Liberal Media Elite

While on some level it’s amusing watching Paulson engage in ideological pretzeling as he now takes a strong position for the government taking equity stakes in troubled financial institutions, it is troubling on a number of fronts.

First, the proposal to do this was part of the House Dems original response to his 3 page bailout plan. It was the point most ferociously opposed by Paulson and, presumably, the Prezzz. Anything that sniffed of nationalization was anathema to them.

Second, we’ve spent nearly four weeks now fucking around with the original bailout proposal while the Administration fought off the position it is now adopting. This in the the midst of a panic. Panic’s are not thoughtful and reasonable things. They move very, very quickly. Panic’s show up because of widespread uncertainty and when you introduce additional uncertainty they get worse. You can still dial ‘em down but the price tag associated with doing so goes up the longer you take.

Third, and most important, it shows how perfectly incapable conservatism is (in its current incarnation) iof answering a crisis. We saw it first rear its head in the ridiculous House Republican proposal (a brief recap: take action that keeps the government out of the markets and does nothing to inject capital into the financial system…said injection being the only thing that has a prayer of knocking this crisis down…but is nonetheless aligned with “government bad” ideology). The fundamental belief that government is bad and should be kept out of any and all markets and choked down to the smallest possible size, works only if nothing ever goes wrong. And something always goes wrong. Katrina, anyone? The financial meltdown, anyone? Conservatism’s answer to those things, as we have seen all too clearly, is to do little or nothing. It has to do little or nothing or its core philosophical tenets are revealed as being as empty and unrealistic as they actually are. Nice work, guys.

Fourth, it reveals the limitations inherent in electing an ideologically pure but rather dimwitted figurehead as your chief executive. Where the hell has Bush been? It’s staggering that in the midst of a crisis this size the voice of the government has been an apointee and not the President. Anyone out there vote for Paulson? No…you couldn’t have.  It’s what President’s are supposed to fucking do, you know? Pilot the ship through rough waters. Be the voice of reason and assurance and responsibility and leadership. Where is he? He has addressed the nation once and then, much like Katrina, after it became apparent that he absolutely had to do something. He didn’t lead. He followed.

There’s no doubt in my mind that if this happened under an Obama presidency that he would have been out in front in addressing the nation. There is also no doubt in my mind that McCain would be out in front when it comes to addressing the nation. There is no doubt in my mind that if something had happened to Obama and we had a Biden Administration that hip-shooter Joe would have been out in front. And what of Palin. I guess I’m in the camp that says we’ve seen enough of empty headed ideologically pure figureheads. My God, the woman managed to say, in the same debate, that government is the problem and needs to get out of the way and that government needs to be (in terms of the meltdown) more involved in oversight. And the staggering thing is I believe that she believes that. She has convinced me that she does not have the intellectual capacity to realize that those two positions are diametrically opposed and cannot be logically reconciled. She is the embodiment of slogan driven, liberals are bad, government is evil, brain-locked, 21st century conservatism.

What we are seeing in this meltdown is the logically absurd conclusion that today’s brand of conservatism leads to. It is mind-boggling that there are still significant numbers of people who either sell out sound decision making to the next guy who promises a tax cut, or who actually believe that it works.

I know my economic rantings are sometimes arcane and hard to follow. As a result I chose the above headline with great care to see if I could help make the point a little clearer.

House Republicans came forward with a bailout mini-proposal at the last minute on Thursday to change the nature of the bailout such that the government would create a huge mortgage insurance agency. McCain, because he’s stupid about all things economic enabled this particular piece of stupidity by posturing that the bailout can’t be left on the taxpayer’s front door and blahblahblahblahblah.

The House Republican proposal plays well on the surface. We, the people, don’t appear to be responsible, mortgages are insured, which sounds like people won’t get foreclosed.

The problems are legion:

1. The problem in the economy right now is, first and foremost, that credit markets are frozen. No one is issuing credit either because they are unsure of the risk of the borrower or (more common right now) the financial institutions have no fucking clue how exposed they are to bad debt in their own portfolios (which tells you something about how smart the financial wizards of Wall Street actually are). The insurance plan does nothing to inject cash into the system. Without an injection of cash the credit markets remain frozen. That means that banks will continue not to lend. This has very little direct impact on consumers…you buy a house or a car or take out a college loan very infrequently. It crushes business, particularly labor and raw materials intensive industries (i.e. industries that supply blue collar jobs). They need to borrow to smooth out cash flows associated with the cycles of their industries. They need to borrow to invest in materials, plants, and technologies that make them competitive. Without an injection of cash you will see some relatively rare examples of companies going out of business but you will see, daily, massive layoffs and downsizings, plant closings, production line interruptions, etc. Our staggering 6.1% unemployment rate (to put that in historical context the last time the rate was that high was 1994), which McCain thinks is a sign of a fundamentally sound economy, is trending up at a frightful pace (a 30% increase since the beginning of the year from 4.7% to 6.1% with the majority of that in the last four months when you usually see a seasonal drop) and will continue to do so with a bailout. With this stupid ass House Republican proposal it will go through the roof as, again, companies lose access to capital in the form of credit.
2. People will still get foreclosed. Mortgage insurance doesn’t insure the people in the homes. It insures the companies holding the mortgages so that when they kick you out of your house those entities still get the money they carry on their books. It would likely increase foreclosure rates. You boot someone out of their house right now and you, the noteholder, have an utterly worthless property. You have an incentive to work with the homeowner. In the case of the insurance scenario, you have an incentive to foreclose because the insurance on your book value (which will always be higher than the actual value in this economy) kicks in and you come out better off. Then you sit on the worthless property, wait for prices to rise, and sell it (essentially) again.
3. For the notes in the worst shape right now (and this shit is liquid and ever-changing) the insurance program provides nothing to anyone. Those 10%-15% at the bottom of the mortgage system are already worthless…they have essentially no value. Meaning that “insuring” them insures a value of zero. This is kinda not so helpful to the noteholders. Like, at all. Even an ideologically vapor locked airhead like Representative Eric Cantor (R-VA), one of the most aggressively vociferous of the House Republican Rebels, had to cop to the fact that in dealing with the worst of the securities in question the House Republican plan would accomplish nothing so that in those cases “you have to go with Paulson’s”. Again, Grumpy Old Man McCain thinks that this House Republican plan (which I assure you he does not understand and which he didn’t actually come out in support of and didn’t actually come out in opposition to the negotiated plan ’cause he doesn’t fucking understand it either) thinks this is plan, put together by pinheads like Cantor, needs to be part of the negotiating process.
4. As bad as Paulson’s bailout is, it at least has the opportunity for the taxpayers to recoup some or all of the expense a looooong way down the road. The insurance proposal does not do that. In fact, it makes the government the insurer of last resort meaning that it will be exposed to greater losses than the Paulson bailout proposal with no prayer of recoupment.

There’s more, but it gets even more arcane than those four points above.

Don’t get me wrong. I don’t like the Paulson bailout. I still can’t find specific reference to what regulatory changes will be made that will shore up the financial system so that this shit doesn’t happen, again. However, the House Republican version is utterly devoid of any regulatory requirements, where Paulson’s at least refers vaguely to an ability for the government to impose “regulations and controls as needed” (there ain’t alot of mystery here as to what they should be, starting with capital reserve requirements and oversight or elimination of the credit rating services). Regulations and controls as needed would, in fact, be imposed under a Democratic President. Under a McCain administration, not so much. Still, the Paulson plan injects caqital into the markets and the House Republican Dumbfuck plan does not. Which means it does nothing to prevent the collapse of the economy.