The Incredible Bendable Bailout

In a development that will surely come as a shock to everyone, the $700 billion bailout package isn't being spent like we were told it'd be spent.

Treasury is unlikely to conduct any auctions to purchase bad loans and other troubled assets -- the original intention of the $700 billion rescue plan. Instead, Treasury is expected to continue focusing its firepower on injecting capital directly into the financial sector, these people said.

There is good news:

Before launching its $250 billion capital-purchase program last month, Treasury toyed with requiring banks to raise matching funds alongside any government investment, but it thought that might discourage some firms from participating. It also worried that firms would not be able to raise private money in the current market environment.

Instead, Treasury structured its investment in a way that it believed would encourage firms to eventually raise private funds. But Treasury officials now think market conditions may have improved enough that companies could raise private capital.

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  • ||

    These damned studio capitalist that are running things and admit that they prefer socialism. Maybe James Galbraith is right in his latest book saying that America has abandoned free markets for central planning, and that liberals need to avoid markets. In any moment, we'll be asked to do a spontaneous protest in celebration of increased chocolate rations. LOL

  • Lester Hunt||

    For those who haven't seen it, Anna Schwartz said in a Barron's interview that the original plan was probably a better idea than what they are doing now.

  • ||

    Ho-hum. We all knew this was coming. Does anybody wonder what Henry M. Paulson, Jr. is going to be doing after Jan 20, 2009?

  • ||

    "Treasury is expected to continue focusing its firepower on injecting capital directly into the financial sector, these people said."

    That is what they should have done in the first place. They should have told the banks to go fuck themselves and let them go broke and then injected capital into the survivors. Sure enough what they are doing now is just injecting capital. So much for buying all these great securities and making money off the deal. But they are injecting capital into banks that would have and should have failed and as a byproduct saving a bunch of fat cats a lot of money, which is what this whole thing was really about.

  • economist||

    John,
    Actually, I think they should have told the banks to go fuck themselves, and then said to the survivors "Good job. Don't fuck up or you'll end up like those losers" and then spent $0 dollars on this thing.

  • ||

    "John,
    Actually, I think they should have told the banks to go fuck themselves, and then said to the survivors "Good job. Don't fuck up or you'll end up like those losers" and then spent $0 dollars on this thing."

    But there really were fears of the credit market freezing up, although I have never seen any real hard evidence of that. What I am talking about is loaning the surviving banks at 0% or 1% interest to get them out lending again. I am not talking about just giving away money or buying worthless assets.

  • Joseph Stalin||

    Wow, these plans are changing so fast, it's hard to follow what's happening. They're not even holding up for 5 years.

    I wonder if it might be better if there were some kind of diversified, free flowing system where these kinds of decisions were filtered out as broadly as possible, and handled spontaneously in real-time by the people they affect most directly.

    Someone should draw up a plan for that.

  • I, Kahn O\'Clast||

    I am pleased that tax dollars won't go to buying up failing mortgages. It is the banks who need to:
    1) set up a clearinghouse for outstanding mortgage-backed securities and derivatives including Fannie and Freddie so as to unwind them and return loans to issuers for servicing

    2) begin the process of re-valuing mortgages, terming out interest payments and bringing the value of mortgages in line with property values. The market price for all this junk is well below what it will be after this process, so it is a net win for the banks. This will provide relief to home-debtors and invigorate the economy.

    3) this relief to home-debtors should face a tax penalty, termed out over the life of the loans with a 3 year (capitalized) grace payment to reimburse taxpayers for some of the largess being put forward to banks presently.

    Never gonna happen

  • ||

    focusing its firepower on injecting capital directly into the financial sector

    Since the firepower consists of over $1T, that leaves plenty of room for the odd eleven-figure bailout of the auto industry or whoever else elbows their way to the trough.

  • ||

    isn't being spent like we were told it'd be spent.

    Um, no. You might think that if you didn't actually pay attention to the changes that were made to the bill by the senate after the original house version failed. Direct capital injections was one of the main features of the revised bill. Many smart people have been clamoring for this approach, and there are plenty of reasons to prefer it.

    For one, it is far less likely to result in abuse and favoratism since it is more obvious who is getting what from the government. Another reason is that it shores up balance sheets directly instead of peripherally. Yet another is that it reduces the liklihood that mortgages purchased by the government will be subject to wholesale contract intervention - which would in turn be rife with graft and abuse by rent seeking.

    Mr. Weigel needs to inform himself about the details if he wants to make a serious criticism.

  • Lefiti||

    We know that government spending money is bad, and now things are worse. The Market must be angry with us.
    Let's say fifty Hail Markets! Then, maybe The Market will forgive us!

  • Lefiti||

    Everyone knows that the freezup of credit markets has nothing to do with deregulation. This is how things are supposed to work, so saith The Market.

  • Lefiti||

    AAAAAAAAAAAAAAAAAARRRRRRRRRRRRRRGGGGGGGGGGGGGGGGGGGGGHHHHHHHHHHHHHHHHHHHHH!WIIIIIIIIIIIIIIIINNNNNNNNNNNNGGGGGNNNNNNNNUUUUUUUTTTTTTTSSS!

  • Lefiti||

    Watch me eAT My oWn UNDerwEar!

  • Lefiti||

    Wingnuts are all around me. Persecuting me. Tormenting me! SSSSSTTTTTTTTOOOOOOOPPPPPPPPP!.

  • Head||

    Lefiti,

    Stop your intolerable snarky whining and propose an alternative that we can discuss, or kindly go eat a bag of dicks.

  • Lefiti||

    WWAAAAAAAAAAAAAAAHHH! Nobody likes me, everybody hates me!

  • Head||

    this tarp thing is terrible and getting worse by the second. Bald is on the tape changing all the rules. now they are going to buy credit cards loans. Lefiti should be happy since this is the antithesis of markets. Plain old government ownership. I'm sure they will do a better job.

  • ||

    I tried to listen to the Hammer, earlier. I tried, I really did. But his sonorous drone, and words devoid of meaning, defeated me.

    I have no idea what he plans to do. And I doubt he does, either.

  • JD||

    I suggest a new motto: "Moral Hazard: It's Not Just For the Private Sector!"

  • rhywun||

    now they are going to buy credit cards loans.



    Cool. I'm in the market for a new computer. I was thinking of putting it on my bank card but now I think I'll just put it on my credit card and forget about it.

  • thoreau||

    I keep trying to tell liberals that Detroit doesn't make the most fuel-efficient vehicle on the road, but rather Toyota, and they aren't impressed. Bailout it will be.

  • Buck Hardwood||

    All $750 billion (or more) should go directly into the FDIC to backstop depositors and let the sick banks die post haste.

    Trying to revive an insolvent bank is like giving aspirin to a heroin-addled HIV patient.

  • ||

    I was thinking of putting it on my bank card but now I think I'll just put it on my credit card and forget about it.

    Silly rhywun, you'll never see the benefits. You needed to be an irresponsible asshole from way back for that. You can't just start being an irresponsible asshole now.

  • ||

    I keep trying to tell liberals that Detroit doesn't make the most fuel-efficient vehicle on the road, but rather Toyota, and they aren't impressed. Bailout it will be.

    It's about the (union) jobs in the rust belt, thoreau. It's the only thing they have an interest in to preserve.

    I rented a Chrysler (Dodge Calibur SXT!!!) this weekend and it was the biggest P.O.S. I've ever driven. I thought to myself all the things that I would have done differently with it, and then shrugged it off as "oh well, not my company." But then I got this sinking feeling that soon it will be.

  • egosumabbas||

    "Ho-hum. We all knew this was coming. Does anybody wonder what Henry M. Paulson, Jr. is going to be doing after Jan 20, 2009?"

    Sleeping on a big pile of money surrounded by beautiful women?

  • ||

    What a fool I am.

    I had a minor stroke this week when I realized I wouldn't be able to clear my credit card balance this month. For the first time in years.

  • ||

    Detroit doesn't make the most fuel-efficient vehicle on the road,

    but with the help and guidance of the Congress of the United States, they soon will.

  • ||

    The Libertarian Party has failed. It needs a bailout.

    Lefiti is always talking about the religion that libertarians make of the market. First, I think that's largely a mistaken perception, but, more importantly, it's people like him who seem to make a religion of government's beneficence. Given the many, many tons of evidence to the contrary, not only is this zeal misplaced, it demonstrates the inherent weakness in operating on faith: Evidence to the contrary will always be rejected.

    My libertarian outlook comes from seeing how government fails from a utilitarian perspective and how government is unduly influenced by political, not practical, concerns. There's also a strong moral argument against the arbitrary use of force to make people behave the way you want them to, but that's a topic for another day.

    I actually believe that there is a gray area about how much government regulation we need and what role the government should play in the marketplace, but my point and that of many libertarians is that that gray area is way, way south of where we sit today. That's why the meme about "deregulation" causing the credit crunch is such absolutely inane nonsense.

  • ||

    Since the firepower consists of over $1T, that leaves plenty of room for the odd eleven-figure bailout of the auto industry or whoever else elbows their way to the trough.

    Every time I think that there is no possible way I could hate Pelosi any more, she goes and surprises me.

    While Pelosi, a California Democrat, didn't cite GM by name in her statement endorsing a bailout, she said an automaker collapse would have a ``devastating impact on our economy.''

    No, you stupid weeping sore, it would be devastating for GM! It's investors are already screwed and its workers have earned more through not working then I have by working! And it's fucking Chapter 11! It's their creditors who are truly devastated getting $.30 on the dollar! Someone give this necrotic rot of a woman a fucking dictionary!

  • ||

    That's why the meme about "deregulation" causing the credit crunch is such absolutely inane nonsense.

    But, it's a 5 syllable word that most anyone can pronounce and needs no explanation. Just winks and nods and disapproving looks combined with how they will fix everything that "someone else" screwed up.

    Libertarians are the new Jews. Everything is our fault.

  • Mike M.||

    Does anybody wonder what Henry M. Paulson, Jr. is going to be doing after Jan 20, 2009?"

    Packing up shop and moving to Dubai, or wherever the exclusive New World Order fortress is going to be located?

  • ||

    Classic case of Mission Creep.
    Soon we'll be bailing out small businesses who are having trouble getting credit, "because of the financial crisis". And then people will start scamming the system.

    Here comes the next Great Depression.

  • Hogan||

    when he's not sleeping on a big pile of women surrounded by beautiful money

  • ||

    And then people will start scamming the system.

    I think the scamming started when the bailout money started being used for acquisitions, not lending.

    IOW, on day one.

  • T||

    For one, it is far less likely to result in abuse and favoratism since it is more obvious who is getting what from the government.

    Except that there is absolutely no transparency in the process. Bloomberg News is suing the gummint so we can at least see who's getting the money under what terms. Aside from that little detail about the government not wanting to tell, sure.

  • ||

    RC Dean: Well, yes. The entire thing is a big scam.
    But I mean it will creep down from world-historical scam level to petty criminal scam level.

  • Ebeneezer Scrooge||

    If we could only dump the world-historical parts, and keep it down at the petty criminal level, it'd probably be sooo much cheaper.

  • economist||

    "Libertarians are the near Jews"
    I'm a Jew, a lonely Jew,
    I can't be merry,
    'cause I'm Hebrew
    On Christmas.

    Note: I am not actually Jewish, but I can't get "libertarian" and "election day" to fit into this tune.

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