We have a bailout plan

Politicos worked out a financial bailout to be voted upon by Congress today. With a lot of details added, it is essentially the same one proposed last week, to spend $700 billion to buy up devalued mortgage securities. Bottom line: Should the Congress pass it or not?

About Gene Veith

Professor of Literature at Patrick Henry College, the Director of the Cranach Institute at Concordia Theological Seminary, a columnist for World Magazine and TableTalk, and the author of 18 books on different facets of Christianity & Culture.

  • Jeffrey G

    No cash for trash.

  • Brian

    Yes, it is necessary to provide capital to keep the credit markets functioning. Given the state the US is in right now we have a choice between some government intervention right now or a lot more later after a major corporation fails because of cash flow problems and the ensuing panic and depression.

  • http://problemsareforsolving.blogpeoria.com James Lansberry

    The government’s job is to protect the rights of its citizens, not to prop up failing financial sectors. Markets drop because of lost value of commodities. If we can’t bear the risk of our own investments, soon the freedom to choose where to invest will be taken from us.

    Also, these failing markets are in large part due to overregulation. So the solution is to give the government *more* control over the banking industry?

  • Bryan Lindemood

    No they should not pass it. They will vote it through and we will fail to throw the bums out.

    This will only delay the inevitable and devalue the dollar.

    Sorry for being so negative lately, but this bill really chaps my hide!

  • WebMonk

    “over regulation”? Eh, more like bad regulation.

    In some cases the bad regulation took the form of removing regulations that stopped borderline (and some not so borderline) fraudulent activities. Those regulations should have been left in place.

    In other cases the bad regulation took the form of requiring some REALLY dumb practices that certainly helped pave the way for this “crisis”.

    The regulations which essentially forced banks to provide sub-prime mortgages was combined with the removal of regulations that required “honest” treatment of some of the mortgage assets, and all that was expanded into a giant mess by opening up a multitude of different ways in which firms could increase their leverage (debt).

    And then, along comes the bailout and pushes a bunch of cash into the problem to “get credit moving again”. That’s like putting some stop-leak into a brake line that is gushing brake fluid – it will only slow down the destruction, and in the real world, will cause many, bad unintended consequences.

    I’ve emailed all my reps and senators several times on this issue and phoned twice. The way this is feeling though, I think it’s going to get hammered through anyway.

  • http://www.bikebubba.blogspot.com Bike Bubba

    No, fix the screwed up loan regulations like the 1977 CRA and the 1995 Clinton “welfare checks are income for purposes of a loan” abomination first. You want banks to loan money? It’s pretty easy; you allow them to reject unsuitable borrowers like they used to.

  • CRB

    Alexis DeToqueville’s words might just apply:
    “I, too, am in my fifties, and I recall an entirely different America while growing up and as a young man than what we have forced upon us today. I truly pray for a vast National Revival, we must return to our roots, found only in JESUS, or we will fall into Godless European style Socialism.”

  • Anon

    The proper management of smoke and mirrors isn’t something I’m an expert on.

    My expertise is more in the area of theology and the difference between right and wrong (and there, like everyone else, I’m not perfect)

    I would say that those who created the problem (which includes the federal government, especially the Democrat Senators who pushed for the regulations which directly led to the crisis) to fix the mess.

    But moral priority would be to protect those who trusted in the expertise of their bankers. Priority should be given to suspending foreclosures and to halting usary: even to credit money paid to usuary to the principle, instead.

    I agree with the moral outrage at multimillion-dollar ‘golden parachutes’ yet is it not the province of the boards of directors and the stockholders, not the federal government; to reign that in?

    The tens of billions of dollars that the Democrats are demanding as bribes to passing anything are very immoral indeed, and should be resisted, even if it means not passing anything. The vast amounts of money they wish to give to their fraudulent vote-generating machine – ACORN should not only be resisted, but investigated as evidence of collusion in the ongoing investigations of ACORN. It should probably result not only in the censure and impeachment of those Democrat Senators, but also in their imprisonment – granted due process of law.

    The federal government does have delegated to it the powers to manipulate the economy – but they do have the moral duty to fix what they’ve broken.

    The legitimate role of government with regards to the economy is to regulate and prosecute fraud, theft, selling harmful goods to an unwitting public, etc. Not to managing business cycles per se: though God’s sabbath laws and jubilee laws indicate a solution and an exception. Traditional laws against gambling overturned in the past two decades should be reestablished and applied to the stock market. A restructure following a favoring of private property held by the families and workers rather than concentration of such would be desireable as well, as that too appears to be something which God favors in His Law.

    But when things are fixed, things should be quickly returned to Constitutional limits, and education of those who claim that adhering to the Constitution is ‘kooky’ should be voluntarily undertaken.

  • Patrick Kyle

    The CRA (Community Redevelopment Act) mandated that banks had to make loans to people with bad credit, under penalty of fines if the banks didn’t comply. People like MCain and Pelosi own thousands of shares in some of these investment banks that are being bailed out….

    I’m really discouraged and disillusioned about the whole situation. How is the Republic not dead when we embrace statism like this? The bailout is as big a move to Socialism as the New Deal.

  • Susan aka organshoes

    CRB:
    Alexis de Tocqueville’s words?
    I’m doubting that.
    Oral Roberts, maybe, or his like.

  • Carl Vehse

    If it would permanently flush out the demonrat members of Congress, what is likely to be no more effective than a $700B colon cleansing might be worth it.

  • Sam

    A reliably Republican columnist last week recognized this alternative bail out plan.

    “If BS were currency, Palin could bail out Wall Street herself.”

    – Kathleen Parker
    National Review Online

    http://article.nationalreview.com/?q=MDZiMDhjYTU1NmI5Y2MwZjg2MWNiMWMyYTUxZDkwNTE=

  • Peter Leavitt

    Occasionally in our history the federal government has effectively stepped in to stabilize the economy that has suffered from financial manias and panics. This started in the Washington administration when the Treasury under Hamilton took over the bankrupt states debt obligation incurred during the Revolutionary War. Hamilton later stepped in during a panic related to federal debt obligations. The federal government during some- usually rare- times has the savvy and resources to avert looming financial disasters.

    Just now the economy, even with the bailout, bids fair to tip over into a recession. This bailout most probably will prevent a steep recession or worse, as happened during the Great Depression when the national government and Fed sat on their hands, leading to a the Great Depression, exacerbated by Roosevelt’s policies, that lasted for ten years.

    Once this necessary bailout deals with the immediate financial meltdown, then the government can deal with the compromised credit market regulation that is attributable mainly to Democrats along with a few spineless Republicans in the sentimental interest of “affordable” housing, especially for those perennial “victims”, the poor and minorities.

  • Susan aka organshoes

    In other words, Peter Leavett, once this remedy to years of Congressional malfunction and market-meddling is enacted, then cooler heads will prevail, and the real problems–Congressional malfunction and market-meddling–will be addressed?
    I understand finances about as deeply as I understand how my aspirin works. But my gut sees nothing good from the pervasive mentality that government can somehow make market capitalism be more fair, and it still be capitalism.
    Government isn’t charged with producing good results for bad practices. Government isn’t charged with producing any kind of market result, except in societies where government is King and citizens are its subject.
    Bryan Lindemood is probably right, though I will tweak his original thought: we’ll fail to throw the correct bums out. I believe bums will be turned out, but only to be replaced by other bums. End result: no one accounts for his or her part in this debacle.
    Just throwing people out and putting others into place doesn’t mean things change.

  • Jay

    NO, Trying to prop up overinflated values is futile. Someday the economy will have to take the hit. Now is better than later.

    No, wait!! I have a better idea. I have a half-baked get rich quick idea. Maybe you guys want to bail me out if I go belly up!

  • http://www.toddstadler.com/ tODD

    Hmm. Looks like McCain should suspend his campaign again. The bill failed, 205 to 228. Democrats supported the bill, 140 to 95. Republicans opposed it, 65 to 133.

  • Susan aka organshoes

    Looks to me like the House Republicans hold more power than they did prior to McCain’s sharing his spotlight with them last week.
    That cold work to the good of any final bill.
    Speaker Pelosi may have overplayed her partisan hand, or rather, mouth.
    Or is she the only player in DC allowed to be partisan?

  • Bryan Lindemood

    Yes! We’ll see what crap they shovel our way next. Keep your congressmen on speed-dial.

    By the way, if you haven’t already, read Dr. Paul’s remarks to Congress this morning. Boy do I like that guy!

  • CRB

    #10 Susan,
    Well, I got this from a website on quotes, so it might have been edited by the blog owner. I don’t agree with the part of about “revival” but I do not doubt that the U.S. may be headed down “socialism road” if we are not
    careful, especially if Obama wins!!

  • Bryan Lindemood

    So happy my comment #4 has been proved wrong (for today). I love political wranglings that stop terrible legislation.

  • CRB

    I listened to Rush Limbaugh today and thinks that all of this “legislation push” is tied to politics, specifically to get their man elected so that we can live in an Obama
    nation! Strange how those 2 words resembel another word found in the Bible when God is displeased with His people!

  • http://www.toddstadler.com/ tODD
  • Peter Leavitt

    Well, the Congres in its wisdom has voted against the bailout. My guess is that given the seriousness of the credit-market meltdown this will be a pyrrhic victory that bids fair to precipitate a deep recession or worse. The problem is that the meltdown was caused mainly by the Democrats and a few spineless Republicans who allowed a lowering of mortgage credit standards in the interests of “affordable” housing. The bailout plan was designed to plug the hole in the boat and pump out the exceedingly dangerous financial waters, followed by an effort to reform the compromised credit-market standards.

    Hoover, the Fed, and the Congressional conservatives back in ‘29-’32 period sat righteously on their hands, ushering in the Roosevelt era that exacerbated matters, precipitating the ten-year pleasures of the Great Depression. Don’t kid yourselves that this is not a very real financial crisis. Ironically, the Democrats for the most part have a better understanding of the depth of the crisis than the many righteous and financially naive Republicans in the House.

    What could easily happen next is a combination of some sort od a bank run and a decsion among those with capital in produvtive companies to find save havens, especially gold. The Wall Street Journal tomorrow will record the gory details.

  • http://www.toddstadler.com/ tODD

    Ooh, good job, tODD (@22). Way to close your link tag!

    Anyhow, I continue to be fascinated with the way Americans obsess so much over the election of their President, and so (comparatively) little over the election of their members of Congress, as if the President were the only government official who would move us down the road to “socialism” or what-have-you. Who holds the purse strings in government?

  • WebMonk

    Well, my congressman was one of the small number of Republicans who supported that monstrosity of a bailout. I’d love to know why. I called up and asked and the staffer basically said that he felt that the crisis warranted the intervention. I asked if my congressman was going to release any rationale or defense of his choice. He isn’t.

    I have a hard time imagining that the bailout can be defended from an economic point of view. Paulson and Bernanke don’t even come close to defending it with a solid case. As is often the case, the more economic detail that gets thrown in, the more muddled causes and effects can become, but this one stays pretty clear even to the expert-level. Simplify it down to the dummy-level most politicians use, and it really does become a DUH situation. With the relative obviousness of the economics, the strong opposition from the public, and the general economic principles that Republicans are SUPPOSED to uphold, it should be a slam dunk.

    This is one of those things that really drives home to me that I really don’t care much about “experience”, and this applies to both Obama and Palin. I can’t remember who made the quote, but someone said he would rather be governed by the first 200 names out of the phone book, or something like that. I tend to agree.

  • Carl Vehse

    Michelle Malkin has the roll call vote in her column, Breaking: It’s official. House rejects Trillion-Dollar-Plus Crap Sandwich.

    “It’s official. The MOAB has failed.
    Yeah, a lot of Chicken Littles are running around screaming about the Dow dropping.
    It’s dropped less than 5 percent.
    Apocalyptics said it would be down 20-30 percent.
    The bailout failed.
    The world survives.”

  • CRB

    #22 tODD,
    Thanks for catching that. Guess I better be more selective about what site I use for quotes next time!

  • http://www.toddstadler.com/ tODD

    I’m just wondering if anyone wants to change their answer from the discussion over on “Summit degenerates, but a new plan emerging”.

    Peter (@10 & 26 over there), “McCain was brought back to Washington to shore up Republican support for a resolute solution to this serious financial crisis”? How’d that work?

    Don (@12, ibid.) has the “dust settle[d] a bit” so you can “pass judgment” now? Did Pelosi “have the votes” (@15 & 19, ibid.)?

    McCain returned to D.C. immediately after the debate, right? How could this have happened? I waited “two whole days” (@24, ibid.)! And for what?

    What about McCain’s “key leadership ability of being able to encourage consensus by making sure all parties get a chance to get their ideas on the table and have them be heard, then move people together” (@27, ibid.)?

    Peter, “McCain had the guts to stand up to the consensus that had been reached on the bailout plan in order to achieve an even better consensus that involved the House reform Republicans” (@30, ibid.)?

    And why am I the only one calling for McCain to once again suspend his campaign? Our country needs his Leadership! Now, More Than Ever! He can’t turn his back on our economy and go out there and campaign today! He’s needed back in D.C.! And, like he promised the first time, he should stay there until a (true) compromise is made and a bill is passed! Why can nobody but me see this?

  • allen

    I think part of the problem must have something to do with this idea that finance is a sector of the economy. It is not. It is not in the same way that mathematics is not a science. Math is the language of science, or the operating system, or however one wants to say it. Selling debt does not count as “doing something.”

  • WebMonk

    tODD – it’s campaign season. Nobody means what they say or do any longer than it takes to come up with something that will get them more votes. Consistency from either party? Ha!

    Ok, done with snarkiness.

  • Don S

    tODD @ 28: Who knows whether Pelosi & Co. had the votes last Thursday, when they announced that they had a deal in principle and there was no need, after all, for McCain to come to town. They must’ve thought they did, to have made such a pronouncement, and to have excluded House Republicans from negotiations up until that point in time.

    I suspect that the bill that was up for vote today got a lot closer to passage than any bill that would have come up last week. We still don’t really know what effect either McCain or Obama had on the debate. The vote was a bipartisan defeat for leadership of both parties, as Pelosi lost 95 of her own Democrats. Is it a bad thing? In the short term — apparently so, as the market tanked about 7 or 8 % today. In the long term, not so sure, as we may have saved capitalism for another day. Plus, they are still negotiating a revised bill, reportedly, so perhaps we may yet get a more reasonable and balanced approach which injects liquidity into the market without extracting the last bits of market capitalism which has made our economy what it is today.

    Pelosi, of course, couldn’t keep her big mouth shut before the vote. She had to mouth off about how all of this economic turmoil was ENTIRELY the fault of the “unpatriotic” Republicans, and this $700 bln was just a downpayment on what would have to be done to rescue us from this Republican mismanagement. How bipartisan of her, just before she asks for Republican votes to pass a bipartisan rescue package. She is the most moronic and deeply partisan Speaker in U.S. history, and her Congress has accomplished less than any other Congress in history. We need Pelosi to go out on the campaign trail, away from D.C., if we are ever to accomplish anything in a bipartisan fashion.

  • http://www.toddstadler.com/ tODD

    So Don (@31), I’m not sure you answered my question. Last week you said that we’d know by today whether McCain’s stunt was useful, whether he had done anything. Now you say we “still don’t really know”. When will we, do you think?

    Was McCain’s “suspension” of his campaign successful? Did it achieve the consensus he said was so necessary? If not, shouldn’t he be back in D.C., which needs his Leadership ever so badly? Even if Obama is foolishly out running a presidential campaign, can’t McCain put his country before himself and find a newer, better, differenter consensus? Or would McCain rather lose the economy and win his campaign?

  • Don S

    tODD @ 31: I never said anything about McCain’s “stunt”. You are the one who has insisted it was a stunt.

    Reportedly, McCain was successful to the extent that he helped the Democratic Congressional leadership realize that the House has some Republican members whose ideas need to be considered if you want to pass a bill with “bipartisan” support. I suspect they got a lot closer to passing a bill today than they would have if they had tried to pursue the initial effort last week. Unfortunately, Pelosi was unable to corral the votes of 95 of her own members for a plan that never was going to be that popular with Republicans.

    Today, Obama stated: “After this immediate problem, we’ve got the long-term fundamentals that will really make sure this economy grows”. How, exactly, is that statement different than McCain’s statement that: “The fundamentals of the economy are strong but these are very, very difficult times. I promise you, we will never put America in this position again. We will clean up Wall Street”? I wonder if Obama’s statement will get the scrutiny that McCain’s did?

  • Don S

    “From the minute John McCain suspended his campaign and arrived in Washington to address this crisis, he was attacked by the Democratic leadership: Senators Obama and Reid, Speaker Pelosi and others. Their partisan attacks were an effort to gain political advantage during a national economic crisis. By doing so, they put at risk the homes, livelihoods and savings of millions of American families.
    “Barack Obama failed to lead, phoned it in, attacked John McCain, and refused to even say if he supported the final bill.
    “Just before the vote, when the outcome was still in doubt, Speaker Pelosi gave a strongly worded partisan speech and poisoned the outcome.
    “This bill failed because Barack Obama and the Democrats put politics ahead of country.”

    —McCain-Palin senior policy adviser Doug Holtz-Eakin

    I think this statement about sums things up.

  • Carl Vehse

    Nancy will no doubt perform her lapdance of pork to stimulate the ardor of recalcitrant demonrats to pass what will by then be an $800B bailout bill without the need for RINO support.

    Then it will be up to George and his veto power, which he has demonstrated as effectively as his ability to pronounce “nuclear”.

  • http://www.toddstadler.com/ tODD

    And to think, that this whole debacle today could have been avoided if only McCain hadn’t attended the debate on Friday.

  • Anon

    Pelosi insists on fully 20% of the entire bailout to go to the radical leftist Alinsky-Cloward created and inspired vote-fraud organization ACORN that Baraq Hussein Obama was so involved with in the past.

    No wonder it was voted down!

  • Joe

    I would just like to point out that while everyone in DC (and around here) is lobbing grenades at each other, the price of oil dropped $10.00, the dollar is up against the Euro and Citigroup (using all private capital) just purchased Wachovia. I am still not convinced that the market is really in need of gov’t capital. It needs certainty to encourage lending, and that certainty can come without a gov’t bail-out through regulatory reform.

  • http://www.toddstadler.com/ tODD

    Anon (@37), the ACORN language was stripped from the bill that was voted on. You’ll have to find a different reason to justify why it failed.

    Even though everybody knows that reason is: John McCain wasn’t bodily in D.C., but instead was at the debate in Mississippi, rather than Leading.

  • Carl Vehse

    It appears that even 40 percent of Nancy’s party didn’t drink the Kool-Aid.

  • FW

    I hope MCCain remembers to bring along his financial expert sarah palin. we know that she is a financial expert because her house is near a bank.

  • ducky

    Sam,
    Katleen Parker is no heavyweight. Palin is no more out of her league than B. Obama is his. Both are exspected to be tenative as they hear their comments for the firdt time. Unseasoned.
    Remember Moses did not have the confdence of a leader. He could under divine guidance pick the right spokepersons.
    Sam and Kathleen, show you trust the “Superintendent” of this smoke and shadows we call national election.
    Ducky

  • ssmith

    I was an English major in college. I am certainly not UNeducated, but I feel quite so when trying to understand the financial situation in which our country finds itself. What would be really beneficial for me is someplace I can go to read about what happened/is happening/might happen that doesn’t contain the MSM tendency towards hype and hyperbole. Every news site I’ve visited this afternoon is preaching doom-and-gloom, end-of-the-world-scenarios, or at least leads with headlines screaming “THE DOW FELL OVER 700 POINTS”, with little actual text to say why, and what the consequences are, and what the average ordinary working folks should expect.

    I realize what’s happened today is dramatic and startling and cause for high emotions on all sides of the room. But someone somewhere has “just the facts, ma’am”, don’t they? Any suggestions?

  • Carl Vehse

    Michelle Malkin has just the thing for English majors. Avoiding any mathematical or economic equations, Michelle explains the financial situation behind the Mother of All Bailouts (MOAB) in her bedtime story, The Ant and the Grasshopper, 2008 edition.

    Enjoy.

  • Don S

    tODD @ 36: Or, if Pelosi HAD attended the debate, and then stayed out of town.

  • Don S

    Or, if Pelosi could have convinced more than 60% of her own party reps to vote for the bailout. What was their problem, anyway? I understand why Republicans voted against the largest government intrusion into free markets in American history, but I have trouble understanding why Democrats voted against it. I suspect, reviewing the list of those who voted no, that it wasn’t a BIG ENOUGH intrusion to suit them.

  • JSH

    You want facts? Here are some facts:
    Credit has become tighter and tighter over the last year or so. With the failure today to do anything about it, credit will continue to get tighter if not disappear altogether. Major banks around the world will continue to fail. No businesses will be able to get money to operate – businesses on wall street or on main street. There will be disappearing supplies in stores of food and everything else because businesses cannot operate to provide those supplies. No people will get mortgages or car loans or loans for anything else. Credit cards for everyone may be cut off because credit card companies cannot get money to loan to cardholders. Besides that, everyone’s college and retirement savings are being slashed. The elderly who depend on this are being impoverished. We are headed directly for another great depression.
    I have always registered to vote as an independent but had conservative republican sympathies. But if this is what the republican party stands for, if their idiology is more important than reality, I want no part of it.

  • Carl Vehse

    The sky is falling! The sky is falling!

    We’re doomed!

    Save us, 0bamessiah. Save us with the help of St. Nancy.

  • http://www.toddstadler.com/ tODD

    Don (@33), I know I’ve been insisting that McCain’s “suspension” of his campaign was a “stunt” — and I still maintain it is.

    But you seemed rather intent on saying it wasn’t a stunt, asking me to wait a few days to see the results of what McCain had done, since there was no evidence that he’d done much of anything other than strike a majestic political pose and Look Presidential, a Real Man of Action. Also, you used the word “consensus” several times.

    Well, those few days are past now, and McCain’s not back in D.C., his campaign’s not suspended, and there’s no consensus. So … all that grand political theater that I claimed had no other purpose — what do you claim its purpose was?

    If you say it was merely to get the House Republicans to the table, then you have to explain why, first, they ultimately bailed on the bill, in contrast to all your talk of “consensus” being reached. You’d also have to explain why McCain was needed to get them to the table, since you’d also pointed out how Pelosi and the Democrats were intent on having everyone buy in to the bill (because no one party wanted to be blamed for pushing it through).

    I haven’t actually heard anybody here make an argument that it wasn’t a stunt, of course. The arguments have just moved on to blaming Dems in other ways (for instance, somehow Pelosi’s giving a partisan speech forced — forced, I say! — the House Republicans to vote against a bill they liked, apparently because mean Nancy hurt their feelings! Now that’s putting country first!).

    Or there’s your argument that Pelosi is to be blamed for getting 60% of the Democrats to vote for the bill, but somehow Republicans are not to be blamed for only having one-third of their party vote in favor. Different standard?

    Mind, barring an honest-to-goodness collapse of the economy, I’m fine with the bill not passing, at least for now. I just think McCain’s gambit backfired on him in several ways (Obama called his bluff, leading him to the debates in spite of his promise; and McCain got nothing out of all his time in D.C. anyhow).

    As for your Obama quote, I’ll bet you aren’t even aware of the context of it, because you probably saw the eight-second contextless clip the right-wing blogs are circulating. Am I wrong? Well, the only context for it I could find was here:

    “We don’t just need a plan for bankers and investors, we need a plan for autoworkers and teachers and small business owners,” Obama said. “I have said it before and I’ll say it again: we need to pass, after this immediate crisis is over, an economic stimulus plan. Right now. For working families – a plan that will help folks cope with rising food and gas prices, that can save one million jobs by rebuilding our schools and our roads, and help states and cities avoid budget cuts and tax increases. A plan that would extend expiring unemployment benefits. For those Americans who have lost their jobs and have been working hard to find a new one, but haven’t found one yet. That’s part of the change we need.

    “And then after this immediate problem, we’ve got the long-term fundamentals that will really make sure this economy grows. Change means a tax code that doesn’t reward the lobbyists who wrote it, but the American workers and small businesses that deserve it. As president I am going to eliminate capital gains taxes for small businesses and start-ups. That’s how we’ll grow our economy and create the high-wage, high-tech jobs of tomorrow.”

    He’s not talking about the economy now. He’s talking about what would happen given his economic stimulus plan.

  • Peter Leavitt

    A big problem with the politics of the bailout plan is that the money involved is basically an investment in distressed assets that if held long have a very good chance of earning a profit for the American Treasury. The economist, Larry Kudlow, provides a good analysis of this:

    Let’s walk through this hypothetical for a moment. Through a market-driven auction, the Treasury will purchase some dollar amount — say $100 billion — of loans that banks will sell.

    The Treasury will then buy those loans at the prices that fill the auction, starting with the lowest prices and working up. Now, the Treasury will hold those bonds either to maturity or for a sale in the open market if rising prices in the market make that sale attractive.

    In other words, suppose the Treasury buys a bond package at 20 cents on the dollar. They hold it for a while, and if market conditions improve, they sell it for 50 cents on the dollar to some buyer (for example, an investment fund, a private-equity fund, a hedgie). The Treasury will make the sale at the higher price in order to gain a profit for taxpayers.

    In the meantime, as the Treasury holds the loans, the government will get monthly cash flows coming in on the mortgages, or on any other loans that it owns. So it is a win-win for taxpayers:

    First, taxpayers get the cash flow generated by the assets (something like a 10% interest rate.)

    Second, if the loan is sold for profit, the taxpayers will own that profit. And the new law must of course stipulate that all the cash flows and/or profits go for debt-reduction to protect taxpayers.

    I don’t think a lot of folks understand this win-win scenario. Let me repeat:

    The taxpayers own the bonds the Treasury buys; the taxpayers own the cash flows generated by the bonds; the taxpayers own the profits when the bonds are sold; and the taxpayers benefit when the profits and cash flows are used to pay-down government debt.

    Actually, for taxpayers, it’s a win-win-win-win.

    Rallying Confidence

    Think about this. The troubled assets purchased by the Treasury right now are likely to be very underpriced because of the chaotic and frozen market conditions. But over time, through monthly cash-flow payments or through loan sales, taxpayers will get all their money back and in great likelihood a handsome profit

  • Joe

    I don’t disagree with the idea that it is an investment. But if the investment was really as risk free as Kudlow’s analysis there would be other non-gov’t buyers. Hey wait there have been other non-gov’t buyers of assets that really are worth the risk – like Citigroup and JP Morgan Chase and Bank of America. These three banks managed to raise capital and buy the assets of their struggling competitors. This is how it is supposed to work.

    We have also learned that, at least in the case of AIG pasted gov’t bail outs have discouraged private companies from lending or buying into companies because they are worried their investments will be voided if and when the gov’t takes over:

    “By Sunday, K.K.R. and the Texas Pacific Group made it clear would not come to the rescue, worried that A.I.G. might be taken over by the government, wiping out their investments. Goldman Sachs also balked.”

    http://www.nytimes.com/2008/09/18/business/18insure.html?dbk

    I am just astounded that the very same congress that thinks it is just two risking to let people invest a measly 4% of their social security taxes in T-bills thinks it is a safe bet to invest billions and billions of dollars in the very “distressed” assets that are causing the problems.

  • JSH

    Thank you Peter Leavitt. That analysis is absolutely correct. The “bailout” is a temporary intrusion of the government into private enterprise that is required if we are to keep this economy from completely collapsing. And one that will probably not only not cost the taxpayers money but will pay them back and more.

  • JSH

    Joe, the problem is how many more times can one major bank bailout another one? There is a limit to that, but unfortunately no limit to the number of distressed banks.

  • Carl Vehse

    “But over time, through monthly cash-flow payments or through loan sales, taxpayers will get all their money back and in great likelihood a handsome profit”

    Some think even that mayonnaise will go sour on this bailout sandwich.

  • Don S

    Joe @ 51: The comment “I am just astounded that the very same congress that thinks it is just two risking to let people invest a measly 4% of their social security taxes in T-bills thinks it is a safe bet to invest billions and billions of dollars in the very “distressed” assets that are causing the problems” is as succinct a statement as I have seen as to the nonsensical view that we should pursue this bail-out because the government stands to make money. Maybe, we should reduce social security taxes and apply the “profits” from this bail-out towards resolving the social security crisis. :)

  • Don S

    tODD @ 49: Who says a consensus hasn’t been reached? Quite to the contrary, the House spoke loud and clear today. Even with the improvements to the bill added by virtue of spending the weekend on it, the members of both parties were not impresses that it was in the best interests of the country. Hopefully, over the next few days, further improvements will be made which will make it palatable to a majority of House members.

    It is the Democratic leadership, including Obama, who have turned this entire episode into a “stunt”. They rushed to declare a deal done before McCain got into town, just to ensure that he would not be credited with having any part in it, even though, in hindsight, they had no idea that a deal was done. Obama came into town, took over the Bush meeting to call McCain out for not taking a stand between the House Republican and leadership plans, but has not yet taken a stand over the issue to my knowledge. He was in Colorado today, while McCain is, despite your intimation to the contrary, back in D.C. working on this issue. At least he’s trying.

    You’ve been sniping and criticising since last Wednesday, but have directed none of your fire toward any of the Democratic leadership, even though they have acted abysmally. According to you, McCain is completely and utterly to blame for everything bad that has happened relative to this deal. Is it just that only Republicans can perform campaign stunts? Democrats are incapable of such activity? You don’t think any of the Democrats have been engaging in “stunts”? At least I have assigned blame to both sides, and consistently said that the two parties need to pull together and act in a bipartisan manner with respect to this Wall Street issue and the resultant credit/market crisis. I have not seen anything so evenhanded or balanced from you.

    Well, I guess both candidates had their “strong fundamentals” statements taken out of context. I do note from the article you cited that Obama is pushing lower capital gains taxes, and apparently intimating that these lower taxes will result in stronger economic fundamentals going forward. Sounds Republican to me. Good luck getting Pelosi and Reid to go for that.

  • Peter Leavitt

    Joe I don’t disagree with the idea that it is an investment. But if the investment was really as risk free as Kudlow’s analysis there would be other non-gov’t buyers.

    Some buyers have come forward. Lone Star a few months ago, probably rashly, paid 22 cents on the dollar for $35 billion of distressed Merrill paper, though only the government has the resources to deal with the systemic problem. Should the Congress not pass this bill, there is real danger of a catastrophic seizure in the credit markets that would cause a deep and serious recession or worse.

    Carl, Michelle Malkin is a fair political pundit but doesn’t know beans about economics. She is listening mainly to some far out libertarians who have no conception of the gravity of the ongoing meltdown in financial markets. This Chicken Little argument will pale if the House continues on this course and we end up with at least a deep recession.

  • Don S

    “With the stock market recording its largest point drop ever in the aftermath of this vote, it has never been more clear how important it is to put politics aside and come together to stabilize our economy for all Americans,” Reid said. “I hope House Republicans will reconsider their vote and decide to put country first.” — Harry Reid 9/29/08

    That’s the way to “put politics aside”, Harry Reid. 42% of the no votes in the House were Democrat votes, but old Harry hopes those unpatriotic House Republicans will reconsider and put country first. Nice.

  • Don S

    That comment by Harry Reid (#58), that’s not a stunt, right tODD? Cause only Republicans do “stunts”, Democrats are just plain good politicians.

  • Carl Vehse

    “Michelle Malkin is a fair political pundit but doesn’t know beans about economics.”

    If it were just Michelle, her opinion would not mean much. But there are other columnists who have expressed similar views, and over 150 economists opposed to the bailout, at least without more thorough and thoughtful investigations … not to mention the 227 House members, and the constituent calls they received, overwhelmingly opposed to the bailout bill.

    Last year there were warnings of doom from “global warming”; later, as things got colder, it was called “climate change”. Then there was cancer from using cell phones, and the threat of $200/barrel of oil. Now it’s under $100. Yes, it probably will go up again; no, we are not doomed… except, apparently, having to listen to the incessant alarmist cries of the Chicken Littles and the MSM.

  • Joe

    “Should the Congress not pass this bill” – why does it have to be this bill? This bill assumes that there is no money to lend, but in reality there is money just no incentive to lend it? There are other ways to encourage lending then having the federal gov’t buy up the paper.

    JSH – “Joe, the problem is how many more times can one major bank bailout another one?”

    I hate to sound like the grumpy old man of the group but not every bank should be bailed out. In fact, some of them need to fail in order to correct the problems.

  • Anon

    At least you have to admit, todd, that the ACORN language was indeed there.

    20% of the bailout, for political action (including criminal political action). Amazing.

    What is your source for that having been taken out? And when was it taken out?

  • Carl Vehse

    “I hate to sound like the grumpy old man of the group but not every bank should be bailed out.”

    Actually, Joe, you sound like the over 200 economists on the opposing-the-bailout list, including 24 from my alma maters… not that I’m biased. ;-)

  • Don S

    Anon @ 62, it was taken out over the weekend, between the time of the “done deal” last Wednesday and the bill that was finally voted on today. At least, that is what was reported — given the fact that it was 110 pages (up from the 3 pages submitted by Paulson), I’m not sure that anyone knew for sure what was in it.

  • http://www.toddstadler.com/ tODD

    Don, you asked (@56), “Who says a consensus hasn’t been reached?” Well, you have, unless you’ve decided to move the goalposts, as they say.

    In defending McCain from my calling his actions a stunt, over on the entry “Summit degenerates, but a new plan emerging”, you said (@19 there), “Good leadership is about bringing people together and helping them to reach consensus, not haranguing them into falling into line.” You also talked about (@27, ibid.) “the key leadership ability of being able to encourage consensus by making sure all parties get a chance to get their ideas on the table and have them be heard, then move people together.”

    Now we all know that McCain’s original claim was that he was going to stay there “until this crisis is resolved.” Clearly, that didn’t happen, but that was the definition of “consensus” that was made clear: consensus around a resolution, not merely the existence of a majority in one way or another!

    Now you’re trying to tell me that a rejection of a bill to solve the crisis (no matter what I myself may think of that bill) is “consensus”? Please. That’s clearly not what we were talking about.

    Are you honestly claiming that the point of McCain’s stunt was to reach “consensus” whereby a bill was not passed, and the crisis remained unaddressed by Congress? Because that would be in plain contrast to McCain’s stated goal in pulling his stunt. (Never mind that he then went to the debate in contrast to that goal, anyhow.)

    “McCain is, despite your intimation to the contrary, back in D.C. working on this issue. At least he’s trying.” Really? Care to cite a source on that? I found a piece [1] datelined “Columbus, Ohio” that noted that “McCain boarded his Straight Talk Air charter plane, where he sat in front, separated from reporters by a brown curtain, without making a comment on the bill’s defeat.” Later, it noted “McCain still plans to travel to Des Moines, Iowa; whether he will return to Washington, D.C., to deal with the aftermath of the bill’s defeat remains unclear.” He may have returned to D.C. after the debate, but he clearly didn’t stay there, in spite of his earlier promise.

    And your complaints about my “sniping and criticising [sic]” not being directed at “the Democratic leadership” have really missed the point. Over and over, I’ve noted that I likely agreed with the House Republicans — in terms of bailout particulars, especially, but also in a desire not to rush headlong into a stupid, expensive agreement. I have no complaint about the Republican (or Democratic) Congressmen’s actions as far as this bill goes.

    What I find annoying, however, is McCain’s ridiculous stunt — which, I hope I have made clear at this point, seems to have little to do with the actual bill or any consensus thereon. It was beyond ridiculous for him to pretend that he had to “suspend” his campaign to deal with this crisis, including the plea to delay the debate. That was completely unheard of, and completely useless. The latter was made all the more obvious by the fact that McCain himself attended the debate in spite of his pledge to remain until the crisis was resolved. And then, of course, by his continuing his campaign in later days, when the bill utterly fell apart. That was a stunt unparalleled in this campaign so far, and I’m calling him on it.

    I’m not saying nobody else has engaged in stunts. Of course they have. But not all stunts are equal — McCain’s was certainly designed to grab headlines, and I fully intend to give him all the attention for it he deserves.

    To summarize, because you really haven’t been getting it in all I’ve written here: my beef is not with the negotiations over the bill, it is almost entirely with McCain’s ridiculous stunt about “suspending” his campaign (which he never did in a meaningful way to begin with, and which he later completely failed to pretend he even cared about).

    [1] “McCain Campaign Blames Obama, Democrats After Bailout Bill Defeat”, by Michael D. Shear and Paul Kane, Voices.WashingtonPost.com, 9/29/2008 2:26 ET

  • Carl Vehse

    With all the hubbub about the bailout bill and the current presidential race, here’s a statement from someone who is only two heartbeats away from the Presidency:

    “[Federal Reserve Board] Chairman Bernanke is probably one of the foremost authorities in America on the subject of the Great Depression. I don’t know what’s so great about the depression but that’s the name they give it.”

    (It occurs about 3m 30s into her speech.)

    And I thought Biden was a dunce.

  • http://www.toddstadler.com/ tODD

    Anon (@62), I’m having trouble pinning down a quality source on the removal of the ACORN language from the bill, but for now, I did find this: “[Boehner's] giving Republicans credit for stripping the bill of funding for trial lawyers, Big Labor, ACORN and increasing taxpayer protections” [1] I imagine you will find that source more authoritative than I would. Perhaps it will suffice.

    I cannot find any information on when the language was removed, though based on Google News searches, it seems to have been in the last couple of days.

    Hopefully my presenting you with this information will mean you are not so quick next time to tell me to use Google myself to find any sourceless fact you use when I ask you where you got it.

    [1] “GOP Leadership Touts Bailout Reforms”, by Amanda Carpenter, TownHall.com, 9/29/2008

  • Don S

    tODD @ 65, you are obsessed and extremely narrow-focused on this issue. It is unlike you. None of us knew the outcome of this issue last week, all we could do is wait it out and see what came of the negotiations. Nothing in my comments that you quoted define what “consensus” was going to be. Maybe you had clarity as to what could or would be accomplished last week, but no one else did. Sometimes you negotiate in good faith and then ultimately realize that completing an agreement is a bad idea. I had a client situation just today where that was the outcome. There was consensus between my client and the other party that they should not move forward and complete a proposed licensing deal. They went away happy because they had explored it, negotiated concerning it, and then agreed that it was not a good fit.

    This current matter needs to be viewed in perspective. Step 1 is to understand that there was no deal last Wednesday, even though the Democratic leadership claimed there was. If you believe there was, and that McCain’s presence ruined everything, that view has been discredited by subsequent reports. Essentially, that assertion was a stunt (I’m using your definitions, which exclude all politicians from any assumption of good faith, and simply define all of their actions as stunts). Harry Reid calling on McCain to take a position was a stunt. McCain calling Reid’s bluff, and returning to D.C., was a stunt (for the purposes of this post I will accept your word that it was a stunt). Reid, Pelosi’s and Dodd’s quick about-face and insistence that there was a deal, without consulting House Republicans, and they didn’t want McCain to come was a stunt. Obama’s grandstanding during Bush’s meeting was a stunt. The leadership’s announcement on Sunday that they had reached a deal and had a new agreement was a stunt (both majority and minority House whips should be fired for their vote-counting incompetence). Pelosi’s insistence that this legislation was vital to the health of our country, but then her refusal to require Democrats to vote for the measure was a stunt. Pelosi’s extremely insulting and provocative speech, blaming Republicans for everything evil in the world, just before she called for everyone to put aside their differences and pass this thing in a bipartisan way was a sick stunt. The Democratic leadership’s insistence on blaming failure of passage of the bill entirely on Republicans, even though they were so incompetent that they could not get 40% of their caucus in line, and 42% of the no votes came from Democrats, was a stunt. Bottom line — a lot of people put a lot of time into trying to reach a deal, and failed. I get that McCain’s actions in all of this really offended you. I just think you need to get over it and look at the bigger picture.

    Step 2 is to understand that the process has not yet run its course. Apparently, they will be back at it later this week after the Jewish holidays. They may yet reach a deal that doesn’t sell the country down the river.

  • Peter Leavitt

    David Brooks in a NYT column today is very incisive on this:

    And let us recognize above all the 228 who voted no — the authors of this revolt of the nihilists. They showed the world how much they detest their own leaders and the collected expertise of the Treasury and Fed. They did the momentarily popular thing, and if the country slides into a deep recession, they will have the time and leisure to watch public opinion shift against them.

    House Republicans led the way and will get most of the blame. It has been interesting to watch them on their single-minded mission to destroy the Republican Party. Not long ago, they led an anti-immigration crusade that drove away Hispanic support. Then, too, they listened to the loudest and angriest voices in their party, oblivious to the complicated anxieties that lurk in most American minds.

    The American people I fear get the leaders they deserve.

  • Carl Vehse

    From James Pinkerton’s article:

    Wall Street made bad decisions, but Wall Street is too big to fail, so we must give them $700 billion, so that the rest of us can avoid a recession. Got that? The Wall Street message is, “We screwed up, so give us money, otherwise, you’ll be sorry.”

  • Peter Leavitt

    Carl, this populist argument that the evil people on Wall Street, especially the bankers, are the root cause of the problem ignores the basic Christian understanding that all people are fallen. This allows Pinkerton to write a jeremiad against Wall Street that glorifies Main St. and come up with a foolish government program to provide 3.5% mortgages to the good American people, a modern version of a chicken in every pot.

    Hank Paulson and Ben Bernanke, working with Congress, have come up with a plan that could help the credit markets that are becoming by the day badly seized up. I trepresends the best, though undoubtedly imperfect, plan that attack the loss of confidence in credit markets that could lead us into a deep recession or worse.

    Too bad that the Republicans in Congress who bear the most responsibility for the fiasco yesterday have most likely handed the election on a silver platter to Obama and put the country on a dangerous economic course to boot.

    Having said all this, my guess is that enough Republicans and Democrats who voted against the financial rescue plan will come to their senses and reverse the vote later this week.

  • Joe

    Peter – that article could not miss the point by any wider of a mark. There is no revolt of nihilists. There are serious people who have serious problems with this form of a bail out. And they did not suggest nothing – they suggested an alternative plan. They suggested ammending the current plan.

  • Carl Vehse

    Carl, this populist argument that the evil people on Wall Street, especially the bankers, are the root cause of the problem ignores the basic Christian understanding that all people are fallen.

    Peter, your statement is a red herring; it implies no one should be punished because everyone is guilty. We’re talking about the kingdom of the left here; not the kingdom of the right.

    One of the signers of a letter opposing the bailout is Jeffrey A. Miron, senior lecturer in economics at Harvard University. In another post, I quote some of Miron’s commentary, “Bankruptcy, not bailout, is the right answer”:

    “The fact that government bears such a huge responsibility for the current mess means any response should eliminate the conditions that created this situation in the first place, not attempt to fix bad government with more government.

    “The obvious alternative to a bailout is letting troubled financial institutions declare bankruptcy. Bankruptcy means that shareholders typically get wiped out and the creditors own the company…

    “Bankruptcy does not mean the company disappears; it is just owned by someone new (as has occurred with several airlines). Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable.”

  • Anon

    Just to set the record straight from the misinformation from the Democrat partisans:

    CSPAN records show the Democrats – particularly the devout followers of Obama – being at fault in this matter, not the GOP.

  • Don S

    Peter — it is unfair and unreasonable to lay the defeat of the bill at the Republicans’ feet. Opposition cut across party lines. Democratic leadership claimed they had the votes, but didn’t whip them. Pelosi is famous for her disciplinary approach to whipping Democratic votes her way for every kind of liberal proposal, but for an issue that she claimed was the most important one of the year, and was crucial to the well being of the American economy, she did not require Democrats to fall into line. She lost 95 Democratic votes, and she only needed 13 of those votes to pass the bill. The Democrats control Congress, and they couldn’t get it done.

    I also think the jury is still out on whether this bail-out, at least as proposed, is in the best interest of America long-term. I believe there were a lot of principled “no” votes yesterday, those who were listening to their constituents and understood that this issue is not as clear cut as the Wall Street crowd would have us believe.

    As for immigration, that’s a canard as well. There were amnesty proposals on the table that were utterly unfair to those who have been trying for years to gain legal residency in the U.S. Those proposals needed to be opposed, as a matter of principle and support for the rule of law. You can’t disregard your principles and your sense of rectitude because you are afraid you might lose some votes. Unfortunately, the opposition often does, but we do not do well when we try to be like them.


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