House torpedoes bailout plan
September 29th, 2008 by RossputinThe House of Representatives defeated the Administration’s proposed bailout/buyout plan by 205-228.
In the few minutes after the vote, the Dow Jones Industrial Average fell 700 points. After attempting a recovery, it fell again in the last hour and closed on the biggest closing downticks (i.e. the size of the drop between the next to the last trade of the day and the last, closing, trade of the day) that I’ve seen in 21 years of trading, closing down 777 points. (It looked like it was down about 615 points a few minutes AFTER the bell rang!)
You can bet that the talking heads on TV, Democrats everywhere, and even some Republicans will try to blame House Republicans for putting politics over the well-being of the American public. But the truth is just the opposite.
The House Republicans understand that taxpayers are not as stupid as the rest of our government thinks. Yes, the average person may believe incorrectly that this is a bailout of Wall Street, which it isn’t. But he or she also knows that this is the biggest, most expensive expansion of the government into our economy since the New Deal.
In my view, despite what the market is doing now, the House Republicans are heroes…so far. It’s just a question of what gets done next.
My guess is that the House Republicans extract some substantial changes to the plan, making the outlay of taxpayer money smaller, and focusing more on rule and structural changes, trying to let the market work rather than just adding taxpayer money on top of a massive failure of GOVERNMENT, not of the market.
The Democrats have given us proof as to why this measure should not be passed. They tried to include funding for a corrupt socialist organization in the original bill. They tried to get money and power to unions indirectly that same way.
The Democrats sent 8 negotiators to a meeting with Paulson when he explicitly asked for two members of each party. The Republicans sent one Senator and one Representative.
In one of the most stupid moves of her political career, Nancy Pelosi called Republicans “unpatriotic” for not going to meetings when even a House Democrat said that House Republicans were not consulted enough in the process.
The House Republicans are heroes today. Now they must make sure to defend themselves against the slings and arrows of ignorant or biased (or most likely both) media reports and Democrat press conferences.
They will probably look to enact substantial changes in the bill, changes which will make the bailout smarter, smaller, more effective, and much better for America and Americans in the long run.
Congratulations to the House GOP for standing up against this massive increase in the size, cost, and intrusiveness of government.
September 30th, 2008 at 7:57 am
I guess it is too much to hope that there will be no bailout or “rescue plan”.
The thing should be allowed to fail naturally, and let the Free Market pick up the pieces. It will be less painful than a socialist recovery.
September 30th, 2008 at 8:00 am
I am glad that this bailout in its present for was defeated. Congratulation go to the courageous men from both parties who stood up to the real meaning of this bailout.
September 30th, 2008 at 8:54 am
why not suspend the ‘repatiotation tax’..so people can invest in america???
why not change the ‘mark to market???
why not try all these things before they let ‘BARNEY FRANK’ bend the american taxpayer over the barrel again
why dont some one get ‘him’ out in front of the camera
September 30th, 2008 at 10:21 am
Amen to paragraph four and I pray this oversight on the Dems part will secure the majority of seats in Congress this fall.
I fear however that the Republicans are not getting the facts out there effectively. It should not be “guilty until you can prove I lied.”
I believe a “fact sheet” comparing the two records would be way more effective then dozens of ads on TV. It should be set up “Issues with minimal summery of how it effects main streets wallet, McCains vote verses Obamas vote.” Simple and fits the fast food mentality of busy voters. Granted that only covers a fraction of McCains record as there are only three years to compare apples to apples. There are plenty of other venues to get the rest out there, the voters need to see how each candidates record will affect them.
I hear all the time “It would be kool to vote for Obama” but if you tell that same person the record of the Dems are higher taxes, meaning YOU go to school for 4-8 years to make a good living and they take 30% - to 50% of your check to give to those who “need” it.” Then you get a totally different attitude!
Now that is not partisan that is factual. How else will all of the government supported programs be paid for? They say “but you make so much you can afford it..”, “it’s patriotic…” but they totally ignore the fact that you WORKED for it and therefore EARNED it.
Need to flood the people with facts. Instead of allowing others to divert your attention with cries of “poor me” stay focused on the facts.
We need common sense back in our government. Real accountability and enough with the obsession with “party.”
This is about country. Neighbors. Voters. (don’t vote then don’t complain) We need to get out there and make our collective voices heard. Look what we the people just did with the market bill.
September 30th, 2008 at 12:01 pm
I am also glad the rescue bill was not approved in the House but for very different reasons than many of you have expressed here. It seems that this is a highly political blog, so the opinions on this matter so far have been very political (not unexpected), but this crisis is too serious and too imminent to waste time arguing with political arguments about an issue that is essentially technical in nature.
The rescue bill should be defeated, destroyed and eliminated every time it is presented to congress in its present form. Rewarding risky and idiotic behavior with tax payer money is anathema to Free Markets, begging for government help is just too humiliating for any serious capitalist out there, however it seems to be the name of the game now.
Instead of transferring $700 billion (we know that $1.1 trillion is more accurate) from the public into the pockets of credit derivative holders, we should address the real housing and credit problems that are happening in the real economy. The rescue package as worded is only helping the fantasy world created by Wall Street (through financial derivatives) that bears no impact into the real world of mortgages and housing.
I propose to let most (if not all) derivatives holders fail, and just rescue the instruments that are actually tied to real mortgages like, let’s see, the mortgages themselves! It is not that hard to find the holders of the real thing and help them out as opposed to helping anyone else that is holding a fictitious derivative on the same debt.
Common sense should be the prevailing thing here, political rants, well, they are fun to read, but the extreme oversimplification of the issues is sometimes painful to digest.
September 30th, 2008 at 9:42 pm
Leonardo,
You say that the political rants are fun but not too useful. I might make the same suggestion about your call to “let most (if not all) derivatives holders fail.
For someone who is implying that I don’t understand the issues, your comment is remarkably naive and dangerous.
The notional value of the derivatives out there on relevant debt instruments is so massive that if most or all of them failed, the financial catastrophe would make today’s problems look small.
You speak as if you’re trying to make an economic point, but your point is essentially political: You hate traders and investment banks and want to punish them in just the same way that some of us don’t like politicians.
Furthermore, the “bailout” money would not be going to derivative holders as you suggest, but to the holders of the primary debt instruments.
I oppose the bailout for lots of reasons, including some I’m sure we agree on, such as the fact that it’s anathema to free markets.
But please don’t offer the holier-than-though critique of something being a “rant” and then replace it with an erroneous rant of your own.
September 30th, 2008 at 11:29 pm
Greetings Rossputin, my comments were not directly related to your post but to the general position that FreedomWorks has taken around this issue. From your reply it seems you either did not understand my post or don’t understand the concepts at hand.
You said: “The notional value of the derivatives out there on relevant debt instruments is so massive that if most or all of them failed, the financial catastrophe would make today’s problems look small.”
So what ? Per definition, the notional value is just a fictitious number generated by some mathematical model and it is not connected *whatsoever* with the underlying debt that the security is representing. If you really understand derivatives I challenge you to prove me wrong and find a connection between the notional value of mortgage derivatives and the *real* world. You won’t be able to because pricing of those derivatives was never based on the real debt to begin with.
Also, are you implying that the amount of real troubled mortgage assets is at least $700 billion? If so the naive one here is you.
You said: “You speak as if you’re trying to make an economic point, but your point is essentially political: You hate traders and investment banks and want to punish them in just the same way that some of us don’t like politicians.”
I never said that (care to quote me?). Perhaps you don’t know my real positions because you are “new” here (at least to me). If you knew my background you would know that I am a free market advocate and that I don’t hate anyone, those moral imperatives don’t have a place in a technical discussion. The “idiots” that I referred to in my post were any investors that played the mortgage derivatives game, and as you may know, for each of those idiots there are several rational and intelligent investors, although towards the end of the bubble it seemed that even the smart ones were getting the “idiotic” disease.
The pure economical point that I am making is that for each dollar in a bad mortgage there are probably 10X dollars in derivatives that are in trouble (if not more, all depends on who performs the valuation). So bailing out everyone does not make any sense at all. I am all for the big boys playing big games with exotic instruments, but if they get burned let them fail, what is wrong with that ? How does that constitutes hatred of the whole sector?
You said: “Furthermore, the “bailout” money would not be going to derivative holders as you suggest, but to the holders of the primary debt instruments.”
Ah, the problem then is that you have not read the text of the bill. If you look at the section where “Trouble Assets” is defined, it is clear that everything is fair game. If you have a different version of the bill that clearly states that the money will only go to primary debt instruments I would love to see it. Just read sec 3.9.A and 3.9.B and let me know if you still think the same way.
Finally, if my “rant” as you call it is erroneous, please show me my mistakes, I would love to learn from them.
October 1st, 2008 at 1:54 pm
He can’t, Leo. In an earlier thread, Ross was actually trying to claim that our tax system was hopelessly too progressive. His evidence? The top 1% paid 40% of all income taxes collected, and the bottom 50% paid 3% of all income taxes collected. What he didn’t say, though, was that those same groups control 40% and 3% of the country’s wealth, respectively. Which means his evidence actually shows a flat tax system. He didn’t respond when I pointed that out. And earlier, when I patiently explained that tax systems are measured in terms of the percentage of income paid, not the percentage of revenues received, he tried to say that his analysis was “just as valid” as mine, even though mine was based on, you know, facts, and his was based on the ideology he wanted to pump up.
Dude’s a hack. Bring back Peter!
October 1st, 2008 at 6:57 pm
I can sympathize with free marketers like yourselves. I used to be one. But the facts are the facts. Soon, very many people, who had nothing to do with dumb loans or the unregulated shadow economy that grew out of securitizing them, will find themselves out of work. That’s NOT how free marketers present their ideal. If I don’t take the uneccessary risk I shouldn’t get burned. And yet that’s precisely what is and will continue to happen.
Now some of you will undoubtebly will state that we did not have a “free market” in the way Milton Freedman would have defined it. And that is why we’re in this mess. But that assumes we never tried it. And of course we have. From the founding of the country until the New Deal or if some of you want to quible, at least until the progressive era. Laissez-Faire was the order of the day and boom and bust were the results. We would have 5-7 years of huge growth followed by 1-2 years of depression, not recession, DEPRESSION. That is why we gave the Great Depression it’s name so we could easily differentiate it from the lesser depressions. In each huge numbers of people suffered not from their own action, but because of the excess risk taking of gilded age barons. Wealth had become concentrated in a few families hands so much it would have been difficult to tell the difference between and latin American oligarchies and the USA, had it been allowed to continue. We didn’t. And that’s a good thing.
The point is, wall street will not be the only ones suffering here. Main street is and will continue to suffer from the credit freeze they didn’t start. We don’t need Hooverites now. We need action. Your simplistic ideology is as flawed a communism. Ideologies like battle plans, don’t survive the first few minutes. Support the bailout bill.
October 2nd, 2008 at 6:30 am
“Yes, the average person may believe incorrectly that this is a bailout of Wall Street, which it isn’t.”
So who cares huh?? We’ll exploit that ignorance to the nth degree to further our own Right-wing aims eh?? So much for “Country First”…
“They tried to include funding for a corrupt socialist organization in the original bill. They tried to get money and power to unions indirectly that same way.”
Huh??
“I pray this oversight on the Dems part will secure the majority of seats in Congress this fall.”
The Dems will be gaining seats in Congress this fall…almost nothing can stop that at this point.
“the voters need to see how each candidates record will affect them.
I hear all the time ‘It would be kool to vote for Obama’ but if you tell that same person the record of the Dems are higher taxes”
…on the rich. I agree that the candidate’s records are important, and McSame’s has almost always been for LESS regulation, not more:
http://www.youtube.com/watch?v=C4egXbhSOhk
“How else will all of the government supported programs be paid for?”
Well, if you’re in the GOP, they will apparently NEVER be paid for because their mantra is “borrow & spend”.
“‘it’s patriotic…’”
…which is EXACTLY the same kind of rhetoric that McSame used when he orginally opposed the Bush tax cuts “during a time of war”.
“Real accountability and enough with the obsession with ‘party.’”
So much for rooting for a GOP victory this fall eh??
“In each huge numbers of people suffered not from their own action, but because of the excess risk taking of gilded age barons.”
Exactly…a return to the days of the Robber Barons is NOT what America needs. I also don’t think that we can rationally turn back the interconnections of the global economy though. We’re all in this together.
October 2nd, 2008 at 12:20 pm
Now that the Senate has passed the 700 billon bailout has McCains destiny been sealed?
October 3rd, 2008 at 6:48 pm
Well, neither candidate can run away from the rescue plan now…they both voted for it.