by Damozel | You know what we need for these troubled, nerve-wracking, precarious times? Protest music to sing as we gaze over the abyss. Hell, we could even recycle some of the classics.
Something's happening here
What it is ain't exactly clear
There's a man with a plan for the Dow
Telling me, "You got to act now."
Who is driving this juggernaut? That's what I want to know. I don't know jack about economics, but---for what it's worth--- I've got a bad feeling about this. Like these guys said, nobody's right if everybody's wrong.
And in fact, more and more skeptics---ones who know exactly what they're worried about---are emerging from the woodwork. As Kevin Drum sums it up:
.Paul Krugman opposes the Paulson/Bernanke bank rescue because there's no guarantee it will work. Atrios doesn't like it because it gives Paulson a blank check with no oversight. Brad DeLong doesn't like it because it lacks necessary reforms to balance the bailout. Sebastian Mallaby, by contrast, just doesn't like it, period. (MoJo Blog)
Josh Marshall is worried. He's got a bad feeling too. He says of the Plan:
[T]he more I look at this plan, the more wrongheaded it seems. But if I'm understanding this deal, the taxpayers are going to pony up close to a trillion dollars to take bad debts off the hands of financial institutions who were foolish enough to make the deals in the first place. And in exchange, I think the tax payers get nothing?
Also, according to the Journal, finance industry lobbyists are already giving orders to Republican hill staffers not to allow any meaningful reforms or protections for taxpayers. So, just the money. No strings attached. (TPM)
All I know is, something's very wrong. I'm no economist and even I have a gut feeling that the Big Plan (text available here) ain't going to accomplish anything other than the waste of even more taxpayer dollars than the Bush administration has already flushed down the latrine. For one thing: why aren't people who weren't presiding over the system that caused the crisis being called on to see if they have other and better ideas? I realize that we're in a panicky tailspin, but----call me crazy---this makes me less confident in any solution offered by the administration.
To the ignorant layperson, letting the Chairman of the Fed and the Secretary of the Treasury solve the problems of the system they previously presided over seems intrinsically irrational.
[Bernanke and Paulson] have cast aside the administration’s long-held views about regulation and government involvement in private business, even reversing decisions over the space of 24 hours and justifying them as practical solutions to dire threats. (NYT)
At Crooks and Liars, Nicole Belle feels her common sense tingling all over.
[T]o hand Henry Paulson — the man who either didn’t see or didn’t care to deal with this financial crisis (which we predicted more than a year ago) ahead of time –a blank check and demand no accounting, no transparency, nothing… is literally economic insanity–doing the same thing that got us in trouble the first time and hoping for a different result. Don’t believe me? Paulson said today that taking away CEOs’ “golden parachutes” as part of the bailout process was a “poison pill.” How’s that for fixing the economy?
And where are our elected officials in all of this? Here we are: in a panic, in a tailspin, and with the entire financial system screaming, "Do me something!" and both parties stepping aside to let Bernanke and Paulson do brain surgery with a pickaxe.
[T]he improvisational nature of their effort has turned President Bush and Congressional Democrats into virtual bystanders, sometimes uncertain about what comes next and left to wonder about the new power dynamics in the capital. Seemingly every time lawmakers tried to get a handle on what was happening and what role they might play with elections around the corner, Mr. Paulson and Mr. Bernanke would show up again on Capitol Hill for another evening meeting with another surprise development. (NYT)
In other words, our elected officials are hearing that some plan, ANY plan, is better than no plan. For all I know they're right. They argue----are they right? I have no way of knowing---that there isn't time for any adjustments or debate. They've got to act NOW.
While not predicting the need for more ad hoc interventions, a Treasury official said “the markets may not wait for Congress to act.” And Paulson....is pushing hard for lawmakers to move quickly. (Politico; emphasis added)
I've already dealt with the skepticism of Paul Krugman and the doubts of others here. As Kevin Drum says, the consensus of skeptics certainly seems to be happening quickly. Will it happen quickly enough to make a difference? Or will it make a difference however quickly it happens or however insistent the outcry.
Sebastian Mallaby weighs in with his doubts at WaPo, saying in more depth very much what Atrios said when he wondered how we got from $0 to $1 trillion in aid in 4 days flat. Here's Mallaby:
With truly extraordinary speed, opinion has swung behind the radical idea that the government should commit hundreds of billions in taxpayer money to purchasing dud loans from banks that aren't actually insolvent. As recently as a week ago, no public official had even mentioned this option. Now the Treasury, the Fed and congressional leaders are promising its enactment within days. The scheme has gone from invisibility to inevitability in the blink of an eye. This is extremely dangerous....
Mallaby---who questions the necessity of the systemic plan as well as its immense cost or ability to fix the problem--- goes on to point out that economists have proposed cheaper and less messy ideas other than doing surgery on the system with a pickaxe.
Raghuram Rajan and Luigi Zingales of the University of Chicag suggest ways to force the banks to raise capital without tapping the taxpayers. First, the government should tell banks to cancel all dividend payments...Second, the government should tell all healthy banks to issue new equity. Again, banks resist doing this because they don't want to signal weakness and they don't want to dilute existing shareholders. A government order could cut through these obstacles....
Meanwhile, Charles Calomiris of Columbia University and Douglas Elmendorf of the Brookings Institution have offered versions of another idea. The government should help not by buying banks' bad loans but by buying equity stakes in the banks themselves. Whereas it's horribly complicated to value bad loans, banks have share prices you can look up in seconds, so government could inject capital into banks quickly and at a fair level. The share prices of banks that recovered would rise, compensating taxpayers for losses on their stakes in the banks that eventually went under. (WaPo)
But these solutions, he says, are unpalatable to our Wall Street-enabling big government because of how they might look (to anyone who understands their ramifications, that is).
Taking bad loans off the shoulders of the banks seems like a merciful rescue; ordering banks to raise capital or buying equity stakes in them sounds like big-government meddling. But we are in the midst of a crisis, and it shouldn't matter how things sound. The Treasury plan outlined on Friday involves vast risks to taxpayers, huge complexity and no guarantee of success. There are better ways forward..(WaPo)
Instead, "in buying bad loans before banks fail, the Bush administration would be signing up for a financial war of choice. It would spend billions of dollars on the theory that preemption will avert the mass destruction of banks." .(WaPo)
Finally---from the land of Cold Comfort--- let me say this: if there are no atheists in foxholes, and---per Ben Bernanke--- no ideologues in a financial crisis, why are there any Republicans at all outside Wall Street? I'm not saying that the Dems aren't complicit, mind you, in letting the Bush juggernaut roll over us yet again. As Greenwald says, that's what Congressional Dems do.** Politically---just as before the Iraq War---they are apparently afraid to demand that somebody put on the brakes and think about whether this vast expenditure and overnight reconfiguration of our entire financial system actually is going to do any good.
**UPDATE. Having said all that, I was relieved and somewhat abashed to read the email from an unnamed "deeply angry" Democratic lawmaker which Matt Stoller reprinted here, stating in pertinent part: "I don't really want to trigger a world wide depression (that's not hyperbole, that's a distinct possibility), but I'm not voting for a blank check for $700 billion for those mother f*ckers." As one of his commenters put it, it made my day.
At least the Democrats are demanding that the Big Plan cover some of the damage to members of the middle class as well as the rich guys who brought the crisis on us all. (Politico) If it's not a proof that they have spines, which most of them don't, it at least proves why the Republicans truly are the party of Wall Street and---as always---the world champions in coming up with short-term solutions to long-term problems.
As the above cited anonymous Dem also said, "Paulsen and congressional Republicans, or the few that will actually vote for this (most will be unwilling to take responsibility for the consequences of their policies), have said that there can't be any "add ons," or addition provisions. F*** that." (Matt Stoller)
I'm not saying that the Dems' ideas are workable; I'm just saying that they at least spared a thought for the impact of all this rushing to the rescue of the incompetent system on ordinary people. The Republicans apparently weren't all that bothered.
And at least the Dems don't want to carry on letting executives drain their companies' assets and skate out of this disaster with millions, as Deb C says. It's not much---in fact it's hardly anything at all if the Big Plan fails---but it's something. The Politico states:
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)
Amusingly, the Bush administration is now stepping up---after all the "let's not discuss who is to blame till we solve the problem" rhetoric---to explain that it's not the Bush administration's fault. It warned us, but did we listen?
For many years the President and his Administration have not only warned of the systemic consequences of financial turmoil at a housing government-sponsored enterprise (GSE) but also put forward thoughtful plans to reduce the risk that either Fannie Mae or Freddie Mac would encounter such difficulties. President Bush publicly called for GSE reform 17 times in 2008 alone before Congress acted.
Unfortunately, these warnings went unheeded, as the President's repeated attempts to reform the supervision of these entities were thwarted by the legislative maneuvering of those who emphatically denied there were problems.
Keep throwing it at the wall. Maybe some of it will stick.
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