There are no other issues
I missed the news Thursday night in preparation for an weekend debate trip, from which I returned Saturday afternoon. It was at that point that I read up on the events of the past 72 hours. My jaw dropped open, and I have spent the interval since in a state of numb shock. I guess my co-bloggers must feel the same way, judging by the lack of posts this weekend. Either that or they have social lives.
I can’t even find the words. Really, I can’t. I’ve been trying to bang out some version of this post in my head for the better part of two days, and every single time, I go into a sort of apoplectic seizure about halfway through and I have to start again.
Can it really be that the government is contemplating this? That this policy is going to be implemented with near-universal bipartisan support? Is there not a semblence or an iota of principle left in Washington D.C.?
Because make no mistake about it: we are on point of the single worst policy decision of my lifetime, a decision which can accurately be said to place the final nail in the coffin of capitalism in the United States. I make these statements fully aware of their hyperbolic nature, and I honest to God don’t consider it hyperbole. It is virtually impossible for me to contemplate a more comprehensive abdication of basic capitalist principle than the one we are on the brink of.
The federal government is about to pay out seven hundred billion dollars in taxpayer money to redeem the worthless mortgage assets in the hands of a variety of corporate holders. These purchases will be made for the specific reason that the assets being purchased are otherwise unsalable. The entire justification for the buyout is to keep a set of completely incompetent financial operators above water. The United States government, having observed some of the most irresponsible and reckless speculation in modern economic history, is going to retroactively render that speculation a no-risk endeavor for the participants. All of their losses will be made up to them at public expense. None of the profits from their successes will become part of the public coffers.
Again: words fail me. It is like something from The Onion, or from an antimatter economic universe. Communism would be preferable; at least the people being bailed out under THAT system are actually needy.
Is there, in my entire array of political principles, an axiom that this act does not violate? I despise judicial activism on the grounds that it constitues policymaking by unelected officials; well, here we have the Secretary of the Treasury implementing in one fell swoop a policy with arguably greater immediate impact than every Supreme Court decision in history combined. I object to the nationalization of health care on the grounds that the government cannot be trusted to make decisions with greater wisdom than the market; here we have the government nationalizing one of America’s major insurers along with the entire mortgage lending industry, at a price that would dwarf any health care plan conceivable. I object to the entitlement mentality on the grounds that it degrades individual choice; here is the single greatest entitlement payment in the history of the planet earth, being doled out to the least deserving recipients imaginable, as a specific reward for their malfeasance.
The justification for this fiasco is the claim that we need to avert a tight credit market in order to stave off recession. I’m just gonna say it: I consider even a multi-year economic depression to be preferable to this. The American people have maintained a zero savings rate for the better part of a decade. An economic correction has been long overdue. It is well past time we learned, at both the individual and collective level, to make do without borrowing money. It is the explicit intention of the federal government, through this policy, to prevent people from learning the painful lessons associated with living beyond their means. To hell with that. Everybody else in the world has to live within their means; so have Americans for almost the entirety of our nation’s history. If the economic growth of the past twenty years has been the result of borrowing rather than of increased productivity, then it is not economic growth at all, but the illusion of growth. We are not entitled to its benefits. We are entitled to the fruits of our labor and nothing more. Let the market find its true level, and let us live with the consequences. I’m prepared to lose all of the ancilliary teaching benefits of my profession (as I surely would) and teach basic English classes for a while, at a reduced salary, rather than be party to the continuation of this economic charade. The bill has come due, and it is time for our generation to bite the bullet. Things are gonna suck for a while. Tough shit. We brought this on ourselves.
Naturally, we are seeing exactly ZERO leadership of this sort from either major political party. As best I can tell, Obama and McCain are going to sit on their hands and let this outrage be perpetrated on future generations, because they’re each scared as hell of the prospect of actually demanding sacrifice from the voters. Doing that, you see, would be leading. As for Congress, their enabling of this purchase represents the lowest in a series of ever-descending lows. We might as well not even have a legislative branch anymore, so craven and spineless have they become. Here is how bad it is: the greatest Congressional hero in this escapade is Charlie freaking Rangel, who is calling for the recipients of the federal bailout to be forced to accept limits on executive compensation.
Yes. Charlie Rangel and George Will, hand-in-hand, against the rest of the political universe.
I hold out no hope whatsoever that this atrocity can be averted. Glen Greenwald noticed today the same thing I’ve been observing. Five days ago, the entire political press was unanimous in praising Paulson for deciding to halt what had previously appeared to be an endless string of rich-boy bailouts. Then, hours after Paulson reversed course one hundred and eighty degrees, the entire political press once again had him up on their shoulders. As if they’d never been marching behind him in the opposite direction. There have been a scarce few holdouts–Greenwald, William Greider in The Nation, certain blogospheric voices crying out in the wilderness.
And Bob Barr, who opposes the bailout in no uncertain terms. And who reminds us that this is not some consequence forced upon us by God or nature, but an ACTIVE CHOICE that we are making, and that we can choose not to make, if we have the stomach to take our medicine.
I have no particular fondness for Bob Barr as a person. I find him oily, crass, and self-satisfied. I am skeptical of some of his conversions to libertarian principle, and find many of the areas on which he continues to hold non-libertarian viewpoints to be disturbing in the extreme. His tactics in running as the LP’s candidate have been simultaneously juvenile and suicidal.
And to hell with all of that. Seven hundred billion dollars has a way of marvellously concentrating the mind. I can’t envision a scenario in which the combined achievements of four years of a McCain or Obama Presidency, in every area of public policy, would justify a trillion-dollar upfront payment. Seriously: can anybody? Show me what Obama or McCain offers the country that is worth $700 billion, and I’m with you. If you can’t, don’t waste my time.
I was on the point of endorsing one of the two major party candidates this week. That’s off now. Just as soon as McCain or Obama has the balls to stand athwart this policy disaster, that candidate will have my vote. Unless and until that happens, my vote is Barr’s. There are no other issues in this election.
I’ll be the first to admit I know virtually nothing about economics, but I’ve been trying to follow the news and learn about this plan.
It sounds like the deal is that the government will buy the bad (or potentially bad) debts from the banks which hold them (at what price we don’t know, but as Rojas points out, by definition higher than market price at the moment), and hold those assets in trust for the taxpayers. If they eventually earn money, that money goes to the government (and thus back to us who foot the bill in the first place).
Okay, first: it seems unlikely (to put it mildly) that those debts will ever make money, so let’s assume that much or all of that $700 billion will not be repaid.
Does this deal do ANYTHING to try and ensure that this doesn’t happen again? It seem as though this creates one HELL of a moral hazard; again, Rojas said it better, but how does this encourage responsibility?
I thought the point of deregulation was that we allow banks/institutions/whoever to deal as they think best–but that has to come with the caveat that dealing foolishly will have consequences. There is a part of me which shares Rojas’s view: if making and holding these debts means the collapse of the banks/institutions/whoever which made them, then SO BE IT. Foreign institutions won’t want to lend to us because they got burned? YEP. That’s what I would expect to happen to me if I borrowed a bunch of money and never paid it back.
I am in full agreement with another thing Rojas said: if our economic growth has been due to crap like this, then it isn’t growth, any more than a medical degree earned by bribing your instructors makes you qualified to do surgery. And if the cost of going on as we have done is a massive transfer of taxpayer money (present or future) to those who behaved foolishly, so that they can continue to behave foolishly–I’m not sure it’s worth that cost.
Really, it seems that one of the problems is that nobody knows the market value of these bad investments, so the holders can’t determine what sort of financial shape they are in, so they are reluctant to make loans. SO BE IT. Let them figure out what they’re worth by looking for buyers. Propping up their value artificially, though, seems to me as though it would do nothing more than prolong the crisis.
I suppose I could see some sort of role of the government in establishing some sort of semi-controlled market in which the bad investments can be aired, examined, and evaluated. A sort of financial biohazard lab, where the toxics can be safely analyzed. But they have to stay with the one who owns them until such time as someone else buys them freely and fairly.
There was a good article at Calculated Risk, purportedly quoting an unnamed member of Congress, suggesting that any CEO, CFO, or other such person who is allowed to sell these debts to the government be forced to complete a credit counseling course (as private bankruptcy filers are required to do), and must submit a public hardship letter explaining the nature of the bad debt, how it was made, why it went bad, and what they plan to do to avoid such mistakes in the future (similar to what someone selling their house as a short sale provides to their lender). I like the idea, but it’s not enough.
Anyway, like I said, I don’t know anything, and my ideas would probably lead to the collapse of Western civilization or some such.
Comment by Talarohk — 9/22/2008 @ 3:05 am
I note that McCain has said (according to the BBC) that the rescue plan should be funded by cutting government waste, rather than with taxpayer money.
Is there really $700 billion of government waste? Or his is proposing to shut off something like Medicare entirely and just transfer it straight to this plan?
Comment by Talarohk — 9/22/2008 @ 3:07 am
Bravo, my friend, bravo.
Comment by Jerrod — 9/22/2008 @ 8:11 am
I don’t like the idea of it. Whether or not something of which I don’t like the idea has to happen depends entirely on how bad the situation actually is, in order that I can compare the problem to the problems of the solution. More to the point, does Paulson — a clever and accomplished guy — have the information required to make the right plans?
If the worst-case projections came true, it would be really pretty bad (including for everyone that might want to retire and who hadn’t yet divested themselves of stocks; note that the babyboomer generation, which is a lot of people, are hitting retirement age right now, so this isn’t an academic point).
I should add that whilst the liability is $700 billion, the government (and therefore the taxpayer) may come out ahead on the deal; it should certainly be unlikely that it comes out down all of that money. One of my concerns is that I don’t want the US government playing the markets to make cash, which is effectively what might happen; the US government buys stuff at a discount because they are not only one of the very few liquid players in the market at the moment but they do it precisely because they are so big that they can change the market itself. That’s a moral hazard all of its own.
Comment by Adam — 9/22/2008 @ 9:19 am
” Sec. 8. Review.
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.”
Suck on it.
Comment by fred — 9/22/2008 @ 9:48 am
I’m glad to see someone finally use the word that’s been on my mind since this began: nationalization.
It’s early yet, but given the history of government intervention in the markets, it doesn’t seem very likely to me they’re going to essentially nationalize the entire mortgage lending industry, pump in 2/3s of a trillion dollars with no great prospects of recouping, and have all that remain a temporary stopgap measure. The American government has essentially bought the mortgage industry. It’s not long now until a horde of lawyers, accountants, and bureaucrats flood in to begin the process of administering it. Death of capitalism is a tad strong, but certainly, we’ve been on a pretty slippery slope towards a top-heavy mix of capitalism and socialism for awhile now. This is another giant leap in that direction.
And you’re right, it’s a shame that we don’t have an economic conservative in this race who knows the truth to speak it. But I’m still digesting that facet of it.
Comment by Brad — 9/22/2008 @ 10:06 am
One important correction: it isn’t Rangel who’s calling for the executive compensation regulations, it’s Barney Frank. I apologize deeply and sincerely for having said something positive about Charlie Rangel.
Schumer’s position, along with that of many Democrats, is that the $700 billion bailout is unacceptable on the grounds that it isn’t large enough and ought to absolve even more people of responsibility for their decisions.
Meanwhile, the administration is insisting that the Paulson proposal may not be modified in any respect whatsoever. Why, you may ask, should an unelected treasury official be granted unchecked and dictatorial authority over the disposition of fully one third of the federal budget? Well, the administration echoes Adam’s stance: “Paulson is smart.” Exactly which of Paulson’s actions over the last eighteen months would justify this conclusion is somewhat unclear to me.
Dare we hope that these two stances are irreconcilable and that nothing will be done? Never had gridlock been so desperately necessary.
Comment by Rojas — 9/22/2008 @ 11:05 am
We can at least hope, with policymakers having had the weekend to cool down and think this over, that the battle between the Congress and the White House will shrink the bailout package to a somewhat less egregious lev-
Jesus.
I’m at the point now where I’m about 30% convinced that this whole thing is some sort of elaborate prank which everyone in Washington is in on. “PSYCH! Gotcha, America! Boy, we can’t believe you fell for that one. Seriously, though, you can’t have actually believed we’d actually just keep piling on absurdities like that…”
Comment by Rojas — 9/22/2008 @ 11:14 am
PUNKED!
Comment by Jerrod — 9/22/2008 @ 5:39 pm
Paulson is hardly an unknown; everyone knows he understands the markets as well as anyone (of course, it’s not like he constructed all of this himself). Is he right? A much harder question, which also depends on whether he yet has the information required. The disaster is not really his, as this has long been in the making; by 2006 I am unsure that it was stoppable but also I am not sure not just whether this action is better than the alternatives now but whether there was much that could have been done since that time, from the point of view of government.
To be honest, I don’t know what to think. This is a lot more complicated that is being made out by either side of the argument.
Comment by Adam — 9/22/2008 @ 6:17 pm