Tuesday, September 30, 2008

Sigh. Move to the Right

From the AP (several versions of this articles are available throughout the Internet):

WASHINGTON (AP) — Senate leaders have scheduled a vote for Wednesday on the 700 bllion Wall Street rescue plan rejected by the House.

Majority Leader Harry Reid and GOP Leader Mitch McConnell say, however, that they're going to add a tax cut package already rejected by the House on Monday.

The bipartisan move caps a day of behind-the-scenes maneuvering on Capitol Hill over what sweeteners to add to the bill to attract votes from House Republicans.

Reid and McConnell's move may prove popular with Republicans, but it risks a showdown with House leaders insisting that a popular measure extending certain business tax breaks be financed by tax increases elsewhere in the code.

The Senate plan would also raise federal deposit insurance limits to $250,000 from $100,000.

So, the deal that Reid has cut means making the plan more palatable to Republicans rather than to Democrats? How nice. Can we stop moving to the right? These guys LOST. Their leader is a lame duck. They are hated throughout the country. Act like a god damned majority party, would you?

Raising the FDIC insurance limit would help people who already have a lot of money, but it would not benefit the vast majority of the country. How many households have a cool quarter million in cash just sitting around?

What else are they thinking of?
Other ideas include extending unemployment insurance benefits, typically a Democratic goal, but one that appeals to some Rust Belt Republicans. Another Democratic-backed idea would double the property tax deduction taken by people who do not itemize their taxes. And another calls for more spending on transportation infrastructure projects, which would create more jobs. Budget hawks in both parties might object, however.
Extending unemployment insurance when unemployment is on the rise. There's an idea - helping the little guy and gal not starve or freeze this winter. Property tax deductions are nice if you own property and it is worth enough and you make enough to be able to take a deduction. Hmm, that might help me, but not as much as a solid economy all the way around. Spend money on infrastructure. Does this mean things like high speed rail and fixing delapidated bridges?

I myself like the Red Queen's suggestions:
1) We implement Galbraith's plan to eliminate caps on FDIC insurance and we fund the hell out of it. We also fund the hell out of FBI investigations into Bankster crimes. No one trusts a corrupt financial system and when there is no trust there is no credit. We need to implement measures to instill trust.

2) We put in Hillary's HOLC program. But the mortgages that are most at risk. Keep people in their homes and paying something on them. This keeps property values level because the market isn't flooded with foreclosures while we work all the madness out of the standing loans.

3)Universal healthcare NOW. If we can come up with 85 billion for AIG, we can certainly come up with 85 billion for something that has a much more immediate and comprehensive effect on the health and household budgets of every single person in the country.

4)We have to stop living on credit and start paying people what they are worth. We need a national living wage, not minimum wage. Any person working full time should be able to afford the basics of food, shelter, and transportation. Any business that cannot afford to pay a living wage should fail.

5) Restructure corporate write offs. Corporations can take deductions for two things- wages paid to American workers (not including the golden parachutes of executives) and supplies bought from American companies. There is no reason anyone should get a tax break for spending money outside the US.

6) Tax the fuck out of golden parachutes. There may not be a way to limit the top of the wage scale, but we can certainly make it less profitable to ruin a company and then quit running it.

7) Tax the hell out of profits from dirty energy sources to pay for investment in clean energy. Allow companies to bypass the profit taxation if they put the money into green energy R& D directly.
Hey, Harry, here's a plan Democrats can get behind. Oh, right, you're a bipartisan Obamacan, not a Democrat anymore. Any plan that makes the Republicans happy is just fine by you.



lakelobos said...

All we have to do is what the Swedes and the Japanese have done with their collapsing banks. Democrats will feebly attempt it and give up right away.

I am sure true unbiased experts have different useful solutions to the problem. Let's face it, no one in position of power or leverage in the Democratic party is going to suggest anything but Paulson-light.

Of course we have to act act with urgency, but the action should not be one that solves nothing.

Nothing positive will happen.

harpie said...

If Democrats had said “yeah, right!...hahaha…just look at the mess your ideas have gotten us into! LOL!” to the Paulson/Bush plan immediately, I would have been reassured about their collective “judgment”. I could have begun to “hope” that they would just say “This is what the problem is, this is what caused it, and THIS is the Democratic way WE will begin to fix it, because the Republican voodoo trickle down scam just has not materialized into any real progress for most of US.”

But nooooo…Democratic principles are so yesterday…how could we expect anything different from a Party leader who this past April disparaged [using Republican talking points like a pro] regulation “in the 60’s and 70’s” as “top down command and control”? He then mimicked Republicans about the benefits of instead setting “some guidelines…some rules and incentives” as the “smarter way to” run the country…to avoid “a lot of bureaucracy and red tape…

If our Democratic leaders had actually taken control of the issue, I might not have believed my eyes, but could have once again begun to “believe” that there was a party out there who represents me…but now? Not so much.

I’m definitely suffering from post-partisan depression. [h/t to whomever first said that, it’s perfect.]

shoba said...

You say it so well -- why can't Democrats be democrats? Why do they buy into the reigning party's rhetoric? Oh, right, I forgot -- the repugs didn't win the last election. We have no leadership in this country. The demand for health care already is especially salient. There's never enough money for basic human needs, and always enough for wars ad profits.

Pol C said...

This compromise is more Washington foolishness. People aren't yanking their money out of the troubled banks because they're afraid they're going to permanently lose it; they just don't want to deal with the perceived bureaucratic rigamarole that might accompany reclaiming that money through the FDIC. And anyone who consistently maintains balances in five figures in any bank account is going to be pestered incessantly by the bank to diversify their holdings. I worked as a bank teller once, and actively promoting appropriate financial services to targeted customers is part of the job. I have no doubt anyone who maintains six-figure balances is pointedly told about the insurance limits at every available opportunity. I've got nothing against the government raising the cap, but I doubt it's going to make a whole lot of difference.

And as a small businessman myself, if I have to choose between a tax cut for my business or a tax cut for private consumers, I want it to go to private consumers. The lower the targeted tax bracket the better, because then everyone gets some benefit, and I'm more likely to see an uptick in my business. It's hard to imagine any business, if given a choice between tax savings and potential growth in both gross income and their customer base, wouldn't pick the latter option. On the other hand, a lot of larger businesses have layers of executive and middle management that are all but completely ignorant of the retail realities of their operations. (Think of Circuit City.) They only know the balance sheets, and tax savings is easily quantifiable, even if it's only an estimate. Potential changes in the customer base can't be treated as anything but a variable, and there's nothing a balance-sheet mentality hates more than uncertainty.

The agendas of big business, no matter how myopic, prevail.

YAB said...

The change in the FDIC limit may have unintended consequences, whether good or bad I don't know.

People who have reached the 100K in the past have had to open accounts in other banks - which is good for those banks but not so good for their existing banks. If a large percentage (I have no idea what % of depositors are near or at the current limit) no longer have to move their funds, that must be good news for their existing banks (more money for the banks to play with)- but may inhibit the growth of other banks, maybe esp. those on online?

Would it mean less diversified bank holdings? (An uncle has deposits - way below the limit - in 10 banks because he's so afraid of a failure.) And would that be good or bad?

This is one change that will have an immediate, personal affect for me. I'm not wealthy, but after 30 years of saving regularly, I had just exceeded the 100K at Chase and had enough more at WaMu that, w/o the increase, I would have had to spend the next two years moving CDs as they matured to another bank. This way, the combined bank gets to keep all my money. And I won't have to fret about FDIC coverage.

Karen said...

Anglachel, I do enjoy your blog even though I don't agree with you very often.

However, I do agree with your post this morning, and it seems that once again, Hillary is the only person thinking through this crisis and offering a reasonable solution.

My parents worked all over the world when I was growing up, and I have lived in Europe, the UK and Canada before immigrating to the US, and therefore, have some experience with the socialist premises put forth by the Obama Campaign.

One of the things that I do like about life in the US is the wide variety of market choices and freedom of choice that consumers have here -- no matter what the "item" is. To someone who comes here from outside the US, that choice is breathtaking, and takes awhile to get used to -- truly.

However, once I became used to being taxed at a lower rate, with a lower level of government services, I became quite enamored with the US model. I like having the choice of how much to spend on health, dental, car insurance premiums, rather than have the government mandated one size fits all that I was used to.

However, in the case of the financial markets, the government failed us.

I support the government intervening if given all other similar criteria, ie: income, employment stability, credit scores, minorities were being denied credit solely on race, HOWEVER, I do not support the loosening of lending guidelines to the point where they were thrown out the window.

The role of government should be that of Referee, insuring that all are treated fairly by the same standards. The government did not do that, and continued to change the "rules" almost at will, egged on by members of Congress from both parties and in both houses.

I do not feel we should be bailing out or propping up failing banks.
I know firsthand of very highly qualified buyers who have put reasonable offers in on foreclosed, bank owned homes, and are turned down, or their offers to purchase are outright ignored. Why? Because the banks have NO incentive to try and get these non-performing assets off their books at current market prices; they are holding them because they think the taxpayer is going to bail them out and pay the difference between the value of the deed of trust and the actual market value of the home.

And Congress seems to be willing to go along with it.

I don't care if there is a (r) or a (d) against the name, I am voting against incumbents, unless they voted against the bailout. Our member voted for the first bailout without a whimper, so I am door-knocking for his opponent.

That is the only way we will get the message to Congress -- if we, the people, make ourselves clear on election day.

Anglachel said...


I'm glad you enjoy my blog even if you don't agree with me. I'd like to persuade people to see the world as I do, but I'll settle for making people think.

This is a very interesting comment. I disagree with some of it and would put a different emphasis on the rest.

I keep thinking there must be more Congresss Critters with a better perspective on this thing, but I'm only reading about HRC. I hope she can rally a core of Democrats (and, what the hell, some Republicans, too) around policy measures that actually listen to economics professionals (not just some guy from Goldman Sachs who donated mucho $$$ to your election kitty) and directly address the loss of capital and, thus, the loss of credit which is cascading down the financial hierarchy.

I have a very hard time connecting Obama to Socialism. My perspective on him is that he is the most conservative, least Left-leaning candidate the Democrats have put up for election since at least Stevenson, and probably since before FDR. His economic advisors are Chicago School thinkers, ranging from paternalistic liberatarians to conservatives. Thus, I'm always amazed at criticisms of him that think he's too far Left on socio-economic issues. If only...

If what you most enjoy about the US system is the freedom of choice for social goods such as insurance or medical care, then you are, in fact, very much in line with the philosophy of the economic advisors Obama relies on. I mean this very sincerely and without a hint of snark. They strongly believe in choice, not mandate, and in creating structures that allow opting out. You should look into this more.

I will also disagree on your characterization of lending. There was not widespread abuse of lending practices *specifically aimed at and only available to* minorities. Please read the Barry Ritholtz articles on CRA and the GSEs that I have linked to. The lax lending standards were open to all, and not constrained within the rules of the GSEs. Alt-A, not subprime, is the locus of the most questionable lending practices, and this was aimed at the traditional "first-time buyer" market, i.e., young, white, on the track to professional class affluence, but still trying to get established.

To be clear: I'm *not* arguing that there isn't plenty of fraud, stupidity, bad judgment, and wretched lending practices coming from all of players - borrowers, brokers, mortgage firms, banks, investment banks, etc. A bubble of any kind needs willing participation from all parties. What I am shoving back hard against is the meme that this cause of the crisis is specifically the government requiring banks to loan to minorities in violation of lending standards. That is, to be blunt, bullshit. At best, it is one minor element among many. Again, see Ritholtz.

I do agree that the Congress should not be propping up failing banks. I refer you to Roubini on RGE Monitor who also thinks that the banks could do with a little economic Darwinism.

It is interesting that you bring up foreclosed properties. One of my friends is a real estate agent who talked to me & the spousal unit last week about short sales, foreclosures and regular sales. He would put short sales as the stumbling block as the banks are not set up to handle them and have no incentive to do a "haircut" up front. The foreclosure market is not coming down fast enough and prices are still way too high. Whether that is due to waiting for a bailout or simply being unwilling to take a loss and beleiving that the market will rebound "soon" (HA!) I don't know, but the idea of buyouts must be dancing in bankers heads as they look at a grim selling season ahead. My friend thinks that anyone who has a regular sale, unless they must sell, needs to get out of the market and settle in for a slow decade.

When asked why he robbed banks, a criminal reputedly said "Because that's where the money is." I suspect bankers follow the same philosophy, just looking higher up the food chain.

I am wondering what poll numbers for the congressional races will look like in the next few days.

Thanks for commenting,