Archive for September, 2008


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The frustrating thing about the executive pay discussion is that it is a complete distraction from the core issue of what we get for our money.  Without equity, we are complete suckers, as opposed to modest suckers who will recoup (through taxes and appreciation) most of what we send into the system.  Unfortunately, that seems to be a bit complicated for the former lawyers who sit on the various House and Senate committees.

With the leaks coming about the deal being done, let’s assume Obama and McCain will have their 10am photo op at the White House and then the deal will be announced.  And McCain will claim that he has been all mavericky by showing up and saying he wasn’t leaving until things were finished.  And people will believe him, because people are dumb.

And there’s even a basic explanation in the NYT, which you would think would be basic enough for Chris Dodd and Barney Frank to understand:


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Even More

As we draw even closer to the Democrats folding, some more views from across the spectrum.  Well, actually there isn’t much spectrum on this – it’s a lousy idea to bail folks out, a worse idea to do so according to this plan, and a downright moronic idea to rush into everything.


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This doesn’t even seem to have made the news:

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Phew.  Just when some Republicans were making sense, what with their objections to the Mother of All Bailouts, here comes the Republican Study Committee’s counterproposal to restore my faith and confidence that they are completely batsh!t crazy:


Few observations it is almost, but not quite, mean to point out (this is not Sarah Palin in a hypothetical press conference; they have staff and you might expect them to get this right):

You don’t pay capital gains taxes on capital losses.  Really.  That’s the whole “gains” bit.  So lowering the capital gains tax rate, while F4 on any good Republican keyboard, is unlikely to be helpful when dealing with massive losses and deleveraging.

Privatizing the GSEs and changing their mandate to “affordable housing only, not profit-making” is rather inconsistent.  Follow me here: if the goal is not to make a profit, how exactly is the private sector the best custodian?  Don’t we have a name for groups we put together to provide social services that we don’t want to worry about making money?  Rhymes with “shmovernment”…

The Humphrey-Hawkins Full Employment Act does set a target for long-term price stability; you will find that listed as the target for “inflation”.  So you might want to leave that part in if you are focused on, you know, long term price stability.

“Mark to market” accounting is used because silly free market Republicans once thought it was a bit presumptuous of a corporation to decide it knew better than the market what its securities were worth.  So rather than being something different from “true economic value”, the whole point is that the market determines the true economic value.  As opposed to Kommisar Paulson.  It’s probably only an aside to note that the problem here is hardly that banks have written down too much and impaired too much book equity – indeed, if there is something to be scared of it is that they haven’t written down nearly enough.

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Cram Down

I hear the loud noises coming from the Ben & Hank show, but can someone explain to me slowly and clearly why any money – $100bn, $700bn, $1tn, anything at all – needs to come from the taxpayer?  There is some debate about whether the government should get equity in the companies with whom it does business, or whether compensation should be capped, but isn’t there a much more obvious question: why should the debtholders of Goldman or Morgan make out whole?  If you lend money to, say, United Airlines, there is a substantial risk you will not get your money back.  For that risk, you get a higher current reward, and presumably you pay a lot of attention to what sort of security you really have (where you are in line to get repaid, whether you can attach an asset, etc).

Folks who have lent money to financial institutions did so with some risk.  For this assumption of risk, they have happily received at least the TED spread.  Now it would appear that some of the banks do not have the capacity to repay their obligations.  OK.  Why should the taxpayer step in here?

[Redacted] have argued for simply abrogating the credit default swap.  This may have some value – the US abrogated contracts with gold as a medium of exchange in the Depression, and indeed nationalized the gold inventory – but it seems far more simple to let that happen in the context of a workout for any company that fails.

$700bn could bring us awfully close to energy independence, and probably buy us significantly improved education and healthcare along the way.  My guess is that we have a much better country in five years if that is where we put our money, even at the cost of completely restructuring the financial system, than if we shovel the equivalent of the cost of the Iraq war to shore up some reckless derivatives traders.

Simple cram-down argument:

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Unfortunately, if someone can read this article he is probably too elite to matter:

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