The consensus over the last couple of days from syndicated columnists (and remember, since Mike’s been gone, I have to look at all of them every day, and choose the one that we have room for in the paper) is that Henry Paulson’s proposal for saving the credit markets has a lot of problems.
Unfortunately, I’m not seeing a lot of alternatives offered. This puts us as a nation in the extremely uncomfortable position of believing SOMETHING should be done, just not this.
A sampling:
- The Krugman column we ran this morning, "Cash for Trash."
- William Kristol’s "A Fine Mess." Excerpt: I’m not convinced. It’s not that I don’t believe the situation is dire. It’s not that I want to insist on some sort of ideological purity or free-market fastidiousness. I will stipulate that this is an emergency, and is a time for pragmatic problem-solving, perhaps even for violating some cherished economic or political principles. (What are cherished principles for but to be violated in emergencies?)… But is the administration’s proposal the right way to do this?
- David Brooks says "The Establishment Lives!" Excerpt: What Paulson, et al. have tried to do is reassert authority — the sort that used to be wielded by the Mellons and Rockefellers and other rich men in private clubs. Inspired in part by Paul Volcker, Nicholas Brady and Eugene Ludwig, and announced last week, the Paulson plan is a pure establishment play. It would assign nearly unlimited authority to a small coterie of policy makers. It does not rely on any system of checks and balances, but on the wisdom and public spiritedness of those in charge. It offers succor to the investment banks that contributed to this mess and will burn through large piles of taxpayer money. But in exchange, it promises to restore confidence. Somebody, amid all the turmoil, will occupy the commanding heights.
- That phrase, "commanding heights," appears twice in George Will’s column for tomorrow’s paper (embargoed for Wednesday) — in a quote from Lenin and on from the platform of the postwar British Labour government. Needless to say, Mr. Will is not pleased.
- In another column for publication tomorrow, Robert Samuelson urges caution, and lists defects with the plan. The headline: "Paulson’s Panic."
- Bob Herbert, in "A Second Opinion?," writes: Does anyone think it’s just a little weird to be stampeded into a $700 billion solution to the worst financial crisis since the Great Depression by the very people who brought us the worst financial crisis since the Great Depression?
It’s easy to dismiss such rhetoric from Mr. Herbert as more of the usual — he doesn’t like these guys, so he never, ever likes what they propose. But Paul Krugman’s piece rose above that (a rare achievement for Mr. Krugman), and you certainly can’t fit Kristol, Brooks, Will or Samuelson into that box.
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Krugman, Kristol, Brooks, Will and Herbert are syndicated columnists, not policy makers or leaders. They sell words. They answer to editors and publishers, not presidents and prime ministers. They have no power to effect any solution to this crisis, so who cares what they think?
Let’s hope Henry Paulson and Ben Bernanke aren’t huddling up to change their bailout recommendation because Krauthammer and Greta van Susteren don’t think much of it.
Management by the last phone call is bad enough. Leadership by the latest column would be something else again.
Here’s another explanation of what’s happening with a couple of nuances and a prediction:
Here’s Pournelle’s Iron Law of Bureaucracy :
Read the rest. He has predictions that seem likely. Scary.
Hokey smokes! Student loans, car loans, and credit card debt are part of the proposed bill!
What about the bookies and cash advance folks? Will they be left out in the cold?
Here’s a better idea, one that doesn’t put the rest of us on the hook for stooopid gummint ideas like Fannie and Fred’s excellent subprime assembly line, yet gives some breathing room to financial institutions: Expedited American Recapitalization — Now Act (EARN Act).
It incentivizes private recapitalization and provides a backstop with teeth — no free lunches for the financial sector. It provides relief to regualr folks who have toxic mortgages, thus giving them an incentive to hold on and keep on paying. This portion is funded by 5% of all government recapitalization invested in EARN financial institutions.
Financial institutions needing only a little help can wall off their toxic assets (as determined by the Secretary of the Treasury) purchased between December 2003 and August 2007. For these toxic assets, the current mark-to-market rule will be suspended and replaced with a more accurate three year rolling average mark-to-market; and for a fee, insurance of these toxic assets can then be purchased from the federal government. The incentive to work it out this way is a 50% reduction in the capital gains tax.
There’s more, read the rest. This is a whole lot more better, and gooder too.
Why start with the financial institutions? Let’s try a bottom up approach where the government goes directly to the people who got in over their heads as a result of the unscrupulous tactics of big lenders. The government identifies where the trouble is and provides a helping hand directly by buying there loan and refinancing at an affordable rate. Folks stay in their houses and everyone is happy. Sure this would be espensive, but probably less so that the bailouts for the super rich Wall Street firms.
Here’s a good collection of comments and links by economists , some of whom are behaving badly:
bud, the last one is for you.
This is all complicated stuff and it seems that every plan has a down side. But if we end up a finance structure that exonerates the big CEOs (with golden parachutes) who run companies that end up in bankrupcy while allowing millions of working class Americans who were tricked into signing up for an ARM there is a big problem in my view. That could ultimately lead to a populist revolution against big business.
Since the homeowners are asked to pay an arm an a leg for a bad ARM why not throw in a LEG – Leveraged Equity Grant. I’m not sure what that would be, but it sounds cool.
60% of the mortgages in foreclosure are held by speculators, not homeowners.
An estimated 75% of the minorities homeowners in foreclosure cannot repay the loans even with zero interest. That is how bad the mortgage brokers loaded them up.
Maybe Jamie Gorelick, Louis Freeh and others can bail out some homeowners, using those millions of dollars they got in bonuses for mismanaging Freddie and Fannie.