Sep 23rd, 2008 at 11:11 am
Punitive Measures
I just heard Ben Bernanke saying that there should be no “punitive measures” for companies that participate in a bailout because that might discourage firms from participating. But that would be the point, right? That if some measure of bailing out is truly necessary then the money will be provided, but it shouldn’t just become handouts for bankers. Punitive measures mean that only firms that genuinely have no alternative will enter into the program, and their corrupt or inept managers will be duly punished. Firms that would merely prefer free money to no free money will, by contrast, stay out of the program and avoid punishment but suffer some financial loss. What’s the problem with that?
58 Responses to “Punitive Measures”
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September 23rd, 2008 at 11:14 am
Bernanke doesn’t understand real world economics, unlike the ivory tower version he’s such an expert on. I’d like to see a CEO decline the bailout just because his salary will take a hit. Let’s see what the shareholder reaction to that would be, and something about fiduciary responsibilities.
September 23rd, 2008 at 11:19 am
Indeed, this seems totally crazy. We should only be bailing out companies if they’d fail otherwise. If they’re solvent without help, we shouldn’t be throwing money at them. And if their executives don’t want to take the personal hit to save the company, then they’re basically committing fraud against the shareholders (who are, you know, their bosses), and ought to be out. This argument is so totally outrageous and unbelievable.
September 23rd, 2008 at 11:21 am
Maybe your ancient, 20th century Capitalism had some sort of mysterious, hidden principle that there ought be either implicit or explicit mechanisms for punishing companies who perform badly in the marketplace.
But this is the 21st Century, and everything is new, and works all different somehow.
September 23rd, 2008 at 11:22 am
The Democrats are walking into a trap:
Republican incumbents in close races have the easiest vote of their lives coming up this week: No on the Bush-Pelosi Wall Street bailout.
God Himself couldn’t have given rank-and-file Republicans a better opportunity to create political space between themselves and the Administration…. the political establishment (Bush Republicans in the White House + Democrats in Congress) saddling the taxpayers with hundreds of billions in debt (more than the Iraq War, conjured up in a single weekend, and enabled by Pelosi, btw), while principled Republicans say “No” and go to the country with a stinging indictment of the majority in Congress….
…History has shown us that “inevitable” “emergency” legislation like the Patriot Act or Sarbanes-Oxley is never more popular than on the day it is passed — and this isn’t all that popular to begin with. All the upside comes with voting against it.
If Democrats want to throw away this election, there’s no better way to do it than to join Bush in his “Chicken Little” act, and raid the treasury to bail out those incompetent and greedy Wall Street assholes.
From: http://www.dailykos.com
September 23rd, 2008 at 11:24 am
I don’t know why we should want to encourage firms to participate. We should want to discourage them. If they need the money badly enough, they’ll submit to whatever terms they have to to get it.
September 23rd, 2008 at 11:26 am
Matt, those bankers are too important to be subject to penalties for screwing up the global economy. Me, an average schmuck, if I’m a day late on my credit card payment, it’s $35, and if I have a problem with that, I can go F myself. But those guys, they’re too important. It would be unwise to hold them accountable. It would be unwise to tax them at the same rate my wages are taxed. They’re important; I’m not. They’re so important, in fact, that they should never be held accountable for anything, or they may stop whatever it is they’re doing. Accountability is fine for you or me, but for people like that – multimillionaire bankers – it’s lunacy to ask for accountability. They’re too important for consequences.
September 23rd, 2008 at 11:26 am
It is obvious isn’t it? This is all about stealing as much money as they can before the democrats take over. Blatant and totally expected imo.
September 23rd, 2008 at 11:29 am
Wall Street Welfare Queens
September 23rd, 2008 at 11:31 am
before the democrats take over
Which we thought happened, at least to one branch, in January 2007, but as we’ve seen repeatedly, didn’t really.
September 23rd, 2008 at 11:32 am
Maybe some leadership by Hank Paulson… by giving back a few of the millions her was paid by Goldman Sachs helping to create this mess in the first place.
September 23rd, 2008 at 11:32 am
I think the CEOs of companies who participate in the bailout need to come to the Fed every week with a list of at least 10 contacts they made in the previous week trying to sell their junk assets.
September 23rd, 2008 at 11:34 am
Krugman says;
“The premise of the Paulson plan– though never stated bluntly — is that these assets are hugely underpriced, so that Uncle Sam can buy them at prices that help the financial industry a lot, without big losses for taxpayers. Are you prepared to bet $700 billion on that premise?
But how can we help the financial situation without making that bet? By taking an equity stake. That way, if it turns out that the feds are pumping money in at above-fair prices, at least they get ownership, just as a private white knight would have.
There is no, repeat no justification for refusing to grant equity warrants that provide some taxpayer protection. This is, for me, an absolute deal or no-deal point.”
And in the NYTimes:
“Congressional leaders and Treasury officials also said they were close to an agreement over a proposal by some Democrats in which taxpayers could receive an ownership stake, in the form of warrants to buy stock, from firms seeking to sell distressed debt.
Lawmakers want to require an equity stake, while the administration wants flexibility on that matter, a Treasury official said.”
This would reduce the cost of the bailout. If the Republicans don’t go for it, let the system fail and let the chips fall where they fall.
September 23rd, 2008 at 11:37 am
FRom http://www.timesonline.co.uk/tol/news/world/asia/article4810644.ece
“Rhys Blakely, Bombay
Corporate India is in shock after a mob of sacked workers bludgeoned to death the chief executive who had dismissed them from a factory in a suburb of Delhi.
Lalit Kishore Choudhary, 47, the head of the Indian operations of Graziano Transmissioni, an Italian-headquartered manufacturer of car parts, died of severe head wounds on Monday afternoon after being attacked by scores of laid-off employees, police said. “
September 23rd, 2008 at 11:40 am
I think there are two undesirable outcomes: one, pay an unprecedented some to a bunch of fatcats on Wall Street under a plan that may not work and gives no help to the rest of us, and two, do nothing and see a repeat of the Great Depression.
I don’t know how likely a depression is if nothing is done, but I tend to think that the financial system is on the edge and heading in that direction. We may not know the answer before Election Day but history will not judge kindly those who stand by and watch the country (and world) go off the cliff.
I think the odds are very much in favor of something getting done, and soon. The best we can hope for is that the “package” is as good as possible, has the best chance to fix what’s broken, does not reward those who created the mess, and is as fair as possible to everyone else.
Bernanke’s remarks about no punitive measures is breathtaking. It’s troubling that he may be a member of the oversight board. But he doesn’t create the package. Congress does. Congress needs to stipulate how the money is dispersed. No free handouts.
We can expect that McCain and other Republicans will make it a political issue in the election campaign. That’s a debate, I believe, Dems can win.
September 23rd, 2008 at 11:49 am
“It is obvious isn’t it? This is all about stealing as much money as they can before the democrats take over.”
The democrats “took over” the Congress in the 2006 elections. If this crap goes down, the democrats have only themselves to blame.
Come on pal, wake up.
September 23rd, 2008 at 11:52 am
Just because there’s a patient in the emergency room with a truly life-threatening injury, it doesn’t make okay to use the pressure of the emergency to tell the relatives that their only option is to hand the doctor a billion dollars to maybe do some stitches and placebos.
September 23rd, 2008 at 11:55 am
Trillions of dollars in bad debt sold all over the world and not one person who signed off on one of the millions of bad loans will be punished…there are hundreds of thousands of people in jail for the possession of a crack pipe…..
September 23rd, 2008 at 12:01 pm
As I mentioned before, I personally would be fine with “compromising” by dropping the executive pay provisions in exchange for the contingent equity. Which in fact wouldn’t be “punitive”, just a smart move any other investor might make in such a transaction.
September 23rd, 2008 at 12:03 pm
I think Bernanke wants to pretend or fool other people into thinking that there aren’t any negative effects from this sort of bailout. Basically, the government just buys up all the crap and then the markets go back to functioning like always. In that scenario, “punitive” measures against companies wouldn’t solve anything or have any positive effect.
But, as Matt alludes to, this bailout is going to have massive negative effects on the U.S. economy, so “punitive” measure are appropriate both for hurting the folks who got us into this mess and trying to limit the money flushed down this bailout rathole.
Mike
September 23rd, 2008 at 12:13 pm
El Cid writes
What you meant to say, I think, is: “letting poorly managed companies fail and punishing their incompetent exectutives is pre 9-11 thinking”
September 23rd, 2008 at 12:14 pm
Re Don Williams
Ah Mr. Williams, the blogs favorite Bolshevik. Beating is much too kind. Burning at the stake is more appropriate.
September 23rd, 2008 at 12:21 pm
Back in the 20th Century, when people lost all their money in the stock market, they could open the windows in their offices and jump out. No wonder the new buildings don’t have any windows that open.
September 23rd, 2008 at 12:23 pm
“The impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained”
- Ben Bernanke, uber Idiot, March 2007
This is right up there with Paulson’s “our banking system is fundamentally sound.”
It’s the American Way (at least for the elites) – screw up everything you touch and you still get to keep your job and huckster yourself as an “expert”. In most other countries these 2 ass clowns would have been shown the door a long time ago.
September 23rd, 2008 at 12:37 pm
…But 9/16 changed everything.
September 23rd, 2008 at 12:42 pm
What’s the problem? The problem is that it would be unthinkable to inconvenience wealthy banking executives by requiring them to continue making their yacht payments with their own money, when instead they could do so with the taxpayers’ money.
September 23rd, 2008 at 12:45 pm
Schumer asks Paulson if he can take less than the 700 billion. Paulson says no, he wants it all even though he only will need a much lesser extent initially. Paulson is unwilling to compromise on anything except on some silly idea of an oversight group that he will marginalize. Has anyone asked him how he came up with the 700 billion dollar figure? Why not 1,400 billion?
September 23rd, 2008 at 12:48 pm
And, what about the idea of a conflict. Paulson has an estimated personal wealth according to MSNBC of 500 million. I wonder how much of his wealth is at risk and what safeguards to we have to insure he will not enhance his portfolio at our expense.
September 23rd, 2008 at 12:50 pm
Bernanke, Paulson & their companies want to use the US Treasury as an open line of credit to continue the game on a new level. Can there be a big enough voice in Congress to say no? Call your Congresspeople. Tell ‘em that if they can even contemplate a $trillion bailout, they could make it a workout with extremely tough restrictions, a surcharge on millionaires to help pay, and funding of numerous progressive programs and benefits to help the struggling lower and middle classes (w/health, energy, pensions, and so on).
September 23rd, 2008 at 12:55 pm
Bernanke doesn’t understand real world economics, unlike the ivory tower version he’s such an expert on. I’d like to see a CEO decline the bailout just because his salary will take a hit. Let’s see what the shareholder reaction to that would be, and something about fiduciary responsibilities.
Yeah, this is all so fucking absurd. There shouldn’t be punishment? Bernanke has a PhD in economics? Hasn’t he understood anything about incentives?
This is catastrophically bad policymaking on ANY score, by people who are unfit to do it. You could, to turn a phrase coined by William F. Buckley, choose the first 100 commentators from Matt Yglesias’ blog and they’d be better equipped to handle this mess than Paulson and Bernanke. Petey included!
September 23rd, 2008 at 1:02 pm
I must say that I don’t understand all the intricate arguments involved in the current Senate Banking hearing. The big issues are clear, the devil obviously is in the details. I also understand that the 4 apocalyptic riders testifying before the committee have to be careful about what they’re saying. So, they have to strike a balance between prudent vagueness and responsible specificity.
That said, here’s the main level on which I relate to the hearing. I have sat in front of VCs and walked them through my business proposals. I have been grilled, torn apart, picked over, burnt up, and I, yes, have been funded, too. But if I had ever, ever come across as murky about the fundamental proposal, as fuzzy about the market conditions, as unprepared about logistical and operational processes and challenges, as evasive about the details of long-term implementation, as flippant about oversight and metrics, and as nebulous on return on their investment as these 4 apocalyptic riders, the VCs I presented to would have gotten up and walked out after five minutes of this kind of hemming and hawing.
Just saying …
September 23rd, 2008 at 1:02 pm
Actually, Bernanke and Paulson are just suggesting something that worked for centuries. It was called Feudalism, and it is the hottest new GOP thing!
Instead of “punishing” the successful – which is a crazy, far left idea that led to millions of deaths in Stalin’s Russia – America can get more competitive faster by letting the successful directly collect and use tax moneys. This process needs a p.r. coating, of course. Americans are just crazy about the House of Windsor, so I’d suggest we take a clue from the British and call these CEOs Earl, Baron, and so on. I figure the CEO of, say, Bank of America might take all the tax moneys that come from Northern California. We can call him the Baron of Marin County, and Americans will love it – get pictures of him in People, make him our American Idol Noble. Same with the rest of them.
Because nothing says servility like Bush’s America. It is the tread on me nation, baby, and we are coming for you! to ask, please, can I have a trillion dollars? Pretty please?
September 23rd, 2008 at 1:06 pm
Re Matt Conn Lee’s comment “Has anyone asked him how he came up with the 700 billion dollar figure? Why not 1,400 billion?”
———-
1) It IS $1,400 Billion. Paulson has ALREADY committed $700 Billion to the Bailout (Bear/EmergencyLoans to Banks/Fannie/Freddie/AIG). He wants ANOTHER $700 Billion.
That’s why the Bailout Bill will increase the federal debt limit to $11.3 Trillion, up $1.5 Trillion from the $9.8 Trillion of a few months ago.
2) They’re handing this dog turd to us in slices. “Tranches”, I believe they’re called on Wall Street.
Same sized slices , too. So that you think this NEW $700 Billion is the OLD $700 Billion that already been pissed away.
There will be MORE after this. So long as the Democratic Congress is stupid enough –or corrupt enough — to play alone.
3) For example, ANOTHER $500 Billion will be needed over the next 5 years just to pay THE INTEREST on the Treasuries being issued to cover this shit. 6 percent interest on $1.5 Trillion compounded over 5 years is $500 Billion.
You will notice that no one in the News Media, WHite House, or Congress is pointing this out.
September 23rd, 2008 at 1:12 pm
Bernanke claims this is a crisis.
Bernanke says giving away $700 billion is better than the alternative.
Bernanke says the situation is dire enough that this needs to be done in days.
But it’s not so serious that we should punish wrongdoers?
I’m sorry this doesn’t compute. If we’re not going to punish wrongdoers and the negligent, then this isn’t a problem I’m willing to drop my $2,300 on.
September 23rd, 2008 at 1:17 pm
14 JJF:
You are suffering from a fallacy of false alternatives. We don’t have to give this $700B to dodge a depression. We can simply let these banks fail. If that happens, the market for loans disappears. But guess what? The government has an extra $700B on it’s hands that it wouldn’t have under Paulson’s plans. The treasury can just as easily recapitalize new investment banks to serve the same purpose, without the baggage of bad debt that ass-covering senior executives are refusing to sell, lest they lock in their losses and cost themselves their jobs and bonuses. Incidentally, this is very similar to the ‘buy equity’ plan. No way should the treasury simply buy the assets at whatever price these banks insist they have to sell them at to stay solvent. That would be a terrible idea even if it weren’t for the fact that Paulson will be the one agreeing to the prices the treasury plays (and rest, assured, he will dramatically overpay his friends).
September 23rd, 2008 at 1:23 pm
mpowell – I agree with you regarding letting the bad banks fail and recapitalizing new startups. Why aren’t we seriously exploring this alternative besides it being against the interests of established Wall Street financiers? If the problem is solvency and liquidity, then the government can announce that it will back loans at market rates to those businesses that have clean books. Those who don’t….tough shit.
September 23rd, 2008 at 1:56 pm
If Paulson, Bernanke and the Wall Street socialists aren’t willing to send some people to prison for negligence and fraud then I don’t believe there’s a crisis.
I agree with mpowell. Keep the $700 billion and use it to create a new bank that will provide loans necessary to keep the rest of the economy going.
September 23rd, 2008 at 2:19 pm
I knew I was ahead of my time when I called them “peonage republicans”. I just didn’t expect such a literal implementation.
September 23rd, 2008 at 2:22 pm
oh you worry worts!
you also didnt believe that iraqi oil would pay for the war!
who’s eating crow now?
September 23rd, 2008 at 2:52 pm
Please take time to check out, “Punitive Measures: An invitation to dream,” add your ideas to the list, and take the poll, too.
September 23rd, 2008 at 3:33 pm
When the good are collapsing along with the bad, to stave off a collapse you want to prop up the best of the undervalued, not the worst. Think of it as part bailout, part investment. If you include punitive measures you’ll end up bailing out the worst instead of investing in the best. Theoretically the best shouldn’t need gummint investment, but that’s what makes the situation a crisis. The good are collapsing along with the bad.
September 23rd, 2008 at 3:48 pm
First, I am 100% opposed to ANY BAILOUT AT ALL. These greedy motherfuckers cajoled, lobbied, cried, pissed moaned and wailed until the idiots in Congress deregulated everything in sight, discarding both the lessons and the protections of the past, which were designed to PREVENT THIS VERY THING FROM HAPPENING.
Too big to fail? Before deregulation, financial institutions WERE PROHIBITED FROM GETTING THAT BIG for a GODDAMN GOOD REASON.
Having gotten themselves deregulated and having run rampant with investor funds, play money and everyone else’s money, UNSURPRISINGLY they lost millions in value. DUH.
LET THEM BAIL THEMSELVES OUT and cry me a fucking river while at it.
Second, any officer or director who has DISCRETION to accept/reject a bailout, should the assclown Democrats in congress be STUPID and GULLIBLE enough to offer one, would indicate to me that the particular entity in question DOESNT NEED a bailout. Discretionary is not necessary.
Third, any officer or director who REFUSES a needed bailout solely because (s)he isn’t getting their multi million dollar golden parachutes, would be in BREACH OF THE FIDUCIARY OBLIGATIONS they owe to their stockholders. Fiduciary duty requires that the O/D place the shareholder’s interest ABOVE theirs.
Finally,if taxpayers are to shoulder this burden, let the RICHEST AMONG US pay. Get equity in the holdings, and provide the assistance IF AND ONLY IF IRON CLAD BINDING NON REPEALABLE REGULATIONS ARE IN PLACE.
Any actions taken by ANYONE with tax dollars MUST be subject to review from everyone from congress to their mommies,
But the best answer of all would be: THANKS BUT NO THANKS.
September 23rd, 2008 at 4:39 pm
mpowell is exactly right. Let the market destroy these banks. We’ll take the $700 billion (still a large strain on the economy; as Don Williams points out it’ll be a $500 billion interest payment over 5 years) and captitalize new banks to provide liquidity. Presto! No moral hazard, assuming we don’t end up bailing out ma and pa’s retirement accounts which were invested in this crap.
September 23rd, 2008 at 5:01 pm
Here is my idea for a punitive measure:
Blow jobs! The entire top tier leadership of any bank that wants bail-out dough needs to stand on the street offering free blow jobs.
September 23rd, 2008 at 7:36 pm
God (no, really)- you have seen the wizened old farts who run these companies haven’t you? It might be comic relief to see them offering blow jobs but do you seriously think there will be any takers? And if they are going to do that they should be offering muff diving too. After all this affects everybody.
… and after all the competency they have show are you sure they would be any good at it?
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