I’ve been trying to put together my thoughts on this whole Cincinnati Tea Party thing that’s going on tomorrow, and this is probably about the best that I can do. This is gonna be long, so if you’re not interested in reading for a while…well screw it, I don’t know how to collapse the posts anymore so you’re just going to have to suck it up.
Two disclosures right off the bat. First, I confess that my financial knowledge and know-how regarding the whole banking crisis is pretty limited. I’ve done as much reading up as I can to try and understand the whole mess from a realistic standpoint, to try and figure out how we got into this mess and what our options are (and TPM has done about as good a job day in and day out covering the nuances of everything).
Second, I have just about zero respect for this entire tea party concept. These people stood silently as the Bush administration spent hundreds of billions of dollars on a war that we went into with manipulated intelligence, created a $300B+ giveaway to the pharmaceuticals, and kept pretty quiet when they flooded AIG/Citi/BOA etc. with massive amounts of cash. But when the Obama administration created a program to bailout distressed homeowners (the majority of which are good people that caught a few bad breaks, not the speculators who got interest only loans like some would have you believe), well that was just too much to take. So they followed the lead of a CNBC douchebag who had to make his case in front of a bunch of stock traders, and was too scared to face down a comedian in a one-on-one interview so he sent a co-worker to take the lumps for him. So the whole thing is quite silly and disingenuous to me.
Most of them are likely opposed to any further bank bailouts. Well, as best as I can see, there are three overall options that we have to solve this whole financial crisis: allow the banks to completely fail and go bankrupt, continue to prop them up with bailout after bailout, or place the failing banks into receivership/nationalize them. You can build any number of permutations off of those three, but as overriding options I think those are the only possibilities.
From the looks of everything, it seems that the only options that are going to work are some combination of 2 & 3. Any argument for option 1 is just ridiculously unserious and should be dismissed out of hand, and anyone telling you that’s what should be done hasn’t made any effort to understand the entire financial situation.
You see, the further we get into this quagmire, the more I think we’re coming to realize just how interconnected all of these parts of the different major banks & financial institutions are. If we just let one of them completely fail and say ‘screw everyone involved’, that’s going to lead to the failure of another one (and if we’re lucky just one), which then will likely lead to another failure, etc. So, for those who want to just let them fail, if you’ve got a plan to deal with the domino effect of subsequent failures, the utter meltdown of the major financial markets, the ensuing collapses of corporations, political and civil unrest, and the inevitable rioting in the streets, then I’m all ears.
Like it or not, at some point we’re going to have to subsidize at least a portion of this mess, and it’s not going to be cheap. We’re probably going to end up spending hundreds of billions of dollars cleaning up this mess, and even with that we’re still going to have to go through some pretty rough times. Hopefully, when the smoke clears (or at least subsides), we’ll get some useful regulations in place to ensure that this never happens again, something I'm sure that the financial institutions that got us into this mess will fight like hell to block.
Which brings me back to the whole tea party movement. I’m assuming that the great majority of those who are participating are of the republican/libertarian persuasion, who thinks that government can do no good and should stay out of everyone’s way and things will just work out from there. To that, I guess I can only say…this is what you get when government abdicates any oversight role. You get banks who get involved in investment banking and financial advisories. You get institutions that engage in ridiculously risky investments, and create shady products like CDS’. You get ratings agencies jumping into bed with the very institutions that they’re supposed to be monitoring. You get the creation of home ownership loans and products like interest-only loans, NINJA loans, and zero down payment or 105% financing. You get the establishment of mortgage brokerages who originate loans to people who have no business buying a house, and then sell off those loans with zero responsibility for whatever might happen after that point.
This is what ends up happening. For over 30 years Congress (and Democrats are partially responsible for this, but the greater blame still lies with the right) has slowly undone all of the regulations put into place to prevent something like this from happening. And the companies that engaged in these practices have privatized their profits for years, and now that things are falling apart they’re getting to socialize the losses. Some free market this is.
Maybe the tea partiers will realize this, and demand that Congress implement better oversight mechanisms. Heh, that was funny. No, I’m sure that their solution will be to let the economy implode, and then cut the capital gains and the highest income tax rates (but not payroll taxes, because that would help out the poor people), followed by an Earl Grey-flavoring of the Ohio River, because that's all these guys know how to do - tax cuts fix everything.
And if that's what they want, that's fine. But it's no longer acceptable to just protest and say no way; this is stop screwing around time. If you don't like it, fine, but then you have to come up with an acceptable (and realistic) alternative. Otherwise...well, elections have consequences.
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Reading Liberally Cincinnati
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7 comments:
Its already getting tiresome that weak minded people are comparing the Stimulus spending to war spending. Do you really want to compare fighting terrorists to Pig odor studies? You're right about one thing, you don't know much about economics. The fact is that recessions are a natural and necessary part of the economic cycle.. like gaining and losing weight around the holidays. The problem, is that we've been gorging for so long that we have a long painful diet ahead. More gorging won't fix it. Common sense.
BTW1: Don't assume we didn't fight some excesses of the Bush admin. I'm no fan of Bush.
BTW2: I'm all for cutting the payrol tax. I'm not a big fan of regressive taxes either... and, I'm one of those silly tea party organizers... Regards.
PS for clarity.. I posted this for your readers. I tend to not think anyone who uses the word "douchebag" is worthy of much time or thought.
Brian, the very comment comparing scientific research that has the opportunity to create real wealth with "fighting terrorists" shows the depth of your economic knowledge.
I recommend a really good basic economics text for you. Perhaps Samuelson? Or you could just pick up "Depression Economics" by Krugman. It's thin and readable.
The very fact that your front page mentions the "30-year mortgage" with laughable ignorance about what made that possible is why we dismiss you. How about I leave that as an exercise for the student?
The business cycle is one thing, but a near-catastrophe brought about by mismanagement of the macroeconomic system is another.
The overall lack of coherence--and spell-checking--in your comment tells us and "our readers" the rest of what we need to know about the depth of your ability to think clearly on this topic.
I would ask you to do what Zack asked, and come up with some alernatives, but I'm pretty sure you and your fellow travelers are incapable of it.
Please spare me your faux outrage over my language Brian; I will not be lectured about my language by an organizer of a group that promoted itself on a radio network that airs Rush Limbaugh and Sean Hannity. If you can't face up to the fact that you're being played by a faux-populist CNBC weasel, that's your problem, not mine.
The pig odor thing is an absolutely ridiculous straw-man argument. The study costs less than $2 million of the $410 billion spending bill, and the pig odor kinda causes health problems in humans that costs us far more than that in health care. Earmarks comprised about 2% of the entire bill; come up with a real argument.
As for your fight on the Bush spending, I don't remember any of your organized protests over those. Perhaps you can enlighten me on when those were?
I'm still waiting for your "common sense" alternative. Feel free to let us know when you have one, other than "no".
Power to the people! We need more tea parties to take back our country both from Wall Street and Washington
I heard the Marketplace story about our need for the endangered rich this evening: it was quite amusing, and has led me to the following observation:
"For ye have the Rich with you always, and whensoever ye will ye may do them a tax cut..."
From the Republican GoPspel to the Americans,
King James Version
In modern verse:
"The Rich you will always have with you, and you can give them a tax cut any time you want."
You wrote:
"Well, as best as I can see, there are three overall options that we have to solve this whole financial crisis: allow the banks to completely fail and go bankrupt, continue to prop them up with bailout after bailout, or place the failing banks into receivership/nationalize them.
"From the looks of everything, it seems that the only options that are going to work are some combination of 2 & 3."
Precedent is everything. You choose option 2, for which there is no historical precedent, and very little assurance, if any, of its success. Or you choose option 3, about which historical precedent reveals a 0% success rate, unless you consider permanent economic sub-mediocrity a worthy goal.
Your non-choice is the only one with a track record of success. Bankruptcy has always been the primary tool in our system for keeping the ebb and flow of the market within safe parameters. You take quite a leap of speculation when you assume that there must be a "domino effect of subsequent failures" resulting in "the utter meltdown of the major financial markets, the ensuing collapses of corporations, political and civil unrest, and the inevitable rioting in the streets."
Huge businesses that file bankruptcy are most often bought by other businesses, restructured, hopefully made solvent, and the damage is far less in the long run.
As far as the tea parties, apparently the theme of your piece -- I don't see the point of your denigrating something you don't understand. Bush's budgetary spending, regardless of what the money was spent on, is not the cause of the economic problems we are dealing with. The current mess is partially the result of bad lending practices (largely forced on lenders by the CRA) and partially the result of corporate misconduct.
The tea partiers' focus is on the Obama administration's solution -- to spend multiple trillions of dollars that, for all practical purposes, will indebt us forever, as well as (and now I'm speculating) further disrupt the entire world economy.
Oh, rbstratford, please study your logical fallacies. Don't create straw man arguments.
First, successful temporary nationalizations have had a much greater than 0% success rate. About 100% greater. We refer you to the temporary Swedish nationalizations in the 90's.
Second, please don't cite that old canard about the CRA being responsible for the financial crisis. That has been debunked so many times, even in this blog, that I'm not going to give you references. I'm sure you can find them.
Ever mainstream economist points to the lack of regulation, starting with the Reagan administration and finishing with the W administration, as the root cause of the current crisis.
And you still don't address the main point of the article: where were these TeaBaggers when their President, W, was running up the biggest deficits in history? Nowhere to be found.
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