The Agonist: Hell No, We Won't Blow (it all on Paulson's Panic)

Hell No, We Won't Blow (it all on Paulson's Panic)


Or why the bail out is a bust.

I've never been prouder of the blogosphere than in the last week. The opposition to an ill-considered bailout has spread from every direction. From people insiders and outsiders, from in the popular press and in their own journals, to who knew that this was a free three martini lunch . Negotiations have not made it better. We are told, for the third time, that a deal is close, it is done, and yet, the vote slipped from today, to tomorrow. The platitudes have poured forth, but the mean nothing.

There is still time to kill this bill. There is still time to do what is right. Opposition is across the political spectrum, this is not a matter of left or right, but of inside against outside. Many people have seen their political heros bow and crumble before the onslaught of insiderdom, while others have emerged from the most unlikely of places. This bill is bad policy, bad politics and bad economics.

It is predicated on a lie, a lie that this one picture exposes. This is not a crisis of confidence, but a failure of management. The way to fix this crisis is not by trying to bribe the banks to keep lending, but to understand why they are not lending overnight. What does this picture mean? I will explain, but a bit of background first.

Why there is a panic

Over the last year, on three separate occasions, interbank lending ground to a halt. On each occasion the Federal Reserve stepped in, organized a bail out or fire break of some kind, on the theory that it was fear of contagion that was causing bankers to cower in fear. The bail out bill is the latest iteration of the "confidence" theory of this crisis. The word for this, is "Hooverism." It was Herbert Hoover who, over and over again, claimed that the deepening depression was the result of a lack of business confidence, and that the solution was to balance the budget.

The panic over financial Armageddon was proportional to the complacency that preceded it. But what was the source of the panic?

The explanation offered is that there is a contagion from highly complex very leveraged instruments based on mortgages. That because of these everyone in the banking world is afraid to lend to everyone else. Under this "fear" theory of the problem, the American economy is healthy, but for the financial fear.

The specific symptom that is pointed to is the spread between corporate bonds and treasuries, the "TED" spread. The people pushing the fear thesis argue that the solution is to purchase the "toxic waste" and hold it until it can be sold for more reasonable sums of money.

Leaving aside for the moment the details of the bill. Are they right?

The pictures says, not even close. .......(more)

The complete piece is at: http://agonist.org/stirling_newberry/20080928/hell_no_we_wont_blow_it_all_on_paulsons_panic

Regretfully, Bush has no more credibility bullets left and is ignored by most everyone when he speaks.

repeat this incessantly.