Let The American People Make The Deal

by: Chris Bowers

Thu Sep 25, 2008 at 22:06


The public thinks a deal needs to be done, but also hates the deal. Check out these polling numbers, both taken on September 19-22 by different firms:

"Do you think the government should use taxpayers' dollars to rescue ailing private financial firms whose collapse could have adverse effects on the economy and market, or is it not the government's responsibility to bail out private companies with taxpayers' dollars?"
Use Taxpayer Dollars 31%--55% Not Government's Responsibility

"As you may know, the government is potentially investing billions to try and keep financial institutions and markets secure. Do you think this is the right thing or the wrong thing for the government to be doing?"
Right Thing 57%--30% Wrong Thing

The public thinks that something needs to be done, but they don't want to hand over cash to failing financial firms. This is a clear indication that the public is unsettled, and that opinions can be changed. As such, there is no political need to rush into a deal, but there is a need to keep the debate going and offer other alternatives. With an election in forty days, it seems like an obvious time to actually have this public debate.

The public needs to have a debate on this, and then arrive at a group decision in forty days. Even thought he public thinks that something needs to be done, they don't want just anything to be done. This specific deal is being rammed down the public's throat despite overwhelming opposition. That isn't right. In this case, I hope that someone, anyone, blows up the deal, so that we are allowed to have this debate. If it is Pelosi's unwillingness to pass a deal that only Democrats will be blamed for, I'm fine with that. If it is House Republicans who want to eliminate all capital gains taxes to solve the problem, that's fine. If it is progressives who demand bankruptcy review and reform, that's fine. Hell, if it is John McCain, that is fine. The point is that the "deal" needs to be stopped so we can have a public debate on this.

Stop the deal. We don't need an immediate decision--the only reason Congress wants to wrap this up quickly is so they can go campaign. Fine--they should stop the dealmaking, go and campaign on what they believe should be done, and then let us decide. We don't need bi-partisanship 40 days before an election. Give us a choice, and let us decide. We don't need the major decisions already made for the voters 40 days before an election--major decisions like these are why we are supposed to have elections in the first place.

We don't need a deal now. We need a public debate. Someone, please give us that chance. This call for bi-partisanship 40 days before a Presidential election is one of the most gratuitous examples of trying to deny the public a choice I have ever seen. Blow up the deal. Let the people decide.
Chris Bowers :: Let The American People Make The Deal

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Let The American People Make The Deal | 76 comments
Paul Krugman on What To Do (0.00 / 0)
Intervene at step two, not step four...this reads as easily as Krugman does so well:

http://www.nytimes.com/2008/09...

Chris you already got your wish. (4.00 / 6)
And it was John McCain who blew up the deal.

I'm done with this bullshit.  Yesterday, I would have been happy if they had pulled together a deal with equity shares, strong oversight, executive compensation limits, and the restructuring of mortgages.  We weren't going to get a smaller amount and I was ok with that--largely because I think it's important to keep people in their houses.  

Today we heard that, in addition to all that, we might actually get a smaller outlay of $250 billion initially.  While that's nothing to shake a stick at, it's better than $700 billion.

But this gets all fucked up because McCain's numbers are tanking.  But what's his proposal?  His proposal is to cut taxes and remove more regulations.  Something that absolutely no one thinks will work.  

So, I say let him have it.  Make him own that deal--we don't even have to pass it.  We just need to make sure that everyone knows what he wants.  

In the meantime, I can't take anymore of this, and I am changing my mind.  I with you all.  No bailout until the election.  

I think McCain has just blown up the economy (4.00 / 1)
along with his radical conservative friends.  I still think cooler minds may still prevail, though.  I, like you, was okay with the deal cut by Dodd.
[ Parent ]
Me 3 (0.00 / 0)
The Pitchfork Perfectionists around here, including Chris in this very article, are stubbornly refusing to separate the Paulson proposal from the Dodd proposal. Chris points to a survey taken before the existence of the Dodd proposal.
[ Parent ]
The Dodd plan was a half-measure (0.00 / 0)
It improved the Paulson proposal. That's not good enough. Starting from scratch and writing something that is clearly differentiated from the Paulson proposal and cannot be confused with it (and thus smeared) is crucial.

And it would also get us a better bill.

Forgotten Countries - a foreign policy-focused blog

[ Parent ]
Krugman appears to disagree (0.00 / 0)
He argues today that Dodd and his colleagues are the adults in the room and that Dodd is on the right track:

http://www.openleft.com/viewQu...

[ Parent ]
I disagree. Tonight we have another bank, Wash Mutual (4.00 / 2)
failing and bought up by JP Morgan.  We had a money market go below $1/share last week, with the Fed having to step in before disaster.  Oil went up $25 in one day.  I think if we let it go until January, we will be waking up to a new world, something far more frightening than the one we live in today.  I think it fair to say that I hate the idea of bailing out firms that created the mess (with help from borrowers who took loans they could not afford, whether unwittingly or not), and so do most people.  But what I dislike more is sitting around pretending the problem is going to solve itself -- I still remember when the sub-prime mortgage market crashed, and for a long while no one did anything.  And then the domino effect kicked in.  

I think the problem is Bush is the boy who cried wolf.  He has run to his fear crutch one too many times, and now too many don't believe him (and really, it is his economic team who has told him what has happened with him just reading what they told him to say).  But I think in this case, his dire predictions are correct.  

Dodd has improved the plan immensely, and at least the last deal before the bizarre meeting at the WH, it started with $250 billion, and could be shut down after that.  

In the end, I find myself a dissenter on the lib blogs on this issue.  I also am not naive to the risks of the plan and the notion that it will not work.  But if you took a look at the House GOP plan, which is the biggest joke ever, you see that continuing to talk about it into oblivion is a very poor option.

Im in agreement with this (4.00 / 2)
I've been pushing for the bank bond holders to write down debt as a means to create capital, but barring that miracle I believe you are right.

I've also never agreed with Chris' position that there is absolutely no problem. there is a credit liquidity problem growing.

Michael Bloomberg, prince of corporate welfare

[ Parent ]
That isn't my position (4.00 / 3)
My position, as it was when I first wrote about this on Sunday, is that we don't do anything before the election. Of course the economy needs to be fixed. But doing it now, before the election, is falling for the shock doctrine, and just plain wrong.

I don't trust any deal that Bush would sign. We need to circumvent him. Let's do it by having a debate, and then an election, instead of a ram-rod.

[ Parent ]
Agree. We are a nation conditioned by infomercial selling (0.00 / 0)
And this is more of the same.
[ Parent ]
Um... (0.00 / 0)
The Shock Doctrine says that when a society is shocked it becomes vulnerable to proposals for radical change.  

Yes, we need to be vigilant as to the solutions that are being proposed to address shocks  But it does no good to pretend that there are not real shocks occurring.

I do not know how serious of a liquidity crisis we are facing.  I do not know whether we can wait until January to address that problem.  We may or may not not have the time for that.

My argument has always been that if we are truly facing a liquidity crisis then we should implement a policy that is best designed to address a liquidity crisis.  That isn't the Paulson Plan (and to a large extent the Dodd plan is just a kludge).  So, yes, it should be strongly opposed.

The Paulson plan is proposal to give dumb/greedy/risky investors an "undo" button.

[ Parent ]
We don't need to wait till January .. (0.00 / 0)
just till later November .. if the Rethugs get crushed .. like they probably will .. what are they going to do? ... filibuster more? .. to what point?
[ Parent ]
A serious problem for serious people (4.00 / 1)
But we're in a superb position to "fix" the economy now.

Do it by initiating an 80% tax on intangible assets above $10 million and use the funds to purchase equity in the relevant sectors.

If Paulson et. al. demand that the problem be fixed, they have the ability to fix it-with their own money.

If they don't want to make the necessary sacrifice, then they're either greedy or they're dishonest.

What's not to like?

An article by Collins and Muhammad offering a slightly more sober take on the subject is here:

http://www.alternet.org/workpl...

[ Parent ]
Would you guys pay attention, we (0.00 / 0)
have a solvency problem, not a liquidity problem.

But Chris is right, the problem is one of many Repug rule is leaving for us. They want us to own their problem, and they cannot control McCain or the house Repugs.

Let it go for a while, 40 days, and work on a democratic plan to be implemented on Jan 21..., after Obama wins. Look at the polling above, we are going to win this, lets fix the problems then, but have a debate about Bailout now, make it the center piece of the rest of the campaign...

Great post, Chris. Agree all the way.

[ Parent ]
Huh? (4.00 / 3)
WaMu was going to fail anyway. Its failure has been baked in the cake for over a year. Even if the bailout "deal" was finalized, voted on, and signed by Bush WaMu would have failed.

And yet this isn't doom. I know a LOT of people with deposits in WaMu. The FDIC worked as intended. The worst hit will be the 4,000 workers in the Seattle area at WaMu HQ, many of whom are likely to lose their jobs. But this isn't a disaster and this isn't a time to lose your head. We did that in 2001 and look where it got us.

He is still crying wolf.

[ Parent ]
One More Thing (4.00 / 16)
What this clearly shows is how deeply anti-democratic all the "bipartisan" yammering is.  The last thing they want to do is go out and face the people, present their arguments to them, and then live with the consequences.

They want to do the deal in private, with a bare minimum of public display so they can get their photos taken, and then go out and campaign on the same pre-tested insincere blather they've been using to bamboozle the American people for the last 15-20 years or so.

The GOP reps will use one brand of blather, the Dems will use another, but all of it ultimately will have precious little, if anything, to do with the fundamental issues that Democracy is supposed to be all about.

"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

that pretty much sums it up for me (4.00 / 2)
%sigh%

"I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that."
-Lawrence Summers
[ Parent ]
Me too. (0.00 / 0)

[ Parent ]
The main interest of the Forbidden City (0.00 / 0)
is keeping the walls strong and the peasantry at bay.
[ Parent ]
I'm just stunned (4.00 / 3)
at how stupid Democrats are.  Not just at the politics of this.  That I expect the Democrats to get wrong.  Which they are.  But not stunning.

I'm just blown away that they don't seem to understand the economics of what is involved in the slightest.  If they did, they would never accept the Paulson proposal even as a baseline.

Do you understand the economics involved? (0.00 / 0)

[ Parent ]
As Bob Dylan said... (0.00 / 0)
You don't have to be a weather man to know which way the wind blows.

To follow up on that analogy...a hurricane and a tornado are two different weather-related threats.  But you don't have to be a meterologist to know that the appropriate responses to each threat are different.

[ Parent ]
Look they are not well educated (0.00 / 0)
And any that are have not kept up with their fields. They are decades behind.

I mean does anyone think Pelosi is a really intelligent woman? A savvy politician yes. I knew what she was going to be like when she came in in January after the 06 elections with a face lift. And not a great one either. Hillary's is much better only her eyes are a little too sixteenish for me.

Really bitchy of me to say that. But serious women just don't do face lifts without thinking very long and hard about all the consequences of people knowing you did it. And believe me, women know when another woman has had some work done. Politics is not Hollywood so what is the reason except to use the Hollywood model to imitate.

I had the utmost respect for Ava Gardner, that sublime beauty, allowing herself to be photographed in her old age with her ravaged, uncut face. What a statement she made with that image of herself.

[ Parent ]
politics s Hollywood... (4.00 / 2)
A Ward Leader in Philly who shall remain nameless once told me that politics was Hollywood for ugly poeple.
[ Parent ]
It is isn't it. (0.00 / 0)
Where in Philly? I owned and lived on 5th and South next to Garland of Letters. I still miss it.
[ Parent ]
I want to know (0.00 / 0)
why the Democrats can't just say to Bush, the Congressional Republicans, and McCain, come back when you have a plan you all agree on? Otherwise shut up!

Barney Frank looks like a blithering idiot--no mater how ernest he is.

ps: Palin is Failin'. Watch for a Lieberman switcheroo in coming weeks.
I'm on record.

Shaking my head (4.00 / 2)
at Frank complaining at House Repubs for not falling in line with the Decider.

WTF???

"I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that."
-Lawrence Summers

[ Parent ]
I want to know (4.00 / 8)
why the Democrats can't come up with their own plan.

I'm not talking about "fixing" the Paulson plan.  I'm talking about a plan that Democrats would be happy to enact, not merely willing to tolerate.  

A lot has changed since F.D.R. was President and the solutions that were used back then obviously can't be pulled off the shelf and implemented in a 21st Century economy.  But why don't Democrats take the opportunity to remind Americans that we've face these types of problems before.  That we should be modifying F.D.R.'s plans not Henry Paulson's.

[ Parent ]
Why? (4.00 / 1)
Because they are a bunch of well-meaning air heads, too self centered to see the big picture. That's my diagnosis.  
[ Parent ]
And corrupted by campaign cash ... (0.00 / 0)
from big business
[ Parent ]
They are highly risk averse (4.00 / 7)
I don't mean that in the "we'll lose an election if the GOP calls us names!!" way, though that's also true.  I mean that they are deeply, deeply committed to the structure of the status quo, and never, ever do anything that threatens its stability.  Impeach Reagan over Iran/Contra?  No, that would undermine people's faith in our system of government.  Fight the Supreme Court in 2000?  Uh uh.  Defund the Iraq War?  No, too risky.  Enforce or subpoenas, or impeach Bush & Co?  No, we can't upset Institutional DC like that.  After all, we want to run this place in a couple of years!  Can't mess it up before January 2009!

We're not going to get them over this fear.  We just need them to see us as a greater threat to institutional power than bank failures.

[ Parent ]
Congress is just not that smart. (0.00 / 0)
Even Bill had a decent plan offered on  The Daily Show.
[ Parent ]
He's stuck with Palin (0.00 / 0)
He can't afford to dump her at this point. The fundy whackjobs love her. She's one of them: dumb as a brick and frequently pregnant, like a good Christianist sperm receptacle should be.
[ Parent ]
Where's Obama? (4.00 / 1)
He cannot afford to be overshadowed in this whole mess. I have absolutely no faith in American people's ability to see through McCain's desperate grab for some "leadership in a crisis" media cred. Obama needs to immediately generate some press to position himself as a strong advocate for a fair massive rescue package for middle class families at risk of losing their homes because of predatory lending or declining economic circumstances. If he doesn't become the face of a sensible rescue plan right now and replace Dodd and Frank as the Democratic go-to guy on this issue, the election is lost.
He's not on the banking committee (0.00 / 0)
And neither is McCain, which is why neither need to be in D.C.
[ Parent ]
Why he won't (0.00 / 0)
He won't since his two main advisors on this, Rubin and Summers are up to their necks in the rip-off as the main Democratic enablers of Glass-Steagal repeal.

He's got to dump then now if he wants to have an credibility on this.

[ Parent ]
you sound like a House Republican, Bowers... (4.00 / 3)

...except even they offer an (albeit idiotic) alternative.

We don't need a deal now. We need a public debate.

How the hell could you possibly know this?

To continue to state, as you have, that you have not yet been convinced why a deal is necessary now is not the same as actually pleading a substantive case as to why a failed deal is acceptable.

YOU bring the radical proposition here -- this puts the burden of proof on YOU.

If you are not able to make a substantive technical case, based on actual economic/finacial data, as to why inaction is a tolerable result, then you need to stop talking about this -- because you clearly have nothing to add.

substantive technical cases here (4.00 / 2)
There are more choices than the one-and-a-half we've been presented since last week. Why isn't Congress looking at them? Instead of tweaking Henry Paulson's proposal, why didn't they eviscerate it, toss it out onto the pavement, and start with a blank sheet of paper? Why are they so determined to fork over taxpayers' cash for a pig 'n poke?

http://www.dailykos.com/storyo...

[ Parent ]
nope, there's no substantive techincal case for inaction in any of these (4.00 / 1)

T., I went through the linked materials; they include case for inaction:  

-- Reich is insisting on bankruptcy provisions.

-- The economists' petition criticizes Paulson Plan as unfair, ambigious and potentially detrimental to otherwise self-correcting markets.

-- Dean Baker wants tighter accountability.

-- Jamie Galbraith calls for a solution based on a beefed-up FDIC.

-- Roubini stresses need to also add on an HOLC program and explicit, stand-alone recapitalization mechanism.

-- Henwood is discussing necessity of deeper, wide-scale structural reform -- speaking not necessarily in the context of an immediate crisis.

Again, Chris confidently states that there's no rush here, that inaction is just fine.

Based on what evidence is he deriving this unorthodox confidence?


[ Parent ]
sorry. one correction. (0.00 / 0)
Language after semi-colon in first line above should read: "they include NO case for inaction:"
[ Parent ]
you missed (4.00 / 1)
the cases for a public debate .. not immediate action .. and that's what Chris is proposing. You missed


For these reasons we ask Congress not to rush, to hold appropriate hearings, and to carefully consider the right course of action, and to wisely determine the future of the financial industry and the U.S. economy for years to come.

We are not there yet. Regular consumer and business lending, aside from a couple of specialized sectors, looks like it is continuing, and the real economic indicators so far are consistent with a mild recession, not a severe one - but we are still in the early stages of this, so it's very hard to say just how bad it's going to turn out.

The public should also demand that some genuine outsiders, representatives of labor, consumer groups and other non-Wall Street segments of society, have a direct oversight role in this deal.

Last week, in the panic, the federal government could fund itself, short term, for free. It could have raised money for 30 years and paid less than 4 percent. That's far less than it cost back in 2000. No country in this situation is broke, or insolvent, or even in much trouble.

[ Parent ]
good catches but still not there (0.00 / 0)
The first quote is from the economists' petition.  Yes, it does call for caution and debate, but makes no substantive techincal case justifying a delay until after inauguration as Chris proposed in his original piece on Sunday.

I am going to ask what might be a stupid question, but why is it important to pass any bailout legislation at all before 12:30 p.m. eastern, January 20th, 2009? As I write this, that is less than 121 days away. Surely, if there is a bailout, it will take several weeks to pass it. In all likelihood, it will take more than a month.

Second quote is from Henwood.  He's speaking AT THE END OF MAY.  That we were "not there yet" then clearly cannot tell us is we are "there yet now."

Third quote, from the Baker piece, is not on point.  Again, he merely insisting on specific oversight terms to be included in the plan, not defending delay.

Last quote, from the Galbraith op-ed, also not on point.  Governmental insolvency is not the issue here, issue is credit freeze-up.  Paulson calls for an RTC-mechanism, while Galbraith wants to expand FDIC.   No denial of situation's urgency or for need for aggressive action.

[ Parent ]
But Gailbraith Is Saying "No Bailout Needed" (0.00 / 0)
The Op-Ed was titled "A Bailout We Don't Need."   How much clearer does he need to get?

"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 ]
gander time (0.00 / 0)
so what is your substantive technical case, based on actual data, in favor of the modified Paulson plan - the "deal" that is the alternative to inaction?

particuarly, how do you respond to Krugman's three points here? the last one, especially: "Even if it works, the system will remain badly undercapitalized."  

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

[ Parent ]
burden of proof is on the goose here -- that was my point! (0.00 / 0)

But with great temerity and awe, I'm happy to do my best to respond (with much help from brains much larger than my own) to Professor K's three points:

1. They're still offering something for nothing.  In major financial crises, the beginning of the end comes when the government accepts that it will have to pay some cost to recapitalize the banks. But in this case they're still insisting that it's basically a confidence problem, and it we can wave our magic wand - a $700 billion magic wand, but that's just to impress people - the whole thing will go away.

We still don't know, of course, but there's a legitimate case to be made that the slap-in-the-face solves BOTH problems.  

See Brad DeLong here: http://delong.typepad.com/sdj/...

2. They're asserting that Treasury and the Fed know true values better than the market.  Just to be fair, it's possible, maybe even probable, that mortgage-related paper is being sold too cheaply. But how sure are we of that? There are plenty of cash-rich private investors out there; how many of them are buying MBS? And isn't it bizarre to have officials who miscalled so much - "All the signs I look at," declared Paulson in April 2007, show "the housing market is at or near a bottom" - confidently declaring that they know better than the market what a broad class of securities is worth?

Again, pricing is still an open question.  Felix Salmon discusses a one possibly sensible approach: the central credit exchange proposed by Gilad Livne and Alistair Milne.

Salomon: http://www.portfolio.com/views...

Livne and Milne: http://blogs.ft.com/wolfforum/...

3.  Even if it works, the system will remain badly undercapitalized.  Realistic estimates say that there will be $800 billion or more of real, medium-term - not fire-sale - losses on home mortgages. Only around $480 billion have been acknowledged by financial institutions so far. So even if the fire-sale discount is removed, we'll still have a crippled system. And Paulson is offering nothing to fix that - unless he ends up paying much more than the paper is worth, by any standard.

Again, both DeLong piece and the Livne & Milne piece suggest that large-scale liquidity solution also takes care of solvency.

Mark Kleiman fleshes this out, noting that since banks face losses not only on their own toxic sludge but also on their holdings of other banks' paper, greater liquidity for any one bank will tend to make the other banks more solvent.

Kleiman: http://www.samefacts.com/archi...

With respect to all three points, Kleiman also says:

If the Garbage Pail Agency can develop some sort of auction or precentage-proffer or clawback system that keeps the banks from selling only their lemons, it will be able to offer much-better-than-vulture prices without overpaying, because it will be buying assets better than the vultures can buy. Add to that the confidence boost, which will actually increase the value of all financial assets, and it's quite possible that the Garbage Pail Agency could rescue a bunch of banks and turn a profit.
Now "quite possible" isn't the same as "true," and the auction-design problems look like hairy ones, especially if you have to solve them quickly. But unlike Kevin, I think that DeLong might well be right.

Of course, they may be wrong.  But I don't see how this is fatal.  If it proves necessary, Treasury can also supplement with an RFC, as Roubini calls for in the piece T Maysle links to above.  In any event, would be from a much stronger base.  

(With respect to Dodd's proposed contingent equity grants, now apparently off the table, James Wimberly proposes adding non-contigent equity grants to address Krugman's undercapitalization concern; Kevin Drum below has interesting take on non-necessity of the equity component.)

Wimberly:  http://www.samefacts.com/archi...

Drum:

Maybe I'm an idiot. It wouldn't be the first time. But I continue to be a little perplexed by the mania for equity. The removal of toxic waste combined with a restructuring of debt either does some good or it doesn't, and if it does, then let's use it for publicly held banks too. If the borrowing firm eventually goes bankrupt, senior debt is better than equity anyway. If it prospers instead, equity will turn out to be the better deal, but I don't really care about that. I don't especially want Uncle Sam playing the market, and I don't especially want Uncle Sam to own potentially large stakes in half the banks on Wall Street. I just want the best chance of getting our money back.

http://www.motherjones.com/kev...

[ Parent ]
Obama and the Dems (4.00 / 6)
should propose a short-term $100 Billion taxpayer investment in banks in trouble, buying equity, and thus a share of assets and debts, then adjourn for the election.  Let's then have the debate Chris wants, otherwise called an election.  Let's hear what McCain has to say about fixing the economy.  I hear this is his strength.  He learned all he needed to know about the economy while in that POW camp.

Pelosi just now live on C-SPAN.

I Don't Have A Problem With This (4.00 / 3)
I don't really favor it in and of itself, but as a strategy to calm things down, and create the opportunity for having the sort of democratic debate and resolution we should have, I'd be willing to pay that price.

"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 ]
That was the Idea, and (4.00 / 1)
to allow Obama to be part of that calming process.

If you are not watching C-Span, turn it out....Hoyer just praised Boehner....!!!

[ Parent ]
What A Gas, On C-SPAN (4.00 / 3)
Pelosi, Frank, and Hoyer explain how well they carried out Bush's request and even added some oversight so we could watch all that taxpayer money flowing effeciently to the rich barons of Wall Street, and it all fell apart because of the principled stance of the House Republicans (Frank: "perhaps working with Sen. McCain").
My head is spinning (4.00 / 1)

  So there's no deal. Good. The Paulson plan was a disaster.

  But now the House Republicans are throwing a hissy fit and storming off. I'd attribute this to them having an organized master plan to boost McCain's faltering stature, but I can't imagine that the optics of this HELP them. There was a plan in place -- and it wasn't Paulson's plan -- and the public wants SOME sort of a plan. And now if the markets tank tomorrow it's going to look like a direct result of the Republicans throwing a monkey wrench into the works.

 And McCain's counter-plan -- lower corporate taxes and less regulation -- is a complete joke. That's the kind of thing that GOT us here, and the Democrats SHOULD be hammering this point every MINUTE.

 The endgame here is above my paygrade. Either there's a massive masterplan here to elect McCain, or the Republicans really aren't the political geniuses they're made out to be.

 And if the Democrats hold firm and present the facts, they might yet get away with the upper hand here and seal an Obama win. Because it's the GOP providing all the histrionics.  

"We judge ourselves by our ideals; others by their actions. It is a great convenience." -- Howard Zinn

The Republicans ... (0.00 / 0)
The endgame here is above my paygrade. Either there's a massive masterplan here to elect McCain, or the Republicans really aren't the political geniuses they're made out to be.

aren't that smart .. because we here can all see right through them .. the DC Democrats are dumb as rocks .. that is the problem .. they suck at playing poker

[ Parent ]
The way things have worked out... (4.00 / 4)
I think Paulson, however awful his original plan was, sincerely believes there is a crisis.  By all accounts, he compromised pretty damn quickly with congressional Democrats - to the best of my knowledge, this is the first time the Bush Administration has ever compromised about anything meaningful with Democrats.  If it was all just a naked power play, they'd string it out and play chicken with the Democrats until they got everything they wanted.  

Of course, it's clear that McCain/some of the congressional Republicans are now being unfair actors, and see this as a way to play chicken.  The fortunate thing for us is they haven't aligned as being anti-bailout.  Which means they aren't likely to gain much electorally out of this pile of shit.  Let's just hope Paulson & co. is wrong about this being needed however.  

Thinking about it a bit... (4.00 / 2)

 ...the House Republicans' histrionics, along with those of their pied piper John McCain, are an attempt to distance themselves from Bush. And maybe it is all coordinated.

 But this Big Political Plan seems too clever by half. There are just too many steps involved -- and with a major bank crashing tonight, it now just looks like the Republicans pulled the rug out from under a deal that might have prevented this.

 So there's really no telling how this is going to play with the low-information voter. But I'll say that I'm glad to have Barack Obama being the face for our side of the argument.  

"We judge ourselves by our ideals; others by their actions. It is a great convenience." -- Howard Zinn

[ Parent ]
It's somewhat coordinated.. (0.00 / 0)
...this is their golden opportunity to distance themselves from Bush, McCain included, while they show their "purity" by being "true conservatives" and allowing the free market to work itself out.

This is religion to them... they can't believe that their economic philosophy is a total failure... so, they go in with a Hoover-like attitude, and are willing to sacrifice the country to do it...

I don't agree with the paulson plan, but there are lots of people on both sides with their heads in the sand thinking there isn't really a problem... there is... and it's big!  How to solve it is the question.

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 ]
Supposedly, Paulson was literally on his knees... (0.00 / 0)
...with Pelosi begging her to push the deal.  He was actually kneeling and begging.

She reminded him that it wasn't her side that scuttled the deal...  He replied that he knew that...

Paulson is being sincere... the house republicans are willing to sacrifice the country for political gain....

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 ]
Listening to the House Republicans (4.00 / 2)
explain their insurance plan to "unclog" the financial system gives me a bit of sympathy for Frank, etc.  This insurance program is said to be "self-funding".  What a bunch of crap.  If there is a big crisis, charging banks that are nearly bankrupt enough in insurance premiums to cover the cost of insurance payouts on all those worthless mortgage backed securities they own is laughable.  These House Republicans were careful not to say it would work.  They just say it should be studied.  Our side is a whole lot smarter, and a whole lot less political on this issue, but that does not make them correct.  They aren't.  The bailout is horrible policy.
Could someone clue me in. (0.00 / 0)
Just why is the financial system going to collapse? Now? Or next week? How is that known? If money for credit is needed, why does it have to go through the corrupt and insolvent financial entities instead of through solvent ones?

Obviously I know nothing but there are too few answers and to many absolutes. Even if this is a legitimate crisis, coming during this administration, it smells to high heaven.

Well, it's started again today... (4.00 / 1)
...Wamu failed...

tomorrow will be pretty ugly on Wall Street...

Next week, the shit will start hitting the fan again...

By next month, even the guys who live in Noweheresville, Nebraska will even feel it....

There is no money, and what money is around is worthless... the economy cannot grow without money... shrinking money supply leads to a shrinking economy... and with an economy built on overconsumption and debt, that is going to lead to a collassal meltdown of epic proportions if not stopped or slowed down somehow...

The key is really to slow the process down... make sure that bank failures don't lead to runs on the financial system... spread them out, and let the economy land softly...

The economy is in bad shape and will be for quite some time... you aren't going to change that, but you can soften the fall, and that's what congress needs to do.  And they do need to do it pretty quickly....  the money just isn't there at the moment, and without money, businesses fail...

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 ]
Hysterical Exaggeration (0.00 / 0)
This:

There is no money, and what money is around is worthless

is hysterical rightwing sky-is-falling talk.

Yes, things are serious. But panic doesn't help solve the problem.

Panic is the problem.

"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 ]
Paul (0.00 / 0)
There really is no money.  Go to a bank.  Ask for a loan.  Go to more banks.  Do the same thing.

The largest automobile chain int he US shut its doors yesterday.  Why?  They had no access to financing, and GM shut down all their leasing programs.

You'll find out pretty quickly that there is no money available for anyone or anything.

It's not right wing talk... ask Krugman.  He's no right winger.  Seriously.  There IS no money.  

why can't people understand that?  Is it 'cos Bush is aying it?  Well, there are a lot of non-bush people saying it, too.  If Bush said the sky was blue, would you not believe it 'cos it's Bush saying it?

You don't WANT to believe it's true, but, unfortunately, it is...  there is no money.  period.

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 ]
Krugman Isn't Saying This (0.00 / 0)
Yesterday, I spoke to an economist at the Los Angeles Economic Development Corporation.  And she didn't say it either.  Regarding cutbacks in commercial development loans she said there were "tremors," nothing more.

You are wildly, hysterically exaggerating.

It is true that liquidity is the macro-economic problem, rather than solvency.  Meaning that we should not be worried so much about particular firms "failing", so long as we address counterparty repayment, since that is where the liquidity problem comes to the fore.

"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 ]
Dems blinded by myth of hunkydory (4.00 / 6)
Dems keep searching for some magic bullet.  They bought the Depression/No Depression choice poised to them.

Then accepted the plan, with a few bells and whistles at the margin.

They think this will allow "our system" to continue.

That is not an option.

There are two problems, and only one can realistically be addressed.  Liquidity and solvency.  Something can be done to address liquidity.  But there are many insolvent brokers, banks and others; for them, it is time for bankruptcy.  That will prompt a recession, but that recession was baked into the cake long ago.

Trying to dodge the spectacle of bankruptcies and the disruption of a recession is the reason that Dems have signed onto the Paulson "throw huge money to bankers" strategy.  They are not being realistic.  And, in the end, when the public finds out that hundreds of billions went to the old boy network, and nothing meaningful went to consumers, this will live on as the Dem bailout of Wall Street, and Dems will pay a terrible price at the polls for many cycles.

Something must be done -- for liquidity.  This can be easily done.  For example, we can buy good securities -- plain vanilla mortgage backed securities at market value last week.  This will provide liquidity, and buy some time for further legislation to help homeowners and shore up local banks.

What we should never do is accept the credit default swaps and other speculative trading bets that are the real evil that have bankrupted so many.  Under Dodd's bill, that shit is bought.  It is just massive money to speculators, and it won't be enough, it won't work, and the public will hate Dems forever, and the debt will kill the dollar with many, many other consequences.

Time for Dems to talk about bankruptcy for the big boys.  Lots of them.  And muddling through.

Desperately hanging onto the myth that hunkydory is possible, somehow, is the road to ruin.

Absolutely correct (0.00 / 0)
And the dems have been set up for this. Obama will not be able to pay for a single program that he has promised. We will be in a depression anyway and take the hit for it.

Rubin even takes it back to Clinton and Fannie Mae and Freddie Mac.

[ Parent ]
Thank you (0.00 / 0)
That is a useful explanation.
[ Parent ]
Essentially Correct (4.00 / 1)
Yes, in the near to medium term, a great many of the fools and thieves on Wall Street are going to go under. That inevitability must be faced squarely and soberly. And...ahem...that is what the electorate actually wants. It's called justice.  

Additionally, some "big name" banks, the ones that got involved in subprime lending, mortage backed securities, and credit default swaps, are going to go under. But it is important to realize that the vast majority of banks in the United States, your local bank for example, did not get involved in such things, and they should and will survive.

As I see it, 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.

But look, consider this: there are probably a thousand different ways to restore confidence and cushion the market.  The past week has been so bizarre because of the thousand possible approaches available to us, Bush and Paulson were asking us to choose option number...well pick a number..."953"...wherein we give one man $700 Billion of taxpayer money and he gets to spend it on whatever he wants, whenever he wants. WTF?

Who is this man? God? Einstein? In fact, just the opposite: he is a federal employee who has been doing a TERRIBLE job. Moreover, as a Goldman Sachs man, he is up to his gills in conflict of interest problems, not to mention the fact that his firm, Goldman Sachs was actually instrumental in causing this crisis. This man should be bankrupt and in jail. So, even if you were to be stupid enough to opt for approach 953, this is NOT the person do the job.  Idiots, choose one of the other 999 approaches available to you, one that is cheaper and fully progressive. You have the financial world by the short hairs. Pass something fully progressive.  

Third, you need to pass legislation to help people stay in their homes including possibly, facilitating refinancing to lower, fixed rate mortages.

Sell all your actions with strong leadership. Ahem...is Obama that leader?  For Obama, sitting on the sidelines was an option 48 hours ago, but the game has now changed. It is now McCain versus Obama, front and center, on this. Such was John McCain's wish: he made the move. The chessboard has changed.

Sure, the stakes have never been higher...but look...this is why you play...for moments just like this. Step and do the job.

[ Parent ]
watch out for legislation regarding swaps (0.00 / 0)
you cannot simply declare swaps null and void, or the government will end up owning them all

Winstar SCT decision; takings law, etc.

You could make a new requirement that they be traded publicly, etc.

The better approach is to throw the bad actors in bankruptcy court, and let the bankruptcy court declare that the swap holder can recover little or nothing

But mostly I agree with what you wrote.

[ Parent ]
Yes...How To Defuse These Bombs... (0.00 / 0)
Absolutely agreed. You cannot directly nullify these private contracts. But...you can regulate the heck out of the CDS's.

I am not sure if forcing them to be publicly traded gets us to where we want to go.  Yes, it helps the market, the government and investors in general understand the nature and extent of these.  It helps with valuation that's for sure.  But...ironically, bringing full sunshine to the extent of this particular problem, at this point in time with everything on the edge, might not be the best idea.  A lot of banks, institutions and investors are hiding these bombs (via suspect valuations) in their financial attic...for good reason.

A more creative approach might be to gradually phase in a federal program wherein these instruments (weapons of market destruction to paraphrase Buffet) can be turned in and traded for something that is presently substantially worthless (eg cheap), but has tremendous equity upside potential. Think of it as similar to a weapons trade in program.  

You incentivize getting these out of the system.  As I see it, once you have these off the street, going forward, you should essentially ban these things. Go back to the old fashioned way of hedging. Look, not everything new...is good.

If it were me, I would have a program that is phased in gradually. The New York announcement on Monday was a good first step. Soon, you take step two, then three, then four.  Steps one, two and three should be done quietly.  About the time you get to step four, when you have your hands fully around the problem, you make the whole thing more "public."  You announce the weapons trade in program, and they flow through it in an orderly fashion.

But to be clear, a number of the instruments will have to be handled through the bankruptcy courts. Some of the bad actors are still going to have to pay and pay...until they go bankrupt.

[ Parent ]
Obama's FDR moment (4.00 / 1)
I mean that literally.

In 1940 FDR saw Britain was in a crisis, and needed US aid to help fight off the Nazi menace. But the American public's isolationism was still quite strong.

So rather than ram Lend-Lease down their throats FDR encouraged a "great debate" in the American public. He wanted people to discuss amongst themselves the merits of the plan. He didn't behave like the current Democratic leadership and try to cut bad deals behind closed doors. Sure, he was going to back Lend-Lease anyway, but he understood the value of democracy.

When he did get Congress to sign Lend-Lease in March 1941 here is how he explained it:

We have just now engaged in a great debate. It was not limited to the halls of Congress. It was argued in every newspaper, on every wave length, over every cracker barrel in all the land; and it was finally settled and decided by the American people themselves.

Yes, the decisions of our democracy may be slowly arrived at. But when that decision is made, it is proclaimed not with the voice of any one man but with the voice of one hundred and thirty millions. It is binding on us all. And the world is no longer left in doubt.


The deal was nothing but wishful thinking (0.00 / 0)
The financial industry will suffer a correction, but that will only help main street in the long run.  A lack of usurious credit will help the middle class bounce back and naturally the financial industry will lose a lot of its money.

The liberal wiki
Send an email to terra@liberalwiki.com
huh? (0.00 / 0)
A lack of credit will help the middle class?  How?
[ Parent ]
There will still be credit for people that can actually pay it back (0.00 / 0)
But yes credit for those who can't pay it back is terrible for them.

Those sears cards with 24% interest rates are not designed to help the middle class.

The liberal wiki
Send an email to terra@liberalwiki.com

[ Parent ]
I don't know (4.00 / 1)
I don't really think that the results of th market failnig will just be stupid store charge cards.  It's already hurting Car loans.  
[ Parent ]
Its perfectly possible to fix any problems of overcorrection (0.00 / 0)
Its perfectly possible to fix any problems of overcorrection after they have occurred.

Trying to prefix something that we only have a vague idea about is a bad idea.

However the point is that the markets should be correcting.  The financial industry was in a state of broad overreach and it should contract.

The liberal wiki
Send an email to terra@liberalwiki.com

[ Parent ]
I agree (0.00 / 0)
I agree that I think that the markets should do what they need to do.  There should have ben better egulation of these unethical mortgages over 10 years ago.  There should have been regulation over over leveraging.  Now we are where we are.

My point is that if it's just an issue of companies going ou of bussiness ans a small pull back in thecredit market, then we can let things lie where they may.  But if there is a chance o total failure in the markets, then we are screwed.

[ Parent ]
Catastrophy (4.00 / 1)
OK, so very person that I know or respect who knows anything about business says that we need a bailout fast or we could risk a financial catastrophe that would cost us far more than 700 billion dollars on top of inflation out the ass and unemployment reaching astronomical heights.  

OK, so what's the chance of this happening?  I assure you, it might be small, but it isn't zero.  Waiting 40 days so that the American people have input and feel all warm and fuzzy may just not be an option here.  Hey, the American people feel good about Sarbanes-Oxley, which is probably one of he biggest piece of poo financial legislation in history.

Just because Bush is an ass and Paulson ha delusions of grandeur doesn't mean that we don't need to do something ASAP.


Bailout for Main Street, not Wall Street (4.00 / 1)
Congressional Budget Office head says not only will this plan not work, it's likely to make the situation worse.

It's the problem I alluded to a week ago, and several times since. Most holders are still carrying this toxic trash on their books at unrealistically high values, to avoid a big problem: If the assets were written down to their actual values, these holders would apparently be insolvent. Our buying the sh*tpile at this actual value has the very same result: Bankruptcies.

The Feds would have to pay a fantasy premium (at taxpayer cost) to accomplish anything. But $700 billion isn't near enough when the total sh*tpile has a face value of more like $50 trillion. One and a half percent? The only possible way this could work is that the psychological effect of that first $700 billion is positive enough to start the heart pumping fantasy values through the system again, until years from now everybody might have slowly worked the sh*tpile out of the system.

I ask again, is this the best way to use our ammo? Besides, the five biggest Wall Street losers have already rolled over. What's left to save? We're already in a recession, plan or no plan, bailout or not.

Instead, we need to protect cash deposits, homes, jobs. That's where Main Street lives.

Quite apart from all of this, there's a political problem: Now that everybody's so panicked, we feel we have to do something, even if it won't work. Nobody wants to go back home and campaign on a do-nothing record.

Tonight's bad news is that Washington Mutual was declared insolvent and seized by the FDIC -- the largest bank failure in US history. JP Morgan Chase then bought the assets, and taxpayers didn't lose a cent. Gee, looks like the market is still taking care of itself.

Let The American People Make The Deal | 76 comments
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