by Damozel | It's reminding me of the decision to invade Iraq, only with less preliminary discussion or accountability from our elected officials. Instead, we get a Panic and a Plan. Greenwald calls it like it is.
What is more intrinsically corrupt than allowing people to engage in high-reward/no-risk capitalism -- where they reap tens of millions of dollars and more every year while their reckless gambles are paying off only to then have the Government shift their losses to the citizenry at large once their schemes collapse? We've retroactively created a win-only system where the wealthiest corporations and their shareholders are free to gamble for as long as they win and then force others who have no upside to pay for their losses...
Watching Wall St. erupt with an orgy of celebration on Friday after it became clear the Government (i.e., you) would pay for their disaster was literally nauseating, as the very people who wreaked this havoc are now being rewarded.
More amazingly, they're free to walk away without having to disgorge their gains; at worst, they're just "forced" to walk away without any further stake in the gamble. How can these bailouts not at least be categorically conditioned on the disgorgement of ill-gotten gains from those who are responsible?....[W]hy should those who so fantastically profited from these schemes they couldn't support walk away with their gains? This is "redistribution of wealth" and "government takeover of industry" on the grandest scale imaginable -- the buzzphrases that have been thrown around for decades to represent all that is evil and bad in the world. That's all this is; it's not an "investment" by the Government in any real sense but just a magical transfer of losses away from those who are responsible for these losses to those who aren't. (Salon)
Anyway: this plan. Will it work? Will it?
Atrios just wants to know what happened to cause Paulson & Co. to change their minds about the bailout. How, he wants to know, did we go from $0 to $1 trillion in 4 days flat?
It's fascinating to watch how easily consensus is manufactured. A few days ago elite opinion seemed to be cheering Paulson's "no bailout" line, and now they're cheering a trillion bucks thrown down the crapper.
Greenwald is astonished at how little debate there has been....or how little discussion there's been of the consequences.
Can anyone point to any discussion of what the implications are for having the Federal Government seize control of the largest and most powerful insurance company in the country, as well as virtually the entire mortgage industry and other key swaths of financial services....
The Treasury Secretary is dictating to these companies how they should be run and who should run them. The Federal Government now controls what were -- up until last month -- vast private assets. These are extreme -- truly radical -- changes to how our society functions. Does anyone have any disagreement with any of it or is anyone alarmed by what the consequences are -- not the economic consequences but the consequences of so radically changing how things function so fundamentally and so quickly?
Other countries are debating it. The headline in the largest Brazilian newspaper this week was: "Capitalist Socialism??" and articles all week have questioned -- with alarm -- whether what the U.S. Government did has just radically and permanently altered the world economic system and ushered in some perverse form of "socialism" where industries are nationalized and massive debt imposed on workers in order to protect the wealthiest....
But there's virtually no discussion of that in America's dominant media outlets. All one hears is that everything that is happening is necessary to save us all from economic doom. And what's most amazing about that is that the Natural, Unchallenged Consensus That Nobody Questions can shift drastically in a matter of days and still nobody questions anything. (Salon)
Krugman doesn't think the plan will work. Gaaaah
I hate to say this, but looking at the plan as leaked, I have to say no deal. Not unless Treasury explains, very clearly, why this is supposed to work, other than through having taxpayers pay premium prices for lousy assets.
As I posted earlier today, it seems all too likely that a “fair price” for mortgage-related assets will still leave much of the financial sector in trouble. And there’s nothing at all in the draft that says what happens next; although I do notice that there’s nothing in the plan requiring Treasury to pay a fair market price. So is the plan to pay premium prices to the most troubled institutions? Or is the hope that restoring liquidity will magically make the problem go away?..Treasury needs to explain why this is supposed to work — not try to panic Congress into giving it a blank check. Otherwise, no deal.
Dean Baker puts forward a list of progressive conditions that should apply we're really going, as Atrios puts it, from $0 to $1 Trillion in 4 days flat.
John Cole speaks for me and the rest of the ignorant laypeople:
I see that Duncan Black, the American Prospect, Paul Krugman, and Kevin Drum at Mother Jones are all a little concerned about signing a 700 billion dollar blank check. I have to agree with Greenwald that it is completely insane that we are just about to dump this money on the same jackasses that caused this mess without even debating it.
Dean Baker asks:
The most obvious question: is how will paying market price for near worthless assets prevent the collapse of zombie institutions like Bear Stearns, Lehman Brothers and AIG? These institutions needed money. They won't get it from selling mortgage backed securities, that are chock full of bad mortgages, at the market price. We already know this, because they already had the option to do so.
The Bush proposal to throw out hundreds of billions of taxpayer dollars to buy up this debt will do little if anything to prevent another round of collapsing banks. We will again see desperate weekends with Treasury and Fed honchos running around trying to save the next major basket case.
The other big question is: how will we get the banks to honestly describe the assets they throw into the auction?
I have no idea. But Houghton at Angry Bear thinks this is bad economics.
[W]hat Henry Paulson is proposing has to be a direct subsidy to have any effect.
As an isolated plan, it is a reward for bad behavior. Only if it were combined with those items for which we "don't have time"—say, the plan suggested by Mark Thoma—could it possibly be an economically viable plan. (Balloon Juice)
Hillary has good ideas and John Cole quotes from her call for accountability.
I’m proposing that we require any financial institutions borrowing money from the Federal Reserve’s new lending facilities to open their books and ensure accountability and transparency to identify unsound practices. These banks and other entities have tapped the Fed’s new lending windows levels for over $300 billion in capital. They’ve shifted a lot of that risk onto the backs of our taxpayers. These are unprecedented interventions and we should make sure that these companies aren’t using taxpayer dollars to subsidize golden parachutes or risky investments, throwing your good money after bad. If we’re bailing you out we deserve to know exactly your liabilities. And you have to be part of this new regulatory framework.
Cole adds, and he is right: "The shitbirds at the National Review would be doing themselves a favor if they went and read what Hillary had to say." (Balloon Juice)
At TPM, Baker lists what ought to be progressive requirements for the bailout. His principles include---though most definitely are not limited to---the following:
1) Financial institutions should be forced to endure the bulk of the losses with taxpayer funds only used where absolutely necessary to sustain the orderly operation of the financial system.
2) The bailout must be designed to minimize the opportunity for gaming.
3) The bailout should be designed to minimize moral hazard.
4) In the case of delinquent mortgages that come into the government's possession, there should be an effort to work out an arrangement that allows the homeowner to remain in her house as owner. If this proves impossible, then former homeowners should be allowed to remain in their homes as renters paying the market rent. This should be done even if it leads to losses to the government.
5) There should be serious efforts to severely restrict executive compensation at any companies that directly benefit from the bailout. (TPM)
Yeah. I don't know about any of that, but at least Paulson can be counted on to look after Wall Street. Paulson doesn't want to limit executive compensation. In fact, he told Barney Frank (House Financial Services ) that it would be a "poison pill." (Politico) Frank said, "“I say I don’t think it’s very patriotic for someone to not give up his golden parachute when we’re trying to save the markets.”"(Politico)
Deb's brought up this point---the executives who will "skate away with millions."
Nice one. I think we need to start diligently questioning the patriotism of Bush's and McCain's rich cronies. Every member of Congress needs to ask---and keep asking---the ordinary Republican voters on Main Street (and the other places where Republicans hang out) just how 8 years of Republican administration has bettered their lives.
It's the Dems who are working for provisions designed to protect the middle class homeowners;
Democrats are drafting a joint House-Senate bill to expedite action on the Treasury Department’s $700 billion rescue plan for the financial markets but want the government to use its new leverage to slow foreclosures and cap compensation for the Wall Street chiefs whose companies are being bailed out.
There will be provisions as well in either the core bill or side deals asking the White House to accept new economic stimulus spending and bankruptcy court relief for homeowners, a legal issue long opposed by bankers yet now championed by leading Senate Democrats as well as Speaker Nancy Pelosi (D-Calif.).(Politico)
To be fair---I am all about being fair---Frank said that Paulson seemed amenable "to adding some foreclosure-relief language..(Politico)
Greenwald---who wants to know if this bailout is really necessary?--- says we shouldn't take any comfort in the involvement of Congressional Dems.
When it comes to things the Bush administration wants, Congressional Democrats don't say "no" to anything. They say "yes" to everything. That's what they're for. They say "yes" regardless of whether they understand what they're endorsing. They say "yes" regardless of whether they've been told even the most basic facts about what they're being told to endorse. They say "yes" anytime doing so is politically less risky than saying "no," which is essentially always and is certainly the case here. They say "yes" whenever the political establishment -- meaning establishment media outlets and the corporate class that funds them -- wants them to say "yes," which is the case here....
[W]hat's probably most amazing of all is the contrast between how gargantuan all of this is and the complete absence of debate or disagreement over what's taking place. It's not just that, as usual, Democrats and Republicans are embracing the same core premises ("this is regrettable but necessary"). It's that there's almost no real discussion of what happened, who is responsible, and what the consequences are. It's basically as though the elite class is getting together and discussing this all in whispers, coordinating their views, and releasing just enough information to keep the stupid masses content and calm. (Salon)
But...let us further consider what's currently on the drawing board. Calculated Risk is highly amused at David Herzenhorn's suggestion in The New York Times that maybe, if the market stabilizes and real estate prices rise, taxpayers "could profit from the effort", thereby reducing the cost of the bailout!
I hope you laughed. I did. A little gallows humor.
And, yes the cost is still unknown, but there is no way that the taxpayers will profit. My initial estimate is that the direct costs of the Paulson plan will be $700 billion to taxpayers. That is about double the cost of the S&L crisis (compared to GDP).
Why $700 billion?
The plan only limits the Treasury to "$700,000,000,000 outstanding at any one time", so the total purchases can exceed $700 billion. In fact, every time the Treasury sells some securities, they will probably plow the net proceeds back into more troubled assets until the entire $700 billion is gone.
Think of a drunk gambler at a slot machine. He starts with $100 and slowly loses. Every now and then he wins some money, but he keeps putting the coins back into the slot until he has lost everything. That is how this plan will work. (Calculated Risk)
Continued (with some protest music), here: The Apocalypse of Banks Cont'd: The Economic Rescue Plan Rolls On as Skeptics Rise Up to Question the Road Map
Memeorandum has a lot of discussion here.
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