House Votes against Bailout Package

The House voted against the bailout package. Brad DeLong says:

Bring Congress Back into Session After the Election...: ...and go for the Swedish plan: nationalize the insolvent large financial institutions: dare Bush to veto that after the election.

Vote Count:

Democrats: 141 Yea,  94 Nay
Republican:  66 Yea, 132 Nay.

This Republican Party needs to be burned, razed to the ground, and the furrows sown with salt...

Swamped today - quickly - and holding back the shrill reaction, this is irresponsible and needlessly puts our economy at risk. I'll update with more reactions as I find them.

Update: Initial market reaction:

The Dow Jones Industrial Average, which had posted a loss of less than 300 points heading into the House vote, posted a decline of nearly 700 points as the "nay" votes reached a majority.

The market has recovered slightly. We'll see how it goes. They can revote, so there's still hope, but don't know if that is planned, or if that would do any good. But it's not the stock market I care about, it's employment and growth. Even if this is not a catastrophe, you don't take this kind of risk with the economy. Even without a major crash, it's likely a lot of people just lost their jobs, though they don't know it yet. If the problems aren't addressed, it is likely to constrain credit, that in turn causes firms to cut back on new investment projects, and as they do, employment and growth taper off. You don't see the effects as a big drop off in employment all at once since investment projects can take years to complete and momentum from the past keeps the ball rolling. But as those projects end, if they are not replaced with new ones, employment and growth will suffer. And it's not just investment, people who sell cars, refrigerators, tractors, TVs, stereos, and so on, rely upon credit markets. If the credit isn't there, they aren't needed.

I'm worried, maybe for nothing, but why take this kind of a chance with people's lives?

Megan McArdle:

I didn't think it was possible to be more disgusted with politicians than I usually am, but I find it impossible to express the seething contempt that I feel at this kind of opportunism.  I don't mind when they screw with the normal operation of the economy for venal personal gain.  But risking a recession in order to get a cut in the capital gains tax?  Letting it tank because you can always blame it on the Republicans? ...

The public doesn't quite grasp what's at stake, and there's no reason they should.  But the representatives do.  ...  But anyone who tanks a bank bailout they think might be needed, in order to get a cut in the capital gains tax, deserves to be tried for treason.

Paul Krugman:

OK, we are a banana republic: House votes no. Rex Nutting has the best line: House to Wall Street: Drop Dead. He also correctly places the blame and/or credit with House Republicans. For reasons I’ve already explained, I don’t think the Dem leadership was in a position to craft a bill that would have achieved overwhelming Democratic support, so make or break was whether enough GOPers would sign on. They didn’t.

I assume Pelosi calls a new vote; but if it fails, then what? I guess write a bill that is actually, you know, a good plan, and try to pass it — though politically it might not make sense to try until after the election.

For now, I’m just going to quote myself:

So what we now have is non-functional government in the face of a major crisis, because Congress includes a quorum of crazies and nobody trusts the White House an inch. As a friend said last night, we’ve become a banana republic with nukes.

Republicans are admitting they nuked the vote. Why? They are saying it's because of Pelosi's speech during the vote (read it and judge for yourself):

Rep. Boehner and others say Pelosi’s partisan floor speech is to blame for the financial rescue bill’s defeat.

Barney Frank wonders why a speech would cause them to change their votes:

“Because somebody hurt their feelings they decided to punish the country.”

Steve Benen adds:

But more important that than is the truly ridiculous frame Republicans are establishing for themselves by using Pelosi's speech as an excuse for their own failure. The House GOP, for reasons that defy comprehension, has decided to characterize itself as a caucus of cry babies. Worse, they're irresponsible cry babies who, according to their own argument, are more concerned with their precious hurt feelings than the nation's economic stability.

Willem Buiter:

What is likely to happen next?  With a bit of luck, the House will be frightened by its own audacity and will reverse itself. If a substantively similar bill (or a better bill that addresses not just the problem of valuing toxic assets and getting them off the banks’ books, but also the problem of recapitalising the US banking sector) is passed in the next day or so, the damage can remain limited. If the markets fear that the nays have thrown their toys out of the pram for the long term, the following scenario is quite likely:

• The US stock market tanks.  Bank shares collapse, as do the valuations of all highly leveraged financial institutions.  Weaker versions of this occur in Europe, in Japan and in the emerging markets.
• CDS spreads for banks explode, as will those of all highly leveraged financial institutions.  Credits spreads generally take on loan-shark proportions, even for reputable borrowers. Again the rest of the world will experience a slightly milder version of this.
• No US bank will lend to any other US bank or any other highly leveraged institution.  The same will happen elsewhere. Remaining sources of external finance for banks, other than the facilities  created by the central banks and the Treasuries, will dry up.
• Banks and other highly leveraged institutions will try to unload assets at fire-sale prices in illiquid markets.  Even assets not viewed as toxic before will become unsaleable at any price.
• The interaction of a growing lack of funding liquidity and increasing market illiquidity will destroy the banks’ business models.
• Banks will stop providing credit to households and to non-financial enterprises.
• Banks will collapse, both through balance sheet insolvency and through liquidity insolvency.  No bank will be safe, not even the household names for whom the crisis has thus far brought more opportunities than disasters.
• Other highly leveraged financial institutions collapse on a large scale.
• Households and non-financial businesses revert to financial autarky, among wide-spread defaults and insolvencies.
• Consumer demand and investment demand collapse.  Unemployment shoots up.
• The government suspends all trading in financial stocks until further notice.
• The government nationalises all US banks and other highly leveraged financial institutions.  The shareholders get nothing up front and have to wait for an eventual re-privatisation or liquididation to find out whether they are left with anything at all. Holders of bank debt get a sizeable haircut ‘up front’ on the face value of the debt and have part of the remainder converted into equity that shares the fate of the old equity.
• We have the Great Depression of the 2010s.

None of this is unavoidable, provided the US Congress grows up and adopts forthwith something close to the Emergency Economic Stabilization Act as a first, modest but necessary step towards re-establishing functioning securitisation markets and restoring financial health to the banking sector.  Cutting off your nose to spite your face is not a sensible alternative.

PS My remaining financial wealth is now kept in a (small) old sock in an undisclosed location.

PPS The conduct of both US Presidential candidates in this matter makes them unfit for purpose.

Washington Wire:

“I do believe that we could have gotten there today, had it not been for the partisan speech that the Speaker gave on the floor of the House,” Boehner said. “We put everything we had into getting the vote to get there today.” ...

Minority Whip Roy Blunt (R., Mo.) said he had 12 Republicans who would have voted for the bill but changed their minds, while Rep. Eric Cantor (R., Va.) holding up a copy of what he said was Pelosi’s floor remarks - said the speaker “frankly struck the tone of partisanship.” A senior aide to Pelosi rejected the Republican claims against the speaker, saying the suggestion that her speech motivated House Republicans to vote against the bailout plan was “absurd.”

“You don’t vote on the speech, you vote on the bill,” said the aide.

Frank, speaking at a press conference, mocked the suggestion. “Give me those twelve people’s names and I will talk uncharacteristically nicely to them,” Frank said.

Jeff Frankel:

The Revised Troubled Asset Relief Plan Deserved to Pass: When the Treasury came out with its $750 bailout plan on September 22, I  thought it lacked so many necessary ingredients that it deserved a thumbs down. ...

But in the negotiations between the Treasury and Congressional leaders over the course of last week, the missing ingredients were inserted.    Starting with the additions that were most necessary on the merits, and moving toward the ones where the necessity was more political, they were...

The plan (TARP for Troubled Asset Recovery Program) would still be unprecedented in magnitude and in the discretion it gives the Treasury Secretary. Even if the congress had passed it today, it would not have guaranteed an end to the financial crisis, let alone averting the recession that is probably already inevitable at this point. Furthermore it does little to begin with the reforms in regulation that our financial system now clearly needs.

Nevertheless, as distasteful as it is to be “bailing out” Wall Street, or even bailing out those homeowners who took out loans that they shouldn’t have, or bailing out policymakers who were asleep at the switch, my view is that the program is necessary. It is better than the alternatives:   

• better than the Treasury proposal of 9/22,
• much better than the proposal we would have gotten from a pre-Paulson Bush Administration,
• better than the alternative that the House Republicans were offering, and
• (most important of all) better than the alternative of doing nothing, which would (will?) quite likely mean a severe recession.

I suppose it is not surprising that Congressmen facing elections in 5 weeks don’t want to go on record supporting something so unpopular. What will happen now that the House rejected the deal in its vote today?   

Most likely the stock market and real economy will plummet, until the pain gets so bad that a bailout package like this one accumulates more support.

Are people expecting soup lines?:

The S&P 500 retreated 106.59 points to 1,106.42, as only one company gained, Campbell Soup Co.

Comments

[JTapp]

I think it's a classic collusion/cheating problem. Everyone agreed to vote "Yes," on the negotiated bill but everyone has a political incentive to vote "No," so enough congressmen "cheated" that the legislation couldn't pass.

[swells]

I think McCardle has this one about right. It's an awful risk to take with people's livelihoods. But, I think it's clear that the majority of the nay's were people in at risk positions in the upcoming election and that they voted their electoral prospects. I really don't have any problem with people getting what they deserve, including myself. This is a deeply unpopular bailout and the legislators simply reflected the will of the people if their particular election is close in their view.

As McCardle also noted, "I am grimly reminded of H.L. Mencken's famous observation that Democracy is the theory that the common people know what they want, and deserve to get it good and hard."

[RW Rogers]

I don't disagree with you but I am definitely disappointed that 40% of House Democrats voted "No" as well. Do you think they deserve a free pass here? That's a major failure in leadership, don't you think?

[anne]

"This Republican Party needs to be burned, razed to the ground, and the furrows sown with salt..."

I understand, I really do, I know that only thing that is important is showing off Republican problems using the most ferocious of metaphors, but what of the 94 Democratic votes against the rescue legislation? The Democrats are a majority and there were 66 Republican votes favoring the legislation.

[ken melvin]

Methinks higher capital gains taxes might have prevented this catastrophe.

[hari]

The House Reps were receiving 100 to 1 emails against the bill just before voting time. And inspite of the appeal for bipartisanship from leadership, Republicans voted 2 to 1 against the bill. Dems just the reverse - more or less.

So the stage is set for NYSE to bottom out now. Money has piled into Treasuries across the world!

Meanwhile today -

*Three EU banks collapsed and were bailed out by govs.

*ECB injected E120Billion into credit market just to avoid total breakdown.

#Tomorrow expect the global markets starting in emerging Asia to sellout and buy time...for something to happen.

If the vote is not repeated and Congress goes on holiday - for Jewish New Year - the meltdown may be the only rescue left with credit crunch.

[Mark Thoma]

The Republicans came up far short in what they promised to deliver, and, when Democrats saw they weren't going to deliver, they bolted. Blunt stood on the sidelines while the Dem whip tried to round up votes. (Blunt's lack of action was probably over a leadership fight in the Republican party that is coming in January, that's on theory anyway).

The totals don't tell the story. This is on the Republican's head. They are holding out for a capital gains tax, among other things, but that's a big sticking point. That's utterly ridiculous.

[Callahan]

So, I guess this means that McBush's influence was null at best. He might have done better for himself by learning how to debate.

[hari]

Paul is wrong - Us Congress is definitely not a *banana republic*. If you heard the closing debate, it was emotional and hard hitting from the Republicans because they think it's *socialism* for wall street!

It is more accurate, I think, to now rename the Republic, as a *paper tiger*.

Imgaine the bluntness with which Paulson/Bernake tried to railroad the bailout with 2 + 1/2 pages - and failed! I was stunned, at first, at their political recklessness and audacity to allow no oversite and legal audit control or even responsibility under the Constitution!

[ndd]

Even if our gracious host is correct, as somebody who still opposed this "compromise" of faux oversight, faux limits on executive compensation, and faux equity ownership as compensation to taxpayers, let me point out that *politically* the problem is that the Administration started from its typical Shock Doctrine authoritarian hard line, and for the first time, had its bluff called.

Wall Street will want a bailout even more tomorrow than they did today, and perhaps a bill for a limited period of time, with real as opposed to faux limits, will pick up the necessary 12 more votes.

[dd]

This Democratic majority understands the term "set-up" and once the Republicans decided on a McCain moment, then all trust was gone. The meme that the Democratic party was the handmaiden of Wall Street and Bush's ally was too much.

[Mark Thoma]

I don't get angry about economics related things often, but I am right now (I could not have posted what I was really thinking). Congress needed to get something done. This is completely disfunctional. Disgusting. This shows no regard for people who might lose their jobs over this. I know a lot of you think we can get through this - you are nuts to take that chance, this is extraordinarily dangerous - why do you think all the economists are so scared, the ones you've trusted in the past, the vast majority are willing to say "hold your nose" but please, please vote yes (even Galbraith, Baker, Krugman, all of them).

Grr.

[I'll probably delete this later after I "count to ten" slowly...]

[anne]

"But anyone who tanks a bank bailout they think might be needed, in order to get a cut in the capital gains tax, deserves to be tried for treason."

Please show that this accusation is accurate, and even it accurate the language is crude and the intent is barbaric.

[anne]

Mark Thoma:

"Congress needed to get something done. This is completely disfunctional."

I agree; but why is the question. I never thought there was the least chance of the legislation failing, but the only comment I heard early this morning was from Denis Kucinich on an international broadcast who was opposing the legislation as being of no support or too little support for households.

[hari]

Failure of bailout vote is a vote against McBush....

It's definitely a sign that BO is right, after all. Expect his rating to go higher and higher....

[myron]

ah, anne, always the doyenne of temperate and measured language.

[Ivo Staub]

AP (http://biz.yahoo.com/ap/080929/financial_meltdown.html):

Republicans blamed Pelosi's scathing speech near the close of the debate -- which attacked Bush's economic policies and a "right-wing ideology of anything goes, no supervision, no discipline, no regulation" of financial markets -- for the vote's failure.

"We could have gotten there today had it not been for the partisan speech that the speaker gave on the floor of the House," Minority Leader John Boehner said. Pelosi's words, the Ohio Republican said, "poisoned our conference, caused a number of members that we thought we could get, to go south."

Rep. Roy Blunt, R-Mo., the whip, estimated that Pelosi's speech changed the minds of a dozen Republicans who might otherwise have supported the plan."

---

They vote no because of Pelosi? WTF?

[hari]

Me thinks Congress is not the party that's *dysfunctional*.
They're showing the courage of thier conviction...and expect more Dems to join the NO vote, if there is a repeat of same.

No! If you want to understand government and politics, it's the executive here that's absolutely *dysfunctional*. It's the *paper tiger* with little, if any, substance.

Bernake is lucky that he tried to distance himself from Paulson/Bush - when he heard the fireworks - and tried to maintain his socalled neutrality on the Plan.

[kthomas]

Well-said, hari.

Hang in there, Prof. Thoma!

[pretty angry]

Not irresponsible. The irresponsibility was what this Pelosi-Frank-Bush plan through out it. They wanted to throw another $700 billion to Goldman Sach, MS, and the other banksters. The current crisis cannot be solved this way.

[anne]

http://www.nytimes.com/2008/09/30/business/30bailout.html?hp=&pagewanted=print

September 30, 2008

House Rejects Bailout Package, 228-205; Stocks Plunge
By CARL HULSE and DAVID M. HERSZENHORN

[There is no mention of a capital gains tax issue in this early New York Times account of the failure of the rescue legislation, however there was this mention,

"Immediately after the vote, many House members appeared stunned. Some Republicans blamed Speaker Nancy Pelosi, Democrat of California, for a speech before the vote that disdained President Bush’s economic policies, and did so, in the opinion of the speaker’s critics, in too partisan a way."]

[me]

" This shows no regard for people who might lose their jobs over this. I "

Too funny Mark. Where were you in the dot.com bubble? Where were you when IBM sent my job t-o India?

This government can no better price assets than Japan did by keeping them on the books.

I called my Congressman in support of his NO vote and have been assured that he will not change his vote if it comes up again.

Look Mark, its not a credit problem its a price/job problem. People with the crappy jobs that have been created the last 8 years cannot afford $60,000 trucks or $800,00 houses. Pass all the bailouts you want and that will not change.

[paine]

i feel
like my science has let me down

i can't discover where it sez
a whole sector effectively into de fault
can't be resurrected by uncle sam
even after a reasonable time frame
the living system analogy fails us here

ps
i knew that zombee metaphor
would come back to bite us in the mental ass

is any thing here irreversible

its not like a shut down of a coal mine
or a refinery or an electric generator

at what point will we face that ???

and even if and when

whats a brief shock like that gonna prove

the panic here is a comparatively small
sub population might get their assets fried
assets that oughta get fried
i'l admit i've turned amokish

but maybe this is the social systems
higher power working thru
the agents of the venal themselves
stomping on the wayward invisible hand here
with its sublime foot

[a]

"I'm worried, maybe for nothing"

I was worried a long time ago. Join the crowd! I think you are rightly worried. I think you should *already* have been worried.

Take a step back and see why we should all be worried. A lot of people borrowed money to buy a house at 100 which is well on its way to be worth 55 or so. That missing 45 comes either from: the people who borrowed, who will toil away to repay 100 and so will have far less disposable income for the next twenty years or so; or the people who lent, which means the banks or someone has to go bust. The rest - this bailout, Fed swaps, whatever - is window dressing. It may effect the timing of the suffering; it may effect the distribution of the suffering; but it can only change marginally the level of the suffering.

Basically, Greenspan, when he thought that bubbles were more easily cleaned up than stopped in their tracks, was wrong. Bubbles aren't easily cleaned up, unless another bigger bubble is put in place. But at some point you run out of bigger bubbles to blow, and then everything comes crashing down.

The times will get hard. But if we're lucky, we'll learn that all those trips to the mall aren't really necessary after all, that there are more important things than GDP, that the smartest people in the room are not worth 100 times what others are paid. In every crisis there is an opportunity; let's hope we seize it.

[Worker]

Barney Frank had the best quote of the night, poorly paraphrased by his hometown press:

Our own Barney Frank eagerly stepped to the microphone. He said that it wasn't the case, but also expressed disbelief that party leaders would say such a horrible thing about their own members -- that he himself would never have impugned such a petty motive on fellow congressmen.

He added that if someone would provide him the names of 12 GOP members who changed their votes because Pelosi had hurt their feelings, he would pay them a personal visit and "I will go talk uncharacteristically nicely to them" to get their votes back.

If I were voting, I'd be officially turned to Obama after the poor show today.

[ndd]

Prof. Thoma:
I strongly suspect there will be a second version of this bill. It will probably be better and require less nose-holding by Prof. Krugman and yourself.

I hear what you say as an economist. I'm replying politically, strategically.

And understand your "grr", but remember how I once told the story of how badly economists played poker compared with psychologists, because economists didn't get the head games?

[Chris]

In the past in some countries of Europe a financial crisis like this would result in the army taking charge, putting a non partisan administration in charge and doing what needed to be done without letting politics interfere. Maybe the US Army should take the lead here and impose, say, the Swedish solution of nationalization, and tell Congress to come back after it is all over but not give it the power to undo what was done.

[paine]

the people gyrate in rage
throwing wall street's monkeys
off their toilsome backs

dso what if the temple falls on us
we've had enough of this
hi fi shit snizzle

[Mark Thoma]

I may not have had the story above about Blunt exactly right. More:

"They both recognized that this was an incredibly tough vote for a lot of members, and they thought they had a real promise from the Republicans to deliver enough votes to put together a win. They weren't imposing party discipline because they thought they had enough Dems plus enough repubs to get a win. They delivered their votes, and the Republicans did not deliver theirs."

Also, someone claimed I was lying when I said Krugman and Galbraith support this bill (I deleted the comment as that is false):

Galbraith, via email: I have read the discussion draft of the bailout legislation as of yesterday, roughly. At 102 pages it is a vast improvement over the previous 3-page blank-check version, which anyway I always thought was a gambit. ...

There remains the question whether this is the right approach; in my WP op-ed I argued that universalizing FDIC insurance -- which implies a rigorous new regulatory regime -- would be better and more effective at preventing runs on banks. Of course the difficulty with that approach is that a regulatory regime can't be rebuilt overnight. In any event, that plan will be for another day. It may still prove necessary next year.

The question now is whether one supports or opposes the present bill. ...I'm casting my lot in favor. ...

Krugman: I’ll probably hold my nose and say OK — as long as it has broad Republican support.

and, Krugman: "I don’t, in the end, have much more to say about the plan. It passes my test of no equity, no deal; that, plus the danger of financial panic if it doesn’t go through, makes it worth passing, though celebration is not in order."

Baker also supports it, as I said.

[paine]

"I strongly suspect there will be a second version of this bill. It will probably be better and require less nose-holding by Prof. Krugman and yourself"

i fear your right ndd...how tedious
just when we might ave found out what a real crises
looks and feels like ....after all the hype

i'll prolly wake one day this wek and feel as let down
as i was by ......the cuban missile crisis

[Why no Republican Plan?]

If the problem is that banks won't lend to each other because of questionable assets on the books of those banks why not offer insurance for those assets and suspend mark to market rules temporarily?

I think the Republican's sniffed this bailout for what it is.

I think the American people may have to accept Saudi money coming in and buying up large financial institutions. At least they'll be sparred a long recession and high gas prices which is what this bailout sham would've meant.

[paine]

"Dems plus enough repubs to get a win. They delivered their votes, and the Republicans did not deliver theirs."

ahh the old aisle cross double cross

serves em right

the feckless machiavells

[anne]

http://www.guardian.co.uk/world/2008/sep/29/congress.wallstreet1

September 29, 2008

Excerpts From House Speaker Pelosi's Speech
By Elana Schor - Guardian

Washington

"[W]hen was the last time someone asked you for $700bn? It is a number that is staggering, but tells us only the costs of the Bush administration's failed economic policies — policies built on budgetary recklessness, on an anything-goes mentality, with no regulation, no supervision, and no discipline in the system."

"Democrats believe in the free market, which can and does create jobs, wealth, and capital, but left to its own devices it has created chaos."

"Democrats insisted that legislation responding to this crisis must protect the American people and Main Street from the meltdown on Wall Street. The American people did not decide to dangerously weaken our regulatory and oversight policies. They did not make unwise and risky financial deals. They did not jeopardise the economic security of the nation. And they must not pay the cost of this emergency recovery and stabilisation bill."

"Today we will act to avert this crisis, but informed by our experience of the past eight years with the failed economic leadership … We choose a different path. In the new year, with a new Congress and a new president, we will break free with a failed past and take America in a new direction to a better future."

[Steve Benen]

I can appreciate how ridiculous House Minority Leader John Boehner looks right now. I can even appreciate the fact that the Republican Party is looking desperately for someone to blame. But the GOP really hasn't thought this one through.

Several Republican aides said House Speaker Nancy Pelosi, D-Calif., had torpedoed any spirit of bipartisanship that surrounded the bill with her scathing speech near the close of the debate that blamed Bush's policies for the economic turmoil.

Without mentioning her by name, Rep. Adam Putnam, R-Fla., No. 3 Republican, said: "The partisan tone at the end of the debate today I think did impact the votes on our side."

Putnam said lawmakers were working "to garner the necessary votes to avoid a financial collapse."

But the defeat was already causing a brutal round of finger-pointing. "We could have gotten there today had it not been for the partisan speech that the speaker gave on the floor of the House," House Minority Leader John Boehner said. Pelosi's words, the Ohio Republican said, "poisoned our conference, caused a number of members that we thought we could get, to go south."

Rep. Roy Blunt, R-Mo., the whip, estimated that Pelosi's speech changed the minds of a dozen Republicans who might otherwise have supported the plan.

On its face, this is comically stupid. House Republicans wanted to vote to prevent a financial collapse, the pitch goes, but the Big Bad House Speaker made them mad with a speech. You can read Pelosi's remarks yourself -- if it strikes you as the kind of speech that's worth risking the economy over, let me know.

But more important that than is the truly ridiculous frame Republicans are establishing for themselves by using Pelosi's speech as an excuse for their own failure. The House GOP, for reasons that defy comprehension, has decided to characterize itself as a caucus of cry babies. Worse, they're irresponsible cry babies who, according to their own argument, are more concerned with their precious hurt feelings than the nation's economic stability.

It's a great slogan for the election season, isn't it? "Vote Republican -- We're More Concerned With Our Feelings Than Your Future."

Make no mistake -- this is a failure of the Republican Party of historic proportions. When push came to shove, the Democratic leadership delivered the votes on the rescue plan, while Republicans voted, 2-to-1, against it.

If they're going to rationalize their failure, they're going to have to do better than rejecting the proposal because of Pelosi's harmless speech.

[Bruce Wilder]

This was a bad compromise, and shows just how dysfunctional "bipartisanship" has become.

The House Republican plan was for a capital gains tax holiday. Insane in the circumstances.

The Administration Plan was to appoint Paulson Dictator and authorize him to spend (and I use that term advisedly; all the apologists, who claim the Paulson bailout "could cost less" are being ignorant stooges, imho) $700 billion.

This recession may be pretty bad, but I don't think ameliorating it somewhat would really be worth $700 billion and the Constitution. How many post-war recessions have cost the country $1 trillion? (I'm rounding up, and probably not by enough, to account for some of the other measures already taken or likely to be taken, but not included.) And, these measures are not going to prevent a recession, they are just, maybe, going to make it less bad.

Again, I fully recognize that many others, of good intention and good will, are reasoning that the whole $700 billion will not be spent or lost. I think that's a misleading rationalization; an unsupportable projection onto the Paulson Plan of other possible policy strategies.

Mark Thoma keeps falling back on, "do something". Well, not every "something" is created equal. There are some "somethings" which are so ill-conceived, that they are not worth doing. The hodgepodge, modified Paulson Plan that the House voted on today may well be such a "something" -- a "something" not worth doing. In our political system, responsible, rational people have to be willing to play "chicken" with the crazies from time to time. And, this is one of those times.

I think the Democratic Leadership in the House and Senate are earnest and responsible people. But, they mistake Paulson, if they think he knows what he's doing, or will act responsibly with great power. And, compromise with the "capital gains tax cut" Republicans in the House would just be insane.

The main trick in democratic politics is, somehow, to form a governing coalition of the rational and the sane, against the kaleidoscope of crazy. Human nature being what it is, you cannot always be sure who is going to be crazy about what. But, there you have it. FDR beat the Republican Party into a malleable minority, and on that foundation, "bipartisanship" was a reliable formula for a governing coalition of the rational and the sane.

The time for that passed more than ten years ago, as was fully evident when the House Republicans were impeaching Bill Clinton for a blowjob. Ten years is a long time for a political lesson to sink in, but the American People are stupid, and there is a heavy propaganda filter in the Media on the information they receive.

Professor DeLong is, imho, exactly right on both the politics and the correct policy principle.

The Democrats should come back with a straight bank nationalization plan. The main elements of the Paulson Plan -- particularly the ones, which would have the government bear losses on bad loans or bad mortgages -- should be jettisoned. That's still "something" and a good deal less odious.

I also think it will be much better political theatre. Earnest Democrats won't have to vote for some true horror of a bill, just because Republicans are stupid and irresponsible fools.

[Worker]

As a Republican, I completely agree with Mark's assessment.

Pelosi's speach was obnoxious politically and false factually, but no reason to vote against the bill.

The Republican's had an option to create a reasonable solution and they came up with crap. A decent but non-impactful insurance program combined with non-sensical capital gains tax-cuts proposal. Not even a populist push against hedge fund managers in democratic districts. All around useless, faux defense of the free market.

[Mark Thoma]

I'm going off of quotes like this after the vote:

"Meanwhile, his fellow Texan, Republican John Culberson, blasted the legal protections impinging oversight of the Treasury Secretary's discretionary use of the funds. He suggested other means (including reducing the capital gains tax to zero) would work better."

Or,

"Lamborn spoke to The Mail Friday by cell phone from outside the House Floor, where voting was under way.

"I'm very skeptical about the original bail out plan proposed by Secretary Paulsen," Lamborn said...

Lamborn attended a meeting of House Republicans Friday where he said a Republican consensus was the plan did not have enough free market components as part of the solution.

"One possibility would be to suspend the capital gains tax so more money could be put back into the economy," Lamborn said. "That's one example of how we can use free market ideas, solve the problem and save the taxpayers some money.""

That doesn't exhaust the quotes...

[BJ Feng]

Enough is enough, it's time to strip all the add-ons and give the Treasury the authority to do what it needs. That means no bankruptcy reform, no capital gains modifications, no golden parachute rule, those can be debated at another time.

This is what class warfare brings, everything is reduced to helping the rich and a handout for the rich, blah blah. The effect is that nothing can be done that will benefit the rich, even if it will also help the middle class and poor. I've lost a good amount of money in my retirement account and so has every American who has one. I will need to refinance in 2 years, if I can't get a new loan (just a loan at any interest below 8%) that property will go into foreclosure. I've heard that Citibank is offering jumbo mortgages at 11%, to think that this won't affect all Americans is foolish. Yet the class warfare rhetoric has made it politically impossible because everything is framed as helping the rich. It is impossible for a broad based plan that helps all Americans, not to also help the rich. So the is the result of all that. Years of rhetoric and it becomes impossible for the leadership to come out and say, hey, that was all talk and politics, let's do what has to be done for the sake of the country. The monster they've created can't be destroyed overnight.

[anne]

"Democrats: 141 Yea, 94 Nay"

Still, there was not enough of a Democratic majority vote to go about blaming Republicans.

[paine]

chris wins
the imitation
of "the high call of the loon " contest
hands down

with this effort

"Maybe the US Army should take the lead here and impose, say, the Swedish solution of nationalization"

bravissimo

[BJ Feng]

Mark Thoma, I cannot believe that was the primary reason for the majority of Republicans, perhaps for Lamborn. If it turns out true, it's very sad. I think there are other issues at play that haven't been revealed yet. Why would so many Democrats vote against? It doesn't make sense, but politics often is senseless.

[anne]

Mark Thoma"

I'm going off of quotes like this after the vote:

"Meanwhile, his fellow Texan, Republican John Culberson, blasted the legal protections impinging oversight of the Treasury Secretary's discretionary use of the funds. He suggested other means (including reducing the capital gains tax to zero) would work better."

Agreed; an incomprehensible and self-defeating comment.]

[btg]

"grr" is right.

f**k congress - and just start printing money and let the US buck drop like a rock (haha to you, chinese owners of US gov't debt!)

- i am still convinced that the only way out is to let inflation do the job...

well, maybe today paul krugman got his wish, and house prices dropped another 10% to get close their proper value.

[Callahan]

Darn that ownership society.

[Eric Dewey]

Mark, with all respect, you need to follow the lead that Barack Obama is setting and calm down a bit.

You posted just last week: "I think a bailout is needed, but is it urgent? What's important for financial markets is not so much how long the agreement takes, though pressures are building so we can't waste time, the important thing is that it appears Congress is working toward a solution. So long as markets have confidence in the potential outcomes, and so long as it is evident that a solution will be forthcoming before too long, then there is time to get the details right."

The failure of this plan, which was almost universally seen by professional economists as deeply flawed and perhaps totally ineffective at recapitalising the banks, is not the end of the story, and likely not going to immediately result in huge job losses.

What is more likely to happen is what should have happened more than a year ago - the pols will have to face the reality that they can't simply throw our money at this thing, it has to make sense to the voting public. In order for politicians to face reality, they have to feel the heat at the poll booths - and now we can see that they're beginning to.

As of market close today, things have NOT completely fallen apart, and in particular, we have NOT heard from the Chinese or anyone else that they're going to stop buying US Treasuries. That may come - but it's also possible (and I think more likely) that the Chinese will actually be MORE willing to continue investing in us if they know that we're not still living in fantasyland.

Just because this is not a mathematically predictable situation does not mean that it cannot be rationally dealt with. Obama knows that - do you?

[Bruce Wilder]

I know it might not matter, since we're just trying to "do something", but DeLong's straight bank nationalization addresses the problem of re-capitalizing enough banks to keep the banking system functioning, while letting the dysfunctional shadow banking system continue to implode.

Nobody even seems to be able to agree on what some of the mechanisms in the modified Paulson Plan are. A compromise built on not understanding what you are voting on, although common enough in democracy, is not generally, a good thing.

[roger]

Mark, Let's say this is a good bill, which I don't think it is. Still, it is a bill that basically called on the GOP to commit suicide. No party is going to do that. The pressure from the Red states and districts was such that the GOP would have drowned this November. Wasn't this obvious this weekend? Platitudes about political courage are one thing - urging a party to commit suicide for the good of the country is another.

This is a political reality. And it is pretty easy to see. Thus, if they really wanted this bill, they should have started not with 700 billion dollars, but with maybe 150, with provisions to return to it, or to give the Treasury temporary emergency power. That is the only way the GOP could possibly have supported this bill. It is quite simple:the Bush bubble is now so thick that the White House has ceased to even understand the base.

Actually, I think - as 401Ks totter - that another bill is coming. This is also going to make Florida an awful hot place for the GOP - the older constituency is going to be burned after today. Who knows what they will do?

[paine]

hey
"freedoms just another word for ...."

so it goes
my dearest fengula

some of us are feelin so free
we cry
" skunk the bunk "

those of us that is
who have been proled by the system already

after your paper egg crumples under u
come join us for a financial skinny dip
the water's nice and kool

[Bruce Wilder]

paine: "'ll prolly wake one day this wek and feel as let down
as i was by ......the cuban missile crisis"

I think I'd wait until Wednesday to put on the scary masks. Trick or Treat Tuesday should be interesting, in a bad way.

[paine]

"letting the dysfunctional shadow banking system continue to implode"

sweden baby sweden ....sweden baby sweden

[Patrick]

What Krugman et. al. perhaps don't understand is that the Republicans honestly believe they are doing the moral thing.

Conservatives in general suffer from a lack of imagination. That's why they're happier than the rest of us. Ignorance is bliss, after all. Let's face it "Liberal" and "elite" go together for a reason.

My sense is that John Q. Citizen conservative just does not understand the link between the financial system and their daily lives. As a rule, they've been conditioned not to distrust government, follow their religion, not think to critically, to have 'faith', and generally accept the world at face value. To people like this, going bust is a sign of immorality. They feel (not think) that they are being asked to pay to clean-up for the immorality of a bunch of high-flying Godless eastern liberals who make fun of them at their cocktail parties. Nobody is going to change their minds with ration arguments because they simply aren't wired that way and it's a waste of time to try.

As I see it, the only option is to craft a bail out that includes such a big, fat, juicy handout to individuals that nobody would dare vote against it. The best bet is probably Roubini's suggestion of nationalizing mortgages and writing them down across the board. Who would complain about a 20% reduction in their mortgage payment?

Either that, or it'll be 1932 by the middle of October - in which case they'll need all the prayers they can muster.

says...

From reading numerous blogs, a clear pattern on people's sentiment on this bailout bill has emerged. Bloggers who is looking out for him/her self interest voiced his/her displeasure and disdain with this bill. Bloggers who is looking beyond his/her interest tends to favor this unpopular bill. Congress' vote today merely reflects this phenomenon. Have we become so myopic, short-term thinking, and self-interest driven?

[esb]

The last time I looked, this was a republic, wherein the representatives implement the expressed will of the represented. (Unless the represented happen to be functioning as a mob.)

Well, the represented certainly expressed their will, with inputs into Members' offices running between ninety percent and essentially one hundred percent opposed to this absolutely phoney rework of the Paulson ploy (as in, er, we will come back in five years and see if we have some lost money which we will then atempt to recover from those who benefitted five years ago. Why not come back and revisit in 50 years, or even 500? Not to mention that most added provisions really just say the we trust Henry Paulson to do the right thing. We do?????)

What amazes is that the vote was even close. Given the public input it should have been 0 - 435.

If one wishes to gift out one trillion dollars from the public Treasury, build public support for the action.

And do not write draft legislation with smoke screens and obvious BS built in.

[macquechoux]

I'm with Anne 100% on this one. The Democrats have enough votes to pass anything they want; they don't need any Republicans on this one. 40% of the Democrats voted no. 40%!

I feel the current plan is dead, I don't think it can be brought back to life even remotely resembling anything just voted down. Time to move on. Yes? No?

My question is: Professor Toma, did you read the article in Today's Journal by Mary Anastasia O'Grady?

http://online.wsj.com/article/SB122265260912184329.html

What do you think? I believe your faithful readers are dying to know what you would do to lead us from the financial wilderness.

[Julio]

However dysfunctionally we may have gotten there, and however much we may stll end up with a dysfunctional result, this may be remembered as the day when, after a long plutocratic nightmare, the people's interest finally got a hearing. Even if their voice only served to make space for an obstructionist "NO" vote.

Mark Thoma:
"I know a lot of you think we can get through this - you are nuts to take that chance, this is extraordinarily dangerous -"

Well, I cannot argue with you from any knowledge. But the aspect of the vote that says "no, we don't need to do this TODAY" seems eminently reasonable to me.

"You don't see the effects as a big drop off in employment all at once since investment projects can take years to complete and momentum from the past keeps the ball rolling. But as those projects end, if they are not replaced with new ones, employment and growth will suffer."

Yes, but this doesn't seem to me a good argument for this particular plan and its timing.

"And it's not just investment, people who sell cars, refrigerators, tractors, TVs, stereos, and so on, rely upon credit markets. If the credit isn't there, they aren't needed."

So, we're left with:

"I assume Pelosi calls a new vote; but if it fails, then what? I guess write a bill that is actually, you know, a good plan, and try to pass it — though politically it might not make sense to try until after the election."

[Josh]

Crisis yes, Emergency no. Please count to 10 Prof. Thoma, everything else you write is so wonderful.

This bill was a scam, we all need to read it. Don't pretend it was going to stop the coming economic contraction.

Suppose this really was an emergency and businesses were going to be unable to roll over short-term debt next week and thus unable to finance operations, pay-employees, etc. Why would the Treasury decide to infuse capital into the system via a complicated and drawn out process that requires them to set up an institution and hire fixed income experts to value this myriad of "troubled assets" and then conduct reverse auctions for their acquisition? This is not what you do in an emergency...

Of course if you weren't planning on scrutinizing which assets you buy then this could be a response to an emergency, only the most reckless one imaginable. Maybe this "tax-payer fair process" on the new draft bill was just window dressing. Maybe the treasury sec wasn't planning on getting a fair deal for tax payers, the bill certainly gave him the authority for this. Now the draft bill removes the requirement that firms mark their troubled assets to market and the oversight of the Treasury is ex-post, so maybe the Treasury's plan was to have the now inflated book values for these assets give them cover for overpaying and then they can purchase the hundreds of billions all next week and say goodbye in January?

Stop panicking people. In the end the Fed is the lender of last resort and can step in for some of this short-run financing, so all this "the world is going to end next week if we don't sign the bill" commotion is just nonsense.
Start-Over with the Swedish plan. Nothing reckless here, Democracy has spoken. Blame goes on Bush and the Treasury Sec. for their approach. Remember my statement is about the short run, the crisis is not ending anytime soon.

[Bruce Wilder]

anne: "Still, there was not enough of a Democratic majority vote to go about blaming Republicans."

You can always get a majority of Democrats to blame the Republicans. In this case, it is entirely justified, as the Republicans created the mess, and refuse absolutely to propose or support any sensible measures to address it.

[paine]

"Either that, or it'll be 1932 by the middle of October"
ya
but our choice this time round
don't got an FDR

its a choice
between hoover and ...grover cleveland

[Lee A. Arnold]

Are we back to the Fed and Treasury acting on a case-by-case basis?

[Caribou Barbie]

they've been conditioned not to distrust government

Where have you been since 1980? Starting with Reagan, "the government is the problem."

[paine]

all jokin aside

"amerika can't handle a swedish plan "

that is the wages of 6 decades worth
of
big media malarky

[Bruce Wilder]

A Banana Republic With Nukes

credit: Hullabaloo

[paine]

"Are we back to the Fed and Treasury acting on a case-by-case basis? "

and as harvey f would sourly yowl

"is that so bad "

[paine]

bruce
i prefer your own material

[Scam Artist]

Smaller Banks Thrive Out of the Fray of Crisis
People Shift Money From Wall St. to Main St.

By Binyamin Appelbaum
Washington Post Staff Writer
Friday, September 26, 2008; D01

Banks throughout the United States carried on with the business of making loans yesterday even as federal officials warned again that their industry is on the verge of collapse, suggesting that the overheated language on Capitol Hill may not reflect the reality on many Main Streets.

The industry is resilient despite the struggles of some members. Washington Mutual, a troubled Seattle savings and loan that was among the nation's largest mortgage lenders, yesterday was seized by the government and sold to J.P. Morgan Chase.

At the same time, many smaller banks said they were actually benefiting from the problems on Wall Street. Deposits are flowing in as customers flee riskier investments, and well-qualified borrowers are lining up for loans.

"We collect money from local savers, and we lend it in the local community," said William Dunkelberg, chairman of Liberty Bell Bank in Cherry Hill, N.J. "We're doing fine. There are 9,000 financial institutions out there, and most of them are small and most of them are doing fine."

Dunkelberg, a professor of economics at Temple University and chief economist for the National Federation of Independent Business, added that a recent survey of that group's members found that only 2 percent said getting a bank loan was the great challenge facing their businesses.

"If you can't get a loan, my advice is to go see your local community bank," Dunkelberg said.

Even some of the nation's largest banks, which have pushed hard for a federal bailout, deny that the current situation is forcing them to reduce lending. "The strength of our core businesses, capital and liquidity are enabling us to continue to support our customers," Bank of America, the nation's largest bank, said in a statement. It added, however, that the bailout plan would allow more lending.

The most recent Federal Reserve data show that the volume of outstanding bank loans declined 0.5 percent from the last week of August to the second week of September, though it was up more than 6 percent from the corresponding time last year.

There is no question that banks, particularly the largest banks, are struggling to borrow money. Large banks have basically stopped lending to one another. Bank investors also are hesitating. The volume of short-term debt issued by financial institutions, known as commercial paper, fell by $50.3 billion for the week ended Wednesday, even as the volume of short-term debt issued by other types of companies increased slightly.

That has forced banks into the arms of the Federal Reserve. Total borrowing in the last week set a record, at $262 billion, more than doubling the previous all-time high, set the week before last.

The most dramatic indication of the problems facing banks is how they are treating each other. Overnight Wednesday, one measure of the cost of borrowing from another bank, the London interbank offered rate (Libor), posted its largest spike for three-month loans since 1999.

Even more startling to market observers was the difference between the interbank rate and the price paid by the government to banks for borrowing their money. The interest rate on a three-month Treasury bill fell to less than 0.5 percent Wednesday, creating a difference of more than three percentage points between the price banks charge the government and the price they charge each other.

"It's a sign that banks don't trust one another," said Richard Marston, a finance professor at the Wharton School of the University of Pennsylvania. "It's a canary in the coal mine; it shows just how distressed those relationships have become."

Large banks use Libor loans as a way to balance the books at the end of the business day. It allows the banks to make sure they're holding enough capital relative to the loans they have made. The inability to borrow -- or to borrow at a reasonable price -- forces banks to make sure they have enough money before they make a loan.

In some cases, that means a loan does not get made.

"Clearly, there are challenges," said Sam Schreiber, Wachovia's president for the mid-Atlantic. He said the cost of loans has increased and the bank has tightened its lending standards. "But when there's opportunities and a client needs credit, we're working to fulfill those needs."

Wells Fargo, one of the nation's largest mortgage lenders, yesterday quoted an interest rate of 9.125 percent on a jumbo mortgage loan, three percentage points higher than the 6.125 percent rate on a standard mortgage. Jumbo loans are riskier: They cannot be sold to the finance companies Fannie Mae and Freddie Mac because of their size. In the Washington area, the category includes loans larger than $729,750. Historically, lenders assessed a surcharge of 0.5 percentage points for the extra risk of holding a jumbo loan.

Smaller banks, by contrast, make few mortgage loans, and their lending is fueled by deposits, rather than borrowing. That has insulated them from the troubles on Wall Street.

"We're drowning in liquidity because people are pulling money out from other places and depositing it with us," said Peter Fitzgerald, chairman of Chain Bridge Bancorp in McLean. "Our bank has benefited tremendously."

Fitzgerald, a former senator from Illinois whose family has been in the banking business for generations, said the current situation struck him as similar to past downturns.

"The banking system did need to slow down," Fitzgerald said. As it does, riskier customers are being turned away. At the same time, banks that overextended are now forced to turn away even good customers. The challenge for Chain Bridge, he said, is identifying the worthwhile customers. The bank has plenty of money to make good loans, he said.

http://www.washingtonpost.com/wp-dyn/content/article/2008/09/25/AR2008092504155_pf.html

[lonesome moderate]

Mark Thoma: "Baker also supports it, as I said.".

Not that I think this had anything to do with the outcome, but Dean Baker appears to have changed his mind at the last minute. http://tpmcafe.talkingpointsmemo.com/2008/09/29/why_bail

[esb]

I also fault Paulson absolutely for creating a climate of fear which will make the entire situation far worse following an complete failure to build public support.

The political elite is so accustomed to successfully operating through deceit, deception and duplicity that it is disfunctional under the scrutiny of an engaged public.

[DKE]

I could understand the anger and general disgust against the House Republicans if 94 House Democrats hadn't also voted against the bill. But frankly, the Democrats really couldn't get solid agreement within their own party.

And (if one of the objectives was to improved credit availability and liquidity) it wouldn't have worked anyway. Face it, the White House and the Treasury ruined this opportunity themselves with crappy legislation, a history of lies and misrepresentation, and poor (or fraudulent) analysis claiming a 'trickle down' credit/liquidity strategy (boy, that is credible).

[Patrick]

There seems to be an idea floating around that we can take our time on this. I disagree. Companies will start to run into cash flow problems as credit seizes-up. We're near the end of the month and payrolls and suppliers need to be paid. Don't underestimate how quickly this could spiral out of control.

[Worker]

Propose a separate program that actually buys mortgages- create a tender process to pay a fair market value for all tranches of ABS and unwind them.

AND instead of writing down the loans, restructure the payments while retaining upside participation in future participation. Essentially a future tax on the people who caused the problem. Mix in some current taxes, retro to 2007 tax year, on hedge fund/ private equity types and other taxes on financial firms.

The combination of Paulson's market activities and improving homedebtor liquidity, the root of the problem, would work economically and politically.

Otherwise, the Dems will soon find that there is just as much, if not more, opposition to giving irresponsible borrowers big house write downs (cram downs) as their is to Paulson's mortgage fund. Cramdown through bk is a worse plan than Paulson.

[paine]

does any one here have a brake out and analysis of the no vote dems

blue dogs ....progs etc

since both left and right are riled here

[Bruce Wilder]

paine: "its a choice
between hoover and ...grover cleveland"

Could be. That's been Stirling Newberry's opinion, and I respect his judgment a lot.

On the other hand, I think Obama is the Grand Master of Hotelling politics. He sidles up so close to his opponent on the continuum issues, that he can sometimes flank his rival on left and right, simultaneously. He did it to Hillary, masterfully, and has been running for President, at least since his nomination for the U.S. Senate, positioning himself with rare foresight all that time.

He's been doing it to John McCain, and was doing it during the debate, to such a degree that it nauseated me. But, he's had my vote all along, so my reaction doesn't matter.

It has been an amazing performance, but I don't know how predictive it really is. It is, by nature, a political tactic, and, to be truthful, it is meant to be somewhat deceptive.

A lot depends on the degree to which the Democrats build their majorities in House and Senate. The political landscape will look very different than it has in many, many years. The country's political center of gravity will be northern, coastal, urban and cosmopolitan, for the first time in more than 40 years.

Grover Cleveland, bless his stout heart, answered to the Bourbon Democrats, a species that died out many years ago. And Cleveland did not have precedents, theory or political heroes to suggest activism; RFD was pretty thin soup. Somehow, as persuasive as Austan Goolsbee may be, I doubt he can overcome the ghosts of Keynes, FDR, LBJ, or even Clinton. Not with liberal Democrats feeling their ascendancy. Not with the collapse of old post-WWII world order and the challenges of global warming, peak oil and ecological collapse looming.

It will be a heady time, full of giddiness. Newberry thinks Obama will blow it, with excessive caution and deference to the plutocracy. We'll see.

[Patrick]

Barbie - that was a typo on my part.

[paine]

"Don't underestimate how quickly this could spiral out of control "

who sez ??
the fed stands on guard ..eh ??

[foo]

So the Republicans didn't like the bill and voted against it. That's their call. To blame it on Pelosi's speech is what will really kill them. The cry-baby image it invokes is bad enough. But really, that speech is as innocuous as it gets. McCain has said worse things about the Bush administration. Obama and Hillary said worse things about each other. Even the Republican house leadership said worse things about Bush during last week. Sheesh.

says...

Paulson and Bernanke need to convey to the nation exactly what they have told congressional leaders about the prospects of the economy after years of living on leveraged debts. The people need to be informed and sober, not be railroaded and fear-mongered. We need an honest discussion about the true state of the banking/financial sector, or is it in national interest to keep it ambiguous.

[nobody you know]

Can anyone give a source for this?

"NPR did a fantastic story explaining how we ever got into the subprime mortgage mess. How the total amount of money in the world doubled in a relatively short time. They needed somewhere to invest. They choose mortgages. When all the good mortgages ran out to invest in, lenders lessoned their rules. More mortgages more money."

(found on a blog somewhere while trying to find the actual NPR interview, which I heard in passing yesterday or Saturday -- no idea who was being interviewed though).

[paine]

"That's been Stirling Newberry's opinion"

i'm crest fallen

stirling and me....
and
who else bruce ???
herb stein's boy ???... ugh i'm so f ing dull

[Ronald Rutherford]

Be careful what you wish for because you may get it.
Seeing so much reaction as to not "bail out" the rich fat cats then did not the construction workers and the loan originators and the secretaries and building supplies workers and a whole host of people also benefit from this boom {or bubble}???

Luckily the Dems never stopped any bills by saying that NO we do not need to come up with our own ideas, we just oppose Bush.

Aren't the Dems in power now or did I miss something?

[Patrick]

"who sez?"

Liquidity trap sez. Unle Ben has nothing but string to push on.

[paine]

bruce

obama crafty like fdr in 32

really sir
i'd give anything...if it were so

but where's his secret brain trust
laying up recipes
for a new AAA and NRA ???

what of larry and austie and what's her name
that other flatlander hack

ARE THESE ADVISORS MERE FRONT MEN

LIKE PATTONS DUNKIRK FORCE ????

[donna]

"The main trick in democratic politics is, somehow, to form a governing coalition of the rational and the sane, against the kaleidoscope of crazy. Human nature being what it is, you cannot always be sure who is going to be crazy about what. But, there you have it. FDR beat the Republican Party into a malleable minority, and on that foundation, "bipartisanship" was a reliable formula for a governing coalition of the rational and the sane."

As so desperately needs to happen again, Bruce.

Sigh.

But, I have to say, I didn't like the bill, I don't like giving Paulson any authority to bail out his buddies the way he wanted to. If Goldman Sachs goes down, and all these bastards suffer,so be it, they all deserve to after the way they've acted the last few years. My 401K takes a hit, but, I'm lucky; I don't need it for another 15 years anyway.

Retirees are already suffering, though. My laid-off friend in L.A. is suffering, and I'm still paying his car loan so he can keep driving around looking for a job. Lots of people are going to be hurting. If we don't see a HUGE tax increase on the wealthy in the next couple of years, I'll be very surprised.

And if this election doesn't vote in new members of congress in droves, I'll be very surprised. Democrats, Republicans, or whatever, we need people in office who are functional. We need a leader who is functional to organize some consensus about where we all go from here. Obama is. McCain isn't. The rest is simply logic.

[anne]

http://www.nytimes.com/ref/washington/ROLLCALL.html?currentChamber=house&currentSession=2&currentCongress=110&currentRoll=674

Here is the roll call, which I cannot print but looks as though there were lots of motives for Democrats voting against the legislation. there were conservative and liberal Democrats voting against the bill. For instance in Districts with significant numbers of people of color, the vote seems to have been split.

[paine]

"Liquidity trap"

i think we got a demand with no supply crisis pending here
pat...so maybe the banks use the
"so u want a working capital loan he bub
....then just pull my finger "trick
but
for now
there'll be no push on a string thing
that comes later
when the finger fart
has dried up the payment flows
and the real production economy gives way under us all

[anne]

Can anyone give a source for this?

"NPR did a fantastic story explaining how we ever got into the subprime mortgage mess."

http://www.nytimes.com/2008/09/29/business/media/29carr.html?ref=business&pagewanted=print

September 29, 2008

Daring to Say Loans Made No Sense
By DAVID CARR

Sometimes, if you want the real answer, you have to ask a dumb question.

Alex Blumberg, a producer at “This American Life,” a public radio show that specializes in old-fashioned storytelling about local slices of Americana, has never owned a house or had a mortgage, let alone covered the financial industry. Nonetheless, he was fascinated as he watched the subprime mess unfold.

His dumb question? “Why are they lending money to people who can’t afford to pay it back?” ...

[baileyman]

You know, if we had puts and calls trading on median wealth, you would see the puts fell and the calls rose today. Is that better or worse than the market?

[ken melvin]

When someone when asked what should be done insists on talking about how we got here, as both candidates did in the debate, you know for damned sure they are not decision makers. The only question, the only thing that matters, at this time is how best resolve this mess.

[paine]

if this is big D II
its kinda goin heavy on the prelims

using august 07 the first major recognition
the house lot bubble had gone pop
as the start
we're at the fall of 1930
last time things were way more juicey by this point

but still
not many even by october of 30
knew what lay ahead
would be so so so horrendous

[Bruce Wilder]

Structurally, the economy moves much, much faster. That's not just hype from popular books.

says...

One can rarely go wrong quoting BW.

"This recession may be pretty bad, but I don't think ameliorating it somewhat would really be worth $700 billion and the Constitution."

This is not a Dem or Rep crisis. Assign the blame to those responsible for this fiasco -- Paulson and Bernanke. House prices peaked in Summer 06. By Summer 07 it got worse. And know we're here in Fall 08. Paulson and Bernanke had plenty of time to for contingency plans and to notify the party leaders in advance. Yet they chose to spring their little charade on the American people in the "last" second. This is all sick theatre produced by the Paulson and Bernanke production company.

[halbhh]

The time frame that matters *is not* days, but rather weeks, or even up to 2 months I think. In a week or two, businesses that would fail in any case may indeed fail now, but....businesses that would survive for years after any bailout can last a few weeks now easily.

A business that is already on the edge right now is unlikely to be viable in *any* scenario during the coming year anyway.

So no, the expected crisis that was inevitable once the credit bubble accelerated isn't exactly the moment you have to desperately save what can't be saved anyway. Instead, it's the moment to carefully plan your long term economic policy, and not pretend you can turn back the clock to 2004, etc.

[anne]

http://tpmcafe.talkingpointsmemo.com/2008/09/29/why_bail/

September 29, 2008

Why Bail? The Banks Have a Gun Pointed at Their Head and Are Threatening to Pull the Trigger
By Dean Baker

If you have a real story, you don't have to make up phony stories. That's pretty straightforward.

I've heard lots of phony stories. Much of the country's political and economic leadership has been running around raising the prospect of the Great Depression and a breakdown in the banking system (I actually had taken the latter seriously). These stories are absolutely not true.

There is no plausible scenario under which the no bailout scenario gives us a Great Depression. There is a more plausible scenario (but highly unlikely) that the bailout will give us a Great Depression. There is no way that the failure to do a bailout will lead to more than a very brief failure of the financial system. We will not lose our modern system of payments.

At this point I cannot identify a single good reason to do the bailout....

[Bruce Wilder]

What passes for a liberal Democratic economist these days does seem pretty pathetic, at times.

Maybe, they will grow in the job. Power does that, sometimes.

[anne]

An acquaintance at Citigroup assured me yesterday that the bank would not buy Wachovia because there was more need to keep a sufficient cash reserve though of course stock could be used for the purchase. Still, the need would potentially be for more cash to cover for Wachovia. Well Citigroup bought the bank, and Warren Buffett is busily spending cash, more today, in spite of needs for a significant reserve as a catastrophe insurer.

I do not really understand what is happening to which companies and why. Why is there so much confidence, any confidence, among a number of leading corporate managers?

[anne]

When a Representative from a District with significant numbers of people of color votes against a financial system rescue, there is real need to ask whether there is any perception of assistance from the legislation for those households early and especially harmed. I wonder about the importance of this perception.

[erewhon]

Four Democratic representatives from my area, Becerra, Schiff, Sherman and Solis all voted against the bailout. I will email each of them tonight and tell them they did the right thing. I can’t respect Pelosi, Hoyer, Emmanuel, Dodd or Frank. I’m not opposed to any bailout, but we need a better bailout bill which wrests control out of the hands of Hank Paulson. They who caused the crisis can’t fix it in any real sense.
To quote from William Greider in The Nation:
The essential political failure, in my view, is that Congress did not step up and assert the full emergency powers of government in this epic crisis, that is, take temporary control of the entire financial and banking system so regulators and policy makers can steer the US economy to safer ground, compelling the private institutions to follow their lead. This rescue plan remains essentially voluntary. Yes, the Treasury Secretary would be awarded gargantuan personal powers, but there is not much in writing to compel the banking behavior of private interests he chooses to rescue them. One assumes Paulson will demand some private deals and use his enormous leverage to squeeze anyone who resists. But there is nothing to guarantee this path is taken. The bailout will belong to the club and the club will manage it.
Chalmers Johnson cuts right to the chase:
If we don't significantly reduce military spending now, the bankruptcy of the United States is inevitable.

And, please take note of Brad Seltser’s comments on the Fed’s liquidity issueshttp://blogs.cfr.org/setser/2008/09/26/extraordinary-times/ Has anybody been minding the store?

Take some deep breaths, because business as usual does not work.

[Mark Thoma]

The real Dean Baker:

"I am actually with the experts on this. What we risk is a shutdown of the banking system. I don't want to go there. This is what started to happen last week. The danger is real. The question I raised is the urgency. Can the Fed and Treasury get by with band aids and duct tape for another week. I think so, but I have been wrong about some things in my life.

As far as the $700 billion, the logic is massive overkill. We want the Treasury to have enough at its disposal to be able to overwhelm any possible run. Can we do it with less? possibly, but if we ended up without enough, then we would have thrown money away for nothing. I am very sympathetic to the idea of having something like $700 billion to ensure that the system is back on its feet."

The "I have been wrong" is saying he is not opposing this - he understands. His public posture is to try to get this as well:

"To me, the thing is the be sure that we beat the crap out of the CEOs and the banks that need the money. If we do that, then we have dealt with the most important part. Of course we should also try to do something to help the homeowners. Ideally we would also get a financial transactions tax and a downpayment on regulatory reform, but that's a big wish list."

But he agrees there's not a lot of time.

[scone]

The urge to "do something, anything, right now!" must be resisted. That's panic, and we don't need any more of that now. What we do need is a good plan, a thoughtful plan, a plan that has some chance of real bipartisan Congressional support, or none of this works. The American people have shown that they simply will not accept a "hold your nose and vote" solution. They want something better. Sounds perfectly reasonable to me, and BTW, that's the way democracy is supposed to work.

[ken melvin]

Obama like FDR in 32 but folks this ain't 32.

[don]

Mark -
How about the 150 economists (including some Nobel laureats) who opposed the bailout?
I know that in the long run we are all dead, but our children deserve some consideration.