Separating policy from politics
For the record, I think Obama seems a decent man and I am thrilled to have a president that can speak in complete sentences and does not have Dick Cheney as a vice president. All of these things are good and hopeful signs.
And it is good to finally see some heated debate erupt into this conversation about bailouts. It’s about time! If you are not taken aback by what is happening, you are not paying attention. A good, vigorous debate is exactly what is needed. Passions should be riled here.
There’s one thing in this discussion that I would like to set the record straight about. I have been a consistent and vocal critic of the bailout every step of the way. This spans a republican and now a democratic administration and you will not be able to detect any difference in how I approach my analysis of the policies of these adminstrations because that’s not how I work.
Folks, this is just not a partisan issue.
I don't see this as a matter of “left vs. right”, but rather “right vs. wrong.”
Anybody who injects partisan dialog into my writing is either confused about the situation or trying to confuse the situation. I am absolutely an equal-opportunity caller of B.S. when I see it. I really don’t care what race, religion or political affiliation a person holds. I will analyze their proposals on the merits as I see them.
What I am doing in analyzing the bailout plans of the new administration is absolutely no different than what I did with the past administration. I am cognizant that more people have placed their hopes for some sort of a rescue on the new administration and that analysis and careful examination of the details and impacts will not be welcomed by everybody, but that’s what I do. I really have no political dog in this fight, and no agenda beyond determining whether we are doing the right things with our precious time and money from this point forward. Because we don’t have much of either and it’s absolutely critical that we do the right things.
And it is a mischaracterization to suggest that folks around here have suddenly gotten worked up over this homeowner bailout. In fact, we have been very consistently decrying both the amounts and the moral hazard at every step of the process. In fact, I dare say this site and this blog was practically first on the scene and has not wavered in its positions.
Here’s a chronological view of my writings on these matters.
On September 21st 2008, I wrote about the What the Latest Bailout Plan Means which drew 19,379 reads and 31 comments (provided to give you a sense of the interest), and said:
Now that the details are out, we can safely state that the US political and financial leadership has completely sold out the taxpayers and has done so in a manner that is startling, both in its recklessness and its brazenness.
The reckless part I will spell out in the details below.
The brazen part is in how this is being spun out, as if the entire plan were hatched in a hurried rush, at the last minute, after events forced the issue. This is the spin, but it is completely false.
Because many financial commentators, ranging from Roubini to Roach to Calculated Risk to myself, foresaw these events, we can be completely confident that these events were both anticipated and planned for long in advance. The only question left was how they were going to be 'sold' to the public. What better way than in the midst of a "massive financial panic" that required urgent action?
And now that the details are out, the plan is even more insidious than I ever dreamed.
Yes, I was pretty worked up over the looting operation that I saw unfolding the minute I laid eyes on it. I knew what was coming. All manner of deceit and maneuvers were going to be used to cram a rotten piece of self-dealing legislation past a scared group of representatives. It would be fair to characterize my mood at the moment as “riled up”.
On September 24th, 2008 I did my level best to ignite some good old-fashioned interest in the situation with a strongly worded article entitled “The Greatest Looting Operation in History”. My hope was to get people actively involved. This piece drew 3606 views and 16 comments.
The recently proposed bailout of failed Wall Street banks represents the most brazen attempt at grand larceny ever in our nation’s history. Some have even likened it to financial terrorism, because Wall Street went so far as to repeatedly say; “Either we get this bailout or the entire system goes under.”
This echoes, more or less precisely, what happened in the years after Ronald Reagan deregulated the S&L industry in 1982. Within a few short years, excesses and fraud were rampant within the system, and taxpayers were forced to cover the inevitable bust that followed. Many well-connected individuals made out like bandits on sweetheart deals meted out by the Resolution Trust Corporation (RTC).
But this crisis, which has been presented as if it caught everyone by surprise, was no surprise at all. It was years in the making, and the response was carefully planned over the past year. The bailout proposal, as originally presented (on Sat. 9/20/08), was shocking.
On October 13th 2008 I wrote an article entitled Handouts to Wall Street Announced, which drew 2959 reads and 26 comments, I wrote:
Once again, the "will of the people" was overridden by Congress in their haste to respond to an "emergency," and, once again, it turns out the people's instincts were right.
Remember the initial $250 billion that was going to be used to buy troubled assets which "we had to do right away!" because otherwise there would have been untold misery and millions of jobs lost?
Even more startling to me is that, instead of slapping the banks firmly on the wrist for being reckless, the government is also "expected to guarantee new debt issued by banks for a period of three years." To put it bluntly, that is just not the way to combat the moral hazard that is clearly endemic to our current banking system. I think the banks should be kept fully on the hook for any loans they make from here on out....mess up again, and your institution goes under.
Next, if you read the list of handouts below, things get even more troublesome (if your measure is "enormous rewards for Wall Street for misbehaving bother me").
Here's a quote from October 14th remarking on the FDIC bending rules to suit Goldman Sachs. (3118 reads/33 comments)
As always, in this never-ending looting operation, the rules are bent and modified willy-nilly to support a favored class of institutions and individuals.
We now have an openly two-tiered system.
And on October 15th 2008 I was already highly alert to the fact that the prudent were going to be punished (3483 reads/36 comments). This was well before any homeowner bailouts were even on the radar:
One of the dominant myths of America is that we practice one of the freest forms of capitalism on the face of the planet. Hard work and prudence are rewarded, while Schumpeter's 'creative destruction' quickly cleans out the mistakes.
Unlike most myths, this one apparently lacks a kernel of truth at the core.
As the details emerge over the various bailouts and market distortions, it is becoming clearer that moral hazard has been increased, not lessened, and that those who behaved prudently during the credit bubble insanity are going to be punished.
And on November 10th in a piece entitled, “US Taxpayers are Violated - the Looting Operation Continues” (6893 reads/53 comments), I wrote:
I am trying to maintain a very level-headed approach to the changes that we are seeing. However, from time to time the looting operation becomes just a bit too obvious, a bit too overt, and I find my level of cool slipping.
This is one of those times.
Here are the dots that I am connecting that have me concerned, if not angry.
Remember, even prior to its passage, I called the bailout the greatest looting operation of our time. I did so because the language of the Bailout Act, as originally proposed by the former CEO of Goldman Sachs, er, I mean the Treasury Secretary, requested three things: unitary power, no review, and no limits.
Frankly, it was the most plainly-worded document of theft that I had ever seen, and probably ever will see, in my life (because it was too blatant and such mistakes are rarely made again).
And so on. There are actually a fair number of additional articles and comments in this vein throughout the fall and into December but I think the point is made. I have been a very consistent critic of what I saw as a transparent theft of funds by a web of self-interested parties.
So there you have it. This site has long been very actively examining the looting operation every step of the way, wallowing around in the details, and generally doing everything possible to stir up some interest in the most magnificent transfer of wealth and opportunity ever seen by anybody alive.
The homeowner bailout? That is just one more (thinly) disguised handout to mortgage companies and banks which will do little of consequence as it treats symptoms, not causes. But one thing it will do is erode what remains of our incentive to work hard and play by the rules.
I think it is one more brick in a path that leads to the destruction of the currency and economy of this country. I think we suffer from too much debt, not sinking house prices.
As a matter of policy, I think it stinks.
And from an analytical standpoint it doesn’t matter to me in the slightest who has proposed it.