Tag Archives: Bush-Pelosi

Thoughts on the Bail-Out

The Bush-Pelosi bail-out passed the House on it second try, its cost now swollen from $700 billion to $850 billion.

The Democratic Party confirmed its status as run by limosine liberals — an upper/lower class alliance against the American middle class

The Republican Party confirmed its status as being run by idiots. While most House Republicans still voted against the Wall Street Bailout, the Republican leadership did everything possible to conflate the economic mismanagement of Democrats with the economic mismanagement of the GOP.

John McCain foolish suspended his campaign to support the bankrupt Bush line, and worked as hard as he could to undermine the House Republicans.

Barack Obama dutifully followed his Party’s leadership in its attempt to nationalize as much real property in the country as possible.

The Republicans demonstrated no ability to handle a complex economic crisis.

The Democrats demonstrated their known ability to manipulate markets, wreck important institutions, and hurt the country.

Whatever the specific fates of the Wall Street firms and their Washington men, it’s hard to think that the US financial system is not irreparably wrecked. What we had before is unlikely to come back. The executive branch sees as its purpose protecting investors from risk, and the legislative branch apparently has ignored the lessons of the 1990s and regressed to economic policies that would be familiar to Adlai Stevenson.

That all said, the candidate with the best economic policies at this point appears to be Barack Obama — prsuming he is lying on international trade, the capital gains tax, and so on. The lack of national health insurance means that the U.S. is the only industrialized country where losing your job means losing your health insurance: this is a systemic break on free trade and creative destruction.

Smoking gun: The Affirmative Action Financial Crisis

It’s really sickening how big-government liberals can create a problem, and then demand a big-government solution like the Bush-Pelosi bailout:

Half Sigma: Smoking gun article: liberals, Democrats, poor people and non-Asian minorities caused financial crisis
A conservative warns of the problem, but he is ignored by Democrats because Democrats and liberals know that the conservative is motivated by racism.

The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.

It’s all clear…

Banks should have been smart enough to recognize that pro-“diversity” laws, rules, regulations, Congressional hearings, and the like were going to lead to the liquidity crisis, and tried to lobby against it as hard as they could.

The Bailout: Liquidation and Subsidy

The Bush-Pelosi Bailout has two components: first, a liquidation (Secretary Paulson implied that this is the only purpose of the bailout), and a subsidy (CNBC has been focusing on the need for this portion). The liquidation is an attempt to replace the value of subprimes which cannot be sold at today’s prices with cash nominally worth the same, but much more liquid. The subsidy is an attempt to raise the value of those subprime mortgages, so that banks do not have to pay (“lost wealth because of”) their bad investments.

The politicians have been silent on this distinction, and most of the pro-bailout members of the chattering class have simply ignored it. Some more thoughts on the bailout, focusing especially on the subsidy:

The Corner on National Review Online
2) The Paulson-Democrat Wall Street Bailout will not work

· Banks are highly insolvent and the capital hole to be filled would not be filled by this plan – and any attempts to do so under this plan would drive up the cost of the “toxic asset” purchases (see next point)

· The supposed “profit” or “minimal cost to the taxpayer” is predicated on buying toxic assets low and selling them high – yet that inherently conflicts with the price point necessary to inject sufficient capital

· But even when prices are bid up (because Treasury is incentivized to do so to make it work), there is no guarantee banks will use the money to then lend if they are still insolvent and facing a likely recession

· This bill does nothing to deal with the over $60 trillion in largely unregulated Credit Default Swaps that are wreaking havoc with the financial system

· The plan is operationally questionable – with little clarity about dealing with the pitfalls of price-fixing, how a “reverse auction” won’t be easily manipulated to allow prices to get bid up, and other problems

And:

The plan has no restrictions on buying up assets from foreign banks – banks who aren’t active lenders in U.S. markets directly and whose leverage is far greater (40x) than even American traditional investment banks (25x), whose leverage is greater than American commercial banks (10-15x).

· Moreover, many of these foreign banks are currently being or are soon to be nationalized. Therefore, the US government would be buying toxic assets at above market prices to support foreign governments.

Now, it may be wise to spend 700 billion something to help the economy. Universal health care for ten years, two complete interstate maglev systems, or using some of the money to eminent domain the subprimes at domain prices, while using the rest to pay down the debt (that is, not increase the debt). This is a serious issue, and we need an honest debate on it to come up with ideas.

The National People’s Congress considers the Bush-Pelosi Plan

China’s legislative arm is the “National People’s Congress,” a rubber-stamp boddy where votes are routinely 99.9% for the Communist Party’s proposal, and .1% abstaining.

The debate of the Bush-Pelosi Wall Street Bailout seems to be following this line.

As I am watching now, a Democrat spoke about what a great plan the bail-out was. The Republican response… was how great the bail-out plan is.

At least the USA PATRIOT Act was focused on killing people who did bad, instead of transfering hundreds of billions of dollars to them.

Second Order Effects, or, The need to estimate the Death Toll of the Bush-Pelosi Bailout (EESA-2008)

The Bush-Pelosi Bailout, or the Emergency Economic Stabilization Act of 2008, is as expensive as several major wars. Wars are conventionally measured in relative death toll. It may be wise ot measure the Bush-Pelosi bailout the same way.

CNBC this morning informs us the government “does not want to” pay market prices for the subprime properties, that there is “no way” the government will recoup its losses, and so on. If true, this means that the Bush-Pelosi Bailout will be an ‘investment’ in the way that Head Start, welfare, and other government giveaways are ‘investments’ — the plan is foolish, but at least it’s somewhat better than simply burning piles of cash to heat the Congress.

What are the second order effects of this bailout. If Wall Street crashes, and ambitious young people give up on a career in Wall Street and instead focus on engineering, computer science, nursing, research, lives may be saved. On the other hand, if ambitious young people seek to maximize their profits by working in highly-profitable but risk-protected Wall Street firms, the cleverness will flow away from those fields.

How much money is going to be lost? What else can be bought with that amount of money?

Which alternative keeps more people alive?

The Detroit Bailout

Compared to the Bush-Pelosi Wall Street Bailout, which is twenty-eight times more expensive, the Bush-Pelosi Detroit Bailout is downright fiscally prudent!

US Congress passes 25 bln loan guarantees to automakers
The US Senate Saturday approved 25 billion dollars in loan guarantees for the financially strapped US auto industry, intended to spark a wave of automotive innovation.

The loan guarantees were included in a continuing resolution that included funding for the US government and the wars in Iraq and Afghanistan.

The Detroit Bailout is a companion to McCain’s gas tax holiday, Obama’s energy tax credit, and other such give-aways. Obama is right to say that the price of gas should be high, but it went up too fast. Industries did not have the time to adjust, because we did not implement my plan in time.

The loan guarantees to Detroit will help speed development of high-tech ways to minimize gas consumption. Or at least, they better.