We’re Asking the Wrong Guys Trying to Solve the Economic Crisis

Hank Paulson and Ben Bernanke are the wrong guys to solve this financial crisis.

I’m not talking, here, about Paulson’s very obvious conflicts of interest, though those are troubling. Paulson, after all, was CEO of one of the companies that in 2004 got an exemption on leverage limits–one of the moves that led to this crisis. And Paulson’s proposed bailout would disproportionally benefit his former company.

But I’m increasingly troubled by the ways in which Paulson and Bernanke are functionally inadequate to solve this problem–at least by themselves. By having Paulson and Bernanke solve this problem themselves, we guarantee that we’ll primarily address this as a finance crisis, and not an underlying structural crises in our economy.

While both Paulson and Bernanke have responsibility for the overall economy of the country, that responsibility is focused closely on monetary policy of the US.

The Fed describes its role as follows:

  • Conducting the nation’s monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices
  • Supervising and regulating banking institutions to ensure the safety and soundness of the nation’s banking and financial system and to protect the credit rights of consumers
  • Maintaining the stability of the financial system and containing systemic risk that may arise in financial markets
  • Providing certain financial services to the U.S. government, to the public, to financial institutions, and to foreign official institutions, including playing a major role in operating the nation’s payments systems

And Treasury describes its mission:

The Treasury Department is the executive agency responsible for promoting economic prosperity and ensuring the financial security of the United States. The Department is responsible for a wide range of activities such as advising the President on economic and financial issues, encouraging sustainable economic growth, and fostering improved governance in financial institutions. The Department of the Treasury operates and maintains systems that are critical to the nation’s financial infrastructure, such as the production of coin and currency, the disbursement of payments to the American public, revenue collection, and the borrowing of funds necessary to run the federal government. The Department works with other federal agencies, foreign governments, and international financial institutions to encourage global economic growth, raise standards of living, and to the extent possible, predict and prevent economic and financial crises.

The Fed talks about "full employment and stable prices." Treasury talks about "economic prosperity" and raising standards of living and "encouraging sustainable economic growth." But both entities envision doing so–as their missions reveal–primarily by ensuring the health of the financial system. That is, built into their current mission is the assumption that the finance industry is the privileged industry in this country from which all other economic success comes.

Consider what Kevin Phillips had to say about what got us into this problem:

However, I would say that the two most important underpinnings of financialization lay in the rise of public and private debt as a mainstay of American culture and economics and the perpetual liquidity and bail-out support of the Federal Reserve Board under Alan Greenspan. During Greenspan’s 1987-2005 tenure, the sum of public and private debt in the United States quadrupled from just over $10 trillion to $43 trillion. Finance became the industry that was not allowed to fail but was permitted to enlarge and metastasize its behavior almost at will. Regulation was minimal. Favoritism was omnipresent.

The result, alas, has been all over recent headlines. America’s biggest ever housing bubble, with 57 varieties of exotic mortgages and home prices now plummeting at rates unseen since the 1930s. The United States turned Credit Card Nation, with a citzenry in thrall to plastic, 20% interest rates and late fees for just about everything. Huge banks like Citigroup feel no shame in paying billion-dollar fines for colluding with Enron’s tax and accounting deceits. And since mid-2007, national and world credit markets have been panicked and paralyzed by hitherto obscure instruments — the stand-outs are collateralized debt obligations (CDOs) — that not even their designers and packagers can explain. [my emphasis]

We made a decision under Reagan to privilege our finance industry at the expense–especially–of manufacturing. And in doing so, set up the underlying permissiveness  that got us into this crisis. Yet, by having Bernanke and Paulson lead the response to this crisis, we’re guaranteeing that that underlying privilege of finance continues. Bernanke, especially, and Paulson to a large degree are justified in seeking to solve the financial crisis that threatens to undermine the rest of our economy. That’s their job. But by letting them take the lead on this, we avoid taking a critical look at the overall structure of our economy.

There’s a parallel that I keep thinking of. When David Petraeus, as the commanding General in Iraq, testified before Congress last September, members of Congress repeatedly asked him whether the surge troop levels were taxing the military more generally. Petraeus answered correctly, but in a way that exasperated those people who asked, that it wasn’t his concern. Petraeus’ job, after all, was doing everything he could to ensure the success of Iraq. Whether Afghanistan succeeded or failed wasn’t his concern (until he took over CentComm recently, that is). Yet the guy Congress consulted about whether the surge was hurting our other military priorities was a guy whose job it was to focus exclusively on Iraq.

Now, I realize that Bernanke and Paulson would have to be significantly involved in solving this crisis. But we ought to be including the Secretaries of Commerce, Ag, HHS, and Labor (no, I don’t actually pretend that Elaine Chao is going to help here), to consider the ways that solving other structural problems in our economy ought to be part of our approach to solve this current fiscal crisis. For example, if we were addressing the reasons why most Americans’ incomes have been stagnant over the last decade–and as a result they have instead been coping with inflationary pressures by using their house as an ATM–we’d be more likely to devise a solution that would work over the long term.

Thing is, though, the person who should be ensuring we situate this crisis in our larger economic weakness–the President–is totally unqualified to do so. I’m frankly reasonably happy that he’s quivering in the White House weeping about his legacy. But that doesn’t mean we should forget the larger picture because we have a President who is incapable of seeing the larger picture.

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  1. spoonful says:

    “By having Paulson and Bernanke solve this problem themselves, we guarantee that we’ll primarily address this as a finance crisis, and not an underlying structural crises in our economy.” I disagree that the underlying crisis is structural. I believe it is political. It is the war on terror and the corresponding raping of the economy and undercutting of our most fundamental constitutional principles which has caused our dollar to tank during Bush’s reign of terror. Many of the roots of this economic crisis can be traced to the dollar which is on its way to near junkbond status. How about a political strategy by Pres, Obama that sensibly raises taxes, brings our foreign troops home, and approaches a balanced budget. What then happens to the dollar? Price of gas? PRICE OF HOUSING??? If housing increases sufficiently, then what banking crisis? It is not so difficult. If we print a quick trillion dollars though, pretty soon the dollar will be on parity with the yen. Can you say $15/gallon gas? Also, you were too kind in saying that the current Pres. is simply unqualified. There must be a better word.

  2. Peterr says:

    we ought to be including the Secretaries of Commerce, Ag, HHS, and Labor (no, I don’t actually pretend that Elaine Chao is going to help here), to consider the ways that solving other structural problems in our economy ought to be part of our approach to solve this current fiscal crisis.

    Given the international implications of all this, I’d add the Secretary of State to your list.

    (And as you said about Elaine Chao, I don’t actually pretend that Condi is going to help here, either.)

    • emptywheel says:

      Agree.

      Which is another way of saying there needs to be a Principals group that focuses on this crisis, like there’s a principals group that oversees our occupation of Iraq.

      But that would also assume having either a NSA or a President who could synthesize all that.

    • Minnesotachuck says:

      A great and thoughtful post Marcy.

      Re the inclusion of the Secretaries of Commerce, Ag, etc., I agree in principle. There’s a problem, however. Those who presently hold these offices, simply by being members of the current administration, are all compromised. This morning Paul Krugman has a better idea, not least because he has put his finger on another reason that Paulson, at least, should not be in the driver’s seat: trust. Everyone in the senior reaches of the Bush administration has forfeited his or her right to be trusted. The formulation of the bail-out bill ought to be handled by Congress, under the guidance of the likes of Senator Chris Dodd and Rep. Barney Frank.

  3. Arbusto says:

    You’re correct that the current crisis is really a systemic problem, not just credit liquidity. The larger problem is no one in our society is mature enough to do what is necessary to cure the problem. We as a populace buy into “keeping up with the Jones” attitude on personal spending, confusing want with need and using Credit Cards like cash. Banks and S&L’s push this attitude by allowing almost anyone to get credit for consumer goods while the Government says spending is not only good, but also a large factor in our economic health. Corporate Officers, Directors, and employees are protected by the Corporate Vail and can run amuck with virtually no personal repercussions. Meanwhile our Congress is the best money can buy, failing to stand up for their constituents or the Constitution for fear of being cur from the corporate pig trough, while Paulson will probably reap monetary gain on his stock portfolio because of this bailout.

  4. WilliamOckham says:

    Yeah, and it’s too bad we don’t have a Cabinet department devoted to housing, the industry at the root of all this. Sure, we have something called Housing and Urban Development, but nobody takes it seriously. Even ew forgot about it. Not that I blame her, it’s completely worthless in a crisis like this. But in a sane world, it would be the lead agency.

      • emptywheel says:

        Took me a few keystrokes to find HUD’s mission:

        HUD’s mission is to increase homeownership, support community development and increase access to affordable housing free from discrimination. To fulfill this mission, HUD will embrace high standards of ethics, management and accountability and forge new partnerships–particularly with faith-based and community organizations–that leverage resources and improve HUD’s ability to be effective on the community level.

        Makes a lot of sense, at a basic level. But isn’t there, buried in HUD, a lot of assumptions about home-ownership that need to be rethought? Starting with the middle class housing tax deduction, which sets up a class-based housing system in this country. That’s just an impression,but definitely the impression I’ve got.

        • Peterr says:

          The big deduction on housing isn’t the taxes alone — it is also being able to deduct interest payments on your mortgage. This creates incentives to buy bigger and bigger houses with larger and larger loans.

          Suppose, however, that the home mortgage interest deduction and property tax deduction were capped: “We want to encourage and support home ownership, but those with the means to purchase a McMansion can do so without the help of the federal government.”

          • MsAnnaNOLA says:

            My engineer fiancee has run the numbers on the “deduction”. It does not even start to pay off for a big home you cannot afford.

            People always cite this as a reason to buy but it is bs. You should only buy if you are staying put for a while and your comperable rent would be more than buying + maintaining + insuring a home.

            With the prices where they are now it does not make sense in most places.

            The deduction seduces you to buy an asset that actually costs you money that you might otherwise have put to more productive use.

    • BooRadley says:

      Actually iirc, Sara (from TNH), mentioned HUD’s state offices, as a helpful resource. One of the dynamics of the bailout is that it subsidizes states like CA and FL with high foreclosure rates. IIRC, Sara saw HUD as a resource in all fifty states to confirm that pricing was appropriate for the neighborhood in that state. I’m sure I butchered Sara’s point pretty badly.

      • prostratedragon says:

        The regional Fed branches are also supposed to serve as that kind of local monitor on local lending conditions, housing markets, and business generally. Looking about the research that they publish on their websites would give one the impression that some of that kind of stuff actually does take place, though the extent and quality seem to vary among the branches.

        But if really good information on local lending, say, actually trickled up to the Board of Governors’ staff from branches like San Francisco or Atlanta in the early 00s, say, then surely the housing bubbles in those regions (Atlanta branch serves Florida) would not have been such a surprise.

        Very good and apt essay, EW. One thing about this insistence upon lurching from crisis to crisis in the economy is that the need to attend to a number of problems that are real, but probably solvable or ameliorable, is forever obscured. The current turn might be the one where those who think they are clever for being able to gin up and then ride out these essentially phony storms learn how steep a markdown their pelf takes when it doesn’t have a society to go along with it.

        As for scope, well, the whole point of Fed worship is that monetary policies supposedly don’t involve taxing and spending decisions or anything else that, under our constitution at any rate, forces one to have to act like a member of a polity. Like I said last paragraph …

  5. lemondloulou says:

    Couldn’t agree with you more. B & P are too myopic. Take a look at Mike Bloomberg’s interview with puppyface on MTP on Sunday. Now there’s somebody who has a grasp of the economy and government. Note too that Bloomberg is already requiring a 1.5 billion reduction in the NYC budget. He’s not wasting any time on this crisis.

  6. AlbertFall says:

    Why is there no talk about de-toxifying the underlying assets in the Big Shitpile?

    How about a homeowner equivalent to the GI Bill–Give US citizens who are looking for a mortgage for a primary residence (no vacation homes, 2d homes, investment properties) the right to get a $250k mortgage at a low interest rate (subject to meeting bona fide income adequacy tests), and the government would buy that paper as a conforming loan?

    Let all the homeowners re-fi the underlying paper in the Big Shitpile, and doesn’t that address the problem?

    That way, you have a potential future market for real estate as well, to get the residential market back on its feet.

    I am sure I am missing something, but what is it?

    • wmd1961 says:

      Refinance $250K? Nice idea, but conforming loans now can be as high as $417K, and in high cost areas as much as $625K.

      The current value of some of these homes will be less than the amount owed – the mortgage is underwater. What gives? do we taxpayers loan enough to pay off the existing mortgage in full, even though the house isn’t worth the amount loaned? IF so then the bank is making a profit off a poor business decision (speculating that house prices won’t decrease).

      probably this already was pointed out to you, I got here late.

  7. ralphbon says:

    FYI, Kevin Phillips gave a great interview on Moyers this past weekend, but this extended talk he gave last April, on the front end of his book tour for “Bad Money,” provides even more valuable and (at the time) prescient background.

  8. BoxTurtle says:

    [email protected]:

    What you’re missing is that your plan does NOT provide protection for the executives that got us into this mess. I doubt congress will sign on to a plan that takes money from their largest source of re-election money.

    Boxturtle (Gotta protect the parachutes, too)

      • FrankProbst says:

        I like mine better, because I think we can run more with it. Examples:

        They don’t even want us to tell them they actually have to spend the money on gas.

        Shouldn’t we be able to tell them what kind of gas to buy with OUR money?

        I’ll pay for the gas, but only if I get part-ownership of the bus.

        I’ll pay for the gas, but only if you arrest the bus driver.

        etc.

      • TLinGA says:

        Sports analogy:

        Football league fired the refs to attract more fans, but now they are asking for $700B to build a new stadium.

  9. yellowsnapdragon says:

    Thanks for the injection of common sense.

    Anyone who still believes in trickle down economics should not have a seat at the table. Time dump the old paradigm and work on this crisis from a perspective the keeps the interests of the people front and center.

  10. FrankProbst says:

    OT: When we’re done talking about serious issues (Rick Davis is getting a five-figure monthly check from Freddie Mac.), make sure we have time to talk about less serious ones (McCain’s chief-of-staff is gay. He was outed by several of his exes, all of whom were disgusted with McCain’s anti-gay positions and his choice of Palin as his running mate.).

  11. Neil says:

    Related topic

    The overwhelming responsibility for the crisis is the failure to regulate financial markets, and that is a failure of the Bush Administration. They sent very clear signals that they were in favor of deregulating the industry. All of three weeks ago, Mitt Romney said at the Republican convention that we should take a weed whacker to regulation. Two weeks ago, Governor Palin told Charles Gibson of ABC that her philosophy of economic policy was to “get government out of our hair.” A few months ago, ancient history by now, McCain said, “I’m a deregulator.” That’s been a consistent Republican theme.

    […]

    4. What should a bailout bill look like?

    Oversight and accountability have to be included. The Treasury sent up a non-starter of a proposition, which was plainly unconstitutional in saying that its own actions could not be reviewed by any agency or court. Congress needs to put in tough disclosure requirements. Any firm that sells its assets to the Treasury Department should be required to make full disclosure–if you get in bed with the government, the public has the right to know who you are and how you value your assets. And it’s vital to know the price the Treasury Department is paying for the assets, that the firms get some cash but not so much that they don’t have any losses. There also needs to be a “No Cheney” clause; Congress needs to have all the documents and information it asks for, and there needs to be a conflict-of-interest clause.

    Six Questions for James Galbraith on the Financial Crisis and the Bailout
    By Ken Silverstein, 9/24/8

  12. BayStateLibrul says:

    I don’t think the Cabinet even meets anymore.
    Bush is a failed executive officer.
    He hasn’t supervised his Cabinet.
    Shorter Bushie: just keep me “out of trouble”

        • Badwater says:

          Before, Daddy Bush always stepped in to fix things when his nitwit son screwed up. Now that it affects all of us, Daddy Bush is MIA. It seems he’s really not as honorable as he is commonly portrayed.

  13. wobblybits says:

    Just finished reading the altenative plan put out by the Republican Study Committee and all I can say is WTF?

    Capital gains tax suspension? huh?

  14. JGabriel says:

    MArcy, maybe it’s getting a little overplayed right now, but this article really should start with this quote from Bernie Sanders:

    If a company is too big to fail, it is too big to exist…

    After all, the whole post relates to Paulson’s and Bernanke’s incapability to either make that realization or act upon it.

    And I don’t mean that we should just let the financial system collapse, but that we should be getting controlling equity stakes in those companies that we rescue, and then breaking them up into more manageable assets that cannot threaten our economy again in this fashion.

    .

  15. Neil says:

    OT – STERLING HEIGHTS, Mich. — Hundreds of times in the past three weeks, cable television viewers here have been the exclusive audience for two of the roughest advertisements of the political season.

    One links Senator Barack Obama to the former mayor of Detroit, Kwame M. Kilpatrick, an African-American whose political career unraveled in scandal. The other features Mr. Obama’s former pastor, the Rev. Jeremiah A Wright Jr., also black, and his now infamous sermon marked by the words “God damn America.”

    Pinpoint Attacks Focus on Obama
    By JIM RUTENBERG, September 23, 2008

  16. PJEvans says:

    At the Big Orange, Hunter has a post on the GOP proposal to ‘fix’ things. They’re proposing eliminating the capital gains tax, because people shouldn’t have to pay CG taxes on investment losses, or something equal nonsensical.

    These guys really aren’t connecting to reality at all. (Headline this morning on an Los ANgeles area paper:

    Bernanke: Bailout or Recession

    I have some news for him; the recession’s been here for a while.)

  17. MsAnnaNOLA says:

    I have a question…the big investment banks were allowed by the SEC to “legally” leverage greater than the law allows of 12:1.

    Was this really legal? Can we prosecute the bureaucrat that decided to let them flaunt this rule?

  18. Angellight says:

    WALL STREET’s RECKONING!
    (Yet, it Took 10 Years to Raise MinWage $1.00)

    http://www.youtube.com/watch?v=S27yitK32ds

    “Rule one: Rush the decision. Time the game to fall in the week before Congress is set to adjourn and just 6 weeks before an historic election so your opponents will be preoccupied, pressured, distracted, and in a hurry.

    Rule two: Disarm the public through fear. Warn that the entire global financial system will collapse and the world will fall into another Great Depression. Control the media enough to ensure that the public will not notice this. Bailout will indebt them for generations, taking from them trillions of dollars they earned and deserve to keep.

    Rule three: Control the playing field and set the rules. Hide from the public and most of the Congress just who is arranging this deal. Communicate with the public through leaks to media insiders. Limit any open congressional hearings. Communicate with Congress via private teleconferencing calls. Heighten political anxiety by contacting each political party separately. Treat Members of Congress condescendingly, telling them that the matter is so complex that they must rely on those few insiders who really do know what’s going on!”

    (FYI: Republicans have blocked voting on bills by Dems for more oversight and regulation.)

  19. Frank33 says:

    Seems to me that Andrea Mitchell has a few conflicts of interests herself. Her husband helped engineer massive corporate fraud. She continues to conceal the true nature of this scandal, and that of her husband. She is not a journalist, but she is a corporate lobbyist, same as Rick Davis. Mitchell is a Liar, who is helping to give us SHOCK DOCTRINE.

    During Greenspan’s 1987-2005 tenure, the sum of public and private debt in the United States quadrupled from just over $10 trillion to $43 trillion. Finance became the industry that was not allowed to fail but was permitted to enlarge and metastasize its behavior almost at will.

    • Badwater says:

      Will he say

      “We got plenty of money in Washington. What we need is more priority.” –George W. Bush, Washington, D.C., June 2, 2008

      Or maybe

      “I’ll be long gone before some smart person ever figures out what happened inside this Oval Office.” –George W. Bush, Washington, D.C., May 12, 2008

      Or perhaps

      “It’s your money. You paid for it.” –George W Bush, LaCrosse, Wis., Oct. 18, 2000

    • Hugh says:

      Bush to address nation re: Bailout/economic crisis at 9 EST

      He will no doubt tell us that barndoors were left unbolted (using passive voice) but the barn is sound. No mention will be made of the absent horses.

  20. bigbrother says:

    American finance

    And then there were none
    Sep 24th 2008 | NEW YORK
    From Economist.com

    What the death of the investment bank means for Wall Street

    Dow is up 70 points…Paulson/Bernanke said no Monday Bailout and the markets would crumble…the lies are so thick you can cut them with a knife. There is no urgency…in fact big investors are coming in to buy hunks of the two remaning investment banks. It is up to the investors not the taxpayers.

    • LabDancer says:

      If you’ve been on Wall Street for any length of time since 9/11, all you know is that the Water Boy wants the Water Boy gets. I should think quite a large number of Masters of the Universe are proceeding on that basis. Betting on the ponies, investing in lottery tickets, whistling in the dark and jumping out of an upper floor window of the Chrysler building could also qualify as forms of ‘market activity’.

      I’m perfectly prepared to accept that any “urgency” in this situation is not materially different than it was in May, or than it is likely to be in May, 2009. Likewise I would accept that, everything else being equal, settling into the swing couch on the porch of your home in Galveston to finally take stab at reading A la recherche du temps perdu 72 hours before a hurricane is expected to arrive isn’t materially different than starting 60 hours before.

      That this crisis isn’t “urgent” in the sense of in any way justifying giving into the latest bums’ rush authorized by King Water Boy in no way disqualifies it as a crisis, indeed one no lesser than the 000second greatest on this president’s watch, indeed that of any president since at least as far back as Nixon.

      I’m even prepared to accept that this “could” all be left entirely to the market, because an awful lot of Republicans in Congress, and even some Democrats in Congress, as well as, given his dogged commitment to running his campaign on a platform of logical inconsistencies, rampant hypocrisy and blatant lies, Senator McCain, are just waiting to find out which way the Dems who “control” Congress go before committing to that talking point or some other. Not millions, but tens of millions of Americans would be victimized if that happens, but I’m pretty sure the McCampaign in particular, Republicans in general and “conservatives” in “principle” have figured that will affect Democrats more than Republicans.

      This post by Ms E Wheel is very much up in keeping wither both her typically higher-than-most-if-not-all standards in finding a big radioactive needle caught up in the hay even while its piling up at the side the road, but also opening up the larger notion of piling hay at all.

      This crisis is inevitable, and has been since…well this explains that part of it better than I can:
      http://www.nytimes.com/2008/09…..nted=print

      This crisis reaches past Friday, past November 4, past January 20, 2009, past the notion of perpetual economic growth, past the American dream, right to the issues as to the sustainability of our species on this planet.

  21. TheraP says:

    More info on “private debt” is here in an article from the Times:

    Studies Show Strain of Medical Bills

    Two studies released Wednesday morning provide further evidence of the toll health care is increasingly placing on working families, even for those who have health insurance. And as employees are paying more medical expenses out of their own pockets, they are having a harder time coming up with the money….

    While policy analysts acknowledge that finding any new money to expand coverage may prove difficult, some also say the terms of the debate may be changing as policy makers and the public rethink their positions on the need for regulation and the role of the government in industry — including the health care system….

    The studies, by the Kaiser Family Foundation and the Center for Studying Health System Change, were completed earlier this year before the financial markets reached their current state of crisis. But policy analysts say the findings underscore the mounting additional strain that medical care is placing on working Americans.

  22. Frank33 says:

    It is raining neo-con blondes, Andrea Greenspan and Nancy Photomat catapulting the propaganda. “Crisis! We can make Trash for Cash work.”

  23. dosido says:

    Interesting. Eliot Spitzer wrote a scathing opinion piece for Washington Post on Valentine’s Day this year and then look what happened to him. Basically Bush Admin would not let the states step in (where feds were turning a blind eye) to investigate predatory lending.

    hmmm.

    sorry I can’t link to the article (subscription only). I could only get peeks in between error messages…

  24. klynn says:

    Dems should not adjourn. Dems should exert “self-control” language in regards to forming the bailout. A lack of self-control got us here.

    Obama should urge his party to remain in Washington this afternoon/ ASAP. Your suggestion should be central to his call for attention on the economy.

    Interesting words from Jimmy Carter yesterday.

  25. rosalind says:

    mcjoan’s post over at kos gave me a sick deja vu: are we about to see FISA redux, with the insertion of immunity into any bail-out bill? legal cover for all financial bad actors in the name of protecting the country? can’t have the poor dears bogged down in legal proceedings, can we? nothing must detract from their patriotic duty of securing their own personal hides and wealth.

    uck.

  26. klynn says:

    I mentioned in the comments on Christy’s post that we need to come up with a proposal and fly it. This seems like a Strange Bedfellows moment to get the netroots and grassroots together on an important issue.

  27. bigbrother says:

    No bailout.
    This is a correction in the market that is long overdue and has been put off way too long by BushCo.
    No bailout or we will be bailing for two generations to cover gambling debts. The investment banks may be legally liable for the misrepresentation to their clients. Love to see their contact list of mooches.

  28. NelsonAlgren says:

    Did anyone see this from the Froomkin chat:

    Anonymous: Finally W has united us: The center, center right, center left, far right and far left are all mad as hell about this bailout

    Dan Froomkin: And yet, there are signs it will pass. What do you make of that?

  29. CalGeorge says:

    N.Y. Times: “Fed Chief Calls Rescue Delay a Threat to the Economy”

    Enough! The Bush Boys Who Cried Wolf cannot be trusted.

  30. TwinpeaksnikkiSF says:

    Off-topic but just saw a poll in which 40% think Plain is qualified to be president and 49% don’t. I didn’t think there were that many non-reality based voters in the US anymore. At any rate, at least 25% of those will realize she isn’t qualified by election time leaving the same 30% of diehard Bush supporters. The one caveat is the debate which I expect will expose her but realistically anything could happen.

  31. RoyalOak says:

    Good article on the bailout by David Littman, who was the lead economist for Comerica bank when it was based in Detroit. I’ve heard him speak several times and had a couple of conversations with him and found him to be very intelligent.

    http://detnews.com/apps/pbcs.d…../809240304

    • RoyalOak says:

      I meant to point out that the bottom line on this article is that we are really not at the brink of a precipice and to solve any problems the market has, the government must extricate itself from the market. Once it does that, things should work out.

    • mui1 says:

      In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks.

      Yep.

  32. posaune says:

    Peter @12 and ew:

    Yes, housing policy has long driven the mortage deduction subsidy. The weak earned income credit was supposed to help the renters, though. fat chance.

    BUT, the enormous change in the past 8 years, 6 years really, was the major restructuring of the housing development industry–linked to the commercial banking/investment banking Graham Bliley (sp?) changes. For generations, the housing industry operated on a local/regional model, the major change being assembly line construction introduced via Levittown in the 1950s. Even up to about 2002, local and regional builders dominated the overall industry. That changed enourmously with the consolidation/creation of nationally based home builders (Centex, NV, Pulte, Craftmark, Hovanian, etc.) who bought out the small builders and arm wrestled with local regulating bodies, planning boards, permitting departments, etc. Politics was everything. Quick approvals (yep, administrative sign offs), waivers of street standards, stormwater management, sheeting and shoring, hazardous materials abatements including PCBs, demolition permits, plat recordation, HOA covenants scamming, etc. Further industry changes allowed the builders to become finance arms (just like GMAC) hustling buyers into “discount” mortgages with the purchase of the kitchen upgrades, the premium vinyl siding, and the dog shower.
    And the regulators just looked the other way while the ceo’s stacked up the stock and traded in before the housing crash. One of the sadder losses, besides all the foreclosed families who overpaid for housing, is the loss of many many local builders who were part of 3-generation town businesses. I can name at least a dozen who gave up, almost in tears at what happened to their businesses.

  33. j.cro says:

    Just read this on Froomkin in regards to the economic crisis –
    “Paulson said he warned Bush in a meeting around the time he became Treasury secretary in July 2006.”

    Paulson and Bernake say the sky is falling and WE, the taxpayers, need our elected officials to act NOW NOW NOW to fix this problem.
    Why weren’t those two more forceful with Bush TWO YEARS AGO????

    I know the answer to my own question, but I had to put that out there.

    Good lord, could it get any worse?

    I REALLY REALLY REALLY hope our Congress and Senate do NOT cave on this one.
    I think I might throw up otherwise.

  34. CalGeorge says:

    “I sincerely believe that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.”

    ~ Thomas Jefferson

  35. PraedorAtrebates says:

    Thing is, though, the person who should be ensuring we situate this crisis in our larger economic weakness–the President–is totally unqualified to do so.

    I’m not willing to make this judgment until I hear whether or not Bush has ever seen Wall Street from a car, in person, or what have you. If he has seen Wall Street (even the street sign should be enough) then he IS qualified to deal with this.

  36. CalGeorge says:

    “A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain.”

    ~ Mark Twain

  37. mui1 says:

    Spencer Bachus (R-Alabama) says we the American people are blaming the messengers (Paulson and Bernanke). As if . . .

  38. earlofhuntingdon says:

    Republican Gubmints don’t work for those who elected them, they work for those who paid for their re-election, they work for business. If senior Gubmint officials admitted to looking at the economy’s structure, it might lead to informing a worryingly distracted public that, economically, they are looked on by Cheney’s passing motorcade like wretches standing in the rain inside a burnt-out bus shelter.

    Republicans cannot advocate taking a wider look at the economy. It would render meaningless their catechism that that isn’t something Gubmint is supposed to do, much less be good at. It shouldn’t record or analyze what it sees, or provide data for others to do so, because then it might decide it has the right, the power, the duty to do something about its abuses and excesses.

    Republican Gubmint’s job is to direct public wealth to private business. It is not to promote the general welfare, not to direct taxpayer funds to those who paid them, not to ”reward” those who don’t vote Republican, or, frankly, even most Republicans.

    Look at the wider economy? Cheney’s Bush has been working hard for nearly a decade to prevent government from doing that. It’s succeeded. We’ve had precious few discussions about the economy, about privatizing and outsourcing, about jobs exporting and corporation-subsidizing, about shutting down public-protecting regulators and rewriting regulations to sanction giveaways to the private sector. Look at the wider economy? You must be joking.

  39. DeadLast says:

    I work for a large publicly-traded economic consulting firm. We have PhDs running all over the place. Harvard, Yale, Stanford, Chicago, UCLA, Northwestern, Duke, Emory, Berkeley, and so on. We probably have a couple of Nobel winners on retainer. We offer services at a price of $200 to $700 per hour. I don’t see or hear anyone in our firm even trying to think how our firm could offer services to analyze this mess. I think the whole world is clueless, accept for maybe the Chinese who own or have options on all our machinery.

    Here are my novel ideas:
    1) ration gasoline to 90% of current consumption (it is forced savings and demand would drop, lessening our trade deficit)
    2) forgive 15% of all outstanding home loans and payment reduction with a government owned call at 7% interest for recapture of price appreciation.
    3) use that money to fund a bailout at a dollar for dollar participation.

    The solution has to be simple enough for everyone to understand and everyone then has the option to participate of not. Obama likes “the Nudge theory” so he should embrace it.

    If we need to do Shumer’s $150B bailout in the meantime while this gets put in place, great. That is the cost of buying time.

    But, damn it, those poor captains and colonels and general of finance will not get rich as quickly as their dreams had promised.

    • klynn says:

      We need more dialogue like this in order to hammer out a reasonable plan that many can embrace (Strange Bedfellows time folks) and send it off to the Obama and McCain campaigns as well as Dodd and our congress critters.

      Lets get our butts in gear netroots and hammer out a plan and go viral with it.