Agree with Dean Baker and with you Matt (4.00 / 1)

If there has been over 200B in bonuses paid out during the Bush Administration, the banks don't need our investments via taxpayer money.

I moved two of mutual funds into MM for now to stop the insanity of the traders wanting us to pay for their bonuses.  I get no gain, but after losing 20% on Monday, it's stupid to invest in many of those companies.  

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by: Benny @ Sat Sep 27, 2008 at 18:14:58 PM UTC

I'll ask it again… (0.00 / 0)

...where did the $700 billion figure come from? Not being a banking whiz or anything, I still find it suspicious that it's the exact amount that economist Robert Kuttner thinks Obama, at his most ambitious, would have to spend once in office to really jumpstart the economy. Bush and his financial cronies are sooooo trying to bury a Democratic presidency.

"This ain't for the underground. This here is for the sun." -Saul Williams

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by: tru blu @ Sat Sep 27, 2008 at 18:41:44 PM UTC

Have you been reading the blogs this week? ... (0.00 / 0)

I'll ask it again ..where did the $700 billion figure come from?

Treasury officials have admitted they pulled this figure out of their collective asses(No, I am not kidding!!!)

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by: Calvin Jones and the 13th Apostle @ Sat Sep 27, 2008 at 19:37:52 PM UTC

[ Parent ]

I understand the crisis this way (0.00 / 0)

Wall Street made a big Ponzi scheme and a lot of suckers bought into it, who were looking for fast easy riches. A lot of banks got in on the action. Ponzi schemes don't work anymore when they run out of suckers to buy the worthless paper, so we are there now, no more suckers are buying. The big Ponzi scheme is falling down.

So the treasury and the fed want the US taxpayer to be the suckers of last resort. The US taxpayer can keep the Ponzi scheme floating until the election, after that the treasury doesn't care because it will be someone else's problem.

The US taxpayers will be $700 billion poorer and the big Ponzi scheme will be ready to fall down again after the election.

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by: T Maysle @ Sat Sep 27, 2008 at 18:43:38 PM UTC

I'm sympathetic with your goals (4.00 / 1)

but it's not obvious at all to me that there is no urgent need for a deal. I'm not saying the Paulson plan, but some deal.
The credit market is in near total paralysis. That may actually have been quickened by the dire Administration predictions, and assurances of the need for a bailout. But how do you unravel that? Who is going to reset lending rates, especially interbank lending, now? Of the troubled firms, no one believes they have the capital to spare; no one trusts market valuations or the other firms. Smaller banks and credit unions, who were otherwise healthy, have big stakes in the "toxic credit" held by Lehman, Fannie, and Freddie. Still others own part of the bad debt held by other teetering giants. Is there "plenty of cash" out there to take those off the books? Who's going to spend it? The reason for the bailout is not better terms, it's that NO ONE ELSE WILL DO IT. If we're talking about surgically removing "toxic debt" from balance sheets, the government is the only option.

I agree that that's not the only solution we should be talking about. And maybe if a few other smart ideas were advanced, and the major players got behind them, they could buy time with the markets and the confidence factor to hammer out an alternative. But as far as I know, there is nothing getting traction right now.

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by: along @ Sat Sep 27, 2008 at 18:45:06 PM UTC

There are plenty of reasonable alternatives that could be considered (4.00 / 3)

For example, the Nourini plan, which is similar to a very successful approach during the Depression.

If Democrats like Frank and Dodd don't want to consider these alternatives, then either they are stupid or venal.  

And I don't care which it is.  In either case, they've forfeited the right to be in government.

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by: Taylor @ Sat Sep 27, 2008 at 18:52:09 PM UTC

[ Parent ]

And we're not going to get a good deal (4.00 / 1)

unless we resoundingly reject the Paulson deal.

It's really shocking. With the immunity from criminal prosecution clause, the Paulson deal was a pretty blatant scheme to defraud the American public. Dodd-Frank have put in some protections against the fraud but left the basic useless scheme in place. It's like getting one of those Nigerian scam letters and deciding to hire your own guy to do the transfers. It's still not going to work!

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by: FairEconomist @ Sat Sep 27, 2008 at 19:00:48 PM UTC

[ Parent ]

A "Plan" is Needed...But Not the Bush/Paulson Plan (4.00 / 2)

I cannot say that I agree with Matt's proposal that Congress should do "nothing" over the next few weeks.

But...I am totally oppposed to the Bush/Paulson approach. I am totally opposed to allocating hundreds of billions of taxpayer dollars to buy toxic assets. And anyone who votes for this approach, whether it be a Democrat or Republican, McCain or Obama, risks losing their job. This proposal is a political albatross. It is dog doo. I don't care how much sugar you add to it. It is still dog doo.  

What is needed, instead, is either a fully progressive proposal (the New Deal or No Deal idea) with elements that poll at 70% or above...or...a plausible, fiscally innocuous, bipartisan bailout that has the effect of calming the markets. At least 80% of this is psychological, so at a minimum, you must give the markets a psychological fix.

And yes, the markets do need to be calmed. The huge issue that is not being talked about (except behind closed doors) because to do so would actually launch the panic, and cause the very thing you are trying so hard to avoid, is the hundreds of billions of dollars being withdrawn out of mutual funds. If you do not stop this, the whole house of cards, the whole system will collapse.  

What does "collapse" mean? It means the Dow and Nasdaq drop by half...uhm...because everyone in the US and world pulls their money out. All companies in the US (and the world) therefore retrench, shed workers and stop new orders. Everyone's 401K/retirement plan loses half its value, and the US economy goes into a tailspin through the traditional cycling down process...more unemployment produces less spending, produces more unemployment, produces less spending...and so forth until you reach bottom.

But, no matter what we do, we have to be upfront about the fact that a good number of thieves and fools on Wall Street are going to go under. That is called justice.

As I said in an earlier post, going forward, in general, I think at least three things must be done in order to prevent these inevitable failures from sending a devastating tsunami out into the larger national and international economies, and thereby drowning the rest of us.

First, you must immediately address the ticking time bombs locked up in the trillions of dollars of credit default swaps. Simply put, most of these instruments will NEVER be paid out in accordance with their terms. The federal government must find a way to "ramp down", ease out, or eliminate existing CDS obligations through legislation, regulations, and/or by facilitating creative buyouts where one side must take a major haircut. On Monday, the state of New York announced that it was beginning this process. The federal government must follow suit.        

Second, you must restore confidence in the larger market. For better or worse, at this moment in our history, far too much of our economy is tied up in the market. The market is going to suffer a correction, but it should not be allowed to collapse precipitously.  So...measures should be taken to stanch the present outflow from mutual funds (and the market) through confidence building measures such as, yes, passing a bipartisan plan of some sort. You talk about restoring confidence a lot, demonstrate leadership, and then you pass something that is plausible.

Third, you need to pass legislation to help people stay in their homes including possibly, facilitating refinancing to lower, fixed rate mortages.  A big piece of this puzzle is the real estate market. If you can stabilize home prices, convince people that the price bottom has finally been reached, that will have a tremendously positive effect.  Again, there is a huge psychological dimension to all of this.  

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by: Demo37 @ Sat Sep 27, 2008 at 18:51:45 PM UTC

the bottom of the real estate market (0.00 / 0)

we won't hit the bottom of the real estate market until earnings to mortgage rations come back into a 'healthy' zone of about 3:1. IIRC from reading, its currently worse than 2:1 - on average people are paying more than 50% of their income for mortgage payments. there is no magical market or government cure for this unsustainable relationship expect foreclosures and resales.

refinancing could help, but a refinancing scheme would have to build in accountability for those who over borrowed, by say zeroing their equity and nulling their profit making option on resale. banks would be left writing down massive losses of course, which they are already doing or are avoiding doing intentionally to not trigger higher capitalization requirements. and who's to say the refinancing is done at floor values, real estate is not done dropping. still its a good idea to slow the fall, even if it can't stop it.

I've wavered back and forth on this bailout issue, first being in the we need to do something camp, and then formed my own 'make the bond holders write down debt' camp, to a back off and lets do nothing camp. Your reminder about runs on mutual funds in an important one. Which pulls me back into my own make the bond holders pay camp. Something should probably be done in the next couple weeks. But Congress considering the current bill is preventing banks from recapitalizing on their own or lawmakers jamming such a plan down their throat, and its preventing discussion of alternatives. I'm afraid this also seems to leave me no choice but to also be in the Hell No to the current deal. Nothing but killing this deal will get us to a better solution or get pension funds interested using their leverage to get us to a better deal.

Michael Bloomberg, prince of corporate welfare

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by: Will @ Sat Sep 27, 2008 at 22:50:51 PM UTC

[ Parent ]

before the election (4.00 / 1)

And that's what this urgency is really about, getting something done before the election so Democrats can't design a real bailout package.  I don't understand why Democrats want to move this forward

because if the do a deal now they can blame Bush for the sell out while at the same time satisfying to big dollar special interest donors.

I really didn't used to be this cynical, only since the 2006 election.

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by: AliceDem @ Sat Sep 27, 2008 at 19:24:39 PM UTC

folks, turn on your logic, analytical brain (0.00 / 0)

This is an incredibly complex topic.  Seriously, the frenzy needs to stop and some objective analysis needs to be front and center along with promotion of what will work.

I just wrote up some economists Alternative Bail Out Plans and there are some consensus points showing up among economists.

One is the pricing of the CDOs ("toxic" assets) and a catch 22 of exposure of institutions.

Another is the need for a "bottom up" sort of structure where many are recommending a HOLC (Hillary Clinton also proposed this)  

and another is regulation recommendations other capital injection requirements, all sorts of details to ensure this entire agenda does not simply extend the bubble and enable these institutions to remain so highly leveraged and the Shadow banking system further.  

NoSlaves.com  


The Economic Populist

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by: Robert Oak @ Sat Sep 27, 2008 at 19:52:17 PM UTC

Comments On Two Articles (0.00 / 0)

I am sure he is busy researching his next excellent post, but I would be curious to hear Matt's comments on two recent articles concerning "what" is presently happening with respect to the run on mutual funds (the monster in the room that no one dare speak of) and the tightening of credit.

A Reuters article which mentions the backstopping that is having to take place to respond to the unprecedented run on mutual funds.

And this AP article on the tightening of credit.

Any comments on these Matt?

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by: Demo37 @ Sat Sep 27, 2008 at 19:55:24 PM UTC

Good Work Matt, But Something Is Needed Now and Metamorphosis Is Possible (0.00 / 0)

Matt just posted an update which is perhaps somewhat responsive to this, and other comments. Here is his update:

Update:  I'm sympathetic to the people who want to do the bailout the right way, but as we saw with the war in Iraq, there is no pony plan.  There is only this bailout or no bailout. No alternatives are part of the decision matrix, my friends. However, if you wait until the election, then a bunch of new alternatives do open up.

Which is why 'hell no' makes the most sense.  And yes, credit is tightening up but that's not going to change for some time regardless.

I agree, and disagree, with parts of what Matt says here.

First, in general, as a matter of political strategy, yes, a "Hell No" strategy should be pushed, and pushed hard.

On Friday, DFA and PDA, sending out hundreds of thousands of emails to their email lists, did great work to organize "Hell No" rallies around the country. All the phone calls and letters to DC, all the letters to the editor that are appearing in local newspapers, are supporting this push back to improve it. And yes, the trad med is reporting the push back in virtually every story now.  All this political pressure will, at a minimum, I think, improve whatever finally emerges. (And give Progressive Demos some backbone?)  

But here is where I disagree with Matt. Legislation on this must emerge and be approved long before the election on November 4. We can't afford to wait that long. We must attempt to stop the outflows from mutual funds, and restore confidence in the credit markets within the next few days. Market assumptions must be changed very soon...or a meltdown will occur.  

In addition, the notion that it is: "this bailout" or nothing is technically not true. The final shape of any bailout legislation is being determined. And the quality and duration of that push back will shape that determination. Last I heard, there are still 15 outstanding issues to be resolved. This thing is still in a state of some flux, despite the confidence boosting announcements.  

So...the debate continues...and the "Hell No" pressure...which is good...just might steer this thing into a dramatic metamorphosis. Never say never.  

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by: Demo37 @ Sat Sep 27, 2008 at 22:15:43 PM UTC

[ Parent ]

How do you know what you know? (0.00 / 0)

How do you know that something has to be done right away? I see that Paulson says so, but I'd like some evidence.

As for alternative plans: I agree with Matt. Variations of the Paulson plan will be entertained, but not alternative plans, and I believe I can explain why.

If the White House puts forth a plan, then the Dems can get behind it while imagining they have the option of calling it the White House's plan if things go south later on (which they will. As Stiglitz points out, this plan only addresses one of the big 4 problems confronting the economy right now).  Even so, they want the Republicans' hands on the lever too.  By attaching some strings and some bells and whistles to Paulson's plan, they can claim that they're doing due diligence and looking out for Main Street.

But they won't put forward an alternative plan.  If they did, they'd have to own it.

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by: barryr @ Sun Sep 28, 2008 at 00:40:58 AM UTC

[ Parent ]

Immediacy of Threat, and Pushing For Alternatives (0.00 / 0)

As for evidence...did you read the two articles I referenced upthread?  Check them out.

Also, you might want to check this article out as well.

As for the likelihood that alternative plans (rather than "sugar added" to the dog doo that is the Paulson plan) will be put forward, I see your point about the likelihood of Democratic cowardice regarding to ownership. An alternative plan, thus, was never that likely...but still should have been advocated for...and was.

And, at this late hour, it appears that a modified Paulson plan is being written up for votes on Sunday and Monday. At a minimum, though, the "Hell No" effort, which I praise, improved this slightly. Lotsa sugar on the dog doo.  

Like Stiglitz, I doubt this alone will work. On the other hand, the markets are a CONfidence game, and as such, confidence building measures can have unexpectedly salutory effects.

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by: Demo37 @ Sun Sep 28, 2008 at 07:04:39 AM UTC

[ Parent ]

Don't just sit there, do something! (0.00 / 0)

Or, as the old hippie Zen proverb says:

"Don't just do something, sit there".

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by: DeanOR @ Sat Sep 27, 2008 at 20:10:49 PM UTC

pony plans (0.00 / 0)

i've been having that feeling for a while now, that the blogosphere is acting like the "liberal" pundit class did with Iraq, when their imaginary wars gave cover to the real one. the difference, though, is that Iraq was a lie from start to finish. whatever the cause, with all the ambiguities, there is clearly a real problem right now.

there could be an alternative plan. but until and unless the Democratic leadership gets behind one, there won't be. and that is just not going to happen. i think they just prefer to do a deal with their colleagues, they know what can get through the Senate and what can't, and they think it's stupid and irresponsible to go to the public with a proposal that couldn't possibly pass. they don't want to make an alternate proposal because then they would have sole ownership, and they think that the public will hate any plan. plus, i suspect that the various actors in the leadership simply don't agree on what an alternative would be.

the striking thing, to me, is that they haven't brought in any outside economists in public. it's all politics. but no polis.

not everything worth doing is profitable. not everything profitable is worth doing.

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by: tatere @ Sat Sep 27, 2008 at 21:12:45 PM UTC