Government Handout; now Government Handshake
By Johnny Roosh
The markets appear poised to take a breather today as the hysteria subsides (update: ok, maybe not) if only for a moment. The bailout has passed but has not been implemented; it’s effect limited to the psychological benefit to those who value short-term fixes for long-term issues.
In her post-debate analysis of the Presidential debate, Nina Easton of Fortune magazine dramatically called the end of the conservative movement.
“We’re witnessing tonight something quite profound and that was the sinking ship of free-market Republicans keel over, groan, and fall to the bottom of the sea. John McCain, without much notice, proposed a $300 billion dollar plan to nationalize home mortgages…”
Her dramatic punditry was triggered by John McCain’s proposed plan to spend $300 Billion of the bailout kitty on buying down under-water mortgages. I’m not sure if McCain planned this or if it came to him during the debate, but let’s be clear on a couple things today.
First of all, if this action is required to rescue our financial system and preserve what’s left of our economy, let’s not confuse the medicine with the disease. We face unprecedented (at least in modern times) financial challenges that require the consideration of “all of the above”.
If some of these bailout dollars are to be used to acquire appreciating assets, taxpayers can cross their fingers and at least retain some hope of being paid back to some extent, and God willing, realize a profit.
But don’t hold your breath.
To that end, Treasury Secretary Paulson announced this morning that some of the dollars earmarked for the economic rescue plan may be invested in some of the more troubled banking institutions.
Paulson told reporters in Washington yesterday that legislation Congress passed last week to rescue financial institutions gave him broad authority that he intends to use, beyond just buying mortgage-related assets on banks’ balance sheets. He indicated that an option available may be boosting companies’ capital with cash infusions.
“It is the policy of the federal government to use all resources at its disposal to make our financial system stronger,” Paulson said. “We will use all of the tools we’ve been given to maximum effectiveness, including strengthening the capitalization of financial institutions of every size.”
This “strengthening” may include purchasing troubled assets these institutions in exchange for equity in the institution. As such, I wouldn’t characterize this as a pure play socialistic intervention as some pundits have of late.
On the other hand, lets not lose sight of the fact that American taxpayers have unwillingly found themselves party to a violation of epic proportions.
Back to the medicine and the disease: let us not at the same time forget who caused this crisis.
Once upon a time, Liberals in Washington decided that their constituents held a the right (not the opportunity) to home ownership, without regard to their economic relevance to the economy. This pressure was manifested in directives and incentives for their buddies at Frannie Make to acquire mortgages that would otherwise not be considered good long-term investments. All this while the liberals nudged and winked “Don’t worry, we’ll bail you out if this all goes awry.”
(A self fulfilling prophecy if ever there was one)
This created a vacuum that was willfully and eagerly filled by the likes of WAMU and Countrywide who flooded the market with cheap mortgages, sold them to anyone that could fog a mirror, knowing that Frannie Make would take them off of their hands.
Meanwhile, these mortgages were packaged as safe investments and sold to companies like AIG.
In turn, artificial demand for homes elevated their value and created an enormous drive to buy land and build homes to satisfy the voracious appetite for them. These homes, once occupied, continued to artificially appreciate, creating a refinancing craze and providing capital via increasing debt for the purchase of consumer goods including but not limited to the items to fill these homes.
(The Bubble)
Once the inevitable failure of many homeowners to continue servicing this ill-gotten debt ensued, the domino effect followed close behind. So much of our economy hinged on the ability of homeowners to borrow against their homes – or even the psychological effect of the knowledge that they could – that when it vanished, consumerism went with it.
Institutions found themselves in receipt of illiquid assets as the market for them was flooded.
(Pop! )
Clearly it was not free-market “Republican” principles that caused this crisis, and unfortunately, due to the magnitude, it won’t be solved by free-market principles alone. The American people have little appetite for long-term solutions that require short-term pain. Furthermore, I bristle at the fact that domain of free-market and free-enterprise principles have been relegated solely to the Republicans – I’ve always thought of them as fundamental American values.
Liberals have brainwashed Americans for years into thinking that they need government to solve their problems, to take the sting out of life, to shave the peaks to fill in the valleys in the interest of fairness.
Barack Obama is the most liberal Senator in America. He personifies all that is wrong with American fiscal policy. His rhetoric belies his record, his history, his choice of advisers and associates and his claimed intent to lower taxes. His actions speak so loud, his words we should be smart enough to discount. His brainwashed minions follow him and don’t even know why, nor do they realize the damage he and his liberal brethren could do to our economy.
It was the very government meddling that Obama espouses, some years ago, perpetuated by unchecked greed and political power, and despite warnings of John McCain and others, that created a crisis of such proportion that only government intervention could solve it. We can only hope that this truth is not lost on the American people as they consider solutions for our country’s most pressing issues.
October 9th, 2008 at 10:50 am
Our leaders appear on television, appear shaking and pale, and tell us that we must authorize seven hundred billion in spending commitments. We don’t know what the consequences will be if we refuse to approve the spending. or even it it really is ‘spending’. But if we don’t they say economic collapse is inevitable.
I call bullshit. If they can do this, we don’t have even a small-d democracy. How do we, the people, rule this nation if we fall for this crap? Nobody seems to know where this money will come from and who will get it. The media people are the self-appointed watchdogs of government but they have no freakin’ idea what this means — though they can dispatch hundreds of investigators to investigate the intimate details of Sarah Palin’s family life.
Every institution that’s supposed to protect and inform the common citizen has failed in this financial crisis. Or is it even a crisis outside of Wall Street? We’ll never know.
October 9th, 2008 at 11:14 am
In related news
1) the prospect of a long recovery from the bubble bursting
2) and with the increasingly likely election of Obama
leads investors to
3) increased capital gains taxes for the next 4 years
which leads investors to
4) sell now to gain lower tax rates.
Of course, if Franken’s proposal to eliminate the deductability of 401(k) accounts and eliminate the Roth provisions of IRAs comes to fruition, nobody will be saving much anyway and the stock market will tank further. And retirees will be even more dependent on Social Security.
October 9th, 2008 at 11:34 am
Nerdbert, I read a scary article yesterday that said a pair of CA congressmen (Dem’s, natch) had decided that the government should force 401K beneficiaries to divest their stocks and buy government bonds in their place.
This would mean a one time cash surge for the treasury and the pols to spend. The government would have to repay it, but not until the 401K victims were at Social Security’s age of retirement, long after the current pols had retired to their luxurious Villas, attended to, no doubt, by dozens of the finest illegal aliens money can buy. Or their servants or maybe ‘guest workers’ or even ‘citizens’ by then. The only reason these bastards aren’t after social security is that it’s all obligations and no capital.
Good God I wish I had a conservative to vote for on Nov. 4th.
October 9th, 2008 at 12:14 pm
Terry, can you provide a link? That is some astounding “poop for brains,” even considering it’s a pair of Democrats we’re talking about.
October 9th, 2008 at 12:36 pm
Bike Bubba-
Took me a minute but here it is. I got it from lucianne.com.
http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20081007/REG/810079894
October 9th, 2008 at 12:54 pm
Seriously, you wingnuts give Angryclown so many easy layups.
There is nothing in the article you link to that supports what you said. The article talks about the possibilty of eliminating a tax break on 401(k)s. And some New School economist says the government should *permit* workers to trade in their accounts for government bonds.
In short, the article doesn’t say what you say it says:
“a pair of CA congressmen (Dem’s, natch) had decided that the government should force 401K beneficiaries to divest their stocks and buy government bonds in their place.”
Surprise! Angryclown will stoop to debating wingnuts the day you give up working fact-free.
October 9th, 2008 at 1:23 pm
AC, perhaps he got the facts wrong, but the proposal is insanely stupid either way. Revoking the tax exemption for 401K contributions for prosperous contributors would more or less keep $200 billion out of capital markets each year, and incentivizing “investments” in government debt would hurt capital markets even more by diverting money from investments to government bonds.
Moreover, the proposal wasn’t just for bonds, but rather for “investment vehicles” to work with bonds. In other words, the same guys who couldn’t figure out that underwriting mortgages for welfare recipients was a bad idea would be in charge of working the actuarial tables for annuities.
The very thought should assure any sentient being that such a proposal would need to be bailed out itself, at immense cost to the taxpayer, within a decade. For historical examples, google “Social Security Tax increases” and “Medicare unfunded obligations.”
“Disaster” is properly spelled “equus asinus.”
October 9th, 2008 at 1:35 pm
So clown, do you think that eliminating the tax deduction will lead to more or less savings in 401(k)s?
With most companies eliminating pensions and going to funding 401(k)s for their workers, how will this affect future retirees?
And Al Franken wants to get rid of tax deductions for IRAs and revoke Roth IRAs. Again, will this help or hurt the savings rate? Especially for those of us who actually believed the government and paid the extra taxes on the Roth IRA?
October 9th, 2008 at 1:44 pm
How full of questions for Angryclown you wingnuts are!
I think you’ve mistaken me for the Shell Answer Man. I am Angryclown. My job is to mock. I am a divider, not a uniter.
October 9th, 2008 at 1:47 pm
And AC can make a pencil disappear. . .
October 9th, 2008 at 2:44 pm
AC, unless you’d be happy with the DJIA going back down to 4000, I’d suggest that you might want to answer whether you REALLY want to pull another two hundred to five hundred billion dollars out of capital markets. Ideas, especially idiotic ones, have consequences.
October 9th, 2008 at 2:52 pm
Excessive deregulation, for one.
October 9th, 2008 at 3:01 pm
Check the DJIA. Down 500 points. Below 9000 for the first time since ’03.
Maybe that Bill Ayers stuff will work for you guys.
October 9th, 2008 at 3:41 pm
Deregulation? Not if the paperwork for my last loan is any indication. Try again. What about issuing mortgages to recipients of welfare and unemployment checks?
October 9th, 2008 at 4:51 pm
How full of questions for Angryclown you wingnuts are!
Socratic method, clown. Maybe you’ve heard of it? Although probably not, since that level of reasoning and dialog is classical and your politics and level of debate show a decided lack of culture.
Excessive deregulation, for one.
Let’s see, HUD now estimates 5,000,000 illegal mortgages to illegal immigrants. Yep, there were no regulations, but it was the Democrats who protected Fannie and Freddie and insisted that they loan to anyone without checking backgrounds. You might have noticed that a great many of the loans that are underwater and in danger are in those areas where illegal immigrants were given sanctuary.
October 9th, 2008 at 5:00 pm
Check the DJIA. Down 500 points. Below 9000 for the first time since ‘03.
…and the cause?
Three words: Liberal Social Engineering
October 9th, 2008 at 5:28 pm
angryclown said:
“Surprise! Angryclown will stoop to debating wingnuts the day you give up working fact-free.”
That seems a bit unfair, bringing facts to a pie fight.
October 9th, 2008 at 5:46 pm
Nerdbert uplifted: “Socratic method, clown. Maybe you’ve heard of it? Although probably not, since that level of reasoning and dialog is classical and your politics and level of debate show a decided lack of culture.”
Ah yes, quite the salon of elevated discourse, Shot in the Dark.
Hey nerd, try the hemlock. I think you’ll like it.
October 9th, 2008 at 6:46 pm
There is nothing in the article you link to that supports what you said.
There was only one congressman from CA quoted in the article, Rep. Geo. Miller. I was going by memory. All apologies. The other congressman mentioned was from NJ. The third quoted person was Teresa Ghilarducci. The reason all three are linked is because all were present at a hearing Rep. Miller held last Tuesday (podcast here: http://edwork.edgeboss.net/wmedia/edwork/fc/fc100708.wvx).
Here are a few quotes from the article. Ah Heck, I’ll just cut-n-paste the whole thing. Let the readers decide if “There is nothing in the article you link to that supports what you said.”:
Rep. Miller also occasionally writes for huffpo. If you want to read more examples of his 401k bashing, look him up.
October 10th, 2008 at 12:10 am
Ah yes, quite the salon of elevated discourse, Shot in the Dark.
Oh come now, given your constant references to wide stances, homosexuality and pederasty it certainly qualifies as standard ancient Greek discourse!
Hey nerd, try the hemlock. I think you’ll like it.
Isn’t that what Barney Frank and the Dems were pushing on the economy by running Fannie and Freddie as they were? Hey, if we’re lucky the economy will just purge itself rather than drop into a coma and convulsions. Nice economic policy set your guys have.
October 10th, 2008 at 9:56 am
Let me see…..didn’t banks USED to check ID, verify employability, verify income, and so on? Lessee….when did that change…..wasn’t it during the CLINTON administration under the pressure of Barney Frank and his boy-lover in Fannie Mae?
Details, details….you see, AC, this crisis is not the product of deregulation, but rather of Barney Frank’s REGULATIONS that REQUIRED banks to loan to poor credit risks.
October 10th, 2008 at 12:12 pm
Yeah, not so much, Bike Butthead. Your answer shows you’re attentive to the right-wing dumb guy spin out there on the ‘Net. Unfortunately, like so much you kooks hold dear, it happens to be completely wrong. Angryclown will expect a much more sophisticated answer, touching on the role of mortgage securitization and credit-default swaps in the meltdown before he’ll condescend to argue with you, however. Until then, you’ll have to content yourself with Angryclown’s pointing and mocking you.
October 10th, 2008 at 2:19 pm
angryclown is doing his damndest to become the peev-on-the-Hudson.
But peev plays with his fingers and toes more.
October 11th, 2008 at 10:30 pm
angryclown paraphrased:
“Until you have adequately addressed the talking points in my head, I will not begin to reveal my own wisdom and/or ignorance.”
That is special, angryclown, but not especially impressive. 🙂