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Fishing in Troubled Waters
As the events of the past 24 hours have shown, the Republicans lack both the leadership and the unity to bring home any variant on Paulson's proposed bailout deal. This has been a special fiasco for John McCain, and a richly deserved one.
With the Republicans now in thorough disarray, the question now is whether the Democrats have the wit, the nerve, and the unity to do this right. As the politics stand today, a plan may well have to pass Congress mostly with Democratic votes. If the plan works, the Democrats are heroes. If it fails, they are goats. So it had damned better be done right.
But first, let's take a moment to savor the Republicans' self inflicted political wounds. McCain's ploy to cast himself as an above-party leader in the financial crisis, and incidentally to wriggle out of the Friday presidential debate, backfired. The White House meeting was hastily contrived to help McCain, but all it did was help derail the deal.
Far from demonstrating his claim of putting country above politics, the caper was pure opportunism. Contrary to his high-minded claim to be "suspending his campaign," he continued to run the negative ads and his surrogates continued to trash Obama. He wouldn't even say what plan he'd support, and sat largely like a stone at Thursday's White House meeting while Obama joined the discussion and tried to seek common ground. The meeting was supposed to showcase McCain as a leader, but that role went to Obama.
You can just imagine the thinking over at Team McCain. Hey, let's send John to Washington to consummate the bailout deal. He can look really presidential, we'll say we're putting country above politics, and we can even bump Friday's debate to October 2, and kill the Palin-Biden debate as well. High fives all around. Ooops.
And imagine these turkeys negotiating with, say, Putin.
Is there a silver lining in this mess? It sure signals severe disarray both in the McCain camp and in the Republican Party. But what about the future of the economy?
The emerging House Republican plan for a "private sector solution" (backed by more government insurance and tax benefits) is pathetic. It's not really private at all, and it won't solve the problem. But what will solve the problem?
A better plan would have two core elements: First, most of the government money goes to refinance mortgages rather than buy up bad paper. Once the mortgage market stabilizes, some value returns to the bonds backed by mortgages. That way, homeowners are the primary beneficiaries, not the incidental ones. Second, government takes a majority stake in the major failing institutions, takes a good look at their books, and only then pumps in equity capital as necessary. When the crisis passes, government closes the ones that are beyond repair, and sells off the good bits.
Some Democrats are still hoping to salvage some variation of the Paulson. But the Republicans have done them a favor. It's time to give that approach the decent burial it deserves, and start over.
Since the House Republicans have deserted the field, the Democrats might as well step up to the plate and do it right. If it takes another week or two, that's fine. This is not about rescuing the stock market day to day. It's about fashioning a program that will work.
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Robert Kuttner, co-editor of The American Prospect and Distinguished Senior Fellow at Demos, has just published Obama's Challenge: America's Economic Crisis and the Power of a Transformative Presidency (Chelsea Green). He is blogging daily about the election and the economic crisis at www.obamaschallenge.com.
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Can't resist another go...The plan would be much better if:
The money were spent (when required) in buying up new, fresh, premium stocks in these companies. The cash infusion would cancel the company's paper devaluation simply by supplying more, better, paper. The bad paper would be devalued to the lowest value in its range -- a value so low that it couldn't go lower. The mortgages at issue would then be redrawn to give the homeowner in question a new mortgage, at rates low enough that payment was not an issue. Both parties are raised up.
The stocks that enable the above revaluation would then produce premiums for the taxpayer, in a US Permanent Fund Dividend, patterned after the Alaskan PFD. Every taxpayer whose money went for the bailout would receive a yearly pooled dividend check, set by the INTEREST on those investments, in perpetuity.
They say they want an "ownership society." Well this is their chance to set one up.
For those knee-jerks who would call this "socialism," I'll point out that this is what Wall Street players do every day: make investments and reap the dividends. If they want my money, they can take it as an investment, and pay me the interest.
I had a business that failed. I should have gone before the congress and asked for a bail out.
Why can't the business of wall street lending fix itself by lending only good products to good people? Because there isn't enough money in it for them? It will take too long to recover from the mess they put themselves in by pandering to the greediness of small people with grand ideas?
I am totally against the bailout. We deserve to fall flat on our faces and pay dearly for the collective capitalistic greed of our nation. We all want it fast and easy. Nothing good ever came cheap and easy. Our ethic has eroded into Freudian id based me, me , me-now, now, now. Shame on us all and shame as we sit on our asses while our 'we got what we deserved' elected officials sell us down the river to big business once again. The fear has spoken once again, just like 9-11 and the rush to war. WE deserve this heap and I hope we pay dearly.
"God damn America," is OK for an angry preacher to say if he specifies his complaint. He catches our attention as when Jeremiah Wright spoke of the cruel imprisonment of Black men, and as Wright was a conspicuous patriot (VietNam era Marine, organizer of charities). It's just barely OK because we are America and we show our love for our country by always wanting it to be better. Frankly, the rush to war and the blind greed of the corporations are a reproach on our America, but we certainly don't hope to suffer as we may deserve to suffer.
Many problems are resolved by coping from day to day. People who are honest and decent will force decent solutions to the problems even if the strategy is a little weak. A status quo is sustained that can be understood and worked with. Most to the point, justice isn't really justice without a measure of mercy. The powerful understand this and treat their own with mercy even while they may not love you and me so well. They are right, because we should defend our own.
Capitalism in its present form is tainted, There is no sharing or revaitlizing-
sending this money to Wall Street is not going to help Main Street.
Real wages haven't gone up but prices have, so people fell to
lenders who now own the equity in their homes. The people who
write the paper are the ones who made profit. The people who traded
stocks made profits and with the credit default swaps of 63 trillion dollars
(that's insurance on debt) bankers now find their coffers empty.
They want us to foot the bill on their next enterprise. There has been a shift
in wealth, nothing more, because of deregulation. Basically, we have treated
debt like it is a commodity. We need change, since Reagan this country has
been all about greed.
Obama-Biden 08
I totally agree that
Wall Street (and their enablers in both parties) want the taxpayers to shoulder the entire cost. Heavens forbid if Wall Street itself has to shoulder any of the burden. I suggest that the framing or focus on a broad based taxpayer funded bailout is entirely wrong. Since Wall Street created this problem they should tax themselves to pay for the suppossed $700 billion dollar solution that they and the politicians claim will solve it.
It looks like normal volume at the Dow is about 4 billion daily transactions. Slap a measley one dollar surcharge on every one of those transactions, and we're talking $4 Billion a day raised, and that's not including the NASDAQ and other markets (the Chicago exchanges, etc.). Over the course of the year, that would easily approach $900 billion. Hmmm.
If you vote Obama/Biden you will see prices go through the roof.Ask anyone in business how they recoup profits lost to increased operating costs,they raise prices,lay off worker or they do both. This is a simple business fact so if Obama gets into office the price of everything will go way up and you complain about prices now?Every so called Plan Obama has starts with raising taxes then spending more of the money we do not have to buy votes and voters.This type of garbage was tried in the late 70's by Carter and it failed miserablely.We had double digit inflation,interest rate and umemployment so I do not ever want to go back to that time in this Nation so you might want to think about those fact before you support the team of LIAR/LIAR.Since both Obama and Biden have done noyhing but lie either outrightly or by Omission of the real FACTS of their so called plans.
I love the logic displayed here. We are in experiencing the worst financial crisis since the Great Depression. We are overextended militarily and not able to react to threats in any other part of the world. We have a Republican candidate that calls for more "borrow-and-spend" discredited policies going forward since he won't raise taxes but demands we stay in Iraq to the tune of billions of dollars a month. And yet we are led to believe that voting for Obama is the scary proposition!! All the Rethugs offer is scare-scare, war-war and fiscal irresponsibility all the live long day. Enough is enough. As Barack said, they need to own their failure.
They have a mess, but they know how to reverse the trouble they created. They just do not want to do it.
They want the capital ventures underway to succeed, and their main input is from lobbyists, giving them demands.
They have not verified anything Paulson has told them (has Paulson actually given them any specifics?).
IF they do not understand the state of the situation, how can they tell what is really going on? They are dealing really with an international cartel, and who know where those securities have come from? Probably China predominately, and they are making us think it is a few Blacks who moved into houses that are causing all the trouble. As far as we know - that may be just a myth, really affecting just a few banks where the loans were the most cavalier.
Nothing should be done unless the GOP is behind the bill and I mean, firmly behind. They got us into this mess, and they had better be a major part of the solution. If the Democrats do this and it fails, I could just see the headlines now. I am sick and tired of the BS that goes on in Washington. If we end up in a depression, the GOP will only have themselves to blame. We are at this point because of them. If they can't stand up and be counted then the game needs to be over.
It stinks that all of a sudden they don't want to side with the bully president who has single-handedly ruin our country. History is not going to be kind to the GOP. Quite the legacy that they are leaving in their wake.
All of a sudden in the MSM this is the "democrat bailout". How did that happen? Americans are rightfully against the bailout, the republicans are walking away from it and leaving Pelosi and Reid holding the bagful of money. It's a set up, and I fear that Pelosi is our Palin and is too dim to see it.
That's the whole purpose of the plan, to put the Democrats in a LOSE-LOSE situation.
If the bailout works, the next president is hamstrung by the deficit. You get a trillion dollars added to the 450 billion dollar deficit we're already got from GWB's borrow and spend policies.
With that kind of hole in the economy, there's no health care reform, no middle class tax reform. Obama admitted that last night in the debate.
That's what it's supposed to do, just like Reagan's and the elder Bush's profligate tax cuts and deficit spending forced Clinton to forgo his policy agenda in favor of balancing the budget.
If the bailout doesn't work, the republicans are going claim the Democrats caused a depression. The bailout is NOT SUPPOSED TO WORK, only push the crash off until after the election.
But apparently the Democrats in Congress are either too blind or too stupid to see this.
I'm against ANY bailout for Wall Street, in any way shape or form. Taking on the failed debt from the Wall Street banks will just encourage those Wall Street banks to engage in even riskier, less ethical, more criminally outrageous behavior.
Take the thieves and put them in jail ... or hang them, I don't care. But don't take my taxes to pay them off.
From my perspective and information I have seen, McCain didn't go to Washington as a political ploy as suggested by so many but went to try to criticize the proposition by both parties that from what I have seen would be a disaster for the American people. As an Independant I think there is a lot of COMMON SENSE in what Newt has been sharing with the American people over the past week. All in all not matter what is agreed upon the "proof will be in the puddin" and I pray that "puddin" will be tasty for all Americans!
An added note....I thought Obama looked more Presidential on last nights debate. He did a good job.
As a good friend from Texas used to tell me ,"you ain't seen nuttin yet." Wait until the credit card companies come calling and the student loans come calling. It's the next big meltdown that is just around the curve. Sorry but true.
My plan: the government as investor of last resort.
Any company may value itself at 50% of its lowest market price from January 1, 2008 until the date of the valuation. The company may then issue new stock -- thereby diluting the existing stock. The government would buy the new stock as if it were a venture capitalist investing in the company at the 50%-under-market-price valuation.
This would allow companies to keep whatever they have on their books for as long as they like, thereby relieving pressure on the mortgage-backed-securities market and allowing it to find a true hold-to-maturity price.
This would also give the Federal government -- and the taxpayer -- an opportunity to invest in the US economy. Bush has claimed that we should invest our social security funds in the stock market. Here's his chance. We would be investing at 50% off a reduced price. What could be better? If things get better, perhaps the government will make enough money that it will be able to reduce taxes.
CONSIDER THIS!
From USA TODAY Editorial Sept 19, 2008:
"Forget for a moment sophisticated financial explanations of what went wrong and look at the campaign score card: Among the nation's 100 top political donors since 1989 are 10 of the nation's biggest banks and investment firms. Their employees showered lawmakers, political parties and presidential candidates with $170 million... While the money flowed, financial institutions generally got what they wanted in Washington..."
$170 Million dollars! A lot of money! And given over almost two decades... Citizens can't possibly compete with that!
REALLY? WAKE UP AND THINK!!!!
There's a POWER in SMALL money, LARGE numbers & Immediate Feedback that may not have occurred to you...
POLITICAL MICRODONATION!
http://CulturalEngineer.blogspot.com
Proof of Concept: Chagora.com
JUST SAY NO to the Wall Street bailout.
The public opposition to the bailout is 200 to 1. What is the point of just saying no when "they" are just going to ignore you. Government of the people........?
And we also said "NO" to the war in Iraq. What did it get us?
I like it! What we have here in the financial market is a ponsi scheme shoring up a swindle founded upon a theft that's relying on a con job. This market needs an enema. And pass a little of that action over to the White House: I hear they got a "little problem" with BS over there as well... I really don't think W and Paulson are eating enough fiber! And have ya seen Karl Rove lately? That can't be healthy!
showed up what a mccain white house would be like - theatre. His management style has always resembled a kind of sales-pep rally/ Amway distributorship convention cocktail meet-and-greet. These are the hollow men.
I don't know. It seems like private sector solutions ARE happening. Washington Mutual went under, but promptly got bought out. Goldman Sachs got bought out. Whats-his-face from Omaha paid 5 billion for something else.
I'm not an economist, but it looks like the big guys are buying up the stuff that the government would be buying up. At low prices. But shouldn't this junk be selling for what it's worth, if its junk?
If mortgage-based securities are truly based on real estate, then they should still sound. Real estate is not disappearing from off the face of the earth. It's just that it's reverting to what it was valued at 10 years ago.
I am undecided. I don't know. Too bad that most people in government aren't honest enough to say "I don't know". Does all this stuff have to be done by next week, or not? And the Repubs don't support it? Wasn't it Bush's idea? But only Dems support it?
I am totally confused. I am now ready to start watching the debates. Do you hear them in the background? "Bark, bark, bark, growl." Oh my, how informative!
It's entirely possible that the Paulson plan sucks. I doubt anyone really
understands what it will do. There seems to be general agreement that
*something* needs to be done to 'fix the credit liquidity problem' and a
huge infusion of cash is a typical Demo response (gotta love 'em!). It's
bound to do something, at least. Now the alternative Repo plan, after-the
fact insurance (best time to buy insurance is after your house burned down,
as long as they still have to cover your loss), which for some reason Paulson
says won't work. What's troubling, perahaps, is that the Demos *have* to reject
it, because it's a *Repo* plan, unlike the Paulson Plan (which is also a Repo
plan). Well, it's a deeply weird situation, any way you look at it.
The thing is, the Paulson Plan could be like the little boy sticking his finger in the dike to
prevent a catastrophe, but *REMEMBER* that maneuver actually worked, or so the story goes.
http://www.pantheon.org/articles/l/little_dutch_boy.html
Part 1 -
I understand it. It's supposed to suck all the oxygen out of the room. The U.S. government will be so deep in debt that there can't be any health care reform, no tax relief for middle and working class, possibly even it'll force "privatization" of Social Security.
And here's the kicker ... it was EXCESS LIQUIDITY caused by Greenspan's Federal Reserve interest rate policies that created the problem in the first place. LIQUIDITY means money to loan.
When there's too much money to loan, the bankers have to find more places to loan it; places where it's more likely the borrower is going to have problems paying it back.
And that's what causes the "credit liquidity problem" - they loaned all the money out to people who can't pay it back.
The Paulson plan is to buy all these bad loans up and give the bankers new money so they can make even more bad loans.
The Congressional Republicans' plan is to "insure" the bad loans retroactively AND eliminate the Capitol Gains Tax (it's "temporary", like GWB's "temporary" tax cuts - when the time comes for the "temporary" tax cuts to go away, they'll demand they be made permanent).
Part - 2 (Read Part 1 first if you can find it.)
I can't figure what the Congressional Democrats' plan is, other than to cave in either to the White House or the Congressional Republicans, and hope the problem will go away before they get blamed.
Two problems with that (maybe three) ...
1. They're going to get blamed no matter what happens?
2. The White House & Congressional Republicans want opposite things this time, so who do the Democrats cave to?
3. The problem ain't gonna' go away ... those Wall Street thieves will be back in 6 months, and they'll be followed by the credit card companies, the insurance companies, the oil companies, the automobile manufacturers, and all the other CORPORATE PIRATES ... all expecting to be paid.
It's really very simple. Do absolutely nothing, let the stock market come crashing into the ground, then fire all the traders there, then sell the stock market building, so we NEVER again get into this silly system of money, laws and government, then we can all live happily ever after--and I'm not joking.
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