Paulson: Um, change of plans on the bailout money
posted at 2:26 pm on November 12, 2008 by Allahpundit
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The money bit (pun intended) comes at 1:15. It seems the Troubled Asset Relief Program will no longer involve, er, troubled assets, but rather injecting capital — which, per Slublog, sounds like a good idea to one of the very few bloggers able to comment on this mind-boggling subject beyond the level of ideological boilerplate. (Me not included.)
Notably, Paulson didn’t mention a bailout for the auto industry, which The One appears to favor. Next in line after them: American Express. The boss would disqualify people like me who supported Bailout v1.0 from leadership positions in the party going forward because of the perverse incentives we’ve created, but I’m with Megan McArdle (as usual): Why should bailing out the financial industry, whose failure would present a dire and systemic risk of failure to the whole economy, lead ineluctably to bailing out other industries, especially ones as rotten as U.S. automotive? It’s the financial equivalent of that story on pandemics that I linked in Headlines: When catastrophe strikes and resources are scarce, you think hard and choose the “essential” entities that must be saved to keep society running. The country’s credit industry qualifies; the auto industry doesn’t. Or so it seems to this ignoramus. Read McArdle to see why a bailout won’t help GM, even if it does go through.
Exit question: Paulson insisted today that Bailout v1.0 went a long way towards stabilizing markets. Is that true or not? Whoever lost the bailout debate in September was bound to claim that the other side accomplished nothing by their action/inaction; bailout opponents will doubtless point to the enduring credit crunch and the fact that the Dow is hovering at 8300 as I write this. What makes you think things wouldn’t now be much worse if you’d had your way, though? I’m asking earnestly because I’m not sure I’m right, whereas bailout opponents seem very, very sure they’re right, which strikes me as odd given what I said earlier about there being relatively few people who understand all this.
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Actually, it was Quantum Theory that did that … :)
Sorry. I couldn’t help myself.
You can’t get away from these instruments in a complex financial system. Growth is what this system is organized around (as it should be) and that means that it is always about the future and valuing the future. This will always be inexact.
But, aside from any problems with the financial/monetary system (as there are problems with all systems so large and complex) and apart from governmental and private abuses of the system, there is the public culpability in that people have decided that recessions are no longer ‘allowed’. They have trained their politicians that way, and the economy has been run that way. Likie never letting any natural fires burn. All those elements added together, along with some external problems, are not good.
progressoverpeace on November 12, 2008 at 3:20 PM
One of many hopey changey changes coming our way.
tarpon on November 12, 2008 at 3:21 PM
Capitalism stops working if all the players in one industry decide to take their money and go home, which is what happened to the banking industry. The spike in bank-to-bank loan rates are the proof that banks had entered full panic mode. The bailout eventually returned confidence, and the rates have come down considerably. So even if Paulson does nothing with the money, the mere fact that the money is available has an effect of returning normalcy to banking.
One of the few problems with capitalism is the boom/bust cycle. Paulson is just trying to make the “bust” as moderate as possible.
And I think that Paulson has a deal with the banks that they will assist with distressed mortgages in return for capital, which is why he’s decided not to purchase these properties for now. Banks would much rather keep their properties in hopes of making profit down the road rather than sell them to the govt right now for pennies.
Kenrod on November 12, 2008 at 3:21 PM
The death of personal responsibility.
HornetSting on November 12, 2008 at 3:22 PM
I wish I could go back to the thread where some posters here were railing against those of us that were against the bailout to begin with claiming how ignorant and ill-educated we were. They need a scarlet f’n B carved in their forehead.
I am sure these are the same ones that gave us the McCain disaster as well.
ClassicCon on November 12, 2008 at 3:22 PM
I’m always entertained by the anecdotal evidence people offer to show that the credit markets are fine and healthy — the fact that their brother-in-law’s best friend joe just bought a new car, or that they were able to get a mortgage. Guys, the small potatoes credit markets were never in jeopardy. Big time loans for major corporations are what the commercial paper market is all about. Companies don’t realized profits immediately and so they have floating debt to cover until they can “ship their orders” or whatever the mechanism is where they realize their profits. If the ability to float debt goes away, large companies can’t operate.
Just the action of the pen signing the $700Bn law was enough to shake up the paper markets a bit — because it showed that the government wasn’t going to let the commercial paper market fail. Remember, it wasn’t that the assets were worthless, it was that people didn’t know which ones were. It wasn’t that there was no money to lend, it was that companies didn’t trust that their loans would be paid back. By guaranteeing the stability of the economy through tying it directly to the power of the US government, Paulsen et al removed some of the insecurities of the market.
But please, don’t let facts stand in the way of your misguided conservatism. And this is coming from a small government, card carrying, gun wielding, christian anti-abortion, small-l libertarian conservative. The bailout was necessary.
k2aggie07 on November 12, 2008 at 3:24 PM
The stock market is down 1300 pts sense the election so much for bounce back post election!
driver on November 12, 2008 at 3:24 PM
Amen.
HornetSting on November 12, 2008 at 3:25 PM
cthulhu on November 12, 2008 at 2:52 PM: Well said.
UAW has it’s grungy hands all over this nonsense. I expected this from Barry and his puppetmasters, but not a day before.
fiscallyconservative on November 12, 2008 at 3:25 PM
progressoverpeace and Kenrod get it. Glad to see I’m not alone.
k2aggie07 on November 12, 2008 at 3:25 PM
It’s impossible to say. It was a matter, almost exclusively, of relieving public panic. The scare brought forth to sell the bailout created the public panic (which killed Iceland), so it would be tough to say that the bailout, itself, could be seen as relieving that same panic. But … we’re in liberal land, now, so logic doesn’t go too far.
We do know that, if the bailout didn’t pass, and the markets all did EXACTLY what they have done, the bailout proponents would be blaming those of us who killed it and claiming that everything would have been perfect and the market would be back at 14,000 today, were it not for the Conservatives.
progressoverpeace on November 12, 2008 at 3:26 PM
Well said. I have always maintained that our economy is in excellent health, and as evidence I cite such failures. It is good that our economy responds to bad decisions with a sledgehammer. The emergent condition of our economy will be healthier still.
These illegal bailouts only serve to add a measure of formaldehyde to such economic cancers.
Yet the sheeple remain convinced that any incidence of failure is a sign of the apocalypse. The gubmint is feeding on that ignorance. We all pay the price. Nobody learns.
LimeyGeek on November 12, 2008 at 3:26 PM
Which is precisely why such action is unconstitutional. The gubmint has no authority to politicize the economy.
LimeyGeek on November 12, 2008 at 3:28 PM
The bailout is getting out of hand. The auto industry should be allowed to fail as it doesn’t pose the same systemic risk and the financial system. But believe it or not, the the credit markets have improved since the bailout was implemented. LIBOR is way down and commercial paper is performing much better. Asset-backed securities were seen as the next threat and they are now trying to prop us this market.
phronesis on November 12, 2008 at 3:28 PM
The economy is in the toilet Paulson has his hand on the handle
driver on November 12, 2008 at 3:28 PM
k2aggie07, the way you correct bad legislation/regulation, is not by throwing money at the problem, but by eliminating the offending legislation/regulation. Admittedly, it may be painful, but if we had a good, serve the people, government, they would have taken the largest hit but cutting back on their spending as much as the could manage to counteract the reduced corporate taxation. You don’t think that if the government announced a moratorium on corporate taxation that it wouldn’t inject belief back into the economy?
aelhues on November 12, 2008 at 3:29 PM
While it pains me as I’ve been a lifelong “Chevy Man” I must sadly agree with webproze. Chevy (GM) has fallen far behind Ford in quality. I can attest to that with my last experience with Chevy. I bought a brand new Chevy Colorado pick-up (the sport version) and within the first 12,000 miles I had a rear right tire fail while towing a trailer at highway speed. When I say it failed, the entire tread belt separated from the tire, the only thing that saved my azz is I’m a good driver and the tire didn’t completely blow but still had air in it and I was able to limp the next 4 miles to my home.
The tread belt did more than $2,000 in damage to the rear right quarter panel. I took the truck back to the dealership where I bought it as it was still under warranty and was told because it was a “wear item” that caused the damage I’d have to deal directly with Continental Tires, they wouldn’t do anything to help me out.
It took me almost 9 months to finally get a settlement from Continental and get my truck repaired. Not only has the overall quality of Chevy vehicles declined but so has their customer support after the sale, they should have fixed the vehicle for me and dealt with Continental directly to be reimbursed!
Also, in addition to the tire failure after only 3 years the air condition fan switch stopped working so I only had the ‘high’ setting available, the CD players stopped working (eating one of myfavorite CD’s, the cab rear window seal always leaked badly (despite having it repaired two times) to the point the interior was soaked if I went through a car wash or it rained heavily.
Sadly, the bottom line for me is I will not be buying a Chevy ever again, and that says a lot coming from a life long “Chevy Man” and I’m certain my experience isn’t isolated therefore it does not suprise me that GM is on the ropes financially.
Let them go under!
Liberty or Death on November 12, 2008 at 3:29 PM
You wear a lot of badges, yet still ring hollow.
LimeyGeek on November 12, 2008 at 3:29 PM
You might have spoken too soon. My next comment clashed with you, a bit. I do agree that passing the bailout brought a big emotional change to everyone, and confidence is what our system runs on. But Paulson had said that we were “500 trades from Armageddon”, which is something I’ve never heard anything even close to before. As an old option trader, I understood the possible depths of losses that could have been generated and I knew that no one even bothered asking Paulson how large the losses were. I always that the bailout was, if Paulson wasn’t lying, just buying for time.
progressoverpeace on November 12, 2008 at 3:30 PM
phronesis on November 12, 2008 at 3:30 PM
Limey, I don’t think the bailout was aimed at preventing recession. Look, without home equity loans assisting with almost 3% of the GDP of the US we’d have been in a recession already. The bailout was done to stop the system from crashing — which it nearly did. What the Fed is doing, whatever they’re doing, is working. The US monetary base is up a *huge* 38% year on year. Commercial and consumer bank lending has grown at an annualized rate of 50% last month here in the US.
You want to see the results of inaction? Look to Europe. They dont have a strong, willing-to-act central bank. And the result is going to be that the recession is going to hit them a lot harder than it will us.
k2aggie07 on November 12, 2008 at 3:30 PM
Exactly, Limeygeek -
…dadburn gubmint…
kingsjester on November 12, 2008 at 3:31 PM
Here’s my best attempt to answer: The means by which the “wizards of smart” determined necessary to stabilize the markets, have been, as Paulson described today, scrubbed for a “better” plan. And yet he still claims that his actions have stabilized the Markets. Wow! What a stroke of luck! You don’t do what you say needs to be done to stabilize the market and yet the markets still stabilize (please note the sarcasm)! The amount of money that they said was needed, was based on implementing the steps laid out in a plan that has now “changed”. Thus, the amount was never really calculated, it was just a big freaking wad. So am I now to believe that an amount of money that was never really calculated, to be applied in a way that has just been scrubbed, has, by chance, still stabilized the markets? Yeah. Okay.
Weight of Glory on November 12, 2008 at 3:31 PM
I meant: I always figured that the intention of the bailout was, if Paulson wasn’t lying, just for buying some time.
progressoverpeace on November 12, 2008 at 3:34 PM
And I will theorize differently about the consequences of economic failures. We can go back and forth all day and never be able to prove what is having an influence on what, or what might have happened if we had acted differently.
I’m not actually that interested in having that discussion.
What I want to shove in peoples’ faces is their support for unconstitutional action. You have all failed the test of American Integrity. Epic Fail.
LimeyGeek on November 12, 2008 at 3:35 PM
aelhues, I agree that the way to grow an economy is to not strangle it. But this issue is different. The answer to all things economic is not to cut taxes. Cutting corporate taxes would not have decreased the LIBOR or convinced companies to loan money to each other. Our system runs on confidence and transparency. Without both of those things it doesn’t matter what tax rate your at…the wheels will grind to a halt.
Separate your conservatism from economics for just a moment and I believe you’ll see that sometimes government action is necessary. I blame Carter and CRA for what got us into this mess. Likewise, I think the Fed was the only player in a position to react with enough strength to get us out of it.
If Europe goes down the toilet bowl — and it very well might, considering the position some of their nation’s loans are putting them in (Italy’s public debt is now 107% of their GDP, Spain is in over their heads with loans to Latin America and Austria with something like 80% of their GDP in loans to Eastern Europe) — and the US stays afloat, will you then have the humility to say that whatever was done was the right thing?
k2aggie07 on November 12, 2008 at 3:36 PM
The say that 1 out of 10 jobs is directly related to the auto industry so it would raise unemployment to around 9%.
Another tidbit, a few years ago the auto industry made a deal with the unions that they would take over pensions and health care for their members directly. In this agreement the industry promised to pay them a one lump some of around 7 billion, of which they do not have. Any bailout money will first be going directly to the unions.
broker1 on November 12, 2008 at 3:36 PM
“Every collectivist revolution
rides in on a Trojan horse
of ‘Emergency’. It was a
tactic of Lenin, Hitler and
Mussolini.”
Memoirs: The Great Depression, Herbert Hoover, 1951
“The American people will
never knowingly adopt
Socialism, but under the
name of ‘liberalism,’ they
will adopt every fragment
of the Socialist program
until one day America will
be a Socialist nation without
knowing it happened.”
Campaign speech—1948 Norman Thomas U.S Socialist Party Leader.
So let me get this straight – Have a big crisis, have a liberal ride in on his white (trojan) horse, and move the country toward socialism. Sounds vaguely familiar.
Phred on November 12, 2008 at 3:37 PM
Exactly! That was the biggest cost of this whole fiasco. People don’t recognize that.
progressoverpeace on November 12, 2008 at 3:37 PM
Well, I’m going to do my part. NO major purcases until at least 2010, if we get a conservative landslide. I will not assist in any way to make it look like socialism is workable.
Vashta.Nerada on November 12, 2008 at 3:39 PM
Paulson is the October Surprise.
Now he’s merely in a hurry to get the damage done before January.
viking01 on November 12, 2008 at 3:39 PM
To be frank, Limey, we failed that test a long time ago. Federalism has pretty much been something people pay homage to but do very little for in terms of practical action. I’m not arguing your point, because I agree with it. I’m bemoaning the fact that what’s done is done, and happened long before I was allowed to vote.
k2aggie07 on November 12, 2008 at 3:40 PM
Well said.
watchmen on November 12, 2008 at 3:43 PM
Vashta, deleveraging is happening whether you or I spend our money. The paradox of thrift will be shown to everyone soon enough. Make no mistake, thrift kills capitalism every bit as well as it does socialism.
Frankly, at this point I don’t think anyone can do much of anything to stave off the recession that’s coming. We’re due for one, and it’s going to be long. The question is how shallow will the trough be, and how long will it take to “get it all out” of the system? Will the fed be able to slow it down? Or will they just drag it out?
I’m of the opinion that the market is going to do what it’s going to do and the Fed should just get out of the way (with regard to the business cycle). I think we’re in for a long year or two though…Obama or not. I don’t envy him in his position on the economy or foreign policy. Perhaps John McCain was lucky in defeat?
k2aggie07 on November 12, 2008 at 3:44 PM
ALong those lines, Arizona narrowly missed passing Prop 101, which was to disallow federal interference in mandating health coverage (I believe). I agree with you. People don’t understand that there is any real government other than our federal government, anymore. They think the fed is supposed to do everything.
progressoverpeace on November 12, 2008 at 3:46 PM
I wonder if Brat4life was referring to the Thomas Paine version of “Common Sense.” Worth a re-read.
Scouter on November 12, 2008 at 3:47 PM
I think the bailout is ok, but people aren’t ready to think they aren’t as necessary as others.
We weren’t evolved enought to deal with the dot.com boom
tomas on November 12, 2008 at 3:48 PM
AP, maybe you are unsure of yourself because you haven’t read books like Sowell’s Basic Economics, Friedman’s Capitalism and Freedom, or Hayek’s The Road to Serfdom. That foundation is where the assuredness of fiscal conservatives comes from.
Not to mention the fundamental immorality of involuntary transfer of wealth from one party to another, for some supposed greater good.
commodore on November 12, 2008 at 3:53 PM
Yeah it’s probably best if we just “bailout” every business in the US and then the Government can decide how much everyone gets paid and what products are manufactured and services offered and how many.
ronsfi on November 12, 2008 at 3:58 PM
……… and not a word as to who and what caused this mess in the first place, understanding that you have to fix the problem and hold politicians accountable so it will not happen again, and a complete cover up by the “Free and Independent Press”………………..
Why not just throw money at the problem………… seems to have worked in education, all government bureaucracies, and now, the rest of our society………..?
Again………. this is not a new season of “American Idol”, or “Desperate House Wives” that you can just tune out………. this is really happening and WILL have a Socialistic effect on our country.
…………. one day, it is going to personally effect you and your family, and when you say; “Hey, what the hell happened?”…………… you will only have yourself to blame.
Seven Percent Solution on November 12, 2008 at 3:58 PM
I’m of the opinion that the market is going to do what it’s going to do and the Fed should just get out of the way (with regard to the business cycle). I think we’re in for a long year or two though…Obama or not. I don’t envy him in his position on the economy or foreign policy. Perhaps John McCain was lucky in defeat?
k2aggie07 on November 12, 2008 at 3:44 PM
k2aggie07, interesting comments. I would concur that assuming the presidency during this time is a losing proposition for anyone.
My concern with the bailouts, or rather funding, was not an issue of the necessity, but rather, the manner in which those funds would be used. We shall see.
I do have a question for you particularly with regard to your remarks about Commercial Paper. In your opinion do you think that Paulson and the Fed should have assisted Lehman Bros.? My understanding is that they were, among many things, a major Comm. Paper dealer and trader. In any event, my research indicates that Paulson was advised not to let Lehman fail by a number of people including Christine LaGarde (Fin. Min. of France).
Many traders like myself have felt that the demise of Lehman precipitated the resumption of global market meltdowns. Perhaps I’m wrong, but I would be interested in your thoughts.
Cody1991 on November 12, 2008 at 3:59 PM
Other people in other times have certainly failed the test, true, but that doesn’t absolve us of our duty to pass the test. Apathy is for losers.
I’m decidedly anti-federalist myself…..no surprises there I guess ;)
Damage has been done to the integrity of the American Ideal, but we can repair anything we wish. It only requires backbone…..the saddest part about this whole fiasco, and Obama’s election, is that it clearly demonstrates that vast numbers of Americans are “Americans” in name only.
LimeyGeek on November 12, 2008 at 3:59 PM
I just wanted to add, my initial thoughts on the bailout were that Paulson thought the system was going down and wanted to pick out a skeleton of, what he considered to be, essential companies to survive so that there would still be an operating system as everything crashed down around it. That was the only sensible thing I could think of him doing with the money, since the intended target of MBS’s was an extremely inefficient way of attacking a leverage problem that started beneath the MBS’s, in the loans themselves. That has been proven by the $2 trillion the Fed’s swapped out with assets of “unknown” quality, so far.
And I still don’t know enough facts about the whole the situation to know where we are. It seemed to me that all of the big players took the same side of a losing bet (with no money left to pay anyone on the winning side, so they lose too) and that illusory wealth has been spread sufficiently far and wide to really … you know …
On the bright side, the US economic engine shutting down won’t hurt the US as much as the rest of the world who we have been generous with and who have leeched off us for decades and never really tried to help with anything.
progressoverpeace on November 12, 2008 at 3:59 PM
My view on the bailout for the financial sector is that the credit markets are a lot like gas supplies in that if there is a major shortage of liquidity (caused by the frozen credit market), the economy is going to seriously slow down (major recession), just as would happen to transportation if there was a major shortage of gas.
The government keeps a stockpile of petroleum in case of a gas shortage. When there is a shortage of liquidity, it is an rare emergency situation where the government needs to pump more money in (either by borrowing or printing money). The real debate then becomes how best to inject liquidity into the markets, or in other words, who do you give the money to? And that is the question very few people really have a good answer for.
I bet if you could ask Milton Friedman, he would have backed some form of capital injection into the markets. He blamed the Great Depression on the Federal Reserve printing less money after the 1929 financial crisis, where the Fed was trying to fight inflation. But a shrinking money supply will single-handedly cause a recession.
My view is that the frozen credit markets will lead to a large ineffiency in the economy, and even though I would oppose bailouts to specific companies 99% of the time because of the perverse incentives and distortion of markets they create, I think that is less a danger than the frozen credit markets were/are.
I don’t trust the government to handle the $700 billion, but what other choice do we have? Remember that Larry Kudlow, Steve Forbes, Tom Coburn, Paul Ryan, and even Newt Gingrich (after he pushed for a better bill) supported the $700 billion emergency rescue plan.
It’s not as black and white as Michelle Malkin thinks.
willamettevalley on November 12, 2008 at 4:08 PM
A crisis created by Paulson and the rest of the “The Sky is Falling!!” crowd seemed to help a particular candidate this year, bailout not withstanding, didn’t it?
MCPO Airdale on November 12, 2008 at 4:16 PM
WHAT A CRAP SANDWHICH!!
Tase nice and shitty…LOL
Dritanian on November 12, 2008 at 4:17 PM
LEAVE THE 700 BILLION IN OUR FECKING POCKETS TO SPEND AS WE SEE FIT
Congratulations! You have successfully wasted a tiny portion of your valuable grey matter memorizing the names of a bunch of pillocks.
Wrong way around. The “black & white” bullshit was in suggesting that it’s “$700B or DOOM”.
People like myself and Malkin are of the mind that it is far wiser (and constitutional) to let the infinite greyness of the economy work itself out.
Life doesn’t bluescreen, folks. There is no “reboot” switch. Tomorrow is inexorable.
LimeyGeek on November 12, 2008 at 4:17 PM
The crisis was man-made. It is a fact that President Bush’s Treasury Secretary Henry Paulson, who worked for a Democratic firm, Goldman Sachs, and has very close ties to Communist China, is the one who convinced Bush to demand hundreds of billions of bailout dollars from Congress.
Kevin in Washington State on November 12, 2008 at 4:18 PM
There has been talk of a recession since the fall of ‘07. We WOULD be coming out of it now if it was not an election year. Recessions are GOOD!! The system is cleansed by recessions. What is being illustrated now is the NANNY STATE at its’ finest!!
Sorry, sometimes people lose money and a business or industry or two or three or whatever fail. Now, we have let the camel under the tent. Not the camel’s nose. The fucking camel. Good luck getting it back out.
dragonash on November 12, 2008 at 4:20 PM
Send a welshman in after it
LimeyGeek on November 12, 2008 at 4:21 PM
Cody1991: Oh dear. Someone asking for my opinion puts me in a much more tight position than when I’m bloviating for no good reason. I honestly don’t know the answer to that question. I am interested more in looking at charts and graphs and reading about trends. This is a hobby for me.
I would have to spend some time looking at the commercial paper outstanding vs time to see exactly when the sharp drop happened in commercial paper with regards to the failure of Lehman. However, it does seem to me that the true root of the problem was aggregated cash hoarding on the part of banks, not any particular company. That, and the ridiculous leveraging that Lehman and others were allowed to go to by the SEC (now there’s something to be upset about).
I think the handling of those large firms was perhaps the sketchiest part of this whole fiasco — who to bail out, who to let sink. That is my biggest fear when it comes to government intervention into the private market (e.g., Obama bankrupting coal plants) because ultimately then its a few number of people picking and choosing which private sector companies survive.
In short — I don’t know. I think Lehman, Merril, etc. doomed themselves when they leveraged out 30:1 or more.
k2aggie07 on November 12, 2008 at 4:22 PM
Limey, I think you’re missing the point of willamettevalley’s post (which, incidentally, I think is wonderful). The government presides over the free market and tinkers with the banking system at will. It has been that way ever since the establishment of the Fed – and thank goodness for that! The late 19th century was fraught with depressions, scares, panics, and a capital supply that was too small to allow businesses to grow.
The fed caused the problem by stepping into the realm of choice with regard to who the banks lent to. They used the carrot and the stick — the stick was CRA ratings and not allowing private firms to expand freely. The carrot was that the risk was going to be moved from the bank that made the loan onto the back of the GSE’s. Unfortunately, the government didn’t leave the risk on its own shoulders…instead the risk was divvied up into tranches so everyone could get a share.
So, understanding that the government caused the problem, that the government infused the risk into the system (seemingly obliviously, willfully obtuse, even), how then was the private sector to fix the problem? The analogy I like is that the government tied up the sprinter and then demanded they run the race anyway. It just won’t work.
k2aggie07 on November 12, 2008 at 4:28 PM
I think the cleanest way to inject liquidity would be to take whatever dollar amount you wanted to inject, and spread it as evenly as possible over the entire financial sector, including successful companies. Then, for the most part, let institutions fail if they still can’t make it. No more bailouts. No money for any other industry. No trough for the pigs to line up at. No rewarding failure.
Of course I can think of many problems with this proposal as well. What if successfuly companies use the money to buy up failing companies? Still better than a government bailout. What about creating a moral hazard for the financial industry as a whole? Still better than letting the entire economy suffer for the financial industry’s failure. What if the companies that still fail cause too much disruption in the economy? I don’t have a good answer.
willamettevalley on November 12, 2008 at 4:30 PM
In short — I don’t know. I think Lehman, Merril, etc. doomed themselves when they leveraged out 30:1 or more.
k2aggie07 on November 12, 2008 at 4:22 PM
k2aggie07, I don’t know either. With all the money allocated for other firms (AIG, banks, etc) and now possibly the auto industry it always struck me as odd that Lehman was left to hang out to dry. I have no particular interest in Lehman, just the broader picture of what transpired and the decisions that were made.
Well, things to ponder on long winter nights. Thanks for the response.
Cody1991 on November 12, 2008 at 4:31 PM
The bailout is getting out of hand. The auto industry should be allowed to fail as it doesn’t pose the same systemic risk and as the financial system. But believe it or not, the the credit markets have improved since the bailout was implemented. LIBOR is way down and commercial paper is performing much better. Asset-backed securities were seen as the next threat and they are now trying to prop us this market.
phronesis on November 12, 2008 at 3:28 PM
US automakers have, including imbedded retired and active UAW health/retirement bebnefits a (’07-’08)cost of auto production of $73 per manu.Hour vs Toyota $48 /hr.
The auto bailout is a political IOU from Obama & DNC to the Unions, who greatly have lobbied & financed them.
The panic occurred in mid Sept as all in gov’t talked down the economy & markets and the ensuing price declines and near meltdown in global credit markets. So whether the to-date- $850 Billion$$ bailout and election continue to weigh on participants is moot.
Future government regulation and nationalization may hinder the banks from normalizing commercial and consumer lending outside of the housing and mortgage industries; to what level consumption and production fall in this and the subsequent 9 months, is hostage to how contagious the fear of another sector of the global economy collapse(credit card,the state of California, now $28 B$ Deficit and growing..etc.)
All the while Government, the MSM and thr incoming Obama Administration remain in total denial to the foundation of this financial nightmare had its origin in socialized housing and mortgage policy from the CRA in ‘77 ,devised and foisted (upon mortgage banking & wall st)and perpetuated by Fannie & Freddie. Worse yet derivated and securitized by these GSEs, the multi-trillion$$ subprime paper made its way into virtually all bank portfolios, institutional investors, corporate pensions and became the plaything of the unbridled and maverick offshore hedge fund “players.” In hindsight the house of cards fell hard and mortally – accelerated by the “wonder” of leverage; well beyond the 50% margin account level, stock investors enjoy. The banks holding such securities and derivitive instruments were overwhelmed by the devastating leverage with ratios up to and beyond 50:1 “Enjoyed” by Fannie and other banks the world over.
It will take years, like 7-10, for housing and mortgage markets to truly approach what we’ll wistfully recall by then, as normal.
I truly fear the mandate the 44th POTUS feels he has: one to Change = SOCIALIZE. He is threatening to raise taxes and Dramatically grow the Fed Government by more than $1 TRILLION “Investing” in programs and benefits that don’t even exist in todays over bloated entitlement system. All the while, killing jobs as he spreasds the wealth and bequeaths us with his notion of FAIRNESS. Capitalism and our standard of living
are in grave danger in the very near future.
Why should any investor stay fully invested ?
Can’t you just hardly wait until HIS Inauguration ??
RED.inca on November 12, 2008 at 4:36 PM
The idiots that thought they could control the credit markets and stabilize the banks are the same ones that want us to believe they can control our climate.
bopbottle on November 12, 2008 at 4:47 PM
There is a petition via #dontgo movement to oppose this bailout:
Check it out.
Like it.
Sign it.
Bam!
AeroSpear on November 12, 2008 at 4:49 PM
LimeyGeek on November 12, 2008 at 4:17 PM
Is Milton Friedman, whom I consider the greatest economist of the 20th century, another pillock?
Instead of answering any of my points, you mindlessly go back to a position of the economy is so grey and hard to understand that the government never has any role whatsoever.
My point is that there are a lot of free market conservatives that are normally the strongest of defenders of your positions that agreed that this was an extraordinary situation, or as you put it
Just calling them all names doesn’t make you look good. In fact, if I wanted to resort to calling names, I would say it made you look like a pillock.
willamettevalley on November 12, 2008 at 4:58 PM
I know two people who have gone to the bank to refinance and adjust their loans which they could both afford. One got $20,000 taken off the loan and a lower rate. The other got three months grace period and a lower rate. Neither of these people were in forclosure or even close. This is just the beginning and it has my husband and myself hopping mad. We were both against the bailout
ldbgcoleman on November 12, 2008 at 4:59 PM
@ldbgcoleman:
Love being able to quote myself.
k2aggie07 on November 12, 2008 at 5:01 PM
I did the same thing and saved a small fortune. I might as well make out like a bandit while the rest of you dummies wipe your arses with the constitution in return for promises of sunshine and rainbows.
Pillocks.
LimeyGeek on November 12, 2008 at 5:09 PM
I am a non-bank.
Will they please send me $60 million?
I’ll give them my Paypal ID if that helps.
I guaranteed to creature at least 60 jobs, increase the tax base, invest in the future, promote renewables, recycle everything, be a good steward of the environment, and set up 10 full college scholarships for students to work on hydrogen technology for energy independence.
Doesn’t that sound better than the vapid crap that the money has been going to so far?
Profitsbeard, LLC?
For America’s Strength!
profitsbeard on November 12, 2008 at 5:27 PM
Well well, Uncle Hank speaks today and the Dow drops another 450 points. He is a one man market panic.
james23 on November 12, 2008 at 5:27 PM
“create at least 60 jobs…” NOT “creature at least…” [ above]
(Reading “The Creature from Jekyll Island“, and it obvious struck a subconscious chord.)
profitsbeard on November 12, 2008 at 5:31 PM
Heard from the President-Elect’s Mansion:
“What luck! The Evil One, Bush, has already hooked the nation’s largest industries on government handouts. We won’t even have to take the fall for that if this thing doesn’t lead to a big Circle of Hope.”
“Industries are already lining up for to turn over part of their ownership to the government. American Express, the card you have to pay off every month? They want a LOAN. HAHHAHAHA!!”
“Maybe we’ll require all employees of any firm that takes government loans to send their employees to our mandatory civil defence training. Between that and card check, we’ll have all industry unionized by year 3. Then we can begin the nationalization of those industries, after the inevitable business failures caused by the increased expenses.”
hawksruleva on November 12, 2008 at 5:38 PM
Hank Paulson,Warren Buffet, George Soros and Barack Obama all need to go to prison for this monumental scam.
SaintOlaf on November 12, 2008 at 5:58 PM
The really strange thing about this whole situation is that NO ONE outside of the SEC and Fed Res Bank seemed to have any idea there was a crises until they started screaming there was a crises.
I’m kinda a news junkie, and there was NO ONE talking about it.
Then they say they need 700 billion to buy of those bad assets, so they can get them off bank books… Congress does it… but they then use that money to BUY EQUITY in the Banks themselves? Socializing the Banking industry?
When if it was a liquidity crises, the Fed Bank already HAD the power to inject money into the system, as the “Lender of Last Resort”…
Face it folks, the Socialists have handed us a Fait Acompli… there is NO way the companies are ever going to be able to buy back all that Stock…
OK… wait a sec… just hit me… who owns all this preffered stock? SEC? Fed Res Bank? or in other words… who is going to have the power to vote that stock?
Romeo13 on November 12, 2008 at 6:37 PM
I got yer bailout right here (grasps ballsack with both hands) you frickin moron.
Let them fail, you moron, we should have NEVER started with this bullshit and Chrysler the FIRST time around with Lee I’llacroakya. Guess what, they’ll survive, guess what part 2, we’ll survive.
Just fu#@king stop!!!!!
Tim Zank on November 12, 2008 at 6:44 PM
http://prepareforwar.blogspot.com/
Are they stinking insane….
this is a LIE simple as that
The dems screwed the pooch on the subprime loans
and started the first forest fire.
Then the republican appointed fire cheif comes in
and says give me 700 billion and i will put the fire out.
Instead the Asswipe goes out and spends 150 billion for GAS to pour on the Inferno and now pelozi not to be outdone
want to buy the auto industy so when the fire is out they can pave the charred remains and turn our own country into a vast parking lot full of Dumb Voters who ALL will end up working for the FEDS..
This is Insanity.. period and ALL members of congress and the treasury are guilty of
Lying, cheating, stealing , fraud, and for the dems add on TREASON on top of that..
http://prepareforwar.blogspot.com/
jcila on November 12, 2008 at 6:49 PM
I heard a burst of smart today when someone said they were going to go after credit cards. Something needs to be done, not sure what, but anything that is geared to take 86 years to pay off and interest rates at 29.99 percent and such, has got to be dealt with.
johnnyU on November 12, 2008 at 6:50 PM
http://prepareforwar.blogspot.com/
No more of this vile crap
I am a republican and i am saying this is Bullshit..
Its time americans the entire system is about to collapse
if i were you i would be preparing for a civil war.
Against the dems and republicans.
ALL of them need to be thrown out by force
jcila on November 12, 2008 at 6:54 PM
UNREPENTANT CONSERVATIVE CAPITOLIST on November 12, 2008 at 7:00 PM
The socialist press has been predicting this mess for awhile. I’ve been out of the market since Dow 12,500.
But of course no one here would be caught dead reading commie rags.
Chimpy on November 12, 2008 at 7:04 PM
AllahPundit, why don’t you go work for The Atlantic? You seem better suited to it.
Having said that, there’s a reason why your Boss is you Boss. Don’t quit your, er, scrap that…
Sultry Beauty on November 12, 2008 at 7:11 PM
I think this bailout also served as a dry run,, a sort of a test,, to see how quickly they could pass “Crisis legislation got to have it right now we are in an emergency!”
I don’t trust anything these people do anymore at all.
JellyToast on November 12, 2008 at 8:05 PM
Updated.
progressoverpeace on November 12, 2008 at 8:51 PM
K2Aggie, just in case your still perusing this thread, in response to: aelhues, I agree that the way to grow an economy is to not strangle it. But this issue is different. The answer to all things economic is not to cut taxes. Cutting corporate taxes would not have decreased the LIBOR or convinced companies to loan money to each other. Our system runs on confidence and transparency. Without both of those things it doesn’t matter what tax rate your at…the wheels will grind to a halt.
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I didn’t suggest that the answer to all things economic was to cut taxes. I suggested that in this case, a dramatic cut to corporate taxation would in fact inject confidence, and freed capital into the system. Right now American companies don’t compete on an equal footing with companies in most other countries due to more restrictive regulation, higher taxes, and more expensive workers. I don’t want us to compete on an equal footing. I want American companies to have a distinct advantage. I want companies to barely be able to resist moving here because of the tax system, and the simple and reasonable regulation.
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You can’t tell me that freeing up business capital that is currently tied up in taxation wouldn’t help pull us out of a supposed precipitous fall into depression.
aelhues on November 13, 2008 at 8:40 AM
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