Bailout or Handout?

The Senate has passed a bailout bill and now that hot potato is in the hands of the house. That Monday’s version only received 60% of Democrat and 40% of Republican votes in the house tells me it was a REALLY BAD piece of work. Why Nancy Pelosi brought it to the floor without the votes to pass is a mystery. Only eleven minds need to be changed in the house, so it’s probably a done deal.

And now the feeding frenzy begins.

Because, humble taxpayer, there are 700,000,000,000 dollars up for grabs and every special interest has their hands out. Those same Senators who stood there during last night’s press conference praising each other after the fashion of actors making academy award speeches, and almost every house member, are going to be digging into that candy jar to spread around as much as they can to those special interests.

You should all have some empathy for weak men in prison, because you’ve just been sodomized, it’s going to continue for a while, there’s not a damn thing you can do about it because the alternative is much worse, and you may still wind up doomed anyway.

Post to Twitter Post to Facebook Post to LinkedIn Post to Reddit

Posted by at 06:00 | Posted in Measure 37 | 20 Comments |Email This Post Email This Post |Print This Post Print This Post
  • Rupert in Springfield

    I think most people understand this is a government created problem even if they don’t understand every aspect involved. The politics of this thing speak to the fact that whatever money is spent now will be flushed down a rat hole. That ACORN was added to the bill in the first round is testament to the kleptocracy in Washington. This bailout is worthless and frankly doing nothing is might be a far better option. Im not sure Im on that boat entirely, but I am getting their rapidly.

    What would happen if we did nothing?

    Well, a bunch of large entities, such as foreign governments large mutual funds etc. would get hit very hard. The mortgage backed securities they have bought have been devalued, sometimes to the point of worthlessness.

    Why? Well, because the government screwed them by screwing up the mortgage system, chiefly through the CRA.

    OK so, what’s so bad about all these entities having their investments go south?

    Well, that’s how we pay for things here. They buy these securities, so, more money in the system, that increases credit availability, business can proceed. If these entities get screwed, they will be leery of investing, less money goes around, credit tightens, they economy goes into recession.

    Would that be a bad thing?

    I don’t know, frankly I think maybe it would. Imagine the possibilities:

    A recession is not pleasant. People would have time to understand this issue and understand just how badly their government had screwed them over. I think that might not be a bad thing in the long run. I think a recession would have a focusing effect in that blame would be focused in time and place, whereas a bailout simply puts our mistake on our children’s backs and diffuses the problem. It is not the responsible thing to do. People would see that while government is necessary in some things, its involvement in all things brings nothing but disaster. That’s where we are now.

    We can decide to have a recession now, or later, whether one will occur or not is not the question. The tax rate our children are rapidly being saddled with due to our spending will make generation long recessions inevitable. We are about to add something like 8% to the national debt with this bill. This already on top of the prescription drug plan and the Iraq war will make the Bush presidency if not rivaling, at least in the same ball park as some of our most spendthrift Democrats who have been in the White House.

    I would think that considering the “National Debt Clock” in NYC just ran out of digits and flipped over, we might consider reigning in our spending. It might be nice if our scientific minds were working on calculating and making the public aware of just what sort of tax rate their children can expect to pay rather than to what tenth of a degree they think temperatures might rise unless everyone gives their money to Al Gore. My kids should be concerned that it is very likely they will work under essentially slave labor conditions (100% tax rate is the same thing as slavery, I consider 80% tax rate, which I think is the projection for them to not be slavery, but maybe forced labor camp conditions) in their adulthood. I would much rather their fears be well placed there, rather than being fixated on a tenth of a degree temperature rise as they are now.

  • Provo Nova

    Are you sure you think this is a government created problem. I mean it was banks that did predatory lending, it was banks that had funny books, it was banks that leveraged too much. Maybe we need more regulation, not less?

  • John Fairplay

    Provo – yes, it was government created. Banks don’t make loans to people who demonstrably can’t afford to repay them. They were forced to make the loans by an Act of Congress – the Community Reinvestment Act (explained here http://www.victoriataft.com/2008/09/mortgage-industry-collapse-explained.html – it’s a Democrat bill). Further, the financial shenanigans at Fannie Mae & Freddie Mac (the federal housing lenders) were perpetrated under folks like Franklin Raines, a Clinton cronie, who destroyed his agency’s financial position and walked away with millions. Efforts to invesigate and/or regulate these two entities were stonewalled by Democrats (see that here http://www.victoriataft.com/2008/09/you-heard-it-on-hannity-and-taft-see-it.html).

    • Charlie L

      I believe the rules of this site do not allow you to use victoriataft.com as a source for information. I know that when I used a politically-slanted source I was told it was unacceptible and “left wing agitprop” or some such BS.

      Just think we should keep the rules consistent, and I’m sure you do too. 🙂

  • Provo Nova

    Bansk made a lot of loans to people they shouldn’t have, not just because of government pressure. These bansk saw money in people who flipped houses, and knew they were engaging in risky behavior.

  • Rupert in Springfield

    The CRA is the nexus of a huge segment of the problem. Government did pressure banks and that is a major component of this.

    However, there certainly were banks who also did lend under some very bad practices of their own creation.

    Whatever percentage that second group is is somewhat irrelevant to the bailout, which is not a solution to the problem, merely a remedy.

    The solution lies in decreased regulation from the government in the form of elimination of the CRA, and holding those government officials accountable who exerted this pressure. It also lies in letting the second group of banks clean up their own mess. Government needs to regulate to the extent of assuring solvency in the financial sector with things like bank holding requirements etc. Government does not need to regulate in terms of pressuring banks to make loans to favoured political groups.

    That said, even if one accepted your premise that this was all due to banks acting irresponsibly, then I see even less need to bail them out.

    As for those who got pressured into taking out loans to flip houses, let them rot. The last time I checked no one put a gun to your head and said “you get into the real estate market and start flipping houses or Ill kill you, and your little dog too”.

    Gee, so granny got greedy and thought she could start flipping condo’s next to hers down in Sarasota? Too bad, better look for dog food on sale granny. I see no less greed on her part than on the banks part and I certainly see no compelling reason why I should make her whole. Flipping houses is the exact same thing as being in the commodities market. Its leveraged buying except you can only take, you cant lay, points. If you want to play with the big boys, be a big boy when you lose.

    Oh wow, so you just got your first home on a sweetheart deal and now you are going to lose it? Get lost. Even if I buy your argument that the banks pressured you with some crazy zany loan deal I still don’t care. Your an adult, act like one. And don’t expect me to feel too sorry for you because odds are you had just about zero money as a down payment so you aren’t losing a thing here.

  • Steve Plunk

    Provo Nova asks the right questions but I see Rupert and John answer those question nicely. It is without a doubt a government caused problem.

    One of the simple solutions to this mess has been a change in the ‘mark to market’ rules for valuation of the mortgage backed securities or MBS. Under the old rules any MBS must be valued at whatever the going market price is. In an uncertain market or a panicked market that value would well below a realistic figure. If a bank or financial institution lowered those values it could find itself below capitalization requirements and essentially bankrupt. This is precisely what has happened.

    The SEC has announced a change in the rules for valuation and allowed other methods to be used. This has relieved the pressure in the banks and will allow a more orderly disposal or retention of the MBS. All of this at no expense to the taxpayer.

    MBS can and do have real value. Fire sale prices have not only put everyone in a panic but it has created a situation where some people will make huge sums of money at the expense of others. Sometimes those others are us. Our mutual fund managers may be spooked enough to be dumping these investments even though they have value.

    The simple lesson we can all learn here is one of patience and calm. Our government can learn a lesson of doing something sooner rather than later. That’s why this crisis is upon us today.

    • dean

      Steve…there is just no evidence that CRA caused the bubble and subsequent meltdown. To repeat….CRA has been around since Carter. If it was going to cause banks to make so many bad loans they would fail, it would have done so long ago. You need a correlation to have a causation, and you don;t even have a correlation in this case.

      It is so hard for free market believers to accept that this was a market failure. It had to be the government, because you just know governemnt is bad. So you look for any shred of evidence, and of course it is there, because government is involved in markets. Always has been, always will be. I’m sure the Dutch government had something to do with the tulip bubble in teh 16th century. But investment bubbles are a natural occurance of capitalism. They will happen, and the less government regulation we have, the more they will happen, because regulation provides the ballast that keeps the ship of state steady during rough seas. In calm seas, no ballast is needed.

      How many of you conservatives want to step up and argue that the government should drop its FDIC deposit insurance? Isn’t that a market interfearance? Of course it is, but right now it is just about the only thing preventing a total bank run. We need government. Deal with that.

      As for mark to market, what you are suggesting is that banks be allowed to lie about the true value of their holdings. Is that really the best way forward?

      The simple lesson I’ve learned is that we need people in charge of governement who look out for the greater good, and that greater good is not necessarily found on Wall Street.

      • davidg

        Market failure? Actually, nothing has happened yet. Yes, the president, the treasury secretary, and the head of the federal reserve are running around like Chicken Little saying that the sky will fall. But nothing of the sort has happened yet.

        The market hasn’t failed at all. The market “says” that if some people make bad investments, they should bear the consequences. That seems to be an impending consequence for some otherwise wealthy people. But, the government, which you think looks out for the greater good, has decided that Wall Street should not bear the consequences of its mistakes. That is not a market failure, that is a government failure.

        Wall Street and its allies in government want us to believe that its losses will affect us all. Well, their solution will certainly affect us all, but there is no indication yet that their losses will have any effect the rest of us.

        It’s amazing how so few people have so swiftly stampeded so many into thinking that a catastrophe has happened. It hasn’t.

      • Steve Plunk

        Dean,

        The CRA was the first step in a decades long attempt by the federal government to increase home ownership rates. That goal in itself is a worthy goal but the government later pushed too hard through Fannie Mae and Freddi Mac. That hard push created the sub prime market and at one point Fannie’s mortgage purchases were over 40% sub prime. The CRA was the enabling legislation. That my good friend is evidence of the CRA’s responsibility. A good deal of legislative unintended consequences come years after passage and after other influences come together. You can have causation without immediate correlation.

        This is not a free market failure. There is no doubt the mismanagement of Fannie and Freddie soured the entire mortgage market and to some degree led to the housing bubble itself. You can’t pump that much money into housing and not expect prices to rise. The bubble was clearly inflated to a large degree by government agencies.

        The FDIC is an insurance administered by the government but funded by the banks and ultimately depositors. It has one goal of insuring deposits and has performed well. That is not market interference.

        You need to fully understand accounting and mark to market valuations. No one is telling lies. In fact mark to market rules create lies. Those securities can be valued a number of ways that are fair and accurate. Many supply a steady cash flow and have little risk of foreclosures but the panic in the market leaves no buyers and hence no mark to market value.

        Lastly I agree we need good people in government but we’ve hoping for too long. Barney Frank pushed Fannie and Freddie then lied about their health. Senator Dodd received sweetheart loans from Countrywide. The corruption is a soft corruption that infects all of Washington and now we can’t tell the sick from the healthy. On Wall Street we know the score and can play the game with no pretense of self sacrifice. The honesty of trying to make a buck is refreshing after watching our Congress work through this mess.

        • dean

          Steve, you skipped over the various Homestead Acts and the GI Bill, also intended to increase land and home owhership and spread it down to the working classes. And the deduction for home interest, which extends to second, third, and possibly 8th homes. So why pick on the CRA? As I understand it, was simply to stop banks from red lining poor neighborhoods and communities (before CRA no loans were given in some areas no matter how qualified one might be).

          Point is, the government has been favoring home ownership for a very long time. CRA is a small bit of a big picture.

          And, Fannie and Freddie were private entities funded entirely by private capital. If they made financial decisions to invest in subprimes, that was on those investors and decision makers, not on Barney Frank.

          Look…if it had not been the housing bubble it would have been (and will be) a different bubble. Capitalism creates bubbles. Those bubbles go pop. (The next one will be energy related). To the extent you eliminate or water down government oversight, you increase the chance of bubbles occuring and enlarging. If we fail to re-learn that lesson, shame on us.

          If an asset has no value, then why should a bank be able to claim that it does have value? If a bank can show that it is income generating, then it has value to someone. I can claim my 85 VW camper has all sorts of value, but the only real value it has to others is established when someone writes me a check for some amount. Failing that I can use the sale of similar campers to establish its value. Mark to market is basic accounting, not some government nonsense. And did n;t we just experience a meltdown in several large accounting firms when they conspired to over value enron’s assetts a few years ago? Have we forgotten that episode already?

          • Steve Plunk

            Dean,

            Mark to market is not basic accounting. Fannie and Freddie were not private companies. I never spoke against the worthy idea of high home ownership, I pointed out out the CRA was abused and started this problem years ago. You have to be careful about misstating facts.

      • Steve Buckstein

        Dean asks, “How many of you conservatives want to step up and argue that the government should drop its FDIC deposit insurance?”

        I have argued in the past, and likely will argue in the future, that FDIC deposit insurance is more a part of the problem that a part of the solution in the financial system. It encourages people to take less care in choosing where to invest their hard earned money.

        I’m not making that case right now because the system is probably too fragile at the moment to take that additional “shock.” I simply believe that if the government had not insured deposits all these years the current crisis would either be less severe or wouldn’t exist at all.

        Private deposit insurance is fine, just don’t ask the government to socialize all risk up to $100,000 or $250,000.

        • dean

          Diogenes can rest. Thanks Steve.

          • cc

            “As I understand it, was simply to stop banks from red lining poor neighborhoods and communities (before CRA no loans were given in some areas no matter how qualified one might be).”

            no loans?

            is that a fact – or just more self-serving BS?

            Where are you on this deanie? SHOULD the banks have made loans to people who couldn’t possibly pay them back, or not? Is “red-lining” based on facts, perhaps? I’d think you’d be conflicted if I thought you really cared.

            You don’t, though, except insofar as it suits your red herring argument du jour.

            “Diogenes can rest. Thanks Steve.”

            As if you have any credibility as a judge of honesty…

            …or anything else.

          • dean

            I’m not the expert on this subject, but those who are say the answer is yes it is a historical fact that some neighborhoods were entirely “redlined,” and no mortgage loans were written in them whatsoever. Insurance companies also redlined, and supermarket chains still do. In some cases the practice was directed at entire racial groups, primarily blacks and hispanics, who were denied mortgages or charged higher rates simply due to their ethnicity, regardless of where they wanted a mortgage. Read your history cc. Did you also sleep through the whole Jim Crow period, when minorities could not even vote in a number of states, could not eat at the lunch counter, could not attend public universities, and so forth? Given this history, why is mere denial of mortgage loans in black neighborhods such a surprise to you?

            Come to think of it, my own family redlined. We would not deliver pizzas to black neighborhoods that were nearer our store than white neighborhoods in Chicago. Maybe we need a PRA to go along with the CRA. And yes….my family was racist to the core.

            My answer is no, banks should not loan to people who lack the means to pay back the loan. Its not prudent. And the truth is, the government did not force them to loan money to those who could not pay the loans back. They did this all on their own. What the government did do was tell the banks to play fair, and to consider multiple sources of income, among other things.

            I lack credibility with you? What a surprise.

  • Rupert in Springfield

    Dean, would you just drop it with this BS about the CRA?

    Unless you have direct correlation in time you have no causation? You are lucky you are not a scientist, youd be out in a second.

    Look, figure it out, if you lower standards and the market remains up, nothing happens, if the market or the economy goes south, that’s when you have problems.

    You simply need to deal with the fact that your claim that unless there is a direct time correlation then CRA has no relevance is BS.

    Ill tell you what, if you really believe this nonsense, then take up smoking, smoke three packs a day and then quit when you are 50. Gee, when you get lung cancer at 60, do you think it might be the cigs?

    Or how about this, SS was passed decades ago. So was Medicare. I guess they aren’t costing us any more then than when they were passed. I guess there is no deficit due to them, because a deficit could only be produced by something that occurred the exact year the deficit changed.

    Give it up, even Clinton doesn’t agree with you on this one, and he is the king of excusing himself.

    • dean

      Its the math Rupert. There were not enough loans made through CRA to cause the bubble. The vast majority of bad loans were made through institutions other than banks and S&Ls subject to CRA requirements. That plus the long….long….long time lag between CRA being created and the bubble.

      Social Security and Medicare are programs that are gradually costing more than what is coming in, yes. But I don’t see the connection here between those programs and CRA. Are you suggesting that loans under CRA increased due to demographic changes, like more poor people?

      You keep saying Clinton disagrees with me, but you don’t cite where he disagrees. And anyway, since when have you believed anything he has ever said?

      Maybe CRA was a small part of the problem. Any program that increased acces to loans would by definition be part of the issue after all. But you ar arguing primary cause. I’m saying it was peanuts.

      • dean

        For anyone reasonably open minded on this subject, you might take a look at a book called Chain of Blame. It was written by investigative journalists who followed the housing bubble start to finish.

        http://www.chainofblame.com/

        I have not read the book yet, just some reviews and interviews with the authors, but they make it crystal clear that this was a Wall Street driven fiasco from day one. Wall Street invesment banks found a way to bypass conventional banks, worked through contract mortgage brokers, wrote paper on anyone who could breathe, packaged that up in bonds and resold them, and made money every step of the way. Fannie and Freddie were very late into the game, and the CRA had zero to do with this because the subprime loans almost all originated with lending institutions that had no deposits, thus no CRA responsibilities.

        It was a Ponzi scheme dependent on ever rising home values. Not sustainable. Duh.

  • Dan Meek

    David Wu (D) switched his vote on the bailout from no to yes. Joel Haugen (I), his major opponent, issued this press release on Friday, October 2, expressing his opposition to the bailout:

    FOR IMMEDIATE RELEASE: HAUGEN APPLAUDS DEFAZIO’S OPPOSITION TO BAILOUT

    OCT 3 – SCAPPOOSE – First District congressional candidate Joel Haugen today released a statement applauding 4th District Representative Peter DeFazio’s condemnation of the House bailout bill. Haugen’s opponent, Democratic incumbent David Wu, voted for today’s bailout bill.

    “Congressman Peter DeFazio is spot on with his vote today to oppose this plan. I agree wholeheartedly with the proposal made by DeFazio, who states that we should legislate a small (e.g. 1/4%) surcharge or transaction fee on all securities transactions including money market and bond transactions to pay as a loan to the respective entities for these financial bailouts. I also suggest that once profitable again, these firms should have a liability to repay these loans with proceeds dedicated to paying down our national debt.”

    Not one to mince words, Haugen continued by suggesting voters consider the all important question: “If the election was not a month away, do you think that Congress would be in such a rush on the bailout bill?” Haugen also questions the plan’s viability based on Paulson’s fitness to construct it, asking, “Given the performance to date of the Bush Administration on a whole range of issues, and the fact that the chief architect of the bailout is Secretary Henry Paulson, the recent CEO of the now failed Goldman Sachs where he resided for 24 years before becoming its chief executive, is he really the guy you want as quarterback for this crisis?” Pragmatic Haugen sums up government’s response nicely with an all too familiar saying. “If the old adage ‘haste makes waste’ holds true, we are in for the mother of all taxpayer waste.”

    For more information on Joel Haugen, please visit http://www.joelhaugenforcongress.com, or contact Sarah at 503-960-5741 or [email protected].

    Contact:
    Sarah Tiedemann, Campaign Manager
    Joel Haugen for Congress
    503/960-5741
    [email protected]
    http://www.joelhaugenforcongress.com

Stay Tuned...

Stay up to date with the latest political news and commentary from Oregon Catalyst through daily email updates:

Prefer another subscription option? Subscribe to our RSS Feed, become a fan on Facebook, or follow us on Twitter.

Twitter Facebook

No Thanks (close this box)