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Old 09-23-2008   #1
Self-Aggrandizing jackass
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Be Outraged!

From Tuesday Morning Quarterback:

ESPN Page 2 - Easterbrook: The sky is falling
Gimme! Gimme! Gimme! Last week, TMQ asked why no one was paying attention to the fact that the national debt ceiling was quietly raised by $800 billion during the summer. Well, toss that column: The White House just asked the national debt ceiling be raised another $700 billion, for the proposed financial-sector bailout. If that happens, in 2008 alone, $1.5 trillion will have been added to the national debt: every penny borrowed from your children and their children. Stated in today's dollars, in 1979 the entire national debt was $1.5 trillion. George W. Bush and Congress have in a single year added an amount equal to the entire national debt one generation ago. And the year's not over!
It took the United States 209 years, from the founding of the republic till 1998, to compile the first $5 trillion in national debt. In the decade since, $6 trillion in debt has been added. This means the United States has borrowed more money in the past decade than in all our previous history combined. Almost all the borrowing has been under the direction of George W. Bush -- at this point Bush makes Kenneth Lay seem like a paragon of fiscal caution. Democrats deserve ample blame, too. Harry Reid and Nancy Pelosi, Democratic leaders of the Senate and House, have never met a bailout they didn't like: Harry and Nancy just can't wait to spend your children's money. Six trillion dollars borrowed in a single decade and $1.5 trillion borrowed in 2008 alone. Charles Ponzi would be embarrassed.
If you borrowed, borrowed, borrowed, you could afford to live high for a while -- then there would be a reckoning. Hmmm … that sounds a little like what many Americans did with gimmick mortgages in 2005 and 2006. They were only imitating their political leadership! Why is it both parties in Washington think the United States can borrow, borrow, borrow without a reckoning ever coming? Bush, Reid and Pelosi seem poised to transfer hundreds of billions of dollars of borrowed public money to political insiders on Wall Street and in banking, whose bonuses will now be tax-subsidized. The capitalist maxim is, "She who reaps the gains also bears the losses." Now Washington wants those who reaped the gains to shift the losses to those who lived humbly. The young will pay and pay for these cynical ploys to insure the luxury of the powerful old. Why aren't the young outraged?
TMQ's pal Isabel Sawhill, among the leading public-policy economists of our day, says Washington does indeed need to intervene in the financial system -- the harm to the average person of letting credit markets freeze would be greater, she thinks, than the harm caused by more public debt. Fair enough. But it doesn't inspire confidence that on Sept. 12, Treasury Secretary Henry Paulson said the financial system had been fixed and "under no circumstances" would there be further bailouts; on Friday, Paulson said the system was collapsing and another $700 billion was needed. Suddenly Paulson is insisting the country has no choice other than immediately to hand over $700 billion to Wall Street fat cats, with barely any debate or even explanation of the plan. Why should anyone believe this guy, when just one week previously he said no further bailouts would occur? It seems clear Paulson had no idea what he was talking about then, while if the problem is really as bad as Paulson says now, his past delay in facing the problem has made the cost far higher. With such a poor track record, why is the treasury secretary suddenly viewed as a superbrilliant genius whose marching orders must be followed?
It is not public intervention that is objectionable. University of Chicago Nobel Prize winner Gary Becker, among the top conservative economists, just said, "I have reluctantly concluded that substantial intervention was justified." Rather it is size of the bailout, and the hurry-up-give-the-money-don't-stop-to-think aspect, that are troubling. Much of the $700 billion will flow to investment-community friends of Paulson, Bush and other administration figures. Average Americans who behaved irresponsibly by signing gimmick mortgages may get some taxpayer aid from the Paulson proposal, and maybe they should get none. But in the end, average Americans will still be liable for most of what they owe -- that is, will still be held responsible for their actions. Wealthy, politically connected insiders who run banks and companies such as American International Group will be exempt for responsibility for their actions, and will stuff taxpayer-subsidized millions into their pockets.
On Sunday, Paulson called the self-serving actions of top Wall Street figures "inexcusable" -- yet the plan is not only to excuse them, but to shower them with free money. Paulson said Wall Street pay levels were "excessive," but should be discussed later, after the bailout is done. Now is the moment of maximum leverage! Once they are holding the public's money and laughing about how easily they got it, financial executives will have no incentive to compromise on pay. Here's an idea: Any company that participates in the bailout agrees to limit its top-tier executives to the federal minimum wage. That is, after all, the amount Washington says is enough to live on. Meanwhile, of the two jokers who drove Fannie Mae and Freddie Mac into the ground, one was paid $19.8 million in 2007, the other $14 million; each will get nearly $5 million in taxpayer-funded "retirement" bennies.
Yet there's scant outrage. Maybe this is because in an era of fiscal irresponsibility by both parties, everybody wants a bailout. Wall Street, bankers, homeowners who lied on their mortgage applications, Detroit automakers, farmers -- gimme, gimme, gimme! Rather than asking whether the $700 billion giveaway is too large or being structured in a way that benefits the rich, numerous members of Congress are instead demanding more bailouts be appended: for seniors (see below), cities, states, more "stimulus" checks, you name it. Give money to whoever will fund my re-election! The money is being forcibly extracted from the pockets of our children and their children. Every dollar borrowed today by the irresponsible old of Washington will subtract two dollars from future economic growth, leaving our children and their children a legacy of stagnation.
The 1980 Chrysler bailout, which was nationally debated for months before happening, cost $3.2 billion, in present-value dollars, and was financed by revenue rather than by borrowing. Here is the borrowing that's happened in 2008 alone, with precious little public debate:
• $29 billion to bail out Bear Stearns.
• $40 billion in the first mortgage-holder bailout.
• $80 billion for an additional year of Iraq war operations. (Another $150-$200 billion in war costs such as future veterans' disability benefits were incurred but not funded.)
We should give away $700 billion? I need to think about that. OK, I thought; give it away.
• Up to $85 billion to bail out AIG.
• $153 billion to households for "economic stimulus."
• $200 billion, and possibly more, to bail out Fannie and Freddie.
• $290 billion in farm subsidies, despite agricultural prices and grains profits being at record highs.
• $700 billion general bailout of securities backed by bad debt. (The International Monetary Fund estimates this figure will rise to at least $1 trillion.)
That comes to $1.6 trillion, explaining the debt-ceiling rise, and does not include roughly $300 billion in essentially interest-free cash issued to banks by the Federal Reserve on an emergency basis, which may or may not be repaid, but which in any case make all existing money somewhat less valuable. Why is the debt aspect of the splurge barely being remarked on by the mainstream media and by politicians? Why are the young not furious? And about that $700 billion about to the shoveled to the Wall Street elite -- in 2007, George W. Bush vetoed an increase of $7 billion per year in health care spending for the poor, saying the country couldn't afford it.

"self-aggrandizing jackass" - it says it right on the label
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Old 09-23-2008   #2
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They have shocked us (as a nation-wide population) to the point of being numb. They have prepared everyone very well. Everyone has drank the kool-aid and fallen asleep.

Naomi Klein: Now is the Time to Resist Wall Street's Shock Doctrine

I am a river, babe - I've got plenty of time, I don't know where I'm going, I'm just following the lines..... - "We are water" by Shaye
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Old 09-23-2008   #3
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More Awful Truths About Republicans

Daily Article by Robert B. Ekelund and Mark Thornton | Posted on 9/4/2008

As the economic debacle facing Americans continues to materialize, those responsible are running for cover with ten Republican senators refusing to attend their own national convention. Four years ago we observed that the so-called "Republican philosophy" of small government, sound money, and balanced budgets was illusory in terms of the history and then-current policies of the Republican Party.[1] However, even we would never have guessed how awful the Republican Party economic policy would become. From mere mercantilism, the Republican Party is now flirting with comprehensive socialist economic policy and another Great Depression.
The Republican Party was founded on big government and economic intervention with roots in the economic platforms of Federalist icon Alexander Hamilton and Whig leader Henry Clay. Indeed, the term "New Deal" was coined in 1865 to characterize Lincoln and his Republican Party economic platform. Republicans became the "mercantile" party of big business, big government, external protection, centralized monetary control, strong restrictions on immigration, and aggressive foreign policy.
From FDR's New Deal to LBJ's Great Society, Democratic policies forced many free-market activists into the Republican fold. People like Robert Taft, Barry Goldwater, Ronald Reagan, and of course Ron Paul, represent this free-market faction in the Republican Party. For example, free markets, deregulation, and balanced budgets became the Republican mantra (if not reality) during the Reagan administration. The orchestrated marginalization of Ron Paul is just one indicator that the free-market faction has been routed and that the mercantilists are firmly in control. In fact, as we endure the current economic malaise, we can note that the Republican-dominated Congress (19942006) and the administrations of George W. Bush have morphed Republican-style mercantilism into corporate socialism.
Harmful military spending, unbalanced budgets, fiscal irresponsibility, protectionist and monopoly handouts to friends is the old style Republican playbook. The new style is audacious, unprecedented, and truly awful for the economy. It begins with the Republican-controlled Federal Reserve, which, under Alan Greenspan and Ben Bernanke, has flooded the economy with money and credit and bailed out every economic crisis since 1987. Greenspan's admonitions against "irrational exuberance" apparently were not intended to restrain the Federal Reserve's irresponsible monetary policy. Who in their right mind could honestly say that the Fed had nothing to do with the housing bubble after driving the nominal interest rate to 1% and proclaiming that the mortgage market was well regulated?

But an insidious form of "market-based policy" is also a real culprit in the current mess. In 1999 a bill was passed by a Republican Congress and signed by Democratic President Bill Clinton that rescinded the Depression era's divorce of commercial banking activities from investment banking, called the Glass-Stegall Act of 1933. That opened a floodgate of "creative" financial instruments backed by notes and other commercial paper. Much of the banking regulation of the Roosevelt administration including abandonment of the gold standard made absolutely no sense, but markets can fail with dire short-run consequences under a fiat monetary system. With Glass-Stegall, Congress put its finger on and mitigated the tendency and temptations of banks to create massive costly externalities to society, in this case, by holding bundled mortgage-backed securities which were deemed safe by rating agencies but which ultimately failed the market test.

The Financial Services Modernization Act of 1999 would make perfect sense in a world regulated by a gold standard, 100% reserve banking, and no FDIC deposit insurance; but in the world as it is, this "deregulation" amounts to corporate welfare for financial institutions and a moral hazard that will make taxpayers pay dearly. Such government privileges are nothing new to Republicans consider the effective subsidies to the pharmaceutical, sugar, and steel industries but this particular gift to financial institutions is what allowed the credit bubble to expand to such absurd proportions, because it allowed banks of all types to engage in increasingly risky transactions and to greatly expand the leverage of their balance sheets. As the crisis unfolds, credit continues to contract, the risk of bank failures increases, and the possibility of far more serious economic consequences become more apparent. The S&L crisis cost the taxpayers a few hundred billion, but this crisis has the potential of saddling the taxpayer with several trillion in bailouts.

So far, the Republican solution has been to bail out lenders wealthy financial-industry professionals for the most part who made unwise market decisions with subsidies and election-year subventions. With Hank Paulson, the former CEO of Goldman Sachs, as Secretary of the Treasury and the big banks on the Board of Directors of the New York Fed, it should not be too surprising that the Fed has been listening only to Wall Street while ignoring Main Street.

But the real problem is that their policies will lead to the nationalization of much of the mortgage-real-estate market. On July 30, 2008, President George Bush signed a bill into law that bails out Fannie Mae and Freddie Mac to the tune of an estimated $25 billion dollars in taxpayer losses, according to the Congressional Budget Office (CBO). The bailout is intended to stabilize the short-term economy, but this ill-conceived nod to socialism will have disastrous long-term effects. First, according to most economic estimates, the bill that taxpayers would have to eat is many times larger than the laughably small CBO estimate. Economist Don A. Rich has calculated the possible losses at as low as $1.3 to $1.6 trillion given likely housing price declines and as high as $2.5 trillion (if the housing price fall mimics that of the Great Depression).[2] The fallout from either of these scenarios would be catastrophic as the Federal Reserve accommodated (within the fiat money system) the taxpayer-backed debt. The real debt would be inflated away and America's real income could be reduced by as much as twenty percent.

The expansion of Federal Reserve authority is almost as alarming as nationalizing the mortgage industry. While the bailout includes the typical reductions in the Federal Funds Rate and the Discount Rate, it also includes the unprecedented moves to auction off discount rate loans, accept mortgage-backed securities in exchange for the Fed's Treasury Notes and the financing of J.P. Morgan's takeover of Bear Sterns. In May, the Fed began to allow investment firms to draw emergency loans directly from the central bank, and in July, it began to allow Fannie Mae and Freddie Mac to do the same even though such lending privileges had traditionally been restricted to commercial banks that have been subject to stricter regulatory supervision. All of this is predictable given the repeal of Glass-Stegall, which expanded the bad business practices that now "require" an expansion of the bailout.

But we see an even more insidious long-term economic problem, if that is imaginable. Moral hazard is endemic to this Bush-backed scheme to "relieve" an election-year economy. While the bill passed in late July does include some tighter regulation for the mortgage companies, it undeniably increases incentives for market participants buyers and sellers to engage in risky behavior. That is one of the products of financial socialism under a fiat monetary system a system that mainly benefits wealthy lenders. Heads you win, tails you do not lose.

Further, every incentive by profit-seeking lenders and asset-poor buyers will be in place for a continuing or recurrent mortgage debacle. Financial institutions will not only have mercantile "protection" from the federal government in terms of regulations; they will become social arms of that government. While Democrats certainly facilitated these economic actions as fellow travelers, Republicans, most especially George W. Bush, acquiesced. (His only objection was a $4 billion grant to states and cities to "refurbish" foreclosed homes). The economic choice is clear: either maintain a fiat-money-creation system and reinstate the asset proscriptions of the Glass-Stegall Act or abandon or modify the existing system of money and banking altogether, possibly including elements of a gold standard. Without some basic alteration in rules, the entire economic system will continue to be at risk, as will America's predominance in the world of finance.

Robert Ekelund is eminent scholar emeritus at Auburn University. Send him mail. Mark Thornton is senior fellow at the Mises Institute. Send him mail. They are the authors of Tariffs, Blockades, and Inflation: The Economics of the Civil War. Comment on the blog.
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Old 09-23-2008   #4
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A great analogy

I liked Maddow's explanation from last night.

A parent (taxpayer) puts a 7 year-old (government) in charge of baby-sitting a 6 year-old (Wall Street) on Halloween. The 6 year old collects enormous amounts of candy and proceeds to eat it all at once... and gets sick. The 7 year-old tells the parent, "we are going to need more candy".

I need those simplified explanations sometimes.

"I think I handled my alcohol pretty well considering how drunk I was." -Cousin Dan
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Old 09-24-2008   #5
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Voters need to be VERY AWARE that Phil Gramm, "Nation of Whiners" dickhead and McCain economic advisor, authored the Commodity Futures Modernization Act and the Gramm/Leach/Bliley Act, two insane pieces of legislation that cleared the way for the meltdown that is currently underway.
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Old 09-24-2008   #6
Self-Aggrandizing jackass
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Agreed, this stems from an initiative created by a close advisor and friend of the McCain camp. No doubt Gramm is advising McCain on possible solutions, as well.

That being said, one must acknowledge that Clinton signed both of the aforementioned bills, and bears some responsibility. But considering these went into effect during the last 18 months (Gramm/Leach/Bliley) and last month (Commodity Futures Modernization) of his administration, one cannot assign him much more than passing blame. How could he have anticipated such egregious leveraging of mortgage-backed securities after he was gone?

Furthermore, Congress bears some blame for not minding the store. That was a majority Republican congress from the time these bills becoming law (1999/2000) until 2006, when the problem had so metastasized (it's big word Wednesday) that its symptoms were starting to show to the naked eye.

To me, by far the biggest share of Blame goes to President Bush for his economic incompetence. I would split it 60/35/5 between Bush, Congress, Clinton.

All that being said, I don't fucking care who is to blame! This is too big a problem to waste time blaming any entity, let's deal with the issue and fix the problem as best we can, then go back and write history that labels douche-bags douche-bags. I only comment on "blame" because people will use it to make cheap political points. This isn't a political problem. It is an economic problem, and if this country doesn't deal with it with exquisite lucidity and erudition, it could very well be the end of the US as the premiere economy on the planet.

I read quotes from Obama today saying that it's not time for fear and panic.

It's not time for panic, but fear is certainly warranted!
"self-aggrandizing jackass" - it says it right on the label
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Old 09-24-2008   #7
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Helio - I agree with you on all points. Clinton did sign those odious bills.

Neither candidate seems to be willing to speak honestly about this crisis. Obama did say that the bailout, whatever form it finally takes, will impact future discretionary spending. Well, no shit...
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Old 09-24-2008   #8
Self-Aggrandizing jackass
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Well, that's probably farther than Bush would go...
Can't wait to see what the commanding imbecile says tonight...
"self-aggrandizing jackass" - it says it right on the label
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Old 09-24-2008   #9
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Not sure I can watch the Chimp in Chief stammer and bullshit tonight. Might have to wait for the Daily Show's take on it...
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Old 09-24-2008   #10
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You guys are funny.. A bunch of lefty "Dittoheads"...

Both parties are equally at blame. Nothing gets approved through congress without both sides voting on it. Who has had the majority the last 2 years? Farm subsidies have been a part of both parties campaign platforms for ages, what better of a way to lock in Iowa. Nobody was on this forum raising hell when the government eased rules and made it easier for people to get home and other loans. I believe it was hailed as a great move that would allow every American the dream of home ownership and the beginning of spreading wealth to the masses. No body was on here bitching when realtors were on HGTV or the evening news telling first time home buyers about how great ARMs and interest only loan options were and that if you didn't get in now you would never be able to.

Every one in DC, red and blue should be out, everyone in DC is at fault, bankers are at fault, mortgage companies are at fault, realtors are at fault, uneducated home buyers are at fault, stock holders are at fault for not demanding tighter strings on their upper management, credit card companies are at fault for deceptive practices, consumers are at fault for maxing out their cards so that they could live the Latte lifestyle, advertising companies are at fault for convincing us that we need a Latte to make us feel special.... where do you want to stop?

How does it get fixed? I am not even sure that with all the reports from every side flying around that anyone, even those in charge, truely knows exactly what the state of the situation really is. An easy quick fix that would help people in their homes would be to move everyone to a fixed rate that they could last afford which seems to be one of the provisions in the plan floating around. No matter what happens people in general have to take their daily lives and spending habits into their own hands. They have to start listening to the experts that have been telling us for years to pay cash and that any credit card debt is horribly bad. The bankers and loan guys only got to where they are because we were all to happy to live today and pay tomorrow with plastic.

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