Bailout Bill Follies
Thu Oct 02, 2008 at 01:56:48 PM PDT
The good news, for incensed bill opponents like myself, is that the voices of others besides the Bush administration are finally being at least brought to public attention, though my own expectation is that at this point the Paulson premise -- money for toxic assets, and let the companies get on with being Masters of Their Universe again -- is unstoppable. The Issac more generic premise, that we should not be acquiring the bad assets of these companies, but acquiring equity stakes in them in exchange for taxpayer assistance, is at least being discussed, though it seemingly will still be ignored in favor of ramming through the much, much more corporate-coddling Paulson plan.
And that's absurd, because the equity premise, whether as described by Issac, Krugman, or past historical events, seems a much more logical and less potentially hazardous solution. Those promoting the $700 billion Paulson plan seem to keep mum on a rather central point of the debate -- that it may not even work, and that at the very least it won't do anything to actually improve the economy, but will at best merely keep it teetering on the edge of the abyss. If other plans can accomplish the same for less, than suddenly we've got hundreds of billions of dollars worth of economic stimulus or New Deal-style investment that could be applied, and perhaps a true path forward, as opposed to simply running in place.
I've been trying to figure out what supposed "sweeteners" in the Senate bill might be used by Republican House members to change their positions, and for the life of me, there isn't much there. In usual Senate fashion (voting in the Senate is a gawdawful mess, so bills that do appear tend to be large and, well, inexplicable in scope), the Senate bill is a kitchen-sink approach, lumping together everything from $700 billion to bail out Wall Street's toxic assets to a reduction of the excise tax on wooden arrows intended for children. Wooden arrows intended to be used by children, that is, not wooden arrows pointed at them. Important difference. We're only going to indebt them for their entire lives, here, we're not actually going to impale them as well.
Wavering Republicans seem to be gravitating towards two things to claim that this bill is better than the first one. The first is the raising of the FDIC insurance cap from $100,000 to $250,000. The second is the relaxation of mark-to-market accounting rules, meaning investment houses will be able to "model" what they think their mortgage-related sh-tpiles might be worth in a theoretical market, as opposed to having to report true current market value. That's been a huge one, since (simplified, admittedly) the premise is that this market crisis was not caused by the actual mortgage market getting worse, or the related investments turning bad -- just the onerous rule that says you've got to actually pipe up and say so.
But that's just strange. If we were to believe the Republican objectors, they were objecting to the very principle of bailing out these companies, under the rules of capitalism and the free market and blah blah blah. As it turns out, that wasn't the objection at all, if it can be so easily overcome. And there is absolutely no reason to tie either action specifically to the Paulson plan -- they could be added to any bill. Raising the FDIC cap as separate bill would take no time at all, even for the ponderous Senate, and it probably should be done. Relaxing the mark-to-market standards that are making the corporate books look so very bad probably shouldn't be done, but to some extent it already has been: the SEC loosened those rules on Tuesday, thanks to "intense" pressure by the corporations in question.
So pretending that we need to engage in a no-risk-to-the-companies purchase of toxic assets in order to get any other positive (or negative) solutions passed is silly. Insultingly so, in fact. The question here should not be whether or not you can stuff the bill with enough things to make enough people happy to ram it through, the question should be whether or not it is even the best, least risky, least expensive approach to the problem. And thanks to a stubborn unwillingness by the Bush administration, Paulson, and the Democratic leadership, and aggressive pressure by the institutions most responsible for the current mess and which have the most to gain from a Paulson-style solution, we're not even getting a discussion of the matter.
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This is Abraham Lincoln, then an Illinois state representative, speaking in the legislature on January 11, 1837. He's referring to a dispute between
private shareholders of the Illinois State Bank:
It is an old maxim and a very sound one, that he that
dances should always pay the fiddler. Now, sir, in the
present case, if any gentlemen, whose money is a burden
to them, choose to lead off a dance, I am decidedly opposed
to the people's money being used to pay the fiddler...
all this to settle a question in which the people have no
interest, and about which they care nothing. These
capitalists generally act harmoniously, and in concert,
to fleece the people, and now, that they have got into
a quarrel with themselves, we are called upon to
appropriate the people's money to settle the quarrel.
Sic Transit Gloria Locavore!
by Asinus Asinum Fricat on Thu Oct 02, 2008 at 01:59:17 PM PDT