As you’ll remember, this was one of Obama’s main campaign platforms. He spoke about it at one of his rallies here in Las Vegas, as I mentioned in this thread about my experience at an Obama rally.
I just saw a chart showing that this bailout is more than the money spent on the Marshal Plan, New Deal, the buying of Luisiana, Korean War, Vietnam War, Iraq War, the whole NASA budget since its begining and S&L bailout all put together.
The liabilities from such expense are staggering, I’d like to see how on Earth the US would pay out all that money in the long term.
Two pages, and no one has pointed the wishy-washiness of these numbers.
The United States is not going to take on an additional 10 trillion dollars of debt. That is not how these numbers work.
A lot of the bailout isn’t based on just spending money. A good section of it is assets guarantees, which are there to prop up markets that are shaky for the present but which will eventually stabilize. The entire market is not going to collapse. If I can guarantee a trillion dollars of assets, then I only have to pay for the crap that goes belly up. We’re going to take a hit on some of this stuff, but not anywhere remotely close to a 100% hit. In fact, for company specific asset guarantees, we’re quite likely to pay 0%. The situation is obviously not quite so beneficial for mortgage-baked securities, which are shittier. But shittier doesn’t mean total shit. It’s still possible that we won’t lose too much money, even from the collapsed housing bubble. More to the point, though, is that there is no need to go into debt to guarantee these assets. You go into debt only if the asset fails, which won’t happen in the vast majority of cases. And yet the total dollar amount of the guarantees is being included as part of the bailout, even when no money will ever be spent for most of it.
Some of the other stuff in the bailout is actually revenue producing for the government, like loans to companies. In other words, the US government is acting like a bank of last resort, by buying low and selling high. Keep in mind that demand for T-bills is incredibly strong right now, meaning that the interest rate on government debt is low. This means that US taxpayers are actually making money on these loans by leveraging the US government itself, because these companies aren’t going to receive the same favorable rate that the gummint itself can. If we lend at 5% and borrow at 1%, that is a 4% positive spread. We will be making money off these loans.
And finally, there are direct capital infusions. Yes, we’re going into debt to raise money for these infusions, but we are receiving assets in return in the form of preferred stock. (We should’ve gotten common stock instead to be able to dictate corporate policy, but preferred stock is still an asset). This does increase the dollar value of the bailout, but we have to remember that we’ll be able to sell these assets later and recoup most, and if we’re lucky perhaps even all, of our original investment.
Yes, the bailout is big and ugly and scary. But it’s not anywhere near 10 trillion worth of big, ugly scariness. We’re not even going to be printing $10 trillion worth of new T-bills. Several trillion, yes, but not 10. And we’ll be actively making money from some of that debt, even when we consider interest payments.
This bailout has not been handled well. I, for one, am pissed off. But it could’ve been much worse. But the total cost of this stuff, when the final chapter is written, isn’t going to top 2 trillion. It might not even top 1. And thankfully, we’ve got what appears to be a competent group of people coming in to take over. If the first thing the new administration and Congress do is throw another trillion at this problem, in the form of real infrastructure improvements and other public works instead of just propping up banks, then we’ll know we’re in good hands.
We can worry about paying off the 2 trillion once the economy is functioning properly again.
It has been pointed out before (maybe in this thread, maybe in another) that the sum total is not really an expenditure; mostly, if I’ve got it right, the figure is comprised of loans and/or guarantees. That is, money that will be returned with interest or will (hopefully) never be “spent” in the first place. I think that most of the things mentioned consist of actual expenditures – I don’t know enough about the Marshall Plan nor the financials of the New Deal to knowledgably comment, but IIRC the government actually made money from the S&L bailout.
Of course, you’re absolutely correct that if even a good chunk of things that could go wrong did (e.g., a bunch of loans default, many guarantees are called in, etc.), it would be a staggering burden. I think it’s accurate to say that it’s actually inconceivable to me (and yes, that word does mean what I think it means ;)).
On preview: what Kendall Jackson said.
So far, it seems to be the government promises to hand out X amount of dollars, and then a few days/weeks later, promises to hand out X amount of dollars more, on top of what they’ve already promised. If that pattern continues, we could well wind up spending much more.
Yes, but no one’s sure how many of they crappy loans are out there, we don’t know which ones were written for grossly inflated property values, and many of them (though we don’t know how many) are for property that has lost value. Given the rampant criminal malfeasance involved in this mess, can we expect these people to do the right thing?
Will we? Seems to me that there’s a history of the government not being all that rigorous in making sure that it collected the money owed to it.
How much do we recoup if the company goes bust and has its assets sold for pennies on the dollar?
IIRC, the original $700 billion was announced as a “one time deal,” but now we’re talking “up to” $10 trillion. What’s to stop us from going higher?
Assuming, of course, the companies actually bother to pay back the loans, or that a significant portion of them don’t go tits up.
How will we know? Federal oversight seems to be a bit lacking, and what we will do if Bush & Co. make a large number of promises, but leave it to the next administration to cut the check? If Obama says he’s not going to honor the promises made by Bush, that could cause a plunge in the economy, even if the reasons he has for not honoring the promises are legit? (For example, the government promised $1 billion to a company with no assets.) Additionally, what’s the repayment schedule on all of these things like? Do the loans have to be paid off in a relatively short period of time (say less than 10 years) or are they more long term, like the loans we made to the British before WWII, that were only recently paid off?
While I hope that Obama does this, I’m not holding my breath that he’ll be able to do so. Suppose that for every billion he throws at needed infrastructure improvements (and we have to assume that he won’t be able to get all of them, and I can well imagine that some of the ones which do the most good for the country won’t get approved, simply because Kongress Kritters are too short sighted to grasp their importance) he’s got to spend another billion propping up banks, etc.? Even if we assume that all the billions loaned to the banks get paid back on time, with interest, do we not run a real risk of high inflation?
Its not just 2 trillion, however, the national debt is currently sitting at $10 trillion. How long before the payment of the interest on that debt becomes the largest part of the Federal budget? Will Obama be able to get the necessary tax increases (assuming the economy turns around on his watch) in order to pay for that?
I’ll be the first to admit that I don’t understand anything about financial markets or economies, but…
Why don’t we just nuke it from orbit? Seriously. Let’s do this: All the companies that need help, will be bailed out, and dissolved. All the stock will be liquidated and used to help pay out the mortgages that these companies hold. So all the “bad debt” is taken care of. People stay in there homes, and those who need the handout will now pay the 39% tax bracket for the next 20 years, or until retirement. Since they now have no monthly mortgage over their heads, they ought not have an issue making their monthly expenses. Yeah it sucks, but it’s better than everyone tanking or handing a bunch of uber-rich fucks more money that they don’t need, and will just steal anyway.
The Government then issues a moratorium on price increases on consumer goods for 3 years. They may not raise their prices by more than say 10% over that period. Those who do will be in violation which will be a Very Bad Thing. Combine that with programs that give tax credits to those who operate ethically in regards to wages and outsourcing. Penalize and tax those who do not and let the market play out.
Invest the remaining tax monies into projects that will create jobs here. Those projects must hire only legal citizens of the US. Further, attaining an entry level position on those projects must be easy, and in great number. Pay scales will be a livable wage to ensure 100% job placement within the programs. No extravagant salaries for management, just a good, solid, reliable one, not to exceed 150K a year; but full benefits and a significant tax break for those who do service with these programs.
Cut way back on foreign aid and use the surplus of food goods to lower prices on the public. Take care of the farmer’s debt in the package above so that they play the same as everyone else. Their expenses should be minimal after removing their operating debts. Let the market play out.
Yeah. Frustrating, ain’t it? But the process can’t go on forever. The next step, already taken in Europe, is proper nationalization. No more of this “preferred” stock crap. We don’t need to give them more money outright if we just take over.
And you’re right that nobody knows how crappy the loans are… but we do know that they’re not 10 trillion worth of crap. That was my point. Even the worst case scenario* on this doesn’t give us over 2 trillion of losses, and in fact we’re most likely looking at less than 1 trillion. I don’t mean to belittle that. That’s almost an inconceivably large amount of money to piss away. But it’s still one-tenth of those wishy-washy numbers that are being thrown around. We should look at the reality of our staggering losses instead of some ridiculously convoluted lie. No need to panic about the sky falling when the reality is that the roof has already caved in.
As for the loans, the history is not as you state. In the past, the government has in fact made money from solving a financial crisis, as Digital Stimulus noted. We’re not going to let a company get liquidated for pennies on the dollar if it owes us billions. We can get all Dr. Frankenstein on the bitch and re-animate the corpse until it works off its debt. Death is no release. This would, of course, take longer and cost more. But this wouldn’t be a constant thing. We’re not going to have another situation in which the entire financial sector once again all falls apart at once. That simply can’t happen. For one thing, the banks aren’t even risking the new money that they have. They’re sitting with their thumbs up their asses at the moment. It would actually be an encouraging sign if they would take some risk once again.
This shows an admirable sense of fiscal restraint on your part at precisely the wrong time.
At the moment, we don’t have to worry about inflation. We’re stuck in a liquidity trap, which means we have some deflationary pressure despite current expenasionary monetary policy. The Federal Reserve has pumped a shitload of money into the system (here’s a link to a graph with the monetary base from Paul Krugman’s blog). But that’s what the trap is: banks are sitting on all that cash instead of spending it. There’s no risk of them going out of business with that comfy cushion of greenbacks, and there’s also no risk of inflation since they’re not doing jack-shit with it. The incompetent motherfuckers can’t do anything right. They’re supposed to start lending, get that cash out in the open and circulating again, but they’re just not doing it.
So we force the issue with infrastructure. We start building things. New national power grid sound good to you? Sounds awesome to me, and to Obama, too, so it looks like we’re gonna do it. And maybe, if Congress doesn’t get in the way, we spend a good 600 or 700 billion on this sort of thing. That’s real money circulating through the economy instead of collecting dust on bankers’ balance sheets. Maybe it’ll be too much, and inflation will finally start creeping up. But that will be a good thing, a sign that we’re leaving the recession. That’s when the Fed reverses its monetary policy and crushes the inflation with high interest rates.
And that’s when we need to start worrying about higher taxes and less spending. Not before. Not right now.
I know that sounds shitty, but that’s the truth about economic crisis. We’ve got to solve the problem in front of us before we worry about being able to solve the problems of three years from now. And the problem in front of us is clear. I hate that we’re shifting a burden to our children with no great reason like a World War to show for it, but that’s where we are right now. Better to give them a functioning economy and buckets of debt than a completely wrecked economy, which in practical terms means starving some of them in the present so that they don’t have bills to pay in the future. Not exactly a trade-off anybody is willing to make. If we’re gonna do this (and we are), we might as well give them a better economy so they have some means to pay off our silly mistakes.
*For the purpose of this post, I am discounting the scenario where we all get mohawks, wicked motorcycles, and assless leather chaps and start roaming the wastes in search of precious go-juice.
In order to actually get the loans flowing ,the government should take over some of the failing banks and do it themselves. Then they would have real numbers to work with. Then they should keep the banks running permanently. Our banking system is obviously broken.
So what you’re saying is that I shouldn’t invest in assless chaps? Dammit. I thought that was sure thing.
Wait a minute. His main campaign platform is to prevent country from turning into a howling wilderness infested with neurophagic zombies? Excellent, that should be achievable.
So if McCain hadn’t campaigned in favor of turning the country into a howling wilderness infested with neurophagic zombies he may have won. What an idiot, the neurophagic zombie vote is miniscule. Didn’t he check the 2004 demographics?
We start nationalizing banks, and what do you think will be the first thing the GOP uses to bludgeon the Dems in the 2010 elections?
But its not just the imploding mortgages that are causing the problems, its also the insurance policies on those mortgages, and the other screwball financial programs, add to that, the fact that many of these things were grossly over inflated and we’ve got a real mess on our hands.
One word: AMTRAK. Wasn’t government control of them supposed to be only a short term thing?
Wanna bet? Sarbanes-Oxley was supposed to put an end to such things after Enron. Doesn’t seem to have worked. And its looking like some of the sleezebags who helped cause the subprime mess are up to their old tricks again.
What happens when the banks do start handing out money again? Or if they decide they’d rather let the government guarantee every loan before they start handing out money? Or if the bulk of the money the government hands them winds up being used for “executive compensation”? As has been pointed out, the banks showed up, demanded money, got it, while the car makers were told they had to come up with a “plan.” Clearly, the financial sector has more clout with Kongress Kritters than the car makers do. When does it stop? Bitching at Kongress Kritters doesn’t seem to have worked. Do we need to break out the torches and pitch forks?
Which means we ought to be saying, “Not another nickel until you guys start holding up your end of the bargain.” Instead, we’re saying, “We’ll raise our anty up to $10 trillion.”
If its the buried superconducting wires, insulated with liquid hydrogen, thus solving the problem of the 20% transmission losses, and hydrogen distribution, I’ve got a chubby. If not, then I’m not all that excited. We must regain our technological edge, if we’re going to remain our global position.
That’s a mighty big “if.”
And when those higher interest rates cause the economy to go to a grinding halt again?
It all depends upon how we’re going to be spending that money.
Yes, but as even you’ve admitted, there’s a right way to do all of this, and a wrong way. Nor should we completely forget about the future consequences of our actions. After all, not worrying about the future is pretty much how we got into this mess to begin with.
Yeah, I can’t imagine that ever happening.
What can they say? It was the Bush Treasury that actually nationalized the banks. We’d just finish the job. gonzomax is right, at least this one time. All we do is transfer the preferred stock to common, then start telling the assholes what to do. Anyway, even if you’re right about the political cost (which I doubt, but hey), I don’t see how it’s relevant. We should still do the right thing, even if it means losing some seats in two years.
And the insurance policies and all the rest aren’t the issue I was discussing. Yes, the credit-default swap market was stupidly huge, but I was discussing the actual costs of guaranteeing assets. The credit-default swap market was to do with equity and leverage, and that problem is being solved more generally with the capital infusions.
The issue I was discussing was the asset guarantees. Those guarantees that are most dangerous are those for the subprime mortgages. They suck, and we’ll have to eat that cost, even though we shouldn’t have. But that is a limited cost. It’s not 10 trillion. And the capital infusions, which will support the banks through their “insurance” crisis, is in the form of assets which can be sold later, potentially at a profit. Once again, that just will not add up to 10 trillion. We nationalize now, privatize again later.
This ain’t AMTRAK. Nothing like it. We’ve already nationalized financial companies, and then reprivatized, before. It was completely successful, and we even made a buck on the process. It’s not anything new, except for the scale. The Fed doesn’t want to be involved in this stuff, and neither does the Treasury. They’d want to dump it as quick as they could. If you think we’re incapable of doing this again, then you should buy your assless chaps now because there is simply no hope for us at all.
I agree entirely with this. Unfortunately, we’ve got two months until we’ll have new people in place, who by the way give every indication that they’ll be willing to say exactly that.
I agree entirely.
I don’t think so. I see a tidal wave of support for the new prez, and they are already talking about stimulus packages of up to 700 billion. Not just Obama’s team. Congress itself is already discussing a package of this size, and the new members aren’t even sworn in yet. I doubt everything in the package will be to your liking, but I’ll be content if it jump-starts the economy again. I’ll be delighted if it includes the sort of funding that will revolutionize American industry (especially related to energy) once again.
And by the way, a stable national electric grid is nothing to sneeze at. This is a very important improvement that should’ve been done a long time ago. There’s nothing fancy about it, but it would help us a lot, and now’s the time to do it.
No, no, no.
Generally, monetary policy works fairly well. That’s why Greenspan was so revered during the Clinton administration. A quarter percent here, a half percent there, and you clamp down on inflation before it gets out of control, while also not disturbing growth. This creates sustainable growth, and it’s one reason why we had such a long nice economic expansion in the 90s. Greenspan was wrong about regulation, but he was rightly praised for his prudent monetary policy.
Unfortunately, we’re caught in the trap now, and the Fed can’t do much more by tinkering with money. We need a big Keynesian stimulus package, and we need it yesterday.
I generally agree with this. But if we’re gonna plan, we should get the numbers right. In looking toward tomorrow, I see about 2 trillion more debt than we have now based solely on this bailout. Nothing close to 10. That’s the reality we’re facing. And frankly, that’s a reality that we can, in fact, handle if we have prudent policy for the next eight years. And I think we can pull that off.
Y’know, I’m not given to defending the financial industry and, while my understanding of the bailout is that it has helped the crisis (by keeping things from getting much worse), there have obviously been some…ah…missteps in the terms, conditions, and even methodology involved. However, I keep seeing points like yours above. And I have to ask: you really don’t see that the situations of the automakers and the banks are different in kind? A short list of why:
[ul][li]Financial companies, until recently, have been very successful; automakers have been very troubled for quite a long time. That is, given the set of rules that were in place (and those rules were obviously not very good, hence our present situation), banks and such have been better than simply “viable”. Given the set of rules that were in place, there has long been a question of automaker viability.[/li][li]Financial companies are nimble, automakers are not. For example, even in the past month there have been fairly major changes in banking behavior (e.g., lending practices have tightened); per your own cite, it would take years for automakers to retool.[/li][li]The economy is, literally, dependent on financial companies for its operation – that is, without banks, etc., there is no economy; automakers participate in, and in fact are responsible for a large part of economic activity, but they are not integral to the system.[/li][/ul]Now look, I’m not defending the banks, nor am I attacking the automakers here; I suppose one might make the case that I’m defending the bailouts – albeit weakly, I think. It’s just that to attribute, to any substantial degree, the government’s actions thus far simply to “more clout with Kongress Kritters” borders on mindless talking-point regurgitation.
So, I’ll ask again: you (general “you”, that is, those who make the comparison) really don’t see that the situations of the automakers and the banks are different in kind?
How about, “I thought it was wrong when Bush did it, and I think its wrong now.”? The public is pretty pissed off at this, as are influential Republican pundits. Put a Republician challenger upagainst a Democratic incumbant who didn’t oppose the bailout, and the Dem could well lose.
Even if it means that you’ll be unable to do the really important things to help the economy? Obama says that he wants to end partisanship, and I don’t doubt him. That only works, however, if both parties are willing to play ball. Remember, the Dem strategy after the '06 elections was to simply sit back and let Bush hang himself, rather than to impeach the SOB like he should have been. (That he could get us into a war under false pretenses and still retain the office is disgraceful. An honorable man, who’d made an honest mistake [which the invasion of Iraq was not], would have resigned once it became clear that Iraq didn’t have WMDs.)
It would be, if the banks were loaning money.
You’re forgetting the credit card debt and student loan debt that the government’s now talking about dealing with.
Again, I have one word for you: AMTRAK.
IIRC, we chopped the S&Ls up, sold their assets to various folks, and if it was profitable or not all depends upon who you talk to. (And what the hell happened with all those specialized bonds we created to pay for that?)
Yes, but Kongress has a way of meddling in things unnecessarily, and screwing them up. See AMTRAK, for example. It actually had itself sorted out, and then Kongress fucked things up again.
Ya remember Russia in the mid-90s? That could well happen to us, and it wouldn’t involve riding around wearing assless chaps. (See also Japan and Germany in the days immediately following WWII. Toyota was paying its employees with loaves of bread until Truman awarded them the contract to build military vehicles for the Korean War.)
Lets hope so.
If it doesn’t then not only are we going to find ourselves in the same kind of mess again, we’re going to have a much harder time digging ourselves out of it.
Agreed.
We are, however, talking about Wall St. here. Those dickwads will panic at the patterns of pidgeon crap on the sidewalk outside the exchange. Not to mention, its kind of hard to say if Greenspan’s efforts were really effective, since it turns out much of the growth was tied directly to the fucked up loans.
Yes, and every day we delay means that it’ll take that much longer and cost that much more money to fix the problems.
The question is: Will Obama be willing to do the right thing, even if its politically unpopular. While I think he will, we won’t know the answer to that until some time after he takes office.
Which you would think would be a good thing, until you look closely at who they are and realize that they are the same group of people who caused this mess in the first place, by the policies they put in place back in the Clinton administration. :eek:
Kendall Jackson, I hope that you’re right. I hope that Obama’s incoming team does everything that you say it will, and does it in spades, aggressively. The economy will crash so hard, so far and so fast that hopefully people will finally realize the idiocy of John Maynard Keynes, and in the future we will finally learn to avoid politicians-of any party-who advocate this kind of nonsense.
This bailout lunacy has done more than give billions of dollars to the people who caused the crisis in the first place without addressing the government overregulation that caused the crisis in the first place, it’s changed our economy in a fundamental way: we no longer have a market based economy, we have a government based one. The Dow is fluctuating wildly because it is no longer responding to anything other than the whims of Hank Paulson. Announce that you’ll be leaving half the money on the table for Obama to spend? Market crashes. Change your mind a day or so later: “Just foolin’! I’m gonna spend it now!”, the market soars. What we have is absolute madness, and the only cure being offered is more of the poison that caused the illness in the first place.
There’s one big difference in the actions of the car companies compared to those of the financial institutions: The car makers have been all kinds of stupid, but so far, no one is able to call their actions criminal. With the banking industry, we do have clear cut cases of criminal acts, as well as a willingness to engage in actions which they knew were going to wind up causing a disaster. Find me an example of where an exec at GM, Ford, or Chrysler said, “I sure hope we’re all retired before the chickens come home to roost.” The car makers have also been working at fixing the problems they’ve been having, certainly they’ve not been putting as much effort into it as they should have, but its not like they’ve been taking old Pintos, slapping a new coat of paint on them, and trying to pass them off as the safest car on the road.
I don’t have a problem with Congress telling the car makers that they need to get their shit together before they get any money. I do have a problem with Congress not telling the financial institutions the same thing.
Remember, much of the problems we’re seeing now are the same kinds of problems we saw when Enron, MCI, and Adelphia (to name but three) all collapsed a few years ago. I’ve not heard of any concrete plans to deal with some of the gaping flaws in the financial institutions (like the huge amount of influence banks, etc. have on the various rating agencies). If we don’t have that, we’ll wind up in the same mess all over again, just like the car makers will, if they don’t get their shit together.
Tha auto companies did not make an error when they made big SUVs and trucks. They were making a fortune selling them . That was the market. The error was not investing the huge profits in a potential market,the small fuel efficient car. They either did not want to believe the golden egg was cracking or that there was plenty of time to do it later. Either case they blew it. But the profits were huge and the bonuses and salaries were gigantic. They were businessmen making a killing in a flawed system. There is no impetus making them look long into the future. Top execs come and go. They are over rated and then get more to move on. They are not held responsible for the mess they leave behind. They do not have to give back their bonuses. I read recently the average tenure of a CFO is under 3 years. What do they care about GM in 10 years. They wont be there and will not be held responsible.
Tuckerfan, I don’t disagree with most (yes, most, but not all) of that. Perhaps I knee-jerked just a tad, preoccupied with things said in another thread. As I said, I’m not given to defending the financial industry, and it certainly seems to me that since the money was lent/guarantees were made, there should have been more strings attached (whether that should’ve been additional regulation, specific restrictions on using the funds, or even throwing the bums out on their asses is another thread entirely).
It just seems so ridiculous to me to use the bank bailouts as justification for an automaker bailout, and even more ridiculous to make a direct comparison between the situations. And there does seem to be a minor, though loud enough to be heard, contingent that does so – have you heard the “white-collar favoritism/blue-collar discrimination” meme yet? If not, I’d think that gonzomax can likely fill you in…
So, my apologies for my short fuse in response to a minor part of your overall point. To get back to the OP, though, $10 trillion is a pretty overinflated figure, and they’re not really handouts…
OK, ya got me, I was a little over the top there. And yes, we can pay off a couple trillion but it will hurt. Aside from the actual bailout, my worries are:
- All those collateralized debt swaps. They will come due as more mortgages default. They are huge but nobody knows how much. It’s ridiculous.
- Credit card debt, as consumers feel the pinch.
- Commercial mortgages, as businesses feel the pinch.
The path forward is by no means assured. And the scheming greedheads that caused it are still running the show. Instead of being lined up and shot as they deserve.
True dat!