Overhyping the risk

Here's something from Daily Dish, regarding the possible ill effects if the bailout doesn't pass.

Even in our pessimistic alternative forecast, the peak-to-trough decline in real GDP is just 1.5% and the unemployment rate peaks below 7.5%.

I don't want to underestimate a 7.5% unemployment rate, because real people will get hurt, but doubling the national debt to prevent it just doesn't seem like a good investment. And President Incompetent's scaremongering last night doesn't impress me one bit. That's the only thing he has - the only thing he's ever had.

While we're on the subject, here's KangroX from Kos:

What's truly astounding is that it may be necessary in order to keep the whole world's economic underpinnings from dissolving into anarchy, and yet everyone has to stop and think twice. Three times, even. Why? Because nobody in their right mind thinks Bush and his cronies can be trusted with the money, much less to actually do anything worthwhile with it.

(snip)

The sad truth is that under no circumstances should this president be given unfettered and unreviewable authority over this fund. Sadder still is that despite the best efforts of well-intentioned legislators, no statutory regimen can be devised that can by itself make a president who believes he is above the law submit to real and rigorous oversight. Which in truth means that the bigger risk in this is actually funding this bailout while George W. Bush is president.

And anyway - can anyone really say that this bailout will actually work? Isn't $700 billion a lot to hold out for a hope?

Elevator to the lobby

One of the many concerns I have about that bailout is that it will have to pass with Democratic votes as conservative Republicans posture against fixing the mess they have largely caused. Patrick Ruffino had some such advice for McCain the other day:

If a bailout is to pass, let it be with Democratic votes. Let this be the political establishment (Bush Republicans in the White House + Democrats in Congress) saddling the taxpayers with hundreds of billions in debt (more than the Iraq War, conjured up in a single weekend, and enabled by Pelosi, btw), while principled Republicans say "No" and go to the country with a stinging indictment of the majority in Congress....

This has the added advantage of allowing Republicans to posture again as "deficit hawks" in the next Congress, as watchdogs of the public purse - as long as they're protecting us from health care and infrastructure investment and not the depredations of the merchant banking class, which are fine.

What they know is what is becoming clearer, that this plan is a dog and it will poison the political chances for years to come for whoever seems to be responsible for it. The Dems, realizing this, won't commit to voting for it unless there's a majority of Republican votes as well.

As good and well as this might be politically - and I have to say, I saw Barney Frank on Charlie Rose last night and he said something really does need to be done, and maybe he's drunk the Kool Aid but I really do like Barney Frank - I just know that the Wall Street lobbyists are climbing up and down our members of Congress, making sure a) that they get the best possible price for their garbage securities, and b) that there are as few strings and as little oversight as possible. I can't help but thinking that the plan when it finally comes will reflect this, and unfortunately, you and me don't have no lobbyists. Wall Street will in the end get what it has been paying for.

And speaking of which - how can I be sure that none of this money - our money - is going to pay for the lobbyists who are encouraging the Congress to reward their irresponsibility with ... our money? In other words, how about some restrictions on Wall Street lobbying, while you're at it?

Tom Tomorrow...

...gets it right.

Who's gonna hold the purse-strings?

Angry Bear points out that if the bailout goes through, and McCain wins the election, the likelihood is that the $700 billion dollars will be in the unfettered hands of likely Secretary of the Treasury Phil "Nation of Whiners" Gramm.

Oh, and just for kicks, here's a quote from McCain that's been making the rounds:

Opening up the health insurance market to more vigorous nationwide competition, as we have done over the last decade in banking, would provide more choices of innovative products less burdened by the worst excesses of state-based regulation.

When "we have to do something" is the worst reason of all

The conventional wisdom seems to be that a bad bill is better than no bill at all. Fortunately, Paul Krugman of the Times agrees with my point that the bailout as it has been presented thus far is a bad idea:

Mr. Paulson insists that he wants a “clean” plan. “Clean,” in this context, means a taxpayer-financed bailout with no strings attached — no quid pro quo on the part of those being bailed out. Why is that a good thing? Add to this the fact that Mr. Paulson is also demanding dictatorial authority, plus immunity from review “by any court of law or any administrative agency,” and this adds up to an unacceptable proposal.

I’m aware that Congress is under enormous pressure to agree to the Paulson plan in the next few days, with at most a few modifications that make it slightly less bad. Basically, after having spent a year and a half telling everyone that things were under control, the Bush administration says that the sky is falling, and that to save the world we have to do exactly what it says now now now.

This administration, which has proved its incompetence time and again - and continues to do so, with this crisis - is not in a position to say "trust us." I don't. The fact that they're doing this with the same technique they used to push through war in Iraq only reinforces my skepticism. Please, Democrats, don't give in to this blackmail! A good bill, which protects the small fish in the pond, or no bill at all!

And if you want to know where to start, let's ask Sen. Bernie Sanders, who as ever is one of the only ones who makes any sense in this country:

To pay for the bailout, which is estimated to cost up to $1 trillion, the government should:

a) Impose a five-year, 10 percent surtax on income over $1 million a year for couples and over $500,000 for single taxpayers. That would raise more than $300 billion in revenue;

b) Ensure that assets purchased from banks are realistically discounted so companies are not rewarded for their risky behavior and taxpayers can recover the amount they paid for them; and

c) Require that taxpayers receive equity stakes in the bailed-out companies so that the assumption of risk is rewarded when companies’ stock goes up.

Legislate in haste, repent in leisure

The more I think about it, the more I think it's a really bad idea to rush through bail-out legislation the week before Congress breaks for the year. I just think about the Patriot Act and about how a lot of really bad ideas got through there because there was a sense that something, anything had to be done, right now, and we haven't been able to get rid of a lot of it even now. I would rather there be competent leadership on this issue after the first of the year. (Hope, hope, hope.)

Going back to the WashPost article I posted to last night, I wonder how such a large input of money will warp the market and prop up sectors that don't deserve to be propped up. In other words, there have been unintended consequences of every bailout this far - what will the unintended consequences of this bailout be?

I heard on NPR this morning that maybe the $700 billion is totally gone, maybe if these security stabilize they can be sold back to the private sector. Well, that's reassuring. I'm quite sure that they will be sold back at a rate that will allow a hefty profit to the private sector, which then gets to profit three ways - at the beginning by making the bubble, in the middle by getting bad debt off their books, and at the end by buying back recovered securities from the feds at a discount.

And so government of the rich, by the rich and for the rich has not, you can be assured, perished from the earth.

Let 'em jump

Here's an article from the Washington Post explaining how Wall Street machinations, executive branch negligence, congressional greed and the legacy-whoring of Alan Greenspan all combined to contribute to the Wall Street meltdown. And now we're supposed to pay for it.

In an effort to offset the economic strain from these losses [from the bursting of the Internet bubble], the Fed once again rapidly increased the money supply and slashed short-term interest rates to 1 percent -- a level that hadn't been seen in more than 45 years. This enormous monetary stimulus (along with significant federal spending) energized the overall economy, but it also led to the greatest housing boom -- and possible bust -- this country has ever encountered.

(snip)

Once again, the investment banks raked in billions of dollars in fees, giving them incentive to keep lowering underwriting standards, allowing mortgage companies to originate and sell even the most unscrupulous home loans, which Wall Street then dumped onto the investment community. Wall Street never once questioned the ethics of these activities; it too was focused on the enormous rewards that allowed its firms to pay out an unfathomable $62 billion in bonuses in 2006 alone.

The price of all this greed? Sadly, because of the actions of the investment banks, the mortgage industry and the rating agencies, the investment community has now incurred an estimated $1 trillion and more in losses. Even more troubling, housing prices have dropped 20 percent from their July 2006 highs, with the very real likelihood that housing could contract another 15 to 20 percent -- essentially wiping out more than $4 trillion in housing values. This would be the biggest hit since the Depression to Americans' most important asset.

(snip)

Wall Street's actions are now profoundly hurting American families, communities and the entire U.S. financial system. People are being thrown out of their homes. Once seemingly indestructible financial entities are succumbing to the crisis they have created and have jeopardized the stability of the global financial system. Isn't it ironic that the same firms that preached free-market capitalism are now the ones begging for a taxpayer bailout?

The writer is a Wall Street guy so he certainly isn't politically suspect like I am. One could wonder why this wasn't being written last week, or anytime over the past 5 years, really, but who would have heard it through all the Swift Boat politics?

The smartest thing the Fortune 500 ever did was transfer the pension system to the 401(k) system, because that gave a lot more people a stake in the wellbeing of these financial industry reprobates. It's penny ante by comparison, but it would be much harder to sell the bankrupting bail out on the table now if Richie Rich was the only one benefiting from it.

Unless and until I hear someone in a position of authority suggesting, nay demanding that the Bush tax cuts be rescinded now, I will know they are not serious.

And while I'm on the subject, let me ask you one question that may seem gratuitous: Can you imagine anyone less suited to deal with this issue, who inspires less confidence in his competence, understanding, or judgment, than George W. Bush? It is the tragedy of this country's broken political system that, in fact, I can - and she's running for Vice President.