I’ll leave to others whom I respect to craft out just what sort of plan is likely to be successful in stabilizing the financial markets and equitable to taxpayers. But any sort of narrow focus on executive compensation strikes me as a load of crap. Yes, they are too high. And yes, I believe they are part of the problem. But I don’t think I need to know too much about economics to know that they are not a significant structural problem in what led to this mess. And the dollars in questions are chump change compared to the bill the big investment houses are now pawning off on the American people.
The key components in exchange for the money have to be some sort of equity in the companies being rescued (I’ll leave it to the experts to figure out the mechanics — which I grant is likely a highly complex matter) and structural reforms that create oversight, accountability and transparency to ensure nothing like this happens again.
And in case it isn’t obvious, those begging as they cling by their fingertips on the precipice are not in a position to be making any demands or calling any proposals “deal killer.”
Late Update: My instincts tell me that the effort to pretty this up by adding a ‘stimulus package’ is equally bogus. That’s not to say it’s not important in itself. But if we blow 700 million or a trillion dollars cleaning up Wall Street’s mess, having also budgeted 25 or 50 billion on helping ordinary people won’t make that trillion dollars any less blown. The focus here needs to be on making sure this bailout makes sense, isn’t going to be farmed out to Neil Bush and provides something for taxpayers in return. Let’s keep the focus on that.
There appears to be pretty widespread agreement that some major rescue plan is in order. But I’m having a hard time finding economists or others with related expertise — either on the right or left — who don’t believe two things: a) that this plan gives way, way too much discretionary power to the Treasury Department with little requirement even to make reports to Congres and b) as Paul Krugman puts it, “there’s no quid pro quo here — nothing that gives taxpayers a stake in the upside, nothing that ensures that the money is used to stabilize the system rather than reward the undeserving.” Whether that means equity stakes for taxpayers or simply some assurance that the USG won’t be paying premium prices for worthless crap, that key component just doesn’t seem to be anywhere in the proposal.
And unless I’m not being clear, this request isn’t simply for effect. This is not a rhetorical question. I’m really looking for examples. I can see lots of politicians saying we need to do something now or we’ll all die and lining up to vote for whatever Paulson says. But I’m curious how many economists there are (or people with relevant professional expertise) who don’t agree that these two shortcomings must be rectified.
From TPM Reader CC …
Considering as how the proposed Wall Street bailout will be one of the most intensely lobbied efforts in American history, will there be anyone left to manage John McCain’s campaign?
TPM Reader JS makes another …
You would never know it from watching the news, but one of the candidates in this race happens to have been previously implicated in a national scandal involving pressuring regulators to back off of a bank making risky moves with its assets, leading to disaster for investors and an expensive government bailout.
Is there a good reason why no one is mentioning John McCain’s Keating Five membership in any of these arguments over who is on the side of regulating risky private banking practices? I know that McCain sort of asked for our forgiveness or something at some point during his “maverick period” around 2000-2003, but since he wants to engage in a debate about who is on the side of government regulation of risky banking practices, I think maybe we’re allowed to call him out on this issue. Does anyone believe that if Barack Obama were one of the Keating Five that the Republicans would for some reason hold back from mentioning that fact?
From the NYT …
The financial crisis that began in the United States spread to many corners of the globe. Now, the American bailout looks as if it is going global, too, a move that could raise its cost and intensify scrutiny by Congress and critics.
Foreign banks, which were initially excluded from the plan, lobbied successfully over the weekend to be able to sell the toxic American mortgage debt owned by their American units to the Treasury, getting the same treatment as United States banks.
From TPM Reader DP …
As a Wall Street guy I am sort of glad that this bailout is being organized. However, what seems unfair to me is that there are absolutely no provisions for homeowners. Moreover, this morning on Stephanopulous I saw Hank Paulson talking about homeowners taking out mortgages that were higher than they could afford and about them needing to live up to their obligations.
I find it incredible that he would use language like that while asking taxpayers to send a trillion dollars to Wall Street because investment banks made irresponsible investments and aren’t able to live up to their obligations.
In any loan transaction there are at least two parties. If I give my unemployed and uneducated brother-in-law a half a million dollar loan wouldn’t I be just as irresponsible giving it as he is taking it? Moreover, a large majority of borrowers did not have financial training to be able to understand complex mortgage terms and risks of the underlying investments. Investment banks have armies of Ph Ds working for them that helps them analyze market risks and credit exposure. They got it wrong too! It strikes me as strange that unsophisticated borrowers are being held to much higher standard than ultra-sophisticated bankers.
President Bush, through Secretary Paulson, have asked for a massive bailout package with minimal oversight and no protection for taxpayers. Sen. Obama has now come back with a response that while imperfect and insufficient, makes clear that any plan must include independent accountability and oversight, some ability for taxpayers to recoup their investment, and more. Speaker Pelosi is making similar sounds, while congressional Republicans are asking for a ‘clean’ bill without oversight or taxpayer protection provisions.
Has John McCain done or said anything so far beside ask for advice from former Sen. Phil Gramm, the guy more singly responsible for creating the mess than anyone else? Which side is he on?
The New York Times reports this evening that “foreign banks, which were initially excluded from the [Wall Street bailout] plan, lobbied successfully over the weekend to be able to sell the toxic American mortgage debt owned by their American units to the Treasury, getting the same treatment as United States banks.”
The Times further reports that two of the biggest foreign banks in need of such relief are Barclays and UBS. In fact, my understanding is that UBS is more on the line here than any other foreign bank.
Let’s add this up.
John McCain’s top economics advisor, who is widely believed to be his choice for Treasury Secretary, should he win in November, is former Sen. Phil Gramm. (Indeed, just last night his spokesman refused to say Gramm wouldn’t be McCain’s choice for Treasury Secretary.)
Gramm is both vice chairman of UBS’s US division and a lobbyist for UBS.
If UBS successfully lobbied over the weekend to get in on the bailout, what was Gramm’s role in the lobbying?
The era of the standalone investment bank comes to an end as Goldman Sachs and Morgan Stanley elect to become bank holding companies.
Is Ruth Marcus really so desperate to ‘even the scales’ that she’s claiming that the phrase “privatizing Social Security” is “incendiary” language that amounts to deception? Is she so ignorant of this debate that she doesn’t know that it was the preferred language of the advocates of privatization for more than two decades until they found out it wasn’t polling well enough during the first two years of the Bush administration?
And it’s apparently a big lie to say that Florida retirees would be in a big jam right now if John McCain had had his way right now and privatized Social Security because under McCain’s and Bush’s plan current retirees and those a few years from retirement wouldn’t be affected. So in other words, from when McCain instituted the plan five years ago it wouldn’t have affected those now drawing benefits or just entering the system. Or wait, McCain’s not even president yet, right? So, true, presumably it wouldn’t apply right now in 2008 to anyone in advance of McCain’s even being in office and putting through his plan.
The point is that there’s no end of special pleading and candidate hand-holding when the topic is the privatization of Social Security. And even the prestige columnists appear completely innocent of the details of how the proposed changes would work.