That's close to the plot of World of Apu, one of the classics of world cinema.

Satyajit Ray is one of the greatest directors in film history, but he seems to be practically unknown today except among the cognoscenti. The Apu trilogy is unbelievable.

On another topic, I think the House Republicans are really helping the Republican brand by opposing the bailout.

3: It's kind of refreshing, isn't it? To see Republicans stand up for their beliefs like this. It gives me hope that slimy politics is a variable that waxes and wanes like everything else.

I think the House Republicans are really helping the Republican brand by opposing the bailout

If, however, the economy really does come crashing down, they'll be fucked. It's high risk for everybody.

McCain just caved.

Well, that looks weak, doesn't it?

It does to me. I'm not voting for him now.

I don't know that it looks weak so much as he has no idea what he's doing. Obama, on the other hand, looks like he just successfully called McCain's bluff.

Also, I'm not familiar with Ed Schultz so I have no idea how much credence to give this, but:

Capitol Hill sources are telling me that senior McCain people are more than concerned about Palin. The campaign has held a mock debate and a mock press conference; both are being described as "disastrous." One senior McCain aide was quoted as saying, "What are we going to do?" The McCain people want to move this first debate to some later, undetermined date, possibly never. People on the inside are saying the Alaska Governor is "clueless."

I wonder if they thought of sending palin. it would be embarrassing, but kind of for both of them.

Do you think GOP is stalling on the bill for political reasons? I don't, actually. I think they are just doing it for fun. It only took a week for bush to get the dems in congress to give 700 billion to some GOP power center. congressional reps want to show that THEY can make dems perform for them, too.

McCain is certainly in a worse position since the bill is stalled, since if an agreement had been made yesterday he could plausibly lie "I've done what I came for."

Schultz, like Thucydides, has ways of knowing what people are saying.

The Apu trilogy is long and not at all action-packed. I loved it back in the day, but my hip friends hated it. Also, it wasn't organized around angsty youth and their attempts at relationships.

I think that the "batshit insane" theory explains the House Republicans. These people have no ideas other than their campaign slogans, and they've been elected by our Armageddonist-bigot plurality.

I loved it back in the day, but my hip friends hated it.

Did you ever sit them down for Rashomon?

McCain is certainly in a worse position since the bill is stalled, since if an agreement had been made yesterday he could plausibly lie "I've done what I came for."

I thought his goal was to defend America against the twin perils of the financial panic and the Bush-Pelosi do-nothing plutocrat bailout bill. Mission accomplished so far.

I love the picture on this article. Apparently they chose these students to do stand-ins for the cameras for height and skin tone purposes. I haven't seen O and Mac standing together before, and I wonder if the latter will appear so very short.

15: We may never know, since last I heard he hasn't even taken a public position on what should be done (including vis-a-vis the new lunacies of the Republican caucus).

15: We may never know, since last I heard he hasn't even taken a public position on what should be done (including vis-a-vis the new lunacies of the Republican caucus).

The new lunacies of the Republican caucus exist in two universes of reality. In the objective universe, it is a collection of nonsensical giveaways to the rich which do little to address the problem. In the media universe (they hope), it's the fair and evenhanded plan that would have saved the economy, if McCain had been allowed to save the economy, instead of the Bush-Pelosi plan that unfairly bailed out the people who got us into this mess.

Rashomon was shorter, and there was more action.

"Last Year at Marienbad" was also slow, but it did have a possible murder in it.

I think the House Republicans are really helping the Republican brand by opposing the bailout.

Eric Martin at ObiWi quotes Politico:

"According to one GOP lawmaker, some House Republicans are saying privately that they'd rather "let the markets crash" than sign on to a massive bailout. "For the sake of the altar of the free market system, do you accept a Great Depression?" the member asked."

To the best of my knowledge, the Great Depression was the worst thing to happen to the US in the 20th Century. These people are monsters and natural fucking traitors. And John McCain is one of them. I don't really give a fuck if they're "helping the Republican brand." They're willing to risk the worst thing to happen to the country in a hundred years to do it, and that's morally sickening. Cripes, if ever there was a "stab in the back" moment for Democrats to seize, this is it. I really thought that I'd lost the ability to be shocked and disgusted by the Republicans, but no, I was wrong.

It's also monumentally stupid. The altar of the free market system? Wha?

it wasn't organized around angsty youth and their attempts at relationships.

Like Last Year at Marienbad.

21: And kind of beautiful. The Altar of Capitalism, in the Temple of the Almighty Dollar! Ayn Rand would approve.

If the new WPA is willing to pay me for it, sure I'll paint the frescos for the Temple of the Almighty Dollar!

It's a hard moment to seize unless you've got a strong opinion as to what the right action is to take. Obviously, saying "Let the Great Depression come again rather than take action that conflicts with our free market principles" is hideously irresponsible. But in my position as an ignorant peasant, I'm not sure what it is I want anyone to do -- the Paulson proposal was horrifying, and the Dodd proposal was less horrifying, but not something I could myself evalute as a good idea or not.

So I have a hard blaming anyone for obstructionism. What I want is for a bunch of brilliant finance types, all of whom I trust, but who aren't all professionally associated with each other, to agree that X is a good course of action. That has not yet happened -- if it did, I'd be able to call people obstructionist for not doing X.

that sounds like the words an overearnest young socialist would put in the mouth of a GOPer

16: Which picture? Wrong link?

re: 24

I would be happy to compose "Kyrie for the Almighty Dollar" [given enough mighty dollars].

27: WEIRD. They changed the picture. It was this one.

Wait. this one.

24: I Paint What I See

"What do you paint when you paint a wall?"
Said John D.'s grandson Nelson.
"Do you paint just anything there at all?
"Will there be any doves or a tree in fall?
"Or a hunting scene like an English hall?"

"I paint what I see," said Rivera.

"What are the colors you use when you paint?"
Said John D.'s grandson, Nelson.
"Do you use any red in the beard of a saint?
"If you do is it terribly red, or faint?
"Do you use any blue? Is it Prussian?"

"I paint what I paint," said Rivera.

"Whose is that head I see on my wall?"
Said John D.'s grandson Nelson.
"Is it anyone's head whom we know, at all?
"A Rensselaer, or a Saltonstall?
"Is it Franklin D.? Is it Mordaunt Hall?
"Or is it the head of a Russian?"

"I paint what I think," said Rivera.
"I paint what I paint, I paint what I see,
"I paint what I think," said Rivera,
"And the thing that is dearest in life to me
"In a bourgeois hall is Ingegrity;
"However,...
"I'll take out a couple of people drinkin'
"And put in a picture of Abraham Lincoln,
"I could even give you McCormick's reaper
"And still not make my art much cheaper.
"But the head of Lenin has got to stay
"Or my friends will give me the bird today
"The bird, the bird, forever."

"It's not good taste in a man like me,"
Said John D.'s grandson Nelson,
"To question an artist's integrity
"Or mention a practical thing like a fee,
"But I know what I like to a large degree
"Though art I hate to hamper;
"For twenty-one thousand conservative bucks
"You painted a radical. I say shucks,
"I never could rent the offices.
"For this, as you know, is a public hall
"And people want doves or a tree in fall,
"And though your art I dislike to hamper,
"I owe a little to God and Gramper,
"And after all,
"It's my wall...."

"We'll see if it is," said Rivera.

One senior McCain aide was quoted as saying, "What are we going to do?"

The best thing for the Republicans at this point would be to enlist Palin. No one could argue with that excuse for avoiding the debates. She would put down the Iraq insurgency herself, armed with her moose-hunting rifle, and as a mother of five, she understands how to maintain order in a rebellious and fractious environment. And if she died, so much the better -- McCain could run on a platform to avenge Sarah's death, and how could Obama counter that?

I will have nothing but respect for McCain if he commits seppuku at the debate tonight in the name of the free market system. Palin could step in for the daki-kubi, then field-dress him on the spot.

I'd much rather talk about the Apu Trilogy, though. So, so great. As I think I've mentioned, just thinking about the final scene can bring me to tears.

poor younger sister, hopefully she got used to the man
Rashomon
i remember i loved to watch Dersu Usala

so they were having a wedding one way or another and made her younger sister take her place

That's pretty horrible. I hope the parents got food poisoned by the catering.

depends on one's temperament, one will run away, another got used to the fate
about indian movies, i liked Sita and Gita and Disco dancer
and after that did not watch one full movie it seems
never watched the Apu movie, maybe i'll try if it's in the netflix

What I want is for a bunch of brilliant finance types, all of whom I trust, but who aren't all professionally associated with each other, to agree that X is a good course of action. That has not yet happened

AFAICT, there is broad agreement among such types that:

(a) There's a serious risk of a gigantic problem here;
(b) The Democratic plan was a step in the right direction from the Paulson plan;
(c) The Republican counter proposal was a step in the wrong direction from the Paulson plan.

So, to some extent, it has happened. And you should feel free to call the Republicans much nastier things than "obstructionists," because--see the quotation above--they're guilty of something much, much worse than obstruction.

I don't see why it's so bad. It's an arranged wedding in any event -- presumably the parents have checked out the background and temperament of the gentleman. As long as the younger daughter is of age, having her marry him in place of her sister doesn't seem that terrible.

Of course, that assumes that the younger daughter isn't also in love with someone else, or otherwise unwilling.

McCain sez he'll show.

25: What I want is for a bunch of brilliant finance types, all of whom I trust, but who aren't all professionally associated with each other, to agree that X is a good course of action

That hardly ever happens, but everything I've read tells me that this case is worse, because we're in uncharted territory, if only because of the scale, and no one really has much idea of what''s happening or what to do about it.

Read, my son and I saw that movie when he was about four. He recognized the cozy Russian family scene at the end as being like cozy American family scenes, with the family all together but each doing their own thing.

Besides being batshit crazy, the House Republicans are relics of the pre-Keynesian economists who thought that recessions and depressions were good things because they cleaned out the deadwood and imposed market discipline.

McCain sez he'll show.

Weird, in my timeline that happened nearly an hour ago.

In the interest of bipartisanship, would you be willing to hug their elephant if they were willing to kiss your ass?

jms,

The little I know about arranged marriages is that there are negotiations between the parents. Swapping daughters at the last minute seems like it might break the original contract, unless maybe they had a weasel clause about making substitutions.

But hey, IANAL, so maybe someone from contract law can shed more light on this.

Obama has a chance to hit a home run tonight. No one else is still standing but the House Republicans, and they look like an easy target. Bush has no credibility, Paulson and Bernanke gave it a shot but flopped, the Senate Republicans and Democrats in both houses got shot down, McCain grandstanded ineffectively. The game is Obama's to win.

A weak performance will be a terrifying omen. Too many concessions to the Paulson plan would be a not so good omen. It's too much to hope for him to go beyond the Dodd plan, I guess.

40 i also watched it when was maybe 10-12 so now don't remember clearly, but i was like traveling together with them, got so absorbed
i'll try it again maybe to see what changed

Swapping daughters or sons is a theme in a lot of marriage stories, including IRL stories and unarranged marriage stories. Jane Austen, Italo Svevo, Thoreau IRL (flopped, though), others I've forgotten.

38: I'm particularly bothered here by the assumption that children, and daughters in particular, are property, and get exchanged the same way you'd trade a toaster at a swapmeet. That's the premise of arranged marriage in general, I realize, but it's pretty blatant in this instance.

I found the middle movie of the Apu Trilogy a disappointment. The first and third movies are both great. I could see how someone could not like the first movie, since really very little happens in it, but the third movie is much more conventionally plotted.

You know, this is a hypothetical, but if I was a techie setting up the debate broadcast (is it in HD?) and I was miffed about McCains snub I might be a little bit tempted to setup the lights on McCain's side so they were heavy on the blue spectrum and were so directional they highlighted every single little wrinkle and blemish.

I'm just saying.

really, what's catering costs and what's your daughter's future happiness
but it's a cultural thing of course, my friend said that Indian marriages are not about love it's an alliance between families, one is happy if respects and accepts both families, and the spouse is like another habit like thing
a rails road

47: The assumption doesn't have to be that children are property and toasters. The assumption may be (and is more likely to be) that a marriage is a bond that you go into with the support of your family and your society; you trust your parents to look out for you and find a match for you with a compatible background, temperament, looks, education, prospects, etcetera. The daughters likely have similar backgrounds and educations. If their talents and temperaments are also compatible with the groom's, the parents of the groom might well be amenable to the switch. And if the parents found a good candidate for the first daughter, the second daughter might not mind having him for herself.

47: I think the assumption is that your parents know best, as we assume regarding choice of school. Your first kid gets an opportunity to go to a great school. For one reason or another, he can't go. So you send the second kid. Same thing here.

It's both the rejection of autonomy and the conception of the institution of marriage that we find troubling, but both seem to be baked into the arranged marriage cake. I'm not sure that it's worse for the second daughter than for the first.

Read, do Mongols practice arranged marriage, or have they in recent centuries? I know that in Genghis Khan's time they did.

47: From my perspective the caste system itself is bad, but I'm not sure that all Indian children dislike the arranged marriages.

Specifically I know one educated professional Indian woman who embraced her parent's arranged marriage for her. In my opinion this young woman would have no problem attracting her own mate, but she still accepted her parent's pick. The young couple was allowed to meet just once, the night before the wedding, so they wouldn't get cold feet. Obviously the whole thing seemed very odd to me.

What I want is for a bunch of brilliant finance types, all of whom I trust, but who aren't all professionally associated with each other, to agree that X is a good course of action. That has not yet happened -- if it did, I'd be able to call people obstructionist for not doing X.

The Ivy Leaguer's faith in experts...it's so touchingly hard to kill.

I think the "brilliant finance types" will all agree that the rest of us should bail out the financial industry.

Tim,

I'm not sure that it's worse for the second daughter than for the first.

Why does no one think of the groom? I find that sexist.

As near as I can tell they still are working at crossed purposes because they want a pony, if only they throw enough dollars at the problem. We have a situation that will lead to massive deflation in assets and massive inflation in consumables.

The populist sideshow of executive compensation is a distraction. I am not surprised that Congress has no clue, so they demagogue on compensation, and like LB is waiting for their favored experts to tell them what to do. Help Main Street by helping Wall Street sounds good, but they need Megan's dollar flow chart to figure it out, and you know how well that turned out.

Foreclosure moritorium and massive rewrite of mortgages at market clearing prices. Trillions of dollars taken off the books, but liquidity comes back.

That's the premise of arranged marriage in general, I realize

This is just incorrect. The assumption, and of course it's an arguable one, is that your parents will do a better job of picking a life-long partnership for you than you will (particularly when you are young and impetuous). They may well be right (some statistics support it).

really very little happens in it

Dude. So much happens in it. His sister, the necklace, the train!

I'm just now hearing the dulcet tones of DeLong on my local public radio talk show. He used the word 'orthogonal' in a casual answer. Thanks for bringing your erudition to the provinces, Brad!

Arranged marriage is only superfically like a property exchange. For example, the new daughter-in-law can't be resold to a third party. And there are always bride prices and dowries, but these are always part of and arrangement between two families. A broker couldn't buy up a bunch of brides and market them to prospective husbands.

You also do have slave markets in any traditional societies, and economically stressed families sometimes do sell their daughters or sons as slaves. That's a different thing, though; there's no ambiguity between the two transactions.

It's both the rejection of autonomy and the conception of the institution of marriage that we find troubling, but both seem to be baked into the arranged marriage cake. I'm not sure that it's worse for the second daughter than for the first.

I don't think it is. Like I said, it's the blatantness of the thing - demonstrating the callousness and indifference of the system to the wellbeing of those participating in it - the important thing is to have a wedding, the people involved are relatively interchangeable.

If we do bail out the financial industry then by God we better get a pound of flesh in the deal. I want to replace the invisible hand of the market with the visible hands of the tax-payers squeezing the balls of the financial industry for a long, long time.

The populist sideshow of executive compensation is a distraction. I am not surprised that Congress has no clue, so they demagogue on compensation, and like LB is waiting for their favored experts to tell them what to do.

There's a reason to involve limits on executive compensation. If companies that participate in the bailout have to abide by rules on limiting executive compensation, the executives at companies that don't really need the help will think twice about participating. Whereas companies that desperately need the bailout to stay alive still have no choice but to participate.

Also in traditional societies, weddings and funerals are so enormous that a family can go bankrupt on them. It's a central part of the community gift exchange network. A completely failed wedding could set a family back for years.

61: What makes you think the parents are callous or indifferent to the well-being of their children? Have you ever known anyone who has arranged a marriage for their children? Maybe some people are callous or indifferent to their children's welfare, but I think you'll find that to be the case in non-arranged marriage settings as well.

the people involved are relatively interchangeable

I mostly think that people are pretty interchangeable, so maybe that's the nut of any disagreement about what's bothersome about the circs. described.

Au contraire, limits on executive compensation are necessary to the moral case to bail out the banking system. "Yes, we saved your company, and the fact that you made $50 million on the deal is just a minor detail" is like a campaign ad for violent revolution.

Arranged marriage is only superfically like a property exchange. For example, the new daughter-in-law can't be resold to a third party. And there are always bride prices and dowries, but these are always part of and arrangement between two families. A broker couldn't buy up a bunch of brides and market them to prospective husbands.

Here we see is one problem with the FLDS/Iron Lion Zion ranch; what were supposed to be "marriages" were largely the property exchange model. Could we presume that polygamous systems naturally end up that way?

I want to replace the invisible hand of the market with the visible hands of the tax-payers squeezing the balls of the financial industry for a long, long time.

See, I don't think this accomplishes anything beside the desire for revenge, which is understandable. The smart guys will always find a way, and for the most part it is beneficial. It is the last 10% (pick a number) of excess that bring the thing down. You can feed those guys to Emerson's hogs, regardless of party affiliation.

The populist sideshow of executive compensation is a distraction. I am not surprised that Congress has no clue, so they demagogue on compensation, and like LB is waiting for their favored experts to tell them what to do.

Bullshit. Bernanke and Paulson are as expert as it gets. But the Senate/House Democratic compromise is in my opinion and the opinions of many others an improvement on the original Bernanke/Paulson plan. So where do you get off saying Congress has no clue?

The populist sideshow of executive compensation is a distraction

Yeah, "accountability" is judgmental and self righteous. Different strokes, you know. Wait till you've walked a mile in their shoes. Can't we ll be friends? And golden parachutes have nothing to do with mismanagement.

His campaign issued a statement Friday morning saying he was now "optimistic" that a bipartisan bailout agreement would soon be reached, citing "significant progress" in the talks.

This is, of course, what we knew McCain would say all along, but it's especially transparent and absurd given how much farther they are from agreement than they were when he first pulled out.

The smart guys will always find a way, and for the most part it is beneficial.

hopefully one side effect of the crisis will be discrediting this kind of thinking.

I have a friend in an arranged marriage, and it's working out well for her. The nice thing about it is that there's no need to negotiate all the little details of who does what within the relationship. Each person has a well defined role and there's enough built in flexibility to allow for personal quirks. Their parents made the contract with an eye towards long term happiness and compatibility and it's worked quite well so far.

Simply swapping out the daughters at the last minute might still work if the daughters are relatively similar in temperament. The kind of parent who'd do something like that probably isn't the type to focus on compatibility of the couple in the first place, though.

Most people in Congress have no clue about the international financial conspiracies, PGD. They're lawyers or regional property development moguls or inheritors of large wealth. So they're easily swayed by both true arguments and BS arguments.

Of course, it is true that the denunciation of Paul Krugman and Barney Frank for "demagoguery" is ridiculous.

If companies that participate in the bailout have to abide by rules on limiting executive compensation, the executives at companies that don't really need the help will think twice about participating.

Include it in the bill, by all means. Leave the demagoguery at home.

Arranged marriage doesn't actually appeal to me, but on the average it doesn't seem that much worse than a generic contemporary marriage.

Yeah, demagoguery is to be limited to welfare mothers and crack dealers. Not for friends of mine who had a moment of weakness and a bit of bad luck. Who's perfect, after all. Let he who's without sin etc.

See, I don't think this accomplishes anything beside the desire for revenge justice, which is understandable

Fixed.

I had a friend who was in an arranged marriage, and it was horrible. She was incredibly miserable. She had a friend also in an arranged marriage which broke apart when the husband announced he was gay and wanted a divorce.

welfare mothers and crack dealers. Not for friends of mine who had a moment of weakness and a bit of bad luck

Same group, no?

I am not looking to experts in this debate. Nobody knows what's happening in the financial markets, and the experts have plenty of their own human self-interest to overcome.

When nobody knows what's happening, the best thing is to make sure you're not sold a bill of goods. Especially important is to not buy a bill of goods from the same fast-talker who sold you the special Executive Hot-Air Balloon Platform for your high-rise office right after Sept. 11.

Bush says "everyone agrees that something must be done." Baloney. We don't have to run around and DO SOMETHING!! just because rich people who move money around for a living are scared and flipping out. Join the club, guys. Most of the rest of the country has been economically insecure for years.

74: I read something once by an American who married into a wealthy, educated, rather traditional Indonesian family. He found out that when his father in law died he was expected to step into all of his roles, all the way down to having a bottle of Heineken every afternoon at 3:00. The household and the estate were like a well-oiled machine, and everyone's part was laid out for him.

It may have been an arranged marriage on his wife's side, since the father-in-law had promoted the marriage.

And just to be a little more on topic: Regarding Top Gun, I have always preferred Ice Man to Maverick. Maverick was a loose cannon who took too many risks and did put his other mates at risk. I'm not saying he got Goose killed...but he got Goose killed.

And seriously, Val Kilmer sounds like a dick, but I way prefer President Kilmer to President Cruise.

Arranged marriage needs a society of shared values to work. But where those values -- e.g., a desire for long-term household harmony, and a sense that your in-laws have their eye on you and expect you to treat their child well -- are in place, it can work out just fine.

(On preview, to Walt S) Sure, lots of people in arranged marriages are miserable or married to closeted gay people. So are lots of people in self-selected marriage.

Most people in Congress have no clue about the international financial conspiracies, PGD. They're lawyers or regional property development moguls or inheritors of large wealth.

Really!? You don't say, I wasn't aware of this. You're right, the original Bernanke/Paulson plan must have been the best possible one for America. God forbid a bunch of elected non-experts should have gotten in the way.

If companies that participate in the bailout have to abide by rules on limiting executive compensation, the executives at companies that don't really need the help will think twice about participating.

You do know that this was exactly Bernanke's reason for opposing any tradeoff for participation, including equity? He wanted the widest possible participation in plan, to get as many toxic assets off the books as possible.

Include it in the bill, by all means. Leave the demagoguery at home.

It's asking a lot to say politicians should consciously downplay issues they support which are both good ideas and politically popular. Not only is it asking a lot, it doesn't make sense.

Val Kilmer sounds like a dick, but I way prefer President Kilmer to President Cruise.

When you're up there, you're unsafe.

My two data points of arranged marriages indicate that they are not particularly happier or unhappier, or more or less likely to be successful, than non-arranged marriages.

I think the biggest problems come from a clash of expectations. If you marry for love and somebody else marries for social approval, you're in trouble, and it doesn't matter whether your marriage was arranged or not.

82: thank you, Witt. There is a point to democracy. Sometimes it gets you to a better place than expert rule. I would think that would be obvious now of all times, when the failure of the experts seems rather obvious.

Most of the rest of the country has been economically insecure for years.

That doesn't seem like a great reason to make those same people much, much more insecure. I think people are just forgetting how ugly an economy can look. FWIW, it looks Nathan Newman--not traditionally understood to be a capitalist running dog--wants some version of the Dem bailout.

53 nowadays, no
before it was sure a very common practice to ask a bride for example from faraway provinces when children were young, people were trying to avoid inbreeding i guess, so after 6-7 yrs they, the kids, would marry, there is a custom 'ber guix' to go to the prospective bride's home and ask the parents' approval reciting some poetic lines which everybody knows, which we still do formally when talking about the wedding
but usually first the boy and the girl first agree to be together
if you see Tungalag Tamir, a very popular movie, there is a nice description of the practice
another old practice was sure arranged marriages against the bride's will, the plight of many beautiful girls :), if not beautiful - less risk, and of course running aways too
a lot of folklore on this topic

The literature on Taiwan arranged marriages says that most new brides are terrified of their mothers-in-law, who often bully them mercilessly. The husband-wife bond might be affectionate or it might be hierarchal and formal. I stayed briefly with one middle aged couple that sat together every evening crocheting and chatting, like two cats relaxing. About the coziest couple I've ever met. In many cases the sex life is disappointing and the husband cheats if he can get away with it. Unlike American life.

That was awhile back and these were older couples. Arranged marriage was already disappearing, but parents still seemed to have a veto power, and weddings tended to be terribly expensive.

LB is waiting for their favored experts to tell them what to do

This is fair, and it's a maddening aspect of the situation. Pace 82, it seems perfectly possible that this is a situation in which something must be done; the problem is not falling into the trap where someone tells you "This plan is something, therefore it must be done." But figuring out if this is really a situation where some action must be taken takes expertise I don't have, and so does figuring out what that action should be. I can evaluate offered plans as self-evidently ghastly, but I couldn't spot something that's actually a good idea.

I don't know what to do other than to trust someone's expertise -- the problem is picking that someone.

Not only is it asking a lot, it doesn't make sense.

I thought this was the pony thread. My bad.

Seriously, the bitching about executive compensation is small potatoes. Rejiggering of compensation models can come later. And by all means, the most vigorous prosecution of malfeasance ending with people in jail or at the hog farm is ok by me. But confidence in the system must be restored, or you better have some gold coins handy.

90: If you want to feel marginally better, go look at the photos of the bailout protesters in NY yesterday.

Yeah, it was a union event. But some of the signs are pretty good. No Banker Left Behind. Tell Hank No. Not to mention the theatrical folks playing dead beneath Merrill Lynch's hooves.

Expertise will not tell you what to do. It just gives you information. The bailout decision requires information, but it is also an issue of balancing priorities, a values question. The "Great Depression II!" talk is an attempt to drown this out by threatening a consequence so earthshaking that it overshadows all values choices involved. Economists have no real way of knowing whether passing on a bailout will lead to the 25% unemployment we saw in the Great Depression or the 8% unemployment one sees in a bad recession. The fact that they really don't know is just what is making them uneasy.

Anyway, I would think it is quite obvious economists are not scientists and their predictive tools are beyond shaky. After all, economists are the very people who failed to foresee or warn about this developing storm.

Congress takes in lots of expertise from lots of different sources in making decisions. It also takes in expressions of values and priorities from non-experts, ordinary citizens like you. Is it bad to have an institution that does this?

That doesn't seem like a great reason to make those same people much, much more insecure.

Tim, I don't have a scintilla of confidence that we can fix things for individuals AFTER the big guys get their bailout. And I don't see Common Cause or Center on Budget and Policy Priorities or Center for Law and Social Policy or any one of eight gazillion organizations that LIVE to provide government with recommendations on how to spend its money to support homeowners and working people being invited to this table. No, it's just senators and money men and a bunch of people screaming that this is an EMERGENCY!

Well, maybe it is an emergency. I would rather see the house burn down and make sure everybody gets into a Red Cross shelter than I would throw something on the house and have it turn out to be kerosene.

Who was it that said the problems of our time cannot be solved at the same level of thinking that created them?

97: I don't disagree with any of that, but I need the expertise to know what we're balancing here. If there's no one I trust to explain the factual situation (that is, what the likely consequences of inaction are, and how likely is likely), I can offer my opinion, but it's not of much value.

the new daughter-in-law can't be resold to a third party

Phew.

It seems that the McCain and Republican House showboating have derailed the Bush-Paulson panic snow job.

Just a question: is the economists' petition waved by Shelby the same one that Tabarrok signed? IIRC it opposed the bailout in a sort of libertarianish way, and none of the economists were big names.

Leech has it wrong. When there's demagoging to be done, it's the libertarians and the Republicans who dare to do it. They're able to capitalize effectively on a weak position, whereas the Democrats can't even capitalize on a strong one. (Champion capitalizers were the $700 billion bankrupt beggars who delivered an ultimatum on the compensation question, which for them would have been a deal-breaker. They simply ignored my own "Beggars can't be choosers" principle. )

In short, demagogery is a healthy and essential part of the normal political diet. By all means advise your enemies to avoid it!

what the likely consequences of inaction are, and how likely is likely

Yeah, there's the difference. I would not believe anyone, under any circumstances, who thought they could answer this question.

Given that, I am perfectly willing to operate under the presumption that this is a values moment, and policy will come later. My values are not to hand a free pass to people who made out like bandits juggling with other people's futures. My values are to address eventual policy fixes to the individual level and not rush to rearrange the system. My values are to let the market shake out some real estate values so we can see what people are willing to pay for a given property, and not hurry to prop things up...because then we'll never know.

My values are not to trust anyone, except the reliable notion that people will make individual daily decisions that reflect their own understanding of their best interest, and that those decisions, aggregated, tell us as much as anything where The Economy is.

"Rejiggering of compensation models can come later"

Not really, because the GOP filibusters almost every piece of progressive economic legislation & has for years. I'm inclined to trust liberal economists that some kind of Congressional bailout is necessary, but there should be a lot of strings attached. I think Yglesias has the politics right: there should certainly be a truly Democratic bill out there--which Democrats can support as a matter of both policy & politics regardless of whether the GOP will sign on--as an alternative if no grand bargain is struck. Let's start acting as if we're the party that controls Congress & that the electorate trusts more on these issues.

At the moment, we are still on the same path as the Great Depression. The banks aren't lending to each other, and each time governments try to inject liquidity into the market it keeps disappearing. Maybe we don't have to get off the train now, but I don't like the looks of the station it's pulling into.

Walt, in all seriousness, what makes you believe the bailout will stop the train?

I don't have a scintilla of confidence that we can fix things for individuals AFTER the big guys get their bailout

Not only can things not be fixed after the bailout, they only way the bailout works is by fucking the individuals into either continuing to pay on a loan they are underwater on or by foreclosing and making them homeless.

If there's no one I trust to explain the factual situation (that is, what the likely consequences of inaction are, and how likely is likely)

The truth is, there is no such person you can trust to give you this information. The reason is not the lack of experts but the uncertainty of economics as a discipline.

If you listened to Bernanke's public appearances, he warned of very severe consequences to inaction, but he refused to put any concrete numbers on those consequences or the likelihood of their occurence. When pressed in questioning, asked to give his opinion as a scientist/expert, he said that his expertise was in economics and a market panic was a psychological matter, hence he could not say.

We have seen historical cases where there were very serious consequences to a widespread loss of market confidence, and other cases where recovery occurred. We know that saving the current structure of market obligations will take a lot of money, because people have lost faith in many of the complex assets designed over the last decade. On the other hand, it may be that we need to move away from the current structure of market obligations. The people who truly know the system best work on Wall Street and were very involved in creating the vehicles that have us in so much trouble now. They cannot give us really unbiased advice on whether we should take the risk of moving away from our current credit system toward something new. We are left with a genuinely difficult set of decisions.

You also can't pawn a new daughter-in-law, or use her for principle on a loan, or rent her out for certain purposes, or have her put to sleep like a sick cow, or serve her for dinner. Not property.

Rest easy, Kraab, if your parents come to you with an amazing marriage proposal.

Merrill Lynch has hooves?

Heidegger was right: only Mithras can save us now.

"Principle" S/B "collateral". We regret the error.

109 to 96.

102: pwned by Witt.

I would rather see the house burn down and make sure everybody gets into a Red Cross shelter

I suspect that's not the way it would play out. It's not as if--at least to my understanding--the 80s were a high point for progressive politics.

Ben obviously didn't click on the link.

I can't believe I'm agreeing this much with PGD. I would say GMTA, but I've just said I don't believe in great minds....

But you're still relying on experts. You're relying on them for the proposition that "Economic expertise can't validly answer that question", but I still have to trust people who say "Economic expertise can't validly answer that question" over people saying "Economic expertise tells me the sky is falling, the sky is falling!" That's the way my prejudices incline, but it still involves trusting someone whose work I can't, myself, check.

Ben obviously didn't click on the link.

I did click the link. I saw the hooves. What's so obvious here?

It's not as if--at least to my understanding--the 80s were a high point for progressive politics.

How about the '30s?

Panics are psychological? Isn't that the great copout of economists, to blame the victims whenever they don't know WTF is happening?

If I was young enough and diligent enough, I'd do a study of the way "psychology" and "subjectivity" are used as labels for failure or refusal to understand something.

In the 90s, if you had Merrill Lynch as your stockbroker and you became a billionaire, they gave you a solid gold bull. (This came up because one of the VA Linux guys got a sold gold bull just weeks before their stock price tanked.)

107. I agree with PGD in this. Make up your minds, Congress. Are we saving the banking system or saving people's homes. Can't do both.

115: sure, but that's always the case in pretty much all interactions with the world. The claim about expertise being made here was much stronger -- that this political decision had to be handed over to experts to make.

Champion capitalizers were the $700 billion bankrupt beggars who delivered an ultimatum on the compensation question, which for them would have been a deal-breaker.

in fairness, it looks like there will be executive compensation restrictions in the Congressional compromise. The Administration has agreed to them.

I can't believe I'm agreeing this much with PGD.

Is it really so unbelievable? (sniff, injured expression)

115: sure, LB, but that's just the elementary level at which we do this all the time. I mean, I rely on others to tell me the markets went down today.

whoops, the last para of 121 should have been deleted, it was a first draft.

Yes, folks, I do *drafts* of Unfogged comments!

Well, sure. I'm just feeling more at sea about this one than I do about public policy decisions generally. If, e.g., Paul Krugman said "The Treasury should offer to buy up the equity of the entire banking sector for ten cents on the dollar, operate the businesses for no more than eighteen months, and then gradually sell off the recovered firms. If we don't do something roughly like this, I expect such and such a chain of events, leading to breadlines," I would entertain it as possibly a good idea, not because I have any real basis for evaluation, but because he seems like a generally trustworthy guy with relevant expertise, and I don't see that it's self-evidently a pernicious thing to do.

How about the '30s?

Sincerely: Jeebus. AFAICT, you're saying exactly what the House Republican is saying: it (for some set of policy goals "it") is worth it to risk the Great Depression. I think that's deeply insane. I can't begin to imagine how people can say, "Eh, the Great Depression." I can't believe that people think the Great Depression--as opposed to the safety net that continued afterward--was a net plus for the less well-off. It was a time of scarring misery.

(I am genuinely happy to corrected on this if, in fact, the Great Depression was actually a great time for many or even some significant portion of Americans. It would actually be sort of comforting to find out that there's a big bowl of pudding at the bottom of the cliff.)

118: The refusal of economists to engage with psychology is the central reason that I do not take the discipline seriously. It's like biologists refusing to learn chemistry.

117: How about the '30s in Germany?

The original plan was obviously terrible -- worse than doing nothing. I don't know if last night's tentative agreement is a good plan or not. But at some point, we have to fix the banking system, or else everyone will be worse off. When we had 20% unemployment in the 30s, I'm guessing that wasn't all investment bankers.

SCMT you need to have the happy Hollywood view of the Great Depression, like Paper Moon, or Kit Kitteridge, Bonny and Clyde or even The Grapes of Wrath. Most folks will be ok, just the bottom 25% who need to worry.

126: It made me nervous when they appointed an academic economist as the head of the Fed. Bernanke does not seem in thrall to modern academic macroeconomics -- which has been completely taken over by lunatics -- but I do worry that at a critical moment he'll imagine that rational expectations will fix everything.

If we were able to get a bailout/restructuring that incorporated some of Dean Baker's or other sane people's principles -- a big "if" I know -- is it at all realistic that the government's equity stake becomes worth something on a short-ish timeline, generating capital to support a big (not as big as needed) infrastructure project? Jobs are created -- potentially even a few in manufacturing. Fannie & Freddie are required to refinance mortgages on reasonable terms.

I know getting a real WPA is a pony dream, but is something like this workable? Would it be enough to put the brakes on a slide for non-rich people? Forget for the moment if we actually have the votes to pass it.

Forgive me if y'all have discussed something like this already. I admit I skimmed some of the bailout threads.

the Great Depression was actually a great time for many or even some significant portion of Americans.

I don't mean this to sound blithe about depressions or recessions generally at all. But all four of my lower-middle-class grandparents had the same take on it, that it wasn't bad at all so long as you had a job (which all four of them did). I'm not sure what you mean by a significant portion, but there was certainly a decent percentage of the population who didn't experience the Great Depression as a time of much personal suffering. (Admittedly, both my maternal grandparents were immigrants coming from 'never owned a pair of shoes bought new until they came to the US' rural poverty in Ireland, so they had low standards.)

Addendum: Include disincentives like limiting exec pay and stronger regulation so that not all firms will be looking for a handout and the gov't lays out less than $700 B.

129: If things got really bad, then serious deficit spending is not an issue. (Where else are people going to put their money? The government will be the only one providing a return higher than the mattress.) Japan right now has a debt-to-GDP ratio of close to 200% according to Wikipedia. The US is nowhere near that.

Stepping back from the grand questions, my guess would be we get something along the lines of the current Congressional compromise -- between $150-$300 billion as an initial grant, equity stakes, CEO compensation limits, possibly some minor element of purchasable insurance as an alternative to bailout in order to satisfy House Reps.

132: right, exactly. Until recently, U.S. debt to GDP ratios were close to the OECD averages, we have lots of room to grow it. We could undertake a pretty large-scale institutional reorganization if we had a consensus to do that. But I don't think we do at the moment.

130: That was also the experience of both sets of my grandparents. One set had a small grocery store and the other grandfather had a job manufacturing razors. The latter did move in with my grandmother's parents to save money.

The assumption, and of course it's an arguable one, is that your parents will do a better job of picking a life-long partnership for you than you will (particularly when you are young and impetuous). They may well be right.

Could, of course, be like the difference between seeing a movie that everyone told you was the best movie ever and seeing a movie you are expecting to be just okay -- even if they are equally good, you will be less disappointed with the latter.

25

So I have a hard blaming anyone for obstructionism. What I want is for a bunch of brilliant finance types, all of whom I trust, but who aren't all professionally associated with each other, to agree that X is a good course of action. That has not yet happened -- if it did, I'd be able to call people obstructionist for not doing X.

Some problems with this.
1. Incomplete information - No one has a complete picture of where we are now and the main players don't trust each other. So it is hard, particularly for outsiders, to be confident about what to do.
2. Different goals - This is a not situation where everybody agrees on what we are trying to do and expert advice is just needed for the best way of doing it.
3. Politics matters - This isn't just a technical problem in finance, any solution involving Congressional action has to be politically viable. Whatever the technical merits of Paulson's original proposal it was politically tone deaf. A technically inferior solution may be preferable if it is more politically salable.

LB, your family was surreally lucky. Honestly, your comments on this sound lunatic. The unemployment rate reached 25%. The entire US economic output contracted by 30%. How do you think Hitler came to power?

http://www.youtube.com/watch?v=H5tZc8oH--o

The first three quarters is an interesting, if selective, history of the crisis. It leaves out the part about how the market voraciously ate up the CDOs.

How big was deficit spending as a result of Roosevelt's policies? At what point did the war economy really kick in and move things the other way?

Yeah, I could google or wiki it, but I look upon Unfogged as my personal and sort of trustworthy research team.

Gawd, we really are fucking screwed. People don't actually fear another Great Depression.

I do, Tim. And I have like 30 goddamn guns.

People don't actually fear another Great Depression.

Myself, I'm just fatalistic about it. Nothing I can do to stop.

...it.

(I am genuinely happy to corrected on this if, in fact, the Great Depression was actually a great time for many or even some significant portion of Americans. It would actually be sort of comforting to find out that there's a big bowl of pudding at the bottom of the cliff.)

In high school, we had to do interviews of people who had lived throw the Great Depression and write a report. The guy I talked to had sort of that attitude -- yeah, it sucked and all, but the suckiness brought people together and built a great sense of community...

138: It really is true that there was a not insignificant population who did okay, in the sense that they weren't destitute or even on the verge. That's not to say those people didn't feel insecure, but things would have had to get much worse for them to end up in breadlines.

142: I might need to borrow one.

106

Not only can things not be fixed after the bailout, they only way the bailout works is by fucking the individuals into either continuing to pay on a loan they are underwater on or by foreclosing and making them homeless.

Foreclosure does not generally make people homeless, they can rent instead. Probably not as nice a place but why should we be helping people live in housing above their means.

145: The upsurge in social solidarity in the Great Depression is something I frequently hear remarked on. When I took a seminar run by a peak oil doomsayer who was genuinely looking forward to the crash of the global economy, this fact was mentioned often.

Have we establish a safe place to meet when this hits the fan?

Is the code still "Who wants to sex Mutumbo?"?

Other than Di and Apo, who will be the reproducers?

Who is going to make sure that gswift and his munition dump gets there?

We will need redfoxtailshrub, stanley, and any others who can make grub worms and bark into something edible.

We will need a persian connection. Someone send up the bat signal.

146: So, if not pudding, then not jagged rocks and glass for the top 75%. Today's Democratic party: sacrificing the lowest 25% for...something.

This is also the sense I got from watching Annie. It was really hard being an orphan in the Great Depression, but also a lot of fun! There was singing, and dancing, and in the end, everyone pulled together.

141: Believe you me, I absolutely do fear another depression. Health care seems particularly scary. Coverage will become even more limited and unaffordable and people will forgo even more care. Major operations and illnesses will bankrupt even more people than they do now.

The Great Depression was a horror show that ruined lives. And it would be worse now. The social solidarity that showed up during the Depression was the result of a more agrarian and traditionalist society. Today, we'd have roving packs of cannibals or something.

That reminds me. We will need some doctors/health care providers. I'll bring the ob/gyn.

Apparently, jms can be in charge of merriment.

Probably not as nice a place but why should we be helping people live in housing above their means.

With the erosion of the value of the house, they are no longer living above their means. The debt is getting wiped out, one way or the other.

145: Did you ask him if he wanted another one?

138: Dude, I expressly said I didn't mean to sound blithe. I was reporting what my grandparents have told me.

My impression was that they were in what you could call an economic sweet spot for not thinking of it as a hardship. First, they all stayed employed throughout. Second, none of them had any assets at all, financial or not, going into the Depression -- if you ain't got nothing, you ain't got nothing to lose. For the working poor who were the working poor in the twenties, and stayed the working poor in the thirties, nothing got much worse -- rich and middle class people lost assets, the unemployed went hungry and homeless, but the employed lower-middle-class didn't take a whole lot of damage.

This is not an assertion that another Great Depression wouldn't be so bad. Really it's not.

153: I'm guessing most insurance companies would go bankrupt, so "coverage" won't be much of a concern.

150 and 152 are right on target.

My sister has 30 acres in North Carolina which I've always figured will be our family's refuge when global warming gets really bad, but it could work for the Unfoggedariat as well.

She's even got some wild blackberries to make a reduction for the bark gratin.

No, Tim, I am not suggesting it would be good or desirable for us to live through another Great Depression. I think it would be devastating beyond our ability to imagine, not only to Americans but to everyone interconnected with our economy.

I *am* saying that I am not at all confident that the bailout (any of the versions) is more likely to avert a GD than doing nothing. Given that, I am not in a haste to run and spend almost a trillion dollars of Generation 2100's money on a slapped-together plan and a quick handshake "Trust me."

My point about the '30s was that a political response to a dire economic crisis doesn't have to look like the '80s, not that I think the GD was some halcyon time that I'm delighted to return to. (FTR, I'm also reasonably willing to believe the common wisdom that it was WWII that really got us out of the GD; not any of FDR's programs, well-intended though they were.)

121: I was talking about the beggars' incredible nerve making ultimatums when they were asking for $700 billion for nothing. For a moment it seemed as though they might succeed; as I understand, they turned Bernanke and Paulson. You have to give those guys credit for Olympic-record brass balls.

LB, it wasn't much fun for the large number of working poor who lost their jobs, either. You're point about not having much to lose is valid, but it also means you haven't much to fall back on.

How big was deficit spending as a result of Roosevelt's policies? At what point did the war economy really kick in and move things the other way?

Roosevelt was never really converted to Keynesian deficit spending. As a percent of GDP, the deficits he ran during the worst of the Depression were about equal to Ronald Reagan's deficits during the 1980s. And there was actually an attempt made to close the deficit during 1937-38 (in the name of "responsible budgeting") that helped lead to a sharp recession in 1938 -- taxes were actually raised during this period!

WWII spending really started to kick in in 1940.

129:If we were able to get a bailout/restructuring that incorporated some of Dean Baker's or other sane people's principles -- a big "if" I know -- is it at all realistic that the government's equity stake becomes worth something on a short-ish timeline, generating capital to support a big (not as big as needed) infrastructure project? Jobs are created -- potentially even a few in manufacturing. Fannie & Freddie are required to refinance mortgages on reasonable terms.

I know getting a real WPA is a pony dream, but is something like this workable? Would it be enough to put the brakes on a slide for non-rich people? Forget for the moment if we actually have the votes to pass it.

I'm having fantasies along those lines -- NYC finally getting the Second Avenue Subway as a jobs program, and so on.

134: Until recently, U.S. debt to GDP ratios were close to the OECD averages, we have lots of room to grow it. We could undertake a pretty large-scale institutional reorganization if we had a consensus to do that. But I don't think we do at the moment.

It's as if Bush planned it that way.

I am not in a haste to run and spend almost a trillion dollars of Generation 2100's money

I'd be more open to it if we hadn't just spent a trillion of their dollars on fucking over Iraq. Just when I think I couldn't hate this administration any more than I already do...

162: Some of these people seem so psychopathic that it makes them seem larger than life.

My anti-FDR grandad used to hide away gold nuggets for the Coming Collapse. I wonder what happened to those.

163: Dude, that was why I expressly distinguished between the "employed working poor" and the "unemployed". Yes, the Great Depression sucked in a huge way, largely because of massive unemployment. I am not denying that. I am not looking forward to another one. Really I'm not. All I was saying was that the sort of awful it was didn't cause a lot of suffering for the lucky ones who didn't have any assets to lose in the crash, and who stayed employed.

The literal read of 167.1 is a lot funnier than the figurative one. (Talk about an expensive honeymoon.)

161: And that's not much of an option this time around seeing as how our only allies against the Chinese and Iranian militaries will be Poland and Tonga.

170: Fair enough. I was more trying to point out how easy it was to lose that job in a time of 25% unemployment... and then you were well and truly screwed.

This is pretty hilarious.

My sister has 30 acres in North Carolina which I've always figured will be our family's refuge when global warming gets really bad, but it could work for the Unfoggedariat as well.

She's even got some wild blackberries to make a reduction for the bark gratin.

Perfect.

Otherwise, we can go to Virginia near C-ville in the apple orchards with us.

Kraab and m/tch are in charge of making a stack of bark/ blackberry and/or apple recipes.

142: Walt, more than about 3 guns put you at risk. Burglars love guns. If you lend them out, the guy might shoot you instead of shooting the right person.

The "Road Warrior" understanding of social collapse isn't exactly wrong, but it's male fantasy. There are lots of concrete models of impoverished stateless societies in places like Albania and the Atlas mountains of Morocco, and while there are guns and violence it isn't anarchistic. More like Mafia hierarchies.

SUBJECT: REQUEST FOR URGENT BUSINESS RELATIONSHIP

DEAR AMERICAN:
I NEED TO ASK YOU TO SUPPORT AN URGENT SECRET BUSINESS RELATIONSHIP WITH A TRANSFER OF FUNDS OF GREAT MAGNITUDE.

I AM MINISTRY OF THE TREASURY OF THE REPUBLIC OF AMERICA. MY COUNTRY HAS HAD CRISIS THAT HAS CAUSED THE NEED FOR LARGE TRANSFER OF FUNDS OF 800 BILLION DOLLARS US. IF YOU WOULD ASSIST ME IN THIS TRANSFER, IT WOULD BE MOST PROFITABLE TO YOU.

I AM WORKING WITH MR. PHIL GRAM, LOBBYIST FOR UBS, WHO WILL BE MY REPLACEMENT AS MINISTRY OF THE TREASURY IN JANUARY. AS A SENATOR, YOU MAY KNOW HIM AS THE LEADER OF THE AMERICAN BANKING DEREGULATION MOVEMENT IN THE 1990S. THIS TRANSACTIN IS 100% SAFE.

THIS IS A MATTER OF GREAT URGENCY. WE NEED A BLANK CHECK. WE NEED THE FUNDS AS QUICKLY AS POSSIBLE. WE CANNOT DIRECTLY TRANSFER THESE FUNDS IN THE NAMES OF OUR CLOSE FRIENDS BECAUSE WE ARE CONSTANTLY UNDER SURVEILLANCE. MY FAMILY LAWYER ADVISED ME THAT I SHOULD LOOK FOR A RELIABLE AND TRUSTWORTHY PERSON WHO WILL ACT AS A NEXT OF KIN SO THE FUNDS CAN BE TRANSFERRED.

PLEASE REPLY WITH ALL OF YOUR BANK ACCOUNT, IRA AND COLLEGE FUND ACCOUNT NUMBERS AND THOSE OF YOUR CHILDREN AND GRANDCHILDREN TO WALLSTREETBAILOUT@TREASURY.GOV SO THAT WE MAY TRANSFER YOUR COMMISSION FOR THIS TRANSACTION. AFTER I RECEIVE THAT INFORMATION, I WILL RESPOND WITH DETAILED INFORMATION ABOUT SAFEGUARDS THAT WILL BE USED TO PROTECT THE FUNDS.

YOURS FAITHFULLY MINISTER OF TREASURY PAULSON

NYC finally getting the Second Avenue Subway as a jobs program

Dude, we're never going to get the Second Avenue Subway. Every time you hear some suggestion that it's moving forward, just think instead "the whale! the white whale!" It's never going to happen.

Roosevelt was never really converted to Keynesian deficit spending. As a percent of GDP, the deficits he ran during the worst of the Depression were about equal to Ronald Reagan's deficits during the 1980s. And there was actually an attempt made to close the deficit during 1937-38 (in the name of "responsible budgeting") that helped lead to a sharp recession in 1938 -- taxes were actually raised during this period!

Yeah, this was one of the things I found most surprising about the esteemed Herr Doktor Professor Rauchway's Very Short Introduction to the Depression and the New Deal -- what he said about FDR's tax policies as not actually being strongly redistributive. If we're going to have this conversation, everyone should buy themselves a copy.

God, this is making me depressed. Somebody make a cock joke. I don't have it in me.

I *am* saying that I am not at all confident that the bailout (any of the versions) is more likely to avert a GD than doing nothing. Given that, I am not in a haste to run and spend almost a trillion dollars of Generation 2100's money on a slapped-together plan and a quick handshake "Trust me."

US GDP is somewhere around $14 trillion. Using Walt's figure of 30% contraction, that's about $4 trillion in losses per year. For what, maybe five effective years (say ten total), or our next world war, whichever comes first? As against $1 trillion total to at least try to avert the problem? That seems like the easiest question in the world to answer. If there's another Great Depression anyway, that first trillion will get lost in the wash.

Somebody make a cock joke. I don't have it in me.

Surely Labs can fix that for you.

That seems like the easiest question in the world to answer.

It's only easy under two key assumptions. First, that there is some likelihood of success. Second, spending the money this way doesn't cost you the opportunity to spend it in a much more productive way. It'll be a lot harder to get the next trillion, if this doesn't work.

Don't worry, apo. Technical writers will be in huge demand to produce manuals on determining which parts of your house are both non-structural and asbestos free and can safely be burned for fuel.

That seems like the easiest question in the world to answer.

Only if you know that the current situation will lead to GD2 (which we don't) and that $1T will make a bit of difference (which we don't).

181: This is exactly the (1)Something must be done! (2) This plan is something. (3) Therefore, this plan must be done! reasoning. It doesn't work for the reasons in soup's 183.

If you're starving asbestos tastes wonderful.

177 is funny.

My grandmother once told me that when she was young, every spring was known as the "starving season." You didn't have food growing in your garden yet, so you ate roots, tree bark and went hungry. I know for certain that at least one member of her family died of starvation, but she doesn't ever talk about it so I don't know any other details.

Perhaps people are more willing to talk about their memories of hard times if they are able to put a positive spin on it. If the experience was so terrible that a satisfying narrative cannot be cobbled together, you're less likely to enjoy the retelling of it.

186: What plan are you guys arguing about? Paulson's original plan? Dodd's plan? The compromise between the two that might come from the Bush-Congress talks? The Congressional Republican plan?*

When people talk about giving 700B over on a handshake, it seems like they are talking about the Paulson plan. But that is dead now, isn't it? How many plans are there?
_______
* What exactly is it? I've seen it alternately characterized as a crazy but intellectually consistent free market plan and an intellectually dishonest handout to the already wealthy.

The Paulson plan is dead, unless the House Republican shenanigans revive it. The rumors I've "heard" (i.e. read online like everyone else) involve something like PGD outlines in 133.

Oh man, I actually have to work for the morning and look what happens?! As usual, PGD and Walt lay the awesome groundwork, and soup pounds in the key structural supports of truth.

130, 138, 146: It's said that depressions are the best times for those with jobs. Of course, that's also from the perspective of people who don't care about being surrounded by crushing poverty so long as they can get a couple native-born servants for cheap. (Or LB's folks, who probably just appreciated the deflation)

I really don't know anything about macroeconomics and the interaction with banks. I'm just familiar with the more micro-level finance matters. Yet from my relatively inexpert point of view, another Great Depression still seems really unlikely. I'd expect that the more likely scenario if we can't get the credit markets moving again would be something like Japan's 15 years after 1990: long-term malaise, some deflation, almost no growth, and persistant if not soaring unemployment. Nothing that I'd particularly want for the first decade of my professional career, but survivable.

For those who know more about the economic history, does this seem reasonable? Does anyone actually know what the special alchemy was that caused the Great Depression to get capitalized as opposed to other major losses of confidence in banks?

The media types are really starting to twist the rhetorical shiv. John Chait in TNR:
So I'm abandoning my assumption that McCain had some grand method behind his campaign suspension gambit. I don't see any method at all.

The Second Avenue subway, which I believe is being named the T entirely to confuse people from Boston, was in the news again earlier this week.

Nice piece on the insanity of continuing to insist on free market ideology. Nothing new, just a nice summary. (It's a week old; you may have seen it already.)

Now that we're all about to take on hundreds of billions or perhaps a trillion dollars in new public debt to redeem the nation's super-smart corporate financiers, there is one thing I hope we can expect in addition to postponing the apocalypse. Will they all please shut up about the wonders of the unfettered free market and the horrors of big government?

Speaking of the great depression, one of the images that hit home for me was reading Taylor Branch's description of the bonus army in the NYRB (behind a paywall now).

It talked about people literally fainting from hunger as they marched in protest at the capital.

It made me think as well about Brad DeLong's "View from 1900" series -- the country was much, much, poorer then.

In the previous crises, the banks were able to contain the crisis. (In fact, in each crisis J. P. Morgan -- the man, not the bank -- would organize a private bailout which would lead to him making a boatload of money.) The crises were a little larger each time, so it was already becoming clear that the crises were getting too big to solve privately. This led to the creation of the Fed, but the Fed was too slow to respond.

So I'd like to see the government act like a really big version of J. P. Morgan the man, and save the banks for a positive rate of return.

191: But 133 seems reasonable. Comments like "We don't know if a depression is coming or that a $1T bailout will fix it" doesn't seem to apply at all. I'm not sure what Witt and others are arguing for.

My willingness to contemplate Great Depression II is a result of the fact that the Republicans are forever playing brinkmanship, and if you ain't willing to play, you automatically lose.

Congress stood up and said it wouldn't take this nonsensical shit from Paulson - "We'll have a Depression instead, goddammit, if this is the best you can do" - and Paulson blinked. Continued capitulation is a recipe for disaster, guaranteed. The only hope you have is if you're willing to face down the evil, crazy assholes.

To give you an idea of the kind of primitive fucks we're dealing with here, this is a recent column from the oh so sophisticated George Will. Will says here - I think I'm being fair - that government spending didn't end the Great Depressoin, World War II did.

They're arguing for the destruction of you and everything you believe in, rob.

198: A vastly smaller package to hold things over while the government actually studies and debates what should be done. This administration has spent eight years crying wolf and I don't trust their assessment of the urgency of the situation, particularly one month before an election.

We need to bomb Iran to jump start our economy.

Plus, we should postpone the election since we will be in the midst of war and an economic crisis.

We have to put our country first. We can get back to elections in a couple of years.

J P Morgan still controls u, from beyond the grave. And the Elders of Zion. And the Templars. And the Anglo-Dutch conspiracy.

Little known fact: as a Dreyfus and billionaire-to-be, Elaine of "Seinfeld" has been elected to the new, gender-sensitive Elders of Zion.

Warning: I just realized how huge this comment is, but I wanted to pull together a lot of my recent thinking on how this bailout should be structured, and to hear what you guys think.

133: Apart from the last bit, that's a plan I could definitely get behind. If carried out properly, I think it stands one of the highest chances of success and the best shot at providing taxpayers with a good return on the assets they buy up. I'm downright positive that any plan, to have a legitimate shot of working, would need to attack both the liquidity issue by taking a number of assets off the market while making sure the others are slashed down to trustworthy prices and the solvency issue by recapitalizing the banks.

I've not really heard anyone proposing a good way to address the liquidity side apart from lowest-price auctions. Bernanke and Paulson seem to feel they can produce a super seekrit method that will lead to higher fair prices trusted by the market, but that seems like a giant catch-22. If people like me who make the capital allocation decisions don't trust their pricing methods, what good could the accounting mark-ups based on those questionable pricing methods possibly do?

There are some interesting variations that I've seen proposed for the liquidity side. There's the obvious one that I like, which is just the U.S. fund buying up a bunch of equity in the banks at a slight discount to today's distressed market prices. The nice thing is that this plan's really scalable, in case we find that the sector needs more or less capital injection than we thought.

I'm also intrigued by the somewhat vindictive (and certainly cheaper for U.S. taxpayers) suggestion of a forced debt-for-equity swap at all U.S. banks. It not only recapitalizes all the banks enough to put pretty much all of them in the clear, but it forces bondholders to take a serious haircut at the bad institutions which helps clear up the moral hazard side that people keep concern-trolling about. The major question with that latter suggestion would be what to do about all the credit default swaps out there on these bank bonds. Should this be considered a default by the entire sector? Who would even be stuck with the bill in that case (AIG was mostly ensuring CDOs, which would not be part of the default)? Or could the government nullify those contracts under the justification that the debt holders are receiving an equity share equal to the value of their previous debt position?

Fun mental games, but I guess we'll only get to see one or two of these plans actually get implemented, and even then the results are about as up to chance as they are to the brilliance of the plan.

Only if you know that the current situation will lead to GD2 (which we don't) and that $1T will make a bit of difference (which we don't).

Witt is willing to assume the first (that is, it's going to happen anyway) and I am saying that if the first is true, you're ultimately not going to care about the second.* Because you (well, maybe not you; maybe you're not in the 25% and aren't much impacted by those that are, but lots of people) are fucked.

It's one thing to say we need a good deal or a better deal. It's entirely reasonable to risk a deal failure in an attempt at a good deal. It's another to say that I've stopped trusting everyone with any expertise, so fuck it, no deal and let's burn this motherfucker down if it comes to that.

*That is, the case when you'll care is if there's no GD2 and the trillion is a straight payoff that doesn't benefit the rest of us. But that, it seems to me, is when you have to play "Ask the Expert" and get a sense of the terrain. And--again, AFAICT--there seems to be broad agreement that (a) there's a big problem to be addressed, and (b) the Dems were moving in the right direction.

201 nails it.

156

With the erosion of the value of the house, they are no longer living above their means. The debt is getting wiped out, one way or the other.

The debt of the people who really can't pay yes. But there are a lot of people who can pay but would prefer not to and encouraging them not to pay just makes things worse.

I'm still reading through the lunch comments but PGD, your 97 was brilliant!

that government spending didn't end the Great Depressoin, World War II did.

Same government spending, just on different stuff. Instead of the government paying artists for heroic murals the government paid manufacturers for the best kind of consumables; bullets.

203 is funny.

209: You would be surprised how close your comment is to some Marxists explanations of how the government successfully put off the Communist revolution.

Walt's 197 is basically the thought behind my 204, as I believe that's how a fair number of J.P. Morgan's various bailouts were done. Of course, he was working with much simpler balance sheets as well.

Marxists explanations of how the government successfully put off the Communist revolution.

In Soviet Russia, Communist revolution successfully puts off Marxists!

Very funny, TLL. Or should I say Tovarich TLL. I'm on to you now.

The National Review tells Palin to go back to Alaska.

If BS were currency, Palin could bail out Wall Street herself.

(Of course, the piece is otherwise obnoxious: "She was the antithesis and nemesis of the hirsute, Birkenstock-wearing sisterhood -- a refreshing feminist of a different order who personified the modern successful working mother.")

204

I've not really heard anyone proposing a good way to address the liquidity side apart from lowest-price auctions. ...

Isn't an obvious alternative just raising the limit on the government guarantee on deposits. Say the government guaranteed 90% of deposits over 100k. This would make banks more willing to lend to each other and if they really are solvent in the long run wouldn't cost anything. Especially if the government was more willing to seize insolvent banks early like WaMu when the cost to FDIC is small instead of very late like IndyMac where the FDIC lost a bundle.

As a hirsute sister who prefers clogs, I'm offended.

214: You know, it's funny. I yield to nobody in my contempt for Sarah Palin, but I'm fascinated by the bad reviews her interviews are getting. After eight years of George W. Bush, suddenly sounding like an idiot is treated as though it's a bad thing. It doesn't seem fair.

The Great Depression did have a lot of uneven economic effects. A good read is Hard Times: An Oral History of the Great Depression by Studs Terkel.

A couple of anecdata from my grandparents. Relatively well-off ones involved in real estate hated, hated, hated FDR (my mom was the last liberal Republican as a result, holding on until being a Repub poll-worker in 1984 did her in—she loathed Reagan). Their finances did suffer a fair bit, but they still were decently well-off; they chose to move back in with my great-grandparents, but it was pretty damn nice house.

My "poor" grandparents were bankers! In a piss-poor, hardscrabble, tiny Wisconsin village (scrubby, sandy-soiled Wisconsin, not milk-cow Wisconsin). They pretty much lived off belt leather and produce they got in lieu of loan payments, but managed to keep the bank alive (and that was not much different from the '20s). A *lot* of community social capital type stuff, but my father also recalls significant H/itler/Brownshirt organizations, especially among the local German population.

My overall impression is that a lot of shopkeepers, merchants (large and small) saw a significant decline in standard of living, basically anyone who sold stuff for a living "struggled".

215: I really doubt that would help anything. FDIC only steps in to insure deposits if the bank goes bankrupt, at which point the bond and shareholders are fucked anyway. Sure, raising the FDIC limits may make bondholders more willing to invest since they stand to lose less in bankruptcy proceedings (I believe depositers are senior to bondholders, but I'm not sure), but that doesn't help with the main two issues which are:

1) Banks need equity to remain adequately capitalized, and new bond issuance just goes on the liabilities side. FDIC coverage increases shouldn't decrease the liabilities side, either, since banks have to carry all the deposits at face value.

2) Banks aren't willing to take on any of the balance sheet risk of more CDOs, since even the solvent banks could be forced to recapitalize and dilute shareholders if they face another largeish write-down. That's part of why the market is so frozen.

Snippet from article "Taxation" from the current read (blush) Gale Group Encyclopedia of the Great Depression. Section 1933-37

congressional revolt blocked its most regressive sales tax formulation, the legislation stilltargeted consumers with new federal manufacturer's excise taxes on such widely-used items as cars, tires, gasoline, and electricity, while slicing exemp- tions and more than doubling most income and es- tate tax rates, restoring a gift tax, and hiking taxes on corporate pro�ts. Depression program costs, however, made it impossible simply to coast on these new revenues. At least until Roosevelt acquiesced to what came to be seen as a Keynesian policy of economic stimula- tion through deliberate de�cits in the wake of the 1937 recession, Roosevelt was in principle a budget balancer, pledging fealty to �scal responsibility by excluding what he labeled "emergency" expendi- tures while "balancing" the "regular" budget. But as total federal spending doubled in his �rst term, even creative accounting could not erase the rising federal debt, as de�cits at times exceeded tax collec- tions. Seeking to minimize controversy and to pur- sue a "concert of interests" with corporate leaders positioned to spearhead economic recovery, the ad- ministration took a path of least resistance. Instead of offering a tax reform program between 1933 and the spring of 1935, it used a �nancial Trojan horse, bringing in regressive taxes as subordinate �nancial provisions of popular programs. It celebrated its re- imposition of alcohol taxes as part of prohibition re- peal in 1933. Redirecting grateful imbibers' money from bootleggers to the government was easy pick- ings.

Banks aren't willing to take on any of the balance sheet risk of more CDOs, since even the solvent banks could be forced to recapitalize and dilute shareholders if they face another largeish write-down. That's part of why the market is so frozen.

I don't see how this ends without some sort of cram down on the underlying mortgages. There's another 25% coming out of housing in the next year. Even currently solvent banks won't be, given that scenario.

1) Yes, the Depression was horrible for almost everyone. My grandparents did ok, grandad had a union job and managed to but his lake cottage in 1936, but the kids sold eggs and produce door-t-door.

I checked the Gale for an article on regional and sector variations, but couldn't find one quickly. The South and agricultural were worse than some industrial areas

2) Health care? Note:some people are watching the health insurance industry closely during this credit crunch. It was not only IB's and automakers playing with leverage and instruments.

Watch out:you may be about to lose your company plan, or have huge premium increases. Or companies laying some off to protect the remainder. But health insurance costs are very likely to spike.

My grandparents almost but not quite fell out of the middle class during the depression. There was a definite step downward. Both lost their businesses. In Iowa, IIRC, the depression started in the early or mid- 20s, under a different name I imagine.

Dumb question time. Part of the current problem is said to be the banks' level of capital if their toxic assets are written down, and a resulting downward spiral. Where does the requirement for a particular capital ratio come from - is it regulatory, or a standard that potential investors look at? Would it make sense to lower that ratio for a while so that assets can be written down without triggering this problem?

In Minnesota during the twenties and thirties, small town bankers and Communists both supported the Farmer Labor Party. The bankers were the lowest rung of finance, part of the community but also part of finance, and often if their community went down so did they.

215

I really doubt that would help anything. FDIC only steps in to insure deposits if the bank goes bankrupt, at which point the bond and shareholders are fucked anyway. Sure, raising the FDIC limits may make bondholders more willing to invest since they stand to lose less in bankruptcy proceedings (I believe depositers are senior to bondholders, but I'm not sure), but that doesn't help with the main two issues which are:

One of the issues is a maturity mismatch. Banks have been borrowing short term (for example from money market funds in the form of 30 day CDs and the like) and lending long term (mortgages and mortgage backed securities). There is an incentive to do this as short term interest rates are generally lower than long term interest rates. However it can be very dangerous if short term lenders lose confidence in you and refuse to roll over their short term deposits. Then if your long term holdings are illiquid (like mortgages are now) you will quickly fail (like WaMu just did) even if in the long run your assets are worth more than your liabilities. By guaranteeing deposits the risk of this particular failure mode is much reduced.

And it would banks more willing to lend because they are curerntly hoarding cash in case they suddenly have problems rolling over their short term loans.

I just emailed my congressman. I am willing to do my part to bail out the fat cats on Wall Street but I do want something in return. I admit that some of these cost money, but not that much, and I think they are reasonable.

First, Rush Limbaugh - gotta go. Some island somewhere. He can keep his money and live it up, but he gives up his right to free speech. Forever. No CDs, tapes, DVD, videos, mp3s, movies, nothing. I never ever ever want to hear him again.

Second, in the future every time some economist, businessman, or investment banker mentions the 'free market' he/she must pause, laugh derisively, and explain how stupid he/she was in 2008, then resume the lecture or talk or whatever. The same in books.

Third, and this will take some money, I admit, every time an internet libertarian uses the phrase "the invisible hand of the market" a team of commandos will be dispatched and immediately track him/her down, slap him/her on the back of the head, and will say "Grow up you idiot!"

221

I don't see how this ends without some sort of cram down on the underlying mortgages. There's another 25% coming out of housing in the next year. Even currently solvent banks won't be, given that scenario.

How would a cram down help the banks? It just makes their mortgages worth even less.

So Comrade Tripp, what should the collective buy this year in response to the Central Committee's five year plan?

192:special alchemy was that caused the Great Depression to get capitalized as opposed to other major losses of confidence in banks?

Emergency Banking Act of 1933?

Bank holiday & examiners
5% of banks closed
45% put into conservatorship

The reopening of the banks on March 13 witnessed a return flow of currency into the banks for �rst time since the banking panic of 1930. By April 12, some 12,817 banks had been licensed to open with $31 billion of deposits. op cit

In Minnesota during the twenties and thirties, small town bankers and Communists both supported the Farmer Labor Party. The bankers were the lowest rung of finance, part of the community but also part of finance, and often if their community went down so did they.

True. I'm happy that my father-in-law, a small-town banker, has dementia and doesn't have to see the corruption that is taking place within the Republican party.

Back when he was lucid he spoke out about derivatives. He said things like "maybe I'm an old-fashioned conservative but those thing will lead to trouble."

I can't give him a complete pass, though, because he voted Republican right up to his dementia. Now that he has dementia he fits right in with the Republicans. I wonder if they will take him to vote this year.

I don't see how this ends without some sort of cram down on the underlying mortgages. There's another 25% coming out of housing in the next year. Even currently solvent banks won't be, given that scenario.

Well... Assuming we can honestly expect the house prices to come down another 20-25% (which honestly doesn't seem too radical to me), then that means the true value has pretty much already fallen that much and we're just waiting for the laggy price indicators like the Case-Schiller index to catch up. But the important thing is that any current market price for the mortgage-backed securities would already include the knock-on effects of that loss in value (through foreclosures reducing future cash flows, etc.). Now, foresight is hardly 20/20, but the point is that the market prices for CDOs will already include the effects of any foreseeable declines in house prices, so the market value of these assets won't decline as much in the future as the laggy price indexes will.

The more important question is whether these securities have been sufficiently marked down on the banks' books, and the answer is probably not. There haven't been enough sales to really create inarguably comparable market prices for all the different tranches and asset pools, so a lot of stuff is still being priced-to-model with some (fudged) inputs derived from recent asset sales. Part of what this fund is supposed to do is buy up a sufficient variety of these mortgage assets at auction-based prices that pretty much every other mortgage-backed asset can be revalued to a much more solid and trustworthy market-value-based number.

If we're going to have this conversation, everyone should buy themselves a copy[of Rauchway].

Uh, no.

There are many other books, including Terkel for instance, and much material online. I don't particularly care for the tone of that statement.

I can't comment if I read J K Galbraith instead of Rauchway?

TLL,

So Comrade Tripp, what should the collective buy this year in response to the Central Committee's five year plan?

The collective should buy three things.

First, an Encyclopdia of political terms so that our children will learn that the opposite of capitalism is not communism.

Second, a book about Rhetoric and Logical reasoning so that our children can learn to recognize the ubiquitous but incorrect logical fallacies such as the "False Dilemma."

And third, an Italian Hot Beef sandwich, from Chicago, because they have the best bread and the best beef and they make the best hot beef sandwich in the entire world.

233: Correct. I haven't read Rauchway either, so I plan on commenting only on the subject of Sarah Palin from now on.

226: Yes, but the only way for the FDIC coverage to help that mismatch would be for a lot of people and businesses to suddenly deposit more cash now that they know it will be safe up to higher limits, and thus shore up the assets side of the balance sheet with cash while providing more long-term liabilities.

I really don't think the FDIC raising its coverage limit would have that big of an effect. I haven't heard of any big loss of deposits at distressed banks, and I was looking for one at WaMu. People don't seem to be that worried, which suggests there isn't a lot of cash on the sidelines that would flood into bank accounts if it just felt more secure.

James- in my opinion single family homes are overpriced still. I think there is another 25% price reduction before we reach market clearing prices. That means that the banks that have the mortgages on the homes are running the risk of a default on an asset not worth the face value. Short sale. I just think that if we are going to do this, we ought to do it once, not chase the market down.

I withdraw any unintended implication that people who hadn't read Rauchway's book should not talk.

Tripp's never been to Montreal, it seems.

234. Very well, Comrade Tripp. The Executive Committee of the collective has decided to go with your recommendation 3. As for 1 and 2, the committee has decided that humor will no longer be tolerated, and that reeducation camps for the rhetorically disadvantaged will be mandatory.

what should the collective buy this year in response to the Central Committee's five year plan?

As much weed as you can get your hands on. As a barter medium, it's tops.

232

The more important question is whether these securities have been sufficiently marked down on the banks' books, and the answer is probably not. There haven't been enough sales to really create inarguably comparable market prices for all the different tranches and asset pools, so a lot of stuff is still being priced-to-model with some (fudged) inputs derived from recent asset sales. Part of what this fund is supposed to do is buy up a sufficient variety of these mortgage assets at auction-based prices that pretty much every other mortgage-backed asset can be revalued to a much more solid and trustworthy market-value-based number.

I don't see this working. People won't trust the prices. Even if they did, people don't trust banks to accurately report their financial condition so even if the banks themselves are able to value their assets more accurately outsiders will still be in the dark.

224: The capital ratios that banks need to sustain are regulatory, and I believe still determined by the Basel I accords. Countries are transitioning toward the new Basel II regulations, but I'm not sure of how far they've progressed thus far.

There's been talk of loosening up the capital requirements, and in particular doing so in a systematic way during downmarkets to counteract the pro-cyclical nature of mark-to-market accounting (basically, the bank's assets will be worth more in upmarkets, encouraging more leverage, which makes the crunch of downmarkets even harder). But the problem is that bank capital requirements are there as a safety cushion for the depositors, debtors, and other individuals dealing with the banks so that they don't get hit by every rise or fall in the market value of the bank's other assets. In a market like now, when assets are rising and falling far more rapidly than usual, that safety cushion really shouldn't be reduced.

"the invisible hand of the market"

The real problem with Smiths invisible hand isn't that it doesn't exist, it's that on top of being invisible, the hand is myopic and not very bright.

'bout par for the course in algorithmic optimization, though.

As much weed as you can get your hands on. As a barter medium, it's tops.

Bad idea. Weed is dead easy to grow, and if we hit the point that you're bartering it much, supply will skyrocket.

What you really want to stash is hard to make tools and spares.

Having a big pile of weed would be comforting, though, I'll give you that.

Xanax?

246: oh yeah, certainly prescription drugs too. Particularly anti-biotics. But have an eye for shelf life.

236

I really don't think the FDIC raising its coverage limit would have that big of an effect. I haven't heard of any big loss of deposits at distressed banks, and I was looking for one at WaMu. People don't seem to be that worried, which suggests there isn't a lot of cash on the sidelines that would flood into bank accounts if it just felt more secure.

The point isn't to get additional deposits, the point is to prevent runs. That is what actually triggered the collapse of Bear Stearns, Lehman and WaMu. These institutions were probably insolvent but even if they weren't they were dependent on short term financing and could not survive without it. Banks are hoarding cash because they are worried about runs.

242: I don't see it working with the sort of obscure "above market but at or below fair value, trust us!" pricing that Paulson and Bernanke say they'll get. But if the assets are really picked up at reverse-auction prices, they're going for as little as banks are willing to part with them for, and they'll be going at the so-called "firesale prices". It's the best possible market mechanism available, and the capital allocators would have to be incredibly paranoid to not trust the prices that came out of it as the best approximations of true value. If that's the case, there's really nothing that can be done until the cash flows actually happen and all that pricing uncertainty wraps up, which is only 10-15 years off!

The second part is trickier, but banks are already required to disclose a fair amount about their mortgage-backed assets. We already know a fair amount about the provenance of the mortgages directly and indirectly on the books of most banks (this is part of why Citigroup's getting cut a little more slack on their big CDO holdings, since the vast bulk of them were originated before 2005 when underwriting standards were higher). If a fifth or sixth of the outstanding non-guaranteed mortgage assets are bought up, which is pretty much what a $700 billion fund could do, we could set up some very solid peer groups for pricing comparison based upon tranches, underlying geographic area, year of origin, etc.

Going off to read about Japan, I think.

Before I go, for anyone who wonders why economists are so scared and why a micro-tuned package might not be preferable to a Massive money injection I recommend the long article by Krugman "Rethinking the Liquidity Trap" linked at "Liquidity Trap" at Wiki. It took me aback.

Somebody worried about rational expectations:

As I have tried to argue, the most basic models of a liquidity trap already imply that a credible commitment to future monetary expansion is the "correct" answer to a liquidity trap, in the sense that - like monetary expansion in the face of a conventional recession - it is a way of replicating the results the economy would achieve if it had perfectly flexible prices. ...Krugman 1999

That may be why the $700 Billion. So that the markets would be assured that the tap would not be turned off. Maybe

& Brad DeLongs 1998 piece on deflation over at his blog, in his mea culpa post about Greenspan.

You can find them if you want them.

237

James- in my opinion single family homes are overpriced still. I think there is another 25% price reduction before we reach market clearing prices. That means that the banks that have the mortgages on the homes are running the risk of a default on an asset not worth the face value. Short sale. I just think that if we are going to do this, we ought to do it once, not chase the market down.

A risk of default (which is not that high on prime credits which are only modestly under water) is better than a certain loss from a cram down.

I just emailed my congressman.

Not a bad idea to e-mail or call the Obama campaign, too. A friend just e-mailed me the number and said he got through immediately:

(866) 675-2008. Use option 6.

if the assets are really picked up at reverse-auction prices, they're going for as little as banks are willing to part with them for

Who is the buyer at the auction? If it is the government, then James is right, the price won't be trusted and nothing will have been accomplished.

I guess I should link, tho I'm working off downloads.

Krugman

DeLong

Yves Smith has flat out banned me, some will be pleased to know. I think. Haven't tried linking from the RSS feed yet.

PMP: I don't see it working with the sort of obscure "above market but at or below fair value, trust us!" pricing that Paulson and Bernanke say they'll get. But if the assets are really picked up at reverse-auction prices, they're going for as little as banks are willing to part with them for, and they'll be going at the so-called "firesale prices". It's the best possible market mechanism available, and the capital allocators would have to be incredibly paranoid to not trust the prices that came out of it as the best approximations of true value.

TLL: Who is the buyer at the auction? If it is the government, then James is right, the price won't be trusted and nothing will have been accomplished.

And how do you defeat the notion that the banks won't inflate the value of these assets, knowing that the buyer in this case is going to be afraid not to buy them (for fear of worse problems later, and driven by Bernanke's desire to get as much of the truly bad debt out of the money pool as soon as possible)?

A risk of default (which is not that high on prime credits which are only modestly under water) is better than a certain loss from a cram down.

I don't know if you read the documents from the JPMorgan/WaMu merger, but apparently JP Morgan is expecting to see losses of ~10% on WaMu's non-subprime non-option-arm mortgage portfolio. This is actual losses, not default percentage or anything like that.

We are all subprime now. bob knows.

LTVs are all out of whack for anything written in the last five(?) years.

I do not know which is the preferred method of eating a shit sandwich, nibble slowly or all at once, but shit sandwich is the only thing on the menu.

248: But those runs weren't traditional bank runs from people withdrawing deposits, and those are the only sort that an increase FDIC guarantee could prevent. The runs on Lehman, Bear, WaMu, etc. were done through the capital markets. Money markets refused to buy their commercial paper (look at the drop in commercial paper outstanding for Lehman in the last few weeks before its collapse, it's staggering), which shut off the short-term debt faucet. Bond prices dropped sharply, which makes medium- and long-term funding extremely difficult to get. And equity prices plummeted (both preferred and common), which makes an emergency recapitalization through equity issuance a joke.

The amount of deposits necessary to overcome the shortfall from a loss of short-term debt funding is pretty staggering, especially when you consider how little funding most banks derive from deposits these days. Even WaMu, a major retail bank, only had about half its balance sheet coming from deposits.

As far as I can tell "Helicopter" Ben is the leader of the mainstream consensus that to avoid depressions, you simply and uncomplicatedly throw as much money out there as is politically possible, for as long as necessary. In some ways, we are seeking a negative nominal interest rate.

Remember, we are talking about deflation and deflationary expectations.

You need to change those expectations to inflationary expectations, and then and only then head to equilibrium and restructuring.

Why banks? Well, maybe with inflationary expectations, they are more likely to put the money where it will gain the most rapid turnover and circulation. Will the homeowner who gets mortgage relief, under these conditions and necessarily quickly, buy the bigscreen TV?

I don't necessarily agree, but what do I know. I think that's the theory.

253, 255: In a reverse auction of strongly comparable securities, there's an excellent incentive for each bank to price their asset as low as they can. Every bank has to write down their assets to the paid market price, but only those who actually agreed to that market price get a bunch of secure and trustworth T-bills on their books instead of risky CDOs. So it's highly worthwhile to put in a low bid and try to become part of that one-sixth or one-seventh of bidders who gets the secure assets.

Plus the government always has the option of a reserve price (and I would feel better if they had one) which basically says "we're pretty sure this class of assets aren't worth more than this, so we just won't pay anything higher even if that price would otherwise be a winning bid."

I understand having less confidence in that last condition, but it's still a possibility. And with smart motherfuckers like Bill Gross and Mohamed El-Erian offering to consult pro bono on the management of the government funds, you could get a pretty trustworthy bond-trading desk providing those sanity-check reserve prices. Though you'd definitely have to watch for conflicts of interest in their outside portfolios (they don't hold the mortgage-backed securities that would be purchased, but I'm pretty sure Gross's portfolios hold a decent chunk of bank debt at the moment).

249

I don't see it working with the sort of obscure "above market but at or below fair value, trust us!" pricing that Paulson and Bernanke say they'll get. But if the assets are really picked up at reverse-auction prices, they're going for as little as banks are willing to part with them for, and they'll be going at the so-called "firesale prices". It's the best possible market mechanism available, and the capital allocators would have to be incredibly paranoid to not trust the prices that came out of it as the best approximations of true value. If that's the case, there's really nothing that can be done until the cash flows actually happen and all that pricing uncertainty wraps up, which is only 10-15 years off!

The problem is these assets are not standardized at all and the true value can be very sensitive to small changes. So they are very difficult to accurately price. You would need to read and completely understand hundreds of pages of complicated enabling documents and you would need to carefully examine the payment history of millions of mortgages. Then spend a few years developing and validating a pricing model and you are all set. Is there any chance the government is actually going to do this? Note depending on how this reverse auction works the government could correctly value 80% of ther assets, undervalue 10%, overvalue 10% and end up buying the 10% it overvalued. I think waiting 3-5 years which should be enough to eliminate most of the uncertainty is easier.

The Fed has already eased reserve requirements on the fly. It's an accounting measure, it's already done. It's dangerous but that's the problem with a crisis: you start running out of easy options.

The point with a mortgage cramdown is to reduce the effects on the real economy by reducing the amount of cash people have to shell out. It is implicit (and should be explicit) that in that situation derivatives paper is going away. The point here is, is bailout or no bailout, the derivatives paper is going to go away.

The mortgage-backed securities thing was a big scam, so all that paper is going to disappear; either the easy way by having the government intervene to nuke it, or the hard way, by having the banks collapse.

The Paulson plan isn't about saving the mortgages, it's about saving the paper, on the theory that'll it be eventually worth something at some point. I say, that even if you carry out the Paulson plan, to save the banks, you still have to make the paper go away, which means it'll end up being near-worthless anyways.

The reason is, is that the derivatives are the source of the problem, and that if they were written down to their true value, all the banks would be insolvent and would need to be saved. We want to do something because we are facing a liquidity implosion, and unfortunately, we are already in the liquidity trap.

Counter to all this, is that at some point, foreign investors will lose confidence and a run will start and then the dollar will take big hits and the markets will take big hits as foreign investors sell to get their money. So if we do the bailout, that may restore confidence, but the first hint of a problem will probably start a run, as we will be all out of ammo.

It's a lot simpler to just do a tender offer for the outstanding stocks of individual banks and buy them outright (which would keep the foreign investors happy, which we need), the bondholders would be assured of payments, and we can go through and wipe out/pay off on the derivatives and make them go away. And incidently, write down the mortgages to sustainable levels. (That is, we accept the punch in the face from the now-mailed invisible hand.)

Obviously, we aren't going to have enough sense to do that, and inasmuch as the Dodd/Frank plan is about attempting to carry out a modified version of the Paulson plan, we're going to have to come back again and do it all over, if we're lucky.

max
['Blech.']

The mortgage-backed securities thing was a big scam, so all that paper is going to disappear

I disagree that it was all a scam. In fact it was such a good vehicle that the demand for the derivatives created the pressures to get more of them at any cost, the result being where we are. There is a way to do that without creating quite as much foam, but of course that would mean either discipline or regulation.

I completely agree that the cramdown is coming, one way or another.

258

But those runs weren't traditional bank runs from people withdrawing deposits, and those are the only sort that an increase FDIC guarantee could prevent. The runs on Lehman, Bear, WaMu, etc. were done through the capital markets. ...

This is correct as regards Lehman and Bear but not WaMu. According to this press release :

Pressure on WaMu intensified in the last three months as market conditions worsened. An outflow of deposits began on September 15, 2008, totaling $16.7 billion. With insufficient liquidity to meet its obligations, WaMu was in an unsafe and unsound condition to transact business. The OTS closed the institution and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. The FDIC held the bidding process that resulted in the acquisition by JPMorgan Chase.

257

I do not know which is the preferred method of eating a shit sandwich, nibble slowly or all at once, but shit sandwich is the only thing on the menu.

There is no reason to eat the whole thing if you don't have to.

Perhaps, in lieu of eating the shit sandwich, we could do a sacred dance to honor The Invisible Hand. Might work.

I've been assuming that the logic of the reverse auctions is that the government doesn't value the debt at all until it buys it. The people most desperate to get rid of debt will sell it for the cheapest, in theory leading the government to not overpay.

261: Part of that is why they have the advisory people, who actually have a lot of those models already in place. Some of whom (like the ones I mentioned) were even bright enough to avoid this bad paper.

The other part that gives me some comfort is that these things are probably easier to value in aggregate than individually. When you're putting enough of these CDOs and even CDO-squareds together, you can somewhat reconstruct the original mortgage pools, which are easier to value.

The fact that default risk in these times is almost certainly out-of-sample (we don't have great records on more exotic mortgage types from the Great Depression, I bet) means that banks are about as unlikely to know the true value of these assets as the government and their consultants are. That pretty much prevents there being much adverse selection risk, since there's no real "smart money" out there to take advantage of the government. So some of the individual prices may be wrong, but the averages should be ok, and individual banks have incentives to keep prices fair and low. Plus, recent prices have been set in a panic. Banks are on the edge, desperate for capital, and they know it. Historically, those sorts of situations have led to assets changing hands at low prices and the buyers making a lot of money.

$700 billion is one hell of a large pool over which to diversify out idiosyncratic pricing error risk.

And with that, I gotta go. I'd love to talk about this more (scarily, I would), but I have a date in about 100 minutes, so I need to get my ass home and change the sheets on my bed.

I need to get my ass home and change the sheets on my bed.

Not a first date, or does the date have a slutty reputation? Either way, yay PoMo!

Perhaps it is PMP's reputation as a meticulous housekeeper that is at stake.

Perhaps PMP had a different date yesterday, and is being considerate.

I've seen PMP's place. 271 has it right.

267

I've been assuming that the logic of the reverse auctions is that the government doesn't value the debt at all until it buys it. The people most desperate to get rid of debt will sell it for the cheapest, in theory leading the government to not overpay.

Yes, but cheapest only has meaning relative to the true value. Something at 90% of par is cheap if the true value is 95% and something at 10% of par is expensive if the true value is 5%. So the government can't buy the cheapest assets without a pricing model.

268

Part of that is why they have the advisory people, who actually have a lot of those models already in place. Some of whom (like the ones I mentioned) were even bright enough to avoid this bad paper.

Some people avoided it because they had no idea how to accurately value it.

... That pretty much prevents there being much adverse selection risk, since there's no real "smart money" out there to take advantage of the government. ...

I don't believe this. One reason this stuff is illiquid is people are worried about buying lemons. There are lots of important things about these assets that the exisiting owner is bettered positioned to know than a potential buyer.

... So some of the individual prices may be wrong, but the averages should be ok, ...

This is true to a certain extent and means you should make sure the sellers can't cherry pick which offers they accept and which they refuse else they will only sell their lemons.

275: Yeah, I had originally expected that the government would just buy all of a company's mortgage debt. I'm surprised that it's turned out that they're going to let the companies decide which debt to pawn off on the government.

270: 2nd or 3rd date, depending on the reckoning. We met at a bar last Friday night and I ended up talking to her and her friend for a few hours before walking her home, which may or may not count as a first date. But in the past, I've definitely found it better to be safe than sorry.

I'm just happy that we're going to this great vegetarian place. It has a philosophy!

272: As Walt may be willing to attest now that he's impugned the cleanliness of my household, I am nothing if not polite.

273: Heh. At least everything outside my bedroom I can blame on the roommates. I cleaned up the empty bottles and the various piles of articles though!

And because I really can't resist:

276: I'm think they'd love to buy up all the mortgage debt and reduce some of those lemon problems, but even Paulson couldn't find another $3.5 trillion between his couch cushions, so it looks like they're settling for an attempt at a representative sample.

I really was staggered when I found out just how much of this damn stuff is out there. I'm used to working wtih equity numbers all day, so it was a very "Holy shit! Our debt markets are HUGE!" moment.

241: "Dope will get you through times with no money better than money will get you through times with no dope".

Empirically untested, or maybe refuted, but you know, it sounds good when you're loaded.

This didn't go over at all at DeLong's:

Speaking as an ignorant thieving Luddite peasant, I'm undecided between three conclusions. 1.) The consequences of the widespread use of sophisticated financial instruments tend to be hard to predict, so the first one to figure them out gains a big windfall, at the cost of sometimes unexpectedly collapsing the system. 2.) This is not just a tendency, but an inevitability. 3.) This is not just an inevitability, but the very purpose of sophisticated financial instruments.

||

I'm off to a debate-watching party. I won't be seeing it in high-def, so someone please be sure to post about just how old McCain looks.

|>

This didn't go over at all at DeLong's

So you're running a contest with McManus to see who can get himself banned from the most number of econoblogs?

I think that if Obama nails the bailout question he wins the election. The way things have fallen out, he can exercise leadership already. Bush, Paulsen, Bernanke, McCain, the House Republicans, and the rest of Congress have already tried and failed.

On the other hand, if Obama doesn't take command, the loony House Republicans retain the initiative.

And it seems to me that Dodd or better would be a good political move. All of the Republican players can be discredited. No need to cringe.

Shit, the debates! They're on, like, now, aren't they?

Shit!

No, I guess in 30min.

Oddly, I've never been banned except maybe by Brian Leiter. I often feel not totally welcome at Crooked Timber, and sometimes not at Little Green Men and even BOTAW. I have an understanding with DeLong -- he appreciates some of my comments, and I avoid abuse and hyperbole.

256

I don't know if you read the documents from the JPMorgan/WaMu merger, but apparently JP Morgan is expecting to see losses of ~10% on WaMu's non-subprime non-option-arm mortgage portfolio. This is actual losses, not default percentage or anything like that.

I looked at some of the documents but I didn't really understand what the numbers meant beyond that JPM's fair value estimate is $30 billion below what WaMu had been carrying the loans at.

Both O and McC seem to be counting on the shock value of x number of billions of dollars wasted on this or that, that each will put a stop to in his own way. Problem is, after the numbers that have been thrown around this week (700 billion dollar bailout! and some are saying it should be even more than that), it all sounds like small change. 10 billion here, another 15 billion there ... yeah, whatever.

John@280: It's certainly my impression from reading about Enron that at least some financial derivatives were indeed intended to give an advantage to the first one to whatever goal while hurting anyone else trying it. The guys there, at least, who worked up a lot of innovations came across as having a big streak of that "it's not enough that I come out ahead, you must suffer before I feel I've really won" mentality.