So much for "change you can believe in." Anyone who still thinks Obama is anything other than just another politician (a not-very-progressive one at that) is deluding himself.

You can find extensive, insightful, unabashed blog coverage of the bailout bonanza at Correntewire

But as Bonddad notes on dKos

The basic problem is the value of the assets that are dropping in value.  Everybody wants to waive a magic wand and make them more valuable.  To quote the Mike Meyers' character Fat Bastard, "that's crap."  These assets are cheap because they're cheap.  In some cases they aren't worth the paper they are printed on.  And yet everybody thinks they're worth more then the market will value them at right now.  Maybe they will be, maybe they won't.  But right now the market says they're not worth anything.  We can't simply say "they're worth more because of all these assumptions."  Those assumptions could just as easily be wrong as they are right.

And that leads to the central problem: we're in a period of massive asset deflation.  Housing is dropping like a stone.  Hence, lots of mortgages are underwater -- meaning the mortgage is worth more than the house.  That means people increasingly default on their mortgages.  That means assets backed by mortgages (like mortgage backed bonds that are causing the current problem) will continue to drop in value.  And no magic wand can make those mortgage backed assets more valuable

And these assets pollute the balance sheets of european banks as well. Plus the collapsing global economy is damaging the price of assets all over, even Russia's taken a hit, so it is only natural that all asset based valuations are hit.

The question is not whether the ECB should work in concert with national financial institutions, but what underlying philosphy they use in tackling the problem. If they see it as liquidity, then they throw good money after bad. If they see it as a failure of corporate philosophy requiring intervention and firings and revised regulatory and taxtion schemes with regulatory boundaries turned into actively policed borders then some good will come of it.

Infrastructure is finally the responsibility of government. Privatisation of utilities hasn't really worked because there is a tension between short term shareholder profit and long term planning that cannot be resolved in the private sector. So we now establish that banks are conduits of capital, as such they are quasi-infrastructure entities which need to be heavily controlled at EU level with the bias towards the consumer and industry and not to financial parasitical profit.

keep to the Fen Causeway

Paul Krugman - Op-Ed Columnist - New York Times Blog

Here's the thing: it's very hard for Congress to originate complex financial rescues, so it's normally up to the executive to put things together. Unfortunately, Paulson came up with an awful plan. Ideally, the Dems would have ripped the thing up and started over, but that was never realistic. So instead they made it significantly better, but still building on the original, misconceived structure; it became better than nothing, but not good.

And then it failed in the House, so the Senate has larded it up, with stuff like SEC. 503. EXEMPTION FROM EXCISE TAX FOR CERTAIN WOODEN ARROWS DESIGNED FOR USE BY CHILDREN.

I think that Congressional leaders know that it's a bad bill, but feel compelled to defend it, because they're (rightly) scared of the financial consequences of a second rejection. And to some extent economists like myself are in the same position; I think I called it the "hold your nose caucus."

His attitude seems to be that the bailout is inadequate and fundamentally misguided, but a necessary bandaid to hold things together until an Obama administration comes in.

And we might as well cling to that hope, seeing how there's fuck all else we can do.

Jesus died for somebody's sins but not mine - Patti Smith

I suspect--with no evidence at all- that the Chinese lion roared, in private, and put the fear of the stake into our erstwhile leaders.

The problem is that there is not enough real assets in the known financial universe to cleanly unwind this fiasco.  It is after all a giant bubble.  The only thing I can see that would help would be for everyone to take a deep breath and then freeze in place all real estate backed assets pending a competent review of their true value.  Some assets in out of the way areas will be found to be genuine.  Most assets in areas which boomed will be found to be worth half or less of their face value.

The other possible solution would be to find a way to cancel out all derivative bets.  Unless bets in excess of $40 trillion magically cancel out, there is no other way to deal with them.  If a contract between a prostitute and a john can be declared null and void on its face, why not do the same for derivative bets based on fraudulently priced assets?  The current net worth of the Forbes 400 richest individuals is ~$1.58 trillion.  The wealth of the richest 1000 is likely to be less than $4 trillion.  What else can be done besides a coordinated international devaluation or achieving the same end by inflation?

It seems to me that China is much more threatened by the freezing up of the US consumer market, upon which their entire economy depends, than on what ever happens to the entire financial system.  If they can afford to hold over $1 trillion of our paper, they don't really need it and can withstand a devaluation better than most others.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

Don't buy the right wing bullshit ...

In World War II, we pushed the debt up above 100% of GDP ... its presently (avoiding double counting) under 50%. $1  trillion is less than 10% of US GDP.

The US can be bankrupted going down the course it is presently going, but $700b is well worth it if only to prevent average GDP growth rates from being 1% or more lower over the next five years.


Utsukushikereba sore de ii