Help Me Resolve This Voting Dilemma

Interesting decision you’re making — and good for you for standing by the parameters you set up. I go back and forth about whether voting outside the two parties is the only way to initiate change or if doing so is nullifying a vote.

As for who you should go for, I need to give a good look at the other candidates before suggesting anything. I will say I love Libertarianism theoretically. Practically, though, with everyone in America being kicked out of their homes I don’t think I can be coldhearted enough to support a party who sees government assistance to the poor as something along the lines of, “knock on the door of the nearest church.”

I’m not crazy about what they passed, but I still think you’re greatly overstating how bad it is. The compromise between the (reasonably good) Dodd-Frank plan, and the Paulson plan, was bad, but still better than nothing.

See also:
http://krugman.blogs.nytimes.com/2008/10/02/the-hold-your-nose-caucus/

I just feel like we found that compromise was unpassable, but compromise + pork was passable. It’s one thing to pass a bad bill because there’s no choice (I disagree with that, actually, but that’s another discussion); it’s another to only do it because it’s been sweetened. How do I understand this as anything other than the House standing up for what’s right and the Senate being bought off? It strikes me that the bills were close enough for me to draw that conclusion.

Well, for one thing, the final Frank-Dodd version included giving the Treasury the power to buy equity in the failing banks, which is important — it’s what saved us in the S&L crisis, and what saved Sweden when they faced a banking crisis in the ’90s.

I would’ve been happier if the House had just passed the thing the first time, and I would’ve been happier if after they didn’t, we actually improved the bill rather than just adding pork and passing the same thing. But we did have to do something. Economists who know a heck of a lot more than you or I are terrified that we’re about to see a spate of bankruptcies, and layoffs that will drive unemployment up into double digits.

Sometimes good enough just isn’t good enough. If the bailout had been a good plan, wouldn’t it have been reflected in the markets? The market response to the Euro bailout plan seems strong enough to suggest that would be true.

I’m not saying we shouldn’t have a solution, I’m just saying that the bailout plan didn’t include a lot of what I felt I needed to see.

With all due respect to the economists I’ve read — on both sides — it seems like many of the commentators are people who spend so much time in the finance industry that, when things in the finance industry go wrong, then everything’s broken that they can see. Apart from the airlines and auto companies, things aren’t really broken around here. Just there’s not enough cash lying around.

I’m not sure the parallel to the Swedish bailout is 100% strong. My understanding is that the Swedish government’s explicit threat to take ownership stake in bailed-out banks also caused a lot of private capital to flow into banks. The lack of truly meaningful consequences for any behavior here — either the bad loans that started things or to the public for the bailout — worries me. I see this bailout being a little too much like what the Japanese did, pumping too little money into their system for years after years and not setting up a situation in which we just move past the collapse and get going again. (The revisions to the plan that the White House is talking about seem to bear this impression out. And note that, since Paulson owns so much financial sector stock, he’s got a lot of incentive to just give them money and not strongly exercise his equity-purchasing power, thus diluting his own holdings.)

If the bailout had been a good plan, wouldn’t it have been reflected in the markets?

Please tell me that’s a rhetorical question. You seriously thinks the markets are a rational judge of this kind of situation? If they were, bubbles wouldn’t happen in the first place.

Apart from the airlines and auto companies, things aren’t really broken around here.

750,000 jobs lost. Credit completely shut down1. Foreclosures at a historic high. The Baltic Dry Index (which measures volume and pricing of shipping) cratering. Municipal governments imploding (eliminating a good potential source of stimulus on both supply and demand side — building infrastructure employs people and gets money in the system, and improves the conditions for doing business).

I have NO idea how you can maintain that, essentially, “the fundamentals of the economy are strong.”

[1] I’m a great customer (have always paid everything on time, including with very substantial debts like a new car) and I can’t get my line of credit increased currently. In fact, from what I’ve heard, a lot of companies are seeing their credit ceilings lowered. I don’t know if maybe you’re juat incredibly lucky, but lots of small businesses have been getting shafted by lack of credit. The latest Beige Book (a broad economic survey) is bleak. The paper in your own back yard is reporting on this!

I’m trying to draw a distinction between the financial sector and the economy as a whole. Of course the financial sector is in trouble, and this trouble is spreading. But your examples, with the possible exception of the Baltic Dry Index, are all indicators of financial weakness. If capital were flowing smoothly, those other issues wouldn’t exist.

Look, we’re not Russia; our manufacturing base isn’t falling apart and our workforce isn’t disappearing. We have economic problems — serious in some sectors — but the big problem right now is that capital isn’t flowing. And that’s what the bailout is about, getting capital flowing.

I’m disappointed that we’re spending $700B without knowing if banks will actually divert that to the credit market. I’m disappointed that we’re spending that money without removing the banks’ incentive to engage in risk-taking behavior. I don’t like the plan. I like the British plan much better — it has some strong incentives in it, incentives that, for instance, made Barclay’s figure out a way to recapitalize in the private market. That worked. I don’t like the plan.

That doesn’t mean I don’t think we needed a plan two weeks ago. It just means that I think that both candidates and Congress failed to do their job by working to put together a better plan. I didn’t like it. Still don’t. At the time, I thought that Congress’s vote against the previous plan had shown substantial dividends in giving us a better — not good, but better — plan, but that somehow this plan was voted up for pork only. I still kind of think that.

Now I’m worried that the crappy incentives built into this bailout ensure us a second, more expensive, bailout in 1-2 years.

So, am I supposed to like the bailout plan? Because I’m not going to. I may like Obama, but I don’t like that he voted for this plan. I think it says bad things about him.

That said, I guess that this one vote is a crappy measure upon which to base my whole vote.

More on what else Obama has done that disappoints me this weekend. (Don’t worry, I think McCain is even worse!)

(Also, the LA Times? How many people do they have in the Business section these days — 4? 5? They’ve laid off almost everyone. Watch for us to have no paper at all in the first year.)

The financial problems are affecting real economy. Morning Edition had a story this morning about how a county in New York is unable to fix some hilly roads, which it expects will lead to some people dying in ice storms this winter; if they want to fix them, though, they’d have to bear interest costs 75% higher than those costs used to be, which would mean sacrificing something else. Manufacturing is down, small businesses are closing or laying people off, etc. The people who study this stuff are saying we’re already in a demand slump, and there’s quite likely to be a deep, protracted recession.

Trying to “draw a distinction between the financial sector and the economy as a whole” is, at this point, a dire mistake. In fact, it’s the mistake that Hoover and Mellon made when the banks collapsed at the start of the Depression. They believed that we should “purge the rottenness out of the system.”

You seem to think that the plan was voted down the first time on the basis of some principled stand for a better plan. In fact, it was voted down because two-thirds of GOP House Reps are morons. There was never a broad coalition behind a good plan. The Dems would’ve been happy to have a good plan, but the GOP wanted to cut the capital gains tax (they always want to cut the capital gains tax) or just hand their Wall Street friends a completely free pass (which is actually McCain’s current plan).

I would’ve been perfectly happy to have the Dems draw up a better plan and ram it through on partisan lines — that’s the sort of thing the GOP frequently did from ‘01 to ‘06. But the Dems were deeply concerned that they would be handing the Republicans an effective campaign issue: “We voted against the Wall Street bailout!” And apparently even a lot of smart people feel so negatively about the bailout that they might well buy that line.

So instead, the Dems bribed the GOP to go along.

On the bright side, they forced Paulson to accept a provision that gave the option of pursusing the British equity-injection solution. And in case you haven’t noticed, that provision is now being exercised (with much protestation about how distasteful it is). Paulson probably won’t do as much as he should to “punish” the executives and stockholders, but what do you expect from a Bushie? Hopefully the next Treasury Secretary will be able to salvage things. Certainly we’ll have the opportunity to impose new regulations, which will either ban, or disincentivize, the stupid things the banks were doing.

In sum, I really think the Dems did the best that they could, under the circumstances, and that while the plan was not great, you’re wildly exaggerating how bad it was.

Also, if the LATimes isn’t good enough, how about WaPo? As Credit Tightens, Companies Curtail Spending, Expansion. Some Indebted Firms at Risk of Default. This is all over the news. Non-financial companies are making decisions to postpone or cancel investments, freeze hiring and slim down through attrition or layoffs, and so on.

I don’t think we’re arguing about anything substantive here. I agree that the finance sector can drag — and, for that matter, is dragging — the economy down. We agree we need a bailout.

I’m not sure the Dems did the best they could. I agree putting through their own plan would’ve been risky. And I’m prepared to consider that it woudlnt’ve been worth the risk. And I like the plan much better given that we now have equity injection.

Not only that, but I’m prepared to consider that the plan I would’ve liked would have been impossible to pass.

But if you think I’m saying that nothing needed to be done, you’re just stupid. And the Hoover comparison? You must’ve been working hard to misinterpret what I said that badly.