How Do You Make a DC Intellectual Look Less Articulate Than Sarah Palin Being Interviewed by Katie Couric?
That's easy. You ask them how failure to pass the bailout will give us a Great Depression.
The odds are that your favorite DC intellectual type has uttered some dire warning like that. After all, they all heard some authority like President Bush or a highly respected news reporter make such a claim. All right-thinking people know that we just have to give $700 billion to the Wall Street crew or the economy will collapse.
While all right-thinking people might know we need the bailout, just about all right-thinking people don't have a clue as to what they are talking about.
The Great Depression story is of course the most extreme case. No one has yet sketched out the sequence of events that will give us ten years of double-digit unemployment. But hey, if the scare story helps get the bailout passed -- and gets those uneducated skeptics in the hinterlands to buy it -- why not talk about the Great Depression?
I was on a talk show today in which one of the other guests (a representative of the security industry trade group) told listeners that you can't get a mortgage unless you put 30-40 percent down. This is of course total garbage (the interest rate on 30-year fixed rate mortgages is a very low 6.0 percent) and the vast majority of loans are being made with 10-20 percent down, but lying for Wall Street is no sin.
The host of the show was appalled to find that neither I, nor the other in-studio guest, supported the bailout. At one point he became exasperated and told me that because companies can't get access to credit they might have to lay off workers. He told me that United and GM may have to begin laying off workers next month if the credit squeeze doesn't ease.
Of course if United and GM actually do lay off workers, the credit squeeze will be a very small part of the story. The airline and auto industry face really big problems for reasons that have nothing to do with the credit squeeze, although paying higher interest rates on borrowing clearly does not help.
It is remarkable how the contemptuous comments that the elites have directed at the masses for opposing the bailout can be so much more accurately directed back at themselves. In fear and anger they have embraced a bailout that makes little sense in the context of the economic crisis facing the country. Rather than listening people who actually understand the economy (I doubt a single economist in the country believes that the bailout is the best way to help the economy) they have shouted down and shut out critics of the bailout and have been willing to spread all manner of outlandish scare stories to advance their case.
It was impressive to see the mass outrage over the bailout at least temporarily stop the bill. But, the full court press by Wall Street, the media and the entire political establishment is hard to counter. If the bill is not stopped, those who vote for it should at least be held accountable for the economic mess they create. Remember, these are the folks that couldn't see the housing bubble.
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haste makes waste
ie iraq war
ie going down that same road again
will continue to go down that road until lessons are learned
ie haste makes waste almost every time
with few exceptions
Right now the credit markets are frozen, because no one knows who goes under next. Lehman Bros. was a counter-party to millions of trades that are now unhedged..
I am trained in economics, and the ignorance and irresponsibility of Congress amazes me. SO WHAT if calls are running 100:1 against it, you still step up and do what is right for the country. In all likelihood, the government won't lose a dime on this so-called bailout. It is a purchase of assets, not an expense. If held to maturity, or merely until normalcy returns to the credit markets, these assets will probably be sold at a profit. The taxpayer will probably make billions on the AIG deal...any private equity investor would give his right nut for that deal...11% interest plus 80% of the company...
The problem is here not enough Americans understand economics.
Go take Econ 101.
The ignorance of the American public and Congress regarding economics is evidently second only to the very folks who got us into this mess in the first place.
How many times have we been told that the taxpayers won't lose a dime? And we lost a lot more than a dime, most of the time.
There are better plans out there, but the Senate and House are not listening! Paulson and Bush yelled "wolf" and they all went into panic mode. They still are in panic mode, as evidenced by the Senate rushing to try to pass this Paulson BS with a little band-aid or two plastered on it tonight.
Ptooey.
Though I understand what happens when credit seizes up, I don't thinks this is as simple as an economics course.
The public is not being told what it is being asked to buy and how it's supposed to work for them. In a matter of months, we've seen the fed bail out 4 large companies (about $315B) and now they're asking for another $700B, at least, which they'll have to borrow. Yet, the administration is still borrowing from China to continue an occupation in Iraq, millions more in Afghanistan and other locales around the world while our schools and bridges fall down and we do nothing to further our independence on fossil fuels. And while big business is messing things up, giving multi million dollar severance packages to people who run their ships aground, get tax breaks up the wazoo and now come looking to the little guy, middle america, to open the purse strings yet again without really telling us what we're supposed to be buying, it just doesn't sit well.
And people are confused and fed up with a president who yells "the sky is falling" every few days. We gave him the benefit of the doubt in '02 and have gotten burned quite a bit since. He will leave office with two wars raging, two more that he seems intent on starting which will hamper any recovery of our economy for whichever administration takes over.
Thank you sensible for giving us this information. No one explained as you have.
If you are stating this correctly as i have others allude to then i hope they will respond or diagree with you smartly.
Those that comitted this FRAUD need to be investagated and prosecuted or this fraud will continue for years and destroy America and its laws.
The issue is, no one is willing to lend to anyone else even if they are completely sound, yes?
Ok, so we know who is safe, and who is not, based on that statement. Why do we need a middleman of giant investment banks? If small banks need loans to keep businesses doing business on a daily basis, why can we simply not cut out the middle man and loan them the money?
It's called a BAILOUT because it IS a bailout. The overcompli
Enough with this system. They push paper and create money out of nowhere. Remember why money exists in the first place? To act as a transactional unit that can be substituted for goods and services. When you get more money without exchanging any goods or performing any work...som
Great post. Please copy and repost this often so that it does not get buried six pages down.
I have been opposed to the bail out since day 1. It just doesn't make practical sense to me. Individuals do not get "saved" when they make poor decisions and declare bankruptcy. Just think of the number of bankruptcies and foreclosures on an annual basis. The economy would be in a different place if we "saved" all those people from their poor decisionmaking, yet we don't. If we don't do it for individuals, then why do it for an industry that is where it is due to greed and monetary mismanagement? I'd rather see the $700 B put into job creation, i.e., financing for green businesses, extension of unemployment benefits for those going through job training, student loans, etc.
"I'd rather see the $700 B put into job creation, i.e., financing for green businesses, extension of unemployment benefits for those going through job training, student loans, etc."
Count me in on that!
My idea of the problem... No one can say: the bailout will definitively save the financial system (if anyhow it has to be saved), but one can say that it will relax all the financials around Wall Street. Like a good massage... The problem of the whole financial system is based on confidence. If confidence is good, so does the stock market, if it feels depressed, so does the stock market. And there comes the bailout, it's a 700 billion message sent to put confidence in the system, hoping the shares will follow. It's a 700 billion antidepressor for high flying financials
Shame on a system that doesn't rely on sound science or anything close to it, but just on feelings and confidence.
Midhenry is right, and I am appalled at the ignorance of so many Americans who think their life will just go along as always as credit is sucked out of the economy. Imagine this: no car loans=no car sales=massive layoffs=more foreclosures=more layoffs, etc., etc. Imagine no credit card debt as the credit card companies can't finance their loans to borrowers, so they stop extending credit. Sales plummet across the board. Layoffs and bankruptcies abound.
Main street businesses by the thousands go broke. Are you people nuts? This is what you want?
You're still making sense, but the emotions are coming into play now and even this rational explanation can't be heard when people are emotionally tied up in this. Some of us are expected to be emotion about this but when the professionals in congress make decisions based on emotion, it takes confidence in our lawmakers off the table and makes it possible for us to retain our positions too, even if they are wrong. .
Good try though.
Now the Senate has attempted to bring additional pressure to pass this bailout bill by adding tax credits for renewable energy to it. These people really do not care what they do to the country as long as they get their way. The once booming solar and wind energy industries have now flattened out due to the games that are being played at their expense.
This plan will not stop the foreclosures, which drive the value of the surrounding property down, which leads to more foreclosures, which leads to us being right back at this point in a few months. By that time, United States' credit may be maxed out as a result of this bailout and continuing economic failure and we will have nothing to attempt a recovery with.
Congress and the Senate need to stop giving this blatant attempt to steal any credibility by even discussing it. The more scrupulous Democratic and Republicans have a plan in development that will allow the banks to pay for their own recovery if they want to.
In the meantime, a plan that will fix the problem permanently has been issued:
http://ewe
EXCELLENT LINK websmith
EVERYONE NEEDS TO READ THIS!!!
GREAT LINK websmith I AGREE EVERYONE READ IT AND SEND IT TO OUR POLITICANS ON ALL SIDES.
The entire problem with this situation can be said in one word.."GRE
While I don't have the details on this, my understanding is that many people bought homes that they couldn't afford because the loans had very favorable interest rates and low payments in the initial years. With home prices climbing quickly, they could sell for a huge profit before the rates adjusted and walk away with "free money". When home sales slumped and values began falling, a lot of folks were stuck with homes they couldn't sell, mortgages that exceeded the value of the property, rising interest rates and/or balloon payments due.
You're right about the greed. There's no such thing as something for nothing and every "easy money" scheme will ultimately collapse. Unfortunately, this one is about to collapse on everyone's head.
Excellent commentary, Mr. Baker.
Dean- i get your online newsletter and agree with almost everything that you wesibrot write, but I am afraid I disagree here. I think that it is quite possible that this "bailout" could end up being far less expensive than the initial projected 700 billion- especially now that the government will get warrants and be able to resell these now worthless securities. it is unfortunate that the government has to help the rich bankers that caused this crisis- but haven't heard of a good altrenative from you or anyone else. I saw the other day that you wrote that this could end up being bad just because it would preclude other measures by virtue of its cost. is that still the case? I don't mean to be flip but right now we are only talking about 350 billion authorized- folks this less than the annual outlay for defense, not including the iraq war, and by some 170 billion. is it really true that this solution will hurt and not help- in and of itself? also, you say this won't lead to a great depression- that's fine, but isn't there something this side of the great depression that's pretty bad? I just don't want this credit crunch to hurt the public at large...se
Not so fast my friend. To fix this problem it will cost in the trillions of dollars because the gov't has to bailout both Wall Street and Main Street.
Foreclosures have to be stopped and the junk bonds have to by bought. If you do one and not the other it all collapses anyway, so you have to do both. There is no other way I can see.
I would call somebody and do or say something to someone... But only one problem... I have no freekin clue what we should do!!! People like Mad Money Kramer seems to be saying we need to do this, Paul Krugman says it's necessary but was avoidable.
Remember when Cramer was screaming, and I mean screaming, on CNBC for Bernacke to lower rates. Not that Cramer was solely responsible(I think he thinks that), but this helped set a tone wherein Bernacke was intimidated by Wall St., enabled by Paulson.
Credit is tight because they are all waiting on the 700 billion interest free. Most corporations are quite willing to lay people off and wait for the free money.
In forming our own conclusions about anything, including the state of the economy, we can only learn as much as we can and then make our own decisions, based on what we've learned. That is true, no matter how educated we are about the matter at hand.
LIke us laypersons, economists disagree on the state of our economy and what should be done; however, despite Mr. Baker's comments to the contrary, it is clear that the very large majority of those having special knowledge about economic matters are saying that we are on the verge of an economic disaster and that it will occur, relatively soon, unless something like this package is adopted.
My own conclusions are as follows:
- greed and unregulated capitalism are the root causes
- the economy is critically ill, time is of the essence, and economic disaster will almost certainly occur without drastic action
- the fact that some bad guys may benefit is regretful; however, the bottom line, and what should be the main consideration, is that the average American will be in a whole lot of hurt without prompt and effective action
- the cost of such a package, relative to an real economic failure, is minimal. Consider, for example, that Americans lost, in the market's immediate response to the House's rejection of this package, almost twice as much money than what this package might cost in the worst case scenario.
This package must be adopted. The time for recrimination, reformation, justice and,
The problem is that I, like so many Americans, do not understand most of this. I am so confused because one minute I hear the bail out will work and then the next it wont work. I hear it will make things better and then I hear it will make things worse. Obama is the guy I am voting for and he tells me that it needs to be passed! Who do I trust? Does anyone really know anything?
Either way something has to be done I just don't think it needs to be done in a hurry. If it takes a few weeks than so be it. I think it should wait until after the election.
I do not believe that freeing up more credit is the answer, it is the problem. This is a teachable moment that we should not let pass like the one following 9/11. After 9/11 We the People, were told if we want to prove we are "real patriots" we should go shopping and now we are being told that again. It is not true. And if any of these "smart" people really cared about this nation, they would tell the American people that we are in deep do-do and it is going to take each of us sacrificing creature comforts like a new washing machine or car, or walking instead of driving. We need real leadership to tell us what we need to hear rather than what we want to hear, and to that end I commend "We The People" for standing up and making those who profess to represent us think twice. Now let us endeavour to get rid of the DEADBEATS IN WASHINGTON.
Yes! More heroin for the addict. Free up the credit for those who have abused the credit. How do we get out of this credit addiction?????
'DEADBEATS' IS RIGHT THOMMIE...
The Paraguay property sits on the largest Aquifer and already has equipment building air strips. Lots of activity has been going on for a few years. Google maps had a big picture.
The water is the key, plus Paraguay was made to sign the infamous "We will not hold the Bush admin responsible for any WAR Crimes and will not extradite for arrest and trial anywhere."
Bushco can sell Paraguay's water right out from under them, helluva hand that Bush.
Dean Baker,
I hope you can understand what I'm about to say. If we bailout Wall Street chances are many banks will still fail, if we bail out Main Street chances are banks will still fail. It all has to do with the prices of homes being grossly inflated. If the gov't comes to the rescue of the home owner buys up all the bad mortgages but doesn't buy the mortgage backed securities, the lower home prices will kill the mortgage backed securities causing the banks that hold them to become insolvent, because the corporate bonds are tied to companies balance sheets. You'll have to look the rest of the explanation up yourself it would take me too long to explain. The reverse is also true if Wall Street is bailed out and people continue to be forclosed on in communities around the country it will drive down the value of everyone homes which will cause the mortgage backed securities to marked down which will lead to the banks becoming insolvent.
Houses have a real value that should have something to do with raw materials plus labor minus depreciation. Its the land that's crazy, a combination of speculation, people's wish for their own home, and some crooked flipping that drives prices up.
You're right. Lower real estate prices would be an incredible gift to the next generation, just not to this one.
Netherlands, I think, prohibits making profit from real estate. If we did that, we would have fair home prices instead of people enslaved by their mortgages. Of course that's not possible here, given how local government is dominated by real estate moguls and developers, and of national government by bankers.
Zann thank you for a reasonable response. Lower real estate prices will collapse the economy, because the banks are over leveraged and they don't have enough money to pay the debts after they have gone bad.
It is not just people who speculated, but the Banks speculated right along with them, so therefore they are all in the same bed, unfortunately their bed is in our house, and if their bed burns down it will take our house with it, so we have to put the fire out to save the house.
Sorry for shouting, but here it goes. CALL YOUR SENATOR AND TELL THEM NOT TO VOTE FOR ANY RESCUE/BAILOUT PACKAGE.
Do it right now and tell all of your friends, family, neighbors or whoever will listen to do the same.
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