposition to this (to put it kindly) ripoff of the taxpayer. Are you not one of Obama's advisors on such matters? Will you be urging him to change his position on the great American robbery? I certainly hope so.

If he comes out in opposition the heist is dead in the water. So will you be working to get him to change his position on this?

However, the $700 billion outlay on the bailout is likely to be used as an argument against effective stimulus. We have already seen voices like the Washington Post and the Wall Street funded Peterson Foundation arguing that the government will have to make serious cutbacks because of the bailout.

Why don't we bring an end to the Iraq war and give ourselves a nice big peace dividend?

Mr. Baker, you continue to suggest that the assets the government is buying are so bad that that the bailout is just $700 billion down the drain. Maybe you're right and maybe you are wrong. But could you give us an argument? Others are, as you know, arguing that many of these "troubled" mortgage-backed securities have a lot of value, even though the market cannot currently price them, and that the US government might actually turn a profit from the bailout. How do we know who is right.

By the way, it seems to me that Obama's argument for taxing the rich and ending the war, to finance some good old Keynesian stimulus in the form of things like infrastructure rebuilding and green energy development, just got a whole lot stronger. I'm not afraid of the Washington Post. They haven't been winning the debate this whole election season, so why should they start now?

As Reece said, it's hard to know whom to trust in this situation. But at the current time, I trust Warren Buffet more than I trust you.

I could have told you that without even knowing the details....

Oh, I get the headline. Its from Blazing Saddles. "(He's) crazy, he just might pull the trigger!!"

E-mail/call your congressional reps And Obama campaign.

Worst. President. Ever.

Wall Street free market greed (google 'predator lender') mixed with McCain/Graham de-regulation...

Every one who voted for Bush or will vote for McCain will have to stand around the same barrel fires under bridges as the rest of us, but you will have a MUCH harder time explaining when your kids in rags ask you "Daddy, why did this happen to us"?

Dean -
I recently came to the same conclusion based on the following:

http://www.federalreserve.gov/releases/h6/Current/

The most recent M1 and M2 data don't show much of a contraction, especially if you look at prior years in Sept/Oct.

What is missing here is the September data - does it show a sharp drop? That would be cause for concern. The Fed is no longer tracking M3, and a case can be made that M3 is contracting, but that's not a collapse in the system, it's a flight to safety.

Now for the commercial paper markets. The spreads here do look quite bad:

http://www.federalreserve.gov/releases/cp/

but look at the increase in CP issued by non-financial companies - it's up. This means other lenders are getting into the market.

I've also looked at the TED spread and borrowings at the FED, which spiked up dramatically, but this just indicates banks are borrowing from the Fed rather than each other, which is how this is supposed to work.

I've written previously that I believe due diligence needs to be done, and I'm frankly baffled at how/why little data has been shared by the leadership. This makes me hesitate. My conclusion is I'm not seeing a collapse, though I am seeing short-term borrowing costs go up. I'd prefer some analysis and data from our leadership before handing them the keys to the safe, and causing problems for the next administration, who may very well need the classic Keynesian solution to stimulate the economy with domestic government spending.

Saving Bernanke's Reputatation: Zombie Banks and Epicanthic Folds

Paulson and Bernanke reacted to the credit market's post-Lehman failure -- Oy! it's December 11, 1930; the New York Bank of the United States is failing! -- by demanding immediate action. Wrong but understandable.

I haven't seen a lot of comment, however, on how it was that they happened to wind up emphasizing the removal of "toxic assets" from bank balance sheets as the solution.

As we're all aware Bernanke made his bones studying the causes of the Great Depression. His theories were mostly out by 1990 -- just in time to be relied upon by Japan in its efforts to recover from the deflationary effects resulting from the post-1980s collapse of its market bubbles.

Did Japan follow Bernanke's guidance? I think it did, and the results were not auspicious. Demand didn't pick up; availability of risk capital didn't improve; and prices kept going down slowly.

Conventional economists struggled to explain the failures of Bernanke's prescriptions and concluded -- in the typical blame the patient and not the doctor excuse -- not that they were wrong but that for political reasons Japan was favoring "zombie banks" and keeping them alive.

In 1998 Japan changed policy and bought their banks' "toxic assets" and a recovery commenced. Cause and effect or only coincidence -- quien sabe.

Is this entire bailout nothing more than Bernanke's attempt to maintain his standing among the doctors of macroeconomics?

I have a vague recollection, that there has been a lot of discussion about our financial system,
needing to be upgraded or changed, because we the United States, were unable to compete with the global markets.

Is it posssible that things were allowed to get bad, in an effort to make urgent, the changes that the advocates wanted?

http://en.wikipedia.org/wiki/Sherman_Antitrust_Act

" The Sherman act has been a magnet for controversy. One branch of the criticism focuses on whether the Act improves competition and benefits consumers, or merely aids inefficient businesses at the expense of larger, more innovative ones. Alan Greenspan, in his essay entitled Antitrust[9] condemns the Sherman Act as stifling innovation and harming society. "No one will ever know what new products, processes, machines, and cost-saving mergers failed to come into existence, killed by the Sherman Act before they were born. No one can ever compute the price that all of us have paid for that Act which, by inducing less effective use of capital, has kept our standard of living lower than would otherwise have been possible."[

The criticism of antitrust law is often associated with conservative politics. For example, conservative legal scholar, judge, and failed Supreme Court nominee Robert Bork is well known for his outspoken criticism of the antitrust regime. Another conservative legal scholar and judge, Richard Posner of the Seventh Circuit does not condem the entire regime, but expresses concern with the potential that it could be applied to create inefficiency, rather than to avoid inefficiency.[14]. Posner further believes, along with a number of others, including Bork, that genuinely inefficient cartels and coercive monopolies, the target of the act, would be self-corrected by market forces, making the strict penalties of antirust legislation unnecessary."

***************************
Has our system been highjacked and chaos thrown into the markets,in order to overthrow one idea, in order to allow another ideology?

It is inconceivable that it has not made similar preparations in the current crisis.

Here's what I just sent to my 2 Senators (Obama and Durbin) The website for my rep is down, but what can you expect from a Republican. They are going to pass something despite all of us being opposed, so I feel we should not give up yet.

1)The cost: $250 billion is too high for an initial infusion of funds. This amount must come down, then after the new Congress convenes in January additional funds could be allocated as deemed appropriate.
2)A committee should act jointly in managing the initial funding for this proposal and should be free of political bias as well as bias in favor of Wall Street. Allowing Secretary Paulson, who has already demonstrated extreme negligence in the monitoring of this situation for the past one year, to have too much independent discretion is simply irresponsible. Furthermore the Chairman of the SEC, Mr. Cox, has admitted himself that he failed to competently monitor the increasingly dire situation. (He gave $2300 to Romney in 2007 - sucker!) Steven Preston, Secretary of Housing, has contributed money to Senator McCain’s primary campaign ($2,300, 1/15/2008, per Open Secrets.org) and should be disqualified from participating in this oversight despite his academic background.
3)No executive or board member who participates in this program should receive any compensation whatsoever for this fiscal year and going forward. Any compensation is a reward for gross negligence. Obviously, Americans living on Main Street are going to suffer the most. These executives and board members, who have substantial assets already, should not under any circumstances be rewarded for the failures.
4)There must be continued investigations of individual wrong-doing, possible criminal behavior (such as accounting fraud and other misrepresentations), and gross negligence on the part of both individuals and boards of directors who are responsible for creating this incredibly serious crisis. A special prosecutor with adequate funding for appropriate highly qualified staff must be part of this proposal.

I have serious questions about the timing and ugrency of this 'crisis'. Despite what Bernanke, McCain, Gramm, et al have said our economy is in trouble and has been in trouble for a while. Why are the dominos all falling now? The American consumer was led into debt intentionally by overvaluation of their houses and access to easy credit. The markets operated with the assumption that a permanent growth in home prices was a given. Of course it wasn't and the bubble burst. Now the American people who had credit pushed on them based on the inflated, and unrealistic, values of their homes find themseves under a mountain of debt without the assets to make good on it. The financial institutions made handsome profits off of the loans they made but now they realize that they are about to enter a cycle where all of the profits have been realized and are faced with a future of mainly losses...and they want their money.

Meanwhile we are being force fed a story that if the financial institutions don't get their $700B not only will they be ruined but all Americans will be ruined too as all credit dries up. I am no economist but it could happen I guess. The way it is playing out though strikes me as lenders saying; 'Yeah things are gonna be bad and many people are gonna be hurt. Bottom line is we are getting to the front of the line because we will be helped out even if it means nobody else will.' And what better a time to make demands then right before the people responsible (elected politicians) have to go before their constituents and ask to keep their jobs when the narrative is 'We need to fix Wall Street in order to save Main Street'...and the MSM, Executive Branch and Legislative Branch seem in surreal lock step in repeating the narrative.

I don't buy it. The timing of this 'crisis' is suspicious at best and the haste makes it even more dubious. I ask the economists here...there is nothing else we can do to ensure that credit remains available short of giving the financial institutions $700B with little oversight and virtually no guarantees that what caused this will be fixed so we don't end up in the same place again in the future? We're rewarding moral hazard and instead of punishing bad behavior in the markets we are encouraging it to continue in the future by covering their losses.

One last thought:

Dodd - isn't he from Connecticut? That's...that's where all the Wall Street bankers go at night to rest their weary heads? Right?

And Barney Frank - he's New York.

So you've got the "Senators from Wall Street" simply protecting their constituencies? Right?

Why not 'creatively destroy' the Yale (Connecticut...again!) MBAs and let a Dutch/Chinese/German/English/French Bank come in and save the day? Why?

Because when it comes to propping up the wealth of Yale WASPS, "We're all Americans today."

In short: Frank and Dodd are solving the problem of Yale WASPS losing wealth.

We don't wan't a bunch of slant eyed Chinese to serve as our parasites, we need American WASPS to do the job!

Why won't other banks from abroad step into the fray and start lending in commercial paper if the rates are so much higher now? Isn't it supposed to work that way?

Interesting commentary on this subject by borosage:

Time to speak up even louder--do not celebrate yet by sirota:

http://www.huffingtonpost.com/david-sirota/house-bailout-vote-the-up_b_130290.html

top five reasons to vote against bailout by sirota:

http://www.ourfuture.org/blog-entry/2008093928/top-5-reasons-vote-against-paulsons-700-billion-bailout

ten reasons to not bailout by greenwald:

http://www.salon.com/opinion/greenwald/

Idea for dems to turn it around by borosage:

http://www.huffingtonpost.com/robert-l-borosage/after-the-revolt-against_b_130367.html

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If we are not worried about the worst case scenario like you said, then why should we do the bailout? Not bad to get good ideas from you a lot.
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Initially, Dean and a lot of people took the administration's word for the fact that the banks were in danger of truly imminent collapse and that's why the initial reaction was in favor of some kind of plan. The fact that, 10 days later, we're still around to debate things is proof that the system doesn't need all of this tech house.

As for the seizure of WaMu -- isn't that how it's supposed to work? Bank fails, government seizes it, sells off its assets to another bank and moves on. To me it's proof that we don't need to do anything out of the ordinary to solve these Search Engine Marketing problems.

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Finally, the bailout absolutely can make things worse. We are going to be in a serious recession because of the collapse of the housing bubble. We will need effective stimulus measures to boost the economy and keep the recession from getting worse.
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The system of payments continues to operate exactly as before, but the bank executives are out of their jobs and the bank shareholders have likely lost most of their money.

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In other words, the worst case scenario is that we have an extremely scary day in which the markets freeze for a few hours.

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