Osler's Razor

What I find frankly astonishing about the current plan, is that it gives a single government official the ability to distribute $700 billion with no review whatsoever by anyone. It's the ultimate no-accountability giveaway.
 

Osler, I love it when you rant. I agree with you totally. It is just funny to me. I like the angry or irritated posts like Sad Panda with regard to the en banc decision screwing over your case because the judge is an idiot.

I think the razor needs more posts like this.
 

Yeah--how exactly is it that, in less than 24 hours, it's been DECIDED to do a bail-out of such staggering proportions? I know financial markets are fragile, but still. That doesn't seem right, to me.
 

Oh--and talking about rants and bloated government, No Child Left Behind is another perfect example. It was passed by Congress, yes, but at the end of 2001 it was rushed through so they could show they'd done something that year after 9/11. It has only increased bureaucracy and given public schools a vastly underfunded mandate, with goals impossible to meet, and multiplied a million times the number of staff hours at the state and local level spent on trying to comply with it, or manipulate it . . . grr.
 

In an economy built on profit, money is capital, and capital is power. Where greed is drilled into us at birth as a virtue, no one is above the allure of money, least of all politicians.

I don't think the Democrats would do anything truly differently. They might not outright serve the rich, but when the rich can buy politicians left and right, it hardly matters. Still, it's got to be an improvement.

Also, I'm not really sure that we're "nationalizing" these industries. If we created branch of the government to oversee them, and then elected representatives (or at least had them appointed by the executive with the advice and consent of the Senate) then we might be truly nationalizing them. As it is, we're just handing them taxpayer money. That's not really socialism because the government isn't really seizing the means of production and turning them to the public benefit.
 

Key points of the proposed bill, for those of you who haven't read it:

* The bailout is to be overseen by Paulson, the ex-CEO of Goldman Sachs, a Wall Street Company. He helped cause the crisis. He helped obtain the SEC exemption which allowed brokerages to increase leverage to 60:1 from 12:1.
* He gets 700 Billion dollars to use as he sees fit, buying commercial and residential mortgages and mortgaged backed securities as he chooses. No one has any oversight over him, and he can pay any price he wants to, including face amount of the debt. Courts cannot review his decisions, nor can any regulators. Looking after the taxpayer is a "consideration," not a requirement.
* There is no bailout for mortgage holders. Banks get bailed out, but not ordinary people.
* Banks bailed out by this plan need make no changes in how they do business. They need not replace the management which drove them into insolvency. Shareholders and bondholders of such banks do not lose a cent.
* The securities which caused this crisis are still allowed.
 

This comment has been removed by the author.
 

Yeah, I would say that reviewability is extremely desirable and change for those institutions bailed out is absolutely necessary. Big money for big screw-ups needs to come with some big strings attached, particularly in situations in which an institution has behaved egregiously. The unfortunate thing here is that how they got there need not even be addressed.

The rhetoric the President used to refer to this rankled with me however: "This is a big package because it was a big problem." That just sounds like politicode for, "Don't think about it too hard or fuss too loudly; the ends should justify the means here."

(I realize as I type this, of course, that the quote itself may very well irk me more than merited.)

Problem is, all the most important means are the toughest but most important to hammer out since we need them to work in exactly those times when the ends really, really matter. If the stakes are truly that high, I want a lot of safeguards and guidance built into the big red button and perching on both shoulders of the guy who gets to mash it.
 

I have no brief for the investmrent bankers, but sitting on the sidelines and doing nothing is not an option.

The US economy (and the world's) depends upon a strong market and abundant sources of capital. And if you have an IRA, 401k, 403b or any investments, so do you.

Most historians agree that FDR really didn't know what he was doing in 1933 when he came to office, but he knew inaction was not working. Expers also seem to agree that the tepid Japanese response to their economy's meltdown in the early 90's made the situation worse.

I'd rather see Paulson and Bernanke do this than have Reid and Pelosi preside over pointless debates for months on end. They can't get budget or energy bills voted on. A remaking of the financial system is not something they could accomplish.

Reform is essential. But we can't wait for a bunch of hearings to take place for months and months.
 

I do agree with iplawguy. Something must be done, and this plan, at the very least, has potential to be better than nothing.

I may not like it on its own, but I like it better than nothing.
 

Two things, first like IPLawguy, I think inaction is what partially created the Great Depression. Sometimes, action/bailout/loan/whatever, no matter the ideological losses is greater than the collapse of a significant part of the economy.

Second, the loan to AIG comes with /some/ protections for the Fed. THey get 79.9% ownership, however, we don't know the strike price, but its possible, if the plan is apporved by AIG's stockholders that the Fed could make money on the AIG project. Note: They did not lose money on Bear Stearns.

Now, the bigger bailout, the ressurection of the RTC, I'm not sure about, but again, its conceivable that those MBS, CDS, CDO, etc end up making the government some money.

Of course, we'll all pay for this in the form of inflation, but I'd rather lose 10% of my money than 25% unemployment for 10 years.
 

iplg-

So government, not markets, solve problems. Got it.
 

Oh, and now FDR is Hero to Conservatives? Is it Opposite Day or something?

Job One for "conservatives"- make the rich richer. Gobs of tax dollars are one great way to do that.
 

I'm finding it hard to write this posting without being snide and sarcastic, but I'll do my best. For a problem of this magnitude, I say "Don't just do something -- stand there!" This awful plan vs. "a bunch of hearings to take place for months and months" is a false dilemma. Unless some of the people and governmental institutions involved in planning to solve this crisis are insane or corrupt enough to place other considerations over the economic well-being of the country, a few weeks should be enough to put together and pass something analogous to the Resolution Trust Corporation, at the very least.

Sadly, I fear that insanity and corruption may not be in short supply. It is quite true, as iplawguy says, that Congress has been unable to pass much important legislation. And so long as the President wields his veto, the Republican minority marching in lockstep behind him, this will continue to be true, at least of any legislation of which they don't approve.

The events of the past seven years have left me little doubt that Bush & Co. will block any solution that has serious consequences for their friends and allies, and that many Democrats will go right along with them. And that most people will bow their heads and say "well, we had to do something." It makes me angrier than I can express that I no longer find this sort of outcome to be unlikely, much less unthinkable.
 

I think this stupid bailout is a sympton of a larger problem that permeates all society: the desire to live life without consequences. With republicans it's money, and with democrats it's morals.

And I'm sick of both parties and all politicians.

I only wish there was one politician who was more concerned with doing the right thing than he was about maintaining his power. Because power is the only thing any politician cares about.

And I pray someone will come along who will prove me wrong. But I don't see it happening.

One last thing. Prof. Osler, you are justly upset about this federal stupidity, but please don't use "republican" and "conservative" as synonyms. As you know, I'm very conservative, but I don't want to be lumped in with the republicans. In fact, my philosophy and politics, with three or four exceptions, tend to align with the Constitution Party (www.constitutionparty.com). And I've been toying with the idea of registering with them for a few years. After this week, I probably will.
 

Craig--

You're right. Sorry about that. I should have made it clear that these actions are those of the Republicans in power, and not principled conservatives like yourself (and me, on issues like this relating to government size and federalism). I share your distaste for politics right now. Sadly, both parties too often make a mockery of the values of their supporters. This is just a particularly powerful example.

Evan, I hope this is reminding some in Congress of the last time that this administration tried to rush through legislation because of a crisis-- you know, broadly granting war powers because of Iraq's weapons of mass destruction.
 

Craig-- you say that Republicans want to live life without financial consequences, and Democrats without moral consequences. On what exactly are you basing your assumption that Democrats want no morals? Financial responsibility is easy to gauge- how much money are you earning and how much money are you spending? Moral responsibility is much harder to gauge, since morals are subjective and change with individual perceptions. What you may see as a moral bankruptcy in the Democratic party, others (like myself) see as a progressive attitude towards accepting ideals and lifestyles that differ from my own, but aren't inherently better or worse. If one party adopts a "let corporations do what they please and try to control people's morals" policy and another adopts a "let people do what they want and try to regulate financial markets" policy, I'd prefer the latter over the former.
 

Anon:

I'm not a moral relativist. But that doesn't mean that I think the Federal Government should pass laws to control moral decisions like abortion. Rather, I think those decisions belong to the citizens of individual states. What bothers me the most is when people try to use the Constitution to justify conduct that it doesn't address. When it's not in the Constitution, it is within the province of each state to decide.

That's all I'm saying.
 

Craig, it's not just you saying that, it's the 10th Amendment.
 

But, to balance the 10th Amendment, we have to say that even where there is no express Constitutional provision, the Constitution nevertheless requires of the states that they meet a minimal basis of due process, equal protection and civil rights. So, no state should be able to restrict abortions or similar procedures beyond a federal minimum; in this case, that's Planned Parenthood v. Casey.
 

WOW. That is a VERY VERY fat Cat.

That is why I am not one anymore...

Republican I mean.
Not a Cat.
I never was a cat.
 

That cat is gross. It looks like a furball with a head attached.
 

One thought:

RR was an FDR Democrat, and he was at the center of the counter revolution that bore his name a generation later.

He was right both times.

"Foolish consistency is the hobgoblin of small minds."
 

Going back to Prof. Osler's original post, I think this situation has less to do with Republicans favoring the rich and more to do with our broken Federal Reserve system. The wheels for this financial crisis were set in motion years ago by the Fed setting low interest rates and turning a blind eye to irresponsible actions of private banks.

With the securities market crashing, the Fed had to resort to corporate bailouts in order to avoid global economic crisis: "If AIG had collapsed - and had been unable to pay all of its insurance claims - institutional investors around the world would have been instantly forced to reappraise the value of billions of dollars in debt securities, which in turn would have reduced their own capital and the value of their debt." If the Fed hadn't stepped in, the effects would have been much worse. Some have speculated that the news of the bailout (as well as the Fed injecting more capital into the market) prevented "Armageddon:" "At about 3 p.m., news of the plans was filtering up and down Wall Street, fueling a 700-point advance in the Dow Jones industrial average through 4 p.m. Friday." Paulson has also stated that these bailouts were necessary to shield the economy.

While the thought of corporate fat cats benefiting at the expense of taxpayers is sickening, I think it was the only viable solution given our current system. The Federal Reserve made this crisis possible, and we're the one paying the consequences. In my opinion, the issue is not one of Republicans favoring the rich but rather the need for an improved Federal Reserve system. Because the Fed has so much power and control over our currency, we are completely at its mercy at times like these. And as the debt grows, the dollar dwindles, but meanwhile, the value of gold soars. Something to think about, anyway...
 

Kiel-- so the solution is to give the Federal Reserve MORE power, which is what this bill would do? That doesn't make sense.

Farmer-- Uh, what? Reagan's ideals that you profess to follow come after he thoroughly rejected FDR's policies. In fact, "in 1976 and 1980 Reagan refused to retract
his opinion that the early New Dealers looked favorably on the
policies of Fascist Italy. In 1981 the controversy was renewed when
then-President Reagan stuck to his guns. “Reagan Still Sure Some in
New Deal Espoused Fascism,” read the headline of a Washington
Post article." RR did NOT believe in the New Deal at the time he was President.

Further, this move is not inconsistent with what the Bush Administration has done up to this point-- rather, they have consistently enlarged the government to enrich the wealthy. I do agree with you that this policy is the product of small minds.
 

Oops, I forgot to cite to what I quoted above. The cite is at the bottom of the quote below:

Reagan was even more straightforward the previous August: “Anyone who wants to look at the writings of the Brain Trust of the New Deal will find that President Roosevelt’s advisers
admired the fascist system . . . They thought that private ownership
with government management and control a la the Italian system was the way to go, and that has been evident in all their writings.” See Steven F. Hayward, The Age of Reagan: The Fall of the Old Liberal Order, 1964–1980 (Roseville, Calif.: Prima, 2001), p. 681; Robert G. Kaiser, “Those Old Reaganisms,” Washington Post, Sept. 2, 1980, p. A2.

The RR you revere is not the RR of 1935.
 

Prof. Osler:

That "the Reagan I love is not the Reagan of 1935" is precisely the point. Reagan was a work in progress. He was not an ideologue during the 1930s or 1980s (or any point in between).

With all due respect to Professor Hayward (and your admiration for him comes as something of a surprise to me--I must admit that I do not share it) and a random quote within an isolated article in the WaPost circa 1980, I think you (rather than I) miss the essence of Reagan.

I am a bigger fan of Lou Cannon as a Reagan biographer, and more persuaded by his analysis that Reagan looked to FDR (his first political hero) during his own presidency, often disappointing his more rabid friends who expected more ideological fidelity to conservative maxims.

Rather, according to Cannon, Reagan and FDR shared a common "expansive conception of the president's role [leading the way in restoring a sense of hope and national pride] and in their trial and error approach to governance" (Cannon, President Reagan: Role of a Lifetime, 1991, pp. 84-86).
 

The thing that bothers me most about this is that we, the ordinary people who have one mortgage and modest savings and a credit card, can do NOTHING. We are totally helpless, and not only are we totally helpless, we're also going to get stuck with pointless taxes. Even if we don't want the government bailouts, they are going to happen because apparently the alternative is worse. And we--or I. anyway--feel all the more helpless because it's impossible for me to know whether the alternative really is worse.

And I think Congress is willing to go for the bailouts because it's a huge PR problem as well as a financial crisis.
 

Oh, I agree that Hayward is not someone I would normally cite, but this is one of those times where finding someone you disagree with makes the point, too. (I probably should have found a better source and quote, but that stuff about fascism was just so juicy, and I remembered something about that). Anyways, I think that whoever you choose to read will make the same generally conclusion, and the one you make, too-- that Reagan broke from his New Deal affections, as a matter of economic policy. (The Reagan bio is something you know a lot more about than I do, so correct me if I am wrong on that).

You are right, too, that he believed in an expansive presidency. However, at that stage he did not believe in an expansive government, which is what Bush has given us, more now than ever.

Are you really saying that Reagan would have nationalized AIG and provided this massive bailout, knowing that taxes would have to be raised to pay for it, for many many years? I find that hard to believe.
 

Well, I should have said we are totally helpless NOW. When we voted for the people who allowed this to happen we exercised what power we have.
 

I'm going to cherry pick here to respond to only a couple points:

Don't tar me with the epithet "anti-regulator." The words "Republican" and "conservative" do not necessarily describe someone who is a free market capitalist or who opposes all regulation. Maybe they describe a libertarian, but it's not necessarily a Republican.

Regulation is important and required. There is such thing as over-regulation. Its a balance, and right now we're in a correction period.

For the record, John McCain has never been an anti-regulator either:

http://www.washingtonpost.com/wp-dyn/content/article/2008/09/18/AR2008091803159_pf.html

(this is an editorial from the Friday Washington Post pointing out that he has pushed for more and better regulation on many occastions).

He's also been a long time critic of Fannie Mae and Freddie Mac and their poor money management.

As for Reagan, as someone who worked on Capitol Hill in the 80's, I can tell you the "conservatives" lost patience and faith wiht him by about 1986. Read "President Reagan" by Richard Reeves. Reagan gave lip service to social issues, but never pushed them. And yes, sin of sins, after cutting taxes, he raised them several times. He also never cut government spending. All he cut was the rate of increase-- which to me is a tragedy, but it wasn't politically possible. Tip O'Neill's demagoguery and refusal to honestly address the social security system's structural problems in 1983-84 for short term political gain is a disaster that still haunts our nation.

Finally, having read more about the proposed RTC like system proposed by Paulson, I'm not thrilled with it. But just proposing such a thing helps to calm the waters. Which is what we need right now.
 

Prof. Osler,

I do not presume to know what Reagan would do faced with the AIG crisis.

It was the GOP that used big government and tax-payer funds to rescue the S&Ls during the Bush 41 years.

I don't think it is beyond plausibility to suggest Reagan might have responded with extraordinary measures in this situation.

Just for kicks: what do you think FDR would have done?

My original point is that the best of these guys are supple and reactive (which is probably as much as you can hope for in a democratic leader).

Parties are not in place to preserve rigid principles. They emerged way back when and continue to prosper as a result of their ability to adapt to changing political realities. Yes. Over time the GOP has been the party most concerned with promoting business (sometimes that has entailed more regulation and protectionism; sometimes that has entailed deregulation and free trade policies).

Over time, overall, for the record, business has offered great advantage to America.

Over time, the Democratic Party has set itself up as the party of the people and the party of small government until the 1960s (although never have the Dems been inimical to business--not since the Age of Jackson).

And, by the way, the current mess, which transcends any one president, is a bipartisan mess spanning seven decades. Of course, the yin and the yang of it all is that with the mess has come great prosperity and advances in our quality of life. Damn, human endeavors are complicated.

One more thing: this compromise is driven by Hank Paulson who represents his own party (Goldman Sachs), which is not altogether bad. Also, Paulson must win the approval of the Democratically controlled House and Senate to enact this legislation. Therefore, all the Dems have to do is stand on "principle"--and the GOP putsch will be thwarted.
 

Prof. Osler -- your original post did not contain any links, so I mistakenly thought it was a follow up to your previous post in which you expressed your opposition to the bailout of AIG. I suppose my post was more a response to that.

With regard to the $700 billion bailout plan, I agree with you that this is getting out of hand; however, Democratic leaders have pledged to approve the bill, so long as it includes a recovery package for taxpayers and requires "independent oversight, protections for homeowners and constraints on excessive executive compensation." It doesn't sound to me like the Democrats are entirely opposed to it. But again, if this is what it would take in order to avoid an enormous economic crisis, I don't see how we could avoid it. The real solution lies with changing the Fed system itself.

What frightens me even more is the proposal that foreign banks could qualify for bailouts by the US government.
 

I missed the last post by iplawguy. Well done.

I would like to associate myself with these remarks:

Don't tar me with the epithet "anti-regulator." The words "Republican" and "conservative" do not necessarily describe someone who is a free market capitalist or who opposes all regulation. Maybe they describe a libertarian, but it's not necessarily a Republican.

Regulation is important and required. There is such thing as over-regulation. Its a balance, and right now we're in a correction period.
 

Well, let me put it this way.

I really do believe that, with the possible exception of health care (and there is a lot there I don't understand), I don't believe in government intervention in markets, and I sure don't believe in nationalizing industries, and I double-sure don't believe in nationalizing just the liabilities of a given industry.

This is part of my belief that small government really is best. Reagan was right about that.

I don't expect the Democrats to agree with me on that one, and they don't. So, like you, Farmer, I actually like the idea of a divided government in a situation like this-- it slows things down, including the growth of the size of government. The Clinton/Gingrich years worked pretty well, as did Reagan/O'Neill.

That falls apart when the Republicans go whole hog for huge tax-money-fueled incursions into private markets. Now everyone agrees we need to lard up the deficit some more to save the hedge funds and the guys at Solomon and the foreign banks, and the result will be very, very ugly.

I am not saying this as a partisan, but as someone who thinks both parties are wrong-- I just expect more from Republicans, since avoiding this kind of socialism is one of their core principles. Unity across the aisle to do the wrong thing is still wrong. Like the creation of Homeland Security, and the obscene farm subsidies, and the Iraq War, and Medicare Part D, etc., this is another (and the most extreme) example of bi-partisan big-money buddies reaching into my wallet to extend the reach and size of government.
 

Can I just go on the record, opposing with all vehemence, the earlier statement by a certain "anonymous" and say:
I think that the cat is kind of cute. :)
 

That cat is delightfully well-tummed!

Thinking about whether to consider Craig a moral relativist is chortleworthy indeed, LOL!
 

Stephanie,

You're right. But I think "chortleworthy" is an understatement.

And by the way, thanks for the link on your Presenza blog. It's now linked to mine.
 

In case anyone is interested, here is Ron Paul's take on the bailouts. This statement seems to echo Prof. Osler's thoughts on small government: "The solution to the problem is to end government meddling in the market. Government intervention leads to distortions in the market, and government reacts to each distortion by enacting new laws and regulations, which create their own distortions, and so on ad infinitum."

Anyway, I'm not trying to spark up the debate again -- just passing on more information.
 

Craig,

Why, danke!