All this proves to me is that the banking system, as we know it, is dead and gone. If the federal gov’t needs the kind of power that designates private banks as “agents” for the federal government, then the reality of the situation is probably this:
1. The system has already blown up.
2. As long as “money” can circulate through the credit markets, institutions can remain standing on thin air while the government assimilates these institutions under their wing of “protection”. The gov’t will simply override the effects of a total collapse by discouraging panic and artificially injecting trust into the system.
3. But really, the banking system has effectively evaporated. At least that’s what this bill tells me. If it’s not gone, this is the greatest power grab of the executive branch since the CIvil War and the quality of our representative republican form of government just got downgraded like AIG.
IMO it is rapidly becoming advisable to have a horde of actual cash in the mattress, because the universe of possible October surprises is much wider than we think.
That's precisely what has happened.....
Further stress on the nation's financial markets could reverberate and "cause massive job losses, devastate retirement accounts, further erode housing values, and dry up new loans for homes, cars, and college tuitions," Bush said.
“All this proves to me is that the banking system, as we know it, is dead and gone.”
Uh ... no. This actually preserves it.
What has been done here is the federal govt is providing liquidty in the market for toxic derivatives and bad mortgages. In doing so, they are stabilizing as system that had ‘seized up’ due to the lack of liquidity and buyers for this stuff. the price of this ‘good deed’ is to add billions to our national debt.
Yes, this is not a good option, but good options ran out when banks started going under. The choice would be to see more banks go under due to lack of liquidity, see the stock market and economy tank, and consequently we’d see a global slump. After about 3 years we’d get through the ‘pain’.
I would add that ‘trust’ is not an artificial construct as lack of trust changes investment decisions. Adding ‘trust’ to markets via govt intervention is not fakery, but the real stabilizing factor that can end panic phases of credit cycles. Had the govt been this interventionist in 1930, we probably wouldnt talk about the great depression (never mind that govt created the great depression with 3 actions: high tariffs, high taxes, and overly tight deflationary money policy; my point is the *right* govt policies will make the difference between depressions or not.)
“3. But really, the banking system has effectively evaporated. At least that’s what this bill tells me. “
Again, no. the banking system will endure, but it would have been greatly damaged without some aid.
I would also add that $700 billion is the holding limit in the bill. People assume that would be the cost incurred, but it would likely be less if/when the Govt buy at market-stabilized prices and takes their time to resell at reasonable price. I won’t give an estimate on real cost, but leave that to some economists/analysts to estimate. I don’t know.
“If it’s not gone, this is the greatest power grab of the executive branch since the CIvil War”
I dont see it that way. The structure is not much different from RTC in the last 1980s for S&L bailout. This is just the bailout part, This is the authority of the Govt to in effect buy up at a steep discount distressed financial products. I dont see much regulatory/power stuff here. That could make a difference if we start adding moreregulations on investment houses. That could be counterproductive (as Sarbanes-Oxley has been in some ways by scaring off the IPO market).
” and the quality of our representative republican form of government just got downgraded like AIG.”
hyperbole. Our govt spends $3 trillion of other people’s money each year. a $700 billion bailout is huge, but hardly novel of the govt to take from peter to give to a supposed ‘good cause’. $200 billion for katrina, $500 billion a year for medicare, $800 billion a year in domestic spending, a $200 billion farm bill, etc. ... easy money come, easy money go.
My only concerns are the moral hazard aspect of this and the question of what it does to our long-term financial stability.
Something like that, yes.
I wonder if it is too cynical to just fill in the title of the bill as "The Enabling Act."