Monday, September 29, 2008

Schumpeter Shrugged

Quick post on the bailout. With the more strident voices on the Right manning the ramparts against it -- in some ways, a dynamic similar to the immigration debate -- public outrage obviously played a pivotal role in Monday's vote. (Most underreported story of the past week: the anti-bailout protests in the streets of lower Manhattan.) I've been posting for months that any sort of resolution to this period depends on the public first believing that the bad actors have been held to account. While the bailout arguably would trickle down and benefit Main Street, you simply cannot expect it to fly through without a hitch while people are reading reports of failed executives getting tens of millions for a few weeks of work. I might have supported the plan as a necessary evil until I saw how toothless it was, especially on executive compensation for participating firms. And of course the provision that includes private foreign banks is patently offensive. The administration can yell all it wants about the need for the plan to be as "clean" as possible. But the bottom line is that "stop the bleeding now, fix the system later" ain't flying.

Part of the public's skepticism is a natural reaction to the now-transparent language of deception and hysteria. When you've trafficked in mushroom clouds and Persian Hitlers for eight years, "imminent financial Armageddon" loses a bit of its edge. Hearing the administration and its media flacks suddenly and in concert (almost as if a memo went out, eh?) warn of a latter-day Great Depression and push this as "it's not a bailout, it's a buy-in" sets off alarm bells for anyone who's been sentient in recent years. Orwell's revenge, maybe. Also, I don't think the plan's Goldilocks-invoking supporters help their cause by trying to convince the public it doesn't understand the financial system well enough to know what's at stake. Somehow they had faith that people were "smart enough to reject the pessimists" on the way up.

As for the Democrats, could they be any more hapless strategically? It's like Charlie Brown getting the football yanked away at the last second over and over. Against great odds, they've managed to make themselves the public face of the bailout -- and by extension and increasingly as time passes, the underlying financial debacle. Yes, they're the majority, so in some ways it's unavoidable. But obviously important short-term implications for November aside, perceptions are forming right now that will last decades. Of course much depends on what happens to the economy and the financial markets from here, especially if a plan doesn't pass and things go south. Still, what will be the public's enduring political memory? Bush's disastrous economic policies, Democrats pushing the largest taxpayer-financed bailout ever, or Republicans "standing up for Main Street" against it?


Anonymous Anonymous said...

I'm curious, CR -- which plan are you talking about, exactly? The one that got shot down today?
-- sglover

9/29/2008 9:46 PM  
Blogger Ned said...

If the despair over at the Corner was any indication today, it wasn't the Democrats who got rooked.

9/29/2008 9:50 PM  
Blogger Charlene said...

The public still understands that we have had about 8 years of Republican control, either by fiat or by obstruction. And that is what people will remember when looking at this crisis, even though both sides are complicit in this mess.

9/29/2008 10:35 PM  
Anonymous Anonymous said...

bush failed economic policies?


i think not.
how about a failed two party system that drags us away from the truth.

9/29/2008 11:34 PM  
Anonymous Anonymous said...

As part of a new bail-out package how about a gov't takeover of the privately-owned Federal Reserve which has been an abject failure. The Treasury can then issue US currency, not borrow it from the Fed and pay them interest.

9/29/2008 11:57 PM  
Blogger Kaimu said...



How can any of us forget the duplicity and spinelessness of the two party system in 1913? The ultimate betrayal of our Founding Fathers and the revival of TAXATION WITHOUT REPRESENTATION!

What have we had for the past 95 years? No matter what party is in power it's still ... TAXATION WITHOUT REPRESENTATION! Lobbyists and special interests have representation but the guy whp puts up the tax revenues for these bailouts has NO VOICE.

In actuality I was starting to realize its going to take a lot more than a rejected bailout to wake up the GANG OF 535. Something a little more dramatic and TEDDY ROOSEVELTISH ... like a drunk Boris Yeltsin standing on a M1 tank firing a hole right through the Rotunda! "HEY ROME ... remember us ... THE HUDDLED MASSES?"

There's a store for those who actually believe that this is all about politics ala two party aristocracy! The store is called KLUES-R-US ... GO and GET ONE!!!

Our elected leaders on both sides have done nothing over the past nine decades, more creative than "SPEND ... TAX AND WAR AND THEN PRINT!" (Lather, rinse and repeat ...) Mainly it was the SPEND part that has brought us down! What did LBJ call it? THE GREAT SOCIETY ... THE WAR AGAINST POVERTY ... I am amazed that anyone living in the USA is shocked by any of this! What happens to Joe Sixpack when he spends and gambles to excess? Does he get a free pass? A GET OUT OF JAIL FREE card?

So we get $700bil tomorrow ... SO-O!!! I call that BUYING TIME!!! We have been BUYING TIME ever since 1913 ... At some point TIME becomes unaffordable!

This is purely a crisis in CONFIDENCE ... Its the "C WORD" in play! The EMPIRE is tired and quite frankly very boring. The EMPIRE of the World Reserve Currency and its SUPER SIZED GOVERNMENT is unwinding ... PERIOD!

Who can't see that now?

9/30/2008 2:38 AM  
Blogger Tony said...

To Anon 11:34,
If the current crisis is due to policies initiated by Jimmy Carter in and Bill Clinton, then why didn't we have a mortgage crisis until 2008?

The subprime mortgages that are being foreclosed now were written in the past 5 years to people who were not vetted. They were not vetted because the lending standards were relaxed by the current executive branch.

Furthermore, financial institutions have been allowed to lever up 20 or 30 to one only in the last several years.

This is a phenomenon that has been borne of the current power elite. Period.

9/30/2008 6:21 AM  
Blogger Tony said...

Further to Anon 11:34,
The Housing Enterprise Regulatory Act of 2005 was indeed co-sponsored by McCain, as described in the video you linked. However, the Act was scuttled in a Republican controlled banking subcommittee and the votes of the committee are not available.

When the Act was re-submitted in 2007, curiously McCain was NO longer a co-sponsor. What had changed in that 2 year interval?

There is plenty of blame to go around on both sides, but the crisis did not rise to the current level until these bad mortgages were written, starting in 2003 or thereabouts.

9/30/2008 6:50 AM  
Anonymous Anonymous said...

I can only speak for myself, but what I'll remember most long after the smoke has cleared is that Republicans branded themselves the champions of deregulation for the better part of thirty years (ala Milton Friedman). To combat the "liberal agenda," Republicans sold the misguided notion of a "self-regulating" market place to every Tom, Dick, and Harriet that was stupid enough to listen. Somehow . . . some way . . . the interests of the financial elite mirrored the interests of the middle class. Republicans - we were told - were out to protect the work ethic, innovation, and superior efficiency of the private sector from those damn socialist democrats, because hard work, creativity, and improved business models are the only true paths to financial security and personal wealth.

What a load of bull.

Don't let the circus of the last ten days dilute what everyone in their right mind knows to be true. This problem falls squarely at the feet of the Republicans.

9/30/2008 10:15 AM  
Blogger Roch101 said...

"However, the Act was scuttled in a Republican controlled banking subcommittee and the votes of the committee are not available."

Not to hijack your thread, but you are correct about this. (I've scoured Thomas.) Isn't this odd? What are we to make of this?

9/30/2008 12:35 PM  
Blogger Tony said...

I am grimly reminded of H.L. Mencken's famous observation that Democracy is the theory that the common people know what they want, and deserve to get it good and hard.

(h/t Megan McArdle)

9/30/2008 12:45 PM  
Anonymous Thomas Daulton said...

"Don't let the circus of the last ten days dilute what everyone in their right mind knows to be true."

That would be... what, 5% of the population? 8% maybe?

I disagree with Anonymous above me, but everyone here is making generally good points, especially TCR. I'm also pleased to see the return of Kaimu, haven't heard much from you recently, even though I disagree with Kaimu's fundamental thesis too.

Of course I'm watching this unfold from thousands of miles away, but it seems to me this is _not_ a crisis of "confidence" in any respect: the U.S. monetary system has been actually, literally destroyed by decades of Republican-led deregulation, with the complicity of Democrats, such as their support of the repeal of Glass-Steagall in 1999. Since that repeal -- mainly on Bush's watch, of course -- speculators were given a license to print money, but this money lacked even the vague hypothetical basis which Federal Treasury notes claimed by fiat before 1999. The dollars "minted" by derivative speculators were simply vacuous, not value but DEBT, based in large part on leveraging assets -- homes -- which actually depreciate with time, regardless how their paper value is being artificially goosed.

So -- what are the figures -- something like 1/3 of all dollars in existence have been minted by speculators in the last 8 years, on no basis whatsoever. Monopoly money. Ultimately that means that all the dollars in the world -- good and bad -- must fall in value by at _least_ 1/3. Bailouts, fixes, stimulus packages and tax cuts can't do a thing to change the fundamental problem. And empires have fallen for a lot less cause than this.

We did quite well with a system of fiat currency for 50 years, and everyone believed that somehow home prices could increase to infinity without causing social disruption. (This is why I disagree with "Anonymous" above me: 95% of the population believed that, which is patently absurd.) An economic system could be based on the supposition that an elephant is lighter than a cat, and no doubt it'd work fine for a time, but ultimately reality intrudes.

9/30/2008 12:46 PM  
Anonymous Anonymous said...

"public first believing that the bad actors have been held to account." -
This sounds like the same old manipulation. We'll say one thing, but do something else. We don't need belief. We need action, substance.

"trickle down" -
This Reaganist phrase has got to go away. Because, what it really has meant, the poor and middle-class get a golden shower.

The wealthy and our political leadership act like everything has been hunky-dory for the poor and middle-class. When in reality they have been living in "crisis-mode" for over 20 years. Hello! You can't kick a sick canary and say wake up, fly, everything is fine, because it's been great for me and the wealthy are soaring. Perhaps the canary in the mine, was/is the middle-class.

"trafficked in mushroom clouds and Persian Hitlers for eight years" -
And the "Study: Bush, aides made 935 false statements in run-up to war", not to mention the secrecy and lies regarding energy, environment, clean air, medicare drug plan cost, propaganda, etc. What did Wolfowitzs say, use "whatever sticks".

"what will be the public's enduring political memory" -
Yes, Bush and Cheney and the ideology thugs he brought with him have been a disaster. They can't be trusted to be school crossing guards. Leadership starts at the top, and the crappy leadership is trickling down, in Washington and on Wall Street.

9/30/2008 4:04 PM  
Anonymous todd said...

I, for one, will remember exactly what John McCain's campaign stands for as we head into November - that is, a complete embrace of the catastrophic Bush economic policies that have bankrupted this country, and especially with the complicity of the lobbyists strewn throughout the McCain campaign. (I'm looking at you, Phil Gramm, you bastard).

Barack Obama needs to start talking about the following excerpt from former Treasury Secretary Paul O'Neill's book to illustrate how the Bush economic policy, supported by John McCain, brought us to the brink:

Cheney to Treasury: "Deficits don't matter"
Former Treasury Secretary Paul O'Neill was told "deficits don't matter" when he warned of a looming fiscal crisis.

O'Neill, fired in a shakeup of Bush's economic team in December 2002, raised objections to a new round of tax cuts and said the president balked at his more aggressive plan to combat corporate crime after a string of accounting scandals because of opposition from "the corporate crowd," a key constituency.

O'Neill said he tried to warn Vice President Dick Cheney that growing budget deficits-expected to top $500 billion this fiscal year alone-posed a threat to the economy. Cheney cut him off. "You know, Paul, Reagan proved deficits don't matter," he said, according to excerpts. Cheney continued: "We won the midterms (congressional elections). This is our due." A month later, Cheney told the Treasury secretary he was fired.

9/30/2008 4:09 PM  
Anonymous goldhorder said...

That would be 37 years...not 50 Mr. Daulton. 37 horrible years. You ever look at the the federal debt curves and the surplus/deficit curves on the st. louis federal reserve site? Do you realize the debt problems and inflation problems (70s) started when Nixon broke the gold standard? No...We didn't do well for 50 years. In fact...since we have been off the gold standard...Gold beats dow 1972 to 1980. Dow beats Gold 1980 to 2000. Gold beats dow 2000 to 2008. That is not including the fact that you pay taxes on Gold sales if you are stupid enough to report them. Even then...the Dow is barely batting 500 against gold. You might as well buy gold...dig a hole in ground...and bury it. A whole lot less risk involved.

9/30/2008 5:06 PM  
Anonymous Anonymous said...

From Huffingtonpost:
"Somehow, if the danger is that real and that near, somebody with a shred of credibility and some real skin in the game has to stand up and tell us exactly what's in the alleged abyss. The administration's failure to understand that fact is telling and profound."

This is a good point. Where is the businesses leadership for the businesses that Wall Street and financiers say they might or might not be saving, when they save themselves with $700 billion. I've only seen brokers, bankers, and Wall Street say it is an emergency. And they seem to be trying really hard to convince everyone else.

On the local news they had only one example. It was a pretty shabby used car dealership that said their credit at a bank was terminated, and that some people trying to get a car loan were denied.

But wait, it isn't that they CAN'T get credit, it is that people are more careful in their lending process. So we are going back to the way it was (pre-subprime, pre-bubble), when you had to have some money down and have a job to pay for the loan. Is that really too much to ask? Really? This reminds me of the end of the tech/stock market bubble in 2000, when people recognized that maybe companies should have earnings.

The real credibility problem seems to be that Wall Street crossed a line and started screwing each other. Apparently that is taboo - Main Street okay, Wall Street not so okay. The people in the financial world can't trust one another. Go figure. The same people that screwed the average consumer on Main Street, can't trust each other enough now to lend to each other.

9/30/2008 5:12 PM  
Anonymous Cheryl said...

As an average person with no understanding of how this all works I see no reason to believe They aren't just making this all up to get one more pile of cash before the Republican Party is no longer in power.

9/30/2008 6:36 PM  
Blogger automax4 said...

Not sure the GOP benefits from the plan's failure. According to poll results in today's Washington Post:
"As for Monday's ill-fated House vote, by a 2 to 1 margin, voters hold congressional Republicans more responsible for Monday's rejection of a $700 billion rescue package supported by President Bush, congressional leaders of both parties and both major party presidential candidates.

Almost all voters see the current financial situation as a big problem, with a majority, 52 percent, describing it as a "crisis." And in a question asked of a parallel sample of randomly-selected adults on Monday evening following the House's rejection, voters were also nearly unanimous in their concern the vote would deepen the country's financial downturn."

Voters were overwhelmingly against the plan when it first came out, but that opposition decreased in the subsequent days. I'm a Democrat and was hoping it would not pass and would be replaced fairly quickly with a better plan. I give the GOP some credit for killing it, though they did it in a passive-aggressive way and I question their motives. But I give the Democrats more credit for at least trying to find a solution. The GOP nihilists served their purpose by killing the bill, but by failing to offer a proper alternative they make themselves look like mere obstructionists.

9/30/2008 9:05 PM  

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