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Whiskey Tango Foxtrot, Over? — Why Now?
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Whiskey Tango Foxtrot, Over?

McClatchy has a look at the “plan”: Will latest bailout plan work? No one actually knows

WASHINGTON — The Bush administration swung for the fences Friday with an unprecedented bailout of the financial sector that will cost taxpayers “hundreds of billions of dollars.” It jolted markets back to life for the day, but questions remained about whether the bold effort would actually work.

Truth is, no one knows. America and its financial markets haven’t been down this road before.

Congressional leaders from both parties agreed to work through the weekend to craft legislation that would authorize the Bush administration’s plan to buy up all of the mortgage-backed securities at the root of the problem and get them off the books of banks and other lenders.

So, over the weekend Congress is going to obligate the taxpayers for hundred of billions of dollars to be given to no one knows who, to buy no one knows what, at a price that no one is sure of. This is less scrutiny than the average car loan. We are talking about the equivalent of the Defense budget in one weekend.

WRONG!!! This is reckless, not considered reasoning. Who makes the decisions? Who approves the spending? What do the taxpayers get for their money? Who benefits? How is it going to be paid for?

Getting a bad loan off the books is simple, you write it off. Banks do it all the time. The problem with this mess is that no one can say who owns the mortgages. If you can’t find the mortgages, you can’t foreclose and seize the property to get any of the money back. If they are not buying the mortgages, what are they buying?  What are these “mortgage-backed securities” and how was it decided that they are the problem?

There more questions than can be asked in a weekend, much less answered.


1 Badtux { 09.20.08 at 2:26 am }

Right now the banks aren’t writing off the loans because if they do, they’re bankrupt. Well, actually they’re bankrupt now, but they’re pretending that they have assets — all this bank-owned real estate that has been on the market for a year now not selling for the asking price because the banks don’t want to have to actualize the losses — and that’s doing two things. It’s preventing the housing prices from plumetting back to where they ought to be (where they were before the bubble), and it’s clogging up the housing market because there’s buyers, but they can’t find homes because the banks are keeping so many homes off the market. Well, and then there’s the problem that since the banks are now bankrupt in reality if not on their books yet, they can’t loan out money for homes, and the whole market has pretty much ground to a halt there too.

Simply printing money without addressing the core problems — the overvalued housing market and the bankrupt mortgage banking system — is the least effective way to handle the situation. The Fed printed a *lot* of money yesterday. But as a temporary stopgap until the real problem can be addressed — it is completely understandable.

One thing to understand: While the current actions being taken by the Fed and by Treasury are unprecedented, they are not unplanned-for. Bernanke spent twenty years studying the Great Depression and is one of the world’s foremost experts on the economics of the Great Depression. He has been writing papers on how to handle various situations that could lead to a Great Depression since he was a youngster in grad school. Some of the solutions he’s proposed in the past have been politically impossible until a crisis made them possible. But right now, everything is becoming politically possible because the alternative is pretty damned ghastly.

Finally: Yes, this is all unprecedented. But I will say this. I’ve studied the deflationary spiral that caused the collapse of the U.S. economy in the time period 1930-1932, and while I’m no Bernanke, I have a pretty good understanding for a non-economist of exactly what happened and why. And from where I’m sitting, Bernanke and Treasury are doing maybe not a perfect job, but they are doing what has to be done and they pretty much know what they’re doing (gasp! competent Bush appointees! Will wonders never cease!). Yes, it’s going to be bad. The past ten years of housing appreciation are going to be *gone*. We’re going to be back to 1998 housing prices. A lot of people are going to see their equity wiped out. That is a *lot* of money evaporating out of the economy, thus why the Fed is printing so much money right now. But unless it’s done, and done pretty much in this way, it’s just going to extend the problem on and on and on and the longer it goes on, the more the probability of the nightmare 1930-1932 scenario with banks collapsing and a deflationary spiral bringing the economy grinding to a halt. This is nasty medicine, but the alternative — the 1930-1932 scenario — is all too possible if it doesn’t go down the way the Fed and Treasury are talking.

One thing I will say — if the banks and the mortgage markets aren’t effectively nationalized by putting them under direct federal supervision, this will not work long-term because they will just start doing the same stupid shit again. Which is one reason I damn well hope Obama wins in the fall. Because if McCain wins, the chances of that happening is nil, and we’ll be right back in this same situation in ten years.

2 Kryten42 { 09.20.08 at 10:01 am }

The news here reported that the EU and others are pumping about a trillion $ into the market. The stocks here almost went vertical today! And the $ exchange rate shot up past where it was a few days ago. Economics is definitely not mt forte… But I cannot see this being sustainable for long. They only way I can see the USA, and by extension the World, has any chance of a recovery is stop spending huge on wars. Of course, the problem there is that stopping spending on wars is essentially a death sentence for many MIC companies, which are some of the biggest corporation in the World. *shrug* Either way… it’s bad.

About the only think keeping our economic *nose* above the waterline here I think, is that we have sold tons of Uranium to Russia, and are selling more to China. That and our mineral exports have been booming the past couple years. New mines are being opened up monthly. There has been some talk of stopping sales of uranium to Russia (mainly to pacify the environmentalists and nations that really don’t want Russia to get stockpiles of uranium, even low grade), but I seriously cannot see that happening. One thing we have lot’s of, is uranium.

Going to be a bumpy ride. Hopefully, it won’t be straight over a cliff. Time, as always, will tell.

3 JimD { 09.20.08 at 10:25 am }

…and if it doesn’t work?

4 Badtux { 09.20.08 at 11:43 pm }

Bad things, JimD. Bad things…