As far as the progression of the bailout plans go - by those who actually have a say in the matter - I'm torn. We definitely need a reorganization in the financial markets to help prevent this greed from pervading the economy again - to the detriment of those who are largely innocent in all related matters (you Responsible Americans "who pay your mortgage on time, file your tax returns on April 15 and are reluctant to pay the excess costs on Wall Street." (c) W. Bush). I don't have a problem with the "golden parachute" of top executives being punctured or complicated derivatives being subject to more regulation. But how much regulation? How much big government? How much will this cost?
These are questions that are largely going unanswered. The proposal for the funds by the Treasury was 3 pages long. This from a sector of the government notorious for extensive, verbose documents that hide the true meaning somewhere between the lines. Originally the proposal stated that the actions taken by Treasury Secretary Henry M. Paulson would not be subject to law, or rather "may not be review by any court of law or and administrative agency." Excuse me? We got into this mess by taking accountability out of the equation...so we're going to take accountability out on the other side? I don't see how the answer would be to pass a "blank check" on over to Paulson to do what he will with an estimated $700 billion. I haven't seen any calculations on how that figure was calculated and I've seen it fluctuate between $500 billion and $800 billion. Let us remember this is a government estimate and I'm willing to bet that, without some sort of accountability put into this process, that figure would increase quickly.
Bush declared last night in his prime time address (which I admittedly missed due to work): By investing taxpayer money in assets with underlying value, even if the market isn't yet sure what that value is currently, the government may make "much, if not all" of the money back when it resells the assets after the markets return to normal, Bush said.
Is it just me or does that not sound like a good business deal? Nobody, least of all George W., has dealt with this situation before, especially with these securities. "We're not sure, but you'll probably get most of your money back eventually" would get me an "F" real quick in my financial analysis courses. I understand something needs to happen but the pressure and speed with which Paulson, Bernanke, and Bush are pushing for this legislation all seems a little sketch to me. It reminds me of a clip from the Office where Dwight tells Michael he has an emergency back up plan to restore order to the office: he holds all the power. He pushes and pushes on Michael to delegate all power to him. Earlier in the episode the thought blocking that Dwight utilized by repeatedly urging agreement worked on Andy when Dwight was able to get a car from him for a super low price and then flip it immediately. Hilarity ensues. Dwight promises to relinquish power once the crisis has been resolved but Michael ultimately prevails (surprisingly). Am I alone in seeing some parallels?
The following is a list of techniques of undue influence - thought reform - from cultclinic.org (not one of my sites but I found it through following this article):
- GROUP PRESSURE and "LOVE BOMBING" discourages doubts and reinforces the need to belong through the use of child - like games, singing, hugging, touching, or flattery.
- ISOLATION\SEPARATION creates inability or lack of desire to verify information provided by the group with reality.
- THOUGHT-STOPPING TECHNIQUES introduce recruit to meditating, chanting, and repetitious activities which, when used excessively, induce a state of high suggestibility and dependency on the group.
- FEAR and GUILT induced by eliciting confessions to produce intimacy and to reveal fears and secrets, to create emotional vulnerability by overt and covert threats, as well as alternation of punishment and reward.
- SLEEP DEPRIVATION encouraged under the guise of spiritual exercises, necessary training, or urgent projects.
- INADEQUATE NUTRITION sometimes disguised as special diet to improve health or advance spirituality, or as rituals requiring fasting.
- SENSORY OVERLOAD forces acceptance of complex new doctrine, goals, and definitions to replace old values by expecting recruit to assimilate masses of information quickly with little opportunity for critical examination.
Do we punish those executives who got paid ridiculously well and took on all this debt without putting it on their balance sheets? Do we punish those bankers who packaged up the debt and sold them, heralding the great returns? What about the bankers who issued all the subprime mortgages, often using shady promises and contracts to lock in people who could barely pay the introductory rate, much less the higher adjusted rate? What about those people who came in looking to buy a house beyond their means who weren't responsible enough to read the contracts and do enough financial planning to factor in their mortgage payments? It's easy to point the finger but how far to point? Will the bailout include a provision for judges to renegotiate mortgages so that a relatively large percentage of American's aren't pushed out on the street when they can't make their payments? Maybe some financial counseling would be involved? Would the bailout money go towards any of that or just towards buying up faulty debts from corporations' balance sheets (or rather off their balance sheets - and to that extent nobody knows the full extent of this crisis because everyone is playing close to the chest)?
In this fantastic piece by Timothy Egan entitled "Crash" he compares the current situation to that of the Great Depression and reiterates how we got to this point:
In this century, thanks to the deregulatory demons released by former McCain adviser Phil Gramm and embraced by just enough lobbyist-greased Democrats, Wall Street was greenlighted again to act like a casino. Banks in the heartland passed on their mortgages to Wall Street, where they were sliced and diced in hundreds of largely incomprehensible ways. And while few people understand how those investment giants made money, this much is clear: it was a killing. In 2006 alone, Wall Street firms paid out $62 billion in bonuses.
With all the urgency of that famous National Lampoon magazine cover that showed a cute pooch with a gun to its head, and the line “If You Don’t Buy This Magazine, We’ll Kill This Dog,” President Bush says the biggest bailout in American history must be passed now or the world will crumble. He said a similar thing in the run-up to war.
He also points out that the details of this bailout have yet to be nailed down:
“I’m a dirt farmer,” said Senator Jon Tester, the Montana Democrat who still lives on his family homestead. “Why do we have one week to determine that $700 billion has to be appropriated or this country’s financial system goes down the pipes?”
Good question, one that Treasury Secretary Henry M. Paulson and Federal Reserve Chairman Ben Bernanke have yet to adequately answer. If they seemed flummoxed, perhaps it’s because they still can’t explain what will be accomplished by nearly nationalizing the banking system and giving the treasury secretary more power than a king.
Clearly there are a lot of unanswered questions. It's an interesting moment in history, to say the least, to see all these factors rear their ugly head simultaneously and with such poignant timing. I, for one, would like to see the debate go on but maybe that's just me being anxious and, in the process, being insensitive to the economy.