I don't think I have a strong enough grasp on economics to truly judge the proposal on its merits, but I do have a feeling of "Fool me once, shame on — shame on you. Fool me — you can't get fooled again" when it comes to the Congress signing over such unrestricted power to the current administration.

That said, I found Sebastian Mallaby's piece in today's Washington Post comparing and contrasting this bailout with the RTC to be interesting:

http://tinyurl.com/3kxr6p

On 60 Minutes last night...

Q: In 1999, you were one of the senators who helped pass deregulation of Wall Street. Do you regret that now?

McCAIN: No. I think the deregulation was probably helpful to the growth of our economy.

Fort Bend Owl Wrote:On 60 Minutes last night...
Q: In 1999, you were one of the senators who helped pass deregulation of Wall Street. Do you regret that now?
McCAIN: No. I think the deregulation was probably helpful to the growth of our economy.

That statement is probably more true than false. Deregulation almost always does more good than harm to an economy as a whole. The problem is that the whole line of questioning misses the point.

The McCain statement that I disagree with is that the fundamentals of the economy are sound. IMO that ranks up there with Gerald Ford's "Poland is free" gaffe in the 1976 presidential debates.

Our economy is fundamentally in very bad shape. We don't make anything here any more. We used to be the world's factory while sustaining higher wages, because we could offer a better educated and more productive work force, better infrastructure, lower taxes, and less harmful government interference, but those advantages are gone. We still have a high income per capita, but we are sustaining that by borrowing out the wazoo. We spend too much of that income on consumption, and save too little. The federal government is $400 billion a year in the hole, and our trade deficit is $800 billion a year. Another year older and we're another $1 trillion deeper in debt, and we owe our soul to China. $400 billion of each year's trade deficit is imported oil, but we remain the only country in the world with prohibitions against domestic exploration. We also remain the only developed nation without some form of universal health care, and the only one which has not implemented some form of national consumption tax so that tax rates on various forms of income can be lowered to attract investment. One problem with our "service economy" is that without value-added activities it's hard to justify high wages; you can't pay someone as much to deliver pizzas as you pay skilled operators of sophisticated steel-making processes. So our income disparity between highest-paid and lowest-paid employees gets bigger. There's more, but that's enough for now.

Ross Perot picked up on a lot of these problems in 1992, and his message resonated with lots of Americans. Instead of addressing the problems since then, we've been trying to play games to cover them up--at some times more cleverly than others. I don't know how much longer the charade can continue, and I don't know how ugly it will get when stuff hits the fan. I believe what we've seen so far is the tip of the iceberg, and it's going to get a lot worse before it gets better.

Sorry, duplicate post for some reason.

Yup. We have a consumption-based economy that only works in the short term if people spend as much as possible, and that is not sustainable for the long term.

"Buy as much stuff as you can, and force the prices down so you can buy even more stuff" might be what keeps every descendant of Sam Walton on the Forbes list of richest people, but as an economic "game plan" it is just a cancer on the American economy.

OwlSD Wrote:Yup. We have a consumption-based economy that only works in the short term if people spend as much as possible, and that is not sustainable for the long term.

"Buy as much stuff as you can, and force the prices down so you can buy even more stuff" might be what keeps every descendant of Sam Walton on the Forbes list of richest people, but as an economic "game plan" it is just a cancer on the American economy.

What do you suggest our economy should be based on and how do you propose to make the change?

Not trying to be argumentative, just trying to find out what you want.

How do we structurally change the economy? Good question. We didn't get in this muck overnight; it's taken nearly 30 years (maybe more) to get here.

What do we need? We have to have an economy that includes a lot of people who make things (not necessarily in factories -- could be people who write computer software as well as people who build cars) that people both here and elsewhere want to buy.

Wealth should be generated by good legitimate businesses that create and sell things that people want and need; not by future iterations of Enron that buy and sell worthless certificates and send money to offshore accounts in the Cayman Islands until the prosecutors finally figure out what was going on.

The majority of the people who make those things have to be here making good money and not in a low-wage country overseas making a dollar a day. When those people get their checks, they need to save some of that money rather than spending 125% of it.

To paraphrase Perot, we can't build a prosperous economy based on Wal-Mart workers shopping at Wal-Mart, or on people delivering pizzas to each other.

ausowl Wrote:

WeatherfordOwl Wrote:Maybe some of you business types can help this old EE. Why do I care if the (paper) value of my house drops, unless I'm trying to sell it right at that time? If I'm still able to make the payments for it, or if it's already paid for, why do I care? Why wouldn't I actually want the paper value to drop so that my property taxes might decrease?

NY Times Article - Fair Game - Your Money at Work, Fixing Others' Mistakes

and if you want a populist spin on matters, a friend's blog:

http://foreclosurebuzz.org/

So you seem to be suggesting that the problem is much bigger than my house value. I can buy (no pun intended) that. 'Wonder why the taxpayers have to buy all that bad debt? Why can't they auction off those bad loans for some cents on the dollar?

Answer: Election year politics...and it costs them nothing to do it. It just costs us taxpayers mucho dinero to be duped, once again. They are spending our money to buy our votes. And it's not just one party doing it. It's both parties working together on this good deal. What a good deal!(?)

OwlSD Wrote:How do we structurally change the economy? Good question. We didn't get in this muck overnight; it's taken nearly 30 years (maybe more) to get here.

What do we need? We have to have an economy that includes a lot of people who make things (not necessarily in factories -- could be people who write computer software as well as people who build cars) that people both here and elsewhere want to buy.

Wealth should be generated by good legitimate businesses that create and sell things that people want and need; not by future iterations of Enron that buy and sell worthless certificates and send money to offshore accounts in the Cayman Islands until the prosecutors finally figure out what was going on.

The majority of the people who make those things have to be here making good money and not in a low-wage country overseas making a dollar a day. When those people get their checks, they need to save some of that money rather than spending 125% of it.

To paraphrase Perot, we can't build a prosperous economy based on Wal-Mart workers shopping at Wal-Mart, or on people delivering pizzas to each other.

So what happened 30 years ago to structurally change the economy? Just reverse that.

For people here and elsewhere to want to buy our products, the price must be competitive, right? If we can make quality products at a competitive while paying labor "good money", great. I'm all for it. What is your suggestion, though, if competitive prices and high wages are incompatible? IOW, what is Plan B?

I'm OK with more businesses that create real products instead of paper. How do we encourgage that? Higher taxes on businesses, maybe? Higher payroll taxes?

You want more of those people who make things we want and need to be here instead of third world countries. Me, too. One way to do this is to drill here, drill now. Bring back that needed oil production from overseas and let some of our American workers get those $35/hour jobs instead of those Venezuelans.

I agree that these and other workers should save and invest more of their income. How do we encourage that? Higher capital gains taxes? Personally, I think lower CGT and higher limits on IRA and 401K contributions would be good. Am I wrong?

I am anxious to hear more details on your solutions to the problems you have identified.

OptimisticOwl Wrote:I am anxious to hear more details on your solutions to the problems you have identified.

Good luck with that. I am not the operator of a think tank where PhD's churn out position papers all day.

But, however it's done, if Plan B is making everything overseas and hoping that Americans working retail jobs are going to be able to buy it all and keep the economy afloat, that won't work, either.

Vegas Owl Wrote:

Hambone10 Wrote:okay.. I could give a long diatribe about this... but in a nutshell... our financial markets are based on the free flow of credit at a price... when that flow stops... its not just that one business that stops... but a thousand related crashes...

So, the key question I do not see any talking heads asking (not that I would expect them to, they are shills for their masters), "why did the givers of credit stop providing it?"

I feel for any individual who has gone through a corporate bankrupcy. However, there are worse things than bankrupcy. I fear that our current "leaders" are taking us to a place far worse than bankrupcy.

Disclosure: I worked with a company that went through bankrupcy. It was not a happy time, but most survived. A few of the crooks involved with it are still out there, but I feel confident that they will see justice some day.

Again, trying to be brief...

The cost of credit versus the cost of fail. When you finance Merrill Lynch, through debt like commercial paper, and the debt is viewed as at risk... the providers dry up... primarily because most of these liquidity providers are governed by statute... if you have this rating, we'll lend... if you don't we won't. So that source of funds dries up... so they go to collateralized lending... repurchase agreements... where they loan (as an example) 98% of the value of treasuries, 80% of the value of corporates and 50% of the value of stock held by the company (for their own account)... but again, because of the risk of being held up in a bankruptcy court for even a day... the price of a days interest is many times the amount that can be earned by loaning the money...

of course, the money has to do SOMETHING. You can't safely put it in a bank (over the FDIC limit) and you are required (sometimes by law in the case of many municipalities) to earn interest on your money. Pension accounts have assumptions in them that ASSUME a positive rate of return on their money... you can't simply shut down. If you give a bank too much money, not only can they not insure it, but it hurts their leverage ratios, and they have to do something with your money... like invest it... in the very things you probably don't want to invest in.

3 month t-bills are below 1% in yield, because there are trillions of investment dollars chasing a finite amount of debt. I know the amount of debt is increasing... but its simply replacing OTHER debt... it's not increasing the amount of available debt to purchase.

I could go on and get more detailed... but the REAL point is that legislation won't solve the problem. It certainly hasn't stopped people and companies from "working" the tax or welfare or healthcare systems.

If the government buys bad mortgages, then they are taking the risk AND the reward of our housing market. I suspect they will lose lots of money on it, but not anywhere near $700byn... and not all at once.

I don't pretend to be able to come up with an answer as we sit here... but I guarantee that Congress as a body isn't as smart as most of us... and they generally have ulterior motives... their horizon is the next election... not the next 30 years.

Competitive prices and high wages are incompatible when the industry is sewing together Nikes. They are not incompatible when the industry requires a skilled, well-educated, and highly productive labor force. We can compete in those industries with:
1. More favorable tax structures
2. Better education (make our workers again the most productive in the world)
3. Better infrastructure

A value added tax (VAT) or other consumption tax would help in several ways. It would have inherent protectionist elements in being assessed on imports and forgiven on exports, but that basically just levels the field with the rest of the world. Impacts on lower income families could be mitigated/eliminated by a "prefund" check to cover tax otherwise paid by a poverty-line family that spent 100% of pay on consumption. With a 15% VAT and a 30% prefund we could balance the budget with a business income tax of 15%, a payroll tax (like social security) of 15% (1/2 employer, 1/2 employee), and no personal income tax.

Higher business taxes, higher dividends taxes, and higher capital gains taxes make the situation worse, not better. We need to reduce consumption and increase savings, not the other way around.

Drill here, drill now, tax the price of gasoline up to the price of alternatives, use the tax proceeds to make infrastructure improvements (mass transit systems, high-speed intercity trains, etc.) needed to effect real conservation long-term. If gasoline is as expensive as the alternatives, we don't need to subsidize the alternatives.

I have a friend who is a textile engineer. His company moved their mill from South Carolina to Costa Rica. After several years there, he is well aware that his Costa Rican labor force is much better educated and more productive than his South Carolina labor force was. That needs to change. Study the education systems that are better than ours (mostly in Asia and Scandinavia) and implement changes where they do something better than we do. One thing they pretty much all do is test students' progress annually, with real consequences to the students. You have to pass the comprehensive test to pass the grade, and how high you pass it determines whether you are placed on the Ivy League track, the community college track, or the vocational track.

I'm thinking we should create something like FDR's CCC to address the infrastructure problems. Put every able-bodied taxpayer to work if they don't have a job elsewhere.

In 1992 Perot identified robotics and IT as two industries of the future. About that time, Ireland lowered its corporate tax rate from 49% to 12%. Ireland got those two industries. We should have, but didn't. Today we're a net importer from Ireland, and a fairly sizable one. That shouldn't be.

Anytime you support something you get more of it... when you tax it, you get less of it. We support poverty and tax success... Now, this isn't true of EVERY facet of our economy, but its true of most.

We certainly encourage 'entertainment" by allowing celebrities to claim thier chef, trainer, cosmetic surgeon, bartender and DJ as business expenses. Even CEOs are as much celebrities as administrators. It's not because they particularly like it or need it... its because thats how the rules work.

There's an Abercrombie ad with a upper torso of a guy waring nothing but VERY low slung jeans... and you can't see much of the jeans... and this is an ad for a clothing company. I guarantee the model is writing off his health club membership, and if he can afford it, his chef and trainer... plus his tannist and stylist.

I know sex sells... and that is fine... but the message FAR beyond the "self-image" that everyone worries about is the "what are we encouraging by our taxation policies"?? We are encouraging people to be in the business of being popular.... NOT in the business of being inventive or a loyal worker. That (or living off the public dole and making a living "under the table")... is what our taxation policy encourages... and it taxes you as you work hard and raise your income... unless you're popular.

OwlSD Wrote:

OptimisticOwl Wrote:I am anxious to hear more details on your solutions to the problems you have identified.

Good luck with that. I am not the operator of a think tank where PhD's churn out position papers all day.

But, however it's done, if Plan B is making everything overseas and hoping that Americans working retail jobs are going to be able to buy it all and keep the economy afloat, that won't work, either.

That's not MY plan B. My plan B would be to lower corporate taxes. Or maybe that is my Plan A.

I also am not the operator, owner, or employee of a think tank. I'm not even a Ph.D. I do think, and one of the things i think is that complaining without offering solutions is not a good thing. Maybe my solutions are wrong, but i am willing to advance them.

I do not share the same view of the world as you - I view Enron and similar companies as the exception, not the rule, and certainly not a new rule that appeared only in the last thirty years.

The latest personal savings rate is "2.6% - higher than the 1.9% that prevailed in the last quarter of Bill Clinton's presidency" (Donald Luskin, the Washington Post, September 14, 2008). Either number is too small. We are in agreement there. Americans are not going to do much saving without tax incentives. I would suggest exempting the first X dollars of interest income, raising the income limits at which tax deductibility of IRA's are phased out, raising the amounts that can be contributed to IRAs, eliminating the income cap on Roths, and increasing the contribution limits on 401Ks, 403Bs, etc. I know I would put more into IRAs if I could, but current tax laws provide penalties for saving too much.

OptimisticOwl Wrote:Americans are not going to do much saving without tax incentives.

Is that necessarily the only way to get people to save money?

IMO politicos of all ideologies are too obsessed with the tax code as a means of effecting social engineering, as if you could make people do anything, eat more salads and fewer hamburgers, or whatever, if you only had the right cleverly-designed tax incentive.

OwlSD Wrote:

OptimisticOwl Wrote:Americans are not going to do much saving without tax incentives.

Is that necessarily the only way to get people to save money?

IMO politicos of all ideologies are too obsessed with the tax code as a means of effecting social engineering, as if you could make people do anything, eat more salads and fewer hamburgers, or whatever, if you only had the right cleverly-designed tax incentive.

Under current conditions, it is the only way I can think of. If there are others, i would like to hear them.

I agree it would be much better if we didn't use the tax code for social engineering, but it has been the method of choice for a long, long time. And we are not that far away from the example you facetiously (I hope) advanced. Soon, foods on the unfavored list will be more taxed, while those on the favored list will be subject to tax breaks. Kind of like cigarettes and hybrid cars, respectively.

It used to be people saved for a rainy day. Now we have safety nets. They used to save for college - now we have all sorts of financial aid available. They used to save for their "old age" - now we have Social Security and all sorts of retirement accounts. Maybe people don't save now because they see little need for it. If they aren't prepared financially, someone will cover them. If need won't motivate them, maybe greed will. Hence the tax incentives.

I'm sure there must be better ways to increase the savings rate, but I haven't heard them yet. I sure would like to, since our current tax code has become such a mishmash due to various special interests, through their Congressional representatives both left and right, using it as an incentive/disincentive to foster certain behaviors and actions.

Like it or not, taxes are a negative motivator and tax breaks are a positive motivator, and our political system is based on this carrot/stick approach.

Owl 69/70/75 Wrote:This has always been the most difficult part of the liberal mantra for me to understand. Concentrating power in a few capitalist hands is evil. Concentrating the same power in a smaller number of government hands, hands which are connected to other hands that have powers to do things like put me in jail, is somehow a good thing.

Amen, brother! Even if you only look at the last 100 years, it is abundantly clear that governments have done far worse things to mankind than free people have ever done to each other.

Speaking of concentration of power, does this even make sense for the Secretary of Treasury (including whoever becomes it in the next administration) to guide this bailout(source of money quote):

Quote:Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

This should not be allowed. So much for Article III of the Constitution.

gsloth Wrote:Speaking of concentration of power, does this even make sense for the Secretary of Treasury (including whoever becomes it in the next administration) to guide this bailout(source of money quote):

Quote:Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

This should not be allowed. So much for Article III of the Constitution.

I agree, but I seriously doubt it will be allowed to stand in this form.

And I don't buy into this bull**** of "if you make it too punitive (controlling the compensation of the executives whose bacon gets saved by the bailout), the banks won't do it and it won't work." Well, guess what... if the CEOs of these institutions are concerned about all the stock they hold, they'll pretty much have two choices:

1) Accept whatever limitations Congress places on institutions accepting the bailout, thus allowing their institution to remain solvent (and their stock to retain value)

or

2) Internally cut their and other execs compensation by an amount that allows their institution to remain solvent

I'm sure they'll choose whichever best benefits THEM... (whether it benefits the bank or not will be a side issue). I'd prefer that it be the latter.

BTW, if any elected officials are listening... If the Feds will kick in $700B to cover replacing my leaky shower pan or truck's brakes, I'm willing to accept a $1 million cap on my annual compensation. [eta: you may be paying more than the market value of the assets, but Paulson says that's good for the economy.]

Lastly, since Paulson is worth ~$600 million on his own, I suggest that he use his money as part of a demonstration project. If it works, we'll put taxpayer money behind it. If it doesn't, well that's accountability at work.

I have some reservations on the bail out.

1. The Administration wants to cram this thing down Congress' throat. They want a vote NOW. But Congress really hasn't had the opportunity to read and digest the Bill. What do they think this is, the Patriot Act?

2. Congress will have to write the check, so there should be a fiscal impact evaluation. Get some indepedent numbers. I don't trust ANY OMB figures. Remember they underestimated the cost of Medicare Rx Drug Benefit by a factor of 5.

3. If Wall Street gets a Blank Check, then there has to be some accountability for those who caused the mess. There can't be a blanket amnesty for these Execs.

I don't think it will pass anyway. McCain isn't on board. And if he isn't for it, I don't see the Republicans in Congress going for it. This is a "Bush Deal" and the GOP folks in Congress won't touch it without McCain.