Let me back up a bit. I have really attempted to keep partisan politics out of my analysis. I hope I have succeeded but have probably not done as good a job as I would have liked. While I am a conservative Democrat (socially liberal, fiscally conservative) I really come down more in the Lewis Black mold. Towards the end his last special he stated (and I'm paraphrasing here), "In September, I'm hoping the Democrats and Republicans simply decide to not show up. I've been doing this for 30 years. I keep thinking it won't get worse, and it does." That's exactly how I feel about the last 8 years of, well, bullshit. Everybody who is even remotely involved should be kicked out and exiled to the most remote part of the planet possible. They should also be forced to listen to months straight of the worst televangelist on the planet (Robert Tilton comes to mind).
Here's the basic problem. For the last 8 years this country has become a fiscal train wreck. I say this over and over again, but it's worth repeating. According to the Bureau of Public Debt, the US has issued over $500 billion dollars of net new debt per year since 2003. During the good times -- that is, the times when the economy was expanding -- Congress acted more than recklessly with the nation's finances.
On top of that, the remarkable lack of regulatory enforcement is horrendous. How many food recalls have we had? Or toy recalls? Does anyone remember the FBI is investigating literally every major mortgage lender in the US? How about all of the mea culpa's regarding the auction rate securities market? Now everyone is acting like "it wasn't me -- it was the other guy." Bullshit. Everybody who was in Washington watching and participating in this crap is guilty. Plain and simple.
And let's not forget Alan "bubbles" Greenspan who has yet to meet an asset class he cannot inflate into the stratosphere. Mister "I had no idea 0% interest rates and lack of regulatory enforcement would lead to this" who stands as the architect of a failed Ayn Rand policy perspective that is ruining the country fast should be beheaded, his head bronzed and placed on a pike sitting outside the NYSE with a sign below it that reads, "Asset inflation does not equal real GDP growth". Anyone entering the NYSE must ponder this thought for 5 minutes each day and submit a 100 word essay each month on its meaning.
Let me quote a friend who goes by the screen name of New Deal Democrat:
And so, they have finally done it. Washington has finally bet every dollar of earnings and wealth you and I and every other taxpayer has ever made in our entire lives; every dollar that will ever be made by our children's generation; and every dollar that will ever be made by our grandchildren's generation; in an attempt -- that is by no means guaranteed to succeed -- to prop up the reckless and malign neoliberal "shadow banking system" of Wall Street.
This was a crisis that wasn't just foreseeable. It wasn't just foreseen. It was shouted about from the rooftops for almost half a decade. And yet Washington refused to hear, because the shouters were the Dirty Unwashed Hippies who live outside the zone of neoliberal economic consensus that is elective Washington, D.C.
And they will not hear now, either. Awash in their elective sinecures and their corporate campaign contributions, all that remains is the Rendering of the Bill to the suckers and the chumps. That's us.
Pray tell, exactly why did Congressional leaders sit in "stunned silence" on September 18, 2008 as it was explained to them that the collective unpayable $ TRILLIONS of debt of millions of ridiculous mortgages for houses and condos bought at unsustainable values, debt that was packaged and sold and then borrowed against at rates of 30 or 40 to 1 by a shadow banking system that they and the Administration birthed and nurtured, debt that had been booked as ficitious profits by that system, debt that in the real world represented money that was never ever going to be paid back, was in danger of bringing down the entire financial system?
This crisis was not just foreseeable, it was not just foreseen, it was shouted about from the rooftops since 2004, on blogs like Ben Jones' housing bubble blog, by Calculated Risk, by Mike Shedlock, by Russ Winter, by Barry Ritholtz, by Robert Reich, by Paul Krugman, by Joseph Stiglitz, by James Kunstler, by Stirling Newberry -- in short by just about every housing or economic blogger right, center, and left, from bonddad at Daily Kos to blackhedd on Red State, not to mention myself.
And yet two nights ago, Pelosi, Schumer, Frank, Reid, and everybody else in the Capital sat in "stunned silence" as Bernanke and Paulson spelled out the situation for them. Where were they all these years? Protected from the noise of the Dirty Unwashed Hippies beyond the beltway, by their cocktail party neoliberal free market cone of silence in Washington, that's where.
And so, panic-stricken, they will hurriedly and without reading carefully enact into law what will undoubtedly be the "Economic Patriot Act" of the Bush Administration, with all of the corruption and hidden destruction of rights that conveys, an act that has been estimated at costing up to $1,000,000,000,000 (that's $1 TRILLION) of taxpayer moneys. And still may not succeed.
Truer words about the current situation could not be spoken. This was bound to happen. But now collective Washington is now acting as though it's some kind of shock they have to do something. Folks, this has been on the horizon for years. Those of us who talked about it were called chicken littles (or worse). And no -- I take no pleasure in being right.
However, there is one way to prevent this nightmare from happening again. And it is not in bailing out stupid decision makers with yours and my money, or giving this money to Hank Paulson and Ben Bernanke hoping their magnificence and true humility will help them act in the country's best interest. The way to prevent this from happening is to let the idiots who got us in this mess feel the pain from their decisions. And that means let these bastards rot.
Or -- if the government really wants to do it's job like enforce the rules that are existing and then creating a new regulatory framework that works with the current financial industry -- then please do so. But that means growing a spine and saying, "we aren't doing x unless we get y." Period.
12 comments:
Here's we we find out if we have even a semblance of democracy left in America. Thanks for being straight with us.
I agreed with everything that was just said up until you got to the "let these bastards rot" statement. The simple truth is that the folks in government who let this happen will retain power. The folks in the banking industry who engineered this debacle will still be wealthy and powerful. The bailout or lack there of won't punish them.
In the end, it's worth remembering that it's not just the money of some fat cats caught up in this ponzi scheme. It is people's pensions and retirement savings. It is the capital funds for our employers. Ultimately, the people we need to punish are the least likely to feel the pain from any market collapse.
My take at this point is that there's is probably a bailout necessary. But along with that bailout there must be changes to untangle this mess and prevent it from happening in the future. Regulations on CDO's. Regulations on derivatives. Taxes on the whole scheme to fund government insurance programs so that, if we have another meltdown we'll have the resources to tackle it rather than begging the global credit market to buy more treasuries.
Incidentally, this is why you have to have laws in place. Consider the fact that everything that was done was mostly legal. Because of that, we have practically no means to hold these individuals accountable. If we had smart regulations in the first place, none of this happens or, if it did, at the least we could throw these yahoos in PMITA prison for a few years for cathartic value if nothing else.
I generally agree, but there simply would be too much pain for ordinary folks and the bastards would still get away. Naive to hope an Obama administration could reverse some of this? After the bailout, wouldn't there be more political traction for truly progressive taxation? Or would all the capital flee overseas? After all, people will know they're footing the bill for Wall St. There is still a lot of value in America, a lot of talent still out there and not everyone is consciously corrupt, even on Wall St. Maybe you're right, however, there has to be some pain before any hope of recovery.
Hat tip for the info on the link to members of the Senate Banking Committee.
If you want to read some really precious fiction give this a go -
(from NYTimes)
“Despite the efforts of the Federal Reserve, the Treasury and other agencies, global financial markets remain under extraordinary stress,” Mr. Bernanke told the Joint Economic Committee. “Action by the Congress is urgently required to stabilize the situation and avert what otherwise could be very serious consequences for our financial markets and our economy.”
The chairman of the committee, Senator Charles E. Schumer, said that all but “a few outliers” among lawmakers agreed that some version of the plan to rescue the American financial system must be approved, and soon. But he said it would not be passed without adequate safeguards.
“We will not be dilatory, we will not add extra amendments, we will not Christmas-tree this bill,” Mr. Schumer, Democrat of New York, said using slang for the lawmakers’ occasional propensity to tack special-interest items onto legislation.
Mr. Bernanke said that international trade “provided considerable support for the U.S. economy over the first half of the year,” but that this stimulus could not be counted on in the long run.
“Economic activity has been buoyed by strong foreign demand for a wide range of United States exports, including agricultural products, capital goods and industrial supplies, even as imports declined,” he said.
“However,” Mr. Bernanke went on, “in recent months, the outlook for foreign economic activity has deteriorated amid unsettled conditions in financial markets, troubling housing sectors and softening sentiment. As a consequence, in coming quarters, the contribution of net exports to United States production is not likely to be as sizable as it was in the first half of the year.”
Mr. Bernanke’s remarks added to the continuing sense of urgency, as he alluded to extraordinarily levels of uncertainty and risk, well beyond the sagging housing market whose troubles are at the core of the problems.
“Given the extraordinary circumstances, greater-than-normal uncertainty surrounds any forecast of the pace of activity,” Mr. Bernanke said. Overall growth will probably continue “below its potential rate,” he said, and “the inflation outlook remains highly uncertain.”
The session offered a blend of concerns over financial markets, both on Wall Street and abroad, and intensely political worries for the lawmakers as Election Day draws near.
Mr. Schumer said he and other lawmakers were listening to their constituents, who were reacting with “amazement, astonishment and intense anger” to the original outlines of the $700 billion plan, as laid out by the Bush administration, and to the high-risk behavior that spawned the crisis.
“We were told that markets knew best, and that we were entering a new world of global growth and prosperity,” Mr. Schumer said as the committee greeted Mr. Bernanke, who is testifying on Capitol Hill for a second consecutive day. “We now have to pay for the greed and recklessness of those who should have known better.”
It is time, Mr. Schumer said, for the American economy to be revived as the “engine of prosperity,” rather than as a “casino” for high-rollers in the realm of finance.
“With the exception of a few outliers on either side, there is clear recognition among members of both parties that we must act and act soon,” Mr. Schumer said. But without adequate safeguards, he said, “then we risk the plan failing.”
The White House said President Bush may make a prime-time television appearance to bolster support for the program, whose basic premise calls for the Treasury Department to oversee the purchase of distressed mortgage-backed securities, and hopefully resell them to recoup at least some of the taxpayers’ money used to buy them.
Mr. Bush’s chief spokeswoman, Dana Perino, said on Wednesday that the country could face “a financial calamity” if Congress does not act soon.
Mr. Bernanke, who reminded lawmakers on Tuesday that his background is in academe, not Wall Street, told Mr. Schumer’s panel that the Federal Reserve believes in general that “private-sector arrangements” are best in straightening out problems in the financial markets.
“Government assistance should be given with the greatest of reluctance and only when the stability of the financial system and, consequently, the health of the broader economy is at risk,” Mr. Bernanke said. And now is such a time, he said.
Meanwhile, doubts were raised about the ultimate cost of the bailout, assuming it is approved in some form. Until more details emerge about what the government will buy, and how, the director of the Congressional Budget Office said it “cannot provide a meaningful estimate of the ultimate cost” to taxpayers.
Over time, Peter R. Orszag of the nonpartisan budget office told the House Budget Committee, the cost could be less than the $700 billion “sticker price.”
The challenge, he said, was for the Treasury to avoid taking the riskiest assets off Wall Street’s hands unless it can get them at fire-sale prices.
Those of us who actually read the charts, etc. and try to make sensible personal fiscally conservative decisions (don't spend more than you make, balance your checkbook, save 15-20% of your gross) should be outraged by this nonsense.
Thanks again for your work on this site, great job!
I've commented on this idea elsewhere and I'll share it here as well: RICO.
The DEA uses these laws to confiscate all assets from suspected drug dealers long before they go to trial. Since this approach has years of legal precedent I believe it should be applied in this huge pile of racketeering.
Confiscate the assets of ALL the Wall St. execs and traders, federal regulators, elected officials and political appointees (Fed chairmen and treasury secretaries included) who are responsible for this. Arrest every last one of them and use their ill-gotten wealth to protect the assets and savings of the People.
Will this happen? Maybe not, but let's be clear and honest about the degree of criminality at play and honest about the level of punishment leveled for arguably lesser crimes.
PS- Thanx bonddad for your writings and analysis.
This post will not be as incoherent as it will seem at first.
This meltdown reminds me of the "fundy" wings of Islam, Christianity and Judaism. All three of these religions are - for the most part - sane rational folk who - while they believe in a silly premise - are smart enough to IGNORE the silly stuff and act reasonably balanced.
Similarly, the stock market was created as a mechanism to trade, acquire and sell shares in companies and for companies to sell a part of themselves to raise money. HOWEVER, the "fundies" got hold of it and have turned it into a crap game - pure and simple.
Just like the sane religious people can't control the crazies the sane investment community can't control the crazies.
What has to be done - to save our pathetic pensions, etc., etc. Is do this bailout. Imprison EVERYONE that broke the law. and THEN pass REAL LAWS - REAL REGULATIONS - that strictly prohibit this BS.
The first law is NO SHORT SELLING. Short selling is a "games of crap" RULE - NOT a rule neede by people wishing to sell their shares or by companies needing to raise capital.
If people want "craps" - I suggest Vegas!
And so what happens if you succeed in getting Congress to vote NO? Do you have a plan B? Or do you think the freezing up of the credit and commercial paper system in the world is not a crisis needing to be addressed? My guess is that no plan equals the bankruptcy of 6 or 8 or the 10 largest banks in the US, and how much do you think that would cost the taxpayers?
"...Congress acted more than recklessly with the nation's finances...."
no, it was BUSH and Congress
we're in this mess because of the utter failure of the conservative ideology of deregulation and damn the consequences
If Paulson wants to help his buddies, why doesn't he run a telethon to raise cash? That would be the American way, no?
all well and good, but it's a done deal. and it was planned this way. all along, I've been puzzled by what's really going on here. Now it's clear. observe how it's being spun for the presidential race, 'suspending the campaign' and rushing back to DC for a 'bipartisan summit.' The clueless president & his clueless would-be successor. 'The economy will collapse, your credit cards will be frozen, your daughter won't be able to go to college. Unless you give us what we want.' This has been manufactured and is nothing more than a financial permutation of the 'Be Very Afraid' political strategy used for the past 7 years. Yes, there is a problem, but you don't use an H-bomb to swat a mosquito.
We're toast.
A number of years ago Canada went a different way. Our Liberal government mandated a balanced budget and started paying off debt. Canadians paid a price - it affected our economy and standard of living. More recently our Conservative government put most of the surplus towards paying down our debt. Even though we are headed towards recession I am not too worried because we are in a position of strength fiscally.
I can understand how the situation in the US must make you feel sick. Even absent this crisis, taking the country to a balanced budget and paying down trillions of debt would be extremely painful.
The current crisis must be addressed. I really don't know how. The TED spread is above 3. The bond markets are in crisis. The risks go far beyond a stock market crash and reach globally. Having hundreds of banks of all sizes fail would be catastrophic. Having access to credit for families and businesses has become as necessary as having access to clean water.
I feel that they must do something. Unfortunately the problem isn't liquidity, it is solvency.
Amen, Mr. Bonddad! And to the blogger who nailed it when he/she mentioned the ever-popular FEAR campaign to seal the deal. Remember the Patriot Act that was forced through Congress? If it ain't broken...I am starting to believe the Bush regime is determined to undo the social safety nets of this country before they're gone.
I also believe the root problem lies in the abuse of capitalism. It is ironic that one of the bubble's enablers (Greenspan)used to hang around a true capitalist, Ayn Rand. I guess he learned that saying you were a capitalist was easier than abiding by its rules. And we've learned these past few years exactly how much Republicans hate to follow rules, in the economy and in Iraq. How can we expect other countries to take us seriously when we cite the Geneva Convention, or argue that nationalization of industries (Chavez) is wrong, or make a case for habeas corpus rights and the importance of deterrance in society?
I keep saying it over and over, but conventional wisdom about Republicans and Democrats is being turned on its head. The opportunity for a sea change is here, if anyone is brave enough to start the process.
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