Mallaby: This Deal Stinks
Sebastian Mallaby strikes me as a pretty business-friendly, establishment-oriented type so when he says this bailout package stinks I suddenly go from thinking “this smells fishy to me, but maybe these guys know what they’re doing” to “oh shit.” He points to a couple of better models:
Raghuram Rajan and Luigi Zingales of the University of Chicago suggest ways to force the banks to raise capital without tapping the taxpayers. First, the government should tell banks to cancel all dividend payments. Banks don’t do that on their own because it would signal weakness; if everyone knows the dividend has been canceled because of a government rule, the signaling issue would be removed. 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.
Here’s Zingales on “Why Paulson is Wrong.” Here in Vegas, the house always wins, but I at least have a sound understanding of the underlying mechanism.
63 Responses to “Mallaby: This Deal Stinks”
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September 20th, 2008 at 5:24 pm
Are you aware the Federal Bail out bill contains the following provision:
September 20th, 2008 at 5:32 pm
What could possibly go wrong with giving $700 billion (at least) of taxpayer money to a Bush Jr. administration bureaucrat who’s also a former Wall Street CEO to spend as he likes with Congress specifically requiring zero ability for anyone else on Earth to review or influence his efforts whatsoever?
Sounds like policy gold to me.
September 20th, 2008 at 5:33 pm
“Raghuram Rajan and Luigi Zingales of the University of Chicago suggest ways to force the banks to raise capital without tapping the taxpayers.”
Guess these guys haven’t gotten the message – tapping the taxpayers is the whole purpose. That’s what the banks have paid Congress to do. Sheeesh!
September 20th, 2008 at 5:37 pm
Any bank that gets bailed out, the current CEO must go and the government should get at least 3 seats on the board to watch every penny that’s spent. No outside the government independent company should be involved in any part of the bailout…noone should earn a fee, commission, or bonus for work related to the bailout….no outsourcing.
September 20th, 2008 at 5:55 pm
Just went to the Dem Party website and told them Nader will get another vote is this bailout bullshyt passes with the taxpayers footing the bill. Feeble protest, but I just don’t know what else to do.
September 20th, 2008 at 6:03 pm
Based on the various estimates (500 billion? 2 trillion), it looks like we’ll be fronting somewhere between 1,500 and 6,500 a head. This is nuts. If it needs to be done, it needs to be done, but at the very least we should be nationalizing these companies, if they can’t stay afloat themselves.
It sounds like Krugman, Delong and Baker are all skeptical. That’s enough for me.
September 20th, 2008 at 6:16 pm
So how is this whole clusterfuck different from if we had just privatized Social Security when Bush asked us to in the first place, vaporizing hundreds of billions in taxpayer money annually with nothing meaningful to show for it?
The only thing I can think of is that the executives running these places got to take home their pay and bonuses before the government wrote them the check for their non-services.
September 20th, 2008 at 6:35 pm
insane.
September 20th, 2008 at 6:43 pm
Jesus, I thought that was what the plan was. We’re actually just agreeing to pay their bad loans for nothing? This is fucking insane.
Also, can the government just order banks to issue more stock? I would think the shareholders would have a pretty good case that this would be an unconstitutional taking.
September 20th, 2008 at 7:04 pm
Here in Vegas, the house always wins, but I at least have a sound understanding of the underlying mechanism at least have a sound understanding of the underlying mechanism.
No offense, but based on the mathematics you delivered in that post with the roulette wheel pic, sorry, I don’t think you do. Just sayin’.
September 20th, 2008 at 7:06 pm
In crisis, there is opportunity.
With the ascent of the imperial presidency and the nationalization of the financial sector, politics might just become a lot simpler.
Thomas Friedman might actually get his “China for a day”.
September 20th, 2008 at 7:17 pm
Looks like the fix is starting to get hardwired:
“The government must bail out the financial system “because if we don’t, it will have a tremendous impact on American consumers, homeowners, taxpayers and the rest,” House Speaker Nancy Pelosi, D-Calif., said in San Francisco.
But, she added, “We cannot deal with this unless this bailout helps families stay in their homes.”
Senate Majority Leader Harry Reid, D-Nev. said “we cannot allow ourselves to be in denial about the threat now facing the world economy. From all indications, that threat is real, and the consequences of inaction could be catastrophic. Every single American has a stake in preventing a global financial meltdown.”
———–
This is utter bullshit. The people who have a LOT to lose are the fucking Republican billionaires who have been screwing this country like a dog for the past 8 years. THEY are the ones who will get 99 percent of the benefit from this bailout.
I would be willing to live through a depression if it destroyed and bankrupted those motherfuckers. At least then we could solve this country’s problems without the burden of a deeply corrupt Congress whoring for rich men and a two-faced lying news media touting a massive transfer of our wealth to those rich men.
This country would much stronger if its productive people weren’t being sucked dry by a CABAL of lying, lazy parasites.
What in the hell does Rush Limbaugh, Bill O’Reilly or Rupert Murdoch contribute? WHen have they ever done a honest day’s work in their life? Or told the truth?
I repeat: Either the Democratic COngress sticks the 3 percent richest part of the population with the bill for this fiasco — or we should all vote for Ralph Nader.
We should demand that this bailout be financed by a $2 Trillion income surtax on the Superrich. The Democrats have already allowed Bush to dump $5 Trillion of debt onto us.
I’m fucking sick of this game where the Republicans screw us like dogs — and then the Democrats sabotage any rebellion in the masses by carrying the banner of reform. Only to turn around and screw us just as soon as they get power. Either by fleeing the battlefield or enabling the Republicans.
If they let George W Bush dump this $2 TRILLION Bailout onto us, then they are our enemy. It’s that fucking simple.
September 20th, 2008 at 7:30 pm
There are certain things I’m willing to pay for in taxes- education, health care for all, infrastructure, but buying up debt to rescue financial institutions that were too dumb to know that you probably shouldn’t give money to people who cant pay you back? I don’t know…
September 20th, 2008 at 7:31 pm
Lets get this straight: *everything* these knuckleheads have touched over the last 7.5 years has turned to shit, while at the same time enriching their friends and the already obscenely wealthy. Now they want license to throw almost $1 trillion at another problem of their making. Why on earth would this be the time that they:
a) didn’t further fuck things up
b) didn’t further enrich their friends and the obscenely wealthy?
September 20th, 2008 at 7:32 pm
Don – Can you put some of that, more politely, in an email to your senators and representative? That’s what I just did, and that’s what we should all do.
I’m no economist. Maybe a bailout of some sort *is* necessary. Unlike Don, I’d rather not live in a box car, even if doing so would insure that the billionaire was in the next box car over. But this is a raw, stupid deal – even a congressman might be able to see that.
September 20th, 2008 at 7:35 pm
Re Harvey Lobster’s comment “Based on the various estimates (500 billion? 2 trillion), it looks like we’ll be fronting somewhere between 1,500 and 6,500 a head. This is nuts ”
—————-
1) Here are the figures:
a) Federal Reserve Emergency Loans to banks ($200 Billion), takeover of Fannie Mae and Freddie Mac ($300 Billion), fronting for Bear Sterns purchase, and purchase of AIG ($85Billion ) — Bush and Paulson have run up $700 Trillion so far.
b) Cost of Second Stage Bailout proposed by Bush on Friday: $700 Billion
c) Add in the Interest we will have to pay on Fed borrowing, THIRD STAGE bailout,etc and we are easily looking at $2 TRILLION. Bush is feeding it to us in slices to muffle the outcry.
2) There are only about 65 million households in this country who can even afford to pay more in taxes — people who make $30,000 or less are tapped out.
So divide $2 Trillion by 65 million and you get almost $31 THOUSAND ($31,000) !!!! per middle class household and above as the cost of this Bush Bailout.
3) THAT is on top of the almost $10 Trillion we already owe.
Divide $10 Tril among 65 Million and you get $154,000 !! per household.
4) And now we are supposed to accept another $31,000 because Bush wouldn’t restrain the crooks?
God damm it, NO!
5) The Democrats now control Congress. IF they use the power we’ve given them to fuck us yet again, we should destroy the Democratic Party. Because it will have shown that it is NOT the Tribune of the people–rather it’s a fucking deceitful ,corrupt Mole.
6) And THAT’s why Bush is luring Pelosi and Reid into this Bailout. The same man who lied to us about why Sept 11 occurred, who lied to us about Saddam Hussein’s nukes, who lied to us in 2001 about the $5 Trillion SURPLUS we should now have is now saying we need to give the richest 3 percent of population another $2 Trillion.
September 20th, 2008 at 7:48 pm
1) Here is an AP report last Tuesday noting that the AIG rescue had bought the cost of Bush’s Stage 1 bailouts to $700 Billion:
“AIG’s bailout brings to about $700 billion the total of U.S. rescue efforts to stabilize the financial system and housing market. Authorities may get much of that sum back provided asset prices don’t continue to slide.”
Ref: http://news.yahoo.com/s/nm/20080917/bs_nm/financial_dc_15
(Bush’s “You’re In For a Penny Might as well be in for a Pound” casino.)
September 20th, 2008 at 7:59 pm
1) Here is the report of the ADDITIONAL $700 Billion Bush is now asking for his Stage 2 Bailout:
http://www.federalnewsradio.com/index.php?nid=78&sid=1478539
2) A few months ago, The Democratic Congress raised the federal debt limit –from $9.8 Trillion to $10.6 Trillion — to allow Paulson to borrow for the stage 1 bailout.
3) But this latest stage 2 Bailout will require that the debt be raised yet again — to $11.3 Trillion. An increase of $1.5 Trillion within just a few months — due to manipulation of the Democrats by lame duck Bush as he leaves offices –and accountability.
September 20th, 2008 at 7:59 pm
$700bn is the estimated cost of keeping Wall Street fat and happy over an Obama administration, until they can underwrite a GOP election campaign that will deregulate and lower high-end taxes in order for them to fuck up again.
September 20th, 2008 at 8:04 pm
Robert Reich, former treasury secretary under Clinton, feels the same way: http://robertreich.blogspot.com/2008/09/bailout-of-all-bailouts-is-bad-idea.html
September 20th, 2008 at 8:17 pm
These figures sound way too high – surely they refer to up front costs, and not NET costs to the treasury after revenue gains (interest income from F&F loans that are still performing, revenue from AIG’s profitable business lines, proceeds from the sale of millions of foreclosed properties, etc.). Right?
September 20th, 2008 at 8:40 pm
RE Jasper’s comment “surely they refer to up front costs, and not NET costs to the treasury after revenue gains (interest income from F&F loans that are still performing, revenue from AIG’s profitable business lines, proceeds from the sale of millions of foreclosed properties, etc.). Right? ”
———–
Right but we don’t know. If this stuff had a high likelihood of being profitable, it would not have to be bailed out. Investors and other companies would be buying it.
The increase in our debt limit of $1.5 Trillion shows what Paulson estimates/thinks the initial cost will be.
September 20th, 2008 at 9:04 pm
I don’t like the “railroaded” feel of this: “hurry hurry hurry we have to hurry,” people are screaming. And John Boner is screaming “pass it quickly so we don’t hurt the American people!” We need to take our time and do this right. Pelosi and Reid better stand up on this.
September 20th, 2008 at 9:05 pm
Paulson will wear the ring himself!
September 20th, 2008 at 9:06 pm
It’s time to start to get your mind around the idea that the problem is too big to fix. It is. The banks and other corporate entities involved in finance have seen the price of their assets drop several trillion dollars. Many can no longer operate that way since they have purchased these assets with borrowed money. They borrowed short term on these long term, now damaged and quickly deflating assets and they need to keep borrowing since their short term loans keep coming due. However nobody is lending to them anymore.
The entire thing is called a deflationary debt collapse.
Now the theory behind this bailout or the LTCM bailout or the S&L bailout is this. There is a glut of assets which drives down the price of said assets. As the price drops more try to sell making the problem worse. It’s the classic vicious circle. If someone steps in to take the bad assets the new holder can hold them for awhile, keeping the selling pressure at bay and letting equilibrium return to the market.
All well and good but at a minimum a trillion might be needed, Monday morning. OK, let’s believe Hanks $700 billion is enough. In order for the Treasury to spend this money they have to borrow it. Now where do you borrow $700 billion? (I won’t go into the details of the Treasury auctions which go on under most peoples radar several times a week except to say that while the Treasury has been able to raise $60 billion in new money a week since May that’s only half of what they need in total, to raise right now. Right now! There isn’t enough free money in the world to buy all that paper. It can’t be done. Or it might be but it will be at very high interest rates which carries all sorts of other problems with it immediately and going forward.)
The emperor has no clothes. The Plan, such as it is represents wishful thinking. Mostly the wish is that the ever elusive ‘confidence’ will return to the markets. The markets don’t need just confidence, they need money. It’s show me the money time.
This is how markets work. We happen to be talking about the credit markets however and the credit markets are the mother of all markets. The foundation of capitalism.
I know, it’s beyond imagining that there could be a real collapse. Even the sharpest critics of the system, the cultural system, the economic system, the political system believe in its fundamental stability. It’s all we know. It seems like it’s a natural thing. It isn’t natural.
Money in all it’s forms is an abstraction. Even gold. This recent age has been built upon ever more complex abstractions about what constitutes money or has the property of money, which has been called moneiness. Money market accounts are the prime example of something which people think of as money but are really only an abstraction based upon the confidence that the funds holdings are good. They aren’t. The viability of the money market funds has been based upon the continued inflow of money. If there are outflows they have to sell their ‘investments’. However in many cases their investments have lost two or five or ten percent. All the funds hold the same kind of assets, commercial paper and the like. If a few start selling then the prices drop more. Another vicious circle.
In many respects the financial world is all like that which is to say a Ponzi scheme.
September 20th, 2008 at 9:10 pm
I think I now know why they settled on the $700B figure for the proposed new bailout…
As Don Williams has pointed out, the existing bailouts over the last week or two come to around $700B. So by picking $700B as the amount of the additional bailout, they’re hoping people get the two numbers confused, and assume the government’s only talking about one $700B bailout tranche instead of TWO $700B bailout tranches.
Knowing the intelligence of the American people, ten-to-one this simple trick works…
September 20th, 2008 at 9:10 pm
As currently proposed, the bailout is nothing less than a fiscal coup. If this goes through as drafted, we need to seriously start talking about revolution.
September 20th, 2008 at 9:46 pm
The fix is in. It’s a done deal. Tilt. Game over. We lose.
Note how Dodd and Reid are mouthing the BushCo/GOP party line.
From:
http://news.yahoo.com/s/ap/20080920/ap_on_bi_ge/financial_meltdown
“We’re going to work with Congress to get a bill done quickly,” President Bush said at the White House. Without discussing specifics, he said, “This is a big package because it was a big problem.”
The proposal is a mere three pages long, but it gives sweeping powers to the government to dispense gigantic sums of taxpayer dollars in a program that would be sheltered from court review.
“It’s a rather brief bill with a lot of money,” said Sen. Chris Dodd, D-Conn., the Banking Committee chairman. “We understand the importance of the anticipation in the markets, but we also know that what we’re doing is going to have consequences for decades to come. There’s not a second act to this — we’ve got to get this right.”
Senate Majority Leader Harry Reid, D-Nev. said “we cannot allow ourselves to be in denial about the threat now facing the world economy. From all indications, that threat is real, and the consequences of inaction could be catastrophic. Every single American has a stake in preventing a global financial meltdown.”
September 20th, 2008 at 9:59 pm
One of the bigger lies is Senator Harry Reid’s:
“Every single American has a stake in preventing a global financial meltdown.”
———
Roughly 30 percent of Americans have a stake in NOTHING.
Because they have no assets and barely enough income to survive.
They don’t even have a stake anymore in being Americans. What “stake” does one have in a country which can deny basic healthcare to millions, can send thousands to their deaths for the sake of Big Oil, and which will give $2 Trillion tax cuts to the richest 3 percent — followed by another $2 Trillion to bail that same richest 3 percent out of their bad gambles. But refuse to give a decent education and lunchs to millions of schoolchildren in poor neighborhoods.
September 20th, 2008 at 10:04 pm
I have several questions for those who understand these financial matters better than I so.
1. The answer to the first question bears on whether it makes more sense for the government to buy up assets (loans) or buy stakes in the companies themselves. I have heard several commentators say in the past few say that a key component of the problem is the accounting regulations that determine the way financial assets are valued on companies’ balance sheets. According to these commentators, because of the nature of these accounting rules, the “real” value of these loans is higher than they appear on the balance sheets, and this is the source of the liquidity problem.
According to this view, the loans the government is planning to buy are not necessarily just a bunch of “bad” loans, on which the taxpayers are going to lose the money they spend to buy the assets. The taxpayers, according to this account, are actually getting a good price, and may in the end do fairly well by holding some of these assets.
Is this story true or false?
2. What role are foreign central banks and private financial institutions playing in this crisis? Unlike the 1920’s and 1930’s, we now live in more fully globalized system. Does this mean that we can be confident that the crisis will not deepen too badly, because other countries wouldn’t dare let us fail, and will be there to bail us out if need be?
3. At what point would US ownership of either bad financial assets or badly preforming companies actually put the credit rating or the solvency of the federal government at risk? Since the whole point of a bailout is to restore confidence by putting the full faith and credit of the US government behind previously uninsured and weakly regulated financial transactions, how do we make sure the federal government, which is already carrying a lot of debt, maintains its unimpeachable global financial position?
September 20th, 2008 at 10:07 pm
1) The most pathetic thing about the Democratic leadership is that they are not only corrupt — but they are also STUPID.
At least the Republicans show a certain low animal cunning.
But Democrats can’t even do corrupt political calculations correctly.
2) One of the bigger criticisms of the Republicans COngresses was that they ran up $5 Trillion in debt from 2001-2006. But that loses its sting when the Democrats run up $1.5 Trillion within a few months.
3) Do they think other grassroots Democrats are not going to come to the same realizations that I mention above between now and Nov 2? Do they not realize that people are going to desert Obama and Democratic Members of Congress in DROVES?
4) WHAT explanation can they give? That GEORGE BUSH told them to do this?
4 months hence not a fucking Republican leader or media figure will even acknowledge that Bush ever even existed.
But this betrayal will haunt the Democratic leadership for years.
September 20th, 2008 at 10:08 pm
Roughly 30 percent of Americans have a stake in NOTHING.
Because they have no assets and barely enough income to survive.
C’mon. Most of those Americans work for companies, and those companies need capital to survive and thrive. If these companies cannot get that capital because the money flowing out of the financial system is drying up, then they are going to have to cancel, cut or suspend some of their existing operations, and that means they are going to lay a lot of people off.
September 20th, 2008 at 10:16 pm
Notice how the GOPocratic spin machine is already beginning to marginalize anybody who opposes this giveaway, as per:
Opposition to taxpayer financed bailout = failure to understand the grave threat to our financial system.
Same as:
Opposition to Iraq War = failure to understand the grave threat to our national security.
September 20th, 2008 at 10:16 pm
Re Dan Kervick’s question “The taxpayers, according to this account, are actually getting a good price, and may in the end do fairly well by holding some of these assets.
Is this story true or false? ”
————-
Contrary to the false impression put out in the press, the Government is largely not buying physical assets like houses. Which it can paint, sweep out and sell at at profit. Although some of the Fannie/Freddie holdings give title to foreclosed homes.
But much of what the government is buying is toxic paper. Securities. Which are toxic because even Wall Street claims it can’t figure out what they are worth or the liabilities they entail.
Which is how most con games work — make the game so complex and throw in so much misdirection that the mark is baffled.
IF you want to see what Paulson and Bush are REALLY doing, watch the movie “The Sting”.
That is why Democratic proposals to make the Bailout bill somehow better are so stupid. If you don’t understand the investment, then don’t put money into it. And their changes merely makes them complicit is Bush’s ripoff while buying them nothing.
Make the fucking Superrich pay for the Bailout and see how long it survives.
September 20th, 2008 at 10:22 pm
Re Dan Kervick’s comment “that means they are going to lay a lot of people off. ”
————-
Newsflash. They are going to lay a lot of people off anyway.
What kind of big hiring did that 2001 $2 Trillion tax cut for the Superrich buy? The Superrich will do the same thing with the Bailout money that they did with the tax cut — lay off Americans and invest the capital in China.
What kind of a moron takes out a $31,000 loan to BUY employment at a $30,000 per year job?
There’s one thing worse than an unemployed worker — that’s an unemployed worker with a $184,000 debt that ensures his wages are docked into eternity.
September 20th, 2008 at 10:38 pm
I’m on Don’s side here: as it stands, this is all about propping up Wall Street’s worst offenders so that an incoming Democratic administration is crippled, and the GOP and their rich corporate buddies can come back to fuck things up later.
There’s no moral hazard in the Paulson blank check. There is no safeguard to prevent this happening again. Along with the power of the purse that a dictator would dream of.
September 20th, 2008 at 10:42 pm
“..this is all about propping up Wall Street’s worst offenders so that an incoming Democratic administration is crippled, and the GOP and their rich corporate buddies can come back to fuck things up later…”
I might agree but for the fact that Pelosi & Reid are going along with this. But then again, it wouldn’t be the first time the Democrats screwed themselves and ate their young.
September 20th, 2008 at 10:46 pm
I’m very sceptical of the Bush Doom and Gloom stories.
We are talking about companies who made bad bets taking their medicine. A year ago, that proposal was accepted as normal business procedure.
If there’s a $Trillion worth of bad securities out there, it makes no difference if the government takes it in the shorts or if private investors take the hit. Except to the taxpayer.
Losses are losses.
IF this Bailout is a great idea, then the Superrich will not object to coughing up the money to support it. They, after all, own most of the wealth and are the ones who have something to lose.
People who work for a living rarely go hungry for long. Trustfund scumbags who develop a bad gambling habit are a different story.
September 20th, 2008 at 11:01 pm
This argument turns things around outrageously – although if I were a Repub, I’d try just that. Here’s that argument turned into a narrative:
1. Republican deregulatory executive policy creates a huge economic mess;
2. Democratic congress called upon to bail out the mess;
3. Democratic congress to blame.
I wont’t say that R’s won’t try that angle-especially the duplicitous on right-wing radio-nor that some people won’t accept it, but it’s a disingenuous and misleading argument nonetheless.
September 20th, 2008 at 11:03 pm
1) It’s interesting that Democratic approval of Bush’s Bailout may let the Republicans keep the WHite House and gain back control of Congress.
2)The bottom line is that this is a $2 Trillion wealth transfer to the Superrich. The Republican base doesn’t have a problem with that — the smart ones are hopeless buttkissers to the rich and the large mass of morons are distracted by cries of “Obama’s going to take your guns — then fuck your white daughters.” or “The Lord Demands you support Israel.” or “Democrats kill babies”.
3) But the Democratic grassroots is a different fucking matter. Imagine someone like Karl Rove taking the points I made above and broadcasting them with a $50 Million “independent ” media campaign.
There’s NO way Reid and Pelosi can disguise the fact that it’s the middle class common citizen getting fucked here. The people they claim to support and represent.
And Rush Limbaugh and Bill O’Reilly will pound that point home over and over between now and election day.
4) I’ve worked months as a volunteer for Democrats in the last three Congressional campaigns, for Howard Dean in New Hampshire and Delaware in 2004 and for Obama –both in the primary and recently. And I’m fucking furious.
September 20th, 2008 at 11:11 pm
Another estimate for the bailout cost:
From http://www.forbes.com
“So far, the federal government’s tab for propping up Fannie Mae… Freddie Mac…and American International Group… is $400 billion. Add the new loan relief entity, plus a smattering of other recent initiatives, and the jumping-off point could be near $1 trillion.
Seem high? It isn’t. If history is a guide, the price tag for all this bold action will ultimately outstrip any estimate now being floated. In past bailouts, including the Resolution Trust Corp. formed in 1989 to help resolve the savings-and-loan crisis, the ultimate taxpayer cost was magnitudes larger than originally projected.”
Some people claim in the end this will pay for itself. You know, like Wolfowitz telling us the Iraq War would pay for itself. Same bullshit, different day.
September 20th, 2008 at 11:24 pm
Don — you appear to be arguing in good faith, so I’ll talk a little bit with you.
I agree that the bailout is unjust because it would essentially result in the average taxpayer bailing out the superrich. (If there were any justice in the world, the Dems would insist upon an emergency tax on the superrich to pay for this bailout.)
But I really can’t imagine a populist, stealth-Rove ad campaign turning this all around and successfully blaming the bailout on the Dems, nor that right-wing radio and TV would try to excoriate the Dems for going along with the deal that Bush put forward, nor that they would be successful if they tried. That seems one twist too many. Especially with McCain’s anti-deregulation passion so well documented.
September 20th, 2008 at 11:35 pm
It’s too bad there isn’t a real Left in the U.S. It’s a real shame that the closest we have to a voice for the working class in all of this is Paul Krugman, for the love of God.
You know what we should be doing?
Nationalizing all the bad actors on Wall Street, with no compensation for anyone, and selling houses at a price that ordinary people can afford. And while we’re at it, double the capital gains tax. And nationalize health care.
Where are you now, Republican trolls?
Sadly, you’re probably stocking up your bunkers. Good choice. Not to sound paranoid, but I wouldn’t mind having one myself.
September 20th, 2008 at 11:39 pm
From the beggars-trying-to-be-choosers department (from a Wall Street Journal article)
House Republican staffers met with roughly 15 lobbyists Friday afternoon, whose message to lawmakers was clear: Don’t load the legislation up with provisions not directly related to the crisis, or regulatory measures the industry has long opposed.
“We’re opposed to adding provisions that will affect [or] undermine the deal substantively,” said Scott Talbott, senior vice president of government affairs at the Financial Services Roundtable, whose members include the nation’s largest banks, securities firms and insurers.
A deal killer for the group: a proposal that would grant bankruptcy judges new powers to lower the principal, interest rate or both on a mortgage as part of a bankruptcy proceeding.”
Crazy thing is, they’ll probably get what they are asking for.
September 21st, 2008 at 12:16 am
Re the Forbes quote put up by Kafka: “So far, the federal government’s tab for propping up Fannie Mae… Freddie Mac…and American International Group… is $400 billion.”
————
1) Among other things, Forbes left out the $200 Billion put aside for Emergency loans to banks. Latest Fed data (Sept 10 prelim ) indicated around $169 Billion has been borrowed by the banks, but I think that number will rise to the full limit soon.
Here’s the Fed Release: http://www.federalreserve.gov/releases/h3/Current/
2) Scroll down to the line for Sept 10. The total amount borrowed from the Fed equals Total Column + Non-borrowed Column (See Footnotes 2 and 3 to see why)
3) Forbes knows this as well as I do. They also know the collateral that banks put up for those loans is dreck — as one analyst described it “Everything including old lawn furniture”.
In my opinion, it looks like they are deliberately deceiving their readers by low-balling the aggregate costs of the bailouts.
September 21st, 2008 at 12:24 am
Another important question: HOW CAN JOHN MCCAIN STILL BE GETTING 45%+????
Jesus, we’re fucked.
September 21st, 2008 at 12:30 am
Re Stephen’s comment “But I really can’t imagine a populist, stealth-Rove ad campaign turning this all around and successfully blaming the bailout on the Dems, nor that right-wing radio and TV would try to excoriate the Dems for going along with the deal that Bush put forward, nor that they would be successful if they tried. That seems one twist too many. ”
————–
The ink wasn’t dry on the Fannie Mae/Freddic Mac deal before the Wall Street Journal and the rest of the right wing Propaganda machine were blaming it all on the Homo , Democrat Barney Frank.
See “Fannie Mae’s Patron Saint ” at http://www.wsj.com/article/SB122091796187012529.html?mod=most_emailed_day
This article was widely bounced around the right wing sites.
If you Google the title, you’ll see 18,500 !!! Hits and those sites (Free Republic,etc.)
September 21st, 2008 at 12:46 am
1) Re Stephen’s belief that there are some things even the right wing won’t try, Here is the National Rifle Association’s latest characterization of Barack Obama:
“Barack Obama–Lying Rabble Rouser ”
Ref: http://netmail.verizon.net/webmail/driver?nimlet=deggetemail&fn=INBOX&page=1°Mid=6999&folderSelected=INBOX
2) Maybe you can find some “bipartisanship” to work with in there — I personally have to take a pass.
Note that the NRA is not some carpetchewing blogger venting his spleen –this is language from a major political organization that lobbies Congress.
September 21st, 2008 at 12:51 am
Here’s the same thing on the NRA’s web site.
http://www.nraila.org/Legislation/Federal/Read.aspx?id=4183
September 21st, 2008 at 12:52 am
I’ve seen this movie before. Two bald-headed guys went to Congress and threatened to destroy the entire U.S. economy unless we pay them 700 beeleeyun dollars.
It’s a really bad sequel to the USA PATRIOT Act, the Iraq AUMF, and the Protect America Act. The Democrats need to act like a majority party and kill this film franchise.
September 21st, 2008 at 1:44 am
Nationalizing all the bad actors on Wall Street, with no compensation for anyone, and selling houses at a price that ordinary people can afford. And while we’re at it, double the capital gains tax. And nationalize health care.
I’ll go with that. Aetna and BCBS can fuck off. Turn McMansions into public housing with rent control. If it doesn’t hurt the people who fucked up, they’ll do it again. More than that: they’ll use their political leverage to put the GOP back in, who’ll give them the keys to the economy. When you have network news reports on Wall Street executives saying, with a straight face, that they’ll lose their high-maintenance girlfriends and private jets, and what a tragedy that is, it makes you realise that they’re nowhere near the point where they won’t fucking do the same thing again.
And the parallels to Iraq, FISA, torture et al. are obvious.
You know what you could buy with $700bn? Roughly, at current valuations, all the residential real estate in the entire Miami metro area. And given the post-bubble crash, you’d likely have money left over.
September 21st, 2008 at 1:50 am
@ Don Williams:
I just wanted to clarify something. The latest H.4.1 Fed data show that approximately $271.3 billion in Fed loans was outstanding on Sept. 18th. Here’s the breakdown:
Term Auction Facility: $150 bil.
Primary Dealer Credit Facility: $59.8 bil.
Discount Window lending: $33.4 bil.
AIG Lending: $28 bil. (out of a possible $85 bil.)
It’s important to note that the TAF, PDCF, and Discount window lending is all secured lending. It seems like your issue is with the collateral that the Fed is taking in exchange for the loans. The TAF and PDCF accept anything that is also accepted in tri-party repo (that’s a new development, because previously the collateral accepted was limited), while the discount window has a set of acceptable collateral that is narrower. The obvious danger here is with tri-party repo, because that includes equities and whole loans, which could easily fall in value. My understanding is that because of the credit risk involved with these instruments right now, a lot of tri-party repo is being over-collateralized in order to guard against rising credit risk, and the “haircuts” (discount on collateral) on the collateral are larger as well.
Obviously, there’s still risk involved in the trade. However, only the AIG loan is one that will truly take years to repay, assuming it’s ever repaid.
The TAF lending (which is either 28-day or 84-day) and PDCF (overnight lending) lending has, to date, been fully repaid. Until January 30th, 2009, when the program is set to expire (though it could be extended), the TAF will almost certainly continue to show $150 billion outstanding, because that’s the size of the program, and the Fed will keep auctioning cash on a bi-weekly basis.
September 21st, 2008 at 8:19 am
Re: that’s an unemployed worker with a $184,000 debt that ensures his wages are docked into eternity.
???
Unemployed people do not have wages.
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