In brief: the failure of the bailout

[demiurgent]

It's surprisingly simple.

Neither major political party was willing to sacrifice the election to save the nation.

There is nothing more basic than that. Neither party would sacrifice personal power in order to save the economy of the United States of America.

My representative voted Nay. For the first time, I'm considering voting against her in November. I'm certainly calling her office tomorrow to express my deep disappointment in her.

For those who don't want to see the bailout of Wall street firms because gorsh, they's all rich and it's not fair? I hope you really, really enjoy the next ten years.

Comments

[roniliquidity.livejournal.com]

Eh, I don't know. I agree a bailout is probably necessary but I'm deeply disturbed by the way it's being handled. According to the administration it's so completely vital that it needs to be passed IMMEDIATELY, and there's no time to discuss where the money's going to go, or why they're asking for 14 X the projected cost, or what happens to the surplus. However there's a clause that once the bill is passed there can't be any kind of review or oversight. I'm not reading that people aren't willing to pass a bailout but that the bailout needs some accountability before they pass it. Interestingly enough the corporate friendly politicians that are adamant the bill needs to be passed now now now don't seem to be willing to budge on that point.

I'm no financial whiz kid but I'm uncomfortable handing over 700 Billion dollars without any sort of oversight or review.

[flemco.livejournal.com]

Well, hell, how about a bailout to the car manufacturers? The ones going broke because they spent a decade shoving SUVs down our throats?

[ed-dirt.livejournal.com]

There is little or no comparison. If every single auto manufacturer in the world shut down, it would cause some serious turmoil but the world as we know it would go on. If the financial institutions that are now in flames are not saved and saved quick we will see a domino effect that very well might result in the collapse of the entire global economy.

Chaos is knocking at the door.

[roniliquidity.livejournal.com]

That's kind of my point. I can't say with certainty no bail out is necessary, my knowledge of economics is such I don't think I have solid grasp of the consequences of making that kind of call. If there was a bail out we should only be handing money to absolutely vital companies, preferably with a plan to recover the money before the business can profit. The recent iteration of the bailout plan was primed to just hand out bucket fulls of free money.

[demiurgent.livejournal.com]

Banks are necessary businesses.

Snowspinner said it better than I, but if the banks go, so does everything else, because payrolls stop getting paid, capital stops moving into other companies, goods and services can't make production and operating costs.

If the economic center goes down, it takes out essentially everything else. And the timeframe for that happening is frighteningly small.

How frightening small? It would not shock me to see a massive business failure of legitimate, profitable businesses by Friday. Not businesses that have invested heavily in subprime mortgages -- businesses that are producing goods they sell at a profit. Because those businesses still use credit services every day to meet their operating expenses.

If that chain cascade happens? 700 billion won't bail them out. It won't come close. If that happens, we go from 0 to "most everyone I know is out of work and can't keep food or lights in the house" in a shockingly short period of time.

Bitterly ironically? The very people who led us to the brink will likely be fine during all this.

I'm with Snowspinner. Buy up the mortgages. Put them on a shelf, waiting for those properties to begin to reappreciate value. If you only get $100,000 for a property that was (bad mortgage) sold at $350,000, but you paid $35,000 for it, you're still making $65,000 in profit.

As a side bonus, we still get to buy food and have electricity in our houses.

[roniliquidity.livejournal.com]

I'm not arguing with the plan in as much as I am arguing with the lack of oversight to make sure that $700 billion is going to the plan. Our government has proven very bad at making sure money is going to the public good rather than the pockets of the buddies of the guy distributing it. Oversight seems to be a very small thing compared to Imminent Financial Collapse so why is it such a sticking point?

[richm90071.livejournal.com]

That won't necessarily help. Check this (http://ml-implode.com/staticnews/2008-10-01_TheTopFiveReasonsTheBailoutInterventionsAreMakingThingsWorse.html) out.

[flemco.livejournal.com]

But they did just hand over bucketfuls of free money to the automakers. 25 Billion.

[roniliquidity.livejournal.com]

Then I agree, that's ridiculous.

[bruceb.livejournal.com]

I agree. If we've learned anything from this administration, it should be "don't act until a large body of relevant information is available for public scrutiny". Businesses petitioning for relief need to explain what their needs are and why they know that.

[ed-dirt.livejournal.com]

I'm sorry, but I totally disagree with you. If action is not taken very very soon, there won't be anything left to save. The global economy is entering freefall.

[izzylobo.livejournal.com]

And the Evil Terrorists were going to Evily Terrorize us with Evil Terror - and so we got the Patriot Act, and warrant-less surveillance, and all the other happy horseshit that came along with it.

The economy is important. It's hurting - in part because now everyone has convinced themselves that if omfg the bill doesn't pass, the economy will implode - and it's important to do something.

But seven hundred billion dollars (or even the three-mumble hundred billion the current version of the bill provides for as immediately available) is a *lot* of money. It's money we don't have, on top of a hundred or so billion that we've already spent on this. And that doesn't count Iraq, or the current deficit, or anything else. This would be a huge sum of money even if the government hadn't been wastrels for the last 8 years.

And it's being given, potentially, to people who aren't very trustworthy. Paulson walked up to the Hill with a suggested bill that should have gotten him clapped in irons. The current version doesn't look much better.

Do the *right* thing - yes. Do something to stave off, sure - as long as it isn't a naked power grab, combined with the largest fleecing of the American public in history? You betcha.

But I'm not convinced this bill would work, that it wasn't a naked power grab, and that it wouldn't, in the long run, just be squeezing the last few drops of capital out of the public, before it all collapses anyways.

Sometimes, the cure really is worse than the disease.

[snowspinner.livejournal.com]

I mistrust public scrutiny in this case. Because public scrutiny means that my neighbors are making decisions about the global economy. My neighbors should not be doing that. My neighbors should be shutting up and listening to the smart people. They're welcome to pick which smart people to listen to, and to make principled judgments about courses of action, but really, I do not care if my neighbors think that the growing credit crisis is peaking and it's all going to be fine.

Unlike Iraq, the information here is not classified. Much of it is publicly available. You can see what the foreclosure rate is and what credit availability is.

There is also, among The Smart People (tm) much more visible consensus that this is super bad then there was that Iraq had WMDs - which was widely disputed and argued about in spring of 2003. That the financial markets are teetering on the brink of the worst disaster since 1929? Nobody's really arguing with that.

[roniliquidity.livejournal.com]

While there's a visible consensus that this is super bad, I'm not actually seeing a consensus that the sky is in fact falling and what we should do about it.

Most of the 'Smart people' that are adamant we are teetering on the brink of disaster and our best bet is to ram through legislation seem to fall into two categories; those that will most benefit from a huge bailout with no strings attached, or those that otherwise benefit from whipping up hysteria, such as the news channels that trade in fear mongering. There are plenty of Smart People that recognize there's a problem but don't advocate giving a massive amount of money with again, no oversight, to people that either caused this mess or didn't see it coming. It's bit of a red flag that Paulson or his people said that they need $50 billion, the other $650 is a number they came up with just in case. The House would have probably passed a lesser sum, but then there wouldn't be an emergency to leverage against a lack of safeguards.

[taimatsu]

Mmm, I haven't read a lot on this (and I'm not American) but what I *have* read does present the bill as 'here, give us really enormous sums of money with no guarantees about what we'll do with it' which doesn't sound like a good idea at all, for anyone, anywhere. Of course some kind of remedial action is probably necessary, but is this one the right one? I think I'm with you here.

[snowspinner.livejournal.com]

The problem is that credit markets are locked today. And that puts a threat of a massive, cascading system failure of the global economy days away. Days.

Like, this cannot be stressed enough. It is entirely possible that by the election we will be in Great Depression 2. That threat is not an "if this keeps up for another year," it's "Oh fuck, oh fuck, liquidate your investments and buy gold."

The basic problem is this - there's no credit. Nobody can get a loan, because the loan-making institutions lost liquidity. If that persists for very long at all, businesses stop being able to make payroll. Basic goods stop being able to be delivered. Because credit - even very short term credit - is a fundamental part of the global economy. When that's not available, the entire economy seizes up. And what will happen is not a trickle of businesses going under, but a flood. Huge chains of businesses will go under instantly. They will go from turning a profit last month to having no ability to float payroll and going under.

That is the very real danger unless liquidity gets injected into the market.

Now, it's possible the above scenario isn't true. It's entirely possible that if no bailout passes, we'll be fine. But the scenario the bailout is designed to address is that one. And that's why it's a "No, don't wait, get this money into the market now" situation.

[richm90071.livejournal.com]

The supposed "lockup" may be a sham. Toward the end of this article (http://www.bloomberg.com/apps/news?pid=20601087&sid=aNKGD.bJwmRA&refer=home), an economist says "I suspect that part of what we're seeing in the freezing up of lending markets is strategic behavior on the part of big financial players who stand to benefit from the bailout."

[snowspinner.livejournal.com]

Indeed, the market behavior changed when the rescue plan started getting dangled in front of it. Which is natural. However, credit was locked before the rescue was floated, so it doesn't really explain the data adequately.

[richm90071.livejournal.com]

Credit markets to Washington: Bailout isn't enough (http://biz.yahoo.com/ap/081003/credit_markets.html). "After House OKs bailout, credit markets tighten on fears the plan isn't enough to help economy"