Why Paulson and Bernanke are only Partly Correct, and Why Main Street Needs More Direct Help
But will it work? Here's Paulson's and Bernanke's logic, made explicit at the Senate hearing today: There's only a certain amount of bad debt on Wall Street's books, left over from the wild and woolly days of lax mortgage lending. Once removed from the Streets’ books, credit will flow again. And once credit flows again, even Main Street can breath a sigh of relief.
P&B failed to mention that bad debts are growing even among people recently considered good credit risks. At end of August, 6.6 percent of mortgages were at least 30 days past due. That’s up from 5.8 percent at end of June. We’re also seeing a growing amount of credit card and auto payments past due.
The culprit isn’t just those sub-prime loans. With jobs and wages are dropping across America, many people who had been able to pay their bills no longer can.
It’s no coincidence that states where mortgage delinquencies are highest are also states with the highest rates of job losses. According to the Bureau of Labor Statistics, the official rate of unemployment in California last month was 7.7 percent. That’s up from 5.5 percent a year ago. In Florida, unemployment has climbed to 6.5 percent, from 4.1 percent a year ago. No surprise that bad debts are mounting fastest in California and Florida – and elsewhere around the country where jobs are evaporating fastest.
Note that these are just the official rates. Some 600,000 fewer jobs are listed on the nation’s payrolls than were there last year. Millions more Americans are too discouraged even to look for work. And as employers squeeze their payrolls, even people with jobs are putting in fewer hours.
Bailing out Wall Street’s bad debts when millions more Americans can’t pay their bills is like bailing out a rowboat springing more leaks while the ocean is rising. Many of the average taxpayers being asked to take on Wall Street’s bad loans are the same people whose incomes are dropping, which means they’re struggling to pay their debts and potentially creating even more bad loans.
Congress should drive the hardest deal it can with Wall Street. But Congress also needs to pay direct attention to Main Street. It should extend unemployment insurance, freeze mortgage rates, and pass a stimulus package that generates more jobs.
Bottom line: Unless Americans on Main Street have more money in their pockets, Wall Street’s bad debts will continue to rise -- which means the Bailout of All Bailouts grows even larger, which means taxpayers take on even more risk and cost.
P&B failed to mention that bad debts are growing even among people recently considered good credit risks. At end of August, 6.6 percent of mortgages were at least 30 days past due. That’s up from 5.8 percent at end of June. We’re also seeing a growing amount of credit card and auto payments past due.
The culprit isn’t just those sub-prime loans. With jobs and wages are dropping across America, many people who had been able to pay their bills no longer can.
It’s no coincidence that states where mortgage delinquencies are highest are also states with the highest rates of job losses. According to the Bureau of Labor Statistics, the official rate of unemployment in California last month was 7.7 percent. That’s up from 5.5 percent a year ago. In Florida, unemployment has climbed to 6.5 percent, from 4.1 percent a year ago. No surprise that bad debts are mounting fastest in California and Florida – and elsewhere around the country where jobs are evaporating fastest.
Note that these are just the official rates. Some 600,000 fewer jobs are listed on the nation’s payrolls than were there last year. Millions more Americans are too discouraged even to look for work. And as employers squeeze their payrolls, even people with jobs are putting in fewer hours.
Bailing out Wall Street’s bad debts when millions more Americans can’t pay their bills is like bailing out a rowboat springing more leaks while the ocean is rising. Many of the average taxpayers being asked to take on Wall Street’s bad loans are the same people whose incomes are dropping, which means they’re struggling to pay their debts and potentially creating even more bad loans.
Congress should drive the hardest deal it can with Wall Street. But Congress also needs to pay direct attention to Main Street. It should extend unemployment insurance, freeze mortgage rates, and pass a stimulus package that generates more jobs.
Bottom line: Unless Americans on Main Street have more money in their pockets, Wall Street’s bad debts will continue to rise -- which means the Bailout of All Bailouts grows even larger, which means taxpayers take on even more risk and cost.
posted by Robert Reich | 1:49 PM
105 Comments:
In my view, Wall Street is in no position to deal. Congress should dictate the terms and conditions, and Wall Street can either take it or leave it. I'd just as soon they take "personal responsibility" for their deregulated market they have all been advocating for since the days of Ronnie Ray Gun.
We all know that the basic problem is that Americans have been living beyond their means for several decades. No good solution exists. You can bet that if Congress caves in to the banksters, McCain will use it against Obama, painting him as a weak collaborator. There will be a severe recession anyway. If congress does not cave, and then the inevitable recession follows, McCain will paint the Dems as obstinate America hating elitists who love to see the regular folks suffer. Sarah Palin will smile, but not take questions. The Kleptocracy has prevailed.
It should be considered that the mortgage debt meltdown is only the first and most prominent in a wave of debt defaults.
Coming on behind we will see every other category of debt, credit cards, auto loans and student loans to name some obvious ones begin to cause further financial system shock waves as people struggle to stay afloat.
This appears to be the final convulsions of a very ugly America that began with the election of Reagan and has taken this long run of years to finally reveal its utter intrinsic ignominy.
The telling moment was the abdication of Morgan Stanley and Goldman Sachs. They were core players in this long awful run and their implosion is the most telling.
The game began in 1980 when. as legend has it, a Citibank CEO claimed he could generate 15% anual profit instead of the more modest 5% that was a banking standard.
Of course, to attain that goal, he had to invent the entire fee intensive structure we now take as a given. Then there was a need to fob credit cards on every human in the land with a pulse and cheer lead them into using the things.
The other element was the 401k plan.
"No, worker bee, we aren't about to index your earnings to living cost increases as we have to feed shareholders. But we will toss you a little coin each paycheck if you add some of your own to this amazing contraption that embeds you in Wall street. Just think, then you'll be a shareholder too."
The interest rate looked good as long as you were willing to believe that home values and equity prices always rise.
Now all that 401k money is vaporizing. You can usually tell when its in play on certain month end Fridays when a huge volume surge hits the markets in the final trading hour.
Mutual fund managers are clearing out their allocations.
Easy debt and 401k were the feeble booby prizes offered in lieu of honest earning increases and now the whole drawn out fraud is cratering.
When a person walks away from their foreclosed home, the credit card is all thats left if the job goes south.
And all these other kinds of debt also sleep in exotic debt swap derivatives and Wall street Ponzi contraptions.
The waves probably won't stop rolling much before 2010, if then.
I recently read a book about the first Plantangenets and the Magna Carta. Lack of consideration, greed, excessive taxation, tyranny and arrogant stupidity was the downfall of King John, John had no choice but to concede to the demands the victors and they prudently set forth the beginings of modern representative government. I asked myself who is King John and who are the indignant barons in this circumstance. In listening to B&P it just seems like another twisting of truth. They claimed repeatedly to be the Robin Hoods of Main Street not part of the retinue of King John of Wall Street. And it was infuriating to hear their rhetoric. And I ask the average Joe Schmoe like myself this: since when does the borrower dictate terms of lending to the lender?
The world is trying to figure out how to "decouple" from the U.S.
They do not want our ideological wars.
Numerous countries are negotiating energy independence and looking at trade options to remove risks from the U.S.
The excessive greed Ponzi scheme has evaporated trillions of wealth. A new economic stage is being built that will further demise the power and influence of the U.S.
We need to be humble and start building a new nation.
BTW: McBush can take a lesson. We lost the Vietnam war and now that country is doing great… without our occupation. Those little commie bastard terrorists didn’t bring our nation down. A stupid war lost … is a good war won.
I like the idea of other sovereign wealth funds buy ownership in these failing investment banks. This would distribute risks across other markets and bring fresh stewardship into these new companies to be formed.
This is a win for all:
Other countries use our money to buy our companies.
The tax payers and 401k saver do not take on this debt and stay float with a market recovery.
Why are the stupid U.S. tax payers the only ones trying to bail out these firms? Are other wealthy investment banks or other sovereign wealth funds too smart to bite on this dead fish.
The top U.S. securities regulator urged Congress Tuesday to pass laws to regulate the $58 trillion credit default swap (CDS) market, which has been blamed for contributing to the financial crisis.
Securities and Exchange Commission Chairman Christopher Cox said there is a regulatory hole in supervision of the CDS market and said the potential for unfettered naked short-selling has caused great concern.
The swaps are used to hedge against a borrower defaulting on its debt or to speculate on the borrower's credit quality.
Cox finally woke up after a year of market instability.
This government watch-dog was asleep by the fire "licking his nuts' while the system continued to go down.
And eventually there're no more credit or payments or jobs or homes to be had.
Does Henry Paulson have a speech problem? He was stuttering and stammering through the whole Senate committee meeting today.
Henry just doesn't want the big bucks doled out a billion at a time. Makes one wonder WHY? Even though I heard his stuttering answer.
What's the hurry, Paulson?
In general I'm disgusted with the WHOLE lot at that hearing today. There certainly is more than enough blame for this severe, economic crises to go around several times. And these guys, + Liz Dole, are passing the buck-blame so fast they're spinning like tops.
Paulson said he was "SHOCKED" at the lack of oversight. Yeah, right.
WHERE were these guys, + Liz, for the past, oh 6 YEARS?
Damn
tt
As a tax payer, I am taking 4 losses:
I lose because my previous taxes paid for inept government oversight
I lose my net worth due to systematic housing and market losses
I lose by accepting bailout debt into the future
My children lose their future to excessive debt
Does anyone see injustice here?
I want total ownership, we need to nationalize banks that are going under.
The more I hear, the more I think, if we, the taxpayers, cannot get a reasonable deal, we should let the chips fall where they may and call their bluff. The idea of giving over that kind of money with no promise of how it would be used, when our debt already is so high, it makes no sense at all. I understand, we might go into a recession if this happens, stock market might drop to minimal levels, but this is the same bunch who told us Saddam had nuclear weapons, that we had to give them carte blanche with the spying bill on the phone companies, that we had to give up our bill of rights to be safe.
Before it's too late, I think it's time to say no and yes, it might be painful. Believe me I don't like that idea as we personally have quite a bit at stake but what it the alternative? Leave this mess for our grandchildren? I don't like that idea either.
Nothing I have heard has given me reason to trust Paulson or Bernanke. What they are asking goes beyond reason and depends totally on using fear as the tactic. We have seen too much of this these last 8 years.
Dr. Reich,
I fully agree with your assessment. This cannot be a one sided plan.
It's time to stop giving money to people who do nothing more than profit off of leveraging other people's money.
A good start would be to invest in repairing our nation's infrastructure. Every day I witness large pieces of concrete and exposed rebar on the many overpasses and bridges in my state of Connecticut, one of the richest, most heavily taxed, states in the nation.
Why are our bridges falling apart? Why is our energy infrastructure inadequate for the needs of the 21st-Century? Why don't aren't we investing in making our cities and urban areas centers of excellence like many of the emerging/reemerging nations?
I'm tired of derivatives, naked shorts, credit default swaps, and all the other schemes that came into fashion that evaded true wealth creation.
It's time to "roll up our sleeves" and invest in our own country's future by creating something that is real that you can see, touch, and use!
And it begins...
The auto lending firms are lobbying to have car-loan-backed debt covered by the bailout as well.
The American Financial Services Association, a trade group of lenders, said in a statement today that the plan should be expanded to cover auto finance companies and car loans.
Sen. Chuck Shumer (D-NY) thought this a grand idea.
This is only the beginning.
While unemployment is an issue, it certainly is not the issue in this "sob" story just posted on CNN - see if you can spot the problem (hint: its not unemployment):
"And yet, the deal will not help Dolly Hanna, 51, and her husband, who bought five homes in the San Francisco, California, area over the past 20 years and were enjoying life during the housing boom by renting them out.
But her husband's overtime at his mechanic's job was cut, and the Hannas now find themselves overextended at a loss of $15,000 per month and trying two sell two of the homes.
...
With four children, Hanna had been a stay-at-home mom ....
...
"All you had to was massage the information enough to fit it into their round hole, and they gave us a mortgage,...""
You are right to point out that the problem is bigger than mortgages. In part, we are seeing the consequences of the 2005 bankruptcy bill. In many people's minds, it is easier to just stop paying the mortgage than to consider Chapter 7 or 13. In hindsight, we can see that bankruptcy is a much less disruptive safety valve than foreclosure, which brings everyone's real estate values down. Furthermore, we have an ongoing problem with consumer debt and lack of personal savings that will not be cured by anything Paulson or Bernanke have envisioned. These Main St. problems are the engines of our demise purring beneath the mortgage and investment crises on Wall St.
I also agree that an infrastructure spending bill would produce a needed economic boost.
But most important right now is to get some regulatory control over Wall St. If this moment passes without producing any new rules, we will never get the job done and will likely end up here again.
Robert Reich,
Today's deal between Buffet and
Goldman provides information to-
ward a model for how the public
could participate in any upside
for its $700B+. Could he help?
How about dealing with Fan/Fred
this week as they are large part
of problem.Paulson has hugh conflict of interest.Good Luck.
What is the advantage to bailing out the banks, over letting them fail and letting the mail street bailout come by way of the FDIC, and a huge nationwide infrastructure update? If we are going to invest $700 billion, shouldn't we at least invest it in something like national infrastructure, with real world physical value as opposed to the illusory values of financial smoke and mirrors? How is the current plan anything other than trying to blow more hot air into the current wealth bubble?
The timing of the 2005 bankruptcy bill which was hastily rammed through Congress indicates premeditation by the banks in anticipation of a surge in delinquencies.
Whatever happened to common decency?
In response to Chuck Shumer's question today, Paulson couldn't give a good reason why he needed the $700 billion in one fell swoop rather than in $150 billion increments. The point is that anything he does now is simply a bandaid until the election in little over a month. Paulson wants bailouts for all his Wall St friends on the way out. After all didn't he get $17 million as he went out the door from Goldman Sachs en route to the Treasury Department?
The Dems should not fall whole hog for this last minute (before Obama takes over) bail out of fat cats while adding a trillion to the Federal debt so that Obama and the Dems will have nothing to do after the election except to raise taxes.
Instead, the Dems should temporize and wait for Obama to take over so they have the maximum maneuvering room as of Jan 20, 2009, and not let themselves be put in the position of "cleaning up after the elephant parade" the Republicans left behind. The Repubs would like nothing better than to straitjacket the Dems with massive debts so that they have no money for social programs.
I say that, since there are no more investment banks (Merrill and Goldman have become, well, just commercial banks now), there's no more AIG or Fannie and Freddie as private institutions, why not recognize that Wall St has essentially become socialized? Since they want to socialize the debts, this is a good opportunity to socialize the upside as well.
The point is that Wall St has already been socialized. It's no longer composed of private institutions. The government effectively owns it especially if Paulson gets his $700 billion. My suggestion is to recognize the reality that the banking industry has already become a part of government and to sieze the opportunity, after Obama is elected, to create a real central bank to replace the Fed, a real US central bank which would be accountable to the people and not like the Fed which operates in total secrecy and is not a part of government; it's privately owned. Use the $1 trillion bailout money to capitalize this central bank so that instead of it being a total liability added to Federal debt, it's also a positive on the new central bank's balance sheet.
Fannie and Freddie would be divisions, not to be reprivatized as soon as they were profitable. The central bank would then deal with whatever bailouts were needed and help reset mortgages to keep people in their houses if possible. Another division would be a sovereign wealth fund similar to those of numerous other countries which would collect considerably more royalties than are collected now from any oil drilling on US territory. If it's good enough for Alaska, it should be good enough for the rest of us US taxpayers and would build up wealth for the benefit of future generations as is done in Norway and elsewhere. The central bank would then be in a position of building wealth for the US, not just going further into debt and bailing out private debt-ridden institutions.
BTW, Obama can cut military expenditures by 50% thereby finding money for social programs.
Also posted here.
Dr. Reich,
I've been looking into this problem for the last two years. It doesn't seem like this plan will work at all.
The part I really don't like is this: Wall St. gets bailed out and the gov't gets to foreclose on the houses. Is this right?
I've been reading blogs and watching videos and let me tell you all, Americans are outraged. Outrage is even to weak of a word to use here.
I don't think I've ever seen the nation so mad. They know they are getting the raw end of the deal so far. What about all the families in tents? Who is going to bail them out after they were conned.
My goodness, I just had to buy my best friend 2 weeks worth of groceries because they are getting squeezed to death with higher prices.
Wait until the inflation hits with this bail out plan. I won't be able to be so nice to my friend's family with three children. I'll barely be able to buy food for my own family.
I hope Congress is thinking long and hard about what they are doing. I'm afraid of what some people will do if they feel they are losing their homes and then paying for Wall St. This is insane. Just let Wall St. go. We are going to lose our money either way. Either by deflation or inflation. I'd rather have the deflation right about now.
Dear Professor Reich,
You spoke today to my Global Poverty class and considering the size of the class and eagerness to ask questions I figured it would be best to save my questions for the blog.
First off, I really appreciate you explaining everything. I've been listening avidly to NPR, reading the New York Times, asking my parents to explain and I really haven't felt that I fully understand anything. I still don't entirely but I feel closer. I was wondering if you could elaborate on the practices of credit-default swaps and the other new innovations banks adopted that helped create this.
Then in light of your book Supercapitalism, from which I gathered that you felt late capitalism or supercapitalism is a product of increased technology and market access to companies leading to increased competition that in turn fuels the bottom-line mentality that has cut safety nets for workers and citizens, I wonder how this competitive spirit is not inherent in capitalism because I find it hard to fully endorse the idea that it was just an increase in technologies that divides capitalism and supercapitalism.
I find that in this bailout scenario, people are walking this careful line between calling for regulation and supporting capitalism and it is not always done in perfect harmony. For example, in your lecture you said 'markets rely on greed' and that the top executives participate in a 'winner take all economy' and yet you also said that global markets are not a 'zero sum game.' Here is where I get stuck, because if markets are fueled by greed and are about high stakes profits how does it not extend to create a loser, a global loser? I guess I'm asking how do you reconcile these two ideas and also how did you come to walk that line of calling for regulation, minimum wage, pension protection, etc and defending capitalism?
I'm sure your reasoning is much more sophisticated and I hope I can gain that level of understanding.
Again, thank you so much.
Leah Binkovitz
Listen, if you accept the logic that Wall street needs to be bailed out, then fine, why not suggest that everybody, including home owners, get some assistance too.
Many congressman are trying to insert moratoriums on foreclosures and a loosening of penalities for people with mortgages into the bail out package.
But 2 wrongs don't make a right.
Nobody in the private sector deserves a bail out. It will create the most perverse moral hazards we have seen in a long time. Banks will dump their toxic assets immediately for a price well above what they are worth. Home owners will stop making payments because they know the government would never foreclose and sell off these properties.
Tell Washington to block all legislation.
One more thing, Bloomberg just ran a story today of the members of Congress that hold stock in companies like AIG and the financial sector. Wait until Americans find this out. I got it from someone who passed this around an email to me and went right to Bloomber and found it.
The members of Congress that hold this type of stock should excuse themselves of voting on this issue. This is a DIRECT conflict of interest. It is going to seem like they are saving themselves and not care about the people.
I can't help thinking about that family in a tent the other day on the side of the freeway. I'm sure they would be happy with just an hours pay that some of those crooks on Wall St. make.
And as inflation goes up and I can no longer help my friend's family buy groceries, what am I supposed to do? Watch their family starve? The food banks all over the country are running out. And, they make too much money to get food stamps.
I'm afraid of what is going to happen. Why did Congress deregulate in the first place? I think anyone who deregulated and Wall St. and Greenspan should be tried and thrown in jail.
I study accounting in school. When we studied ethics we had to do a huge project on it. You know what they pounded into our heads? That we have our local and sometimes national economy literally in our hands. Did they teach that to the rich oligarchs on Wall St.?
I'm just disgusted and this is a national disgrace. I'm worried about the little guy out there. I'm also worried about finding myself a job when I get out of school. I want to see them in handcuffs and leg irons doing the perp walk, being taken to jail. That goes for this current administration too.
This is ridiculous. Let the market run its course. It is time for America to have hard times.
Laissez-faire!
Mr Reich, Would you please take a moment to tell us exactly what the damage would be if we did nothing at all (no bail out) and would that be worse than paying $700 billion and finding that it isn't going to work anyway. Is a bad recession (or even depression) all that bad given the excesses we have experienced under deregulation. If it's going to fail than maybe we should save ourselves the money for something else. My econ professors stated that recession was a normal financial condition which brought stability back to the economy albeit with some pain & heart ache.
Professor, thank you for that post.
But can we also recognize that those with private loans for college are in the same boat as homeowners; the only reason you don't hear about us is that we can't default.
When this working class boy enrolled in a top-ranked MBA program, I knew I was taking a risk. I went ahead with my decision based on the belief that I would benefit from a substantial amount of low-interest subsidized loans, from very low interest private loans, and a high-paying job right out of school.
In short, the subsidized loans were not as substantial as expected, interest rates were raised-what, 17 times over two years, and when I graduated I found myself working alonside other MBAs in a low-paying contract system (at a blue-chip firm). (I also had to take out quite a bit of money to cover unexpected medical costs for which my student health insurance provided only nominal coverage.)
Moreover, as someone who has lived overseas, grew up knowing immigrants and recent immigrants (indeed, in my own family), and had even set up a scholarship program for children of migrant workers during my baccalaureate degree, I was stunned to find myself competing for a full-time job with legions of international workers. They filled the place where I work: row after row, floor after floor, building after building. In marketing, in finance, in program management, apparently even in HR. Is there a shortage of HR professionals in America?. I don't blame them a bit, but its obviously a system way, way out of control.
It took me a year-and-a-half to finally get into a great job that earns just under six figures. During that time, interest rates skyrocketed and my balance increased by almost $20K. At one point, I found myself paying $1500 a month, of which $1250 went towards interest.
Thank God that rates finally declined. I upped my payment to where I now pay roughly 40% of my net, 40% of which goes to interest (quite a bit to JP Morgan Chase, actually). By paying 40% of my net, and with a possible inheritence, I hope to have the balance paid off in ten years, when I'm 48. Of course, that's "assuming" that rates won't increase, and my salary holds constant. I guess then I can start saving up for retirement!
I've always lived within my means; I have a FICO of 755. I would gladly trade that in, just to have these loans cut in half. But bankruptcy laws are so strict...I was talking to someone at a law firm, who related a story about a borrower who was maimed in an accident, to the point he had lost the use of more than one limb. A judge ruled that this impairment had no material affect on his ability to pay his student loans. The only way anyone is getting out of student loans in this country is a method I hope no one employs, LOL.
Look, its embarrasing to relate this story, after all, I signed those promissory notes. But this whole system is not designed for us to win, its not designed for us at all. Clinically speaking, people in my position should be driving the economy, buying homes, spurring construction, paying property taxes, filling the place up with furniture and the multiplier effect that would imply. But that's not happening, and its not going to happen for a very long time for quite a few of us.
Nobody is winning at this kind of game.
Two things. First, I really want to know who is holding the calls for the financial instruments that are behind these trillions of dollars of credit swap debt that might be called upon? Was there deliberate action on their part to cause this failure? What's to stop the US from just annulling all the credit swap instruments?
Finally, while I agree that some of these bad mortgages need to be bailed out, what about the families who played by the rules, didn't make unwise plays in the housing market, and yet still find themselves living check to check with a mortgage payment that eats up too much of their dwindling paycheck. Who is going to bail them out?
I have sympathy for the student paying 40% of his net.
I am more than qualified for MBA or Law School but I ran the numbers and neither one are worth the 100,000 debt and selling your soul to the devil.
If you don't like your job...you have no choice because you need the job to pay your crazy debt that you can't get out of. Or alternatively if you are forced to do illegal things to keep your job well...too bad. Or if you are like my friend doing public interest law you just get deeper and deeper in debt.
That is why I never went to Grad School. I would basically clear the same amount as I do now, except I can choose my job and have my ethics are intact. Oh and I have no debt.
Why is nobody talking about social class here? The rich are taking care of the rich. They're taking care of their inlaws and the people they hope have kids their kids will marry and the people they do business with.
Elephant? It's a blue whale in the room and nobody's talking about it.
We need Ramsey Clark back as Attorney General.
What I am not sure I understand is why we don't try all of the things to help middle and working class people first: extend unemployment benefits, freeze mortage rates, pass a stimulous package.
Then if that is somehow insufficient, we can worry about bailing out millionaire Wall Street stockbrokers.
This would seem to me to be addressing the real problem and not just the symptoms.
Somebody please help me here... Forgive the stupid, but there are two major problems with the "bailout", as far as I can tell. 1) There has been little evidence presented that we are in the advanced stage of crisis that is portrayed. Last Thursday, we were told that the sky was falling and we were only 1-2 days away from the replay of the Great Depression. Yet, it seems that the sky didn't fall, but still might? I've heard everything from the worst crisis since the Great depression, to "this is a crisis of liquidity" to "this is just a crisis of confidence. Which is true? one of the above, all of the above, none of the above??
2) the problem with the so-called solution is that it takes enormous resources and uses them to plug the leak, but does nothing to fix the problem that caused the leak. If we dedicate $700 Billion to fix the leak, where will we get the resources to fix the underlying problem? We are already being told that things that are long-term investments like fixing the healthcare system and investing in education may not be possible due to the doubling of the deficit (and all of the related effects of that) by the cost of the Bailout. Yet, if we don't do something about the deficit, healthcare, education, the wars and rebuilding the military and the infrastructure, we will have virtually no ability to do anything more than pass a few regulations. So... how does this "fix" fix the problem? and can we afford to do both?
THIS Is How The Republicans WILL Steal This Election. Dems will go with Bush's bailout. Don't sign on to the bill under ANY circumstances. PLEASE!!!! John McCain is out there saying falsely that Obama hasn't given a plan, and is trying to panic the democrats into taking unnecessary action on the bailout. McCain knows no one is paying attention to Obama's 5 point plan except the pundits. All the public is hearing is the lie from McCain. To counter that, will Obama shoot from the hip and cave to the bill? If you dont play the politics right, no one gives a damn. Obama needs an economic message. less than 2 months left.
http://www.youtube.com/watch?v=oG3k7HpeEUA
I would feel a lot better if we were taking half the bail-out fund and INVESTING IT in real job producing industries, providing healthcare to the uninsured and investing in rebuilding our worst communities and cities. And we should announce a national infrastructure initiative that will target putting people to work. The 21st century new deal.
At the same time, we can no longer afford to ship our military all over the world and pay for global policing. Bring home our troops, leave Iraq. Leave the region but for a few ships to protect the shipping lanes and oil platforms. Close military bases here and abroad.
Then, we should set aside a special fund that will be paid for entirely by these banking, investment, and hedge fund executives along with their off-shore accounts which will benefit all service men/women for life (full medical benefits, full educational benefits, homes paid for in full). The best care for our most seriously wounded. While they were put in harm's way fighting half way around the globe; fellow Americans on Wall Street and in board rooms were stealing their futures and their childrens' futures. A national disgrace.
Finally, Congress should be locked in session until it comes up with a health insurance plan that matches their own benefits and costs they we so generously provide them but don't have access to ourselves.
The revolution has begun. It's not a bloody coup or a take-over but an attitude change.
The data do not support the proposed bailout!
And, even if it did, history PROVES it would STILL be the wrong thing to do!
I would like to add that if you go to Las Vegas or any casino for that matter and you place a bet; if you win then you keep your winnings; if you lose the bet, you're out the money. On Wall Street, if you bet, win or lose, you will MAKE a lot of money. $36 billion in bonuses were paid to Wall Street executives in 2006. Can you imagine what good that kind of money would do for the average community?
There is no democracy in America. There is no decency either. I say no to the bail-out and let's start dealing with the consequences. But the firms on Wall Street should be put on trial for criminal neglect against American taxpayers and retirees. Or maybe racketeering. It's a damn shame that Elliot Spitzer fell from grace.
P.S.) Kudos to Mr. Reich for not falling for Paulson’s “housing correction” nonsense.
But, to suggest that current unemployment rates justify repeating FDR’s mistakes is orders of magnitude MORE ABSURD!
RS Love,
Click here and learn who’s likely to go on trial.
I found this in the 2008 Republican Platform.
Congress Must Improve Oversight of Government Programs
Congress has a fundamental duty to conduct meaningful oversight on the effectiveness of government programs, not use every hearing as an opportunity for political grandstanding.
Improving the Work of Government
Modern management of the federal government is long overdue. The expected retirement over the next ten years of more than 40 percent of the federal workforce, and 60 percent of its managers, presents a rare opportunity: a chance to gradually shrink the size of government while using technology to increase its effectiveness and reshape the way agencies do business.
Each agency must be able to pass a financial audit and set annual targets for improving efficiency with fewer resources. Civil service managers should be given incentives for more effective leadership, including protection against the current guilty-until-proven-innocent grievance procedures which disgruntled employees use against them to thwart reform. Due process cannot excuse bad behavior. We will provide Internet transparency in all federal contracting as a necessary step in combating cost overruns. We will draw on the expertise of today’s successful managers and entrepreneurs in the private sector, like the “dollar-a-year” businesspeople who answered their country’s call during the Second World War, to build real-world competence and accountability into government procurement and operations.
Rebuilding Homeownership
Homeownership remains key to creating an opportunity society. We support timely and carefully targeted aid to those hurt by the housing crisis so that affected individuals can have a chance to trade a burdensome mortgage for a manageable loan that reflects their home’s market value. At the same time, government action must not implicitly encourage anyone to borrow more than they can afford to repay. We support energetic federal investigation and, where appropriate, prosecution of criminal wrongdoing in the mortgage industry and investment sector. We do not support government bailouts of private institutions. Government interference in the markets exacerbates problems in the marketplace and causes the free market to take longer to correct itself. We believe in the free market as the best tool to sustained prosperity and opportunity for all. We encourage potential buyers to work in concert with the lending community to educate themselves about the responsibilities of purchasing a home, condo, or land.
I listened to Larry Kudlow arguing last night with Senator Bernard Sanders about the bailout plan.
I agree it is unbelievable that Larry Kudlow would change his tune and back the $700 billion dollar blank check. It is hypocritical to his annoying "free market capitalism is the best path to prosperity" mantra.
It is clear that any plan that bails out the rich thieves is supported by the friends of rich thieves and is not viewed as what it is welfare. It is obscene welfare!
Sanders calls Kudlow out on his hypocrisy and it is very telling!
http://www.cnbc.com/id/15840232?video=865507900&play=1
The bill is 3 pages long, yet Paulson is shocked! Shocked! I tell you, at the lack of oversight.
According to Naomi Kline's excellent book, the Shock Doctrine: the Rise of Disaster Capitalism, the economist Milton Friedman in the last years of his life saw the Katrina disaster not something that required government to help the victims but as an opportunity to privatize the New Orleans school system, and build luxury condos where public housing once stood. His theory was that every crisis was an opportunity to advance his privatization agenda.
Why not take a page our of Milton Friedman's and Alan Greenspan's book and use this financial crisis and the shock doctrine in reverse i.e. to socialize the banking system. The banker-in-chief, Hank Paulson, has created a de facto program of nationalizing Wall St and the entire banking system. Why not simply formalize this de facto arrangement by creating a REAL US central bank which would be capitalized by the trillion dollars Paulson simply wants to add to the national debt? Accountable to Congress and the people (unlike the Fed which it would replace), the US central bank could then deal with the credit crisis, housing crisis, liquidity crisis and the crisis du jour in the interest of American citizen-taxpayers and not just in the interests of wealthy Americans, the banking system, hedge funds and foreign sovereign wealth funds (SWFs). The Fed has no responsibility to do so and in fact is only accountable to the banking system - not American citizens.
An Obama administration could pull this off if it had the cajones. Freddie Mac and Fannie Mae were originally government and not private entities. They have now been renationalized. Keep them that way! The penchant for laissez-faire which Greenspan (an avid Ayn Rand disciple), Friedman and others have brought about has brought capitalism to the precipice of the abyss. While the rest of the world builds up capital in sovereign wealth funds, the Friedman-Greenspan privatizers loot the Federal Treasury to reward private interests. Paulson's bail-outs are no exceptions. The charter of a US central bank should say that its purpose is to build wealth, not debt, for the American people.
The military-industrial complex together with interest on the national debt now consume most of the Federal budget. Obama should slam the brakes on this train wreck and put it into reverse. It's high time to end the disaster of 38 years of Reagonomics and use the Shock Doctrine to give the neocons a taste of their own medicine.
The government has taken an 80% equity stake in AIM. Doesn't that mean that AIM has been nationalized or, pardon me, socialized? Rather than reprivatize Wall St institutions once they regain profitability, a central bank could put them to work on behalf of the taxpayer and all American citizens. An American sovereign wealth fund could reverse the process of funneling public money to create private wealth, and instead use private money to create public wealth.
A US central bank could oversee investment in much needed infrastructure, create new jobs by providing seed money for the wind and solar energy industries, disentangle the US from dependence on foreign central banks and SWFs, correct the massive trade imbalance and do much more for the economy than the Fed's limited role of providing a discount window.
The bail-outs Paulson wants have more to do with bailing out foreign central banks than they do with bailing out American investors. He doesn't want to offend the bankrollers of US government deficits and debts.
Instead, we should limit the military to actually defending the American homeland instead of using it to try and dominate the entire world. Sending the National Guard to Iraq leaves America unguarded both with respect to our borders and with respect to natural disasters for which they could be really helpful. Oh, and BTW, it's costing half a billion dollars a day. Just thought I'd throw that in. The military-industrial complex could be cut in half and still provide more protection for real US interests than it's providing now.
Fiscal responsibility and prudent stewardship should be the role of a new US central bank whose goal is not just to manage debt but to create public wealth. The goal of Norway's SWF (and for Alaska's for that matter) is to transfer wealth to the next generations. They are creating wealth for their kids and grandkids. The US government by contrast is creating debt and transferring the payment of that debt to our kids and grandkids.
Also posted here.
Corrections: 2nd paragraph: out indtead of our. 5th paragraph: AIG instead of AIM
The population has to have money, not credit, to spend in order for the economy to be OK.
It's interesting that many of the Congress members and Senators, Democrats and Republicans, who are now expressing concern for the taxpayers and home owners were actually culprits in this with legislation that they passed three years ago allowing it to happen. Senator Menendez, who is holding up anti-illegal immigration legislation for an additional 500,000 F-1B visas for cheap foreign workers, is now one of the most vocal. It is also interesting to note that none of the Senators offered an alternative to the bailout along with their rhetoric while many of them did offer up information as to why they are blameless.
It helps that 24 of these banks are under investigation by the FBI. They intentionally made bad loans and then hid them in mortgage backed securities and sold them to investors. Congress enabled this with legislation and the Fed created the money. It will be interesting to find out if this was an attack on our economy by foreign enemies, now referred to as trading partners, who were allowed to have ownership in our banks.
Maybe, like rising fuel prices that are encouraging us to develop alternatives, this is a good thing and we will, with some miracle, move away from the major parties who have just given us the same for the last Century.
There is a plan B.
http://ewebsmith.com/bus/taxpayers.html
Something that failed to get much attention during yesterday's testimony was Bernanke's oft-repeated claim that, post-bailout, we will have to deal with the "too big to fail" problem.
But it is clear that Bernanke has no plan for how to address this problem and that the current bailout proposal may, in fact, add to the problem.
The solution to the problem of institutions that are deemed "too big to fail" is to massively downsize them in order to minimize the risk that any single or handful of institutions pose to the system as a whole.
But by bailing out these institutions, we simply allow them to continue operating at their present, bloated size--all the while hoping that they will somehow begin the process of trimming themselves so that they occupy a smaller role within the system.
But show me a Wall Street institution that has ever willingly downsized so that it plays less of a role in the financial system!
Failure--as horrifying as that prospect may seem at the moment--may in the long run do all of us a big favor by purging the system of these Goliaths. Bailing them out, on the other hand, allows them to continue unaltered. I fear that this will merely postpone the moment when these institutions again undergo a crisis and threaten (once again) to bring about a failure of the system.
Let's accept that a financial depression is going to occur at some point as a result of a crisis in these massive institutions and use that $700 billion to build an economy that will help us endure the rough times and provide a foundation for future growth.
Oh Bobby, you silly Keynesian fool.
When will you realize that the State playing Market God just does not work?
When, oh when...?
Oh yes, and why is no one discussing the fact that if this bailout goes through--and we add another trillion dollars to the public debt--foreign countries may become less willing to continue extending the U.S. the cheap credit that has kept Americans consuming?
At some point, aren't they going to look at our already massive debt and figure out that we are a bad debt risk?
Robert,
We must NOT put up a blanket bailout for 700B!
Just a few years back, I tried to show folks what Investment Bankers were doing on Wall Street- They were on the average carrying $800 BILLION cash in their hip pocket (read wallet/cash) as they went about Wall Street brutalizing small investors. They deliberately issued fake opinions and guided companies to issue reports with doctored truths... in sum they did many insiders jobs on ordinary investors.
Just a few years back, GS was giving its employees annual bonuses of about half a million to several millions.
Even if these companies were bailed out with $700 billion the money would be finished even before the newly elected president took office and we will be in worse shape.
What then?
1) The first and foremost move would be to guarantee ALL savings/deposits, including a lightning registration to secure saving deposited at the Investment Banks ... rules must be put in place that they MUST guarantee those deposits and NOT continue to squander them with their speculation.
The second area is that current deposits are being used to sandbag losses from derivative speculations and similar woes... again there has to be a lightening registration to stop this. I have about 5 million cash in deposit and I'm getting about 2% per annum. This money is being loaned out at an average rate of about 8%... and those who want to save their houses do NOT have access to this money its being abused as usual ... we must make loans available to families to save their homes ... the government must hold first mortgage, and the speculative value must be eased to the speculators.
Thirdly, we must make loans available to bread & butter America.
All this can be done without bailing out Paulson’s GS and other IB who will not at the end of the day fix our financial woes.
WS_Odysseus
ws_odysseus@yahoo.com
Oil is causing inflation and has strapped our country with considerable war debt.
I would not bailout wall street. I would use the $700 billion for infrastructure and assisting energy independence initiatives.
e.g. Ford sells a 65mpg diesel car in Europe. They won't sell it here because of retooling of factories. We could subsidize the retooling. If all Americans started getting 65mpg our oil dependency would drop by 2/3.
Where is the leadership??? This is just another knee-jerk reaction to another republican failure.
The republicans say that providing health care for all children in America would be socialism, but now that their buddies are failing, they want to socialize wall street.
Why can't the bubba voters in the red states see all this hierocracy?
http://4.bp.blogspot.com/_2fgn3xZDtkI/SNPgvn_8o_I/AAAAAAAAB-o/XoWzaid48jU/s1600-h/ThumbsSTRIP.jpg
This cartoonist has it figured out.
It seems that John McCain isn't the only one in his family that doesn't understand economics & banking...
his son, Andrew, was on the board of a Nevada bank (Silver State) that failed. His son was on the audit committee of the board and Andrew resigned 2 months before the bank went insolvent (depositors lost money over $100K).
We don't hear John McCain trying to help depositors in this country and reconcile deposit losses. Where is the justice? Where is the decency?
The McBush ticket does not want to bring families into the campaign because of all of the “skeletons” in their closet. McCain dumped his previous wife after an affair with Cindy. McCain and Keating Five – fraud.
Ron Paul stated today to Chairman Bernanke that, "housing prices should come down" in opposition to Bernanke and Paulson's bail-out plan.
Now, I don't agree with Ron Paul 99.99% of the time, because I think he stretches the facts a bit but this time I do agree. Why should we be encouraging the prices of these assets to remain overpriced? This is only deepening the gouge of this recession.
How bad would it really be if we didn't implement a bail-out plan as it is proposed? Paulson and Bernanke are no-doubt, very intelligent, but are their schools or thought influencing their decisions on the mechanisms needed to fix this problem?
If Wall Street were lending the $700 billion, can you imagine the strings they would attach?
john lawrence:
Once again, outstanding!
If we did nothing but cleaned up our government procurement practices we could probably reduce military spending by 50%.
Opportunities abound one must just try looking for them.
Wall Street can't enjoy infinite growth, when the economy is flat.
Resource consumption and industry is flat.
We've reached the limits of growth, yet Wall Street keeps expanding. The money sloshing in the system must grow. Interest on expanding loans must be repaid.
There is only so much growth that can be sustained when resources are not growing. That value approaches zero.
If Wall Street doesn't grow, it will implode. We must provide infinite resources to Wall Street or it's bubble will pop.
Once our worldly possessions are gone, we're dressed in sackcloth and scratching a living in the dirt, where will Wall Street go to sate it's hunger for continued growth?
Infinite growth cannot be sustained in a closed system. Sadly, this is how Milton Friedman is proven wrong. Through catastrophic collapse.
If we blow another bubble, the risks just become worse.
Eventually we will pay the piper. It's just a matter of how long we wait and how much interest will be accrued.
I keep thinking this is like watching gangrene spread from a toe. The desire to save the toe, will lead to the loss of the foot. The desire to save the foot, will lead to the loss of a leg...
Calling SBVOR...
would you please publish your resume, your education and your professional experience for the rest of us here so we can better understand your bizarre, unwavering, narrow-minded, fanaticism for anything and everything Right Wingnut... you just don't come off with any credibility other than to be an echo chamber for attack radio logic ... maybe you're a genius in disguise but right now, you've fooled us in to believing otherwise...
I saw Meg Whitman the former CEO of eBay sitting at McCain's economic high table, and I said to myself God bless America! Here is a woman who milked blood out of eBay in cohorts with Goldman Sacks where she also worked… issued false statements to mislead investors, made out like a bandit at eBay and bailed out ...here is a woman who can hardly write a page of cohesive essay on any topic ... I say, we are in for some very serious awakening!
Senator Obama should go to Washington D C. until the emergency is resolved.
McBush is also running around with that HP loser CEO (Carly Fiorina).
During her tenure, the market halved HP’s value and the company incurred heavy job losses.
Maybe incompetents are attracted to McCain or vice versa
The moose hunter he selected to shore his candidacy is purely a political move for shallow voters
As much as the fat cats who created this mess should be tarred and feathered with all of their assets forfeited, that won't solve the crisis we're in.
The Paulson/Bernanke (Bush/Cheney) solutions is like putting a bandaid on the stump of a severed limb (and relying on a band-aid thief to perform the procedure). It might add a few minutes of life, but without staunching the spurting artery, it won't do much good.
The key to addressing the crisis is to slow down the rate of foreclosures before they get to the bankruptcy stage. The foreclosures put more unsellable houses on an over saturated market, further lowering the price of houses, increasing the proportion of upside-down mortgage holders who abandon their house, and increase the number of foreclosures. In control theory terms, this is known as a dynamically unstable loop -- the worse it gets, the more pressure there is to make it even worse. in lay terms its known as a vicious cycle. Getting the bad loans off the banks books merely relieves today's problem, not tomorrow's which has already been set in motion.
What needs to be done is to recast all of the balloon and floating mortgages to rates that can be sustained by the mortgagees, even if this means forgiving a proportion of the principle. This may be accompanied by a note against any increase in value when the home is eventually sold. Mortgages that were wrongly cast as subprime (because the greedy brokers made a higher profit that way) should be recast as conventional. To accomplish this, the ultimate investors (China, pension funds, banks, etc.) must agree to accept a lower rate of return, and capital recovery than the bonds they hold call for. This lowered expectation should be spread across all slices of the bond pools (and not absorbed by entirely the lowest level slices in turn, spread the pain).
Changing the laws to require more transparency and capital ratios is moot. There are no more investment banks, and existing laws already apply to commercial banks, which the former investment banks have become.
The bond rating companies that overrated these risky derivatives, and their officers,and directors should also be made to contribute to the solution. Spread the pain so that few get killed.
In the future, it should not be possible for any entity in the chain of lenders, originators, servicers, intermediaries, and conglomerators to pass on risk with impunity. The broker/originators in particular were rewarding for cooking applications so that borrowers would qualify for loans they should not have. Risk margins will also have to be regulated so that a 5% drop in the value of underlying collateral does not lead to such dynamic instability.
That's my $.02 (which is now worth $.000000001)
In the future, there must be laws to require due-diligence among
Dr. Reich,
Please eleborate on the CDS's. I think we're all ready enough to hear how bad it really is and what the real problem is.
I'd really like to know what would happen if all the credit default swaps were invalidated and their premiums returned to those who purchased them.
It's my understanding that the true elephant in the room is the commercial CDS's, not the subprime mortgage ones that are the current problem.
If the economy continues to slide into recession or depression and companies begin to fail then what we're seeing so far is nothing. There simply won't be any way to bail that out.
Why can't or shouldn't we just invalidate all the CDS's and similar instruments with some form of premium restitution paid back to the underlying lenders who purchased them?
At least this would allow lenders to assess risk before they lent rather than just selling the risk to some other entity that can't possibly pay of if many loans go bad.
We cannot trust the current administration and it's puppets to solve this crisis. It is a Bailout to Nowhere.
Congress should hold out until the next administration can put some common sense around the options.
I agree with others that the homeowners (real tax payers) problem is with their current mortgage, which should be adjusted to prevent further foreclosures.
The source of the problem is related to adjustable (loan shark) rates applied to over valued mortgages (inflated appraisals) in a country with excessive inflation and stagnant growth.
The financial risk takers (investment banks) need to suffer the risks they took. Our economy has been a Ponzi scheme that has been building towards a crash. Let's just crash and start a new America.
As Bush-nut would say "Bring it on".
All these big-business lenders loaned money to people to buy a home based on the premise that they'd be able to pay the loan back, but since the middle class has been under assault these past 30 years or so, that has become a less and less valid assumption. Big business and the Republican party have been short-sheeting the very group of people who are the underpinning of all their 'equity.'
Is there any amount of money large enough to educate people on not wasting money? Even if we pulled everyone in and explained "don't spend more than you have!" in the clearest way possible, I'm willing to bet if we did give them some more money, they would just spend it on stupid items of excess.
Items mostly made in China, which is the whole reason China keeps us afloat, to keep running up our debt at their store.
I don't see any way out of this situation, because it's based in a culture of greed with a habit of waste.
AND THAT MAKES ME REALLY SAD!
Is there any point to saving a broken system?
Art,
It's could to hear you're finally in court with me about the need and possibility to cut Defense expenditures substantially. As you occasionally tease me with "I told you so," thank you for giving me this opportunity to reciprocate.
I've already begun my protest. I won't work until these assholes are out of office, I won't buy a car or take on any new debt, even with my local institutions, I won't pay any more taxes than I can't figure out how to get out of. Heck, I may start a company just to lose money.
What the hell, why should we work so these asshats can keep their ill gotten gains? Why SHOULD we bail them out? Let them fail, just like they've kept preaching in all their "Free Market" bullshit, keeping all their profits and now, now, they want us to pay their losses.
GIVE THE MONEY TO THE HOMEOWNERS. Let them pay off their mortgages, already. Enough of this bullshit.
Donna,
Share you bitterness and disgust over the credit crisis.
The investment banks, in the name of Wealth Management, have steered this economy to Impoverishment Management. Just read that a prominent woman on Wall Street, Sallie Krawcheck, just left or was pushed out of Citibank.
She's a good negotiator as she matched her male colleagues in stuffing her pockets with lots and lots of dollars.
She'll walk away with a package valued at $11.7 million, including a substantial "retention equity" grant (esoteric remuneration jargon) made this year.Being with Citibank since 2002, she took home $33.9 million in salary, bonuses and cash-in-options. That will keep the cats well-fed and housed.
This obscene remuneration culture sits deep everywhere but especially in the Wall Street commercial and investment banking world, for wizards who mismanage other people's money and exploit the naive hopeful home owners.
But, God Bless you for taking a tough personal stance against a greedy business cult that could care less about Joe Doe. It's "My Pockets Before Country" with these people.
Frank Thomas, The Netherlands
Art,
Just heard Bill Clinton with Larry King praise McCain for his decision on picking an unknown neophyte only a step away from being President of the US... but who enlivens his campaign and shows traditional solid family values.
What's your take on Clinton's two-faced support of Obama? Is it subtle get even time or pandering politics?
I am sick and tired of hearing people say, sanctimoniously, that "We all know that the basic problem is that Americans have been living beyond their means for several decades."
We all also know that corporate America has been downizing, rightizing and offshoring for several decades - doing everything they can to keep Americans' income as low as possible, while the costs of housing, education and healthcare have gone nowhere but up - way past the cost of living - and telling us it's our patriotic duty to buy the latest gadgets.
As an early-adopter Mac-head web woman of the highest order, I've benefited from the tech boom in many ways. And I'm glad the price of my machines has always gone down.
But we wouldn't be in this mess if more people could have counted on keeping their jobs - and their clients - instead of having their salaries and fees diverted en masse to the pockets of a few corporate vice presidents.
If the issues is liquidity for the banking system why not start an IRA form every citizen/legal resident age 30 and down which is locked in the account until they reach age 59 and 1/2 or die. If the person dies before say age 20 half the account goes back to the government and the half goes to surviors.
Banks can loan money where loan are judged worthy!
ADVANTAGE:
Wall Street does not get their mess paid.
Banks giving bad loans write off debt and go out of business if they are not judge worthy by the "Market".
The young will eventually have to pay the debt in taxes so they might get a tax credit for adding to the IRA and earn interest.
This is a way to teach saving to our children.
We are helping our children (future American children) not "Fat Cats". Let them borrow their way out of debt or go belly up.
The "public" won't be angry about cleaning up wall streets mess that will destroy us all.
You know what amazes me? All of our economic mess, from outsourcing to food riots overseas are caused by these Wall St. CROOKS AND LIARS. I am sick and tired of it too.
These people on Wall St. and in our own Gov't DO NOT CARE about us average American people. You can tell by what they are doing and the policies they are passing.
I do not agree with this bail out at all and YES, I do understand what will happen either way. If we do or if we don't bail them out. Now they are going to change the language and call it a RESCUE. Thinking that the American people are stupid enough to fall for it.
Well, here is some news for them. I DO NOT want one more PENNY of my retirement accounts to be invested in Wall St or any of these banks. Not one. So while Con-gress is coming up with a "fix" to all of this let them also come up with a new retirement account system.
How about putting in glass jars and burying it again like our grandparents did during the great depression.
Either way we will lose our money. These people are lying and if they bail them out we are going to be inflated out of our money. So do you want to lose it to deflation or inflation.
These people turned our country in a nation of lying crooks. I don't know how they can continue to come on tv and try to condition the public. I hope they are happy. I, and a lot of people I talk to, no longer trust any of these lying crooks. Especially Paulson and Bernanke. Remember this? "The subprime crisis is contained and will not spill over to the broader economy." They lied then and they are lying now.
Every corporate layoff has been to improve profits, to appease Wall Street and shareholders.
The workers in the American middle class are viewed as expendable and interchangable, dating back to Alan Greenspan and continuing through most corporate CEOSs.
Then we have offshoring.
Now we have the results of gutting the middle class and sending the middle class jobs offshore without a quick, meaningful replacement.
Let the banks collapse. Let people who work in the banks find real jobs.
With the jobs sent offshore, there is no need for one bank in the United States, and the mortgage office needed should be tiny indeed.
The arithmetic of this is simple; I figured it out 8 years ago. I sure as heck did not vote for George W Bush, because I knew the Bush Tax Cuts couldn't possibly compete with the labor pools available in India and China. I now read the financial blogs and chuckle at the Republicans who voted for Bush who now style themselves as libertarians.
Well, I’m an Electrical Engineer, not an Economist, but if the US is willing to spend $700 BILLION DOLLARS to solve this problem, a much more effective approach than Paulson’s would be for the US to spend it setting up 50 or 100 new GOOD banks, with adequate capital, and let them begin lending to all of the credit worthy borrowers in the US that can’t get credit from all of these crippled, dying banks. With an equity stake of course, so the US taxpayer can get well after this crisis is over. Or let there be a reverse auction to find the 200 or 1000 STRONGEST banks in the country, with the cleanest, strongest balance sheets, in each region, and inject US Government equity capital into THEM. Congress ought to like that, since the most effective way to short circuit the recession would be to identify the BEST banks in each district, and inject $700 BILLION dollars worth of equity capital into them.
And then stand aside and let the terminally crippled banks fail. If there are ONE or TWO companies that really truly MUST be saved, like AIG, to avoid a systemic meltdown in the derivatives market, then let Paulson, or his successor, come to Congress and MAKE HIS CASE and ask for funding to support THAT company. And, hey, maybe he could get his act together a little bit and figure out more than a day ahead of time that something needs to be done. The best thing we can possibly do for the stock market and the credit market is to identify NOW and very publicly which companies the United States will stand behind and bailout if necessary, and which ones it won’t. But the most important thing to realize is that we can’t save them all. And we shouldn’t even try.
RSLove,
Thank you for proving, once again that Dems:
1) Are incapable of arguing the facts and ALWAYS resort to ad hominem attacks as a sorry substitute.
2) Are obsessed with the fallacious “appeal to authority” argument. I could be a grade school dropout or I could hold multiple PhDs. What does it matter when I substantiate all of my arguments? Does Mr. Reich do the same?
3) In a small town run by so-called “Liberals”, giving a name to my views would be an invitation to vandalism and worse. Our local Leftists are especially nutty and particularly prone to destructive behavior. There is no upside to revealing my identity and lots of downside. Ain’t gonna happen!
P.S.) Check the latest entries in the Democrat scandal that is Freddie and Fannie. Let’s see how many Dems go to jail.
all these deals that are going down in Washington and on the Street are not even guarenteed to fix things and are going to have to be paid by the youth of America. They can't vote so they are largley ignored by those in power. So my generation the one that will be most effected by these events is forced to swallow this bitter pill. This is pretty ridiculous in this age of technology where everybody has the ability to make an informed decision on who they want in charge of these kinds decision.
In summary: The voting age should be LOWERED at least from 18 down to 16. So that those in power would be forced to answer our questions.
sbvor: your an idiot
While it’s obvious to me that the US economy is troubled, I certainly don’t have enough understanding of its complexities to know if the proposed $700 billion government bailout of Wall Street firms with bad mortgage debt is necessary to prevent an economic meltdown. I don’t know if it would work, or if the likely downsides (depressed value of the dollar and inflation) would be as bad or worse than any benefits. I don’t know if it’s well intentioned, an attempt to pull off the largest act of thievery in the history of civilization, or some desperate effort to prop up our dysfunctional, unsustainable, buy-now-save-later economy a few more weeks until the November elections to boost Republican candidate John McCain.
It’s unlikely that any of us can thoughtfully assess this situation over just a few days, though that’s the timeframe Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke, and President George Bush arrogantly expect us to work within.
What is so troubling is the similarity between this “urgent crisis” and the way the Bush administration rushed us into the disastrous Iraq war—an action that didn’t quite unfold as it was supposed to. Now, like then, fear is being spread. Debate is being discouraged. Consequences are “imminent” and threats are “looming” if Congress doesn’t act “now” to avert an economic “mushroom cloud”, so we are told by the bailout promoters, many of who were responsible for getting us into this mess in the first place through their support for deregulation of the very institutions that are now failing.
"Does Henry Paulson have a speech problem? He was stuttering and stammering through the whole Senate committee meeting today."
No, it is just that lying takes a lot of effort.
The bailout is the biggest scam the American people have ever faced. The bankers are trying to motivate the senators with fear. The media believes the fear and spreads it. Even Reich buys into it. It is just a game! Our founding fathers would have seen though this and put an end to this nonsense. George Carlin would have had a field day with this if he was still around.
They said that Lehman was too big to fall. But it did, and we moved on. We can do the same here.
If you don't like falling prices in a free market economy, move somewhere else. China has openings.
sbor-ing
First of all, you're showing your IQ or lack thereof... you assume I'm a Democrat because I am on this board and I'm not blasting away at Dr. Reich... you're totally wrong.
Actually, I'm a registered Independent who doesn't trust the reactionary "follow the leader" nonsense of either party. In fact, both parties have their nut cases, you do a fine job of representing the Right Wingnut stereotype of a scared fool who can't think for himself. You enjoy attack radio. It's no wonder the Left Wingnuts bother you so much; they're your mirror image; they just dress differently.
I was asking for your resume, your education and your qualifications because you show such a shallow understanding of proper research and citation. Sending a bunch of web links around is not sufficient especially when you don't do your fact checking. It reminds me of high school debate only you're not as rigorous in your research.
I'll give you a free suggestion: go buy and read a book called Physics for Future Presidents; it will help you better understand your own mis-guided understanding of science and the facts especially as they relate to global warming. You'll like the book because Gore takes a lickin' for all the right reasons but you'll be blinded by your own ideas. Can't help you there. And BTW, you might learn something new about our true energy resources. Actually, everyone on this board should read the book.
And finally, crooks are everywhere you look. neither party has an exclusive on the title. Let's start with the beginnings of the subprime banking mess, Phil and Wendy Gramm, President CLinton, Robert Rubin, Larry Summers, John McCain (yes, he voted for GLB along with every Republican Senator) and then we can move on to the Bush Administration that never met a regulation that wanted to enforce.
And the FBI will definitely start smoking them out like we did with Tyco, Worldcom and Enron. Greed knows no party lines. Just hope that your local bank or regional bank didn't buy any of this paper...
Keep believing in whatever it is you believe in but don't come here believing you're going to convert anyone to your way of thinking. You're just not smart enough to keep up...
Bailout has all the elements of a con job: fear, immediacy, missing facts, consequences, absolute power. Our children will clearly see this, and will wonder at our innocence.
Go watch the Sept 24th Democracy Now show. You can go to their website and get it.
It looks at though these guys are giving us an economic shock.
Plus, how can these republicans like DeMint say to cut taxes further and get rid of the capital gains taxes?
To me these people and companies want to run this country right into the ground. Their economic theory is totally flawed, this has been proven, and they are trying to get more taxes cut and more deregulation. Are they absolutely insane?
These people are unpatriotic and if we don't stop these people our children and grandchildren will hate us. They will ask us, because they will be living in an Argentina type country, what the hell where you guys thinking? Didn't you see what these crooks and liars where doing?
These people are raping our country. They are opportunistic thugs. When are the American people going to wake up and realize this? When? How are we going to dig ourselves out of this debt hole is they keep removing the taxes from the rich? They are turning the middle class into nothing more than serfs.
How can they show their faces in public. They have no shame. They are traitors! And no one will ever convince me that these people are loyal to our country.
Admittedly, I havent read all the comments (skimmed only) so maybe this has already been asked/answered, but I have a question for Dr. Riech: If the problem here is that all that bad debt is clogging the market and making credit hard to get, why doesnt the Treasury propose to make credit available to those who are a good risk, and let those who have bad debt sink with their poor planning.
I'd think that making 700 billion dollars worth of loans that there'd be a reasonable chance of being repaid would be a better use of taxpayer money (or anyone's money, for that matter) than purchasing bad debt that has become a "burden" to those whose choice it was to incur that debt in the first place.
Seems like buying bad debt rewards the banks which made poor choices, and guarantees that they will do nothing further to try to solve the problem - and why should they?
Let the treasury back and supply credit to still solvent lendering organizations, keep the money flowing from responsible lenders, and let the screw-ups have the personal responsibility that their mouth-pieces in Washington so fervently called for back when personal bankruptcy law was being curtailed.
Dear Readers,
Most of you have IDEAS, how to solver the problems.
Nobody has any IDEA that nature has already invented those solutions and it will work its way this time too.
There is no way, in HELL TO AVERT THE prolonged recession.
Japanese real estete is falling for 18 years now!!!
How many stimulus packages did they have! I turst you to count that.
Any and all programs/stimuli are going to have one result... temporary inconsequential blip in economy, but will have very consequential results for SOPITALISTS ( see http://borisc.blogspot.com ) will syphone some more money out of pure and transfer to parasites.
SOPITALISM ( socialism for capital-rich) lives
Leave this insanity alone. Go learn something at SOPITALISM univeristy of Boris and earn some honest money.
Ok, again: how to tell the SOPITALIST?
1) Advocates tax cuts,without spending reduction
2) Advocates gov spending
3) Adovcates bailouts
God Bless you and
GOod Trading
Dear Readers,
Anybody with half a brain and ONE EYE still working could see that the day the Mrs P & B convinced Mr G to announce the "PLAN", the DOLLAR ( measure of our health as a nation) has taneked and Interest rates shot up from 3.24 to 3.87( 20%) in two days. Making it impossible for Americans to buy from and/or travel oversees and making it impossible for future mortages to go lwer as they are based off of the aforementioned 10 year notes!
All of you, who think have the solutions, listen to the markets, they have always told you the truth( unlike politicians , like former labor secretary) that, there is no free lunch.
Come to My Boris's University of ANTI-SOPITALISM and you will know in no time, how uneducated , in economy, finance, 99.999% of USA is today and how corrupt all the rest are.
Ok the place is
ANTI-SOPITALIST
Good Trading
Dear Readers,
I LOVE AMERICA,
I AM AMERICAN CITIZEN and FORMER USSR CITIZEN,
I HATED COMMUNISTS(SOPTIALISTS) and I dislike freeloaders everywhere, which is what SOPITALISTS are.
They always think they/GOV has the solutions, cause there is money in it for them.
I think The Constitution of USA is a precious document, mockery of which is made daily by SOPITALISTS.
I think that difference between the interest based lobby and BRIBERRY is very simple.
In the case where FED can not arbitrarily create money( money like debt) the private interests will fight for the parts of the total cake and will find adequate solutions to partialize it. But when the FED can inflate FIAT money( like Investment and Commecial Banks do ) then there is "GROWTH/thefth" as the Dollar loses value, but those who pay lobby get more of the same cake. Illusion being that there is more cake.
So, now you see really , how , the legitimite constitutional right of lobbying has turned into outright BRIBERRY as the SOPITALISTS ( wall street, Multinationals, Governemtn, unions ) went on the attack to get more of the inflated cake, while killing the purchasing power of ordinary people and especially SENIORS.
Now you know the truth.
Why anybody who advocates "INFLATEING" the cake is a SOPITALIST and should not be trusted.
Good Trading
good hoot! read interestly... will be back again for more news...
http://www.jamessextonlaw.com
A Bailout Plan that WILL Work
Americans are skeptical about the proposed $700 billion bailout, and rightly so. The bailout focuses on mortgage-backed securities, not mortgages. The bailout is an expensive attempt to restore “confidence” in the markets, with little guarantee that confidence will be restored. One of the reasons we’re in this mess is because the link between mortgage-backed securities and mortgages has been broken, and this bailout plan will do nothing to repair it.
Instead of bailing out mortgage-backed securities and the firms who own them, let’s bail out mortgages. This IS guaranteed to trickle up.
• A few analysts suggest that the markets can indeed weather the crisis on their own. If they are right, assisting these firms only rewards bad behaviors, and may do nothing to little to help the underlying economy and the millions of Americans who are struggling.
• Homeowners are typically viewed as individuals (no big deal if one mortgage goes down to foreclosure) but should be understood collectively—together they hold 51.6 million mortgages and $15 trillion in debt.
The plan:
• All homeowners currently facing foreclosure (about 1.25 million) receive $50,000 (or the max of their mortgage) to refinance and buy down their debt. Price tag: ($63 billion).
• Remaining homeowners with incomes up to $100,000 receive $15,000 to buy down/prepay their mortgages ($512 billion).
• Homeowners with incomes between $100k and $150K receive $7,500 to buy down their mortgage ($72 billion).
• Congress passes a law: no foreclosures or resets for three years. After this period, all homeowners are on their own. (It’s projected that a million more foreclosures could be coming down the pike due to interest rate resets.)
The benefits:
• In the process of refinance, banks/lenders get three benefits: assets are correctly revalued and bad debt taken off their balance sheets (a major sticking point in the current bailout plan—how to revalue the assets); cash and liquidity as a result of all the prepayments; and a projected $112 billion savings from prevented foreclosures.
• Credit markets are reactivated.
• Small banks that made prudent loans, and homeowners who have kept up with their mortgages are rewarded too.
• Home prices stabilize because less supply is flooding the markets.
• Homeowners get to keep their homes, stabilizing communities and tax base.
• Seven times the amount of money from the recent stimulus package ($100 billion to individuals) is put back into the economy.
• Investors hardly know what they own and where as a result of the securitization. They’d be hard pressed to reach out to homeowners (if the past two years is any indication). However, homeowners know who their lender is and they can initiate action).
• Renters and homeowners with no mortgages get no cash assistance, and this may be perceived as unfair. But the likely benefits to their jobs, and home values and pension funds are far greater than the current plan.
• It’s administratively more simple. We have the infrastructure in place to refinance loans. We don’t have the means in place to implement the current plan. Note that the RTC was slow in getting starting, and if all the hype is correct, we can’t wait.
Whatever is done, something MUST be done to support the homeowners.
Three of the five families on my street have lost their homes in the last five years, and a fourth is renting their home out and living in an apartment.
Oh heck yeah, there are irresponsible homeowners. One of my former neighbors met a man in Vegas and split, or so the story goes.
Each of the other families on my street had unexpected medical expenses. The costs above and beyond what their health insurance paid is what drowned them in debt.
Additionally, in spite of the fact that my five year old home has lost almost 25% of its value, the builder is still actively building 50 subdivisions of new homes in my city.
And that's just one builder.
If I were in financial trouble and needed to sell, those who could afford it would buy new. Those who can't, would buy the foreclosed home next door.
Capitalism at work. The builder is still making money while providing tons of jobs for Mexican immigrants who send their paychecks home to Mexico. (God Bless 'em, I don't blame 'em - they built me a fine house!)
I'm just thankful that I didn't succumb to the pressure from the builder and my Realtor, to buy a bigger home than I wanted (or could afford), and go for an "interest only" balloon mortgage. And yes, I had to be very assertive before they backed down.
IMO it's a huge mistake for congress to rush through ANY plan at this time. What we are facing is NOT a housing bubble or a mortgage crisis, but something far more fundamental: a pyramid scheme based on the fantasy that an infinite amount of credit can be extended indefinitely.
If the United States had a healthy economy, with a balanced budget, then the notion of the gov't lending an enormous sum to back up all these bad loans might make some sense. The fact is that we have no such sum to lend.
What we "lend" will be money borrowed from some other source. And at this point the ONLY source available is: the future. Or to put it another way, a future marked by runaway inflation not seen since the last days of the Weimar Republic in pre-Hitler Germany.
We can't bail out the "free market" because we have nothing to bail it out with. It's already too late. The "free market" is over no matter what we do. And any effort to prop it up with "loans" from an already bankrupt government will only make things worse.
IF we can somehow manage to put a trillion dollars into play, we should wait and let the system fail first. THEN use that money to construct a safety net for all the many victims of this unparalleled era of greed and stupidity.
It was amazing to hear the Baby-Bush deliver his distorted view of the financial crisis. He focused on homeowners taking out bad loans. He was making a case and linking the problem to the poor Americans that have dreamed of home ownership.
He did not mention predatory bank practices.. He didn't mention investment bankers leveraging themselves beyond reasonable risk.. He didn't mention government’s lack or and reversal of regulation.
This is typical Republi-bunkin posturing and half-truths.
And can you believe his buddy, McBush. The mentally war-damaged soldier that finally sees a "fundamentality UNSOUND" economy. His epiphany happened after Wall Street started to go bankrupt. What an imbecile. He hasn’t voted on the last 109 out of 110 congressional bills and hasn’t been seen in congress since last May and now he is sooo busy fixing our economy that he can’t make a 2-hour debate.
The really sad situation in America is the number of uneducated, unread, Bubba voters from the red states that can’t see through the fog of distortion.
Our nation is all about oil, greed, and military strength, and it smells to many others in this world.
Frank:
LOL! It's only a half "I told you so". I still don't believe we can significantly slow defense spending on the items and projects we need, especially the rebuilding of major supplies and equipment after the Wars. On the other hand I have long been frustrated with our procurement practices for all government spending, especially defense spending. I further bristle at the idea that outsourcing is the Valhalla for trimming government spending.
So often our contracting process is similar to this bailout fiasco. Essentially we offer a pile of money and the private sector tells us what we can have for that pile and usually it's half of what we need. The other side of the equation is the government budgeting/spending/accounting process. Agencies, nearing the end of the budget year, that have not spent their budgeted amounts, scurry to spend all they were alloted so that next years budget will not be lowered. There is no incentive for good funds management, in fact there is a disincentive.
The resulting inefficient spending is blamed on the inept government workers and bureaucrats when in fact it is the process and the operating rules that are the problem.
Because the government contract process is so huge and often the expertise for end products resides totally in the private sector, the government finds itself at the mercy of the private sector in defining and pricing final solutions. If we could rely on the private sector to always approach these issues with integrity and from a least cost perspective, understanding that each of us is paying for this or that, then there would be less of a problem. Far too often the private sector views a government contract as an open vault where they only have to walk in and take what they want.
One only has to watch the spending performance on a fixed price contract versus a cost plus contract to get an idea of the difference between good cost controls versus bad ones.
The defense spending reductions through better procurement practices would mitigate the issue in the short term with, hopefully, a longer term view that we can spread the costs over a broader spectrum in the future, consistent with your suggestions.
My beloved coutry is doomed.
Look home many econo bubblheads have solutins on this blog.
You want to see where we went wrong.
JUST LOOK HERE.
ECONO INGNORENT OF USA UNITE!
We are doomed, because nobody belives government is a problem and everybody wants solutions to fit their needs/desires.
MELTING POT AMERICA,
LOOK AT YOURSELF IN THIS MIRROR.
WE NOW ARE MELTED POT AMERICA
NANNY STATE LONG LIVE!
Nobody believes in small government any more. AMERICANS want government individually for them!
Good Trading
Im not a finance visionary, but I dont hear where any real alternatives have been examined. If the government has nearly a trillion dollarss to put into this, how else could those kinds of resources be deployed? Perhaps the bottom up approach is better.
Boys and girls we are in deep do-do. Anyone who even considers voting for a free-market, top down republican is not thinking.
Frank:
Am perplexed with President Clinton's performance so far, as it relates to Obama's chances. I keep thinking there is a grand strategy going on but I can't figure out what it is.
In the grand scheme of things Clinton's posture is not unlike what we might expect from a former President. For a variety of reasons we might expect him to stay above the fray and recognize the value that each candidate can bring to the table. I do believe that he admires McCain, both as a military hero and as a Senator and politician. I believe that he feels that Obama is truly the best candidate for President, especially for changing both the mood of DC and for returning us to a purpose of improving the "general welfare".
I think we tend to view his campaigning for Hillary as the benchmark for how he should campaign for Obama and I'm not sure you can do that. Wives can command a different level of involvement and the much stronger emotional tie is a real motivator.
I don't doubt that some of his posturing is self-serving. He relishes the spotlight and enjoys being called upon in times of crisis to take an active part. In that vain he may want to tread lightly on McCain since he is well aware that McCain often acts more on grudges than on good judgment.
Clinton has been very involved in putting together his global thing, keeping him unavailable currently. My guess would be that rather than burn him out by campaigning too soon, he is being treated as the "closer"; the reliever who comes in in the last couple of innings to seal the deal. Not necessarily a bad strategy, especially considering that he can be given to making statements that are often misconstrued by the press or maybe flat out gaffes. The drawback would be that a hanging curve in the last couple of innings allows the team little time to comeback. That's why most "closers" only throw fastballs.
It might also be that he is establishing himself as a very objective observer so that when he finally weighs-in his opinion might be accepted as less that of a political supporter and more one of a man who has been there, done that, who understands the mettle that's required.
As in all elections we will likely never know the real reasons behind the strategy nor will we know if it's flawed until it's too late.
I am further perplexed with the media coverage of Hillary's campaigning for Obama. We are told she is out there working hard for him but we see very little of it, leaving us with an obscure view that little, or nothing, is taking place and furthering the thought of residual disenchantment. It is the typical media reaction to losers; ignore them, if they were that important they would have been winners.
Here's hoping that Bill Clinton comes out with guns blazing and contributes the coup de grace.
rs love:
My gracious! Multiple kudos!!! I couldn't, and haven't, said it better myself.
Blogging is a fantastic communication and learning tool but like all things we have to take the bad with the good. sbvor represents the baddest of the bad but as I have often mentioned his real contribution is comic relief.
Again, thanks for your marvelous synopsis.
OK, here we go again. President Woodrow Wilson enacted the Law of Federal (UN)Reserve
I will reprint it here too. Do you think the PRESIDENT WILSON knew exactly what was coming?
==================================
On Sunday, December 23, 1913, two days before Christmas, while most of Congress was on vacation, President Woodrow Wilson signed the Federal Reserve Act into law.Wilson would later express profound regret over his tragic decision, stating:"
=================================
I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilized world - no longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men
A whole lot of good ideas proffered in many of the posts.
One question that keeps entering my mind is that we seem to be told that the problem is that lending institutions won't lend because of the uncertainty of creditworthiness of the borrowers. Supposedly this is what will bring our economy to its knees.
Though understandable it does smack of shooting one's self in the foot. Despite that, what of direct Presidential action? Although entirely different circumstances we did see President Kennedy get on the phone with private industry and use threats along with arguments to pressure intransigent business leaders to get their heads back in the sunshine. Likewise President Nixon, going as far as invoking wage and price controls - am not advocating that extreme.
It's probably too late for such actions from President Bush, although I have a hard time believing that Paulson and Bernanke were incapable of seeing this fiasco coming quite awhile back and pushing direct Presidential intervention before reaching catsatrophic levels. One would think they are not so dumb as to not have recognized that normal responses were not changing anything. Nor were abnormal actions, such as previous bailouts, proving to be the answer.
I'm not sure what Bush could do, or say, but appeals to reason coupled with whatever threats are feasible might have moved the ball down the field. If we are to believe the key parties, this crisis is less about long term solvency and liquidity and more about moving the ball down the field.
It may be that Paulson and Bernanke were practicing this telephone diplomacy but neither of them carry quite the weight of the Presidency, in spite of the idiot sitting there today. The power of the Federal government has to be more than just the power of the purse. Most of us know from experience that you can't buy your way out of every problem no matter how big your bank account.
Again, if we can believe, no one seems to know if this solution is really a solution or merely, as some have labelled it, a bandaid on a severed artery (if it works I will forever have a newfound respect for bandaids). In reality we will never know if it worked. If we don't do anything and the bottom falls out we might know that we should have but if we do it and then things begin to go swimmingly we can never be assured of cause and effect. Historians, eons from now, will premise and hypothesize about what would or would not have happened. In the interim, in a few years, maybe tomorrow, conservatives will be positing that the market would have worked its way out of this without this profligate spending and we Dems will be pressing, once again, that government really is the answer.
Of course the argument is the old mainstay; "better to be safe than sorry". Is driving our national debt to $11 trillion with the possibility that all will fall apart anyway, safe? Would we have been that much worse off if the government merely agreed to stand behind any loans made to viable companies with questionable balance sheets? Not as a typical guarantor, a first resort, but guaranteeing specific loans only after any borrower should enter bankruptcy.
I'm not generally a conspiracy theorist but there is an awful lot here that doesn't pass the smell test and I can, off the top of my head, come up with numerous conspiracy theories that might explain the deviousness of presenting this as an urgent, immediate problem.
Although just the passage of a bailout might assuage Wall Street, the real proof might be in how fast Paulson begins to exercise his new found power. If he commences buying Monday that tends to support the sense of urgency. On the other hand if he drags his feet and fails to take much action until after November 4th, a different story may unfold.
A truly interesting article on what the real problem is and why this may not work, at all or as well as planned.
http://keepitcleaneconomics.blogspot.com/
So, if I do choose to leave the USA if McCain is put into office, any suggestions on a nice country to live in where I don't need to be a millionaire?????? I'm retired.But, I am really sick of what I have seen in this country. And, it is true about New Orleans and the plan to build lots of condo's and force the natives out. This country's priorities are shameful.
I regularly meet with a group of politically informed educated women, and it is our opinion that you should be Obama's Secretary of the Treasury. Any interest on your part should you be asked, or is Washington too dreary in comparison to Berkley?
A must read on the bailout by James Galbraith:
http://www.washingtonpost.com/wp-dyn/content/article/2008/09/24/AR2008092403033.html?nav=most_emailed
Binding contracts that are enforced are one of the things that made / make America great. Freezing mortgage rates requires breaking binding legal contracts - a terrible idea and bad precedent. This is not Putin's Russia, where the rule of law and contracts have no meaning.
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Dear Dr. Reich,
Like you always comment, in my view....Ever since you Dr. Reich and President Clinton left office the economy has been going down.
I am 69 years old so I have seen the decline as it is very evident today, with that said it started with Bush Senior (It's the economy stupid) But then you and President Clinton straighten the economy out, left with a surplus, then comes GW or just W. the result is the same, and like President Truman had the sign on his desk that said, the Buck Stops here! W. has to take the blame, not for what he did, but for what he didn't do. After all of these back door meetings without citizens knowledge or approval, these guys don't know if these Billions of dollars bail out will work......God help us all.
Best wishes Dr. Reich,
Joe Florio
When banks decide to give us average joe six packs 10% on our money like they gave Buffett, Paulson and Bernanke can stuff their bailout!
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