I was on the phone with family in Georgia the other day, and I was asked if we were having gas shortages in DC, too. Huh? Apparently there’s been massive gas shortages in Georgia for a couple weeks now.  You’d think we’d hear more about that, no?
Category: Policy Page 20 of 35
I wrote this last night, and never finished it up:
You know TARP, right? No? Barring a name change, I can almost promise it will become one of the most used acronyms in American political conversation for years to come. TARP is the Troubled Asset Relief Program (i.e., the Bailout).
Good thing, because we’ve got a new name this morning: Emergency Economic Stabilization Act of 2008. While I thought that opposition to the originally proposed Paulson plan was a no-brainer, I’ve been trying to find decent analysis of the latest iteration. So far, this piece by Steven Davidoff has been one of the most forthright:
In the end, the bill is largely what Mr. Paulson wanted, with some interesting side bars. The House put in some oversight, but judicial review of the Treasury secretary’s actions is still subject to an “arbitrary and capricious†standard. Moreover, the executive compensation and the equity purchase provisions are so watered down that they are not likely to be implemented with respect to any participating company.
It’s not a terribly long or dense analysis – I urge you to read the whole thing for yourself. It ends with this:
If the bill is passed in this form, the Democrats will claim a victory through these executive and corporate governance provisions as well as the warrant provisions. But Mr. Paulson can decide how much of these warrants to take, and the executive compensation and corporate governance provisions are unlikely to be implemented for any companies. The bill is not much different than the original proposal — just 107 pages longer. Ultimately, the credit markets are frozen and we need this plan, but the authority provide the Treasury secretary and the potential scope of this program is troubling.
I’m still inclined to stand against it. Sure would like to see a convincing argument for it, though.
Update: Krugman thinks that it’s the best viable bill the current political circumstances can produce. Weak tea, indeed. (This is what thinks would be ideal, the politics of it aside.)
Update II: This post has already been copied and posted to some site with the url – troubled-asset-relief-program.net. And already, I’ve gotten traffic from J.P. Morgan as a result. Hey, people, get back to work!
Let’s start by putting aside what CRA (Community Reinvestment Act) is code for in much of the public conversation and take the argument at face value. Here’s the terribly popular video that seems to be so convincing to so many:
[youtube]http://www.youtube.com/watch?v=NU6fuFrdCJY[/youtube]
I think it’s terribly well done as a persuasive piece. But what of its primary claim? I asked a friend who works as an analyst in the financial industry (and has a default distrust of government) for his take on it:
My take on this is – ‘BULLSHIT’
It is rather easy and convenient for the right to turn this around and blame the Community Reinvestment Act. The problem is not that the CRA encouraged subprime loans but rather the CRA said that loan in your communities to people who can afford it. The same bankers who used to whine about the CRA being a burden on their business, are now complaining that the CRA caused the bad loans.
No, their greed and shit risk management systems originated the bad loans. They did not care cause they were passing the buck on down to Wall Street. The mortgage brokers, lenders, bankers, Wall Street – everyone got carried away by greed. If you had to pinpoint a problem I think the main culprit would be the leverage that the investment banks were allowed to have on their books. The fallout we are seeing is a major form of deleveraging. It is bad oversight by the SEC/OFHEO/Treasury/Fed – everything was being done under their noses, but they still allowed the crazy levels of leverage on the balance sheets.
Irresponsible borrowing was encouraged by irresponsible lending, which was encouraged by the investment banks willing to grab ‘any’ mortgages, so they could package them and sell them to investors. The rating agencies are to blame as well. They had the most amount of information on these structures and the underlying mortgages, but yet they kept rating them AAA. Bullshit.
The Wall Street investment banks were so levered up (putting very little of their own equity) cause they thought the mortgage flow would never cease, and they could keep on borrowing to no end. The river of money was flowing and being fed by the investment banks, and everyone washed their hands in that river – the local banks, Fannie and Freddie, the mortgage brokers, the home buyers and the rating agencies. The source was Wall Street, not the CRA act.
The central point of his analysis – the obscene levels of leverage – isn’t some recently cooked up response to the CRA argument. We’ve been talking about it for years. Everyone’s known about it for years. Yet people still – in pursuit of that next dollar – closed their eyes and dumped more into instruments that might as well have been boxes of fairy dust. The CRA didn’t force that. No one did.
There’s also a lesson here about the dangers of unsustainable borrowing, but that’s a topic for another day (and hopefully some time before China decides that it’s had enough).
Update: the original video was pulled and replaced with a second version. I’m not sure of the differences between the first and second version, but it appears to be substantively the same.
I’ve got a deep and sincere dislike for lazy cynicism, but that’s about all I’ve got right now:
The [British] government was this morning expected to nationalise buy-to-let lender Bradford & Bingley, as the global credit crisis deepened with the giant European banking group Fortis also being partially taken into public hands late last night.
[ . . . ]The crisis spread to Belgium where Fortis, its biggest private employer, became the first big European casualty of the credit crunch. Last night a deal was reached between EU and national banking officials and Belgian, Dutch and Luxembourg ministers; the three governments will pour €11.2bn into the bank.
Anyone know how to play the fiddle?
By all accounts, it’s the House Republicans who stand in the way of a bailout deal. And you know what? I think I’m glad they’re doing it. Now, I don’t give them an ounce of credit for their intentions, but I’m quite happy to let them drag this thing out while we figure out what it is we really need to do.
And just what is it we need to do? I still feel like I don’t know. This has been a rather difficult issue to wrap my head around. That difficulty doesn’t come from an inability to understand what the various parties are saying – it’s just that I don’t know who to believe about the extent of the problem. And of that group that I should believe, how do I account for their motivations in the proposed fix? There are things that are easy to dismiss – Paulson’s opaque “trust me”, House Republicans’ reflexive “tax cuts!”, and Democrats’ populist compensation caps. But after those broad brush issues, the important questions are still unanswered. Buy what? At what cost? For how long? What if? *Why?* There *are* answers to these questions, but until we get them, I’m not interested in a deal going forward.
And what are the consequences of not acting-right-now-this-very-moment? That’s another unanswered question, as far as I’m concerned. And while it may well have grave consequence, people much smarter than me think we ought to stop and ask that question, too:
A funny thing happened in the drafting of the largest-ever U.S. government intervention in the financial system. Lawmakers of all stripes mostly fell in line, but many of the nation’s brightest economic minds are warning that the Wall Street bailout’s a dangerous rush job.
President Bush and his Treasury secretary, former Goldman Sachs chief executive Henry Paulson, have warned of imminent economic collapse and another Great Depression if their rescue plan isn’t passed immediately.
Is that true?
“It’s more hype than real risk,” said James K. Galbraith, a University of Texas economist and son of the late economic historian John Kenneth Galbraith. “A nasty recession is possible, but the bailout will not cure that. So it’s mainly relevant to the financial industry.”
[ . . . ]
Coming out of the White House on Thursday, the ranking Republican on the Senate Banking Committee, Alabama’s Richard Shelby, held up what he said was a five-page list of economists opposing the rescue plan.
“This is not me. This is economists at Harvard, Yale, MIT, University of Chicago, our leading universities,” an exasperated Shelby told reporters. He called the administration plan “flawed from the beginning.”
So what do to? Answer the questions before any bailout gets passed. To the extent that the House Republicans are playing a part in creating the circumstances for that to happen, I’ll be cheering them on.
Ugly:
Pakistani and American ground troops exchanged fire along the border with Afghanistan on Thursday after the Pakistanis shot at two American helicopters, ratcheting up tensions as the United States increases its attacks against militants from Al Qaeda and the Taliban, who are being sheltered in Pakistan’s restive tribal areas.
Anyone paying attention to this? Anyone?
No, for real. I just said that. The Bush Admin is pushing back against a proposal to make the Department of Justice de facto copyright cops at the beck and call of private industry. Why would the RIAA spend its own money chasing college kids trading songs when they could get the taxpayer to foot the bill?
The government agencies wrote that the proposal “could result in Department of Justice prosecutors serving as pro bono lawyers for private copyright holders regardless of their resources. In effect, taxpayer-supported department lawyers would pursue lawsuits for copyright holders, with monetary recovery going to industry.”
In all, the Bush administration agreed with digital rights groups and others who said the measure goes too far and is a gift to copyright holders who normally use the civil courts to sue copyright infringers.
This is an issue on which you can count on both sides of the aisle to demonstrate some seriously bad judgment (which is probably putting it too kindly). Sen. Leahy, for example, is a very smart fellow, but his record on copyright issues is truly appalling (you can thank him and Orrin Hatch for the DMCA).
Michael Lewis takes a look at what’s really important right now.
As an aside, I think it’s an enormous mistake to focus on executive compensation in the context of the bailout proposal. Sure, there’s a gut-level appeal in taking something away from these frauds (and they *are* frauds), but the size of their compensation – on its own – is a miniscule part of the problem. Democrats really ought not be distracted by that when there are more fundamental issues to focus on.
doesn’t stay in Islamabad. But neither does that mean that it’s a product of US conspiracies, nor does it mean that the US needs to get more deeply involved. Pakistan is a utter mess, but it is one of its own making. It’s heartbreaking to watch, but it’s something that they need to address themselves.
Photo: Jawad Zakariya
And I’m not talking about the numbers (those are merely incomprehensible). I’m talking about the fact that Congress seems poised to – yet again – hand the Bush administration carte blanche to deal with a critical threat, with no apparent thought to the impact. NPR’s Planet Money blog notes:
I would guess that this has to be one of the biggest peacetime transfers of power from Congress to the Administration in history.
[ . . . ]
The Treasury Secretary can buy broadly defined assets, on any terms he wants, he can hire anyone he wants to do it and can appoint private sector companies as financial deputies of the US government. And he can write whatever regulation he thinks are needed.
[ . . . ]
This graph really stands out:
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
Whoa.
So, for the next three months, and then an additional six months after that, the Treasury Secretary can do anything he deems appropriate without anybody anywhere looking it over.
That seems like an awful lot of absolute power.
And that doesn’t even get to the merits of the matter. For that, we have Paul Krugman, who sums it up as: no deal. (I also recommend following Calculated Risk on this subject.) This is happening quickly, and perhaps the radio reports of Congressional willingness to move forward with this bill in this form were optimistic. I have to hope so. We all do.