The grant of authority sought by the Treasury Secretary is of a piece with the long-term strategy of the GOP to reduce the role of Congress even further and to fully realize the dream of an imperial presidency. If Congress surrenders, one further step toward the dismantling of the Constitution will have been accomplished.

Can we put aside whether or not its wise to consolidate institutions and make credit available to fix a problem of “too big” institutions and easy credit, and that it seems the greatest beneficiaries are those who are most culpable. Lets look at this crisis in the context of the Bush administration’s run on Executive power.

Could the guests address section 8 of the current plan, “Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency”.

Why would this immunity be needed?

I really hope that congress takes there time looking at this bill. If major stipulations aren’t attached to this bill this is essentially serfdom in our modern society. We, the lowly peons, can pay, and they can continue to accrue wealth at the top. A more socialized system is not necessarily a bad thing, as long as it’s handled as that, not some quasi free market society where profits are privatized and losses are socialized.

Trickle down Reaganomics has failed.

From the LondonTimes -TimesOnline
“A crackdown on greed and excess in the City is being promised by the Government to clean up the financial system after the banking turmoil of the past week.”
I haven’t seen a similar move from US Govt??
Comments???

Article quotes “that Barclays was set to honour a $2.5 billion (£1.4bn) bonus pot for Lehman Brothers.”

It would cost about 800 billion dollars to bail out homeowners with mortgages they can’t afford, and about the same to bail out financial institutions with bad mortgage debt. Either way would make the financial institutions whole and they wouldn’t wind up owning foreclosed property that they had to sell. Why not bail out the homeowners?

Corporate lawyers will be salivating in anticipation of dissecting hastily written legislation for loopholes.

How long will it take for this huge debt to be paid. Wouldn’t there be some positive benefits to there being a major decline in the economy, like housing prices coming down and reduced demand for oil and a new generation realizing they have to save instead of spending beyond their means? Why should our grandchilren be saddled with this massive debt on top of the current war debt, Social Security obligations, and the current obscene national debt?

I am furious about this bailout. I want to know how much the Chief Officers of these companies have earned over the past years, and how much they will be required to put back into the system to lessen the burden on the American taxpayer. The government’s plan to support the greed associated with this industry and administration is ludicrous. Everyday people are STRUGGLING, and the government finally does something only when its cronies in big industry are in trouble? What about the millions of homeowners, lured by these very banks, who are out on the street? What are we doing for them?

I don’t get it. People can’t afford to pay their loans, so they lose their houses in foreclosure with lots of suffering and upheaval. These bad loans then cause the financial system to buckle so the government comes in to guarantee or pay off the loans after they go bad.

Wouldn’t it make more sense to just guarantee the loans directly? This would avoid the damaging upheaval and plummeting house values caused by all these empty houses and devastated neighborhoods. If someone loses their home, they have no incentive to pay off the loan, and will most likely be unable since they must pay their rent to someone else. Foreclosure just seems like a guaranteed way to make the loan worthless.

Wouldn’t it be better to at least allow the loan to retain the value of the rent the homeowner would otherwise be paying, while at the same time keeping the neighborhood intact?

This bailout plan is starting to sound like an excuse for Bush and his cronies to raid the treasury one last time.

Why do we NEVER hear of Alan Greenspan’s role, influence & responsibility in this crisis? He’s off the hook completely? Greenspan doesn’t have to account for anything here?! Will Tom Ashbrook please bring up the Alan Greenspan factor in his radio interviews, for all to hear?

Who’s going to jail over this? Can we tap the bank accounts of the decision makers that brought this crisis about for bailout money?

I echo Mr. Sandson’s comment above on bailing out homeowners. Some homeowners could be helped by adding a provision to the bailout plan requiring the Secretary of the Treasury to offer the homeowner the same price as was paid to the bank with interest set at a reasonable premium above the interest the government pays for bonds of the same duration plus a reasonable administrative fee.
The the plan anticipates that the Treasury will sell the assets it acquires, sometimes at a profit. It would be obscene to save irresponsible banks and generate profits for the government (and vulture capitalists to whom the goernment will sell) on the backs of homeowners and their neighborhoods.
(The idea that the derivatives are so complex that they can’t be untangled flies in the face of the fact that payments are accounted for and titles are being foreclosed.)

i agree with earlier comment. really, it’s a question: could the gov’t use a comparable amount of money to bail out the homeowners and others defaulting on fraudulent/misleading loans, and penalize/withhold personal rescue from the senior managers in the financial sector who could have kept the catastrophe from happening but instead caved to the culture of greed? (and are the abusers and criminally negligent going to be prosecuted or disciplined?)
this is a practical question i would really like an answer to.

second question (more theoretical): should the american people be required to pay the costs of a generation-long experiment in extreme laissez-faire? perhaps so, as they voted for those who implemented it.

and an observation: there is in general a frightening lack of understanding of finance and economics among those who govern, the media, and the general public. our education system needs to address this.

I have one question. What do educated non-partisan economists think will happen if we DON’T bail out these corporations? Who will lose their jobs? How will I suffer?

The way I figure it, my share of a $700 billion bailout is about $10,000. That’s a lot of money. It’s much more than I have saved for retirement or for my child’s college.

If someone shows up at my house telling me I need to pay him $10,000 for a new heating system, I want to know what will happen to my house if I DON’T pay him. Will my current system stop working altogether? Or just work less efficiently? I need to know if he’s a swindler, or if he has a valid argument.

The news media, including NPR, is covering this story 24-7. But no one has yet explained what the consequences are of NOT bailing out the financial companies.

The moneys to be allocated re the bailout should go to those people who are losing their homes.
That would allow them to meet their mortgage obligations and thus keep the banks solvent as well as the loans would be made good.

Along with this the need for more controls are now self-evident.

Capitalism is still the best -and most treacherous form and needs democracy to control the excesses as is now evident.

The Bailout should have some contingencies=PROFITS made by CEOs & other execs/industry types of ESPECIALLY FAILED corporations need to forfeit those profits giving the bailout only when those that got from the lack of scrutiny & ill gotten gains be required to pony up/fess up and return these unjust profits. LET us Scrutinise and account for,,,
We have to have some “balls to the law” and justly punish the deal makers who are not suffering like the commmon men & women of our country.
This is a Bush legacy coming to fruition, what an utter catastrophic mess, let us bite back onto the lobbyists, lawmakers, and mortgage industry types who are “getting away with murder!”

This was a predictable result of the repeal of Glass Steagall. For those interested in understanding why, here is a link to a one-page summary of the Glass Steagall Act and how it was repealed:
http://www.pbs.org/wgbh/pages/frontline/shows/wallstreet/weill/demise.html

Nate, thanks for a great point on section 8 of the Paulson proposal. I find that provision alarming. Do you have a webcite to that?

something I never hear in this discussion and I would like to know the answer to: How much has the spending in Iraq and our unwillingness to require some sacrifice by the US population (tax on particularly high income earners and war profiteers) contributed to this whole mess?

The unfairness of this is utterly galling. I am getting a humanities Ph.D.–my choice, I’ll never get rich, was not upset about it. But as a self-employed writer and artist, I bear an EXTRAORDINARILY high tax burden on an income that, despite my years of education and the many sacrifices I’ve made to get it, is less than the compensation of your average executive secretary. Now I’m on the hook for bailing out a group of people who gave themselves $39 BILLION in bonuses last year?! This is so wrong it’s criminal!!

The problem is that the Treasury, Fed, and SEC don’t know the scope or nature of the problem. They don’t know whether $700 billion is enough. Take AIG, a $1 trillion-company, where people say 10% of company’s business would have wiped out the company – in effect, the downward risk was infinite. This is just one company.

These agencies should take a page out of the medical trauma book, and a page out of disaster response — put the patient(s) in a medically induced coma so you can stabilize the patients and get a rough overall assessment of the situation. You would be able to quickly put together the framework for an effective emergency responses. And allow multiple passes to remedy the situation.

Using this metaphor, we have an enormous disaster whose size and nature we don’t know and the people setting up the trauma center have decided they will determine how to equip the center based on bodies as they come in. And upon seeing the 3rd body, they’ve thrown up their hands and are asking for the $700 billion emergency truck.

What we need is for teams to go out and do a rough assessment:

* X many dead bodies and we’ll need refrigeration trucks to preserve them for the medical examiners
* Y many people with a contagious disease, therefore we’ll need quarantine facilities
* Z many people who just need hydration, nutrients, and moderate medical treatment
* etc.

Going before Congress when they have an unclear sense of the problem opens this to my pork barrel vs. yours, and my constituents vs. yours.

Elizabeth,

I read about this in an article by Glenn Greenwald here
http://www.commondreams.org/view/2008/09/21

and he cites the proposal so far from here
http://calculatedrisk.blogspot.com/2008/09/bailout-proposal.html

The talking heads keep saying that this is the worst economic crisis since the Great Depression. They are right and it will get worse (it’s only been a year so far).

What are some good investments?

Live on less.
Pay off your debts.
Take care of your health.
T-bills if the US government doesn’t bail out everyone.
Gold if they do.

Who’s going to jail over this?

Presumably, anyone who broke the law. What laws do you think were broken and who do you think broke them?

I am furious about this bailout. I want to know how much the Chief Officers of these companies have earned over the past years, and how much they will be required to put back into the system to lessen the burden on the American taxpayer. The government’s plan to support the greed associated with this industry and administration is ludicrous. Everyday people are STRUGGLING, and the government finally does something only when its cronies in big industry are in trouble?

This is an emotional reaction. The FACTS are that the government acted because this crisis was threatening the livelihoods, employment, and retirement savings of millions and millions of ordinary Americans.

There are many people in this discussion who simply DON’T GET the fact that this crisis is on the verge of wrecking our economy and throwing millions out of work. This has nothing to do with rescuing fat cats, and in fact the share-price value of most of the “rescued” firms has been demolished, thus costing their major shareholders millions of dollars.

Now I’m on the hook for bailing out a group of people who gave themselves $39 BILLION in bonuses last year?! This is so wrong it’s criminal!!

Wrong and criminal are two different things. It’s not clear that this mess was the result of any crimes being committed, but to the extent they were we’ve seen a number of top executives go to jail in recent years. But with regard to the burden of the bailout, blame your fellow citizens - they are the ones who elected, and re-elected the current leaders who ran up the federal deficit, gave a huge tax cut to the wealthy, and gave a regulatory wink and a nod to the financial industry. And based on current polls they might do it AGAIN in November.

There seems to be some confusion about the nature of the proposed Wallstreet bailout - some people seem to think that Treasury might actually make money on this deal…. If that were a real possibility don’t you think that there would be private-sector buyers for these mortgage-related junk securities? The problem is that a large portion of the banking sector is broke. The market price of their holdings is insufficient to cover their liabilities. Housing prices are falling, unemployment is rising and these trends will continue as consumer spending falls - at least over the near term - and this will result in more bad debt.

The only reason that Treasury is being asked to do this is because the taxpayers are not in a position to demand fair market value for these transactions and the banks can (at least hope to) off-load this junk at near their book value and thus remain solvent. There will be no payoff for the taxpayers - only a gigantic payout…. of BORROWED funds as the there is no money in Treasury to fund this, and the previous bailouts, and the Iraq war, and the bloated defense/homeland security budget, not to mention the social safety net (the remnants of it), education, infrastructure spending, etc, etc.

This is an attempt to put off, for a little longer, the day of reckoning as the rats try to abandon ship with as much loot as they can carry.

A huge adjustment is ahead and the question is who will control the first stages of it. Wallstreet, the banking and insurance community and their lobbyists are working doubletime to make the best of the disaster and ensure that the “solution” of the day favors their interests. They are trying to use the serious nature of the crisis to browbeat congress with the fearful spectre of financial collapse to impose a solution that favors the few over the common interest, one that absolves them from consequences for irresponsible behavior.

Who speaks for the longterm interests of the country?

Live on less.
Pay off your debts.
Take care of your health.
T-bills if the US government doesn’t bail out everyone.
Gold if they do.

Your advice is speculative. For example, we don’t know yet which way things will go. If we have a deflationary recession then money will actually become worth MORE, in which case gold will go down and the first two advice items are good and the last one would fail. Deflation occurred briefly in the US Great Depression, and more recently in the Japanese downturn of the 90’s.

On the other hand, if the government decides to monetize the debt (and there is some sign of this) then we will see high inflation, in which case you should spend your money now because it will be losing value, and if you have fixed-interest debt you should delay paying it off because you will have the opportunity to pay it off with cheaper dollars later.

Treasuries represent a unique conundrum. Last week some investors were actually accepting the equivalent of NEGATIVE interest rates on some of them just to have their “safety”. The same thing happened earlier this year with some TIPS. Whether Treasuries, or any bonds, are a good idea depends on your expectations about inflation.

Taking care of your health is a good idea any time.

So the bottom line is that the “correct” strategy is a coin-toss baceuase strategies which work well in one scenario will fail miserably in a different one. This suggests that a “hedging” approach might work but far more sophisticated analysts than us were hedging for many of the big companies that just failed. What this really shows is that the Republican approach of making every individual responsible for their own retirement investments through IRA’s and 401(k)’s is unreasonable because it demands a greater degree of financial crystal-ball gazing than normal people can achieve.

This is amazing. Is United States still a capitalist country? If the government can bail out investment banks, why is it so difficult to nationalist health care? Can some one tell us how much it would cost us to get rid of all the health insurance company nationalize health care?

“Sec. 6. Maximum Amount of Authorized Purchases

The Secretarys authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding AT ANY ONE TIME.”

Paulson said that foreign investment firms with US offices will be allowed to use this dumping ground which means that the cost of this worldwide bailout could be trillions.

You can kiss the value of your dollar goodbye (i.e. rising prices) unless you complain to your congressman and stop this travesty (www.congress.org).

” What this really shows is that the Republican approach of making every individual responsible for their own retirement investments through IRA’s and 401(k)’s is unreasonable because it demands a greater degree of financial crystal-ball gazing than normal people can achieve.”

Not to mention the goal was not idividual success, but to grow the pot, and get your average citizen to cast their lot with the weathy, making it easier to forward the agenda of the rich.

Neither of the guests mentiond size or concentration of power as a problem. When one of many fail (i.e. Packard) we let it go, but when one of few fail (Chrysler) we bail it out. When economic power is concentrated in few, the market will not work and regulation is krequired.

I’m so glad to see that there are so many sensible voices here AGAINST these ridiculous bailouts. Although I don’t believe for a minute that anyone can stop congress from getting blackmailed into this fiasco (as with the Iraq war, Patriot Act, etc.), the majority of voices in this forum suggest that at least a fair percentage of americans are going to push for significant change of the system. This bailout is a vote against change for the longterm health of our country. Our only hope is that enough peolple voice enough disgust that something of a chain reaction gets started to shock the anaesthetized to some degree of consciousness. I’m simply amazed by anyone who believes the hype that these bailouts are REALLY ACTUALLY to help the lower 98 percent of wage earners in this country. They must have been on crack for the last eight years. We’re all going to suffer terribly economically because of this debt, interest, and the huge oversight entity it will create. If these corporations were allowed to fail, there would be some Great Depression era -like suffering as well, but the Great Depression led to the character of the Greatest Generation and eventually to an equalization of wealth and to progressive politics that saw to fifty years of the greatest prosperity this country has ever known. Scholarship and modelling for economic solutions are for more advanced than they were in the 1930’s, so sensible policy will be easier to determine in 2009 than in the Great Depression and the timeline for healing will be vastly reduced. All that is needed is a real impetus for change, and the failure of robber policies and these huge corporations would be that impetus. Too bad the majority in congress don’t have the cojones to do what they know is right and resist being blackmailed.

You can kiss the value of your dollar goodbye (i.e. rising prices) unless you complain to your congressman and stop this travesty
I think anyone who does that has an obligation to at least propose a viable alternative.

WRT the value of the dollar, I think that’s speculative. As I mentioned above, I think reasonable cases could be made at this time for both inflationary and deflationary models.

Not to mention the goal was not idividual success, but to grow the pot, and get your average citizen to cast their lot with the weathy, making it easier to forward the agenda of the rich.

If the average people’s lot is truly cast with the rich they would enjoy the same benefits.; I have no problem with the rich getting richer if the poor also get richer. In India and China right now literally MILLIONS of people are entering the middle class who were dirt-poor a decade or two ago. Capitalism is serving them very well. In the words of that great capitalist, Deng Xiaoping, “To get rich is glorious.”

On the other hand, if the government decides to monetize the debt (and there is some sign of this) then we will see high inflation, in which case you should spend your money now because it will be losing value, and if you have fixed-interest debt you should delay paying it off because you will have the opportunity to pay it off with cheaper dollars later.

question for peter nelson: is this the case no matter what your fixed interest rate and amount of debt is? is there a point, in both, where inflation isn’t likely to catch up with the interest costs of delaying payment? and not knowing what point that is or whether inflation will do so, doesn’t it always make most sense, especially considering one may lose one’s job or house or health, to pay off as much debt as one can, rather than buying new stuff? just as it always makes sense to take care of one’s health?

and are you suggesting that if there’s going to be inflation, people should, say, remodel their kitchen now and go into debt for it, because it will end up costing less overall?

For the past five years or more, I have been writing to my senator, Richard Shelby, and the president, and blogging about the financial mess we call markets. For the governement , for senator Shelby or Hank Pualson and other to claim they did not know what the mess they were creating is to say that the believe that the americans are totally stupid. But who in this country IS responsible? No one knew about nine-eleven either and no one got fired. Now the same, we have been screwed and no one is responsible? But as a nation what can you say when we can not now even say that a mother shjould have taken better care raising her daughter who got pregnant at a young age. Liberals and conservatives, Democrats and Republicans, we are only used to making excuses after each screw up. This mess will take years to fix, middle class and the poor will suffer, taxes will have to be raised or services reduced to reward the multi millionaires and billionaires for gaming the system and screwing over the public in general, O the times tha we live in. And one more thing, the conservative radio , lead by the Scum in cheif, Neal Boortz is still saying that the problem was caused only because the democrats in congress wanted banks to loan money to the poor to buy homes. America, how stupid can you get.

“There seems to be some confusion about the nature of the proposed Wallstreet bailout - some people seem to think that Treasury might actually make money on this deal…. If that were a real possibility don’t you think that there would be private-sector buyers for these mortgage-related junk securities?”

Exactly. What scares me about this is that I am skeptical that whoever is represents the government in these negotiations will pay higher than market prices for this junk. As you so eloquent point out, there are no other buyers out there, but I’m afraid that the government will pay higher than market value anyway.

question for peter nelson: is this the case no matter what your fixed interest rate and amount of debt is?

“It depends” on too many different variables - you have to do the math for your own situation.

For example, the only debt I have is a fixed-rate mortgage of 5.375%. Prepaying principle of such an instrument is essentially like putting my money into a fully-taxable very illiquid CD paying 5.375% So if I expected to keep my job (and thus my tax bracket) I could anticipate an after-tax “return” on that money of maybe 2.5%. So if I expected inflation to be considerable higher than that I MIGHT be better off putting my money into a Series I savings bond or 5 year TIPS and just waiting to pay off the mortgage with cheaper dollars.

We’re pretty close to having our house paid-off - we could have paid it off at any time in the last year and expert advice on whether to prepay your mortgage is highly mixed because it depends on your savings, income stream, interest rate, and the opportunity cost of the money you would use to do the payoff.

and are you suggesting that if there’s going to be inflation, people should, say, remodel their kitchen now and go into debt for it, because it will end up costing less overall?

Again, it depends. We’re about to put in new windows. It will cost us about $20K. We have the money saved up, and more importantly, we also have a fat “rainy day” fund we’ve been building for decades, mostly invested in inflation-protected instruments (TIPS and Series-I bonds). So the windows are not coming from money we’ll need to live on, and more importantly, they’re not coming from an inflation-protected pool, so we better spend the money now. Furthermore, new windows will reduce heating costs, and anything that improves cash flow is good if we get laid-off.

So if I expected to keep my job (and thus my tax bracket) I could anticipate an after-tax “return” on that money of maybe 2.5%.

I meant 3.5%.

“WRT the value of the dollar, I think that’s speculative.”

Nope, not speculative at all. The only way this bailout can be done without hammering the dollar is by raising taxes, and no one is going to do that.

The other alternatives - issuing debt or printing money - will pressure the dollar, interest rate parity be damned.

The other thing that few people are talking about is that if they fund this bailout with debt, it’s entirely possible that the U.S. could lose its AAA debt rating. The implications of that are truly scary.

By the way, it is absurd to say that the average american will have any significant savings wiped out by allowing these corporate failures…

“The average American with a credit file is responsible for $16,635 in debt, excluding mortages, according to Experian. (Source: U.S. News and World Report, “The End of Credit Card Consumerism,” August 2008)”

The average american with a 401k has only slightly more than $120,000 today, and that averages in the top five percent of wage earners, clearly skewing the total for the lower 95 percent.

The only way americans will be secure in retirement is to ensure social security is solvent and perhaps to see the return of Unions and a sense of corporate responsiblity for workers (ie.- supplemental pensions, not necessarily huge ones). Nationalized healthcare is also desperately needed if we don’t want to see more people dying under highway bridges.

REAL adjusted unemployment(not the skewed GAO statistic) is now well over ten percent and not likely to improve any time soon.

THE MYTH THAT THE WEALTHY ARE RESPONSIBLE FOR MOST JOB CREATION:

The Trickle Down theory doesn’t work because the wealthy don’t put even half of their money into companies that create employment… they bet as much against the market as they do on it, they invest in exotic schemes and to a large degree they invest outside the U.S.

When more wealth goes into the hands of many, that money really does move more effectively through the economy creating real jobs. Millions of people spending money on all the variety of goods and services that they need spurs far more economic activity and spreads wealth far more effectively than one person with hundreds of millions investing less than half of it on real companies that actually create jobs.

Every dollar earned on this planet has a sort of curse attached to it in the form of what it takes to create that dollar of wealth… limited world resources are used, pollution is created, the environment is affected, etc. So what justifies one person hoarding so much more when every dollar earned costs the entire legacy of the world something in the way of a curse?
This is why the wealthy should pay a graduated increase in terms of the wealth they amass… no one person deserves to use up so much in terms of resource wealth and the cost to the environment without paying more proportionally for the good of the rest, especially when that one person has cost the rest in terms of legacy.

The cost in planetary legacy and the fact that wealth creation works more effectively when spread out among many is why so much of our system needs a messaive reevaluation and drastic changes.

Let these huge corporate entities fail according to the laws of Free Enterprise, and then let democracy take its natural course to heal.

“I think anyone who does that has an obligation to at least propose a viable alternative.”

House prices have doubled over the past decade.

http://img253.imageshack.us/img253/4562/nytshillergraphsept07db0.jpg

While wages have remained flat.

http://www.centrists.org/images/charts_and_graphs/post4_2004_content/eci_wage_real.gif

Low wages plus high house prices are unsustainable and it is foolish to waste taxpayer money trying to continue it.

House prices have to drop (few bailouts/depression), wages and all other prices have to rise to match housing (many bailouts/hyperinflation), or we must limp along for a decade or two until the market comes back into balance.

Prevention was the best medicine. It’s too late for that now and continuing to kick the can down the road will just make things worse in the end.

P.S. I am a renter and a saver so guess which solution I want.

“WRT the value of the dollar, I think that’s speculative.”

Nope, not speculative at all. The only way this bailout can be done without hammering the dollar is by raising taxes, and no one is going to do that.

In the 1990’s Japan issued lots and lots of bonds to pay for their incredibly expensive and unsuccessful attempts to stimulate their way out of their recession and the BOJ lowered rates to 0. Total Japanese government debt rose to 130% of GDP. Yet despite this the yen has either maintained or gained strength compared to many of their trading partners. When I was my company’s liasson to our Japanese partner in the ’80’s it took 240 yen to buy a dollar and today it takes about 114. Against the British pound it’s has maintained rough parity since then (with ups and down in between), etc.

The value of the dollar depends not only on what’s going on here, but also what’s going on eleswhere. If the ECB lowers rates that would drive the dollar up; if the whole world becomes unstable, there might be a flight to dollars. If predicting currency swings were simple we’d all be counting our millions from currency arbitrage.

When more wealth goes into the hands of many, that money really does move more effectively through the economy creating real jobs. Millions of people spending money on all the variety of goods and services that they need spurs far more economic activity and spreads wealth far more effectively than one person with hundreds of millions investing less than half of it on real companies that actually create jobs.

What would you cite as a modern example of a society that illustrates the principles you espouse?

It’s also worth noting that if Michael is right and this does lower the dollar that’s not an altogether bad thing.

Many economists think that the reason we’re still in positive territory, GDP-wise, is because of the strength of US exports, due to the weak dollar. I work for a company that exports about 2/3’s of what we make so I certainly owe my job to exports.

Furthermore, a weak dollar should help correct our trade imbalance, and make imported oil more expensive, which will reduce demand and encourage alternative energy development.

Also, if we have a recession, this will blunt demand, which will mitigate against inflation even if the dollar does weaken.

The current 10-year bond rates do not suggest that most investors are anticipating extreme inflation.

Our own society, Peter. The United States from between about 1935 to 1985, or the time at which New Deal and other progressive policies and began to have an effect until Reagan started dismantling these policies. The wealthy, for a short time, had a conscience in this country… a time when CEOs earned a few times the average workers pay instead of hundreds of times the average workers pay, and when company execs understood Henry Fords tenet that for the real success of corporations, workers had to earn enough to buy the goods and services that were being offered.

“If predicting currency swings were simple we’d all be counting our millions from currency arbitrage.”

What’s arbitrage got to do with it? A currency arbitrage opportunity exists when there is a disparity in the price of a currency in different markets. That’s not what we’re talking about here.

“Yet despite this the yen has either maintained or gained strength compared to many of their trading partners”

But not against the dollar. Japan’s budget deficit as a percent of GDP has continued to grow from the mid 1990’s to 2000. During that period, the Yen weakened against the dollar. Know what else was happening in that period? We went from budget deficits to a budget surplus.

Great comments Peter Nelson. I watched GMA this morning and was appalled at an interview with three women who seemed to be oblivious to the last week’s disasters effecting their vote. When will people learn.

Isn’t there another way to restructure the bailout? One that avoids all the moral hazard both for overreaching homeowners and overreaching banks?

The Big Picture has a modest proposal. It seems better than the Paulson bailout. Essentially it gives govt loans to some homeowners, propping up some of the toxic waste while the banks unwind.

Write your congressman and senators; ask them to look at the alternatives.

Previous comment got the website truncated… you can read the proposal at bigpicture.typepad.com.

The Big Picture has a modest proposal. It seems better than the Paulson bailout. Essentially it gives govt loans to some homeowners, propping up some of the toxic waste while the banks unwind.

Write your congressman and senators; ask them to look at the alternatives.

I wasn’t quite clear how the Big Picture plan avoided the moral hazard problem, since esentially it allows irresponsible homeowners who took out insane mortgages to not lose their homes or shirts. There’s an old saying: “Being stupid SHOULD hurt!” But the practical problem is that if we put the stupid people out on the street it lowers the property values of those of us who made rational, responsible choices.

I agree that we should consider alternatives to this plan, and there are many to choose from. I wrote to my congresswoman and my senators advising them to consider alternatives, and to not get stampeded like they did on the Iraq War, into a big expensive disaster. I provided a list of questions to consider before adopting any plan.

We are looking into the economic abyss right now, and it’s a near certainty that for the next decade we will all be poorer than in the last one, and that the chance of Obama or anyone implementing any of the Big Plans such as national health insurance have pretty much been erased because the US will just be too poor and in hock.

With any luck the US will develop some sort of genteel third-world charm of decaying poverty, sort of like Cuba today, but hopefully without the political prisons. And it will neatly solve the Mexican immigration problem since there will be few jobs available here and Americans will finally be willing to work for Mexican-immigrant wages. The Chinese have the most to lose, since their holding of US paper will become nearly worthless, and the collapse of their biggest export market will make it impossible to maintain the feverish economic growth that has kept the its historically restive population from staging yet another peasants’ revolt.

We are about to enter a truly memorable period of history. Hang onto your hats.

. . . you’ll need them for begging on street corners.

Thanks for the forum today. Two points. First, apparently, the mission should not be called a “bail-out” since shareholders lose all. Keep focus on who are the stake holders in a 700 billion deal? And keep looking.

Second: James Galbraith said, if I understood correctly, that the deficit-increasing rescue transactions would NOT preclude candidates’ plans for spending. Somehow, health care and infrastructure repair, as Obama example, would still be possible, since dollars now allocated to bad debt would be freed up, like energy, to fund social programs. How does that work? Sounded like Robert Shapiro, on Marketplace today,
said the opposite; that the 700-bill plan would wipe out funds for such spending.

Can anyone explain? Important point for candidates to communicate.

This is an emotional reaction. The FACTS are that the government acted because this crisis was threatening the livelihoods, employment, and retirement savings of millions and millions of ordinary Americans.

Your right it is and this how revolutions are started.
Although I think Americans are to complacent and wont take to the streets. I should know I as guilty as the next person.

If enough people start to feel that the government is not working, that the whole game is falling apart you will get unrest. This happened the late 1890’s and early 1900’s.

In the 30’s there were labor riots.

People are emotional it seems to me to be a natural reaction.

We have lost our country if you ask me. We no longer control it, it is controlled by Wall Street, Big Oil, and other large corporate entities.

I don’t trust any of these people, they have do something however they had been warned by economist and members of the G7. They did not head the warnings so now we might end up some morning and think we are in Argentina.

this how revolutions are started.
Although I think Americans are to complacent and wont take to the streets.

No one thought the Russian peasants would revolt but when they finally did the result was a one of the most brutal governments in history.

The economic consequences of this situation will be bad - probably a decade-long recession; millions of Boomers too poor to retire so they stay in the workforce sucking up jobs in an economy that will already have high unemployment, not to mention a frightened, excessively risk-averse financial industry making it impossible to finance startups and business expansion.

But what’s worse is the risk of violence, riots, and repression. This bailout puts the government in so much hock that we can kiss the chances of any national health insurance goodbye. There will also have to be huge cuts in other domestic programs. And all this at a time when millions will be losing their jobs. There will be lots of civil disorder and the government will use this as an excuse to reduce our civil liberties even more. That will radicalize even more people and things will cascade.

“First, apparently, the mission should not be called a “bail-out” since shareholders lose all.”

It is a bailout: the shareholders lose nothing. Unlike Bear Stearns, Fannie, and Freddie, whose stocks were hammered, the shareholders actually benefit by the removal of bad loans from their companies’ balance sheet. That’s why banks stocks rallied hard after this came out, e.g. Citigroup went from $14 to $20 in two days.

Why isn’t Congress considering alternatives to the Administration’s financial bailout plan? The failed institutions caused the problem, but the repercussions are much broader, and bailing them out does not address the basic problem, i.e., the faltering economy due to excessive debt at all levels of society, driven by the housing “bubble” which was created by these now failing institutions.

Any solution should focus on aiding those at risk of losing their homes. It should address the need to renegotiate the costly mortgages, and even to reduce the principal to the present market rate. Mortgages should be provided at a fixed rate, e.g., 6%, with no points or added fees. To make this more palatable to the financial institutions, the government could reimburse the appropriate financial institution for the difference in principal between the market value of the property when the loan was first negotiated to the present market value, which becomes the principal of the new mortgage. In the case of subprime loans, it is possible that where the property value has fallen, the present owner may be able to afford the reduced mortgage. Addressing individual mortgages identifies specific assets and costs. A temporary organization would have to be established to set the rules that would apply and create the network for the homeowners who have been victimized. This should be confined to primary residences to reduce the likelihood that those who were speculating on the housing market could now profit from the crisis. This should prevent foreclosures, stabilize the housing market, provide financial institutions with additional working capital, and be less costly than the presently proposed bailout. It allows decisions to be made in a non-panic mode, as opposed to the present crisis mode, which is guaranteed to result in flawed decisions.

As far as the financial institutions at risk, if they cannot survive under these conditions, they should be allowed to fail, because other existing institutions would step in when it becomes apparent that these “toxic assets” can be detoxified to some reasonable extent. The financial institutions that encouraged and promoted these risky investments, and the executives, brokers and investors that reaped their benefits, accrued significant wealth as a result. They had their day, now it’s time to pay.

Another risky path is letting private equity firms “invest” in banks. Is the goal here to allow more profiteering on Wall Street and set the stage for the next financial crisis? It appears that there is too much creative thinking going on here, and not enough consideration to the “tried and true.” Now is the time for caution, not risky “quick fixes.”

It is important to re-regulate financial institutions and place constraints on their lending practices, on interest rates which have become usurious in recent years, and on the practice of encouraging borrowing via credit cards to people they know cannot afford them, and then charging them higher interest rates so that they can never pay off their debts. That used to be considered “loansharking.” The present crisis makes it clear that “laissez-faire” or let the market decide, is license for those in power to pursue profits by any means. Where is government “of the people, by the people, for the people?” Today it has become government “of the rich, by the rich, for the rich.” Will Congress step up to change that, or will it capitulate to the moneyed interests?