Put on the Brakes
As noted in the previous post, I'm quite convinced that some drastic action needs to be taken to avoid a cascading and debilitating series of crises. But the more I look at this plan, the more wrongheaded it seems. But if I'm understanding this deal, the taxpayers are going to pony up close to a trillion dollars to take bad debts off the hands of financial institutions who were foolish enough to make the deals in the first place. And in exchange, I think the tax payers get nothing? Sebastian Mallaby makes the good point that this is radically different than the S&L Crisis RTC which was liquidating the assets of thrifts that had already gone belly up -- paid the ultimate price, as it were. And as the insurer on the accounts, the government inherited the assets anyway. It was just a matter of selling them off. But here the point is to take these bad debts off these companies' hands so they can go back to being profitable businesses. This is moral hazard on steroids if I'm understanding this right.
Also, according to the Journal, finance industry lobbyists are already giving orders to Republican hill staffers not to allow any meaningful reforms or protections for taxpayers. So, just the money. No strings attached.
House Republican staffers met with roughly 15 lobbyists Friday afternoon, whose message to lawmakers was clear: Don't load the legislation up with provisions not directly related to the crisis, or regulatory measures the industry has long opposed."We're opposed to adding provisions that will affect [or] undermine the deal substantively," said Scott Talbott, senior vice president of government affairs at the Financial Services Roundtable, whose members include the nation's largest banks, securities firms and insurers.
A deal killer for the group: a proposal that would grant bankruptcy judges new powers to lower the principal, interest rate or both on a mortgage as part of a bankruptcy proceeding.
Late Update: Mulling this more and listening to the insights in your emails, the key clearly is how much the government pays for these distressed assets. They may be bad debts. But that doesn't mean they have no value at all. Bought at the right prices and given time on the books -- which the government is uniquely in a position to allow them to do -- the government could even turn a profit on some of them. But the key is at what price they're bought and whose get bought. That seems like precisely the kind of process that requires oversight and accountability to make sure the taxpayer doesn't get fleeced.
Dancing on the Edge of the Abyss Update: Paul Krugman has a post up that I think tracks basically along the lines I've raised -- only from the viewpoint of someone who has a profound understanding of these things rather than no understanding at all. He says, no deal.
Yep, It's Crap Update: I can't seem to find any of the people who I respect thinking the bailout plan, as presented, is a good idea.
--Josh Marshall
Before We Jump In
There are subjects I know a lot about and others I know very little about. And the high-wire financial mess we're currently in falls clearly into the latter category. But I know enough to be troubled that we appear ready to give upwards of a trillion dollars in unfettered and unreviewable spending authority to the ... let's face it, the Bush administration, the folks who did such a bang up job in Iraq and New Orleans.
This morning a friend told me it's like the Iraq War all over again -- Shock & Awe, followed by an occupation of Wall Street, and all with no exit plan.
In all seriousness, Paulson seems like a very able guy. And without a roadmap in hand, he appears at least to have avoided catastrophe so far. But let's take a moment to realize just how much money we're talking about.
It is probably inevitable in such cases that the public gets stuck with a lot of the bill for the recklessness and perhaps even criminality of the people who got us into this mess. Even if it is their 'fault', we (as a country and its citizens) are simply too bound up with the consequences of their actions to let them play out in an unfettered manner.
But we need both some orderly system of decision making and some conditions imposed on the people, and the industries, that brought us into the ditch.
Here's a note received today from one TPM Reader ...
The current proposal for the bailout -- $700 billion to be used however the administration chooses to use it -- should not be allowed to pass in its current form. This is the same administration that has mismanaged Iraq, DOJ, Katrina. Why can they be trusted to preside over this in a way that is even-handed and for the benefit of the taxpayers? As Krugman and Atrios have pointed out, if insolvency rather than liquidity is the real problem, then this may not even fix the problem. Even if there is some modest stimulus package appended to the bill, the bill will still be a bad idea if it gives such unprecedented and unchecked power to the Bush administration.It would be great if you guys could lead a push -- like the anti-SS privatization one from a couple of years ago -- to impose limits and rules on the bailout. The Dean Baker post on your site is a good proposal and maybe it makes sense to press congressman to agree to elements of it, particularly the caps on executive comp which has gone completely out of control here. It also makes sense to regulate the CDS market -- $65 trillion in it, more than in banks, with no transparency.
Make those who are to be rescued agree to some conditions so that this will not happen again. Otherwise, this is basically giving Wall Streeters (who are to be fair friends with both parties) a lot of money for nothing in exchange.
We'll be publishing more of your emails. So please let us know your thoughts.
--Josh Marshall
Election Central Saturday Roundup
Barack Obama attacks John McCain on Social Security, warning voters in Florida that the financial crisis would have led many people to lose their retirement money under such a system. That and other political news in today's Election Central Saturday Roundup.
--Eric Kleefeld
Lipstick on a Pig in a Poke
TPM Reader CR:
Please please be against this bailout. I cannot begin to think of all the myriad reasons why this bailout as it is being floated is a bad idea of the most colossal of proportions, but I will try.Why are there no [details], because it will be a pig in a poke. There will be a bums rush just like when Bush tried to pressure Congress into passing the Protect America Act. They will wait until right before the election and try and jam the Democratic party up and say that if they do nothing then we are all going to Hell in a hand basket. There will be nothing good about this plan unless you are a big banking and insurance CEO. What a surprise!
While the Resolution Trust Corporation was a moderately well regarded solution to the 80's S&L scandal, this proposed idea does not, and almost certainly will not be similar, though its proponents will claim it is. The RTC took over failed banks and sold off the banks' assets. Very simple. It was simply an enormous bankruptcy trustee.
The crucial difference here is that this bailout will not be taking over failed banks, just taking over the bad debts of the failed banks. So the banks will be able to live on and be free to do the exact same thing all over again. I cannot think of a worse philosophical, policy, or practical solution than this.
You have banks and investment houses that lobbied Congress to remove restrictions on their activities and now their own activities have loaded them down with the crushing weight of bad debt from which they all profited handsomely before they got stuck holding the pile of s**t. ...
If we are going to subsidize taking over these bad debts, then we should be taking over the entire banks and liquidating them. Period.
TPM Reader BC:
Why do I have the feeling that this bail out of the financial system is going to be the market equivalent of the Patriot Act? We're in a crisis which gives the Bush Administration an opportunity to push legislation through Congress with little or no debate. In six months from now, how many "little surprises" are we going to find out about? Gifts to the industry or Bush Administration that got inserted into a bill that was approved without being read -- let alone, thoroughly examined -- by most members of Congress. I agree something needs to be done but do we really trust the people that brought us this mess to develop an optimal solution? Our financial markets operated safely and successfully for over half a century under the Glass-Steagall regime. Since we started deregulation, it has been crisis on top of crisis. Democrats should not agree to any bail out that does not include reintroduction of regulatory safeguards and effective oversight. Unfortunately, I have heard almost nothing from them except for Barney Frank. That leads me to conclude that they will be a.) unprepared to present a plan and/or b.) unable to articulate it in a way that can win public support.
TPM Reader TC:
Is it just me? With this last enormous bail out of our Wall Street Investors/Corporate America, I have this picture in my mind of these cartoon Republicans sweeping out the last of the people's money from the vaults. It took eight years, but they managed to get it all. The War/Private Contractors, the Oil Companys, the deregulation and fleecing of America. These Republicans started their tour of duty eight years ago with the coffers overflowing, flush with cash.
--David Kurtz
Innovative Products
John McCain: "Opening up the health insurance market to more vigorous nationwide competition, as we have done over the last decade in banking, would provide more choices of innovative products less burdened by the worst excesses of state-based regulation."
Late Update: Obviously, to rejigger that wonderful line, this is not excellent news for John McCain. If the Obama folks are smart -- and they are -- they'll ride this one all the way to the election. But among ourselves let's admit that you could only be surprised by this statement if you were willfully ignorant to what McCain and his key advisors believe. Remember, his top economics advisor is former Sen. Phil Gramm, the legislative architect of the banking and financial services deregulation that led to the current crisis. And his health care proposals are all off-the-rack Heritage Foundation-style initiatives based on the premise that people have too much, not too little insurance. The only thing jarring about the statement is the degree to which it has been overtaken by events as McCain now tries -- a la Palin the Earmark-Killer -- to rebrand himself as a Mr. Wall Street oversight and transparency when he's been pushing deregulation for 25 years.
--Josh Marshall
Can You Spare Us A Minute?
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--Josh Marshall
Highlightin' the Bogosity
We've got more on the pay cut that Sarah Palin claims she took as mayor. Bottom line is that she was still making more when her term ended than when it began. Greg Sargent has the details.
--David Kurtz
His Standard MO
Did John McCain just make his first edge toward that (hollow) apology that Joe Klein says he'll never accept?
(To be clear: Joe was referring to McCain's established pattern of engaging in sleazy or dishonest behavior knowing he can latter come back to the Washington bigs, moral hat in hand, for absolution.)
So after running the sleaziest and most dishonest campaign in modern presidential campaign history, now McCain 'regrets' the negativity.
--Josh Marshall
Classic McCain
John McCain will tell you that if you're against government bailouts of the private sector, he's your man. But check out McCain's track record on the three major bailouts engineered by the Fed this year alone:
John McCain, on the Bear Stearns bailout (March 2008):
"Asked whether the Fed went too far in helping Bear Stearns, McCain said: "It's a close call, but I don't think so." He said he doesn't support federal bailouts unless it has catastrophic effects on the entire financial marketplace and there were indications that a Bear Stearns failure would have rippled across the entire economy."
McCain, on the Freddie Mac/Fannie Mae bailout (July 2008):
"With combined obligations of roughly $5-trillion, the rapid failure of Fannie and Freddie would be a threat to mortgage markets and financial markets as a whole. Because of that threat, I support taking the unfortunate but necessary steps needed to keep the financial troubles at these two companies from further squeezing American families."
McCain, earlier this week on the AIG bailout:
"Now on the bailout itself, I didn't want to do that. And I don't think anybody I know wanted to do that. But there are literally millions of people whose retirement, whose investment, whose insurance were at risk here. They were going to have their lives destroyed because of the greed and excess and corruption."
Fair enough. But here's what McCain had to say about bailouts just this morning:
U.S. Republican presidential candidate John McCain admonished the Federal Reserve Friday to get out of the business of bailouts and get back to managing money supply and protecting the purchasing power of the dollar."The Federal Reserve should get back to its core business of responsibly managing our money supply and inflation," the Arizona senator told a group of business leaders in Wisconsin, an electoral battleground state.
"It needs to get out of the business of bailouts."
Once the Fed gets through with all these bailouts McCain is supporting, it better get back to its real business!
--David Kurtz
It's All Schumer's Fault
Sen. Ted Stevens (R-AK) is trying to get TV stations in Alaska to stop running the DSCC's ads against him -- so far without success.
--David Kurtz
Telling
If Sarah Palin removed her public safety commissioner for cause (and not because he refused to fire her ex-brother-in-law) why does she consider what a jerk her ex-brother-in-law is to still be the other side of the Trooper-Gate story?
--David Kurtz
On Offense on GOP Voter Suppression
From a longtime reader ...
A week ago, as the McCain campaign continued to drive the media narrative and consolidate its lead in the polls, you wrote:"...I take it that their position now is that they're not going to get knocked off their game. Instead they're staying focused on the ground game in the dozen and a half states where they believe the race will be won or lost....So we're left to take it on faith that they know what they're doing, without having much way of seeing for ourselves."
It's a fair point. And though it's tempting now to dismiss the last few weeks as a rapidly-dissipating bounce, and to applaud the Obama campaign for sticking to its game plan, the truth is that we don't know much more about how the campaign is unfolding on the ground than we did a week ago. If the polls didn't tell the whole story then, they're not much more enlightening now.
With that in mind, it's worth paying attention to a little-noted development this week in Michigan. The Obama campaign filed suit in state court to block the GOP's "Lose your home, lose your vote" scheme, a plan to challenge the eligibility of voters whose homes have entered foreclosure - despite the fact that many remain resident in those homes.
It's a typical GOP disenfranchisement campaign, and it's nice to see the Obama folks taking a proactive position.But the really interesting part of the filing is the effort by the Obama campaign to demonstrate, in a court of law, that this behavior is "part of a broader state and nationwide campaign by the Republican Party to suppress the vote." And, upping the ante, the filing alleges that "Defendant Republicans have a long history of engaging in coordinated, systematic campaigns to suppress and deny the right to vote of American
citizens. Those campaigns are often targeted at various racial groups, language minorities, or individuals of low or modest economic circumstances whom Defendant Republicans believe are unlikely to support them in political campaigns."The filing is aimed at a particularly egregious and politically ill-advised initiative. Not only are the Republican claims here tendentious, but they're targeted at a sympathetic group - largely white, financially-struggling voters, caught up in the economic crisis.
But the suit invites the court to go a step further - to recognize a persistent pattern of egregious misconduct; to find that this is a local instance of a state and national campaign; and in so doing, to link this initiative with other, less politically toxic drives.The court is more likely to rule narrowly than to recognize those claims in its decision. But by intervening directly in a local case, the Obama campaign is signaling that a national campaign to disenfranchise voters will receive a national response. And by reframing a technical debate over local election laws as a broader discussion of fundamental rights, the Obama campaign has already won. The GOP has long employed the chimerical notion of "voter fraud," and preyed upon unpopular groups
like students, non-Anglophone Americans and ex-felons. But they made a strategic miscalculation by going after homeowners suffering foreclosures. And by linking this effort at disenfranchisement to the others, the Obama campaign is going to make them pay.
(The filing is here.)
--Josh Marshall
Election Central Morning Roundup
Sarah Palin's campaign staff declines to say whether the vice president is part of the executive branch or the legislative branch. That and the day's other political news in the TPM Election Central Morning Roundup.
--David Kurtz
Spain Goof Consensus Emerges
After a day of gasps, guffaws and eyes rolled over John McCain's decision to reassign Spanish Prime Minister Zapatero to run an unnamed country in Latin America, it seems we are arriving at a rough consensus about what happened and what part of it matters.
As I posited earlier today, the most logical conclusion is that McCain simply didn't understand the question and tried to wing it. It may have been due to fatigue, lack of attention, confusion or simply an inability to penetrate the interviewer's fairly thick accent, or perhaps a combination of one or more of the above. It is only if you insist on the preposterous assumption that McCain fully understood and grasped what the interviewer was asking him (i.e., the position of McCain's foreign policy advisor Randy Scheunemann) that you have to conclude that McCain believes that Spain is a country in Latin America which may be bent on America's destruction.
In itself mishearing or misunderstanding a question isn't the worse thing in the world, though being too proud to ask for the question to be repeated and going with the assumption that the mystery leader must be some Hugo Chavez type character out of Woody Allen's Bananas does suggest a certain recklessness of character.
The McCain campaign might simply have said that he was on the phone and didn't understand. But they're obviously unwilling to do that since they've staked so much of his candidacy on his foreign policy chops.
In any case, a consensus appears to be emerging that the really shocking lapse was not the original gaffe but how the campaign chose to deal with it. Rather than copping to the goof, they decided to stick to the nonsensical statements and risk, should McCain win in November, significant damage to our relations with a major NATO ally. Coming to basically similar conclusions are Newsweek, Joe Klein in Time, Chris Orr at The New Republic and many others.
So to restate, I think the simplest explanation is that McCain didn't understand what he was being asked. And instead of trying to clarify, he assumed the interviewer, who had already asked him about Chavez and Castro, must be quizzing him on some other Latin American strongman who was up to no good. As so often with McCain, he tried to wing it. I think the available evidence is consistent which much less generous readings of the event. But this read is plausible. And Scheunemann, whose lack of experience in press work was painfully on display today, acted with characteristically knuckle-headed aggression and doubled-down on McCain's nonsensical statement.
And whatever the misunderstanding, let's face it. When a president or presidential nominees gets confused in an interview, appears to say that a European country is in the Western Hemisphere and inadvertently makes highly belligerent statements toward a major ally, that's a big problem.
(ed.note: For more on the Inane On Spain controversy, check out Americablog, where John Aravosis has been on the story all through the day.)
--Josh Marshall
TPMtv: Inside McCain's Spanish Fly
We've been bringing you the latest through the day. Now in today's episode of TPMtv, you can hear John McCain's Spain goof and the two reasons why the explanation from his top foreign policy adviser just doesn't add up ...
Full-size video at TPMtv.com.
--Josh Marshall
Is He Catching Fib Bug From McCain?
Georgian President Saakashvili denies hiring Washington lobbyists ...
President Saakashvili has strongly denied that his administration was in any kind of "lobbying relations" with Randy Scheunemann, a foreign policy advisor of the Republican presidential candidate, John McCain.He was asked about the matter at the BBC's HARDtalk, when President Saakashvili was speaking about the huge support Georgia had in the United States.
"We've been getting huge support from the U.S. administration," he said and added that this support was coming not only from President Bush and his administration, but also from the both presidential candidates in the United States.
When saying this, an anchor, Stephen Sackur, interrupted Saakashvili and asked him: "Nobody would deny it for one second, that you have fantastic PR in Washington and many supporters, some say that partly because you spend millions of dollars on lobbying and PR in Washington not least with Mr. McCain's chief foreign policy advisor [Randy Scheunemann], he has received lot of money in his strategy organization [Orion Strategies] from your government; so you do have PR friends, but when it comes to practicalities what have the Americans have actually done for you to stop the Russians doing what they want on your territory?""You've just sounded like Mr. Putin right now," Saakashvili responded with smile on his face. "What millions of dollars? What lobbyist?.. We do not have millions of money to spend for anything especially for lobbying."
Needless to say, Saakashvili had McCain's foreign policy Scheunemann on the payroll until quite recently. And he still retains Scheunemann's firm.
(ed.note: Special thanks to TPM Reader AR for the tip.)
--Josh Marshall
ABC: New Docs Undermine Palin's Newest Trooper-Gate Story
An internal Alaska government document obtained by ABC News shows that Sarah Palin's staff authorized a trip by then-commissioner Walt Monegan to Washington, DC -- the trip she has since claimed was unapproved and the basis for his firing.
Bailout Details Remain A Mystery
Bush officials have won quick acquiescence for a market bailout costing as much as $1 trillion. But neither Congress nor the press are privy to the details, which aren't even set.
Who Paid To Send Radical Islam DVDs That Could Help McCain?
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- Election Central Saturday Roundup
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