Given that the this post will be dated even prior to publication, I’m typing fast. Thanks for the extra patience with my typos.
We need a government bailout of the financial crisis. We all need to quit whining, tell the whiners to shut up and get do whatever we can to get something done. Consider calling your congressman. Seriously. The situation is that bad. I’ll spare writing the details here, but suffice it to say it’s pretty easy to see a pending economic implosion if the credit markets freeze. The CMOs, CDOs and derivatives are the sexy part of the story. Frozen overnight lending is what should really be scaring the shit out of everyone.
To those who say that we should just let capitalism run its course and the feds should stay out of this, I have a couple of responses. First, that’s an option. But it’s an option that’s likely to come with a horrific recession (nee: depression). We can let capitalism play out, but it will be brutal for everybody. Second, in the US, we don’t have a pure form of capitalism. We have a form which is influenced by fiscal and monetary policies, as well as regulation. If you are now saying that we should just let things run their course, you are effectively saying that we should alter the manner in which the American economy has operated since Alexander Hamilton did the whole Treasury Department thing.
To those who say any bailout should come with caps on executive compensation. Stop. If the feds invest $700 billion in this bailout, I want to be 100% sure that we can attract the best and the brightest to get the job done right. Everyone in Washington DC has a cap on their compensation and look at what we get there. If you want to attract the best, you can’t cap the comp.
To those who say the performances of all in Washington are awful, especially that of the President, the presidential candates and the folks who froze the process last night, I agree. The stink from Washington is putrid. Some deserve more blame than others, but it’s awful. That said, I don;t want to hear one more person use this as an opportunity to tell me about Ron Paul. There is a lot to admire about the guy. I myself has some libertarian leanings. I disagree with his stance on reproductive rights, but he’s someone who’s opinion I am almost always interested in hearing. Almost. He is so wrong on economic policy (policy is different than prediction). If were up to him there would be no Treasury and the dollar would be back on the gold standard. Stop. He is not even close to being the guy for the job on this one.
Other things which annoy me:
- People who were responsible borrowers got fucked. We got to sit around and watch real estate prices get bid up by people who couldn’t afford it. Now it’s in the national interest to make sure there aren’t too many foreclosures. I hope these people get hurt somehow – we need a moral hazard. We can’t allow this behavior to continue.
- Hard working professionals get hit. Blame the investment banks all you want, but investment banks are complex organizations. For example, M&A bankers would have little influence (or knowledge) of their firms trading practices. And now when those trading practices cause the bank to go under or the stock to crater, they get hit. They lose their jobs, their savings, their bonuses (often paid in stock). This has a huge financial and emotional toll. Just because they were investment bankers, doesn;t mean they were to blame.
- There are some traders and money managers who made huge amounts of money making trades which ultimately turned out bad. These people will never have to give the money back. Never
These last points are nothing but schaudenfraude. Worrying about them is childish, lizard brain type stuff (and exactly what the politicos are worrying about). In truth, these emotions have no bearing on improving the current reality.
Time for us all to put on our big boy pants and act like adults (maybe Washington DC will follow our lead). We need a bailout. It should happen ASAP. It will not be perfect. But we need it. Get it done.
September 26, 2008 at 8:50 am
Bad dream: we finally get to see a depression. The majority of folks (you & I) are in the street waiting for the soup kitchen to open, because there is no viable economy in which we can earn or even entrepreneur a living. A few folks are rich and they get relatively richer because the price of everything is through the floor. Cash will be king and the average person a beggar for any work, any income.
And some of the people with cash will be the same b@$#@r)& whose unscrupulous actions got us into this mess.
But we’ve got to head off any depression – whatever it takes – instead of trying to punish or assign blame. A depression is enough to ruin your life.
Or so the stories passed down through generations goes…
September 26, 2008 at 9:26 am
FWIW, I agree 100%.
Btw, the PR positioning for this financial recovery plan has been a disaster. One, we should stop referring to the plan as a “bailout”. To the layman this connotates that these financial firms will get back all of the money that they lost, when in reality equity holders are losing nearly everything. Likewise, calling the $700Bn an “expense” is also misleading when in reality it is an “investment”. I’m not going to argue that the government (and the taxpayers) will get back every penny, but they will undoubtedly get back much more than $0, which is unfortunately what many people now believe given what they are hearing (and not hearing) from the media.
September 26, 2008 at 10:28 am
@Sean. Agree with you 100%. It’s the economy getting the bailout, not the companies.
September 27, 2008 at 6:01 am
Kent: Think you are way, way off on the executive compensation question.
First, if there was ever evidence of the lack of correlation between executive compensation and the “best and brightest”, this crisis is it. Now in truth, I ideally wouldn’t try to cap comp through some kind of specific legislation attached to the bailout (I’d attack the question through the tax system, where it can done much more efficiently), but the idea that we shouldn’t do it because it would discourage the best folks from coming to Wall Street is an absolute joke.
In addition, there are actually good “moral hazard” arguments for this cap. The whole problem with the financial industry is the ridiculous imbalance in risk/reward. There is a huge incentive for people in the industry to be over aggressive since they reap a huge upside when times are good and accept much less risk on the downside (no one makes less than zero even when they lose billions). So if the industry understands that over aggressive risks will lead to a cap on future income, there actually is real usefulness there.
November 20, 2008 at 7:01 pm
How’s that bailout working so far? It’s not an investment for the people. Soon we’ll be bailing out the Automakers and who knows who else as the lobbyists are begging DC for a piece of that billion dollar pie.
It’s naive to think the US Government who are trillions in debt would actually have a clue how to bail out a falling economy. The only people making out on this bailout will be the executives, lobbyists, politicians, and some wealthy multi-millionaire stock traders.
What should have happened is if the bailout does nothing for main street American, every single one of those politicians who passed that bill should be sent to prison. We’ll be paying taxes on this crap for years and the likelihood of any return is almost zero. And for a lot of people who lost their jobs, a few hundred buck return in ten years sure won’t help them feed their families now.
November 21, 2008 at 7:56 am
Peter J: Completely agree with you on the automotive industry. But I’m having trouble with the rest of your argument. We don’t know if the bailout is working. We certainly don;t know what would have happened without it. What is clear is that the actions of the US government was enough to get the credit markets moderately functional again. This is absolutely critical and was the central thrust of the TARP.
I do think every American benefits from having an economy with functioning credit markets. No doubt that we are in for some very very rough times ahead and, unfortunately, many people will lose jobs and savings along the way. Without a credit market though… It would be even worse.
December 10, 2008 at 10:42 am
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