Reverting to Type

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More information about the feds response to the financial crisis has been released, and Paul Krugman says it’s a bad plan (emphasis added).

Here’s the thing: historically, financial system rescues have involved seizing the troubled institutions and guaranteeing their debts; only after that did the government try to repackage and sell their assets. The feds took over S&Ls first, protecting their depositors, then transferred their bad assets to the RTC. The Swedes took over troubled banks, again protecting their depositors, before transferring their assets to their equivalent institutions.

The Treasury plan, by contrast, looks like an attempt to restore confidence in the financial system — that is, convince creditors of troubled institutions that everything’s OK — simply by buying assets off these institutions. This will only work if the prices Treasury pays are much higher than current market prices; that, in turn, can only be true either if this is mainly a liquidity problem — which seems doubtful — or if Treasury is going to be paying a huge premium, in effect throwing taxpayers’ money at the financial world.

And there’s no quid pro quo here — nothing that gives taxpayers a stake in the upside, nothing that ensures that the money is used to stabilize the system rather than reward the undeserving.

Sebastian Mallaby:

With truly extraordinary speed, opinion has swung behind the radical idea that the government should commit hundreds of billions in taxpayer money to purchasing dud loans from banks that aren’t actually insolvent. As recently as a week ago, no public official had even mentioned this option. Now the Treasury, the Fed and congressional leaders are promising its enactment within days. The scheme has gone from invisibility to inevitability in the blink of an eye. This is extremely dangerous.

The plan is being marketed under false pretenses. Supporters have invoked the shining success of the Resolution Trust Corporation as justification and precedent. But the RTC, which was created in 1989 to clean up the wreckage of the savings-and-loan crisis, bears little resemblance to what is being contemplated now. The RTC collected and eventually sold off loans made by thrifts that had gone bust. The administration proposes to buy up bad loans before the lenders go bust. This difference raises several questions.

You can read the rest of the column for the questions.

As I understand it, the economic pundit guys had thought the feds would come up with a plan by which the taxpayers would get some value back eventually. Plan B pretty much guarantees we won’t. And why do I think the White House is pushing Plan B with all it’s got?

Speaking of which: The White House released a statement on “The Administration’s Unheeded Warnings About the Systemic Risk Posed by the GSEs [government-sponsored enterprises].” The Administration wants us to know that it saw the financial crisis coming. Yes, and we all appreciate the visible, robust and tireless efforts of President Bush to prevent the financial crisis … oh, wait …

I dimly remember that last Wednesday, John McCain blamed the financial crisis on overcompensated executives and their “golden parachutes.” The Dems tried to inject some language about compensation caps into Plan B, and Treasury Secretary Paulson rejected it as a “poison pill.” Let’s see if McCain has anything to say about that.

Some Dems also are trying to get some help for homeowners into Plan B. I’m not holding my breath.

Finally, if anyone wants to reflect on whatever Jeff G. is ranting about here, be my guest. It looks as if his hatred and resentment of all things “progressive” is overriding any concern he might have for, you know, the financial crisis, which somehow must be liberals’ fault.

Update: Sorry, I left out the link to Jeff G.

24 thoughts on “Reverting to Type”

  1. If, as some have pointed out that insolvency rather than liquidity is the real problem, and that the thrust of this bill may not even fix the problem, then this bailout could be the biggest executive welfare program in history, with the intent being to use this money to buy time for them to structure the golden parachutes so they can each float away from the scene of the crime with millions in “compensation.” Worst of all, leaving current regulatory conditions in place so they can return to the scene of the crime and repeat their fraud later.

    Here’s a story that will provide some perspective on the frame of this fraud from where most of us sit:

    Yesterday I got my first check from a new job. I signed up for direct deposit, however as always, for some reason, they’re never able to deposit your first check, even though there are no technical barriers to doing so.

    When I deposited the check at the bank, I ask the teller: how long will it be before these funds are made available to me? “Its printed on the receipt,” was his reply. The date in the receipt indicated that it would be a full nine days (six business days) beforethe funds are made available. As I recall there was legislation in the 90s to stop this practice of banks essentially using customer money as a float to earn more interest, when there was no technical reason for this to be the case. But they’ve found a way around it, apparently.

    Now, here these titans have failed as a result of their own greed, and yet the people like me that they screw over royally day in and day out are forced to make them whole in the sense they are accustomed to, i.e. more multi-million dollar paydays, for screwing up yet again. And they won’t even cover a bounced check for a long time customer.

    If this bill passes there can be no more pretense about what’s going on here.

  2. I had to read it twice to make sure I read it right.
    Sebastian Mallaby says, “the government should tell banks to cancel all dividend payments. Banks don’t do that on their own because it would signal weakness”.
    Are these companies, so bad off that they are on the verge of melting down the world economy, STILL PAYING DIVIDENDS??!!! I don’t think they need to worry about signalling weekness. If they want to give dividends, they can just send them to Uncle Sam since next week they will be in his pockets for (was that really 11.3 trillion?) a big wad of money. What happened to saying this year was not so hot on profits so you don’t get a dividend?
    s

  3. Be leery of Bush’s war on the economy. He using the same language that he used for his war on terror. Fear based rhetoric! When Bush claims that the risk of doing nothing is too great..remember that he sang that same song for his invasion of Iraq.

    Another thing to be aware of..when Bush claims his 700 billion dollar bailout package is sufficent..Know from experience that that figure is a soft peddle to make things palatable.. double that figure at least to approximate the real costs to taxpayers.

  4. The more I learn about this bailout plan, the more my mouth gapes in horror. Not a pretty picture… but here we are.

    The plan sounds like nothing more than the ultimate Bushcrony swindle. All decisions on what to do with the money, in the hands of the Secretary of the Treasury alone. There’s to be no oversight, by either Congress or the courts. If the administration doesn’t care that we recoup anything from the bailout (and why should they?), then we won’t ever see so much as a dime back on our $700 billion. If the administration doesn’t want to tax the “golden parachutes” of the mess-makers (and we know they don’t), then they won’t. Again: no oversight. None. It’ll be Henry Paulson’s call. This is how the administration insists the plan be set up.

    We’re about to learn just how spineless (or not) Congress really is. Will the fiscal-conservative Republicans stand up to the administration, if (when?) the Democrats don’t? I hate to sound like I’m writing from Bizarro World… I know full well that the fiscal-c Republicans got us into this mess, but as of this morning, they seem to be the ones bitching the loudest about the bailout.

    I want to hear Obama, Biden, Hillary Clinton, Reid, Pelosi, and every last Dem in Congress stand up and shout as one: “Oversight or NO DEAL!” Because that’s what it looks like we need as of this morning… “No Deal” Democrats.

  5. 1. In panic give the gang unfettered, unrestricted use of the full faith and credit of the United States.

    2. Paulson resigns

    3. Cheney resigns as Vice President

    4. Bush appoints Cheney as Treasury Secretary

    5. Kiss any semblance of democracy goodby.

    Any questions?

  6. I heard Barney Frank, who heads one of the House finance committees, say last week that he really was surprised by what was unfolding on Wall Street. Surprised? Frank’s not a stupid man; therefore, he’s a liar.

    One of the giant culprits we’re bailing out was leveraged at 60 to 1. To me and correct me if I’m wrong, if I personally held $1 million in assets I could sustain $60 million in debts? And old Barney would look at my books and see no signs of inevitable and impending doom?

    Confirmed, if a fascist state is a state where large corporations are extensions of government and over-riding power rests in one plus persons, we’re living in, or about to live in a fascist state.

  8. Let’s review.

    (a) We are mired in a war in Afganistan.
    (b) We have set up a GULAG (Gitmo, Abu Grabe).
    (c) We spy on our own citizens, and “render” citizen “enemies” to the GULAG without public indictment or trial.
    (d) We are taking ownership of financial institutions and housing…

    Only Nixon could go to China? Only George Bush and Dick Cheney could turn the United States into the Soviet Union.

  9. I cannot believe the dems in DC are going to give bush $700 billion with no over sight. Paulson will take that money and do just what the bush did to the levees in NOLA…stick newspaper in holes. Paulson will do nothing but prop up the banks until bush leaves office. The more details of the Paulson plan I hear the more I feel like a victim. Why is bush looking at me to fix what he allowed to happen. Please someone in DC speak up and tell bush we do not have his back on this one. bush needs to talk to his oil budies. They have had record profits and have not drilled a new well in ages…they are flush with bundles of cash.

  11. It’s fun watching economic illiterates flail around trying to find a way to criticize the proposed solution to a financial crisis they don’t understand from a President they irrationally loathe.

  12. It’s fun watching economic illiterates flail around trying to find a way to criticize the proposed solution to a financial crisis they don’t understand from a President they irrationally loathe.

    It fascinates me that there are so many people like #11 who don’t care that the future of America is being sold out, just as long as it annoys liberals.

    We need a whole new classification of social pathology for these creeps.

  14. Where’s the proposed solution? They haven’t even identified the extent of the problem, let alone it’s exact cause. Blindly throwing taxpayer’s money into a void without any understanding of how it’s going to achieve it’s intended objective is just base stupidity.

    As for irrationally loathing George Bush…It’s not Bush, it’s the irresponsible character of being that abides within him that is loathsome. Personally I resent being in a situation where leadership is imposed through a person who never faced hardship,never had to grapple with responsibility, and is a complete alien to the concept of accountability. My disdain for Bush is not irrational, it’s sound and arrived at with much deliberation. I guess best to express my distaste for the clown who inhabits the body of Bush, you have to be familiar with the scriptural abstraction..”my father owns the cattle on a thousand hills”…Meaning, that Bush is so far out of reality and responsibility that he’s out of contention to be taken seriously. Pissing away our money is no object for Bush. He’s a fucking joke, especially when viewed as a steward of our economy…plain and simple!

  15. McCain secretly planning to tax the Middle Class.

    I don’t know why this has not been all over the press yet… but read this piece from The Hill.

    This is backed up by the Henry J. Kaiser Foundation’sevaluation of the McCain and Barack Obama health plans:

    • Reform the tax code to eliminate the exclusion of the value of health insurance plans offered by employers from workers’ taxable income.

    How does this work? The Hill again:

    The value of the typical plan provided by an employer to a family is $12,106, of which the employer pays $8,824, and the worker pays the remaining $3,282. The median household income is $44,389, which places most American families in the 15 percent income tax bracket.

    McCain wants to add the employer’s cost — an additional $8,824 — to that middle class family’s income, then tax it. The hit to the average family is 15 percent of the McCain-added income — $1,323 more in income taxes.

    .

    This comparison was published last June and the information has been available for a while… the press, however, has pretty much ignored it and McCain has hidden this information from his web site and and his promotional material.

    Under The LobsterScope

  16. maha – what should he care, anyway? Isn’t he from New Zealand?

    (You know conservatism is going up in flames, when panicky little right-wing bunnies pop up on your doorstep just long enough to drop a poo, before continuing to flee for their lives. That happened several times during the Democrats’ convention, as I recall. It will only get worse as their spooky old forest burns to the ground.)

  18. Try this on for size..” Bush had slipped the surly bounds of reality to touch the face of irrelevance”

  19. Anybody familiar with ‘playing chicken’? The drivers of 2 cars drive at high speed at each other risking a head-on collision to prove which will flinch first & swerve. What I see here is a 700 Billion dollar game of chicken. The banking industry desparately needs to be relieved of the bad paper it created with sub-prime mortgage securites. Democrats are asking the questions that Obama nailed in his 7-point plan today. Obamas first 3 words set up the parameters of the game of chicken. ‘No blank check’.

    I expect that the Fed & Treasury & the Wall Street ‘experts’ who helped deliver this mess will promise & guarantee a meltdown if anything LESS than a blank check is produced by Congress.

    Who will blink first?

    The Dow finished the week down by ONLY 30 points. Pelosi & Reed can assure the world markets that there WILL be a bailout. (No Chicken Little – the sky is NOT falling.) They should guarantee that Congress WILL stay in session beyond the break scheduled for the end of the week if that’s what they need to get the bill right. And they should say up-front, there will not be a blank check.

  20. Robert Reich has a great column on TPMCafe about the conditions that should come with this blank check. A commenter suggested copying them into an email to your reps to make clear that you’re against the blank check approach. I’ve done that already and would encourage others to do the same. CREDOAction also has a petition to Congressional leaders saying much the same thing. I think they should be running an email campaign, but a petition’s better than nothing.

    Josh Marshall also just pointed out that UBS is now possibly going to be included in the bailout–and that Phil Gramm is both a vice-chairman of UBS and a lobbyist for them. The more I hear about this man, the sicker I feel. If McCain wins, I shudder to think what Gramm will do.

  21. “Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency”

    Are you friggin kidding me?? Someone, somewhere, please stop this.

  22. By the way, Peter Jackson, you win jerkwad of the day. Take a bow.

    This is fun to you?? Selfish little twit…

  23. Are you friggin kidding me?? Someone, somewhere, please stop this.

    Not kidding. And if you want “someone, somewhere” to stop this, you might want to start by signing the petition and calling your representatives in Congress. The more people who call, the better. (And I hate making phone calls, but I’m going to do it this morning to back up the emails I sent last night. This is too important.)

  24. #11 must not realize his trust fund is taking a big hit and he is getting a $3,000. tax bill at the same time. He doesn’t realize his pappy’s house has gone down in value and he (the giant brain of economics) can end up in a soup line just like the rest of his fellow Americans that he laughs about. Gee.. are you sure repubs put America first?

    Oh.. and peter, any loathing for the shrub is not irrational at all.
    He earned every bit of it.

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