The Bailout

[filkertom]

Seven hundred billion dollars.

Because the glorious Free Market has fallen on its face.

The best compendium of links and analysis seems to be here.

Thoughts?

Comments

[ericthemage.livejournal.com]

A true free market has the freedom to fail.

There's no point in worrying if Obama is a socialist. We have socialists in power right now. This is absolutely disgusting.

George Bush said he was going to run the country like he did his corporations.

[lisa-marli.livejournal.com]

Actually the last time we saw this kind of Support for Big Business at the expense of the middle class was Yep, 1936. *sigh* What has been going on is much closer to Facism than socialism. It didn't help Germany's economy either.
So it is a BAD Failed Economy program.
Figures -Bush ran his Corporations INTO THE GROUND. While he and his friends made a personal fortune. Now he is running the USofA INTO THE GROUND, while he and his friends make EVEN MORE MONEY.
I hope that the Dems stand up to them and make trouble. Bush needs trouble. Pelosi seems ready to fight this time. I hope she finally shows some backbone.

[schol-r-lea.livejournal.com]

A true free market can no more exist than true communism can. Human beings don't fit into tidy theoretical structures.

[unclelumpy.livejournal.com]

A true free market has the freedom to fail.

And sound-bite bumper-sticker thinking has the freedom to kiss my ass.

[cara-chapel.livejournal.com]

"Why am I and every other person who sweats blood just to keep under a roof in this country stuck paying for the obscene luxuries enjoyed by a few hundred ultra-rich thieves?"

[malada.livejournal.com]

I've already e-mailed my Senators to turn down that piece of s**t and to demand some regulations be passed to prevent this mess from happening again.

Wall Street gets the Good Loans and we get stuck with the stinkers? I don't think so.

No matter what Congress agrees to we're in for some rough times.

-m

[kengr]

There were regulations. SEC *waived* them...

[redaxe.livejournal.com]

Thought 1: How much would it cost to have refinanced the bad mortgages so the homeowners could keep their homes? Surely NOT $0.7T. (And while we're at it, wasn't this lying Administration supposedly in favor of home ownership? Oh, yeah, their lips are moving.)

Thought 2: If the mortgages had been stabilized, then credit would have been able to be tightened gradually, and not crashed. Gee, funny how action comes only when the wealthy are about to lose theirs, and the middle class can be go to hell.

Thought 3: Anything that the Administration is trying to rush through automatically calls for second, third, and tenth thoughts. They've rushed through their war, their supposed security measures, and all sorts of other things whose benefits were ONLY for Bush and Cheney and their cronies.

Thought 4: Whom are we in NY going to put in place of Chuckie Schumer? He's definitely on the got-to-go list.

Thought 5: Paul Krugman for Secretary of the Treasury; Atrios for Chief of the Fed. Or maybe vice versa.

Okay, I'm outta thoughts, for now.

[solarbird]

Thought 1: How much would it cost to have refinanced the bad mortgages so the homeowners could keep their homes? Surely NOT $0.7T.
Actually, yeah. Probably closer to US$1T and as much as US$1.5T, if the people who have been the most right about this so far continue to be right, in terms of total losses to the system.

Thought 2: If the mortgages had been stabilized, then credit would have been able to be tightened gradually, and not crashed.
Unfortunately, no. The fraud was endemic through the system; huge swaths of these loans were never supportable, even without an economic downturn, and never intended to be; as long as the agents booking the loans made money and shuffled the actual risk off to buyers who then bundled them into "exotic" instruments such as CDOs (which supposedly mitigated the risk, presumably by launching it into the sun or something) then there was simply no personal motivation not to keep the fraud going. And it actually worked as long as housing prices kept going up - but housing prices and their rates of increase had become unsustainable. Accordingly, failboat has arrived.

[redaxe.livejournal.com]

Ouch. Okay, given those cost estimates (as versus your note below about the cost of the bailout as proposed being larger than the $0.7T estimate), I rescind Thought 1, but reserve the right to reinstate it when the Administration's bogus numbers inflate to $2T or more.

I understand, re Thought 2, what you're saying. You are likely correct; while I have too often dealt with the numbers around CDOs, I can't say I've examined them or grokked the gestalt of that market. (I've worked doing desktop publishing on Wall Street for 13 years; it's impossible and unreasonable not to understand something about the business. Conversely, it's ridiculous to try to memorize all the numbers, in large part because we're as restricted in our investment options as the bankers themselves. Compliance is beyond required; we must sign off on a complete list of our investments annually, and all trades have to go through them (except in 401(k)s).)

As a consequence, I would like to think that strengthening the underlying commodities on which the now-bad securities are based would provide time to reregulate the market, that's only a gut assessment and not based on actual numbers or analysis.

[sdelmonte]

I don't really understand any of it, but this feels like a damned if you do, damned if you don't situation. And one that Obama will be stuck with and then blamed for when the inevitable massive government cutbacks have to come, since for all intents and purposes this nation is broke.

And sadly, I think that the sort of regulation we need and should have never gotten rid of won't come back even now.

[unclelumpy.livejournal.com]

You seem to think that the American people will actually have the foresight and collective intelligence to entrust such things as education and foreign policy to a former law professor and a man who practically made his name on his foreign policy expertise over a near-octogenarian with Vietnam flashbacks and a book-burning creationist who thinks it's God's will to war with Russia.

Sorry, wrong color.

Lost all faith in the American people.
Voting Obama just so I can say I did.
Never voting again.

[ladystarblade.livejournal.com]

Where. In. God's. Name. Are. They. Getting. That. Much. Money?

I haven't seen anyone $&%(@ answer that one yet.

[ericthemage.livejournal.com]

The government printing press. Thus, inflation will increase, and the value of the dollar will drop. This is how Zimbabwe has millionaires that can't afford a loaf of bread. Hopefully we won't hit that point in the near future.

[ladystarblade.livejournal.com]

*groan* I was afraid of that. *headdesk* The dollar's low enough without printing up a few billion more Benjamins...

[caraig.livejournal.com]

Part of the reason it's .7 Trillion is because that appears to be the maximum that the US Government can borrow without causing massive inflation. Basically, that's the rest of the government's credit card limit.

[admnaismith.livejournal.com]

Note that what Bush wants is a $700 billion limit at any one time. So they can spend $100 billion, and then another $100 billion, and so on, as long as they want to.

[louisadkins.livejournal.com]

My pessimisim: 700 Billion is just the last bailout, the total bailout has surpassed 1 Trillion, in the USA alone, as I understand. I think this is proof the current economic system has numerous fatal, inherent flaws. I don't think anything much will change, though, since the people who decide who it will work find their pockets lined even when they do things like this. I expect the economy to get much worse when the swindlers realize that it does not matter what they do they will be able to get away with it because they are "too big to fail."

My optomism: It's possible we could get enough people to realize that the current system is flawed, so maybe sometime in my life I can see a new economic model come in to play.

[kengr]

Without even reading it, I'm fairly sure that this is one of those cases where we have to throw good money after bad to keep everything from falling apart.

That said, I think we need to start with the SEC folks who waived *existing* regulations that would have prevented a lot of this and work our way down thru the maze to the individual loan officers who approved loans that couldn't realistically be paid back. And at every level discipline and fine these folks.

OH look, it's getting worse

[solarbird]

Oh my:

The U.S. Treasury submitted revised guidance to Congress on its plan a day after first submitting it... officials now propose buying what they term troubled assets, without specifying the type... The change suggests the inclusion of instruments such as car and student loans, credit-card debt and any other troubled asset.

AWESOME.

Context:

U.S. Treasury Widens Scope of Plan to Buy Bad Debt (Update1)
By Dawn Kopecki
Bloomberg

http://www.bloomberg.com/apps/news?pid=20601087&sid=aYXtwpG9mw9g&refer=home

Sept. 21 (Bloomberg) -- The Bush administration widened the scope of its $700 billion plan to avert a financial meltdown by including assets other than mortgage-related securities.

The U.S. Treasury submitted revised guidance to Congress on its plan a day after first submitting it, as lawmakers and lobbyists push their own ideas. Officials now propose buying what they term troubled assets, without specifying the type, according to a document obtained by Bloomberg News and confirmed by a congressional aide.

The change suggests the inclusion of instruments such as car and student loans, credit-card debt and any other troubled asset. That may force an eventual increase in the size of the package as Democrats and Republicans in Congress negotiate the final legislation with the Bush administration, analysts said.

"The costs of the bailout will be significantly higher than originally considered or acknowledged," said Josh Rosner, an analyst with independent research firm Graham Fisher & Co. in New York. "How, given these changes, can the administration and Federal Reserve believe they are being forthright in their unrevised expectation of future losses?"

Re: OH look, it's getting worse

[ericthemage.livejournal.com]

Don't forget that they're now looking to bail out foreign banks as well.

[umbran.livejournal.com]

My need for a stable economy exceeds my desire to see justice done to a relatively small number of greedy jerks. Not having heard any other good ideas of how to stabilize things, I'll go with a bailout that mitigates the problems seen by the little guys.

New regulations, refinancing failing mortgages, and so on, would all take time. As I understand it, we don't have time - every individual day where folks are not sure of the outcome means drastic flailing in the markets, which is bad for everyone, high and low alike.

This is economic emergency surgery - you slap in the stitches and bandages, and stop the bleeding. You worry about putting in a guard rail to prevent further accidents after you make sure the patient isn't going to die on the table.

[ericthemage.livejournal.com]

And that's why people keep supporting bail-outs, because someone says "Think of the economy!" Now think of what would happen if cronies knew they couldn't turn to mama government to bail them out of their bad decisions. Other large companies are lining up at the trough, and they've even stated they'll bail out foreign banks as part of this measure.

[umbran.livejournal.com]

I work at a university. In essence, my employment is contingent on the health of the university endowment - which is basically all in investments. If the market really tanks, I may be out of a job.

If I'm out of a job, my wife and I lose the house we bought just a year ago, adding to the whole mortgage crisis. Similar things would be repeated all over the place. The potential cascade failure is staggering.

If we could allow these things to fail, and have the corporate jerks end up as paupers, I'd be happy with that. Unfortunately, that isolation is not possible - the current institutions cannot fail without hurting millions of otherwise innocent people.

I believe the colloquial term would be, "cutting off your nose to spite your face".

[malada.livejournal.com]

"This is economic emergency surgery - you slap in the stitches and bandages, and stop the bleeding."

But this isn't patient isn't alive anymore - it's a blood-sucking undead that needs a stake in the heart, not another transfusion. No amount of transfusions will make this puppy live again.

"You worry about putting in a guard rail to prevent further accidents after you make sure the patient isn't going to die on the table."

Too late. This system is D.O.A. Put a toe tag on it.

-m

[umbran.livejournal.com]

As if anyone had a replacement that'd work any better?

There's a fallacy going around that there's something better waiting just around the corner, that we could toss this all away and replace it and be all hunky-dory, forever. That makes a good story, but so far it's still airy fiction.

[cara-chapel.livejournal.com]

This thought is a lot more useful than my original thought, and makes a grim amount of sense:

http://valarltd.livejournal.com/859872.html?mode=reply&style=mine

[smoooom.livejournal.com]

My thoughts on such a bail out are unprintable. The only bright spot is that Stephen Harper said he wouldn't do a similar thing up here. Of course we are in an election so pretty much any he says is designed to garner votes. You know if I could have been bailed out after a not so bright decision it would have been nice. But that's not the way life works. Unless of course you have friends in high places.

[valarltd.livejournal.com]

I blame ericthemage, or at least his icon.
I did what all true Irish do in a crisis: I wrote a song (http://valarltd.livejournal.com/859872.html).

As for my thoughts. I knew it was coming. I knew it was bad. And it's going to get a lot worse.

Buy canned goods. Plant a garden. Get a solar oven.

[ericthemage.livejournal.com]

Every town has its ups and downs
Sometimes ups outnumber the downs

[tigertoy.livejournal.com]

What gets me about the whole thing is that I don't claim to be an expert on the financial system or anything, but as soon as we started hearing about Countrywide going bankrupt and the word "subprime" came into the news junkie lexicon, I knew we were already in big trouble, and the wheels could really come off the whole global economy if we didn't fix it fast. Why did it take all the folks who have advanced degrees in this stuff and who get paid the big bucks to understand it not have a clue that we were in a crisis a year ago?

If, as soon as we started seeing the tip of this iceberg, we had enacted emergency legislation barring resetting of interest rates for a year or two while we sorted the mess out and banning below-market "teaser" rates for new loans, we could have avoided having so many foreclosures that it put the whole housing market into a death spiral. I vaguely recall a few people calling for something like that, but nothing came of it.

More links

[randwolf.livejournal.com]

(All NYT--reg. probably required)

Democratic responses:
Overview (http://www.nytimes.com/2008/09/22/business/22paulson.html)
Obama (http://thecaucus.blogs.nytimes.com/2008/09/21/obama-no-blank-check-on-bailout)
Beginnings of new bank regulatory system
NYT (http://dealbook.blogs.nytimes.com/2008/09/21/goldman-morgan-to-become-bank-holding-companies)

Brainstorming

[admnaismith.livejournal.com]

All right...what happens if the government seizes the bad loans, and allows homeowners to apply to have their loans forgiven. Hardworking homeowners who are in trouble due to medical complications, job losses, medical complications followed by job losses, loss of their self-employed small business....could have the terms of their loans redrawn, or in the worst cases, forgiven partly or entirely. The idiots who bought luxury homes they couldn't afford, refinanced multiple times to buy luxuries, bought houses they couldn't afford trying to flip them...not so much.

Sure beats giving most of the US Treasury to the banksters who caused this mess in the first place.

Re: Brainstorming

[catlin.livejournal.com]

That would never happen. The powers that be don't Care about the upper edge of the lower class, or middle class. Only way you can get help is if you are so desperatly poor they can get good pr, or if you are rich.

[baphnedia.livejournal.com]

There's so much I'd like to add that's probably been said before:

McCain wants to make a new Federal Agency whose job it is to *ahem*.

Buy up bad debt.

Yeah.

1) China is exploding economically because they are gradually privatising industry and their markets...
2) The US is in decline because we're letting the Gov't step in on EVERYTHING (to become the most socialist or communist democracy the world has ever seen).

[ericthemage.livejournal.com]

McCain wants to make a new Federal Agency

No, no. Not our small government McCain. No way.

*cough*

[smallship1.livejournal.com]

Two words.

Scorched Earth.

[twfarlan.livejournal.com]

Socialism for the rich isn't a new idea. Just ask the airline industry. Regulate airlines to the point where smaller start-ups can't buy gate access at any price, but throw good money after bad to shore up the price-fixed oligarchy of existing big carriers. Brilliant, innit?

Still, socialism for the rich, hard luck for all the rest of us. Ah, the Republican dream at last.

[siliconshaman.livejournal.com]

Thought 1 : "

All your banks are belonging us!

"

Thought 2: They now have unregulated, absolute control over pretty much the entire financial market, and by extension peoples mortgages, loans, debts etc... if they are now perfectly positioned to stage a coup.

Thought 3 : We're screwed.

[alverant.livejournal.com]

I wonder what the free-market, gov-is-bad, any-regulations-are-socialism libertarians are thinking. Probably trying to find a way to justify the excesses of the companies and blame the government for "allowing" these companies to get so big in the first place.

[nomaddervish.livejournal.com]

I wouldn't go so far as to say "any regulations are socialism", but I suppose I fall close enough to the description you gave... So, as a free-market, government-that-governs-least-governs-best libertarian, I don't believe that any excesses should be justified, nor do I blame the government for "allowing" growth. (Blaming the government for being too permissive seems logically inconsistent with believing that the government should do as little as possible, after all.)

No, I blame the government for being too active and having a history of providing bailouts, as this has created a climate in which, to quote one interview I've heard, "profits are privatized and risk is socialized". Of course these companies are going to take big, dumb risks in hopes that they might pay out big when they know that, if they lose their shirts instead, the gov't will just give them new shirts. Any system in which the person who gains the rewards for success is not also the person who pays the price for failure will tend to breed reckless excess.

[alverant.livejournal.com]

Sorry but your logic about providing bailouts has a few holes. First blaming the government for providing bailouts is a bit like blaming McDonalds for making you fat. Second, I thought libertarianism believed in personal responsibility. These companies CHOOSE to take "big dumb risks" and since it's their money wouldn't you say it's their right to do just that? Also, since libertarianism tends to be pro-business, wouldn't you also promote the idea that businesses protect themselves against risks, in this case the idea of bailouts?

Yes, that is what insurance companies are for but the kicker is we (that is the average American) still foot the bill. Insurance companies take out policies with each other and since companies want to make money the cost of bailing out one company is countered by things like raising rates, firing employees low on the company ladder, and going to other companies. That hurts all of us in the end one way or another. So instead of taking a huge dildo up the butt we wind up taking a smaller dildo covered in sandpaper shoved the same place repeatedly. I'll leave which is worse up to the philosophers.

You see businesses are there to make money for the owners. Governments are there to serve and protect the people and nation. The goals are very different and sometimes they conflict. Except in government there are people trying to restrain itself. You don't see that very much in businesses. In the corporate world, the most ruthless wins. If that means threatening to close down a plant unless the local government gives them a tax break or overlooks the CEO's parking tickets, then it's acceptable. Businesses have little restraint even without the bailouts and with government having a myriad of views and responsibilities, large businesses ultimately have more immediate power to cause damage (except for military solutions).

I don't think businesses would be any less reckless if bailouts didn't exist. The only difference would be they'd do far more damage when it comes time to pay the bill. For the past 20+ years businesses have been interested in short term profit. And why shouldn't they be since the business's own system of rewarding failure (in the form of excessive pay and severance bonuses for management on up)? A million dollar executive bonus this year justifies trashing the whole company the next because the executive can blame someone else and find a job elsewhere. Meanwhile most of the other employees get screwed by a huge sandpaper covered dildo. You can't blame the government for that.

Unfortunately responsibility in the business world is limited to what can't be shifted to someone else.

[nomaddervish.livejournal.com]

First blaming the government for providing bailouts is a bit like blaming McDonalds for making you fat.

I'm afraid I don't see the parallel there. If I eat at McDonald's every day, I get fat. They don't "bail out" my waistline by making everyone else gain weight so that I can eat all the Big Macs I want and still be skinny.

Second, I thought libertarianism believed in personal responsibility. These companies CHOOSE to take "big dumb risks" and since it's their money wouldn't you say it's their right to do just that?

Absolutely. The companies have the right to do whatever they want to with their money - but taking responsibility for their actions also means suffering the consequences when they do something stupid rather than falling back on the government (i.e., the rest of us) to save them from those consequences.

Also, since libertarianism tends to be pro-business,

The Libertarian Party is very pro-business, yes. Which is basically why I consider myself a little-l libertarian rather than affiliating with them. While I do believe that the government should remove many of its regulations on corporations, I also believe that it should also remove most of the legal protections they are granted. I'll leave you to decide for yourself whether that makes me pro- or anti-business.

wouldn't you also promote the idea that businesses protect themselves against risks, in this case the idea of bailouts?

In a bailout, the business isn't protecting itself against risk, it is being protected by the entity providing the bailout. The company does what it wants to and reaps any reward, but shifts the risk off to someone else. This bears little relation to any concept of "personal responsibility" that I have ever encountered, particularly when the shield against failure is provided at no cost by the general public. (I could be wrong here, but I'm not aware of AIG, etc. having ever been charged an extra "likely to require a bailout" insurance premium - I mean tax - by the government.)

But, then, I also have issues with the concept of insuring someone against the effects of their own actions in general. Personal responsibility, you know.

For the past 20+ years businesses have been interested in short term profit. And why shouldn't they be since the business's own system of rewarding failure (in the form of excessive pay and severance bonuses for management on up)? A million dollar executive bonus this year justifies trashing the whole company the next because the executive can blame someone else and find a job elsewhere.

Quite true and a major problem, but, as you yourself have said, this is due to the messed-up structure of incentives that currently exist for businesses (and the people who run them). Bailouts are a part of that structure, but definitely not the whole thing.

I think we do agree on what the core problem is, the difference is that I believe the best solution would be to find a way to dismantle that system of rewards for slash-and-burn business practices. Taking away bailouts and letting failing businesses fail is but one small piece of that puzzle. Unfortunately, I can't claim to have a clear vision of the whole thing.

The other major solution proposed to this problem is regulation, but that just produces a continual arms race as the government tries to ban every potentially harmful practice and businesses look for loopholes to let them slash and burn without technically violating any rules. Not only does this cause a huge amount of wasted effort and lost productivity on both sides, it ultimately reinforces the system of rewards which is at the core of the problem by writing it into law and making everyone abide by it.

Unfortunately responsibility in the business world is limited to what can't be shifted to someone else.

Indeed. So don't let them shift responsbility onto you by bailing them out. Force them to take that responsibility themselves. (And, yes, it's too late for that in this case. But it's not too late to say "There will be no more bailouts in the future, so find a way to manage your risks without dipping into the public's pockets when you screw up.")

[alverant.livejournal.com]

My parallel was that you CHOOSE to eat at McDs, no one is forcing you. Likewise no one is forcing the businesses to accept bailouts. The executives could say, "We messed up big time. All of us are resigning and surrendering our ill gotten gains to support the restructuring of the company." They won't do it, but they could CHOOSE to just as you can CHOOSE to exercise personal responsibility and eat someplace else. When people screw up they admit they were wrong, apologize, and then try to make up for it. We're not seeing that.

Bailouts are meant to protect the company for the lower level employees, the ones who have the most to loose (with respect to how much their lives are disrupted) if the company closes. That's why I put bailouts last on the list of things to reform. Excessives in the corporate culture should be first.

My own opinion about regulations is that they should be there to protect people from business practices. Things like product safety, environmental concerns, and discrimination. I understand the idea of personal freedom, but freedom is not unlimited. The idea of "it's my money/company and I'll do what I want" doesn't cut it. In this country, everyone is equal regardless of race, religion, etc and businesses should reflect that. Even if it is their company, they shouldn't be able to fire an employee because they're gay for example.

Regulation is a double edged sword. You have to spell things out, but greedy people will look for loopholes that will ultimately lead to a mishmash of laws of what can/can't be done. But what's the alternative? Judgment calls that lack consistency?

I feel that if you take away a corporation's legal protections, you also take away it's responsibilities. Protections and regulations set limits of what an entity can do giving them more freedom. But with freedom comes responsibility and if there's no one to hold them responsible then the civilization fails. For example we have freedom of speech. But there are some things we can't say, like making threats or slander, which makes us responsible for what we say (oral contracts are still recognized in the ears of the law). If we didn't enforce the laws and firmly establish limits we'd start to sink into anarchy.

Laws, freedoms, and responsibilities work with each other and do not compete for space like three slices of a pie chart. Having many laws does not per se limit freedoms but it does define responsibilities. If you are legally in the right, then your own responsibility decreases for example and your freedom within what is legally defined increases. It's just a matter of choosing wisely which laws to make.

[bayushisan.livejournal.com]

Here's the thing, at least how I see it.

The Free Marktet, in and of itself, isn't a bad thing. Within a free market there's competition between business and that, generally speaking, breeds inovation. It's how better cars, computers, videogames, and even medical breakthroughs (to an extent) are made. The problem arises when there are no means to say what you can and can't do within the market that causes problems; or to use another phrase, the Free Market isn't 100% free.

A true Free Market, as descibed by Republicans, only works if people are basicly good; just as true socialism only works on paper. A free market is a good idea to a point but the basic nature of humanity means that you have to put some kind of regulations in place because you'd see the kinds of business and loaning practices that brought about the problems we're seeing now. Common sense regulation is a good thing as it protects everyone. It ensures that those with and without money aren't being cheated by deliberately bad wording or by short selling, among other bad practices.

The other problem arises in that AIG is connected to so many other businesses that if AIG fell so would an unacceptable number of other businesses. The collapse wouldn't just affect the U.S. it would affect other countries as well. Of course considering how rotten AIG is in the first place I'm not sure what to think about that. (My mom used to work for Michgan Workers Compensation, it was a private company that made sure businesses had all the right insurance policies and that insurance companies were being on the up and up. According to her AIG was one of the worst violators of insurance policy around. So my thoughts about the bailout are conflicted.)

In the end the choice was let AIG fall and with it who knows how many other businesses across the globe, or bail them out at the taxpayer's expense. It really is a damned if you do, damned if you don't kind of choice.

[unclelumpy.livejournal.com]

I'm sure this will cause a turnaround in the overall American social paradigm.... BAAHAHAHAHAHAHAAA!!!

Sorry, I couldn't say that with a straight face.

I've lost all faith in the American people at this point. We're going to treat this problem like we treat all our other problems nowadays, by pretending it never happened and distracting ourselves with pointless wars.

[tsu-doshaman.livejournal.com]

When the federal deficit is already measured in the Trillions, and there is neither hope, nor expectation that it will improve...ever, what's another $700,000,000,000? Give or take a decimal point.