The details are a bit sketchy but it appears that agreement has been reached on some version of the Paulson bailout plan. Ian Welsh at Firedoglake, whose coverage of all these shenanigans has been first rate, has the lowdown on what it probably means.
This is a plan that assumes that the government can buy enough bad debt at above market prices to bail out the banking system. Since as long as the government is willing to spend above market prices (and by market I mean “what other banks would pay for this cr*p”) banks won’t sell it to each other, the government has taken on an open ended obligation. If the pile isn’t that large, then a trillion or so may be enough. But if the pile is much larger than that, and it is, then the government will have to keep ponying up money over and over again. It won’t be limited to the original 700 billion, or trillion, or whatever. It will be an ongoing program that the market will become dependent on. Since the fundamental problems of securitization, over-leverage and declining housing prices haven’t been fixed, there’s little reason to believe that the government could get to the bottom of the pile, since, in fact, it will still be growing. (Especially as the economy gets worse and housing prices continue to drop. And they will, since this provides no floor price for real estate.)In short, while this plan is an improvement on the original Paulson plan, which is saying, well, almost nothing. It’s still a plan that, at the end of the day, won’t work. That doesn’t mean we won’t see some short term benefits. Throw 700 billion bucks at the economy and the financial sector and it will do something. That’s still a ton of money. But it won’t fix the problem permanently, it will only patch it for a time and even during that time, things will continue to get worse. (For example, expect this to cause oil inflation.)
It’s a bad plan that won’t fix the economy or the financial sector. So we’ll be revisiting this issue in 6 to 9 months or so when it becomes clear that the problem hasn’t been solved, and that not solving it is costing a hell of a lot of money which could have been used to actually fix things.
Elsewhere: Hoyden, Obsidian Wings, Feministe, and more at Firedoglake.
The US plan does not reduce across the board the debt burden of the distressed household sector. Does that mean that without such a component the debt overhang of the household sector will continue to depress consumption spending and will exacerbate the current economic recession?
Will purchasing toxic/illiquid assets of the financial system be an effective and efficient way to recapitalize the banking system? It would appear that the plan does not address the need to recapitalize those financial institutions that are badly undercapitalized. It looks to be a bailout of reckless bankers, lenders and investors. Bailing out wealthy bankers when the millions of families losing their homes get little direct help is not going to play well in Main Street America, which has seen factory after factory close and jobs move overseas. What has happened to fairness in the US?
I blame the spineless Democrats…
So just as GWB steps out the problem appears again magnified. Thanks GW great achievement.
Before 9/11 Bush was regularly lampooned on tv as a useless dolt a figure of ridicule. He still is, but for more serious reasons. Bring on the clowns, its half time. McCain and Palin will fix it well and truly as the bankers extracting the last availble cents move to their new villas in Spain (providing McCain hasn’t attacked it).
There was one wierd moment in the debate about McCain 2008 refusing to talk the Spanish PM (darn socialists) so bankers who want to live in Christopher Skase’s old “dilapidated” mansion should be safe, they just need the gas masks to avoid the extradition treaty.
I’m not sure if this accusation from Obama about the rain of McCain not falling on the Spanish plain is out of context or not, but then again McCain 2008 is very different to McCain 2000-7. He seems a little too close to the “agents of intolerance” he used to excoriate and now joined to the hip with some policies that the former McCain would have had the courage to revolt against.
Goldman Sachs and Morgan Stanley have proven the efficacy of suicide bombing.
“Give us what we want or we’ll take all of you with us.”
Memo to suicide bombers everywhere: you need bigger bombs.
How long till McCain releases and ad taking credit for saving the economy?
Elsewhere: Hoyden, Obsidian Wings, Feministe, and more at Firedoglake.
Public Opinion:
Welcome to the Socialist Democratic Republic of the United States of America.
Socialise the losses and privatise the profits.
And rewrite basic capitalist economic free market theory and practice to protect the shysters who have ripped out so much money based on dodgy loans.
The whole edifice is now to be supported by a tax payer bailout – funded by Government bonds – complete with the Government taking a stake in failed financial institutions – effectively nationalising them. Who would have thought this could happen?