Monday, September 29, 2008

They did WHAT?

Congress - of whom I generally have low expectations - has startled even me today. They actually voted down the bailout bill that Congressional leaders had spent an entire week hammering out.

So now what? No one is quite sure. The trouble with the bailout bill, though, was that even if it had passed both Houses of Congress, no one was quite sure what next. Henry Paulsen had something he considered a plan, but he never explained it in much detail - IMHO because even he wasn't really sure what it was, but he was convinced that if he could throw enough money at the problem, some of it would stick.

The interesting thing is not that
the markets are down - everybody expected that - but they aren't down as far as one might expect. They're down about 7% at the end of the day. The Dow is down not quite 778 points, which is the all time high in number of points lost - but is NOT one of the 10 greatest market percentage drops (see the lists in this article from CNNMoney.com), and the market is still above 10,000. Ten thousand on the Dow was a pipe dream for most of the years I've been watching the markets. The market is still higher than it was in March 1999, when it crossed 10,000 for the first time in history.

So the interesting question is: why isn't the market worse? (As well as, "Now what?") I don't have an answer.

Politically, of course, they "had to do it". According to NPR this morning, every Congressional office in the country has been flooded with furious calls from constituents, urging them not to bail the bastards out. They're all up for re-election in November - the entire House of Representatives - and they all felt they couldn't face the voters unless they could justify their votes. In fact, the real political courage today was shown by the people who voted for the bailout.

I wonder if the leaders of the financial industry realized exactly how much they were hated by Joe Sixpak, that quintessential American on Main Street. I'm quite sure they didn't care.

2 comments:

  1. The McLaughlin Report reported figures of pay-cut for some top financial industry executives this last weekend. Apparently McLaughlin thought posting these drops would actually support the position that they'd already felt enough "pain" that a bail-out was okay. But if you were making a billion dollars a year, and you're now "only" making 500 million (500 million??????????) it's not likely that anyone (NO exceptions) is going to empathize with you.

    The concentration of capital at the top of the hierarchy has become so pronounced that it's hard to believe anyone would find justification for supporting our regulation-free, free-for-all financial system in this country. The old ppst-War pacts between labor and business, and between our Federal Government and the citizenry has completely broken down. "It can't happen here." But it did.

    The current financial crisis is further evidence of just how much mischief people in a position of authority over our broad financial interests could justify to themselves in the interests of greed.

    You mention the dwindling number of commercial banking institutions (and they ARE institutions, in the sense that their share of the available capital represents such a huge percentage of the national wealth). Wealth in our country was once concentrated in land (agriculture and extractive industries). Then industry became king. Sometime in the 1970's, finance took over as the biggest "producer" of wealth. But finance is just a form of manipulation of currency and value--it really doesn't generate anything except speculation, and the hollow "appreciation" which false hopes generate. In other words, we've become a nation of investors who "hope" and "believe." Never before has the concept of "full faith and confidence" been so ringingly relevant.

    As the Bush Administration has pushed the budget into huge new deficits, finance has pumped up a bubble of fake land and real estate value and empty equity appreciation. Asking the Feds to step in and prop up the finance industry now is only adding fuel to the fire of depreciation.

    The intelligent thing now is to let these markets--the housing and commercial real estate markets, the equities trading systems--CORRECT. What we're seeing now is the obverse of the bubble. Keynesian theory states that government "gently" encourage liquidity with baseline insurance (FDIC) and incremental interest rate adjustments. That, and making sure that banks and investment brokers don't sleep together is pretty much what has kept us sailing along since the Depression. But the Republicans changed the rules in the 1990's. Woe to Clinton for letting them do that! He should have known better; but the "Centrist" sentiment was so strong in those days (NAFTA etc.), that it was like a steamroller. It fueled the dot-com bubble. And the real estate bubble.

    But markets don't always go up. It's time the naughty execs paid some dues. It's going to hurt everyone, but that hurt is healthy for the system.

    The House Republicans--bless them (!)--had seen enough. The Paulson (Bush) "solution" was just a big giveaway meant to buy time.

    One thing I heard about the plan was that the Feds would "buy" these underperforming loans at original face value, then sell them at 20 cents on the value; the plan actually would "require" the Feds to sell them to the very people from whom they bought them. Then (are you paying attention?), they be "required" to buy them AGAIN at a new "reset" higher rate. In other words, the Feds would be "trading" these loans and derivatives back and forth with the original financiers, each time pumping profit (YOUR money, taxpayers!) into the companies.

    If this sounds astounding, there's more. Paulson and Bernanke are expected to go right back into the investment banking field in January, when the Bush term expires. If they "succeed" in bailing out their old cronies, their reward will be-- hundreds of millions of dollars in fat salaries, stock options and perks (including platinum parachutes)! In other words, they'd be paying themselves with our money.

    I'm sorry for people who're losing their homes. I'm sorry for people who're seeing their retirement savings dwindle. I'm sorry for young college graduates who'll cut carrots instead of manage portfolios. But that's capitalism. When things are boom, it's lovely. But bust is the other side of the coin. It's our system. We've fought wars to preserve it.

    Practically, I think some mild interest rate relief might help those who "deserve" to stay in properties they bought. I think a few modest tax write-off provisions might help the financial corporations to claw back to liquidity, with some belt-tightening. I think encouraging domestic employment with some Federal jobs programs (as was done in the 1930's) would be nice, too. People always look with nostalgic longing at those programs--but what's wrong with doing them again? Our national parks, our cities, our infrastructure, our arts could all benefit.

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