Talking Points for Opposing the lBailout

By Fester:

The Bail-out proposal is bad, and it is getting worse as more information is being released.  It should not be implemented for multiple reasons.  Most importantly, it transforms the Sec. of Treasury into an economic Caudillo instead of a mild-mannered technocrat.  The bail-out plan is basically Congress self-castrating itself on all aspects.  If it passes in its current form, we will have declared ourselves an elected dictatorship where the 'accountability moment' may or may not be once every four years.  Initially it would be every four years, but sooner or later, there would be some emergency that would offer the Presidential Potente the opportunity to be come President for Life or until the End of the Emergency.  We need to flood Congress and get them to act in their own best interests and our best interests instead of panicking to appoint Paulson as Palpatine. 

Here are the start of some talking points:

From Ian Welsh:

Bush is asking you to trust his administration with 700 billion after spending 580 billion on the Iraq war.  Do you trust him?

From Paul Krugman:

Anyway, the vicious circle aspect is only part of the larger problem, and arguably not the most important part. Even without panic asset selling, the financial system would be seriously undercapitalized, causing a credit crunch — and this plan does nothing to address that.

Or I should say, the plan does nothing to address the lack of capital unless the Treasury overpays for assets.  And if that’s the real plan, Congress has every right to balk.

So what should be done? Well, let’s think about how, until Paulson hit the panic button, the private sector was supposed to work this out: financial firms were supposed to recapitalize, bringing in outside investors to bulk up their capital base. That is, the private sector was supposed to cut off the problem at stage 2.

It now appears that isn’t happening, and public intervention is needed. But in that case, shouldn’t the public intervention also be at stage 2 — that is, shouldn’t it take the form of public injections of capital, in return for a stake in the upside?

Let’s not be railroaded into accepting an enormously expensive plan that doesn’t seem to address the real problem.

From Brad Delong:

John McCain chose Sarah Palin to be his vice president.

There is a 40% chance John McCain will be president on January 21, 2009.

There is no way in hell that anybody should give any extra power to any Treasury Secretary chosen by John McCain.

From Michael Shedlock:

everyone wants to rush this through even though it is the biggest financial crisis in history. One might think that something this big should be carefully considered but no... Bush says: "This is going to be a big package because it's a big problem" and "We need to get this done quickly and the cleaner the better."

It seems the bigger the problem the quicker and cleaner it can be fixed. Indeed Congress will argue more over the cost of toilet seats than they will over this $700 billion (and counting) bailout.

From Nouriel Roubini (via Bloomberg)

"He's asking for a huge amount of power," said Nouriel Roubini, an economist at New York University. "He's saying, `Trust me, I'm going to do it right if you give me absolute control.' This is not a monarchy."

From Ian Welsh (again):

Well, that 700 billion bails out Paulson's friends and colleagues at the highest levels (most of the little people will still lose their jobs). It preserves the world that Paulson worked in all his life. It means that Wall Street and the Banking industry doesn't have to change how they do business. The people in charge of it will stay in charge and they will stay rich.

Paulson is asking Congress for 700 billion dollars to bail out his friends and to keep his world intact. To ensure there is no meaningful reform of how the financial industry does business, or who runs it. He knows that if serious consideration is given to how to do a bailout it will include a lot of conditions, that the markets will be re-regulated and reformed, and that his friends will mostly be tossed out on their butts.

Be clear, the economy is in a crisis, but it's not a crisis that requires the literal dictatorial powers that Paulson is asking for. He does not need to be free from all oversight. He does not need to be given 700 billion dollars now. The bailout does not even have to be done through the treasury but could easily be done through the FDIC. Conditions can be imposed on the parties being bailed out. Help could be given to ordinary people as well as banks, not just to banks. Most of all, Congress does not need to sign Paulson a blank check and legal immunity from consequences as to how he spends it.

This is a stickup...

If the crisis was as severe as Paulson makes it out to be, virtually the end of market capitalism, he wouldn't be quibbling over whether or not CEOs get to keep their golden parachutes. 

From Jim Henley:

There is no way whatsoever to credibly cast the proposed bailout as a "never again" measure. There’s no way to ensure that it genuinely is a "never again" measure. There’s no institutional mechanism; there’s no logic to this bailout that could not apply to a future one. It not only culminates the previous era of Moral Hazard, it inaugurates the next one. It guarantees more of the same behavior that led to the current crisis. The only way it would not eventually lead to another, even bigger bailout like the one that got rolling with Bear Stearns in March is if - here comes the happy part - the government is simply too broke next time to pull it off.

Comments

[Ron Beasley]

Thank you for covering this Fester. I have been so angry that I find it immpossible to be rational. If Obama doesn't come out in oppostion to this Bob Barr is going to get my vote. If the Congress approves this I'm simply going to sit out the congressional races this time around.

[Clive A.]

If this scheme goes through, you can be sure that the government will eventually end up selling the mortgage securities back to the financial industry for a fraction of what the taxpayers paid for them. It will be explained that it is time for the government to get out of the collateralized mortgage obligation business.

Kinda like the way that well-connected owners of large tracts of land have managed to trade inferior parcels to the government for prime real estate.