Great piece in the NY Times discussing what spooked the powers that be so much that they decided they needed to release the “Paulson Plan”:
This is what a credit crisis looks like. It’s not like a stock market crisis, where the scary plunge of stocks is obvious to all. The credit crisis has played out in places most people can’t see. It’s banks refusing to lend to other banks — even though that is one of the most essential functions of the banking system. It’s a loss of confidence in seemingly healthy institutions like Morgan Stanley and Goldman — both of which reported profits even as the pressure was mounting. It is panicked hedge funds pulling out cash. It is frightened investors protecting themselves by buying credit-default swaps — a financial insurance policy against potential bankruptcy — at prices 30 times what they normally would pay.
It was this 36-hour period two weeks ago — from the morning of Wednesday, Sept. 17, to the afternoon of Thursday, Sept. 18 — that spooked policy makers by opening fissures in the worldwide financial system.
Read the whole thing. For my part, I am still unsure what I would do were I in Congress, but hopefully they have more information that I do. I am completely sold on the notion that something has to be done to ease up the credit markets, but I do not know what can be done or how effective the current plan would be. I would also be lying if there was not at least a part of me that still felt the only way to rebuild the system is to let all the fires burn out.
But then again, that is why I just write a blog.
*** Update ***
Part of the problem is that the powers that be have done a pretty terrible job explaining why something needs to be done. The best explanation that I have seen so far is this clip from Bill Clinton:
The whole thing is worth watching, but the part on the credit crisis starts at 1:58.
Yeah, I’ve been hoping the powers that be are actually powerful
thinkers. And, setting my jaded experience aside, really really do
hope they don’t make a hash of it. Knock on wood.
The Big Picture has an article, Misunderstanding Credit and Housing
Crises: Blaming the CRA, GSE It can be found here:
For those who give a damn, My wife has a MBA from Vanderbilt and
the school recently recorded a lecture explaining the current
The video is pretty long (50 min) but it does explain a lot.
I’d forgotten what it was about Bill that I liked so much. He is a
smart guy (we could use some of that after the last eight years),
and is able to boil down an argument to something anyone can
Good to see a vocal calling out of “trickle-down”. What a crock.
I’ve seen a couple of blog posts here and there with posters
claiming that they or somone they know was told by their employer
that they couldn’t make payroll and wouldn’t be getting a paycheck
this week, due to the bank cutting off their short term rolling
credit line, so I guess that squares with what more and more of the
economic talking heads have been saying for the last week. Sucks to
Thanks John. Ballon Juice is my new lifeline for video, I can’t
seem to get Crooks and Liars for the last 2 days.
I am still not entirely sure of what’s going on, partly because
there’s so much shitty information out there–it was all Fannie and
Freddie, it was the GAYS, it was the NEGROES, it was Barack Obama’s
refusal to do town hall forums–and partly because it’s very, very
complicated. But the biggest problems are, as you indicate above,
some of the basic, day-to-day transactions, like bank-to-bank
lending, are getting a lot tougher. We’ll have a new president in a
few months. If the polls are accurate, it’ll be Barack Obama with
even larger margins in the House and Senate. I don’t know if this
is possible, but can congress pass a basic bill that lets the basic
functions of the economy still happen and buys us more time, so
that we can pass a better bill once Obama is president?
J Smith II
If you’re interested here’s another good explanation of why it’s a
“credit crisis” and not a “stock market” one –
There’s a reason for that. It’s because if you have
eyes, you see who’s been getting kicked in the junk for the last
thirty years, and every time they’ve asked for a little bit of
help, they’ve been told they’re worthless and need to work a little
fucking harder, or get some more training, or quite being a bum. So
now that it’s starting to hit them, and they’re saying “come give
us a hand,” we’re not so inclined to listen. We’ve been eating shit
for a long time, and we’d like it if they get a taste. Now, in the
end, most of us will go along with the bailout because we know that
while we may be eating shit, there are a lot of other people who
won’t eat at all if this thing melts down, but we will never be
happy about it. Fuck trying to use html. Here’s the link I was
trying to imbed:
I sure miss Big Dog…glad he’s out there putting it in plain
english. And hell yeah, my boss’s “rich” friends are dying to know
where they can put all their money right now…
They can free up all of the money they want, but until people start
to earn more there will not be more to spend. People are tapped
largely out. Wages have not kept up and prices are only going up.
My wife works at a major department store in retail clothing sales
and she said that it is so bad that their clearance stuff isn’t
even moving. Store traffic is down and the same goes for sales, so
they are starting to cut hours. Real estate in our town is
basically dead for now. Property prices are dropping and nobody is
biting. Our pols say that they are saving the system for us while
we all know it is really all about bailing out the ones who have
(had?) the big bucks, and that ain’t us folks. The markets need to
correct and there is no other way about fixing it. It is going to
be painful but IMO the longer we delay it the worse it is going to
be to deal with. Propping it up will not work, it will only delay
the inevitable. Of course, if you are facing reelection then
delaying the inevitable can be a pretty attractive option.
Hey, cool, you can edit your comments after submitting if you find
I see that we have a five minute edit, but now my formatting (last
post) looks all wrong. I will leave it for now and hope that it
corrects once the edit timer is up. :)
Bob In Pacifica
Well, if the problem with credit is that all that “wealth”
“generated” by the housing bubble and the criminal reselling and
rereselling of bad mortgages has disappeared, then the solution
should be to give more money to the guys who screwed up in the
first place. [/snark] The question I have is whether the panic in
Congress was by caused by a concern for the economy and for the
Americans’ well-being or if the panic was caused by pressure from
Wall Street on its minions in government.
John Cole says… “For my part, I am still unsure what I would do
were I in Congress”. I admit I wouldn’t know exactly what to do
either, but I damn sure wouldn’t be signing up to load up the
“rescue” bill with 100 million bucks worth of freakin’ pork
projects and pet legislation amounting to more defecit spending and
tax cuts for business or anybody else. (Rum producers in the Virgin
Islands?) Have you seen the list? What has the country gotten in
return for the Bush tax cuts for the wealthy, btw. Over 605,000
thousand jobs lost in the US just this year. Trickle ‘this’ George,
and by the way, there’s a crowd downstairs that wants to talk to
Comrade The Moar You Know
Goddamnit, I miss Bill Clinton. The guy has a way of cutting
through all the bullshit and can do it in mere seconds. He also had
an extraordinary talent for generating bullshit, so I’m a
bit happier that he has a bit less of an agenda these days.
Dont have time to watch it, but I’m assuing that’s the video where
Clinton takes responsibility for this whole mess.
Comrade Grand Panjandrum
Clinton makes some good points. However, wealthy people are not
worried about large cash deposits being uninsured. CDARS was set up to circumvent
the $100K insurance cap issue. Your cash is tied up in CD’s but
your money is insured up to $50 million. The raising of the
insurance cap is a nice gesture but is essentially meaningless.
Clinton’s appearance on the Daily Show was also quite illuminating
as to what the mortgage crisis was about and how to protect
@Comrade The Moar You Know: This is a test….. Notice how my comment has a link to a previous comment, as if I was addressing that person specifically.
I enjoyed the NY Times piece too, even if it can’t tell the full
story, but it illustrates all the more clearly what a terrible job
the Bush administration in general has done with communication,
especially in its waning days. Too often that’s been used as an
excuse by supporters to try and explain away why said
administration has been so happily loathed but the combination of
hyperalarmism and general melodrama on display — as opposed to a
flatter, no less concerned but also more practical approach that
could have appealed to Congress’s and the public’s concerns instead
of both scaring and revolting them at 200 mph — was already in
place before they thought to engage the public.
@John Cole: Hey, nice — that’s the
kind of comment model I’m familiar with at Idolator (as well as
other Gawker or Gawker-spawned sites). Good addition!
John, instructions for the block quote feature, when you have a
Comrade Grand Panjandrum
I checked my html on the CDARS link it should be OK. Why is it not
showing up properly in saved comments? BTW I do like the comment
edit feature. But how about a car we can drive before we move on to
Bob In Pacifica
By the way, I like Bill Clinton’s explanation of the panic.
Personally, I rolled over some money in the bank last week over the
phone and now I’m wondering if the guy I was dealing with did
something else with my money. I just don’t trust the banks like I
used to. However, I’ve read in the blogosphere that the panic was
in some way manipulated (banks deliberately holding back money) in
order to get this bill passed. Since there is no direct connection
between credit for buying a car and the bailout of Goldman Sachs, I
would keep an eye on how quickly, or if, the credit crisis
disappears. If it’s gone right away I’d suspect that it was
manufactured. If it doesn’t then I’d suspect the crisis wasn’t
manufactured… but that the solution wasn’t a solution at all.
Anyone following this? I’m over my head here. More coffee needed
out here on the West Coast.
@greynoldsct00: I dunno how the rest of you do it, but I write
< blockquote > then enter the text I want to blockquote then < /blockquote >
When you take the spaces out of < block quote>, it would look like this:
“I dunno how the rest of you do it, but I write
Bob In Pacifica
By the way, does this new formatting have something against the
concept of paragraphs?
I don’t know how connected the two ideas are, but bear
with me for a minute. I’ve thought for a while now that the only
things we can really ask of people are that they get their personal
finances in order. We can all talk about what sort of bail out
bill, if any, congress should pass, what sort of regulations should
be in place, and other stuff in that vein, but since we’re not
advisers to the campaigns or elected officials nor working in the
Treasury Department or at the Federal Reserve, we’re limited in
what we can accomplish. But it is always a good idea to pay down
debt, not live too far beyond your means, and save and invest, all
of which is possible at the personal level. Now, like I said, I
don’t know if this is true, but I imagine that the more secure each
person’s finances are, the better the economy will be. If you have
money in the bank and no credit card debt, buying a new set of golf
clubs or clothes isn’t going to be a decision that requires nearly
as much thought as buying a house. I’d also like to know how much
of a connection, if any, paying down debt, like that from credit
cards, helps certain financial firms and/or banks by recapitalizing
I read that for the most part, the banks were actually
flush with cash, but that they didn’t want to start doling it out
because it would be easier to deal with the government than someone
like Warren Buffett. That makes a certain level of sense.
i don’t like the whole “@soandso” model. it’s ok if there is still
block-quoting functionality. but if people get into the habit of
only linking to other posts, then you’re not reading comments,
you’re scrolling back and forth between comments the whole time.
that is a big part of why i don’t read the whole gawker-universe of
It tehvanishes. Wait, it un-tehvanished. Ah, editing
messes things more. The edit makes the tagging pretty and indented
and stuff, but those returns added on edit wreak a new havoc upon
Circus Maximus tells me we have editable posts? Pigs can now fly.
Amazing. (editing later: I am speechless. Well, not really. Sorry.
But anyway, this is great. Congrats)
@John Cole: I’ve been doing that,
but the box comes up empty, will practice more…
looks good in the preview
I’m glad I’m not the only one buggering this quote thing up…
Annette broka da blokkwotz!
Fulcanelli??? No offense, but it’s an odd name to just
pull out of a hat. Then again, I contemplated “Satyr” as a
possibility, so I have no room to complain.
via Bad attitudes blog –
CIRCVS MAXIMVS MMVIII
@Balloon Juice » Blog Archive » New
Stuff: That’s cool! Thanks :)
Who cares what he has to say? He lied about a blow
job! ! ! ! !
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@ThymeZone: I just had to tell you,
after the 5683 or more times you’ve complained I knew you’d be
amazed at the news. ;)
Bloggingheads (here) has had
two sessions on it. The first was posted on Sept 30 (The 777th
Seal) between Robert Wright and Daniel Drezner (has a great
thumbnail that I cannot figure out how to link to). The next was
Oct 1 (Special bailout Edition) between Yves Smith and Megan
McArdle. Both were interesting.
At least Bill managed to get the words “Barack Obama” out,
contra Chris Rock’s observation. Oh man oh man. We’re
getting Florida, fair and square. Good times.
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… My post below: … That, and Ohio’s Secretary of
State is a Democrat now, so we’re not worried about voter fraud in
that state anymore. ;) Which state will they attempt next?
I’d go with that. That’s probably the biggest reason
the public was quickly against this bailout. Me too. My first
thought was no fucking way give this Heckuva Job administration
700+B given their competence track record. Likely also another part
of the reason public opinion was against—no confidence in these
idiots. Not really helped by a Treasury official breezily saying
“Gee, we don’t really know how much we need, 700B just sounded like
a nice big number.” That alone pretty much tells you they don’t
have a full grasp of the problem, its scope, nor a plan they intend
to follow to correct. Essentially wing it. That’s worked so well
the past eight years. But their needs to be a plan and capital to
unglue credit markets and restore some confidence. If business,
particularly small and medium sized businesses, can’t get short
term credit to cover payrolls, inventories, and other needs,
unemployment would start ratcheting up due to the credit crunch.
Which then causes more problems. If they would explain what the
problem is in simple terms as B.Clinton is capable, presented a
reasonable plan to address the problem, public opinion for the fix
would probably grow. Especially after seeing their 401k, IRA,
trading accounts, whatever tank after that 777 point drop.
Yeah, whenever I want a favor from somebody I always start off with
a slap on the ass and a nibble on the ear. I firmly grip their jaw
and neck get my mouth real close to their cheek and mouth and
proclaim with exuberance, “Aww, baby! You’re gonna get it now!” I
lick my chops for good effect. Then I hit them up for $700B no
strings attached. Works Every Time. I tried George’s Zombie Eyed
Stare with Neck Tick, but, that’s more of a bondage/commitment
thing. I ain’t got time for that.
Hear, hear! It’s amazing that there is tons of
Business reporting about the credit crisis, and rising or falling
home prices, but the elephant in the room that no one wants to
address is wage stagnation, the lack of new job creation (new
report on this is due Friday) and the lack of job security. The
flip side of Bush’s “ownership society” is the idea that wages are
for suckers, and investment income (capital gains and dividends) is
the new ideal.
Unfortunately, this is a global problem. Wednesday’s
Wall St Journal noted that Ireland and France are aiding their
banks. What Ireland is doing is astounding:
Whether or not any of this will be effective is
anybody’s guess. But the sad thing is that neither Congress nor
Wall Street has shown that they are willing to fundamentally change
the way that they do business. Can you really “stabilize” financial
markets if the major banks and investment companies insist on
playing with a crooked deck? And the idea that Congress is going to
make a $700 billion bailout bill more palatable is by adding more
pork and business breaks is just amazing.
While this may be laudable, it really is a bit of a
side issue with respect to the ripples of the financial mess. A
side bar story in the Wednesday Wall Street Journal notes how many
retirees are getting hurt as indirect casualties of the financial
crisis. The bank in which she held stock was acquired and
re-acquired multiple times, ultimately becoming a unit of Wachovia.
When Wachovia was acquired by Citigroup, its dividend disappeared.
This dividend had previously accounted for a third of the retirees
income. She did everything right, and still ended up having to
contemplate moving out of her home and moving in with her son.
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Bad Behavior has blocked 69 access attempts in the last 7 days. …
Hey John, who’s shit list did you get on?
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Okay, WTF. Blockquote still doesn’t work manually putting in the
code or using the buttons. Plus, no line breaks in my paragraphs
above. Tried Edit, no joy correcting that. And Preview lies out its
Y2K WMD Credit Crisis More bullshit in and endless series of
crises. Capitalism is dead – think of useful alternatives to going
into debt up to your highballs (pun very much intended, Cole).
I don’t get the improvement. Bill Clinton is saying everything that
everyone has been saying over the past few days. Maybe louder, with
more finger pointing, and better pauses, but isn’t this exactly
what we’ve been told over the last week by every Democrat in favor
of the ‘bailout’?
Tip o’ the cap to Incertus for “nailing” it in his blog. My two
pennies worth… Since trickle down hasn’t demonstrated previous
worth, and since the feds now own Fannie and Freddie, it’s my
humble opinion that resources could be devoted to troubled
homeowners to remedy the housing crisis via a trickle up approach.
Of course, thinking outside of the trickle down box hasn’t happened
lately with our congress critters, alas perhaps, that is because
the trickle downers could afford to fund their campaigns when many
of us trickle uppers have been unable to do so. It seems to me that
when the middle and lower folks have their interests addressed
rather than those that have profited from the crisis they’ve
caused, there will be wider support for a government that is “of
the people, by the people, and FOR the people”.
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[And Preview lies out its ass.] Preview isn’t lying, preview is
telling you the truth according to its own set of ethics rules.
But they didn’t use Bill Clinton’s patented
Hypno-Speech pattern(tm). Obey the HypnoClinton!
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Dang, I tried to table #56 in hopes that would make it easier to
read, table attributes don’t work either. ARGH!
For me, the biggest problem is that (a) the plans have
no or weak oversight, (b) the plans don’t insist that we taxpayers
get equity for our $$. (Yeah, maybe the Congressional plans have
(b), but AFAICT it’s weak and nonbinding, etc.) Then there’s this
John Hussman guy who claims that the Government (viz, we the
taxpayers) should be first in line, other than customers and
counterparties. Meaning, in front of the bondholders. Which seems
pretty inarguable, except for the usual concern that perhaps
foreign central banks are among the bondholders and we’re not in a
position to piss them off.
I agree that the powers that be have not done a good job in
explaining the problem. Still, I would like for someone to be able
to (at some point) explain why the banks began not trusting
each other to the point that they were reluctant to lend to each
other. The signs were there for the more astute followers of all
things financial – it would be interesting to know what caused
things to unravel at this particular time.I think its also quite
telling that the current credit crisis is a result of a lack of
trust amongst those involved in the market. Without it (and
the corresponding elements that allow trust to flourish in a market
– transparancy, regulation, oversight, belief that laws/rules are
followed and applied judiciously, etc.), a market becomes
dysfunctional or non-functioning). Anyway, something to think about
when encountering arguments for the advantages of a market system
(that is, trust as an underlying assumption in making such a
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A frog collar? Huh?
Thank’s a lot, Kevin. Now I have to sit here at my computer all day
and obey the HypnoToad.
If guys like Roubini are right, there is literally nothing to be
done. This bailout will either do nothing or make the economy
worse. The future has arrived if he’s right, and what we’re
experiencing is the solution.
Clinton’s explantion is overly-simplistic. If bank runs are the
only problem, then raise FDIC insurance to $500k. The real problem
is that our economy runs entirely on credit and the only solution
any of them are offering, including Clinton, is to raise the credit
limit. For somebody who is under 35 years old (me), thanks but no
I’ve also been trying to figure out what was really behind the
“crisis” that the chimp stated today he was so “disappointed” in.
Then I wandered over to Counterpunch (do the google) and read Doug
Valentine’s take on it. Seems that the “October Surprise” has come
to be. Hang on to your hats, kiddies. This is going to be a wild
As I understand it, there are three proposed solutions to the
problem, based on three different ways of characterizing the
#1- The Paulson plan
Problem: People are spooked and so these mortgage derivatives are
falling below their true value (the opposite of a bubble).
Solution: We need the government to step in and buy them up to
reverse the trend and restore confidence; the government may even
make money in the process. This also justifies things like
forbidding short selling, and changing accounting methods.
Problem: The banks don’t have sufficient capital
Solution: Take the direct route. If you want to capitalize the
banks, have the government buy up the stock, not the mortgage
derivatives. That way we own equity in the banks and can also
benefit from their recovery. Since this is politically untenable,
we’ll buy up the mortgages, but makes sure we get equity in
#3-Other economists who’s names I’ve forgotten
Problem: The banks don’t trust each, because no one knows who has
the bad paper, or how things are going to shake out, so they
aren’t willing to lend money to one another.
Solution: Crack ’em open and shake ’em out! Require that they
open their books and bring everything into the light of day. Take
over the ones that are insolvent and sell off the good pieces;
the ones that are fine can do business as usual.
Personally, I find #3 the most convincing, speaking as a complete
The best explanation I heard? Glenn Freaking Beck on his radio show
of all places. I was astounded.
Howard Zinn has it… http://www.commondreams.org/view/2008/10/02-2
Also, while you’re over at Common Dreams, read Amy Goodman’s
“Seasmurf” piece. There’s cause to be alarmed.
What I like best about the Senate’s bill IS all the pork. It takes
one of John McCain’s stupidest talking points “earmarks” away from
@Kevin: Oh no. Not the
hypnotoad. Make it stop! Must resist urge to turn
over my bank accounts and 403(b) to Paulson… Too late. Sigh.
Comrade Tax Analyst
Mr. Frog has got the "rescue" solution for all of us.
I can’t wait to try out, er…I mean ‘fuck up’ some of the new site features.
Along the lines of the Glenn Beck revelation, the one and only Morning Joe has described the need for the bailout better than anyone I’ve heard. And(I am so excited to try the new formatting!) he’s demanding that the pols who come on the show do it as well.
Joe’s also taken to screaming at Bush when he reads statements about the economy. And, lo and behold, Bush is now reclining in a chair, kicking back in the Oval Office, telling everyone that it’s time to get ‘er done. So, if this whole thing is a confidence game, someone finally realized that having Bush stand behind a lectern is the single scariest image in America.
btw, looks like we have to tag paragraphs, Bob in Pacifica. No, now that’s not even working.
[Update] wait, it did work. But now I feel like I’m on beat the clock and I’m going to fuck this comment up. Crap
Your comment will self-destruct in 2 minutes and 28 seconds…
KS in MA
Nicholas Kristof’s column in today’s NYT is worth a look, too.