Monday, September 29, 2008

It's Dead (For Now)


They could still bring this back for a vote later, but the bill is dead for now.

17 comments :

Made Decision too Quickly said...

So, what is your counter proposal? Given your cash position, I know you'll benefit from this personally. But from a policy perspective, what's optimal for the country? Do you not believe that this could be catastrophic for the broader economy, not just Wall Street?

Max said...

So something that wouldn't have worked at its stated goal and cost a fortune is better than... nothing? Sorry, this bill was worse than nothing.

Here's some reaction from the traders. Focus less on the stock market. Focus more on the banks. This bill did nothing to guarantee lending. All this bill would have done was give enormous power to one man, and allow him to chose winners and losers in the marketplace.

What about this bill would have worked? Do you trust Hank Paulson to make good decisions on your behalf?

Made Decision too Quickly said...

Max,
Fair enough. But that was not my question. Specifcally, what would you do?

Max said...

Specifcally, what would you do?

I'm not a global economics guy, but the one thing I would insist on is complete transparency. The obfuscation of value is one reason we're in this boat today: if securities holders were forced to value their paper accurately, we could find out where the problems are. Trust is completely broken down; we need to bring this crap into the light of day.

I would also be in favor of a dual accounting standard for illiquid, yet cash-flowing assets. If you can't sell something, but it's paying a decent return, that gives you a clue about actual value. But we need transparency about cash flow as well.

That said, I wouldn't oppose a plan that gave temporary loans (30,60,90 day) with illiquid, yet cash-flowing assets as collateral. The plan needs to be well-defined before it's passed, the participants should be identified within a set period of time, and the amount lent by the government should be determined by a panel of experts in an open forum. In the longer term, "too big to fail" should be included in anti-trust laws, giving the government the ability to break up companies that pose systemic risk.

What I'm not in favor of is any attempt to hide the true value of this debt. Any above-par purchasing by the government on an arbitrary basis cause corruption and manipulate the market.

Patient Renter said...

One thing that made me weary about the bailout from the start is its foundation on the premise that this debt the government would be buying is currently being sold at "fire sale" prices and that the Treasury would instead buy it at "hold to maturity" prices.

From the very start of this thing, the government has indicated that it knows something that the rest of the market doesn't, perhaps that housing debt is worth more than the market will pay for it, or perhaps that they intend to prop up housing prices. Either one is bad.

Anonymous said...

To those that thought the 700bil package was a waste of money. Did you enjoy the 1Trillion dollars lost in the stock market today, and the untold losses that economy will lose going forward. At least you can feel principled, as the economy grinds to a halt! I do trust Paulson, Bernanke a hell of alot more than I trust any other group of people to handle a problem of this magnitudte. The market does know the value of the debt in question. Buyers want the deal of a lifetime, while the sellers want full value. With the occassional tranche like ML sold a couple of months back being the exception.

anon1137 said...

Max, let's quit using the term "illiquid". We all know these securities can be sold, it's just that the sellers don't like the price. They want the government to step in and give them cost plus 20%.

Which brings me to my next point. I have money for a downpayment sitting in a money market account earning next to nothing. I HAVE MONEY TO LOAN. I'd be happy to loan it to any small business that needs to buy inventory or make payroll or expand thier business, as long as they pay me a decent rate of return. See, it's the same story there. There's money available for lending, businesses need credit, but they don't like the price they have to pay for it. They want the government to step in and loan them money for 0% interest.

Max said...

The market does know the value of the debt in question. Buyers want the deal of a lifetime, while the sellers want full value.

So instead of forcing banks to lend, you will force the taxpayers to buy?

What other means would you use to force a market? Eminent domain? Gun to the head?

There is a better way than simply handing $700B all over to Paulson to use at his whim.

Max said...

Did you enjoy the 1Trillion dollars lost in the stock market today,

Did you enjoy your house falling in price because your neighbor walked away?

Billy Joel said...

"To those that thought the 700bil package was a waste of money. Did you enjoy the 1Trillion dollars lost in the stock market today, and the untold losses that economy will lose going forward. At least you can feel principled, as the economy grinds to a halt!"

Way to shift blame to the bulk of people on this blog who didn't participate in this nonsense but actually tried to warn people about it. We didn't go to your party but now you're asking us to pick up the tab. No thank you.

http://tinyurl.com/2qsh7j

mndean said...

Max,
For what little I know of global economics (and it's infinitesimal), your plan sounds reasonable and interesting. Which means it'll never pass muster with those who are in power.

BTW, I wrote a reply on your downtown Ashland post on the other blog. I thought it might amuse you. Or depress you.

Anonymous said...

Wrong, I did not buy a home as I watched the run up just like you, screaming from the roof tops to whom ever might listen. However, I also know that allowing the economy to fall into a defaltionary situation is a worse scenario than bailing out the idiots on wall street or mainstreet. We blog here about how indignant we are about all these idiots and watch our jobs/prospects/ and wealth devalue as we type away. I'm not looking at cutting my nose off to spite my face, sorry! As a side note, can someone shutup thes idiot calling in to a radio/TV business show that says this bailout is costing 350-450K for every adult in the US. Doing the easy division reflects a $3,500 + interest.

Patient Renter said...
This comment has been removed by the author.
Patient Renter said...

I do trust Paulson, Bernanke a hell of alot more than I trust any other group of people to handle a problem of this magnitudte

You've got to be kidding? Have you been living in a box? It doesn't take much of a memory to recall that according to previous statements from Paulson and Bernanke, there is no housing bubble, the subprime problem is contained, we are not in a recession, the economy is fundamentally sound, Fannie and Freddie are just fine, housing will bottom this year, etc, etc.

But of course you're buy into whatever self-interested rhetoric you want.

DrDoom said...

Max:

OK. Now you have given a specific objection to the bail out bill. I like it:

... one thing I would insist on is complete transparency. The obfuscation of value is one reason we're in this boat today: if securities holders were forced to value their paper accurately, we could find out where the problems are. Trust is completely broken down; we need to bring this crap into the light of day.

and also...

What I'm not in favor of is any attempt to hide the true value of this debt. Any above-par purchasing by the government on an arbitrary basis cause corruption and manipulate the market.

Good points. Good objections. Why is it that the true value of this debt is not known publicly? Does anyone know? Great issues to require the bail out bill to address.

However, I still don't know how you force a bank to lend. You can enable them by supplying long term inexpensive money. You can require that a percentage of what they do lend falls in certain categories. But force them to actually lend? Even if you could where would the accountability be going forward? If the loan goes bad is it the banks responsibility or yours for forcing them?

Can you either describe the mechanism to force a bank to lend or drop it as an objection to the bill?

Max said...

Can you either describe the mechanism to force a bank to lend or drop it as an objection to the bill?

That's my point. There is no way. Therefore, this bailout will not work.

Everybody has this assumption that once Paulson dumps a bunch of money into the market, banks will magically want to lend again. Where's the evidence that that will happen?

Until trust returns to the marketplace, the $700B is meaningless.

Deflationary Jane said...

"Max, let's quit using the term "illiquid". We all know these securities can be sold, it's just that the sellers don't like the price. They want the government to step in and give them cost plus 20%."

Bingo - that is exactly the problem.

I called my local broker about a possible home purchase (not really but I wanted to test the waters). 3.5% down with seasoning in the bank and we pay our own closing costs and we're good as gold even though we've just moved here and both have new jobs.

Individuals like me aren't having problems, it's the overleveraged speculators and the craptastic financial services sector that are crying fowl. Oh the poor babies.