Economics

Henry Paulson, Regent Dictator

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Sigh:

The Bush administration asked Congress for unchecked power to buy $700 billion in bad mortgage investments from U.S. financial companies in what would be an unprecedented government intrusion into the markets.

The plan, designed by Treasury Secretary Henry Paulson, is aimed at averting a credit freeze that would bring the financial system and economic growth to a standstill. The bill would bar courts from reviewing actions taken under its authority….

As congressional aides and officials scrutinized the proposal, the Treasury late today clarified the types of assets it would purchase. Paulson would have authority to buy home loans, mortgage-backed securities, commercial mortgage-related assets and, after consultation with the Federal Reserve chairman, "other assets, as deemed necessary to effectively stabilize financial markets," the Treasury said in a statement….

The plan would raise the ceiling on the national debt and spend as much as the combined annual budgets of the Departments of Defense, Education and Health and Human Services.

Let me quote that last part again:

the combined annual budgets of the Departments of Defense, Education and Health and Human Services

From the occupation of New Orleans after Katrina to the financial socialism-for-the-rich we're seeing right now, the Bush Republicans' instincts in a crisis have always been to seize more power. And then—just wait!—to demonstrate how enormously unsuited they are to wield it.

And the Democrats, those alleged alternatives? Maybe it's their innate affection for economic intervention, maybe it's just the same spinelessness they've brought to issues ranging from FISA to Iraq, but they don't seem to be objecting to the Paulson plan. ("The consequences of inaction could be catastrophic," says Harry Reid, according to the Bloomberg report I quoted above. The consequences of really stupid actions must not be up for discussion.*) McCain's position on these issues keeps evolving; I expect that at some point next week he'll call for parading short sellers through the streets in dunce caps.

I'll exit with some cheery thoughts from Glenn Greenwald:

Haven't we heard all these years that national health care was an extremely risky and dangerous undertaking because of what happens when the Federal Government gets too involved in an industry? What happened in the last month dwarfs all of that by many magnitudes.

The Treasury Secretary is dictating to these companies how they should be run and who should run them. The Federal Government now controls what were—up until last month—vast private assets. These are extreme—truly radical—changes to how our society functions. Does anyone have any disagreement with any of it or is anyone alarmed by what the consequences are—not the economic consequences but the consequences of so radically changing how things function so fundamentally and so quickly?

Other countries are debating it. The headline in the largest Brazilian newspaper this week was: "Capitalist Socialism??" and articles all week have questioned—with alarm—whether what the U.S. Government did has just radically and permanently altered the world economic system and ushered in some perverse form of "socialism" where industries are nationalized and massive debt imposed on workers in order to protect the wealthiest. If Latin America is shocked at the degree of nationalization and government-mandated transfer of wealth, that is a pretty compelling reflection of how extreme—unprecedented—it all is.

* Maybe he's expecting a bailout.

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  1. I think the real tragedy is that we don’t already realize how socialized we already are. GSEs and government agencies have long had their hands in the majority of mortgages. And that’s not to mention the tremendous influence that local and state governments have on land use decisions that are ultimately more important than what sort of rate you get on your home loan. $700 billion might be easier to quantify than something like the financial effects of minimum parking requirements, but that doesn’t make it more pernicious.

  2. The Illuminati win.

  3. My investment advice to libertarians is to invest in guns and ammo.

  4. Bob Barr needs to get more aggressive with the media and market himself much more forcefully as the candidate opposed to all this nonsense. A good many Americans, not just libertarians find this thing as getting way too far beyond the zone of comfort. I think as long as McCain and Obama stay on the regulation first track, Barr can make a stronger than ever case for why this stuff is bad, puts small businesses out of business and makes corporations bigger and less responsible.

  5. Jesse (and especially Glenn Grunwald) may be overly gloomy about what’s being done. At the bottom of panics, policymakers scramble to prevent a meltdown. The commercial paper market almost froze last Thursday and Friday, which would have resulted in a 1933-style shutdown of the financial system and waves of bankruptcies, so Paulson naturally pushed for a “give me the authority now and I’ll figure out what to do with it” mandate. He has shown every sign of being willing to consult and revise as things go along, and he is not a “Brownie-heckuva-job” kind of guy who lacks financial expertise.

    This hasn’t completely been socialism for the rich, either, although until Lehman collapsed, it was socialism for the creditors of financial institutions. (Equity holders have been consistently taking huge hits in these bailouts.) Many of the creditors are, in fact, financial intermediaries (mutual funds, pension funds, even sovereign wealth funds) who are agents for small fry.

    While the maximum authorization sought is massive — “the combined annual budgets of the Departments of Defense, Education and Health and Human Services” — this is not pure spending. It’s for the acquisition of distressed securities (hopefully at a steep discount) that will be gradually sold off at non-distressed prices, so over a period of years the net cost should be considerably less.

  6. I’m expecting that the next time we see George W Bush and Hank Paulson at a news conference one of them will be wearing the Matthew Lesko question mark suit.

    “The plan would raise the ceiling on the national debt and spend as much as the combined annual budgets of the Departments of Defense, Education and Health and Human Services.”

    I guess the old aphorism that “A billion here, a billion there and pretty soon you’re talking about serious money” needs to adjusted, for inflation purposes” to “a trillion here” which is what this whole mess is going to end up being.

  7. The bill would bar courts from reviewing actions taken under its authority….

    That’s my favorite part. You can guess why.

  8. Professor Weiser makes an interesting point. These bailouts are ultimately for the poor and middle class. The banks are merely intermediaries. They receive the government largesse, but what this really means is they won’t have to foreclose on as many homes as they otherwise would have. None of this makes me feel any better about what’s being done, but it’s important to realize this isn’t merely a handout to Wall St.

  9. It’s not a handout to the poor and middle class who would stand to benefit from housing prices dropping from the currently insane levels.

  10. I’m not an economist. I don’t pretend to be an economist. I don’t play on TV, radio or film. If economists want to tell me this is a justified measure to stem the tide of bad debt panic, fine. However, that this step, which goes against my free market principles, has become necessary, something is terribly wrong and if I’m not mistaken…I’m paying for it. By the very assumption that credit markets would freeze if this wasn’t done makes me think that somehow, credit structures need a tremendous overhaul. I don’t see anybody in the Bush administration crying out for reform. All I see from my vantage point on the street is promises of printing vast amounts of money if the people holding all the assets would just calm down and step back from the ledge. We’re being held hostage by the creditors. How is this good for the economy?

  11. There are some truly disturbing parts of that proposal, such as:

    —-
    (a) Authority to Purchase.–The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.

    (b) Necessary Actions.–The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation:

    (1) appointing such employees as may be required to carry out the authorities in this Act and defining their duties;

    (2) entering into contracts, including contracts for services authorized by section 3109 of title 5, United States Code, without regard to any other provision of law regarding public contracts;

    (3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;

    (4) establishing vehicles that are authorized, subject to supervision by the Secretary, to purchase mortgage-related assets and issue obligations; and

    (5) issuing such regulations and other guidance as may be necessary or appropriate to define terms or carry out the authorities of this Act.
    —–

    So Mr Paulson will be able to purchase any asset he deems necessary, issue any regulation that he deems necessary, write any contract that he deems necessary, and can even appoint financial institutions to act as government agents, to act on whatever plan he deems necessary.

    And Congress also shuts down any review by the courts, and only asks the Secretary to report every 6 months, over the 2 year duration of the “emergency”.

    This is the shock doctrine all over again, and needs to be opposed by everyone who cares about our democracy and the separation of powers.

  12. That’s my favorite part. You can guess why.

    OTOH, if a court is asked to review the law, they will in turn have to review the section that says they may not review the law in order to determine that they, as a matter of law, may not review the law.

    At which point, there will be a subspace fracture.

    Take that, subspace!

  13. Fuck….

    just… fuck….

    The small fry won’t be protected. Oh, on paper, the value of their 401K’s may be preserved. But good luck buying anything much after the prices of everything else rises as a result of the inflation used to finance the government spending.

    Additionally, the money spent to keep these prices artifically high will mean less money available for actual investment. So goodbye growing economy.

    Bastards. My great-grandfather died from a broken heart as a result of the great depression. I really don’t wish to experience a simmilar decade(s) of privation. But I guess I’ll get to go through it.

  14. These bailouts are ultimately for the poor and middle class.

    And the poor and middle classes would not be hurt by a massive increase in government debt?

    … won’t have to foreclose on as many homes as they otherwise would have.

    Default rates were a cause of the current situation. It will be harder for new borrowers to obtain a mortgage, but please explain why the rate of foreclosures on existing borrowers would increase, by any effect other than general weakening of the economy? And won’t government debt weaken the economy?

  15. The Economist noted toward Thursday or so that even with all the bailout action thus far, no deleveraging is evident.

    I was living in Tokyo during the boom and early attempts at zombie economics.

    We need to keep our eyes on the ball. Will the market be free to discover prices for assets?

    Bailing out fat cats, defrauded homebuyers, Miami condo-flippers or what have you is chump change compared to the real issue at hand.

    I prefer to see the mortgage industry have the rug yanked out from underneath it by fiat — the holder has the right to renegotiate if property value declines — than granting someone the unchecked power to buy any paper whatsoever with taxpayer money.

    What is a real bottom-up solution to this mess? It started with individual mortgages. Shouldn’t the solution?

    Announcing now a six-month horizon during which price discovery is restricted on the downside by say 10% per month (like stock drops per day are limited) would give participants a chance to close out/renegotiate their positions.

    BTW no predatory fees on renegotiating mortgages. Fees subsidized maybe, at the lender’s true cost.

    We’ll end up with another Patriot Act, this one maybe the True Patriot No Relative Morality Socialize The Losses

  16. “And the poor and middle classes would not be hurt by a massive increase in government debt?”

    Not if the assets are sold off at a profit, which they might be.

  17. No worries, the Democrats controlling Congress won’t OK such a massive expansion of socialism.

    BWAH HA HA!

    Sorry, I couldn’t keep a poker face with that one.

    FWIW, I expect most of the Republicans to roll over and play dead too.

  18. (oops) We’ll end up with another Patriot Act, this one maybe the True Patriot No Relative Morality Socialize The Losses War Without End Homeland Flag Lapel Act.

  19. The plan is an attempt to keep the balance of power and wealth relatively static.
    Laissez-faire and creative destruction will recognize it’s own.

  20. Whoo Hoo way to go there Dictator Bush! You da Man yo!

    Jiffy
    http://www.anonymize.us.tc

  21. This is 9-11 all over again. Use a crisis to grab power. Democrats are useless as usual.

    There are two possible outcomes, both bad. Either the bailout fails, or it succeeds. Success means that the markets will come to expect similar bailouts in the future. That means future bailouts will be both more expensive and harder to resist.

    This is a total unmitigated disaster for anyone who cares about freedom.

  22. This really sucks. I was planning on using that $700 billion on the next war.

  23. “They receive the government largesse, but what this really means is they won’t have to foreclose on as many homes as they otherwise would have.”

    Many of those buying houses on the cheap were speculators. Another group was people buying large houses they couldn’t afford. I heard numerous stories of people buying 500k and 2 million dollar houses who are facing foreclosure. Those are not poor people. As a responsible renter, I am not going to eat their losses.

  24. So wait… the core problem is bad loans. This has been going on for at least 5 years and the government couldn’t see it. But then, in one week they not only figured out the problem but came up with a solution?

    And we aren’t allowed to know exactly what the horrible consequences of letting the market run it course would be like, so we can’t even debate if their analysis is correct. We just have to believe the government (who barely grasped the problem)?

    Oh, but don’t worry, we might make a profit. Yes, the assets are actually worth more than anyone realizes…that’s why they can’t be sold today.

  25. Not if the assets are sold off at a profit, which they might be.

    Oh, they’re going to sell the assets off for a profit. I was worried there for a minute.

  26. Jesse, you ARE the man.

    To presume that Freddy, Fannie, or Ginny were ever any more nominally more private than the post office, Amtrak, or So Cal Edison is the first mistake.

    Not that GWB and company are less than completely incompetent meddling dog wee knees, but, to assume, as Gary North did, that the nationalization of Fannie and Freddy is the end of the free market in mortgages is disingenuous at best.

    The whole purpose of Fannie, Ginny, Freddy, FHA, and Va is to manipulate the mortgage market so as to provide us regular folk with the ability to have decent interest rates on thirty year terms so we can all enjoy the bennies of home ownership. Hardly a libertarian position. Drink if you will.

    Disclaimer: I am pretty much in the bag and therefore would like to say that I am not dissing Jesse. I am dissing Hank and his minions. I am apologizing to the blond chick I photographed at the Route 66 Extravaganza today (without her permission). The photo was blurred and she wasn’t that hot anyway. And, I’m pretty sure this whole bailout thing comes under the heading of: Wall Street Welfare Queens.

  27. If anything, anything at all…This affirms in STONE, that I will never ever even think about voting for a Republican or Democrat AGAIN! EVER! [Not that I was actually ever serious in the first place…but this burns it in…]. People, this is East German bullshit! We might as well dig Marx up to get some advice on how to “make this work in theory.” WOW!

  28. We really need to start asking questions about what is going on here with this 1 TRILLION dollar bailout of Wall Street, in addition to the government takeovers of Fannie Mae, Freddie Mac, and AIG. The Bush Administration is making massive changes to our political system with virtually no serious debate taking place. As usual, both Congress and the Media have let us down. They have not asked questions about the implications of this plan. They have not discussed alternatives to this unprecedented bailout. They have not asked the obvious question, “How will we pay for this?” Or, “How will this affect the future budget deficits?

    It is scary to imagine just to think about the how much the national debt is being increased by this program, in what is no less then a redistribution of wealth. We are giving money we do not have to group of elite corporations. The government is willing to risk our future prosperity in fixing a mess made by Wall Street. It should come as no surprise that these companies are some of the biggest donors to both political parties. We will have to be pay for this, just not today. Can anyone imagine the magnitude of future budget deficits as we pay interest to China? Was it not Americans overburdening themselves with debt that got us into this crisis? What will the future finical crisis look like when America is the one to default, instead of homeowners and investment bands?

    I could go on ad nauseam, but there is only one important question: “Why is there so little debate going on?”

  29. Not if the assets are sold off at a profit, which they might be.

    That is just too rich. If the assets were solvent in the first place there would be no underlying purpose for the bailouts.

    This is only the forth time by my account in the last twenty six years that the banksters have claimed there would be systemic collapse if there was no bailout. The Latin American debt crises of the early eighties, the S&L crises of the late eighties, the collapse of the peso in the nineties, and now this.

    The ‘system’ would not collapse Mr. Weiser if the chips were allowed to fall where they may. Instead, more soundly structured institutions would buy up assets at the point in time that the prices are made low enough to be worth their while, and whatever remained illiquid was never worth a warm bucket of piss in the first place.

  30. I still think freedom will prevail eventually. Wall St. has gone beyond the point of no return, but the need for a capitalistic stock market still exists. Every niche gets filled sooner or later. The only question is, what for will the new stock market take?

  31. “I could go on ad nauseam, but there is only one important question: “Why is there so little debate going on?”

    I think people here have identified the problems pretty well, I wish there was more open debate, including Ron Paul, but he only warned us that this was coming.

    Statement: “Something Big is Happening”

    9 July 2008

    Rep. Ron Paul, M.D.

    “Madam Speaker, I have, for the past 35 years, expressed my grave concern for the future of America . The course we have taken over the past century has threatened our liberties, security and prosperity. In spite of these long-held concerns, I have days–growing more frequent all the time–when I’m convinced the time is now upon us that some Big Events are about to occur. These fast-approaching events will not go unnoticed. They will affect all of us. They will not be limited to just some areas of our country. The world economy and political system will share in the chaos about to be unleashed….”

    Link:

    http://www.house.gov/paul/congrec/congrec2008/cr070908h.htm

  32. Something has to be done.

    This is something.

    And so we’re doing it.

    None of this makes me feel any better about what’s being done, but it’s important to realize this isn’t merely a handout to Wall St.

    Trickle down welfare? I’m going to remember that, and put it in my ammo belt. And I’ll use it when y’all least expect it.

  33. We might as well dig Marx up to get some advice on how to “make this work in theory.” WOW!

    Per this,it appears that even Karl doesn’t think it will work.

  34. None of this makes me feel any better about what’s being done, but it’s important to realize this isn’t merely a handout to Wall St.

    Yeah, yeah he did. And this is good why?

    He has shown every sign of being willing to consult and revise as things go along, and he is not a “Brownie-heckuva-job” kind of guy who lacks financial expertise.

    Oh whew, I know I feel better. He’s a good man, benevolent.

    Nation of laws, not nation of men and all that fits in here somewhere.

  35. You know at some point, joe, god love him, will make an argument about an ounce of regulation could have saved us a zillion pounds of socialism. And at this point, I would have to agree with him. The inevitability of the government creeping into every blasted last nook and cranny of freedom is going to happen, but if we throw them a bone occasionally, it may actually slow them down.

    Strangly, I now realize I was be happier with an expanding war on drugs. It seemed like a simpler, happier time.

  36. I am very surprised to see such an extensive and approving quotation from Glenn Greenwald. Mr Greenwald is a prolific contributor at Salon, a playground for the most moronic version of leftism, a person afflicted with a serious case of Bush Derangement Syndrome, an enthisuastic supporter of every politically correct BS that ever crosses his field of vision, a person who wrote this about Palin:

    “All these privacy fetishists and (to use Joe Klein’s term) “civil liberties extremists” screeching today over Sarah Palin’s “privacy” need to get some sense of proportion. If Sarah Palin has nothing to hide, if she’s not a Terrorist, why would she mind anyone going through her emails?”

    I mean, please. I escape to Reason and find Greenwald again?

  37. I’m not an economist but this isn’t making sense. If somebody here can actually explain to me what the hell is going on, I’d think you were great.

    This whole crisis has been brought on by bad mortgages? Or mortgages they’re afraid are almost bad? Or might possibly go bad a month from now?

    Sure we have higher than normal foreclosure rates. But it just doesn’t look to me like they’re high enough, to crash the core of the US financial system. It’s not like 25% of the houses in the continental US are about go into default. We’re talking maybe a few percent of all the houses nation wide.

    So how exactly do we have everybody in the financial sector on the ropes? And what exactly is Uncle Sam promising to do? Other than, whatever the hell the financial corporate behemoths want him to do?

    I’m really confused here. At its worst, the fraction of houses in default has never been more than a tiny percentage of the overall market. So why is that the market can’t just work itself out here?

    Yet I hear people blabbering about 1930’s style melt downs are imminent, or where, or could be soon. Or something like that.

    I have always found the obscurities of physics so much more tangible and sensible,than financial markets.

  38. HIS NAME IS HENRY PAULSON.

  39. Ebeneezer,

    It’s complicated, but here it is in a very simple nutshell:

    Many of these investment firms were involved directly in, or involved in injecting financing for complicated debt instruments mostly in the realm of sub-prime mortages.

    Over the years many of these companies had to borrow money to create the loans to mortgagees. Over time, their debt to asset ratio got way, way out of whack. The number I kept hearing on Friday was as much as 35:1.

    What this means is that company A had say, $1,000,000 in cash and assets, and $35,000,000 in debt.

    What caused the final meltdown to happen all of a sudden may be too complex for me to answer. But because of the somewhat incestous nature of all these companies investing in eachother, and the sheer complexity of the debt instruments* when one fell, the others fell soon after.

    *I heard these debt instruments described as so complex, that many of the corporate financiers had no complete idea how they really worked.

    It’s really no different than what was goin on in Enron, except that in Enron’s case, there was clear fraud. Enron was using a complex web of paper transactions to sort of create the appearance of wealth and propping it up by diverting cash from their legitimate profit centers. In the recent scandle, while time will tell how much fraud played any part**, it seems to be mostly hubris, greed and a belief that this complex ponzi scheme wouldn’t fail. These debt instruments required a continuous and expanding flow of cash input at the bottom to feed the expanding number of loans at the top. As the cash slowed down at the bottom, the system collapsed.

    **It will be interesting to see if any fraud comes of this. If there was fraud, then we had the regulations in place, they just weren’t enforced adequately.

    This wiki article actually isn’t that bad for a simple explanation.

  40. *scandal. It’s late, sue me.

  41. You’ll be hearing from my lawyer.

    Thanks, that sort of helps. Sort of. And there’s something about AIG has this huge pool of corporate insurance policies on the international scale, and somehow that made them special. So Uncle Sam had to save them.

    I think I’ll stick with physics.

  42. I think I’ll stick with physics.

    The government can’t intervene in physics. They do what they do. Beautiful in a way.

  43. I was just reading a little more on this. Maybe it sort of makes a little more sense.

    Like AIG holds half a billion in international insurance policies, and if they crash the policies are abandoned. Not good for the overall market. So maybe in some ways this bail out makes sense.

    And if I understand it, Uncle Sam stands to get at least some of his money back. Ideally even all of it, though that’s probably a long shot.

    But somehow it’s still about as clear as mud. And I still say, something in the T’s & Cs’ that corporations are allowed to function under, smells fundamentally rotten. But I’d probably have to go spend several more years studying it before I could get a real grip on the problem.

    Not that I’m against corporations per se. They have roles to play. But the way they work, they just aren’t rational actors the way individuals are (or at least can be). And that undermines the function of a free market.

    How corporations function, is a matter of how governments write the laws that they are allowed to operate under. Seems like there should be some way to force corporations to take at least a slightly longer term view of the world. But I don’t pretend to know how that would be done, and corporations are incredibly resistant to such ideas.

  44. The only place this money will come from is inflating the currency. At this point taxation is just about irrelevant. The money for the war, the money for the bailouts, the money for the tens of trillions of unfunded obligations like social security and medicaid can only come from counterfeiting.

    The only purpose to the IRS today is to harass and intimidate the people into submission.

    -jcr

  45. This whole crisis has been brought on by bad mortgages? Or mortgages they’re afraid are almost bad? Or might possibly go bad a month from now?

    No, the crisis has been brought on by massive inflation by the Federal Reserve, which was masked for many years by the willingness of foreign investors to buy dollar-denominated securities like treasury bills and mortgages.

    The inflation caused the housing bubble, because that’s where the newly-created fiat currency entered the market. Banks were able to write loans and immediately resell them, because two government-created companies, Fannie Mae and Freddie Mac, provided a market for mortgages that would otherwise have been very cumbersome to transfer.

    The upshot is that the incentives for prudence on the part of lenders was removed. Mortgages were issued and resold to buyers who were given (shall we say) overly optimistic assurances of the level of risk of default by the borrowers.

    -jcr

  46. This is only the forth time by my account in the last twenty six years that the banksters have claimed there would be systemic collapse if there was no bailout.

    Well, the truth is that if any of those bailouts hadn’t happened, there would have been serious repercussions, probably causing recessions like we had in the 1970s. The problem is that by bailing out the banksters, the government removed any consequences of fucking up, and each subsequent bailout became much larger.

    It’s been building up so long now, that the result is quite likely to be the total collapse of the dollar.

    -jcr

  47. the core problem is bad loans.

    No, the bad loans are an effect, not a cause. The cause is the Fed’s inflation.

    -jcr

  48. From The (“Without-Fear-or-Favor”) New York Times, candidate for Most Unbiased Headline of the Decade: A Professor and a Banker Bury Old Dogma on Markets.

  49. Thank you sir, may I have another?

  50. If somebody here can actually explain to me what the hell is going on, I’d think you were great.

    One key to understanding the situation is all the echoed claims that the entire economy is falling apart are an exaggeration. The financial and housing construction sectors of the U.S. economy are hurt, but other sectors, such as manufacturing are not directly affected.

    If you look at a broad index fund, like the S&P 500, you’ll see that even with recent losses the stock market has still grown in value over the last five years. Standard investing advice is to always look at stock investments over a five year or longer time frame, but TV and newspaper reporters always report on daily trends.

  51. Mike: Thank you sir, may I have another?

  52. It’s been building up so long now, that the result is quite likely to be the total collapse of the dollar.

    I don’t know about total collapse, but it would be smart not to have all one’s wealth sitting around in U.S. dollars. Or all your investments in U.S. corporate stocks and U.S. government securities.

  53. Does anyone else find it strange that a lot like the Patriot Act they had this legislation ready just a couple of days after the event? Just like the PA it gives the government sweeping unfettered powers.

  54. It’s about time someone stepped up and made the mortgage people run on time. Bennie is smiling away, somewhere in Socialist Heaven. Oh wait, everything changed after 9-11.

  55. It’s so funny when the chickens come home to roost.
    Everyone in Congress becomes a vegetarian.

  56. This story combined with the Sarah Palin ads I’m getting on the right side banners leads me to think I’m trapped in the film Idiocracy.

    Shut up.

  57. Does anyone else find it strange that…

    No, and the two situations aren’t close to comparable.

    One could have been written in two days by a room-full of lawyers hopped up on coke and coffee, the other could not.

    One was attempted before, the other was not.

    One was a very deliberate curbing of civil liberties, the other was a psychotic panicky overreaction to a financial crisis.

    They are not alike, except that they are both odious.

  58. The is just poetic justice. The US has been after countries left and right decrying nationalization of industries, government interference in the market. And when the US institution were at risk, the US does that.

    The next time I hear anyone complaining about OPEC, I’m going to hit him in the face.

  59. Eb, the debt to asset ratio skyrocketed partly because of an accounting rule called Mark to Market. Meaning you must value your assets at current market value and not what value you booked them at to begin with. When one fire sale goes off by a troubled bank, everyone else is supposed to reevaluate their assets and devalue them accordingly. The WSJ had an opinion piece on this yesterday.

  60. Barney Frank (Dem, MA, Chairman of House Banking Committee):

    No one in a democracy, unelected, should have $800 billion to spend as he sees fit.

    It’s called the Federal Reserve Act you dimwit congressman. You Democrats helped pass this particularly section.

  61. Regardless of what you think about the underlying issue of having a bailout, the lack of accountability and oversight in this package is mind-boggling.

  62. Jerry —

    Good job being ignorant. Barney Frank (like Ron Paul) opposes the Federal Reserve, and thinks it was the stupidest move EVAR!

    Learn who, exactly, your enemies are next time, before you open fire.

  63. Jerry, in all fairness to Barney Frank, I doubt he would have supported the Federal Reserve act were he alive when it was passed.

    All the guys who authored that odious piece of legislation are long dead, and mostly forgotten. Most people have no clue that the war between the J.P. Morgan keiretsu and the Chase keiretsu ever occurred.

  64. If the Federal Reserve Act allowed someone to spend $800 billion as he sees fit, why exactly does Congress need to pass this act to have a bailout?

    Oh, right. Because that doesn’t make any sense, Jerry.

  65. Jay Weiser, Assoc. Prof. of Law & RE, Baruch College | September 20, 2008, 11:49pm | #
    Jesse (and especially Glenn Grunwald) may be overly gloomy about what’s being done. At the bottom of panics, policymakers scramble to prevent a meltdown.

    Jay, thank you for putting your credentials upfront in your post. It is comforting to know that you wield such authority, and so we should give your socialist apologies more credence than commentary from us unwashed masses. We appreciate arguing from authority here at H&R — nay, we revel in it, and defer to it.

    Just two small revisions in your erudite analysis:

    At the bottom of panics, policymakers statists scramble to prevent a meltdown seize unconstitutional powers that would provoke an uproar if presented as the naked, arrogant, unconscionable power grab that actually occurred.

  66. It’s Peanut Butter Jerry time!

  67. Taktix? | September 21, 2008, 8:34am | #
    This story combined with the Sarah Palin ads I’m getting on the right side banners leads me to think I’m trapped in the film Idiocracy.

    Shut up.

    man, yooo trippin, june!

    now shaddap, cuz i’m watchin OW! MY BALLS!

    🙂

  68. At the bottom of panics, statists scramble to seize unconstitutional powers that would provoke an uproar not disturb the average American citizen one bit if presented as the naked, arrogant, unconscionable power grab that actually occurred.

    Just one little tweak, prolefeed, and you’re there. 😉

  69. joe,

    If the Federal Reserve Act allowed someone to spend $800 billion as he sees fit, why exactly does Congress need to pass this act to have a bailout?

    Because the Federal Reserve is bumping up against the limits of their balance sheet with what they have done already.

  70. You know at some point, joe, god love him, will make an argument about an ounce of regulation could have saved us a zillion pounds of socialism. And at this point, I would have to agree with him. The inevitability of the government creeping into every blasted last nook and cranny of freedom is going to happen, but if we throw them a bone occasionally, it may actually slow them down.

    Regulations do not prevent the consequences of prior government interventions in the marketplace from eventually manifesting themselves. Regulations do not prevent people from getting greedy in an up market and making lots of really, really bad deals that go sour when the market suffers a downturn.

    If we throw them a bone occasionally, they will demand more and bigger bones more frequently. The only sane approach is to vigorously resist all encroachments on freedom, wherever they occur. Anything else is a case of Stockholm Syndrome writ large.

  71. joe, the act was passed a long time ago. But only now Democrats have become worried about its content. That reeks of political opportunism.

  72. Jerry —

    Again, do your research. Barney Frank has been vocal on the Fed for many, many years.

  73. prolefeed —

    Regulations are not a fungible item; not all regulations are the same. Some cause distortions, while others properly price externalities. Some cause power to concentrate, while others mitigate the tendency for corruption.

  74. At the bottom of panics, statists scramble to seize unconstitutional powers that would provoke an uproar not disturb the average American citizen one bit if presented as the naked, arrogant, unconscionable power grab that actually occurred.

    Just one little tweak, prolefeed, and you’re there. 😉

    Agreed, LMNOP, if your point is that the average American doesn’t have the economic literacy to figure out on their own that something like this is bad news. Except that if something like this was done during a non-panic, it couldn’t be justified as a temporary measure for the duration of the emergency, and some of those average citizens would look a bit puzzled and wonder if maybe something was wrong because all those smart people over there are getting upset.

    Just like the average citizen doesn’t fully appreciate what a huge move toward the police state the creation of the TSA and warrantless wiretapping and whatnot were, but if those were sprung on us out of the blue on Sept. 1st a few years back, rather than after the airplanes hit the towers, the resultant furor would have caused a WTF moment for said average citizens.

  75. Regulations are not a fungible item; not all regulations are the same. Some cause distortions, while others properly price externalities. Some cause power to concentrate, while others mitigate the tendency for corruption.

    LMNOP — regulations / laws that aim to prevent fraud, theft, uncompensated pollution and other unlibertarian encroachments are one thing. But, 90% or more of the regulations and laws on the books are not about preserving freedom FROM such encroachments, but in fact ARE such encroachments.

    Phrasing it the way you did, while arguably technically true (unless you’re more hardcore anarcho-capitalist than I am), made government intrusions seem far more even-handed than they actually almost always are. Almost everything government does is malignant, and the few things that it does that are laudable from a miniarchist perspective are used to excuse the other 90% plus.

  76. prolefeed —

    I think you severely overestimate the WTF capacity of the citizenry. Sure, most of this stuff comes as by boiling a frog (cf. drug war), but there have historically been many severe curtailments of civil liberties that passed without significant or highly organized resistance. Sure a citizen may grumble, but that’s about it, and that’s compliance by any other name.

  77. Let’s see if Frank will support the $700 billion plan then when it comes up on the House floor.

  78. Phrasing it the way you did, while arguably technically true (unless you’re more hardcore anarcho-capitalist than I am), made government intrusions seem far more even-handed than they actually almost always are. Almost everything government does is malignant, and the few things that it does that are laudable from a miniarchist perspective are used to excuse the other 90% plus.

    I couldn’t agree more. I just occasionally get fed up with the religiosity of the anti-regulation crowd. Sweeping generalizations may be useful in packaging an ideology to sell to people who for whatever reason have never studied economics or politics, but in a reasoned conversation about a specific issue with genuine nuance it is far less helpful.

    If 90% of regulatory action is odious, I think it is an important thing to separate the 90% out for what it is, rather than make the easier (albeit inartful, to say nothing of untrue) claim that 100% of regulation is bad and be called out later for the fudge factor.

  79. Jerry,

    Barney Frank, despite being the man, is somewhat a statist when it comes to taxes. That said, he loathes the federal reserve.

    Honestly, there are few people in congress you could pick that would be a worse choice to make your point.

  80. As a brief example, for your information:

    Frank has also been a critic of aspects of the Federal Reserve system, partnering with some Republicans in this opposition. Frank says that he and Republican Congressman Ron Paul “first bonded because we were both conspicuous nonworshipers at the Temple of the Fed and of the High Priest [Alan] Greenspan.”

  81. I just sent a note to Diane Feinstein and Barbara Boxer, my illustrious Senators who’ve generally been on the wrong side of every issue that crosses their desks, and told them that if they vote to hand a wall street banker a 3/4 trillion dollar blank check, it will be the nadir of their careers.

    -jcr

  82. The financial and housing construction sectors of the U.S. economy are hurt, but other sectors, such as manufacturing are not directly affected.

    Your statement is missing the key word: yet.

    Basically, the exposure to the bad mortgages is making banks scramble to cover their obligations, which means that credit becomes restricted and more expensive for any other business. This will eventually drive up the inventory carrying costs, the equipment leasing costs, the receivables factoring costs, and every other activity that businesses do through their lines of credit.

    -jcr

  83. I don’t get the inflation/fiat currency argument. Not saying it’s wrong, I possibly just don’t get it. I’m no economist.

    They way I see it there are bad loans, which were used to create securities. Now no one wants to pay what the owners of those securities think they are worth. So we have a stalemate. Kind of like what is happening in the housing market right now. Sellers can’ get over the fact that their house price dropped so they won’t sell.

    So the government will come in and buy overvalued securities at supposedly the correct price. How they figure that out will be how we get ripped off.

    But it all comes back to bad loans through housing. We could see it everywhere when wages stayed the same housing double or even tripled in value.

    Now maybe the inflation arguement is that the bad loans wouldn’t have been made without massive hidden inflation? That kind of makes sense, but why didn’t we see inflation anywhere else? Or did we?

  84. the Bush Republicans’ instincts in a crisis have always been to seize more power.

    Because the MSM demands it.

    When they hesitated to enter New Orleans without the governor’s permission after Katrina, they were called incompetent boobs who didn’t care care that black people were committing cannibalism amid stacks of bodies. Never mind posse comitatus, or that the city police force self-disbanded.

  85. I’ll exit with some cheery thoughts from Glenn Greenwald: Haven’t we heard all these years that national health care was an extremely risky and dangerous undertaking because of what happens when the Federal Government gets too involved in an industry? What happened in the last month dwarfs all of that by many magnitudes.

    This is possibly the stupidest thing Greenwald has ever written, which is saying a lot. The health care industry is orders of magnitude larger than this bailout.

    These are extreme — truly radical — changes to how our society functions

    No, they aren’t. Or are we forgetting the S&L bailout?

    I can’t believe anyone is still quoting this hyperbolic moron.

  86. I think it is a bit too much to think that 90% of government regulation is “bad”, whether in the utilitarian sense of making people’s lives worse or in the “rights” sense of it intruding on freedom.

    Yes, people can be dumbasses. But the dominant ideology for a good chunk of American history was much more laissez-faire than it is now. All those regulations got passed swimming upstream of that status quo when decided majorities of folks could be rather easily convinced (or decided on their own) that their lives would be better off, their interests, security and yes in many parts their “freedom” or “liberty” protected if they were passed and that the more laissez-faire status quo was not in comparison optimizing their lives or rights.

    To argue that people are so stupid that they regularly and often vote for regulations and laws which sharply negatively effect their daily lives and rights is a bit much even for an elitist like me to buy. The negative effects of such laws must be exagerrated in your view and the positive effects underexagerrated, because I’m not buying that a small minority of folks calling themselves libertarians have somehow peered into some underlying truth about reality that the great masses miss on a daily basis.

    It reminds me of how folks here wax on and on about how terrible the Canadian or British health care systems are, how awfully ineifficient and rights suppressing and fill the threads with horror stories. And yet I am supposed to believe that and square it with the fact that those systems (at least the premises behind them, universal coverage, single payer, etc) are overwhelmingly popular with the voters over there. I simply can’t buy that that many people are that blind to their everyday reality.

  87. “When they hesitated to enter New Orleans without the governor’s permission after Katrina, they were called incompetent boobs who didn’t care care that black people were committing cannibalism amid stacks of bodies. Never mind posse comitatus, or that the city police force self-disbanded.”

    Ha ha, HA.

    Look, Katrina was a tragedy rightly reported by the MSM. They showed the pictures and told the stories that were in front of them, of people dying and homes flooded (yes, some of the worst ones told bs stories too, to be expected, the market worked that out actually w/in time). As people look to their governments to act in times of such tragedy they needed no MSM to tell them that government readiness and reaction, whether that be local, state or federal was sub-optimal (read: shitty). There is this federal agency designed and empowered to deal with just this sort of thing, it’s called FEMA. Regardless of waiting to get permission or what not, in pretty much every other regard FEMA did crappy by any measure in its response to Katrina. The people did not need any MSM to see the many areas where FEMA’s mismanagement was apparent.

  88. Bush’s FEMA’s “hesitancy” to act in the face of Katrina had very little to do with their philosophical concerns for a less intrusive federal government but rather had to do with cronyism and incompetence.

  89. fortyouncer,

    You ask a good question. Here’s what happened.

    The Federal Reserve “printed” a great deal of money, which they used to buy various assets. The sellers deposited this new money into their banks, which then loaned it out. By a complex process, these loans end up expanding the apparent money supply by several times what was originally deposited.

    Now, the banks offered this newly created money to prospective home buyers on extremely generous terms. Thus, a home buyer who would have been lucky to be eligible for a $100,000 loan was now offered a $500,000 loan. Now, these people, in effect, had much more money available to direct towards home purchases than they otherwise would. So they bid up the price of housing as they competed with each other for choice bits of housing.

    That’s how the speculative bubble began. Ina speculative bubble, people buy stuff primarily for their speculative value, not because they intend to consume it, but because they expect that as prices continue to skyrocket they will always be able to sell at a profit. And, so long as more money was being created, the banks had an ever increasing pool of money to loan out, and people could bid up the price of houses to ever increasing levels.

    Then, Bernanke turned off the printing presses (because the home sellers were spending the newly printed money in other sectors of the economy and prices started going up in other areas as well). The pool of new money dried up. Loans became harder to get, and now people had less money with which to purchase homes. They started offering less and less money for the homes.

    As a scheme to get more and more people in the door, many lenders had resorted to offering adjustable rate mortgages, where the rate would go up dramatically after some introductory period. Previously, when the rate hike hit, people could simply refinance or sell the home based on a much higher expected sale price for the home. But now, with prices falling, that became impossible. So the default rate exploded.

    The situation was exacerbated by a very bad conflation of risk with volatility by financial houses. They thought that the rate of defaults would be some low, constant rate, and that if you “bundled” a bunch of mortgages into one investment vehicle, a few defaults wouldn’t harm the bottom line too badly. This bundling failed to take into account the possibility of systemic failures. Thus, fund managers bought oodles and oodles of mortgage backed investment vehicles, and were left exposed to serious losses once the systemic collapse started. This incidentally is where “deregulation” comes in: it used to be under New Deal banking legislation that such bundling would have been illegal or raised flags. I think absent such regulations, this failure, and the collapse of the firms that made this costly mistake would serve the same purpose. Nothing so educates as the personal experience of screwing up.

    The important point to remember in this fiasco is that this is a crisis of valuation. The real assets are not harmed. The factories won’t go away if a few banks collapse. The houses will still be there. The mines and farms will continue to operate. There would b chocks, but any assets that would be able to operate in a profit would be snapped up by investors at fire sales after the wave of bankruptcies passed in the absence of a bailout.

  90. oh sure it’s the media’s fault.

    i mean homeslice just ran for president by accident. meant to go buy a burrito. ended up president. shit happens like that sometimes.

    now he’s all like oh fuck the ny times is gonna rip on me someone get the super big checkbook out.

  91. Mr Nice guy,

    Your charmign assertion that regulations were put in place to assuage the failures of laissez faire are not actually backed up by history.

    historically such regulation has been rife at the state level. Read any history of the steel industry, the chemical industry, the oil indsutry, the steamship industry, the railroads, hotels, the post, the telegraph industry, the telephone industry the automobile industry, and you have the state picking and choosing winners and losers.

    In the late 19th century, the spread of the railroads permitted businesses to supply larger markets. The result was that locals found themselves facing competition from people far away. For a time, this, and the Supreme Court’s insistence that states had no right to regulate interstate commerce allowed the competition to continue. But inefficient producers launched massive lobbying campaigns to end what they liked to term ruinous competition. Consumers rarely clamored for anything: the whole public choice process of a focus special interest driving legislation without serious opposition from a diffuse and only lightly harmed potential opposition was in place.

    I highly recommend you read Bernay’s Propaganda on google scholar. He was a big player in the growth of the federally based regulatory state (which augmented the state-based regulatory regimes) in the 20’s and 30’s and he distills the lessons he learned to instruct the reader on how the reader’s special interest can shape public opinion.

  92. Economics blah blah bubbles blah blah percentages blah blah blah.

    Here’s what I want to know…will the rat bastards who caused all this continue to drive BMWs while I continue to drive a 12-year-old Corolla?

    Oh, and when the smoke clears, why shouldn’t I just cash out my 401K and buy liquor and hookers? Just asking.

  93. “Oh, and when the smoke clears, why shouldn’t I just cash out my 401K and buy liquor and hookers? Just asking.”

    Fair question. You might as well. The government already has a program in place to bail you out when you come of retirement age and have no savings–it’s been in place for a long time, actually.

  94. “””Professor Weiser makes an interesting point. These bailouts are ultimately for the poor and middle class.”””

    The professor is right that the bailout’s final cost will not be as much. But neither will the cost of failure. Companies will be bought, companies will merge. There is a lot of hype and fake crystal balls justifying this bailout.

    This bailout is for the people that made mortgages a wall street gambling game. How many foreclosures will this bill prevent? The tax payers will be paying either way.

  95. I’m not sure if I really understand the problem correctly. I’m curious if I have this right.

    Someone secures a mortgage from a bank, they owe the bank money. The bank then sells shares of that mortage, basically reselling the mortage but not the home in a type of stock. The bank is now getting the money from your mortgage and money from issuing a paper mortgage not backed by the home its self. As the home loses value the homeowner and those holding the paper mortgages lose money on paper. But becuase the paper mortgages are not backed by the physical house, the people who lost money on the paper mortgages want us to replace their loss. If the person home is forclosed, the bank wants the home back, plus it wants the money back, via bail out on the paper mortgage. So not only do they take the property, they get to take the money on the paper mortgage as well.

    Is that about right?

  96. MNG,
    “…because I’m not buying that a small minority of folks calling themselves libertarians have somehow peered into some underlying truth about reality that the great masses miss on a daily basis.”

    The great masses aren’t “peering” anywhere except the latest episode of American Idol. Libertarians aren’t any smarter or magically insightful than other Americans…they are just paying attention.

  97. King Henry spreads our wealth further:

    In a change from the original proposal sent to Capitol Hill, foreign-based banks with big U.S. operations could qualify for the Treasury Department’s mortgage bailout, according to the fine print of an administration statement Saturday night.

    […]

    Treasury Secretary Henry Paulson confirmed the change on ABC’s “This Week,” telling George Stephanopoulos that coverage of foreign-based banks is “a distinction without a difference to the American people.”

    If our Dear Leaders were smart, they’d legalize marijuana just to keep us plebs mellow.

  98. Thanks for the explanation Tarran.

    I definately agree the bad players in all this need to be taught a lesson by the market and not proped up by the govt.

    I was a would-be first time buyer looking for a house in about 2003/2004. At that time, I could see the madness in the housing market (here in Los Angeles) and refused to jump in. Everyone, and I mean everyone, said just get an interest only loan and wait a year or two , sell it and use the profit for a down payment on a house with a loan you can afford. I knew that was very risky speculation. So I still rent now.

    So I am always ticked off by any government offical claiminng how horrible it is housing prices are falling. To me, that’s a great thing. It allows a new generation of americans to be homeowners!

    Sadly though it will be those of us who acted responsibly who will pay. Makes me feel like quite the sucker.

  99. “This hasn’t completely been socialism for the rich, either . . .”

    Oh, that eases my mind. Socialism for the poor and middle class is of course a good thing, and isn’t open to objection like socialism for the rich.

  100. Sandy Yago is either illiterate or a liar. In the Greenwald piece Yago selectively quotes, Greenwald explicitly denounced the Palin hackers. Greenwald is satirizing the mostly right-wing statists who always scream “what do they have to hide?” every time the Bush administration demands more spying power but who now suddenly care about some bozo hacking into Sarah Palin’s Yahoo account. Read for yourself:

    http://www.salon.com/opinion/greenwald/2008/09/18/privacy/index.html

  101. Matt-Granted they might not be paying attention, but the masses know when something is directly making their life worse. For example, they heard all this “laissez faire” talk prior to the Great Depression and then they had a Great Depression. Then they had a guy say “that laissez faire stuff was bullshit we’re going to put in these regulations that will prevent the hard times that you rightly are experiencing from happening again” and they said, well that has to be better than the talk that got us into this bullshit. They supported that guy and since the apparatus he put in place has been in place they have never known such hard times again. So when someone like prole or tarran lectures them on how they just don’t understand economics or rights they (and I) are rightly a bit skeptical. Because there are a ton of people who claim insight into how economics “really” works. The people with the most training and education in this area are not posting on this blog but in journals at a very nuanced level (a level in which they would laugh at tarran’s “google scholar” article, really, I know some academic economists), and those people simply don’t have any consensus around libertarian or classical liberal economic models being correct. So the non-expert is rightly skeptical and goes with what they know, in this case: before New Deal, shitty time, after New Deal, no such shit. I’d say it’s them that are being rational rathe than people with non-proven economic knowledge acting as if they have somehow glimpsed the true nature of such a complex field and know the prescription for what ails everyone, if only they would listen…

    tarran-that interest groups often initiated or co-opted the public’s willingness for regulation I won’t dispute. What’s important (and equally undisputable) is that there were very real widely popular calls for regulation because of what the public felt (and I mean felt, as in experienced) were negative effects and unfair conditions. You mention the railroads so I’ll run with it. The whole Populist movement’s anger at the railroad practices of granting rebates and such is a great example of how many common farmers and businesspersons just expereinced a great deal of negative effects from the “market” and said “fuck this” the first chance they got. Another area , here I know a bit about, would be in labor organizing. There just was a crap load of workers who literally could not take “market” conditions anymore and worked hard to change these conditions, and they and sympathetic middle class persons who witnessed first hand (or experienced first hand) how shitty market conditions were and they demanded and at times, yes, simply went along with, movements to have the government intervene.

    The vast majority of the public supports Social Security and the FDA, for example, because they actually impinge on any hypothetical freedoms they may value quite little but they bring quite high experienced benefits (the knowledge that you’ll have a little dough when you are older and that the bratwurst you just bought is less likely to fucking kill you). People are stupid, but not so self-flagellating.

  102. “Now, the banks offered this newly created money to prospective home buyers on extremely generous terms. Thus, a home buyer who would have been lucky to be eligible for a $100,000 loan was now offered a $500,000 loan.”

    Tarran
    Again, I am no expert on finance or economics. I’m not trying to insult you but I doubt seriously that you are as well (you’re certainly very well read on that subject, my point is that I doubt you have, say, a PhD in economics, many peer reviewed journal articles, years of working as a top level financial analyst, etc).

    Having said that, I have read a bit about these new “financial products” that banks and the like were coming up with, things for example where risky mortgages were turned into securities and then those securities were insured, all with the expectation of housing prices continuing to rise and that those struggling with mortgages would somehow not default on them. For a while these products made a lot of people a ton of money. That in itself incentives a lot of people to jump in (people are, alas, very influenced by short term benefits even in the face of known long term consequences [much less unknown ones], see for example the persitence of smoking).

    It strikes me that one doesn’t need to have any fancy Fed theory (“there was too much money printed”) about why institutions and individuals would gamble on something like this and then conditions change and these people go broke. There is a simpler explanation out there: greed makes people gamble irrationally. Not only is this possible in markets, certain market conditions may foster it. And it strikes me as more than a coincedence that these products recently were de-regulated leading up to a mess in which these products are heavily implicated…

    Now if you’re the kind of person that simply can’t imagine that market forces could ever foster irresponsible or irrational behavior, then, when faced with an empirical example of what looks like that on its face, you’d be driven to come up with some explanation where you just look hard enough to find some non-market factor that you can blame. But I have to admit, it looks like mental gymnastics or what Catholics used to call “apologetics” to someone who doesn’t feel predisposed to defend or tear down “markets.”

  103. why shouldn’t I just cash out my 401K and buy liquor and hookers? Just asking.

    I’ll tell you I am. Both with be Russian and aged 12 years.

  104. “The vast majority of the public supports Social Security and the FDA, for example, because they actually impinge on any hypothetical freedoms they may value quite little but they bring quite high experienced benefits…”

    Yeah, shocking that so many people are on board receiving a lot more in benefits than they actually had to pay for…especially when they can just leave the bill with interest for someone else to worry about long after they are dead…

    I think in other situations this is sometimes referred t as fraud, or maybe theft??…

  105. Bush’s FEMA’s “hesitancy” to act in the face of Katrina had very little to do with their philosophical concerns for a less intrusive federal government but rather had to do with cronyism and incompetence.

    Yes, the cronyism and incompetence of Ray Nagin and Kathleen Blanco.

    Notice that cities in Texas and Florida have not had the problems New Orleans did. How do you explain that?

    When you look at the actual facts, such as how quickly a given amount of material and aid was delivered once requested, FEMA’s performance in Katrina was entirely typical, even fairly impressive by historical standards. I’m sure if one looks as hard as the MSM has, one can find all sorts of mistakes, but that’s true of every FEMA response under every administration.

  106. the combined annual budgets of the Departments of Defense, Education and Health and Human Services

    I have neither the time or the inclination to read through all these posts, but just in case this hasn’t been said:

    Oh. My. Fucking. God.

  107. Greenwald is satirizing the mostly right-wing statists who always scream “what do they have to hide?” every time the Bush administration demands more spying power but who now suddenly care about some bozo hacking into Sarah Palin’s Yahoo account

    The point is Greenwald is comparing the criminal, politically-motivated hacking of Palin’s account to the government monitoring terrorists. It’s incredibly stupid and dishonest.

    This is like arguing: “Democrats are all for raising taxes, but when they get mugged on the subway by a poor person with a gun those hypocrites go crying to the police.”

  108. Yeah, shocking that so many people are on board receiving a lot more in benefits than they actually had to pay for…

    I’m still popular as ever!

    Gotta hand it to FDR for getting around the usually illegality of my schemes by actually codifying one into law.

  109. Ha…

    “Notice that cities in Texas and Florida have not had the problems New Orleans did. How do you explain that?”

    How the fuck would you even know what’s going on on the coast, there’s a fucking brown out and if you actually were really paying attention, it ain’t going that swimmingly.

  110. If we throw them a bone occasionally, they will demand more and bigger bones more frequently. The only sane approach is to vigorously resist all encroachments on freedom, wherever they occur. Anything else is a case of Stockholm Syndrome writ large.

    Intellectually I know this. But right now, I’m feeling very depressed, and hence, very pragmatic. I usually start feeling this way after any major loss. This is a biggie.

  111. The whole Populist movement’s anger at the railroad practices of granting rebates and such is a great example of how many common farmers and businesspersons just expereinced a great deal of negative effects from the “market” and said “fuck this” the first chance they got.

    Actually, MNG, every word you have said in this thread about laissez-faire and the market exposes the real issue:

    Advocates of statism have done a really good job at marketing. Part of that marketing job consists of blatant deceptions about what historical events have arisen from state action and what events have arisen from market action. For example, there is simply no way to paint the history of US railroads [or any other element of our transportation history, for that matter] as being anything other than the result of deliberate state action. Few industries were more intimately coddled by the state than the railroads.

    Similarly, it would be evidence of sheer idiocy to talk about the onset of the Great Depression without talking about the First World War, the Versailles treaty and German reparations, the Federal Reserve, the Bank of England, and trade policy. None of those things can even be remotely described as “the market”.

    There is a simpler explanation out there: greed makes people gamble irrationally.

    But that’s not how these gambles were made. The gambles were made positivistically – since the data said that mortgages to people with poor credit were being paid, that made them sound investments, and “common sense” was ignored. And the reason the data were skewed in this way was the real estate bubble created by Fed policy and the Bush deficits.

    But if you say, “The banks should have known that it was a real estate bubble and that the data were an illusion” I have to ask – why didn’t the Fed see that, then? Or the Congress? If it was so easy to see?

  112. Jay Weiser, Assoc. Prof. of Law & RE, Baruch College, doesn’t know what the fuck he’s talking about.

    “The paper markets almost froze on Thursday and Friday.” What the fuck are you TALKING about?

    These companies invested in bad paper. They should fold. But no, now we’ve got a new $1 trillion in debt, and socialization of all risk, which instead of being worked out over the next 18 months, is going to be worked out over the next 25-30 years. You’re a fucking tool, and you don’t even know it, Jay Weiser, Assoc. Prof. of Law & RE, Baruch College.

  113. Some cause distortions, while others properly price externalities.

    LMNOP, I kind of agree with what you’re saying, but regulations don’t price anything “properly”. No one knows what the ‘proper’ price of anything is. I would agree that some regulations are intended to ‘properly’ price externalities.

    Price: it’s not what regulations say they are, it’s what the market will bear.

  114. America…leader of the free world…awesome.

    “Sept. 21 (Bloomberg) — Treasury Secretary Henry Paulson said he’s confident several countries will take steps comparable to the $700 billion plan he proposed to buy bad mortgage-related securities to address the global financial crisis.

    “We are talking very aggressively with other countries around the world and encouraging them to do similar things, and I believe a number of them will,” Paulson said on ABC News’ “This Week” program. “

  115. If 90% of regulatory action is odious, I think it is an important thing to separate the 90% out for what it is, rather than make the easier (albeit inartful, to say nothing of untrue) claim that 100% of regulation is bad and be called out later for the fudge factor.

    The problem with many of the economic regulations are that because they intend to *ahem* properly price externalities, we don’t know if the regulation is really working, hurting over here, or creating a meltdown 20, 40, 60 years into the future.

    And because no one really “knows” if these regulations are working, people will jaw-bone forever trying to answer the question.

    We can use some history as a guide. Sure, as joe pointed out in a previous thread, we have not had any ‘depressions’ since the New Deal style regs have been put in place. But there’s some argument (and evidence) that because of the regulations, we’re heading to a much bigger global meltdown some time in the future.

    It might be described as the flood-wall phenomenon. The rivers flood continuously, so more and more flood walls and dams are built. But all these flood walls and dams are squeezing the river’s waters more and more, along a longer and longer section of the estuary. When the river does finally flood, the results are horrendous.

    Ultimately, what we don’t know is if all of these regulations are causing a long-term pressure cooker environment. If we’d just let a little pressure out occasionally (see markets and hard landings) we’d be fine overall. But we’ve gotten to a place where any pressure relief is seen as someone’s “rainy day” and we have to immediately patch the hole.

  116. There is this federal agency designed and empowered to deal with just this sort of thing, it’s called FEMA. Regardless of waiting to get permission or what not, in pretty much every other regard FEMA did crappy by any measure in its response to Katrina.

    What was the government of New Orleans and Louisiana doing during Katrina? Oh wait, we’re Federalizing EVERRYYYYTHINGGGG.

    I forgot. Please, continue.

  117. Government intrudes into the marketplace of free men,
    and when all goes well, this intrusion has a thousand fathers.
    When the shit hits the fan, this intrusion is an orphan.
    There truly is nothing new under the sun.

  118. Question: How can any piece of legislation remove itself from scrutiny of the courts? Isn’t it fundamental to the system (as we know it) to have the Black Robed Morons review legislation for Constitutional Muster??

  119. As a responsible renter, I am not going to eat their losses.

    Unfortunately, yes, you and me and the other 1/3 of Americans who are renters will be doing just that.

    will the rat bastards who caused all this continue to drive BMWs while I continue to drive a 12-year-old Corolla?

    Yes.

  120. jcr,

    No, the crisis has been brought on by massive inflation by the Federal Reserve, which was masked for many years by the willingness of foreign investors to buy dollar-denominated securities like treasury bills and mortgages.

    That at least makes some kind of sense.

    The upshot is that the incentives for prudence on the part of lenders was removed.

    That this happened, in retrospect is obvious.

    Thanks. I must try to learn more about this whole little universe.

    Mike Laursen,

    The financial and housing construction sectors of the U.S. economy are hurt, but other sectors, such as manufacturing are not directly affected.

    Yeah, that’s the other part of what’s had me confused. If the world is about to end, how come the rest of the economy isn’t looking like death warmed over?

    but TV and newspaper reporters always report on daily trends.

    Well gee, imagine that.

  121. Since the sub-prime mortgage “crisis” has been brewing for years (we were all aware of it, right?), I’m certain that both of the major parties have clear, concise and well thought out positions on what they preopose should be done detailed in their respective party platforms.

    The appropriate house and senate committees must have held innumerable hearings and had long and contentious deliberations on how best to deal with the housing bubble’s eventually bursting. The Sectretary of Treasury has surely laid out plans previously on how the administration plans to deal with the expected crisis (if something that is years in the making can be honestly called a crisis) that will not reward all of the irresponsible players in an overly optimistic rush to cash in on the bubble.

    So if any of you with greater tolerance for political and governmental tedium than I can point out all of this groundwork that the responsible adults in both parties have obviously already laid, I’ll be extremely grateful.

  122. Actually, there’s a lot of opposition to the Paulson plan on liberal and libertarian blogs. I’ve been blogging over the weekend on Kos, with basic agreement to kill this bailout.

  123. Basic problem still remains: the fraction of the market involved in this “crisis”, i.e. the mortgages that may default, is just not that much of the overall pie.

    But what I gather from reading above is that somehow, these bad mortgages got leverage in a really big way…….because without some big time leveraging, there’s no way we could have any really serious kind of crisis going on.

    That it was legal for the leveraging to happen on this scale is still baffling to me. Is just what “the free market” is allowed to do, or was some change in the rules implemented by the government?

    I sort of hear the story about Fannie and Freddie pumping paper money into the feed tubes…….but that still doesn’t explain how the leveraging (which must fundamentally be the cause of our current crisis — yes?) actually came to be.

  124. Now if you’re the kind of person that simply can’t imagine that market forces could ever foster irresponsible or irrational behavior, then, when faced with an empirical example of what looks like that on its face, you’d be driven to come up with some explanation where you just look hard enough to find some non-market factor that you can blame. But I have to admit, it looks like mental gymnastics or what Catholics used to call “apologetics” to someone who doesn’t feel predisposed to defend or tear down “markets.”

    MNG, I can see why you would think that, especially because some people are doing precisely that…

    At the risk of sounding like I am doing such mental gymanstics, I would point out that deregulation coupled by imprudent behavior is not unexpected: it is the kind of reaction you see, for example when children raised in sexually repressive families go away to college and begin engaging in promiscuous behavior.

    I have many family members in the financial industry. Most of them have no idea who Keynes or Hayek are ( gasp! ). Several of them are of the opinion that anything the government permits is OK to do. Of course that is crazy, the government can’t prohibit all possible imprudent investments, investors have to exercise some judgement.

    Now, absent a regulatory response to this fiasco, what would happen? Well, a bunch of financial houses would go under, a few would survive, barely, and a handful would prosper. However, everyone would learn from what happened. They would fear going under. The cautionary tale would appear in business school classes etc.

    As it is, the guys who made these disastrous decisions or followed the herd will not learn anything. There will be an incentive to sweep this under a rug rather than discussing this openly. There will be few lawsuits to drag the evidence of the poor decisionmaking out into the public record. Few people will buy books to read up on what haepenned, etc.

    Now, to you, this may seem polyannaish, that it does nothing to the people harmed now. And that is right, to an extent. But my analysis of the situation tells me that we will all be harmed – badly, by the bailout. That the regulation, while preventing this particular form of the bubble would not have prevented the system fracturing and failing at some other stress point.

    One thing that I, and every other ideologically honest proponent of free markets, admit is that free markets do not guarantee great outcomes. Rather they limit the impact of bad decisions and minimize the barriers of entry for people with new (and hopefully better) ideas. And regulations, which inevitably serve as barriers to entry for new firms, and thus help cartelize the industry they govern, tend to make the damage worse, because when a firm fails, rather than being a small firm that is easily replaced, it is a larger firm that is not easily replaced.

    BTW, you are right, I am a dilletante in Economics and do not have any formal training whatsoever (although I helped my wife study for her Econ 101 exam in college).

    DEMAND KURVE!

  125. btw, everybody is bitching about inflation. I know its evils, I was just getting out high school during the 1970’s stagflation. I remember well what it was like.

    But fact is, inflation is how the feds are going to clear the housing market. And how else is it going to get cleared, unless we’re prepared to sit around for another decade while home buyers and sellers continue their mexican stand off.

    Not saying it’s right, just saying that this is going to be the feds’ solution. That was in the works long before this trillion dollar fiasco got started.

    And when you’re talking about a trillion dollars, all down on one spot on the roullette wheel, how can we have anything other than a potential fiasco in the offing?

  126. We’ll get most of the money back later so it won’t really cost .7 trillion. We might even make a profit.*

    The war in Iraq will pay for itself.

    Anybody remember the cost predictions of th Medicare Prescription Drug Benefit plan?

    How’s that McCain-Feingold Campaign Finance Reform Window Dressing Act working out? Keeping the big bucks out of politics, right?

    * Paraphrase, not a genuine quote.

  127. If Latin America is shocked at the degree of nationalization and government-mandated transfer of wealth, that is a pretty compelling reflection of how extreme — unprecedented — it all is.

    Good Lord, has this guy never heard of FDR?

    Does he not realize this isn’t a “gov’t-mandated” takeover, a la Venezuela nationalizing the oil industries or Truman seizing the steel companies, but a bailout the companies were begging for?

    The stupidity there is extreme and unprecedented.

  128. The war in Iraq will pay for itself.

    The first one did.

  129. We’d like to increase our loan request to 100 gigabucks because we actually have physical possession of assets (plants, tooling, inventory).

    Thank you.

  130. If the world is about to end, how come the rest of the economy isn’t looking like death warmed over?

    Because the world isn’t about to end. And wouldn’t have been about to end if the bailouts had not happened.

  131. Is just what “the free market” is allowed to do, or was some change in the rules implemented by the government?

    There were changes in the rules allowing financial institutions to keep much smaller reserves.

  132. But fact is, inflation is how the feds are going to clear the housing market. And how else is it going to get cleared, unless we’re prepared to sit around for another decade while home buyers and sellers continue their mexican stand off.

    Eb, can you define what you mean by “clear the housing market”? I had trouble following your comment because I’m not sure exactly what you mean.

  133. “Notice that cities in Texas and Florida have not had the problems New Orleans did. How do you explain that?”

    Man, this is really stupid. You mean the cities in Texas and Florida hit by different hurricanes in different years (like after the lessons of Katrina?) under different circumstances?

    But we don’t need the MSM to tell us that FEMA failed miserably in its response to Katrina, we can rely on FEMA’s own reports, Congressional (majority GOP at the time) reports and the White House’s own reports saying the same thing.

  134. Again, I am no expert on finance or economics. I’m not trying to insult you but I doubt seriously that you are as well (you’re certainly very well read on that subject, my point is that I doubt you have, say, a PhD in economics, many peer reviewed journal articles, years of working as a top level financial analyst, etc).

    See the logical fallacy of: appeal to authority.

    although MNG has been so categorically guilty of looking down his nose at the “uneducated” for so long I have to think that it’s a personality flaw rather than a misstep here or there.

    Perhaps you should go to one of your vaunted PhDs in psych and figure out what’s wrong with you.

  135. Dear “a”

    “Uh…” has already succintly made the point I was going to make, read it up there. Let me elaborate further though:

    It is a very frustrating tactic of the political hack to counter your argument by saying “But when your guys does A is the same as when my guy does B so when you criticize my guy you are a hypocrite!” So before you can go on now you must explain why you are not a hypocrite or you can ignore him, neither of which looks good. And you are tempted to ignore him because it is very frustrating to counter illogic with logic, with someone who is deliberately, or worse, unintelligently, illogical. So you tend to walk away, rolling your eyes, while he thinks he won and his conceit increases.

    I think Greenwald is the deliberately illogical kind. He must be smart enough to know that making the point (hacking into someone’s email account and posting it on the Internet for political gains = government monitoring emails while looking for terrorists) on its face value would be indefensible. So he wraps it into a satire which bedazzles the mentally weak or the politically gullible.

    BTW please tell Mr Greenwald that he “forgot” to update his blog, something he does very diligently otherwise when new details furthering his points are found regarding a topic. His blog about the Palin account hacking still states (and the quote will give you a taste of his style, and – remember – le style c’est l’homme):

    While the bottom layers of the right-wing noise machine (the kind that make you run for the shower after reading them) are moronically describing the hacker(s) as “liberals” and “left-wing,” nobody actually has any idea of their identity, let alone their political leanings (if any).

    In fact, the next day the identity of the hacker was already known and posted widely on the Internet: David Kernell, theson of state democratic representative Mike Kernell, from TN.

    Greenwald is not someone Reason should quote approvingly even if passages taken out of the context of his work may look good.

  136. Don’t think anyone responded here to TrickyVic. I might oversimplify some things, and I’m not exactly sure how the bailout is going to work in detail, but here goes.

    “Someone secures a mortgage from a bank, they owe the bank money. The bank then sells shares of that mortage, basically reselling the mortage but not the home in a type of stock. The bank is now getting the money from your mortgage and money from issuing a paper mortgage not backed by the home its self.”

    Not exactly. The investors are getting the payments from your mortgage. The bank is most likely collecting them (servicing the mortgage) and passing them on, taking a cut for itself along the way (the servicing fee).

    “As the home loses value the homeowner and those holding the paper mortgages lose money on paper. But because the paper mortgages are not backed by the physical house, the people who lost money on the paper mortgages want us to replace their loss.”

    The paper mortgages ARE ultimately backed by the physical house. To spell out the chain of causation: as the home loses value, the borrower is more likely (in fact, has an incentive to) stop making payments and drop the keys off at the bank. The more likely default by the borrower, the less value the mortgage has to the investor. In particular, if the borrower defaults–which is not guaranteed–the mortgage is worth whatever the bank can recover from foreclosure, net of foreclosure costs. And not only does the likelihood of default increase when house prices are tanking, but the amount to be recovered is going to decrease at the same time. If the borrower doesn’t default, the mortgage might be worth quite a bit. Probably the investor has the rights to the payments from a bunch of mortgages (note that these can be chopped up in all sorts of ways, but that’s a further complication), so what happens on average over all the mortgages is relevant to them.

    Note that the decrease in “paper” value has real consequences thanks to mark-to-market accounting. I’m not going to go into this.

    “If the person home is foreclosed, the bank wants the home back, plus it wants the money back, via bail out on the paper mortgage. So not only do they take the property, they get to take the money on the paper mortgage as well.”

    That’s double-counting. The gubmint is going to buy the mortgage from the bank (or the investor, I suppose, depending on who has the ultimate rights to the cash flows), so they get the property in the event of default. (This is something scary that hadn’t occurred to me until now. Will they really sell them? Or hold onto them?) Effectively the investor will get back some of what they’ve lost due to the fall in house prices. Nobody gets both the property and “the money” in the sense of the outstanding loan balance.

    I have no idea how the gubmint is going to decide what to pay for the assets. I am SURE that it will be more than what they’re worth. Part of the problem in the first place is that they’re hard to value, because they’re complex and information available on the assets is often shitty in the first place. The savvier banks that are still in good shape would be in a better position to buy the mortgages (or securities based on them), either explicitly, or implicitly through mergers or acquisitions, but they’re about to be priced out of the market by a gigantic investor with infinitely deep pockets.

    Anyhoo. What I don’t get is that as long as the government is going to spend a trillion dollars clearing up this mess, why don’t they just bail out the homeowners directly? It would have more popular support. Or is that too clearly socialist?

  137. “Similarly, it would be evidence of sheer idiocy to talk about the onset of the Great Depression without talking about the First World War, the Versailles treaty and German reparations, the Federal Reserve, the Bank of England, and trade policy. None of those things can even be remotely described as “the market”.”

    But fluffy (and tarran too I think), how nutty would it be for an opponent of active government to point to a financial disaster that occurred in a time of much less government activism than the better financial events occuring since a great expansion of government activism and say, well, it must have been the comparitively small amount of activism that was occuring back then that is responsible. That’s incredible. As I’m sure you’d be quick to point out there has never been a totally laissez-faire situation, therefore the best we can do is compare times with relatively little government interference with times with more. If we find no or an inverse correlation with bad times and LEVELS of government intereference (as said we can always dig up SOME example of government interference at any time and blame the bad times on it as there is always some intereference) then it simply is hard to argue that more government intereference leads to worse economic conditions…

  138. If the world is about to end, how come the rest of the economy isn’t looking like death warmed over?

    Here are some responses from former Treasury official Ted Truman in a recent FP interview:

    I think the remarkable thing is that you’ve had more than a year’s worth of financial turbulence, and the impact on the real economy has been minimal. The stock market is down 25 percent, house prices are down 15 percent, and the real economy is flat. The capacity of Americans to produce goods and services has been maintained. Unemployment has gone up; that’s true. [But] incomes are holding up. We actually are producing at the same rate, maybe a little higher, than we were a year ago. And that’s certainly quite different from saying the economy is contracting and that the economy is in a spiral and needs a fundamental reconstruction.

    The financial system is taking a bigger hit than it has at any time since the Great Depression, but the real economy is now nowhere close to that. If you look at the Great Depression, the unemployment rate went up to 25 percent and real GDP dropped substantially. We’re not close to that, and we’re not going to be close to that.

    […]

    Credit is going to be tighter, and it is tighter. Businesses and individuals that are normally creditworthy will have a harder time getting credit. Credit-card lines are being cut. Some of them probably should be cut, by the way. There are a nontrivial amount of people losing their jobs in the financial system. But again, we’re not in a situation like in the 1930s when stockbrokers were selling apples on Wall Street. The economy has its ups and downs. One of the problems we’ve had in recent years is the notion that economic policy should prevent all downs. That’s created a one-sided bet.

    […]

    You’re going to have some additional bank failures, which is inevitable when the economy slows down. There’s not much policy can do, even monetary policy, to reduce the risk that there will be other accidents. They’ve done quite a lot in terms of providing liquidity to the market and encouraging this self-help operation among some of the major financial institutions. But there’s not a lot more that public policy in general can do in these circumstances.

    One thing that the secretary and the president were trying to do was say “don’t panic,” which I think was right. The economy is basically in good shape, meaning our capacity to develop goods and services. Although a lot of people have lost a substantial amount of financial wealth, that’s a paper loss, and doesn’t really impact the economy as a whole. It would be wrong for everyone to start panicking.

  139. GREED, AVARICE, FRAUD, CORRUPTION, LYING, STEALING AND CHEATING.

    I strongly support the IMMEDIATE impeachment of Bush and Cheney. The Republican party is filled with those possessing private agendas – yes golden parachutes and vast wealth. To hell with Harry Reid and Nancy Pelosi and other stupid Democrats who are too conflicted to be honest. Further, I demand this government, those responsible to resist this scam, to charge Paulson, Bernanke, Bush, Cheney, and all complicit billionaire sobs with treason. Yes, TREASON. They are not Americans, they are imperialists and evil people hell bent upon accumulating billions and trillions in personal wealth while the country becomes peasants and slaves. No joke, America. Wake up and fight high crimes and treason.

  140. TAO
    It’s not an appeal to authority to assume that when people with years or experience and education can’t reach a consensus in their own field on something that one should doubt a layperson who claims they have reached the “real truth” in the same area.

    I guess you would stand up and object to any expert witness in trials accross the nation on the grounds of “elitism.” I mean really, how dare anyone be sworn in as knowing more than anyone else about any subject? Everyone should just get to make their case to the jury as experts…

    I’m doubt its me that has any problems a psych PhD would be interested in, but you on the other hand…I don’t mind recognizing that people other than me have expertise in areas I’m not an expert in. Neither do you really, you do this every time you go to the doctor or get a plumber, or in your case the psychiatrist ;).

  141. Re: 2bitsworth | September 21, 2008, 4:57pm

    I see the free clinic is out of Prozac again.

  142. I guess you would stand up and object to any expert witness in trials accross the nation on the grounds of “elitism.” I mean really, how dare anyone be sworn in as knowing more than anyone else about any subject? Everyone should just get to make their case to the jury as experts…

    I’d object to many.

    Dr. Steven Hayne.
    Facilitated communication.
    Bite mark evidence.
    Recovered memories.

    Maybe you should have used a different argument there.

  143. tarran
    For the record, I’m uncomfortable with the bailouts, largely for the reasons you give. Certainly I don’t like the “reverse socialism” (private profits followed by public assumption of costs), and I do think bail outs tend to reinforce and incentivize irrational behavior. Please don’t confuse those who bemoan the “deregulation” effort that we feel helped led to this with backing the bailouts or with us assuming that government did not play a stinky hand in this.

    I think intelligent regulation can provide incentives to hold back some irrational behavior that would occur and at times be promoted within relatively free markets. Don’t get me wrong though, too much regulation and in the wrong places can stifle needed innovation and entrepeneurship.

    So yes, perhaps Fed policy helped contribute to the Great Depression, but part of what at least exacerbated the problem was some irrational credit policies that were being extended by private organizations. People act irrationally all the time without any incentives from government.

  144. C’mon J sub D that’s like saying you don’t trust any doctors because you heard of a bad one.

    Haynes is a tool. But the overall practice of recognizing some people as expert witnesses in some areas is just common sense.

  145. What has happened to the facts, truth, accountability, integrity and justice? What has happened to basic questions such as who, what, where, when, and how – and even more basic – ANSWERS. Where has academic America gone; I mean the professors and teachers – those having moral cause to stand up and resist treason and crimes. The bell now tolls for these people to stand up and be counted. This purported financial crisis has been manufactured by the greedy and avaricious and indeed deeply evil money grubbing sobs and any person claiming to be an AMERICAN must stop this scam. Where are the journalists? Held at bay by the threat of losing their jobs? Indeed. Where are the journalism professors, the Church, the law schools and lawyers who must fight and resist this fraud. Those who put the US in this “crisis” must be the ones to reverse the mess. In other words the money stolen on the front end and during and now derived from buying low (part of the plan) and selling high must be stopped. THEY ARE STEALING THE COUNTRY BLIND. HOW CAN AMERICANS BE SO STUPID AND BLIND TO THE REALITIES OF WHAT HAS AND IS GOING TO HAPPEN. These people must be held to account as traitors, guilty of treason. These events just did not happen. They were engineered by the immoral money grubbers. Cunning, deceitful, wolves in sheeps’ clothing, devious, operating behind illusion and smoke and mirrors.

    WAKE UP CONGRESS. WAKE UP AMERICA. Did you know that Henry Paulson has a net worth in excess of 700 million dollars? America is on the verge of becoming a third world country based on treasonous leadership.

  146. “HOW CAN AMERICANS BE SO STUPID AND BLIND TO THE REALITIES OF WHAT HAS AND IS GOING TO HAPPEN.”

    Could it be the case has simply not been made to them in all caps before?

  147. “What has happened to the facts, truth, accountability, integrity and justice?”

    I agree, but I would add to the list, what has happened to the Steelers? WTF is wrong with them today? This is painful.

    Maybe they need a bailout…

  148. I find it incredible that people seem to be in a trance. Mesmerized by the snake charmers who seem to have hold over rational analysis. How can anyone think that life as usual is to be assumed. It isn’t. How can Americans live life as though this weekend is like any other? Football, etc. is nothing. The theft of America is at stake and these people assume that the leadership is true and honest. Have they no knowledge of the billions that have been TAKEN out of the market by use of immoral fundamentally flawed program trading, complicity, private equity, stock options and bogus buybacks (w/o cancellation of the certificates but a reserve for future executive compensation), market manipultion, etc. Why is there not a single brain functioning in the midst of the biggest swindle in history?

  149. Haynes is a tool. But the overall practice of recognizing some people as expert witnesses in some areas is just common sense.

    MNG, Haynes was one of four examples I listed (off the top of my head). All of which have been used to put innocent people in jail. All testified to by experts.

    You lack skepticism. That is an intellectual shortcoming.

  150. I agree, but I would add to the list, what has happened to the Steelers? WTF is wrong with them today? This is painful.

    You have no idea what pain is.
    At the half, 49ers 21, Lions 3.
    The kittens should be 0-3 after they finish going thru* the motions.

    * In ten years this will be an accepted alternate spelling of through. I’m ahead of my time.

  151. Now maybe the inflation arguement is that the bad loans wouldn’t have been made without massive hidden inflation?

    Exactly. Because the fed made unlimited funds available at an arbitrarily low interest rate, the banks benefitted by borrowing and re-lending their credit as much as they could.

    If the banks were constrained to only lending out their depositors’ money, the market rate for interest would rise as the demand for credit rose, and we’d hit an equilibrium instead of having a bubble.

    -jcr

  152. Mike L,

    Because the world isn’t about to end. And wouldn’t have been about to end if the bailouts had not happened.

    Well that’s what I thought but it isn’t what you hear. Okay, so I’m not completely off my rocker.

    As far as inflation clearing out the housing market, if you inflate currency across the board, then people can start selling their houses for dollar amounts that they somehow feel attached to. And yet, they will in fact be selling them at prices closer to reality. So both buyer and seller feel okay about things at last, and housing starts to move again.

    It’s a shell game, but the psychology of “MY house is worth $500k” is powerful.

  153. The observation that the Fed and other policy encouraged firms to take unwise risks, and the observation that there was insufficient regulation to keep the system healthy, are not inconsistent with one another.

    If there are interventions that encourage irresponsible risk-taking, it becomes even more important to have sufficient regulation.

    Liberals and libertarians can disagree about a lot, but this much should be beyond dispute: If there are going to be interventions that keep the financial world from tanking, there needs to be something to replace the market discipline.

    Deregulating the financial sector and failing to keep up as “innovative” strategies for selling debt and counting it as an asset, without eliminating the backstopping infrastructure, was Dee-Yoo-Emm dumb.

  154. I haven’t been touring the tubes on this. I slept too late to take in the Sunday morning gabfests as well. Ms. Pelosi’s first comments were somewhat supportive (with additional spending mandates). So I ask those who may be following the political game closer than I, is this piece of shit going to fly, shrink, or is it DOA?

    [carny barker voice] Step right up and make your predictions! Impress the girls (or guys) with your political savvy! You could win a valuable prize. Don’t be frightened young man, give it your best shot.

  155. MNG – it’s your blind faith and constant appeals to authority that irritate me, not the cognizance that there are people out there who specialize and have expertise in certain fields.

    Your implication that what tarran was saying was false simply because he’s not in the Ivory Tower was rude, wrong and logically fallacious.

  156. BTW, you are right, I am a dilettante in Economics and do not have any formal training whatsoever (although I helped my wife study for her Econ 101 exam in college).

    DEMAND KURVE!

    It is obvious that you are a dilettante: DEMAND KURV has no “E” at the end. Everyone trained knows that. 😉

    TAO —

    Appeals to authority are only fallacies if the authority is not derived from expertise that is relevant and applicable to the argument. True, an argument is not true *merely* because an expert spoke it…but it certainly improves the chances. Especially when considering complicated subjects and subtle situations.

  157. Should have been pushing Ron Paul months ago when it mattered. Barr going to haul your freight this time around? Doesn’t look like it. Thanks for wasting what is probably our last chance for a long tjme.

  158. “…is this piece of shit going to fly, shrink, or is it DOA?”

    I say fly, but only after the Dems apply their special touch…setting aside a big chunk for debt relief for the little guy, increasing capital gains or other taxes to offset the money being spent, etc.

  159. I think Ron Paul has it right. We have been living beyond our means. Now we need to cut back. The best place to cut back with out throwing grandma on the street is overseas spending. End the pointless wars in Iraq and Afghanistan. No more “aid” to Georgia. Etc, etc., etc.

    But my guess is these guys are going to run the dollar into the ground instead. Buy Gold!

  160. I think Congress is going to pare back the powers given to the Treasury Secretary before passing this.

    This bill states that he can hire without regard to any federal laws, and that he actions taken under this bill are not reviewable in any court of law.

    As strange as it is to say, the fact that the better part of a trillion dollars in tax money is going to bail out the financial sector is not the most important issue right now.

  161. Sandy Yago and Uh…

    you forgot context: Glenn Greenwald is comparing the illegal hacking of an email account to the illegal surveillance of U.S. citizens under the guise of looking for terrorists, and illuminating the hypocrisy of the right-wing media

  162. Jesse Walker:

    I think Henry Paulson, Lord Protector has a nicer ring to it.

  163. MNG,
    Have to agree, if only we had the “right” regulations, made by the “best qualified” people. Then these kind of things wouldn’t happen. I’m going out now to look for them. It’s for the children.

  164. As strange as it is to say, the fact that the better part of a trillion dollars in tax money is going to bail out the financial sector is not the most important issue right now.

    Sorta agree. The brazen attempt to concentrate ever more power in the executive is something odious we’ve come to expect from the Bush administration. With both parties
    unsure of who will be controlling the executive branch in four months, congress may just tell Paulson to slow the hell down and play by the Constitution.

    If this would have happened four years ago with the GOP in charge of everything, they’d have passed it with only token Dem opposition. Thank Odin for small favors.

    This is a horrible proposal for many reasons and deserves to be taken behind the barn and shot.

    Then drive a wooden stake thru it.
    Cremate it.
    Scatter the ashes to the winds.

    This is far worse than nothing.

  165. MNG,
    Have to agree, if only we had the “right” regulations, made by the “best qualified” people. Then these kind of things wouldn’t happen. I’m going out now to look for them. It’s for the children.

    It shouldn’t be too hard to find them, since they were in office from 1933 through the mid-90s.

  166. A whole lot of people who are used to holding forth about how deluded everyone else is on the subject of the regulatory state need to google the word “humility.”

    At the top of the list are people who think they can offer an intelligent opinion on the subject without knowing any more about financial industry regulation than that it involves the government.

  167. “McCain’s position on these issues keeps evolving; I expect that at some point next week he’ll call for parading short sellers through the streets in dunce caps.”

    Then the Democrats will say that McCain is showing undue leniency to saboteurs, Trotskyites and wreckers. McCain will respond by saying that the short-sellers should only wear dunce-caps after being beheaded. The Democrats will then complain that McCain is only decapitating the Democratic short-sellers; then the blogosphere will have extensive debates about the voting records of the executed people.

  168. It shouldn’t be too hard to find them, since they were in office from 1933 through the mid-90s.

    So what, Nixon went off the gold standard on a lark?!? Monetary system was puttering along in a well managed state?

  169. ” shouldn’t be too hard to find them, since they were in office from 1933 through the mid-90s.”

    Does this include the regulators appointed by Dwight D. Eisenhower, Richard Nixon and Ronald Reagan?

  170. TAO: “Your implication that what tarran was saying was false simply because he’s not in the Ivory Tower was rude, wrong and logically fallacious.”

    joe: “A whole lot of people who are used to holding forth about how deluded everyone else is on the subject of the regulatory state need to google the word “humility.”

    At the top of the list are people who think they can offer an intelligent opinion on the subject without knowing any more about financial industry regulation than that it involves the government.”

    I know TAO has a bit of trouble connecting things, so I did it for him, without myself having to comment one bit! But, since I like to talk:

    My point to tarran (and one I will note that he took quite well and, as it was meant, not as some personal slight) was that as neither of us were experts on the subject it might be best to try to talk about this on the level of common sense rather than empirical or theoretical claims that are widely disputed by folks who know much more about this stuff than we do (such as that the actions of the Fed “actually” caused all of this, or that the bulk of state/federal regulation was made not as a result of public outcry but according to public choice theory).

    You really have some kind of intellectual Napoleon complex concerning highly educated and experienced experts TAO, I still think there must have been some Grad school that sent you a rejection letter that you have just never forgotten about.

  171. Yeah, MNG, your insufferable, childish attitude and the fact that I take umbrage at it must be some kind of deep psychological Neo-Freudian false consciousness on MY part, and not just assholery on yours.

  172. You can find noted economists arguing that this clearly was the result of the fed, and ones arguing that this was the result of the deregulation efforts, and a lot of other theories. Tarran could quote his and I could quote mine, and we could reproduce figures and citations from them supporting our points.

    But my point is that libertarians often make a stronger claim than as to what empirically happened in a complex situation such as this (just that, what did and is happening is something being vigorously debated by people with far greater knowledge and contact with this subject than we have), they make the claim that due to certain a prior assumptions about markets (really about how people make choices) that this kind of thing simply could not be imagined as being fostered under a true system of voluntary exchanges. I argue that is bunk.

    One doesn’t need any special knowledge to comtemplate people and institutions making risky loans, buying securities made up of said loans, or insuring said loans, with an irrational optimism. People do this right in front of us all the time.

    One of the more prolific arguments for regulation is that psychologically people often have trouble calculating certain risks (look for example how there is a natural tendency for people to think of travel by car as safer than travel by flight in large part b/c there is an experienced lack of “control” in flight). Experts working as a field using certain controls and methods can often more accurately determine such risks. Interestingly many institutions try to create their own in-house regulations to control such human frailties.

  173. It’s assholery to defer to expert opinion on the subjects they are experts on? My you are an rugged individualist TAO! You see, as the quote from joe noted, I thought an asshole was more someone who, while having not studies something very long in a disciplined fashion and not being very close to the field and the data, then proceeds to not only pontificate how they have glimpsed the actual workings of complex things like the US economy better than those who have put in that hard and disciplined work, but who then go on to berate the “masses” for not realizing the truths they pontificate.

    Respecting and showing some deference to those who have worked harder and longer in their relevant field is being an asshole. Yeah TAO, what-ever!

  174. MNG said,

    My point to tarran (and one I will note that he took quite well and, as it was meant, not as some personal slight) was that as neither of us were experts on the subject it might be best to try to talk about this on the level of common sense rather than empirical or theoretical claims that are widely disputed by folks who know much more about this stuff than we do (such as that the actions of the Fed “actually” caused all of this, or that the bulk of state/federal regulation was made not as a result of public outcry but according to public choice theory).

    The thing is, though, I disagree with this. You are qualified to form an opinion on any subject on that man can conceive of. Yes, it might be difficult and require a great deal of time and effort to learn what is required, but I have no problem with non-experts trying to study a situation and come to their own conclusions.

    Let us assume, for the sake of argument, that mainstream economics is in the same state as mainstream astrology was in the 14th century. Now, a 14th century tarran might make the claim that astrology was a bunch of bunkum. Would the 14th century MNG be correct when he said, “gee Mr 14th century tarran, I notice that you haven’t graduated from astrology school or apprenticed in the field. There is a lot of dispute on the subject of astrology among experts so it is not a good idea for us to debate it as well.”

    Now, with the benefit of centuries of astronomical observations, we all know that astrology is bunkum, and I can say that today and not be criticized even though my knowledge of astronomy was acquired the same way I learned about economics, and I know nothing of what it means when Mars is ascendant in the house of Orion.

    You, MNG, as an adult human, are qualified to form an opinion and discuss any subject you wish. I bet if you spent a couple of hours each night reading up on quantum mechanics, inside a year you could intelligently discuss all the modern controversies without making an ass of yourself.

    So I disagree with your thesis very vehemently. You are right, however, that I took no offense. I didn’t take what you said as an insult – it is after all the truth that I am not formally trained in economics. I don’t agree with your thesis, but it’s not an unreasonable one. If someone challenged me to a debate on anthropogenic global warming, I would demur – since I have no data to make an opinion, and will have to trust some other expert (and I lack the patience to wade through the thousands of websites that discuss the topic in an effort to separate the high quality sources from the charlatans). But, if I were convinced that I had to learn up on the matter, and devoted a few months of study, there is no doubt in my mind, that I would be qualified to debate and discuss the matter with any expert (of course, I might come up with conclusions that were full of shit – I famously asserted wiht 99% confidence that Saddam Hussein had an active and functional chemical weapon program in 2002 (based on the existence of the Al-Samoud missile)). That is why I disagree with you.

    BTW, everybody knows that if you want to predict the future, go to a priest who is an expert in reading the livers of freshly sacrificed sheep. The astrologers managed to supplant them since people foolishly preffered inaccurate predictions that didn’t involve the cost and grossness factor of sheep sacrifice. The god damn astrologers also had a more effective special interest group.

  175. There is no greater violation of truth-in-labeling principles on this site than Mr. Nice Guy’s choice of handle. Seriously.

  176. tarran
    I agree with you, but in a very limited way.

    As you yourself say, on a topic like global warming, which you say you have not taken a great deal of time to delve into, you would defer to, I guess, either experts or some consensus of experts.

    Now, as I said in my initial response to you, I have no doubt that you are very well read in topics addressing finance and economics. And I don’t doubt that this would make you, or anyone fairly equipped to intelligently talk about this stuff. But I think you’d have to agree that the odds are (the odds now of course there will be exceptions), but the odds are that if reasonably intelligent person A has spent, say, two or three years in part time self guided study and reasonably intelligent person B has spend, say, 10-15 years of full time study among teachers who have spent on average 20-30 years of study on these subjects aiding his readings and studies, then it would be silly for someone to, in the face of disagreement between the two, to defer to the former rather than the latter.

    So if I come to a place like H&R where intelligent laypersons toss out or even argue positions which are notably controversial among experts in the relevant field I think it’s quite rational for me to assume that the layperson may have missed something in his reading, or failed to as rigorously analyze the data, or something. I’d certainly be a fool to be swayed when the argument is only as detailed as “the feds printed out more money, this gave lenders more to lend, they made more risky loans and we got this shit.” I mean, if an economicst were trying to prove this was empirically the case they would write a several volume book on the subject.

  177. own-goaled
    Wrong. I am in fact a Nice Guy. In fact your mom says I’m “fantastic.”

  178. Respecting and showing some deference to those who have worked harder and longer in their relevant field is being an asshole. Yeah TAO, what-ever!

    No. Implying that someone doesn’t know what he’s talking about based on some arbitrary standard of education is assholery, and rude to boot. Which is what you did.

  179. There is no greater violation of truth-in-labeling principles on this site than Mr. Nice Guy’s choice of handle. Seriously.

    Seriously. It must be some kind of sexual fetish on his part to being a rude boor and a prick.

  180. Paulson terminated Lehman (the street did not) and as a result was able to also extort 80% of AIG (RICO should apply). I can’t wait to see how Hank decides which tranches of which CDO^2 he should buy.

    PS – Goldman and MS just announced they are no longer investment banks are under control of FED.

  181. But my point is that libertarians often make a stronger claim than as to what empirically happened in a complex situation such as this (just that, what did and is happening is something being vigorously debated by people with far greater knowledge and contact with this subject than we have), they make the claim that due to certain a prior assumptions about markets (really about how people make choices) that this kind of thing simply could not be imagined as being fostered under a true system of voluntary exchanges. I argue that is bunk.

    Sure, bubbles happen from time to time but why does it seem that it always takes government meddling to really f— things up?

  182. MNG, the funny thing about economics is that there are several different schools that are all populated by experts. And, some of them believe radically different things. So, I get to pick an expert that says that it’s all about the Fed and inflation. And, being the well-read layman that I am, I have yet to find compelling evidence that dissuades me from that point of view.

    Joe, I don’t know squat about financial industry regulation. But who does? If you want people who know a lot about the financial industry to write the regulations you pretty much have to find people in the industry. And where are they going to go after their civic service is complete? Back to the industry. How then could you trust them?

  183. taxpayer strike ahead!

  184. I think Greenwald is the deliberately illogical kind. He must be smart enough to know that making the point (hacking into someone’s email account and posting it on the Internet for political gains = government monitoring emails while looking for terrorists) on its face value would be indefensible. So he wraps it into a satire which bedazzles the mentally weak or the politically gullible.

    I’m more than happy to stick up for Greenwald here.

    It is a cliche of the pro-police-state forces in popular debate to state that people with nothing to hide don’t have to worry about government eavesdropping and surveillance. The absolutely necessary implication of that statement is that if Sarah Palin has nothing to hide, she shouldn’t care about people hacking her email.

    Greenwald’s satirical point is not only not “indefensible”, it’s perfectly on point.

    The motive behind the eavesdropping is completely irrelevant, and your attempt to use it as a distinction doesn’t concern me in the fucking least. I don’t want to hear any complaints about privacy, against ANY eavesdropper, from the nominee of a party that has lived by the principle “If you have nothing to hide you have nothing to fear”, and which has shat on the 4th Amendment at every opportunity. Talk to the fucking hand, whiners.

    Based on her running mate’s voting record and the governing record of her party, I would be perfectly happy if Sarah Palin had her email hacked, was kidnapped off the street in Italy, shipped to a series of secret detenion centers both under US control and the control of foreign governments, held without access to a lawyer, tortured at length, sent to Iraq to be raped by government contractors, dumped on to the tarmac at JFK, and then laughed out of court on the basis of claims that all possible evidence in her case[s] was restricted on the basis of national security. Fair is fucking fair, after all. That’s how the GOP expects the rest of humanity to live, so let’s let the maxim of their action determine how we treat them, too.

  185. Jeez Fluffy,

    If the GOP is “all that” maybe you ought to vote DemocRAT.When I get robbed by a street criminal I shouldn’t complain because it is just like paying taxes?

  186. But fluffy (and tarran too I think), how nutty would it be for an opponent of active government to point to a financial disaster that occurred in a time of much less government activism than the better financial events occuring since a great expansion of government activism and say, well, it must have been the comparitively small amount of activism that was occuring back then that is responsible. That’s incredible.

    The pool of sample events isn’t as small as you and joe seem to think it is. I am fairly familiar with the history of economic disasters in Europe and the US since the restoration of the international money economy in the 13th century, and the sheer number of bubbles and collapses associated with state debt and currency manipulation is staggering.

    And by the way, I don’t see how you can really say the First World War, and the entire postwar system of international finance built up on an ad hoc basis to manage the German war debt, can be seen as a trivial or minor intervention. The First World War was a pretty significant piece of “activism”. And while the overall amount of state activism in the economy may be higher now than it was then, in the sense that virtually every area of human activity is now subject micromanagement by some level of government or other, the basic set of currency and credit intervention tools at the state’s disposal even that long ago was quite considerable.

  187. When I get robbed by a street criminal I shouldn’t complain because it is just like paying taxes?

    I’m not one of those who think that all possible taxation schemes are theft, so I wouldn’t go that far.

    But if you [for example] advocate sticking a government camera in everyone’s bedroom, I don’t want to hear you complain to me about the neighborhood peeping Tom. That much I would say, yeah.

  188. to innominate: how much of gov snooping is illegal is a mater of contention and political conviction. Immoral does not equate illegal.

    It is like equating the police searching your apartment with your neighbor breaking in and taking your tv.

    to Fluffy: it is people like you who make debate about anything impossible. The only reasonable comeback to your screed would be “OK, then I wish you would be trampled to death by an elephant so then you will know what it feels like to be tortured and raped” to which you would reply “Aha, but then I wish your mother was hit by an atomic bomb” – and then we are at the level of the average political discussion board, minus Hitler, but it should not be far behind.

    Sad.

  189. Thanks Marc.

    “”Anyhoo. What I don’t get is that as long as the government is going to spend a trillion dollars clearing up this mess, why don’t they just bail out the homeowners directly? It would have more popular support. Or is that too clearly socialist?””

    Isn’t it socialist either way?

    The dems will want to add something to it that will help the home owners. The Whitehouse will pressure Congress on time. Don’t read our plan, just pass it. It will be interesting to see if the dems stand up or cave.

  190. They’ll do what they’ve done all along. They’ll stand up and name their price. The Bush will do what’s he done all along, which is give it to them.

    And then it will pass, price tag be damned.

  191. “Isn’t it socialist either way?”

    Sure, but one is more traditionally and obviously socialist.

    Looks like the dems might indeed be looking for homeowner relief… should have kept my big mouth shut.

  192. to innominate: how much of gov snooping is illegal is a mater of contention and political conviction. Immoral does not equate illegal.

    Um…yeah. That’s exactly the point. We disagree about how much privacy is warranted.

    And if a person argues the point that no privacy is warranted, I just don’t want them to come back to me later and whine about their own privacy.

    It is like equating the police searching your apartment with your neighbor breaking in and taking your tv.

    Yes, it is. And if someone were to advocate changing the law to allow police to kick in any door they want, at all times, without warrants, I would in fact laugh at that person if someone kicked in their door and stole their TV. Because whether you realize it or not, turning back the clock on centuries of common law regarding searches and warrants fundamentally alters the nature of property.

    If you don’t believe that citizens should be secure in their persons and effects, then you should be prepared to accept the consequences of that.

    to Fluffy: it is people like you who make debate about anything impossible.

    And people like you make debate a joke, because they are too intellectually dishonest to be held to a consistent point about anything, and so there’s no “there” there to debate them about.

    The list of items I included in my “screed” was precisely chosen, because each of them reflects a legal principle articulated by the Bush administration, or an actual event that took place under the Bush administration.

    The Bush administration sent intelligence operatives to kidnap a legal resident of Italy off the street without bothering to tell the government of Italy about it and without requesting extradition.

    The Bush administration has held persons in secret detention centers, and has also rendited persons for torture abroad.

    The Bush administration has held persons incommunicado and without access to attorneys for extended periods.

    The Bush administration created a legal regime in Iraq wherein female employees of government contractors who were raped by coworkers had no legal recourse or access to courts.

    The Bush administration has repeatedly asserted a national security privilege to deny litigants discovery materials and to have lawsuits in US courts dismissed.

    So basically you’re saying that you’re cool with the fact that all these things happened, but if I list them in a post and wish them on Republicans, I’m impossible to debate with. Whatever.

  193. With many new announcement about the wizard of oz movies in the news, you might want to consider starting to obtain Wizard of Oz book series either as collectible or investment at RareOzBooks.com.

  194. put him behind bars? The fed owns all of the jails – they print all of the money for them. You’re too kind with your suggested punishment. Americans desperately NEED to get angry – so many people have diets of Rx pills and non-nutritional? fast food (provided to you by the very same corporations that are in bed with the Fed) – we live in a fascist country dominated by mass consumerism – and we keep everyone in power by going along, buying shit and watching TV programs.
    http://www.mirei.com

  195. Are you kidding me? They are crying the blues yet they have millions to still give away to stupid sports stuff.
    Austin Roofing Companies

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