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The opportunity costs of Bush + Reid + Pelosi + Obama handing Hank Paulson that trillion for his golfing buddies

Interfluidity explains the costs so clearly that the post can't really be improved upon. So I'll guote the meat of it:

Suppose we pass the "Emergency Economic Stabilization Act of 2008", and a depression comes anyway, and we cannot raise taxes (blood, turnips, all of that), and we cannot borrow from abroad (because our paymasters have tired of us). Sure, the Federal Reserve will print money, because the debt must be paid and the government must continue, and in a depression many prices will fall regardless, but commodities and imports will grow dear. We will know then that we want to build factories, for all the televisions and computers that used to be cheap from Asia, but that can no longer be bought with debauched greenbacks. But we won't have the capital.

What will we say, in those dark days, when someone comes along and blames the bankers? It was the bankers, after all, who "intermediated" our vast current account deficit, who found ways of accepting goods and producing debt despite our incapacity to repay, and who enriched themselves by doing so. And then these self-same bankers threatened us with armageddon unless we paid them hundreds of billions of dollars, back when dollars could still buy steel and cement and machinery. We paid the ransom, but the hostage died anyway. How will Secretary Paulson answer their charge?

Suddenly we will realize the cost of putting expedience before even the thinnest veneer of justice. Because in the end, Secretary Paulson will answer these charges with a locked gate and an exception to the Posse Comitatus Act. An economic depression will bring temptations to violence and radicalism. And a lot of people will look back on this decade, right up to and through the "Emergency Economic Stabilization Act of 2008", and feel with some justice that they were royally screwed.

Now, in a deep downturn, scapegoats will be found no matter what. Maybe we really have nothing to lose by passing this badly flawed proposal, since it might prevent a depression and if not we're all toast anyway. But, you know what? While we still can borrow valuable dollars, we could use that 700B to build infrastructure that might make the economic facts of a depression less severe. And, if we insisted that the mighty bankers actually fall now, actually take the hit that their own ideology demands of them, that just might blunt the sense that we are "us" and "them", rather than a nation with a common struggle, when it all hits the fan. Maybe the choice we are really making here is not about financial and monetary arcana, but a choice between civic peace and civil war.

Obviously this is speculative, and alarmist, while the crises in the credit markets are acute, real, and tangible. But we really could nationalize failing banks before they take down the credit markets, while bailing out senior creditors. It has been done. The Federal Reserve or the Treasury could buy high quality commercial paper if the money markets go on strike. (That's much less risky than buying frozen mortgage assets.) We really could invest in productive infrastructure, rather than in claims on already built subdivisions. We do have other choices, besides starting the depression tomorrow or giving Secretary Paulson what he wants.

The Paulson Plan is now the easy out. It has a lot of momentum behind it. It feels safe. But it is not guaranteed to work even in the short run, and does not address the substance of our economic problems at all. Much of the public perceives the plan as at best a kind of ransom and at worst a kind of theft. The plan might buy us enough time to put our economic house in order, in which case it would have been well worth the cost. But if it doesn't work out that way, if the public is forced to swallow a bail-out that seems flamboyantly unjust and everything falls to pieces anyway, we will have painted ourselves into a very dark corner. In a genuine catastrophe, social cohesion matters more than anything. Surely, by now, we should have learned not to underestimate tail risk.

Now, I understand that the great, and even the great and the good, said "pass it now, and fix it later."

But why on earth would they believe that the fix, later, will come? Many believe that Our Betters are will soon demand more.

And I fear, as well, that Our Betters -- sequestered in their gated communities -- have already assessed the risks of a loss of social cohesion, and taken measures accordingly. Justice be damned.

Then again: Maginot Line. If that's where they think we are going to be, then indeed we need to be somewhere else. Ahimsa, ahimsa, ahimsa....

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badger's picture
Submitted by badger on

(we'll have the entire post pasted soon)

This is not a financial crisis about banks and commercial paper. It is not about the housing market. We are in an economic crisis, because America's productive capacity is deeply out of kilter with our habits of consumption. No amount of financial legerdemain can fix that. We have to actually produce the goods and services we want to consume, or else produce current goods and services that we can trade for what we consume. Relying on the mysteries of finance to square the circle has brought us low.

The American economy has largely become (paraphrasing a Mark Twain quote I can't find the source of) "two Irish women who made a precarious living taking in each other's washing". Think about that for a second, and ask yourself, "How do these women pay for soap or pay the water bill?"

The answer is that they have to continually liquidate whatever else they possess (until ultimately they have nothing), or else retain someone like Goldman, Sachs to securitize their laundry "businesses". In the end, the outcome is the same.

BDBlue's picture
Submitted by BDBlue on

Via Calculated Risk, a letter from Barbara Boxer explaining her "yes" vote. I found this passage particularly interesting:

For me, the deciding factor in my Yes vote was information I received from the State of California. I was told by the Treasurer's office that without access to credit, which is the goal of this legislation, California wouldn't be able to sell voter-approved highway, school, and water bonds that are desperately needed for our economy and the creation of good-paying new jobs. In addition, I was told by the Governor's office, that without action, our state might be forced to withhold funds for law enforcement, schools, and other needed services. This would bring our state to its knees and many middle-class families would be in deep trouble. Small businesses are beginning to tell me they cannot get lines of credit to meet payroll, as well.

Set aside whatever lie the Governator told her, it hadn't occurred to me that one of the ways the banks could inflict pain was on state and local governments. You don't give us our trillions (and that's what it's going to be), you don't get your infrastructure bonds and other credit. Or is this entirely wrong and Boxer is just bullshitting (or California is)?

Because this sounds like they had it set up to screw us either way - deny us access to credit for infrastructure bonds or deny us the assets to pay for infrastructure bonds by siphoning us dry.

Not that I'm excusing Boxer's vote, it's still awful. Because like any blackmail, it only gets worse, the blackmailer is never satisfied. Still an interesting aspect that I don't think I've seen mentioned or analyzed before is the pain the banks were threatening to inflict on States.

Submitted by lambert on


I meant to post on this letter, thanks for doing it.

[ ] Very tepidly voting for Obama [ ] ?????. [ ] Any mullah-sucking billionaire-teabagging torture-loving pus-encrusted spawn of Cthulhu, bless his (R) heart.

dr sardonicus's picture
Submitted by dr sardonicus on

The bankers are only trying to buy time for another 20-30 years. After they are dead and buried, they don't give a damn what happens.

...for the rest of us

dr sardonicus's picture
Submitted by dr sardonicus on

My figuring is that you have to be at least 50 in order to have any real juice on Wall Street, and that they don't give a shit about the future of those who will eventually replace them, any more than they give a shit about the future of anyone else.

...for the rest of us

Damon's picture
Submitted by Damon on

I heard something very similar, yesterday, but I'm so skeptical now, and after hearing that you heard this about the municipalities in your own state, I'm not sure if this is a legitimate scare, or something else manufactured to get the money/stop us from complaining.

The scary thing in all of this is that I'm beginning not even to believe people whom I'd formerly thought trustworthy.

I don't think Interfluidity is being alarmist in the least bit. If this huge-assed bail-out doesn't 'work' how will anyone ever trust their elected officials, again on anything? Forget the economy, for a minute; this goes so much deeper than that.

Submitted by jawbone on

who kept me sane during the Gore-Bush campaign and with much commentary afterwards, I wondered, "How's that nose-holding going so far, Paul?"

Today, I listened to a NJ Repub rep who voted against the Paulson Fix Is In, both times--and it was scary that he was making sense. But, given his past votes and actions, this is almost in the stopped-clock-right-twice-a-day category(unless on military time, when it's only right once a day). He said it was too much given to the wrong people for the wrong purposes and he'd hoped to slow things down enough to have hearings and investigate other options.

Now, agreeing with his kind of Repub is truly scary. And having previously dependable Dems leading the charge to give the Big Banker Boiz whatever they asked for via Paulson is astonishing.

Bizarro World.

(Reply to Damon @ 4:16 for those going chronologically.)

chicago dyke's picture
Submitted by chicago dyke on

and i'll make two points.

1. there's a reason why so much pressure has been applied, to keep organizing and social activism in the 'negative' category they have become in the minds of most americans. 1a = this includes the construction of what "good" social activism looks like, and explains why much effective activism has been tainted and poisoned, often from within, to the point where its frequently confused with narratives of apathy and ineffectual self-defeating violence.

2. the Our Betters in the piece are, above all else, not really that smart. bush is the best example of that, and if i can thank him for anything, it's for so publically illustrating that point. the 2b of this is that Our Betters, being not so bright and not so aware and informed, are guaranteed to fuck things up much more quickly than their magical number people tell them. i think 20 years is too long and generous a time frame.