The Doomsday Clock of Aught-Nine

22 Mar

I am not a financial guy. I am not a patient or careful observer of the ins and outs of Wall Street, ancillary entities, or the ostensible regulatory schemes overseeing the markets. My eyes glaze over almost instantaneously at all of it.

To some degree, it seems that every decade needs its doomsday clock. In the 70s, it was an actual doomsday clock, figuring that the Soviets were going to throw some ICBMs our way at any moment, and it was up to Steve Austin to use his bionic powers to save us. In the 80s, it was pretty much the same thing, especially as the communist world began to destabilize and ultimately unravel. The 90s began the runup to the complete disaster we have on our hands today. The 90s started with Saddam Hussein giving the world the finger and raping Kuwait, combined with the new dangers in the wake of the breakdown of a bipolar world. While most people worried more about where Bill Clinton put that cigar, all hell was breaking loose in the middle east, and the dot com bubble burst, teaching us no lessons whatsoever in the process. Finally, this decade, we’ve had 9/11, two wars, all topped off with a steaming pile of financial meltdown.

My lack of patience and deficit of attention to financial things extend even to this Matt Taibbi Rolling Stone article exposing the massive kleptomaniacal fraud perpetrated by AIG, Goldman Sachs, the Fed, and other masters of the universe, all without any governmental oversight at all – not just meaningful oversight with teeth, but any at all. To this day, the lending practices of the Federal Reserve are not only secret, but any inquiry whether from Congress or journalists is met with the kind of eye-rolling you’d expect from a teenager engaged in conversation with her parent in a public place.

Taibbi analyzes what went wrong with AIG, how it committed massive fraud and left us footing the bill. He also argues that the whole bailout is, for all intents and purposes, merely a coup d’etat by Wall Street investment banks acting in concert with compliant politicians and impotent regulators.

There are plenty of people who have noticed, in recent years, that when they lost their homes to foreclosure or were forced into bankruptcy because of crippling credit-card debt, no one in the government was there to rescue them. But when Goldman Sachs — a company whose average employee still made more than $350,000 last year, even in the midst of a depression — was suddenly faced with the possibility of losing money on the unregulated insurance deals it bought for its insane housing bets, the government was there in an instant to patch the hole. That’s the essence of the bailout: rich bankers bailing out rich bankers, using the taxpayers’ credit card.

The thing about all this Wall Street bailout stuff is that you really do need to have some background in it to get any of it. The auto bailout is easy – everyone understands that if you sell a shitty product, you’ll fail. This stuff is complicated by design to ensure plunder without oversight.

The New York Times sort of pre-revealed yesterday what the Geithner – Bernanke plan is to “fix” the financial markets. As this guy points out, there’s not a single independent economist you can find who’ll say it’s a good idea.

Calculated Risk, Naked Capitalism, Paul Krugman,
The shorthand analogy would be to say that Wall Street is in cardiac arrest, and the government’s solution is to inject pure bacon grease into its circulatory system. Balloon Juice shorthands it:

If this were a medical emergency, it appears it would look something like this:

The Illness- reckless and irresponsible betting led to huge losses
The Diagnosis- Insufficient gambling.
The Cure- a Trillion dollar stack of chips provided by the house.
The Prognosis- We are so screwed.

Politically, the problem is twofold and paradoxical. On the one hand, the problem is so acute and crippling that swift action is needed. On the other hand, rushing into this sort of stuff isn’t necessarily the best way to handle such an acute and fundamental problem. Add to that a supercharged political atmosphere, the fact that the vast majority of media figures and politicians are as clueless about all of this shit as you or I, there seems to be way too much on the line to leave it all to chummy Wall Street insiders and doltish Washingtonians.

Brad DeLong has a Geithner Plan FAQ and two of the Q/A are:

Q: What is the Geithner Plan?

A: The Geithner Plan is a trillion-dollar operation by which the U.S. acts as the world’s largest hedge fund investor, committing its money to funds to buy up risky and distressed but probably fundamentally undervalued assets and, as patient capital, holding them either until maturity or until markets recover so that risk discounts are normal and it can sell them off–in either case at an immense profit.

Q: What if markets never recover, the assets are not fundamentally undervalued, and even when held to maturity the government doesn’t make back its money?

A: Then we have worse things to worry about than government losses on TARP-program money–for we are then in a world in which the only things that have value are bottled water, sewing needles, and ammunition.

Assigning blame isn’t necessarily of critical importance at this point. Taibbi spends a tremendous amount of ink going through the historical events that led to banks taking advantage of a dangerous combo of loosening regulations and regulatory loopholes to make incredibly huge bets which ultimately collapsed in on themselves. We then bailed them out, and still have no real regulatory oversight or sunlight clauses to both protect and inform the taxpayers.

Too many people are predicting cataclysm if all of this fails to work. Arguably, it’s the same catastrophe that would have happened had the original bailout not taken place.

Because it’s all so complex and specialized, and the stakes are unprecedentedly high, it’s time for the political elites to stop focusing on sideshows like AIG bonuses, and carefully examine what’s being proposed by the Fed and Treasury here. It’s time for the experts to step in – not the politicians. I don’t care what your representative or my representative thinks about it all. I care what respected economists and financial experts have to say about it. We ought to demand that everything is exposed in the sunlight and that every reasonable solution is considered and deliberated.

This is not the time for schoolyard bullshit. The grownups need to step up.

31 Responses to “The Doomsday Clock of Aught-Nine”

  1. Carl Nyberg March 22, 2009 at 9:24 am #

    Who are the grownups? How will you know them when you see them?

    I’m afraid the media assholes define “grownups” as people from the financial sector, the hucksters who created the mess.

  2. Ike March 22, 2009 at 10:26 am #

    Somehow I doubt you would think “Assigning blame isn’t necessarily of critical importance at this point.” if it were Bush’s apointee’s acting like Keystone Kops

  3. Mike Walsh March 22, 2009 at 11:01 am #

    Good post, Alan. This subject is the most important issue of our current time and needs to be examined constantly as events unfold.

    The real sideshow is the sparring between the two parties over who’s to blame. The fact of the matter is they’re both part of a corrupt system that keeps certain elites in Wall Street and Washington in power and money.

    The media seems to be incapable(or unwilling) of educating the public on any of this.

  4. STEEL March 22, 2009 at 11:38 am #

    I will lay blame. If we had not elected Obama everything would have worked out alright.

  5. hank March 22, 2009 at 4:33 pm #

    there’s no way to find out if “arguably, this would have happened had the bailout not taken place”, beacuse big government rushed to judgement. Any economist would have told you that bubbles break, and the sun still rises.

    Just like the hoax of Global Warming, economies cycle, Japan rushed to judgement and lost 10 years. We’ll likely lose 15.

    Keep the powder dry, and buy as much gold as you can afford—with Geithner and Bernake at the controls, It will be American, not 1923 German watermelons that cost 460 million dollars. Hyperinflation is just down the road, close enough to see.

    But Barry says what McCain said last fall—Our Economy is sound. Since Barry knows as much about the economy as fills a thimble, I’m not getting the warm fuzzy.

    “I have full faith and confidence in Secretary Geithner”—Sounds a lot like “Browine’s doing a good job down there at FEMA”.

  6. Buffalopundit March 22, 2009 at 6:38 pm #

    I’d argue that supplying food, water, and shelter to people displaced by a hurricane is an easier task than to completely overhaul and rescue the entire national banking system, but if it’s a comparison that pleases you, go for it.

  7. Starbuck March 22, 2009 at 7:33 pm #

    How likely is it this bunch will formulate coherent strategies on complex economic issues when they can’t even have a clear consistent position over a three day interval, yea or nea, about Pelosi’s 90% tax?

    Earlier in the week, they made it sound like they agreed with it:

    http://tpmdc.talkingpointsmemo.com/2009/03/obama-praises-bonus-tax-looks-forward-to-getting-final-bill.php

    Obama Praises Bonus Tax, Looks Forward To Getting Final Bill
    March 19, 2009, 6:26PM

    President Obama has just released this statement on the House’s passage of the bonus tax:

    “Today’s vote rightly reflects the outrage that so many feel over the lavish bonuses that AIG provided its employees at the expense of the taxpayers who have kept this failed company afloat. Now this legislation moves to the Senate, and I look forward to receiving a final product that will serve as a strong signal to the executives who run these firms that such compensation will not be tolerated.

    In the end, this is a symptom of a larger problem – a bubble and bust economy that valued reckless speculation over responsibility and hard work. That is what we must ultimately repair to build a lasting and widespread prosperity.”

    Now a few days later, they’re strongly against it for many reasons: “legal issues, constitutional validity, using the tax code to surgically punish a small group of people”.

    Yeah many of the economic problems are complex, but this 90% tax is pretty straightforward. On something like that, why can’t they at least express the same viewpoint on Wed and Thurs as they do on Sat and Sun?

    http://www.politico.com/news/stories/0309/20321.html

    W.H. dials back support for bonus tax
    By KENNETH P. VOGEL | 3/22/09 3:14 PM EDT

    The Obama administration appears to be dialing back its support for the bonus tax legislation generally, and particularly the bill passed by the House last week.

    After the House passed the bill, the White House issued a statement from President Barack Obama saying “I look forward to receiving a final product that will serve as a strong signal to the executives who run these firms that such compensation will not be tolerated.”

    But on Sunday, a top administration economist was much less enthusiastic, calling the bill “dangerous.”

    “The president would be concerned that this bill may have some problems in going too far – the House bill – may go too far in terms of some legal issues, constitutional validity, using the tax code to surgically punish a small group of people,” Jared Bernstein, Vice President Joe Biden’s chief economic adviser, told George Stephanopoulos, host of on ABC News’ “This Week.” …

  8. Starbuck March 22, 2009 at 7:36 pm #

    Yes, I know what reply to expect from some here: “Bush. Bush Bush Bush Cheney Bush Bush pill-popping Limbaugh Bush Cheney Bush. Bush Bush Bush.”

    Great!

  9. Chris from OP March 22, 2009 at 9:39 pm #

    And state after state embraces casino gambling and slots as a salve to cure what ails their budgets….

    Maybe we could try investing in something real after decades of gambling both literal and metaphorical and the short-term solution of consumption as a form of economic development.

  10. Mike In WNY March 22, 2009 at 10:06 pm #

    NYS can stimulate our economy by ending tobacco taxes and letting the extra millions pump up the private sector.

  11. STEEL March 22, 2009 at 10:29 pm #

    Like I said if Obama had not been elected everything would have turned out peachy keen.

    I mean come on – he uses a telepromter and his nick name is Barry. These are serious flaws and we should be worried.

  12. Mike Walsh March 22, 2009 at 11:03 pm #

    The “war on smoking” this decade hasn’t produced any of the projected results.

    Longevity hasn’t increased

    Health care costs haven’t decreased

    Tax revenues from tobacco products HAS decreased

    Convenience stores have lost a major source of revenue and have raised prices on gas, bread, milk and beer….

    Indian nations get rich on more vice…

    Hooray to our legislators and political leaders for protecting us from evil smokers…

  13. STEEL March 23, 2009 at 9:18 am #

    Just repeat over and over that things are peachy keen and it will all be better. That was the basic Bush admin policy.

  14. Ward March 23, 2009 at 11:31 am #

    The past few days’ output from the “transparent” new administration consists of aides blathering about when, or if, Geithner told Obama about the AIG bonuses over the past four months. Geithner–the guy who designed the AIG bailout. Or not. Geithner–who can’t find anybody to send to a congressional hearing to explain where the bailout money went, and if they knew that the target banks owed $220 M in Fed taxes.

    From transparency to deniability in eight weeks. Change we can all count on.
    Actually, ‘tard bowling booboos were a kind of refreshing break from all this.

    Yeah, let’s talk about doomsday.

  15. Byron March 23, 2009 at 11:34 am #

    Wait – Bush dead-enders don’t like Obama? That’s big news.

  16. Russell March 23, 2009 at 11:38 am #

    Go ahead, Byron, keep telling yourself it’s just Bush dead-enders. Obama is already having real problems within his own party, but we all know what a HUGE supporter of George W. Bush Nancy Pelosi was. His support in Congress is eroding by the day, but keep telling yourself none of that matters. It’s just Bush supporters.

  17. Byron March 23, 2009 at 11:45 am #

    I never said it was ONLY Bush dead-enders, but nice try.

  18. Starbuck March 23, 2009 at 11:53 am #

    Yes, it’s better to formulate a gut reaction and stick to it no matter what.

    Of course not. What they said Sat and Sun should’ve been their gut reaction on Wed and Thurs. His public gut reaction earlier in the week, if that’s what it was, was terribly wrong – as they themselves later admitted over the quieter news cylce on the weekend. Saturday, Emaunel quietly spread the word they opposed the 90% tax, then they had Biden’s advisor break the news publicly on Sunday shows. How is it asking too much for them to not wildly fluctuate so much over between Thursday and Sunday?

    Btw, I’m not sure whether they changed their minds dramatically or if the mixed message was deliberate for politics. Doesn’t this episode bear a striking similarity to how when campaigning vs. Hillary they publicly said they’d demand significant changes in NAFTA, criticized Hillary for not doing so, and meanwhile non-publicly the campaign told the Canadian trade office that they really wouldn’t… and then gradually they shifted positions into essentially the same position re. NAFTA as the Bush admin? This sounds similar to me. Fan flames publicly, soon later quietly say the opposite non-publicly, then finesse into the opposite (sensible) position.

    Either way, whether it was deliberately calculated or just emotion-driven, it doesn’t look like a mature competent approach.

    Bush Limbaugh Bush Cheney Bush Fox Bush.

  19. STEEL March 23, 2009 at 12:09 pm #

    You can’t blame the Bush dead enders for their hatred of Obama,

    In a way, the Bush dead enders had more respect and admiration for Obama than even his own supporters. They came into the new year expecting him to fix the Bush disaster in just two months and then when they saw he could not do that they have turned on him. Let them have their grief, These two months have been long time to give someone to fix the entrenched market driven economic melt down. Obama has had his time. It is now tine to let the market correct itself right? I mean after all the free markets and tax cuts are the answer to every problem including cancer. It is time to go back to the peachy keen policies of the Bush era.

  20. Russell March 23, 2009 at 12:15 pm #

    So, Byron, you are admitting that people in Obama’s party, including some of its leaders, are disapproving of the job Obama is doing? Good, maybe you should explain that news to STEEL, as well. And maybe you guys should stop posting solely about Bush dead-enders not liking Obama if you’re acknowledging it’s not just Bush dead-enders.

  21. Byron March 23, 2009 at 12:17 pm #

    LOL at Russell. What a petulant little wanker you are.

  22. STEEL March 23, 2009 at 12:39 pm #

    No Russel,

    I am on your side. The Bush dead enders have been more than fair to Obama. They have given him a whole two months to fix the disaster left by Bush and Obama has failed. I mean how much time does Obama expect anyway..three months?

  23. Byron March 23, 2009 at 12:40 pm #

    13 days of FAIL! Remember that post?

  24. STEEL March 23, 2009 at 12:57 pm #

    And remember- he used a telepromter for his acceptance speech. That alone was a clear sign that Obama would not be able to fix the Bush disaster in less than 2 months.

  25. Russell March 23, 2009 at 1:07 pm #

    I posted a number of times on here that, good or bad, convention holds 100 days before you start evaluating a President’s performance. Even though BP and many others on here wanted to get into that just days into this adminstration, I still think it’s prudent to wait the 100 days.

    And once again, STEEL and Byron, call me all the names you want and make all the sarcastic jokes you want, it doesn’t change the facts you’re afraid to admit. Obama is not just losing support from die hard Republicans. He’s losing it from independents and members of his own party, including key members whose support he needs to get much of his agenda through.

    Pelosi and BP and many others on the left have given Obama much less time than I have.

  26. Mike In WNY March 23, 2009 at 10:20 pm #

    What the hell do tobacco taxes have to do with, well just about anything written in this post at all, even tangentially?

    Your post talks about the economy and the bailout(s). The purpose is to stimulate the economy. Tobacco taxes have a negative affect on the economy and would stimulate growth if eliminated. There, that is not even that tangential.

  27. hank March 24, 2009 at 4:29 pm #

    BP opined
    I’d argue that supplying food, water, and shelter to people displaced by a hurricane is an easier task than to completely overhaul and rescue the entire national banking system, but if it’s a comparison that pleases you, go for it.

    Fuckin’ works for me, Pal.
    Bottom line is that Geithner is screwing the pooch big time, and Barry Hussein SAYS he has full confidence in him.

    Most of the rest of the country does too—full confidence he’s going to turn the Treasury Department into the biggest clusterfuck of the last 50 years.

  28. STEEL March 24, 2009 at 10:34 pm #

    No hank, Bush did that before Obama got into office. Please never ever forget that.

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