Gail Collins has some solid snark today:
This is not the first time Bush’s attempts to calm our fears redoubled our nightmares. His first speech after 9/11 — that two-minute job on the Air Force base — was so stilted that the entire country felt like heading for the nearest fallout shelter. After Katrina, of course, it took forever to pry him out of Crawford, and then he more or less read a laundry list of Goods Being Shipped to the Flood Zone and delivered some brief assurances that things would work out.
O.K., so he’s not good at first-day response. Or second. Third can be a problem, too. But this economic crisis has been going on for months, and all the president could come up with sounded as if it had been composed for a Rotary Club and then delivered by a guy who had never read it before.
That is all well and good, and amusing, no doubt, but it is clear Gail Collins doesn’t get it. Bush and the Bush administration really aren’t going to do anything- they aren’t big on governing. This last eight years hasn’t been about governing, it has been little more than the world’s boldest snatch and grab. The people who bear the burden for a large portion of the current financial crisis made their money and are off the hook, and have moved on to more important things. Like raking in tons of cash on oil futures. Or lobbying against the inheritance tax. Or trying to get the tax cuts permanent despite the several hundred billion dollar deficits we are running.
So while Gail Collins may say some amusing things, she clearly doesn’t get it. I can’t blame her, though. It took me a while to figure it out, myself.
*** Update ***
Apparently, I am clear on the concept, but not clear on the lingo. The phrase is smash and grab, not snatch and grab.
J. Michael Neal
Put me in the camp started by Theresa Nielsen Hayden that one of the things I dislike the most about this administration is that they make being a crazy conspiracy theorist the rational approach.
Helena Montana
Well said–I absolutely agree with both John and J. Michael Neal, above. Myself, I had an absolutely horrible sinking feeling on 9/11/01. I knew, as soon as it became obvious what was happening, that we were absolutely, totally, with a a doubt, f*cked (trying to be polite here). I remember wishing passionately that Bill Clinton were still in the White House. Of course, if Bill Clinton had still been there, the attack might never have occurred.
In the ensuing years I have become more and more disillusioned with President Clinton, but I am sure that he would never have done to us what Bush and Cheney have done. At least he wouldn’t have done it then.
LiberalTarian
Yay. I love reading hate-on-Bush posts. It just never gets old. I will cheerfully hate that man for the rest of my life. :D
rawshark
From ‘it’s too early to ply the blame game’ with regards to Katrina to this in under 3 years. Bush is special isn’t he.
Dennis - SGMM
Generations of American politicians, now living and as yet unborn, owe Bush a debt of gratitude. He has so lowered the bar for governance that any future administration that can find its ass by starting at the ankles and working north will be hailed as a model of competence.
Alan
I’m surprised the President didn’t give us a spiel about deregulation. Isn’t that the GOP’s goto play? “We’re having a credit crisis because of too much regulation.” Let’s reshuffle the chairs and start the music again. The Wall Street investment banks will figure out a new way to fuck this country over and when the music stops the public will be the ones left without a chair, again.
ThatLeftTurnInABQ
Someday I hope to have grandkids, so they can sit next to me and say: “Grandpa – you lived thru the turn of the 20th Century. WTF happened?”, and I can sagely nod my head and say:
“privatize the profits and socialize the costs”
and they won’t understand what those big words mean, so I’ll explain that if you run a business or a government in a totally idiotic and irresponsible way that causes tremendous damage to society, you can take the money and run away with it and keep it for yourself, and leave everybody else to pay for what you did, because the damage you did takes time to become visible, which gives you a head start for running away with the loot.
And then they’ll look up at me with disbelieving eyes, and say: “but Grandpa, don’t people go to jail for doing that?”, and I’ll say: now they do.
Not that this will actually happen or anything, just sayin it would be nice.
cbear
Actually I think Bush and cronies may have deliberately created this situation and are now poised to solidify their gains, before moving on to the next manufactured crisis. No one in their circles is ever truly hurt by any of this shit and they can certainly count on a neutered DOJ and Blackwater to protect their interests.
Naomi Klein nailed this in “Shock Doctrine”.
Brachiator
Well, it’s not quite true that the Bush Administration is not going to do anything. They are, of course, going to bail out Bear Stearns (Fed Chief Shifts Path, Inventing Policy in Crisis) and perhaps other financial institutions in the future (Run on Big Wall St. Bank Spurs Rescue Backed by U.S.).
The NYT news story goes on to note how neither the Fed nor the Bush administration has any coherent policy, but is just making stuff up as they go along. But after all, what is $200 billion between friends.
What annoys me even more is how conservative pundits and others keep blowing gas about how stupid and short-sighted home owners have only themselves to blame for getting themselves into a jam and should not be helped in any way, especially by the gummint. But these same clowns are either silent altogether or very muted in any criticism of the Bear Stearns bailout. “Free markets” seem to only swing one way for these fools.
On the other hand, the Democratic Party candidates, and other party leaders, could use this lull between primaries to bash the ever-loving crap out of the Bush Administration and the GOP in general for their lack of leadership here. Instead, they stumble along like idiots, letting another opportunity to make a case for kicking the Republicans out of office slip away.
For some reason, the closer that some reporters and columnists get to the corridors of power, the further they get from common sense. So, yeah, Collins can have a chuckle over Bush’s inability to “fix the economy,” but she can’t help coming across as clueless and smug.
cbear
Damn right, its a good thing Eliot Spitzer is calling them out on this shit and leading the fight to…oh yeah, I forgot.
I wonder how that could have happened?
Svensker
Conversation with a “liberal” Wall Street friend last night:
He: I can’t believe the Feds are going to bail out those irresponsible homeowners! You and I paid our mortgages on time, and we get screwed.
Me: True. Now we’re getting screwed with the corporate bail out, too.
He: What are you talking about? That’s not a bail out. It’s necessary!
Me: Oy.
J. Michael Neal
The worst part is that we are in a situation where some sort of bailout of the banks is necessary. I don’t know if people here are familiar with the phrase “cascading cross defaults,” but it’s one that should strike fear into your hearts. Bear Stearns is the counter-party for god only knows how many credit default swap contracts spread out across the system. If they just go down, they are going to take several other major banks with them. When those banks go down, their counter-parties will find themselves in trouble, and so on.
Put simply, that would be bad.
The question isn’t whether the Fed should be taking some pretty extreme measures to allow for a non-panicked unwinding of all of this leverage. That’s a no brainer. The question is how, exactly, it’s going to go about it. Are they going to prevent the shareholders from taking the losses inherent in owning a bankrupt company? That’s my biggest worry, and, at this point, it isn’t really possible to answer that question. We’ll know when we see it play out. I’ll be very disappointed if the answer is that they don’t take the hit.
Full Disclosure: I own some BSC 12.5 puts that expire on Friday, so I’m in favor of the shareholders taking their big hit in the next five days. I guy has to have some self-interest, after all.
Alan
Yep. Investment banks have the FED by the balls. They all know FED inaction is what prolonged the Great Depression. So today investment banks can do whatever they want. They know the government and the FED will bail them out. It’s a beautiful incestuous relationship.
J. Michael Neal
When this is over, Congress and whatever administration replaces Bushco really needs to sit down and think through exactly who is going to be considered “too big to fail,” and bring all of those parties into the system of regulation.
Pug
I’m surprised the President didn’t give us a spiel about deregulation.
That is John McCain’s job now. If he can sell that baloney in the election in the fall, along with 100 years in Iraq and “there will be more wars”, the Democrats should disolve their party.
Pug
Hey, look! An angry Negro. OMG!
Hart Williams
Gee. I dunno. He seems as consistent and steady as the tides. Last week, he said that there wasn’t a recession. And then Carlyle Capital went down. Then he said that everything was OK and that the economy was strong, and Bear Sterns had a bank run (like in “It’s A Wonderful Life” except that BS would have had Mr. Potter in the Jimmy Steward role) that required the Fed to bail it out.
Clear Skies? Healthy Forests?
When he said that there was no recession, I was reassured that we were completely screwed. He’s just such a complete stranger to the truth that you can set your watch by him.
But please, spare us the dancing. Dear GHOD, not that!
tballou
Collins end with “Really, if he can’t fix the economy, the least he could do is rehearse the speech.”
Or better yet, just shut the f*** up!
dbrown
Lets see, the Euro was well under the dollar ($0.8 something much of the time) before bush and is over $1.50; oil was lucky to reach $20 – 25/ barrel before bush and is over $110 and at the pump with good ol’boy dumb’a, so we now pay well over $3 and may pay $4 this summer; gold is now at $1000 and climbing under the cheney presidency; also, for the first time since 1945, total home equity that Americans have in their houses has dropped below 50%; defaults on mortgages are at a near record highs; and for the third month in a row retail sales have fallen and so many people have given up for looking for a job that the unemployment numbers aren’t increasing so that people don’t realize how bad the job market sucks. These are only some of the bad things – lets not forget that food prices are climbing fast (no end in sight) and stocks just seem to fall. Real wages are down and this is the first administration (since they started following this) where total wages for the middle class have not increased during a four year recovery period under a president (or so they tried to say in the WP last week.) Yet dumb ass and his fellow re-pubic ass lickers don’t understand that drastic measures are needed? Great, the whole nation will be Katrina’ed (can I use that?)
Dennis - SGMM
Lamentably, regulation will always fail in the absence of ethics and common sense.
Those who engineered this debacle, from the people who wrote the shaky mortgages to those who bought and sold the financial instruments based on them, ignored both ethics and common sense every step of the way. Regulation that would ban them from engaging in any business relating to finance in any way, shape of form would act as a deterrent but, I don’t know how you could write it. As it stands, the gov’s efforts to shore up this mess as quickly as possible will likely render the actions of those who created it consequence-free.
ThatLeftTurnInABQ
JMN,
If (as I do) you conceptualize regulation as a form of insurance, paying a small transactional penalty now to protect ourselves from bad things happening in the future, then doesn’t every regulatory regime contain the seeds of its own destruction?
The more successful a regulatory regime is at preventing bad things from happening, the greater the illusion that bad things cannot happen and do not in fact exist. The temptation to view the regulation as a burden and a hindrance grows over time, until eventually people will tear down their firewalls, because after all, when was the last time we had a fire in these parts, anyway?
It makes me wonder if the best firewalls are those that still allow small fires to burn, and only try to stop the really big ones. Which raises the question – how do you know if this is the big one? For example, I think the LTCM crisis was one of the small ones that should have been left to burn itself out. The current crisis seems much bigger and more dangerous by comparison.
Note that we have the exact same problem with regard to fuel-load accumulation, fire prevention, and the ethics of controlled burns in the actual physical forests managed by the Forest Service, BLM, etc. Too much petty fire prevention since 1910 has made the state of our forests much more perilous today than it would be if we’d let the forests burn themselves periodically in the past.
I think something needs to be built into our regulatory regime which encourages the regulators to use longer time horizons. One of the problems with the Fed is that they’ve adopted the same short time horizons as the rest of us.
ThatLeftTurnInABQ
I think firing squads would work well. Put them on pay-per-view TV and recover some of the costs.
Zifnab
Who runs the Fed? The same Wall Street dudes who worked in the market. When the Yellowstone Park scientists study wildfires, they have no skin in the game. But Bernenke is one of the boys. It would be like asking a tree to regulate how you protect the forest. He’s not going to risk getting burned.
Randolph Fritz
No, that’s not so. Bernanke is an academic, and the Fed is run by very conservative bankers, who do not trust and do not like the Wall Street cowboys. Which doesn’t mean they have the interests of you and me at heart, but they do, at least, care about having a healthy and working economy.
Brachiator
Sorry. I am not buying it. If conservatives, and others, want free markets, then those markets also have to be free to fail, even if they fail spectacularly. I don’t doubt that capital markets would form with new players.
But I am not a total free marketer, so I say that part of the cost of doing business if you are going to support bailouts is also to support reasonable regulation.
By the way, business reporters and pundits who long ago sold their souls to the devil when they could not be bothered to write intelligently about the easily predicted collapse of the sub prime market, are now floating turds about a financial domino theory (A Wall Street Domino Theory ):
Can you smell the irony? It is perfectly acceptable for mortgage companies to mislead home-owners with deceptive and confusing lending practices, but the rogues dealing with each other must be guaranteed a trusting environment in which to practice their thievery.
Full disclosure: I work with tax preparers who have to sit across from people who burst into tears when they discover that not only have they lost their homes or the rental properties they depended on to provide some extra income in old age, but they must now include the debts that the banks have written off their books as cancellation of debt income. And oh, yeah, the “Mortgage Relief Debt Act” bull crap only offers limited help with their federal taxes and nothing if they have a state tax bill as well.
So you will pardon me if I don’t show any sympathy for either the financial institutions or people who like to play with puts and calls.
LiberalTarian
Actually, frequent ground fires protect the forest from catastrophic crown fires. Trees are adapted to a little fire, with tree scars being a good way of measuring fire return intervals for fire ecology. The effect of modern-day fire suppression is to not allow any fire at all, so the fuel (branches, twigs, fallen trees) accumulates at the ground level of the forest until any little spark catches the whole system afire, often burning so hot it even destroys the soil. Such a fire can permanently wipe out the forest.
If he is a tree regulating how to protect the forest, he’s saying “let the little guys fry to protect us.” So, he’s screwing us to protect them. Sucks to be on the floor of the forest. But, it is the best way to keep the forest from being destroyed altogether.
Dennis - SGMM
Why didn’t any of them speak up earler? I’m not doubting what you say in the least, I’m just wondering who’s supposed to be responsible for stopping, or at least warning us about, disasters like this in the beginning.
Dennis - SGMM
um, earlier?
racrecir
I have to agree with Peggy Noonan on this: “Shoot the looters.”
gypsy howell
You do understand that this has been the core of the Republican Party platform for the past 6 decades, right? What we are witnessing under Bush is just the perfection of their scheme – the culmination of all the core Republican policies put into practice. If Bush wasn’t such a complete fucking moron, you might not even have noticed what was really going on. I guess in some ways, we can feel “lucky” that he’s too incompetent and ill-spoken to cover his tracks like, oh for example, St Ronnie did.
paradox
Brachiator kicked their ass, man.
Antonius
“smash” and grab.
Asti
George W. Bush – America’s Marie Antoinette
Asti
St. Ronnie lost his mind to Alzheimers too!
Asti
Certainly no one near the levers of power right now.
J. Michael Neal
I don’t have any sympathy for the financial institutions, and I’m not asking for sympathy for myself (on this issue; others, I do ask for sympathy). What I am saying is that the consequences for paralyzation of of the financial system would have enormous consequences for the people you find sitting on the other side of your desk. Among other things, it creates an inability for some of them to refinance, even when that would be in everyone’s best interest. It means that the spreads between the rates that the people you see can lend at (through CDs, or money markets, or what have you) and the rates that they have to pay for borrowing (for houses, cars, credit cards) become steep. It means that the rates that their communities have to pay on municipal bonds to fund infrastructure skyrocket. It means a rather crippling monetary deflation, which at the moment is made worse by having near crippling price inflation. That’s an ugly combination.
Thus, I think that there is a need for the Fed to step in and allow time for an orderly unwind. It is certainly possible for them to do this, while still making sure that the people that own companies that are insolvent lose their investments. It’s a very narrow tightrope to walk. It remains to be seen whether that is the particular tightrope that the Fed is trying to walk, and whether they can do it successfully. Nonetheless, just standing by and watching them all collapse is not a good option. The free market glibertarians who want to have a system where that is what they do get to have their say when we try to come up with reforms, but that isn’t the system we have now. The moral hazard got created long ago, and we can’t simply wish it away.
Don’t worry about me, investment-wise, because I have some idea what I’m doing. Worry about the people who don’t have much financial information, and who don’t know how to survive a grizzly bear market.
J. Michael Neal
TurnLeftinABQ:
These are, of course, very good questions. I don’t think that the fact that people will eventually allow a regulatory system to fade is sufficient reason to not put one in place. Call me very skeptical that financial markets that are unregulated won’t create bigger problems, faster. Note that the biggest problems in the current system are where the regulation is least.
A good regulatory system does need a good deal of flexibility. That’s part of why I’m only skeptical of the Fed’s moves this week, and not outright opposed. What they’ve done is certainly creative. We don’t know yet whether it was properly motivated or actually effective. Nothing to do now but watch and try to figure out what’s going to happen.
As for those who work hard to strip away regulatory protections that exist, I have mixed feelings. There are plenty of them that don’t serve a useful purpose. Of course, it’s hard to tell those from the important ones sometimes. I was in favor of repeal of Glass-Steagal, but I’m spending a lot of time lately reconsidering that position.
Dennis - SGMM
I feel obligated to add that the repeal is another thing for which we can thank William Jefferson Clinton.
Brachiator
The people who have lost their homes don’t have anything to refinance. The consequences are already enormous for them.
And people offered this same “we gotta protect the markets” during the aftermath of the S&L crisis. And despite some bailouts, some of the worst offending S&Ls were shut down. My sister was one of the forensic accountants who went after these weasels with hammer and tongs. The financial world did not come to an end. Markets re-established themselves.
You cannot use fear-mongering to attempt to rationalize saving the asses of people who dedicated their energies to screwing other people over.
But as I noted, I am not in favor of full free market meltdown.
I am always amused by people who claim they have an idea of what they are doing with respect to financial matters. They are the very ones who end up being to smart for their own good.
You mean, like the people whining about the need for a bailout?
J. Michael Neal
Are they better off in a system where things are locked up to the point that it becomes difficult for them to find somewhere new to live?
The markets re-established themselves in large part because the government stepped in and created the Resolution Trust Corporation. That was actually an endeavor that was done right. The government took over failed S&Ls, let the owners get wiped out, restructured the assets, and sold them off. Without RTC, it would have been a lot more difficult to go after the weasels. So, a government bailout can be done right.
It would be nice if you actually read my posts, where I make it clear that this is not what I’m trying to do. I’m arguing that there are ways to bailout the system without bailing out the people responsible. If that’s what the Fed is up to, I’m all in favor.
I have some idea what I’m doing. I don’t have a complete idea. That’s one of the things that separates me from the financial geniuses: I recognize that my knowledge is incomplete. What they tend to do is to forget that, in financial matters, uncorrelated events become correlated at the worst possible moment.
Will I do well going forward? Who knows. I take the knowledge that I have, and make what I think are the calls most likely to help me out. Right now, I’m short the market as a hedge against my own ability to find a job. If the market and the economy do well, that increases the chances that I can find a good one. If I can find a good job, then how much I make on my investments is less of an issue. If I remain unemployed, then I have to do better than average in the markets.
Unfortunately, most of those people will survive the bear market just fine, albeit not as well as they would have done without the bear market. I’m concerned about the people who are going to get crushed by this without knowing what hit them, or ever being able to figure out what really happened.
Tax Analyst
Uh…the “Re-Finance Express” is a ship that has, well, “already done sailed” for those “people on the other side of your desk”. They have already been tossed overboard and as such are merely financial detritus who will occasionally bob up and interfere with the view of the Bear Stearns’ movers & shakers you wish to worship.
Agree with Brachiator that in their absense “New players” would appear at some and fill the supposedly ominous void. Unless you think that there really was only and only game in town and that with B.Stearns (can we just call them “BS” from now on?), why, there just wouldn’t be any game at all. Doubtful.
“Re-finance”? Shit, these folks have ALREADY LOST THEIR HOMES and must now include the difference between what the bank realized from the foreclosure and their Principal Balance at the time of the foreclosure. They won’t be re-financing or originating any substantial loans for quite some time.
Bank on it, buddy.
Tax Analyst
Boy, I needed an editor on that last post. Too many omitted words to count. 2nd paragraph, 2nd sentence should be: “Unless you think that there really was one and only one game in town and that was with B.Stearns, why, there just wouldn’t be any game at all. Doubtful.”
3rd paragraph – My point was that the difference between FMV realized by the lender and the Principal Balance is treated as Cancellation of Debt Income to the defaulting borrower and fully taxable in a recourse loan situation. Capital Gains rates do not apply to COD income.
kmeyer
You’re not the first to make that malapropism. I’ve heard it before several times, so it has entered the vernacular, even though snatch and grab are synonymous.
ThatLeftTurnInABQ
It seems like J. Michael Neal’s comments are generating some anger here which is misdirected, IMHO.
I read his comments as an observation that we have a “William Tell shooting the apple off his son’s head” problem here. The people who took advantage of moral hazards in the market need to be dealt with, but we have to be very careful what we aim at, or we may miss the apple and shoot the economy in the face instead, hurting the innocent as much or more so than the guilty.
Maybe I’m reading this wrong, but that doesn’t seem to me like an observation which should be particularly controversial. If someone here can propose a brilliant plan for letting many of the major players in our credit markets fail in spectacular fashion without risking a 2nd Great Depression, then please share. I’m all ears.
oh really
Bush/Cheney don’t govern (they hate government).
They rule (they love power).
That’s what tyrants, despots, and dictators do.
If these guys had come to power in a different country, with different historical standards, they would have been indistinguishable from a Latin American strongmen.
J. Michael Neal
I am sure that those who have already been foreclosed upon are the only people in the housing market to be concerned about. There aren’t any other people who have not been foreclosed upon yet to consider.
I absolutely agree that other market participants would eventually move in to the space currently occupied by insolvent investment banks. What I am also sure of is that it wouldn’t happen instantly, and that there would be a lot of damage done along that path.
As for worshiping the movers & shakers, I’ll just put you on the list of people who can’t read.
Zifnab
What about “Grab the Snatch”? Is that more of a Clinton / Spitzer thing?
Asti
You can’t, the Rothschilds set it up this way on purpose. It was planned all along. As JMN said, Bush/Cheney make conspiracy theories believeable.
Asti
I rent. Does this mean my rent will be skyrocketing now because demand will be higher? I wonder.
Xenos
Every foreclosed house is one more empty structure that can be used as rental property. The McMansions can be split into multiple apartments – throughout the Northeast you can find lovely urban mansions that have been subdivided into to six or more apartments since the early 1930s. They never again became single-family homes.
ThatLeftTurnInABQ
Several things coming out of this political economy discussion seem clear to me:
1. We need to get to a place where “Too big to fail” = “Too big not to be very carefully regulated”, and so on down the scale, in proportion.
2. Compared with #1, right now we are in the kingdom of far, far away.
3. There are a potentially infinite number of pathways we can take to get from #2 to #1. Almost all of them involve a great deal of pain. Very few of them involve distributing this pain in a fair manner.
4. We need to collectively (as a society) come up with our best solution to problem #3 and get as much agreement on it as possible (because there is some bitter medicine to be taken), and doing this right is probably the single largest and most urgent task which our political leadership and us as an electorate will have to deal with in the next several years.
5. Following from #1-4 above, some of the important qualities I’m looking for in a potential leader is the ability to act as a fair and effective broker between divergent interests, and the understanding that rebuilding our social capital (e.g., trust) is a long overdue project that can’t be neglected any more.
On that last point, I read a comment in one of the threads over at calculatedrisk recently which called the current downturn our first “trust recession”, meaning that it is a reflection of unhealthy imbalances in our social capital rather than just inventories, sales and other conventional cyclical factors.
That is spot on IMHO, except that I don’t think this is really the 1st such event. Instead I would say that it touches on the same idea that FDR was addressing when we said “we have nothing to fear but fear itself.” I think we are going to need another President to reacquaint us with that idea in the near future.
ThatLeftTurnInABQ
One of the areas of revisionist historical scholarship that is pretty active right now is the study of the 19th Cen. imperialist regimes, floating the idea that the colonial powers and their colonies did not have such a binary active-actor vs. passive-subject relationship as was previously stereotyped. For example the colonialist power structure in many colonies was critically dependent on local elites and often was manipulated by the latter for their own purposes.
I think a similar myth has obscured our understanding of globalization today. We think of the Northern tier advanced economies as the actors and the less developed world as a passive recipient of influences flowing out from the 1st world. This view also colors how we see cultural influence moving. I think future revisionists will have a field day studying the movement of cultural influence into 1st world nations.
We’ve been paying a lot of attention to the flow of Coke, Pepsi, Michael Jordan, and Hollywood out to the 3rd World from the US, while pretending not to notice the construction of a peonage economy and the Latin-Americanization of our political culture right here at home.
Dennis - SGMM
No need to let them fail, just make a condition of saving them that no employee gets paid more than the Minimum Wage. Many of these same Captains of Commerce bellow that the Minimum Wage is too high already, so let them live on it. If people leave these companies in droves then all the better for the rest of us.
LiberalTarian
I don’t think you can say that WJC expected the next president, enabled by a compliant Congress, would abdicate governance altogether. It is not a bad thing to start a policy and later end it when it was no longer serving its desired purpose. WJC thought the next president would keep on eye on the economy (and jeebus, everything else) and respond appropriately.
Jokes on him, though, eh? The laws of thermodynamics dictate that entropy always increases–however, entropy can be fought back with new inputs of energy (structure). Bush and Co. have cheerfully, and actively accelerated, entropy.
While painful to watch and experience, it has been interesting to watch the theory of drowning government in a bathtub actually practiced. I marvel at the how the “law-and-order” party accomplished what the fringe-minded anarchists never could–a government unable to perform its basic functions. This is what it looks like when the reigns of regulation are removed.
I don’t know about you, but I’ve been a passenger on a runaway horse. The ride ended with me taking a high-velocity header to the ground (heh, and that probably explains a lot about me). I’m afraid this little adventure in a regulation-free USA is going to end the same way.
LiberalTarian
Oh crap. That didn’t come out right.
It should have read:
RSA
Thank goodness you have enough hoodlum commenters to set you straight.
Dennis - SGMM
I would disagree. I’d say that the Clintons’ habit of seizing on what seems a short-term advantage without considering the long-term consequences is a hallmark of the brand.
ThatLeftTurnInABQ
We used to have a tool that discouraged excessive compensation to C-level officers. IIRC it was called a progressive taxation system. Funny how that went away at about the same time that the big squeeze on the US middle class started up.
As long as I have my soapbox warmed up, here’s another subject to rant about: corporate governance. Not from the outside (as in govt. regulation), but from the inside (as in protecting shareholder interests). Our current system sucks.
C-level officers and corporate boards have turned into a closed system which is totally disconnected from, and unresponsive to, anything below them. Shareholder lawsuits and bankruptcy are the only things left that even have a chance of getting their attention. This is equivalent to a political system in which assasinations and foreign occupations as the only avenues for accountability.
The Other Steve
This is clearly bad for the Democrats.
Dennis - SGMM
It won’t do them any good because they will fail to produce a brief and telling narrative. Again.
TenguPhule
Let them fail, seize assets by Government Fiat, throw all of the upper management into slavery to pay for it.
Simple , easy, brutal.
Redhand
I suppose it’s simplistic to say, but John’s basic point bears repeating: Bush doesn’t gove a sh*t about the economy, or the people affected by it. He and his cronies have gotten theirs, and that’s all that counts. I wanted to puke the other day when he said he was looking forward to the end of his term so he could relax at Crawford.
The stupid bastard has never been capable of responding to a crisis, much less be ahead of the curve and nip a problem in the bud. All we get is delayed reaction, deer-in-the-headlights panic and paralysis. The economy won’t be any different than 9/11, the Asian tsunami, Katrina, and everything else this blivid has f*cked up.
cbear
Fixed.
I hear there’s a big National Socialist reunion party planned down there in late January, 2009.
Should be fun, all family’s buds from the old gang will be there.
cbear
his familiy’s
libarbarian
When a poor black woman behaves irresponsibly and gets herself knocked up by some loser who bails on fatherhood, they tell us “If we reward irresponsible behavior,people will never learn their lessons and will keep acting irresponsibly”
When a rich white man acts irresponsibly and borrows vast sums of money to make a high risk bet, which he loses, they tell us “We have to help him out because the costs of not doing so are too horrible to face”
Of course, there are costs associated with doing nothing for the poor black single mother too, but their lack of mention indicates they are deemed less important than sending the right message. Likewise, bailing out financiers certainly “rewards irresponsible behavior” no less than welfare, but the lack of mention indicates that this is deemed less important than the cost of inaction.
If it was empirically verifiable that the costs of “rewarding irresponsible behavior” for some really were more than the costs of doing nothing, whereas for others the opposite was true, I might be more sympathetic to such a system. However, since there is no such empirical evidence and the relative value placed on options in the different circumstances reflects a subjective value judgment, it looks to me simply like a bunch of people who don’t want to pay for other people’s mistakes – or even for their own.
racrecir
Maybe a little Donner party moral edification is in order here.
jcricket
This is one of the many good reasons to have ownership/size limits for companies. No one bank should be allowed to own 10-20% of all mortgages in America. I believe BoA and Countrywide, especially if combined, are well over this threshold. We used to, IIRC, have a limit on the total percent of deposits within the US one bank/thrift could own. Is that gone now? Along with our countries international standing?
Yeah, yeah, in the absence of these limits all the giant companies were of course good and didn’t abuse their power and didn’t get in positions where they fucked us all over when the failed… Wait, that’s exactly what happened? Quelle Surprise!
If you’ve demonstrated, time and again, that you’re incapable of controlling your own worst impulses, and then you require government help for your fuckups, the government has every fucking right to step in and prevent you from fucking up so bad in the first place.
Libertarians, of course, disagree, say go ahead, let these companies get big and then fail, they’ll learn their lesson. They’ll bitch and moan about the nanny state or moral hazards or something. But the companies never learn, or rather, will be replaced by new companies who think “this time will be different”. In the interim, the only people who truly get fucked is the average person. With or without government bailouts, massive economic failures across the system hurt the average guy in all the ways others have already listed on this thread.
Can we retitle this thread: Example #9913213123 in why Libertarian Theory bears no resemblance to reality?
jcricket
Hmm, looks like someone named Dean Baker has already written about the myth of free markets – how conservatives use just as much of a “nanny state” to enrich themselves.
If I’m gonna pick between tax “regulations” that enrich 1% of the nation and a tax regulation that covers everyone with health insurance, it’s a fucking no brainer. That people don’t see the equivalence means Libertarians are good snake oil salesman.
J. Michael Neal
TurnLeftinABQ has my position pretty much correct. I also agree with him on corporate governance. There needs to be a shift in power from exectuvies and to shareholders.
There are some people in this thread who are paying so much attention to a very justified instance of schadenfreude blind them to the fact that the law of unintended consequences is about to take a huge bite out of their ass.
Look, I’m concerned about the same people that Brachiator is. I may be wrong about what needs to happen, but I have the same goal in mind. My position is essentially the following points:
1) We’re in a spot where we’re fucked. The question is what we do about it.
2) Ideally, it would be nice to punish those who got us into this mess.
3) The biggest contributors to the mess are a bunch of people who have already made off with their fees and bonuses. That money is gone, and there isn’t any way to get it back. It’s a sunk cost.
4) As we try to let these people take what lumps we can force on them, it would be nice to avoid dragging down the whole financial system with them.
5) The Fed is taking steps to keep the system functioning, and here is the important part: at this point, there isn’t any way for us to tell whether the Fed is propping up the system, or whether it is bailing out those responsible.
If they are doing the former without doing the latter, this is a good thing. We won’t know that until we see how this plays out. Bear will be an interesting test case. Let’s see who ends up taking the hit here.
ThatLeftTurnInABQ
IIRC, we once had a president named Teddy Roosevelt who made a big stink about this, right after a period called the Gilded Age, which bears a more than passing resemblance to the last couple of decades.
Isn’t it funny that today’s GOP never mentions or quotes from the two presidents elected from their own party who have the distinction of being immortalized on Mt. Rushmore. Maybe it isn’t the same party that it used to be? I’d love to see Obama or Hillary hold a campaign rally in front of Mt. Rushmore, quoting directly from TR and Lincoln, and asking voters to decide which policy platform those two would support if alive today. Heck, you could throw in quotes from Washington (humane treatment of captives) and Jefferson (sep. of church and state) for the quatro-fecta.
The criticism I’d make of Libertarianism is not that they are wrong about govt. power and its potential for abuse, but rather that they are in massive denial about the existence of large private concentrations of power, which are equally subject to abuse, and even less accountable (than is govt. power) to anyone else.
ThatLeftTurnInABQ
I agree with all of that (including also points 1-3).
At an emotional level I’d really like to see some of the perps tracked down, put on trial (RICO anyone?), and if convicted then stand them up against a wall and shoot the bastards. Put some real hazard into the term Moral Hazard, pour encourager les autres. But intellectually, I know this isn’t going to happen.
What we have here is a metaphorical hostage negotiation situation. The big boys in the credit markets are effectively holding a gun to the national economy and daring us not to provide them with a getaway vehicle. It really sucks, and it’s really tempting to wish that we could find a good enough sniper to give them what they really deserve, but the odds aren’t in our favor.
At this point I don’t see how we can do anything other than to kludge our way through the current crisis and then make sure that this does not happen again, by doing what jcricket suggested, which is to make sure that we don’t allow large concentrations of private power like this to reassemble themselves after we get out of the current mess.
Perhaps a breakup and restructuring of any of the bailed out firms would be the way to go, with the govt. taking large shares of equity during the transition period. Socialize profits until we can put something in place to privatize the risks.
Chuck Butcher
People who have already lost their homes will need to have jobs to start over. I’ve started over, before, and not just once. It is hard enough if you have a job.
Regarding corporations, one of the benefits of being a corporation is the almost entire lack of responsibility. Sure, at some point stockholders lose their asses, but unless there is something really criminal… It seems the only limit on greed is a jail cell these days.
I’ve been yowling for years that illegal hiring is crushing blue collar wages. Now that some more folks that make more are in trouble there’s attention paid to their problems? Well, my guys are laid off for now. It better not be for long, they were already on the edge.
J. Michael Neal
It also appears that we’re going to see the Bear test case play out on Monday. According to CNBC, either a deal gets done by then, or Bear goes into Chapter 11.
The more I think about it, the more I like the latter option. It’ll play hell with the markets for a few days, but there isn’t any reason that the assets and liabilities can’t be rearranged out of bankruptcy almost as expeditiously as they can be now. In the meantime, Bear’s clearing operations, which sound as if they’re something the market really needs to function, stay in operation.
The other nice element of Chapter 11 is that the bankruptcy court is empowered to make people give back bonuses that they received within the 90 days prior to filing.
Johnny Pez
Fixed.
Socialism, baby! Yeah!
Goseph Gerbils
Saving the ship and court-martialling the officers are not incompatible exercises.
liberal
J. Michael Neal wrote,
But that’s precisely the point—the way the bailout is being conducted now, the bad guys aren’t being punished and moral hazard will persist. Many if not all the banks dealt with in the S&L cleanup where actually taken over and put into receivership. Right now, they’re not doing that, except perhaps for some small thrifts.
The right way to do the bailout is to seize failing banks and put them into receivership. In that state, (1) allow shareholder equity to be wiped out, (2) fire the entire upper level of management (and doing everything possible to abrogate any juicy retirement packages, etc), (3) make the books completely transparent.
The nice thing about (3) is it would slowly calm the market; right now, a big part of the problem is that no one knows how bad things are, which is contributing to the liquidity crisis aspect of things.
Maybe there’s some legal reason Uncle Sam couldn’t put Bear Stearns into receivership. But this BS about giving money to JPM to help Bear Stearns, with JPM assuming no risk, the Fed assuming all the risk, and JPM likely to as a result take over BSC on the Fed’s dime, is just that—BS.
liberal
J. Michael Neal wrote,
Agreed.
mclaren
John Cole remarked:
This is absolutely incorrect. I object in the strongest possible terms to the use of the phrase “snatch and grab.” It is absolutely scandalous to make this kindof accusation against the people in the White House.
The proper phrase is “smash and grab”
A smash and grab refers to a burglar who smashes in a store window and then grabs the goods and runs away before the police can get there.
The reason “smash and grab” is the proper phrase in this case is because “smash and grab” more accurately describes what happened over the last 7 reason. The criminals in the White House smashed our economy, smashed our government, smashed the army, and then grabbed whatever loot they could steal and ran away before the cops could arrive on the scene.
dslak
He already addressed this in the update, but the explanation on why it’s called ‘smash and grab’ was informative.
Wilfred
Let them eat Bear:
Jimmy Cayne Closes on Sweet Plaza Pad
Former Bear Stearns CEO and now Chairman Jimmy Cayne is apparently feeling pretty mellow about the fact that Bear Stearns stock is at an all-time low; the 74-year-old bridge-master and alleged pothead and his wife, Patricia, just closed on not one but two adjacent apartments at the Plaza for $28.24 million. Altogether, they’ll have 6,000 square feet, plus room service, maid service, and unparalleled views of Central Park. Yeah. And if you think that sounds sick, you should check it out after a few hits of the Purple Haze. Neighbors include foundering real-estate developer Harry Macklowe, Tommy Hilfiger, and a noted egg lover Joanna Cutler. Which reminds us: Cayne might want to be careful when he’s all stoned up and taking out the garbage. We hear that the trash room on that floor can be kind of a bad trip.
Gentlewoman
Yes.
Good luck getting those zoning changes.
I believe the BS deal is a done one. They’ve sent Paulson out to take the hits. If there are any. Which I doubt.
J. Michael Neal
My point is that we don’t know that yet. You are making assumptions about what happens next that are not in evidence.
jcricket
This is, unfortunately, not the case – and it’s one of the biggest differences between the tragectory of cities (rise, fall, rise) and suburbs. Cities were already divided into tiny housing units, so when it fell out of favor to live in cities, those tiny housing units became rentals, rather than condos/co-ops/townhomes.
While it’s theoretically possible for the same to happen in the suburbs, the zoning laws, infrastructure and very nature of the housing itself isn’t designed for the same kind of multi-non-related-people-living.
I don’t know what’s gonna happen to the exurbs if demand falls through the floor, honestly. I don’t think everything will become rentals. Perhaps it’ll become like North Philly or Detriot – blight, but of the suburban kind.
jcricket
The more important point is that bail out or no, the people who should “learn” from these experiences, don’t, not in any real way. Take, for example, Michael Milken was sent to jail, and fined hundreds of millions. Yet he still has billions and is fine.
Even if individual perpetrators are caught and put completely out of business (personal and corporate bankruptcy, jail time, etc.) it doesn’t matter. There will be a new breed of cockroaches waiting to take their place. And during that time, the public at large gets royally fucked in myriad ways every time one of these innovative financial concerns goes under.
The Libertarian fantasy is let stuff happen to corporations so that they learn from their mistakes. But the reality of concentration of capital, lax oversight + relatively small punishments means the system will not be self-reinforcing like this. It just won’t. Full stop. Ever. Never ever ever gonna happen.
So the question is not: bail-out or not? It’s, what regulations and oversight do we need in place to prevent the majority of these situations from happening again. The only way to prevent John Q. Public from being either hosed after the crash or on the hook for the bailout in tax dollars is to prevent the situations from happening.
The corporations (as the Dean Baker link points out) have successfully gamed the system so the government works for them (the corporations) and not us (the average person). It’s about time we called them on their free market bullshit and said FUCK YOU, we’re making the government work for us.
jcricket
BTW – my whole rant is demonstrated in why we have anti-monopoly laws. Without laws preventing monopolies from forming, or penalizing them massively/breaking them up when they do form, you would inevitably> gets companies that form monopolies, fuck over customers, and there would be nothing you can do about it.
Even Adam Smith himself (God of the Libertarians) wrote that the one condition where free-market forces “fail” in their magical powers to do everything great is when concentration of capital and markets is in the hands of a very few powerful corporations.
I’d welcome a pragmatic debate about which industries simply can’t function the way we want (insurance for healthcare) and nationalize them. And I’d welcome a discussion of which/how many regulations would make sure those that benefit from their ability to make profits also pay their fair share of costs all along the way. Simple as that.
If there’s a political party or two that don’t want to be pragmatic, FUCK EM. Time’s past for them to make arguments. They’ve been proven wrong time and again, and their continued participation does nothing by queer the debate.
jcricket
Excuse the excess bold. Bad tag formatting. Although it’s probably warranted :-)
Rome is burning and the Libertarians and GOP are still fiddling (or diddling, as the case may be).
Asti
What do you suggest, that we disenfranchise voters because they were bad and have to go sit in the corner for a long deserved time out?
ThatLeftTurnInABQ
You can get the same effect by re-enfranchising voters and diluting the effect of corporate money on politics. Look at the Democratic primaries this year. It used to be that $100 million was enough to buy an election. Not any more, and most of that increase is due to small individual contributions.
When you consider how much money the federal govt. spends in 4 years, and how much impact it has on each one of us, $100 per person ponied up (yes, I know – insert MUP joke here) is a ridiculously small investment for each one of us to make in the political process considering the potential ROI.
Th biggest story to emerge from the primary campaigns this year (which our idiot media is ignoring) is the stunning increase in turnout and campaign contributions occurring on the Dem. side. We can in fact take back our polticial system at least a little bit, but not if we expect somebody else to do it for us, or that it won’t cost us anything but attention span. It costs time and money to run a democracy and make it responsive to ordinary people – freedom isn’t free.