What’s Wrong with the World

It's true that the more bags of gold one buys, the more likely it is that your return will be approximately $80 per bag. It isn't true that one would have to buy all the bags to be reasonably certain of getting that sort of return. One could buy a much smaller fraction of the total number of bags, and still be reasonably certain that your return would be somewhere around $80 a bag.

One could buy a much smaller fraction of the total number of bags, and still be reasonably certain that your return would be somewhere around $80 a bag.

You are assuming what the scenario specifically disclaims, and what does not obtain in the real world case of mortgage-backed securities: a uniform distribution of gold and lead amongst all the bags.

No, I'm not.

If bags were selling for $20, one could get absolute certainty of making a profit by buying less than half the bags. Even if the bags you bought contained every single piece of lead (which would be extremely unlikely) you'd still have enough gold to come out ahead. And if you were willing to settle for something less than absolute certainty (say, 99% certainty), then you could get away with buying substantially less than half the bags.

That's a very good analogy for those who wasn't sure of the basic idea behind the bill.

For the rest of us, now you only have to give a good reason for thinking why 80% of the bags contain gold, rather than 60% or 50% or 40%, or why you think the losses due to mortgage defaults (say $100,000 each default) plus losses from declining housing prices will be offset by the mere thousands of dollars in interest gained on each of the good mortgages, or what evidence you'd give that the ratio is different.

In other words, you'll have to explain why these junk assets are valuable in the face of the incredible losses in the price of housing across America and derivative subprime mortgage losses that actually give these junk securities value.

Buying up half of the mortgage backed securities, or anything approaching that order, is beyond the reach of any hedge fund I know.

There is a 'selection effect' that should be discussed though, since you are still assuming a statistical uniformity which does not exist in reality. Suppose I decided to buy (say) 10% of the outstanding bags. In order to get a statistically 'smooth' distribution, I decide to buy 100 bags from each and every bank.

Now consider the fact that the banks have been holding these bags for some time, and have them in their possession now. They may not be able to open their bags, but they can fill different bags with gold and lead, and compare what they have to these other samples. They can shake the bags and listen to them clink. So when I come a-shopping for 10% of their bags, they are going to do their best to make sure that I get lead and not gold, so that I, rather than they, are left holding the, err, bag.

If I am buying substantially all of them, though, there really are no perverse selection incentives.

Albert:

If, by assumption, all the bags contain lead, then I agree that the investment thesis doesn't make any sense. I think Bill Gross's numbers (for example) are not unreasonable. But the point is certainly arguable, which is part of the problem. The "lead percentage" basically depends on the mortgage default rate, so if you think everyone in America is going to default that basically becomes a self-fulfilling prophecy. In addition the value of these things is dependent on whether or not we face a credit freeze, since the value of most investment vehicles will drop like a rock in a credit freeze.

The selling of this plan was hampered by the quality of the salesmen and their over-reliance on fear. I appreciate your analogy, and think proponents would be well-served by adapting some variation of it. They should also concede this is the beginning of “… a lengthy and arduous process which takes years.”, and install time-line of anticipated returns, or loss-recovery language. Every business-plan has benchmarks and this should be no different. People will forgive missed deadlines. They will not forgive themselves for failing to insist on self-protection at the outset of entering an agreement of thsi magnitude. Cannot Bill Gross take a more visible role at this point?

Abstraction is our enemy, now and forever. The more concrete the plan the more palpable it becomes. The bailout must be a big step towards recovering the lost virtues of trust and credibility. Transparency, accountability and competence should be embedded in the crafting and execution of the final document.

Buying up half of the mortgage backed securities, or anything approaching that order, is beyond the reach of any hedge fund I know.

I recognize that. I merely used buying half as an example to show that your original claim that buying bags for $20 a pop "represents a very good investment opportunity; only if I can buy substantially all of them" was false.

Here's a math problem for you: suppose you buy ten bags for $20 each. What are the chances that you'll make a profit?

Now consider the fact that the banks have been holding these bags for some time, and have them in their possession now. They may not be able to open their bags, but they can fill different bags with gold and lead, and compare what they have to these other samples. They can shake the bags and listen to them clink. So when I come a-shopping for 10% of their bags, they are going to do their best to make sure that I get lead and not gold, so that I, rather than they, are left holding the, err, bag.

Why are you so confident that this sort of asymmetrical information problem wouldn't occur with a bailout?

Here's a math problem for you: suppose you buy ten bags for $20 each. What are the chances that you'll make a profit?

Why are you so confident that this sort of asymmetrical information problem wouldn't occur with a bailout?

The selling of this plan was hampered by the quality of the salesmen and their over-reliance on fear.

Cannot Bill Gross take a more visible role at this point?

But the point is certainly arguable, which is part of the problem.

It seems, at least to me, that this is the central question, and that no one, least of all the government, can make a strong argument backed with actual evidence as to what the value of these things actually are.

Which means we need to take a step back and ask: Is this a prudent thing to do? If I had a choice to make a really large gamble that potentially had a payoff, but all the available evidence (markets, private investors, housing prices) says "Probably not, but maybe you get lucky!" and you had to bet big or nothing, then the prudent choice is No. You fold. And then you go home knowing you made a wise decision not to go all in.

Frankly, I'd love to play poker with Paulson. Scratch that: I'd love to play poker with Paulson when he's using other people's money.

It seems, at least to me, that this is the central question, and that no one, least of all the government, can make a strong argument backed with actual evidence as to what the value of these things actually are.

Bill Gross, eh? You mean the Bill Gross who has been profiting from the housing bubble and derivative over-inflated mortgage markets, and now wants the government to step in when the downside comes (http://www.nakedcapitalism.com/2008/09/bill-gross-says-nothing-is-going-up-so.html)?

"Gross has been agitating for months for a bigger federal role in bailing out the sinking housing market. He acknowledges his critics, who say he’s "talking his book": Because Pimco is a huge investor in mortgage-backed bonds of Fannie and Freddie, the firm and its mutual funds stand to benefit now that the government is stepping in to assure that the companies stay solvent. Pimco also will be helped as the Treasury begins to buy mortgage-backed bonds in the open market." -http://latimesblogs.latimes.com/money_co/2008/09/bill-gross-the.html

Hmm, maybe we should not trust the guy with the $130 billion dollar conflict of interest. At least without specific, concrete evidence rather than his "reasonable" opinions...

I did not say "trust Bill Gross". I'm not making personal endorsements here.

I don't agree that there are no sensible ranges of assumptions in the scenario. But as I said, if we assume that they are worthless

Nice straw man. I was trying to accommodate your "lead" analogy. No one's saying the junk assets are completely worthless--not even the current market. What I am saying is that they are likely worth a lot less than the Paulson will purchase them for, something close to the current market value for them.

But I guess you can keep with the straw men instead of making the argument as to what those securities are actually worth. Or maybe you can't find any concrete evidence for why the market might be wrong in this situation? What exactly are you basing your "sensible range of assumptions" on? It's fine if you don't agree with me, but I guess I was expecting some actual facts and evidence.

I did not say "trust Bill Gross". I'm not making personal endorsements here.

That's true. But you do think his numbers are reasonable, and so you trust him with respect to this narrow issue, even though you're not asking anyone else to. Got it. What I wanted to know was why you would think someone's numbers are reasonable who's already benefited from one government bailout and will benefit more from this one?

I mean, I guess I could be crazy or something here, but that doesn't seem like a good idea to me.

Yikes, thanks for the cold-shower, Albert, but Gross is already protected by the nationalization of Fannie & Freddie. There is merit to the argument of "take the hit and ravages of a deep recession now, rather than a depression later", but it should be stated in a forthright manner. Last thing we need is a proposal-free populism couched in the elliptical language of the elites.

Zippy,

I still believe you're neglecting vital elements by manner of your rather reductionist examples (though, admittedly, they are good conversation-starters for threads as this).

Kindly Consider (you'll have to view the short 8 minute clip at the CNBC link for substantive details of Bianco's analysis):

Not everyone, though, is convinced that a government bailout plan would have had a meaningful effect beyond propping up bank balance sheets, including institutions that eventually will fall anyway.

"I didn't think that bill they were voting on yesterday was going to do much good for anything," Bianco said. "Yes, it would have given a psychological boost--the problem is the banking system is too small. The banking system needs capital."

"It would have been a lot like all the other Paulson plans. None of them have worked so far," he continued. "This is just the sieve bailout, version 2008, which failed last year to get through."

(See Bianco's full analysis in video at left.)

SOURCE: http://www.cnbc.com/id/26956466

As I've tried to tell you once before concerning the fact the purchase of distressed assets and the need for capital:

Bailout's Flaw of Large Numbers By PETER EAVIS and DAVID REILLY

Berkshire Hathaway's investment in Goldman Sachs Group provides a template for how to get the financial system back on its feet.
The problem is, the Bush administration's $700 billion bailout plan ignores some of the key lessons of Warren Buffett's deal. Most notably: Capital, or lack of it, is at the heart of the crisis.

The proposed bailout only goes a certain distance in addressing that, so it mightn't spark the sort of quick confidence rebound its proponents are hoping for. That explains Wednesday's renewed stress in debt markets.

The realism of the Goldman/Buffett deal is instructive. The market was getting nervous about funding Goldman's highly leveraged balance sheet. The bank had to adjust and raise expensive capital quickly.

First, Goldman agreed to become a bank-holding company Sunday, giving it greater access to Federal Reserve credit. Then it reduced leverage markedly by raising $10 billion in fresh capital from Berkshire and other investors. It did so even though it meant diluting shareholders by as much as 20%.

In contrast, the government's bailout plan contains no explicit demands that banks raise capital. If Goldman needed to, others surely do.

Instead, the government plan aims to repair balance sheets just by taking large amounts of distressed assets from the banks. True, this could allow banks to reverse losses, depending on the price at which the government buys them. That would boost capital to an extent. But, on its own, not by enough to soothe credit markets, which want to see balance sheets cleaned up more definitively...A big number, by itself, won't restore confidence. Any solution that doesn't directly address the capital shortfall is likely to fail.

SOURCE: http://online.wsj.com/article/SB122230671171173963.html#printMode

It is a meaningless question, because it assumes uniformity.

I see no assumptions of uniformity beyond what is built into the example. If you think that the question does involve such an assumption, you might want to try and explain why, rather than just asserting it again and again.

Because when I'm the only game in town, you have to submit to whatever due diligence I decide to put you through.

It's not clear to me why the government should be expected to do adequate due diligence when buying up distressed assets. Not only is there no financial incentive for them to do so (it's not like Paulson gets to keep whatever money he makes off the thing), but one of the explicit purposes of the bailout is to give capital to banks, which won't happen if the government tries to maximize its return on the assets it buys.

Nor is it clear why one has to be able to buy all or nearly all the assets in question in order to get sellers to allow you to do your due diligence. The sort of asymmetrical information present in your hypothetical occurs all the time in the financial markets, and it doesn't typically take monopoly power in order to overcome them.

...instead of making the argument as to what those securities are actually worth.

As for why it is possible for value to be unlocked by a large player which cannot be unlocked by a diffuse market of smaller running-scared individual players as a general thing, that is one of the things the post and subsequent comments explain, at least in part. This isn't uncommon as a general thing, by the way, because size does matter.

Blackadder: I'm trying to get something from your last comment other than "I don't get it", but, well, I don't get it.

Aristocles: I'm actually in agreement that, while this plan does some necessary balance sheet cleanup, and the credit system is very likely to sieze without dealing with the particular problemmatic asset class, it may not be the only thing that needs to be done.

I like the analogy Zippy, but Albert is right that there is very little to gauge the "correct" valuation of these assets. It may be better to let them unravel some more, and then we can have a better idea where the median price should be.

Kevin nails it perfectly with his note about the salesmen and their fear-mongering. Paulson's initial proposal was one of the most egregious power grabs in history. Even after it was modified a bit it was still very, very vague on the details of how this would play out and the protections it offered to taxpayers. At this point in this administration, why should anybody be blamed for doubting claims of imminent catastrophe?

Another major problem, when the boat is sinking, it isn't enough to bailout the water, you have to fix the hull. The emergency spending was going to fix the symptoms but leave the things that caused it unresolved. For the price tag they put on this thing, I expect a few long term solutions and not just short term fixes. Otherwise they can just take the money and throw it down the toilet for all the good it will do. Which would be a great new reality TV show, but otherwise is pointless.

Last but not least, although there is plenty of blame to go around for the various causes of this debacle, the GOP doesn't have the leadership in place to fix it. A Republican administration is demanding this bailout and only a third of the Republicans vote for it? They never should have signed off on the compromise if they were not certain of having the votes they said they had. Instead, they torpedoed the bill and immediately starting playing the blame game with it.

Zippy,

You are expecting my blog posts to be a technical argument for a specific price point for certain kinds of complex securities. That is not their purpose. Their purpose is to explain my perspective in as clear a terms as possible to a general audience. (I don't know if they succeed, but that is their purpose).

To be candid, Zippy, I couldn't quite understand how you were able to place value on such complex financial instruments (particularly, even those which were basically private contracts) when nobody else could, which actually lies as one of the principle problems of the current crisis.

Still, even by your summations as well as the manner of your examples, it is quite telling.

For somebody who claims to have 'the barest clue' about how all these things work, I can at least see a glimpse of why perhaps you were able to retire at a sweet young age as the successful entrepreneur you had become back in the Tech boom days (assuming all that was true, of course)!

Kudos!

Ah, I see the problem. You are expecting my blog posts to be a technical argument for a specific price point for certain kinds of complex securities. That is not their purpose.

Well, considering that reasonable support for the bailout largely depends on whether the government is right or wrong about the value of the securities, I suppose my expectations for a discussion of the merits of the bailout were higher.

As for why it is possible for value to be unlocked by a large player

Was this for Blackadder? I agree with you here and am similarly perplexed as to Blackadder's concerns.

Kevin, the cold water was for the proponent of stealing thousands of my dollars without actual evidence to justify the plan who wrote the blog entry, not for you. The alternative proposal you seek is simply to do nothing and allow the banks to fail. The alternative has already been stated in a "forthright manner" but unfortunately people Don't Like It. It doesn't make them happy because it doesn't promise that the Crisis will be averted. So they ignore it, and propose plans to steal money from others (instead of relying on their own money) and then complain when answers are demanded, yes demanded, from them.

The last thing we need is not "a proposal-free populism couched in the elliptical language of the elites" but rather a citizenry who take "Trust me" for an answer from their unrepentant political leaders. The onus is on the ones who want to do something and fund it by stealing from others.

Hey Zippy,

What do you think of this guy's thoughts on the Paulson plan (you can click through to the link in the blog post for the full five-page memo):

http://mjperry.blogspot.com/2008/09/homeowners-lenders-last-line-of-defense.html

Just want to say, your posts have been helpful to me as I follow this story.

"It may be better to let them unravel some more, and then we can have a better idea where the median price should be."

"It may be better to let them unravel some more, and then we can have a better idea where the median price should be."

Step2,
We shouldn't let them them unravel through inaction, or the amount of lead in each bag increases and we'll have succeeded only in driving up the final cost to the taxpayer. We can build an escalating pricing model into this plan.

Its cards on the table time for everyone. We can follow the Stiglitz (who opposes the bailout)scenario of a long, deep recession. Again, the "it has to get much worse, before it gets better school" may ultimately be the only viable option, but we should choose it with our eyes wide-open. My own preference is to mitigate against an economic disaster and use the time we've bought to purge the moral hazard and centralized concentration of power and money in our system through evolutionary, not revloutuionary means. And make no mistake, what Stiglitz, Albert and others are proposing is revolutionary in terms of social upheaval and human cost.

Albert, thanks for your candor and well-reasoned defense of libertarian economics. I don't agree, but you have a case.

Kevin,

...and centralized concentration of power and money in our system through evolutionary, not revloutuionary means.

Too late.

Has it hit anybody yet that because of all the turmoil & the subsequent acquisition that has occurred as a result, we have only The Big Three now???

1. Bank of America
2. JP Morgan
3. Citi

Now, given the current crisis & all the lack of transparency that has been one of the major causes of such, it becomes of even greater importance because of the birth of these giants that additional transparency is placed on them.

God knows what should happen if any one of these ended up failing, given how gigantic each of these have become as a result of the crisis itself!

Ari, it is way too late to prevent moral hazard, but not too late to begin the necessary purging. Maybe the only way we arrive at a state of widely dispersed and diffuse power is through an economic and social cataclysm, but it is just as likely that people will turn to ‘the man on the white horse” in such a crisis. Those of us who want to cut Leviathan down to size and displace our plutocracy will have to resort to the paradox of using the powers of each as the means for incrementally arriving at their demise.

We shouldn't let them them unravel through inaction, or the amount of lead in each bag increases and we'll have succeeded only in driving up the final cost to the taxpayer. We can build an escalating pricing model into this plan.

Since we don't know the level of lead in each bag, and in the analogy we supposedly do know the average amount, I am confused about how it increases by our inaction. In any case, the thing gained by inaction is that we gain more differentiation between what is salvageable and what is not. Look, I don't want a credit freeze any more than Zippy does. What I also don't want is buying up assets that require a high maintenance cost based on a bet of upward pricing pressure. That is exactly how this irrational scheme got started.

And here, courtesy of NRO's links page, is an actual argument for what the mortgage-backed securities are worth:

"A key issue for the $700 billion bail out plan now being finalised is the pricing of the ‘toxic assets’ the US Treasury should buy. The main target of the Paulson plan is the market for securities based on low quality mortgages (sub prime and ‘Alt A’ mortgages). This subclass of the general universe of RMBS (residential mortgage-based securities) has become illiquid. How should these securities be priced? In the few market transactions still taking place their value has often been less than 50 cents to the dollar of face value. But it is difficult to establish a reliable market price. Are there any other ways to assess their value?"

It seems the "argument" for a bailout is in trouble.

Step2:
I guess I don't agree that taking these securities off balance sheets is window dressing. I think it addresses an underlying root cause. The shift in emphasis to capitalization is a land grab: on the right, for corporate welfare; on the left, a grab for 'nationalization lite'.

The longer the politicians delay and fiddle, the more we lose.

Jeff:
I agree with the first commenter to that post. (Terse iPhone reply).

Actually, Zippy, you don't agree with that commentator, because he says at the end of his comment "and it shouldn't pass because the American people rightfully oppose it."

"...because he says at the end of his comment "and it shouldn't pass because the American people rightfully oppose it."

Actually, Mark Haines of CNBC said something not unlike this comment (which I think Zippy et al may be neglecting when it comes to their rather condescending summation of the Populist Outrage); that is, these folks may very well know of the dire consequences of such a failed bailout proposal -- however, the people would rather suffer these consequences than have to bail out the corrupt delinquents who gave rise to this situation in the first place.

In other words, even if it means that they, the people, would suffer the consequences as a result; to them, it's the principle that counts.

OK, I agree with the first part of the comment, my bad. I don't believe in leadership giving the people what they want in general; moreso when what they want is suicide.

I don't believe in leadership giving the people what they want in general; moreso when what they want is suicide.

I don't think you can call it "suicide".

If you are a subscriber to The Wall Street Journal, you might want to consult this interesting article:

Bailout Bust May Have a Benefit
http://online.wsj.com/article/SB122274011275388805.html

(Unfortunately, access to this particular article requires subscription.)

I'll just put down the main point:

"After all, the bill voted down Monday was unlikely to be a big help to the banking system. The market already seeing its details may have already come to that conclusion since stocks were down Monday before the House defeat."

You'll have to consult the article itself for more details.

Ari: I don't agree with that assessment, and it isn't the feedback I'm getting. In any case "give them the suicide that they want" and "it isn't suicide" are distinct positions. (Oh and thx for your kind comments earlier).

I don't think buying up distressed-mortgage houses is completely crazy; but it is another "eat the downside, give away the upside" play, as far as I can tell, since there is no participation in the mortgages which keep paying. A lot of what there was to like about the original plan was that it took the problemmatic securities off the table, and yet wasn't just a payoff of all the losses: it actually entailed participation in the upside. It is just the sort of deal I would expect from a Goldman guy. They don't like separating out the losses and eating them without participation in gains.

Zippy,

Respectfully, Zippy, you might want to read up -- although here's another bit from The Wall Street Journal:

"We're going into another Great Depression." The failure on Monday of the U.S. House of Representatives to pass the bailout plan makes those G-D words seem possible for the first time. But I don't think another depression is likely, for two reasons.

First, when you spend time studying the Crash of 1929 and the depression that followed, what stands out the most is the dearth of doomsayers. Even Roger Babson, the economist known to posterity as "the man who called the crash," did no such thing; he forecast only a 15% to 20% drop, not the apocalypse that actually occurred. Depressions start not when lots of people are worried about them, as we have today, but when no one is worried about them, as in 1929.

Second, the Great Depression and the Panic of 1873 (which triggered what arguably was the worst depression in U.S. history) both occurred before the Federal Reserve Bank had aggressively grown into its role as "lender of last resort." In the wake of 1873, after a railroad-building boom had swept the nation and then gone bust, companies and consumers alike were left gasping for capital. Nothing but the passage of time could supply it; the Fed would not be established until 1913. After the crash of 1929, when the Fed was still weak, years passed before the federal government could flood the economy with cash.

Today, however, the resolve of the Fed is not in question; nor is there any doubt that the Treasury Department is willing to provide the financing it takes to get the economy moving again. Furthermore, U.S. nonfinancial companies have just under $1 trillion in cash on their books. Even though Wall Street is dead, innovation is not: In the months to come, clever new financial go-betweens will spring up and find a way to get that cash flowing again. It's hard to see how a depression could get under way when so much capital is waiting in the wings.

Albert,
I've read the suggested link and must say, both Daniel Gros and the American people are well-served by his continuing residence in Brussels.

We know 3 million subprime mortgages represent only 2.6% of 116 million total housing units, and only 17% of subprime loans (510,000) are in foreclosure or REO. As a percent of total housing units, the subprime mortgages in foreclosure or REO represent less than 1/2 of 1 percent of all housing units (0.44%).

I ask Step2 as well; can we not do some number-crunching that determines the total percentage of mortgage securities poisoned by the presence of these loans and arrive at a fair valuation of assets for the entire pool? Where's all that American know-how we hear so much about? Is it only good for building casinos, Ponzi-schemes and smart-bombs? Damn.

I think a bill can be written that serves as the cornerstone for a better financial system, one where the flow of capital and power to Wall Street reverses direction back to local institutions. I am therefore baffled by those who are saying with Darwinian aplomb; the choice is between bailout and bankruptcy, and we choose the latter.

We know 3 million subprime mortgages represent only 2.6% of 116 million total housing units, and only 17% of subprime loans (510,000) are in foreclosure or REO.

That's nice. How many of those 116 million housing units are already paid off and consequently don't matter whatsoever? What about the non-subprime loans that are defaulting?

The relevant statistics you ought to be looking for are:

The U.S. mortgage market is estimated at $12 trillion[16] with approximately 9.2% of loans either delinquent or in foreclosure through August 2008. This is up from 1% of all loans in 2007[19].

From 1% to 9.2% in one year. And it's only going to get worse. Don't you understand that?

I was going to respond to your clever little remark about Daniel Gros's residence, but I won't. I don't think I have to. Everybody can look at the arguments for themselves, who has the facts that are relevant and argues well, and who does not.

"The U.S. mortgage market is estimated at $12 trillion[16] with approximately 9.2% of loans either delinquent or in foreclosure through August 2008. This is up from 1% of all loans in 2007[19]."

O.k, go with a 10% figure polluting the pool of securities. Can we not build a pricing model based on that figure?

"And it's only going to get worse. Don't you understand that?"

Yes I dO. The real question is how much worse are you willing to let it get? Spell it out.

As for Gros, he says right off; the mortgage securities market was built on sub-prime loans. Wish that were true. The whole CDO structured finance market would have been straggled at birth. His presmise is wrong, his conclusion is wrong and with 55 trillion in assets tied to mortgages, car loans and other credit vehicles, you could devalue a substantial part of the American economy to ,as he says Zero. Again, I learned long ago to be wary of both libertarians and Marxists safely ensconced in tenured positions, think-tanks and quasi-governement positions. They each tend to have Una-bomber tendencies. He's just more proof.

I refuse to buy into the false choice posed by let them eat cake libertarians and the power-drunk managerial class. This mess is in the hands of the House and there are some good people on both sides of the aisle trying to stave off an economic cataclysm. One that Gros's model makes it even more horrifying.

Wow, 10% of Americans are late on their house payments. That is a good reason to peg the value of all mortgaged US real estate at zero.

Wow, 10% of Americans are late on their house payments. That is a good reason to peg the value of all mortgaged US real estate at zero.

Now you're just getting desperate and sloppy. We're not pegging the value of all mortgaged US real estate at zero. We're pegging the expected value of the subprime mortgage ROI on that real estate at zero. Mortgage != real estate. Banks lose money when people default on real estate that is nonetheless valuable. The loss of money does not mean real estate is not valuable. It just means they lost money.

"We're pegging the expected value of the subprime mortgage ROI on that real estate at zero."

Are you then saying there will be a 1 trillion dolar write off in real estate loans? How does that effect the entire asset class involved in the bailout? Please finish your equations and complete your argument.

I appreciated your stand on principle, but the introduction of Gros's put option principle is a credibility killer. Meanwhile, lets hope cooler heads dealing in sound math can manage to blunt the edge of this recession. It is a moral obligation they owe the rest of us.

As for Gros, he says right off; the mortgage securities market was built on sub-prime loans.

What are you talking about? Gros said that the mortgage securities market that the bailout plan will buy into was built on subprime loans, NOT the whole mortgage market.

The entire mortgage market is worth $12 trillion dollars. Paulson didn't ask for $12 trillion dollars because he's not going to buy the whole pie and put every other mortgage lender in the US out of business; he's targeting the subprime securities (some of which are okay, many of which will default) NOT the healthy securities. The healthy securities are NOT the "distressed" assets.

What in the world do you think we're talking about here? The $700 billion will be buying DISTRESSED assets. It CAN'T buy the whole thing. Even if he somehow did manage to scrap together $12 trillion, which is more than the entire US national debt and almost the entire annual US GDP (which means every citizen's money for the next year all goes into paying for mortgages instead of feeding their family and paying for electricity), he'd likely STILL lose money due the decline in housing prices nationally until 2010, though that remains to be calculated because the idea is so stupid no one's wasted time calculating it.

You know, sometimes the libertarians are right. And sometimes the right choice will save people from terrible consequences they shouldn't have to deal with.

Ah,I see. You are under the impression that the securities in question wrap only sub primes, and in particular only ones which will default with no residual. Bad chain of assumptions. Though handy ones to bake into what is really a religious position against a main street rescue.

Albert: if a reasonable business case could be made for a positive ROI, would you support the Paulson plan?

Kevin,

Do you really believe that with the bailout, the decline in real estate value would actually stabilize?

According to economists featured from both CNBC & Fox Business News, they claim that even with the bailout, the decline in home values would not stabilize.

Their anaylsis is not unlike Ben Stein's, who Zippy had merely dismissed as some righteous dude, seeming to overlook the fact that he happens to be an economist as well.

Are you saying that we are in the midst of the greatest depression in U.S. history -- since this is how you & Zippy are sounding like considering the predominantly ominous nature of your comments which seems to warn of an impending Apocalypse in the absence of the bailout passed by Congress?

If, as related in the above WSJ article, the Great Depression and the Panic of 1873 was the worst depression in U.S. history, how can you and Zippy continue to subscribe to such a theory of an Apocalypse, when unlike that worst Depression in U.S. history, as the article relates, we have several advantages they did not have back then & even they had recovered after all that?

Merrill, Washington Mutual, Wachovia, etc. all fell & yet did all actually go to Hell?

Even that big blow-hard, Kudlow, feels that alternatively merely relying solely on the FDIC (with some enlargement of their role in all this) might be enough to weather this storm.

After all, look at how they helped facilitate the calamitous events surrounding WM & WB.

Yes, perhaps the bailout may help ease certain areas suffering at the moment, but I don't think it's the cureall that you & Zippy seem to be heralding it as.

Even further, I doubt that the overall state of the economy will be going to Hell as a result, although psychologically-speaking, perhaps that perception may very well become the case in the real world given all the fanatics out there who are warning of *The End of the World* (present company excepted, of course) in the absence of an action by Congress.

Are you then saying there will be a 1 trillion dolar write off in real estate loans? How does that effect the entire asset class involved in the bailout? Please finish your equations and complete your argument.

My argument is complete and has been complete. What isn't complete is your understanding on this matter.

I was responding to Zippy in that comment, not you. Which is perhaps why you didn't catch my reciprocal exaggeration of his "That is a good reason to peg the value of all mortgaged US real estate at zero" with "We're pegging the expected value of the subprime mortgage ROI on that real estate at zero." To be more precise, as you wish, the value will be close to 0, perhaps 15-20 cents on the dollar. The write-down over the next few years will likely be around $650 billion, but so what? US banks are worth over $10 trillion. The really bad ones will die, and healthier banks will take their place. Will things be hard? Yes. But better than the American people tanking additional trillions of dollars amidst a recession.

I appreciated your stand on principle, but the introduction of Gros's put option principle is a credibility killer.

My stand is on the facts, not merely principle. The only credibility killer here is your continual lack of relevant facts and arguments, as demonstrated in your series of comments. And after misreading Gros, what complaint do you have with him now?

I ask Step2 as well; can we not do some number-crunching that determines the total percentage of mortgage securities poisoned by the presence of these loans and arrive at a fair valuation of assets for the entire pool?

We could if we had transparency in the various numbers involved. Since we don't, we cannot arrive at a fair valuation. I don't think they are worth zero, but they very well may be worth only a few cents on the dollar.

Let's keep in mind that the investment banks have already absorbed a write-down of over $500 Billion on these toxic assets. There is little reason to think that there won't be further write-downs required.

The good news is that the fall in housing prices is slowing down from its breakneck speed of 20% year to year. The bad news is that many areas of the country have an incredible glut of excess housing, in some cases a few decades worth.

I'll just further add that the way the Republican congresscritters have been screaming socialism every chance they get makes me nauseous about supporting any bailout at all.

Zippy: Ah,I see. You are under the impression that the securities in question wrap only sub primes, and in particular only ones which will default with no residual.

Albert: he's targeting the subprime securities (some of which are okay, many of which will default) NOT the healthy securities.

Yawn. You are getting sloppy.

"Though handy ones to bake into what is really a religious position against a main street rescue.

Faith vs Reason? Bad epistemology on top of sloppy economics. What would Aquinas think?

Albert: if a reasonable business case could be made for a positive ROI, would you support the Paulson plan?

Will you business case take into account moral hazard from bailing out failed companies? Especially in light of the housing policy that caused this whole mess, that is a consideration, isn't it?

Is that a 'no'?

Zippy, I neglected to comment on your substantive assumption. To be precise, the distressed "securities in question" range in their composition, rating and valuation. I used "subprime securities" as a heuristic of "unhealthy securities" to communicate the reason for the unhealthiness, namely inclusion of subprime and Alt-A mortages. But despite the range of these complex securities, we speak of "distressed assets" in general terms because they are classified based on the lower valued mortgages, whether subprime or Alt-A.

Do you have a complaint with talking about "distressed assets"? And do you actually believe the market is not working for healthy securities backed by A-paper loans?

"Mortgage loan applications were $234 million in the second quarter of
2008, with $150 million in loans closed resulting in significant profit
contributions during the quarter. Year to date we have closed $305 million in
mortgage loans. Monarch Mortgage is focused on the retail A-paper mortgage
market and does not participate in the sub-prime mortgage market. Monarch
does not hold any sub-prime mortgage loans or related securities, and because
the company began expansion after the sub-prime meltdown, no sub-prime
repurchases are expected."

"Monarch Financial Holdings, Inc. (Nasdaq: MNRK), the bank holding company for Monarch Bank, reported record second quarter net income, record year to date net income and
continued strong loan growth. Net income was $927,027 for the second quarter
of 2008, up 17.8% from the second quarter of 2007 when net income was
$787,195. For the first six months of 2008 net income was $1,895,228,
compared to $1,713,583 for the same period in 2007, a 10.6% increase. Our
2008 annualized return on average equity (ROE) was 9.73% for the second
quarter and 10.10% for the first six months, both ratios ahead of the previous
year. Diluted earnings for the second quarter were $0.18 per share, compared
to $0.15 the previous year, a 20% increase. Year-to-date 2008 diluted
earnings per share were $0.38, compared to $0.33 the previous year."

Is that a 'no'?

That's a "it obviously depends on what 'reasonable' means, could you clarify?" If you took into account the economic losses due to moral hazard, e.g. $200 billion dollars for bailing out the GSE's and the aggregate losses due to government inefficiency and destruction of competitive opportunities for responsible companies like Monarch in the mortgage lending, banking, finance, and insurance industries, in addition to overhead, asset liquidation and interest rate spreads, then sure.

Give it your socialist best!

I'll take that as a 'no'. Thx for the discussion.

Zippy,

Here's an interesting tid-bit you might be interested to watch (4 minutes clip) that not all subscribe to the Prophecy of Doom:

Bailout Would Only Prolong Crisis: Jim Rogers

Excerpt:

"History shows that these plans don't work. It didn't work for the U.S. in the 70s; it didn't work for Japan in the 90s.

History also shows that what does work is to let the market work it out.

Russia had a horrible collapse in 1998 but in the last 7 or 8 years, they have been one of the fastest growing economies in the world.

South Korea had a horrible collapse in the late 90s.

Nobody bailed them out and they've been one of the rapidly growing economies in the world in the past 7 or 8 years.

History shows -- it's not what I want --

It's what history shows: you let things collapse, you clean out the system, you start over, and you have a very sound and high growth rate.

Otherwise, you drag it out for decades and you have problems."

SOURCE: http://www.cnbc.com/id/26969555

It reminds me of that bit about 1873.

Albert, you’re against any bailout or attempt to reform our financial infrastructure. Cool. Why you felt obligated to drag in a selectively applied worst-case scenario from an obscure Belgian economist is beyond me. Simply stand on your Ayn Rand collection, yell; “let the Malthusian Cull begin” and be done with it.

Step2, yes, once the Legion was allowed within the city walls the Republic was lost and with Cicero gone the whole thing’s a drag. But the emotional gratification of giving the Senate the finger will be fleeting. Both a bailout and huge deleveraging crisis are coming. The goal is to draft the former so as to ameliorate the latter. Tempting as it may sound, lifting the drawbridge and watching Rome burn won’t help lay the foundation for a sane and just economy.

Ari, you forgot to add; “Rogers said he was back into buying Chinese shares over the past weeks as the country's monetary policy had started to loosen up…” Jimmy’s heart is wherever the transnational flight of capital takes it. The rest of us will reenact the Russian collapse and patiently wait our own homegrown Putin to emerge from the “correction”.
Can’t wait.

Kevin,

...and patiently wait our own homegrown Putin to emerge from the “correction”.

Did not Scripture itself prophesy the Coming of the Kingdom of The Obamassiah?

Seriously, though, I believe that it is more likely that any events evincing The Apocalypse you & Zippy are divining would seem more so a psychological result of things than anything else.

Certainly, there will be inescapable negative repercussions as a result of the crisis itself that, even with a bailout, will occur regardless.

I admit that you and Zippy are perhaps more adept in certain areas of business than anybody here given your respective backgrounds; however, why is it the same Prophecy not being foretold by even the chief economists of the business world?

Albert, you’re against any bailout or attempt to reform our financial infrastructure. Cool. Why you felt obligated to drag in a selectively applied worst-case scenario from an obscure Belgian economist is beyond me. Simply stand on your Ayn Rand collection, yell; “let the Malthusian Cull begin” and be done with it.

Anyone see any facts or argument here? Me neither.

I'll take that as a 'no'. Thx for the discussion.

You'll take my 'question' as a 'no'?

Well, nice punt, anyway.

I think the argument is that you are a priori impervious to facts and argument. You've made up your mind, and your purposes in this discussion are purely polemical. That is fine, I suppose, but it also makes for very uninteresting - from my perspective - discussion.

Ari, sticking with Jimmy Roger's scenario, I was calculating our country's oil and natural gas reserves in relation to Russia's, so as to guess the e.t.a. for our turnaround. Could be awhile.

There are more professional economists for this bill than opposed, though Albert is trawling European Union websites for fellow-travelers. Yes, I've been working downtown for 15 years, but merely to serve as a source of amusement for the bright guys; "let's ask Mr Buzzkill why he thinks Lent should be 12 months long". So don't go by me. Just allow your own powers of observation to operate unfiltered by ideology. Cheap credit and cheap energy have been the power-pistons of our economic machine and both are going away. Soon our Social Security, public entitlements and private pensions are going to be stressed to the point of insolvency. To me the challenge is to avoid the shock therapy and attendant social dislocation that comes when all these forces converge. I see this bill as an opportunity for the right people to shape a less harrowing future for this country by crafting a sensible response to one aspect of a multifaceted threat. I don't know how many second chances we get, or deserve. I am heartened though, by some of the men and women who stepped up, voted down the first proposal and are trying to write the second. They labor with honor.

Kevin,

Soon our Social Security, public entitlements and private pensions are going to be stressed to the point of insolvency. To me the challenge is to avoid the shock therapy and attendant social dislocation that comes when all these forces converge. I see this bill as an opportunity for the right people to shape a less harrowing future for this country by crafting a sensible response to one aspect of a multifaceted threat.

Thanks for the thoughtful response (as the usual!).

You don't actually consider this government action to be one of the very things that might very well contribute to our reaching that point of insolvency you alluded to in your above comments?

The goal is to draft the former so as to ameliorate the latter.

I agree. I don't believe the modified Paulson plan does that. What we have seen instead is nearly a banana republic version of how to respond to a fiscal crisis. We didn't get into this debacle overnight, an effective solution to it may take a few weeks.

I think that any plan that encourages people to think that we can "recover" fiscally without also "recovering" our fiscal virtues is irresponsible in the long run, and may be doomed to failure even in the short run.

We need people to think - and act on - the belief that they CAN live in a smaller house..., that they CAN live without a new car every 5 years,...that they CAN live without a Disneyworld vacation every year or 2,...without going out to the movies and dropping $30 every couple of weeks, or dropping $300 to go to a football game when the mood strikes them.

If people were convinced that they had a moral obligation to live within their means, and that this moral obligation applied just as truly to governments as to individuals, the ENTIRE problem would be solved within 10 years, and I don't care which plan of mechanics is involved (as long as it does not interfere with the moral change). Without a moral change, EVERY mechanical plan will, at the very best, gain us a reprieve of a couple of years but lead us into a still more grave situation a couple years after that.

I will never believe a government that claims Social Security will not run out of money until 2041 (that was the official estimate under both Clinton & Bush) because it has IOUs from the Treasury. Social Security was built as a huge Ponzi scheme.

Tony:

Any act is pointless without further reforms, I agree, at least in the same sense that using a defibrillator is pointless without a cessation of chain smoking and binge drinking. But that does not constitute an argument against using a defibrillator.

Tony wrote:

We need people to think - and act on - the belief that they CAN live in a smaller house..., that they CAN live without a new car every 5 years,...that they CAN live without a Disneyworld vacation every year or 2,...without going out to the movies and dropping $30 every couple of weeks, or dropping $300 to go to a football game when the mood strikes them.

Excellent comment!

I tried to express the same elsewhere in that one of the reasons we're in this situation in the first place (on top of the corruption amidst the Corporate World) is because of this sense of entitlement its citizens have to a continuously evolving lavish version of The American Dream (encouraged by advocates of The Modern Welfare State wherein: "Everybody is entitled to a Dream Home") regardless if they can't afford that type of opulent lifestyle they keep aspiring to but only do so by owing substantial debts they can't actually afford.

Ari,
Yes, I see both the actual and potential downside to the bailout. Maybe, in the end, it will be recorded as the deluded and desperate last ploy of a people who had already lost control of their destiny. Yet, I see no other choice, and dread the thought of foreign sovereign funds owning our
financial architecture.

I hope you saw the scene from the Senate tonight. It was clear from their body-language and the despair in their eyes, that they have seen the future and it doesn't work. Not for them, nor for us. No self-respecting ruling class, no matter how debauched, wants to preside over their own liquidation. Harry Reid looked like Petain preparing to sign an armistice with Hitler at Rethondes.

Step2,
You, like Ari, have been able to absorb this kick to your solar plexus and still remain open to the possibility that a bill could be written in America's best interests. That speaks well of you both, and hope your good will is rewarded.

Tony,
"Without a moral change, EVERY mechanical plan will,...but lead us into a still more grave situation a couple years after that."

Amen. I would only amend your comments by expanding the scope of your indictment to include
the political, economic and cultural elites of the past 30 plus years or so, for peddling the fictions and pursuing the policies that brought us to this point. We were warned but, instead scorned the prophets. Christopher Lasch for one, were he still with us and so inclined, could complete his life's work with a volume entitled; I Told You So.

Zippy,
Thanks for providing the content and context that allowed many of us to collect our thoughts. I don't know if we've averted an economic depression, but this helped to combat the one edging towards my psyche.

Kevin,

Yet, I see no other choice, and dread the thought of foreign sovereign funds owning our financial architecture.

As I have expressed once before, it's all too late to worry about that.

I cite, for instance, from The Commonweal:

What went wrong, and why is it so hard to fix?

From 2000 through 2007, the United States Gross Domestic Product, or GDP, the sum of all goods and services produced, was $92.5 trillion. But over the same period, the sum of all goods and services purchased was $97 trillion. That’s a $4.5 trillion difference. When a country’s purchases exceed its production, the shortfall must be filled with products purchased from overseas. So our trade deficit increased by exactly the sum of the excess purchases.

How did we pay for the excess? We borrowed the money. Household debt roughly doubled, increasing by $6.8 trillion, almost all of it secured by home mortgages. From 2000 through 2005, average home prices roughly doubled. That had never happened before. Homeowners thought they were rolling in money.

Unlike bubbles in stock markets, housing-price bubbles quickly translate into higher levels of consumer spending, since banks flog home-equity lines designed to “make your housing value work for you.” Some $4.2 trillion, or about two-thirds, of the additional mortgage debt was not spent on housing, but on other stuff, like plasma TVs and SUVs. The near match between that $4.2 trillion in home mortgage-financed consumption and the total trade deficit is not a coincidence.

The countries that were the primary recipients of the excess spending of Americans-mainly China and petro-states like Saudi Arabia and Russia-kept the debt merry-go-round spinning by mostly investing their trade winnings in U.S. Treasury notes and bonds (“Treasuries”). The appetite for American bonds was partly a matter of habit—U.S. Treasury bonds are as safe as dollars and pay interest, so most countries’ central banks have long plunked any excess dollars into Treasuries. And it was partly because countries like Russia, China, and the Middle Eastern petro-states lack the modern banking systems that make it easy to lend to their domestic businesses.

Almost all those foreign-owned Treasuries were kept in U.S. bank accounts and swelled bank reserves, which allowed banks to keep on lending, so consumers could plunge into debt over and over again. One of the unhappy side-effects of the binge is that nearly $5 trillion is now in the hands of some of the most unsavory political regimes in the world, a few of which fund terrorist movements.

Ari, we bought time to fight another day. Unless of course, you want to accept serfdom on the globalist estate sooner.

I pass this on, from Bob Williams (EFF):

Today the bailout bill (HR 1424 http://senateconservatives.files.wordpress.com/2008/10/ayo08c32_xml.pdf ) was signed into law by President Bush. EFF agrees that action was needed to be taken to reassure the markets. However, we proposed free market solutions like exempting capital gains tax for anyone who purchased these troubled assets.

We do not believe this will solve the financial problems facing the country because this bill essentially nationalizes the mortgage market and gives the Secretary of Treasury virtually dictatorial power over much of our economy. It does not address the pubic policy problems which led this crisis—things like government forcing financial institutions to give home loans to people who could not afford the payments.

We are deeply troubled by the intent section of the bailout bill.

The U. S. Constitution clearly says "to protect the general welfare" not to ensure the general welfare. But the purposes of this bailout bill include giving the Secretary of Treasury the authority and such facilities to use in a manner that:

-"protects home values, college funds, retirement accounts, and life savings;.

-"preserve homeownership and promotes jobs and economic growth;

-"maximizes overall returns to the taxpayers of the United States; and

-"protects public accountability for the exercise of such authority."

The bill reads more like the Communist Manifesto than a free market bill, and I read every word of its 451 pages.

Here is a summary of the bill.

1. It started out as 3 pages and is now 451!. (http://senateconservatives.files.wordpress.com/2008/10/ayo08c32_xml.pdf), but only 112 1/2 pages are bailout. the rest is:

· energy improvement pages 112-244

· Broker requirements pages 244-261

· Tax breaks 261-310

-alternative minimum tax relief (sections 101-103 , pages 264-267)

-extend deductibility of state and local sales taxes (section 201, page 267)

-extend deduction of qualified tuition and related expenses (section 202, page 268)

-extend deduction for certain expenses of elementary and secondary school teachers (section 203, page 268)

-extend tax free distributions from IRA plans for charitable purposes to December 31, 2009. (section 205, page 269)

-$18 million in clean energy breaks (includes wave- and-tide electricity generators, fringe benefits for bicycle commuters, etc

-$192 million to cover a rum excise tax with money diverted to Puerto Rico and the Virgin Islands.(section 308, page 279)

- $33 million in economic development funds for small business in American Samoa. (section 309, page 279)

-$4 million in tax credits for mine rescue team training. (section 310, page 280)

-$? million in expensing advanced mine safety equipment (section 311, page 280)

-$? million in Domestic production activities in Puerto Rico (section 312, page 280)

-$119-205 million in tax credits for business that employ American Indians who live on reservations and accelerated depreciation for property used on reservations (sections 314 and 315, page 288)

-$? million railroad track maintenance. (section 316, page 289)

-$331 million seven-year-cost-recovery period for land improvement at motorsport racetracks. (section 317, page 290)

-$? million in tax incentives to invest in the District of Columbia (section, 322, page 291)

-$? million in enhanced charitable deductions for contributions of food inventory (section 323, page 293)

-$148 million reduction of wool fabric import tariffs to the Wool Trust Fund to promote American wool competitiveness (section 325, page 295)

-$397 million deduction for domestic projects for film and television productions (section 502, page 298)

-$6 million for exemption from excise tax for certain wooden arrows designed for use by children (section 503, page 300)

-$223 million in payouts to fishermen who received payments for the 1989 Exxon Valdez incident (Section 504, pages 301-307)

-Mental health parity which will cost $3.8 billion over the next five years and will result in more uninsured people because mental health coverage will now be included in all health care plans - pages 310-344

-Rural schools - pages 344-394

-Disaster relief-pages 394-451

-"Spending reductions [I can’t find them!] and appropriate revenue raisers for new tax relief policy"

-correct title of bill page 451

2. Notice this is a "mental health" and "substance-related disorder" bill that had the bailout added to it.

3. President Bush, on October 1, told us not to worry because it is not really $700 billion. It is only $250 billion to start and then the Treasury can ask him for another $100 billion and, if needed, go back to the Congress for the remaining $350 billion.

SO WHY IS THE DEBT LIMIT RAISED BY another $700 billion, which is in addition to the $800 billion increase in July. (SECTION 122, PAGE 68 ) .

4. The underlying assets involved do not even have to be in the United States! Here is the definition of a "troubled asset,” right from the bill:(Section 3(9). This permits the Secretary of Treasury to bail out foreign investors.

"(9) TROUBLED ASSETS.­ The term ‘‘troubled assets’’ means­ (A) residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before March 14, 2008, the purchase of which the Secretary determines promotes financial market stability;

and (B) any other financial instrument that the Secretary, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, determines the purchase of which is necessary to promote financial market stability, but only upon transmittal of such determination, in writing, to the appropriate committees of Congress."

Note: conspicuously missing from the definition is the requirement that the asset's underlying thing (that is, the property that was mortgaged, etc) lies within the United States. Also note that Treasury must tell Congress if they add "new types" of debt, but that Congress has no right of review or censure.

5. The bill authorizes the government to renegotiate loans for people who can't afford them! The government can reduce the interest rates; reduce the loan principal; and do other similar modifications. (Section 110, pages 27-29). Think of the difficulty of implementing this without fraud taking place.

What a socialist grab. [ And remember the adjectives that accompany that system: "Soviet," "Nazi." And remember too the cognates, corresponding, collateral words that apply: Communist, Statist, Fascist, Globalist. They are all Totalitarian.] Whoever is elected /re-elected next month will have the most sweeping authority and virtually unlimited resources to spend to have their way with the economic course in American History. Private enterprise as we call it will be less free than ever, and ownership as we know it will erode as the possibility for politically manipulated transfer of wealth is embraced as the "finest hour" when the US Senate and US House came together to fix this problem.

Bob Williams

Zippy (wherever you happen to be now),

Your prophecy just came true:

BREAKING NEWS: U.S. will buy stock in financial institutions, Treasury Secretary Paulson says

Your prophecy just came true:

Zippy,

I'll think twice before I doubt your preachin', brutha.

You were correct, indeed, in your previously having said:

"...if the credit system actually locks up, we'll get nationalization good and hard, and worse besides."

And the worse things get, the more socialism we are going to get.

Welcome to the Socialist Republic of the United States of America!

"We've probably witnessed the most economically costly week of partisan dilly-dallying - the week of September 22, 2008 - in history."

Quickly ratifying an unread emergency measure of this scale would have only increased the crisis of trust that is consuming the whole system. As it is, the breakdown in trust may never truly recover for a long, long time.

I fully expect Obama though to use the same pitch when he presents his emergency package; "remember when the rednecks wiped out your 401k's by stalling and nitpicking...Pass this NOW!"

Quickly ratifying an unread emergency measure of this scale would have only increased the crisis of trust that is consuming the whole system.

As for Obama and polemic: I don't doubt it for a moment, and there is no way for everyman to really tell the difference. But there is, you know, this underlying issue of what is true.

Zippy, I'm guessing, but a system so fragile it couldn't survive a week of scrutiny and horse-trading was probably going to tank anyways. Yet, if your cause and effect on the bailout is true, wait until leaks from the G7 meetings start. With Zarkozy, Brown and Merkle all vying for savior status, their respective finance ministers are sure to come fully loaded with harebrained and terrifying schemes.

Kevin:

That is like saying "a man so fragile that if he would die waiting a week for air he is probably going to die anyway". In other words, it just flat out isn't true.

Now, people might gripe about having an economic a system like this (that is, industrial capitalism), and I might gripe with them. But griping about reality does not excuse us from the requirement to face reality.

Kevin:

Quickly ratifying an unread emergency measure of this scale would have only increased the crisis of trust that is consuming the whole system.

I continue to be of the opinion that close scrutiny over such a plan is indeed quite understandable given the magnitude of the situation and specific provisions the original bill contained (e.g., ACORN, etc.); however, I don't think you can deny that such a delay may have very well led to the exacerbated situation we now face.