It allows you to search the
messageboards, send and receive private messages, give yourself a
custom usertitle, turn ads on or off, create a custom style for your
profile, get a nifty badge under your username, and gives you a special
warm glowy feeling! Oh, and it gets rid of this annoying message, too!
I think that Ron Paul's sets up a strawman argument to rail against. He mixes truths with over-simplification (whether intentionally or not, I can't say) to propose a simple answer. I'd say that he is putting ideology ahead of reason. This particular failing in the financial industry is not only more complex than any we've seen before but probably more complex than any but the brightest of experts in the industry can understand.
I'm not saying this to sound doomsdayish but I think that the global financial market and the financial instruments that have developed over the last few decades are new and very complicated. It's very easy and comforting to take an economic model that is simple and understandable and try to apply it to larger problems. If this were the case of one mismanaged bank, the market should be allowed to consume those assets and restabilize. But the complexity of the relationships between banks and the busted products that got packaged and sold and repackaged and resold put the entire market at risk. Companies that were genuinely acting in the best interest of their company ended up with securities that were rotten because they had been rated as triple A.
If we allow the market to just "play out" -- banking will just dry up. Maybe that doesn't mean a lot to you or I -- we think of a bank as place to manage our checking account and maybe borrow a few thousand for a car or a house. But banks, even small local ones, move millions of dollars around every day. They're the engine that makes our entire economy work. Letting them fail would lead to a complete break down of our economy.
__________________ I think we're all bozos on this bus.
The weirdest thing about this bailout, is that the extreme right (Pence), Libertarians (Paul) and extreme left (say, me) all oppose this bailout. Each group opposes it for completely separate reasons and has diametrically opposed views on what should be done instead, but if there is enough pressure from all of the fringes, maybe it will actually be killed...
Short answers. And a caveat that I haven't read the most recent version of the legislation, so I don't know how much better the dead fish smells than it did when it was first dropped last week:
1) It is bad governance.
As originally proposed it was a blank check. With no oversight. To a bunch of people I have learned through bitter experience not to trust with even the simplest mechanics of government. The very fact that the administration came in and demanded $700 billion without a concrete plan or a lick of oversight sends up huge warning signs to me.
2) It is bad law at a bad time.
I seriously, seriously doubt that whatever our government is going to come up with in a single week, right before the election, right before a new administration comes in, is going to stand the test of time. And yet we are being asked for, I believe, the single biggest government expenditure ever. With hardly any debate or deliberation.
3) It rewards a dangerously corrupt system of speculation.
An entire segment of our financial industry made incredibly bad bets, corrupting everything from the mortgage-giving process, to the securities-rating process, to the insurance process, all so they could make piles of money. Whatever system we come up with should not reward those who brought us here.
4) It does nothing to help the average mortgage holder
The crux of the issue is that an awful lot of people either got homes they couldn't afford, loan terms that they couldn't repay or borrowed money for homes that then drastically dropped in value. Those people need help. And making it so that people can stay in a home, continue making payments and bringing stability back to the system is what we need now. Not an even bigger mass exodus.
5) It is bad politics.
In the best case scenario, after this passage, the Congressional Democrats get a big photo op with a grinning, approving W. We are long past the point where these spineless Dems should be automatically shouting "No" every time this administration makes one of its demands. It is pathetic. Congressional Dems should have been way out AHEAD of this issue, negotiating from a position of strength instead of meekly waiting for W to come in with this cockeyed plan.
6) I think it is a trap
Best case scenario, Paulson and Bernake think they need to spend $50 billion immediately with more coming down the road. Why are we going to give them $700 billion? Personally, I think it is a trap to ensure that a new president has no ability to enact any progressive-friendly legislation. Universal health care? Gave it all to the bankers. Better education? Money went to a bailout. Global warming? Can't afford it, all our spending money went to a bailout.
7) It is borrowing money we don't have
Finally, it is not like we have this money sitting in a vault somewhere. How cavalier can we be with money that we don't even HAVE IN THE BUDGET? This is the equivalent of funding next year's defense budget completely out of thin air. I don't see how we can do this without devaluing the dollar more, increasing the prices on everything and still end up owing more money to China.
1) It is bad governance.
Perhaps at first but there's quite a bit of oversight in there now.
2) It is bad law at a bad time.
You're right and I'd like to see something in the legislation that allows the treasury to suspend lending money under this act when specific financial indicators improve. The right time for a bill like this was a year ago but you know what they say about hindsight. The thing that spurred this action was when the Reserve Primary Fund fell below $1. Continued failures of financial institutions as a result of failing troubled assets will make it impossible for anyone to borrow money.
3) It rewards a dangerously corrupt system of speculation.I don't think that it's rewarding the people that got rich off of it. Risky, subprime mortgage backed securities were being bundled with triple A securities in such a way that the packaged assets got a very high credit score. These are the people who got rich by gaming the rating system. They were selling bad assets to unknowing companies who thought that they were getting a very safe investment. The Bail Out intends to buy or insure these troubled assets with the hope that most of them will eventually pay off -- either the mortgages will survive or the foreclosed properties will resell. Failure to regulate the risky behavior of the Asset brokers and revise the rating system to catch it was our failure as a nation however, champions of the free market continue to insist (even now) that all regulation is bad. Those people have made their money though and they weren't actually doing anything illegal -- they were taking advantage of poor regulation and buyer's ignorance. I dare say most businesses are guilty of that on some level.
You're right that the mortgages were the root cause. When you hear that 65% of the people who got sub-prime mortgages could have afforded standard mortgages, you know that some funny business was going on. Greed was rampant from the real estate agent right on up to the buyers themselves. Everyone was speculating on a market that they thought could never sour. And we're paying the price for it -- I wasn't unhappy when My home gained $20k in value after 1 year of owning it. I'm also happy that I have a fixed standard mortgage.
4) It does nothing to help the average mortgage holder
It does now (section 124)
5) It is bad politics.
I agree in principle but we shouldn't give credit to W for this. Bernanke and Paulson issued the original plan, I think Bush has been lame ducking it for the last year -- he'll agree to anything now, he just wants it to be over. Bottom line is that we shouldn't stall the legislation and turn it into a political game (like certain Presidential Candidates who I will not name).
6) I think it is a trap
You're right, I think Obama has already said that his universal healthcare plan will be affected by this bailout. This is a costly plan with no guarantee that it will pay off but I believe not acting guarantees a break down of our economy that will take decades and a lot of unnecessary human suffering and hardship to work out.
7) It is borrowing money we don't have What else is new? I see a giant chunk of spending here that almost covers the entire $700B. How does that compare with the rest of the world?
I appreciate your response T!
__________________ I think we're all bozos on this bus.
Well, it looks like Congress voted it down. Predictions?
Bob, I think you have a vantage point we lack because you are involved in the banking industry. I think I may have oversimplified things as well - just as Ron Paul did - in my own thinking. On the whole, I agree with John, but I am glad the current version has more oversight. I really do not trust Bush's appointees to run things, especially in the Fed, without a lot of oversight.
Meanwhile, while I agree with John, I also agree with Bob that something needs to be done. I just don't know what because, frankly, this problem is far beyond me and my meager understanding of basic economics. The currents run much deeper than I can swim.
Authority for purchases of $250 billion in assets would be available upon enactment;
The authority would increase to $350 billion if the President submits to the Congress a written notification that the Secretary is exercising authority to purchase an additional $100 billion of assets; and
The authority would increase to $700 billion if the President submits a report detailing a plan to use the remaining $350 billion in purchase authority; that expansion would be subject to a 15-day Congressional review for potential disapproval of the plan.
I'm unsure if it's the right action but it's better than doing nothing.
A failed economy -- a real depression -- would reduce our ability to collect taxes. Would the lost taxes equal $700B minus any recovered assets? I don't know but I also don't want to find out.
One thing that seemed funny to me was that many of the more conservative minded detractors are saying: "We shouldn't bail out those crooks from Wall Street" while in the same breath saying "We should let capitalism and free markets play out."
Isn't crooks in Wall Street what you get in a free market?
__________________ I think we're all bozos on this bus.
I'm unsure if it's the right action but it's better than doing nothing.
Sure. It may be better than doing nothing. But is it better than taking the time to figure out what the right thing is and then doing the right thing, whatever that may be? I say "No."
My analogy of the day. You are cooking in the kitchen and a fire breaks out. Do you just grab the first thing you can find and throw it on the fire, whether that is cooking oil, or grease, or water, or gasoline? Or do you take a breath and figure out what exactly will put this fire out? Then throw that?
For the past week the administration has been screaming as loud as they can "Quick, grab the first thing! Don't look at it! Just throw it or our whole house will burn down! Ohmigod! Do it NOW!"
I believe something should be done, but I certainly don't believe it should be predicated on a starting point of giving this administration either a) exactly what it wants or b) almost exactly what it wants.
Now that it has failed, we can move this load of manure off of the table and move on to something better. Seriously, wouldn't it be nice for a change if W and his cronies had to enact a bill written by Democrats with progressive values in mind because they were too scared to vote against it?
And really, today was like the buildup to the Iraq war all over again. The mad race toward dubious ends, loaded up with fear and proclamations of doom and gloom. And if you vote against doing exactly what these fear-meisters want, then by god you are responsible for the coming calamity.
"It's a nice stock market you have there. Be a SHAME if anything were to happen to it, 'cause you didn't pay up."
I believe it is necessary. I don't like it, but I think it is necessary. The optimistic view is that the government might make the money back with profit. We'll see. As for predictions, I think the stunt has only hurt the Republicans, as it is them blaming Pelosi and then storming out like children. I predict the bill will pass soon with some conservative amendments, maybe even by the end of the week.
Is this talking politics? Are the forum police going to spank us? I hope so!
__________________ The natural unintended meaning of any abstract, symbolic language is rhubarb.
I appreciate everyone's two cents on this. You fellas are smart, and hearing smart people discuss important things is always to be encouraged.
For me, I don't like this thing at all. Of course, my economics knowledge is pitiful on a good day, but the bailout doesn't pass the sniff test for me. When Bush gets really ramped up about doing something right now, I'm leery. That's how we ended up with the Patriot Act, as an example. If something is worth doing, it's worth doing right. And this feels too fast, too slapdash and too fearmongered (I don't think that's a word) for my taste.
And there are too many ties between Wall Street and Washington to make me believe that my best interests are being served. Too many lobbyists, too many corrupt politicians, etc. etc. There are just too many pockets to be potentially lined by something like this, and they're not mine. Sure, if the economy collapses that will hurt everyone. Of course. But there's no gaurantee that even $700 billion will prevent that. Nobody seems to know one way or the other.
And ultimately, it's our kids who would deal with the repayment of this thing (and all the rest) to China someday. I don't buy for a minute that the government is going to get all of this money back, or even a substantial portion of it. If these are assets that will likely pay off at some point, the governemnt wouldn't need to step in and buy them, would they? And so if the tradeoff of this bailout is economic stability for the short term (the next several years) in exchange for economic unstability in the long term (when our kids are prime earners and we are playing RPGs in a nursing home), then I'm against it, pure and simple.
Linear Mode
