Note to Reid and Pelosi: don’t screw this up
By Nick Ragone | Related entries in NewsTreasury Secretary Hank Paulson hit the Sunday morning show circuit with gusto to sell the administration’s massive wall street bailout plan.
His basic message: If Congress doesn’t authorize the government to purchase upwards of $500 billion in toxic loans from financial institutions that are teetering on collapse, it could plunge the world economy into depression.
It was sobering and frank language from Paulson, and was meant to put the Congress on notice: don’t screw around with this; don’t lard up this bailout package with partisan add-ons; don’t put your petty congressional interests ahead of the nation’s.
Nobody likes the idea of a trillion dollar bailout. It stinks, plain and simple. And it’s fair game for Congress to demand new regulations, oversight, and executive compensation provisions, and perhaps tinker with the bankruptcy laws to help struggling homeowners.
But I hope Nancy Pelosi and Harry Reid don’t overplay their hands and snuff this thing out. As Paulson noted this morning, we’re not out of the woods yet; the credit markets remain essentially frozen, and without massive government intervention we’re only days away from a total meltdown.
Both Pelosi and Reid have made noise about not handing a “blank check” to Paulson. Fine. But don’t screw this up. They’re playing with fire if they derail this bailout with their typical Congressional shenanigans. And it could impact the election.
www.nickragone.com
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September 21st, 2008 at 8:19 pm
Fair enough Nick. I agree a blank check should not be a pre-requisite for this legislation. This could be a chance for the Democrats to improve the public’s view of Congress.
September 21st, 2008 at 8:26 pm
This is a serous thing. This post smacks of partisan stupidity in a time when its not needed. We need a bill that not only helps us avoid short term collapse but also addresses long term issues. The current bill sucks. Every credible economist thinks so. So trying to simply ram this bill which makes the treasury secretary a financial dictator without any oversight whatsoever is not a good idea. Pelosi and Reid have no spine. not once have they ever stood in the way of something bush wants so worrying about that is not an issue. The bail out will happen but maybe the banks will have to make an equity for debt trade. How about a post on the fact that the gop is going to fight for no regulation and no oversight of anything? that sounds like playing politics to me.
September 21st, 2008 at 8:54 pm
Has anyone actually read the proposal? No oversight at all! These are dictatorial powers. Paulson is one of the people, among many, that have engineered this credit crisis, starting when he ran Goldman Sachs. He was instrumental in setting up accounting “rules” for Credit Default Swaps and other garbage paper. Now we’re seeing this bailout extending to foreign banks that took bad risks (along with domestic banks), and other non-mortgage assets. That means credit-card debt and auto loans at least.
Where does this stop? Where is the help for the American taxpayer? Where is the help for the American homeowner? There is nothing here but a massive saving of butts for bad immoral decisions. Cronyism at its “best”.
September 21st, 2008 at 9:07 pm
Nick,
I agree…(WHAT!?)
But can we agree that a blank check, with little to no oversight could be a big mistake.
As it stands, isn’t it just a 6 month check in program?
Thats NO good.
September 21st, 2008 at 9:35 pm
Wait a minute…we’ve been down this road before when Bush or one of his administration flunkies used a panicked populace and congress to get what it wanted.
I agree, I don’t want “someone” to screw things up, but let’s not play games here and start with the premise it will be the Democrats who do the screwing….
Let’s review…we have a screwed up financial system that is largely screwed up because the Republicans have been shoving deregulation down our throats for 30 years and then wealthy folks driven by greed took advantage of that deregulation to make a crap load of money.
Now, the administration and the idiots responsible for this mess want the rest of us to bail them out of the jam they created.
I want some assurances this crap doesn’t happen again, and I want the people who created the problem to not benefit from the solution. That means regulation. That means a tax on the wealthy…yeah, a tax on the wealthy.
The way I see it, the majority of the American people are picking up the tab for the obscenity and failed policies of the GOP. Yes, we HAVE to bail these idiots out because if we don’t, they drag us down with them, but I’ll be damned if these people come out of this better than they are going in.
The Dems need to be watching out for middle America’s interests and the GOP and the fat cats they represent better not whine and squeal about it–it’s amazing we’ve already got people like you ready to blame the Dems.
Where I come from, when you come to me with your hand in hand, you at least have the decency to ask please, not gimme your wallet to get me out of the jam I put myself in.
September 21st, 2008 at 10:02 pm
gerryf:
In a way you are, of course, correct. Blame the GOP deregulation policies.
But it was Clinton that agreed to turn off the 1930 law saying that financial institutions weren’t allowed to own other financial institutions in other markets (to avoid conflict of interest)
And it was Clinton who forced the mortgage industry to accept much higher numbers of minority loans regardless of their financial status.
September 22nd, 2008 at 2:28 am
Dear me, Erik, I thought the clowns at Sadly, No had already debunked this.
September 22nd, 2008 at 6:29 am
Stop drinking the GOP Kool-aid, Erik. While I will agree the GOP is not soley to blame for this miss, the right wing blogosphere/anti-air america talk radio/FOX propaganda machine has been working overtime trying to blame this mess on a couple of pieces of legislation to either turn this mess into a Democratic problem or at least share the blame.
Clinton gets some blame for trusting people he shouldn’t have and minority Dems in congress get to burn in Hell for their lack of sounding the alarm and the complicity of a few, but this by and large the result of the GOP’s blind adherence to “free markets” (that aren’t free), GOP largess, and greed.
GOP supporters are so desperate to share the stink they are crasping at straws like this.
September 22nd, 2008 at 7:03 am
Incidently, Erik, the law you’re referring to that A) allowed the banks to consolidate and B) invest in dodgy investments, is the Gramm-Leach-Bliley Act.
Do you recognize that name at the front? Why it’s Gramm, as in Phil Gramm, as in John McCain’s presidential campaign co-chair and his most senior economic adviser until July 18 when he called this nation a nation of whiners because the economy stinks for all but the wealthiest.
Seriously, do you really want to condemn Clinton for signing a law authored by someone McCain called the most brilliant economic mind he knows?
And of course, you are aware that Gramm also inserted language into the Commodity Futures Modernization Act of 2000 that made energy speculation easier as he was heading out the door to become a lobbyist.
There is enough blame to go around on all the woes we now face, but if you had to pick one person who should be blamed most it, would be Gramm.
September 22nd, 2008 at 10:40 am
When I started to see ads for interest-only loans with no money down and balloon payment schedules, I knew it wasn’t going to end well.
However, as pissed as I am, I an unsure as to how precisely I am able to assign blame. I’m not an economist, but I am a student of partisans. So I know I need to be suspicious of RW claims that it’s the LW’s fault, and vice versa. Unversed in economics as I am, regulation seems like an easy target for “more please,” but I am eager to say that I really don’t understand the mechanics.
I wish I knew how much of a crisis this really is. Having the government rush into the gap with a giant pile of borrowed cash seems like a terrible idea unless there are no alternatives. I agree with Gerry that 2 parts of the fixing need to involve regulations that restrict the practices that led to this collapse, and prevent those who benefitted from profiting further.
One thing does seem clear to me. The ones who decide to take the risks in the first place need to be the ones who are still at risk when the chickens come home to roost. It seems to me that what this boils down to is that at some point some clever folks issued loans in large part because they were confident they could sell off the risks to greedy investors elsewhere. Obviously, for subsequent investors who bought into the risk, it is STILL their bad for not truly understanding what they bought.
The environment in which this all occurred was certainly fostered by too long a period of too-easy capital. And that environment went on for so long because so many folks were so happy making so many paper profits and were so eager to make more. So somewhere in there is a Pogo point…I have seen the enemy and he is us.
If only one thing comes of this, I hope it’s that the market is chastened out of giving loans to people who can’t afford to pay them back and who have no incentive for sticking it out. And beware that this means that it may be harder for folks with borderline finances to buy a home or start a new business. Sadly, those things need to be hard. Or else, as current events show, we all suffer.
September 22nd, 2008 at 11:16 am
Yes, greed — the Daddy Warbucks character — isn’t that easy — fat white capitalists sitting about with cigars and scotch — creating a financial debacle — God that is good for a campaign.
The fact is people generally act economically rationally and seek profit. In order to have a profit, a market must be there. A market must exist. So lets stop the TOTALLY STUPID GAME of trying to assessing moral evil and look at who irresponsibly created a market for these worthless securities…
Humm…I’ve heard Bloomberg understands a few things about the financial markets, granted nothing compared to gerryF, but lets take a look anyway…
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aSKSoiNbnQY0
September 22nd, 2008 at 2:18 pm
I think Obama’s point that any solution must be temporary is key. It’s not the price tag I’m worried about so much as ill-founded legislation with long-term side-effects passed in the urgency of the moment.
September 22nd, 2008 at 7:58 pm
Having been close acquaintances with investment bankers, the people driving the asset and risk buying of many financial institutions, I can tell you they are not morally evil people….except when they are sitting in their offices on Wall Street. And even then, not evil, just purely driven by the absolute gain of money…picture sitting in an apartment with 3 guys talking about the 30k they were able to make that day (could have been through the purchase of some loans that eventually defaulted).
Anyway, the point is, the financial industry encourages the sort of predatory atmosphere and dog-eat-dog work place that leads to this sort of swagger and risk taking. J. Harden, I honestly believe the atmosphere breeds something different than mostly rational beings and something more like mostly predatory beings, oblivious to risk and the people they are putting at risk. And they should be regulated.
That being said, Krugman has a nice piece on Paulson’s proposal and why he thinks it is a bad idea…
http://www.nytimes.com/2008/09/22/opinion/22krugman.html?ex=1379822400&en=9c8d402f34c1c78c&ei=5124&partner=permalink&exprod=permalink
September 22nd, 2008 at 8:19 pm
Greg Mankiw links to the Krugman piece I just linked to as well as this piece from University of Chicago’s Luigi Zingales…a couple of important points…
“The appeal of the Paulson solution is that it taxes the many and benefits the
few. Since the many (we, the taxpayers) are dispersed, we cannot put up a good fight in Capitol Hill; while the financial industry is well represented at all the levels. It is enough to say that for 6 of the last 13 years, the Secretary of Treasury was a Goldman Sachs alumnus.”
“The decisions that will be made this weekend matter not just to the prospects of the U.S. economy in the year to come; they will shape the type of capitalism we will live in for the next fifty years. Do we want to live in a system where profits are private, but losses are socialized? Where taxpayer money is used to prop up failed firms? …The time has come to save capitalism from the capitalists.”
http://faculty.chicagogsb.edu/luigi.zingales/Why_Paulson_is_wrong.pdf