Doing the Hanky Panky

Hat tip CR. Nouriel Roubini has been one of the most consistently pessimistic and consistently correct economists on the scene for years. Even The Krug misses stuff that Roubini picks up. Here is an extended quote from a post Roubini made today about the utter, cynical ratfucking failure that is the Hanky Panky (my emphasis):

The Treasury plan (even in its current version agreed with Congress) is very poorly conceived and does not contain many of the key elements of a sound and efficient and fair rescue plan. ... It is a disgrace that no professional economist was consulted by Congress or invited to present his/her views at the Congressional hearings on the Treasury rescue plan.

Specifically, the Treasury plan does not formally provide senior preferred shares for the government in exchange for the government purchase of the toxic/illiquid assets of the financial institutions; so this rescue plan is a huge and massive bailout of the shareholders and the unsecured creditors of the firms; with $700 billion of taxpayer money the pockets of reckless bankers and investors have been made fatter under the fake argument that bailing out Wall Street was necessary to rescue Main Street from a severe recession. Instead, the restoration of the financial health of distressed financial firms could have been achieved with a cheaper and better use of public money.

Moreover, the plan does not address the need to recapitalize badly undercapitalized financial institutions: this could have been achieved via public injections of preferred shares into these firms; needed matching injections of Tier 1 capital by current shareholders to make sure that such shareholders take first tier loss in the presence of public recapitalization; suspension of dividends payments; conversion of some of the unsecured debt into equity (a debt for equity swap).

The plan also does not explicitly include an HOLC-style program to reduce across the board the debt burden of the distressed household sector; without such a component the debt overhang of the household sector will continue to depress consumption spending and will exacerbate the current economic recession.

Thus, the Treasury plan is a disgrace: a bailout of reckless bankers, lenders and investors that provides little direct debt relief to borrowers and financially stressed households and that will come at a very high cost to the US taxpayer. And the plan does nothing to resolve the severe stress in money markets and interbank markets that are now close to a systemic meltdown.

So where is the Democratic response to get us these necessary policies and plans?

I have to agree in part with Arthur here that Paul Krugman's column yesterday was seriously underwhelming, though I don't think Mr Shrill is quite the shill for the ruling class as Arthur makes him out to be. However, Arthur's right to slap The Krug upside the head for the lame metaphor of "grown-ups in charge" Which then makes me ask, why Krugman, who pulls no punches with Bush, ends up plaintively calling for someone to be a grown-up and make the Hanky Panky go away?

Because the Democrats have played hanky-panky with the election and the voters for the last year:

han·ky-pan·ky /ˈhæŋkiˈpæŋki/ [hang-kee-pang-kee]–noun Informal.
1. unethical behavior; deceit: When the bank teller bought an expensive car and house, they suspected there might be some hanky-panky going on.
2. illicit sexual relations.

The grown-up was forcibly shoved out of the way by some decidedly juvenile power brokers who were so sure that a Democrat could not lose this year that they could nominate their favorite suck up and win. And now we are stuck with a contest between the His Petulance, The Precious and Old Grandpa Creepy, with Gaffaholic Joe and Soundbite Sarah bouncing along in their surly and shallow wake.

The liberals and party stalwarts are left between the Devil and the deep blue sea. Krugman has to argue in a round about way in support of a plan he himself doesn't like at all because the other guys are even worse. He (and Roubini and a whole host of other top economists) won't say flat out that the Democratic modifications to the plan are also trash and the Democrats need to quit being such mealy-mouthed wankers and present their own plan.

You know, act like the majority party and like leaders who expect to take the White House shortly?

As tonight's pitiful debate demonstrated tonight, there is no leadership at the top of the Democratic ticket. Obama mumbled and whined and waffled his way through the discussion of economics and financial policy. His best points were taken wholesale from Hillary's speeches. He has been 100% ineffectual on this crisis, a spectator to one of the biggest political opportunities in decades. His response has been to cave on every point of contention and preemptively declare of course he'll support whatever sausage comes out of committee. This vaguely centrist let's all sing Kumbayah position has meant he has lost a substantial part of the Democratic base and people like Krugman can't give him a shove for fear of damaging him enough to make him lose the tiny margin he must retain to win the general. He is as fragile politically as McCain is physically.

Hillary is the only political figure of any stature who is standing up to the money grab by the Bushies and offering something beyond a bandaid to staunch the hemorrhaging and let us stagger a little further down the economic road. Again, it's not that Hillary said this, but that she is saying the kinds of things all of the Democratic leadership should be saying. As I've pointed out in my recent posts about her statements over the last year, not just the last week, she has been going after the roots of the problem, which is the structure of power relationships between the financial industry and the individual consumers. You can't merely recapitalize, as necessary as that may be to staving off severe recession. You also have to reoganize and shake these bastards off their perches. If you don't you simply encourage more behavior like this (from Bloomberg):

Unprecedented Power

Erik Brynjolfsson, of the Massachusetts Institute of Technology's Sloan School, said his main objection "is the breathtaking amount of unchecked discretion it gives to the Secretary of the Treasury. It is unprecedented in a modern democracy."

Advocates for a rescue plan this week point to a seizing up of credit markets, reflected in elevated inter-bank lending rates, as reason for action. Some economists are unconvinced.

"I suspect that part of what we're seeing in the freezing up of lending markets is strategic behavior on the part of big financial players who stand to benefit from the bailout,'" said David K. Levine, an economist at Washington University in St. Louis, who studies liquidity constraints and game theory.

This is what playing fast and loose with electoral outcomes does, bargaining away vision and capability to face severe, systemic crisis to be able to put up yet another out-of-touch soulless bipartisan nebbish because Democrats "can't lose" this year.

Actually, they can even win the White House and still lose very, very big because they will not have the will or the leadership to take on the systemic problems facing the nation. They will be saddled with all of Bush's failures and not have a clue of how to get out of it because they see nothing wrong with playing the game.

Hanky panky is what they do best.

Anglachel