The Fabulous Baker Boy writes, somewhere on Josh Marshall's TPM. My one complaint is that if Obama had won then the TARP would not have been "a $700 billion giveaway to Wall Street." Only if McCain had won--and only if McCain's Treasury Secretary was Phil "Nothing's Wrong with Deregulation, You Nation fo Whiners!" Gramm or Carly "But I Like My $41M Golden Parachute!" Fiorina--would it have turned into a large-scale giveaway. My belief is that if Paulson were to stay on he would treat undercapitalized banks like a Goldman-Sachs honcho treats counterparties in trouble: strip them of everything and send them naked into the blizzard to live or die on their own--that's what he and Bernanke have done to the preferred and common shareholders of Freddie, Fannie, AIG, WaMu, Wachovia, Bear-Stearns, Lehman, and to the bondholders and counterparties of Lehman...
Here's Dean. I think he wants us to name Warren Buffett to be chairman of an National Industrial Recovery Administration and give him $1T to invest in banks and expanding tradeables-producing industries:
In spite of its best efforts, the Bush administration failed to push through a $700 billion giveaway to Wall Street. President Bush conjured up scary images... even partially backed away from his initial demand for a complete blank check.... But the public refused to send their tax dollars to Wall Street banks run by incompetent bankers.... While the editorialists are busy denouncing members of Congress for surrendering to the vulgar masses, it's a good time to quickly check the score card. The United States is in a recession and facing the worst financial crisis in almost 80 years because the folks currently in charge were out to lunch.
They allowed an $8 trillion housing bubble ($110,000 for every homeowner) to grow unchecked.... The main cause of the economy's weakness is not insolvent banks and lack of credit; it's the loss of $4 trillion to $5 trillion in housing equity as a result of the bubble's partial deflation. Families used their equity to support their consumption in the years from 2002 to 2007, as the savings rate fell to almost zero... families can no longer sustain their levels of consumption... banks won't lend to these families is that they no longer have home equity to serve as collateral.... And house prices are not going to come back....
The main problem in recovering from the recession will be finding ways to boost demand other than household consumption. In the longer run... reducing imports and increasing exports. In the short-run...government stimulus.... Democratic demands for stimulus were not extraneous to the legitimate goal of a bank bailout bill. Fiscal stimulus must be central.... It would be good to get our banks in order, but it also would be good to send $100 billion to state and local governments to support infrastructure projects and other spending.
How do we go about getting the banks in order? Almost every economist I know rejects the Paulson approach and argues instead for directly injecting capital into the banks. The taxpayers give them the money and then we own some, or all, of the bank. (That's what Warren Buffet did with Goldman Sachs.) This isn't about... constructing a bank rescue the way that business people would do it. We have an interest in a well-operating financial system. There is zero public interest in... Wall Street banks and their executives.
If Secretary Paulson constructed a package that was centered around buying direct equity stakes in the banks, he could quickly garner large majority support in both houses. Better yet, Congress could just construct its own package centered on buying equity stakes and send it to President Bush. If he balks, we can just threaten him with stories about the Great Depression.