So, this bailout thing went down last week. It was not voted in the first time around because of the typical Washington infighting. It went around the second time once the Senate and House filled it up with pork projects. However, there is another reason the bill did not pass the first time around. Constituents were calling like mad to their representatives demanding a no vote. It must have been a bad day to be a congressional staffer fielding all those angry phone calls.
All of this makes me wonder. Congress said we need to do this. Wall Street and all of the mainstream press said we needed this, but the American public, for the most part was really pissed off and wanted nothing to do with a bailout bill. So, what did Washington, Wall Street and the media do? They resorted to scare tactics, telling us we would lose our jobs and our homes and the the economy would go into a deep recession. This was all reminicent of what we were told before the Iraq war. Did the American people buy it? Not really. We aren't financial wizards, we don't know how to work all the numbers and what exactly this bailout entails. But that doesn't matter because we knew what this was all about. Sure, we don't know the details and we can't prove anything, but everybody knows this is a bailout and not a rescue plan. We all know that Congress and Wall Street is a good ol boys club and it was a way for Congress to funnel money to their campaign donors. This is no secret to anyone, and the American public has a right to be pissed off about this. They are literally taking our money and giving it to a bunch of rich guys. Sure, CNBC pundits will try to explain to us that it is not "technically" a bailout, but we all know the truth. After following this whole saga, I have come to these undeniable facts of life. If you disagree with any of them, or want further detail, please comment and let's talk about them.
- Barack Obama will not change anything.
- John McCain will not change anything.
- Sarah Palin will not change anything.
- Joe Biden will not change anything, but he has a crush on Sarah Palin.
- There is virtually no difference between Barack Obama and John McCain.
- Barack Obama and John McCain will do very little of what they promise if elected.
- The Washington elite considers the American public stupid.
- The public reaction to the bailout shows that regular Americans are not stupid. We just lack access to inside information.
- There is no place to find an objective media source. Not CNN, not Fox News, not ABC, NBC, MSNBC or anywhere else. You are better served by following your own instincts.
- This bailout bill speeds up our approach to European-style socialism.
- This financial mess has nothing to do with capitalism. It was the fault of the government and the Federal Reserve system.
- A recession is not a bad thing and the government can only make it worse.
7 comments:
You would be surprised how much we think alike Joe. I only disagree with you on number 11. I sort of disagree with your conclusion to 9. This recent financial crisis has actually helped to outline my thinking in several areas that were previously pretty cloudy. What are you doing for a job these days?
Father Tom said this morning that the first reading - from Isaiah 5 - said basically that God isn't going to prevent us from making bad choices - free will and all - and that he's not going to prevent us from taking the temporal consequences of our bad choices. this is the ultimate in free market economy. God is smarter than all the people in Washington and on Wall Street.
Great to get discussing again. I´d like your take on where to find objective news.
With regard to my belief that capitalism had nothing to do with this crash - I share a link which explains the Austrian Business Cycle Theory. I didn´t believe it until this all started to happen. Take a gander if it interests you. http://mises.org/story/672
I think you address a key issue Joe that the MSM doesn't really hit on enough: blame. We saw Fuld get roasted today. He was nearly personally blamed for the credit crunch by himself. I won't debate the bailout itself for you because I have to admit bias: my industry was one bailed out after all. I think I will address these sentences instead:
Why should we let the people who caused this problem come up with a solution? They should be FIRED and replaced with others who DIDN'T cause the problem.
and:
This bailout bill speeds up our approach to European-style socialism.This financial mess has nothing to do with capitalism. It was the fault of the government and the Federal Reserve system.A recession is not a bad thing and the government can only make it worse.
I think your reaction is a standard Austrian reaction to what could be deemed the socialization of the mortgage industry that has rapidly occurred. I would, in general, tend to agree with you that socialization of any industry creates inefficiency and barriers to entry. But who is to really blame for this?
I notice you used language simliar to John McCain's recent call to fire Chris Cox who is the head of the SEC. I can't imagine that firing one person alone is what you meant however. I will also assume by the "we" language you employed that you mean elected officials are to blame for the subprime issues. Who else do you feel is responsible? The Fed for keeping interest rates low? Aren't the majority of Austrian economist against the existence of the Fed in the first place? I had a conversation with Ron Paul after a small rally at my company some time ago, and he said he had no opinion on rate cuts when he believed there should be no Fed in the first place! So who really can be blamed for this?
I think what Paulson was intending to do, and so far has failed to complete, is the unfreezing of credit. More important to the unfreezing of credit however is the underlying issue: counterparty risk.
I work with a lot of credit default swaps. When you book a swap (basically a sophisticated hedge) I have to send collateral to the institution to support the position (typically cash or very liquid securities). Lehman went down so hard that many institutions didn't have the time or ability to unwind CDS trades and pull back collateral.
As an example, Bank of America had 500 Billion in collateral at Lehman when it went down. They recently sued Lehman to get these funds, however with the bankruptcy courts more concerning about maintaining jobs and getting debt holders their funds back, BofA is not going to get a penny back.
Do you know what happens with that money when a counterparty fails? You have to write it off. Collateral write offs per US tax code can't be used as a tax credit either; we are talking 500 billion kicks to the balls that is totally unavoidable.
Before I bore you, I'll leave you with this fact: US financial institutions have about 60 trillion in collateral and counterparty risk. Think about that size of a write off.
I agree and understand with the blows you feel are being dealt to capitalism. Like you said however, this isn't capitalisms fault. This is panic. Even as an Austrian economist, is there no time when calling in government is worth it?
Austrians for the most part believe that the Federal Reserve System should be abolished and they absolutely argue that the Fed's manipulation of the money supply was the main cause of this problem. See my link to the explanation of the Austrian Business Cycle Theory. That is not to say that congress didn't make it worse. The bankers were simply following incentives as any economic agent will do. You may think this is bad, but it is an unstoppable force which needs to be accepted as a given - a debatable point, indeed.
With regard to Fuld's testimony, I propose that the financial industry professionals put congress and Paulson on the stand and ask THEM the tough questions under oath. This whole thing assumes that the financial industry is at fault. THAT's quite an assumption.
AND, did Bank of America REALLY just lose 500 BILLION?? I thought their total assets under management was just over a trillion. That figure can't be right.
Joe, your nose for BS does you proud:
http://www.reuters.com/article/americasDealsNews/idUSTRE4917XW20081002
Five hundred million is correct.
I agree with your idea to have more people put in the hotseat. Fannie and Freddie were strongly encouraged to make sub-prime loans however the adminastration that pushed for that has yet to hit the stand.
I yelled to our equities desk after tha bailout went through: so much for a free market! I agree also with your point that these loses have to be taken sometime and a recession is not a bad thing.
Still, timing is forefront for this issue. Even as the bailout was railroaded through, I wonder where and when this money is supposed to hit. More importantly, who is going to manage this massive fund? Not only filled with subprime and alt-A, but commerical paper, warrants on investment banks, huge loans to many banks in America, part ownership of AIG, and cash loaned to JPMorgan as well as Bank of America for backstopping M&A.
That is the 700 billion (for sure)dollar question.
i don't understand any of this shit and i am counting out you to do it for me :) I think that mom is onto something when she said that God is smarter than everyone in Washington and on wallstreet. life is f'n hard. i think i am going to move into the jungle.
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