Bailout Blues
Wall Street turns into Main Street quicker than you may think.
So lately the news has been logjammed with Sarah Palin and the $700B bailout. Although I’m close to my fill of re-hashed Palin clips (which, trust me, don’t get old easy). I have had my fill of the ignorance and mis-guided masses resoundingly telling their congressmen to vote “No” on the bailout bill.
Look, obviously I don’t have much sympathy for the fat cats on Wall Street, but to not want this bailout to pass is missing a large point. When the credit markets seize and the market crashes the guy who had a net worth of $500M goes down to $100M has to make an adjustment in lifestyles sure, but when it’s a middle class family taking the hit it could mean the difference between fine and foreclosure.
The pundit I have seen best make the points I think the American people need to hear coherently is Ali Velshi of CNN. Take a look at This clip where he explains just how the Market troubles will trickle down to you quicker than you think: (Sorry can’t embed because it’s from CNN, Still working on it)
If you watched that and still think that your local congressman should vote no. I’d love to hear your argument because I haven’t heard one that made sense yet.
Hi, My name is Blaise Collins, and I think I want to become a journalist. 
When the credit markets seize and the market crashes the guy who had a net worth of $500M goes down to $100M has to make an adjustment in lifestyles sure, but when it’s a middle class family taking the hit it could mean the difference between fine and foreclosure.
This would be a good argument for the bailout if it included an argument that the bailout itself would (in this event) forestall that foreclosure. But it doesn’t.
We can agree that things are bad and that something should be done, but this doesn’t make the bailout proposal as written over the weekend a good idea just because it’s “something”. Lots of things I could think of are “something” but to get fellow citizens in a civil society to support the “something” you’d like to see done, making rational arguments for it, supported by details and analysis, is usually best.
I find it quite odd that millions of people, and nearly half of Congress, who quite plainly have no idea whatsoever what the details of the Paulson plan are, are not only in favor of it but think that anyone who isn’t, is ‘ignorant and misguided’. Funny, I think it’s the other way around.
Sonic Charmer
October 1, 2008 at 2:59 am
I can see your point. And I agree that there are things in this plan that I would love to se differently. But once the bill is put in, it can be further looked at and modified over time.
The market is built entirely on speculation, as evident by the 777 point plunge on Monday after the bill failed and the surge it made today due to talks it would be revisited. What a bailout bill does right now is gets companies lending money again by creating confidence in the market. Without this plan, businesses over the next few months will not be able to get as much short term credit, and this will translate into jobs lost. Our economy is bad enough, this will nearly throw gasoline on an already engulfed fire that is our economy.
sillyhatsonly
October 1, 2008 at 3:14 am
Well, I guess I’m not so optimistic that once a mammoth $700bb slush-fund bill is passed, it can be that easily changed. When I say I don’t think it’s a good idea & don’t think it will help, I’m not talking about minor details here & there, I’m talking about the core idea behind the bailout.
As for the stock market, IMHO the problem we’re seeing is that due to the hamhanded and very public way that Paulson has demanded/begged for a bailout, the market is stuck in a wait-and-see mode. There is an expectation that “the government is going to do something” built into market behavior right now. It can’t get back on track and start trading on fundamentals until the government situation is resolved one way or another – either pass something or SHUT UP.
But that is a separate matter from the credit crunch itself. And I guess my point is that, when you say that a bailout bill would at least “get companies lending again by creating confidence in the market”, I don’t believe that’s true. Or, if it is, maybe it would be a one-week or two-week effect, and then we’d be back where we started…but we’d have created a Mega-Fannie-Style $700bb slush fund in the meantime. No thanks.
When you bring up short term credit I assume what you’re talking about the commercial paper market. Yes, I understand that if CP seized up it would be bad and there will be fallout. But this is the basic point: what does the bailout have to do with CP? How does it address whatever’s fundamentally threatening to cause a market failure in the CP market? Maybe I just don’t know enough details of the plan, but from what I’ve heard about it, it boils down to “throw money at banks for their crappy bonds”. Well, that might ‘help’ for a while on a very short term basis – but then what? This is why I still need a literal, real, actual argument for the plan as written grounded in the actual details of the plan. best
Sonic Charmer
October 1, 2008 at 11:01 am
All of your scenarios are insighting that there will be no oversight into the $700B, which just isn’t true. That is why the bill was stalled by Democrats in it’s first proposal. Republicans didn’t write any oversight into the bill.
Our economy is like a house on fire right now. You may know your kid set the fire, but you don’t spend hours debating how he should be punished, then hours deciding which part of the house you’re going to save first. You stop the fire first! That’s what this bill is. It’s a tourniquet to stop the bleeding of our economy and once it’s on, we can fix and clean up this bill. But if this bill gets stalled because it isn’t perfect, this economy is in dire trouble.
sillyhatsonly
October 1, 2008 at 12:00 pm
Sorry, but I’m gonna have to disagree with you on this one. Our country was founded on a free market system and the best way to preserve that is to let the market work itself out. This bailout is not so much a bailout as it is a financial takeover, with the government buying controlling interest in some of the most powerful financial institutions in the country. The problem isn’t that there’s not enough oversight… it’s that there will be too much. The government would take unprecedented control of the economy in a borderline-socialist move.
Let’s put it this way: Do you want the same government (Dem-controlled Congress included with He-Who-Shouldn’t-Have-Been-Named-In-The-First-Place) that poured billions a month into a war against abstract concepts to be handling billions of private investors’ money?
The money is much better spent on education reforms, providing low or no-interest small business loans or start-up grants, and otherwise improving the social system that created this problem in the first place.
-Talia
P.S. Nice blog! I’m glad you have the same level of blog-ADHD as me! Although me and Nancy (eventually) are blogging at popped.wordpress.com about much more pressing issues like who Tarantino is going to cast in his next flick.
T.
October 1, 2008 at 3:17 pm
Heh Thanks Talia.
Although I agree with everything you said in principle, It’s unfortunate, but true, that it is only that. The gov’t in this situation would indeed take control, but would eventually sell that control back, at a profit possibly, and we would be able to stabilize. If we just let all this fail on it’s own and let itself adjust to quickly, we will be feeling the tightening of the belt far too fast and life in America will not be a pleasant one.
sillyhatsonly
October 1, 2008 at 4:05 pm
But that kind of logic is what drives legislation like The Patriot Act and makes the administration turn a blind eye to ethnic profiling,surveillance, temporary seizing of private property etc… While this may be an effective short-time fix to the financial crisis, in the long term it sets up a frightening precedent for government control.
American life might not be pleasant for a while, but with the right social reforms (food stamps, housing credits, etc.) it would be a bearable one. Plus people might start investing more in small business and trusting less in corporate investments.
T.
October 1, 2008 at 5:40 pm
I hope you’re right, but knowing America’s track record I guess I prepare for the worst now.
sillyhatsonly
October 1, 2008 at 8:40 pm
All of your scenarios are insighting that there will be no oversight into the $700B, which just isn’t true.
I guess I’m not so confident in the sort of “oversight” that the government is likely to engage in of an agency like this. Fannie and Freddie had “oversight” too, you know. How’d that work out?
That is why the bill was stalled by Democrats in it’s first proposal. Republicans didn’t write any oversight into the bill.
Um, this does not really correspond to real events.
Our economy is like a house on fire right now. You may know your kid set the fire, but you don’t spend hours debating how he should be punished, then hours deciding which part of the house you’re going to save first. You stop the fire first!
Yes, but not with gasoline.
That’s what this bill is. It’s a tourniquet to stop the bleeding of our economy
Whether that’s what this bill is – whether it really will stop the bleeding – is precisely what is under dispute.
Personally, from what we’ve heard about it (which is admittedly not much because the plan is so vague) I do not think it will. If I thought it would stop the bleeding, I’d probably support it, like you. Make sense?
So tell me then, why do *you* think it will stop the bleeding? Precisely what about the plan is a good idea and will help?
But if this bill gets stalled because it isn’t perfect, this economy is in dire trouble.
The economy is in dire trouble either way. Stupid-bad loans were given to people who could not (or didn’t intend to) pay them back, and then booked as having present-value. That present-value is going to have to be written all the way down somehow or another. There is no magic way of getting around this. Meanwhile, this bill will do harm IMHO. Treasury will either pay the lowest market price for these MBS (and force everyone else to take writedowns) or they will overpay (and waste taxpayer money while benefitting only banks that made bad loans). It’s not clear which yet (again, because the plan is so freaking vague) but neither is a good idea and neither will help our economy.
Sonic Charmer
October 2, 2008 at 1:44 am