My suggestion for the bailout
Bookworm on Sep 24 2008 at 2:41 pm | Filed under: Uncategorized
What’s the biggest debt collection organization in the world, one that makes the mafia look like pikers? The IRS, of course.
Once the US assumes this massive amount of debt, why doesn’t it turn the IRS loose on the collection? Some people are genuinely in such financial distress that there’s no going back, but I bet that there are a lot of debts being turned over to the feds (especially those student loans) that fall well within the IRS’ range of collection experience.
As for any assets the US takes over (houses? cars?), shouldn’t those be sold back into the private sector?
In other words, while there’s an up front cost to this debt takeover, isn’t there an offset for debts that can be fully or partially collected, and for assets that still have market value?
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Why not? Well, because the agency doesn’t have the resources, that’s why. The IRS Restructuring and Reform Act of 1998, signed by Clinton after hearings conducted by then Delaware Senator William Roth, effectively gutted the agency’s enforcement powers by expanding taxpayer appeal rights and making any enforcement action much more of a paper chase. There is now something like a $300 billion “tax gap” in uncollected and unreported taxes (this of course is an inflated number because much of it is estimated and much of it is owed by individuals w/o the proverbial pot or window and by defunct corporations). Throwing this current subprime mess into the agency’s lap will accomplish nothing more than making the FEMA response to Hurricane Katrina look like a model of efficiency. Unless Congress opted to reinvigorate IRS enforcement powers, enhance the agency’s budget and radically and I mean radically expand the scope of the agency’s mission from being a tax agency to being the prime bill collector of the federal government, this is a DOA proposal.
PS And the Roth hearings were an equine/canine extravaganza, political theatre at its best, or worse. Why does a little state like Delaware produce such sublime BS artists like Roth and Biden? This remains one of the mysteries of the Eastern Seaboard.
Sigh….
And all these years I’ve still been paying my taxes like a good girl.
I don’t trust politicians to solve a complex problem like the current financial crisis. I am very distrustful of nationalizing an entire sector of our economy. As the Founders taught us, the State has an innate and powerful urge to expand its power. And the current bunch of serving Repubs is no exception.
Any solution proposed by Congress will expand the role of the State. When your only tool is a hammer (regulations) every problem looks like a nail. Maybe we need a drill or a scalpel or a furnace or a combination or a new tool altogether.
I’d like to see a “finance commission” empaneled and staffed with successful leaders of the Finance sector. There are lots of un-failed Finance sector firms who I am sure would be glad to loan some talent to the Feds. What’s Mitt doing these days?
Got this email today from the McCain campaign — scary (to me)!
“America this week faces an historic crisis in our financial system. We must pass legislation to address this crisis. If we do not, credit will dry up, with devastating consequences for our economy. People will no longer be able to buy homes and their life savings will be at stake. Businesses will not have enough money to pay their employees. If we do not act, ever corner of our country will be impacted. We cannot allow this to happen. “
Why is everything always about money, never about people?
No, wait. Don’t answer that. Human greed, right?
No Helen, it is about people. If people’s money is worth much less how do you expect them to afford food, energy, their homes/rent, life saving medicines? Regardless of one’s political persuasion this is no time for partisanship.
There are very serious people, while not saying it, alluding to a dpression. Given the globalization of economic matters can you imagine if the US had a serious economic downturn like that? I know one of the first things that might break out, war, on a massive scale. History shows us that. So yes, this is all about people.
>>Human greed, right? >>
No…I don’t think so. Sure, it’s a factor, but unless you want to return to the days of barter, money is what makes the economy work. Now if you’re saying why is it always about _getting stuff_, you might have a point, but the people are going to suffer if the money system isn’t working. Money, after all, is just paper and metal. Remember the stories of post WWI, and the German people having such inflation that they needed wheelbarrows to carry enough to buy what they needed? (I haven’t checked Snopes on that story!) It’s money that means that people can go to stores to buy milk and bread…they don’t have to find a farmer who wants what they have to exchange. It means that suppose you want x but ye olde farmer doesn’t want your y which you have for exchange, you don’t have to find ye olde farmer who _does_ want your y. Instead, you can just give ye olde farmer $$ and he can go find someone who has a jkl that he _does_ want. It’s a means of moving goods and services around. And if you don’t move goods and services around, we’re all in a bind, don’t you agree? So it really is about people, and helping them get what they need to survive instead of requiring them all to live on plots of ground where they have to grow their own.
Helen,
I remember Johnny Carson saying “I’m just the same as everyone else, I just don’t have to worry about money.”
The (almost) universal response was “if you don’t have to worry about money, you are *not* like everyone else!”
It’s probably my Libertarianism slip showing, but I find the McCain email quoted above exceedingly emotional (and insulting) when clear, cool minds are what is needed.
Ellie
PS: I join with the others that value your ideas.
Ellie…I agree with you. I see the spector of nationalization arising…
Sue,
It is post WWI that raises fear in me: in the face of “reparations” demanded by the victors, Germany pressed (pun intended) the money printers into service, backed by nothing, thereby rendering the DM worthless.
Ellie
Sue,
And Queen Nancy has been talking about “nationalizing” the oil/power sector. With an BHO victory, and if the Dems rule both houses, we will be a collective in our lifetime.
Ellie
Hey Ellie…I’m still hoping that the “natural born” issue comes up! I know you think it’s completely bogus, but it certainly has raised some interesting side issues along with it.
One of them is that it seems that no one has standing to sue to obtain his birth certificate. Now how can that be? We’re all citizens entitled to vote. The constitution says that the only people eligible to president are “natural born” citizens, but citizens lack “standing” in the court because we’re not “injured” by his candidacy??? Isn’t that bizarre? Regardless of the outcome – it seems that nobody is authorized to demand proof that he _is_ in fact a natural born citizen!
“Remember the stories of post WWI, and the German people having such inflation that they needed wheelbarrows to carry enough to buy what they needed? (I haven’t checked Snopes on that story!)”
My father remembered those times vividly. His father and mother were separated, with his father living in America. His father would send dollars to his mother and his mother, being a not-so-bright woman, would instantly convert the whole amount into Deutschmark. By evening, the money would be worthless.
I agree that it should be routine for Presidential candidates to provide proof of eligibility. Hey, I had to provide 6 “proofs” for my “RealID” driver’s license! ..Not to mention getting a Passport!
Where I fell off your bandwagon was the idea that BHO was not born in Hawaii aka not “natural born.” Interestingly, a Hillary-nik thinks he was born in Kenya. http://obamacrimes.com/
I think the stronger argument is that he *gave up* his US citizenship when he was adopted by his step-father and later got, and traveled on, an Indonesian Passport. Is there a record that he ever re-claimed his US citizenship (which is his right, but it doesn’t happen automatically)?
BW’s gonna smack us — we are wildly OT!!!!
Hi al –
Earlier this evening, Neo-neocon posted an excellent 3 minute excerpt on the financial problem. It’s sort of a nutshell-look at what led to the problem and the fact that back in 2005, the Senate Banking Committee, after meeting with Greenspan and being made aware of the severe problems facing Fannie Mae and Freddie Mac, voted to institute regulations to address the problem.
How did the vote go? The Republicans voted for the regulations unanimously. The Democrats voted against them.
I don’t under any circumstances completely blame the Democrats for the mess we are in but the more I learn about it, the more I’m starting to understand that Republicans did make efforts to fix the problem.
Here’s the link:
http://neoneocon.com/2008/09/24/a-short-history-of-congress-democrats-republicans-fannie-and-freddie/
Deana
Can anyone explain to me why the bailout solution has to be extended permanently? Why can’t we sunset it? For example:
Now thru 2009 : The full $700 billion ceiling. A 25% reduction (-$175 billion) each successive year.
2010 : $525 billion
2011 : $350 billion
2012 : $175 billion
2013 : zero, and the program, and all law and power associated with it, go away.
That’s a normal depreciation schedule for many assets. (And, by the way, I’m pretty sure a depreciation schedule was how asset decline was handled prior to mark-to-market.)
This is an emergency action right now, from what we’re hearing. Since when did an emergency solution require a vast, intrusive new program to be implemented *permanently*? Putting the allowed dollar amounts on a declining schedule would give us the time to deal with the immediate crisis; and as the ceiling lowers, gives us a continued immediacy to keep dealing with any remaining effects.
Assuming we went ahead with the bailout to solve this immediate emergency, why would a sunset provision be a bad idea? Why must this extraordinary transfer of power to the National Government be permanent?
Some random thoughts trying to get my head around the bailout proposal.
It’s hard to believe anything Paulson says since he has been so wrong about all this, but if the credit markets dry up, the economy tanks since credit=money.
It burns me up that the institutions that have been so reckless are the ones we’re going to re-capitalize to what– repeat this all over again?
There is a fear that the lenders will be timid and how does the de-leveraging needed factor into this? All that new capital will merely allow the capital requirements to get back in line and there won’t be any money to loan.
This smell suspiciously like a giant stimulus package– for Wall St. Why not just send the $2,000 per person this is going to cost directly to us, let the banks fail and we’ll spend this economy back into health.
The $700 billion is based on a 5% default rate on the remaining sub-prime loans. If the default rate rises so does the cost of the bailout to the tune of $1.4 trillion dollars.
One of my concerns is whether foreigners are going to continue to finance our deficit, but that doesn’t seem to be a concern since that’s how the $700 billion will be financed– US Treasuries.
Interesting statistic, the largest foreign holdings of mortgage back securities is the Cayman Islands.
I find it hard to believe this was just reckless behavior and not fraud.
http://www.prospect.org/csnc/blogs/tapped_archive?month=09&year=2008&base_name=bill_clinton_revisits_his_econ
I saw this a few hours ago and I’m still having trouble sitting down as I pace and pace pace the floors:
“In the dark of night over the weekend when most people were snoozing, the Treasury dramatically expanded its bailout plan to include buying student loans, car loans, credit card debt and any other “troubled” assets held by banks.”
I also heard that the total cost of these debted assets is $850 billion. That, on top of a $700 billion package.
I simply don’t understand. Either this is an emergency, or it isn’t, right? This bill is suddenly being treated as if it is just another ordinary bill. They’re haggling over all kinds of add-ons. Almost every add-on inflates the price.
It’s looking as if the $700 billion is a pure pipe-dream. Especially if they’re adding on those other assets I described above, and the debt cost is sitting at $850 billion.
Something seems really, really rotten here. Or they are refusing to tell us what’s really going on. They are either all lying to us, or Congress is fiddling while Rome burns.
My thoughts, exactly, MikeD. This is one of the reasons that I am holding my fire on so-called solutions. I suspect that all that I am holding at the moment is the tail of the elephant and it feels like a snake.
http://www.bloomberg.com/apps/news?pid=20601109&sid=ah839IWTLP9s&
This is certainly part of what got us here. The tip of the fraud spear.
Mike D, I am only 42 miles from DC and I can hear the fiddles. It is not a pretty tune.
I am not sure that I understand the vitriol directed at Paulson. This thing didn’t suddenly hatch on his watch. He inherited a major can of escaping worms and he is trying to herd them back into the can (so to speak). (Is that a mixed metaphor? Newly hatched chicks chasing escaping worms?)
I don’t like this situation. I don’t particularly like the solution since it is one more step on the slippery slope of even bigger government–possibly for the long term. But, I really don’t like watching my retirement savings turn to excrement.
One thing that gets my gut in a knot is watching Greenspan pontificate. It is past time for him to shut up.
BrianE…”Why not just send the $2,000 per person this is going to cost directly to us, let the banks fail and we’ll spend this economy back into health”…a reasonable question. The problem is this: when Joe’s Restaurant needs a loan for $75,000, or Jennifer’s Tool & Die needs a loan for $200,000, it isn’t feasible for them to go round up $2000 subscriptions from large numbers of individuals. They need a credit-granting institution, like a bank.
>>They need a credit-granting institution, like a bank.>>
So do farmers. We’re in the down time – harvesting. But come next year, farmers are going to need loans to get started up again…if the money isn’t there, it’s definitely going to affect the food supply.
Excellent points! Here’s a question: to what degree is the exposure limited to real-estate holding companies and investment banks?
To what degree are commercial banks that deal in commercial and agriculture loans exposed, which would have big implications for the economy at-large?
This is the big unknown to me and has a major bearing on whether or not this bail-out makes sense.
Need to also consider cross-holdings by banks. If Last National Bank of Nowheresville owns preferred stock in Once-Famous Investment Bank of NYC…and OFIB goes into Chapter 11 or worse…then the loan-granting cpability of LNBN wil be impacted.
Danny,
>>To what degree are commercial banks that deal in commercial and agriculture loans exposed>>
Good question. This probably goes back to the action by Congress that allows intermix of different functions in banks. It seemed to make sense to allow all banks to do all jobs, but then you end up with this. Specialization can be stifling, but it also prevents disasters such as this, I think.
Ellie..
Check this one out today – he also has a good rundown on the case – more readable and more analysis than obamacrimes.
http://www.americasright.com/2008/09/so-who-does-have-standing-anyway.html
Re: BW smackdown….notice that I put the on topic comment first!!
David,
I was trying to be facetious.
This bailout is trying to achieve two goals– Oldflyer doesn’t want to see his 401k decimated, and Suek wants to see sufficient capital in the system to provide operating loans for businesses.
The question is, will the bailout do either?
If a recession is inevitable, how much softer will the landing be with the bailout? And once again we are in uncharted territory, since we’re more worried about deflation than inflation with relatively low interest rates.
And if this is a gambit to keep the primary financial markets in the US, I’m not sure whether I care enough to bail out Wall Street.
I’m still suspicious that this is more of a wall street full employment bill than anything else.
If everything ground to a halt because banks didn’t trust each other, what assurance do we have that $700 billion is going to make everything OK?
Are we just trying to avoid the business cycle?
If anyone wants to get bogged down in detail, here is a paper entitled “Capital Requirements and the Supply of Liquidity”.
http://marshallinside.usc.edu/dietrich/BankCapReg-2003.pdf
Personally,
I’d like to see chairmen of all the responsible committees in Congress forced to step down as part of the package, since it’s unlikely the voters in their states are going to kick them out of office.
If you notice in post #19 Bill Clinton said this as the media beats up Gramm for the 1999 bill repealing Glass-Steagall.
http://newsbusters.org/blogs/noel-sheppard/2008/09/25/fox-news-blames-democrats-financial-crisis-bill-clinton-agrees
http://www.bloomberg.com/apps/news?pid=20601087&sid=aUj_9.k13q7s&refer=home
Something smells bad.
The bailout will save the life savings of tens of millions of hard-working Americans and some of you are worried about a few Wall-Street millionaires? Get some perspective.
Sorry for monopolizing the posts but this is the only way to vent.
WHO DO YOU TRUST!
I need someone to tell me if the yellow brick road leads to the Emerald City or the Wicked Witches house!
Do you really want the IRS to be expanded enough to handle 600,000 foreclosures?
Do you somehow imagine that once the foreclosures were done, they wouldn’t find something else to do?
Or someone?
>>WHO DO YOU TRUST!>>
Yeah…that’s the critical issue, isn’t it!
I think I want Newt involved. I _don’t_ trust Obama, Reid, Franks, Dodd – well, anybody in the Democrat party. I’m also not very trusting of McCain, although it speaks well of him that he warned about exactly this problem some 3 years ago, and understands enough to know that he doesn’t know enough. I _do_ trust Newt because he’s still out there working on it, he doesn’t hold office and doesn’t expect to, he established the “Contract for America” and he’s been working on the Drill baby Drill project pretty effectively. If he gave a plan his imprimatur, I’d support it.
It really _does_ come down to the trust issue.
So why is this different than owning Lucent in 1999 at $84 and seeing it plummet to .55 in 2002?
I’m not trying to be difficult. But markets go up, markets go down. That’s the risk you take.
But why are we bailing out investment banks? They are not the ones that will providing car loans and operating loans for farmers (and suek you will remember how hard it was for a farmer to get an operating loan in the early 90′s).
There’s something else going on here.
We have so manipulated the markets through monetary policy, I’m concerned this will not be enough, and we’ll have spent the money the wrong way.
I think bernieg1 is copying and pasting to promote traffic to his blog plancksconstant. He has another sort of out there remark on another thread.
I say “out there” because of the “you are worried about a few Wall-Street millionaires” comment…it’s unrelated to anything anybody on this topic has commented. As far as I can see, _no one_ is concerned about the Wall-Street millionaires.
Well, I take that back. I haven’t commented on it, but I think that some of those Wall Street millionaires should probably be in jail. In cells right along with a few congress members… So I guess I _am_ concerned about them – concerned that they should receive their due.
New site for me. Worth reading and thought provoking, as are some of the comments.
http://econlog.econlib.org/archives/2008/09/the_case_agains_1.html