Officially titled the “Emergency Economic Stabilization Act of 2008,” the plan to rescue the financial system of the US has ballooned from 3 pages to 110 (pdf). Others with more time (and experience) than I have looked at it in more detail (see this NY Times article, for example), concluding that this bill is needed now and in its current form, this is about the best we can get.
My biggest concern is that $700 billion may be the tip of the iceberg and that we may very well find ourselves on the hook for much, much more. Once we go down this path (Iraq, anyone?) there is no turning back.
VIVIAN J. PAIGE | All Politics is Local 
I usually get more bothered by the insistence that this all could have been fixed by a different set of accounting rules at Freddie and Fannie–when actually everyone agrees there are legitimate problems with the market fundamentals caused at the microeconomic level when across a desk a mortgage officer from a non-bank, non-regulated financial entity and a home buyer agreed to some pretty ridiculous mortgage terms. I’m also not entirely comfortable with the amount of money the FED pumped with extended periods of low interest rates, which lead to some fundamental misunderstandings. A lot of people felt that since they were given access to up to $350,000 (for instance) that they should therefore be spending $350,000, and since some sellers knew that people were willing to pay $350,000, they should be charging $350,000 even if that was significantly more than the intrinsic value of the property and structure. It’s a consistent and persistent microeconomic breakdown that’s lead us to a macroeconomic crisis, and how Freddie and Fannie keep their books doesn’t have nearly enough to do with that problem to spend to much time thinking and arguing about it.
I would care more about assigning blame if I didn’t think this was an economic issue that’s significant enough to both our short- and long-term future, both domestically and abroad, that we should care more about identifying how we fix it instead of arguing over whose fault it is. How regulation broke down and prevented us from seeing this problem coming is important to knowing how we’re going to prevent it in the future, but seriously, we probably can afford to hold off on screaming at one another, act like adults for just a few more minutes, and cross that bridge later when the FDIC isn’t holding negotiations so banks can purchase one another in firesales.
On a side note, did anyone notice BofA is running commercials advertising CDs? I’m trying to decide if it’s a sign that they’re reacting to market uncertainty by reminding investors of other fixed-rate investment vehicles…or if they’re overextended and looking for other ways to raise cash.
Perhaps a little of both?
Yes, MB, the banks were responding to the incentive of the feds suing them if they did not approve enough mortgages to low-income people.
Yes, dogooder, it is appropriate to try to properly assign blame now. Normally, I would agree with you, but we have a presidential election in five weeks. One of the candidates tried, repeatedly, to deal with this issue before it blew up in our faces. The other candidate has not been around long enough to have mattered. So as a surrogate, we must look at the position and culpability of his party, which he has never opposed. The policies of the Democrats caused this problem, by suing and threatening to sue banks if they did not issue enough sub-prime loans, and by blocking legislation that might have averted this disaster.
On this issue, McCain has shown insight and foresight. Obama either didn’t weigh in on the bill, or wasn’t even in the Senate yet.
How those books were kept (as well as others) certainly has a lot to do with it. It was partly those books that produced that $350k figure in the first place. There’s no shortage of culpable retail borrowers, but lord, who had the information and capacity to make the informed decisions, here?
Figuring out the cause is exactly what needs to be done, before we rush in with a fix. Don thinks that it’s gov’t regulation that restricts the industry in such a way as to result in this failure. I think that it’s a financial industry that’s shown that it is incapable of behaving responsibly when left to its own devices. Each of us would probably agree that the other has an example of bad reg or bad bank actors, but the positions are still fundamentally very far apart. Sorting out which one of us are right is the difference between a politically acceptable fix and a substantively effective fix.
I like the discussion of the cause because you need to diagnose something to cure it, I just can’t bring myself to care about assigning blame in the sense that it pertains to an election, as Tabor and Mouse seem intent to do. Primarily because as we saw last week, bringing presidential politics into the problem-solving process often causes more harm than good, as it induces people to stop thinking, “what’s the best explanation/solution for the country?” and start thinking instead “what would be best for the candidate I support/the ideology I believe in?” It’s a big enough deal that it’s worth examining dispassionately.
A secondary consideration is that five weeks out, the electorate’s opinions on who would take the economy in a new direction are solidifying, so that discussion has already been lost or won. The politics are firming up, the the policy (both behind this bailout plan and future plans–because there will be future plans) is fluid enough that it’s worth the time.
“who had the information and capacity to make the informed decisions, here?”
Which is exactly what McCain was trying to do with the legislation he sponsored — revise the accounting rules, and set up an oversight agency that would have the information.
“Figuring out the cause is exactly what needs to be done, before we rush in with a fix.”
Certainly. The question is, how much time do we have? Sec. Paulson and others think that we have very little. You and I disagree with him. The question is, can we trust him? That is why personal integrity is so important in our leaders. In both the Navy and as an elected official, I have seen more integrity in McCain than in Obama. Give Obama a couple more terms in the Senate, enough time to actually do something, and it might be different.
“Don thinks that it’s gov’t regulation that restricts the industry in such a way as to result in this failure.”
He’s right, too.
“I think that it’s a financial industry that’s shown that it is incapable of behaving responsibly when left to its own devices.”
The problem is, it has not been left to its own devices. They were sued to get them to make bad loans, and then allowed to split the risk from the reward. If the loan was paid back, they got the money, if not, the taxpayers would take the loss.
The same is true of those who took out the mortgages. If rates stayed low, great. If not, the government will help you keep your house, probably by forcing the bank to give you better terms.
MB – It’s not just government regulation that caused this, it is government intrusion into the marketplace. I know you won’t believe me, but how about an article written in Sept 1999 in that horrid bastion of conservatism, the New York Times? http://tinyurl.com/3jdn9e
It is almost eerie to see the warning that was ignored. The problem was understood almost a decade ago, but, driven by political correctness, we went ahead anyway. The only thing they missed was how the sudden influx of money into the secondary sub-prime market would fuel the housing bubble.
BTW, you haven’t called me a racist yet today, have you mellowed?
“[The] electorate’s opinions on who would take the economy in a new direction are solidifying, so that discussion has already been lost or won.”
Not for another five weeks. In the meantime, do you not think it is important that one of the candidates foresaw and tried to head off this debacle, and was stymied by the other party?
Mouse – show me the where the legislation was voted on.
The Senate did not vote on it. That is irrelevant. What is relevant is that McCain saw the problem and tried to deal with it. Where was Obama? Does he have any record of such foresight? Does he have any record of working across the aisle as in McCain-Feingold, McCain-Kennedy, or the McCain-Lieberman bills. That only one of those three bills passed is not the point. The point is McCain’s foresight, his ability and willingness to work across with the other party on contentious issues, and his experience. Obama has nothing at all that can compare to that.
BTW, you can read the bill and McCain’s speech at GovTrack.
Mouse, I’m really very sorry, but your narrative of a Senate vote that never happened is not persuasive in light of a candidate who is on record of saying:
1. He doesn’t understand economics.
2. He’s the most anti-regulation candidate anyone has ever seen.
3. The fundamentals of the economy are sound.
Add to that what most voters saw as a stunt last week (I’d be charitable and call it a “miscalculation”) and you get a situation in which you’re not going to find a lot of room to persuade people on John McCain’s economic credentials, particularly since he’s never served on a committee that has anything to do with finance or banking and thus has a voting record equally as sparse as Obama’s. It’s the “who are you going to believe, me or your own lying eyes?” argument.
And yet he seems to understand economics more than the Democrats do. McCain foresaw this problem, and proposed and cosponsored legislation that might have headed off.
“[He’s] never served on a committee that has anything to do with finance or banking…”
Do you actually research what you say, or do you make it up as you go? McCain was the chairman of the Senate Commerce Committee from 1997-2001, and again from 2003-2005.
http://commerce.senate.gov/public/index.cfm?FuseAction=About.PastChairmen
He is currently on the subcommittees for Consumer Affairs, Insurance, and Automotive Safety; and for Interstate Commerce, Trade, and Tourism.
And round one goes to the nays. I am surprised.
~
Don, if you really believe this:
then I’m afraid there’s just nothing for us to talk about. To put it on *that*, and not the billions in profits that fueled this? I’m reminded as to why I was thinking you belonged in the same Ignore Me box that Mouse and RLewis are in. You’re smarter than both of them, but you seem more committed to being a victim of society and oppressive government than having any actual conversation. Ah well.
According to CBS News, the House just defeated the bailout!!!
BM,
“And round one goes to the nays. I am surprised.”
1st thanks for the compliment. 2nd commonsense prevailed, I know that is hard for you to understand! you blowhard!