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The more I learn about the $700 billion dollar bailout, the more terrified I am.  It does nothing to restore confidence and sanity in our financial system, leaves the taxpayers with hundreds of billions of dollars of liability, rewards the wall street companies that got us into this mess, gives the Bush administration even more power, and in fact it will worsen the depression by destroying the AAA rating of the US government.

I am urging everyone to call their Congressmen and do whatever is necessary to oppose the bailout plan as current structured.

First some facts:

Keypoints of the proposal

Some analysis:
What Paul Krugman has to say
Another analysis

The most egregious part of this plan is that it is an imperial power grab by the Bush administration:

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.

Does this sound familiar?  Does the Authorization for Use of Military Force Against Iraq Resolution of 2002 rings a bell?  This proposal is the same thing except with finance instead of war.  Paulson can send the entire $700 billion into the hands of the wall street executives, and we there would be nothing we can do.  We have enough power grabs from the Bush administration already; we don't need to give him even more unchecked powers.

Now Paulson has been saying that the treasury will buy assets at "fair market prices."  If you really believe that, then I suggest that you start working on the Iraq WMD's.  The fact is that these companies can sell their assets at fair market prices right now!  The entire point of this exercise is to buy assets at above market prices to transfer wealth from the taxpayers to the wall street companies, because without it many of them will be bankrupt.  Just look at what Paulson is saying in private:

...behind closed doors, Paulson describes the plan differently. He explicitly says that it will buy assets at above market prices (although he still claims that they are undervalued) because the holders won't sell at market prices. Anna Eshoo pressed him on how the government can compel the holders to sell, and he basically dodged the question. I think that's because he didn't want to admit that the government would just keep offering more and more.

(emphasis mine)

When Paulson presents a different plan in public than in private, you know something is up.  It is not an accident that the words "fair market price" is not in the proposal.

And lastly, this depression is not yet as bad as it could have been because we are the recipient of a quiet bailout from foreign central banks, who keeps buying US treasuries to hold down the price of their currencies.  But their buying of US assets is coming under increasing amount of pressure.  They can still buy US treasuries because of the AAA rating of the US government.  However that AAA rating will certainly be in jeopardy if the US takes on an additional $700 billion dollars of debt onto its balance sheet.  Any plan that does not look credible at putting the taxpayers' and lender's money to the best use and restoring prudent oversight of the financial system will backfire by causing our foreign funding sources to dry up.

Any bailout plan must include reform and at least some potential for upside for the taxpayers.  The time to extract concession from wall street is NOW because we have something that they need.  But once the $700 billion check is signed, that power slips away.  Unless the reforms comes with the bailout as part of the package, it will never be passed.  Remember that passing legislation is always harder than stalling it.

Frankly I don't see the urgency of passing such a big bailout package right now.  The entire financial system is not going to melt down overnight (it is more like a slow motion train wreck).  And the entire modus operandi of the Bush administration is to sit on their hands and kick the problems down for the next administration to solve.  So why can't they sit on their hands for 2 more months until the next president is sworn in?  If this proposal is passed, the US government will be in so much debt that Obama's ambitious plans will simply have to be gutted.

contact your senators
contact your representative


Thank god Obama is making sense on this:
Senator Obama's Statement of Principles for the Treasury Proposal

Originally posted to Wryyyyy on Sun Sep 21, 2008 at 11:58 AM PDT.

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Comment Preferences

  •  You're right! (0+ / 0-)

    This must be OPPOSED, not "fixed."  

    Let the "system" fix get itself out of the situation it got itself into.  Then we'll see what the public's attitude towards the "system" is.

  •  Say no to Paulson $700 billion dollar (wallstreet (0+ / 0-)

    I agree, I just did a youtube of this at my post next to yours--it's called Start A Revolution.

  •  It's hard to understand where (0+ / 0-)

    you are coming from, since it is at odds with what people like Dodd, Schumer, and Krugman are saying.  


    The fact is that these companies can sell their assets at fair market prices right now!

    No.  The crisis is based on the fact that the "assets" at issue are "illiquid" -- they can't be sold because nobody knows how to price them.  That's why this is a "liquidity" crisis.  The financial companies can't see them, and, as a result, have no cash to lend to business to finance ongoing operations. That's the economic crash everybody is afraid of -- business will grind to a halt because there are no funds to finance ongoing operations.  That means massive layoffs occur.  Krugman says we were facing a 1931 style situation.  


    The entire financial system is not going to melt down overnight (it is more like a slow motion train wreck).

    Well, that depends what you mean by "overnight."  Depending on whom you listen to -- Dodd, Schumer, Krugman -- on Thursday night, we were maybe hours, or days, from a 1931 style credit and liquidity problem.  It was stopped with the announcement of this proposal on Friday.  If nothing happens this week, we will be, according to these guys, right back there.  

    By the way, I hate hate hate this bailout.  Ironically, the conservatives I know hate it as much as you do.  They believe that we should let the economy grind to a halt.  Yes, they'll say, the middle class will no longer be able to get house loans or car loans, yes, millions of average workers will be thrown out of their jobs, but that's the "market working."

    •  I beg to differ (0+ / 0-)

      We do not have a liquidity crises; we have an INSOLVENCY crises.  This is a clear distinction, since no amount of liquidity will solve the latter.

      Yes the assets are illiquid, but even now there are private buyers for those asset.  It's just that at those prices, many institutions would be bankrupt, which is what is needed to happen one way or another.  The proportion of our GDP devoted to financial services is simply too large to be sustainable.

      The best way of gauging the expected return of the assets is through their market price.  I see no evidence that the price is too low right now given the amount of opacity in those instruments (and why should the government pay above market prices for those instruments)?

      we were maybe hours, or days, from a 1931 style credit and liquidity problem

      Actually only Hank Paulson is saying that; everyone else is just repeating what Paulson said.  I have long stopped believing anything this administration says at face value anymore.

      The inevitable contraction of our financial industry needs to happen; without it we would be facing Japan's 1990 decade of economic stagnation.  Perhaps we have better ways of closing insolvent institutions than through an economic crash.  But I don't believe that the solvent institutions will go down simply because we are pumping billions of dollars of liquidity into the market right now.

      Remember that unlike the great depression, we are off the gold standard and we are still the world's reserve currency (which gives us the printing press).  So I don't think even a true economic crash would last too long once correct actions are taken.

      Perhaps you did not get this from my diary; but I'm not against bailouts, or even a $700 billion dollar bailout.  But I'm absolutely against this bailout for the two reasons I have stated in my diary (no reform and no upside for taxpayers).

      •  Actually, for this: (0+ / 0-)

        we were maybe hours, or days, from a 1931 style credit and liquidity problem

        It's not just Hank Paulson.  Take a look at what Paul Krugman said.  See here.    The serious stuff starts at about 2:50, where he talks about a 1931 style crisis.  At about 4:30, Krugman says that what could have happened is an "everything melt down in two days."  At about 5:00 is where he says this move "was just avoiding disaster."  

        As for whether this is a liquidity crisis, well, generally the financial experts and even the politicians on both sides of the aisle today and yesterday have been explaining that these assets -- the mortgage backed securities -- are not worthless, it is just impossible right now to price them, and therefore they are "illiquid."  The U.S. is going to buy them, hold them until the market stabilizes and they can be priced fairly, and then sell them.  

        •  no evidence of impending disaster (0+ / 0-)

          This happened just 2-3 days ago, so my memory is perfectly clear.  AIG was about to go under, but then we bailed them out.  Aside from that there was no impending bankruptcies that require immediate action.  Then Paulson started claiming that end of the world as we know it is upon us, and that is when people started saying the same thing.  Frankly I just think he's trying to sell his plan.

          I do not believe that there is a crisis that requires immediate action.  There are no evidence to the contrary (like prime-LIBOR spread, for example).  We can wait 2 months.

          A bad $700 billion bailout is worse than inaction.  And looking at the proposal, I much prefer inaction.

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