Time to Shut the Republican Party Down

Mark Kleiman:

Magnitudes: Total value of the bailout bill: $700 billion. Net cost to the taxpayer: unknown, but much less than that [$100 billion]. Drop in the value of U.S. stocks today when the bill failed to pass: $1.3 trillion.

That's not quite the right comparison. There is also a loss of $2.0 trillion or so in lost wages corresponding to the lost expected profits that are reflected in the stock market declines.

The House Republicans thus have a benefit-cost ratio of -30-to-1.

Comments

[Anon]

We can quote Mark Kleiman on that, right? Cost to the taxpayer won't exceed $100 billion? And when it does, we can mercilessly laugh at him, hte same way as we laugh at the Bush officials who swore up and down the Iraq War would only cost $50 billion?

[kharris]

If you are going to do this, you either need to make clear that you aren't serious, or be serious. The loss in stock value today could very well be made up in short enough order that it won't mean anything to employment. One day's stock market move is the evidence on which you want to condemn Republicans, but not Democrats? Silly beyond belief. And unless you are willing to show your work, the parenthetic suggestion that the real cost is $100 bln comes close to dishonest.

It was not the House of Representatives of Stock Holders who voted yesterday. It was the House of Representatives of the United States. They may have voted as they did good reasons or bad ones, but we should all pray they didn't vote to maintain a certain value in the stock market.

[Anon]

I have to post again to reiterate how astonishing I find this: Brad Delong and Mark Kleiman and a fairly wide assortment of other people are betting that the Bush Administration will do something competently. Brad Delong is saying "Trust the Bush Administration with an amount of money equal to 2/3 of all income taxes collected in a year - they'll do right by us".

I never thought I'd see the day. Never, ever.

[Matt C]

You'll get your bailout. Of course there will be a bailout. Congress screwed up--junior members in uncertain seats, what can you do--and they'll need another chance to get it right.

It won't be the last one either.

[Paul J. Reber]

Even if 30:1 is wrong, it's still useful to try back-of-the-envelope calculations (or "coffee shop napkin" calculations, which seems more contextual here).

Suppose the DJIA gains back half of yesterday's losses, suppose the future lost wages isn't relevant and suppose in lieu of the "bailout" the Fed spends zero extra dollars on piecemeal bailouts. Then you've got a net loss of only $650 billion. If you assumed the entire $700bln was lost money -- a pretty rare position -- you'd be vindicated by the "do nothing" plan. It saved maybe $50bln.

Give reasonable estimates for all the other numbers instead and even conservative estimates are going to leave you around 8:1 or better. Which goes a long way towards explaining all the "hold your nose and vote yes" opinions on the previous bailout plan.

There's more gut-level reacting than math going on about the bailout plans all over the blogosphere. While thinking what might change that, I wonder if there are any really big companies with very finely balanced balance sheets who might find themselves in an interesting position today/tomorrow when trying to write payroll checks. I bet that might wake a few people up about what seizing up the credit market means to big business.

[MaryCh]

I don't know any more than anyone else what the end cost of the bailout will be, either directly from taxpayers or indirectly through the stock market and a sick, undercreditjuiced economy.

But given the tremendous uncertainty and lack of information, and that Congressfolk also have to 'price' the November cost of a yes vote based on currently roiled markets, is the large uncertainty premium evident in their votes (even net of Rep. Bachman and others' principled reasons for opposing the bill) so unreasonable?

[mike]

I think people have things backwards and are twisting the facts to support their desire for free money. The stock market declined on Monday because of fear that this insane bailout bill might have passed. On Tuesday, knowing it wouldn't, they surged. People seem to be equating the corporate economy with the American economy, but they don't have much in common. What's bad for the corporates is good for the rest of us. Defeating the bill saved us trillions, which is why Americans of all stripes so vigorously opposed it. Believe me, you won't find anyone who doesn't have corporate investments and stand to profit from the bailout who supports it. Not one person.

With all due respect, and I mean that sincerely, it's time for Dr. DeLong to do some disclosure and reveal what kind of corporate investments he has and how this bailout would have personally affected him. Same for Dr. Krugman, who after all works for Columbia University, which has tens of billions in corporate investments. These folks know who's buttering their bread.

[hm]

I suspect that your concept of "corporate investments" is not very rigorous, Mike.

[Miracle Max]

Flash. BDL says stock prices reflect fundamentals.

[Barry]

"We can quote Mark Kleiman on that, right? Cost to the taxpayer won't exceed $100 billion? And when it does, we can mercilessly laugh at him, hte same way as we laugh at the Bush officials who swore up and down the Iraq War would only cost $50 billion?"

Posted by: Anon

I argued with Mark about he; he held stubbornly to the 'best information available at the time' argument for the Iraq War. If - sorry - when - the Bush bailout accomplishes nothing beyond further enriching the elites, I expect the same argument. That's because these people simply don't suffer, let alone suffer enough.

Paul: "If you assumed the entire $700bln was lost money -- a pretty rare position -- you'd be vindicated by the "do nothing" plan. It saved maybe $50bln."

That's true, a whole sh*tload of people who'd seen the Bush administration f*ck up everything and anything looked at Paulson's 'bail out my Wall Street friends' plan, and assumed that it'd work *at all*. Which is an incredibly stupid assumption. A better assumption would be that it'd be 100% wasted by the time that Obama was inaugurated, leaving the next administration to spend more $100's of billions on actually fixing things.

And after the 'maybe $50B, if oil revenues don't cover it' Iraq War pushed past $1 trillion, that says something about the sheer gullibility, panicability and/or corruption of the elites.

Krugman, IIRC, made comments about Paulson being 'one of the smartest guys in the room'. And that's after Krugman has spend years pointing out the sheer bloody deliberate corruption and lies of the Bush administration. Which, IMHO, says that something is simply wrong with the entire elite structure of the economics professoriate. It ain't the smarts, it's the honesty.

[Brock]

The stock market declined on Monday because of fear that this insane bailout bill might have passed.

I think we've found a winner in the "Stupidest Thing Anyone Has Said About the Financial Crisis" category.

[Brock]

Hmm ... Your comments section doesn't seem to accept italics. That'll teach me to hit "Preview".

Anyway, the first line of my previous comment is a quote from "Mike".

[nick]

how many american households have no direct investment in the markets (neither stocks nor mutual funds nor....)? how many households, in other words, are getting by day to day, with maybe a decent sized, maybe a nonexistent emergency fund in the bank (or under the mattress)? it has to be a significant figure. the only argument I've read as to why THIS group of people--let's call them "the poor"--should support the bailout is that jobs will vanish; and dean baker seems to deal with that argument pretty effectively.

I guess my larger point is that one can be opposed to this bailout for legitimate left-wing reasons, reasons that I've heard no objections to except some version of "trust the experts."

[Mandos]

This is ultimately about economic democracy. Do we have the right to demand that wealth be redistributed fairly or not? The bailout as it was constituted was a big fat "no".

[Neil B]

But is the stock market loss just a "paper loss"? I know what interlinks with what, but isn't it odd that when something is cheaper, it can be considered a net "loss" even though more affordable to someone else? I mean, it isn't like thousands of houses burned to the ground or etc., the "same thing" is still there. Comments?

[christofay]

I wold say the Tao Jones Cult PE average elevating much above it's long term growth in earnings is inflation. The Tao Jones falling this week to closer to the long term growth is disinflation. We are just taking the fluff out of the market, the Bush/McCain/faith in the maestro "strong economy" bull shit.

If the Tao Jones falls below the long term mean and stays there for a good while, that is deflation, and a good time to buy.

At present, we are still living in an irrational economic world, the bail-out bill is the last charge of the Bush Administration "strong economy," most of our experts and elites who have been wrong about the economy the last 8 years are still in charge, Democrats in Congress is a long long euphemism for ball-less and compromised.

One of the best lines in that Talking Heads album "Speaking in Tongues" from the song "Flatulence in the Front Pew" goes "ball-less and compromised," doesn't it?

[RC]

I guess Brad has been blinded by his own brilliance. Hasn't he been calling the administration the 'clown show'?

We are $700billion into the War to nowhere and the most recent Forbes 400 shows these richest folks to have increased their worth by close to $700billion in the last 5 years. We have added $5trillion in national debt in 8 years and have a $400bllion plus deficit for the current year. When is Brad going to tie any of this together and say it is all part of the same bailout?

This bailout has as much chance of costing $100billion as the Iraq war has. With the debt leveraged 20 or 30 to 1 a $100billion will be covering $3trillion in loans which if they are sold at 50% face value will be $1.5trillion. Thus the cost could be twice as high as the proposed bailout.

Well on with the discussion. Can Brad be bothered to join in?

[christofay]

'one of the smartest guys in the room'

I thought this phrase meant there's a card shark in the room and to watch your wallet.

Unless 'one of the smartest guys in the room' is used to refer to a government bureaucrat, as in Bernanke is 'one of the smartest guys in the room' which means he's inept and again watch your wallet.

The Paulson/Bernanke bail-out bill is also a bail out the hedge funds bill. I am choking on that.

[christofay]

I thought that was the point of the Enron book, The Smartest Guys in the Room.

We don't make profitable enterprises in the U. S. anymore, we set up card sharks in Ponzi Operations. Talk about Paulson and Greenspan Jr, the Beard, being the smartest guys in the room is look over there, while the reach away for your wallet goes down.

[J Thomas]

'But is the stock market loss just a "paper loss"?'

Some people can treat it that way. The problem is that some entities are required to estimate their net worth, and the worth of your stocks are what you can sell them for today.

So if you lose a million dollars on the stock market today on paper, as far as your creditors etc are concerned, you've lost a million dollars even though you haven't sold a single stock at a loss.

This is because of a silly accounting trick. It's customary that the value of your stocks is determined by "mark to market". You aren't allowed to value stocks at their real value, but only at what you could sell them for today, even though 96% of the stocks will sell for more later.

Many economic entities would find their net worth much improved if we got rid of the silly mark-to-market rule and let them value their stocks some other way.

[Chairman of Yucca Mountain Bernanke]

"We are $700billion into the War to nowhere and the most recent Forbes 400 shows these richest folks to have increased their worth by close to $700billion in the last 5 years."

Massive transfer payment to the guys that deserve the most, cover provided by Greenspan, the smartest guy in the room at a Fed Reserve bored meeting.

[Chairman of Yucca Mountain Bernanke]

What ever crisis support the voting population gives the bad Bush Administration Paulson/Bernanke bill is support that also could have gone for a good bill or a better bill. The good or better bills weren't even considered. It was the ACME bill dithered over by the Coyote Congress 24/7 newscycle.

I don't see the point of throwing the first trillion or two after bad money. Why isn't the point being made that the bankers should be buying in? Where is the C suite buying their distressed shares? The money's all tied up in multiple dream homes and Russian hookers.

I support the service industry hookers, I don't support the Coyotes or the bankers. At least we're clear about the price and the service with the hookers.

[Chairman of Yucca Mountain Bernanke]

The new "tax cuts bring in more revenue" is "this bail-out will be a money maker."

[Chairman of Yucca Mountain Bernanke]

Companies are valued many ways not just today's market price. There is book value, for example, as in Dell Computer's book value is squat.

There is P / E too. As in Google, RIMM, Amazon, have amazingly high P/Es. Amazon has never earned squat; it's overvalued.

On the other hand I highly value Amazon for keeping a large selection of books available, delivery has become slower.

[Jon Kay]

I blame Paulson for this, not the House. He gave the Street reason to expect megabux that weren't his to give. If he'd been acting responsibly, he'd've negotiated with Congressional leadership before even saying anything about a plan, much less a $$$ figure.

Remember, only Congress has the authority to authorize money.

[Barry]

"I guess Brad has been blinded by his own brilliance. Hasn't he been calling the administration the 'clown show'? "

Or rather, he's blinded by Paulson's brilliance, which I admit is substantial. One doesn't make CEO of a Wall St Biggie by being stupid. OTOH, making CEO of a Wall St Biggie doesn't imply having the wisdom and 'even bigger picture' view which is required now. It also very, very strongly implies that Paulson is far less honest than almost everybody currently serving time in our wonderful federal correctional institutions.

[David Lloyd-Jones]

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With junk mortgages, backed by real live houses, selling at 15~20 cents on the dollar, I don't see how the taxpayer can miss on this one.

Actually, I do see: the Bush gang let a bunch of furriners buy up the better parts of Lehman for the value of the building plus a sneeze and a cough, rather than hanging on to them and showing 'em into the Social Security Fund.

This isn't even "socialism for the rich." This is the common crime of conversion. Somebody better go to jail for that one.

[David Lloyd-Jones]

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I mean Secretaries of the Treasury do have fiduciary responsibilities to their employer, that's us, after all....


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[lemuel pitkin]

Brad, do you really want to be arguing that the stock market gives us an unbiased estimate of future profits? Do you really want to be arguing that *right now*?

Really?

[J Thomas]

Imagine this:

Imagine that Bush hires the CEO of Exxon to be his energy manager.

And imagine that this energy manager announces that there's a crisis.

Somehow some of the oil companies have made bad decisions, and somehow the effects of their bad decisions have spread to the whole US oil industry and beyond.

The basic problem is that somehow some of the oil reserves are actually water, and somehow a lot of the oil they trade back and forth is actually water, and when you buy oil you never know whether you'll get water instead. Some companies that everybody thinks own oil have so much water they'd be bankrupt if people knew.

And so the solution is for the government to buy up the water until oil companies trust each other again. It might not cost all that much -- some of what we buy might turn out to be oil after all.

Unless the oil companies get a whole lot of money from the government, no oil can be imported into the USA, and no domestic oil can be sold. Or possibly some other bad result will happen, it isn't clear what will happen but it will be bad for all americans.

The money -- maybe around half a trillion to a trillion dollars, we don't how much -- will be managed by the energy manager. He promises that he will put the money where it's needed and will not favor Exxon or any of his friends, independent of his hundreds of millions of dollars in Exxon stock.

He won't just give away the money, he will get nonbinding assurances from the companies that they will give something back someday if they can.

Would you support that bailout?

I say no. I say, trillions for defense but not one red cent for tribute.

Can you actually imagine that situation happening? It seems so utterly absurd. But how different is it from what we actually face?