What are the odds that any bailout would save the banking system? And at what cost?
That is the ultimate question here, as I see it. Certainly if any bailout is offered, this Lame Duck Administration and nearly-Lame Duck Congress should not be tying the hands of the next Congress and Administration. So any package should be the minimum to get us through until next spring. And since the banks have no leverage besides that of being economic suicide bombers, the representatives of the taxpayers should strike a very tough bargain.
But even if that is done, will it work? If we could say with 90% or even 80% certainty that it would, then maybe we should proceed. But suppose the chances of it's working is 50% or less (which is my best guess right now)? Then we would merely be throwing good money after bad. We would be impeding our ability to pick up the pieces later and ameliorate the hardships on Main Street in the meantime, not to mention other urgent priorities like fixing our infrastructure. All to reward the least deserving actors in the drama.
We may face terrible choices; but the best among them may be to let the existing banking system fail, and start as quickly as possible to build a new and better one atop the ruins.
In terms of lasting help for main street, a far more effective method of resolving this "crisis" would be to do as Kevin Phillips was suggesting - reinvigorate or manufacturing sector. Manufacturing helped keep a check on the finacial sector when it was king in its heyday. Manufacturing has hard assets of value that would have some worh, unlike the paper and largely worthless assets of failed wall street institutions- equipment, property, patents and so forth. If we took the 700 billion and used it to rebuild and updare infrastructure - rail lines, bridges, roads, power grid, air traffic systems and so on would help facilitate economic growth, as well as helping get US manufacturing back on its feet by scrapping "free" trade, investing domestically in R&D, capital equipment, and more fuel efficinet and alternative energies.
Manufacturing creates wealth and shares prosperity, the finacial sector shifts and concentrates wealth.
here. It's all about Wall Street. Not a word about any bottom up bail out.
Myself, I'm all about the solutions that are the best for the middle class and bottom up and from what I can tell, Hillary really has a good plan and it looks like she had this all laid out over a year ago, so it's all detailed out.
Bernie Sanders is calling for a surtax, major, on the people who caused this and basically anyone who profited from it.
Of course seemingly anyone with a real solution isn't allowed in the negotiations and assuredly on a finance committee!
McCain is going to lose this election with his corporate insane Reaganomics trickle upon idiocy. That all said, it's not like Obama in terms of policy is the solution and I find him kind of chicken shit and left holding the bag on this one....I mean who did not know this was coming?
One small problem, Obama has Jason Furman, Goolsbee, Robert Rubin, even Paul Volcker! and the very same gang who contributed to this mess...running his show. In other words, he is not a progressive and so far, hasn't put forth clear progressive plans and policies.
I'll skip the list but on the financial crisis, am I missing something because I have yet to see any plan.
There is no doubt something has to be done and done immediately but I hate to say this but the one I've seen with the real plans that look good to immediately work are coming from Hillary Clinton. I posted a few of these and seemingly they are ready to go.
Even the CBO is implying a RFC or a HOLC is the better way to go on this and they must also deal with the liquidity issue on top of it.
Am I missing something here? Last I saw was a few points that read like something Chris Dodd would type up but I have not seen anything about fundamentally scraping the Paulson plan and in it's place doing a bottom up approach like the RFC.
It's hard sometimes to explain why someone who has a concern for working-class economic interests needs to care about what's bad for wall street, as you put it - particularly since those arguments are frequently mounted in either a panic or disingenuously by B. Clinton acolytes. So this is extremely helpful both to read and as a point of reference.
However, I still believe that the need of the day is not the argument that something should be done, but that something proper should be done, given enough thought, and with enough time. This whole framework of panic is destructive to a proper solution, imo.
Color me stupid because I don't have a college education in accounting, business, economics,etc. I am just a guy who actually gets his hands and other anatomical parts dirty to pay my bills. So let me put it to you in my simple terms and solution. It doesn't hurt enough. The truth of the matter is these guys are trying to engineer a soft landing and have been for decades. Does anyone remember the Petro Dollars bailout, the S&L's, the junk bonds, the Mexican Peso, or the dot com's. To borrow a popular analogy they just put a different dress on the same pig and pigs, as another populist often says, GET SLAUGHTERED. Did anyone ever get fired, get prosecuted, go to jail or even get black balled for all the stupid schemes? I feel like I am watching a street hustler putting the pea under the walnut shells and shuffling.
This is my solution no one gets bailed out. May be if we all get hurt this nonsense will stop. This constant get rich fast, double figure quarterly growth or your a failure is not realistic. I mean if you want to look at something absurd look at the chairman of CSX whose in a proxy fight with a hedge fund. Let see them run it for a while and then compare results. But I do digress.
Back to the solution no one gets bailed out. First, no bailout for credit cards or car loans. Your stuck and you can't bk or repo them. You pay off the freakin' loan just like the rest of us and maybe next time you won't be so stupid with your money or credit.
Second, no bail out for commerical real estate. This is what you do for a living, supposedly and if your to ignorant or arrogant to structure the deal right then you deserve the same fate as any poor businessman, present company included, you lose.
Now for the home owners and the various institutions holding this paper. You gave and took bad loans on over valued properties with poor money management skills. Again you don't get to just walk away. Far to many of us, probably 90-95%, of the homebuyers, did it the right way and you shouldn't be allowed to break the rules for free.
All the shaky loans get reset as 30 year fixed, at a higher, 7-9%, interest, as ALL risky credit does. Again no bk, no walking away. You and the lending institutions are going to share the pain and suffering of this. I would change the amortization a little and allow a higher percentage of the payment be applied to the principle in the early years.
Now for the institutions that promoted and profited most from these transaction. The $700 Billion dollars is going to use as backup. You don't get dime one. There are literally thousand of college students studying law, economics, business administration, accounting, etc. They need internships and many have student loans. We form them into a task force and along with the FBI and any other enforcement agency we need. We set a good wage but not crazy, say $25-$30/hr., and we credit their time toward a pay off of the student loans.
Together they go through these companies top to bottom e-mails, memos, the books, everything and they get a good proctological exam. On top of that it is posted on publicly accessible website for anyone to review.
The management of these companies have to refund or work off all compensation except base salaries. As for the field guys, the guys in the trenches(????). If you were strictly commission you get a sufficient but not excessive salary. Say nothing more than $ 300,000/ annum.
Once the mess is really understood we can make some decisions. One is that you cannot walk away from this. People are going to feel the pain, including me, but hopefully after this there won't be a next time in my lifetime. We're going to do this somewhat like George Bailey did. Not how much do you want, but how do you need, to get by. And, we are going to charge you for this money and it is going to hurt.
All of these people need to pay a price. So you cannot quit, or work for someone else, or retire until this mess is cleaned up. If you drop dead on the job to bad. It happens all over America everyday.
There it is in basic outline. It needs a little work but not to much. Complexity creates wiggle room and we have seen how these weasels can wiggle.
If you look to the left, you can register and create an account. A bunch of cool features will then be available for you to use and....(drum roll please), you don't have to prove you are a human with putting in those irritating letters in a box every time you want to say something!
I hesitate in writing anything (overtly) that is not based in verifiable fact. That said, I do find it most interesting that the ones with the worst revolving doors with government are the ones seemingly the biggest target for salvation.
Is Goldman Sachs and Citigroup on the FBI list? If not, why not?
You know for sure he still owns tons of this stock. You know it. He is in the "Old Boys Network" on Wall Street. Any surprise that Buffett is bailing out Goldman Sachs? Any surprise why he won't detail a plan on how the money will be spent? He is being so vague and it is absurd how he just expects congress to hand over $700 billon with out handing over a real plan? Bush is on TV right now saying that it is the irresponsible people who bought the houses they couldn't afford that is causing this crises. While I agree partly, it is also the greed of Wall Street. I cannot believe this is happening. I am so upset, but this is crazy. See how much Goldman Sachs gets. They were a HUGE buyer of these mortgage backed securities.
We're looking into it and yes we are people just like you, but because of the volume of information on the Internets these days, one can start digging around and wrapping your head around a lot of these issues.
My grasp of economics is pretty elementary [so thanks for this blog]. Because of this I've had to start wrapping my mind around the credit crisis through analogy. Thinking that in some respects at least government debt might behave somewhat like personal debt, it seemed possible to me that the US could conceivably default on its debt just like a person who defaults on a mortgage.
I know what it looks like when one household defaults on a mortgage. And now because of the recent unpleasantness I know what it looks like when millions of people default. But what does it look like when a nation defaults on its debt?
I'm hoping you Economic Populists can explain it to me.
This is just such a railroad and they are not basically calling cash on the consequences, the results and Dems putting forth real plans that have a good estimate to work. And where is the CBO and the GAO on this? They should be working night and day to figure out what is actually going to have an effect.
but they should next say to GM, up production to 2009, use US factories, US workers, made in U.S.A. and we'll give you a loan you must pay back to do it.
That would be next.
They really need to get it below 20k. Esp. considering what else is going on in terms of severe recession, possible "D" word.
passed a $7500 tax credit for Volt buyers yesterday, so we're looking at a purchase price around $32,500 as compard to around $24,000 for new Prius.
But let's look the cost of ownership.
AT 15,000 annually:
The Prius is doing to use around 314 gallons of gas annually.
The Volt will most likely us around 150 gallons annually.
164 gallons less annually. At $4 gallon, that's $656 in savings annually. So it's about 13 years to make up the difference. At $5/gallon? $820 annually. Just over 10 years.
There has to be a ramp up in battery production to bring economies of scale, and cost cuts. If GM can cut those costs down by another $5,000 then the game changes.
Bottom line though, its the costs of ownership, not the purchase cost where the Volt is going to come out ok.
Paulson is trying to peddle this as being for the people. What BS if it was for the people they would enable a restructuring of mortgages through bankruptcy and a HOLC.
What are the odds that any bailout would save the banking system? And at what cost?
That is the ultimate question here, as I see it. Certainly if any bailout is offered, this Lame Duck Administration and nearly-Lame Duck Congress should not be tying the hands of the next Congress and Administration. So any package should be the minimum to get us through until next spring. And since the banks have no leverage besides that of being economic suicide bombers, the representatives of the taxpayers should strike a very tough bargain.
But even if that is done, will it work? If we could say with 90% or even 80% certainty that it would, then maybe we should proceed. But suppose the chances of it's working is 50% or less (which is my best guess right now)? Then we would merely be throwing good money after bad. We would be impeding our ability to pick up the pieces later and ameliorate the hardships on Main Street in the meantime, not to mention other urgent priorities like fixing our infrastructure. All to reward the least deserving actors in the drama.
We may face terrible choices; but the best among them may be to let the existing banking system fail, and start as quickly as possible to build a new and better one atop the ruins.
Is it too late to dump Obama and bring Hillary back?
In terms of lasting help for main street, a far more effective method of resolving this "crisis" would be to do as Kevin Phillips was suggesting - reinvigorate or manufacturing sector. Manufacturing helped keep a check on the finacial sector when it was king in its heyday. Manufacturing has hard assets of value that would have some worh, unlike the paper and largely worthless assets of failed wall street institutions- equipment, property, patents and so forth. If we took the 700 billion and used it to rebuild and updare infrastructure - rail lines, bridges, roads, power grid, air traffic systems and so on would help facilitate economic growth, as well as helping get US manufacturing back on its feet by scrapping "free" trade, investing domestically in R&D, capital equipment, and more fuel efficinet and alternative energies.
Manufacturing creates wealth and shares prosperity, the finacial sector shifts and concentrates wealth.
I think folks ought to read Hillary's article in today' Wall Street Journal, and George Soros' piece in the Financial Times.
Clinton:
http://online.wsj.com/article/SB122230767702474045.html
Soros:
http://www.ft.com/cms/s/0/9973c5b0-8a6d-11dd-a76a-0000779fd18c.html
here. It's all about Wall Street. Not a word about any bottom up bail out.
Myself, I'm all about the solutions that are the best for the middle class and bottom up and from what I can tell, Hillary really has a good plan and it looks like she had this all laid out over a year ago, so it's all detailed out.
Bernie Sanders is calling for a surtax, major, on the people who caused this and basically anyone who profited from it.
Of course seemingly anyone with a real solution isn't allowed in the negotiations and assuredly on a finance committee!
McCain is going to lose this election with his corporate insane Reaganomics trickle upon idiocy. That all said, it's not like Obama in terms of policy is the solution and I find him kind of chicken shit and left holding the bag on this one....I mean who did not know this was coming?
I had no idea people think that this isn't all real, I guess they do not understand the difference between manipulation of a crisis vs. an actual one.
We have yet to see a concret plan from the other side. See and both common folks and the markets hate the unknown.
In my head there was no question something had to be done, I guess that's what I'm missing that others are saying nothing should be done. Doh.
One small problem, Obama has Jason Furman, Goolsbee, Robert Rubin, even Paul Volcker! and the very same gang who contributed to this mess...running his show. In other words, he is not a progressive and so far, hasn't put forth clear progressive plans and policies.
I'll skip the list but on the financial crisis, am I missing something because I have yet to see any plan.
There is no doubt something has to be done and done immediately but I hate to say this but the one I've seen with the real plans that look good to immediately work are coming from Hillary Clinton. I posted a few of these and seemingly they are ready to go.
Even the CBO is implying a RFC or a HOLC is the better way to go on this and they must also deal with the liquidity issue on top of it.
Am I missing something here? Last I saw was a few points that read like something Chris Dodd would type up but I have not seen anything about fundamentally scraping the Paulson plan and in it's place doing a bottom up approach like the RFC.
I hate to be a party pooper but really....
It's hard sometimes to explain why someone who has a concern for working-class economic interests needs to care about what's bad for wall street, as you put it - particularly since those arguments are frequently mounted in either a panic or disingenuously by B. Clinton acolytes. So this is extremely helpful both to read and as a point of reference.
However, I still believe that the need of the day is not the argument that something should be done, but that something proper should be done, given enough thought, and with enough time. This whole framework of panic is destructive to a proper solution, imo.
Color me stupid because I don't have a college education in accounting, business, economics,etc. I am just a guy who actually gets his hands and other anatomical parts dirty to pay my bills. So let me put it to you in my simple terms and solution. It doesn't hurt enough. The truth of the matter is these guys are trying to engineer a soft landing and have been for decades. Does anyone remember the Petro Dollars bailout, the S&L's, the junk bonds, the Mexican Peso, or the dot com's. To borrow a popular analogy they just put a different dress on the same pig and pigs, as another populist often says, GET SLAUGHTERED. Did anyone ever get fired, get prosecuted, go to jail or even get black balled for all the stupid schemes? I feel like I am watching a street hustler putting the pea under the walnut shells and shuffling.
This is my solution no one gets bailed out. May be if we all get hurt this nonsense will stop. This constant get rich fast, double figure quarterly growth or your a failure is not realistic. I mean if you want to look at something absurd look at the chairman of CSX whose in a proxy fight with a hedge fund. Let see them run it for a while and then compare results. But I do digress.
Back to the solution no one gets bailed out. First, no bailout for credit cards or car loans. Your stuck and you can't bk or repo them. You pay off the freakin' loan just like the rest of us and maybe next time you won't be so stupid with your money or credit.
Second, no bail out for commerical real estate. This is what you do for a living, supposedly and if your to ignorant or arrogant to structure the deal right then you deserve the same fate as any poor businessman, present company included, you lose.
Now for the home owners and the various institutions holding this paper. You gave and took bad loans on over valued properties with poor money management skills. Again you don't get to just walk away. Far to many of us, probably 90-95%, of the homebuyers, did it the right way and you shouldn't be allowed to break the rules for free.
All the shaky loans get reset as 30 year fixed, at a higher, 7-9%, interest, as ALL risky credit does. Again no bk, no walking away. You and the lending institutions are going to share the pain and suffering of this. I would change the amortization a little and allow a higher percentage of the payment be applied to the principle in the early years.
Now for the institutions that promoted and profited most from these transaction. The $700 Billion dollars is going to use as backup. You don't get dime one. There are literally thousand of college students studying law, economics, business administration, accounting, etc. They need internships and many have student loans. We form them into a task force and along with the FBI and any other enforcement agency we need. We set a good wage but not crazy, say $25-$30/hr., and we credit their time toward a pay off of the student loans.
Together they go through these companies top to bottom e-mails, memos, the books, everything and they get a good proctological exam. On top of that it is posted on publicly accessible website for anyone to review.
The management of these companies have to refund or work off all compensation except base salaries. As for the field guys, the guys in the trenches(????). If you were strictly commission you get a sufficient but not excessive salary. Say nothing more than $ 300,000/ annum.
Once the mess is really understood we can make some decisions. One is that you cannot walk away from this. People are going to feel the pain, including me, but hopefully after this there won't be a next time in my lifetime. We're going to do this somewhat like George Bailey did. Not how much do you want, but how do you need, to get by. And, we are going to charge you for this money and it is going to hurt.
All of these people need to pay a price. So you cannot quit, or work for someone else, or retire until this mess is cleaned up. If you drop dead on the job to bad. It happens all over America everyday.
There it is in basic outline. It needs a little work but not to much. Complexity creates wiggle room and we have seen how these weasels can wiggle.
If you look to the left, you can register and create an account. A bunch of cool features will then be available for you to use and....(drum roll please), you don't have to prove you are a human with putting in those irritating letters in a box every time you want to say something!
Glad you're all here!
I hesitate in writing anything (overtly) that is not based in verifiable fact. That said, I do find it most interesting that the ones with the worst revolving doors with government are the ones seemingly the biggest target for salvation.
Is Goldman Sachs and Citigroup on the FBI list? If not, why not?
You know for sure he still owns tons of this stock. You know it. He is in the "Old Boys Network" on Wall Street. Any surprise that Buffett is bailing out Goldman Sachs? Any surprise why he won't detail a plan on how the money will be spent? He is being so vague and it is absurd how he just expects congress to hand over $700 billon with out handing over a real plan? Bush is on TV right now saying that it is the irresponsible people who bought the houses they couldn't afford that is causing this crises. While I agree partly, it is also the greed of Wall Street. I cannot believe this is happening. I am so upset, but this is crazy. See how much Goldman Sachs gets. They were a HUGE buyer of these mortgage backed securities.
We're looking into it and yes we are people just like you, but because of the volume of information on the Internets these days, one can start digging around and wrapping your head around a lot of these issues.
My grasp of economics is pretty elementary [so thanks for this blog]. Because of this I've had to start wrapping my mind around the credit crisis through analogy. Thinking that in some respects at least government debt might behave somewhat like personal debt, it seemed possible to me that the US could conceivably default on its debt just like a person who defaults on a mortgage.
I know what it looks like when one household defaults on a mortgage. And now because of the recent unpleasantness I know what it looks like when millions of people default. But what does it look like when a nation defaults on its debt?
I'm hoping you Economic Populists can explain it to me.
This is just such a railroad and they are not basically calling cash on the consequences, the results and Dems putting forth real plans that have a good estimate to work. And where is the CBO and the GAO on this? They should be working night and day to figure out what is actually going to have an effect.
Overtime baby. Give 'em triple.
but they should next say to GM, up production to 2009, use US factories, US workers, made in U.S.A. and we'll give you a loan you must pay back to do it.
That would be next.
They really need to get it below 20k. Esp. considering what else is going on in terms of severe recession, possible "D" word.
passed a $7500 tax credit for Volt buyers yesterday, so we're looking at a purchase price around $32,500 as compard to around $24,000 for new Prius.
But let's look the cost of ownership.
AT 15,000 annually:
The Prius is doing to use around 314 gallons of gas annually.
The Volt will most likely us around 150 gallons annually.
164 gallons less annually. At $4 gallon, that's $656 in savings annually. So it's about 13 years to make up the difference. At $5/gallon? $820 annually. Just over 10 years.
There has to be a ramp up in battery production to bring economies of scale, and cost cuts. If GM can cut those costs down by another $5,000 then the game changes.
Bottom line though, its the costs of ownership, not the purchase cost where the Volt is going to come out ok.
Paulson is trying to peddle this as being for the people. What BS if it was for the people they would enable a restructuring of mortgages through bankruptcy and a HOLC.
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