There Is No Crisis--Summary

by: Chris Bowers

Tue Sep 23, 2008 at 16:22


Things are getting a little suspicious about this "crisis."

  1. Why did the Bush administration suddenly declare a "crisis" during the final two weeks when Congress would be in session during his presidency? Is it maybe because, after the election, Congress would know it wasn't dealing with Bush anymore?

  2. If this is such a sudden crisis, why is it that the Bush administration was drawing up the plan for this bill for months beforehand?

  3. Why is it that Congress is supposed to bail out many banks and firms that are actually quite successful and profitable right now, and not just those that are failing?

  4. Why is Paulson blatantly lying to Congress about oversight?

  5. Where did the $700 billion figure come from?

  6. Why is Paulson urging that debate on the matter be held after the legislation is passed?

The burden of proof should always be placed on those who are demanding a huge government bailout, not upon those who are skeptical that one is needed. And yet the questions keep mounting, with no answers in sight.

I am not saying that there is no need for government intervention. I am saying that the case for a $700 billion bailout is far from having been made. Until the case is made, there is no need to go forward. We will elect a new President in 42 days. We swear in a new Congress in 103 days. What is the rush? Why does this all of a sudden need to be done while the Bush administration is still in charge? The case hasn't been made, and answers are slow in coming, if they come at all.

Chris Bowers :: There Is No Crisis--Summary

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There Is No Crisis--Summary | 64 comments
Pretty stunning developments (4.00 / 1)
This is sinking fast.

Part of me doesn't want it to sink because I think if Democrats played their hand right, they could get A LOT in terms of re-regulation, bankruptcy changes, executive pay, equity stakes, etc.

But on the other hand, these are Democrats and history has shown they are always able to screw things up.

And I highly doubt that Democrats would have the courage to add a surtax like Bernie Sanders is calling for. Meaning there's a very good chance Barack would chicken out if elected on some domestic priorities when elected president because of being saddled with all this new debt.

So I don't know what to think now. It feels like the first 10 days of the Roosevelt administration and the bank crisis, minus the bread lines, and an administration that actually cares about working people.  

A STRIKING Alternative: Let The BONDHOLDERS Do It! (4.00 / 3)
I just commented about this in a previous thread. From an apparent insider, via a link in quick hits from Will.  Will writes (slightly reformatted):

John Hussman of the Hussman Fund points to the
obvious place to find solvency for banks, but you don't hear Congress or the administration talking about: The Bank Bond Holders.

He breaks down a plan that would make bond holders accept responsibility, and thus minimize tax payer risk and involvement. This is going well beyond Dodd's flimsy warrants idea.

http://www.hussmanfunds.com/wm...

Here is a snip:

    "The key is to recognize that for nearly all of the institutions currently at risk of failure, there exists a cushion of bondholder capital sufficient to absorb all probable losses, without any need for the public to bear the cost.

    For example, consider Morgan Stanley's balance sheet as of 8/31/08. Total assets were $988.8 billion, with shareholder equity (including junior subordinated debt) of $42.1 billion, for a gross leverage ratio of 23.5. However, the company also has approximately $200 billion in long-term debt to its bondholders, primarily consisting of senior debt with an average maturity of about 6 years. Why on earth would Congress put the U.S. public behind these bondholders?

    The stockholders and bondholders of the company itself should be the first to bear losses, not the public. That is the essence of what a free and fair market, and a responsible government would enforce. The investors in the companies that produced the losses should be accountable for them, and the customers and counterparties should be protected."

This is not my field of expertise.  But I am a journalist, and journalists are supposed to have sources. So I checked with an economist with knowledge in the field, and he said it made sense to him.  There's no hidden angle here that lay people like me are just missing.  It's a legitimate approach.

That being said, it makes a heck of a lot more sense than the Paulson approach even with Democratic bells and whistles.

IMHO, this is what we should be pushing for, unless someone can come up with a damn good reason why it won't work.

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3

I think the argument is (4.00 / 1)
that without assets to back the bonds there would be a run to cash in, the issuing company would default and collapse, and the credit markets would fail. I'm far from being an economist, so can't make any judgment on how likely that outcome is. Or on what it would mean to ordinary Americans. Thing is, if anybody does know they ain't telling, which is why just passing the Bush giveaway would be insane.
[ Parent ]
Sure, but if the government (we) bails them out (4.00 / 2)
what's to stop those same people from making overly-risky loans/investments in the future?  NOTHING. In fact, knowledge that Uncle Sam will back up their questionable deals, as long as the losses are HUGE, seems to send the opposite message.

Its a Bush Doctrine: If there is a chance that you'll fuck it up, think BIG.  That way, no one will be able to deny that you've really created a major problem and they'll be too scared to ask questions before you foist your "solution" on them.  

"It sounds wrong...
     ...but its right."

[ Parent ]
Bailout not necessary (4.00 / 3)
When you have the chief lobbyists for the Chamber of Commerce saying that a bailout is not absolutely necessary (but it sure would make life a lot easier), we would have to be blind, deaf, dumb and stupid not to realize that this is corporate America's last stand to get as much as possible from a friendly government before the good times come to an end.
[ Parent ]
The real problem (0.00 / 0)
is something called counter-party risk.  And the solution doesn't address this.

There is absolutely a crisis: the leverage on the CDO's is enourmous.  Because of this, the failure of one institution could take dozens down with it.  Lehman alone was involved in 1 TRILLION Dollars of derivatives trades.  

If institutions no longer are able to trade with confidence in the derivatives market, we will have a crash BIGGER than 1929.  

This is absolutely a crisis - and I have to manage my sons baseball game or I would expand further.

[ Parent ]
Clicking The Link, Here's More Of The Detail (0.00 / 0)
They have mean-sounding warning about quoting too much.  But since folks are more willing to criticize than to click the link, here's a tad more detail, including taking care of counterparties:

The appropriate solution is not for the government to replace the bad assets with public money, but rather for the government to execute a receivership of the failed institution and immediately conduct a whole bank sale -- selling the bank's assets and liabilities as a package, but ex the debt to bondholders, which preserves the ongoing business without loss to customers and counterparties, wipes out shareholder equity, and gives bondholders partial (perhaps even nearly complete) recovery with the proceeds.


"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3
[ Parent ]
Begs to many questions (0.00 / 0)
I'm not buying this late-emerging theory that this was pre-meditated. It's sliding down the wrong side of Okham's razor, IMO (assuming that you are implying what you appear to be -- basically a pre-meditated conspiracy.)

Yes, a near collapse really happened and yes, the administration, Paulson, and Bernanke were really freaked out.

No, it wasn't a complete surprise -- the warnings had been out there for months. That doesn't mean the whole thing was cooked up, which you seem to be implying. They knew it could happen at some point, which explains why this plan had already been cooked up.

Once it did happen, they were ready to move in with this plan, which doesn't require an already-hatched plot to explain its feed-the-rich awfulness.

"too" rather than "to" (0.00 / 0)

[ Parent ]
Nobody's suggesting it was a wacky conspiracy (4.00 / 8)
Your comment is self-contradicting.  You don't buy the theory that this bailout was pre-meditated, but you do buy that it was thought up in advance?

Nobody's suggesting that these banks were torpedoed on purpose.  Chris is suggesting that the cries of "IT MUST BE NOW" are dishonest, and that it can actually be later.

He's also suggesting that the timing of the Bush Administration's plan is political, not pragmatic, which is not a stretch in any way considering their track record.

[ Parent ]
You're right (4.00 / 1)
I reread Chris' post and see you're right. The implications I thought were there really aren't. I took his suspicions, especially in point number 1, to indicate that they had planned this to happen before the election.

My bad.

Having said that, I think it really is and was a crisis. I think we do need a pretty strong response, just one rather different than what's being proposed. I'd like to see some permanent linkage between CEO salaries and company performance; strict, transparent regulations; and punishment for capital incentive structures.

[ Parent ]
Did you read that diary by devilstower that kos pitched the other day? (4.00 / 2)
It made me think that what we really need is a brand new anti-trust regime.  Nobody should be allowed to be "too big to fail".  We've really gotten to the point where the state is subservient to the corporation, and that's not acceptable.  Bailing out this crisis only goes so far, because the problem is systemic.

Also, it's not really about company performance for these financial giants.  It's about balance sheets that reflect actual reality, not imaginary reality.

[ Parent ]
Yeah, I did read it (0.00 / 0)
Or most of it, at least. It was very informative.

Unfortunately, the situation is so bad these days that we made need anti-trust legislation or something like it. And I don't generally tend towards these kind of solutions.

I'm for a 'regulated then free' market. It's not quite the oxymoron that it may appear. Get the rules and regulations right  in the first place, then let them have at it. Extract taxes fairly and efficiently; make the rules and all transactions transparent; set boundaries up front; hire, train and empower referees. In our current situation, taxes aren't extracted fairly and efficiently; the rules and, especially, transactions aren't transparent; there were, essentially, no boundaries; and the referees had been given the night off.

[ Parent ]
cooked up (4.00 / 2)
"No, it wasn't a complete surprise -- the warnings had been out there for months. That doesn't mean the whole thing was cooked up, which you seem to be implying."

sorry, not buying it this time.  Not after "everybody start a war, the iraqis have robot planes!" not after "pass the patriot act, osama's comin' again!" not after "pass FISA or the terrorists will blow us all up!"

It's always the same old tactic: the boy who cried wolf.  Show me: show me the presentation that the Senate and Congress saw.    It's not like war plans, it's not top secret.  Prove there's a crisis. Then I'll believe it.

As Gram Parson's once sang, "And the man on the radio won't leave me alone/ he wants to take my money something that I've never been shown..."

[ Parent ]
here's the thing (4.00 / 1)
having a plan to release several weeks before the election that gives away the store to the rich is bolstered by the fact that there's a real crisis.  I know that in India, when they wanted to get liberalization reforms through, they had those bills written for years and were waiting for the right time to put them through.  And the Bush Administration has done this in the past with the Patriot Act.

Which again, is why Chris's argument that the Bush Administration should be WHOLLY ignored is apt.  The only leverage they have is the sensation that there's an immediate crisis that needs to be resolved immediately.  If you take that away, you have a lame duck president with 19% approval asking for the store.

[ Parent ]
I think this Congress should only offer up Dodds plan. (0.00 / 0)
I wish they would stick to their guns and only offer up Dodd's plan and perhaps only for a smaller amount to 'get then through' the next 103 days.  It will be interesting to see how many CEOs offer up their golden parachutes for government scrutiny and how many pull the rip cord giving us the finger as they land in a foreign resort community.  Then hopefully we can start the next Congress with our taxing eyes firmly planted on the fat cats, with a majority of the public standing firm with pitchfork in hand and torches blazing.
Schumer is already talking about a much smaller amount.... (0.00 / 0)
...so, that's a good sign... and Hoyer is demanding republican votes on any bailout proposal, so that is alos a good sign...

Intrade has a market up for whether a bailout will be done by friday... those numbers are tanking fast as well...

REID: Voting against us was never part of our arrangement!
SPECTER: I am altering the deal! Pray I don't alter it any further!
REID: This deal keeps getting worse all the time!

[ Parent ]
I'm with you, Chris (4.00 / 4)
This is some shady business.

How's this for a talking point from Pelosi et all?

"We're not going to deal with President Bush on this.  We're going to deal with President Obama."

well, forget that (0.00 / 0)
Just watched Obama's statement video in quick hits.  Sounds like he's all for rapid passage of legislation.  Oh well.
[ Parent ]
Whodunnit? (4.00 / 2)
We of course keep hearing pious injunctions to not fall into the "blame game". I beg to differ. In all the word-torrents, I have yet to hear a clear explanation of exactly what happened specifically to trigger all this now instead of months or years ago, and who made that happen? If we can't say "Look, here's what started the avalanche, and this is who threw the rock", how can we judge nostrums that claim to fix the disaster and to prevent it from happening again?

I also can't find any specific info on exactly what this means now and 2 or 3 months from now to regular Americans who don't work in DC and already struggle with the state of economic injustice that Bush, McCain, and their honchos created? I don't much care what happens to the system. I want to know what it means for the noncombatants.

Not exactly an answer to your Whodunnit question (0.00 / 0)
but maybe pointing to some clues.  Worth a look:
http://www.dailykos.com/storyo...
[ Parent ]
the news/legislative peg is the huge bank failures (0.00 / 0)
They've been sitting on their asses for a year and letting the market go to hell.  I'm incredibly skeptical about the timing, but not about the fact that finance capital is in crisis.  So the key question for me is exactly what you point to:

I also can't find any specific info on exactly what this means now and 2 or 3 months from now to regular Americans who don't work in DC and already struggle with the state of economic injustice that Bush, McCain, and their honchos created? I don't much care what happens to the system. I want to know what it means for the noncombatants.

Given that all of these people - most economists included - have largely sat by while the effects of the last two decades have decimated the people you're talking about, I feel empowered by Chris's and everyone else's healthy, strong skepticism.

[ Parent ]
Always Blame ANYONE Who Uses The Term "Blame Game" (4.00 / 1)
It's what prosecutors know as "probable cause."


"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3
[ Parent ]
It's not knowable (0.00 / 0)
because nobody really knows how many of these bad loans are out there, how much they amount to, and what they're worth. And nobody really knows what's behind Door Number 1, 2, and 3.

The bill is terrible on the surface for the average citizen but everybody is different. It depends on whether or not you've got a 401K; it depends on how bad the market crash would be if we let them go under; it depends on what effects such a crash would have on the economy at large; it depends on what the alternatives are and what they would do.

We're flying by the collective seat of our pants.

[ Parent ]
Good questions to ponder (4.00 / 1)
Good post, Chris.  I'm sure someone over here already linked to it, but David Cay Johnston is asking his fellow business journalists to look into issues like this as well, rather than allowing themselves to be rolled by the Administration... again (h/t DK@TPM).

Keep your mind free and clear, Donna Edwards, and don't sell your soul.
Stupid Question (0.00 / 0)
If there is a global credit crunch, where is the US treasury gonna get the trillion dollars they want to use to bail out the banks?


"It sounds wrong...
     ...but its right."
China (0.00 / 0)
duh
[ Parent ]
Cut out the middle men (4.00 / 1)
Why don't the Wall Street hucksters just sell their bad loans directly to the Chinese, then?  Why should our government go into debt?

"It sounds wrong...
     ...but its right."
[ Parent ]
China would rather own part of the U.S.A. than part of a failed bank (0.00 / 0)
After all, it can get favors from a major power for the former, not for the later.
[ Parent ]
Who gives fuck what China prefers? (0.00 / 0)


"It sounds wrong...
     ...but its right."
[ Parent ]
China does (4.00 / 1)
And they have money.
[ Parent ]
If China doesn't fork over the cash, our economy will fail (0.00 / 0)
and then they won't have any money to lend, buy oil, or to pay their soldiers to put down the riots in the factories and country-side.

If Ben Bernanke can extort the US Congress, why not the Chinese Central Government?


"It sounds wrong...
     ...but its right."

[ Parent ]
My question is (0.00 / 0)
When does our debt to China get to the point where the U.S. is "too big to fail?"  We owe our foreign debtors 11 trillion motherfucking dollars!  If the Federal Government goes under, all of that cash they loaned us just goes up in smoke.

Our whole society is being run on the same principle as AIG--that we can invest in any crazy-ass debacle (mortgages, foreign wars, inexplicable tax cuts) and just borrow more, because everybody else would be insane to let us implode.

[ Parent ]
Borrow $1000 and you owe the bank (0.00 / 0)
Borrow $11 trillion and you OWN the bank?

Is that the ultimate plan here? For the USA to borrow all the money in the world, so that we control everything?


"It sounds wrong...
     ...but its right."

[ Parent ]
I don't think so (4.00 / 1)
I think it's more of an intoxicated false sense of invulnerability, leading to utter disregard for pragmatism and long-term thinking.
[ Parent ]
U.S. Guarantee (0.00 / 0)
Well, if we just guaranteed the loans, that would probably do the same thing.

Perhaps more creativity is needed.  If it really is the housing market that cause this (I'm not sure it really is), then perhaps the government should just buy all the at-risk loans and issue a rent-to-own program as an option to defaulting.  I'm not sure how one determines the purchase price, which seems like a fairly huge point, but I'm sure some method of calculation could be set.

Would that solve the problem?  If so, why deal with the rest?

[ Parent ]
If the problem is that some of our fellow citizens can't pay their mortgages (0.00 / 0)
Why don't we give the money directly to them?  With rules and oversight, of course, to make certain they use it to pay off their loans, or at least bring their home equity into a positive balance?

If the "bad" laons were repaid, that would be a short term solution, no?



"It sounds wrong...
     ...but its right."

[ Parent ]
Mortgages (and bad loans in general) are just the tip of the iceberg (0.00 / 0)
The rest of the iceberg is a variety of exotics that were very high-risk, nearly valueless, and very over-valued. That means that the calculated asset:investment ratio that banks claimed was wrong, and when a significant percentage of those investments go "poof", it becomes a vicious cycle that quickly bankrupts a company.

Think of it this way: pretend there's one bank, and a completely unregulated loan market.

You deposit 1$ (which you earned) into the bank (which is new, and has no other assets). You think you have 1$ in the bank.

I get a 1$ loan from the same bank, so I think I have 1$, with which I buy a lugnut from you. You deposit 1$, so you now think that you have 2$ in the bank.

Repeat the last step 1,000,000 times, and now you think you have $1,000,002 dollars in the bank. But of course, when you try buy something worth 2$, you quickly find out that the bank only really has 1$ or less.

While this is a trivial example, this is how a delusional financial system can mint worthless paper (or tulip bulbs, in one example) that it believes is money. The details of each crash differs in terms of the exact items that was nearly worthless, and over-valued, and over-subscribed to, but the fundamentals are the same.

They thought they had lots of assets, and they don't or they thought their investments were low-risk, and they're high-risk - the result is the same. Due to the high investment:asset ratio, that can quickly crash a bank of any size. Even worse, the obvious way to fix it (selling assets) has its own negative value cycle (the more you (and others sell, the less value there is to what you sell).

I think that a significant number (maybe all the big ones?) of Banks need help quickly or they'll crash. However, I'd prefer for banks to crash than we get legislation on this issue wrong.

[ Parent ]
If we "bailed out" our fellow citizens FIRST (0.00 / 0)
Then they would not have their mortgage, or inverted equity, dragging them down, and they would, at least, have shelter during the "crisis", plus it would put cash into the bank vaults of those banks that didn't mess around with the "exotics" you describe.  For those that DID take the "very high-risk" chances, well, sorry Charlie, not everyone wins the lottery.  But, hey, a person with such amazing business acumen as "Charlie" should be able to boot-strap a new business, right?  

If my neighbor has to go bankrupt because she can't pay her mortgage, why shouldn't the bank on the corner face the same situation when their "very high-risk" gambling doesn't pay off?


"It sounds wrong...
     ...but its right."

[ Parent ]
As long as rent-to-own (0.00 / 0)
doesn't artificially keep housing prices unsustainably artificially high.

Bubbles burst. I'm a renter who would like to be able to buy a house and haven't because I recognize a bad deal when I see one. But I'm not heartless. I'd like to see some kind of modified, limited but real and effective help for folks whose brutal treatment by the system will be as casually and thoughtlessly inflicted as their ridiculously untenable mortgages were originally granted.

[ Parent ]
STOP THIEF!!! (4.00 / 1)
This isn't a crisis - this is theft, pure and simple.
Not either/or (4.00 / 4)
It seems to me we are both in a crisis and Bush/Paulson are thieves.  It's sort of like how 9/11 was actually really bad and they forced the Patriot Act through and lied to get us into Iraq.
[ Parent ]
Schumer's Office (4.00 / 1)
Called - NYC office won't pick up. DC picked up. Woman there said two mildly interesting things worth reporting here.

1) she said the NYC office is swamped by calls. so good on the people calling.

2) when I mentioned the story that this plan seems to have been in the works for months, she said, "um yeeeeeah, we've heard about that." - as if they had just learned about it today and it seemed suspicious to them too.

I've called Schumer plenty and usually the office is cold stone professional - takes my comment with no disclosure about their feelings - like a poker player. this was rather different. still it was just one call with one of the helper bees, so take it for what its worth.

Call your reps.

Michael Bloomberg, prince of corporate welfare

committees (0.00 / 0)
Senate Banking Committee

House Financial Services Committee

note - they are only interested in hearing from constituents

[ Parent ]
Short-Term Solution (4.00 / 5)
There is actually a crisis, as economists such as Paul Krugman and Nouriel Roubini have detailed. It's been a long time building, however, over thirty years of deregulation, eights years of the Bush administration, and over the last year with the collapse of housing bubble and its consequences. Paulson has been asleep at the wheel over the last year as people have urged that action be taken. The timing is very suspicious, with this stampede to action just before Congress is to adjourn.

Calling for nothing to be done now, and waiting till January, is irresponsible, however. Something will be passed. Democrats need to construct a bill entirely on their terms, however. What's needed is a short-term fix: (1) No grant of authority for more than six months, preferably for two or three months. Congress can return for a special session after the election if necessary, once the political winds have shifted. (2) Keep the amount smaller, on the order of $150 billion, and divide it between homeowners and Wall Street. (3) Impose strict oversight. (4) Make it congressional policy that whatever amount is given to Wall Street at least an equal amount, if not more, will go to ordinary people. This principle should be written into the bill, and it should be the negotiating position. Let Republicans oppose that, or Bush veto it!

One of the reasons it's important both to do something and to keep it limited, as well as to give equal weight to ordinary people is that, if not, Republicans can run against Democrats as giving in to Wall Street if they do the "responsible" thing.

For Congress to listen to testimony for months... (4.00 / 5)
...from people with a wide variety of opinions on how to help the economy is responsible.

Passing a bill quickly is irresponsible.

David Cay Johnston, an author who writes about the economy for the NY Times, says there is no crisis:

http://poynter.org/forum/view_...


Ask this question -- are the credit markets really about to seize up?

If they are then lots of business owners should be eager to tell how their bank is calling their 90-day revolving loans, rejecting new loans and demanding more cash on deposit. I called businessmen I know yesterday and not one of them reported such problems. Indeed, Citibank offered yesterday to lend me tens of thousands of dollars on my signature at 2.99 percent, well below the nearly 5 percent inflation rate. That offer came after I said no last week to a 4.99 percent loan.


[ Parent ]
Wealth tax (4.00 / 1)
These are good ideas, but there needs to be a way to pay for this bailout that doesn't just rip off the American public. Either a wealth tax on net wealth of more than $10 million or an income surtax on annual income of more than $1 million. It is the rich who have benefited from deregulation; it is the rich who should pay for this mess. And if Democrats don't do this, then Right-wing Republicans will pick up the populist pitchfork. Democrats need to be on the side of the people, not on the side of the bankers.
[ Parent ]
Self-fulfilling prophecy (0.00 / 0)
Have we reached the point where the crisis exists simply because so many people believe it exists?  Wasn't there a kind of a bank run last Friday (I forget the institution), due to good-old fashioned fear?

If this is a self-fulfilling prophecy, does that mean we can ignore the situation?

no it means we have to come up wtih a good solution (0.00 / 0)
and fast.  this shoudl have been in the works for a year.
[ Parent ]
Anger Needed Too (4.00 / 2)
I should add that anger certainly needs to be mobilized against rewarding those who have ripped us off, and sticking those who are suffering with the bill. Where is MoveOn in this? We need a coordinated message. Where are the unions? You can play an important role in reporting on what's happening (Mike Lux?).

But, we need to stop this rush to panic, to judgment. We need a short-term solution that benefits the American people as well as Wall Street. We need a coordinated message with a few simple principles: a short-term solution only, limited funds, benefit ordinary people as well as Wall Street. The Democrats should put up the bill they want first, and then have Republicans vote it down (or not--even better). Anger is not a substitute for organizing around principles that can turn this around.

The Democrats need to realize they hold the winning hand here. The best way to figure out how serious the crisis is (they will lie to us otherwise) is to call their bluff by putting forward what you want that will also benefit the economy.

   

Seems about right (4.00 / 2)
under the circumstances. The short-term limitation strikes me as the most crucial one of all. The one thing clear in all this is that the Bushies and the financier class aim to stick the taxpayers with a long-term commitment that a new administration/congress can't get out of. Whatever is passed has to be structured in such a way that it can be negated in 3 or 4 months with no liability.
[ Parent ]
MoveOn (4.00 / 1)
MoveOn and the unions (etc.) are all over this. You should start hearing more today and tomorrow.
[ Parent ]
Wealth Tax Now (4.00 / 3)
Simple, we pass an 80% wealth tax on all intangible assets above $50 million.

If it is needed for the "crisis" we use it for that.  If it's not we use it entirely for instituting 1) single payer 2) a multi billion dollar green energy fund 3) massive infrastructure improvements 4) public campaign finance.

What's not to like?


Something that's clear from this (0.00 / 0)
The financial services industry is unregulated and under-taxed. Let's fix both.
[ Parent ]
call your congressperson (4.00 / 1)
Call your Congressperson, and tell them what you think. I just did.
you read my mind (4.00 / 1)
that is pretty much the list of questions i was coming here to post. thinking that since some people on this site do occasionally get on TV, they might want to ask these questions, or pass them on to Maddow or someone to ask.

i'll add one to your list:

- what exactly did Poulson say in the come-to-Jesus meeting he had with the Congressional leadership last week? this is not national security, there's no reason for this to be a secret.

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

re: Things are getting a little suspicious about this "crisis." (4.00 / 2)
I should say so! It has the hallmarks of a con job.

Can we start with a smaller payment? No, you have to give us everything we ask for so we can do the job right.

What is doing the job right? We can debate the details after you sign on the dotted line.

You mean you don't have a plan? Oh yes, we've had a plan for months now.

You've had a plan for months but the crisis is right now, the last possible moment that Congress has to deal with Bush, right before the debates, right when McCain starts falling in the polls? The crisis is severe, it will be disastrous if we don't act immediately. Trust us on this. Sign on the dotted line.

Well, what happens if we take the time to study this properly? You won't get your pony.

Signing statement? (4.00 / 1)
Even if the Dodd bill was passed with all the good stuff, what's to say Bush signs it to get the money and just poopoos everything else with a signing statement?  
I'm way over my head here, but here are a few thoughts... (0.00 / 0)
There seems to be several layers to the problem.  One is the decline in home prices which impacts homeowners and especially those needing to refinance.  On top of that is the hyper-leveraged gambling casino built on top of the mortgage industry...the stuff Paulson wants to bail out.  These are related in today's distorted mortgage market, but maybe can be separated from each other in ways that help homeowners and leaves Wall Street gamblers to stew in the toxic pile of their ponzi-scheme securities.

Why not spend any (or at least the bulk of) federal money on directly helping homeowners?  This could take the form of paying off existing mortgages (how many and which ones I'm not sure, but you might start with ARMs that are under water and have either started adjusting or soon will).  The feds would then refinance these at low federally-subsidized rates that would make it easier for more folks to stay in their home, but it would probably want to have reasonable limits on how far it would go in this regard (e.g., people who were too deeply under water and over their heads might still have to lose their homes).

To execute this, the feds could (maybe through Frannie and Freddie?) hire some of the folks that have lost their job in the real estate sector.  This would give employment a boost, while doing something to help distressed homeowners.

I'm not sure how the details would work, but this seems a lot more direct and useful than giving money to gamblers when we still have no idea how much they've pissed away on credit default swaps and other ridiculously leveraged so-called "investments," nor what they'll do with the bailout funds (not to mention no safeguards in the bill as initially proposed).

By doing this it seems that the govt would also be helping clean up some of the mortgage-backed security mess, since it would be paying off the underlying mortgages in the course of refinancing them.  It seems that this would help separate out the "reality-based" mortgage risk associated with mortgage-backed securities (i.e., the risk of default on the mortgage) from the huge ponzi-scheme element of risk that appears to have been added to the mix in the course of the unregulated gambling that surrounded these securities.  

Seems to me that this separation of the two different elements of risk and value would happen automatically because the fundamental "mortgage default" risk would be removed when the feds paid off the balance of the mortgage to holders of mortgage-backed securities in the course of refinancing these mortgages.  Any additional risks still faced by holders of mortgage-related securities would therefore be associated with the ponzi-scheme instruments they collectively developed to make themselves rich without creating any value.

Another place the feds would put money would be into the FDIC and NCUA (which insures credit unions), to make sure that any bank-run-type dynamics would be backstopped with the insurance American citizens have been promised.  How this would relate to money markets I'm not sure, though Paulson seems to have extended FDIC coverage to this (I told you at the start, I'm over my head here).  That means its a good time for people with significant savings to distribute them in units small enough to be covered by the FDIC/NCUA, and probably also look to put them in relatively secure banks to avoid having to wait for FDIC payment.

Then, as Paul noted above, the shareholders and then the bondholders of financial institutions that were insolvent after these steps would take whatever hit is necessary.

Only at this point would the government consider further intervention to prop up some of these institutions, a step that would be done in exchange for equity in them, as was the case with Fannie, Freddy and AIG.

I imagine that in any scenario we'll face a major recession and disruptions in the credit and stock markets.  But I don't see why they'd be any greater with this approach than a Paulson-style bailout, which has all sorts of very large additional risks associated with it, and may do nothing (or less than nothing) to help homeowners.

If this approach doesn't have some fatal flaw (and it might plenty of them, since I'm just basing it on what I've read), it would be a much more focused, direct and effective way to deal with the mortgage-related problem-- by addressing it directly and steering as clear as possible of the toxic waste created by Wall Street's greedy gamblers.

And by letting more of these entities fail or shrivel, we'd be sending the financial gamblers a message:  you gamble recklessly at your own risk, not ours.  An obvious companion to that message would be the strengthening of financial regulation that had been gutted by the Republicans.

If anyone knows enough to tell me what I'm missing here, please do.  And please also respond with links to any proposals by experts you think are credible and might actually help the American people.  Comments on the political viability of this type of approach are also welcome.  It strikes me as a pretty good populist message that might resonate right now.

Here are some other options for bailouts for ordinary people (4.00 / 1)
A number of critics say the bailout plan pays too little attention to homeowners and to "Main Street." Dean Baker recommended that the bailout should give priority to keeping people in their homes - i.e., reducing the amount of money people owe on their mortgages - instead of maximizing the returns the government can get from mortgage payments. Nouriel Roubini suggested creating a government body in charge of helping Americans find debt relief, modeled on the Home Owners' Loan Corporation established during the Great Depression. Mark Thoma proposed the creation of a "worker bailout fund" for those afflicted by layoffs nationwide.

From the NY Times.  The Obama campaign or whoever is in power and actually interested in 'main street' should be talking to the three economists linked.

I'm skeptical of this approach (0.00 / 0)
We have a housing bubble. I don't think it is either doable or desirable to keep most of these folks in their homes. Housing prices need to become sustainable.

I'd like there to be a housing component. But it shouldn't be at such levels as to keep housing prices unsustainably high. I'd much rather see financial aid to help people who are losing their houses get settled into affordable rental homes and a relatively clean credit line.  

[ Parent ]
it's nice to say that there's a macroeconomic problem (0.00 / 0)
but people need homes.  full stop.  i dont care whether it's a mortgage forgiveness programme with subsidies that allow them to pay for rent or what - though making people move unnecessarily is uesless.  what i do care about is whether people who were buying homes as commodities abuse it - and THAT should be checked.
[ Parent ]
Yeah I should be very clear here (4.00 / 1)
Keep people in their homes but not necessarily as owners.
[ Parent ]
<b>An 11th hour alternative to the moral hazard and trust issues with Paulson's bailout plan</b> (0.00 / 0)
Reader WP on the Sic Semper Tyrannis blog proposes a Federal Collateral Guarantee Agency, see http://turcopolier.typepad.com...

Instead of a top down rescue, a bottom-up rescue would serve the country better and be cost effective.  Instead of rescuing bankers .. defaulting borrower's obligations would be guaranteed .. with the goal of ending defaults and empty properties and making sure families are not enslaved by usurious debts.

The Federal Collateral Guarantee Agency would pay the lender the difference between between what a currently defaulting borrower can pay, as established by means testing, and a 20 year preferred fixed rate loan.  The agency acquires a first lean on the property and acts much as a bankruptcy court.  These new preferred terms would raise many mortgages above the waterline.  Both foreclosure suppression and assignable preferred mortgage terms would stabilize real estate markets.  Defaulting credit card debt would also be converted to a preferred fixed rate.  Participating lenders would be required to limit future credit to non-usurious rates enforcing responsible lending practices.  Once defaults are eliminated, destabilizing credit default swaps could be eliminated.  Since action is only required on the few percent of loans which are currently in default and the cost of addressing these loans can be accurately determined, taxpayer money is positively leveraged and well managed.

These actions could quickly establish stable consumer and small business credit markets, reestablishing banking confidence.  Consumer access to financing would be enhanced, stimulating local economies.  Addressing the mortgage crisis removes the stimulus which was toppling the Wall Street's house of cards.  This does not address the negative effects of excessively leveraging mortgages which have already failed.  But maybe that is exactly what we want the market to punish, and the lesson to be learned by Wall Street.

Standing the bailout on its head could be a very good strategy.

There Is No Crisis--Summary | 64 comments
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