TPM has a copy of a bill that is 98% done. It does include the ability of judges to write down mortgages in bankruptcy decisions and it has executive pay caps. I think this rather misses the point. The problem here is not the bill, which is very bad, it's the atmosphere of fake crisis. The problem in the financial system is not one of liquidity - the basis of Barney Frank's horrific bill - but of insolvency of major institutions and mistrust in the American political system to deal responsibly with our currency, regulations, banking system, and budgetary priorities.
A deal like this - with Bush in charge and an election five weeks away - is inherently untrustworthy. It cannot work. It shouldn't go through. It's like giving in to blackmail while asking for the people who are being blackmailed to trust in the outcome. That's not going to happen.
There's an election coming. Let that be the arbiter of how this crisis is handled.
Ok, the more I read about this deal the more I think any reasonable answer is a hell no. The statements I'm getting from most Democrats are a mixture of 'we need to help homeowners' and concessions that $700 billion is necessary for some reason, with meek condemnations of George Bush. Where are the hellraisers?
Let's look at a few examples of what is actually going on here.
First of all, Warren Buffett's deal with Goldman Sachs, which was supposed to restore confidence in the markets, is obviously just a firesale that is in all likelihood guaranteed by the Fed. Here's Barry Ritholtz: "And what do you want to bet me that Warren asked for -- and got -- a very serious promise from Bernanke & Paulson that Goldman would under no circumstances be allowed to tank like Lehman? This might even be a riskless deal for Buffett."
A loan to Goldman Sachs for 17% interest guaranteed by the Fed? This is supposed to be confidence in the market? Looks to me like the Fed is just renting Buffett's name.
Second of all, IBM and General Electric are now acting like banks, getting themselves on the Do Not Short list. What the fuck? Is every major company taking advantage of the crisis atmosphere to manipulate their stock price? Don't answer that.
Third, Lehman employees are still getting an average of $250k apiece from their bonus pool.
Hell no. A set of deep structural problems do exist, but they don't require immediate action under these kinds of immensely corrupt circumstances. That much should be clear. And it should be even clearer that this is a crisis of democracy and faith in our government.
Any plan imposed on us under these circumstances is by definition NOT going to restore faith in our political system and it will NOT assuage people's fears that our money is sound. Money is fundamentally a promise from our current selves to our future selves, and it demands trust to have value. This crisis is built on lies, which means the whole environment needs to be changed before any bailout is even contemplated.
I have a bunch of meetings this morning, so you'll have to make due with last night's round up post, which actually includes some reporting. Bush hit 19% approval rating, and everyone's confused inside Congress about the bailout.
Now, I'm not a financial advisor, but if you want to make a billion dollars, buy oil, short financials, and go hard for those tiny classified ads. And ask the Feds to buy your shitpile.
Here's the industry's play: progressives will approach Nancy with ideas for reform, and she'll agree to push for their proposals, and she'll really mean it. Then industry lobbyists will go to Dennis Moore, Melissa Bean and a few other Democrats, and tell them how dire the consequences of the proposals would be, and that the members who understand how the economy works need to step up to stop Nancy and the crazy liberals from doing something rash. Then those Democrats will go to Steny and tell him how terrible Nancy's crazy ideas would be, and how we can't rush into something like that without much, much more thought. Maybe Barney will try to talk to Dennis or Melissa, but it will become apparent quickly that they have no idea what they're talking about; they're just repeating by rote what the lobbyists told them to say. Melissa may actually be dumber than Sarah Palin. Barney will realize he might as well talk to the lobbyists directly and save a step. The lobbyists will agree to something inconsequential, but certainly nothing that would really affect the industry's conduct. Then the leadership will do the math and conclude that because the vast majority of Republicans will vote against any bill, we can't get enough votes without the Dennis and Melissa crowd. The only way, our leadership will conclude, to get anything at all passed is to include nothing more than the inconsequential proposals that the lobbyists agreed to. Then we'll all go along because it would be wildly irresponsible not to act when we're staring over the brink of a complete collapse of world financial markets.
I'd diagram it for you if I had a chalkboard. I've seen the play again and again, and it always goes for long yardage.
The only defense for the play is for a significant group of Democrats to say they won't vote for any proposal that isn't unpalatable to industry, and mean it. It's a pretty high stakes game of chicken, but otherwise we come out of this with nothing but a $700 billion giveaway to a crooked industry.
Ouch.
If anyone out there is good with diagramming software it'd be a neat picture to put together.
So this piece of shit deal is a $700 billion scam. Specifically, it's designed to handcuff progressive priorities for the next generation, to ensure that Barack Obama, though he may be President in name, will spend his term paying off George Bush's debt. I've emailed a bunch of candidates whether they will come out with statements opposing this deal or calling it out for what it is. We'll see. If you're a candidate or on a campaign, email me at stoller at gmail.com.
A youtube video with a pithy line about how this is a bullshit deal would work. As an example, here's Alan Grayson calling for war profiteers (or the 'kings and queens of America' as he calls them) to go to jail.
So I keep hearing how AIG needs to be bailed out or else there will be financial armageddon. I heard that in 1998 during the East Asian crisis, I heard it earlier this year, and I get the sense that every policy move to socialize the losses of very wealthy Wall Street executives is going to be done under the rubric of avoiding a financial meltdown. I don't think they are lying, of course, it's a neat trick when you set the rules so that if you screw things up everyone suffers. I mean when someone straps a bomb to themselves the bomb does blow everyone up in the room.
And while I appreciate the quasi-optimism of Atrios and Matt Yglesias, I think it's important to recognize that in the run-up to the Great Depression we weren't engaged in two wars and didn't throw a little less than trillion dollars into the military every year and have a Congressional caucus dedicated to ensuring that wars are free in the name of fiscal responsibility. Bad decision-making is everywhere, and that's not even getting into climate change denial.
So anyway, just because it seems unlikely we'll be able to avoid this financial meltdown forever, I'm wondering what does it actually look like? I asked Paul Krugman this question at Eschaton and he said that it'll be really bad for a year or three, there will be a massive credit freeze as legal obligations become incredibly ambiguous, and then 'everyone will eventually move one house to the left'.
Obviously lots of stuff goes crazy in a scenario like that, there's a reason lots of dictators did so well in the 1930s. But seriously, what are we talking about here? Where are we headed, assuming the geniuses in charge can't keep avoiding this meltdown? Because the alternative of 'scary global financial meltdown' on the one hand and on the other shoveling xyz billion to this bank or this auto company isn't a helpful way to weigh policy options.
