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Not so fast on that bailout package
By Dennis Byrne
Chicago Tribune
The American public on Monday stuck it to the "knowledgeable and sophisticated" elites who warned that without the $700 billion federal financial bailout plan all hell would break loose.
The House vote, 228-205, was a rejection, for better or worse, by "regular Americans" of the Hobson's choice presented to them by the upper echelons of government, politics, Wall Street, media and others.
Either:
Write a blank check for $700 billion, $350 billion or whatever, in the most drastic U.S. government intrusion into the private sector perhaps ever, or at least since the Great Depression, with unknown consequences; or, live through another Great Depression, with unemployment of "20 percent," loss of homes and other horrors.
We who hesitate are lost. On top of that, the public was asked to pick its poison immediately, without congressional hearings, extensive public debate or any other accouterments of a democratic republic. The public was required to accept the edict. No look before you leap.
That an upstart public would flood Congress and the administration with unscripted, immediate and overwhelmingly negative reaction was, itself, considered a disaster of unprecedented proportions. You could read in the faces of the Wall Street types on CNBC and elsewhere their astonishment that anyone would dare defy their wisdom. Jim Cramer, the popular stock guru, expressed it best when he stated that the folks who opposed the deal are "not knowledgeable or sophisticated." As if everyone who disagreed with him is stupid.
Rant and rave all they want about how the 95 Democrats and 133 Republicans who voted against the package were cowardly hacks genuflecting to the populist rabble, the truth is their vote was courageous. They are the ones taking the risk in a belief that a more sensible, middle-ground position can be worked out; they are putting their chips on the belief that the nation won't go belly up by stopping for a moment to have more debate.
They aren't the ones who dumped a 110-page bill on top of everyone the night before the vote. After the vote, Democratic House Speaker Nancy Pelosi and the rest of her gang accused the Republicans of being ideologues who couldn't depart from harebrained, free-market notions, while seeming to forget that 95 members of her own caucus would be guilty of the same sin. This is the same Nancy Pelosi who after the vote bizarrely blamed Republicans for a failure of bipartisanship, when, during the debate leading up to the vote, she let loose with a nasty partisan attack totally inappropriate for the quality of the debate. You had to see it to believe it: There was rational debate on the House floor, indeed in a spirit of bipartisanship, and then she comes along blaming President George W. Bush for everything.
It sure put a damper on the debate. But if turned off Republicans were mad enough to switch votes from aye to a nay just for that reason, Rep. Barney Frank, the Massachusetts Democrat who managed the legislation, was right: Putting personal affront ahead of the national good is ridiculous.
Easy for me to take shots from the sidelines; as much as I dislike the legislation, I might have voted for it, because I'd be scared stiff about the consequences of no bailout. But in the few short days of debate, I also know that other possible routes are available for addressing the "seizing up" of the credit markets. Among them are accounting-rules changes that would allow banks to keep good mortgages on their books at their face value, instead of deeply writing off their value, thereby strangling the ability of banks to make loans.
How about the involvement of the Federal Deposit Insurance Corp., which in the past week managed to salvage the assets of two major financial institutions without endangering a dollar of taxpayers' money?
So, rack up another congressional failure in what seems to me to be the most unproductive legislative session in my memory. Here's a Congress whose public approval ratings are lower even than Bush's. The markets, of course, will spin wildly out of sight, offended by this public uprising. But things will settle down, Congress will work it out. Take the word of someone who don't know nothing.
Read more comments on this column at RealClearPolitics
2 comments:
Thanks for your editorial this morning.
Henry Paulsen created a climate of fear, and told us if we did not do things his way, disaster would strike. I rarely agree with Newt Gingrich, but when he said last night that Paulsen should be fired, I totally agreed. We need a Sec Treas who is a calming influence, not somebody who creates panic. Every hearing, every TV appearance, Paulsen was doing his Chicken Little impersonation, with the addition that he was the only one who could save us. Is he more interested in saving us, or saving his friends at Goldman Sachs?
Newt also agrees with you on Mark to market. What seemed like a good decision by FASB in reaction to the Enron phony value scandals, has had unintended consequences. Too far, too fast, too rigid. The way they did it is like I buy a house in small town Iowa for 100K, get a mortgage for the standard 80 percent, and 2 years I have reduced the mortgage to $75K. However, some freak occurrence has dropped the price of houses like mine (or houses that appear to be like mine) to 90K. 80 percent of 90K is 72K, and somebody at the bank calls to tell me that I have to pony up 3K to make up the difference between what I owe and the 72K. Even though I have no intention of selling the house soon, and if I was forced to sell, I would probably get the 90K, and they would get their 75K back. Makes no sense, but considering that mark to market before was abused, and in some cases mark to make-believe, we had to do something, but the way we did it was an over-reaction.
The guys on CNBC seemed reasonable until about 10 days ago, when they seemed to Panic with Hank. Since then just about every financial reporter on TV has almost been hysterical, especially Avi on CNN.
I still need to have a lot of questions answered before I would advise my congressman to vote yes on any action:
1. If a credit default swap is essentially an insurance policy, why aren't the "policyholders" required to have a financial interest in the financial object in question? My understanding is that I can enter into a CDS with John Doe, and the object is Suzy Q's mortgage. If Suzy Q's mortgage does go into default, Jo9hn Doe or I make money. Insurance is to protect people who have an insurable interest from loss. Since John Doe and I have no insurable interest here, there is motivation for one of us to manipulate her mortgage into default for our own advantage. What is the difference between that and a bet on whether the Patriots win 14 games or not? How else do you explain the fact that total mortgage plus corporate debt in the US is less that 20 Trillion, but the total of CDS's is over 50 trillion. That looks like a big casino to me.
2. The bad judgment of people on Wall Street got us into this mess, why give THEM more money. Why not funnel the money to institutions that exercised good judgment?
3. Isn't the fed better suited to deal with liquidity issues? If treasury does it, you are just moving money from one part of the economy to the other.
4. What would the bailout money have gone to? Derivatives? CDS's? Mortgages?
5. Who was going to make a boatload of money if the bailout had gone through? Somebody was picking up some of those instruments cheap, and was going to make a killing if the bailout passed.
6. Who is investigating fraud in the housing market? Time mag had an article this summer about fraudulent flip transactions in Cleveland. What about fraudulent appraisals and fraudulent bond ratings?
What is interesting is Bernanke. IF he is really this expert on the depression that everybody says he is, he would be telling us that the effects of the Depression did not start kicking in for quite some time after the October 1929 Crash. We have time to calmly analyze the situation, and take a reasoned approach. What got us into trouble in the Thirties was the government over- reacting to a perceived crisis.
So, is it wrong for me to be looking forward to some of these "Masters of the Universe" doing a perp walk?
Hell yes!
In times of prosperity; we (the little people) have recieved too many lectures on market discipline and the horrors of socialism.
This is market discipline.
Let the big boys collapse should be the cheer. We will build Americas economy back up from the ground, it was bound to happen sooner or later.
If they had ended up passing this legislation, then the next step for the American people, after voting the bums out, is to begin organising tax-resistance!
Boston Tea Party baby...
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