That Bailout Just Keeps Getting Bigger and Bigger...

Nick Gillespie | November 10, 2008

What's new on the bailout front? If it's Monday, it's got to be time for more taxpayer support:

The U.S. Federal Reserve hiked its support for insurer American International Group Inc to about $150 billion on Monday after an initial bailout attempt failed to stem massive losses.

What about the automakers (didn't we already bail them out a little while ago)?:

The press for a federal bailout of the auto industry increased over the weekend.

House Speaker Nancy Pelosi, D-Calif., and Senate Majority Leader Harry Reid, D-Nev., said in a letter to Treasury Secretary Henry Paulson that the Bush administration should consider expanding the $700 billion financial rescue to include car companies.

"A healthy automobile manufacturing sector is essential to the restoration of financial market stability," they wrote.

Maybe, says Paul Krugman, a World War II-size jobs program will turn the trick:

F.D.R. did not, in fact, manage to engineer a full economic recovery during his first two terms....

What saved the economy, and the New Deal, was the enormous public works project known as World War II, which finally provided a fiscal stimulus adequate to the economy's needs.

This history offers important lessons for the incoming administration.

One upbeat sign: Kansas banks are wary of signing up for government injections:

The head of the Kansas Bankers Association says the state's banks are reluctant to take part in the capital injection program included in the financial bailout.

Association president Chuck Stones said "banks are very wary of the program" that Congress approved last month as part of the $700 billion bailout. The Troubled Asset Relief Program injects capital in the form of preferred stock.

The Topeka Capital-Journal reported that Capitol Federal Financial of Topeka and UMB Financial Corp. of Kansas City, Mo., have both declined to participate.

Capitol Federal CEO John Dicus said the bank already has sufficient resources to continue lending money to home buyers. Dicus said the program's preferred stock requires payment of a 5 percent dividend rate, and that his bank would have to lend at 8 percent to cover the required rate.

All of this leaves me wondering: Where's My Bailout?

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|11.10.08 @ 10:34AM|#

about Krugman:

This guy knows better.

I'm dropping all presumption of innocence right at this point. Money and/or sexual favours from the entire Pentagon were likely involved.

robc|11.10.08 @ 10:37AM|#

sceptic,

Have to agree. I dont have a nobel in economics, but even I know that the WW2 thing is a myth.

|11.10.08 @ 10:47AM|#

Any chance of keeping that numbers from the bailout balance sheet post updated as they sharpen their red pencils after adding a few more bailouts with a bunch of zeroes at the end?

Gilbert Martin|11.10.08 @ 10:51AM|#

FDR didn't "engineer a full economic recovery"?

Ha!

He didn't engineer anything that remotely resembled any type of recovery.

It was his policies that prolonged the depression and turned it into the "great" one to begin with.

|11.10.08 @ 10:53AM|#

If a war/huge public works project will solve the financial crisis, why haven't the Iraq and Afghanistan wars kept this one at bay? Do we just need to attack someone who's not a 3rd world country for it to work?

|11.10.08 @ 10:58AM|#

What we should really do is bomb some major city into ashes, and then dedicate the whole country to rebuilding it. It would be so great for the economy! Think of all the extra work we would have to do just to get by.

For the long term, we should really think about some kind of ditch-digging law. For every hundred dollars spent by a person, that person should be required to dig a five foot deep hole. This would doubtless create a lot of demand for food, given all the calories people would burn, and if we allowed people to pay others to do it we could soak the rich and have virtually 100% unemployment for years and years. We could keep people occupied for generations and dig a new grand canyon with just this one bailout.

So seriously, gentlemen, quit casting aspersions at Krugman, learn some economics, get your heads out of that libertarian sand, and dare to dream!

|11.10.08 @ 10:59AM|#

Above, I of course meant 100% employment. Nope, not a freudian slip at all.

|11.10.08 @ 11:06AM|#

We need to give enough tax breaks to the lower and middle class so that every American will have an above average income.

|11.10.08 @ 11:10AM|#

How can the economy not be improving yet? I'm breaking as many windows as I can, as fast as I can!

|11.10.08 @ 11:11AM|#

Well, as we can see, the Americathon of Bailouts is not working very well. Again, let me suggest that the Pro Libertate Bailout Plan® is the superior option:

Pro Libertate | September 25, 2008, 3:39pm | #
I've been thinking about this for a while, and I think that Congress should vote to give the $700 billion to one individual, one person who can serve as a symbol for all of America. That individual, of course, would be me.

As I accept this money and live my life in the manner of a Greek god, America will be inspired and its confidence will be restored. The economy will bounce back completely on February 1, 2010, when I broadcast a message from my vacation home. . .on Mars.

concerned observer|11.10.08 @ 11:18AM|#

And, of course, the wingnuts are denying that deregulation had anything, at all, to do with the financial crisis.

|11.10.08 @ 11:22AM|#

concerned observer,

Yes.

"And, of course, the wingnuts are denying that deregulation had anything, at all, to do with the financial crisis."

The only thing making money in the current crisis is unregulated hedge funds, provided you pick the right one...

Gilbert Martin|11.10.08 @ 11:23AM|#

"What we should really do is bomb some major city into ashes, and then dedicate the whole country to rebuilding it. It would be so great for the economy! Think of all the extra work we would have to do just to get by."

Absolutely!

And we can improve international trade in the process!

We can buy one of these from the Soviets to get it done:

http://www.youtube.com/watch?v=FfoQsZa8F1c

|11.10.08 @ 11:24AM|#

co,

What deregulation are you referring to?

|11.10.08 @ 11:26AM|#

probably SOX.

|11.10.08 @ 11:28AM|#

Also, way to go Kansas! You're redeeming yourself after briefly refusing to teach evolution in schools.

|11.10.08 @ 11:29AM|#

domo--It's deregulation! Don't you know any better?

What it is specifically and what it actually did aren't important. What is important is that the political class and their lackeys can assign blame using code words that the right people (wink-wink, nudge-nudge) understand all too well.

Picky details just get in the way of the narrative.

|11.10.08 @ 11:34AM|#

seriously - can someone name one financial regulation that Bush eliminated? just one! Let the googling begin.

concerned observer|11.10.08 @ 11:39AM|#

fine, go hide in your libertarian fantasy world.

|11.10.08 @ 11:41AM|#

Shorter concerned observer:

I can't.

|11.10.08 @ 11:48AM|#

Domo, I'm sure there's gotta be one. Lots of laws get repealed all the time. The Federal register is 70.000 pages, I'm sure they must have deleted something at some point....

|11.10.08 @ 11:50AM|#

c.o. having trouble? its www.google.com

|11.10.08 @ 11:53AM|#

I think we should all begin self-deregulating.

I have to say, I tried and failed. But new regulations did get a lot of results....

In fact it's worth doing a google trends...

Lurker|11.10.08 @ 11:54AM|#

DAAAAAAMN, CO just got owned.

|11.10.08 @ 11:58AM|#

I just shrugged off the FTC's and the IRS' jurisdiction over me. Very liberating.

|11.10.08 @ 12:00PM|#

I think we should all begin self-deregulating.

I usually do that after drinking heavily. It can be messy.

rhywun|11.10.08 @ 12:07PM|#

can someone name one financial regulation that Bush eliminated

I was going to say derivatives and credit default swaps, but that was under Clinton in 2000.

|11.10.08 @ 12:14PM|#

ok, jeez, I expected more resistance than that...

There is the commodities and futures modernization act (2000) signed by clinton during the lame duck session. Not Bushes bill, but def. done by the GOP. Only dealt with energy derivatives though, so pretty limited in scope.

Also there is Gramm Leach Blily that allowed commercial banks to operate investment banking activities. Also signed by Clinton, but was a GOP invention. It is also a bind alley for the deregulation story - since investment banks that didn't have a deposit base have suffered most in this crisis. If anything, it cuts against the deregulation arguments claims, since it allowed key stabilising mergers to happen as the crisis unfolded - as fmr. President Clinton has said.

"I was going to say derivatives and credit default swaps, but that was under Clinton in 2000."

Clinton is yesterday's news; the libs will throw him under the bus to blame 'deregulation' for today's problems.

|11.10.08 @ 12:19PM|#

I think we should all begin self-deregulating.

I heard you'll go blind . . . .

|11.10.08 @ 12:20PM|#

And in the other corner we have Sarbanes-Oxley - actually signed by Bush. It's perhaps the most intrustive, and extensive reach of government into business ever signed.

In any case, the overall story of "deregulation" is one step foward, a 5k back. There is plenty of blame to heap on the GOP with regards to this mess, but deregulation isn't it.

|11.10.08 @ 12:22PM|#

I read a Krugman column yesterday (I'm not sure if it's the one linked to) which pretty much boiled down to: "Mister Messiah-Elect- Go long!"

There's nothing, apparently, Krugman doesn't think we should do, and nobody he doesn't think we should save. I'm going to start stockpiling Pall Malls.

|11.10.08 @ 12:26PM|#

The actual party line is not so much that it was "deregulation" but a failure to introduce enough new regulations to deal with the trade in derivatives and such.

IMO, it wasn't so much that even. The only true regulatory failure I can identify is the rating agencies failing to properly rate securities, resulting in a lack of transparency, so investors were unable to make rational choices. And even that isn't so much a regulatory failure as a problem caused by perserve incentives produced by other regulations.

To the extent the current situation counts as a "crisis", (and I see no crisis inherent in dumb bankers losing money and dumb homeowners losing houses), it was caused by government-induced perverse incentives and the law of unintended consequences. I never saw any real evidence that the credit market was about to "freeze" - I'm still getting credit card offers in the mail.

|11.10.08 @ 12:29PM|#

Maybe, says Paul Krugman, a World War II-size jobs program will turn the trick:

F.D.R. did not, in fact, manage to engineer a full economic recovery during his first two terms....

What saved the economy, and the New Deal, was the enormous public works project known as World War II, which finally provided a fiscal stimulus adequate to the economy's needs.

This history offers important lessons for the incoming administration.

------
Nick, I have no idea why you interpret Krugman's statement as a call for a huge jobs program. The clearly more straight-forward interpretation is Krugman is calling for the US to get into a massive war.

|11.10.08 @ 12:33PM|#

not so much that it was "deregulation" but a failure to introduce enough new regulations to deal with the trade in derivatives and such

Exactly. It is "deregulation" in the sense that a refundable tax credit to someone with no income is a "tax reduction" ie. the Orwellian sense.

|11.10.08 @ 12:34PM|#

I wonder if the people will support the "Krugman Plan", which will involve the breaking of every window, mirror, windshield, and other sheet of glass in the country?

Didn't the Germans have a plan like that? "Krystallnacht", wasn't it?

-jcr

|11.10.08 @ 12:39PM|#

We will provide not only jobs for glaziers, but also street sweepers!

GG|11.10.08 @ 12:42PM|#

What's new on the bailout front?

Also, Bloomberg News Files Lawsuit, Barney Frank Defends Fed's Secrecy

|11.10.08 @ 12:46PM|#

We will provide not only jobs for glaziers, but also street sweepers!

I wonder if the economics prize that Krugman just got will ever recover any of its former prestige?

-jcr

|11.10.08 @ 12:49PM|#

Clinton is yesterday's news; the libs will throw him under the bus

I'm not sure of that. They like to point to the dot-com bubble under Clinton and claim that it somehow reflects positively on tax-and-spend policies, despite the fact that Clinton was thwarted by a Republican congress in most of his evil machinations.

-jcr

|11.10.08 @ 12:57PM|#

Where is my bailout? With a mere 1 billion dollars, I could stimulate Las Vegas, liquer sales, and multitudes (multitudes I tells ya) of strippers, who risk being thrown into the streets nude. Undoubtedly, this would cause a great spurt of liquidity, causing emplyment to swell...and all Americans to come...together

|11.10.08 @ 1:36PM|#

"stimulate Las Vegas".

That sounds naughty.

|11.10.08 @ 1:37PM|#

jcr,

I wonder if the economics prize that Krugman just got will ever recover any of its former prestige

The Nobels have been losing prestige ever since Arafat and Carter got one.

|11.10.08 @ 1:40PM|#

Barney Frank putting a spin on something? Inconceivable!

adrian|11.10.08 @ 1:52PM|#

co: you are no joe

from an article on cap mag


"There were 51,000 NEW regulations added over the last 12 years."

|11.10.08 @ 1:52PM|#

The Nobels have been losing prestige ever since Arafat and Carter got one.

Oh, I'd put it earlier than that. Giving one to Kissinger was a real knee-slapper.

-jcr

concerned observer|11.10.08 @ 1:58PM|#

You people are a bunch of stupid dicks.

|11.10.08 @ 2:01PM|#

Well said CO! That's the best way to win a debate! Call them names! Much better than actually trying to support your claim!

|11.10.08 @ 2:02PM|#

First, they came for the concerned observers, but I stood by, and did nothing...

because I was a stupid dick!

|11.10.08 @ 2:13PM|#

co,

Isn't it about time you ran away, waving your arms in the air and crying?

concerned observer|11.10.08 @ 2:15PM|#

If you people have failed to acknowledge that this crisis was caused by the party of deregulation, then it's pointless to try to change your minds. It's like trying to teach an idiot child to read.

razon|11.10.08 @ 2:20PM|#

I'm confused, the Krugman article is a piece journalistic deadpan....Right?

|11.10.08 @ 2:22PM|#

I gots me dem deregulatin blues.

miche|11.10.08 @ 2:24PM|#

Has CO said anything of substance yet?

|11.10.08 @ 2:46PM|#

Has CO said anything of substance yet?

Of course not! How could he get a nobel prize for economics if he did?

-jcr

|11.10.08 @ 3:27PM|#

It's like trying to teach an idiot child to read.

Serenity now!

Head|11.10.08 @ 4:18PM|#

Damn, joe is much better at this stuff - I thought c.o. was joe until now.

|11.10.08 @ 5:09PM|#

CO, convince us. You can't come in here and spout platitudes you got from someone you heard and expect us to have a revelation. You say it's deregulation that caused it. Show us. Statements don't change minds. Facts do. So far, you've given none of those. And yet you're surprised. Huh.

|11.10.08 @ 5:10PM|#

And you may not be able to teach an idiot child to read, but if you're going to try, you need to do more than just hand him a book.

concerned observer|11.10.08 @ 6:36PM|#

Gee, you could look at your ex-hero Alan Greenspan's testimony before Congress.

|11.10.08 @ 6:56PM|#

Do libertarians even like Greenspan? It seems to me that most of us are rather unhappy with the Federal Reserve and its arcane, manipulative policies.

|11.11.08 @ 12:46AM|#

The only true regulatory failure I can identify is the rating agencies failing to properly rate securities, resulting in a lack of transparency, so investors were unable to make rational choices.

There is a regulatory failure in capital requirements. I.e., the capital requirements if you hold onto your own mortgage is x% of the mortgage, but if it's securitized, then the AAA-rated trench only requires y% in capital requirements, and so on.

So there was regulatory arbitrage, in that securitizing mortgages into mortgage-backed securities could result in lower overall capital requirements.

|11.11.08 @ 2:39AM|#

Bigger and harder bailouts. Please stop. My rectum is bleeding profusely.

Daniel Reeves|11.11.08 @ 7:26AM|#

Suggestion for Krugman's reading list.

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