TPM: Bailout Burnout (reactions of various economists we trust and respect)

[mod mom]

09.29.08 -- 12:01PM By Lila Shapiro
Yesterday the house rejected Paulson's $700 billion rescue plan 228-205. Today, Congress breaks for Rosh Hashanah. Between the finger pointing (It's Nancy's fault!!!!), and the mavericking, it's hard to get a grasp on what the hell is happening. We here at TPM world headquarters profess no expertise in high-end economics so we've rounded up the reactions of various economists we trust and respect. The verdict: there has got to be a better way. Or, in Adam Levitin's words, "So what did Congressional leadership do with this bailout bill? Put lipstick on a pig. I wonder how many Congressmen who voted for the bill know just how impotent the executive compensation, oversight, and homeowner protection provisions are. There's a reasonable bailout bill that could be passed. But this wasn't it."

Robert Reich, former Secretary Of Labor and UC Berkeley professor


Don't expect easier sailing in the Senate. Fewer than a third of the Senate is up for reelection on November 4, but they're all hearing from angry constituents.
Prediction: A scaled-down bill will be enacted by the end of the week. It will provide the Treasury with a first installment of $150 billion. Treasury can use it to back Wall Street's bad debts with lend no-interest loans of up to two years, until the housing market rebounds. Or to invest in Wall Street houses directly, in exchange for stocks and stock warrants. There will be strict oversight. Congressional leaders will promise further installments, but with conditions calling for limits on salaries and relief to distressed homeowners.

David Cay Johnston, Pulitzer Prize winning economic journalist:


Maybe we will also get answers to some hard questions. Like:
--Why was the CEO of Goldman Sachs in the room when government officials decided to bailout the insurer AIG, especially since Goldman has about $20 billion, half of its shareholder equity, at risk on AIG? Keep in mind that Treasury Secretary Paulson is the immediate former CEO of Goldman.

--Why was Lehman Brothers, a Goldman competitor, the only Wall Street firm in trouble so far left to collapse on its own? The Wall Street Journal reports today that it was the collapse of Lehman (which because of its structure may not have been an attractive firm for purchase) that "triggered cash crunch around the globe."

--Has Treasury obtained from every bank the amount of its illiquid assets, which would tell us if the problems are concentrated at a few banks or are pervasive?

--Would a temporary provision in the bankruptcy code, allowing people with toxic mortgages to get their loans rewritten or pursued to foreclosure, be a cheaper and better alternative?

Disclosure, transparency, options--those should be the issues in the next few days.

-SNIP

AND MY PERSONAL FAVORITE:

Brad DeLong, professor of economics at UC Berkeley


As I said, raze the Republican Party to the ground. Plough it under. Scatter salt in the furrows so it can never grow back.
We need another, very different opposition party to face the Democrats. We need it now.

http://talkingpointsmemo.com/news/2008/09/bailout_plan_reactions.php

[Hannah Bell]

1. i think cay's questions about lehman are well-taken. lehman was

collapsed, then suddenly the gov't's gonna bail out everything - but not lehman. hmm.

[Karenina]

4. Gee... Wonder WHY???

:rofl:

[Hannah Bell]

5. well, why?

[Karenina]

8. Here's where we jump from "financial" to "political."

AIG gets 85B? Why? Morgan connected institutions get a tarp of protection? Why? Paulson goes for the gold ring? Why?

[Hannah Bell]

9. i was wondering about how morgan always comes out smelling so good too.

looking at history.

yes, so - why?

i assumed the buffett connection had something to do with aig's good fortune - but what makes him so special?

so - why? please weigh in.

[Name removed]

16. Deleted message

Message removed by moderator. Click here to review the message board rules.

[JuniperLea]

18. Thank you!

I think he is criminally liable too! There is a lot more back-story to this than we are aware, no question. And so many are falling for the game, it's sickening.

[Hannah Bell]

19. yes, i just read that. but how about morgan?

[Efilroft Sul]

15. Here's why.

"The Democrats for a long time have been fixed on the next election or the election after that," says Peter L. Buttenweiser, an heir to the Lehman Brothers securities fortune and one of the Democratic Party's most generous donors. "This is the first concerted effort to build the infrastructure of the progressive party in a way that replicates what the right has been doing for a long time."
-- http://dir.salon.com/story/news/feature/2005/08/22/alliance/index.html

I'm sure taking out a major Democratic donor was a factor in not bailing out Lehman.

Google Buttenweiser and you'll find out just how much he's given to the Democrats. Follow the money.

[Hannah Bell]

20. hey, another piece of the puzzle. thanks.

[loudsue]

23. Woah!! I didn't even know about that piece. THOSE SHITS!!!!

Those fucking assholes!!!

[mod mom]

12. I'm sure it was a coincidence that Henry Kissinger was on the Board of AIG and

there are ties to the Carlyle Group. Nothing political here...just move along. :eyes:

[Karenina]

29. I poked my head down that AIG rabbit hole...

Damn thing goes all the way to China and the stench made me dizzy and nauseous! :crazy:

[brentspeak]

2. And why were U.S. Chamber of Commerce lobbyists allowed to participate in discussions?

Something else that needs to be asked.

[bigtree]

3. KICK

:kick:

[Trillo]

6. It answers one thing for me: Why did the WH sit on this

for some unknown period of time?

[Hannah Bell]

7. why?

[Trillo]

10. To conceal the first domino (so to say).

To prevent or obfuscate the true cause from being easily discovered from looking at the timeline of events.

Whether it was a hostile theft or takeover of Lehman, or something else, only disclosure or deep investigation is likely to discover. It's probably out there in the mountain of disclosed data, but sifting through it to find the first domino is likely error prone.

Without know the true first cause, how can any policy remedy ever be effective? Fixing anything other than the first cause becomes a band-aid that only masks a sub-ripple of effects, and hence, is likely to fail longer term.

[Hannah Bell]

11. interesting, thanks.

[Celebration]

13. don't forget

Naked short selling was strictly enforced only AFTER Lehman failed. Coincidence??


:tinfoilhat:

[Hannah Bell]

21. i doubt it (there are no coincidences in politics, according to fdr - who, incidentally,

had the same grandma as junius morgan) -

but elaborate on the details, please.

[Hannah Bell]

24. morgan/tony blair

LONDON, England (CNN) -- Former UK Prime Minister Tony Blair, who left office last June, has taken up a part-time job with a Wall Street bank on an estimated $1 million salary.

JP Morgan Chase did not say how much Blair will make in the part-time position.

Blair will work with JP Morgan Chase, a firm with assets of $1.5 trillion and operations in more than 50 countries. He will advise the bank on global political and strategic issues, a company statement said.

"We operate our business all over the world, and Tony Blair will bring our leaders and clients a unique and invaluable global perspective that is especially critical in turbulent times like these," said Jamie Dimon, chairman and CEO of the company, in the statement.

[Celebration]

26. there were a ton of rumors

circulating about Lehman before they fell. And there were people POUNDING the stock down. Short selling is legal--that is, selling the stock while not actually owning it. BUT you are supposed to come up with "borrowed" stock from margin accounts within three days. THOSE RULES HAVE NOT BEEN ENFORCED UNDER CHRISTOPHER COX. So there were most likely people spreading rumors about Lehman, and then selling the stock without even owning or borrowing it. It has only been recently that naked short selling has been disallowed, as it was supposed to have been all along.

Also, another rule had been enacted under Cox that made short selling easier--the end of the "uptick" rule--(that you could not short a stock except when the stock was on an uptick in price)-- so the traders were just hammering Lehman--probably with no stock, and no uptick rule. It doesn't take much to clobber a company.

But their timing was a little off. I don't think they expected as many problems as those than ensued. Surely the end game was that the big problems would surface *after* the election.

There is one thing I agree with McCain on-Christopher Cox has been an absolutely lousy SEC commissioner.

[Hannah Bell]

27. so the rumors are lehman was taken out deliberately. so who's the rumored instigator, goldman?

[loudsue]

14. Ahhh. The sound of sanity amidst the bush shock doctrine ponzi scheme.

:loveya: Thank you for posting this!!! I hope some DUers will take note!!

[JuniperLea]

17. Banks have the liquidity...

Otherwise they would all be belly up like Lehman.

It is a very interesting question as to why it is that Lehman was allowed to fail, that WaMu fell victim of panic withdrawls and was allowed to fail... etc.

Yep, the Republicans need to take back their party for damn sure!

[ProgressiveReb]

22. Let’s Try This Again: A Fair, Thoughtful, Progressive Solution to the Nation’s Economic Crisis

Let’s seize this opportunity to propose a truly progressive solution. We should tell Congress, and especially the House leadership, that we need a fresh, thoughtful alternative centered on the following key principles:

1. Do more to make Wall Street, not working families, bear the brunt of the financial burden.

2. Adopt stronger rules to protect us from banks that are “too big to fail” and the reckless, over-the-top borrowing that left our financial system teetering on the edge.

3. Do more to help struggling families stay in their homes -- including allowing bankruptcy judges to let homeowners negotiate new terms for their mortgages.

4. Commit to the public investments that we know will pay off for America – including clean energy, health care and education.

If you support these goals, please send an email to Nancy Pelosi telling her that you expect a fair, progressive solution to this crisis.

We should take action to make our economy stronger; but let’s not leave behind our values as we do it.

[Efilroft Sul]

25. Welcome to DU.

I like your thinking. Cheers!

:toast:

[crickets]

31. Excellent first post.

I'd add one to your list:

2a. Enact legislation to regulate the size of financial institutions to prevent them from becoming so dangerously "too big to fail" to begin with. Some of these companies are concentrating too much wealth and power in one place and need to be broken up.

Welcome to DU, ProgressiveReb! :toast:

[Hannah Bell]

28. kick.

[Laelth]

30. It's hard to argue with Brad DeLong. n/t

:dem:

-Laelth