TheAgitator.com
$2,500 Per Person
Friday, September 19th, 2008That’s how much this proposed bailout is going to cost.
Are you ready to shell out $2,500 to help Wall Street firms that made bad (often government-influenced and government-incentivized) decisions?
Doesn’t matter. You’re going to. Either through taxes or devalued currency. And that’s just until the next crisis, which is inevitable now that we’ve sent the message to big corporations that taxpayers will pay for their mistakes.
And don’t blame this on the free market. There’s nothing free-market about any of it. It’s corporatist socialism.
Maybe if I wish real hard, Sec. Paulson will announce a federal bailout of Radley Balko’s student loans.
The comments over at Fark on these articles are priceless.
I got labled a revolutionary in one the other day. Proudest day of my life.
So next year, can we all skip out on paying our taxes? Think of this bailout as the taxpayer’s “stimulus package” to the government and (formerly) private business.
Don’t spend it all in one place Paulson….
We’ve sent this message before, which is one reason we are in the current mess…at least as deep as we are.
Maybe if we wish really hard, together - he’ll bail out BOTH of our student loans.
That’s the problem of course - perception is reality, to those who don’t care to know better. And the meme that this is a “failure of the under-regulated free market” is being pushed by the mainstream media and leftist bullhorns on the internet. Goebbels would be proud.
What this country needs is a cloning machine to create 300 million Ron Pauls, to go around the country, explaining how we got here, and what it will take to stop making it worse. Who am I kidding, even that wouldn’t make a whiff of a difference. What *I* need to do is stock up on water and food supplies, and make sure I have plenty of shotgun shells.
Can we bail out my student loans too while we’re at it? I missed out on the mortgage bonanza because I have a 30-year fixed mortgage that I can afford…c’mon, government, gimme gimme gimme!
Ah yes. Privatized profits, socialized losses. Yummy
I am asking because I do not know.
What specifically were the decisions that were government-influenced and government-incentivized?
OTHER than they felt they could make bad decisions because the government would bail them out.
thanks,
[...] $2,500 Per Person. [...]
we’ve sent the message to big corporations that taxpayers will pay for their mistakes
Only if the mistake is big enough to bring down the house of cards. But lets not forget that while a lot of people have indeed walked away with huge amounts of money in salary and bonuses on bullshit “profits”, they are still likely getting hit hard by the stock price collapse of the bailed out companies. For instance, Fannie Mae common shareholders have lost $85B in the last couple years, and preferred shareholders are taking a big hit too.
These two are my favorite posts thus far on this whole mess:
CONfidence
and
Harry Hutton
We need something like a taxpayer funding veto, whereby citizens can override the ability of Congress to use tax revenue to fund legislation, on a line-item basis. They can still pass the legislation, but any funding has to come out of their pockets directly.
BTW, all of the people who mentioned student loan bailouts should know that that is not a new idea. The goons in D.C. have long wanted to turn federal student loan support into a way to guarantee even more people have a self-interest in an ever expanding government. Because of that, they added provisions to the Higher Education Opportunity Act that allows student loan forgiveness for people who go into certain “public service” jobs. In case anyone couldn’t guess, that mostly means various government jobs.
Lee, the government has long pressured banks and mortgage companies to expand the pool of borrowers to include the least credit worthy. By encouraging home ownership for all, they were necessarily including people who maybe should not have been homeowners. Besides explicitly stating this goal with legislation like the community reinventment act of 1977, that was the agenda of Fannie and Freddie, to make a market that would lower mortgage interet rates to make housing more affordable. THe other problem is that tax policy encourgages leverage, encouraging firms to use more debt financing than equity financing. Interest payments on debt are tax deductable, while dividends are not, so the more debt a firm has, the larger its tax shield becomes, but the more bankrupcy risk its takes. With bankruptcy no longer a threat because of the bailouts, leverage could be even more attractive. The encouragement of debt in general for corporations, applies for the individual with the deduction for mortgage interest.
Oh, Radley, we all know that student loans are one of the few forms of debt that aren’t dischargable in bankruptcy. You really think the government would let you get away with owing it money?
Does anyone else have this gut-wrenching feeling over the sheer size of our national debt, the insolvency of social security and pension funds, the swelling budget and trade deficit, and now this huge bailout? We can’t tax our way toward solvency, liquidity, and prosperity. Maybe the good times are over. I’m getting this sinking feeling like we’re finished. Game over, man.
I hope I’m being too apocalyptic.
same sinking feeling here too. Hopefully, despite these atrocities, we will pull through. But, I’m not betting on it.
2 notes-
1) While borrowers are somewhat to blame for not informing themselves, the housing crisis is being misnamed in the press when they refer to “subprime”. Subprime was around for a long time, and worked well- it was for people who could still afford a house, but may have had credit problems in the past, were in dispute for identity fraud or took big hits due to medical problems. The loans that caused the current crash were interest-only, stated income/stated asset and adjustable rate mortgages. People were steered into buying houses they could not afford by brokers and loan officer who took advantage of ignorant borrowers. The stated loans are what they sound like- state what you make, regardless if it’s true, and we’ll give you a loan based on that. The IO and ARMs gave people payments well below what the real (fully amortized) payment was, so when the payment adjusted to reality their payment could easily triple depending on the current market conditions. These loan programs did not exist before the massive de-regulation. I’ve been in the mortgage biz close to 10 years and I saw this collapse coming a mile away. I’m also still gainfully employed in this business. A little oversight is a good thing.
2) Re: student loans
Just a side note, both my wife and sister are in mental health counseling. Both were required to have master’s degree’s to do the work they wanted to do because of onerous state licensing requirements. Both now have massive student loan debt ($50k for my sister, $125k for my wife). Do you know what they pay counselors? Not enough to pay back those loans, and the only reason they needed as much schooling as they did was the ridiculous hoops the state makes you jump through. So now my wife counsels foster children who have been abused (you know not “real” work) for very little money and has to pay massive debt back.
People screwed up, we gotta accept it, fix it, and move on. Would you rather have had AIG go bankrupt and then it have to liquidate it’s assets at huge discounts? That would send shock waves through the world markets, causing much much worse than the added debt. 85 billion is a drop in the bucket for what it fixed. You think 85 billion is bad? How about hyperinflation that would make your dollars worth more used as fire kindling? Guess who’s the first to go when that happens? Tip: Not the rich.
I see how Fannie and Freddie would lower interest rates, but they also kept their qualifications much higher than others and their default rate is lower than the rest of the industry right now.
“Would you rather have had AIG go bankrupt and then it have to liquidate it’s assets at huge discounts?”
Yes.
hmm, the lending standards were so high that the two firms are in conservatorship? Even if they were the tightest standards on the market, they might not have been tight enough. Richard Syron fired the Freddie risk managers from the 90’s when he took over. He said they were losing marketshare to the subprimes and he wanted to play in that space or do what it took to get a piece of that action. If Fannie and Freddie were crowding out the market for good loans, because of their funding advantages, everyone else had to make a niche at the margins. But the margins are were the prices are set. So anybody making subprime loans are pushing up housing prices for good borrowers, getting the market real hot. THe trouble really starts when borrowers who have the capacity to pay the mortgage figure that they don’t have the willingness to pay because the equity in the property has evaporated.
The whole point is that this is a government problem, a government failure pure and simple. what could have been isolated, and regional defaults, idiosyncratic risks carried across many firms becomes systematic risks and a national malaise.
““Would you rather have had AIG go bankrupt and then it have to liquidate it’s assets at huge discounts?”
Yes.”
ShelbyC: Then prepare to deal with bank runs and hyperinflation. Free market idiot.
God’s Own Drunk, I know someone in the bankruptcy law business in NoVA who’s been saying exactly what you did about the ARMs and what’s going on, the same story but from a different side. It’s apparently really bad in the immigrant community (legal and illegal) because people they trusted misled them, english is a second language for them (which doesn’t even take into account the legalese gibberish these docs are written in), and are trying to be on their “best behavior” and don’t know their rights or all the options available to them.
Andrew jones,
Hyperinflation occurs when the govenrment spending massively exceeds the tax load of an economy.
When businesses go bankrupt govenrment spending does not go up.
when government tries to prop up failing businesses indefinitely, government spending does go up…
If we allowed AIG to go bankrupt and be liquidated, there would be no hyperinflation.
On the other hand, the U.S. government is now proposing 10+ trillion dollars for this bailout above and beyond the 20 - 100 trillion dollars’ worth of social programs being proposed.
It’s not the “free market idiots” who are risking hyperinlfation, it’s the “government will save us” retards who are doing it. We’ve been donw this road before. The last time George Bush’s policies were tried, under Hoover and FDR, we got 16 years of depression.
Ok, this is probably the best argument for illegal immigration I’ve heard to-date.
If we import another 75 million immigrants, that should cut my share down to about $1500. And maybe my neighbor will be able to afford to get his lawn cut.
Government, businesses, and individuals. Plenty of blame to go around.
The cost to each taxpayer would be far greater than 2.5K if the bailout didn’t happen. A failure of AIG would have left millions without pensions, annuities etc. A massive failure of the banking systme would have precipitated worldwide depression.
And government intervention did cause a lot of the problems. Remember the furor under Clinton about banks redlining neighborhoods as areas where real estate values where decreasing and refusing to write mortgages? That was made illegal. After all, in our “feel good” society everyone gets what ever they want. Much as I hate bailouts I really don’t think we had any choice. Millions or tens of millions of pensions not to mention IRA’s, 401K’s would have gone away. It would have made the 30’s look like boom times.
Why is it nobody is asking the question: Why aren’t some people in high places going to jail over all this? Is it really true that if you steal enough or screw up in some really, really major way - you are (pardon the pun) golden?
Bill makes a point a lot of people are missing. As sad as it is, doing nothing could very well be worse for taxpayers.
Although many of us here agree that a country without a Federal Reserve or fractional reserve banking would be a vast improvement over our current system, let’s not kid ourselves and pretend the transition is going to be easy. There will be major losses up and down the economic scale.
Believe me, I’m not happy about the path the Fed is taking and I think the worst is yet to come. But everyone who is screaming “privatize profits, socialize losses” is putting forth a dangerous oversimplification.
Again, I’m not saying the Fed is taking the right path, but something needed to be done. Revisiting the mark-to-market accounting rules would have been a good start. Capital infusions are also not = to a bailout. With money market funds collapsing there is a strong argument injecting liquidity is exactly what they should be doing. See Monetary History of the U.S. by Friedman & Schwartz and their discussion of the Great Depression.
At this point the Fed’s bridge loan to AIG at LIBOR + 8.5% looks punitive. Despite the huge $ price tag of the bailout the cost to taxpayers is still unknown (they will be buying assets w/ cash flows… not just giving money to banks). As far as I can tell the biggest threat to freedom so far is the arbitrary ban on short selling which is flying under everyone’s radar.
I don’t think most people realize that the credit markets were ceasing to operate. We were literally days away from a full run on the banks. The solution sucks, no question about it, but if AIG had gone down and the printing presses not fired up, you would have been standing in line at your bank next week and digging a hole in your backyard.
Credit Default Swaps are a major contributor to this situation and very few people have even heard of them, much less understand them.
I, for one, want my damn stock certificates for my involuntary part ownership. I also am waiting for my free policy from AIG.
So the federal government has taken full visible control of an entity that has for years been a useful CIA front. Just another weapon added to the arsenal of financial terrorist tools at the govt’s disposal. The “loans” at prime + 8.5% to AIG will never be paid back by AIG.
Tangibles are good things to have…tools, books, foodstuffs and suchlike.
Look at it this way.
America’s first world friends — Western Europe, Canada and the like — have balanced financial systems in which the government is a consistent, predictable and integrated player. They aren’t subject to constant free market maximalist ideological pressures (a la the Chicago school) within their systems like America is; they don’t have rapacious corporate maximalists like America does; they haven’t had and don’t have massive deregulation like America; they haven’t largely defanged their securities, banking and fiscal regulatory agencies, as America has. I’d wager that their bankers, investment houses, investors and consumers aren’t significantly smarter or dumber than America’s.
Two easy questions:
1. Is it America or its counterparts that is suffering a “once in a century” massive real estate, banking and investment meltdown?
2. And why is that?
You can sit on a purist economic libertarian argument all you want. Even if you deeply and genuinely believe in it (as most of the people do here) the fact is that unregulated markets are the same as unregulated streets: small, selfish groups of the population will take advantage of the lack being restrained to take whatever they can to their sole benefit, and everybody else be damned. And if the same people who would do this also control the government then they can maximize their thievery; that too has happened in America as what we can call the apex class (the Bushes and the like) game the system to their benefit.
A common libertarian counterargument is that if we remove the government as a player in the market then the market will solve the problems. Sorry, but that is arrant nonsense, and disproven nonsense at that. To continue wiith the example I gave above it does not stop wild looting, it merely means that the looters aren’t wearing cop uniforms. If you have lost everything to such thieves then the distinction between the two types of loss probably means nothing to you, nor should it.
Libertarian thought is perhaps one of the best and analytical tools and starting points for social organization out there: leave everybody alone to do whatever the hell they want unless it hurts others or there is a very compelling social reason justifying the intervention of the state. But the notion that we can have economic, social and political order based on purist laissez faire notions has been discredited and it might be best just to face up to that.
I think they should have let it all fail. Personally I’m waiting for another great depression. I dont know why everyone is so afraid of it. I cant wait to get out and start rioting, killing, burning shit down.
“There is no political solution to our troubled evolution.” The Police, Spirits In The Material World
Truer words have never been written.
And government intervention did cause a lot of the problems. Remember the furor under Clinton about banks redlining neighborhoods as areas where real estate values where decreasing and refusing to write mortgages? That was made illegal. After all, in our “feel good” society everyone gets what ever they want.
Please explain how redlining (which, incidentally, is actually the practice of denying loans to minority applicants while granting them to equally-qualified white applicants) is responsible for this mess.
Er, how redlining being illegal, that is.
[...] calls it "a historic swindle." Paul Krugman says, "No Deal." Radley Balko decries it. Arnold Kling says, dueting with Luigi Zingales (pdf), "the government officials making these [...]
I guess I may as well extend that a bit. I honestly know next to nothing about these issues (though I’m fairly certain that puts me in the same boat as nearly everyone else commenting here), but it seems to me there’s a couple issues at play:
1) Way too many financial institutions were investing, ultimately, in mortgages.
2) The fact that they were investing in mortgages was too often obfuscated.
3) Risk assessment at all levels basically ignored the possibility of the housing bubble collapsing. So now safe loans are not so safe, riskier loans are even riskier, and it’s very difficult to determine the value of the properties in question. The banks are in a bind because they can either collect on their loans or foreclose on the property and sell it to recoup the loan–but the loans are looking riskier and massive foreclosures will probably push housing prices *down*, meaning they’re potentially losing money in either case. General freakout ensues.
I mean, I’ll take the point that banning redlining maybe makes FIs a little more open to making loans to folks with low income, bad credit, whatever, but at the same time, I get the impression that that is something that took place across the board–i.e. it’s not just poor people who have mortgages they can’t pay for now. Also, AFAIK, the FIs were making money on those loans, so it’s hard to argue that, you know, Clinton forced them to make these loans when the loans were more or less profitable. The greater general availability of credit is probably somewhat responsible for the housing bubble, but credit availability has, if I understand it, been driven by creditors looking to expand their markets and the use of more sophisticated methods of risk analysis.
Matt D,
Here’s an article from 2000 that describes the problems with Clinton’s handling of the CRA. In hindsight, it’s extremely prescient.
http://www.city-journal.org/html/10_1_the_trillion_dollar.html
Money quote: “If loans that win banks good CRA ratings were going to be made anyway, and if most of those loans are profitable, should CRA, even if redundant, bother anyone? Yes: because the CRA funnels billions of investment dollars through groups that understand protest and political advocacy but not marketing or finance. This amateur delivery system for investment capital already shows signs that it may be going about its business unwisely. And a quiet change in CRA’s mission—so that it no longer directs credit only to specific places, as Congress mandated, but also to low- and moderate-income home buyers, wherever they buy their property—greatly extends the area where these groups can cause damage.”
From seeker6079: “A common libertarian counterargument is that if we remove the government as a player in the market then the market will solve the problems. Sorry, but that is arrant nonsense, and disproven nonsense at that.”
The arguement is actually that individuals, through markets, allocate resources more efficiently than governments. All the wealthy, first-world countries have market economies, and all the war-torn shitholes have command economies. Maybe it’s arrant nonsense to consider that a coincidence.
Also here’s an excellent bloggingheads with Brink Lindsay and Robert Litan of Brookings about Fannie and Freddie.
http://bloggingheads.tv/diavlogs/14410
Alex:
Sorry, but if you have to distort what I said and prop a straw man up in front of me to make your point then your point fails. At no point did I out the virtues of a command economy, deride a market economy or advance an argument against “individuals allocat[ing] resources more efficiently than governments”:
Note the words “balanced”, “consistent” and “integrated”, for starters. (I should have added “limited” because in most of those countries there is only so far that a government can or will go.) Such an approach, proven to work in every single other industrialized, capitalist western economy has enabled them to avoid the disaster that America has.
More brutally to the point, your notion that libertarian arguments are restricted to the apple-pie notion of individual/market allocation is wrong. The notion that regulation itself is harmful is a well-established one in American economic libertarian thought, going back to Coase and Stigler, to name just two. (I’ll cheerfully concede in advance hat Stigler’s “capture” theory is exceptionally significant here because it describes the Bush 43 administration to a “T”. The most significant gap in the theory is its inadequate recognition that the lack of a regulatory framework can lead to consequences even more disastrous as the biggest economic actors and interests exert their interests and distortions directly on the market without the restraining impact of having to operate indirectly through systems designed to inhibit their operations.)
America’s current massive mess is due to its own fiscal extremism at the opposite end of the scale from the “war torn shitholes” that you mention. (How we’ve got 40+ entries into this thread without mentioning Phil Gramm and his role in deregulation is beyond me; Gramm is an excellent example of a corporate kleptocracy enabler who derives his drive from purist libertarian principles and language.) America could have saved itself by use of a more balanced, judicious and restrained governmental role rather than the wildly changing and very weird fiscal speedball of deregulation mixed with corporate welfare/kleptocracy that it created this problem.
It looks as if I have to simplify my point for you. I will do so.
I said: “America wouldn’t be in this mess if it had a system more like Canada’s or Western Europe’s.”
You said: “Right, like we want to be like Zimbabwe!”
Fail.
Accuracy note: At the end of my last post, “shorter seeker” and “shorter Alex” should replace “I said” and “you said”, which are more properly reserved for direct quotations.
The original premise of the article was totally wrong: that the cost of this bailout will be $2,500 per person. Truth is, the govt could well make money on this, as they’ll be buying all kinds of mortgage-related paper at a time when there’s almost no bids for such paper. Providing liquidity to the market in terms of holding these assets for a while could be a great way to make huge profits. We won’t know for a few years, but the whole situation is not at all comparable to throwing money down some black hole (in which case we really might be able to talk about it’s costs per person).
Also, I don’t get a comment equating temporarily banning short selling as being some kind of huge threat to our freedoms. Pretty much everyone in the business seems to believe that there was huge nonsense being driven by some shortsellers, simultaneously shorting the heck out of stocks they haven’t borrowed, buying the heck out of credit default swaps on those same companies’ debt, pulling their prime brokerage business, and telling their friends that the way the firm’s stock/cds are trading looks like what happened just before Enron imploded, and such. In better times, there is enough capital on the long side, ready to step in and punish such actions of short sellers, but in this market, nobody wanted to step up. As a result, huge companies have been pushed into the equity death spiral black holes, something that would not be possible in better times or if there were some restrictions on how aggressive short sellers can pound the stock. As someone who spent seven years running long/short portfolios of stocks in the hundreds of millions, I never understood why naked shorting was allowed (against the rules but tolerated), not did I understand why investors don’t have to disclose short positions like they do long positions.
Clearly, short selling won’t be banned for ever, but to take a time out, I think what’s been done now is fine. Just bringing back the uptick rule would have probably been better. The really stupid thing was that the SEC let the emergency prohibition against short selling in certain financials lapse on August 12. After that’s when everything hit the fan.
“Maybe if I wish real hard, Sec. Paulson will announce a federal bailout of Radley Balko’s student loans.”
Lobby it. You’re too big to fail.
We should be clear on what is meant by “redlining”. It isn’t “let’s not let legitimately ineligible people have loans”, it’s “let’s not let legitimately eligible people have loans because they’re the wrong colour or address”.
Seeker, what’s your point? I agree with the CW that Fannie and Freddie were securitizing risky mortgages because of implicit government backing, and this moral hazard problem was exacerbated by the CRA nonsense. Obviously, this can’t in any meaningful way be considered a failure of the markets. If you have an alternative theory, I’m all ears.
Redlining was a problem when local S&L’s dominated the mortgage market. You can get a quote from 10 different institutions in 10 minutes online now, so it’s really a red herring now unless you believe that all lending institutions are really a racist cabal to minimize profits and piss off minorities.
Also, I agree with everything bornskeptic said. His point about these bailouts not being sunk costs is especially important.
“Obviously, this can’t in any meaningful way be considered a failure of the markets. …”
You’re making one of my points for me, Alex: that economic libertarianism can’t permit itself into a perfectionist ideology and quasi-faith wherein every market failure is explained away by pooh-poohing that it wasn’t really a failure of the market it was a distortion of the market. Despite the fact that it shouldn’t go down that route there is always somebody, like you, arguing that tired cliche.
We heard decades of that nonsense from the grimier side of the Iron Curtain: failure X or Y or Z wasn’t really a failure of communism but rather was a distortion of true communism. It’s silly. It puts libertarianism in the same Platonic Ideal Magic Pony Land of a never-realized Truth, like communism, or religions’ view of the infallibility of their sky fairy of choice, or Andrew Sullivan’s notion of conservatism: no failure is ever accepted as evidence of failure of the concept itself, or any key part thereof; the failure can only be in the execution because the concept is without flaw and can never be in error.
As for “what’s my point”, I made that clear both in two separate ways. If you truly don’t get it then one of two possibilities exist: either you’re too thick to get it, in which case I’m wasting my time explaining it to you again, or you deliberately aren’t getting it, in which case you’re arguing in bad faith. The latter is more likely, given how you twisted the discussion of redlining to set up yet another straw man. You like to argue and you’re just not very good at it.
Why don’t you just tell me what the “market failure” was? You can’t gloss over the fact that over half of mortgage debt is held by quasi-government agencies chock-a-block with political hacks.
Alex, first refer to my post on an earlier thread on the purposes and privatization and then deregulation of Fannie Mae. Add that to my comments in this thread. Stir. Think.
[...] William Greider calls it “a historic swindle.” Paul Krugman says, “No Deal.” Radley Balko decries it. Arnold Kling says, dueting with Luigi Zingales (pdf), “the government officials making these [...]
[...] The Bailout Sleaze though he be, I agree with everything he says in this NPR interview about the $2,500 per person Wall Street bailout. And props to him for saying his own party is wrong on this issue: Do you feel [...]