Staring Into the Abyss

Kevin, this is one of the reasons I oppose the bailout and other such actions from the Fed and Treasury. These bastards are all about "scaring the hell out of everybody." They have been doing that for a long time with surprise news leaks before options expiry days, with surprise rate cuts etc.

There would be no need for these theatrics if they paid attention to the excesses and were a bit proactive.

Sorry, a reactive approach to the global economy ain't gonna work. What would have worked better is a proactive (e.g. regulation) approach. Don't tell me it is too late for that. These ***ktards had several chances in the last few years (e.g. LTCM) to let reckless players collapse to avoid bigger failures down the road. Instead, they chose to bailout everyone and his brother at every opportunity and we have this mess. Why will this bailout workout any better compared to all those other bailouts?

Oh, FFS. I'm really tired of this "hard to sell" crap coming out of people. There are willing buyers for those assets - the sellers think they can get a better price from the government so they are holding out like $2 whores looking for a bigger score.

Nobody will buy those assets at what the banks want to sell them for the same way nobody will buy a McMansion today for what the seller thinks they should get for it.

there might not be an economy on Monday without this plan

In other words, we don't want the smoking gun to come in the shape of a mushroom cloud.

Enough.

If the bailout is enacted, there remains the matter of transparency and accountability, including looking back in time to examine why this happened. For example, we all know that Paulson came from Goldman. When he leaves Treasury, he may return to Goldman. To what extent, then, may Paulson personally benefit from the actions he has taken as head of Treasury with the bailout? Or should we expect Paulson to NOT reenter the financial markets as a demonstration that he did what he did to benefit America as opposed to Wall Street interests? I understand a honcho from Goldman sat in on early discussions between Paulson and Bernanke. So post-bailout, I would hope that Congress would conduct hearings to make sure that the interests of Paulson and Bernanke were pure rather than political and personal. Obviously George W is not going to fall on a sword for his mistakes. But Paulson should be examined with care in the post-mortem, including all contacts he and Treasury had with Goldman and other Wall Street firms during his tenure at Treasury. There should be no cover up.

For those of you looking for a debate on the issues of the bailout, there was an interview with Ron Paul on CNN.

Otherwise, it seems there isn't a debate on the matter because no other politicians have a real solution. The best we've had was the fake House Republican alternative, which was discarded all too quickly.

Really, it's one thing to learn from the mistakes of the past and be skeptical of this administration, it's another thing to just do the opposite of what they propose on principle.

Does anyone have another solution for getting credit flowing? Do you just not care about the suffering that'll happen to our society so long as those bankers pay?

Kevin quotes the Times:

... they did it mainly "to scare the hell out of everybody," as one official put it.

And just as with the Patriot Act and the authorization to invade Iraq, "sensible liberals" were obediently scared, and ran around screaming that there was "no choice" but to support the Bush administration's kleptocratic power-grabbing bailout, while disparaging, marginalizing and ridiculing any progressive Democrats who had other ideas.

Once again, the Democratic leadership and the "sensible liberal" establishment are pathetic enablers of the worst excesses of the CheneyBush gang. Business as usual.

Rational: I don't argue with your basic point. It's the old moral hazard argument. We rescue those who behave stupidly, thereby encouraging stupid behavior. Consequently, we find ourselves in this fucked-up situation. No argument from me.

But you want to make a stand now? This is not a question of propping up a few weak institutions. The whole system is crashing down and will take a lot of innocent people and otherwise strong firms that made wise choices with it. That's a market failure of vast scale.

I'm sorry, but anyone on the left or right who suggest that we just aside and let the market play out is to my mind a fool. Sure, it sounds good on paper, but it's a little to reminiscent of Hoover for my taste.

Paulson stinks, but it may buy us some time before we do what is really needed -- take temporary public ownership of these institutions.

The Senate tossed aside the Sanders amendment because the leadership had already made a deal to vote on their Bush-Paulson bill with no amendments (although they themselves added some candy amendments!).

What's wrong with the bill?

The $700B is obviously a fantasy. The American public has made itself clear. They don't want to pay for this handout. They can't afford it. And, as has been suggested, the government could simply pay $100K on every troubled mortgage and still not reach $300B. Why $700B?

The main financial markets problems are toxic mortgages which can't be valued and that is making it impossible for firms to borrow from banks or for banks to borrow from the Fed.

To solve that problem you'd think mortgage holders would take every opportunity to sell their bad mortgages or refinance them or get other government help with them. Are they doing that?

CNN says the mortgage holders WON'T utilize the FHA's new HOPE program because it would mean losing 10% off the principal of their mortgage loans. Would they rather lose 90%? Apparently they're betting they can get a bailout from government and avoid losing anything.

It would become VERY VERY clear they are in league with the banks to hold the economy hostage in an effort to force government to give them money.

For banks the mark-to-market evaluation of the toxic assets makes them look bad and it leaves those banks under-capitalized, so they're not getting Fed funds. Perhaps the Fed can or Congress should ease that restriction for a while -- since we're facing a crisis.

In the longer run the toxic mortgages have to be replaced with sound ones. FHA's HOPE program enables some of that, but there needs to be a bigger push to get these firms off the dime and continuing to offer them the hope of a bailout doesn't do it. Perhaps the sight of bankruptcy on the horizon would.

For homeowners it's crucial that they not be foreclosed on and be given a chance to renegotiate their mortgages at reasonable house values and interest rates.

Keep cash flowing to businesses, but don't help them too much. Force them and homeowners to refinance their toxic mortgages!

Sure, the Fed should offer money, but the rest of government should be very hesitant to become involved and change normal market forces. A 'bailout' 'rescue' might discourage businesses from working toward a real permanent solution to their problems.

Well, I'm having a change of heart about Paulson. I used to support it -- like an hour ago -- as a bridge to a better plan, but looking at the market today, I think it may be irrelevant. The financial system may be so broken that Paulson doesn't mean a thing anymore. I wouldn't be surprised to see a govt takeover of the financial system by the end of year.

I just hope we fall into a recession and not a depression. Good luck to everyone, we have very tough days ahead. The scale of the GOP's failure is really astounding.

g. powell, I agree credit is freezing up. I have been reading a few folks who were warning us of this possibility, so this is not a surprise. I'm extremely pissed off that our "adults" had no effing clue and they woke up last week to ram through an urgent bailout.

If this crisis is so bad, why do they need so much crap attached to the bill to entice a plurality to pass it? If this crisis is so bad, why aren't banks and financial institutions forced into bankruptcy as a condition of bailing them out? If this crisis is so bad, why aren't we enticed to save (offer better interest rates instead of lowering them to bailout speculators in stock market)? If this crisis is so bad, why isn't the government rolling out job creation programs the old fashioned way, rather than roll out hundreds of billions of dollars to buy up bad assets and trusting the same people who got us here to get us back to a healthy economy?

Why can't the government identify a few important projects such as building infrastructure and taking care of the environment and create jobs there to absorb losses from other places? I know this is called "welfare" and "central planning", but this is nowhere near as bad as the corporate welfare and fed/treasury led central planning of the economy and markets.

If things are so bad in the economy, why the eff is Washington going the same old tired crappy path, but with huge momentum? This tells me this is a misguided bailout passed out of fear than out of rational thinking.

rational:

Washington is still beholden to failed neo-classical economic ideology, therefore we get the same old crap.

I used to hear the phrase: "credit is the life-blood of the economy," and I really didn't understand what it meant. Now I do.

I agree that we will need a huge public infrastructure program to get the economy back on its feet. But first we have to put in place a functioning financial system. Otherwise the multiplier effects of the stimulus will be lost. That's probably one reason that the impact of this year's ill-conceived stimulus checks was so small.

So the first step is a govt recapitalization plan for sick financial institutions. Something like AIG, but on a wider scale.

The article made interesting reading because it illuminated how the situation suddenly became a crisis and threatened to spin out of control with potentially devastating consquences. Regardless of what one thinks about the merits of the Paulson plan and how it was handled (badly, to be sure), the fact is that the situation was extrememly dangerous and getting more dangerous by the hour - and the article attempts to detail that for those who have no idea how the world of finance and banking actually work and insist on viewing these things through their own prism or morality.

The fact is, before the "Great Depression" came along, these events, leading to periodic economic ruin for many used to be called "Panics" - and each caused years of dislocation and hardship in the economy and for ALL of the people - not just the fat cats. We had serious "Panics" in 1819, 1837, 1857, 1873, and 1893 (the last ushering it what was know until the 1930s as the "Great Depression").
The article did a good behind the scenes job of explaining how the dominoes started falling and the whole thing started to spin out of control (and still may do so).

regardless of the merits of the Paulson proposal, we should all be aware and cognizant of this stuff.

if you want credit to
flow....raise interest rates

who today wants to
loan out money a 6 percent