Wednesday, November 26, 2008


From PBS's Bill Moyers Journal, guest host Deborah Amos interviews New York Times business writer Joe Nocera:

DEBORAH AMOS: But it's led to some criticism that [Paulson]'s been shooting from the hip.

JOE NOCERA: Well, it's worse than that. He has destroyed confidence in the Treasury Department on Wall Street. I mean, because you've only mentioned two things that he said. But, in fact, last week he came out and said, "We're going to help credit. We're going to help Americans start buying things again." Now, the question of whether Americans should be buying things again is a whole other story. But he said, you know, "We're going to get credit card loans rolling again and auto loans." And it turned out nobody else in the government barely even knew about this idea. And it was dead within 24 hours. And then he said, you know, they had always had this idea that eventually we will start buying these toxic securities, even though we're going to do the recapitalization of the banks first. So then this week he said, "Oh, never mind. We're not going to do that either." Now, I happen to think that from a purely technical standpoint, buying those toxic assets from banks would have been extremely difficult for the Treasury to do.

DEBORAH AMOS: And these are essentially the mortgages?

JOE NOCERA: Yes. The pools of mortgages that are subprime and that are troubled. There are all sorts of technical reasons why it's much harder than it sounds. And people on Wall Street sort of understood that. And after the bill passed, they kind of were telling Treasury, you know, this isn't really going to work. Still, there was an expectation in the marketplace that they would do some of it. So when he announced this week that they were not going to do it after weeks of saying that they were going to do it, it had a terrible effect on the market. Terrible. It is part of the reason why Citi is now declining so quickly. It is part of the reason why credit default spreads are widening once again. It has just even though they would say, "Well, it shouldn't have that much of an effect," but it's an example of the Treasury Secretary changing his mind for the third or fourth or fifth time and destroying confidence in the ability of the government to help us. And so the opposite happens. It hurts us.

Click here to read or watch the rest.

I've been holding off on returning to the credit crisis story until I could find something that would put it all in perspective. Needless to say, I haven't found any essays or news stories that would fit the bill. Indeed, the above linked story puts it all into perspective only by showing how it's pretty difficult to put it all into perspective. That is, I have no idea what the hell is going on with the bailout.

Back in September, when the White House first suggested a massive bailout for the credit industry, I supported it, with a few conditions. I had assumed that the Democratic Congress would sweeten the bill and insist on strong oversight protections to keep the whole thing from becoming another GOP giveaway to the rich. I also assumed that Congress would make sure that Katrina-style federal incompetence was unlikely.

Congress, indeed, has moved in the direction I wanted, attaching some good strings here and there, but not nearly far enough. For instance, it now appears that nobody on the Hill remembered to insert any provisions or clauses ensuring that these banking entities receiving bailout cash would actually spend the money, which ideally would defrost the credit market. Instead, banks appear to be sitting on their new found cash. And politicians continue simply to talk about helping homeowners avoid foreclosure, instead of actually doing something about it. Meanwhile, Paulson's numerous position shifts are something of an equivalent to federal inaction here in New Orleans in the wake of Katrina.

I still support the idea of a big bailout, even if it all seems like it's being disbursed inefficiently--think what might have happened to markets if the Fed had just sat on its thumbs. But everything seems so up-in-the-air right now. In short, I can't reasonably answer the question "what the hell is going on with the bailout?" I just don't know what all this shit adds up to. That's annoying enough. What's fucking frightening is that nobody else appears to be able to answer the question, either.