If the rates are too high... (4.00 / 1)

...that means there IS a liquidity crisis 'cos people can't pay it...

I'd like to talk to this Harvard economist personally.... it seems that by arguing there isn't a crisis, she just admitted that there is very limited liquidity....

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!

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by: lord_mike @ Sat Sep 27, 2008 at 01:38:23 AM CDT

Probably Overstating (4.00 / 1)

I am guessing that Warren might just be overstating what Rogoff said here...but then again, I was not at the panel discussion.

Here is how Warren describes Rogoff's point:

At a Harvard panel discussion yesterday, economics professor Ken Rogoff made an interesting point: The liquidity crisis isn't real. Or, to restate it: Any liquidity crisis is caused by the promise of a government bailout.

I am guessing that Rogoff's point was not exactly this, but instead, that the prospect of the $700 Billion bailout hanging over the markets was presently resulting in EVEN LESS liquidity with respect to these toxic assets, and the money theoretically locked up in them. That makes some sense.

According to this idea, the market for these assets is kind of frozen, awaiting the entry of Santa Claus/Federal Government to help them establish new, Santa/Paulson-created valuations. Then, the market for toxic assets will be revived...like Frankenstein from the dead.  

I doubt that Rogoff would suggest that there was NO liquidity crisis, anywhere in the international financial system, prior to the bailout being proposed.  There was...and is...a liquidity crisis, particularly with respect to investors pulling their money out of mutual funds by the hundreds of billions of dollars each week.

Clearly, the system was not set up (as far as liquidity goes) for such a massive run to the exits from the mutual funds.  Right now, we, the taxpayers, are quietly loaning out billions of dollars to the financial sector in response to this run...each and every day.  Comfy?

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by: Demo37 @ Sat Sep 27, 2008 at 02:24:02 AM CDT

[ Parent ]

Hmmm (0.00 / 0)

I've heard plenty of people I trust say there is an issue.

But of course, economics is always a bit of mass psychology.  A liquidity crisis by definition means people are hording money, not that the money doesn't exist.

So in no way do I consider this "the last straw".  I do agree it is confusing and unclear.  This is why I previously stated I'd want a plan I could get behind even if there was no crisis.

But also note that if there is no crisis, then the odds of getting our money back through equity also goes up, right?  At least, that would be my uneducated guess.

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by: Mark Matson @ Sat Sep 27, 2008 at 02:02:07 AM CDT

David, I'm sorry... (4.00 / 3)

...but on this one, I'm going to trust the people who have been right on it every step of the way -- people like Nouriel Roubini.

Now, that doesn't mean that the proposed bailout solution is a good one.  But is there a huge problem that needs solving?  I kinda think so.

The biggest bank failure in US history just took place, every independent investment bank is now out of business and the US government has re-acquired Fannie Mae and Freddie Mac.  Some 6% of the $11-14 trillion in mortgages out there (subprime, alt-a and prime) are in trouble, and in some places (like SoCal) foreclosure resales are nearly half of all housing sales at this point.

Yes, we have a problem.  Saying it's partly psychological in nature doesn't mean we don't have a problem - because we do.  The real reason liquidity isn't flowing is that no one trusts they'll get their money back.  And given the massive insolvency crisis that is clearly here, that's not surprising.

And all this didn't start last week, remember, with Bush's acknowledgment that there's a problem.  It's been brewing for months, all the while Bush spoke of rosy times.

We do ourselves no favors by "playing a John McCain" on this one.  It's kind of silly to claim there's no crisis when every day something huge goes belly-up, and more problems are found.

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by: Jonweasel @ Sat Sep 27, 2008 at 02:22:24 AM CDT

[ Parent ]

Too Smart by Half? (0.00 / 0)

I don't think bankers are willing to risk their existence (Bear Stearns, Lehman Brothers, and Merrill Lynch) to game the system...doesn't make much business sense.

I feel progressive opposition to the bailout is driven by fear of conservatives beating Democrats with this stick. Even so, what choice do Democrats have? The Feds are probably right and we're very near the brink. I trust Barney to do the right thing and we should no longer fear conservatives...they were a fearsome beast, but are on their last breath. We need to appreciate the fact that the Republicans are probably no longer the party of business. That faux-populism by the loony wing of the Republicans gives Democrats an opportunity to expand our majority (and lots of money - the mother-milk of politics). Democrats should do everything possible to welcome them.

I direct you to the evidence of Sec. Paulson, kneeling and appealing to Speaker Pelosi to grant clemency upon his plan.

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by: Muley63 @ Sat Sep 27, 2008 at 02:55:36 AM CDT

why not? (0.00 / 0)

the whole premise of the system is that individuals can reap rewards at the risk of a systemic collapse.  They work as a class in politics, not investments.

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by: dr anonymous @ Sat Sep 27, 2008 at 07:21:58 AM CDT

[ Parent ]

It isn't an illusion (0.00 / 0)

But it is overstated and wouldn't be solved by the treasury plan.


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

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by: TerraFF @ Sat Sep 27, 2008 at 04:05:43 AM CDT

More right than wrong (4.00 / 2)

After tanking for a few days, the stock market is going merrily along.  This greatest shock to the system is having huge potential impacts on the taxpayer but precious little on Wall Street.  In fact, it just doesn't compare with the run in the late 70s and early 80s when oil price hikes went barrelling through the economic system first causing hyper inflation (by US standards) with mortgage rates of 15% to as much as 17% and 12% or 13
% being considered a steal.  Then after the "misery index" (inflation plus unemployment) threatened 20%, Reagan sent the economy through the sharpest downturn since the 30s.  No $700 billion bailout then.

"Big companies don't risk their future by gaming the system"  Nonsense.  The very core of Enron, once the seventh biggest company in the US (by revenues) was a series of attempts to game the system.  First, and most notably, in energy, but then in other markets as well.

It is worth noting that in the flurry of deregulation, particularly in California, that giant well established power companies sold off production assets and put their future and the economic well being of the area in the hands of .., Enron and other wolves. I guess Pacific Gas and Electric and Southern California Edison don't count but they and their stupid actions affected millions of people on a daily level.

Gaming the system?  The local utility here in New Jersey, PSE&G, stupidly bought the local utility in Cincinnatti and then sold it a year or two later at a nice loss.  What were regulators thinking?  They weren't.  What were regulators thinking here?  They weren't.

There is a whole series of scams and cons that have been going on during the Bush years and this is the latest.  As long as we have an economy where the little person is on his/her own and the big guys are protected we have this problem.  Was it such a "big deal" when GM dumped $50 billion in pension obligations.  Guess not.  Didn't even help the beleagured car manufacturer much.

Find out what happened at the micro level by unleashing a flood of auditors on the banks and brokerage houses.  Change the bankruptcy laws for individuals to allow some (maybe most) of these mortgages to become solvent again.

One other thing.  The health of the brokerage firms was imperilled more by huge bonus payments i the billions that extended far beyond the CEO level than by CEO compensation, however bloated.  Paying those bonusses while simultaneously losing large amounts of monsy was suicidal.

Remember, we had only a small crisis when foreclosures were rising.  It isn't the foreclosures that makes this a "crisis" but the corporate risks and failures within one segment of the economy.  Sorry, if this wasn't a crisis a month ago it shouldn't be a crisis now.  Not as these rates.  It's a problem that can be solved at a fraction of the cost.

   

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by: David Kowalski @ Sat Sep 27, 2008 at 04:57:47 AM CDT

Don't let your feelings run away with you ... (0.00 / 0)

... there is a myth that the public are infuriated by the bailout of Wall Street. Some definitely are, and are saying so, loud and clear.

But pollster.com has done a survey of the polling date relating to the bailout. David Moore reports that in general voters do not feel strongly one way or another.

If that is true, it would be a mistake to think that attacking the bailout will gain instant popularity, or that John McCain can seize the issue and campaign as an economic populist.

What Bush has failed to spell out is the result of a bank collapse. It means your paycheck bouncing and losing your life savings. It could mean Hoovervilles once more for American families.

I think once the public understand what is or was at stake, they will generally support the bailout legislation.

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by: tobyj @ Sat Sep 27, 2008 at 06:31:17 AM CDT

This Rhetoric Obscures (0.00 / 0)

By using terms such as "in general" and "generally," this rhetoric has the unfortunate effect of lulling the reader into a very false sense of security with respect to the potentially explosive political significance of either voting for, or against, this bailout.

Look, in a presidential election which will be won or lost based upon the election results from a handful of swing states.  Each one of these swing state will be won or lost by VERY thin margins...some, by less than a 1-2% margin.  As such, the relevant point of inquiry is NOT whether the public, "in general," supports the bailout or doesn't care about the bailout. No, the relevant question is how this bailout will play in the swing states, for example, in the economically depressed rust belt, in states such as Michigan, Ohio, Pennsylvania, Wisconsin, and Minnesota.

I can tell you one thing, it will NOT play well with MORE than 1-2% of the electorate in these states. Very likely, it will anger at least 40% of the electorate in those states, and more significantly, those voters will be VERY motivated to vote. Never forget that it is TURNOUT that wins or loses elections in close races, and finding wedge issues such as this that REALLY motivate your supporters to turn out...that usually decides these close elections. (Remember what Rove and Bush did with the church folk in Ohio in 2004?)

So...this bailout has "explosive wedge issue" written all over it.  It lends itself to perhaps the most politically explosive political commercials ever put out on the airwaves. The ad people are salivating over this one.  (When considering the significance of a wedge issue, you always have to wargame out what the commercials would look like...and if, in your judgment, such commercials would get significant political traction.)

This bailout could easily decide the presidency, as well as close Senate and House races. Sure, consider what you see at pollster.com.  But understand this:  whether the number of likely voters who are "angry" about this bailout is 20%, 30%, 40%, or 50%, those voters could well decide the presidency.  

And by the way, as long as you are over there at pollster.com, have a look at the approval ratings for Congress and Bush. Ya think the people are angry with their government? Now, on top of that anger, place a $700 billion bailout for Wall Street. Hmmm...I remember 2006. I remember 1994. Voters love to express their anger with government at the ballot box. Who doesn't?

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by: Demo37 @ Sat Sep 27, 2008 at 12:46:33 PM CDT

[ Parent ]

Friday (4.00 / 1)

I got calls into our office from a couple of clients who were watching TV and obviously heard that if Congress didn't act right this moment the markets were going to drop 500 points.  Didn't happen yesterday.  
I too wonder if this is simply a way to get a bunch of money into the hands of these great financial lords of the universe before the Democrats take over the government.  I am not convinced that the world will end if Congress is deadlocked for a while.  

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by: bloomingpol @ Sat Sep 27, 2008 at 06:38:09 AM CDT

Even those who admit there is a crisis... (4.00 / 1)

...think the bail-out plan as currently structured is obscene and of questionable effectiveness (e.g. Roubini).

The country's finances are in atrocious shape, the worst in fifty years.  We really don't have room to make mistakes with this.  Under the circumstances, to have the government panic and put together a rushed "plan" without due consultation and discussion with diverse experts is a national disgrace.

And I am now referring specifically to the Democratic Congress.  At this point, with their hapless handling of the issue, they really do own this, God help them.

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by: Taylor @ Sat Sep 27, 2008 at 07:27:13 AM CDT

national disgrace is a good word for it (0.00 / 0)

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by: dr anonymous @ Sat Sep 27, 2008 at 07:29:46 AM CDT

[ Parent ]

I finally got what this farce reminded me of (0.00 / 0)

If you've seen Fawlty Towers, the episode with the German tourists.  The scene at the end, with the hotel in chaos, and the Germans shaking their heads sadly and wondering, How did they ever win the war?

For German tourists, think foreign central bankers.

I leave it to others to complete the casting.

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by: Taylor @ Sat Sep 27, 2008 at 08:18:34 AM CDT

[ Parent ]

haven't seen it (0.00 / 0)

but when i moved to england, i went through a phase where i thought "how did these people colonize my family's country?"
What's frustrating is when you see a farce and it's about something that matters.  It's not that I think I could do a better job - it's that it's probably a fact that I probably could that's most depressing.  I mean how hard is it to find a wide range of economists, have a policy adviser you trust, and figure out what the best thing to do is to build a consensus?  Is it really more fun to roll over and hope that Bush scratches your belly?

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by: dr anonymous @ Sat Sep 27, 2008 at 09:56:07 AM CDT

[ Parent ]

Exactly (0.00 / 0)

Roubini's been a treasure throughout this, and he's offering a very detailed plan for getting out.

Rather than claiming there's not a crisis even as gigantic staple companies like AIG and WaMu are flat on their backs, let's concentrate on a good solution.

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by: Jonweasel @ Sat Sep 27, 2008 at 10:06:20 AM CDT

[ Parent ]

Here's the deal (4.00 / 3)

The political crisis is manufactured to put pressure on.  The liquidity crisis is real, as far as I can tell, and was mounting over time--it certainly preceded the government bailout proposal--but I wouldn't be surprised if people are holding out for a government bailout right now.  Would make sense, wouldn't it?

That changes nothing about strategy, which is the most important part.  These Democratic Congresspeople are suckers, and if anyone's going to roll them, it should be us.  Who the f@#k do they think they are, endangering not just all the political work that people do to support them, but ordinary people's economic futures, and possibly the financial system too.  Because they'd rather listen to Warren Buffett and Bush than to ALL of the people who are making much more sense analytically, and because they'd rather roll over for rich people (again) than stand up for the most vulnerable.

So please contact your Congresspeople AND Senator Obama, who seems afraid to win the election.  It's easy: Sign the Jobs With Justice petition here http://www.unionvoice.org/camp... and call the Obama headquarters (866) 675-2008 or e-mail him here http://my.barackobama.com/page...  

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by: dr anonymous @ Sat Sep 27, 2008 at 07:28:51 AM CDT

"manufactured emergency" (0.00 / 0)

you are kidding right?  yes b/c the fact that there are no longer independent investment banks, no more bear, no more lehman, no more country wide, no more AIG, no more WaMu, by god, nothing going on here, look away, lets pretend its just evil bush making this all up.  

come on david, you are smarter than this.  you want to make a case against the bailout in its current form, fine, there is certainly a case to be made, but to pretend that this is a manufactured crisis is ridiculous.

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by: jambro @ Sat Sep 27, 2008 at 07:32:10 AM CDT

Wall Street dysfunction serious in NY State (0.00 / 0)

There's already talk of selling off state assets:
http://www.nypost.com/seven/07...

Thom Hartmann has a simple suggestion that seems to have NO downside, to the real (non-speculative) economy.:

http://www.thomhartmann.com/in...

In the United Kingdom, for example, whenever you buy or sell a share of stock(or a credit swap or a derivative, or any other activity of that sort) you paya small tax on the transaction. We did the same thing here in the US from1914 to 1966 (and, before that, we did it to finance the Spanish American Warand the Civil War).

For us, this Securities Turnover Excise Tax (STET) was a revenue source. For example, if we were to instate a .25 percent STET (tax) on everystock, swap, derivative, or other trade today, it would produce - in its firstyear - around $150 billion in revenue. Wall Street would be generatingthe money to fund its own bailout. (For comparison, as best I candetermine, the UK's STET is .25 percent, and Taiwan just dropped theirs from.60 to .30 percent.)

But there are other benefits.

As John Maynard Keynes pointed out in his seminal economics tome, The General Theory of Employment, Interest,and Money in 1936, such a securities transaction tax would have the effec tof "mitigating the predominance of speculation over enterprise."

In other words, it would tamp down toxic speculation, while encouraging healthy investment. The reason is pretty straightforward: When there's no cost to trading, there's no cost to gambling. The current system is like going to a casino where the house never takes anything; a gambler's paradise. Without costs to the transaction, people of large means are encourage to speculate - to, for example, buy a million shares of a particular stock over a day or two purely with the goal of driving up the stock's price (because everybody else sees all the buying activity and thinks they should jump onto the bandwagon) so three days down the road they can sell all their stock at a profit and get out before it collapses as the result of their sale. (Weironically call the outcome of this "market volatility.")

Then, too, Walter Burien has studied the legally required, but hidden from the public, Comprehensive Annual Financial Reports (CAFR). He conservatively estimates "standing liquid investment assets" of over $60 Trillion. Now would be a good time to make knowledge of the CAFR's well known, so that no excuse can be given as to why a President Obama must sell off the United States to private investors, as opposed to funding a rapid move to a green economy, plus national health care.

See my diary on CAFR's and Catherin Austin Fitt's struggles resulting from fighting massive financial fraud at the federal level at:
http://openleft.com/showDiary....

DemocracyABC.org
TheRealNews.Com
http://www.pdamerica.org

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by: metamars @ Sat Sep 27, 2008 at 08:15:01 AM CDT