Bailout Proposal

Saturday, September 20th, 2008

I don’t know why the New York Times has the text for a draft proposal, but here’s a neat bit of English:

Sec. 8. Review.

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.

Sounds like the logic of past actions of this government, filled to the sky with geniuses.


10 responses to “Bailout Proposal”

  1. Josh says:

    “Past actions” as in the Patriot Act…? ;-)

    In any case, I agree that it is a big problem for the Treasury to have such unilateral “discretion”–indeed it is a mistake for Washington to have as much power as they are getting through this proposal. And that is without the added buffer that Dem leaders are demanding, and may get with November looming close.

    “‘We will not simply hand over a 700-billion-dollar blank check to Wall Street and hope for a better outcome. Democrats will act responsibly to insulate Main Street from Wall Street,” House Speaker Nancy Pelosi said Sunday.’

    This asinine and cliched comment by the House Speaker, which encompasses “help for ordinary Americans hammered by the worst housing slump in decades”, will stall this bail-out… which will continue to wreak havoc with the markets… which the Dems hope to translate into votes for them… which should be one of the primary reasons the electorate fires this Congress on election day.

    It was Clinton & Co that put us here given that they pushed Freddie and Fannie (in general) and provided “unpriced benefits” to open up their programs to grant loans to “ordinary” or enterprising Americans that banks would normally reject. But these lenders came to believe that they needed to take on high risk assets as well in order to compete.

    Thus this financial black plague, which could have been avoided if banks would have done their homework… OR if the government of the mid-90’s would have kept its nose out.

  2. Steve says:

    Josh,

    Sounds like you’re reading too much Investor’s Daily and listening to too much radio ( I can sniff Limbaugh from miles away). I doubt if many economists or financial experts would agree with your conclusion; there’s plenty of in-depth analysis out there beyond political cover artists. I’m sure you’d agree that the financial system is more complicated than you’re making it sound. There are a few limbaughesque claims going around that blame Clinton, but that’s a red herring and you’re assumption that the industry was forced to make loans is false. We’ve learned in recent weeks that this problem goes way beyond housing. No one forced lehman brothers to ride 35 X their capital.

    Come on, my friend.

  3. Josh says:

    That Bloomberg article link didn’t come through for some reason (I might have forgotten a character in the formatting). Here is the link:

    http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aSKSoiNbnQY0

  4. Josh says:

    “No one forced lehman brothers to ride 35 X their capital.”

    The Government did, Steve, by empowering Freddie and Fannie. It started with Jimmy Carter’s Community Reinvestment Act, which was strengthened by the Clinton Administration in 1995.

    Here is an article about it from the Cato Institute from back in 1994. And here is the Congressional Budget Office’s assessment of Fannie and Freddie impact on the market in 1996.

    President Bush has tried to reign in the Act since 2003, but constantly ran up against rampart-thick Democrat opposition, despite Alan Greenspan’s warning, led by Rep Barney Frank (D-MA). Here is a Bloomberg article documenting this.

    The trail can be followed through the fact that the two biggest backers of bailing out Freddie and Fannie are Sen. Dodd (D-CT) and Rep. Frank, on record as two of F&F’s two biggest campaign beneficiaries. (Notice that there are no Congressional hearings or investigations being pursued on Fannie and Freddie’s dealings by a Congress that LOVES to investigate?)

    This whole crisis goes back to government intervention into the economy.

  5. Steve says:

    Hold on, Josh. I have to admit that your post above indicates that you’re really not understanding the finer points. The fact that you don’t call Hassett on his reference to the cosponsored bill is really odd, given that I remember that both Republicans and Dems were against the bill because it actually was yet another effort to remove accountability from the system. It’s false to claim that 109 would have averted anything, just as it’s false to blame CRA. We’ve just learned that FM was also paying McCain’s aids, right. Oy. And of course Bush tried to reign in CRA. I happen to disagree with his position (as I disagree with CBO’s assessment). But to tie this to the current fiasco just doesn’t work, no matter how hard Hassett cries. It’s a classic ploy: if the dems had voted for this, then things would be fine. This is hidden question begging in this context; we can’t argue that one group has a moral edge over another and hope to maintain logical conclusions.

    You support Bush’s positions. I think he’s a war criminal. How do we get past this impasse?

    CRA loans are a tiny tiny tiny piece of all this pie. I honestly don’t grasp all this CRA business, which has actually benefited actual people. Not all mortgage lenders are subject to CRA and by no means played a major role in current market plays (I would admit that it’s hard to say, given that it’s difficult to know in the wash which waer molecule is which). Note that as far as I know it’s what happened to the loans afterward that is the problem here: speculation. You’re stuck on the loan issue. Some sub-prime loans work, Josh, don’t they? Some people climb out of subprimes in a few years (re: you didn’t connect the speculation question: re: leveraging, and so we’re actually talking past each other). Economists familiar with CRA have already debunked the CRA issue.

    Look, just consider this: we’re talking mortgage-backed securities. Not mortgages.

    The graph in this post is pretty instructive: http://time-blog.com/curious_capitalist/2008/09/is_mccain_right_about_fannie_a.html

  6. Josh says:

    “It’s false to claim that 109 would have averted anything, just as it’s false to blame CRA.”

    I maintain, based on my sources and own ability to follow a trail, that the 1977 Act laid the foundation for the hill and Clinton’s 1995 policies pushed the ball down the hill.

    So who’s fault is it, Steve? I would like to see your trail so that I can follow your thinking.

    “CRA loans are a tiny tiny tiny piece of all this pie.”

    Unless I am missing something, I respectfully submit that the graph you provided does not support your first sentence. It shows that Fannie and Freddie were right on top of the lending market until Clinton’s policies were up for review.

    Then the accounting scandals hit and the Bush Admin tried to reform, so F&F’s impact went down (naturally).

    And then look how GSEs spiked to all-time highs after the Democrats took control of Congress! Thus I maintain that all roads of this mess lead through Fannie and Freddie and the Democrat Party.

    But this statement really puts things into perspective:
    “You support Bush’s positions. I think he’s a war criminal. How do we get past this impasse?”

    We don’t, unless one of us submits to the facts of the opposing view. OR…

    You believe Bush to be a war criminal.
    I do not.
    You believe that government intervention and oversight is beneficial to the country.
    I do not.
    The facts cannot support both of us.

    The facts are why I post here.

  7. Josh says:

    NOTE: I am writing this with a smirk and in good humour…

    “Sounds like you’re reading too much Investor’s Daily and listening to too much radio ( I can sniff Limbaugh from miles away).”

    So my views should be discounted because I listen and read to too much conservatism, while yours maintain 100% debate value despite that they are exclusively supported by the likes of The American Prospect (a liberal think-tank) and Paul Krugman (a leading anti-Bush, left-wing pundit at the NYT).

    But that’s okay.. it’s your web log, so your rules :- D

    The facts are this:

    – Liberals blame deregulation and will absolve GSEs (e.g. Fannie and Freddie) who support their base and their campaigns.

    – Conservatives blame government intervention and the reckless lending investments and related activity that followed.

    – The United States is in a financial mess.

    The debate is now whether to allow the government to get involved more and dump this on the American taxpayer, or to allow capitalism to run its course with as little of Washington involved as possible. I think it is clear where we both stand on this.

    What I find interesting in the current debate is that the Democrat-controlled Congress has the majority and can pass ANY plan they want. Republican opposition cannot stand in their way.

    So why aren’t Obama and Pelosi and Reid and Frank and Dodd saying “to hell” with the GOP opposition and passing this bail-out into law already?

  8. Steve says:

    Back at you, Bud. Please take with good humor:

    “So my views should be discounted . . . ”

    No, I’d already seen your positions in several articles and had heard references by others to radio about the positions. I don’t know: I suggest that the Baker and Krugman are pretty smart and they’re in line with all the other economists who’ve weighed in on The Proposal and on the history of the downturn.

    If you have an argument to make with K or B, you can certainly weigh in on their blogs, unless you think they are inherently incorrect, which is illogical. Note that I don’t think Rush is a conservative, whatever that may mean in this context. He’s found a niche and he’s run with it. (I don’t listen to any talk radio anymore, though).

    1. First fact: the GSEs support Republicans too. Here’s a link to some numbers: http://delong.typepad.com/sdj/2008/09/intellectual-ga.html. We got to the article first but the numbers show that Fannie spreads it around pretty good. If you disagree with Delong, please tell specifically what problem you have.

    2. Not a fact at all. It’s just too simple and general. Here we disagree on the circumstances of government intervention in general, but to what degree can you take your position? Interstate commerce law? In this case, I think we both agree that the bailout is a bad idea. But, I wish that from a humanistic point of view we could agree on some degree of American gusto into solving real problems for real people even if we (as the government) had to share the pain. For example, I think you and I could agree that schools are wasting away and could use at least some amount of money to augment learning spaces. And this kind of effort is a better use of our money than corporate giveaways. I believe that a federal republic should have an active, smart government, and that market-driven economies need consensus curtailments.

    “So why aren’t Obama and Pelosi and Reid and Frank and Dodd saying “to hell” with the GOP opposition and passing this bail-out into law already?”

    Because they’re people and know that this would damage the structure of government. Note that the house republicans are bailing on the president, but I think that eventually both sides will come to some sort of agreement. Bush is simply irrelevant to all of them.

    But I don’t they should go with any of the current plans on the table.

    If there is a 700 billion deal, I expect a dividend check, and if I don’t get it, I’ll be pissed. Because in point of fact, it is our money (and my kids’ is money). What happened to no taxation without representation? That’s to all these assholes.

  9. Josh says:

    “If you have an argument to make with K or B, you can certainly weigh in on their blogs, unless you think they are inherently incorrect, which is illogical.”

    This really is a completely different debate… But of course I think they are inherently incorrect, Steve :-) They are the opposing view with a different set of base goals and principles from my own. Someone has to be inherently incorrect in a debate of ideologies, don’t they?

    I also think the leading intellectual on evolution (whomever that is) and Karl Marx are inherently incorrect. As a Christian and a capitalist, how is it logical for me to read work from either of those persons as anything but incorrect?

    “First fact: the GSEs support Republicans too.”

    I know this, Steve. I saw the full list about a week ago. But what is key is that the majority of Republicans who received money–including McCain–are not the ones who are (or were) protecting Freddie and Fannie over the last five years.

    Yet the names at the top of that donation list all are on record and leading the charge of doing just that. For instance, Rep. Frank (D-MA) who in 2003 said, “These two entities—Fannie Mae and Freddie Mac—are not facing any kind of financial crisis, the more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

    “I wish that from a humanistic point of view we could agree on some degree of American gusto into solving real problems for real people even if we (as the government) had to share the pain.”

    Some weeks back I mentioned the generosity of the American people. The hundreds of millions of dollars that are donated to charity each year should show you that “we” are sharing the pain of others. That is the way it should be done, not forced through taxation.

    If a university or group believes that ethanol is the best alternative to oil, let them make their case to the country instead of looking to the government for subsidies and regulations on oil companies. Or how about Hollywood? Let them fund bio-fuel research with their millions since they believe in the science so much.

    “I think you and I could agree that schools are wasting away and could use at least some amount of money to augment learning spaces.”

    (Again, a whole different debate that I would LOVE to get into since education is a one of my top issues.)

    They’re wasting away, Steve, because the standards have been lowered and standardised, not because of a lack of funding. Private schools and home schooling are held down so as to provide less competition (such as in California), and the lack of competition hurts public schools not helps.

    In general, No Child Left Behind was a terrible piece of legislation for the Bush Admin to sign. I don’t doubt for a moment that PTAs would do a better job running a public school than any government–federal or municipal.