CibbuanoWho are we angry at and is the bailout a good thing?
October 7th 2008 22:40
It reminds me of Woody Allen's "Purple Rose of Cairo", where Mia Farrow plays a housewife in glum circumstances, in the middle of the Great Depression, who finds relief in a movie theatre.
Last week, I wrote on the Dissolution of Skepticism, and how that's mired us in this mess.
Today, I listened to the fantastic radio podcast from This American Life, called "Another Frightening Show About the Economy".
It's incredible - while people might associate public radio with the hordes of liberalism, host Ira Glass takes a rather objective view of the financial crisis, who is to blame, why we're in desperate straits and - a big point - is the bailout a good idea?
The bailout is a controversial piece of legislation, dumping $700 billion into a financial system that squandered away stability. Americans have a right to be angry - they were duped into taking ridiculous mortgages and now they are liable for the entirety of the damage.
I get angry at the bailout because, as many people have noted, it seems to reward stupidity and greed. Financial institutions made risky choices, and the push toward deregulation allowed them to keep smaller amounts of money to back those risks. Now that the bets have exploded, they get to shrug collectively and go "What, me worry?".
There's already news about the executives at AIG, the insurance company that was bailed out by the US gov't, living it up at a pampered retreat after getting federal money.
This American Life takes a look at some other points of the financial crisis that have gone overlooked by the hysteria:
1) The Commercial Paper market has dried up. This is the market where established companies go to borrow money. They use it to cover expenses or make large purchases, necessary for any growing company; it's extraordinarily safe, but because of the shaky mortgage situation, no one is willing to lend to the Commercial Paper market, freezing the growth of American companies.
2) CDS - it stands for Credit Default Swap, and it's something that's gone overlooked in favour of blaming homeowners for the crisis. It's basically an investment vehicle that lets you buy or sell insurance on bonds - that you don't own.
Warren Buffet called them "Financial weapons of mass destruction" because they have the potential to cause a massive chain of defaults if just one buyer goes under.
The constipation of the Commercial Paper market is a bad sign, that's for sure. Since the economy runs on perception, the perceived loss of liquidity makes things difficult for businesses - they can't raise money to build new buildings or buy new equipment. The podcast notes that McDonalds couldn't install coffee machines in some locations because there was no movement in the Paper market.
The CDS problem is worse than bad... according to the podcast and Wikipedia:
"By the end of 2007 there were an estimated $45[5] to 62.2[6] trillion worth of Credit Default Swap contracts."
Are you kidding me? That's 62 trillion dollars!? It's more than all the stock activity in the world - worst of all, the CDS market is completely without regulation. It's a private market, with no transparency or oversight.
According to Ira Glass, both Democrats and Republicans voted it this way. We can be angry at them, but an analyst suggests that if the CDS market was regulated, no one would have used it, and they would have invented some other scheme.
I hear people saying, on the streets, that the economy can't be that bad, because we're all living like we used to, except with fewer SUVs and less expensive iPods.
Well, once all these liabilities come out and untangle themselves, all this debt is going to slap us in the face.
So: is the bailout a good thing?
I have no idea what she just said.
On the bailout, it's hard to tell, but the opinion of This American Life, after talking to hordes of economists, both Democratic and Republican, Libertarian and Progressive, is that something must be done, soon. Alex Bloomberg, on the podcast summarizes the feelings of all these economists:
" - This crisis is severe
- It's going to get worse
- Something needs to be done
- The original [bailout] plan was not great
- This plan is a lot better
- This plan is probably the best we can get and
- Something has to happen sooner than later."
- It's going to get worse
- Something needs to be done
- The original [bailout] plan was not great
- This plan is a lot better
- This plan is probably the best we can get and
- Something has to happen sooner than later."
What do I think about the bailout? Much the same - I wish there wasn't the need for a bailout, but with all this CDS debt lying around, the government can only try to keep banks afloat to prevent the holders of bonds from going under, triggering a cataclysmic chain of sinking institutions.
Sadly, I think we need the bailout, though the podcast notes that many economists would prefer that the US govt take preferred stock in these banks, instead of just giving them the money.
A few years ago, I wrote an essay stating that I didn't think that China could become the next cultural empire in the world, as the culture would be hard to transfer to foreign countries. I've revised my opinion greatly. With this bailout, the world economy will be patched up, but American taxpayers, the hardest working middle-class in the world, will pay the bill for generations.
Your government doesn't have $700 billion - it needs to owe that much, and the national debt is already massive, thanks to 8 years of cowboy politics by Bush and Cheney, both with fingers in the pies of oil and defense companies.
The US military will have to be scaled back, leaving vacuums all over the world. The consumer market in the US will dry up, forcing innovation and market to move elsewhere. This will be India and China, who will rise to create their own global brands, while the English speaking world will flounder without their big American brother to help them swim. Us Canadians will learn Mandarin and flee to seek jobs over the Pacific.
I hope I'm wrong.
*this image is from On the Right
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Comment by D. Armenta
The Florida Keys and Everglades
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L.A.M.P.
Worse than that, Cibby. We were ignored. CNN posted the congress switchboard number during the entire week so Americans could call their congress-and-state reps and tell them their vote on the bill. Response was overwhelming from all over the U.S., and the response was "NO!"
The reps who were up for reelection voted no the first time, but many caved to peer pressure and pork in the final run.
Mad? That's an understatement.
I'm on the internet for hours every day, blogging and posting public info about Nader, the invisible man. When I'm not on the web I'm on the phone to every news station and government office I can get the number for, always asking the same question: "Why is Nader blocked from the debates?"
Nader doesn't need my help convincing people of his honesty; I figure if I can steer enough people to check his policies out, they'll speak for themselves.
Lots of people are calling me naive, saying I'm wasting my time and my vote, but--to see our country being used as toilet paper by the very government we elected --without doing something about it is unacceptable.
Nader for president!
Comment by Cibbuano
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I like Nader's points on the bailout - I'd like to see him petitioning the Dems and Repubs to adopt those policies. I think nearly every American is down for the idea of receiving stock for bailout money.
As noted on the podcast, though, the financial institutions don't want to give away preferred stock, and they are a powerful lobby group.
Comment by D. Armenta
The Florida Keys and Everglades
The Black Sheep Chronicles
What constitutes bad manners?
The male mystique
Debate Fan
L.A.M.P.
Nader himself doesn't entertain any delusions about winning; he has said time and time again that we must break up this rotten 2-party system that is now running the show along with Wall St. His repeated running is an attempt to show Americans this. Unfortunately, this will probably all be realized after it's too late..but I bet Nader is canonized in future history books.
Small wonder the financial institutions as well as Capitol Hill are doing their best to ignore Nader, since they are the very ones he is going after...again.
Comment by Howard
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Comment by Cibbuano
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Howard, I understand what you mean... with the reluctance to extend credit and trillions of dollars outlying, there's a heavy cloud ahead. What do you mean 'billions of people disappear'? Where are they going?
Comment by D. Armenta
The Florida Keys and Everglades
The Black Sheep Chronicles
What constitutes bad manners?
The male mystique
Debate Fan
L.A.M.P.
If you keep on like you are now, Howard, you're going to freeze up with fear just like a possum in the headlights.
Take some action instead of worrying to death. Call your reps and the major networks. Tell them to open the final debate.
I'm not asking you or anyone else to take my word for it, Howard .Check out Nader's policies for yourself. Stop crying doom and get off your butt. Inertia and cynicism are our worst enemies right now.
Comment by Howard
Real Crash
Comment by Howard
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Comment by D. Armenta
The Florida Keys and Everglades
The Black Sheep Chronicles
What constitutes bad manners?
The male mystique
Debate Fan
L.A.M.P.
I'm not being sarcastic; I really want to know your opinion.
Comment by Howard
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Comment by Miswanderlust
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Long time no blog. I am trying to catch up with my favorite sites. This post was very thought provoking given the recent decision by the American government to bailout US automakers.; It is sickening! Like D, I am an avid Ralph Nader fan. I enjoy Bloomberg's site a lot. I am trying to do my part to rage against the machine. I come from a politically active family and we are trying to make a difference. Keep up the great work!
Mis