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September 25, 2008
Fuck the markets.
Posted by: Kevin
In this entire drama unfolding in the past few weeks, it has been a titanic battle over finding someone to blame. In Washington, it's the other party, or the other branch of government. On the campaign trail, it's the other guy. Or his running mate. In the now-worthless McMansions in dour ex-burbs, soon to be unemployed 35 year olds with six-digit personal debt sit sobbing on their ten thousand dollar couches and blame the government. At the banks, they blame the other banks for buying the packaged garbage debt they themselves sold them. And on Wall Street, a lot of shrugging as they hold a gun against our 401(k) funds and say, "Give us 700 big ones or we'll shoot!"
In reality, it's all their faults. And it's time they all were forced to live with the consequences of their immense personal failures. I'm thoroughly disgusted with all of them. And I know I'm not alone.
I'm not willing to fall for Wall Street's angry blackmail. I'm not willing to cheer this as a "game-changer of the week" for either candidate. I won't congratulate the Senate and House leaders who stood around with their thumbs up their asses for all these years as they fall all over themselves now, clawing for the cameras and trying to race this bailout monster through without any of us having a chance to read it and understand it. I certainly don't trust the White House, the Treasury, the Congress or some new bullshit series of agencies that they will appoint themselves to run in order to fix the system that they all allowed to fall apart in the first place.
I agree with the train of thought that if anything, we have to hold those 700 billion dollars in abeyance because the government is going to need the lot of it in the coming years, for far more productive ends than pumping more cash into this mess. We'll need to find where the real supply and demand exists in this giant fantasy economy, where the real value and real assets lie, and get behind them in any recovery from the inevitable recession that is coming (and cannot be avoided, even with this humongous credit card charge Washington wants us to sign). When Eastern Europe fell out of the fantasy economies of Communism in 1989, the United States urged "shock treatment" to bring them around to reality and opt for worse pain for less time, rather than a long, dull pain. Now it's our turn.
This bailout is literally the equivalent of putting the balance of your mortgage onto your American Express card to save your house. The only way to force real reform on this broken system is to burn the house down and throw the bum out onto the street.
COUNTERPOINT: The Economist disagrees.
SAVING the world is a thankless task. The only thing beyond dispute in the $700 billion plan of Hank Paulson, the treasury secretary, and Ben Bernanke, chairman of the Federal Reserve, to stem the financial crisis is that everyone can find something in it to dislike. The left accuses it of ripping off taxpayers to save Wall Street, the right damns it as socialism; economists disparage its technicalities, political scientists its sweeping powers. The administration gave ground to Congress, George Bush delivered a televised appeal and Barack Obama and John McCain suspended the presidential campaign. Even so, as The Economist went to press, the differences remained. There was a chance that Congress would say no.
Spending a sum of money that could buy you a war in Iraq should not come easily; and the notion of any bail-out is deeply troubling to any self-respecting capitalist. Against that stand two overriding arguments. First this is a plan that could work. And, second, the potential costs of producing nothing, or too little too slowly, include a financial collapse and a deep recession spilling across the world: those far outweigh any plausible estimate of the bail-out’s cost.
ANOTHER COUNTERPOINT: Steve Pearlstein in the Washington Post has a "gut check":
You're angry. I'm angry. House Republicans are angry. We're all angry at having to put up huge amounts of cash to rescue a financial system because a lot of very rich people rolled the dice with other people's money and lost.
Now let me tell you something very simple and very important: You can try to prevent a financial meltdown or you can teach Wall Street a lesson, but you can't do both at the same time.
So which will it be?
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Comments
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The longer this "crisis" goes, the better it is looking for the taxpayer. As we move farther away from Paulson's "just give me $700 billion and then close your eyes", it is appearing that it may be possible preserve the financial system and protect the taxpayer. On NPR last evening there was talk of a push on to exchange with banks bailout money for major equity positions in those banks. It apparently worked well in Sweden in the early '90s, where after the banks were profitable again, the government sold its equity positions on the market and made a small profit for its taxpayers. It has also been mentioned that only about $150 billion of the $700 billion in bad paper is actually bad paper. For some reason, it's all being lumped together as a package, but the balance of the $700 billion is actually very marketable. Which brings us back to markets, and the fact that all of this paper is actually sellable right now. There is always a market, it's just that the sellers don't like the price the buyers are offering. So they want the taxpayer to pay above market to them for these financial instruments.
An important take-away is, once again, the wisdom, intentional or not, of the Founders, who set things up so that it is virtually impossible for the Congress to move quickly. And that is very important here. Now that the earlier panic is receding, we see that the market itself could take care of a big part of the issues. Japanese banks are buying Lehman Bros. assets. Washington Mutual failed and within hours JPMorganChase was acquiring it. Bank of American has bought major positions in Countrywide and Morgan Stanley, stabilizing both. Warren Buffett has put $5 billion into Goldman Sachs. That's quite a bit different from last Friday's looming Next Depression.
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Our own gay Rep Barney Frank has been head of the Banking and Finance Committee over the last two years. Why didn't he stop this nonsense? He's a total fuck up. Thanks Barney!
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It's a tough call. I think most Americans 1) don't understand the complexities of the situation (I don't), and 2) don't really think stopping the bailout will have any impact on them. They're already living paycheck to paycheck, sending in minimum monthly payments to Visa and Mastercard (who've not, that I know of, offered to slash their usury-high interest rates to help out), lucky if they have a thousand dollars in a saving account and five thousand in a 401(k). They think: what could be any worse? Why should we bail out financial institutions whose CEOS are going to walk away with millions in compensation no matter what happens? When you're already on the bottom, which the average American has become accustomed to, there's nowhere to go but up, or at least parallel, so why not let the bastards struggle like the rest of us? They don't yet make the possible connection between doing nothing and finding themselves unemployed. Anyway, the bailout stinks. I stand to gain nothing either way, with only a possibility of loss of we don't cough up the 700b. And, of course, as the dust slowly settles, business will go on as usual. Tycoons and financiers will go on making fistfuls while they screw everyone else, and we will have learned nothing - just like we didn't learn anything from the Savings & Loan buyout. Always circling back to where we were.
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You are right, Kevin. Its great to read such wisdom amidst all this hype and spin.
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You are right, Kevin. Its great to read such wisdom amidst all this hype and spin.
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Is it me, or does this bailout plan situation strikingly resemble the "IRAQ war" of the financial world? Are we being fed misinformation, exaggerated predictions, and flat out lies to urge us to sign our names on the doted line (once again by the Bush Administration, now with help from Wall street)?
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Actually Bill Gross, the CEO of Pimco (largest bond firm in the world, vocal Iraq war opponent and Obama supporter),
makes the case in a Washington post column that "financial derivatives" are "weapons of mass destruction". Keep in mind this dude is loaded up on swaps and mortgages.Markets do not crash when everyone is looking for a drop and pessimistic, but deflationary wealth destruction can be rather slow. The media is not exaggerating the range of possibilities, including the high and frozen rates in municipal bonds. Your local water, sewer, or school district could find itself unable to fund operations if this keeps up.
America is more socialist than folks are willing to accept, the real debate is how much money we should socialize.
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"Our own gay Rep Barney Frank has been head of the Banking and Finance Committee over the last two years. Why didn't he stop this nonsense?"
Because he was too busy making sure trans-people wouldn't be included in an ENDA bill that even he knew didn't stand a chance to pass, that's why.
That said, if Bush and the Fed and Paulson want to bailout Wall Street by nationalizing their losses, and having taxpayers foot the bill, then why not nationalize their profits as well to help pay for it? If this be socialism, then make the most of it!
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Reading these comments, and sifting through the emails I got from this post, it seems clear to me. Obama is not our savior. McCain has not closed the deal. We have no clear leader who is on the right side of this mess. It's very telling of everyone engaged in this election - the candidates, the pundits, the bloggers, the trolls and the wonks. Nearly all of them were unprepared for reality to crash through in this election.
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"Obama is not our savior. McCain has not closed the deal. We have no clear leader who is on the right side of this mess."
You can say that again, Kevin! We're sailing straight into the maw of a hurricane with a choice for captain of either a tyro or a tyrant. Come Inauguration Day, whoever wins may regret ever accepting the nomination, and the rest of us will probably regret it as well.
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The House has narrowly defeated the bailout plan 200 yeas, 224 nays. 41% of Democrats said No, as did 33% of Republicans.
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My bad. I meant to say that 33% of Republicans supported the bill. So we had 60% Dem support and 33% GOP support. And 5 in each who did not vote.
The comments to this entry are closed.
Doug on Sep 26, 2008 1:41:20 AM:
I totally agree that Wall Street should be held accountable for the mess we are in and suffer the consequences, prison and confiscation of assets comes to mind. However, I'm not so sure I should be forced to live with those consequences. I'm not convinced the $700 billion bailout is the answer but if we do nothing, to try an punish Wall Street, and we end up in a major depression that sinks the entire country what have we accomplished other than throwing the baby out with the bath water and destroying the lives of millions of innocent citizens
Do you have a spare bedroom in Brazil I can rent?