A Real Answer Needed
Ambinder says:
So where did the $700 billion number come from?
Sec. Paulson told congress yesterday that the plan was to spend roughly 50 billion a month,
Sen. Schumer asked: why not $150 billion then, and let the next administration do a re-evaluation in January? No real answer.
That’s not good enough. And I would go further — give him less than that and say that he can revisit the issue with the President-Elect and the lame duck congress after the election. There’s a strong case for taking immediate action to forestall an immediate problem, but there’s no need for congress to authorize now things that won’t happen until March or February. The answer to the Schumer/Ambinder question seems to me to be, basically, that Paulson wants to tie the next administration’s hands. But that’s silly. After the election the country will have new, non-discredited leadership and that new team should play a key role in shaping the response.
83 Responses to “A Real Answer Needed”
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September 24th, 2008 at 12:50 pm
Did you not read the ransom note? It clearly said to give the all the money by this week or things could happen, bad things, things you wouldn’t like.
September 24th, 2008 at 12:53 pm
I imagine the oversized request/demand is intended to “reassure” the markets, and has little to do with how much $$ is necessary right this minute. They’re trying to send a message to the markets, domestic and global. Whether that itself is sensible or not is another question.
September 24th, 2008 at 12:54 pm
From The Financial Times:
The cost of the Treasury plan to save the US financial system from collapse cannot be estimated because it is too vague, Peter Orszag, head of the Congressional Budget Office, told legislators on Wednesday.
At a hearing before the House budget committee, Mr Orszag said: ”The secretary would have the authority to purchase virtually any asset, at any price, and sell it at any future date; the lack of specificity regarding how that authority would be implemented makes it impossible at this point to provide a quantitative analysis of the net cost to the federal government.”
September 24th, 2008 at 12:57 pm
Okay — in this case, Barack Obama should go out right now and pledge temporary aid until he gets in, and then he’ll give out a $100 TRILLION PLAN once in office.
Why not? If it’s mainly about calming Wall Street psychology.
September 24th, 2008 at 12:58 pm
I’ve worked on or near Wall St.for over 30 years. I’d feel better if they would bailout the homeowners who are in trouble rather than Wall Street. It would be a lot cheaper and even stimulate the economy more than freeing up the credit markets. No one who really needs one can get a loan anyway.
September 24th, 2008 at 1:02 pm
Probably so they can invest the lump sum in, I dunno, gold, or canned goods or something.
September 24th, 2008 at 1:07 pm
“After the election the country will have new, non-discredited leadership.”
Whoa! Did I sleep late and miss something? Did Obama get elected already?
September 24th, 2008 at 1:14 pm
WALL STREET’s RECKONING!
(Yet, it Took 10 Years to Raise MinWage $1.00)
http://www.youtube.com/watch?v=S27yitK32ds
“Rule one: Rush the decision. Time the game to fall in the week before Congress is set to adjourn and just 6 weeks before an historic election so your opponents will be preoccupied, pressured, distracted, and in a hurry.
Rule two: Disarm the public through fear. Warn that the entire global financial system will collapse and the world will fall into another Great Depression. Control the media enough to ensure that the public will not notice this. Bailout will indebt them for generations, taking from them trillions of dollars they earned and deserve to keep.
Rule three: Control the playing field and set the rules. Hide from the public and most of the Congress just who is arranging this deal. Communicate with the public through leaks to media insiders. Limit any open congressional hearings. Communicate with Congress via private teleconferencing calls. Heighten political anxiety by contacting each political party separately. Treat Members of Congress condescendingly, telling them that the matter is so complex that they must rely on those few insiders who really do know what’s going on!”
(FYI: Republicans have blocked voting on bills by Dems for more oversight and regulation.)
September 24th, 2008 at 1:16 pm
“Did you not read the ransom note? It clearly said to give the all the money by this week or things could happen, bad things, things you wouldn’t like.”
It’s this kind of fantasy — this implicit assertion that Paulsen and Bernanke are making up the fact that bad things are going to happen — that is the most absurd aspect of the blogosphere’s take on the bailout plan. Bad things are going to happen. More important, bad — terrible — things have already happened — Fannie Mae and Freddie Mac taken over, banks going bust, Lehman bankrupt, AIG busted without a massive government loan. Had Bernanke and Paulsen not announced their plan last week, Morgan Stanley, Washington Mutual, and perhaps Wachovia would likely have gone under already.
How much worse do you want things to get before you’ll agree that something needs to be done now?
September 24th, 2008 at 1:23 pm
More important, bad — terrible — things have already happened — Fannie Mae and Freddie Mac taken over, banks going bust, Lehman bankrupt, AIG busted without a massive government loan.
those aren’t “terrible” things. 9/11 was a terrible thing. Katrina was terrible. the Spanish flu pandemic was terrible.
the things you list are expensive but completely tolerable. they were handled, and life continues pretty much as it did before – except for the employees of those companies.
what’s the big panic about banks failing? when did everybody forget that being in business is risky business ? there’s a good chance that if you take too many risks, you’ll be unable to stay in business.
fer chrissakes, this country needs to grow a pair.
September 24th, 2008 at 1:25 pm
F Blair, how is it terrible to me that all those firms were taken over? Looking at it from MY viewpoint, the terrible part is that MY money was used to take them over.
So, I don’t get it. What part of bad leadership failing a firm is more terrible than the failure of any other loser?
Jake
September 24th, 2008 at 1:26 pm
Is it constitutional to create an office above all review and oversight?
September 24th, 2008 at 1:26 pm
How much worse do you want things to get before you’ll agree that something needs to be done now?
Please note where Paulsen says he’s going to spend 50 billion a month. Reassess “now’.
September 24th, 2008 at 1:27 pm
Seems like the biggest question is what prevents Paulsen and his cronies from profiting off the government money they “invest.”
They need to publicly present Congress with a list of the “toxic” assets they want the government to buy and how much the government should pay for them and let Congress (and the public) take it from there…any other system is wide open to the kind of corruption that got us into this mess.
September 24th, 2008 at 1:30 pm
After the election the country will have new, non-discredited leadership and that new team should play a key role in shaping the response.
In a sensible country, the sequence of events would be:
1) Crisis happens
2) Election is called and held in short order; candidates campaign on proposed solutions to the crisis
3) Newly elected leadership tackles crisis
Instead we have:
1) Crisis happens
2) Election date CAN’T BE MOVED so lame-duck incumbents dick around with half-measures for a few months;
3) New leadership tackles crisis with its hands partly tied by actions taken in the dicking-around period
Stupid way to run a country.
September 24th, 2008 at 1:30 pm
I love the smell of free-market socialism in the morning. It smells… like victory!
September 24th, 2008 at 1:32 pm
“Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.”
If Paulsen and Bernanke are so goddamned serious, why the hell did they include this? It sure looks like an attempt to steamroll. Or at the very least, to avoid accountability.
This crap happened on their watch, and now they want this??
September 24th, 2008 at 1:32 pm
“Rule one….Rule two…Rule three…”
You forgot Rule four: lard both parties with tons of campaign contributions from Wall Street.
September 24th, 2008 at 1:33 pm
F. Blair: With all due respect, because I don’t know you, I didn’t say there might not be a crisis.
I accurately described Paulson / Bernanke as presenting a ransom note, because they have presented no plan, no list of actions, no justification of all that what they are demanding without question has the slightest capacity to solve this crisis.
That’s why it’s like a ransom note.
That’s why I have such a problem with nimrods who wish to dismiss the “blogosphere” for being so damn cautious before throwing nearly a trillion dollars and perhaps more to a bunch of idiots who have been wrong at each and every stage on this crisis and who, to this day, refuse to give the slightest damn justification on what we will get for handing over our next generation of investment other than “trust us”.
September 24th, 2008 at 1:33 pm
David Cay Johnston has a few questions:
September 24th, 2008 at 1:35 pm
fer chrissakes, this country needs to grow a pair.
I don’t know about Paulson, but I believe Bernanke.
what’s the big panic about banks failing? when did everybody forget that being in business is risky business ? there’s a good chance that if you take too many risks, you’ll be unable to stay in business.
http://en.wikipedia.org/wiki/Great_depression
You need to go back and do your homework before you can talk with the adults.
Having said this, I agree that the Democrats in Congress should drive a hard bargain and not just roll over.
If the Administration doesn’t agree to “equity warrants” Dems shouldn’t do the deal and we can have our Super Duper Global Depression and I can laugh as I watch “free market” conservative and glib lefties – who think the mortgage crisis = Iraq – suffer. Be careful what you wish for.
September 24th, 2008 at 1:38 pm
“More important, bad — terrible — things have already happened — Fannie Mae and Freddie Mac taken over, banks going bust, Lehman bankrupt, AIG busted without a massive government loan.”
But none of this is particularly terrible: some Wall St guys who’ve had 15 years of 6-figure bonuses have lost their jobs
and some investments because they made bad bets. So what ?
Fannie Mae, which started out as a government agency, and which
always had an implicit government guarantee likely to be
triggered by a severe housing bust, is back under government
control (where it probably should have been all along).
I don’t give a rat’s ass about Lehman.
I have a 30-year fixed-rate mortgage.
And personally, I moved my 401K into a stable-value fund
early in 2007 because I figured the US economy was on an
unsustainable path.
For those of us outside Wall St and the financial sector,
nothing that has happened so far is particularly terrible.
The question is, how and when does the trouble on Wall St
spill over into the real economy ? Do the high-stakes
gamblers at these investment banks really do anything that
makes a difference to the rest of us ?
I remain pretty skeptical about that. Some economists that
I respect seem to be of the opinion that it’s bad, but I
haven’t really heard a coherent explanation of how the dots
connect. And furthermore, now that we’ve seen just how
fraudulent and dysfunctional the Wall St wizards are, we’d
probably be better off building a new untainted system of
finance and credit markets rather than just bailing out the
failed gamblers. Otherwise we’ll be right back here in
5 or 10 or 15 years.
As my first boss used to say “some people are irreplaceable,
but no-one is indispensible”. I reckon we’ll get along fine
without independent investment banks: if there are people
with money to lend, and businesses wanting to borrow, there’s
going to be a market: the structure and rules may change,
but after the current mess that’s surely a good thing.
September 24th, 2008 at 1:40 pm
Again, Paul Krugman, who has been right about this whole mess for 5 years now, and not Hank Paulson and the Bush Jr. criminals, who have been wrong:
September 24th, 2008 at 1:47 pm
It’s not a ransom note. A ransom note says “if you don’t act, we will do something terrible.” What Bernanke and Paulsen are saying is “if you don’t act, terrible things will happen.” They’re simply describing the world as it is and warning about the consequences of inaction.
David Cay Johnston’s questions have been well-answered by, among others, Felix Salmon: http://www.portfolio.com/views/blogs/market-movers/2008/09/23/answers-for-david-cay-johnston. If you can read that and still think that Johnston’s assertions have any merit, you’re not reading closely enough.
As for the “so some banks go under — what’s the big deal?” position, I think Pete K. answered that well enough: the Great Depression is the big deal. For all the myriad evils that the financial sector commits, it is the way credit flows in this country. Without credit, businesses can’t operate or invest in new operations. People can’t buy homes. Governments can’t issue bonds. The connection between “Wall Street” broadly understood and Main Street is not an imaginary one or a loose one — it’s a very tight one at this point. And that’s to say nothing of the millions of people who are going to retire today or in the near future whose savings are going to simply vanish if the financial markets don’t stabilize.
The reason the blogosphere’s “caution” (I’d call it blissful denial of reality) is so annoying is that it’s fake: the only reason we’re not living in the aftermath of a massive financial meltdown already is because Paulsen and Bernanke announced the plan last week. If you want to know what will happen if Congress doesn’t act, go back to the middle of last Thursday and multiply it. If you think the US economy can weather that kind of collapse, you are, as Brad Delong would say, off in the omega quadrant.
Generally speaking, the level of financial literacy displayed in these threads reminds me of nothing so much as Obama’s line about the Republicans: “it’s like they take pride in being ignorant.”
September 24th, 2008 at 1:48 pm
Congressional leaders should be formally submitting these and many other questions to the Secretary of the Treasury. They should stipulate that they will not act unless/until they receive a response. In the mean time, they should be putting together a “Not Paulson” bill with as many ponies as they want with the information that they have. They should pledge not to adjourn until they have submitted both the Paulson plan as is (which probably won’t get a single vote) and the Democratic pony plan. If the Republicans fillibuster or the President vetoes, the Democratic leadership can say they tried to avert the “crisis” but were prevented by Republicans.
September 24th, 2008 at 1:51 pm
it all seems rather Rovian. Both Iraq and Wall Street. Tie the hands of the next administration (likely Obama in their calculus) such that they are doomed to one term. Won’t be able to fulfill any of their promises because time and money are diverted to other more immediate needs (or messes left over.) So the winner’s base gets upset and won’t vote or donate to a reelection. Leaving an opening for the GOP in 2012. If any of the semipermanent policies being sought for in Iraq and WallStreet work, the GOP candidate will take credit. But it positions the GOP for future strength. Ugh.
September 24th, 2008 at 1:52 pm
http://en.wikipedia.org/wiki/Great_depression
it’s pretty fucking silly to jump from the prospect of a few FDIC-insured regional banks failing to the Great Depression.
September 24th, 2008 at 1:53 pm
One of Paulson’s points is that the big figure will send a signal to the markets. But this doesn’t make sense. If things could fail at any moment, $50 billion a month might not be enough to cover everyone needing help.
But the large figure is a signal that help is on the way, but not really because nobody knows where the money would go, or how much that would help. How can a non-plan signal confidence?
This is like the Katrina response when FEMA kept promising help was coming soon. But there is not proof of any help for any particular bank. And since, also according to Paulson, a 100 unknown banks may fail, there is no public knowledge of what the financial condition of any bank is right now.
Pre-emptive bankruptcy protection.
September 24th, 2008 at 1:55 pm
“The question is, how and when does the trouble on Wall St
spill over into the real economy?”
What world have you been living in? We’ve had six straight months of job losses. The economy is growing at a snail’s pace — if not already shrinking. The TED spread is massive. Banks are afraid to lend to each other, which in turn makes them more cautious about lending to anyone else. It’s much harder to get a mortgage, even though rates are down. The trouble on Wall Street has already spilled over into the real economy — and if big banks (not investment banks, but real banks) start failing it’ll get much worse.
None of this is to mention the fact that no one here even talks about AIG, which was on the verge of going under because of the turmoil in the financial markets, and which, if it had failed, would undoubtedly have provoked a massive meltdown in the global credit markets.
Keep whistling past the graveyard and inveighing against the “criminals.” I’m sure it’ll help Americans keep their jobs when lending completely dries up.
September 24th, 2008 at 2:04 pm
“For all the myriad evils that the financial sector commits, it is the way credit flows in this country. Without credit, businesses can’t operate or invest in new operations. People can’t buy homes. Governments can’t issue bonds.”
But really the damage is done already. We now know that
a AAA credit rating from the rating agencies doesn’t mean
a damn thing. And if the institutions that got heavily over-
leveraged and made terrible bets go out of business, we have
the fed-regulated commercial banks and the state-regulated
insurers ready to pick up the pieces. And we have FDIC
insurance to prevent those 1930’s bank runs. Yeah, if more
deposit-taking banks go under – like the S&L’s did – then
the government will face a big bill. But it isn’t immediately
clear that it’s a bigger bill than the proposed bailout …
“And that’s to say nothing of the millions of people who are going to retire today or in the near future whose savings are going to simply vanish if the financial markets don’t stabilize.”
There are lots of ways retirement savings can suffer: not least
by inflation, and a $700B bailout seems like a vastly
inflationary measure. But anyhow, if we’re worried about
a deep recession, and we’re also worried about living
standards of retirees, then using the $700B to boost social
security payments might be a better answer than propping
up incompetent investment bankers.
This crisis may have some elements in common with 1929,
but many circumstances are very different. It isn’t clear
what the proposed bailout *is* (how are those toxic MBS’s
going to be priced ??); it isn’t clear that it’s going to
work (none of this helps to rebuild trust in the credit-rating
agencies); and it isn’t clear that it’s the best way to spend
$700B.
September 24th, 2008 at 2:05 pm
Jeffs,
Bernake and Paulson know how to haggle.
They ask for $700 billion with no oversight…they’ll settle for a few hundred billion to hand out to their pals and family members on Wall Street.
They’ll all still make fortunes…
September 24th, 2008 at 2:13 pm
No, what they’re saying is, “If you don’t do exactly what we tell you to do, horrible things will happen.” Which is — guess what? — extortion.
I’m still not sure why we can’t wait two or three days for an alternate plan and have to hand over $700 billion of unaccountable taxpayer money NOW NOW NOW!!! If the crisis is so huge, shouldn’t we take a few days to think about the best way to handle it instead of throwing money at it in a panic?
September 24th, 2008 at 2:14 pm
“What world have you been living in? We’ve had six straight months of job losses. The economy is growing at a snail’s pace — if not already shrinking. The TED spread is massive.”
Yes, the economy is bad. But you’ve got the causation back to
front. The Wall St crisis surfaced in the last month; it
can’t be the cause of job losses dating back 6 months.
The root cause of all this is that the USA has been living
beyond its means, financed by loans from China/Japan/Taiwan.
That cheap money pumped up the house price bubble, and
we built too many houses and fuelled consumer demand with
home equity loans based on the inflated prices. The party
is over and we’re going through a painful adjustment as
the construction sector shrinks and resources move slowly
to export industries. One effect of the slump is the poor
economy – job losses, sluggish growth, failling real incomes.
Another effect of the slump is the insolvency of Wall St
players who bet too much on the housing boom.
But how and when the severe pain on Wall St feeds back into
the real economy remains a bit unclear, to me at least.
September 24th, 2008 at 2:25 pm
I want to see the scary powerpoint with all the dire predictions that drove the oh-so-generous deal. Expect to see tubes!, aluminum tubes!
Didn’t the admin admit they’ve been working on this for weeks or months?
September 24th, 2008 at 2:28 pm
God, the comments on this thread just keep getting more and more ridiculous.
“The Wall St crisis surfaced in the last month; it
can’t be the cause of job losses dating back 6 months.”
Really? The crisis on Wall Street surfaced last week? Does your memory go as far as back as March, when Bear Stearns went under and only Fed intervention staved a massive sell-off? Do you remember the almost half a trillion dollars in write-downs the banks have already taken? Do you remember mid-July, when financial stocks fell 15-20% in a couple of days? The crisis on Wall Street has been ongoing now for more than a year, and it’s already had an impact on the real economy. Now magnify that crisis two- or three-fold, and imagine what will happen.
Again, the only reason we have the breathing room for the blogosphere to counsel “caution” is because the bailout plan was announced last week. Take away that possibility, and we go right back to last Thursday. Which is to say, right back to being on the verge of a massive, job-destroying, income-destroying recession.
B
September 24th, 2008 at 2:30 pm
As for the idea that this is extortion, do you think a doctor is extorting you when he says: “if you don’t follow this recommended course of treatment, this is what I think will happen?” Paulson and Bernanke believe — accurately — that if a major bailout plan is not enacted in the next week or so, disaster will ensue. It is not extortionate for them to say this. It’s simply honest. They may be wrong. But there’s zero reason to believe they’re lying.
September 24th, 2008 at 2:33 pm
Where did the $700 billion figure come from?
Paulson’s plan proposes lifting the debt ceiling to $11.3 trillion. Interestingly, the national debt stood at $5.7 trillion on the day Bush was inaugurated; twice that is $11.4 trillion. The $700 billion figure was chosen because any larger number would leave the Administration vulnerable to the charge that they’d doubled the national debt in eight years.
September 24th, 2008 at 2:37 pm
“God, the comments on this thread just keep getting more and more ridiculous”
Only because you (F. Blair) keep commenting.
September 24th, 2008 at 2:38 pm
Congress announced a plan last week. The signal that the federal govt will take toxic loans off the books of the financial firms in one way or another has already been sent.
At this point, I don’t see why the actual bill has to be passed before election day, and why even that can’t be a stop gap that buys time for a well-formulated bill to pass sometime next year.
We’ve reached the point where if there was an argument that failure to pass this bill this month would directly or even likely lead to Morgan Stanley going under, we’d have read it. After the amount of scutiny this issue has gotten for the past week or so, we can say with confidence that there is no semi-plausible argument.
If there was an argument that Morgan Stanley going under would directly or even likely lead to major difficulties in the non-financial sector(much less a Great Depression) that argument would have been made by now. We can say with confidence that there is no semi-plausible argument.
At this point what I think will happen is what I think should happen. Congress will cool down, maybe pass something small for now and we’ll deal with this issue on a longer-term basis under a new administration.
There just is no crisis. Maybe there was before the signal was sent that money is available, but now there is no crisis.
September 24th, 2008 at 2:48 pm
Let’s take the TED spread to $100 F. Blair – it is, what, a measure of how willing banks are to lend money to… wait for it… OTHER BANKS. Not you and me, you notice, just other banks. Banks seem perfectly willing to loan money to people and companies with verifiable assets, but not so willing to loan money to inveterate liars.
So, once again, how is this a problem for those of us with a few $100k on the line, who might well be better served if the bastards went down like a turd in swimming pool?
All you’ve offered up is more “frighten the rubes” bs. I think a lot of the country would be willing to take a haircut to bring some sanity back into Wall Street and it’s pets in DC.
Jake
September 24th, 2008 at 2:53 pm
This is the final Bushian exit plan for his legacy: we elect financial ignoramus hothead compensator McCain, and Bush looks rational – or – we elect Obama hobbled with debt and 2 losing wars, Bush might look ok. Bush 1 tried the same stuff, started Somalia as a lame duck in the middle of a recession. Didn’t work with Clinton, Bush 1 should have put Greenspan in a refrigerator or something. But you know Bush 2 – always gotta do one better than his daddy – go to Baghdad, and loot not only the Federal Reserve, but the Treasury for his cronies.
September 24th, 2008 at 2:58 pm
“After the amount of scutiny this issue has gotten for the past week or so, we can say with confidence that there is no semi-plausible argument. . . . There is no crisis.”
Really? Warren Buffett today said that if this week ends without it being clear that Congress will be voting on (and passing) a bailout plan next week, that we’re going to see a lot of things in financial markets “that we don’t want to see.” He added:
“It’d be nice to have the luxury of thinking about this for three months. But I will tell you if you think about it for three months . . . if you think about it for three weeks, you’re going to be facing a situation that’s far different and far more difficult than if you do something now.”
So let’s see, who do we listen to? Arnold Evans or Warren Buffett? I think the question answers itself.
September 24th, 2008 at 2:58 pm
A quick note, FB – Salmon has been ROASTED on his blog over those answers. It seems most people recognize them for the trite bullshit they are.
Jake
September 24th, 2008 at 3:01 pm
Buffet said he would not have invested in Goldman without the surety of the bailout. His position is what’s known as compromised – his self interest is now firmly aligned with a bailout, and his statements on the issue at hand is suspect and cannot be taken at face value.
Jake
September 24th, 2008 at 3:04 pm
Wait a minute – this is Hank Paulson, right? Not Pat Paulsen. Does this Hank guy even have a comedy license? I mean, if he wants us to invest eleventy gazillion dollars in the US Shock Exchange (no, that’s not a typo) then he damn well better have a boffo punchline to go with it or people will just go back to watching reruns of Ozzie & Harriet. ‘Nuff said.
September 24th, 2008 at 3:04 pm
Why not put the trillion bucks in the hands of a special independent commissioner, appointed for a minimum term of “now until inauguration day”, with not one penny appropriated until Commissioner Barney Frank’s nomination has past the Senate? We’ll see if Bush really thinks his plan can’t wait another day.
September 24th, 2008 at 3:07 pm
I understand that the temperature has dropped dramatically and that hell is indeed freezing over, but still, I am reluctant to give a blank check to any member of the Bush Administration. I’m sure Paulson is as trustworthy as Colin Powell, whom I best remember as sitting in the Security Council warning the world about mobile chemical warfare trailers and aluminum tubes. I favor the plan suggested by Sen. Shumer that give them $150 Billion now and let the incoming administration, McCain or Obama, deal with it. It’s going to color every policy the next President’s administration will have. The new guy will have a couple of months to get a team plan and hit the ground running in January. The new President should have the opportunity to deal with this problem, not the failed one.
September 24th, 2008 at 3:18 pm
“Salmon has been ROASTED on his blog over those answers.”
Roasted? Please. He was criticized by the same kind of people posting in this thread, people whose view of the credit markets amounts to “Wall Streeters are corrupt and evil, and the Bush administration came up with this plan, therefore it sucks, and there is no crisis.”
And again, all the people in that thread who are saying: “Johnston found that small businesses weren’t having any trouble” are living off the benefits of the announcement that we’d have a bailout plan. Take away that promise, and we are back to last Thursday.
September 24th, 2008 at 3:24 pm
So, let’s see, say there are 20 responses on Salmon’s blog, many by long time readers, and 19 say you (Salmon) suck and one weakassed commenter (maybe you with a different name?) says good work, but all you (not the editorial “you”, I meand YOU, FB) can assume is that the same people who disagree with you here are over there disagreeing with Salmon as well?
More bs – but I guess when bs is all you got, everything looks like a wall.
Jake
September 24th, 2008 at 3:25 pm
Roasted? Please. He was criticized by the same kind of people posting in this thread, people whose view of the credit markets amounts to “Wall Streeters are corrupt and evil, and the Bush administration came up with this plan, therefore it sucks, and there is no crisis.”
The angel on my one shoulder wants the Democrats to drive a hard bargain and somehow, miracuously get a decent bailout plan that doesn’t end up costing the taxpayers that much.
The devil on my other shoulder wants no bailout plan so that we can watch the ensuing chaos and read the stupid comments made by some people on this blog. Glib morons.
September 24th, 2008 at 3:36 pm
Jake
Buffet said he would not have invested in Goldman without the surety of the bailout. His position is what’s known as compromised – his self interest is now firmly aligned with a bailout, and his statements on the issue at hand is suspect and cannot be taken at face value.
Um, it means he’s sure there will be a bailout. That’s all it means.
Too bad, because it means people’s glib predictions will never have a chance to be proven false.
I’m still hoping that there will be no bailout so we can see what hardasses have to say then, after they’ve been proven wrong.
September 24th, 2008 at 3:40 pm
Glib morons? I don’t get it. Not one person in the middle of this clusterfuck knows what’s going to happen, but some few are confident that we need to spend at least $700 billion to fix… something, nobody knows exactly what will be fixed, but fixin will happen! all predicated on the unknown but non-zero chance that we will have Great Depression #2.
Personally, I’d like to hear someone talk odds, even freaking made up odds that only represented their best guess. And I like that someone to be a someone whose interests are strictly in avoiding such an outcome not a someone who actually materially benefits from the bailout itself.
When the glib socialists (Peter and FB) can do better than mouth platitudes and bs, in the midst of their active fearmongering, then maybe their words would receive a more open hearing.
Until then, us glib morons will continue in our desire to see something than “the sky is falling” rhetoric.
September 24th, 2008 at 3:44 pm
PK, you can’t be serious! Are you saying that Buffet’s financial interests are NOT aligned with a bailout? Because I am not saying he is right or wrong, only that his position is now compromised by his ownership of GS, which ownership puts him directly in line to benefit from the bailout. Buffet didn’t put $5B in play without some belief that a bailout would happen, but that says nothing about his beliefs about whether or not the bailout was required BEFORE he put himself in line at the public trough. Now, of course, the bailout IS required, otherwise his $5B is at risk, and that’s a bad thing if you are WB.
Jake
PS – I really shouldn’t dis socialists like that – it’s not their fault the republican leadership has adopted their platform.
September 24th, 2008 at 3:53 pm
“Until then, us glib morons will continue in our desire to see something than “the sky is falling” rhetoric.”
It’s not rhetoric — it’s reality. Just look at what was happening in the middle of last week. That tells you what we’re looking at, in spades.
Odds? If some version of the Paulson or Dodd plans doesn’t pass, we’re looking at a better than 50% chance of a recession that will be far more severe than the 1981-1982, the collapse of hundreds of banks, including WaMu and Wachovia, unemployment rates above 8%, and a drop in the S&P of another 20% (which would make it about 45% peak to trough). The price of avoiding this? In the long run, probably not very much, since once the financial markets are stabilized and reasonable price-setting can occur again in the MBS market, the assets we buy will likely be worth more than we pay for them. But even if it ends up costing us $100 billion, that’s a small price to pay to avoid the above scenario.
September 24th, 2008 at 4:05 pm
Blair and Peter… I don’t know what to say to you guys. You’re violently missing the point, that’s for sure.
I’m not going to deny that we could facing up the Great Depression the sequel. But that still doesn’t mean blowing $700B is the right solution. Some people are running around saying stupid things, but let’s give the blogosphere’s general skepticism it’s most favorable interpretation. Spending $700B is a one-way decision. It’s not reversible. You can spend another $700B if it turns out you wasted the first round on a bunch of junk assets and didn’t solve the problem, just enriched a bunch of Paulson’s buddies at GS, but then the tab rests at $1.4T. Those kinds of numbers mean something to the American economy. They’re not, “try it and see if it works” kind of numbers. And basically, I don’t trust Paulson, Bernanke or the Bush administration one bit in figuring out the right thing to do. My feeling is that they’re more likely to do the wrong thing then anything else. I don’t trust Congressional Dems that much, or even Obama. But $700B is a big enough number that I’d rather not spend it until I have people I trust the most (of the options available) making the decision on what the f to do. This problem has been over a year in developing. I don’t see anyone having proven that waiting another 3 months is going to be as bad as people are making out. What is it that can be lost in 3 months time? What non-financial businesses will be unable to continue writing pay checks if we wait that long?
September 24th, 2008 at 4:07 pm
Ok, 50% is the FB buyin. And to avoid that possibility he offers up a price of a mere $100B.
I agree with him. I think $100B to avoid a 50% chance of GDII would be a great buy. But, what if the chance is more like 2%? Or even 0.2%? What if the cost is not $100B but $10T? Is it worth it then?
Even given FB’s odds and costs, the next most obvious question is… is a bailout the best way to avoid GDII? Or is some other way to inject cash (liquidity) into the system an even better investment?
I don’t think we got much for our earlier $60B or whatever it was, so I don’t think injecting $100B directly into the overstretched credit card accounts of middle America is going to help much. Are there other places to put money that might generate a (good) big bang?
Jake
September 24th, 2008 at 4:13 pm
The “there is no financial crisis” crowd seem to be engaged in the same willful ignorance enjoyed by the “there is no global warming” crowd. Debate an answer to the problem but please don’t deny that a problem exists nor minimize the potential for catastrophe for getting this wrong.
September 24th, 2008 at 4:15 pm
I will 2nd Jake’s comment. $100B to avoid a 50% chance of a severe recession is a good deal.
But we are looking at potentially a $700B price tag with no guarantee of making any real progress towards a solution. Even if Paulson hadn’t already discredited himself by working for Bush, he certainly wiped away any remaining claim to trustworthiness with his performance over the past week.
September 24th, 2008 at 4:17 pm
right f blair. and iraq oil will pay for the war.
September 24th, 2008 at 4:37 pm
nukev, I don’t think anyone is saying there is no “financial” crisis – what people are saying, what I am saying, is how is that financial crisis my problem? How is it that it is our money that must bail out the Master’s of the Universe?
See, I don’t see a TED spread as a problem to me. I don’t see tons of toxic CDOs in a banks inventory as a problem to me. I don’t own that bank, I don’t work there. I didn’t do it.
The company I work for can get money to finance actual asset growth – instead of asset inflation. My son can get a mortgage. The equity line of credit I use at the bank is still good. Just how is this financial crisis my crisis?
I think it quite likely that most of the toxic securities are worth at least 50 cents on the $. So what are we going to pay for those securities? 40 cents, or 60 cents? If we pay 60 cents, the boys who brought us this crisis are 20% ahead of the game. If we pay 40 cents, we don’t solve the liquidity crisis because we just raised the capital requirements of the bank. The current proposals are lose/lose for us excepting the risk of a true economic meltdown, as compared to some big time haircuts for Wall Street high flyers. We should do a lot to avoid total economic collapse.
But how many bailouts does it take before it takes that you can’t trust these guys? At some point you cut them loose from the apron strings and take your lumps. Maybe that is now.
Jake
Jake
September 24th, 2008 at 4:56 pm
If my doctor recommends an extreme and expensive procedure, you bet your sweet bippy that I’m going to get a second opinion from another doctor. I’d be a fool not to get a second opinion. Doctors (and bankers) are not always right, and you should always double-check any expensive diagnosis that they give you.
But you think we should give Hank Paulson $700,000,000,000 based on a three-page statement that wouldn’t pass muster as a grant application for $15,000.
Again, what’s the panic for? Even you’re saying that the urgency is to have Congress working on a plan by the end of this week to calm the markets down, and they’re working on one right now. Why should we accept the Paulsen plan in a panic when Sen. Dodd has offered an alternative plan that might be a better way to go?
September 24th, 2008 at 5:27 pm
Jake- There are alot of people saying there is no financial crisis in this and other blogs. I don’t argue that most people have yet to experience a lack of credit. I have little or no trust in this administration.
I do note, however that there are alot of very smart people from all political perspectives saying that there is a very real threat of credit markets seizing for businesses and less than perfect credit score consumers and the consequences of this are potentially catastrophic. I have a hard time beleiving that they are all just making stuff up.
I’m not advocating the Paulson plan. In fact, I think it’s ridiculous and would argue that nobody expected it to be enacted as is. I do think that Congress should take the time they need, limit taxpayer liability, create taxpayer equity, limit CEO compensation, improve distressed homeowner safety nets, and any other bells and whistles including decreasing the pricetag as they see fit.
There is an issue. It can be ignored or acted upon. There are consequences in either course of action.
September 24th, 2008 at 5:31 pm
Blair and Peter… I don’t know what to say to you guys. You’re violently missing the point, that’s for sure.
Um no you’re missing the point. All we’re reacting to is the morons who are saying there is no crisis. We’re not saying we have to do Paulson’s $700 billion plan, no strings attached. In fact it’s an opportunity for strings.
I personally am reacting to the people who are saying this is just like Iraq in order to score political points. These are the people who think Saddam was no big deal – b/c they are spoiled. And I hope there is no bailout and a Great Depression Part Deux comes about because at the moment these people are saying there is nothing to worry about. They remind me of nutbag “House GOP members” who are horrified that the principles of the free market are being violated.
Matt’s right about all of the fraudulance and negligence that got us to this point.
And maybe we can wait until after the election as Schumer is suggesting, but the Republicans will be proven right if disaster happens before then.
September 24th, 2008 at 6:20 pm
Actually, I’m not pushing Paulson’s plan — Dodd’s would be fine with me. I’m just saying we need some plan that involves the federal government spending hundreds of billions of dollars to get these toxic assets off the banks’ balance sheets — and that if we don’t get the plan soon (as in within a week), the effects on the real economy will be disastrous. And, like Peter, I’m saying there is no analogy to Iraq — the crisis is real and imminent, and we would already be dealing with a true disaster if the plans for a plan hadn’t been announced last week.
As for Jake’s point about how much we should pay, my assumption (and one that I think underlies the plan) is that these assets are worth, say, 50 cents on the dollar (as Jake suggests). But they’re currently valued, because of the market panic, at 20 cents. So we can pay 40 cents, recapitalize the banks, restore some confidence in the market, and in the end clear a small profit. But as I said, even if we lose 10-15% of the investment (so around $100 billion) it would still be worthwhile to do.
September 24th, 2008 at 6:33 pm
Matt: “The answer to the Schumer/Ambinder question seems to me to be, basically, that Paulson wants to tie the next administration’s hands. But that’s silly. After the election the country will have new, non-discredited leadership and that new team should play a key role in shaping the response.”
He answers his own question, then says it’s silly.
That’s our clueless, inexperienced Matt.
What part of “this was always the intent” don’t you get, Matt?
September 24th, 2008 at 6:44 pm
Oh, we definitely need a plan. I’ve had my money in government bonds for at least a year because things started looking pretty scary. What we don’t need is to be stampeded into a bad plan because the Republicans say there’s no time to waste.
I do think that the timing is at least slightly ginned-up, though it’s also possible that this was planned to be the October Surprise but reality overtook the strategy. The Bushies have always been under the impression that they can bend reality to their will and are always, always caught by surprise when it turns out they can’t.
September 24th, 2008 at 6:51 pm
It shouldn’t be a bailout but a loan … at 21% interest with minimum payment due at the end of the month. Oh, by the way, we need to have a talk about collateral.
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