One Trillion Dollars!
David Weigel | September 19, 2008, 10:47am
The bailout of the banking industry--which seems to be calming traders--could cost you $1,000,000,000,000. Yes, that's the right number of zeros.
Congressional leaders said after meeting Thursday evening with Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke that as much as $1 trillion could be needed to avoid an imminent meltdown of the U.S. financial system.
Paulson announced plans Friday morning for a "bold approach" that will cost hundreds of billions of dollars. At a news conference at Treasury headquarters, he called for a "temporary asset relief program" to take bad mortgages off the books of the nation's financial institutions. Congressional leaders had left Washington on Friday, but Paulson planned to confer with them over the weekend.
"We're talking hundreds of billions," Paulson told reporters. "This needs to be big enough to make a real difference and get to the heart of the problem."
Makes sense. AIG had a trillion dollars in assets before this week. But if this was a serious country, wouldn't this prompt Obama and McCain to stop talking about how they're going to spend more of our money? All we hear from this is some babbling about firing Chris Cox and blaming the other guy for having the wrong advisors. Oh, and insisting they were right all along.
Earlier this year, a lot of people noticed that an election between a non-white Democrat who upset the frontrunner and an old moderate Republican mirrored the final election in the TV series The West Wing. In the episode "The Cold," President Jed Bartlet summons Democrat Matt Santos and Republican Arnold Vinick into the Oval Office to inform that that he's going to be spending a (paltry-sounding) $70 billion on a defensive war in Kazakhstan.
VINICK
What's this going to cost?
BARTLET
It depends on how long we stay.
SANTOS
It doesn't matter. The first 100 days in office are the most productive of the whole term and there's no way we can extricate ourselves from from something like this in three months. It's not about the money. You're blowing any political capital we might have by forcing us to fight a war.
VINICK
Do we have an estimate?
BARTLET
First twelve months: 70 billion.
VINICK
I can say goodbye to my tax cut. Your education plan is certainly off the table.
Ah, fiction.
newsandverse | September 19, 2008, 11:13am | #
BAILOUTS TO FAILOUTS: A NEWS AND VERSE EXTRA
A guide to contemporary use
BAILOUT=Rescue, by government, of important economic entity
AILOUT=Rescue of healthcare industry
ALEOUT=Rescue of Bennigan's
BALEOUT=Rescue of Columbian or Jamaican economy (see also: cotton, hay)
BRAILLEOUT=Rescue you can't see coming
DALEOUT=Rescue of NASCAR (see also: Roy Rogers)
FLAILOUT=Rescue by FEMA
FRAILOUT=Rescue of an elderly presidential candidate
GALEOUT=Rescue of Jim Cantore (see also: HAILOUT)
GRAILOUT=Rescue of Michael Palin (see also: Monty Python, Indiana Jones)
NAILOUT=Rescue of construction firm (see also: Asian salon, Press-on)
MALEOUT=Rescue of sexist political candidate
MAILOUT=Rescue by white, powdery substance (see also: FBI)
EMAILOUT=Rescue of Gov. Palin's Yahoo! account
BLACKMAILOUT=Rescue by extortion
BLACKMALEOUT=Rescue by Dem. Presidential candidate
PAILOUT=Rescue by trickle-down economics
PALEOUT=Rescue by goth
QUAYLEOUT=Rescue of any unqualified Vice-presidential candidate
SALEOUT=Rescue of pandering political campaign
SCALEOUT=Rescue of Weight Watchers (see also: America's Biggest Loser)
SHALEOUT=Rescue of oil company (see also: Gulf of Mexico, ANWR)
SNAILOUT=Any rescue involving US Postal Service
STALEOUT=Rescue of lipstick jokes (see also: Pigs, Pit Bulls, Estee Lauder)
VEILOUT=Rescue at the altar
VAILOUT=Rescue of anyone who pays $100+ to fall down a mountain
SURVEILOUT=###REDACTED BY HOMELAND SECURITY###
ZALEOUT=Rescue of cheap wedding rings
FAILOUT=Destiny of most bailouts
www.newsandverse.com
...ripped from the headlines
joe | September 19, 2008, 1:17pm | #
robc,
But, from looking around, it seems the places with the strictest controls had the hardest falls when they finally came.
I'm not sure what you're talking about. Here in the states, the strictly-regulated banks are doing a lot better than the non-banks in this crisis. The stricty-regulated stock market recovered from the tech bubble collapse and didn't send the financial system into meltdown.
Did the change in regulations have an effect? Sure, along with the things you deny too, like Fed fucking around with interest rates. The Fed fucking around with interest rates may or may not have contributed to a housing bubble, but that's irrelevant to the question. The question is, why did this collapsing bubble turn into a series of cascadign collapsed across the economic system, when no other popping bubble did that for 80 years? The answer to that question is found in the shady mortgage-backed securities, the shady loans that preceded them, and shady credit-default swaps. All the Fed's monetarism did is make it more profitable to invest. You might as well blame the economic growth fostered by the internet, then. The point is, not everything people do to make money during an economic boom is equal. Some things, like building up a tower of debt backed by junk that's going to vanish on the off chance real estate prices don't rise forever, are really dangerous.
I certainly hope you're not "looking around" at, say, Cuba, as if a meaningful parallel exists between communism and the regulation of financial markets. That would just be silly.
BTW, your argument on the Fed, only accepting the good Fed policies and not the bad is a form of the "if we only elected the right people argument". No, it's not, any more than your argument that the government should move in a more libertarian direction, which I can just as accurately describe as "If only we elected the right LIBERTARIAN people." This isn't about people, it's about policies.
But what have a been pushing? Letting people fail hard. I can respect the argument that we should try to get to a place where the economy works as you describe; disagree, but still respect. However, what's going on outside our windows isn't the "letting people fail hard" that you want to see.
In the forest-fire metaphor, doing nothing about this situation is the equivalent of letting megafires grow and grow, because you don't like the fire-suppression regime that made them happen. They aren't natural fires, and they aren't going to have the same consquences of natural fires if allowed to burn unimpeded; what they're going to do is wiope out the ecosystem and the human settlements that you want to ultimately make safer. The way you get back to that system is to selectively clear during appropriate times, until the forest is back to something like a natural state, and THEN let natural forest fires burn.
Paul | September 19, 2008, 2:00pm | #
There are always going to be boy-geniuses who come up with an innovative "product line."
Exactly. Which is why the risk MUST BE LEFT WITH THE GODDAMNED INVESTORS AND BANKS, AND NOT WITH THE TAXPAYERS!
WHEN BANKS KNOW THEY'RE GOING TO GET BAILED OUT, THEY WILL CONTINUE TO PRODUCE COMPLEX FINANCIAL INSTRUMENTS WHICH OUTPACE REGULATION.
That's how this fucking thing works. Stop. Stop it. Just fucking stop!!!!!!!!!
The instruments are meant to be complicated. That way investors and regulators get bogged down in the rules, and look past the obvious: Debt is expanding to 35 times assets. Everyone seems to know
now that debt is 35 x assets. But they're so busy looking at the rules of the instruments and dealing with regulations, that they miss this blatantly obvious fact. Enron did the exact same thing. It created complex instruments which overwhelmed the traditional profit centers which resulted in a collapse.
A ponzi scheme is still a ponzi scheme, no matter how many sciency, financial-y sounding terms you stick on it. Ponzi schemes are illegal, we're done regulating. Now go outside and play, the government will not be providing any band-aids. Jail sentences are long. Have fun.
But this time, for sure, pinkie promise, MORE Sarbanes-Oxley-like regulation will fix this. We just didn't go far enough. Just not quite far enough.
Stupid bastards and religious freaks, there's no shortage.
joe | September 19, 2008, 2:24pm | #
Billy Beck,
Panic of 1819 1819–1824: The first major financial crisis in the United States featured widespread foreclosures, bank failures, unemployment, and a slump in agriculture and manufacturing
Panic of 1837 1837–1843: A sharp downturn in the American economy was caused by bank failures and lack of confidence in the paper currency. Speculation markets were greatly affected when American banks stopped payment in specie (gold and silver coinage).
Panic of 1857 1857–1860 of the Ohio Life Insurance and Trust Company burst a European speculative bubble in United States railroads and caused a loss of confidence in American banks. Over 5,000 businesses failed within the first year of the Panic, and unemployment was accompanied by protest meetings in urban areas.
Panic of 1873 1873–1879: Economic problems in Europe prompted the failure of the Jay Cooke & Company, the largest bank in the United States, which bursted the post-Civil War speculative bubble.
Panic of 1893 1893–1896: Failure of the United States Reading Railroad and withdrawal of European investment lead to a stock market and banking collapse. This Panic was also precipitated in part by a run on the gold supply.
Panic of 1907 1907–1908: A run on Knickerbocker Trust Company stock on October 22, 1907 set events in motion that would later lead to the Great Depression in the United States
Great Depression 1929–1939: Stock markets crashed worldwide, and a banking collapse took place in the United States.
Seven depressionis, 110 years. That works out to one every 15.7 years.
You got me; I underestimated how frequently cascading financial-sector failures sent our country into depression before the New Deal. Thanks for asking.
Fluffy | September 19, 2008, 2:50pm | #
Damn straight no one was contemplating them...at least, no one in a position to do anything about it, because the regulatory agencies were captured by people with an ideological aversion to the jobs to oversight, and even if someone did try to get ahead of the curve, their bosses and Congress stymied them.
No one was in a position to do anything about it.
Joe, this entire argument started because I claimed the debacle was the result of monetary and fiscal policy, and you claimed it was the result of deregulation.
You have yet to describe what regulation was removed that would have prevented the problem.
The closest you've come is to talk about the repeal of certain elements of Glass-Steagall. The 1999 reform of Glass Steagal allowed investment banks, commercial banks, and financial services companies like insurers to merge. The major example of a post-Glass-Steagall enterprise is Citigroup. Lehman, Bear Stearns, Fannie and Freddie, etc., are NOT examples of post-Glass-Steagall organizations.
When the behavior that was deregulated isn't the behavior that led to the crisis, and the behavior that did lead to the crisis is behavior that was permitted by regulation both before and after the reform of Glass-Steagall, I do not see how you can continue to assert that deregulation caused the crisis. It's an empty Atriotic talking point and nothing more.
It would not have mattered what personnel were occupying the regulatory bodies we currently have in place, Joe. Have you ever been through a banking audit? I have. Prior to 2006 the regulators would come in looking for several things: consumer protection errors and omissions [things like failing to make the proper disclosures]; non-arm's-length transactions [things like excessive lending to relatives or business associates of directors]; non-performing loans not being properly disclosed; failure to comply with HMDA and CRA regulations; things like that.
You know what they weren't doing? Looking at performing loans to tell you why you shouldn't have made those performing loans.
This means that if macroeconomic conditions were stimulated by government in a way that temporarily made shitty loans perform very well and look like investment-grade or near-investment-grade loans, nobody was going to see it and no regulator was going to be able to stop it.
That to me pretty much demonstrates that if we're looking for a bad actor in this crisis, we can't look at the regulators, and we can't look at the deregulators. We have to look at the people who created the macroeconomic conditions that made the system run wild. And who might those persons have been, joe?
BTW, just as an aside, comparing the Panics of the 19th century with the Great Depression, the S&L failure, or our current situation is really inappropriate. The Panics were minor league compared to what we've experienced in the last 100 years, during the Fed era. The Panics, at least in the US, were historically noteworthy only because they seemed extreme at the time; in terms of their actual economic impact for wealth destruction and the like, they were modest by the standards of the last 18 months.
Paul | September 19, 2008, 4:16pm | #
The business cycle will always be with us, but depressions need not.
?!! You're a brave man, joe. A reckelssly brave man. You do understand that there are differences between a burgeoning industrial economy, and a sophisticated, complex and diverse service based economy, right? Depressions probably will happen, but may be relegated to limited sectors, or mitigated by global economic activity. Even then, we might just get stung by a global depression. And why worry? We'll get bailed out... RIGHT? And besides, we're going to have all these new regulations, so really, we've
beat the business cycle.
Yep, another example of a financial crisis in an unregulated fiancial sector, which led to a bailout. That'll happen when there' isn't sufficient oversight in the financial sector. That'll happen.
So we're back in agreement. No matter how much you try to regulate, another sector, somewhere, pops up that's not regulated. And these 'unregulated' sectors are popping up at an increasing rate. Savings and Loan scandal. Enron. Sub-prime mortgage industry. And we also agree that when an island of non-regulated sectors do appear, that a bailout is imminent.
NPR did a segment the other day reporting that some of the failing financial firms which fall into the slightly-too-small-to-bail-out category are thinking of merging together, so they can form a too-big-enough-to-fail enterprise. These guys are BANKING on bailouts. And guess what, the very people in the middle of this mess will be the ones calling for regulation.
I hear yet another report of the financial sector where one analyst said that these financial instruments were so complicated, that even the CEO's and fund managers didn't fully understand them. If that isn't the very definition of risk, then I don't know what is.
Regulators were asleep at the switch. OF COURSE THEY WERE. And they will be again when super-genius quiz-boy invents a new and fantastically never-before-seen debt instrument (unregulated, natch) and causes another economic blowout. But don't worry, it's just a matter of maintenance, right? You know, like street sweeping. Keep adjusting the regs, making new ones etc. You don't "solve" the trash problem by regulating garbage disposal...
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