Tout
This was going to be a post about how $700,000,000,000 would be the equivalent of a $106.02 handout to every human being--man, woman and child--on the face of the Earth, and then I saw that the bailout bill had failed the House. And then this was going to be about how I didn't know how to feel about the failure of the bailout bill, since it looked like it was going to be a pretty shitty deal for the United States but maybe a necessary one for the economy, but then I saw an e-mail from a friend who works for Wachovia. So I called him instead of sitting down to write something, and it wasn't a good conversation.
Wachovia, the fourth-largest bank in the U.S., has been on shaky financial legs all year, and has piled up a stack of bad debt. So much bad debt and so much shaky business, in fact, that it was formally announced today that the bank was going to be bought out by Citigroup. And that, as it happened, wasn't really good news at all, considering that Citigroup is in a death spiral and it appears that Citigroup's motive for wanting Wachovia was to exploit the $700,000,000,000 bailout plan; this morning, around 10:30 a.m., the article linked to in this paragraph read:
That's the old news. Now, around 5:30 p.m., the article reads:
Casts doubt, indeed. What Citigroup has contracted itself to buy at this point is quite a lot of nothing, no, less-than-nothing: Citigroup has contracted itself to buy into a black hole, a zero-dimensional point-of-suck adrift in space. Current stock quotes, as I write this, show Wachovia selling for $1.84 (down nearly 82%) and Citigroup selling for $17.75 (down nearly 12%). And these are two of the largest banking institutions in the country.
Wachovia is headquartered here in Charlotte--banking is the main industry here. My friend tells me people were crying in the streets when he left work this afternoon. That it looked like a scene from a post-apocalyptic film downtown, and I imagine he's right. That Wachovia employees were told they had three months.
He pointed out that the people who are hit hard by the failed $700,000,000,000 bailout are middle-class, that the people who caused this catastrophic fuckup will still get their parachutes, and I imagine he's right about that, too. I don't know exactly how to feel about what happened in Congress today, because I never was convinced that this bailout plan was a good one, and I'm still not.
There's a reason I keep typing all those damn zeros when I refer to it, you know: "a billion" has become so commonplace as to be a near-meaningless euphemism. There are around 200,000,000,000 to 400,000,000,000 estimated stars in our galaxy, by way of a sense of perspective; Congress was on the verge of handing over a wad of cash between two and three times that incomprehensible number with minimal oversight (what oversight had been agreed upon put much of the oversight in the hands of the people who would be administering the money at the Treasury Department, wouldn't you know?).
But I'm also imagining my hometown becoming the banking-industry equivalent of Detroit, and it's not that unreasonable a picture. And I'm thinking about my friend getting squeezed. And, frankly, I'm thinking about my paycheck being direct-deposited into Wachovia in, oh, roughly six hours, and thinking about how I need to call the State Employees' Credit Union this week, something I'd not done mainly because I've been banking with Wachovia and it's predecessor, First Union, since I opened my first bank account in high school.
There's a man walking his dog outside, and talking on his cell phone. The sun is bright and shining, and the weather is beautiful. The fourth-largest bank in the United States is publicly trading for about the price of a medium cuppa joe down at the neighborhood coffee shop. I'm reminded of an apocryphal story that turns out to be untrue: that on the Fourth Of July, 1776, King George III wrote, "Nothing important happened today." It turns out this is a sort of narcissistic distortion of history by Americans: George III apparently didn't keep a diary, but his French counterpart, King Louis XVI, wrote the single word, "Rien"--"Nothing"--in his journal entry for July 14, 1789: the day French revolutionaries seized the Bastille. The world spins and circles, and dogs are walked and cats fed, people park their cars and check their mail and fix their dinners, children are asked what they did at school today and everything seems extraordinarily ordinary this evening. But it's been a busy day, and things happened--possibly everything, tout. And I guess I'm hoping it's extraordinarily ordinary tomorrow evening, and the evening after, and the evening after, and the....
But I'm not sure there's any good reason for the hope, and I have no idea at all what anyone is supposed to do about it.
Wachovia, the fourth-largest bank in the U.S., has been on shaky financial legs all year, and has piled up a stack of bad debt. So much bad debt and so much shaky business, in fact, that it was formally announced today that the bank was going to be bought out by Citigroup. And that, as it happened, wasn't really good news at all, considering that Citigroup is in a death spiral and it appears that Citigroup's motive for wanting Wachovia was to exploit the $700,000,000,000 bailout plan; this morning, around 10:30 a.m., the article linked to in this paragraph read:
Just a short time ago, Citigroup was under the scrutiny of investors who worried about the possibility of its collapse given its massive exposure to mortgage-backed securities. The New York-based bank has not turned a profit for three straight quarters, and lost a total of $17.4 billion during that period after writing down its assets by about $46 billion. That's the most write-downs of any U.S. bank.
But the government's proposed $700 billion bailout plan could prove to be the deal's silver lining.
While the plan broadly aims to prevent banks from profiting on the sale of troubled assets to the government, there is an exception made for assets acquired in a merger or buyout, or from companies that have filed for bankruptcy.
This detail could allow Citigroup to sell toxic mortgages and other assets it gained from Wachovia for a higher price than the bank actually paid for them.
That's the old news. Now, around 5:30 p.m., the article reads:
Just a short time ago, Citigroup was under the scrutiny of investors who worried about the possibility of its collapse given its massive exposure to mortgage-backed securities. The New York-based bank has not turned a profit for three straight quarters, and lost a total of $17.4 billion during that period after writing down its assets by about $46 billion. That’s the most write-downs of any U.S. bank.
The failure of the government’s proposed $700 billion rescue plan for financial institutions casts doubt on whether Citigroup will be able to rid itself of some of Wachovia’s bad debt. Some expected the bank to take advantage of the plan and potentially sell toxic mortgages and other assets it gained from Wachovia for a higher price than the bank actually paid for them.
Casts doubt, indeed. What Citigroup has contracted itself to buy at this point is quite a lot of nothing, no, less-than-nothing: Citigroup has contracted itself to buy into a black hole, a zero-dimensional point-of-suck adrift in space. Current stock quotes, as I write this, show Wachovia selling for $1.84 (down nearly 82%) and Citigroup selling for $17.75 (down nearly 12%). And these are two of the largest banking institutions in the country.
Wachovia is headquartered here in Charlotte--banking is the main industry here. My friend tells me people were crying in the streets when he left work this afternoon. That it looked like a scene from a post-apocalyptic film downtown, and I imagine he's right. That Wachovia employees were told they had three months.
He pointed out that the people who are hit hard by the failed $700,000,000,000 bailout are middle-class, that the people who caused this catastrophic fuckup will still get their parachutes, and I imagine he's right about that, too. I don't know exactly how to feel about what happened in Congress today, because I never was convinced that this bailout plan was a good one, and I'm still not.
There's a reason I keep typing all those damn zeros when I refer to it, you know: "a billion" has become so commonplace as to be a near-meaningless euphemism. There are around 200,000,000,000 to 400,000,000,000 estimated stars in our galaxy, by way of a sense of perspective; Congress was on the verge of handing over a wad of cash between two and three times that incomprehensible number with minimal oversight (what oversight had been agreed upon put much of the oversight in the hands of the people who would be administering the money at the Treasury Department, wouldn't you know?).
But I'm also imagining my hometown becoming the banking-industry equivalent of Detroit, and it's not that unreasonable a picture. And I'm thinking about my friend getting squeezed. And, frankly, I'm thinking about my paycheck being direct-deposited into Wachovia in, oh, roughly six hours, and thinking about how I need to call the State Employees' Credit Union this week, something I'd not done mainly because I've been banking with Wachovia and it's predecessor, First Union, since I opened my first bank account in high school.
There's a man walking his dog outside, and talking on his cell phone. The sun is bright and shining, and the weather is beautiful. The fourth-largest bank in the United States is publicly trading for about the price of a medium cuppa joe down at the neighborhood coffee shop. I'm reminded of an apocryphal story that turns out to be untrue: that on the Fourth Of July, 1776, King George III wrote, "Nothing important happened today." It turns out this is a sort of narcissistic distortion of history by Americans: George III apparently didn't keep a diary, but his French counterpart, King Louis XVI, wrote the single word, "Rien"--"Nothing"--in his journal entry for July 14, 1789: the day French revolutionaries seized the Bastille. The world spins and circles, and dogs are walked and cats fed, people park their cars and check their mail and fix their dinners, children are asked what they did at school today and everything seems extraordinarily ordinary this evening. But it's been a busy day, and things happened--possibly everything, tout. And I guess I'm hoping it's extraordinarily ordinary tomorrow evening, and the evening after, and the evening after, and the....
But I'm not sure there's any good reason for the hope, and I have no idea at all what anyone is supposed to do about it.
Comments
All the blame for this can be shared equally between Republicans, Democrats, Independents, Green Party members, etc...with a large amount on those investors who signed on for risky loans.
At one time, money was tough to get for people with low incomes, poor credit, etc...Lenders were accused of discriminatory lending practices because the American Dream could not be realized by everyone! So, the requirements were loosened, and money flowed freely into hands to which it did not belong. Banks and Lenders figured that if the loans went bad or into default, the bank would simply take on an appreciating asset, thus making money regardless. Oops, real estate does not go up forever. People who never should have been lent money in the first place, defaulted. Then the tidal wave began, to where we are today.
Is there greed on Wall Street? Of course. Isn't the whole premise of Wall Street about "accumulation"? of course. What we cannot do is bail out Wall Street and expect it to not affect Main Street. Both are in the same bathtub, and you cannot have the water hot on one side, cold on the other.
This problem is ugly; bailout or not. The difference is that we are not prolonging the pain this way. Congress has ripped the bandaid off. America needs to suck it up, and not blame. This is about our nation, and the world for that matter, NOT party politics.
And this is very nearly the main reason why all of the rallying cries against the bailout are awfully misguided. The fat cats are not being punished here - it's the middle-class schmucks like you and me who will be truly worse off if no radical intervention is at hand. We'll all spend less and tighten our belts - and everyone who is not already independently wealthy will start losing income, houses and jobs.
But, seriously, man, Wachovia??? Bank of America rules! :)
While this statement is true on its face, I would contend the issue is also about accountability. Or really, the lack thereof.
Looking at the news today, it looks like there's a strong case to be made that the biggest failing of our leaders right now may have been that nobody--Democrat or Republican--has been willing or able to explain the necessity of a bailout, the mechanics of the bailout, the reason for the dollar amount, or to get the word "recession" past their lips. I remain ambivalent, but I'm starting to get a better sense that we're going to have to bite the bullet and take it.
I like the idea of accountability, but I'm not sure it's realistic. The middle class and poor will take the hit from a recession. It's the middle class and small businesses that will suffer most from a credit crunch (let's admit that credit, in moderation, was invented for good reasons, and that Polonius' banal advice to Laertes--"neither a borrower nor a lender be"--is so 17th century; mortgages, for instance, are a good thing in principle). The fat cats will come out ahead regardless and there's no viable way to punish them--the failure to bail out the industry won't do it, there are few (if any) who could be prosecuted for fraud, and a successful civil case (assuming there's a cause of action) by middle-class investors or the feds seems an improbably long shot.
I'm thinking, then, that Ilya is right.
Maybe what needs to happen (and won't) is that Senators Obama and McCain need to stand on the front steps of the Capitol Building, holding hands and saying in unison, "A failure to pump cash into failing banks right now will cause a recession."
Everybody in the United States fleeing to Canada on cue remains a viable option, no?
Banks can create a spread to make a profit within reason to maintain operations, and allow individuals and businesses to continue to operate.
We will get past this....eventually.
As far as CEO pay? Certainly needs some sort of oversight....Criminal Charges? Not sure that would stick. These CEO's are selected by a Board of Directors voted in by the shareholders. That board make those decisions, so unless the CEO has done something illegal or blatantly unethical, there is little chance for conviction. The government regulating CEO pay is a touchy subject. Not all CEO's are bad, and the good ones would surely choose to work overseas for better pay if our government starts to get involved too much into the process.
Oversight is needed; that's for sure. I believe these packages need to be made public when a CEO takes over; what he or she can expect to receive if they leave their position for whatever reason. Transparancy; allow shareholder the opportunity to say "Crappy deal...that CEO has no incentive to add shareholder value with a golden-parachute like that". This allows the shareholders ample warning to stay or go in advance of a market collapse. I also believe instead of large cash payouts, give CEO's nominal payouts with stock options that cannot be exersized for 18 to 24 months, or in increments over a long period of time. That way, any pain they caused shareholders on the way out, the CEO's will be able to "participate" in.
In the end, not only does Wall Street need to take responsibility for what happens, Main Street needs to take an active interest in knowing the damage they can cause themselves. Finger pointing is easy; taking responsibility is not.
http://www.cnn.com/2008/POLITICS/09/29/miron.bailout/index.html?iref=mpstoryview
Unfortunately, the Miron piece you link to is a classic example of one of the major problems with classical libertarianism: it sounds fine and dandy on paper, but it's vicious and bloody in practice. "Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable." Well, in theory, maybe. In practice, anybody who's had to witness a bankruptcy has probably seen that innocent bystanders and even victims suffer; consider it the fiscal equivalent of a "surgical" bombing in an urban area--it sounds awesome at the briefing and in the simulation, but on the ground afterwards there's dead bodies and wreckage everywhere, and not just the people you were trying to hit.
Employees get fired, creditors get stuck with a percentage or with nothing, in some instances bankruptcies will even have dismal ripple-effects on other companies in the industry (even rivals). And these are people we're talking about. Libertarianism would work a helluva lot better if the libertarians could keep all the damn people out of the picture.
I'm not unsympathetic to some of the ideals of libertarianism, mind you. I'm a civil libertarian and fiscal libertarianism sings a song that can be pretty seductive if you ignore the fact it's only got something like three notes and isn't about people.
But what Professor Miron glosses over is that the people who will actually suffer from the "adjustment" and the fallout from certain investors' risky behavior aren't the investors, really, but all the people who will stop receiving paychecks when they get laid off during corporate reorganizations, not to mention the people losing their homes or all the people downstream--the people who formerly provided goods and services to the unemployed and homeless.
Apocalypse? Of course not... well, probably not. As Michelle has pointed out, we've had financial crises before, and people have survived catastrophic losses and moved on.
On the other hand, do we want a repeat of the Great Depression? The fruits of the Depression included a global move towards powerful centralized governments: in Britain and the U.S. this had acceptable results, but in Japan and Germany centralization took the form of totalitarian fascism. The ultimate cure for the global Depression was World War II. Within the U.S., the Depression was accompanied by an agricultural crisis (which had non-economic causes as well), massive migratory shifts in population, increased crime.... The fact is that the Great Depression marked a massive cultural, political and economic shift globally and within the United States, that America afterwards was markedly different from America before (e.g. Constitutional scholars frequently point to the Depression era as the second American Constitutional crisis--the American Civil War having been the first), and while it turned out remarkably well for the country (all things considered), it could have just as easily ended badly--America could have come out of the Depression as a failing authoritartian state like PRI-run Mexico or (perhaps worse yet) a ruthlessly-efficient authoritarian state like Nazi Germany.
I'm not saying a repeat will happen, or that it will have such dire results. I'm saying that it isn't something we should mess around with if we have a chance to avoid the whole thing. And I'm saying that Professor Miron's piece not only blithely skips over what could go wrong, but also over what inevitably will happen while things "adjust": the fact that his course of inaction will leave a lot of people jobless and what that will do to society.
just this past week i had two $39 over the limit fees placed on a credit card that was given to me by my bank without me even filling out any application forms or signing any agreements. it has a $300 limit, and i don't need the thing, but i thought i'd use it to build my credit. it's such a joke. even though i check the balance everyday online because it is available along with my checking account, i never saw that i went over (by $5 they tell me over the phone from pending charges) the limit. so we can send human beings to the moon but a credit card company can't alert me online of all my pending charges so that i know i will be going over the limit? and the bigger joke? this all happens the same week our government is considering bailing out these bastards because they have greedily gone over their limit. where is my bailout?
while i rant about this i am painfully aware that i am not suffering as much as most americans.