September 22, 2008

"McCain — more of a gambler than Obama — could take a big risk."

"While assuring the public and the financial markets that his administration will act forcefully and swiftly to deal with the crisis, he could decide that he must oppose the bailout as the panicked product of a discredited administration, an irresponsible Congress, and a feckless financial establishment, all of which got us into this fine mess."

William Kristol, stirring things up.

Read the whole thing. Who do you think was calling him on the telephone in paragraph 1?
A friend serving in the Bush administration called Sunday to try to talk me out of my doubts about the $700 billion financial bailout the administration was asking Congress to approve.
Paulson?

On the left-side column on the same page of the NYT, we have Paul Krugman, also sounding the alarm about the bailout, and Krugman has name "Paulson" 8 times. How many times does "Paulson" appear in Kristol's column? Zero!

The conclusion is obvious: Paulson was the friend of the phone, personally begging Kristol to support the plan, and he didn't. Shouldn't we be very worried?

51 comments:

jdeeripper said...

Kristol doesn't know s*** about economics or anything else and Krugman is so pathologically anti Bush and anti Republican that he is compelled to oppose everything coming from this administration.

Billionaire Bloomberg likes Paulson and his actions.

I don't know what's going on but neither does Bill Kristol.

downtownlad said...

Ann - One of the things I love about you is that you like to speak your mind, but you refrain (usually) from speaking about the things you don't know much about.

You've rarely blogged about the economy, and even in this post, you're just commenting on people's columns.

Anyway, my point is that Kristol knows SQUAT about the economy and I sure hope McCain doesn't take any advice from him.

Krugman's DOES know what he's talking about as he's one of the smartest economists in the world. He brings up valid points about the plan (not that I agree with them all), but he certainly doesn't recommend doing nothing, ESPECIALLY for doing nothing for political reasons (as Kristol recommends).

Harwood said...

The conclusion is obvious: Paulson was the friend of the phone, personally begging Kristol to support the plan, and he didn't. Shouldn't we be very worried?
---
If Paulson makes you too nervous, who would you put in his place? Chris Dodd?

Simon said...

Gingrich has this to say about the bailout, and I don't make a habit of disagreeing with Newt on any issue except courts and religion.

downtownlad said...

Who would I put in his place? Hmm, how about Rubin? How about Volcker? Have you looked at Obama's economic advisors. They are damned good.

Be honest - if I asked you who the Treasury Secretary was last week, would you have even known it was Paulson?

Who was Bush's Treasury Secretary prior to that? How about prior to that?

I even remember Reagan's Treasury secretary. Why have Bush's Treasury secretaries been so INVISIBLE.

Dust Bunny Queen said...

Gingrich has this to say about the bailout,

Agreed. Newt Gringrich has this exactly right. We need to slow down and not create another financial disaster like they did with Sarbanes-Oxley.

Letting Congress and one controlled by the Democrats is just letting the fox loose in the hen house.....again. These bozos in the House and Senate haven't got the sense that God gave a goat. Pandering, posturing and stuffing their own pockets with kickbacks from the very industries that have drug us all into a financial abyss. Anything they do precipitously will only make it worse in the long run.

Community Reinvestment Act. Eroding Glass-Stegall. Sarbanes Oxley crushing new business formation. High corporate tax rates. High cap gains rates. Ridiculous "global warming" and environmental handcuffs on growth. All feel good actions pandering to a public that can barely balance their own checkbooks much less understand how the world economy functions have brought us to this mess.

If I had my way, the entire legislature ....ALL would be shot.

mcg said...

I readily admit I am not an economist. But I think Rich Lowry is right here: those that oppose the plan ought to do a better job of explaining the alternative. And you know, if they can't do that, because they don't have all of the inside baseball information that Paulson and the Bush Administration have... well?

Schumer's foray into bipartisanship ought to scare anyone, really. This NY Post article isn't comforting either.

Quayle said...

Krugman's DOES know what he's talking about as he's one of the smartest economists in the world.

That’s what they used to say about Greenspan, until his highness sprayed the gasoline of liquidity on an emerging fire bubble. Same goes for Krugman and Bernanke who are both clueless academics that couldn't predict what the economy is going to do if their life depended on it.

Those that can predict the economy trade government bonds and are millionaires. Those that can’t predict the economy are professors, journalists, and Fed reserve chairmen.

downtownlad said...

Community Reinvestment Act. Eroding Glass-Stegall. Sarbanes Oxley crushing new business formation. High corporate tax rates. High cap gains rates. Ridiculous "global warming" and environmental handcuffs on growth. All feel good actions pandering to a public that can barely balance their own checkbooks much less understand how the world economy functions have brought us to this mess.

What are you taking about?

Community Reinvestment Act - Can we please stop with the bullshit meme that this whole mess was caused by black people? It's insulting. There's zero evidence that this was the cause of the credit crunch.

High cap gains taxes? Huh? Bush lowered them. A LOT. But cap gains taxes are kind of irrelevant when you don't have any capital gains to take (since the stock market has gone NOWHERE under Bush).

What global warming handcuffs? I dont recall any being passed.

Blame the credit agencies, who said these assets were safer than they really were if you want to pick a target.

downtownlad said...

Wow Mcg - I agree with you. Lowry's point is valid. And guess what - Obama is cautiously leaning towards it as well. He's not an ideologue and he's not going to oppose it for political reasons, because that wouldn't be prudent (although he might tweak it).

Personally, I don't trust Bush or Paulson one iota, as they've done nothing to earn our trust. But the Treasury market is tanking, which is good news. It shows the market has confidence in the plan and they are taking their money and putting it elsewhere. Thus, I think the plan is probably a decent starting point.

downtownlad said...

You can't look at the stock market to see if the plan is working. You need to look at the credit markets. This is a CREDIT crisis we are having.

L. E. Lee said...

If McCain did not have the right wing of his party to deal with he would be saying every day that this mess is the result you get when you sell government to the highest bidder which is of course Wall Street. He would then remind voters that he is the McCain in "McCain-Feingold." The only way McCain can win now is to position himself as a modern Teddy Roosevelt. Can McCain credibly run on the campaign finance reform this late in the season?

Quayle said...

There is so much complete nonsense here that I can barely stand it.

More government regulation will move even more business from New York to London. If that is what you want, then by all means, strap down business in the US even more .

No, what was blatantly missing in this mess was not government oversight, it was board oversight.

The boards of the companies that were taking huge bets existed to protect the shareholders and check officer excesses, and they didn't. Their punishment should be (but probably won’t be) pariah status in the corporate world.

The shareholders were also asleep because they didn’t keep and eye on the boards and the officers. When shareholders see boards failing to do their duty, they should sell en mass and tank the stock until the board properly governs the officers. The shareholders that failed took huge losses for their stupidity. That was their punishment.

That is how it is supposed to work. That is how our economy grew to be the most powerful, and that is the only way it will stay powerful.

The government didn't get us to the top, how are they going to keep us at the top?

Dust Bunny Queen said...

What are you taking about?

Community Reinvestment Act - Can we please stop with the bullshit meme that this whole mess was caused by black people? It's insulting. There's zero evidence that this was the cause of the credit crunch.

What are you talking about. The CRA act is not about black people. Are you a racist? CRA was made to force banks to make loans in areas that were economically depressed for whatever reason and forced to make loans to people who didn't qualify.

High cap gains taxes? Huh? Bush lowered them. A LOT. But cap gains taxes are kind of irrelevant when you don't have any capital gains to take (since the stock market has gone NOWHERE under Bush).

Evidently you must be managing your own portfolio and hence your impression of a losing market. You do realize that the Dow Jones Industrial average is only a few stocks? and that the S&P 500 is also a small representation of the market?

What global warming handcuffs? I dont recall any being passed.

Of course you don't

here The Kyoto treaty was specifically mad to slow our economic growth.

The "global warming" excuse that Congres is using to stymy energy production, and the slowing of our economy is directly related to the insane push for a sudden switch to "renewable clean" energy. Not that we shouldn't develop those sources, but not all at one time.

The insanity just goes on and on.

Blame the credit agencies, who said these assets were safer than they really were if you want to pick a target.

I do blame them. There is plenty of blame to go around.

downtownlad said...

Quayle - Please explain how this crisis was caused by too much regulation?

And for question #2 - perhaps you can explain why Goldman Sachs decided to be declared a bank today, running into the arms of the Fed, begging to be regulated.

John Lynch said...

(nto John Lynch)

Community Reinvestment Act - a means to force banks to loan in proportion to the representation present in the community, some of which are less abled to support loans than others. The bank is at legal risk if their loan proportions are not appropriately diverse. Of course it weakened lending standards.

Then under Clinton, proportionality was expanded to specifically include low-income as well. To boost things along, loan rules were changed to allow little to no down payment, adjustable rates, balloons, etc. to get people who could not otherwise afford to get a mortgage.

Corporate taxes in the US are second highest in the world, second only to Japan.

dtl, know your facts as you admire Ann for knowing when, and when not to opine on a subject.

Krugman? famously wrong on each and every of his projections. Kristol? A low-grade flame starter.

downtownlad said...

Dustbunnyqueen - Go take a look at how the S&P, and Wilshire 5000 have performed under Bush. And there is a STRONG correlation to the Dow Jones. 40 stocks is enough to do that. Just like a poll of 1000 people is enough to give you a good snapshot of where the country stands.

Kyoto was defeated by the Senate unanimously. Try again.

The rate of default on CRA loans was below average. Try again.

downtownlad said...

The current crisis was caused by high corporate tax rates. . .

Is that really the latest wingnut meme? We've had the same corporate tax rate forEVAH, yet it caused the current crisis. Huh?

peter hoh said...

Judging from Kristol's track record, if he's against it, then it probably is not so bad.

Dust Bunny Queen said...

"Go take a look at how the S&P, and Wilshire 5000 have performed under Bush. And there is a STRONG correlation to the Dow Jones."

There are 30 stocks in the Dow not 40. The US "stock market" consists of many components and I will just take a poll of my clients as to whether they made money under Bush. You do realize that there are other markets worldwide?

Did you even look at the link about the new "global warming" law that California is proposing that will force cities to account for "gobal warming" before any new expansions or projects. I know two construction firms that have pulled the plug on their industrial complexes and a shopping center that they were planning to build because of these "global warming" restrictions. As a consequence, construction workers will not be employed, material will not be bought for the projects and the industrial complex that would house small manufacturing businesses will not be built. Can you see how this slows the economy? Naaah.. probably not.

downtownlad said...

Yes - the world stock markets have done quite well in the last few years. While the US market has tanked. And the dollar has tanked. How that is a supposed to make Bush look good is beyond me, but I'm sure you'll make something up.

But go ask your clients how they did under Bush compared to ,oh, let's say Clinton. I'd like to hear their answers.

None of those global warming laws have passed, so I'm still scratching my head as to how they harmed the economy. I'm not implying they wouldn't, but to blame non-passed global warming treaties for the credit crisis is asinine.

dbp said...

Just because Paul Krugman opposes the plan doesn't make it automatically a good plan. It does make it a pretty good starting assumption though.

Henry said...

I think we can posit that everyone involved in the bailout plan is very smart.

The financiers at Bear Stearns, Merrill Lynch, and Lehman Brothers were also very smart. Even the ones who are losing their jobs.

Greenspan is smart.

Krugman is smart.

The the Bardi, Peruzzi, and Acciaiuoli bankers that went bankrupt in 1340 when Edward III defaulted on his war debt were smart guys too.

I'm sure that some of the causes for this mess will come clear -- but the proximate cause is smart people making very poor predictions.

So don't tell what's going to happen next, because I won't believe you. Even if you're one of those smart people.

bearbee said...

Congress has an obligation to perform oversight.
Congress has an obligation to perform oversight.
Congress has an obligation to perform oversight.
Congress has an obligation to perform oversight.
Congress has an obligation to perform oversight.
Congress has an obligation to perform oversight.
Congress has an obligation to perform oversight.


This should be branded on each forehead as the oath of office is taken.

downtownlad said...

The market is down 200 points today.

Funny how minor that seems after last week. Even 500 points would be - YAWN.

Barry said...

I think poster Quayle has a valid point that these problems were brought on by the corporations themselves, their boards, and their shareholders. These CEOs and the boards behind them made these risks and continued to bet on them to squeeze out as much profit as they could to line their off-shore accounts and build their golden parachutes. The CEOs of each of these failed companies AND their boards should resign or be forced out.

As for Kristol, I agree with the other posters. He's a free-market fanatic. No government interference of any amount is going to please him. I don't know if the proposals are right, but Kristol surely wouldn't agree with them on the grounds that they are counter to his ideology. It's an ideological argument to him.

former law student said...

Eroding Glass-Stegall.

Damn Phil Gramm and his henchmen Leach and Bliley. And damn Bill Clinton for not stopping more Republican stupidity.

Quayle said...
This comment has been removed by the author.
Quayle said...

Quayle - Please explain how this crisis was caused by too much regulation?

I didn't say that this was caused by too much regulation.

I said it was caused by too little oversight by the boards of the companies that held bad debt.

And I am saying that no amount of government oversight can replace shareholder and board responsibility.

The real failure was in the boardroom.

Now, we can immediately paper over that failure with a whole other layer of politicians trying to put blame on the other political party, and we can say it was the fault of too little government regulation. The result would be that the directors and officers of the failed companies would love it.

They would love for us to immediately take all the focus and blame and responsibility away them, because they’d like to slink away and live with their millions in the Greek islands and leave Washington DC to beat ether other silly.

I am advocating that we put the focus and the blame and the accountability where it belongs. We should all know the names of every board member of AIG, Lehman, Washington Mutual, etc. We should know them like we know the name of John Wilkes Booth, Nixon, Keating, or Rosenberg.

AJ Lynch said...

Looks like there is a concensus here anyway:

Commenters generally agree both Krugman and Kristol should be disregarded due to their poor track records.

mcg said...

Here's tepid support for the bailout plan from a decidedly anti-regulation Jim Manzi.

AJ Lynch said...

If the bailout plan gets approved, each and every man , woman and child in the country should get stock in the companies we are bailing out.

mcg said...

James Pethokoukis on the bailout.

Joe said...
This comment has been removed by the author.
chuckR said...

"If the bailout plan gets approved, each and every man , woman and child in the country should get"

to fire at least one member of the management team of one of the companies we're bailing out.

And take away his golden parachute too.

An even bigger dream than the one where we get stock.

Joe said...

Several points:

1) The stock market hasn't "tanked". It's pretty much done nothing at all.

2) Inflation is still and unemployment low by historical standards.

3) Regulation only works if the regulators aren't corrupt. In this case, they were bought and paid for.

3a) Asking the regulators to create new laws with an essentially unlimited price tag is just asking for trouble. Dodd, for one, is already adding money.

4) Short term solutions are politically expedient, but often make the long term worse. How is this any different?

5) For capitalism to function, the invisible hand must do its job and flush inefficiencies out of the system.

* * *

I am still not convinced a bailout is the right thing to do. I'm not convinced that the "crisis" is as bad as it really is in broad economic terms. Seems to me that as with other crises, those on the inside see only a narrow view and due to their friendships, are more alarmed than those looking at it from the outside. To be blunt; I largely see this as a bunch of friends bailing each other out for their own stupidity and corruption using my money. They've done a piss poor job of convincing me otherwise (and running around hysterically ala Jim Cramer, isn't an argument.)

Der Hahn said...

downtownlad said...
The market is down 200 points today.

Funny how minor that seems after last week. Even 500 points would be - YAWN.


It seems like a lot of people have this black hole where all of the history between 11.29.1929 and 01.20.2001 has just disappeared.

Back when a 500 point swing in the Dow actually meant something.

Elliott A said...

The bailout is remarkably similar to what was done in Sweden (obviously smaller scale) in the 90's and even made the gov't a profit. Everyone seems to forget that this isn't a giveaway, rather a purchase of assets which at the moment cannot be accurately valued, and therefore, not sold. Unfortunately, the government will now own the housing market and related industry forever. Before long we will be Sweden.

vbspurs said...

If Paulson makes you too nervous, who would you put in his place? Chris Dodd?

Certainly not Andrew Cuomo...

mcg said...

Der Hahn, I'm glad someone said this. I read reports about the "largest drop" or the "biggest gain" these days, and I have to shake my head. On a percentage basis, we ain't seen nothin' yet. Though if that NY Post article I linked to above is to be believed, we might very well have seen somethin' last week were it not for some quick Paulson action.

mcg said...

Greenspan's sins return to haunt us

Mr Greenspan realises that something big has happened and describes it as a “once in a hundred years” event. But then, you do not get Alan Greenspans coming along every day.

Ouch.

Bruce Hayden said...

As someone above pointed out, the problem with oversight and regulators is that the regulated invariably take control of the regulation. It is called "agency capture". The S&L crisis was rampant with this, esp. with Keating using those five Senators (including his two AZ Senators) to intervene with the regulators trying to shut down his S&L (for what we now know were very good reasons).

Fannie and Freddie had extremely well connected Board members and executive officers, as evidenced by two of Fannie's former CEOs being prominent in the Obama campaign, and the infamous Jamie Gorelick being former co-chair of the Board (with no financial qualifications beyond being close to the Clintons). Both organizations also apparently paid a lot to lobby Congress, which now seems a bit incestuous.

This is one of the complaints I have with the idea that if we just had more regulations and regulators in place, we wouldn't have these sorts of problems. The regulated are invariably smarter (en mass) and much better financed than the regulated, and in the end, will get control.

Bruce Hayden said...

I did find his comment about McCain being the gambler of the two accurate - the former fighter (actually ground attack, which may be worse) pilot versus the lawyer.

L. E. Lee said...

I find it hilarious all of the conservatives like Dust Bunny Queen who want to point fingers at Democrats because they like Republicans took campaign contributions from Wall Street but you just know these very same conservatives have fought campaign finance reform tooth and nail. The intellectual dishonesty is staggering.

Both parties have been soiled by Wall Street campaign contributions. The question is "who wants real campaign finance reform?"

MadisonMan said...

There's nothing wrong here that a good new Government bureacracy can't fix. The bigger the better. The Bush Big Government Era can go out with a tremendous bang.

The Exalted said...

The problem was a failure to appreciate the risk of longterm, severe housing contraction, easy credit fueled by an overeager Wall Street and fraudulent lending/borrowing practices, and massive derivative exposure through CDS. Thats it, really. Nothing to do with your Reinvestment Act.

Joe R. said...

There's nothing wrong here that a good new Government bureacracy can't fix.
My new government bureaucracy would have two components: hippies and the mafia. The hippies would be responsible for oversight and the mafia for enforcement. If companies decided to swindle us out of money, the three highest paid officers would have their knee-caps broken. We could take all of the wall street flunkies who have been performing oversight and enforcement, and ship them to "studies", humanities, and English departments across the country (where we'd get the oversight hippies.) Thus, we'd solve the financial crisis and inject some balance into liberal arts curricula. Admittedly, this solution has some kinks, but it seems as well thought as the ones now in front of congress.

Richard Dolan said...

There's a lot to worry about. The cascading problems in the financial markets aren't over yet, and no one knows where this will end. There remains a strong possibility that the domino effect will take down still more players. All of these players in the financial markets -- banks, insurers, securities firms, pension funds, mutual funds, hedge funds -- are counterparties with each other on zillions of transactions. In order for a bank or insurer to perform its obligations, it depends on its various counterparties to perform theirs. If the counterparties default, then the bank or insurer may end up defaulting too. That system can survive the failure of smaller players, but when players of the size of Lehman ($600 billion) end up in bankruptcy, the market can be faced with an unmanageable liquidity crisis. A string of such failures could conceivably bring the financial system crashing down. That was the risk that Paulson had to deal with.

Bear in mind that the Treasury and the Fed have already injected hundreds of billions of dollars into the financial markets to maintain liquidity and forestall any more of the dominos from falling. And we are still a long way from having put these problems behind us. The sheer scale of the problem is absolutely unprecedented; existing institutions that normally handle business failures (bankruptcy courts, work-out funds, etc.) would quickly be overwhelmed if the dominos continue to fall.

I suppose this is all merely a "manageable crisis" when someone else's life savings or pension fund is getting wiped out. The collapse of Bear Stearns and Lehman have caused tens of thousands of employees and former employees just that kind of pain. It will be a panic when it's your life savings and pension fund getting wiped out.

The whole point of these "bailouts" is to try to keep things at the "manageable crisis" level rather than the panic level. It's impossible to say whether the Treasury's current approach will solve that problem. But, without the Treasury's very active and massive involvement, it was quite likely that the liquidity crisis would have already spun out of control, causing one failure after another and resulting in immense damage to the economy.

I dno't see how they had any other alternative.

John Lynch said...

My sense is that such a move, however justified, would cost McCain the election.

People want the government to Do Something. The only way McCain would benefit would be if he Did Something different but just as sweeping. People are scared, and almost no one actually understands what is going on.

DBrooks17 said...

The line I always liked about Krugman is--He has predicted 8 of the last 2 recessions. Unfortunately, that is an accurate representation of his economics acumen, and is a reflection of his highly partisan take on anything financially related.

John Lynch said...

Krugman is a brilliant economist. He didn't get a Nobel Prize for nothing. He's an expert.

BUT, on politics, he's really not any better than anyone else.

How much of this is economic, in his expertise, and how much political, I can't tell.

He's muddied the waters in his column over the years that I don't know which hat he's wearing right now.