The New Trough

by: Matt Stoller

Wed Nov 12, 2008 at 15:31


I have been horrified at all the stories on the bailout, the lack of transparency, the utter corruption, the insider dealing, the contempt for the public, but I haven't been able to bring it all into a package to tell the story of what's going on.  Naomi Klein describes it in a must-read Rolling Stone article called 'The New Trough'.  The bailout hasn't forced banks to lend and it's not clear what the ultimate outcome is, but just one factoid is remarkable enough.

Party leaders on Capitol Hill were supposed to name a special oversight commission to check how the bailout was using its legal authorities, according to the law. But over a month has passed without a single name put forward.  "There have been some beginnings of internal discussions," a spokesman for House Minority Leader John Boehner, R-Ohio, said late last week. "Still working on names," said a spokesman for Senate Majority Leader Harry Reid, D-Nev. "No," said a spokeswoman for House Majority Leader Steny Hoyer, D-Md., when asked if her office had been talking with others about the panel. Senate Minority Leader Mitch McConnell, R-Ky., did not respond to requests for comment.

There was never any reason to trust these people, and there still isn't.  Klein offers a real way for Obama to fix the bailout package, and hopefully, he'll do that.

Matt Stoller :: The New Trough

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The New Trough | 12 comments
Banks can't lend (4.00 / 1)
because they don't have any assets.

The infusions haven't even filled the existing holes, and when you look at surging unemployment, you realize the losses have only just begun.

They have been telling us our GDP is 14 trillion, it's probably closer to 10. That means that no we can't afford Social Security / Medicare.

Like the supply-siders claiming that we will grow our way out of deficits, "Progressives" have been using rather strong growth rates to claim that there is enough in the bank for Social Security / Medicare.

Well, there isn't enough. In fact, there is nothing in the bank at all.

Our 2 trillion dollar deficits for 25 - 30 years will get us to the predicted 50+ trillion dollar hole attributed to the entitlements.

If we were to be reality based we would immediately tell people that years of austerity and penury are ahead, and that the globe can only support so many people and so much consumption, but that there are spiritual rewards to be had for the loss of material splendor.

But that would ignite open generational warfare on the left; so we balk.

The Doom-Sayers of the 70s were right. Instead of taking heed, we borrowed 10 trillion dollars. Not smart.

amen (0.00 / 0)
except generational warfare will not be avoided. just wait 5 years from now when the most self indulgent generation of all time starts cashing in on ~20K/per person social benefits. medicare medicade socsec will break the country's bottom line. full on universal health care can trim the damage. I also recently read a very interesting proposal for overhauling socsec.

this is worth a read IMHO:
http://research.stlouisfed.org...

without addressing the babyboomer liability I would bet 100 to 1 we see deep generational resentment. and that big fantasy that generation millennium (or whatever stupid name they've given the youngest adults) will be "Democrats" for life will go up in smoke. They may be "Democrats" but they'll be voting for Ronald Reagan. Call it what every party you want.

Michael Bloomberg, prince of corporate welfare

[ Parent ]
WTF? (0.00 / 0)
"we can't afford Social Security"

What you are saying is that the US Government can't afford to pay off its debts.  This might be true and might not be true, but Social Security is only one of the country's debt obligations and there is no reason to single it out.  The country borrowed from the Social Security Trust Fund and used the money to give big tax cuts to the wealthy and corporations.  Soon the country has to start paying down those bonds.

Those Treasury bonds held by Social Security are not higher or lower on a repayment priority than bonds held in the Cayman Islands or held by my aunt.  

So if you are saying we can't afford to make good on the bonds held by my aunt or by people with money in the Cayman Islands say so.  There is no reason to single out Social Security for a target of the country's default.

--

Seeing The Forest -- Who is our economy FOR, anyway? Twitter: dcjohnson

[ Parent ]
A nightmare, no less horrible for being thoroughly predictable (4.00 / 1)
What was (somewhat) surprising was that progressives like Sherrod Brown and Paul Krugman would aid and abet the Bush gang of criminals.

Oh and by the way, Paulson just singlehandedly changed the intended purpose of the bailout.

In his remarks, Paulson also said Treasury's first plan for the money, which was to have the government buy bad loans from financial institutions would be shelved.

How could he do such a thing? Because:

Paulson was given broad authority under the legislation to determine how to spend the money.

http://www.washingtonpost.com/...

It really should be pitchfork time, but I suppose we're still basking in the warm glow of Obama's victory.

I agree (0.00 / 0)
with Paulson on that part.  The initial proposal to buy the bad loans was a bad idea.  I'm glad he's not doing it.

I just wish they were making serious demands on the banks in return for their preferred shares.  

[ Parent ]
Well, it'd be one thing (0.00 / 0)
if the government and taxpayers were getting equity in the banks, but of course we're not.

This new plan isn't necessarily worse than the initial plan--it depends how it's structured--but it's criminal that one man (a Bush appointee) has the power to make this kind of decision.

[ Parent ]
Actually (0.00 / 0)
I think we are getting equity, but we're not getting it on very good terms like Buffett and the the British.  I agree with you about Paulson.
[ Parent ]
Lending for lending sake should not be the goal! (0.00 / 0)
this is part of the insanity. we're in this mess because there was too much lending, and too much over leveraging. lending more is not going to save the ship.

shoring up bank balance sheets is a good thing (so long as banks pay a steep price a la Berkshire Hathaway's deal with Goldman - sadly we don't have that - thanks Schumer and Dodd and Obama) but 'requiring' banks to lend just to force lending and economic 'growth' is just crazy. De-leveraging is what is needed, and there's not a thing Treasury, the Fed, or Nancy, or Barney Frank can do about it - unless they scrap reasonable credit requirements. But they already tried that for a decade and its been a train wreck. Lending contracts across the board in recessions, and this is a global one with massive contraction happening. To lend willy nilly at this time would be beyond stupid. Just check out the balance sheets of Fannie Mae and AIG to see why and how it ends up costing tax payers. But Poles and Americans still think they shouldn't have to suffer for their irresponsibility - same exact bullshit attitude they have about the war in Iraq.

Dont tell me how a Democratic Congress is better than a Republican one, this Congress has taken a powder and couldn't care less how much it destroys the bottom line of this country. And frankly Obama doesn't bode well either.

Oh I know, the Republicans are evil. So far its the Dem Congress and Obama (who made phone calls pressuring house members, and who wants to appoint the same criminals to head the Treasury for another 4 years) sanctioning the damage. Its more our responsibility than any one else's to point this out.

Michael Bloomberg, prince of corporate welfare

to wit (0.00 / 0)
read this completely schizophrenic statement put out by FDIC today:

http://www.fdic.gov/news/news/...

Michael Bloomberg, prince of corporate welfare

[ Parent ]
Exactly (0.00 / 0)
Thats why the bailout hasn't been a failure so far in my opinon.  Because it hasn't gotten people to start up risky lending again.

That being said I think that overall the bailout was a good thing from a political perspective.

Previously people were talking about how union members would get paid 60 thousand dollars a year for doing nothing.

Now they are talking about how wall street is getting paid 70 billion for wrecking the economy.

http://transgendermom.blogspot....

[ Parent ]
just wait (4.00 / 1)
until they bail out GM, Ford, Chrysler and all the Civic Pension plans that are screwed backed by tax payer obligations. a major backlash against unions is in the works, its just waiting for Frank Pelosi and Obama to pull the trigger.

Michael Bloomberg, prince of corporate welfare
[ Parent ]
The Great PBGC pension dump will divert attention (0.00 / 0)
from Wall Street's looting.  
[ Parent ]
The New Trough | 12 comments
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