This is dangerous. We have House members, many of whom I suspect can’t balance their own checkbooks, rejecting a complex rescue package because some voters, whom I fear also don’t understand, swamped them with phone calls. I appreciate the popular anger against Wall Street, but you can’t deal with this crisis this way.
This is a credit crisis. It’s all about confidence. What you can’t see is how bank A will no longer lend to good company B or mortgage company C. Because no one is sure the other guy’s assets and collateral are worth anything, which is why the government needs to come in and put a floor under them. Otherwise, the system will be choked of credit, like a body being choked of oxygen and turning blue.
Well, you say, “I don’t own any stocks ”” let those greedy monsters on Wall Street suffer.” You may not own any stocks, but your pension fund owned some Lehman Brothers commercial paper and your regional bank held subprime mortgage bonds, which is why you were able refinance your house two years ago. And your local airport was insured by A.I.G., and your local municipality sold municipal bonds on Wall Street to finance your street’s new sewer system, and your local car company depended on the credit markets to finance your auto loan ”” and now that the credit market has dried up, Wachovia bank went bust and your neighbor lost her secretarial job there.
We’re all connected. As others have pointed out, you can’t save Main Street and punish Wall Street anymore than you can be in a rowboat with someone you hate and think that the leak in the bottom of the boat at his end is not going to sink you, too. The world really is flat. We’re all connected. “Decoupling” is pure fantasy.
Counting the cost is not mindless denial. Response to Main Street concerns about mindless bailouts is not even denial. It is accountability. If this is to be done it should be done with due diligence and not helter skelter with inadequate controls, oversights, and responsibilities. I don’t know that the partisan thinking angle is all Friedman cracks it up to be. It could be thinking before acting.
Then explain it all, Thomas.
Don’t bloviate, don’t pontificate, don’t obsfucate,
just explicate.
Don’t tell me we’re all connected or how flat the world is, just explain why throwing money at a problem about too much money is the solution. Just a simple diagram with some examples and some testable, provable assertions would be a start. Something that didn’t sound like a nigerian banking scam would be nice.
And if you don’t have a good explanation, maybe you shouldn’t have eaten the parrot.
No wise successful fund manager would by stock in the panic that is demonstrated in this bailout. No good banker would make a loan under those conditions. No decent couuple would give in to the vacuum cleaner salesmen under this kind of duress.
sarcasm/on Why should the USA put down $750,000,000,000,000.00 with no “three day right of recision”? sarcasm/off
Something is quite fishy. I’m not buying.
We KNOW what some of the causes are for the mess that we are in. Until the pols start looking like they are at least interested in them, I am not convinced that we even have a problem.
No solutions – just money.
Don
The very worst part of this deal is that it will end ‘mark-to-market’ accounting requirements….in other words, those holding the toxic assets can list them in their books at any value they want to pluck from thin air, rather than their true market value. (And we the people will pay at that too-high value!)
Warren Buffett is totally against this, pointing out that it allows them to share the good news and cover up any bad news. It’s an out and out lie on a balance sheet, and should NOT be changed!
“…you can’t save Main Street and punish Wall Street…”
Well, there sure seems to be a decoupling when it comes to the rewards being passed around. CEO Dillenger of company XYZ is a terrible CEO. He lays of thousands of workers to “bring up the bottom line” on the company’s financial statement, which now shows a huge profit for the year. CEO Dillenger gets a $30 million bonus. The company starts to go under because of the brain drain instituted by CEO Dillenger. He responds by selling the now unprofitable division of the company. Three quarters of the workers are laid off. The company’s profits soar yet again. CEO Dillenger gets another $30 million bonus. The company fails. CEO Dillenger gets a $30 million golden parachute.
Somehow, it became OK to punish main street and reward CEO Dillenger. NO MORE!
BTW, last I heard, banks are in business to make a profit. No loans, no profits. They will have to make loans. This is such a sham!
No bailout!
“lays off”
My son spilled water on my keyboard and now every word is a struggle.
I don’t know if it is possible to save Main Street.
However it is certainly appropriate and possible to punish Wall Street, whether these bills (which I opose) pass or not.
One mechanism is to have a clause that says that any executive or CEO on wall street who received salary or bonuses based on profits from falsely valued CDOs etc from 2003 on will be taxed at 90% them.
If they are not able to produce this additional tax, then they will be permitted to pay it off over 10 years at the prevailing credit card rate
Such “clawbacks” are pretty standard for most anything else having to do with the government. If I bill a medicare clinic visit as being “extended”, and a lookback by an auditor 6 years later believes, based on my documentation it only deserved “routine”, I am subject to “clawbacks”.
It is entirely appropriate that the same sort of terms apply for those on Wall Street.
Sorry this is long, but that’s part of the point. From the bill passed in the Senate:
Sec. 101: Extension of alternative minimum tax relief for nonrefundable personal credits.
Sec. 102: Extension of increased alternative minimum tax exemption amount.
Sec. 201: Deduction for state and local sales taxes.
Sec. 202: Deduction of qualified tuition and related expenses.
Sec. 203: Deduction for certain expenses of elementary and secondary school teachers.
Sec. 204: Additional standard deduction for real property taxes for nonitemizers.
Sec. 205: Tax-free distributions from individual retirement plans for charitable purposes.
Sec. 304: Extension of look-thru rule for related controlled foreign corporations.
Sec. 305: Extension of 15-year straight-line cost recovery for qualified leasehold improvements and qualified restaurant improvements; 15-year straight-line cost recovery for certain improvements to retail space.
Sec. 307: Basis adjustment to stock of S corporations making charitable contributions of property.
Sec. 308: Increase in limit on cover over of rum excise tax to Puerto Rico and the Virgin Islands.
Sec. 309: Extension of economic development credit for American Samoa.
Sec. 310: Extension of mine rescue team training credit.
Sec. 311: Extension of election to expense advanced mine safety equipment.
Sec. 312: Deduction allowable with respect to income attributable to domestic production activities in Puerto Rico.
Sec. 314: Indian employment credit.
Sec. 315: Accelerated depreciation for business property on Indian reservations.
Sec. 316: Railroad track maintenance.
Sec. 317: Seven-year cost recovery period for motorsports racing track facility.
Sec. 318: Expensing of environmental remediation costs.
Sec. 319: Extension of work opportunity tax credit for Hurricane Katrina employees.
Sec. 320: Extension of increased rehabilitation credit for structures in the Gulf Opportunity Zone.
Sec. 321: Enhanced deduction for qualified computer contributions.
Sec. 322: Tax incentives for investment in the District of Columbia.
Sec. 323: Enhanced charitable deductions for contributions of food inventory.
Sec. 324: Extension of enhanced charitable deduction for contributions of book inventory.
Sec. 325: Extension and modification of duty suspension on wool products; wool research fund; wool duty refunds.
Sec. 401: Permanent authority for undercover operations [as related to tax provisions].
Sec. 402: Permanent authority for disclosure of information relating to terrorist activities [as related to tax provisions].
Sec. 501: $8,500 income threshold used to calculate refundable portion of child tax credit.
Sec. 502: Provisions related to film and television productions.
Sec. 503: Exemption from excise tax for certain wooden arrows designed for use by children.
Sec. 504: Income averaging for amounts received in connection with the Exxon Valdez litigation.
Sec. 505: Certain farming business machinery and equipment treated as five-year property.
Sec. 506: Modification of penalty on understatement of taxpayer’s liability by tax return preparer.
Sec. 601: Secure rural schools and community self-determination program.
Sec. 602: Transfer to abandoned mine reclamation fund.
Sec. 702: Temporary tax relief for areas damaged by 2008 Midwestern severe storms, tornados and flooding.
Sec. 704: Temporary tax-exempt bond financing and low-income housing tax relief for areas.
Sec. 709: Waiver of certain mortgage revenue bond requirements following federally declared disasters.
Sec. 710: Special depreciation allowance for qualified disaster property.
Sec. 711: Increased expensing for qualified disaster assistance property.
Really?
“Increase in limit on cover over of rum excise tax to Puerto Rico and the Virgin Islands”? “Seven-year cost recovery period for motorsports racing track facility”? “Extension and modification of duty suspension on wool products; wool research fund; wool duty refunds”?
Really?
This is nothing more or less than politicians playing all their standard games. If this is an “emergency,” Congress are not acting like it is … In fact, let’s be blunt. This is why Congress’ current approval ratings are about half those of Mr. Bush.
I hope the Houses put this thing out of its misery. It will do nothing, repeat nothing, to help my business or my family or my nation.
Fortunately, I do not need, seek, or want government assistance. It isn’t a lot of fun competing against foolish money, borrowed much too easily, at an unrealistically low rate of interest. It distorts the entire market, rewards hubris and folly, and punishes prudence and stewardship.
The sooner such nonsense is squeezed our of the economy, the better.
Thanks, Bart. I re-iterate #1.
Now that the vital wooden arrow industry is being protected, I think we should all line up behind this wonderful bill. [/sarc]
Turn a yes vote into a no vote. Next month vote no against every Senator and Congressman who voted yes for this truly obscene 700 (now 850) billion dollar theft and power grab plan. That could be the start of bringing about real reform in Washington.
Bart Hall — wow. Just wow.
Thank you for taking the time to do that.
What. A. Travesty.
Tgs,
Wish it were that simple: many senators in tough races have been given permission by their Rep. or Dem. Whip to vote no so they won’t lose their seat. Especially in Pelosi’s California delegation.
This is extortion pure and simple. “Let us pass this massive bailout with obscene amounts or rotten pork in it or the nation’s credit collapses”. Perhaps it’s better that our economy takes a nose dive than that we so easily sign away our freedom.
OK, guys: so your point is basically that the credit market is unsalvageable, so you might as well bring down Wall Street along with everything else? You know, I don’t think there’s anything Christian about destroying everything else just so you can get some retribution against those irresponsible bankers.
Which is not to say that I’m for this particular version of the bail-out, BTW.
Well, it turns out there is something of an explanation for the outrageous level of pork in the Senate bill. Because the Senate cannot [i]initiate[/i] money bills, they had to “amend” a bill previously passed by the House and currently under consideration in the Senate.
Consequently we can blame the House (instead of the Senate) for all the non-sense in that bill. Including Section 115, which I missed, which establishes the legal basis for a carbon-tax in America.
It nevertheless most certainly is our political class acting as they always do, even in an emergency, looking out for their friends, contributors, supporters, and self interest.
If the problem is what experienced experts say it is, then $700 Billion is not close to enough. And it’s a dumb idea to have Treasury hire as “rescue-managers” the same people who got us into this mess in the first place. Especially since there’s absolutely no mechanism for beating off the corporate lobbyists pressuring those managers to “buy [i]my[/i] corporation’s toxic waste at three times market-clearing price.”
This entire thing is an abject failure of [i]government[/i], not markets. The markets are merely illustrating the failure of government.
My point is that banks, flush with cash and in business to make a profit, will loan money. The “credit crunch†is not a long-term problem. Banks need to make a profit. They don’t make a profit by holding deposits. They make a profit by lending. They are flush with cash right now, thanks to the Fed. They will make loans…they will just actually do the due diligence they were supposed to be doing in the first place. “Easy credit†means they were making bad loans that were to the un-creditworthy.
Here is a thought. If inflation is a hidden government tax…what is deflation? Sounds like it would be a massive giving back of purchasing power to people.
Why can’t the current issue be resolved using the FDIC? Why an $850 Billion give away? Why no oversight? Why all the pork products added if this is truly an emergency?
On another thread, there was a discussion about college and how reduced student loans would be a problem. Perhaps the runaway costs of college…let’s call it the Education Bubble…may just burst if the credit market tightens up. What happened when we as a society made college a “right†for everyone with easy credit, super cheap loans, and easy defaults? The cost of college has been skyrocketing much faster than inflation. It has been a market bubble, just as surely as the housing market was in a bubble. Just as houses were overvalued, a college education has been overvalued. If one spends the average $30,367 per year for a four-year education, the total at graduation is $121,468. That’s nearly as much as I paid for my house seven years ago. Now, the average salary for a college graduate is only $46000. I think there needs to be a windfall profits tax on institutions of higher learning!
http://www.loantolearn.com/resources/Library/Average-college-cost-breaks.aspx
http://www.simplyhired.com/a/salary/search/q-college+graduate
So, maybe deflation will be a good thing.
S&ToN;, What makes you think that banks are “flush with cash”? A good deal of the problem seems to be that there are a lot of banks out there who cannot be sure of how much their assets are worth, with a great deal of suspicion that they aren’t worth as much as they have been previously assessed at.
And as far as deflation is concerned, it has a devastating effect on loan repayment, not to mention the willingness of banks to lend. My house is now valued at something like twice what I paid for it, which is certainly on the crazy side. But the other side of the craziness is that if prices slide enough, the people who bought in when prices were high can be put in the position of not being able to cut their losses, because they cannot pay off the mortgage by selling the house. They default, and the bank ends up with a house which they cannot sell to recover their principal. Likewise, you talk about cutting the price of college– but how? Colleges rely heavily on investment income, after all. Perhaps there should be fewer people going to college, and perhaps there should be few colleges; but it’s not like a collapse is controllable. Nobody is inclined to invest in the future when they think the future is going to be worth less than the present.
[i]but it’s not like a collapse is controllable. Nobody is inclined to invest in the future when they think the future is going to be worth less than the present. [/i]
Right. And wrong. The reason many people are terrified of deflation is that it is indeed not controllable by normal central banking levers. There have been four periods in the last thousand years or so when deflation has run rampant for a few years: late 11th C, early 14th C, early 17th C, and early 19th C.
Each of these deflationary pulses was followed by a century or so of mild deflation and phenomenal economic growth. That’s where Wingate is wrong. Mild deflation is probably the most healthy state of an economic system. At a minimum it significantly narrows the gap between rich and poor because real wages for ordinary folks tend to increase from year to year.
Find and read Fischer’s ‘Great Wave’ (1996). He argued rather cogently that the early 21st C would be characterised by strong deflation. Hmmm.
Banks are flush with cash…
http://www.investors.com/editorial/IBDArticles.asp?artsec=16&artnum=1&issue=20080929
http://orlando.bizjournals.com/orlando/othercities/dayton/stories/2008/09/15/daily42.html
Internationally…
http://www.financialweek.com/apps/pbcs.dll/article?AID=/20080930/REG/809309997&template=InformArticle
“Well, it turns out there is something of an explanation for the outrageous level of pork in the Senate bill. Because the Senate cannot initiate money bills, they had to ‘amend’ a bill previously passed by the House and currently under consideration in the Senate” —Bart Hall [#16]
That doesn’t really explain the pork. To meet the constitutional requirement that the House initiate money bills, the Senate had to use a House-passed bill with a House bill number. But they didn’t have to retain the substance of the House-passed bill. The Senate often amends House-passed bills by “striking all after the enacting clause and inserting” what the Senate wants.