Bipartisan Bailout Plan Isn't Playing in Peoria

[Pangloss]

People are calling their congresscritters in droves, and the near-universal outcry is "don't do it". It's interesting that we may have a situation developing where the American people are strongly opposed to something but lawmakers may end up universally agreeing that it has to be done anyway.

 

The main objection from constituents seems to be about how the bailout protects the wealthy while their own retirement plans are drying up and their mortgages aren't getting paid. The lack of confidence in government clearly plays a role here as well, with Congress' approval rating being even lower than the President's. And current trends and sentiments about executive compensation can't be helping either.

 

There are the fringe politics of libertarians and other free marketers arguing that this is a bad idea for basic ideological reasons, but outside of internet discussion forums there's not a whole lot of traction there. People are panicky right now, and they're not thinking long-term.

 

Some elected officials are responding to it, already speaking out against the new bailout bill. But I expect that what's going to happen here is that the major players are going to get together, hammer out a deal like the current proposal, ensuring oversight, executive compensation limits (with holes the size of a MacDonald's 24-hour drive-through window), assistance for homeowners in trouble, and so forth.

 

Meaning we're going to have Democrats and Republicans standing side-by-side with the President saying "We need to do this, or else". I tell you what, if there's one thing I thought for sure you would NOT see before election day this year, that is it right there. Wow.

 

What do you all think?

[Realitycheck]

If it fixes the problems, I'm for it. The assistance is really the big thing that I have not seen talked about. That fixes everything and a lot of people are going to say, "Hey, that's not fair. That's 'welfare'." Not exactly welfare, but income-sensitive payment plans and negotiating tactics like that, but then, if they incorporate things like that, I see no reason to completely buy out the whole Fannie Mae to accomodate it. Something missing here. I still need some enlightening. What are they thinking to cause Anderson Cooper to say, "This is not really a good idea." Surely, he would have the inside scoop on Paulson's and Bernanke's ideas on how it would work. Surely.

 

Regulations have to be clamped down. The hell with trying to drive the economy at unnatural speeds to artificially prop up our own portfolio values and world confidence in our economy.

Edited September 25, 2008 by agentchange

[Phi for All]

Isn't this one of the things that prolonged the Great Depression? Besides the wealthfare angle, I'm most concerned that the people who know most about these assets are the people who got them in trouble in the first place. If oversight isn't rigorous, those are going to be the very people put in charge of the bailout.

[ParanoiA]

Unfortunately, it looks like it's going to go through. I'm terribly dissappointed. To me, it feels like a pivotal, historic moment that will redefine the dynamics of the economy.

 

President Bush also scared the crap out of me with the statement about how we need to update our regulatory disposition for a modern economy - by giving more authority to the damn federal reserve! What...the...f*ck? Is no one paying attention to where our power is going? Are we not seeing how people that are NOT elected by us are dictating the terms of our economy? And we want to empower them with more authority?

 

I'm just stunned.

[Phi for All]

To me, it feels like a pivotal, historic moment that will redefine the dynamics of the economy.

Just like the Patriot Act, another enormous piece of legislation that few read before voting on, redefined the dynamics of our national security. And we're letting the most unpopular president and Congress in history shove these things down our throats.

 

Perhaps we should rethink our desire to elect "Joe Blow Guy I Can Relate To And Have A Beer With" and put someone in office with an elite mind that can not only read but read between the lines.

[ParanoiA]

Perhaps we should rethink our desire to elect "Joe Blow Guy I Can Relate To And Have A Beer With" and put someone in office with an elite mind that can not only read but read between the lines.

 

Yeah, I've always been annoyed with the classic assumption that the president should "know what it's like" to be me, or to be poor, or whatever quaint connection we seem to think has merit for leading a nation.

 

The president should be way beyond me. He should be intellectually brilliant and an expert on the constitution, law, international savvy, and etc.

 

That's why I get so dissappointed election after election. I feel like we're all equal to McCain and Obama. Well, maybe not on military matters when it comes to McCain, but there's really nothing else I can think of that I'd turn to McCain or Obama and ask their opinion on. Nothing.

[Phi for All]

As much as I objected to a lot of the deregulation Bill Clinton didn't veto, I think it made a big difference having a scholar as president. I think people around the world respected him for his brains and insight. I doubt it makes anyone but Americans happy to have so much power in the hands of "mavericks" and "ordinary guys".

 

And I like what Clinton had to say about the bailout needing to earn interest for the taxpayers. This shouldn't be a free ride for wealth.

[john5746]

Well, I guess I have faith in Bernanke, who has a PHD in economics and did his dissertation on... The Great Depression. Of course, he is concerned on the aggregate level, not about who wins and loses as individuals. He is concerned that EVERYONE is going to lose. If the main problem has been these frivolous loans for the last 5 years, then how much equity are these people really losing? They basically rented the house if they put little money down and have a 30 or even 40 year adjusted loan.

[iNow]

Now a bailout is coming for the auto industry.

 

Robbing Peter to pay Paul comes to mind...

[ParanoiA]

Now a bailout is coming for the auto industry.

 

Robbing Peter to pay Paul comes to mind...

 

That's exactly the kind of fundamental change in our attitude towards the economy that worries the hell out of me. I'm afraid I'm going to see the transformation to socialism in my lifetime now.

 

Well, I guess I have faith in Bernanke, who has a PHD in economics and did his dissertation on... The Great Depression. Of course, he is concerned on the aggregate level, not about who wins and loses as individuals. He is concerned that EVERYONE is going to lose. If the main problem has been these frivolous loans for the last 5 years, then how much equity are these people really losing? They basically rented the house if they put little money down and have a 30 or even 40 year adjusted loan.

 

True, but then their credit takes a smacking too. Maybe that's justified, due to their poor judgement and willful ignorance, but it doesn't help their situation any and certainly could be equated as a loss for them.

[abskebabs]

What do you all think?

I diagree with you, and I don't think the bill should be passed. I wouldn't stop there however, I would abolish the Fed, stop monetising debt, and introduce legislation to allow competition in the currency sector so that people are not left with the worthless paper currency that is going to implode anyway. Indeed, as I've already posted in general discussion I'm considering withdrawing my own trading account from the dollar completely.

 

I also would recommend you read Human Action by Ludwig Von Mises or other works from the Austrian school of Economics before claiming free marketeers are complaining about the current issues for ideological reasons.

[ParanoiA]

I diagree with you, and I don't think the bill should be passed. I wouldn't stop there however, I would abolish the Fed, stop monetising debt, and introduce legislation to allow competition in the currency sector so that people are not left with the worthless paper currency that is going to implode anyway. Indeed, as I've already posted in general discussion I'm considering withdrawing my own trading account from the dollar completely.

 

I also would recommend you read Human Action by Ludwig Von Mises or other works from the Austrian school of Economics before claiming free marketeers are complaining about the current issues for ideological reasons.

 

Interesting. What is the answer to the banking and currency issues we ran into prior to the federal reserve? I like the idea of abolishing it as well, but I'm hard pressed to come up with a worthwhile alternative to their service.

[bascule]

I agree to the bailout in principle. However, this certainly feels like rushed legislation that hasn't been properly vetted or scrutinized.

[abskebabs]

Interesting. What is the answer to the banking and currency issues we ran into prior to the federal reserve? I like the idea of abolishing it as well, but I'm hard pressed to come up with a worthwhile alternative to their service.

 

I think we should look at what the purposes of the Federal Reserve are in order to answer your question. I will have a look at 2, to provide price stabillity(control inflation/deflation) and maximise employment. The wikipedia article says that these 2 are contradictory aims, but in a certain sense I think they are imaginary concepts.

 

On price stabillity, even if the dollar was't a manipulated and overprinted currency, it is a currency, and therefore a commodity that happens to be the medium of exchange. Just like any other commodity therefore, it is subject to change in value subjectively according to the mindset of participants in a market, just as the wants and desires of those participants will be dynamic in the marketplace will vary too. Therefore the idea of price stabillity is a myth.

 

Also the amount of money in a market cannot change the situation or productivity of a market economy, thereby increasing employment(not permanently anyway). It simply determines the amount of money in supply, and thereby it's value in comparison with other goods. The malinvestment that causes the recessions is brought about at the beginning of the speculative boom in economic cycles, as the lowering of interest rates distorts the economic calculation of individuals and entrepreneurs. They have to pay for the mistakes further down the line.

 

However bailing out the individuals by printing out more money(let's face it they're not going to increase taxes), is only going to inflate the money supply even further and destroy people's savings in the long run.

 

I confess I still need to develop my economic understanding , and have not yet got to the business cycle theory in Mises' book Human Action, but I'm getting there. I've just recently read the chapter on the Sphere of Economic Claculation, so it may be some time before I can elaborare on that.

[Phi for All]

I agree to the bailout in principle. However, this certainly feels like rushed legislation that hasn't been properly vetted or scrutinized.

I'll bet it includes provisions to hold you without warrant at Guantanamo Bay if you miss a mortgage payment.

 

 

Looks like it will pass: http://news.yahoo.com/s/ap/20080925/ap_on_bi_ge/financial_meltdown

[ParanoiA]

I think we should look at what the purposes of the Federal Reserve are in order to answer your question. I will have a look at 2, to provide price stabillity(control inflation/deflation) and maximise employment. The wikipedia article says that these 2 are contradictory aims, but in a certain sense I think they are imaginary concepts.

 

I'm still reading on this too. I keep reading about appeals to banking crises, like the Panic of 1907 to justify the notion of a central bank, and that the federal reserve was the third, more thoughtful attempt at a central banking system. But I'm apparently not understanding the fundamental structure in order to understand why a central bank solves problems like this.

 

On price stabillity, even if the dollar was't a manipulated and overprinted currency, it is a currency, and therefore a commodity that happens to be the medium of exchange. Just like any other commodity therefore, it is subject to change in value subjectively according to the mindset of participants in a market, just as the wants and desires of those participants will be dynamic in the marketplace will vary too. Therefore the idea of price stabillity is a myth.

 

Would that still be the case when the currency is backed by a static asset like Gold or Silver? I guess it's possible for Gold and Silver to lose value in the mindset of participants as well...

 

I confess I still need to develop my economic understanding , and have not yet got to the business cycle theory in Mises' book Human Action, but I'm getting there. I've just recently read the chapter on the Sphere of Economic Claculation, so it may be some time before I can elaborare on that.

 

I would like to give that a good read too. My understanding of Austrian Theory is like watching a man hanging from a cliff by his fingernails. So far, I appreciate the mode of deduction over induction. To my elementary grip, it would seem that deduction be more appropriate for systems made up of pieces we know. Whereas induction would seem more appropriate for systems made up of pieces we still don't yet understand, like the universe. I don't know. I'm just getting my feet wet too, but I find it very interesting.

 

What kind of economic understanding would I need as a prerequisite to reading that book?

[waitforufo]

Okay, I have heard all the well placed anger directed at politicians, lobbyists, and executives, but I'm starting to feel like I'm the only one upset with my neighbors and siblings. You know who I'm talking about. That person you know that has been treating the growing equity in their home like a magic bank account. Every time interest rates, real estate demand, and tax policy increase their home equity they rush to refinance. We all know that the latte and valet life style doesn't come cheap. All the while during their spending frenzy you were warning them that leverage works both ways. Now they are broke, and they all sing the same tune. "Well, if I couldn't afford the mortgage, why did those evil people give me the loan? It's not my fault!"

 

I'm not happy about a few executives walking off with their golden parachutes. Bailing out my neighbor and sibling spendthrifts however, makes me want to puke. Will we do it? Of course, we need to keep our personal 401k afloat, and our personal real estate values from tanking. Don't we?

[ParanoiA]

Okay, I have heard all the well placed anger directed at politicians, lobbyists, and executives, but I'm starting to feel like I'm the only one upset with my neighbors and siblings.

 

Oh, no you're not the only one. Loans are between two entities - that contract is for both entities to agree with. The lenders are on one side, the borrowers on the other. Each person has a duty to understand what one agrees too, a responsibility to be accountable for their choices and decisions in life. It's absolutely unfathomable that they should not be held accountable for signing their name on something they didn't understand. I'm not sure I'd really sympathize if they signed their kids over to live in Gitmo. Why in the hell do people agree to shit - multi thousand dollar deals that could effect them for the rest of their life - without being absolutely sure about what they're agreeing to?

 

Answer: Bankruptcy and ignorance.

 

Ignorance by choice, which goes along way to explaining their poverty ingrained lifestyle to begin with. Learning things, reading, writing - all way too much effort for a huge percentage of the poor. My wife has family that live 10 or more to a household with the highest present intellect achieving a 6th grade education - and I'm not exagerating. Aunts, uncles, cousins out the ying-yang, and they are a living study on the culture of poverty - the propensity to be stupid by choice while fooling themselves into believing they're not. Subsequently, all of their problems are caused by the rich and successful...the people who learn things, read and write.

 

I could write pages on this and never run out of disparaging things to say. I've grown up around it, and it has never failed to sicken me. I simply have no answer. Those idiots have just as valuable a vote as you and me, and they can barely count to one hundred and read road signs.

 

Bankruptcy is their safety net. This is for the slightly more sophisticated of the willful ignorant. They'll just file bankruptcy if things don't work out and try again. Why not? Their credit sucks already. What's to lose really? For a couple years they might have problems securing a loan? Big deal, for their whole damn life they've had problems securing credit. Nothing new here.

 

So you add those two concepts, and you get a careless idiot at the closing table signing everything pushed to their end without a care in the world what it all means, notoriously with the asinine reasoning "the government wouldn't let them screw me" mentallity.

 

So much for personal responsibility. So much for taking care of yourself.

 

In contrast, the lender has all of their shit together. That's how they got in this position - knowing what the hell they're doing. Why do we constantly beat on the rich rather than learn from them? You'd think a rational human being would say, Gee, he's got all the money and he knows what all of these pieces of paper mean...maybe I should know too...maybe I could do better with money by knowing this stuff too.

 

No, no, of course not, the poor got poor because of the rich, and there is nothing to be learned from them.

 

 

 

Sorry, kind of went off there a bit. But I said all that stupid stuff to point out that we're not bailing them out, as far as I can tell so far. So maybe that's why no one is bitching so much about them at the moment.

[Pangloss]

I also would recommend you read Human Action by Ludwig Von Mises or other works from the Austrian school of Economics before claiming free marketeers are complaining about the current issues for ideological reasons.

 

Wouldn't that give me their ideological reasoning? Ideology isn't a term that connotes evil, it's a term that connotes unilateral (but not necessarily closed-minded) reasoning. I think you thought I meant "partisan".

 

I do think that "pure" reasoning is wrong, and I do think society has grown past the unilateral acceptance of extremes like laissez-faire or socialism. We have learned a wiser course -- regulation in moderation. We've proven its value, time and again, and reverting to an extreme at either end would be a mistake. I think that this is one of the things that modern government does right, when in that rare occasion it shrugs off the negative influence of corruption and special interests.

 

But that doesn't mean I think you're wrong with all of your suggestions. I agree that we can't print our way out of the current problem. I don't think that's a complete analysis of what's happening here. There is a vast increase in debt, yes, but it's not wholly unbacked or unbackable. I'm reminded of Douglas Adams' old quote about space being really, really big. So is the economy. The entire national debt is something between half and 2/3rds of what the country produces in a year. We're not completely off the deep end here, it just seems that way when you look at some of the staggeringly huge numbers being tossed about like popcorn at a Saturday matinee.

[waitforufo]

Oh, no you're not the only one. Loans are between two entities - that contract is for both entities to agree with. The lenders are on one side, the borrowers on the other. Each person has a duty to understand what one agrees too, a responsibility to be accountable for their choices and decisions in life. It's absolutely unfathomable that they should not be held accountable for signing their name on something they didn't understand. I'm not sure I'd really sympathize if they signed their kids over to live in Gitmo. Why in the hell do people agree to shit - multi thousand dollar deals that could effect them for the rest of their life - without being absolutely sure about what they're agreeing to?

 

Answer: Bankruptcy and ignorance.

 

Ignorance by choice, which goes along way to explaining their poverty ingrained lifestyle to begin with. Learning things, reading, writing - all way too much effort for a huge percentage of the poor. My wife has family that live 10 or more to a household with the highest present intellect achieving a 6th grade education - and I'm not exagerating. Aunts, uncles, cousins out the ying-yang, and they are a living study on the culture of poverty - the propensity to be stupid by choice while fooling themselves into believing they're not. Subsequently, all of their problems are caused by the rich and successful...the people who learn things, read and write.

 

I could write pages on this and never run out of disparaging things to say. I've grown up around it, and it has never failed to sicken me. I simply have no answer. Those idiots have just as valuable a vote as you and me, and they can barely count to one hundred and read road signs.

 

Bankruptcy is their safety net. This is for the slightly more sophisticated of the willful ignorant. They'll just file bankruptcy if things don't work out and try again. Why not? Their credit sucks already. What's to lose really? For a couple years they might have problems securing a loan? Big deal, for their whole damn life they've had problems securing credit. Nothing new here.

 

So you add those two concepts, and you get a careless idiot at the closing table signing everything pushed to their end without a care in the world what it all means, notoriously with the asinine reasoning "the government wouldn't let them screw me" mentallity.

 

So much for personal responsibility. So much for taking care of yourself.

 

In contrast, the lender has all of their shit together. That's how they got in this position - knowing what the hell they're doing. Why do we constantly beat on the rich rather than learn from them? You'd think a rational human being would say, Gee, he's got all the money and he knows what all of these pieces of paper mean...maybe I should know too...maybe I could do better with money by knowing this stuff too.

 

No, no, of course not, the poor got poor because of the rich, and there is nothing to be learned from them.

 

 

 

Sorry, kind of went off there a bit. But I said all that stupid stuff to point out that we're not bailing them out, as far as I can tell so far. So maybe that's why no one is bitching so much about them at the moment.

 

 

My wife and I used to volunteer at a local food bank. Well it did more that just give away food to the needy. They also gave money to people who came in with three day pay or vacate notices from their landlords. The first time you were in need, food or money, they just gave assistance. The second time however the required the recipient to receive training. If you needed food assistance, you took a cooking and nutrition class. If you needed money, you took a home budgeting class. My wife taught the cooking class and I taught the budgeting class. About 80% of those looking for additional assistance walked away, stomped would be a better description, when then were told of this training requirement. I don't know about those that refused training, but above you describe perfectly those that did receive training. I lasted as a twice a month trainer for about 5 months. I remember saying "… then all you have to do is add up this column and make sure the total does not exceed your income." With that one of my students said "no you don't understand, I don't dos I gets." Even I laughed, but I quit volunteering. If I would have continued I would be in the penitentiary today.

 

With regard to the bail out however, I just know too many educated people who are underwater with no one to blame but themselves. They are not, or at least should not, be one of those people you describe above. I have two siblings in this boat. Both college educated. My four other siblings are worried about their retirement savings but other that that are just fine. Two of those are not college educated.

 

Also, the media keeps referring to this as a Wall Street bail out. I see this as a main street bail out. Look at the baby boomers, of which I am one. Never has America produced such a spoiled narcissistic generation of people. No retirement plan, little savings, no home equity, but they do have an expensive lifestyle. This year the baby boomers start entering their 60's. Where are these people going to be if their measly 401k savings plan goes poof and their home is foreclosed? For the good of my children I feel compelled to bail them out, but not for their own sake.

[ParanoiA]

Never has America produced such a spoiled narcissistic generation of people. No retirement plan, little savings, no home equity, but they do have an expensive lifestyle.

 

The part that really insults is that they don't even think they should have to. They actually bitch and cry that the government isn't doing it for them. That's how we're becoming a socialist country. Politicians pandering to crybabies that abdicate their basic, survival responsibilities.

[bascule]

Meaning we're going to have Democrats and Republicans standing side-by-side with the President saying "We need to do this, or else".

 

Doesn't seem like it worked out that way:

 

http://money.cnn.com/2008/09/25/news/economy/deal_reached/index.htm?postversion=2008092513&eref=rss_topstories

[Pangloss]

Yeah the talks broke down late this afternoon. But I don't think we're at the end of this story yet.

 

It'll be interesting to see how the blame game plays out if they fail to reach a compromise. It may be a bizarre situation where neither side gets full spin control even amongst its own base, because opposition amongst the population was so universal, and because elected officials from both sides were split over whether to do it.

 

Republicans, for example, can't really get away with saying that Democrats blew the deal, because many of their own people were opposed. And they can't really take credit for shooting it down either, because Democrats are the party in power (Paulson literally begging Pelosi on one knee this afternoon not to kill it!).

 

Democrats, for their part, can't really get away with saying that it's Republicans' fault because they're the ones in power. And they can't exactly take credit for nixing the deal either, because they were the ones saying that if it had the support of both candidates they'd authorize it.

 

It's a spin doctor's worst nightmare. Just what a congress with a single-digit approval rating needs.

Edited September 26, 2008 by Pangloss

[iNow]

Did anyone notice how there was bipartisan agreement on the plan BEFORE McCain showed up in Washington, but then things fell apart once he got there?

[abskebabs]

What kind of economic understanding would I need as a prerequisite to reading that book?

 

Actually, you don't need any. It's not the easiest book to read, but Mises starts right from the beginning considering epistemology, causality,and the appropriate approach to the science of human action(referred to as praxeology). What is known as economics, from this category is simply the result of a partly historical arbitrary distinction made in order to analyse behaviour for "material gain."

 

Also, to Pangloss, I would say the reason for the deductive approach of Austrian economics; from what I've read of it, is really a restriction they place because of the unreproduceabillity of historical events concerning human action. We cannot attain accurate quantitative predictions(as much as we'd like to) concerning supply, demand and prices, as these are determined in a sphere unknowable to us: the volitions, thoughts and ultmately dynamic desires of individuals.