Our eloquent president:
“If money isn’t loosened up, this sucker could go down,” President Bush declared Thursday as he watched the $700 billion bailout package fall apart before his eyes, according to one person in the room.
We’ll see how the market responds tomorrow. We had the largest bank failure in history tonight, as Washington Mutual ceased to exist and its shareholders were wiped out. A few extremists on both sides of the aisle don’t seem to care. People on the left just want to see bankers suffer, with no regard for the collateral damage. Ideologues on the right just want to avoid any semblance of socialism, or public ownership. These lunatics are in the driver’s seat right now, but I doubt they’ll still be there when the market drops by 800 points before lunch tomorrow.
Come tomorrow, ‘this sucker’ will go down, and it will go down hard. You can thank John McCain for that because he encouraged the House Republicans to kill any deal. Maybe McCain really wants to avoid the debate and he doesn’t care how many families lose their retirement or how many small businesses shutter their doors. I don’t know.
I do know that a bailout, however unpopular, is necessary to prevent a massive loss of wealth and jobs. I’d like to see criminal investigations and I’d like to see some progressive legislation. But right now, I’d just like to see a confidence-building infusion of liquidity into the credit markets. Ideally, we can recoup the costs. But if these idiots stand around sucking their thumbs while people make a run on the banks? We will all suffer…needlessly.
while i’m not a rocket scientist but how does jp morgan pay 1.9 billion for a bank with 308 billion in assets and 188 billion in deposits?? WAMU fails…
http://news.yahoo.com/s/nm/20080926/ts_nm/us_washingtonmutual_jpmorgan_news
are you beginning to see the scope of the losses we’re talking about here?
Bailout could make things worse:
“Ironically, the intervention could even trigger additional failures of large institutions, because some institutions may be carrying troubled assets on their books at inflated values,” Orszag said in his testimony. “Establishing clearer prices might reveal those institutions to be insolvent.”
If those institutions are insolvent, then investors need to know it.
I’m not big on this plan because, frankly, from what I’ve been reading about derivatives and credit default swaps over the last year or so these “bad debts” that the banks have are actually bad entanglements that they’ve gotten themselves into. With no underlying asset to “foreclose” on and take in the event of a default. We’re not talking about people failing to pay their mortgage anymore – we’re talking about people making bets that other people would fail to pay their mortgages as a “hedge” against the mortgage failure (“insurance” if you’d rather not use the word “bet”). And the buying and selling of these guarantees. And now that house of cards is collapsing and there are no underlying assets there – that’s what Paulson is freaking out about and why the plan didn’t initially demand equity from the banks. The stuff he wants to buy is essentially worthless paper – basically it seems like he wants to inject cash into the system to keep the funny money afloat for a while longer. But that’s not a long term plan, that’s a bandage to stop the external bleeding while the hemmoraging continues under the surface.
I don’t know what needs to be done. From what I’ve been reading, I’m not sure that it would actually be the worst thing in the world if the sunshine came in and revealed these “investments” to be the worthless paper that they are. Yeah, there would be bankruptcies, but we’ve dealt with those before. We could create agencies like we did during the S&L crisis to mitigate things as much as possible. The shareholders really should take it on the chin for encouraging these practices, and this should stand as evidence that we need tight regulation on these markets – because these guys “self-regulate” like kids in a candy store with no adults around.
basically it seems like he wants to inject cash into the system to keep the funny money afloat for a while longer. But that’s not a long term plan, that’s a bandage to stop the external bleeding while the hemmoraging continues under the surface.
I’ve been saying this all along. Debasing the currency is the oldest trick in the book and it never ends well. Once Wall Street gets that money they aren’t going bottom fishing in the worthless crap they unloaded, nor are they going to invest in new business, they are going to put it in the safest place possible – commodies. This will send prices sky high for regular folk (really it’s more like sending the dollar into the abyss). But at least Wall Street will have a bunch of new safe assets to leverage at 30-1 and crank the machine up again, never mind that people won’t be able to afford food or heating this winter.
I can’t sleep. The people must see pain to do the sane thing. Tomorrow we will see pain, new negotiations do not begin until 11:00 AM. Plenty of time to see the market fall hundreds of points. That is only the beginning of the nation’s fall with or without this bailout. Its been a long time coming.
The trickle down assholes that got us into this mess will pay at the ballot box. We will not see them again for a long time. I’m talking about you McCain and you Sarah we’ll bring the results to ya. The Republicans have grandstanded and governed by polls for a long time. This bailout and the resulting inflation is the only option.
The Dems have finally stood, with an economic gun to their heads, and demanded concessions. The small bit of fiscal restraint being 700 billion in increment as opposed to a one time flush will show the world we have some small grasp on sanity. Do not quickly write off what Barney Frank and Harry Reid are doing. They are not grandstanding they have our interests at heart. They are backing this plan because they have no other choice. Like I said this has been a long time coming a whole lot of shortsighted idiots are guilty on both sides of the aisle. But we have to play the hand we are dealt. Tomorrow, the markets will be the catalyst.
I’m worried sick about what this is going to mean for my mother, who worked hard and scrimped and saved all her life so she could enjoy her retirement.
Not to mention the implications for the rest of us…
yeah, i;’m worried for my folks too.
but in a way, I’m glad for mccain’s grandstanding. Ian welsh at FDL and atrios have both pointed out that this was a bad bill to begin with, and we’ll never get a good bill with this congress and this president. give them enough to keep things going enough so that the crash can’t be blamed on congress, and come up with a real plan for January when OPbama takes over.
it’s gonna suck, but not as bad as the bill the dems had in hand.
They need a 4-month band-aid until Bush is out and Obama moves in. Not a $750 billion dollar bandaid, either. And whatever they do in the end has to make it easier for homeowners to pull themselves out of default and make their mortgage payments (ie, force the asshat lenders to accept a lower interest rate), so that there’s some correction of the source of the problem…
It’s interesting reading the published accounts of yesterdays meeting: they keep repeating that Bush had little control over the meeting, McCain had nothing to say, and Obama was the only one asking grown-up questions about their options and consequences.
A little bit of a change from the usual “Dems in Disarray” theme.
It’s nearly a trillion a week!
This week the Feds (just up at Reuters) are injecting $188 billion a day, on average, to keep the banks afloat.
that’s more than quadrupled what they did last week $47 billion a day. Quoting the JP Morgan spokesman, banks are on life support.
Calling Dr. McCain. He’ll own the markets and whatever other consequences are in play.
Heres to your F**k.
Gee, too bad they don’t teach diction anymore. I can hardly understand a word they are saying.
Today is going to be a rough day at work…I can’t see what futures are trading at, but I would say they’re probably trading down sharply at this point.
A deal needs to get done, but thanks to John McCain propping up the Republican Study Group, it’s likely not going to happen. Thanks a bunch, asshat.
that economic conditions aside, the approach being taken by Bush, Paulson and Bernanke is actually spooking the markets as much as underlying conditions. I mean really, talking about an economic 9/11, an economic Pearl Harbor, Great Depression, etc. Even if those are the case, scaring the public and scaring the markets is the best way to make it a self-fulfilling prophecy.
The stock markets are 80% psychological, and the psychology of the current moment is not good.
I’m really skeptical of any bailout, but if Paul Krugman signs onto a Dodd/Frank plan, count me in. He knows this stuff a lot better than I do.
Krugman kinda, sorta signs on…
For the first time in months, Krugman and I are in total agreement.
The sucker is going down, and with it the whole Republican house of cards. Krugman will have his day – under an Obama administration – to develop a more balanced plan. In the meantime McCain will try to suspend the election – and fail.
I dunno Boo – I’m not convinced doing something – especially if that just means a transfer of wealth from taxpayers (national debt) to the people that fucked this up makes any sense.
What happens after they smoke up this hit of cash…
another fix?
Below, however, makes some sense to me – from dKos:
James Galbraith has a solution:
Now that all five big investment banks — Bear Stearns, Merrill Lynch, Lehman Brothers, Goldman Sachs and Morgan Stanley — have disappeared or morphed into regular banks, a question arises.
Is this bailout still necessary?
The point of the bailout is to buy assets that are illiquid but not worthless. But regular banks hold assets like that all the time. They’re called “loans.”
With banks, runs occur only when depositors panic, because they fear the loan book is bad. Deposit insurance takes care of that. So why not eliminate the pointless $100,000 cap on federal deposit insurance and go take inventory? If a bank is solvent, money market funds would flow in, eliminating the need to insure those separately. If it isn’t, the FDIC has the bridge bank facility to take care of that.
Next, put half a trillion dollars into the Federal Deposit Insurance Corp. fund — a cosmetic gesture — and as much money into that agency and the FBI as is needed for examiners, auditors and investigators. Keep $200 billion or more in reserve, so the Treasury can recapitalize banks by buying preferred shares if necessary — as Warren Buffett did this week with Goldman Sachs. Review the situation in three months, when Congress comes back. Hedge funds should be left on their own. You can’t save everyone, and those investors aren’t poor.
The rest of Galbraith’s plan is infrastructure renewable energy investment to help pull us out of the inevitable coming recession. All of this makes great sense.
Sure, it doesn’t directly bail out irresponsible assholes on Wall Street, and there may be problems with this plan smarter people than me can identify, but it’s clear that alternative solutions to a $700 billion giveaway are available and should be debated and considered.
The White House and/or Congress should release the full details of the Paulson presentation so that we (and smart economists) can get a true measure of the problem, and so that saner alternatives can be fully explored
http://www.dailykos.com/story/2008/9/26/35114/8937/215/611004
Boo,
You write:
“I do know that a bailout, however unpopular, is necessary to prevent a massive loss of wealth and jobs.”
Up until now, I would have agreed with this. But the more I read up and the more I think about it, I am coming to the conclusion that we need to take a different approach. Not the Dodd plan, but what Robert Reich says:
http://robertreich.blogspot.com/2008/09/coming-bailout-of-all-bailouts-bill.html
“Some Democrats will try to make the best of the emerging Bailout of All Bailouts Bill, seeking to tack a stimulus package on it. In my view, they’d be better advised to hold out for a different approach.
Paulson is right that it makes sense to allow the big banks to wipe their balance sheets clean of as many bad loans as they can identify, and put them into a special agency that then sells them for as much as possible. The agency would bundle or unbundle the risky loans, slice and dice them as needed, with the goal of getting the most for them on world markets by creating a market for them.
But there’s no reason taxpayers need to be involved in this.”
It’s good to know that Reich is one of Obama’s economic advisors.
Here’s Reich’s latest response to ongoing developments:
http://robertreich.blogspot.com/2008/09/deal.html
One smart cookie.
And this:
http://nymag.com/daily/intel/2008/09/robert_reich_and_ben_smith_on.html
Actually, Boo, I don’t disagree with you after all. Reich wrote that first comment on Thursday the 18th, the day BEFORE Paulson presented his “plan.” It was indeed a different and far better approach than what we’re talking about now. But once the Paulson plan was thrown into the ring, Reich realized it made his own plan politically impossible — he had to come up with a response to Paulson. His later comments (see above links) are that response, and it appears to be not too different from what the Democrats actually negotiated. (Now defunct of course.) I say “appears to be” because the one thing Reich cautions is that the Dem plan may “look” like it has more oversight power than it really does. One thing that bothered me for example is that, while they would be able to know what Paulson’s doing with the $$$$, he would still be making all the decisions w/o any consultation. — The new Republican monkey wrench may in the end prove a blessing in disguise, because the delay may work to the Dem’s benefit (and the country’s) if it leads to a better plan (by definition a better plan could not emanate from the Republicans) and more pressure on team Bush to adopt it. As for McCain, I don’t think he’s going to win dup with anything.
I realize I’ve been all over the map with my recent comments, but that’s because there’s so many ways this could play out. One thing, I do have confidence not just in Obama, but in Team Obama. And he picked the team. As usual with te Republicans, it’s always a question whether they are more evil than stupid, or vice-versa.
I think what it is with them is, evil is their motivation, stupid is their modus operandi, and when they fail, evil is once again their “save,” which they then execute stupidly, and so on and on.
I like the imagery of Paulson literally kneeling before Pelosi begging “don’t blow it up!” Give that guy a cheap suit and a harmonica and he’s Jake Blues.
I can’t help but wonder if there’s anyone out there who actually knows the extent of the problem. It’s kinda like taking incoming artillery while stuck in the middle of a vast minefield. No matter what you do or which way you go (or don’t go)you face the likelihood of setting off an explosion. Damned if you do and damned if you don’t. It’s a pretty good bet, however, that if you don’t do something you won’t survive.
I had a sneaking suspicion that Wall Street might be relieved by the WaMu buyout, but their optimism this morning does defy expectations, and reality.
Things are bad in Europe …
http://afp.google.com/article/ALeqM5h_UbVwR5juY_UbIOw4tAfkGFUznQ
I do know that a bailout, however unpopular, is necessary to prevent a massive loss of wealth and jobs.
The wealth that would be lost is that of the very wealthy, which is of no use to anyone else. If housing prices go down further, that would be good on the whole, since it would make housing more affordable and in line with the normal ratio of housing prices to incomes. Just force banks to renegotiate mortgages to correspond to the new housing market.
Why the Bailout Will Fail
It makes no sense to allow the people who got us into this mess in the first place to dictate a plan when the elections are just around the corner.
Boy, you sure are cavalier with other people’s money.
Every investor in WaMu just took a 100% loss, including millions that only owned it thru mutual funds and 401(k)’s. People lose money when their employer can’t make payroll and goes broke. Did the Great Depression hurt just wealthy people?
This class resentment is understandable to a degree, but it also shows a fundamental misunderstanding of basic laws of the universe, which include the working man’s dependency on the health and profitability of his employer and his employer’s investors.
You obviously didn’t read the article I linked to. The author, who “is a former global money manager” and “has written for the NY Times [and] Barrons”, argues that the architects of the bailout haven’t learned the lessons of the Great Depression.
As my post quoting an interview with Krugman indicates, temporary nationalization of parts of the financial sector is the only thing that can save the economy. Even if the government got an equity stake, the bailout plan does not involve nationalization. It just allows wealthy speculators to keep their ill-gotten gains and puts off the inevitable.
Nationalization is required because there is no way that privately held firms would put up with the kinds of losses that are required to get the financial sector back into order.
So the only working man you care about are those that work on Wall Street? What are you going to do with the mounting unemployment after your supply side foolishness doesn’t work? You want to throw a trillion at Wall Street and under the same logic that Bush uses and that got us into this mess in the first place: if we give money to the rich it will trickle down to the little guy.
The fundamental misunderstanding is yours. What happened with WaMu is what should happen to other insolvent banks. The gamblers that bought the stocks and bonds are wiped out while the depositors are made whole.
The government can’t prop up the stock market. We got into this mess by injecting liquidity into the system. There will be a lot of pain to come. Obama and the Dems promising to “fix” the economy by throwing a trillion dollars at Wall Streets’ bad debts is short-sighted. What happens when this doesn’t work (that’s my bet) and Obama and the Dems have promised us that they will “fix” the stock market and make Libor go down, etc. . . .
You’re buying the false premise that we can “fix” the economy and make it all better through this measure.
And you dare to say liberals are playing class warfare (didn’t you admonish us not to use Republican talking points?)? Please. Most economists are against this but you want to throw caution to the wind and jump into Bush’s arms with the blind hope that Bush’s plan will work. As if Bush is guy to follow in a crisis like this. Meanwhile McCain is siding with the American people and will be against this bailout.
It’s a sucker move that you conservative Dems always fall for. It’s your economy now stupid.
Boy, you sure are cavalier with other people’s money.
Says the person who wants to give away $700 billion of public funds. Pot meet kettle. Honest question here, why do you think this will solve things rather than just create yet another bubble?
Democracy Now! transcript
And that includes you, Booman. I don’t see why you have swallowed the Wall Street line on this. In the case of Obama, I do understand, since he’s surrounded by the same people that got us into this mess, deregulators like Robert Rubin.
I don’t think you understand that concept of public equity. You and Matt Stoller are running around like children thinking the bailout package is still a $700 billion plan to buy shitpile with no public ownership beyond shitpile.
It’s also Atrios. Given the track record of the Dems, I see no grounds for believing that a final bill that is passed will contain provisions for the government holding equity, any more than the FISA bill did not contain telecom immunity.
Not enough Republicans will vote for a bill that gives the government equity, so the Dems will cave on that.
I doubt it. The Senate is on board with equity and the House will have an easier time passing this with equity than without it.
Pelosi’s goal of having massive Republicans support is probably unrealistic, which makes equity all the more essential to passing the bill.
We’ll see.
In any case, it makes no sense to come up with a plan bargaining with the Bush administration. Waiting a few months would not make the sky fall, even if it did make the Dow fall some more, which would be of no consequence to most Americans.
If the plan only includes $150-250B up front, and allows for a more activist program when a new administration comes into office, then it would be more justifiable from a political point of view.
The current problem is that doing nothing will leave us in a situation where businesses cannot meet payroll or buy inventory to meet new purchase orders.
Liquidity must be introduced into the credit markets.
It’s not optional.
Now, obviously the best deal for the taxpayer is to pay cash for an equity stake in the companies. It would be nice to have a government takeover, but there are too many discreet corporations that have ownership of the shitpile to make that practical.
Throwing more “liquidity” into the fire may not solve our problems. Many economists warn it is a temporary solution that will only make our problems worse. We’ve been trying that approach for almost a year now and what good has it down other than put the average taxpayer on the hook for more debt?
http://www.nakedcapitalism.com/2008/09/marc-faber-calls-fed-liquidity-drug.html
Now is not the time to pass a huge bailout that limits any other future course of action. Whenever Bush puts a gun to Democrats heads bad things happen.
Thank you Mr. Boo for this!
Yes, I’ll grant people that the $700B pricetag is ridiculous beyond belief and shouldn’t be given as a lump sum, but this bullshit that the House GOP is putting forth is dangerous. A bill needs to be agreed upon soon. It’s not JUST a Wall Street benefit; it’s very much a (albeit weak) Main Street benefit. Money (liquidity) needs to be freed up for everyday things like payroll.
Fact is, the die is cast and we’re going down. All of us. Whether it’s now or later, this thing is done…
Amen. But there is no way the conservative Dems will be able to resist the pressure from Bush and Wall Street. Dems in general, and economically conservative Dems like Obama in particular, are very susceptible to financial terrorism. This will play out like all the other capitulations to Bush.
Bush won. He now has the Democrats running scared. Every time the stock market goes down now the first instinct will be to throw money at Wall Street to “fix” our economy. We will hear no more about progressive plans to fix the economy:
http://www.washingtonpost.com/wp-dyn/content/article/2008/09/24/AR2008092403033.html
Look how scared Booman and other conservative Dems are. They always fall for Bush’s shakedowns.
The acceptable range of debate now is arguing how much to throw at Wall Street’s bad debts and how much of an “equity” stake the taxpayer gets in the is bailout. If past performance is any indication, the Dems (and therefore taxpayer) will get punked.
They never get good concessions or make good laws when Bush points a gun at their heads.
Back In the USSR – Where Amerika Has Always Been
The post has a link to Bernie Sanders’ letter about the giveaway that you can sign.
Hundreds of Economists Urge Congress Not to Rush on Rescue Plan
But Democrats like you, Booman, find Bush and Paulson more convincing than experts.