All together now- “Privatize the profits, socialize the costs”:
The banking industry, struggling to contain the fallout from the mortgage debacle, is urgently shopping proposals to Congress and the Bush administration that could shift some of the risk for troubled loans to the federal government.
One proposal, advanced by officials at Credit Suisse Group, would expand the scope of loans guaranteed by the Federal Housing Administration. The proposal would let the FHA guarantee mortgage refinancings by some delinquent borrowers.
It will be interesting the number of different ways taxpayers take it up the ass during this affair.
(via Calculated Risk, where a pithy commenter notes with what will most likely turn out to be alarming accuracy- “Oh, they’ll come up with some noble reason, with a scary-sounding name, like “saving the economy,” or “safeguarding America’s financial future.” It’ll be stirring.”)
ChrisA
Let’s run a contest and see what the best Orwellian name we can give it.
My submission: ‘Securing America’s Financial Future’ Act
ChrisA
Came up witha better one: The Financial Industry Accountability Act
Zifnab
Oh, I was expecting the Protect America’s Homeowners Act.
Dennis - SGMM
“If we don’t bail out the lenders the terrorists win.”
LiberalTarian
We don’t want the smoking gun to be a mushroom cloud.
Oh, wait …
4tehlulz
The Defense of Banking Act
Fledermaus
If you like Calculated Risk, John, you should also check out the Dr. Housing Bubble blog. As a cash-strapped renter I have to admit that I am really facinated by the way the banks and securities firms have screwed themselves over. They acted as if they actually believed that housing prices would never go down and people would let other debts slide before they missed the mortgage payment. Maybe they can get the credit card companies to bail them out.
bartkid
My submission: The Great Pwnership Society Act.
cleek
Bolstering America’s Institutional Lenders’ Opportunities Until The next time
gypsy howell
Financial Underwriting, Cowering and Kowtowing to Economic Debtors Act
FUCKED.
cleek
Protecting America’s TRusted Institutions Of Trade.
cleek
Bailing-out Our Heroic Institutions of Credit Act
4tehlulz
Laughing at
Our
Losses
fester bestertester
Outstanding. If I happened to have taken one of those loans and now cannot meet my payments, well it’s my fault for being too fucking stupid to realize what could happen if, and when, rates rise. But, if i’m a really big bank that bought one of those securities packaged together because i was too fucking stupid to understand the risks, well, i should be able to shift the costs to the taxpayers. Business – keep government out of our affairs. Unless we need a bailout. I can’t wait til payday so i can send my taxes to washington for them to give to Credit Suisse.
jcricket
The LAUGH Act.
Libertarian
Arguments
Usually
Guarantee
Hilarity
I wonder how many libertarian free-marketroids are as up-in-arms about this kind of f*ing over the average person as they are about any environmental or business regulation that prevents their beloved “unfettered” corporate capitalism
Face
Helping Out Top Commercial And Residential Lenders act.
The HOT CARL act. At least it’s an accurate moniker.
Phil
I for one wouldn’t necessarily be opposed to a shifting of risk to the federal government if it was attached to a repeal of bankruptcy “reform.”
J sub D
Stupid irresponsibel person A applies for a home loan that they are not able to repay.
Stupid irresponsible person B grants stupid person A said loan.
Stupid irresponsible investor C buys a package of shitloads of these loans.
Which of these stupid irresponsible people do you want to bail out? I vote for D) None of the above.
wasabi gasp
Banking Institutions Tap Citizens Hard Earned Salaries
Fwiffo
Federal Underwriting, Credit and Kleptocrat Industry Trade Act and Lobbyist Legislation.
Chuck Butcher
goddamit John, you supported the Party if Plutocracy for long enough that it’s damn odd to see this kind of response. They’ve been called on this ever since Sainted Ronnie and his tinkle down economic vodoo by very reasonable people with very real numbers and now you’ve seen the light? Or have you?
No kidding, this crap is a natural outgrowth of damn near everything the Republicans have had as an agenda from RR’s first run (the losing one). Sure I’m glad to have another Demoratic voter in the mix, but if you’re going to go on this way, then you can’t hang on to the “Democrat-in-name-only-Republican-opponent” pose. Smaller government/less regulation would not have prevented this mess – not ever.
jcricket
If the average person screws up we can be foreclosed on, have wages garnished, go to jail, lose our job, healthcare, etc. (depending on circumstance). And any or all of those are real hardships. Best we get is very low wage unemployment while looking for the next job.
If you’re a C-level exec, or a corporation (remember “corporate personhood”?), there’s apparently no downside to screwing up. You get bailouts, golden parachutes, retention bonuses, repriced stock awards, buyouts, etc. If you get fired (with your golden parachute) you’ve made 500x what everyone else made the last 5-10 years, so you should be pretty good. Oh, and you might even get free healthcare coverage. Don’t forget, the huge screwups of the C-level folks often hose the regular folks by the thousands (401k losses, job losses, etc.).
There has to be some downside – if you take huge risks and screw up, you should suffer.
Teak111
No doubt the act will be titled as if lawmakers are really going after banking and investment, but the law, all 900 pages no doubt, will written as a bailout. Something like, The Banking and Securities Protection Act. Do you like me over the couch or on my hands and knees?
BTW, didn’t the GOP congress pass new BK laws to protect us…wait, over the couch, ok, let me get some reading material.
J sub D
I can safely say that most libertarians think that homeowners, lenders, and those institutions that bought the loan packages made their owm damned beds, they can lie in them.
jcricket
Corporations cannot and will not regulate themselves. It’s not in their best interest. Their best interest is to use every inch of the system to gain favorable results. If the system allows them to do untoward things, they will do those things.
If we as a society don’t like it, we have power. It’s called the law. It’s called government. Use it. That Republicans demonize government as a useless force is hogwash, and it’s about time we took the government back from people who obviously don’t believe in it.
Another interesting factoid – the best/most regulated stock exchanges are the ones with the highest wealth/liquidity creation records. That’s not by accident.
jenniebee
If my money is going to Countrywide, can I at least get a house out of it?
Good call on us getting the Securing Homes And Financial Trust Act
jenniebee
Why would any business impose limits on itself that its competitors don’t have to observe, unless the imposition of those limits creates a gain that offsets the business’ opportunity losses?
Pb
The Perennial Attempt to Refund All Creditor’s Historical Underwriting of Truant Expenditures Act.
The Blatant Attempt to Increase Liquidity and Ownership of Underwater Taxpayers Act.
jcricket
A stupid one, that’s who. Which was sort of my point. There are instances of businesses self-regulating (in a sense), but usually because they think it’s good PR, or somehow the leader feels it’s part of the companies “moral code”. In other words, they usually expect to get increased profits or to generate “goodwill”, which is useful in getting other things they want, like tax breaks or lax oversight.
You can actually use Costco as a good example. They pay “above average” wages and benefits to their associates. The CEO repeatedly says this helps reduce shrink, increase morale and productivity. He also believes it’s part of the company’s “DNA” to treat workers “fairly” (his definitions). Costco has far outperformed its competitors. And still he gets pilloried by the shareholders, who feel that Costco could still do as well as they have and lower the bottom line through expense cutting.
Shareholders want every company to work like WalMart. And frankly, you can’t really argue with them, per se.
But what you can say is that we as a society, also have a “bottom line” to consider. Regulations help enforce that bottom line and to hopefully reduce/mitigate situations where companies profit by simply shifting their costs (environmental, healthcare, etc.) onto the rest of us.
Unless you believe in the magic of voodoo economics, the costs don’t magically dissipate, they get paid by someone.
Moreover, we’ve also decided there are certain behaviors that are not acceptable to us as a society. Laws and regulations force businesses to abide by those social norms – such as not discriminating on the basis of sex or race. Not employing children. Paying a minimum wage.
Our continued insistence that we have a right as a society (which I think we do) to enforce these standards is what leads me to support universal healthcare. Unless we want to move to a society where your inability to afford healthcare should result in you dying in the street, we have to cover everyone. Therefore, we should achieve this in the most cost-effective way, which is single-payer nationalized healthcare.
J. Michael Neal
I, for one, am in favor of a bailout of the banking industry. In fact, I think it’s going to be necessary. The banks just aren’t going to like my proposal.
If a bank is about to fail, the government takes it over. The government recapitalizes the bank, along with guaranteeing all insured deposits. Then, it refloats the bank to private investors. Previous equity holders are wiped out.
I’d consider whether it could be partially funded by retroactively taxing the hell out of the bonuses received by the executives of the companies that need to be rescued.
rawshark
I don’t like the idea of catering to stockholders. Its like a football head coach managing the game to suit the gamblers. That’s all stockholders are, gamblers.
rawshark
But, but, but…if we take that away they won’t take risks.
Whammer
Wahoo, J. Michael Neal, you are onto something!
I especially like the retroactive bonus tax plan……
U.G.
Okay fine, if the Feds bail out banks, then in exchange, the Federal Government should acquire ownership of shares equal in value to the bailout.
That way when the banks start raking in profits again, we the taxpayers will at least get some benefit from this corporate welfare.
And maybe the banks will think twice about asking for bailouts in the first place.
Perry Como
Assisting, Securing and Supporting Homeowners And Trust Act
jcricket
I don’t disagree, I’m just stating things as they occur right now. In Libertarian fantasies zero oversight, almost no penalties and pressures from the short-sighted gamblers are all supposed to magically result in self-regulating well-behaved corporations.
I know you were being silly, but I always loved this argument. If I’m making $10 million/year, and I have incentive bonuses and massive stock options, I’m gonna take plenty of risks, with or without an additional $10m in severance if I screw up.
CEOs only get the unnecessary extra perks because the board of directors are stuffed with other C-level execs/cronies.
mac
Hey, that’s the WSJ. Shouldn’t that read “transfer the costs to the taxpayers”, not “to the government?” :/
Tsulagi
J sub D, you forgot one…
Well, maybe they didn’t stay stupid. Last summer HUD Secretary Jackson in Beijing tried to get the Chinese to buy more US mortgage backed securities. China held over $100B at the time.
Chinese said “No” because they could see the sub-prime mess coming. Umm, last summer weren’t we still hearing how much the economy had been and was still booming thanks to really smart Republicans? Guess the Chinese didn’t see the big picture then. So yeah, let’s make sure we also bail out China too. Outsourcing…stay the course.
And no need to keep bending over, just stay in the position.
JWeidner
Tinkle-down economics, where the ultra-rich pee on the heads of everyone else.
The Grand Panjandrum
And forget about the Personal Lubricant. They stopped buying it in the last cost cutting round.
Face
Can they add “I Can Haz a Handgunz, Perfessar!” to this bill, too?
Cue Glennnnny.
The Other Steve
Unless your Circuit City and you laid off 3400 of your most experienced employees to reduce the bottom line, only to find your sales plummet as a result.
J sub D
Absolutely. Washington will send the message that if you screw up big enough, Uncle Sam will come bail you out. Oh so compassionate, oh so stupid. To hell with everbody involed, from the borrowers on up.
The Other Steve
Anyway, I think this is a good idea, as it might save my job.
So there!
The Other Steve
Oh yeah, and did I mention that my job is directly tied to a big investment from a former Bush cabinet member?
So, there’s a lot of pressure to make this happen. ;-)
Svensker
Well, while we’re waiting for all the Republicans to start yelling about “Corporate Welfare” and “Welfare Bums” and “Freeloaders” and “The Free Market,” etc., why don’t we all sing a chorus or 95 of We’re All Bozos on This Bus (And It Don’t Float)?
Can we waterboard the bank and finance people as a condition of their receiving corporate welfare?
srv
Boy, imagine where we’d be today if we didn’t have all those penalties and oversight.
Oh right.
rawshark
I wasn’t disagreeing with your statement it just made me think of that football analogy.
The part about stockholder pressure regulating business is hilarious. A person with no connection to the company other than ownership of certain pieces of paper is going to hold the company hostage by threatening to sell the pieces of paper to someone else who has no connection to the company? IIRC a company has no loss or gain from the sales of stock aside from the IPO so why would they care what a stockholder thinks? A stockholder should care what the comany thinks not vice versa.
jcricket
Well, that might have been part of the reason. The other part of the reason the sales plummeted is that they were doomed anyway – Best Buy (a misnomer if I ever heard one) has been eating their lunch for quite some time. The firings were really just the nail in the coffin for Circuit City.
I think it’s fair to say you get what you pay for, as a company. Pay people super-super-low wages, they act like super-super-low-wage employees. If that’s all you need (i.e. you haul junk around or whatever), then fine. But if you at all need customers to be treated reasonably, don’t be surprised when your $6/hour employees don’t go out of their way to care.
jcricket
Oh, we have penalties and oversight. What we have is a lack of enforcement. When Bush & Cheney not only flout the law, but claim non-existent privilege, it’s not enough to simply slap them with a fine or contempt citation.
You have to go enforce it. Nothing matters without the enforcement.
And if the penalties aren’t big enough, you make new laws with bigger penalties, until you can, at least, put the bad guys behind bars/out of business.
HyperIon
sounds french to me
/ducks
rawshark
And that’s why they appoint friendlies to head the agency’s that do the enforcing. The best I can recall is the naming of the chief lobbyist for the national association of manufacturers to head the consumer product safety commission. The fox in charge of the henhouse right there.
Zifnab
Libertarians have this naive notion that everyone will do what is in everyone’s best interests. If ten people decide they all need to get to work, they’ll all pitch in and build a road. If a company does the proper math, it’ll realize that paying people $14.84/hr is the optimal price/performance ratio for their business needs. If this doesn’t match the needs of the employee, he’ll get a job somewhere else.
If people are working for slave wages in filthy conditions under a brutal overseer, it is only because the slaves and the overseer have chosen this path for themselves. If the slaves wanted to escape their situation, they’d work harder. If the overseer thought he could get better turn-out from his employees by being nice, he’d be less of an ogre.
I know this worldview is riddled with fallacies. You know it’s a delusion. Libertarians insist its how things would work if we just unshackled the system and let the wheels of commerce turn. :p Ultimately, a Libertarian is just an Anarchist in a suit.
AnonE.Mouse
Privatize profits,socialize risks-I like that.For a minute,though,I thought I clicked on chomsky.net instead of Balloon Juice.
I’m enjoying watching the caterpillar change into a butterfly.
chopper
The Fluffy Bunnies and Kitties are Nice Act of 2008.
oh yeah, attached is a rider that orders all fluffy bunnies and kitties be taken from their owners and destroyed.
Zifnab
There’s really nothing you can do to prevent that sort of corruption once it is in the system, either. It’s a people’s government. If the people elect crocked representatives, who in turn appoint crocked bureaucrats, who in turn let industry standards collapse on the people, its the people’s damn fault.
We tricked ourselves into thinking the government was bad. This was one part industry-sponsored lying, one part bad existing bureaucracy, and one part human self-delusion. But it was the people who dropped the ball on this one. Ronald Reagen didn’t elect himself. Neither did GB Sr. And GB Jr took over 50% of the popular vote the second time around.
America done screwed up. We’re paying for it now. Let’s hope this generation is wiser, smarter, and more cynical than its fathers’.
srv
Our only problem is that we don’t have more regulations and more government. You can never have too much.
Good thing we have such authorities and they can be so easily circumvented. I’m sure there’s no alternative.
I, for one, am never puzzled by this belief that libertarians and anarchists are corporate personhoods bestest friend. Why, I’m sure Ron Paul has that picture of Alexander Hamilton in a love charm, and he wears it around his neck all the time.
Dennis - SGMM
Or you could have Bushco, which stepped into the mess in 2003 and actively prevented anyone from enforcing existing regulations. From today’s WaPo, by Elliot Spitzer:
There’s your MBA President in action. A crisis is brewing due to predatory lending so the Bush administration steps in to make sure that state laws prohibiting it are nullified.
jcricket
State’s Rights! Woot!
They did the same via the EPA, despite the EPA staffers stating the gov’t would be shot-down in its attempts to circumvent/prevent tougher state emissions laws from being enforced.
Whee.
The Other Steve
Best Buy has gone severely down hill in recent years. They’re based out of Minneapolis, and people still go there just out of habit. But they’re the most expensive place in town for nearly everything.
RSA
Is the feeling mutual? My understanding is that incorporation is about limiting personal risk; libertarians and anarchists must love the idea of simply doing away with that aspect of governmental regulation–imagine the profits that would be possible!
Actually, I think that’s the downside of corporate personhood. We have all sorts of penalties for real people committing crimes, but how do you punish a corporation in any meaningful way? Hmm, maybe I should incorporate myself and go on a crime spree…
srv
Yes, maximizing personal freedom and property rights means never taking any risks and screwing others out of their property rights.
I’ve never thought of the Presidency as a corporation and the parties as the share-holders. That would imply some kind of responsibility.
jcricket
Shut the company down. Take back all the money the executives made. Liquidate the assets. Yes, hurts rank & file quite a bit, but there are certain companies who behave poorly enough (i.e. break a lot of fricking laws) that they deserve the ultimate corporate punishment.
But short of that, this is why huge jury awards are actually a good thing. People always act baffled at why jurors impose a $50 million penalty on seemingly small infractions, but it’s because it has to actually “hurt” the corporation before they consider changing ways. So it’s proportional to their resources.
For example, WalMart should be paying out a lot more than just back wages in all these recent lawsuits where they’ve been convicted of forced off-clock overtime. Exxon should pay 10s of billions of dollars for defouling the environment (they make that much in profit per quarter, so what’s the big deal).
It’s not perfect, but massively upping the monetary penalties is a start. Elliot Spitzer’s not perfect, but he’s got the right ideas.
Jake
Bankers
Oversight of the
New
Economy
Directive
TenguPhule
Financial Unified Cooperation Keeping Employment Determination Unique Against a Recessionary Environment
tBone
“In recent years?” Best Buy has sucked from the very beginning. I try to shop at Circuit City whenever possible – I don’t know if their employees are any better trained, but at least they don’t hassle me about buying an extended protection plan for a goddamn $8 CD.
And the Geek Squad? That should be an automatic ticket to Gitmo.
Jake
Financial
Enhancements
Leading to
Corporate
Help
General and
World-wide
Banking Act
cain
That’s because shareholders are no longer long term investors but short term ones. They want to see instant profit on their investment instead of holding on to them. The dot com boom I think has changed everyone’s attitude. They all want that to come back again. That’s why you have the housing bubble. Everybody wants one so that they can make quick cash.
cain
ThymeZone
Wow? Circuit City? I try to never buy anything there. Everything they sell is priced around a rebate.
Rebates are crap. I won’t do them. Give me the price at the store. There are plenty of places to buy things, there is no way I am fucking with rebates. How that place stays in business, I have no idea.
In case you don’t know, rebate pricing is a trick, aimed at pimping a low price based on the calculation that many people will not bother with the rebate. That makes the average price higher than the pimped price.
RSA
I hadn’t thought of things in that way, but that’s a good justification. I think that for real people, a penalty like time in prison is generally proportioned to the crime, rather than the person, but for corporations the penalties have to be tied to how much it will “hurt”, as you say.
By the way, you’re on a roll with really good comments lately, jcricket, if you don’t mind my saying so.
Pug
You know it’s funny. If I’m irresponsible and get my credit card payment to the bank one day late they nail me for a $29 late fee and might jack up my interest rate. My bad.
If they are irresponsible and lend billions they can’t collect, they nail me again for God knows how much. My bad again, I guess.
Bankers are the biggest bunch of dumbfucks in the world, but it must be good to be a banker.
Bruce in Norte California
So . . . Socialized Medicine is Bad
But the banks want taxpayer bail-outs which is . . . . Socialized Banking?
jcricket
Just imagine if you are big company X. And the punishment for dumping mercury and PCBs into the river is $1 million. But the cost of figuring out how not to dump them is $10 million. You’re gonna dump the mercury into the river.
Sure, there’s the bad PR, but that takes years to catch up with you, and you’ll be retired and cashed out by then anyway. Besides, you’ve got armies of lawyers, you can tie the little people up in court for years and avoid paying that $1 million. Hell, they may not even know you’re doing it, because you can hide your documentation.
But if the cost is $100 million and jail time, you might think twice.
It’s why I got so frustrated during the MSFT anti-trust case. Microsoft was convicted of repeatedly, knowingly violating the law. And then they had the gall to say “but if you break us up into separate companies, that will hurt us!” So What? Punishment’s supposed to hurt. You lost the right to avoid being “hurt” when you broke the law.
Argh!
Thanks. I am occasionally known for my insight. Mostly I am known for talking a lot. I like to think of myself as one of those infinite monkeys banging away at the keyboard.
jcricket
I’ve had pretty good luck with Crutchfield for electronics lately, actually. And NewEgg for computer + camera stuff. Sometimes even Costco’s pretty good for “consumer level” items in each of those areas.
But I haven’t shopped at Best Buy, Circuit City, CompUSA or any of those places for years. Terrible, terrible places.
Gilmore
In case you don’t know, rebate pricing is a trick, aimed at pimping a low price based on the calculation that many people will not bother with the rebate. That makes the average price higher than the pimped price.
I understand that, but how is this a ‘trick’? If I do intend to cash in the rebate, and I actually do, how have I been tricked? I got the product for the total price I expected. I wasn’t going to buy it thousands of times as thousands of different people and average it out. Were you?
dmhlt
Just to keep it an “Alliteration Pure Zone”, I personally prefer:
Privatize the Profits
Ration out the Risks