A Few Points About The SEC And The New Bill

Today, the SEC adopted one of Anthony Randazzo's proposals from the free market proposals I recommended:

"Third, the SEC should suspend the "mark-to-market" accounting rules for long-term assets that are driving firms into bankruptcy. Essentially, these regulatory rules are forcing firms to value their assets at much lower prices than what they would be worth long-term. The intent of mark-to-market regulation was to keep firms from overvaluing themselves and deceiving investors. Instead the law has artificially devalued financial institutions as a whole, which hurts their investors. As Steve Forbes noted recently, "The mark-to-market mania of regulators and accountants is utterly destructive. It is like fighting a fire with gasoline."

This accounting clause has significantly contributed to the bankruptcies (or near bankruptcies) of Lehman Brothers, Merrill Lynch, AIG, Bear Stearns, Morgan Stanley, Citigroup, Washington Mutual, and many others. In order to keep firms from overvaluing themselves, Newt Gingrich has proposed a three-year rolling average mark-to-market policy.'

Here from the Washington Post:

"Under intense political pressure, regulators for securities and accounting standards this afternoon issued what they called a "clarification" to provisions that have come under fire from bank executives and some lawmakers for contributing to the credit crisis...

The standard, also known as "mark to market," has led portfolios to plunge in recent months as banks affixed fire sale prices to their assets, a move that sometimes required them to raise still more capital to meet regulatory requirements. The measure also led to clashes between corporate executives and independent auditors over how low the markdowns should be forced to dip. "

Also, I backed this proposal from Jim Harper of Cato which looks to be in the new bill:

"And from the “This May Make Some Sense” department, there’s H.R. 6986, which would raise the maximum Federal deposit insurance coverage to $200,000. This seems to update the amounts covered by federal deposit insurance not in response to the crisis, but in response to the possibility that it could be needed. Nice to see someone possibly getting ahead of the curve, rather than following along behind it. But I have to say “least bad” is not high praise . . ."

Here from the NY Times:

"But those Democratic opponents did say that they would be willing to back an increase to $250,000, from $100,000, in the amount of a bank deposit that would be insured by the federal government — an idea that on Tuesday gained fast currency as a consensus change in the initial plan.

Mr. Obama and Mr. McCain early Tuesday both embraced the deposit insurance proposal, sparking a bit of a political tiff over who deserved credit for initiating it. House Republicans claimed to have offered the insurance increase in weekend negotiations over the plan only to have it rejected."

I might also add that Randazzo advocated tax breaks, but probably not these being considered:

"The Senate tax bill would cost more than $100 billion and extend and expand many individual and business tax breaks, including tax credits for the production and use of renewable energy sources, like solar energy and wind power. The bill would also extend the business tax credit for research and development, expand the child tax credit, protect millions of families from the alternative minimum tax and provide tax relief to victims of recent floods, tornadoes and severe storms.

Members of the House and the Senate say the bill would create tens of thousands of jobs and reduce the nations’ dependence on foreign oil. But the two chambers have been at odds over whether and how to offset the cost of extending the many tax breaks covered by the legislation. The major obstacle has been Representative Steny H. Hoyer of Maryland, the majority leader, and other centrist Democrats."

Maybe Randazzo would be for the business tax breaks.

"Second, Congress could cut corporate taxes and small business taxes in general. Trimming taxes for "the rich" opens up new capital to be invested in a struggling economy. At a time when investor confidence in the stock market is low, a tax cut for businesses would encourage innovation and entrepreneurial activity. The effects would be similar to that of a stimulus package, only without the government's involvement or a redistribution of wealth."

More about this new bill as I find out more about it, and understand it.

Markets Were Counting On The Government Acting

Henry Blodget says the following on Huffington:

"And, as Paul Krugman notes, in part McCain's nosedive is the result of a critical decision by Bush Treasury Secretary Hank Paulson earlier this month: to let Lehman Brothers fail.

Two weeks ago, on September 14th, Paulson let Lehman croak--and the credit markets went haywire. In short order, this led to the failure of AIG, WaMu, Wachovia, and the chaos of the emergency Wall Street Bailout."

As Krugman says:

"But I found myself thinking about that sign when reading this terrific WSJ article about how the fall of Lehman triggered global panic. One lesson of the article is that Paulson messed up very badly by letting Lehman fail."

Here's from the WSJ:

"In hindsight, some critics say the systemic crisis that has emerged since the Lehman collapse could have been avoided if the government had stepped in. Before Lehman, federal officials had dealt with a series of financial brushfires in a way designed to keep troubled institutions such as Fannie Mae, Freddie Mac and Bear Stearns Cos. in business. Judging them as too big to fail, officials committed billions of taxpayer dollars to prop them up. Not so Lehman.

"I don't understand why they didn't understand that the markets would be completely spooked by this failure," says Richard Portes, professor of economics at London Business School and president of the Centre for Economic Policy Research. Rather than showing the government's resolve, he says, letting Lehman fail only exacerbated the central problem that has afflicted markets since the financial crisis began more than a year ago: Nobody knows which financial firms will be able to make good on their debts."

Doesn't this tell us that the credit markets going haywire and being spooked was because they were counting on government stepping in? I'm just asking.

So much for free markets, since the people playing the game don't even believe in it.

My God, We're Protecting The Taxpayers!

Here's a good post about the AIG loan, but this is funny:

"As I said on Friday, “There is now going to be a feast, as buyers rush to pick up A.I.G.’s assets at fire-sale prices. This is a shame, really, since the company was a good competitor abroad for America, particularly in China. Now that Chinese business will probably just be sold to the Chinese at a bargain price.”

Did someone put a gun to their head? Again, what's all this kvetching about stupid business practices?

Check Out "Civil Rights Roundup"

On The Moderate Voice:

"Civil Rights Roundup Returns! 09/30/08

September 30th, 2008
By DAVID SCHRAUB, Assistant Editor

Okay, here’s the scoop everybody. The civil rights roundup is back. But it will be on a significantly modified schedule. For starters, this is likely the only Tuesday you’ll see it, as I have class with only a lunch break straight through from 9:45 - 4 that day. Most days, though, a probably abridged roundup will show up by mid-afternoon.'

Check it out!

A Review Of "Nudge"

Will Wilkinson reviews the book "Nudge" on Reason. The conclusion:

"All Nudge really offers is the idea that we should use what we know about how people act in order to design policy that will help them. And we shouldn't take away their choices. Well, I'm for all of it. If some policy makers really are misled by unrealistic economic models of rationality, then they should cut it out and bone up on psychology. Behavioral economics provides valuable new information about what will and won't work, and why. Thaler's work on savings plans is a great example of what can be done by taking into account new findings in psychology.

But it's no source of ideological realignment, no basis for what Thaler and Sunstein call a "Real Third Way." This book offers some whiz-bang behavioral economics that can be used for any ideological end, and it gives us the agreeably banal doctrine of choice-preserving helpfulness. The whiff of paradox in "libertarian paternalism" may have set up hopes for a category-defying revolution, but Nudge is the book where those hopes, and that tiny monster of an idea, prove flightless."

I consider Sunstein and Thaler to be proponents, more or less, of my agenda, so I'm going to have to read the book myself. However, Wilkinson does make some good points.

Did "minority lending" drive the crisis? Tyler Cowen Says No

Here's the point:

"Did policies such as the Community Reinvestment Act significantly worsen the housing bubble and the subsequent collapse? Basically not, although in my view these were bad policies for other reasons. They contributed to our current problems by only a small amount and of course these policies have been around for a long time before the housing bubble ever got started."

Thanks Greg Mankiw, The Plan Did Pass

Via Greg Mankiw:

http://www.bloomberg.com/apps/news?pid=email_en&refer=worldwide&sid=a9MTZEgukPLY

"The Fed's expansion of liquidity, the biggest since credit markets seized up last year, came hours before the U.S. House of Representatives rejected a $700 billion bailout for the financial industry. The crisis is reverberating through the global economy, causing stocks to plunge and forcing European governments to rescue four banks over the past two days alone.

``Today's blast of term liquidity will settle the funding markets down, and allow trust to slowly be restored between borrowers and lenders,'' said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. On the other hand, ``the Fed's balance sheet is about to explode.''

I guess the plan not passing doesn't matter.

I Still See A Version Of The Plan Passing

Robert Reich on today's result:

"Prediction: A scaled-down bill will be enacted by the end of the week. It will provide the Treasury with a first installment of $150 billion. Treasury can use it to back Wall Street’s bad debts with lend no-interest loans of up to two years, until the housing market rebounds. Or to invest in Wall Street houses directly, in exchange for stocks and stock warrants. There will be strict oversight. Congressional leaders will promise further installments, but with conditions calling for limits on salaries and relief to distressed homeowners."

I agree with him, but I'm not so sure anymore.

Focus On Preserving The Health Of The Financial System As A Whole

Timothy B. Lee makes a great point on Cato:

"It’s important to remember that “the financial industry” is sprawling and diverse. Some banks are on the verge of collapse. Others appear to be doing just fine. It would be unfair to these more prudent banks (not to mention taxpayers) to bail out their irresponsible competitors. And it’s a mistake to assume that, simply because a few reckless Manhattan firms have fallen, the entire financial industry is on the verge of collapse. It may be that these are simply firms that made too many bad investments, in which case their bankruptcy is precisely what is supposed to happen in a free market. Any Congressional action should be focused on preserving the health of the financial system as a whole, not at preventing the bankruptcy of individual firms that made bad investments."

Absolutely. We should focus on the health of the whole system, not on propping up failed businesses. That should be a guiding principle, whatever we do.

Violations Reported at 94% of Nursing Homes

Today I read a story that really pissed me off:

"WASHINGTON — More than 90 percent of nursing homes were cited for violations of federal health and safety standards last year, and for-profit homes were more likely to have problems than other types of nursing homes, federal investigators say in a report issued on Monday."

Here's a case of a national disgrace, and a case where the market seems to be failing. I don't know what the answer is, but allowing this in our society is not acceptable.

I believe in free markets, but I also live in the real world. If this report is correct, then something needs to be done to correct this situation.

A Libertarian Democrat Credo?

Luigi Zingales has a great post on Reason. Please read it. Here's his conclusion:

"Profits are private but losses are socialised?

The decisions that will be made this weekend matter not just to the prospects of the US economy in the year to come. They will shape the type of capitalism we will live in for the next fifty years. Do we want to live in a system where profits are private, but losses are socialised? Where taxpayer money is used to prop up failed firms? Or do we want to live in a system where people are held responsible for their decisions, where imprudent behavior is penalised and prudent behavior rewarded?

For somebody like me who believes strongly in the free market system, the most serious risk of the current situation is that the interest of few financiers will undermine the fundamental workings of the capitalist system. The time has come to save capitalism from the capitalists."

This is almost a credo for being a libertarian Democrat!

Greenwald Is Basically Right

Glenn Greenwald has an insightful and funny post today:

"Monday Sept. 29, 2008 10:03 EDT

Bailout follows the 10 normal principles for how our government functions"

Please read it.

Here's a good one:

"(1) Incredibly complex and consequential new laws are negotiated in secret and then enacted immediately, with no hearings, no real debate, no transparency. Nancy Pelosi has praised herself for decreeing that the new law will be online for 24 hours before Congress votes on it -- a full 24 hours for the American public to understand and assess a law that forces them to subsidize Wall St.'s losses in a way that may impact them for decades, if not generations. The most significant and consequential pieces of legislation over the last eight years -- the Patriot Act, the various expanded surveillance laws, the Military Commissions Act -- were the by-product of identical anti-democratic processes."

But here he is wrong:

"(10) Whenever you think that the Government has done things so extreme that it can't top itself -- torture, theories of presidential lawbreaking, a six-year war justified by blatantly false pretenses -- it always tops itself. On top of the massive debt under which the country was already drowning, another $700 billion is now being added in order to save the nation's richest individuals from the consequences of their own recklessness, allowing many of them not only to remain enriched, but become further enriched, all while basically ensuring that the Government is incapable of spending any money for years, if not longer, on programs designed to improve the lives of the vast, vast majority of its citizens -- the same citizens who are forced to fund this bail-out. That seems hard to top, but the only thing certain is that they will find a way to do so."

The plan doesn't necessitate all the $700 billion being used, and there are plans on how to get the money back. But I do agree that there are better alternatives, and that the complexity of this bill left too much room for foisting a lot of unnecessary debt on us taxpayers.

Why I Support Some Regulation

David Friedman also gives a good description of why I support a certain amount of regulation:

"Friday, September 26, 2008

Regulation: Too Much or Too Little

One comment frequently made about the present financial mess is that it is the fault of deregulation. As I argued recently, it ought rather to be seen as the fault of regulation—more precisely, of government interventions in the housing market designed to make it possible for more people to borrow money in order to buy houses.

There is, however, a germ of truth to the claim. While I am not an expert, I gather that one source of the present difficulties was a loosening of the requirements imposed on Fanny Mae for loans during the Clinton administration. That made it possible to offer loans to less well qualified borrowers than before, a policy which increased the amount of business Fanny Mae did, satisfied political demands to expand home ownership, and helped lead to the present mess.

This raises a general point worth making. The ideal arrangement in my view, for housing and many other things, would be an entirely free market with the government playing no role. But once the government does intervene, less regulation is not necessarily better than more. If, as in the current case and the earlier S&L case, government intervention makes the government ultimately liable for losses by the regulated firms, less regulation may mean more opportunities for firms to gamble on the basis of "heads we win, tails you lose," with "you" being the taxpayers. Once the government is liable for losses, it may be prudent for the government to make rules designed to limit risk."

I agree with Friedman completely. Once the government does intervene, more regulation can make, and often does make, more sense. Friedman is, however, more free market than I am, because I believe that our government will always, eventually, intervene in financial crises like the current one. Hence our disagreement on the need for regulation.

Another View Of Why This Plan Will Pass

David Friedman gives an elegant analysis of why this plan will pass:

"Looking at these alternatives, it seems plausible that if the bailout has no effect either way on the condition of the economy, a politician is better off supporting it. Only if the bailout makes worse outcomes substantially more likely or if some bad outcome directly associated with the bailout occurs, such as spending 700 billion and then having lots of firms fail anyway six months later, does opposition look like an attractive long run gamble.

I have a feeling that this argument could be generalized. One ought to be able to predict at least some patterns of political outcomes by asking what policies are more likely to be followed by outcomes that look like clear evidence for or against them. The point is related to the familiar observation that one would expect politicians to design programs whose benefits are easy to see and whose costs are hard to see."

Doing nothing is not an attractive long run gamble, as I've said.

Krugman Approves Of Swedish Plan

Paul Krugman supports the Swedish Plan, as does Brad DeLong:

"Brad DeLong says that Swedish-style temporary nationalization is the right answer to a financial crisis; he’s right. I haven’t been clear enough about this, it seems, but it’s where my basic diagnosis leads: the problem is insufficient capital, you want to inject capital, but you don’t want it to be a windfall to existing stockholders — hence, take over and recapitalize the failing firms. By the way, that’s what we did with AIG 10 years days ago. "

It's not going anywhere, but I agree with them.

Contrary Opinions Answered

Lawrence Summers answers my questions:

"Third, since Keynes we have recognized that it is appropriate to allow government deficits to rise as the economy turns down if there is also a commitment to reduce deficits in good times. After using the economic expansion of the 1990s to bring down government indebtedness, the United States made a serious error in allowing deficits to rise over the past eight years. But it would compound this error to override what economists call "automatic stabilizers" by seeking to reduce deficits in the near term.

Indeed, in the current circumstances the case for fiscal stimulus -- policy actions that increase short-term deficits -- is stronger than ever before in my professional lifetime. Unemployment is almost certain to increase -- probably to the highest levels in a generation. Monetary policy has little scope to stimulate the economy given how low interest rates already are and the problems in the financial system. Global experience with economic downturns caused by financial distress suggests that while they are of uncertain depth, they are almost always of long duration."

So, in the short term, there will be an increase in government debt.

"Fourth, it must be emphasized that nothing in the short-run case for fiscal stimulus vitiates the argument that action is necessary to ensure the United States is financially viable in the long run. We still must address issues of entitlements and fiscal sustainability.

From this perspective the worst possible actions would be steps that have relatively modest budget impacts in the short run but that cut taxes or increase spending by growing amounts over time. Examples would include new entitlement programs or exploding tax measures. The best measures would be short-run investments that will pay back to the government over time or those that are packaged with longer-term actions to improve the budget, such as investments in health-care restructuring or steps to enable states and localities to accelerate, or at least not slow, their investments."

So, on the other hand, we must not allow other programs to grow, and focus on programs that improve the budget situation over time.

It's an answer, but not one I have much confidence in.

They'll Pass The Bailout Because They Really Don't Have A Choice

Here's Floyd Norris in the NY Times:

"Have you noticed that the Congress appears willing to pass the financial bailout bill even though it is confident that the voters will not like it? You could call that courage, or you could call it cowardice."

Read the whole post, and here's my reply:

"They are going to pass the bill because if they do nothing and the economy goes really sour, they will be held responsible. It’s one thing to be held in low esteem and not agreed with, it’s another to be blamed for a serious recession or worse.

— Don the libertarian Democrat"

Truthfully speaking, doing nothing is not an option for these politicians, although I wish it were. However, I need to be fair.

Contrary Opinions?

I like and agree with this Washington Post editorial:

"THE $700 BILLION financial rescue plan pending in Congress may or may not stave off short-term economic collapse. We both hope and expect that it will. One thing the bailout cannot do, however, is correct the deep and long-neglected fiscal imbalances that brought us to this day. The United States' twin habits of consuming more than it produces and of promising more government services and benefits than it is willing to pay for have made us dangerously dependent on debt, public and private, to sustain our standard of living and to fund our government. These habits must end, lest we risk the country's long-term prosperity -- and the federal government's stability. Paid for with borrowed money, today's rescue plan will actually make matters worse in the short term. But it will be money well spent if we use the time it buys to put America's financial house in order. "

However, Barry Eichengreen says the following in a Brad DeLong post:

That said, we are not going to see 25% unemployment rates like those of the Great Depression. Then it took breathtaking negligence by the Fed, the Congress and the Hoover Administration to achieve them. This time the Fed will provide however much liquidity the economy needs. There will be no tax increases designed to balance the budget in the teeth of a downturn, like Hoover’s in 1930. Where last time it took the Congress three years to grasp the need to recapitalise the banking system and provide mortgage relief, this time it will take only perhaps half as long. Ben Bernanke, Hank Paulson and Barney Frank are all aware of that earlier history and anxious to avoid repeating it. "

If we cannot raise taxes or reduce government spending during a downturn, it's hard to see how the long term goal of putting our financial house in order is going to work in the near future.

Please read both posts.

The Solution Will Be A Libertarain Democrat One

Peter L. Bernstein has an interesting post in the NY Times. Read it all, but here's the conclusion:

"TODAY’S crisis thus emerged from a combination of disasters operating in free markets, but wreaking ruin as they developed. The subprime mortgage mess, the huge leverage throughout the system, the insidious impact of new kinds of derivatives and other financial paper, and, at the roots, the vast underestimation of risk could not have happened in a planned economy. A superjumbo bailout is the inescapable result, but at some point we must confront its more profound implications.

As we move into the future, and as the crisis finally passes into history, how will we deal with this earth-shaking blow to the most basic principle of our economic system? I do not know how to answer that question. But we need to ask it."

I agree, and believe that the answer it to have regulations that keep such disasters from occurring, but don't micromanage businesses and the economy. I don't see that as an impossible goal.

Here's John Samples on Cato:

"Right now, at this moment of hysteria, the political class suffers from availability bias. Like Bernstein, they see only the downside of risk and conclude the necessity of the planned economy. A more complex and nuanced view would see both sides of risk and the enduring value of liberty."

I agree here as well, but believe that a more complex and nuanced view would include some minimal and effective regulation in order to keep crises such as these from occurring.

For a libertarian Democrat, it's not an either or choice, either the free market or a planned economy, and I believe that our agenda can provide a balanced , complex, and nuanced view going forward.

I believe in a free society, but I also live in the real world.

Are We Becoming A Socialist Country?

Since I'm a libertarian Democrat, I obviously believe that the free market, suitably organized, will win out. Eventually, there will be less government intervention in the economy, and more social freedom as well.

That's why claiming that this bailout will lead to socialism is, from my point of view, ridiculous.

What it might do is lose taxpayers a mountain of money, but that's a separate question.

It will probably lead to an overreaction in the short run, and, might, take quite a while to correct, but the free market will prevail in the end.

We''ll Use Private Money If It's Guaranteed By The Government

Gerald P. O'Driscoll says the following on Cato:

"I have been telling reporters there is plenty of private money available for deals. Witness Bank of America’s purchasing Merrill Lynch; Buffett’s $5 billion investment in Goldman Sachs; and JP Morgan Chase’s purchase of WAMU. But sellers will now hold out for the expected baillout price from Treasury, and that will price private money out. A former colleague on Wall Street confirmed my position this afternoon."

I'd take this a lot more seriously if I didn't believe that these Wall Street investors were lobbying for this bailout, or at least government help or aid in getting a better deal.

GOP Plan Is Even Worse, And Not Free Market

Nick Gillespie on Reason favors the GOP house plan on this bailout:

"Here's hoping the free-market-oriented House Republicans stick to their guns.

Many House conservatives say they are against such heavy federal intervention. Under the House GOP plan, the government would insure the distressed securities rather than buy them. Tax breaks would provide additional incentives to invest."

Here's my response:

Don the libertarian Democrat | September 27, 2008, 6:00pm | #

They're not guns, they're pea shooters. Look,if you want government to stay completely out of it, fine. However, if government has to be involved, then I'd rather the government get an asset for this bailout. It is true that, as in Sweden, we'll have to eventually sell these assets and get the government out of this business altogether, but a deal without equity seems awful. As Robert Reich says:

http://robertreich.blogspot.com/

"Congress knows the public is furious. That's why it's insisting on the above-mentioned provisions. But Congress and the Administration, and Wall Street, also know that the public -- and the media -- can easily be hoodwinked into believing that certain limits and protections have been built into the deal when, on closer inspection, they haven't. Wall Street is masterful at creating the appearances of value when there's no value there, and many of our representatives in Congress are well-versed in the art of creating the appearances of public gains when the gains are mostly private. So the media has to dig hard and look at the details of this deal."

Again, if you like Randazzo's plan, I understand, because I at least understand it, and agree with it. However, this hybrid plan, without any equity for the bailout, is a prescription for a huge mess and a huge loss.

I'm no expert in economics, but as a taxpayer I am an expert in getting fleeced.

By the way, what's with the auto loan bailout?

A Very Uninformative Debate

I must be paying too much attention to this election, because I've heard both candidates say what they said last night, sometimes word for word, many times before. I can't say that, at least when reading it, the debate was either very interesting or informative.

As for who won, I suppose that depends on who's ideas you agree with. Again, in terms of the answers given , I didn't learn a thing.

Reading The Debate

Here's a link to CNN, which I found on The Moderate Voice, which has a transcript of last night's debate:

http://www.cnn.com/2008/POLITICS/09/26/debate.mississippi.transcript/

I'm putting it up in case I need to refer to it, or someone wants to read it.

Since I simply read the debate, I'm having a hard time following most of the comments on the debate. There must be something I'm missing by not watching.

A Libertarian Democrat Broadside

Here's a post which should be a broadside for our movement:

"The Revolution is dead. Long live the Revolution!

Submitted by W Lane Startin on Thu, 2008-09-25 11:46.

Before I say anything else, let me say that ka1igu1a's recent blog on the Paul endorsement of Baldwin is spot on. Go read it and come back.

His summary, "2008 as the year of the libertarian has degenerated into a sorry joke from a political perspective," is sadly correct. Even so, there's no need to despair. Libertarians in general - and libertarian Democrats in particular - now have a perfect opportunity to regroup and redefine who we are. We just need to set a few guidelines for ourselves."

Please read the whole post. It's a classic.

Also, check out W. Lane Startin's run for governor of Idaho on my blog list.

What Will Probably Happen

The congress will probably pass a bill. Why? Because they don't want to be seen as sitting on the sidelines and doing nothing if the economy really tanks.

Some Republicans will vote against the bill, because they can stand up for their principles knowing that the bill will pass.

The blogosphere will be against it, because no one is going to hold them responsible if inaction leads to a disaster.

If Sen. Obama wins and votes for this, there will be a few Democratic insurgents.

If he loses and supports the plan, there will be a lot of Democratic insurgents.

I'm already a Democratic insurgent.

Auto Makers Deserve Loans From Government. Not!

Today, I did a Diary on the proposed auto bailout on the Daily Kos. It didn't go well. The responses I got illustrated to me differences between liberal Democrats and libertarian Democrats.

Here are some of the arguments I got in favor of the bailout:

1) It was passed by congress. Of course, the Paulson Plan is before Congress as well. Also, I questioned whether it was passed in the light of day or slipped into larger legislation.

2) It's a loan, not a bailout. Of course, the AIG bailout is also a loan. And, according to William Gross, the Paulson plan is an excellent investment. I tell you what, I respect William Gross of Pimco more than auto executives about the financial viablity of their plans. Also, given that they've been losing money for years, one wonders why they would be smart enough to start making money now.

3) It will employ people. You've heard of too large to fail. Now we have too many jobs to lose. Of course, there's no guarantee these auto makers will deal fairly with their employees.

4) It's hard to get credit now. Of course, then maybe you should favor the Paulson Plan, and deal with the credit crisis first.

5) It will help the environment. This is rich. The auto makers have made a point of not preparing for more energy efficient cars, and they are now being rewarded by, in essence, blackmailing the taxpayers by saying we're not ready.

This is a bailout, pure and simple, for businesses that have thumbed their noses at energy efficiency, government, their employees, all the while being unable to turn a profit.

If liberals are for that, count me out.

I'm Not Feeling The Love On Kos

I didn't get a lot of support on the Daily Kos today.

Kos said the following:

"It's no secret that around these parts, we are in the process of transitioning from "more Democrats" (mission accomplished!) to "better Democrats" (mission has a long way to go)."

Here's my comment:

" Are libertarian Democrats better Democrats? (1+ / 0-)

Recommended by:

zeke L

In the West, and even in the south, we need libertarian Democrats in this coalition. For one thing, we can take on the Club For Growth types on their own turf, and win!

Trying to make the libertarian Democrat a reality

by Don the swing voter on Thu Sep 25, 2008 at 10:33:34 AM PDT"

Here are the replies:

"well.... (0+ / 0-)

you end up with blue dogs. we have one of those. I'm thinking this time around though, he will do the right thing and vote no.

"The issue of economics is not something I've understood as well as I should," John McSame

by UTvoter on Thu Sep 25, 2008 at 10:36:05 AM PDT"

" I think libertarian Democrats are terrific ... (2+ / 0-)

Recommended by:

IndySteve, limpidglass

...when they talk about civil liberties. When they talk about economics, I start wondering where my wallet is.

I am an anti-imperialist. I am opposed to having the eagle put its talons on any other land. -- Mark Twain

by Meteor Blades on Thu Sep 25, 2008 at 10:36:24 AM PDT"

"Yeah, let's privatize everything....NOT (0+ / 0-)

a good policy. Libertarians don't understand the failings of a deregulated, private market economy.

Forgetaboutit.

by IndySteve on Thu Sep 25, 2008 at 10:38:57 AM PDT"

"Buzzwords....no thanks...either you are (0+ / 0-)

libertarian which is for privatization of everything, anti-government and anti-regulation or you have redefined the term.

by IndySteve on Thu Sep 25, 2008 at 11:08:38 AM PDT"

A Libertarian Democrat Status Report Of This Crisis

Here's how I feel as of Thursday morning. Expect me to feel differently later today.

First, I'm not in favor of the bailout. As Steve Chapman writes on Reason:

"Not only that, the more effective it is, the more damage it will do to the free market system. Saving companies from their bad gambles turns business into a game of "profits for me, losses for you," corroding the incentives that make capitalism so innovative and efficient.

And for what? Bernanke warns of a recession. But economic downturns are not to be avoided at all costs. And one good thing about recessions is that they end, usually in a matter of months. An intervention of this nature, by contrast, would have malignant consequences for decades to come.

A group of 122 economists, including at least two Nobel laureates, signed a letter this week summarizing the danger: "If the plan is enacted, its effects will be with us for a generation. For all their recent troubles, America's dynamic and innovative private capital markets have brought the nation unparalleled prosperity. Fundamentally weakening those markets in order to calm short-run disruptions is desperately short-sighted."

Not to mention the risk of giving the executive branch powers that a Russian czar would envy. If this bailout goes through, the term "limited government" will have to be permanently retired.

Paulson and Bernanke say, and probably believe, that their program is for the good of us all. But remember what Thoreau thought of their 19th-century counterparts. "If I knew for a certainty that a man was coming to my house with the conscious design of doing me good," he wrote, "I should run for my life."

Second, if there has to be a bailout, I prefer a version of the Swedish Plan, because it has worked, and I understand it. It also protects the taxpayers, which I doubt other plans will.

Third, I like Warren Buffet and William Gross, but their touting this bailout worries me. I feel as if they know something we don't, and that they're going to profit handsomely in this crisis. Again, they're two of the few financial people I respect.

Fourth, Sen. Dodd and Rep. Frank and the Democratic party have greatly improved the original Paulson proposal. In fact, the Democratic party has proven itself far more capable than the GOP in this crisis.

Fifth, many liberal blogs like Kos have featured a lot of libertarian themes in discussing this bailout, and the chatter on Reason, Cato, and libertarian democrat blogs, and also from liberals like Bob Kuttner, Bob Reich, Henry Blodget, Ezra Klein, Paul Krugman, etc., has been much better than GOP blatherers like David Brooks in the NY Times.

Sixth, Sen. Obama has proven himself far more capable in this crisis than John McCain.

Seventh, I've realized that I distrust these hybrid plans being put forward, precisely because they are neither fish nor foul, and so far easier to turn into a disaster.

Eighth, I wonder if there would even be a crisis if the Bush administration wasn't in power.

Ninth, even when I understand credit default swaps, I don't understand them. That can't be good.

Tenth, as a libertarian Democrat, I feel very good about how people I respect are reacting to this crisis, and am more determined to pursue this road in the future. A mix of libertarianism and liberalism in the Democratic party is the only way forward for those who want a less intrusive and powerful goverment.

Corporatist Socialism Is Our System

Radley Balko on Reason says the following:

"Many commenters have blamed all of this on capitalism. This isn't capitalism. It's a peculiar kind of corporatist socialism, where good risks and the resulting profits remain private, but bad risks and the resulting losses are passed on to taxpayers. There's nothing free-market about it."

It's a good post, but here are my responses:

Don the libertarian Democrat | September 24, 2008, 2:31pm | #

That's why we need a trade-off, like a guaranteed income. Corporatist Socialism is our system. The only way to attack it is to move the social safety net to the truly needy, and then let the economy grow reducing the number of truly needy. However, you're going to have to produce a real and viable social safety net for the truly needy in order for the state to ever meaningfully decrease over time. In the short term, we're stuck.

Don the libertarian Democrat | September 24, 2008, 4:42pm | #

My definition of truly needy is not middle class. In other words, people who are destitute. We need to reduce the size of government dealing with the upper and middle class, and confine it to the poor. For a plan put forward by somebody smarter than me, read Charles Murray's "In Our Hands".

Bush Gives Up On Free Market, Which He Never Really Believed In Anyway

Matt Welch makes a good point about the Bush speech on Reason:

"No matter how many times you'll hear it said over the next several awful days in Washington, this is not a binary choice between Henry Paulson's re-regulatory bailout and Great Depression 2.0. The 1930s will never happen again, thanks to a whole host of innovations and insights over the past seven decades. And even though the current mortgage-backed securities crisis is undeniably beginning to leak out from Wall Street, I'll reserve the kind of panic Bush seems eager to foment until maybe the economy actually stops growing, unemployment actually gets within shouting distance of Reagan-era levels, and the stock market does something scarier than fluctuate a whole lot.

As the participants in our June 2008 roundtable on the economy (including Donald Boudreaux, Ron Paul, and Megan McArdle) repeatedly pointed out, the one thing that may speed and deepen a so-far-nonexistent recession into something worse is the same kind federal overreaction that put the "great" in the Great Depression in the first place. I would have thought we'd all learned our lessons since then, but tonight's speech really hit home that it's no longer safe to take for granted any market literacy whatsoever."

Read the whole post.

Here's my response:
Don the libertarian Democrat | September 25, 2008, 12:17am | #The one silver lining is that people don't trust the Bush administration, so the bailout has at least been slowed down. However, crises like these breed overreaction. It could be a long road back, but I'm in this for the long run. In truth, we always had a long and tough road ahead to get to a much smaller government.

Slow Down And Think!

Robert Kuttner makes a good point on Huffington:

"If Paulson's arrogant tactic of demanding instant action because of impending catastrophe sounds vaguely familiar, it's because it evokes how the same Bush Administration rushed through the USA Patriot Act. But after 9/11, American citizens were terrified and willing to give the Bush administration whatever it wanted. And Congress totally caved. This time, citizens are frightened-but also outraged and less easily fooled, and they're holding Congress's feet to the fire to slow down, not to speed up."

Also, Damon W. Root on Reason posts this:

"Over at The Volokh Conspiracy, Ilya Somin spots Rep. Mike Pence (R-Ind.) making a hell of a lot of sense on the bailout:

"I must tell you, there are those in the public debate who have said that we must act now. The last time I heard that, I was on a used-car lot," said Rep. Mike Pence, R-Indiana. "The truth is, every time somebody tells you that you've got to do the deal right now, it usually means they're going to get the better part of the deal."

Here's my response:

Don the libertarian Democrat | September 24, 2008, 6:11pm | #

When the Bush Administration says this, it usually means that there's going to be a disaster.

Jesse, Too Good

Jesse Walker nails the McCain decision to change the debate date with a priceless quip:

"The Shorter John McCain

Jesse Walker | September 24, 2008, 3:25pm

I'd rather debate pressing issues behind closed doors with my colleagues than on national TV where voters might see me."

Can William Gross Be Right About This?

I respect William Gross. In fact, he's one of the few financial people I listen to, but I have no way to know if he's right:

"And so, instead of mild medication and rest, it became apparent that quadruple bypass surgery is necessary. The extreme measures are extended government guarantees and the formation of an RTC-like holding company housed within the Treasury. Critics call this a bailout of Wall Street; in fact, it is anything but. I estimate the average price of distressed mortgages that pass from "troubled financial institutions" to the Treasury at auction will be 65 cents on the dollar, representing a loss of one-third of the original purchase price to the seller, and a prospective yield of 10 to 15 percent to the Treasury. Financed at 3 to 4 percent via the sale of Treasury bonds, the Treasury will therefore be in a position to earn a positive carry or yield spread of at least 7 to 8 percent. Calls for appropriate oversight of this auction process are more than justified. There are disinterested firms, some not even based on Wall Street, with the expertise to evaluate these complicated pools of mortgages and other assets to assure taxpayers that their money is being wisely invested. My estimate of double-digit returns assumes lengthy ownership of the assets and is in turn dependent on the level of home foreclosures, but this program is, in fact, directed to prevent just that."

This seems a vastly rosy scenario, but who the hell knows?

A Couple Clear Points

Jim Harper from Cato has a good post:

"If this thing goes, it had better look at the policy - the implied government backing to these behemoths. The ‘public-private partnership’ - so often such a celebrated concept - is why we’re paying such a huge price now. Maybe “public-private” will come to be recognized as “public losses, private profits.”

And from the “This May Make Some Sense” department, there’s H.R. 6986, which would raise the maximum Federal deposit insurance coverage to $200,000. This seems to update the amounts covered by federal deposit insurance not in response to the crisis, but in response to the possibility that it could be needed. Nice to see someone possibly getting ahead of the curve, rather than following along behind it. But I have to say “least bad” is not high praise . . ."

I'm reduced to quoting posts that make sense, which is what I'm currently looking for. Someone who just makes sense.

Blodget To Banks: Take It Or Leave It

Henry Blodget again makes sense to me on Huffington:

"If you want the banks to play ball, set a time limit (sell your stuff now or forever rot in bankruptcy court). And demand an equity stake in exchange for your money--because you deserve one.

On the latter, note that Warren Buffett didn't buy trash assets from Goldman at a huge premium to market value. On the contrary, he let Goldman keep its assets and invested in a senior preferred stock paying a 10% dividend, with a huge bonus warrant kicker on the back end. The government should drive a similarly hard bargain.

The economy is not going to recover immediately regardless. If this means waiting until banks realize that they're screwed to bail them out--and, in the process getting as good a deal for taxpayers as the government got on AIG, et al--then so be it. Whatever happens, the government cannot reward banks for their idiocy by buying $700 billion-worth of trash assets at a premium."

I realize I'm positing two solutions. One if there is a bailout, one if there isn't.

I can't say that I know what to do, which is why I would probably resist any bailout.

To Be Libertarian Or Swedish?

I'm officially admitting that I'm addled about this Crisis. Only two plans are even understandable to me. One will anger libertarians, the other Democrats.

First, I understand this libertarian response by Anthony Randazzo on Reason:

"No More Bailouts!Congress should unleash the private sector to address the current financial meltdown

Anthony Randazzo | September 23, 2008"

Second, I understand the Swedish Plan, and it seems to have worked:

"September 23, 2008

Stopping a Financial Crisis, the Swedish Way

By CARTER DOUGHERTY

A banking system in crisis after the collapse of a housing bubble. An economy hemorrhaging jobs. A market-oriented government struggling to stem the panic. Sound familiar?"

And I understand this even more radical plan which helps me understand Credit Default Swaps:

"Credit Default Swaps: Evolving Financial Meltdown and Derivative Disaster Du Jour

by Dr. Ellen Brown"

So, there you have it.

What I don't seem to understand is anything in the middle. What am I missing?

How Much And What Kind Of Pain?

Anthony Randazzo gives a free market solution to the current crisis on Reason. It's interesting, but he asks the following:

"Ultimately, the debate over what to do comes down to a threshold of pain and perspective. Capitalist philosophy suggests that short-term financial pain—even a great degree of pain—will prevent long-term financial destruction. The markets, in other words, are going through a cleansing process. But this is not acceptable to many, particularly the politically motivated, who always prefer to solve future problems at a later date.

Here's the issue: Are we willing to consider all treatment options, or will we dive for the quick, easy, and untested procedure and then hope for the best?"

The problem is that some of the pain will fall on parts of the economy not directly involved in this financial crisis.

In order for people to accept such pain, I believe that we would have to put in place a more significant social safety net which would address the issue of people being destitute or wiped out in such a crisis.

So, there are really two options:

1) Put in place regulations to keep such crises from occurring.

2) Have a social safety net to address the problem of the truly needy, in which case such pain might be accepted.

Otherwise, no matter how much we might want to leave government totally out of this equation, it won't be possible.

Brilliant! Crises Lead To Goverment Intervention! Hold The Presses!

Also on Reason, Katherine Mangu-Ward quotes Alan Reynolds:

"The enduring legacy of the Crash of ’87 is that it provided a convenient excuse for a variety of possible increases in government authority, which may yet cause serious economic trouble. The crash has been used to denigrate a prolonged economic expansion during the Reagan years, to support calls for new taxes, and to argue for increased regulation of financial markets."

Brilliant! I've been saying this from the beginning of this crisis.

That's why we need some minimal government regulation. We need to keep these crises from occurring if we want to avoid massive government regulation.

Give me a real world plan!

As for creditors being made solvent by the bailout, why should they? Didn't they make stupid business decisions as well?

At what point do we stop blaming government and hold these businesses responsible? Did someone put a gun to the head of these businessmen?

Also, if these bailouts are such a great deal, why is the government having to get involved?

What's with libertarians justifying poor business decisions?

What's With Exonerating The Lenders?

On Reason, Damon W. Root quotes Sheldon Richman as saying the following:

"The issue hasn't been lack of oversight, but intervention designed to countervail the market process in order to promote home ownership among people who couldn't otherwise have afforded it. Not coincidentally, this brought great profits to the financial, homebuilding, and real-estate industries. Nothing short of blocking Fannie's and Freddie's path to the taxpayers' wallets could have turned things around."

See, I'm having a hard time understanding this. How did people, business people, get buffaloed into making bad loans? Wouldn't regulation have kept them from doing this?

I'm having a hard time understanding what a free market is according to Richman. A free market means that businesses are free to lose money, as long as it's their own. Surely the implicit guarantee by the government to bail out these businesses was the problem.

I'm not saying that I'm for regulation, but, in all fairness, regulation might have kept these businesses from making these bad loans. I don't know for sure. I do know that these were bad loans, which the people who made them and their shareholders should be held responsible for. Period.

I'm sensing some kind of odd agenda here , which seems to exonerate businesses from stupidity. And, if they were in some sense buffaloed by the government, then maybe the government should pay the tab, or at least regulate their business practices. Otherwise, they are responsible for their own stupidity.

What am I missing?

We're Becoming Sweden

We're going Swedish:

"A banking system in crisis after the collapse of a housing bubble. An economy hemorrhaging jobs. A market-oriented government struggling to stem the panic. Sound familiar?

It does to Sweden. The country was so far in the hole in 1992 — after years of imprudent regulation, short-sighted economic policy and the end of its property boom — that its banking system was, for all practical purposes, insolvent.

But Sweden took a different course than the one now being proposed by the United States Treasury. And Swedish officials say there are lessons from their own nightmare that Washington may be missing.

Sweden did not just bail out its financial institutions by having the government take over the bad debts. It extracted pounds of flesh from bank shareholders before writing checks. Banks had to write down losses and issue warrants to the government.

That strategy held banks responsible and turned the government into an owner. "

This seems to be the plan here as well, at least for the Democrats.

As Paul Krugman says:

"What possible justification can there be for doing this without acquiring an equity stake?

No equity stake, no deal."

Sounds Swedish to me.

By the way, if we have to do this, we should get something.

How About Blaming The Lenders

In a Cato post called "Blame Urban Planning", Randal O'Toole says urban planning caused the housing bubble which caused our current crisis.

I can understand urban planning causing housing prices to rise, but O'Toole says this:

"In the meantime, Congress gave the Department of Housing and Urban Development (HUD) oversight authority over Fannie Mae and Freddie Mac. While this was supposedly aimed at protecting taxpayers, Congress knew that HUD’s main mission is to increase homeownership rates, and Congress specifically pressured HUD to increase homeownership among low income families. So HUD responded to the housing bubble by directing Fannie and Freddie to buy increasingly high percentages of mortgages made to low income families, eventually setting a floor of 56 percent. This led Fannie and Freddie to significantly increase their purchases of subprime mortgages, which legitimized the secondary market for such mortgages."

Come on! These were poor business decisions. Who cares about this so-called pressure. Since when do libertarians exonerate private businesses for stupidity, whatever their motives.

Who's Holding The Cards Here?

Also on Huffington, Robert Kuttner makes a great point about the Paulson plan:

"But excuse me, it is the financial industry that is coming hat-in-hand to the government, not vice versa. The industry has no leverage here, except to the extent that Congress lets itself be intimidated. Paulson is insisting on a "clean" bill, but as Barney Frank put it, helping Main Street as well as Wall street does not dirty the bill.

The two precedents for large scale bailouts, Franklin Roosevelt's Reconstruction Finance Corporation, and the Resolution Trust Corporation of the 1980s, gave government much more authority over the firms that it bailed out.

Paulson is playing this more as the investment banker that he used to be, than as a steward of the public interest. This is a dubious deal, with all the gain going to Wall Street and all the risk going to taxpayers. Congress should not be intimated by his threats to hold his breath and turn blue of he doesn't get his way."

Since we're probably have to accept some kind of bailout, I hope the Democrats negotiating this deal take his point.

Blodget: What About Toxic Assets?

Henry Blodget on Huffington asks a great question about equity in exchange for bailout:

"(For a similar view, see Paul Krugman's editorial today. The NYT columnist and Princeton professor thinks Paulson's plan is a disaster. Senator Dodd's counter-plan includes provisions for the government to receive equity in exchange for the bailout, which makes more sense. It will still require the government to deal with the toxic assets, though.)"

On The Tactics Of The Bailout

David Fiderer on Huffington has an excellent post entitled "Wall Street's Meltdown: An Executive Survey". Here's a great quote:

"But the tactic -- run up the clock to the last minute so the other side must decide when his back is against the wall -- is well known in the financial services industry. It's also a well known tactic on Capitol Hill, where it's being used right now."

It seems to me to be a tactic that should be resisted.

Good For Sen. Obama!

Here's Sen. Obama today:

''I am not a Democrat who believes that we can or should defend every government program just because it's there,'' Obama said at a rally in Green Bay. ''We will fire government managers who aren't getting results, we will cut funding for programs that are wasting your money and we will use technology and lessons from the private sector to improve efficiency across every level of government.''

''The only way we can do all this without leaving our children with an even larger debt is if Washington starts taking responsibility for every dime that it spends,'' he said."

Good for him!

Can A Bailout Be Punitive?

Meteor Blades on Kos posts the following:

"Democrats, in general, and Senator Barack Obama, in particular - as the new head of the Democratic Party - should trash this outrageous dictatorial bailout and stop listening to the advice of those who led us into this mess - including some fellow Democrats of prominence. They shouldn't tinker on the edges of the administration's proposal. Their substitute plan should put the pain on the pin-striped grifters where it belongs instead of on those Americans who have been repeatedly victimized by them."

Here's my response:

"If It's A Bailout, How Can It Be Punitive? (0+ / 0-)

I'm just asking.

Trying to make the libertarian Democrat a reality

by Don the swing voter on Mon Sep 22, 2008 at 11:23:13 AM PDT"

Greenwald Says We Need Conservative Help

Glenn Greenwald gives some good advice on how to oppose the Paulson Plan:

"Right-wing opposition to the Paulson plan is vital for having any meaningful chance to stop it. Does anyone have any confidence at all in the Democrats' willingness and/or ability to impede this bailout train if the Bush administration and the Right were vigorously behind it, warning the nation of impending doom unless we submit to vast, unchecked government power of the type Henry Paulson is demanding? The instances of complete Democratic acquiescence under those circumstances -- including when they "controlled" the Congress -- are far too numerous to allow any rational person to think Democrats, standing alone, would stop the Paulson plan. As sad as it is, meaningful right-wing opposition is critical for that to happen."

Keep blogging and calling your representatives!

Yglesias Nails It

As I'm a libertarian and a Democrat, Matt Yglesias comes up with a post with which I totally agree:

"I’m blogging under the influence, so perhaps things aren’t quite as dramatic as they seem to me right now, but the bailout plan on the table right now seems to me like something of a crisis point for American liberalism. The plan is bad. But bad policies get enacted all the time. But we’re at a point now where congress is, allegedly, in the hands of progressive leadership. Simply put, if congressional Democrats manage to acquiesce in a plan that spends $700 billion on a bailout while doing nothing for average working people and giving the taxpayer virtually no upside in a way that guarantees that even electoral victory would give an Obama administration no resources with which to implement a progressive domestic agenda in 2009 then everyone’s going to have to give serious consideration to becoming a pretty hard-core libertarian."

I found this via Andrew Sullivan.

Cold Water Wakeup

Nick Gillespie throws cold water on my face to wake me up this morning with his post "Don't Clog. Be Clean. Get Screwed". I don't like reading it, and I'm not giving up, but it has more than a whiff of truth:

"Bad stuff to come; expect it all to be overwrought, misdirected, and absolutely ineffective in preventing future episodes. That $1 trillion figure, by the way, is the new number, based on $700 billion to the financial-market players plus several billion more in a stimulus package (read: future taxes) to regular joes such as you and me."

Jesse Walker Keeps Up The Pressure

Jesse Walker keeps up the pressure on Reason with his post entitled "Wall Street Roundup". Check out this quote from:

"Jim Henley:

Who imagined that the great opportunity for joint progressive and libertarian advocacy and activism would end up being economic? But that's where we are. This loathsome bailout plan is a slap in the face to anyone who believes in either free-market principles or social justice."

Even Moderates Can't Stomach This

Even moderates want this proposal slowed. Check out Elrod on The Moderate Voice with his post entitled "Stop the Mother of All Bailouts and Think!":

"The Bush Administration does not deserve the benefit of the doubt here. Henry Paulson may be a wonderful Secretary of the Treasury, and he may have the best interest of all of us at heart. But we cannot simply take him at his word.

Let’s have a vigorous debate on this plan this week. Let’s hear from voices of opposition in both parties - and there are many. Let’s hear the Administration defend keeping this plan as is. And then let’s hold a vote at the end of the week or next week. The Fed has already provided enough liquidity to global credit markets that the economy will survive the week.

Let’s get this right. Otherwise, we will saddle the next Administration with a gigantic debt obligation and little chance to address other matters. Even worse, this plan might not even work. The government might not be able to move these bad assets at “premium prices.” And what about the moral hazard here? Wall Street is given a blank check to do this again.

Stop and think!"

Read the whole post.

Does The Blogosphere Count?

I've spent the weekend blogging on my favorite sites against this proposed bailout. It seems that there is a torrent of resistance out there on the blogosphere, but a real disagreement about whether we're having any success.

I don't know, but if we don't try, what are we good for?

Another Objection To Bailout

Jesse Walker weighs in with an excellent post on Reason entitled "Henry Paulson, Regent Dictator". Here's a quote:

"And the Democrats, those alleged alternatives? Maybe it's their innate affection for economic intervention, maybe it's just the same spinelessness they've brought to issues ranging from FISA to Iraq, but they don't seem to be objecting to the Paulson plan. ("The consequences of inaction could be catastrophic," says Harry Reid, according to the Bloomberg report I quoted above. The consequences of really stupid actions must not be up for discussion.*) McCain's position on these issues keeps evolving; I expect that at some point next week he'll call for parading short sellers through the streets in dunce caps."

Our party needs to oppose this power grab forcefully.

Who's Actually Backing This Turkey?

Cato weighs in on the bailout:

"Do we want to live in a system where profits are private, but losses are socialized? Where taxpayer money is used to prop up failed firms? Or do we want to live in a system where people are held responsible for their decisions, where imprudent behavior is penalized and prudent behavior rewarded? For somebody like me who believes strongly in the free market system, the most serious risk of the current situation
is that the interest of few financiers will undermine the fundamental workings of the capitalist system. The time has come to save capitalism from the capitalists."

Who's backing this turkey?

Darcy Burner For Congress Washington 8th On Daily Kos

The Daily Kos has a nice post on Darcy Burner. Check it out.

A Bad Bank Rescue? Please Read On

Please Read Seb Mallaby On This Bailout In A Column Called "A Bad Bank Rescue":

"With truly extraordinary speed, opinion has swung behind the radical idea that the government should commit hundreds of billions in taxpayer money to purchasing dud loans from banks that aren't actually insolvent. As recently as a week ago, no public official had even mentioned this option. Now the Treasury, the Fed and congressional leaders are promising its enactment within days. The scheme has gone from invisibility to inevitability in the blink of an eye. This is extremely dangerous.

The plan is being marketed under false pretenses. "

I keep posting the Reich post and Mallaby column on Kos, hoping that the Democrats don't get buffaloed by this incompetent administration.

I'm not sanguine.

Blogging On Kos For Reich

I've spent the morning blogging on the Daily Kos to get a hearing for Robert Reich's excellent post on the bailout of all bailouts. Here's the complete post by Reich:

"If you think the Bailout of All Bailouts (whose details will be worked out over the coming week) won't saddle American taxpayers with billions, if not trillions, of risky obligations, you don't know politics -- especially in an election year when members of Congress are eager to get home to campaign; when the incumbent lame-duck president (who was he?) has all but vanished, leaving his hapless Treasury Secretary, a former investment banker, to take the lead and the heat; when voters are in high anxiety over the economy and Wall Street is melting down; when the executives of every financial powerhouse in America have staked lots of money on campaigns in both parties and have indundated Washington with lobbyists.

In other words, watch your wallets. The tab here could be very high. If everything goes extremely well, markets move upward, and the risky loans become far less risky, it's possible that taxpayers (that is, the Treasury) might actually make money. But if the bottom falls out, American taxpayers could be on the hook for trillions of dollars. What then? The federal debt soars. What then? Interest rates go out of sight. What then? Foreigners lend us less money. What then? We're cooked.

Some Democrats will try to make the best of the emerging Bailout of All Bailouts Bill, seeking to tack a stimulus package on it. In my view, they'd be better advised to hold out for a different approach.

Paulson is right that it makes sense to allow the big banks to wipe their balance sheets clean of as many bad loans as they can identify, and put them into a special agency that then sells them for as much as possible. The agency would bundle or unbundle the risky loans, slice and dice them as needed, with the goal of getting the most for them on world markets by creating a market for them.

But there's no reason taxpayers need to be involved in this.

Whether you call it a reorganization under bankruptcy or just a hellova fire sale, the process should resemble chapter 11 under bankruptcy. Any big financial institution that wants to clear its books can opt in. But the price for opting in is this: Investors in these institutions lose the value of their equity. Executives lose the value of their options, and their pay (and the pay of their directors) is sharply limited. All the money from the fire sale goes to making creditors as whole as possible.

Meanwhile, policymakers work on a new set of regulations to ensure transparency on Wall Street -- governing disclosures, minimum capital requirements, avoidance of conflicts of interest, and better ensurance against stock manipulation -- so that, once the bad debts are off the books, the new numbers can be trusted.

I repeat: This isn't a crisis of solvency or liquidity; it's a crisis of trust."

I'm trying to get this post heard.

Answer To Libertarianism And Virtue

Rod Dreher at Crunchy Con posted the following today:

"Libertarianism and virtue

Friday September 19, 2008

posted by Rod Dreher @ 9:02pm Permalink Email This Add to »

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Categories: Culture, Politics (general)

Joe Carter explains why he is not a libertarian: essentially, because libertarianism conceives of freedom as an end, and therefore underestimates the need for government to keep order, given the radical imperfection of human nature. Libertarians, in Joe's view, don't properly grasp how a so-called "victimless crime" can do to the order necessary to maintain community. Writes Joe:

Libertarians, of course, are primarily from the middle to upper classes of society. They are very often shielded from such behavior precisely because the police maintain a level of order and discipline within their communities. If, however, they had to live with such activity on a day-to-day basis, they would likely revise their definitions of what is considered "arbitrary" and what is considered "spontaneous.""

Here's my response:

"There is an empirical aspect to some libertarian claims. If society is not improved by libertarian proposals, people will obviously not accept them.

For example, if decriminalizing drug laws makes things worse for society, then, obviously, drug laws will need to be strengthened.

Libertarians believe that society will be improved by having a smaller government. People will have more freedom, choice, be wealthier, etc.

Nothing is stopping people forming communities, working together to change the morals of society, shopping where they believe society would be better off, etc.

As a libertarian Democrat, I accept more government intervention than most libertarians, but that is only because I believe libertarianism can only succeed if it addresses such concerns as yours, and leads to a wealthier society where we need less government intervention. If libertarianism truly leads to a poorer and less decent society, I suppose I'll change my mind.

All libertarians believe that liberty is the most important goal, in that each person should be allowed to develop their natural abilities as best they can, as free of intervention as they can, within the bounds of not harming others or taking rights away from others. Such a society needs rules and regulations, and libertarians disagree on those rules and regulations. However, I don't know any who advocate some lawless dystopia, or don't have enough empathy to understand that others might need help, however that help is ultimately offered.

Posted by: Don | September 19, 2008 11:42 PM"

Can Libertarians Address Values? Why Not?

There seems to be an aversion to discussing values among libertarians. If someone mentions patriotism, service to country, greed, abortion, etc., it seems libertarians assume that any such discourse leads to government intervention.

I don't agree with this. On the contrary, in order to engage traditionalists and libertarian conservatives, I believe that we libertarian Democrats need to address cultural and values issues.
Will we agree with government action? Probably not, but we might be able to alleviate some concerns on these issues by addressing them forthrightly.

Take abortion. We should be squarely for reducing abortions if that's what we believe, irregardless about how we come down on the legal status of abortion.

Here's a post from Progressive Revival on beliefnet.com arguing for reducing unwanted pregnancies. Here's a quote:

"Americans are extremely receptive to a practical argument about how to reduce the need for and number of abortions (Stan Greenberg did a great poll on this). And Democrats have some really great legislation that recognizes that abortion is merely an end result of a long string of social ills. So it tackles the root of the problem by vastly improving services to prevent unwanted pregnancies and targeting the underlying factors that lead pregnant women to choose abortion by improving adoption services, expanding pre and post natal healthcare, creating programs to allow pregnant women to go back to school, etc. If fully implemented, these programs could cut abortions in half in the next decade. Catholics in Alliance has a great study that builds on some powerful reports by Third Way that provide ample data for those interested. "

Here's a post from the Daily Kos called "How To Reach Pro-Life Voters. A quote:

"So, ultimately, we all need to think and pray about the following:

If you still feel that outlawing abortions is the best option, consider the fact that it has not been able to be accomplished in 35 years and abortions keep increasing in the meantime. Also, that countries that outlaw abortions, still have enormous problems with abortions.

The main question is: How can we actually get something done? The only way is by working together. And the one thing that 90 percent of us can agree on is that abortions should be reduced – so let us work on this together! Then, after abortions become drastically decreased we can have a less heated and more productive conversation about how to deal with this issue.

Update: Please Digg if you would like to spread the word!

Mostly, ask yourself: Is my family better off than it was eight years ago? Is the country better off than eight years ago? Is it worth risking the empty promises of Republicans for another eight years?"

Here's another Daily Kos post called "Pro-lifer For Obama". A quote:

• "rjyelverton's diary :: ::
• 
  

I'm also a pro-life voter who's voting Obama. It pains me that abortion exists on the massive scale that it does and that Obama won't do much to curtail it. Although how much McCain will do, we can agree is also in question.

I think the act of normalizing torture and the doctrine of pre-emptive warfare should be anathema to those who support a culture of life. I also want to live in a nation where health care is not a privilege but a right and children are protected after they leave the womb. I don't see the GOP as the party that shares these values with me.

I think the Bush White House has been destructive for this nation and horrible for civil liberties. Financial deregulation has allowed for even greater predatory lending and is creating a worldwide financial crisis. (Granted, there are lots of factors at play in the current financial crisis, but the irresponsible lending practiced by banks is at the heart of it.) I think the unitary executive is insane and given my belief in original sin, the idea of consolidating that much power in the hands of one person is terrifying.

I think Obama is necessary if for no other reason than as a corrective to the dangerous policies of the Bush White House which McCain seems ready to continue.

The Palin selection pains me because it seems to be a very cynical means to collect the pro-life vote. I think she is painfully under qualified and is clearly an attempt to shore up and pacify Conservative voters. I don't think praying and being against abortion qualify one to be president."

I don't mind if a libertarian is pro-life. I'm on the fence myself, although I remain pro-choice. But there is nothing wrong about addressing this issue even if you're pro-choice.

Here's a post by Steve Waldman about greed on beliefnet.com. Once again, it seems like an interesting post, and does not lead me to inevitably demand total regulation. A quote:

"The one thing everyone from Jim Wallis to John McCain seem to agree on is that rampant greed is a main cause of the financial collapse.

I don't buy it. I'm not saying greed is good, just that greed is. It's a constant. It's part of human character and I find no evidence that the intensity of this basic human instinct suddenly increased in the last ten years.

What's changed is that the checks on greed have dissipated."

Read on. He does mention regulation, but not only regulation.

My only point is that as libertarian Democrats, we need not fear discussing questions of morals and values.

What we ask the government to do is another question.

An Alternative To A Bailout Of All Bailouts? I Sure Hope So.

Robert Reich gives us an alternative to a totally tax financed or backed bailout. Check it out. I like it as first glance. Here's a taste:

"If you think the Bailout of All Bailouts (whose details will be worked out over the coming week) won't saddle American taxpayers with billions, if not trillions, of risky obligations, you don't know politics -- especially in an election year when members of Congress are eager to get home to campaign; when the incumbent lame-duck president (who was he?) has all but vanished, leaving his hapless Treasury Secretary, a former investment banker, to take the lead and the heat; when voters are in high anxiety over the economy and Wall Street is melting down; when the executives of every financial powerhouse in America have staked lots of money on campaigns in both parties and have indundated Washington with lobbyists.

In other words, watch your wallets. The tab here could be very high. "

Amen!

My View On Progressive Taxation

Andrew Sullivan gives his views on progressive taxation, which is basically my position:

"To put it as plainly as I can: I don't believe in a governmental attempt to engineer a substantively "fair" society through taxation. I see taxation as a necessary evil to pay for those few social goods that private individuals cannot provide for themselves. And the mode of taxation, in my view, should be as simple and as market-friendly as possible and should treat citizens equally, irrespective of their incomes. I believe in formal equality and a very limited state, not substantive equality and the welfare state. I know this is pie-in-the-sky, given our current Byzantine tax code and the entrenchment of certain socialistic assumptions in our political culture. I don't expect any radical change any time soon. But I'm not going to enable this kind of thinking without a challenge to it.

So yes: a flat tax so far as possible for as many as possible and no deductions. That's my goal. How that differentially impacts the lives of citizens should not be government's primary concern.

Government's primary concern is to raise money as efficiently and as leanly and as equally as possible. I'm happy with the government then setting up programs to assist the poor, to provide better education for those at the bottom, safety-net healthcare and better policing. i.e. to gear spending toward social ends that might help the poor the most. These are measurable, practical goods. What I'm not happy with is the assumption that tax policy should really be about redistributing wealth, and engineering substantive economic outcomes. Yes, of course, at lower income levels, a 20 percent flat income tax will be more onerous proportionally than at higher incomes. So what? Why should that even concern a government that is not aiming to socially engineer more substantive equality? and the alternative - skewing taxes to target success - is an absurd set of incentives to put into a growing society.

Am I heartless? I hope not. I just don't believe that having a heart is what government should be about. It's what the rest of us should be about. This, of course, is my core disagreement with Obama who does indeed have a notion that government has a right and a duty to take money away from those whom he believes can "afford" it and give it to those who "deserve" it. I don't believe in a government with that much power and that lofty a social goal. "

As I say, I largely agree. However, I don't lose a lot of sleep about the issue because of the following from Sebastian Mallaby:

"But those bad effects must be weighed against a good one: Higher tax rates mean a lower budget deficit. According to the Tax Policy Center, over the course of a decade Obama's plan would result in a national debt $1.2 trillion smaller than you would get under McCain's plan. Less government borrowing ultimately means lower interest rates and more private investment. This positive effect may well outweigh the blow to growth and jobs from weaker work incentives.

Tax hikes, in other words, are not automatic job destroyers. Joel Slemrod of the University of Michigan, a top expert on this subject, says bluntly, "There is no compelling evidence that a low-tax strategy is better for the economy over the medium or long run." Just look at the Clinton era. In 1993, the top marginal rate (income tax plus Medicare) was raised to 42.5 percent -- the same rate that Obama proposes but minus the candidate's proposed increase in the payroll tax. During the rest of the Clinton period, the economy generated millions of new jobs, and careful academic postmortems find that the 1993 tax hike caused little to no damage to the incentives of top earners.

So McCain's swipe at Obama's tax plan was something other than straight talk. As a share of the economy, Obama's plan would create an overall tax burden similar to the one that existed in Ronald Reagan's time. It would not choke off job creation; rather, it would slow the growth of the deficit and soften inequality. But the really depressing thing is that McCain himself once knew that. He opposed the Bush tax cuts before he supported them, saying that they would deepen inequality. But now he touts a tax reduction that is larger and more radical than even President Bush proposed, and he slams his opponent for holding the view that he himself held until recently."

So, here's the situation. I believe that we should pay as we go. The assets of the government and people of the U.S. vastly exceeds government spending. We don't need to borrow. It's not like a mortgage. You should only take a mortgage if you don't have the cash. Paying interest isn't a good idea unless you have to.

So, in theory, I'm with Andrew Sullivan. In reality, I'll take Mallaby's tax code over huge deficits, caused by a system in which every group tries to get the other to pay for things.

No budget deficits. Period.

Look. The rich are good to pay more under any system. Get used to it.