A New New Deal

By: Josh
Published On: 10/1/2008 5:09:56 PM

Since the Bailout isn't going to work, and the Republicans had their chance, why not bring a bill that will deliver green, clean jobs, energy independence, healthcare for all, a new infrastructure and really resolve the current economic crisis ?


Comments



Give us some background (Teddy - 10/1/2008 6:19:56 PM)
on agitpop. The video is good, but where'd it come from? I suspect a lot of people are comparing the casual toss of trillion here, a trillion there for the elite, with the parsimonious administration attitude toward the needs of the middle class... and folks are rapidly approaching a state of rebellion.


Huh? (tx2vadem - 10/1/2008 8:09:21 PM)
How does any of that address the credit market crisis?  And on what basis do you claim that the current plan before Congress won't work?


While I actually support a lot of what this ad proposes (aznew - 10/1/2008 8:09:26 PM)
Such as increased government spending on healthcare, alternative energy, transportation and infrastructure, this ad is simply deceptive about the so-called bailout.

And I think they are absolutely right that the way to fix the economy is to create good, new jobs with a living wage.

But the issue now in front of the Congress with respect to the $700 billion is a completely different issue. That issue has to do with the U.S. (and soon to be the world's) credit markets, and ads like this are simply inaccurate.

Here are the innacuracies that jumped out at me:

1. Apparently, this can't be said enough. It will not cost the government $700 billion. That is the amount Trasure wants at its disposal to purchase assets, the inherent value of which will more than like exceed the government's purchase price.

2. The idea that government expenditures a la The New Deal will do anything in the absence of functioning credit markets is wrongheaded at the extreme, and shows a complete lack of understanding of how our economy operates.

3. I'm not certain, but I believe money has been approrpiated to repair the levees in NOLA.

4. What happened on Wall Street was not a pyramid scheme, not even close.

5. "Most economists say the bailout won't work." Really. The ad cites 166 economists who say that. Do these guys really think there are only 331 economists in the U.S.?  



On point 3 (tx2vadem - 10/1/2008 8:30:07 PM)
The government has appropriated over $94 billion on Katrina relief as of June of last year.  The Army Corp of Engineers was given $6 billion specifically to exceed the level of protection conceived of prior to Hurricane Katrina.


On point 5 (relawson - 10/1/2008 8:48:07 PM)
It was a distinguished list of economists opposing this - from top universities.

I haven't seen another distinguished list of economists supporting it - I have seen individuals but not a whole group of them.  Short of that, it seems fair to cite the ad.

I'm not opposed to government intervention if the pricetag was lower.  This is just wreckless spending in a rushed through bill.  There needs to be much more debate and time put into a bill that could exceed $1 trillion.

Why don't they give Paulson a smaller amount now to work with now, and work on a more comprehensive plan?

Frankly, I am hoping it fails in the house.



They are doing that (tx2vadem - 10/1/2008 9:09:54 PM)
The money is appropriated in installments.  And if you have not heard of the Anti-Deficiency Act; well, no one can spend more than they are appropriated.  Violations will get you terminated or if it was intentional, thrown in jail.


You have a ton more faith in this government than I do (relawson - 10/1/2008 9:19:30 PM)
And you seem to forget how well they have managed just about every other crises.

Thank you Senator Tester for voting no.  I'm a bit disapointed that Senator Webb voted in favor.

Finally, we know very little about the bill being passed by the Senate tonight.  The only thing we know is very abstract.  The public didn't get a chance to understand what our government is voting on - and when we are talking about a trillion dollars I think we should be given that chance.



We know a lot (tx2vadem - 10/1/2008 10:51:52 PM)
it is public information.  The warrant section:
18 WARRANTS AND DEBT INSTRUMENTS.-
19 (1) IN GENERAL.-The Secretary may not purchase, or make any commitment to purchase, any
21 troubled asset under the authority of this Act, unless
22 the Secretary receives from the financial institution
23 from which such assets are to be purchased-
24 (A) in the case of a financial institution,
25 the securities of which are traded on a national
1 securities exchange, a warrant giving the right
2 to the Secretary to receive nonvoting common
3 stock or preferred stock in such financial institution, or voting stock with respect to which,
5 the Secretary agrees not to exercise voting
6 power, as the Secretary determines appropriate;
7 or
8 (B) in the case of any financial institution
9 other than one described in subparagraph (A),
10 a warrant for common or preferred stock, or a
11 senior debt instrument from such financial institution, as described in paragraph (2)(C).

Jim Webb voted right on this.  Hurray for Jim Webb!

Paulson was not here for the entire duration of the administration.  Also, this doesn't have anything to do with the areas that President Cheney has dabbled in.  Also, there are many, many people who work for the Treasury, Federal Reserve Banks, and other institutions that regulate financial markets.  I would not disparage them or their work because Bush/Cheney and their mess ups.



Iraq looked good on paper also (relawson - 10/2/2008 8:17:51 AM)
That paper is only worth as much as the people who implement it.

It boils down to trust.  You can't give one person this much power.  

And I will disparage the regulators who sat idly while this happened.  I am getting mighty tired of the apologists for what occured here.  Heads need to roll - and we need to figure out ASAP who - because they don't need to be at the steering wheel driving a trillion dollar bailout.



My objection was the statement that "most economists" say it won't work (aznew - 10/1/2008 9:42:42 PM)
And as the old saying goes, talk to two economists, and you'll get five opinions. Even so, dissenting opinions are good. Argument and debate, conducted honestly, is always productive.

But the fact is that 166 economists is not a lot. They got a lot of attention because the media likes the drama of the story. There are plenty more distinguished economists, beginning with Bernacke, who feel quite differently.

In any event, I would also point out that as late as late last year, most economists were predicting the U.S. would not have a recession, even though the yield curve had been inverted for at least six months (an inverted yeild curve has correctly predicted, or caused, depending on one's view, of every post WWII recession in the U.S. The yield curve has inverted, I believe, seven times in that time span. It was followed five times by recession, one time in the early seventies by a severe slowdown that just missed making it into contraction territory, and we'll see what happens here.)



I agree with the above. (Tiderion - 10/1/2008 8:30:18 PM)
I would help out by sending a letter, using their form, to my representative in Congress. Unfortunately, I seriously doubt Rob Wittman cares about any of this.

Bill Day does though.



It's a done deal (Josh - 10/1/2008 9:16:03 PM)
The senate is sending a ton of cash to Wall Street tonight, now with a bunch more cash and some extra tax breaks...

so waht's going to happen?

well, this isn't going to fix anything

Here's the scenario will unfold according to Henry Blodget at Huffingtonpost:

I wish the news were better, but in my opinion, here's the most likely scenario:

* Hank Paulson & Co. survey the banking industry and decide who will stay and who will go. JP Morgan, Citi, Wells Fargo, and Bank of America will stay. Goldman will probably stay. Morgan Stanley might stay. Everyone else in trouble could go. The government doesn't need to save all banks. It just needs to save some.

* Within a month or two, Paulson buys $250 billion of crap assets. He pays more than market value, but not an egregious amount more (because the public will be watching these early rounds). Over the next six months, he buys $700 billion of assets...and then he--or his successor--asks Congress for more money.

* Confidence improves modestly, but banks continue to hoard capital and credit markets stay tight. Loans stay expensive and hard to get. This keeps pressure on the economy.

* The credit crunch filters through to consumers: Credit cards, home equity loans, mortgages, car loans, etc., get more expensive, putting more pressure on consumers and forcing them to cut back further.

* The economic news continues to get worse: American consumers continue to pull back, housing continues to fall (as of July, the year over year declines were still accelerating), companies begin to cut back, which leads to layoffs--which puts more pressure on consumers.

* The global economy continues to weaken: Europe, Asia, and, eventually, emerging markets. This is already happen, and everyone else is later in the cycle than we are.

* The stock market continues to fall, as corporate earnings come under increasing pressure and hope for an early 2009 recovery fades. Analysts are still expecting huge growth in S&P 500 earnings for next year. These estimates will get cut by at least a third.

* The government enacts further measures to try to stop the fall in asset prices (stocks, houses)--including an expansion of the bailout plan--but these don't work. Governments always try to do this. They never succeed. All they do is delay the inevitable.

* A new round of white-collar prosecutions send a new posse of corporate villains to jail. Some will be guilty. Some won't. All will be hated.

* The government announces a new New Deal, finally investing in the country's infrastructure, in the hopes that this will stimulate the economy (which it will). Investments include broadband, green tech, wireless, physical infrastructure, et al.

* Eventually, asset prices will bottom: Housing down 40% in real terms, the stock market down at least 50%. With luck, this will happen by early 2010, so the recovery can begin. Warren Buffett loads the boat with stocks, but by that time, most people are too depressed (and poor) to follow him.

* Unlike Japan, we finally force our banks to write down assets as far as they need to be written down...and then recapitalize them. This is what we should have done in the current bailout, but we'll get it right next time (we hope).

* We gradually begin a long-term economic recovery, one in which consumers save a greater percentage of income, thrift and saving again become admirable qualities, we gradually begins to wean itself off international oil, and the bacchanalian decades of the 1990s and 2000s become an embarrassing memory.

* The stock market finally begins a new, long-term bull market, in which stocks once again return 10%+ per year. Unfortunately, most Americans will be so sickened by the stock losses they've sustained since 2000 that they'll miss many years of it.

So, basically, we'll suck wind for about 2 years and eventually we'll get the idea that it's time to get the New New Deal started.

Sooner is better... let's get on it!



Hilarious (aznew - 10/1/2008 9:33:52 PM)
Citing Henry Blodget.

Maybe Paulson could call him for advise and see what tech stocks he should put the government's money in.

He proved to be a crappy equity analyst, and he seems to know less about debt markets. I had to stop reading his list, but the few items I read, this was my favorite:

Within a month or two, Paulson buys $250 billion of crap assets. He pays more than market value, but not an egregious amount more (because the public will be watching these early rounds).

Since Henry Blodget seems so sure the government will overpay, even leaving aside his Nostradamous-like abilities, he is apparently the only person on Earth able to accurately value these assets.

One wonders why he is not out raising billions for his own hedge fund to put this great knowledge to work, or better yet, it a fit a patriotic fervor, volunteering his services to Paulson to ensure he does not overpay.  



So here is the deal (relawson - 10/1/2008 9:36:46 PM)
Paulson gets $250B now.  If he spends all that, Bush (assuming he is still President at the time) can sign off on another $100B.

And Congress will approve the other $350B.  What I am not clear on - will this be a regular vote or just be a committee vote?

So it looks like we are on the hook now for $250-$350B.  I hope that we don't spend a dime more.

This is like Iraq III - on the economy.  We are financially weakened and that makes us vulnerable to foreign powers.

And finally, this whole thing brings back memories of the Iraq war vote.  The "you're either with us or against us" mentality.  I was against the Iraq war before we had the Iraq war - and I am against this.  I was proven right on Iraq, and I suspect history will prove me right again.  I hope I am wrong - of course I had hoped to be proven wrong on Iraq and I wasn't.



We are not "spending" that money (aznew - 10/1/2008 9:46:16 PM)
We are purchasing assets.

Sorry, but there is a huge difference.

And there is a big difference between the lead-up to the Iraq War (which I also opposed) and this. The process leading to war was not transparent. We, as citizens, could not conduct our own intelligence operations in Iraq to ascertain the facts.

In this crisis, markets are reasonably (but not completely) transparent. Anyone can see for themselves what is happening. We don't have to take anyone word for it.



And Iraqi oil was going to pay for the war (relawson - 10/1/2008 10:35:14 PM)
This government shipped pallets of hundred dollar bills to Iraq - and the money vanished.

You don't throw this type of money around, with little accountability, without fraud occuring.  This is going to spur a new wave of fraud against tax payers.

If our government was capable of oversite, we wouldn't be in this situation.  They aren't going to get their act together overnight.

So everyone pat each other on the back.  But kiss goodbye universal healthcare, education, energy independence... etc.  All those things cost money - and sure we can run the printing presses 24/7 - but it will come at a price.  It's called inflation.  The value of the dollar is going to go into a nosedive.  Just watch as the USD is worth half the value of the Euro.

We are over 10 trillion dollars in debt.  We are in a crises of debt - and we are going into further debt.  Our debt crises is far worse than our banking crises.

We won't get this money back.  It will be gone.  These assets will be sold for pennies on the dollar - and it takes PEOPLE AND RESOURCES TO SELL THE ASSETS.  The longer the housing market is in a slump, the less the government will get.  Do you think they are going to simply hold on to the properties for several years?



The most important point here (Tiderion - 10/1/2008 10:46:49 PM)
is inevitably going to be basing our economic growth on something other than housing. Suburbia is intimately tied to oil yields and we cannot sustain that. We'll need to invest nationwide in new urbanism, etc to fix the national infrastructure. This will prolly be the biggest investment ever, eclipsing the New Deal completely. If we recognize this need now though, we can put everyone to work and shift our economy with the money we still have rather than faking it.


Maybe (tx2vadem - 10/1/2008 11:54:04 PM)
Our economy is based on unsustainable consumption.  After you (I'm guessing) and I (most definitely) die, resource constraints will plague human existence (though even now water wars are on between states and within states).  Whether you want to talk about fossil fuels or water, everything is finite.  And we are using a massive amount.  We are only prolonging the inevitable at this point.