Don't fall for it. It's a Beer TARP!
Posted on 07/15/2011 10:44:38 PM PDT by neverdem
On Wednesday, House Minority Leader Nancy Pelosi sent a warning on the debt-ceiling hike. “Let’s get on with writing the bill,” she said. “I don’t need to see markets drop 400 points. But Republicans may need to see markets drop 400 points.” Pelosi remembers September 2008, when the House, then controlled by the Democrats, initially voted against the Troubled Asset Relief Program. Stocks plunged 778 points. Only after her caucus felt the visceral terror of an impending depression was Pelosi able to cobble together votes to counter Republican opposition.
If the House goes to the wire this time, there will be plenty to fear. A Treasury default would be worse than the financial crisis of 2008. The world economy is built on Treasury securities. Companies around the globe use them as collateral for overnight loans so that they have cash to pay workers as they wait for their own payments from other companies. Because this collateral is so safe, the lenders who make the overnight loans don’t have to worry about the borrowers. The key is that Treasury bonds are supposed to be risk-free.
But nothing is risk-free. If and when the market discovers this about Treasury bonds, the consequences will be dire. Companies short of cash would shed workers. Global asset selloffs could send the slow-brewing Eurozone crisis into multiple defaults, and European governments would struggle to protect their own financial institutions from panic. The fear of default could spur companies around the world to hoard more cash in anticipation, slowing the economy down. In the past week, a parade of leading financial figures has sounded the alarm—Federal Reserve chief Ben Bernanke, JPMorgan Chase honcho Jamie Dimon, Senate Minority Leader Mitch McConnell, Treasury secretary Timothy Geithner, and former Obama economic adviser Larry Summers among them.
And that’s precisely the problem. Tea Party freshmen and their supporters hold this establishment in contempt. Implicitly invoking TARP, as Pelosi did when she mentioned a stock-market crash, won’t scare them; it will only embolden them. It would be one thing if Tea Party adherents merely believed that a default wouldn’t spell disaster; in that event, the GOP freshmen would figure out the truth soon enough. The problem is that many Tea Partiers consider TARP such a terrible idea that they would have chosen to brave a worse financial disaster instead. Today, they think that a market cataclysm would be better than another “sellout” vote. House veteran and GOP presidential candidate Michele Bachmann set the pace in last month’s GOP presidential debate: “I fought behind closed doors against my own party on TARP. It was a wrong vote then. It’s continued to be a wrong vote since then.” As the defeat of Utah senator Bob Bennett in 2010 showed, party voters are unforgiving of Republicans who supported TARP. A debt-hike vote will follow Republican candidates in their primaries next year.
Whose fault is the trust deficit that the elites have racked up? After the initial TARP vote, the establishment spun the story, calling it not a bailout but a “rescue” and insisting that its purpose was to save jobs, not banks. What have Americans seen since? Financial firms whose bad decisions should have put them out of business have logged huge profits, while 7 million workers have gone missing from the economy. Such a stark disparity in outcome is absolutely the fault of establishment figures—from former Treasury secretary Hank Paulson through President Obama himself. No surprise that Americans digesting that experience now suspect that a debt-ceiling vote is another trick.
TARP and the debt-ceiling vote do resemble one another—but not in the way that the Tea Party thinks. By the time TARP came around, it was too late to do anything about a financial system spiraling out of control; the only sane way to have avoided TARP would have been to end the government’s too-big-to-fail approach to the financial world long before, and that approach dates all the way back to the 1980s. The problem with TARP was not the vote for it but what government failed to do afterward: force lenders to take their losses, albeit in a less panicky manner, thus liberating the economy from the bubble’s legacy. And government failed, too, to enact financial rules to ensure that it wouldn’t happen again.
We’re in the same situation today. It’s too late now to worry about debt that’s the legacy of past choices. If either party had wanted to avoid such a vote, it should have taken steps decades ago. Such steps would have included self-restraint on new entitlement programs—including the Medicare prescription-drug benefit—until we figured out a way to control growth in the old ones. And the steps would also have included putting the rules in place to avoid a financial crisis that has sent tax revenues plummeting and safety-net costs soaring.
Both parties should stop pretending that the debt-ceiling vote is an opportunity for big fixes or a test of principle. It isn’t, just as TARP wasn’t. Even if party leaders can convince enough public-spirited members of their caucuses to vote on modest, long-term budget “reforms” in return for a debt-ceiling hike, these concessions are likely to be window dressing. Long-term fixes to programs like Medicare won’t happen overnight. They’ll come after years of open-minded experimentation. Likewise, cleaning revenue-sucking holes out of the tax code will take months, not a few late nights. With the debt ceiling, as with TARP, what really matters is what happens after the vote.
Nicole Gelinas, a City Journal contributing editor and the Searle Freedom Trust Fellow at the Manhattan Institute, is a Chartered Financial Analyst and the author of After the Fall: Saving Capitalism from Wall Street—and Washington.
I think you're right, but remember -- the Republicans have to be made to take the blame. Obozo has to give his MSM cadres something to work with, a peg they can use to hang the blame on the conservatives -- better, the Tea Party, which you'll notice that this scribblerette is setting up in her contemptuous piece to be her fall guys.
Don't fall for it. It's a Beer TARP!
It isn't a matter of getting more solvent by going deeper in debt, it is a question of where the tunel will end. More money without spending constraints is foolish, too.
Let's see some significant cuts in the Federal budget, not just the scare tactics of going after the elderly and essential services.
What happened to all those "nonessential Federal employees" who don't have to show up when there is a snowstorm. If they are "nonessential", why are we paying them?
That'd be a good place to start.
Every few years it seems the oil patch goes through a 'bust', it has made for lean corporate heirarchies, merit based advancement, and a trimming of the nonproductive from payrols.
It's government's turn. They've been growing since the Civil War.
I see no compelling reason to raise the debt ceiling, and I’m OK if SS checks don’t get mailed and/or bonds don’t get paid.
Frankly, the apocolypse card has been over-played. Now I’m immune to it.
The whole idea of the debt ceiling was to warn the various Congress Critters and, more importantly, their staffs that they were spending too much. But, the moment that the debt ceiling was first raised, as a “temporary” fix so the government could continue to govern the whole idea went into the crapper.
Now, “We, the People” have said enough! If we have to balance our books so do you Congress!
Remember the big stink a few years back about Congress exempting itself from a lot of regulations, laws, and taxes that the rest of us had to follow? The debt ceiling issue is exactly the same thing only written much larger.
It is long past time to throw every long serving, “professional”, politician out. And when they complain out the “need” to stay in power remember what their staying in power has brought us!
Re post 9. Correct, there will not be a default on Aug 2 or Aug 3 or any other day in August. They have the money to pay the interest.
Tea Party freshmen and their supporters hold this establishment in contempt. Implicitly invoking TARP, as Pelosi did when she mentioned a stock-market crash, won’t scare them; it will only embolden them.
Contempt, Hmmmm, Yes possibly I hold this establishment in contempt. Mostly though I fear them, I fear that they will continue to make decisions that apparently are aimed at destroying the America I love and turning it into a third world pest-pot.
As a youngster my father was in the Military and my mom and the rest of the kids were lucky enough to be able to accompany him on some of his tours to foreign countries. What I saw and learned from living there has given me a love and an appreciation for America that many of our ‘elites’ obviously don’t have.
That is why I fear this establishment. They are trying to destroy what I love. In turn that makes me support the TEA-Party freshmen in their attempts to stop the destruction. It’s long past time to rein in an unchecked federal Government all three branches have increased their power to the point where they are the De-facto masters and the rest of us... Well they must think we are their servants, serfs and property. At least they treat us that way.
Paulsen was wrong. Raising the debt ceiling is also wrong. Just live with the consequences.
Nazi Pelosi - a voice worth ignoring.
Troubled Asset Relief Program. Stocks plunged 778 points.
Democrats are talking about another stimulus deal,yeah thats clear thinking.Dems are stuck on stupid socialism never pays off.
Yes, but as you know, Washington is controlled by Democraps and RINOcraps. Which means that the first department they'd close is the DoD.
“If companies are going to fail, let them fail and let their competitors fill the vacuum.”
Damn straight. That is part of free market, which we don’t have. Instead, these large companies know they will be backed by Washington, and they behave as such.
Their managers are more concerned about stock holders than they are about maintaining a company with longevity, and that is what has helped kill America. Many of these companies stifle competition by promoting regulations that only they can afford to navigate, they buy up the competition and close the doors on them, and they behave like robber barons, all with the approval of Washington.
GM should have went under. A reset button if you will. Sorry, but yes there would have been job losses, but some small company would have risen up, and created a better product, at a better price, and would have learned from the mistakes of GM.
Instead, we reward bad behavior, and bad business practices, just as we reward bad lifestyle with the welfare state.
I am all for business, but I am for free markets, I am for the ingenuity of Americans that made this country great, not for cronyism and protectionism.
Let the market tumble 5,000 points, I don’t care. Better to swallow that pill now. Instead we keep inflating the market falsely, which only serves to put off the inevitable.
I personally don’t give a damn about insuring the success of the markets. If you buy into a bad product expecting good returns on your investment, then you should suffer those consequences.
The same with the housing market. These artificially created bubbles are going to be the end of this nation.
Is it “the blame” or “the credit”. Republicans should be willing to take the credit for stopping the runaway train.
They subvert the nation economically, morally and militarily.
They Lie, Steal and Subject. All Commies do that, because they can only gain and keep power by that.
Need anything else be said as to why we don't trust the GOP-E?
Best to take our medicine now and start the real recovery than to kick the can down the road and make the final comeuppance even worse.
We are witnessing the implosion of the welfare state. The Dems want to keep it going for a little while longer by increasing taxes and doubling down on their spending. It is like trying to hold back the tide. The entitlement programs will consume our entire budget if we don’t reform or eliminate them. And unless we unshackle the private sector, we will continue our spiral downwards marked by paroxysms of civil unrest and eventual Balkanization along class, race, and ethnic lines. We are in a battle for national survival to maintain the vision and values of our Founders.
WE don’t have 10 years. Maybe 12 mos.
Not going further into debt, despite the offer of more and more credit, should make the U.S. economy stronger and the likelihood of a default less.
Unless I woke up in Bizarro World, where everything is opposite.
If someone owed you 10,000$ - and a look at their finances showed that they continued to spend themselves further and further into debt - would a move on their part to live within their means and no longer go further into debt make you feel MORE or LESS likely to eventually get paid back?
???????
And whatever happens, do not cut spending. We must not even talk about it.
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