Boy, oh, boy, how do you write about the at least $700 billion that Henry Paulson wants to use to bail out the financial institutions of the country? A few days ago, when he proposed using $85 billion to buy a part of AIG, I thought he was probably doing something reasonable, though I remarked that at that point he had been rushing thither and yon with no plan in mind–just throwing money at one failing entity or another while ignoring others. I thought that, maybe now, a good plan was emerging.
But what emerged over the weekend was a proposal that the Treasury use the $700 billion to buy bad paper from the institutions without requiring oversight or regulation! Isn’t the lack of oversight and regulation what brought us to this crisis in the first place? Moreover, the bill he proposed would put the decisions by the Secretary of the Treasury beyond legal review. He’s saying, in effect, “Give me the money, trust me to fix the problem, but I won’t be held responsible.”
The economists I’ve been reading in the past couple of days point out that Paulson would be buying the bad debts not at market price but at an above-market price. He won’t say this publicly, but privately he has admitted it.
What’s going on here? Is public money simply to be used to prop up big businesses that fail, with no accountability to the voters and taxpayers? I’m no economist, but I know a bad deal when I see one.
During the weekend, by the way, John McCain said that he stands by his efforts in the late 90s to deregulate financial institutions, even when it was pointed out to him that deregulation was implicated in the present collapse. Let us liberals remember too that this deregulation came when Clinton was still president. He and Robert Rubin loved the idea. I’ve praised this pair for coming up with a balanced budget, a $5 trillion surplus, eight years of unprecedented prosperity, a lowering of the federal deficit, and so on. But they bought into the ideology that all regulation is bad. And where was Robert Rubin when Citigroup was buying up tons of bad mortgage debt?
Never-the-less. The country cannot afford another Republican president. McCain wants to continue the Bush tax cuts–make them bigger, actually–and “appoint a commission” to see what happened to bring down the financial system. Isn’t this the guy who was the head of the Senate Commerce Committee? What exactly did he do on that committee?
The markets have reacted to Paulson’s proposed fix by dropping again. I knew more bad news was coming, and so did you, but we never think it’s going to be as bad as it is, do we?
Read Paul Krugman of the New York Times. Go to nytimes.com/blogs. And read his column in the daily papers. Years ago he began telling his readers what would happen with the housing market. Every single thing he worried about has come true.
September 22nd, 2008 at 10:35 pm
I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog.
Tim Ramsey
September 23rd, 2008 at 8:21 pm
Yes, the roots are back in the Clinton years, I’m sad to say. But the Kudzu is Republican-fertilized.
I think that deregulation plus failure to enforce current oversight rules are largely to blame for the mortgage debacle; that corporate and individual greed (including by those persons who were buying and turning over homes for profit in the bubble years) are too; that this “I’ll get mine fast” attitude has ironically resulted in “whoops, as a taxpayer I’m my brother’s keeper whether I like it or not”; that the multimillionaire heads of AIG, Freddie, Fannie, and the other mis- mal- or even non-feasors should by by any legal means be forced to suffer loss of their gigantic unearned gains no matter what their golden parachute clauses say; that many a Joe and Jane Subprimemortgagee have to be appropriately protected (kept in their homes) by the coming legislation; that Congress should act very deliberately despite the stampeding attempts by Bernanke and Paulson. . . . . Well, I’ll pause there before getting to shortsellers, brokers, derivatives, paper chasing paper chasing paper—-.
Consider this comment, though, by a financial advisor I respect:
“The bottom line is the government will buy up shaky mortgage assets to the tune of hundreds of billions of dollars. This will provide liquidity to a market which desperately needs it. Although the plan is to buy up to $700 billion dollars of mortgages, this does not mean that the US taxpayers will be out $700 billion. Most of these mortgages have value and will ultimately return that value – and perhaps more – to the treasury. The main thing this action buys is time. Banks can get these assets off their books and resume more normal operations.
It should be noted that the AIG bailout is a loan – at approximately 11.5% interest. Unless AIG defaults, this will not be a loss to the government. For insuring money market funds, the government will be charging those funds a fee as well. So, while the government is taking drastic steps to resolve these problems, it is not just giving money away, but in many instances, treating it as an investment.”
Yes, I say; true–though it could prove to be a bad one, no?
No, we can’t afford another Republican pres.–esp this 72-yr-old one, who has had four bouts w. cancer, and now has a narrow-minded and ignorant veep as backup. Haskell
September 24th, 2008 at 7:50 pm
I should have added in my reply, that (as I was reminded by Susan Estrich last night) both political parties are so indebted to Wall St. for very large campaign contributions that their bipartisan enabling of minimal regulation and enforcement should be no surprise to us. Congress is mortgaged, and will continue to be– distorting economic policy forever, so far as I can see! Haskell