Sky isn't falling in Kern County, Ca

By the way, Pete, the government had spent a billion dollars this year ALREADY in bailouts, before this latest boondoggle.

How'd those go?

So the same jackanapes who have bungled this crap every step of the way, we are supposed to trust them with another $700 billion?

It started out as a three page proposal written on the back of a napkin. It's main component was fear "do this or the sky is going to fall!!". It was poorly constructed, and the idea that the government is going to take toxic shit off the hands of the idiot bankers, and turn a profit on it, is pie-in-the-sky-tripe that even Joe Six Pack didn't buy. The bill was a sham.

 

Poin:

I don't care what the feds say. I'll never swim Kern River again. [/haggard]

 

I agree that Paulson and Bernanke badly underestimated how dire this would get. What started happening by around Wednesday (Sept. 17) of the week after Lehman failed, though, scared them. And with good reason. Treasury yields going negative, the seizing of the short-term credit markets, even stable and highly profitable banks such as Goldman being all but overrun in the panic.

It really was (and still is) the worst financial crisis in six decades. I believe it was/is well beyond a "market correction" that was bringing a little perspective to a still somewhat overpriced market, as you suggest. To quote Spinal Tap, it was a little too much f-in perspective, thanks.

When Paulson especially saw what was going on, I think he realized 1) that he had been wrong and 2) that strong action was necessary in order to keep matters from getting far worse, to keep the financial markets' woes from dragging down the rest of the economy.

It's understandable that you don't have faith in the guys that were wrong before to be right now. Yet is that not possible? Couldn't they have learned from their mistakes? Could it be that they are reacting swiftly to a situation that deteriorated very rapidly? What would you propose they do instead?

I sense that your response would be that Paulson and company do nothing; they've screwed things up enough, after all. I do think there is merit to many of your arguments why that's the case. But overall, I think inaction here would be a very big mistake.

 

Perhaps. But more likely they were afraid that Joe Six Pack would let them know in November.

 

What would you propose they do instead?

Paulson and Bernanke should resign as of yesterday.

I knew there is NO hope for them when they were STILL arguing for exec compensation late last week!

There is one elected official I know of who has been on top of this for years. Ron Paul. Listen to him.

Stop with the cronies from the investment banks. I read a piece from a commercial bank pres - he says that all these guys listen to is cronies from the I-Bank. Get some real-world people in there instead of the I-bank and CNBC crowd.

If things are so dire, recapitalize though common and preferred, so the current shareholders lose, not the taxpayers.

Get transparency in this POS securities. Get them out there, lets deal with it, and deal with the consequences.

 

First, I will presume that you meant that Paulson and Bernanke should resign "as of yesterday" hyperbolically. Unless you think the administration can nominate replacements you approve of and get them through Congress this week. Because the alternative is to go without a Treasury Secretary and Fed Chairman until after the election since Congress is about to adjourn. This doesn't seem the right time for such a void.

So you'd can them or have them resign as soon as practical, perhaps right after the election -- noted. (And let me know if I've misread your intentions.)

I don't know much about the specifics of Ron Paul's economic views. I will have to look into that.

Personally, I wouldn't give much credence to a president of a commercial bank complaining that the Treasury Dept. only listens to its old I-banking cronies. This is a generalization, but commercial bankers have long resented investment bankers because they believe the latter look down on them and consider them not as "elite." And in general, they're right -- that is in fact what I-bankers think of commercial banks. So that complaint is not unlike a soccer parent complaining that the football team gets too much coverage.

[In the name of full disclosure, I spent my first three years out of college as an investment banker at Goldman Sachs. So I'm sure I have some biases as well.]

I do not know what you mean by getting "real-world" people in Treasury and the Fed. What do you consider "real world"? Does that mean someone from a "real" industry that makes things? Paulson's two successors were that, in John Snow (a railroads CEO) and Paul O'Neill (CEO of Alcoa), and I don't remember hearing a lot of pining for them. The guy before them was an academic (Lawrence Summers), who I don't remember being a huge hit.

On the other hand, Bob Rubin generally got good reviews as Clinton's Treasury Secretary, though he like Paulson was hamstrung by being a former co-CEO of Goldman.

In terms of recapitalizing failing financial institutions through common and preferred stock "so the current shareholders lose, not the taxpayers," on most days and in most cases, I would agree with you. In this case, however, I think we're past that. No matter what happens from here, the average taxpayer is going to "pay" one way or another. It's a matter of how, how much and for how long.

Only the relatively healthy financial institutions, the ones who frankly are only in trouble because there is real panic in the market, will be able to take advantage of your prescription. For example, Goldman and Morgan Stanley both sold some new preferred already.

Other banks have had their stock so beaten down, and their balance sheets viewed as so toxic, that your remedy simply won't work. These will fail and/or be bought on the extreme cheap.

What concerns me more, as I noted at the top, is the this potential paralysis of the credit markets to meet even the ordinary capital needs of businesses will cause a significant recession. We're going to have a recession almost regardless of what happens this week -- the third quarter will almost certainly be slightly negative growth for GDP and the fourth quarter will likely be down further. So the question is, how bad a recession? I believe that if the credit markets aren't dramatically unstuck in the near term, the result will be a significant downtown. And that's going to cost the average taxpayer far more in the long run, in my opinion, than the bailout plan voted down yesterday.

I do agree that it's unfair, even unsavory, to bail out some of the same financial institutions that have largely caused this mess. But I also think that such a bailout will be in the best interest of the nation -- including Joe Six Pack. And refusing to do what's in the greater good because it simultaneously helps a group that you think doesn't deserve help is counterproductive. Or as a faux-folksy politician might put it, it's cutting off your nose to spite your face.

 

Good stuff, Pete, I just read this.

I still disagree w/you on the bailout on several levels. I think its bad on many levels. We will agree to disagree.