Raging Right Wing Republican

For those of us who are politically informed, and therefore Republican.

Tuesday, October 07, 2008

My problems with the bailout

I was initially supportive of the bailout, with every expert forecasting Apocalypse if it didn't pass, but the more I read about it the less I saw to like.  It's already passed, but among the things I didn't like:
  • There is  no oversight.  The Treasury basically gets unlimited spending power with no ability for anybody to put a check on it, or question it.  The Treasurer could go to Vegas and spend it all gambling for all we know.
  • The bill was a liberal Christmas tree.  If it was really such a crisis, and the Democrats just wanted to pass something to fix it right away, then why didn't they just pass the actual fix that everybody could agree upon, without all the handouts to liberal interest groups? Practically half the bill is pork spending thrown to the liberal troughs.
  • The Democrats basically tried to ram the bill through without any deliberation on it.  Isn't that what they kept saying was the problem with the Patriot Act?  And if they couldn't support such drastic action in the event of a terrorist attack, which is surely more dire than the current crisis, then how could they have supported it now?  And of course, it was so important to pass it—there's no time to read it!—but they had time to go on vacation during the crisis.  Does that sound like Armageddon to you?
  • The people who made the bailout admit that they don't even know if it's going to help.  They don't even know how much money is needed to fix it, or if money is even something that can fix it.  They have no idea what the relationship of money spent to effect is.  Instead of standing back and trying to think of a better approach, they just decided, "Hey, we lost all this money already, let's throw another $700 billion down the hole since it might do something... maybe."  For all we know, it could make it worse.  The Great Depression was deepened by the government's activities, not lessened.
  • If it's so important to pass it, why couldn't the Democrats muster the votes themselves?  They're the majority.  They've managed to enforce party line votes on things of lesser importance.  Yet when it comes to this, they wouldn't do it.  They didn't want to have full responsibility for the disaster, so they needed Republicans to step on board.  Despite that they couldn't bother to make the bill appealing to them by stripping out the liberal provisions in the bill.  And yet it's the Republicans fault the bill didn't pass the first time.
Considering all of this, I doubt it's going to help us at all.  The markets kept right on tanking after the bill passed.  We're just burning another $700 billion, and creating more government overhead and bureaucracy while we're at it.  These aren't things that are going to go away, they're permanent institutional changes that are going to affect how government bungles up future activities for years.  If they wanted to fix it, they shouldn't have just thrown money at the problem; that is, at best, a band-aid.  The crisis came from the regulations the Democrats made, and so they should fix the regulations to prevent it from happening again.


Anonymous Anonymous said...

The crisis came from the regulations the Democrats made, and so they should fix the regulations to prevent it from happening again.

Well it's not quite as simple as that is it? The subprime originations market was approx $100bn in 2001 but $600bn by 2006 so the toxic debt explosion happened right in front of the eyes of all political parties and branches of government. Saying that "it's all the fault of the Democrats" might be comforting for you, but it's a crude simplification of a global phenomenon.

The fact is a lot of banks made a lot of irresponsible loans but it didn't matter while property prices were booming. It was a one way bet. Such was the appetite for lending money a lot of banks over-leveraged themselves to dangerous levels.

Add to that the creation of extremely complex credit derivative structures with underlying risk to subprime debt, packaged as bonds and assigned inappropriate credit ratings by the agencies, then sold onto investors who loved the yields but didn't understand the risk and you have a time-bomb on your hands. Now the banks are stuck with this worthless/impossible to value junk on their balance sheets and are struggling to fund their own operations because all the other banks are in a similar situation. Liquidity is drying up and banks are terrified of lending money to each other.

This is a global crisis on an unprecedented scale and there are lots of people to blame. A lot of people borrowed money they could not afford to pay back and the banks - blinded by greed - were lending it too easily. The world of finance will never be the same again.

The "bailout" is not a panacea but there aren't many other options on the table (although the action taken by the UK government is considered to be a better one).

Oh and your statement that the Depression was "deepened by government's activities, not lessened" is incorrect. The crisis in 1929 was exacerbated by the government's inactivity - namely, not slashing interest rates and pumping the system with liquidity. This was an important lesson learned and the same mistake was avoided in 1987. Hopefully it will work this time, too.

Sat Oct 11, 07:27:00 AM EDT  
Blogger mAc Chaos said...

It's not simple, it's ridiculously complicated; no matter how much I read about it there's more. But!

Yes, each party could have stopped it. In fact, Bush and McCain did try to stop it. They didn't just sit there and watch it happen. Bush tried over twenty times, in fact. But it got blocked every time, since nobody thought anything was going to come of it. Just paranoid, they said.

I'm not sure how the rest of the globe precipitated their part in it, but in America, what I do know is that the economic crisis didn't just pop out of thin air. It was created by regulations and institutional arrangements that made it inevitable, and that the people who made those changes were Democrats. They did so intentionally, knowing that these loans were bad, but they didn't care because they cared more about using the government and the banks to promote their social welfare policies. Yes, the banks made loans, but why are you blaming the banks when it was the law that mandated that the banks make these loans that they were otherwise not willing to make?

Mon Oct 13, 11:27:00 AM EDT  
Anonymous Anonymous said...

I'm not specifically blaming the banks. I said that there were a lot of people borrowing money they couldn't afford to pay back. The fact is, I work for one of the very same American banks that has lost so much money as a consequence of these decisions and I could yet find myself out of a job because of it - I just don't know.

But the company I work for has lost billions of dollars (and very nearly gone under) because of its own flawed business and risk model - not because it was forced upon them by any law or regulation! And I categorically assure you that every single bank on Wall Street was like a pig in filth at the prospect of making huge wads of $$$ on the back of these mortgages. Every. Single. One. They used every device possible to milk them for every cent and it worked for a fair few years. They weren't thanking the Democrats for making it possible at the time but they aren't blaming them for their woes now either. They walked themselves into this swamp - willingly.

Maybe what you are saying is more true for Fannie Mae and Freddie Mac who were (kind of) government agencies. But the rest of the banks? Greedy and reckless.

Very similar situation here in the UK too and now some of the biggest banks in the country (the world until a couple of weeks ago) have effectively been nationalised.

Mon Oct 13, 02:47:00 PM EDT  

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