Sunday, September 21, 2008

Blank Check

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

-From the appropriately titled "Section 8" of the bailout draft proposal


A few thoughts:

  • We can argue endlessly about whether a broader meltdown would have happened without last week's bailout news. Did "something" have to be done? Probably. But the administration's current proposal is essentially a heist from the national treasury that's only slightly more sophisticated than the original Ocean's Eleven. Of course the almost hysterical urgency is partially because the locks on the coffers change in January. If Obama wins, so will the tax code. The administration's preferred version of the bailout would be one last Wall Street giveaway before higher taxes and a tougher regulatory environment.

  • Want to make it less of a heist? I agree with each of these recommendations, with the possible exception of #5 (I think it would add too much unpredictability and complexity when the opposite is needed). #2 is particularly important. Any firm accepting taxpayer money must also accept firm-wide restrictions on employee compensation -- not just for senior executives, who sometimes make less than non-managerial top producers.

  • Even under the most generous plan, private foreign banks would never qualify for help from the U.S. taxpayer, right? Wrong.

  • With a record like this, why is any prediction or warning from Hank Paulson taken seriously?

  • In terms of legal prosecution, nothing should be off the table right now. No private or public sector official, elected or appointed, should be immune. Impoverishment via legal fees? Yes, please.

  • When will Congress eliminate the outrageous loophole that allows a former Fed chairman to collect huge paychecks from the same Wall Street firms whose profits or survival depended on decisions he made at the Fed? How about including that as part of any bailout?

  • Put this report in that overflowing file marked, "If someone told you eight years ago that ___, what would you have said?" We're being laughed at. In Southeast Asia.

  • The "soft slavery" I mentioned in this post is about to get "harder." An even greater portion of an individual's daily labor will now subsidize Wall Street and the speculator class via taxes and inflation. The beneficiaries count on the public not understanding that.

  • Bush 41 created the RTC in 1989. His son is about to create its ideological successor, one that has far greater economic and moral implications. At some point, does even that stalwart 28% start to wonder what it is about this bunch that made those outcomes inevitable? AEI and Heritage can churn out all the policy papers they want. The reality is undeniable.

  • Related, I've found the commentary from the Titular Right during the past few days pathetic, frankly. The template: start with a disclaimer noting lack of expertise in the subject matter. Give a quick and dirty on the bailout plan's main points. End with a breezy, Iraq-honed "we won't know how well it will work out for years/history will be the judge." Would a President Gore or Kerry get off as easily? On economic matters, conservatism has largely been taken over by what I call Daiquiri Destructionists: self-avowed Schumpeter acolytes who mutter darkly in beach houses about government intervention in free markets, until things threaten to get a bit too free. Except for the meager shelter under Ron Paul's umbrella, true fiscal and monetary conservatives have no real-world haven right now.

  • I've been writing about how bailouts, interventions, and the socialization of risk are only feasible with a de facto dollar standard. With a massive new expansion of government liabilities, that will become even more imperative. Last week, gold rocketed from $780 to $900 in a few hours. Oil is back over $100. That's unacceptable. Those who shun the dollar are threats, and must be treated accordingly -- now more than ever.

  • While the economic cost will be huge, the real damage from all this will be psychological. Bailouts are now an indelible part of our national identity. When the economy and financial markets recover -- and they will -- that new identity will shape the behavior of economic players and market participants for decades. This has implications for the next bubble, which should be a doozy. Will speculators remember the faded lessons of Bear and Lehman? Or will they be guided subconsciously by a single word -- "bailout" -- just before hitting the buy button?

  • Regular readers know that I don't give financial advice here. But I'll say this. It's clearer than ever that one's after-tax savings are not safe if kept within this system. When two or three unelected statists can decide on a moment's notice that the nation will embark on something as costly as another Iraq -- and then dictate the terms to a cowed Congress -- does that need much explanation? The chances are rising for a sudden and massive dollar devaluation at some point in the future. Moreover, we know now that the system is capable of anything. We've already seen rock-bottom interest rates, new credit facilities, expanded repurchase agreements, unprecedented liquidity, well-timed futures goosing, interventions, conservatorships, and now short-selling bans and bailouts. If all that proves insufficient, expect literally anything: national bank holidays, market shutdowns, restrictions on gold ownership, and capital controls. You really don't need much of a historical perspective to predict this stuff, just a little intuition about what happens when a jingoistic, militarized, increasingly socialistic nation overextends itself and is confronted with the consequences. Evaluate your exposure and plan accordingly.

44 Comments:

Anonymous Anonymous said...

If nations like Iran dump the dollar what can the US do about it? Bomb them into agreement? The US doesn't have enough spare troops to invade a 7-11, never mind Iran. Using military might to "force" them to price oil in dollars is counterproductive only. And the more military expenditure spent "propping up the dollar" by invading other nations actually achieves the opposite, see Iraq for details.

And as Communism is judged by Stalin and Mao you've got to judge conservatism by the people that got elected preaching it. Huge deficits, a fetishist avoidance of facts and evidence and a micropenis/profit-engendered desire to bomb other people. Just another special interest group like Barry Riholtz says.

Dick Dastardly. :)

9/21/2008 7:27 PM  
Anonymous Anonymous said...

CR,

We're both financial professionals, same age, history buffs, similar politics...

I've been visiting your blog since about day one.

Most times I'm nodding my head and/or appreciative of your insight.

I specifically appreciate your independent thinking.

But I have to admit there have been times I wondered, shall we say, if you'd let your imagination get the best of you.

For example, even when I agreed with your fears of this administration's potential actions toward, say, Iran, I was less concerned about them meddling with the markets right before an election.

I was skeptical of your skepticsm.

Until this week.

What we've seen this week, esp some of the inside baseball stuff, simply boggles the mind.
jw

9/21/2008 8:47 PM  
Anonymous Anonymous said...

It all boggles the mind. I can't believe what I am hearing. I'm so worried about the future of my kids and grandkids, I could throw up. I "think" me and hubby will be okay, but who really knows about that. And the thought that this country will elect a fiscal idiot like McCain, well that keeps me up nights.

Enjoyed your well thought out analysis CR, as always.

JWC

9/21/2008 9:47 PM  
Blogger Mr. Hedley Bowes said...

What Mr Dasterdly said.

"You really don't need much of a historical perspective to predict this stuff, just a little intuition about what happens when a jingoistic, militarized, increasingly socialistic nation overextends itself and is confronted with the consequences."


Two sides to this coin: Nationalist Socialism on the one hand, enlightenment economics on the other. If we have to resort to militaristic Empire games in defense of our currency's reserve status in the world rather than actually innovate and create stuff that people want, use, appreciate and value we're pretty much at 'game over' for the Republic and opting for the former. Rather, if the economic policy of the United States were to be the shining city on the hill of innovation and productivity we'll have a decent chance of restoral without the messiness of pre-emptive wars on trumped up premises.

I have intrinsic faith in the choices our people will make. Our leadership, however, demonstrates an unfailing ability to fuck things up (but royally) in pursuit of their own ill gains.

9/22/2008 12:56 AM  
Blogger chris bray said...

This comment has been removed by the author.

9/22/2008 2:16 AM  
Blogger chris bray said...

"At some point, does even that stalwart 28% start to wonder..."

I have friends and family among the 28%, and they've been sending ten emails a day explaining that Bill Clinton and Nancy Pelosi caused the meltdown of our financial system.

9/22/2008 2:19 AM  
Blogger Mr. Hedley Bowes said...

Predatory Lenders' Partner in Crime
How the Bush Administration Stopped the States From Stepping In to Help Consumers

By Eliot Spitzer
Thursday, February 14, 2008; A25

Several years ago, state attorneys general and others involved in consumer protection began to notice a marked increase in a range of predatory lending practices by mortgage lenders. Some were misrepresenting the terms of loans, making loans without regard to consumers' ability to repay, making loans with deceptive "teaser" rates that later ballooned astronomically, packing loans with undisclosed charges and fees, or even paying illegal kickbacks. These and other practices, we noticed, were having a devastating effect on home buyers. In addition, the widespread nature of these practices, if left unchecked, threatened our financial markets.

Even though predatory lending was becoming a national problem, the Bush administration looked the other way and did nothing to protect American homeowners. In fact, the government chose instead to align itself with the banks that were victimizing consumers.

Predatory lending was widely understood to present a looming national crisis. This threat was so clear that as New York attorney general, I joined with colleagues in the other 49 states in attempting to fill the void left by the federal government. Individually, and together, state attorneys general of both parties brought litigation or entered into settlements with many subprime lenders that were engaged in predatory lending practices. Several state legislatures, including New York's, enacted laws aimed at curbing such practices.

What did the Bush administration do in response? Did it reverse course and decide to take action to halt this burgeoning scourge? As Americans are now painfully aware, with hundreds of thousands of homeowners facing foreclosure and our markets reeling, the answer is a resounding no.

Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye.

Let me explain: The administration accomplished this feat through an obscure federal agency called the Office of the Comptroller of the Currency (OCC). The OCC has been in existence since the Civil War. Its mission is to ensure the fiscal soundness of national banks. For 140 years, the OCC examined the books of national banks to make sure they were balanced, an important but uncontroversial function. But a few years ago, for the first time in its history, the OCC was used as a tool against consumers.

In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government's actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules.

But the unanimous opposition of the 50 states did not deter, or even slow, the Bush administration in its goal of protecting the banks. In fact, when my office opened an investigation of possible discrimination in mortgage lending by a number of banks, the OCC filed a federal lawsuit to stop the investigation.

Throughout our battles with the OCC and the banks, the mantra of the banks and their defenders was that efforts to curb predatory lending would deny access to credit to the very consumers the states were trying to protect. But the curbs we sought on predatory and unfair lending would have in no way jeopardized access to the legitimate credit market for appropriately priced loans. Instead, they would have stopped the scourge of predatory lending practices that have resulted in countless thousands of consumers losing their homes and put our economy in a precarious position.

When history tells the story of the subprime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners, the Bush administration will not be judged favorably. The tale is still unfolding, but when the dust settles, it will be judged as a willing accomplice to the lenders who went to any lengths in their quest for profits. So willing, in fact, that it used the power of the federal government in an unprecedented assault on state legislatures, as well as on state attorneys general and anyone else on the side of consumers.

The writer is governor of New York.

9/22/2008 2:47 AM  
Blogger J. said...

An excellent, informative post, CR. Thank you.

The idea of giving this government a blank check signed by the taxpayers makes me so angry and sick, I can barely type.

I just heard a caller on the Diane Rehm show on NPR point out the irony (?) or hypocrisy (?) of this govt. pooh-pooh-ing socialized medicine but now suddenly ramming through socialized banking. WTF?

Don't know about all of you but I would much rather have spent/spend $700 billion on improving healthcare, our infrastructure, and on education than on the Iraq war or bailing out a bunch of greedy bankers/CEOs.

I paid my mortgage off as soon as I could and pay my credit card bills in full each month, and try to invest my money wisely. And what do I get for all that? Can you see the steam coming out of my ears?

This whole mess, which loads of folks saw coming but ignored (much like New Orleans and Katrina), makes me sick and angry and depressed.

9/22/2008 11:11 AM  
Anonymous Anonymous said...

Lots to think about. Thanks.

I think there are/were a lot of responsible people, doing the right things, and they got hurt during the bubbles, and they are going to get hurt again. For all the rhetoric, being responsible and accountable apparently does not matter in the USA. As hard as it was, these individuals used commonsense and didn't listen to Wall Street, Financial Media, Bankers, Mortgage industry, Home builders who built large impractical houses, and even Realtors who pushed all this junk.
Without pushers, there would be fewer junkies.

I'm sure after 9/11 people were saying how could this happen in the USA, with all the money, expertise, and knowledge. But it did, and apparently with ease and low-tech. Once again, we find ourselves scratching our heads, and wondering what's going on. Since the 80's it seems things have been haywire and gone down hill. It is hard to trust Wall Street with anything, not to mention our life savings and our quality of life.

We need to clean house and get Democrats in, because in our two party system, the Republicans do better as the opposition party.

9/22/2008 12:22 PM  
Anonymous Anonymous said...

Holy Smokes! This is above and beyond the National Guards. Icks!

"Army Unit to Deploy in October for Domestic Operations"

"Beginning in October, the Army plans to station an active unit inside the United States for the first time to serve as an on-call federal response in times of emergency. The 3rd Infantry Division’s 1st Brigade Combat Team has spent thirty-five of the last sixty months in Iraq, but now the unit is training for domestic operations. The unit will soon be under the day-to-day control of US Army North, the Army service component of Northern Command. The Army Times reports this new mission marks the first time an active unit has been given a dedicated assignment to Northern Command. The paper says the Army unit may be called upon to help with civil unrest and crowd control. The soldiers are learning to use so-called nonlethal weapons designed to subdue unruly or dangerous individuals and crowds."

9/22/2008 12:35 PM  
Anonymous Anonymous said...

Interesting discussion at Democracy Now on this topic with Sen Bernie Sanders, Robert Scheer, and Dean Baker.

Why wouldn't these bailouts be punitive?

Do rating agencies have any credibility left, really?

Is this financial crisis affecting money market accounts? Most folks don't know that MMA aren't covered by FDIC insurance (assuming are gov doesn't go broke) and consider them as "safe" as bank deposits. A lot of folks put their retirement and/or emergency funds in MMA's to reduce risk (risk: a foreign concept to WS I know, but the rest of us live in reality).

Given this administration's track record on "truth" and "results", I don't think we can "afford" to give any one of them a blank check without extreme conditions and checks and balances. They need to be watched like a hawk.

9/22/2008 3:07 PM  
Anonymous goldhorder said...

You really don't need much of a historical perspective to predict this stuff, just a little intuition about what happens when a jingoistic, militarized, increasingly socialistic nation overextends itself and is confronted with the consequences. Evaluate your exposure and plan accordingly.

Better watch yourself TCR. You'll be dodging predator drones like me. LOL

9/22/2008 3:16 PM  
Blogger Cristalle said...

Anyone got any good recommendations for offshore banks? :)

9/22/2008 3:52 PM  
Anonymous judyo said...

A little item I "borrowed" from DemocracyNow.com

Army Unit to Deploy in October for Domestic Operations
Beginning in October, the Army plans to station an active unit inside the United States for the first time to serve as an on-call federal response in times of emergency. The 3rd Infantry Division’s 1st Brigade Combat Team has spent thirty-five of the last sixty months in Iraq, but now the unit is training for domestic operations. The unit will soon be under the day-to-day control of US Army North, the Army service component of Northern Command. The Army Times reports this new mission marks the first time an active unit has been given a dedicated assignment to Northern Command. The paper says the Army unit may be called upon to help with civil unrest and crowd control. The soldiers are learning to use so-called nonlethal weapons designed to subdue unruly or dangerous individuals and crowds.

9/22/2008 5:19 PM  
Anonymous Thomas Daulton said...

quoting chris bray...
I have friends and family among the 28%, and they've been sending ten emails a day explaining that Bill Clinton and Nancy Pelosi caused the meltdown of our financial system.

Much as I'd like to point a finger at Bush and scream like a pod person, the problem is that it's hard to gainsay that evaluation. Democrats are completely complicit in this Republican debacle, just like with the Iraq war. When Clinton signed the repeal of the Glass-Steagall act in 1999, this current disaster was written all over it. As some noted at the time. Of course Democrats will jump up and say "but the bill had a veto-proof majority! There was nothing Willie could do about it!" But what that means is that hundreds, literally hundreds, of Democratic Congressmen signed onto it at the time. (I don't have party-line figures, but it was 90-8-1 in the Senate, and 362-57-15 in the House.) I might be more inclined to believe that Democrats were unwilling captives of fate on this one, except that I was actually paying attention at the time, and I remember Bill Clinton and many Democrats crowing about how good it was to modernize the banking system and get rid of this ancient Depression-era relic.

Any commentary from TCR on how the Glass-Steagall Act fits into this crisis?

9/22/2008 5:49 PM  
Blogger automax4 said...

Wow, we've had 28 years of Republican orthodoxy about "government=bad, markets=good" and we're in the 8th year of the Bush Administration and during 6 of those years the Republicans had control of both houses of Congress. And this one's Bill Clinton's fault?! Pathological delusion.

9/22/2008 8:03 PM  
Anonymous Concerned said...

We Need to Bailout the Financials; Says Experts

WASHINGTON (AP) -- It's the largest government bailout in U.S. history and two days after it was introduced to the Americans paying for it, the proposal is still largely a mystery.

Among the unanswered questions: How will the government mop up the bad mortgage debt on banks' books, who will run the process and how much will it cost?

ADVERTISEMENT
Key elements of the plan remain in flux as behind closed doors Democrats demand modifications that would provide more help for ordinary Americans in return for bailing out the country's financial giants.

9/22/2008 8:28 PM  
Anonymous goldhorder said...

to cristalle...do not put your money in an offshore bank account. Most are cooperating with the US Government (New "terrorist" laws)...particularly on "new accounts". The old accounts still aren't monitored so our masters have some place to hide their money from the rules they put in place for us plebes. As for hiding your money from the Government...actually very simple. Go to http://caminocompany.com/
Buy gold and silver...put some in a safe deposit box...bury some in a secret location...put the rest underneath a pail...and then sit on the pail...with a rifle...and shoot anybody from the government who comes near you. You know...pre-emptive action to protect your freedom...lol

9/22/2008 8:31 PM  
Anonymous Anonymous said...

Am I crazy, or could this be seen as a tremendous power grab by the executive?

The congress is giving the FED, which is under the auspices of the executive branch of the government, a huge sum of money to spend as they wish with no oversight at all. Isn't the congress supposed to have the power of the purse?

Will lobbyists now go to the Fed first for favors (in the short term)?

9/22/2008 10:27 PM  
Anonymous Anonymous said...

Read this. There is plenty of blame to go around. Everyone gets a piece of this pie:

http://patrickdeneen.blogspot.com/2008/09/unraveling.html

9/22/2008 10:50 PM  
Anonymous Anonymous said...

By my count, during the past week we've been laughed at by South America, Southeast Asia, and Europe. What next, Antarctica?

9/22/2008 11:47 PM  
Anonymous Thomas Daulton said...

Well, sure, but Antarctica's fiscal policy is a bit too austere for my tastes. Larry Kudlow said that the Antarcticans don't have a real basis to criticize U.S. economic policies unless they liberalize their credit availability and institute some better export/import assistance strategies!

9/23/2008 6:09 AM  
Anonymous goldhorder said...

Elite agent in position of power lies about fiscal health for years...then crisis comes along...then immediately throws out a "plan" to solve the crisis...and tells congress..."you have to pass this tomorrow or the whole economy will collapse!!!!!" WOW...TALK ABOUT CHUTZPAH
Why on earth would anybody take Paulson seriously....especially if your are an elected leader who "serves" the people. The congress is taking heat though...you can tell...they can't seem to figure out a way to get the masses to swallow the horse pill.

http://www.lewrockwell.com/orig9/quinn8.html

Lew Rockwell has written two excellent articles about the crisis.
http://www.lewrockwell.com/rockwell/imperative-sound-money.html

http://www.lewrockwell.com/rockwell/understanding-the-crisis.html

I provide these link in an attempt to steer people away from their knee jerk socialism which will only empower our elites even more. The liberals just don't understand that the elites control the media, the public schools, and can bring their propaganda to the masses to ensure they remain in power in our democracy. Any power you give our "leaders" to "solve" the crisis will just give the same group of thieves more power to steal from us and jail us. That is all you will accomplish.

9/23/2008 1:48 PM  
Anonymous goldhorder said...

Biggest stock market bull ever...says buy gold. Yikes. We are in a lot of trouble.

Writes Steve Fairfax: "Channel-surfing before bedtime in the hotel last night, I was amazed to find stock tout Jim Cramer telling his viewers to buy gold. He didn't go so far as to suggest buying physical gold and thereby pulling money out of the market; instead he suggested gold mining stocks or gold ETFs. Cramer made the case that gold will serve an investor well whether Paulson's stupendous theft 'works' or not. Apparently Cramer told his audience to sell 20% of the portfolio on Friday, and on Monday he told them to buy gold. We live in interesting times."

9/23/2008 2:18 PM  
Anonymous judyo said...

From another respected "insider"
http://billmon.dailykos.com/

9/23/2008 2:22 PM  
Anonymous Thomas Daulton said...

Following up on my earlier comment that the Clinton-era repeal of Glass-Steagall was at the root of the current problem...

Bill Clinton Revisits his Economic Legacy
One policy Clinton said he doesn't regret is his repeal of the Glass-Steagall Act in 1999, which, for the first time since the Depression, allowed commercial banks to engage in investment banking activities. Clinton said the commercial banks were an important moderating force on the risk-taking of the big investment firms that collapsed this week. "In the case of the current crisis, I believe the bill I signed allowed Bank of America to take over Merrill Lynch," he said.

Thomas' comment: Well, it's great that BofA could rescue Merrill Lynch, but if the damage done to the larger economy by allowing speculators to mint money out of bad debt, which was prohibited by Glass-Steagall... and allowing banks to cover bad investments with investor deposits, which of course was prohibited and is also happening now... exceeds the damage of Merrill Lynch's failure -- then it's a net negative, no?

The kindest thing I can say is that the jury's still out, Bill.

I mentioned in my original post that Democrats were "complicit", although of course Phil Gramm spearheaded the original repeal. I also mentioned that Bill Clinton and others were proud of, i.e. "crowed", about the repeal. Therefore, I stand behind what I said earlier. Democrats are complicit in this mess, it was intentional, and they are still proud of their roles today.

Any comment from our host about Glass-Steagall?

Today Ben Bernanke argued in front of Congress that the Feds should buy these highly questionable "assets" at something close to textbook prices rather than sale prices. But it seems to me that these "assets" were, are, and continue to be worthless: they are not assets, they are debts -- risky ones, at that; and pretty much nobody in the next decade is going to want to buy them except the Feds. Isn't this a case of throwing good money after bad? Well, I guess that's probably intentional.

9/23/2008 2:24 PM  
Anonymous Anonymous said...

Wow, we've had 28 years of Republican orthodoxy about "government=bad, markets=good" and we're in the 8th year of the Bush Administration and during 6 of those years the Republicans had control of both houses of Congress. And this one's Bill Clinton's fault?! Pathological delusion.

I think the original assertion was that the Dems are complicit in this train wreck, and I really don't see how anyone can deny that.

Look, it's a given that the Republican Party has been banana-republic-awful for decades, now. Given that, it'd be really nice to see a real opposition party, and the Dems aren't it, and haven't been it for a long, long time. I'd say they pretty much gave up on being an opposition party round about the same time Slick Willy came up with his "triangulation" tactics.

But in fairness to the Dems, it's a little hard to argue that "they" are to blame. In my lifetime, three national-level politicians tried to speak to Americans as adults, and suggest that we really can't have it all, cost-free. Their names were McGovern, Carter, and Mondale, and they all got trounced for their efforts.

What we're seeing now is the natural legacy of the "Great Communicator", that senile fuck Reagan: Tell people what they want to hear, keep using the credit card, and count on the saps after you to clean up the mess. Bummer for us -- the "next greater fool" seems to have gone away.
-- sglover

9/23/2008 2:50 PM  
Blogger automax4 said...

The pathological delusion I'm referring to is in the "friends and family" who are "explaining that Bill Clinton and Nancy Pelosi caused [not "were complicit in", "caused"] the meltdown of our financial system."

Of course the Democrats who supported irresponsible deregulation bear some responsibility. And what were Barney Frank and Chris Dodd doing before last week? The repeal of Glass Steagall was precipitated by Sandy Weill--a Democratic contributer--buying Citi and shepherded, in part, by Bob Rubin before he walked through the revolving door of government and into a sinecure at Citi. But "government bad, markets good" was a Republican orthodoxy and the evil flower of securitization and perverse incentive structures grew to bloom over the last 8 years under a Republican President who had 6 years of a Republican Senate and a Republican House supporting him. The Democrats, should they retain control of Congress and ever grow a spine, will likely create their own monsters, but let the Republicans admit that though they were ably supported, they played the leads in this horror story.

9/23/2008 7:58 PM  
Anonymous Thomas Daulton said...

Thanks for clarifying, automax4. I think you and I and sglover are all on the same page. Just goes to show that when Democrats adopt Republican positions, it's double trouble for them and the rest of the country...

9/23/2008 8:32 PM  
Anonymous Anonymous said...

what might be some interesting stuff from Princeton Econ Dept bailout day

http://krugman.blogs.nytimes.com/2008/09/23/princeton-saves-the-world/

http://econ.princeton.edu/news/crisis-panel.html

9/23/2008 9:09 PM  
Anonymous Anonymous said...

hmmmm

produces this. Obama set to debate McCain...and lose ...

9/23/2008 11:03 PM  
Anonymous Anonymous said...

This is a pretty good look at the Reagan legacy from Andrew Bacevich (sorry I don't know how to embed the links properly):

http://www.amconmag.com/article/2008/sep/08/00018//

In my mind, Reagan is "ground zero" for the train wreck we're in right now. The fact that he is still lionized as a "true conservative" or some such nonsense is ridiculous. He kicked the "borrow and spend" culture into high gear, and that is a heck of a lot worse than any deleterious cultural impacts arising from Clinton's zipper troubles.

- Whammer

9/24/2008 12:34 AM  
Anonymous Anonymous said...

"Reagan is "ground zero" for the train wreck" - I think that is the general consensus for anyone that is honest. But he again, was probably more of the cheerleader, but with better communication skills.

9/24/2008 3:05 AM  
Anonymous Thomas Daulton said...

Plus la change...

"Campaign Advisers Helped Create Mess"

The presidential campaigns went after each other’s economic advisers this week — and they’re both right in claiming that the other camp deserves a share of the blame.

John McCain and Barack Obama are each taking advice from people who created, passed and implemented the laws that paved the way to the market meltdown.

Democrats point to two Republican-backed bills — the Gramm-Leach-Bliley Act, passed in1999, and the Commodities Futures Modernization Act, passed in 2000 — that broke down the firewalls between Wall Street and commercial banks and banned regulation of credit default swaps...

“There are plenty of other people’s fingerprints on it, but as I read the legislative record without [Gramm’s] support the CFMA would have never happened,” said Michael Greenberger, who directed the Commodity Futures Trading Commission's division of trading and markets in the late 1990s. “It was a very nontransparent legislative process, and Gramm was part of that maneuvering effort.”

Also on McCain’s economic team is John Thain, the chief executive of Merrill Lynch who engineered the sale of the firm to Bank of America this week, and Harvard professor Martin Feldstein, an AIG board member.

Several Obama advisers played a role in securing the passage of both bills.

Former Iowa Republican Rep. Jim Leach was another sponsor of the 1999 legislation. Leach co-founded Republicans for Obama and spoke at the Democratic National Convention last month in support of the Illinois senator.

...Leach defended his bill in an e-mail sent to Politico, pointing out that the Gramm-Leach-Bliley measure also allowed commercial banks to rescue troubled investment banks this week.

...Former Clinton Treasury Secretaries Robert Rubin and Lawrence Summers, both Obama advisers, supported and helped negotiate the bill. At the November 1999 signing of the legislation, Summers praised it as “a major step forward to the 21st century.”

Summers also submitted a letter to Congress backing the swaps bill, Greenberger said.

9/24/2008 2:10 PM  
Anonymous Anonymous said...

What no one has said about this extreme amount of money ($700 billion) is, "this will fix the problem."

9/24/2008 4:19 PM  
Anonymous Thomas Daulton said...

Anon 4:19, good question!

Did'ja catch this one from Forbes:

[S]ome of the most basic details, including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy.

"It's not based on any particular data point," a Treasury spokeswoman told Forbes.com Tuesday. "We just wanted to choose a really large number."


I argued earlier that this is basically just throwing good money after bad. If one doesn't really expect to solve the problem, then it matters little what price tag you put on it, am I right?

9/24/2008 7:50 PM  
Anonymous Thomas Daulton said...

...hat tip Distant Ocean

9/24/2008 7:51 PM  
Anonymous Anonymous said...

To give unfettered, unsupervised discretion to anyone to spend ... Congress's serious consideration of this is the most foolhardy nonsense I have seen in a long time. It reminds me of when my teenage daughter hysterically demanded continued unlimited use of here father's gold Amex card without having to clear purchases first (after demonstrating an inability to first look at any price tag or control any impulse to buy) as a condition of her continued cooperation as a cheerful participant in family activities. And her Dad could afford it! Needless to say, cooler heads prevailed. A shakedown was recognized as a shakedown, and after learning the meaning of "NO" the kid has learned her lesson, and now shows reasonably fiscal restraint and bows willingly to oversight.
We figured out how to solve the problem and neither of us has a PhD in econ.

9/25/2008 9:45 AM  
Anonymous Thomas Daulton said...

Still more, hat tip Distant Ocean:

Actually, we have no earthly idea how high the price of this gift might go. The proposal itself says:

Sec. 6. Maximum Amount of Authorized Purchases.

The Secretary’s authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time...


"At any one time" -- that implies that there are an undetermined number of 700 billion dollar payments possible...

9/25/2008 1:14 PM  
Anonymous Thomas Daulton said...

Even yet still more! Slactivist points out that, at the same time as Sec. Paulson is asking Congress to mint $700 Billion for him with a 3-page memo and no clear idea about how to price the securities he is proposing to buy...

Congress is also considering the FY 2009 budget. It is $70 Billion less than the bailout proposal, at around $632 Billion. The supporting documentation is well over 1,100 pages.

I have yet to hear anyone point out that this bailout proposal, at one fell swoop, more than doubles the Federal budget for next year. But of course, that can't be right, because the Republicans are the Party of Small Government, aren't they?


Even yet still more!
American Crackpot has yet another interesting take I haven't heard anyone else discuss.

In brief, let’s review: So the Democrats avoided privatizing Social Security in 2005. Great, let’s give ‘em a round of applause for doing their jobs, for once. That insane privatization plan would have poured Federal money into these banks, Federal money which might have re-floated the banks even as the derivative portions of their portfolios collapsed today, in 2008. But in that case, everyone’s retirement accounts would be in the crapper, so thank God for the Democrats, right?

Well let’s look more closely. Instead of privatized Social Security accounts, what’s going on today? Everyone’s personal 401Ks are in the crapper. Everyone agrees that we need to re-float the banks whose derivative portfolios have collapsed, with a massive infusion of Federal money, except in this case nobody receives any type of ownership in return.
Your Social Security accounts are so far untouched, fortunately, but of course when you retire 70-80 years from now (assuming you can afford to, even after working that long), those Social Security checks will be paid to you in dollars which are currently undergoing massive inflation. In no small part due to these bailouts, inflation is gonna get so bad that a gallon of milk will probably cost you $17 by the time you retire. In other words, if you were estimating you’d be paying $1000 a month in rent in some kinda warehouse for Senior Citizens when you retired, and your Social Security check would just about cover that… surprise, surprise, you’ll be paying $2500 per month for the same rent when you retire, but still getting only a $1000 Social Security check. (I have a lot of trouble imagining any politician, particularly Democrats, proposing to increase Social Security benefits anytime this century, let alone being successful.) So your Federal Social Security account is pretty much in the crapper too, it’s just that nobody has noticed yet, because the face value is the same. The REAL value just went in the toilet this month, right alongside your 401k.

9/25/2008 3:14 PM  
Anonymous Anonymous said...

You say:
"Last week, gold rocketed from $780 to $900 in a few hours. Oil is back over $100. That's unacceptable. Those who shun the dollar are threats, and must be treated accordingly -- now more than ever."

What are you saying? People that want to protect their hard-earned money from inflationary confiscation cannot protect themselves, otherwise the bailout will not work?

If they do try to protect themselves with gold, they must be punished? That is the most deranged thing you have ever put in print.

The bailout cannot work since a $Quadrillion (a $1,000 Trillion) worth of derivates are collapsing. A trite $700 Billion will only delay the collapse.

The first step to solve the crisis is for the US to back its currency with Gold to some degree, IAW the Constitution, not throw more paper currency created out of thin air into the abyss.

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