Nothing like another spectre of disaster for herding the cats on the hill. The "Done Deal" and "Surge on Bailouts," headlines do not bode well for taxpayers. Once again, it looks like Bush and his masters will whip Dems into action for the sake of action (and Bush's masters). It looks stupid to me.
Here's Krugman:
My sneaking suspicion is that they started with a determination to throw money at the financial industry, and everything else is just an excuse.
Oh, yeah. Dodd and other Dems will extol their concessions achieved. Right. Paulson and Bernenke set initial reference points so high...good grief. Asking for monarchical authority and a $700 billion credit line.
Here's a metaphor. You're selling a $5000 used car in a one-off deal. By the time the car is delivered, you'll be completely out of the picture. Do you ask $5000 for it?
No. You ask $50,000 for it, and settle for $10,000. Or settle for whatever the buyer will give you. Maybe, like Dodd, recently panicked, he'll offer you $40,000. And...Dodd's never looked under the hood. He'll get a car without an engine, and without wheels.
Other people have been looking under the hood of this financial ex-dragster. Here's Roubini:
Even if the Treasury TARP plan is implemented fairly and efficiently the US will not avoid a severe U-shaped18-month recession and a severe financial and banking crisis: the recession train has already left the station in Q1 and the financial/banking crisis will be severe regardless of what the Treasury and the Fed do from now on.
Here's Weiss Research in a 24 page white paper on this situation:
There should be no illusion that the $700 billion estimate proposed by the Administration will be enough to end the debt crisis. It could very well be just a drop in the bucket.
Paulson and Bernenke told us they're looking to buy this toxic paper for up to "hold-to-maturity prices," depending on the price-setting mechanisms they devise in their plan to have a plan. Here's Vikas Bajaj at the NYT on transaction prices that recently have been seen:
In July, Merrill Lynch, struggling to bolster its finances, sold $31 billion of tricky mortgage-linked investments for 22 cents on the dollar. Last November, Citadel, a large hedge fund in Chicago, bought $3 billion of mortgage securities and other investments for 27 cents on the dollar.
Here's Frank Ahrens noting how the bailout could make our situation worse:
"Ironically, the intervention could even trigger additional failures of large institutions, because some institutions may be carrying troubled assets on their books at inflated values," Orszag said in his testimony. "Establishing clearer prices might reveal those institutions to be insolvent."
Here's our friend, Jerome a Paris:
The message could not be clearer - they are not avoiding the brinkmanship - they are escalating it, in the (not wholly unreasonable, given the recent past) expectation that the Democrats in Congress will fold, out of fear of being blamed for the tumbling stock market prices as the plan is delayed.
Hmmm. How are incentives aligned here? For transparency? Or for pushing the problem down time's road three months?
Here's a quote from Jim Welsh:
"We will be told that the Federal Reserve and the Treasury have finally gotten it right. The scope and size of the proposed program will arrest the decline in home prices, restore stability to the financial markets, enable banks to get back to the business of lending, and restore the confidence of the American consumer.
While the program certainly has each of these points as a goal, the amount of time to achieve each goal is unknowable, but an important factor. Moses was told he would lead the Jews to the Promised Land. He didn’t know it would take 40 years. And, in all due respect to Bernanke and Paulsen, Moses was working with God. They are working with Congress."
Here's the only substance we've seen on a bailout bill that may be published, fait accompli, as soon as Monday, Dodd's proposal.
Here's a list of 150 economists with impressive credentials who oppose this railroaded bailout.
After three days, we're all getting pretty comfortable with the idea of a failing $62 trillion credit default swap market.
After three days, $700 billion, or $1.3 trillion seems like quite a comfortable figure, one easy to toss off as if it were nothing. Think again.
What a waste: disaster capitalism. Blundering for action's sake. Dodd and Dems need more on-going public outpouring of dismay to help them strengthen whatever they pass.