Tuesday, September 30, 2008

Wednesday: No BAILOUTS Act Open Thread

My Congressman, Pete DeFazio (OR-3)

has introduced a piece of legislation called the "No BAILOUTS Act" which appears to be a first effort on the part of the House Democrats to address the financial sector collapse bar the Paulson/Bernanke Plan voted down in its revised form Monday.

I've got some thoughts on this, but it's late, I need to get home and I'll be drilling up in Longview, WA, all day tomorrow.

So - consider this a place to discuss fiscal governance past, present and future.

Pluto, I'd be interested to hear, in particular, your take on the implications of what you describe as a "rebellion" that overwhelmed the original TARP bill Monday.

I know that you're on the road, but Jim, Lisa? What do you think?

And how about my ALTadoption crew? I know that W is busy with her twins, but Red Sand? YK? Kelli? Beeb? Atomic Mama? My Portland pals - Brent? Janelle? Hell, I can't list everyone, you know who you are - you guys are among the best and the brightest I know. Where do you think we should - or we CAN - go from here?

I'll be back Wednesday night and check in!


sheerahkahn said...

Well, to start off...my 401k took a pretty decent hit...lost a lot of money, on the upscale, I recovered some of it yesterday...emphasis on "some."

I think the primary objective is that the American people need to come to a rational, and cogent recognition of their financial limitations.

If a person/couple is only making 50k a year, and their house payment is tipping out at 18k a year...it's probably a good idea not to take out a second on the house to pay for boy-toys, each year, that men, and women love to adorn their driveways with.

I live well within my means, and it's called financial self-discipline, but to me, I see my contemporaries buying "crap" that they pitch out the following year, spend money hand over fist, and I know I make more than they do.
I know two who have already defaulted on credit cards...spent to the limit...on each...each being ~four cards...holy cheese and crackers!
Someone has lost money on those two (btw, I told them that, but m'yeh, their self-serving jerks) and it's irrecoverable.

And now, with the economy already in the tank, I have about 14 empty houses for sale around my neighborhood...all within a few blocks of me...and they've been on the market for four months.
Not good...not good at all...and to be honest...I'm loosing confidence in the American economy altogether.
I'm beginning to suspect my 401k is just a treasure box for some asshole to raid and empty, and I'll never see the fruit of my efforts...ever.

Ael said...

The more they put the pressure on you, the more they want you to make a mistake.

Go fishing for the weekend. Vote on election day. Don't panic.
Come back to the wreckage (or lack thereof) in a couple of months when you can think without people shouting in your face.

The administration has plenty of power to deal with day to day stuff (see Bear Stearns). There is no hurry to pass a emergency, poorly considered law. The last time that happened, Iraq was the result.

Remember the large friendly letters on the cover of the guide, and keep a towel handy.

Anonymous said...

That's what bothers me about hearing GW hyping the 'bailout'. What does he have up his sleeve now?
This time we've got Paulson instead of Powell. Lots of posturing, speeches, all the political grandstanding. Iraq war leadup redux?

I'm seriously skeptical that this will be as bad as they're saying. I was in school when the '87 Black Monday happened. Didn't have enough to worry about in the early '90's as Japan's economy tanked. And watched my 401k balance drop even as I was putting pennies into it in '01-'02. It's only recently that I've got enough in there to make me shiver when I see the balance go down. How many others are out there at the same level I'm at?

I'm with ael. Let's see where we stand when there's less political influence over the stock market.

Lisa said...

Columnist Paul Krugman said on Kieth Olbermann tonight he "feels like a victim of the Stockholm Syndrome" to Paulson.

Some say we are going through another Great Depression. The only difference up to now is that only 14 banks have shut their doors. A total of 121 banks on the secret Treasury Department ailing list.

The bailout squabble that is going on today in Congress is to keep the rest of the banks open and to start making loans again to everybody. Many banks already have started making loans but only to the most qualified residential and commercial customers.

Credit card companies are now charging up to 35% annual interest and the Congress is allowing them to do this. The most the OLD MAFIA DONS charged was 20% per year and if you didn't pay weekly they broke your legs and arms, one arm and one leg each week. So the banks, at least, are not resorting to that sort of violence but the stress level could be just as severe as the leg-breaking physical pain.

Everyone is panicking, and the financiers and profligate borrowers and lenders will get some big time welfare. I say, the free market should be allowed to work; let the bad banks die.

mike said...

Chief -

I like your at least four of your rep DeFazio's 5-point plan:
1) Require the Securities and Exchange Commission (SEC) to require an economic value standard to measure the capital of financial institutions.
2) Require the SEC to restricting naked short sells permanently.
3) Require the SEC to restore the up-tick rule permanently. (not sure I am smart enough to understand this one, but if it limits short sells then I am for it)
4) FDIC Net Worth Certificate Program???? I am goosey on this one.
5) Increase the FDIC Insurance limit from $100,000 to $250,000. (I think the Senate just passed this)

I also think that my favorite whacko 'Pete Kucinich' has a good idea or two on the bailout also. I note that he and 92 other far-left dems voted against the house bailout plan. Amazing when the far-left and far-right are on the same page. Or scary if you consider some regimes of the past.

Red Sand said...

I've been MIA for a few days and don't fully understand my own country's financial system, much less yours, but what I do know is that the original plan struck me as a dangerous consolidation of a lot of fiscal control and resources in the hands of one or two unelected people.

On top of that, people have been warning of these issues for many, many months now, and to drop something like this at the last minute with a blackmail threat of economic collapse (which some believe was/is inevitable with or without the bail-out) strikes me as the most offensive part of this. These guys created the mess, denied the mess, glossed it over, and then asked for full control.

I like ael's reminder of our friendly guide and its instructions, but I'm more thinking of So Long and Thanks For All the Fish, where we are reminded that it's the rest of the world that is insane.

FDChief said...

Hi, gang.

Ugh - brutal day today. Just about six straight hours of continuous sampling for a slope stability boring; translates to hefting and hammering and breaking metal sampler barrels, heavy as a sonofabitch, slippery will drilling mud, all this on a muddy hillside on the first (and possibly the last) sunny day in October).

I like what I've read - lots of good ideas. Sheerah, I can't agree more that one of the things I have never understood about the "mortgage boom" was the idea that you took out a second mortgage to...go to Vegas. Buy a car. Add to your Gumby collection...

I've been worried for some time that the "engine" of our economic vehicle is consumer spending and the financial sector. Now that they both look to be headed for a nasty spill...ouch.

ael: I agree with you on the timing. This doesn't need to happen yesterday, and the Paulson plan foundered as much as anything on the justified mistrust we;ve developed for being hustled by the Bushies.

But I think we need to act, both to deal with the current liquidity/credit crunch before it snowballs into a genuine depression, AND we need to take this opportunity to look at our tax and regulatory codes to try and figure out why we've chosen to push our economic base so far towards financialism and a rentier system at the cost of durable good such as agriculture and manufacturing.

But what I see as the problem is Charles' 25% - the hard right of the GOP who would rather bankrupt the nation as long as it meant the repeal of the inheritance tax and an end to the minimum wage. Having gutted the tax base and the regulatory system AND demanded the kind of wars that need a just-as-big-as-the-Cold-War militry budget, these people are just NOT going to come up with a solution other than "borrow and spend" and looking the other way as the looting of the economy continues.

We can't solve anyting until we solve these people.

Anon: there will ALWAYS be political influence on Wall Street and vice versa. What I would counter with is, let's find a place to stand where we can have a good view of what is in the best interests of the majority of the American people, rather than the monied interests or the political-military-industrial complex.

Lisa: I agree. But then there has to be a mechanism (e.g. the Resolution Trust Co.) to pick up the pieces. And to leaven the economic pain that the failure of local banks will mean to businesses like the one that employs me. My boss has to borrow every month to make payroll. We borrow against out WIP, and we repay the bank as our clients pay us. No bank? No payroll, I get laid off.

I don't think the fundamental mechanism of the Paulson plan (which appears unchanged in the Senate plan aired today) is sound. "Buying" bad paper from these banks is an invitation to fraud on several levels. I think you're right that the thing to do is let the idiot banks that made these loans go into Ch.11, move in, strip out the assets, liquidate the debt (and in the process the officers and shareholders take a bath) and turn the profits back to the U.S. Treasury.

But solvent banks can be helped with bridge loans, as the U.S. did with Chrysler back in the 70's, and such deals could make money for the Gov't - Chrysler did, in the end.

RS: Ah, yes - that was the scary part for me, too: all that money, all that power, and no oversight. I wouldn't trust myself with that sort of power, much less a Bush appointee and a former financier, at that.

As a general observation - I imed through the articles on the Senate bailout plan passed today and wes immediately struck by the - what appeared to me, anyway - vast number and type of "tax cuts". Tax cuts for wind power, tax cuts for investment, tax cuts for this, tax cuts for that.

Is that what governance has come to in the U.S.? Nothing can get accomplished fiscally unless there's a goddam tax cut? And who, pray tell, is going to pay for these tax cuts? Are we going to auction an aircraft carrier? Close down the Department of Commerce? Or, as I suspect is the plan, will we be looking for some more kids to throw off Medicaid and another bridge loan from the Bank of China?


As I said before - I don't see the Congress coming up with a better plan than the one they killed Monday. It wasn't a good plan, and it wasn't the plan I think we need, but IMO it was as good as they were gonna get and they couldn't get even that.

Brent said...

Hey FDC,
We've got a couple differing opinions in this P-town household. J is of the mindset that we just let the free market do its thing with no help from WaDC. We'll see where the bottom is after the shit hits the fan and then hits the floor. Hopefully not too much hits our face. Then we can dig out from the mess our fellow "greedy" Americans got us in to by taking on bad loans to begin with. Working for a lender herself, she tends to place the "crisis" blame on the people who got in to bad loans in the first place. She wants to see the responsibility stay with the people who signed the bottom line - not solely with the banks or with the government. The rest of us will continue paying our bills on time and weather the storm with $$ in our mattresses.

I, on the other hand, would like to see this thing get headed off at the pass now. We have a slew of loans and credit out there that will never be paid with their current terms. That irresponsibility on both the borrower and the lender has led to losses for all of us - even good borrowers. But why should the rest of us pay exhorbinately for other idiots' mistakes? The stock and housing markets have fallen 25-30 percent this year, and down even farther from highs a few years back. If we can stop the crash now and define a bottom for the housing and credit markets at current levels, let's do it. I'd like to see the government step in as the regulatory nanny and clean up some of the mess. Just an infusion of cash won't solve this thing - it will just delay the inevitable bank decay. The government needs to buy out the bad loans so that our financial lending institutions can start earning a profit again. Then that profit can be used to pay back the government for the timely rescue. Taxpayers pump in the money now, and then the government sits on its new portfolio of warranted loans for a decade or so. If we stop the markets from dropping more now, it won't be long until that portfolio recoups its value, be it in house prices or loan interest or a share of the profits that the rescued companies earn in the coming years. If the bailout for the financial market fails, then we'll all see major losses as lending grinds to a halt. If the financial market bailout works but other sectors (US autos for example) go bankrupt, I don't think taxpayers will have the stomach for buying Ford and GM. They'll just have to suck it up. I'm OK with a national bank (so was Alexander Hamilton), but I'm not OK with national manufacturing companies.

All that said, we both agree with sheerahkahn - Americans need to take a good hard look at what they can afford before buying more crap. Loans - good and bad - don't come wrapped in bows. We all have to pay them back, whether we buy a house or blow the borrowed money on frivolity. The lesson this nation needs to learn is restraint.

FDChief said...

Brent: You both hve valid points. I think part of the problem is that we've been fighting to try and moderate EVERY bust since the 1940's - the fiscal system is seriously out of whack. So I agree with Janelle that 1) the market needs to just sit up and take some of its medicine, and 2) some people need to lose their house in the Hamptons and be see walking around the Upper East Side with their raggedy ass hanging out of their trousers to prove that if you ain't cheating you ain't trying but if you get caught you ain't trying hard enough. Some of these people need to be fined. Others need to be jailed.

BUT... have to say that to allow the financial system to fail would hurt lots of people who had no stake in making the problem. So as you point out, there needs to be some way to cull the innocent from the guilty and protect the innocent. The lesson of 1929-1932 was that if you stand around long enough a financial problem can become and economy problem and from there a public problem.

"The lesson this nation needs to learn is restraint."

Ah, Brent, my friend, once you've gone through ShamWow, Brittany Spears, Hummer H3s, "From Justin to Kelly", "The Man Show", Sarah Palin and YouPorn to the Chipmunks' cover of "Funky Town", the whole notion of "restraint" seems so...Canadian.

Those days are gone, my friend. Welcome to the New America; now with 30% More Greed!!!

Ael said...
This comment has been removed by the author.
Ael said...

Hey, speaking of Canadians, the weather here in Alberta has just been spectacular. We are just finishing a week of sunny weather with highs around 26C (around 80 for the F crowd).

It's hard not to cheer when someone says global warming.

I think that the Canadian banks are going to snap up a lot of smaller american banks at bargain basement prices. Look for a RBC, TD, or Bank of Commerce branch near you!

Alas, all this financial talk is obscuring the serious environmental issues facing the globe (see warm weather comment above, also see the methane bomb )

At risk of starting a land rush, I suggest you all start investing in Alaska farmland.