Thursday, February 5, 2009

Was last September's bailout dishonest?

"There was no credit crisis. What was happening was much more arcane: A few big institutions that had made bad bets were at risk of going bust, and that’s it. And if they had gone bankrupt, it wouldn’t have been the end of the world. In fact, there is huge excess capacity in financial services and there’s a need to focus on the healthy ones and let others fail. Meanwhile, business lending and consumer lending were still strong in September and October, and it’s still okay." [1]

"Maybe Bernanke and Paulson had information that they were not making public, but the available data simply did not support what they were saying....This was a lot like the run-up to the Iraq invasion in 2003. You had people in government saying: `We’re smart guys, trust us.’ But they were either wrong or they were lying." [2]

"Normally, when you’re going to spend a lot of money, you present the data and the economic theory to support it, yet here’s the biggest non-military government intervention in history since the Great Depression, and there was no evidence presented to support it, and no detailed economic argument made about what market failures this $700 billion was going to fix.....“If what we’re experiencing is a generic recession, all that money spent investing in the banks would be wasted, and that may be what this is: a generic recession.”" [3]

"With all the money that’s already been committed, it is going to be hard to get the stimulus money that is needed now,” she says. “Deficits are already so massive that at some point interest rates on long bonds are going to jump from 3% to 5%, and that will be good-bye mortgage markets." [4]


[1] Octavio Marenzi, founder of financial technology research and consulting firm Celent. As quoted in 'Follow the Money'
From the 2/1/2009 Issue of Treasury and Risk
By * Dave Lindorff
http://www.treasuryandrisk.com/Issues/2009/February%202009/Pages/Follow-the-Money.aspx

[2] V.V. Charri, an economist at the Minneapolis Fed. As quoted in 'Follow the Money'
From the 2/1/2009 Issue of Treasury and Risk
By * Dave Lindorff
http://www.treasuryandrisk.com/Issues/2009/February%202009/Pages/Follow-the-Money.aspx

[3] Patrick Kehoe, co-author of an article entitled: 'Facts and Myths About the Financial Crisis of 2008'. As quoted in 'Follow the Money'
From the 2/1/2009 Issue of Treasury and Risk
By * Dave Lindorff
http://www.treasuryandrisk.com/Issues/2009/February%202009/Pages/Follow-the-Money.aspx

[4] Yves Smith from the Naked Capitalism blog. As quoted in 'Follow the Money'
From the 2/1/2009 Issue of Treasury and Risk
By * Dave Lindorff
http://www.treasuryandrisk.com/Issues/2009/February%202009/Pages/Follow-the-Money.aspx


4 comments:

Jack said...

Brenda,
Not that I'm surprised at what Lindorff writes, but where was he and his informants back in October and November? Some loud talk at that time might have had a stabalizing effect.

The analogy to Iraq is appropriate, but so too the question. Why the insight after the fact?

TheTrucker said...

The analogy with Iraq is not just appropriate. It is emblematic and symbolic of the Republican party as a whole and the Bush administration in particular. But what matters right now is "now" and "next" and "further". Reactionary knee jerking with a lust to punish will have been disastrous.

But this aversion to knee jerk reaction is limited to the larger picture of trade and fiat money. We do not want to go full bore protectionist, gold doubloons, and a $3 a gallon tax on gasoline because the _REPUBLICAN_ government was a bunch of crooks that sought the destruction of government and the America defined in the Constitution. Some more fundamental knee jerk reactions are however quite appropriate because they are restorative of America and economically sound and the moment is upon us. In the indisputably economically sound category we will find comprehensive health insurance which is actually regulation of the health insurance sector of the economy no matter what suit you might make it wear (Canadian system may not be the only way). The political portion is the death of the current 60 vote cloture rule in the Senate. That rule is a REPUBLICAN rule and always has been. It is unusable by any truly democratic party or any party that truly represents the people. The Senate represents nothing other than big business or the state legislatures or both, with or without the 60 vote cloture rule. Organizing the Democratic party for a filibuster or a cloture vote is just about impossible because true democrats are not monolithic. Senators represent states and regions as opposed to proportionally representing the population. This makes the Senate very party centric and the Democratic party is the "no party" party. "I don't belong to any organized political party. I'm a Democrat." --Will Rogers

The latest waltz in the Senate is an illustration of the problems caused by the lock step monolithic REPUBLICAN party and the "minority" rule scheme. Time for the "nuclear option".

BJ said...

In my humble opinion the bailout was a complete WASTE! The markets need to be allowed to work themselves out.

TheTrucker said...

Well, BJ: If the bankruptcy code was set back to the way it was in 1978 I would agree with you. If people could simply walk away from the houses and have the debts truly forgiven (the lender eat it) then that would work. But the Republicans concocted this trap very, very well. Bankruptcy isn't an option and the IRS will come after you for the $100k imputed gain you receive by walking away from the mortgage.