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.
The basic argument for the bailout is that the banks are filled with so much bad debt that the banks can't trust each other to repay loans. This creates a situation in which the system of payments breaks down. That would mean that we cannot use our ATMs or credit cards or cash checks.
That is a very frightening scenario, but this is not where things end. The Federal Reserve Board would surely step in and take over the major money center banks so that the system of payments would begin functioning again. The Fed was prepared to take over the major banks back in the 80s when bad debt to developing countries threatened to make them insolvent. It is inconceivable that it has not made similar preparations in the current crisis.
In other words, the worst case scenario is that we have an extremely scary day in which the markets freeze for a few hours. Then the Fed steps in and takes over the major banks. The system of payments continues to operate exactly as before, but the bank executives are out of their jobs and the bank shareholders have likely lost most of their money. In other words, the banks have a gun pointed to their heads and are threatening to pull the trigger unless we hand them $700 billion.
If we are not worried about this worst case scenario (to be clear, I wouldn't want to see it), then why should we do the bailout?
There has been a mountain of scare stories and misinformation circulated to push the bailout. Yes, banks have tightened credit. Yes, we are in a recession. But the problem is not a freeze up of the banking system. The problem is the collapse of an $8 trillion housing bubble. (It was remarkable how many so-called experts somehow could not see the housing bubble as it grew to ever more dangerous levels. It is even more remarkable that many of these experts still don't recognize the bubble even as its collapse sinks the economy and the financial system.) The decline in housing prices to date has already cost the economy $4 trillion to $5 trillion in housing equity. This would be expected to lead to a decline in annual consumption on the order of $160 billion to $300 billion.
Given the loss of housing equity, I have actually been surprised that the downturn has not been sharper. Homeowners had been consuming based on their home equity. Much of that equity has now disappeared with the collapse of the bubble. We would expect that their consumption would fall. We also would expect that banks would be reluctant to lend to people who no longer have any collateral.
This is the story of the downturn and of course the bailout does almost nothing to counter this drop in demand. At best, it will make capital available to some marginal lenders who would not otherwise receive loans. We should demand more for $700 billion.
For the record, the restrictions on executive pay and the commitment to give the taxpayers equity in banks in exchange for buying bad assets are jokes. These provisions are sops to provide cover. There are now written in ways to be binding. (And Congress knows how to write binding rules.)
Finally, the bailout absolutely can make things worse. We are going to be in a serious recession because of the collapse of the housing bubble. We will need effective stimulus measures to boost the economy and keep the recession from getting worse.
However, the $700 billion outlay on the bailout is likely to be used as an argument against effective stimulus. We have already seen voices like the Washington Post and the Wall Street funded Peterson Foundation arguing that the government will have to make serious cutbacks because of the bailout.
While their argument is wrong, these are powerful voices in national debates. If the bailout proves to be an obstacle to effective stimulus in future months and years, then the bailout could lead to exactly the sort of prolonged economic downturn that its proponents claim it is intended to prevent.
In short, the bailout rewards some of the richest people in the country for their incompetence. It provides little obvious economic benefit and could lead to long-term harm. That looks like a pretty bad deal.
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The truth is that most of these "experts" are vested in the stock market and are rushing to judgment to protect their own 10 acres at the expense of the rest of us. But the public is not buying it. Interspers
Those who perceive a calamity are indeed correct. They are only correct that in so far as the calamity is taking place in their own net worth and not the rest of us. The vested bourgeois is feeling pain and is trying to make believe that we are all in same boat. Nice call Dean.
Irrespecti
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When writing, try to be respectful and not to be hyperbolic - that will just land your fax in the trash. Your rep is unlikely to actually read what you send, but someone who matters will.
Absolutely
Not to mention that a lot of today's problems were set in motion by the Reagan administra
In order for that to happen, congress must also wall out Big Money Lobby which is the glue holding the greedy, ugly Ponzi scheme together.
However, I strongly suspect none of that can happen until we have a new administra
Unfortunat
Government
How many of these "poor banks" lobbied to make it harder for insolvent average citizens to file bankruptcy
For me, it doesn't matter what the ramificati
I do believe that the U.S. leadership role will be reduced. Currently U.S. is the single largest provider of liquidity to the global markets. That will change because the global banking system will realize that this type of dependence on a single provider is dangerous. At times like this, when massive contractio
This will change and with it the U.S. influence which is as it should be. The global banking system is now sufficient
Why is it this is not being reported on in the press? Why are we only hearing about how the very bad behavior of bankers and greedy wall street types is going to lead to a catastroph
How 'bout we try a few common sense approaches
1) unbundle those securitize
2) allow the banks to keep all performing loans on their balance sheets
3) force the banks to renegotiat
4) put together a jobs program. The country's infrastruc
Yeah, Yeah, Yeah.
(yawn!)
Elsewhere, UNDELUDED writes, "If heads-of-h
Such a program also protects ordinary people from one of the ravages of hyperinfla
Every farmer knows that you apply water to the grass roots and something will grow. Spray it in the stratosphe
Sure have economic stimulus, but feed the people's money to the grassroots to help the people stuggling with a mortgage. Shore up a tottering edifice from the foundation
I did not believe that Bush could engineer another disaster in the short time he has left, but I have underestim
Our economy, as it stands now, is predicated on one basic tenet, the ability of the consuming public to rid themselves of their hard earned money by the purchase of an ever expanding number of products and services. That's how it works. The banks just take a piece of the action, an ever increasing piece, I might add.
If anyone does not remember 9/11 and the immediate rush to pass the Patriot Act, this has an all too familiar smell to it. Is this the Economic 9/11? Is this rush to pass the Bail Out without time to properly consider all the ramificati
I say let the market sort it out. The cream will rise to the top. The market rewards good performanc
Let's fix it now, because it's broke.
If we are willing to throw money into a problem, fix health care! Provide universal health care!
Look, here's Congress will to put $700 billion into the banking industry so that banks will start to loan money to other banks and again, last, but maybe not least, ma and pa American and their family. Congress is also considerin
There is a major Drive to Consolidat