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Opening Arguments

An offer they couldn't refuse

This has been going on for a couple of weeks now, and it's still breathtaking in its audacity. Some of us have been arguing that the country was headed this way, but I confess I never dreamed it would be in one $700 billion fell swoop:

The chief executives of the nine largest banks in the United States trooped into a gilded conference room at the Treasury Department at 3 p.m. Monday. To their astonishment, they were each handed a one-page document that said they agreed to sell shares to the government, then Treasury Secretary Henry M. Paulson Jr. said they must sign it before they left.

They must sign before they left. Think about that. It's probably a good thing they all signed. Waking up with the horse's head in the bed would have been too traumatic for them.


Fri, 10/17/2008 - 9:47am

The article doesn't explain the consequences of saying "no." If they just wanted a better deal, then I don't really care. If they wanted to go it alone without relying on the government at all, the article doesn't explain why they couldn't have simply walked out.

Larry Morris
Fri, 10/17/2008 - 10:04am

I had heard about this through another news source on the web - I wonder why the "mainstream" media isn't picking up on this and running it all the time - seems to me to be a big "big, bad, government" story - certainly makes me wonder, ...

Fri, 10/17/2008 - 10:21am

Doug has a point. Leo, you're the one who's always arguing that bad businesses should be allowed to fail. Presumably, they could have refused to sign and seen their banks fail. They wanted to survive, so they signed. I certainly understand their embarrassment at having to ask the evil G for a lifeline, but they have no one to blame but themselves.

Larry Morris
Fri, 10/17/2008 - 10:33am

You're missing the other question, Nance - what about the banks that ARE in good shape - why didn't/couldn't they refuse the cash infusion ?

Fri, 10/17/2008 - 10:36am

Because, as the story clearly states, they wanted the cash infusion more than they wanted to be flinty-eyed loners:

Even as they insisted that they did not need the money, bankers recognized that the extra capital could be helpful if the economy became shakier. Besides, many of these banks

Larry Morris
Fri, 10/17/2008 - 10:46am

Boy, you make it sound sooooo easy, ...

Fri, 10/17/2008 - 10:53am

I don't want to be flip here, because I have my own reservations about the Paulson plan, and the bailout in general: We truly are in uncharted waters here, and could easily run aground. What I object to, however, is bringing these bumper-sticker platitudes to the table about socialism and what-not. I've been reading about this situation for weeks now, and I can barely get my head around it. It is amazingly complicated situation for even an above-average-smart person to understand, let alone most "American Idol" viewers.

To me, it boils down to this: The U.S. has to do something to avert a global economic disaster. The banks would prefer us to hand them $700 billion and trust that the magical invisible hand of the marketplace will make everything OK again. This plan at least assumes that in return for our $700 billion, we, taxpayers, ought to get something, and that something is a stake in the bank. Preferred stock, even.

I cannot recommend two pieces of journalism enough on this situation, both from NPR, and both episodes of "This American Life." Pasting two links would likely trip the spam filter here, so I'll just recommend you go to thislife.org and search for "The Giant Pool of Money," a show they did last spring on the mortgage crisis. It is really riveting, and the best single, down-the-middle, just-the-facts explanation of how subprime happened and why it imploded.

The second show is called "Another Frightening Show About the Economy" and ran earlier this month, and gets into the bailout plan. Both are available as free streams or podcasts, and are, in my opinion, truly heroic explanatory journalism.

Larry Morris
Fri, 10/17/2008 - 11:12am

Yes, I agree, we are truly in uncharted waters here, and WILL probably run aground. I will read the articles you mention, but reserve the right to still toss around bumper-sticker platitudes - some of them have worth. Like "where is all this bailout money going to come from?" and "sooner or later, we will have to pay for all this living on credit - from the least of us to the government itself". I for one am on the side of - and I know you hate to hear this - let what fails fail and we will come out of this, as one who lives within his means and watches his pennies and his credit like a cat sleeping next to a rocking chair, I am livid that I will as a taxpayer have to shell out for bad decisions of people, from the least of us to the government itself, who did not do the same and made, for lack of a better term, stupid choices, ...

Leo Morris
Fri, 10/17/2008 - 11:46am

So many points to make. I'll just start with a few:

1. I HAVE always been an advocate of letting the chips fall, etc. That doesn't mean people in the institutions whose chips are about to fall will agree. Businesses always want plenty of government regulation as long as that regulation benefits them.

2. The more complicated and unfathomable things get, the more we fall back on platitudes. When we are told there is a dire emergency we didn't even know about yesterday, it will cost us $700 billion for this specific plan, the only one that will work, and that we have to OK it right this minute without even thinking about it, then it gets passed and Paulson says, "Oops, just kidding about that specific plan" and starts nationlizing banks, I think I'm allowed at least two snide remarks about socialism, especially since so many people are now platitudinally and incorrectly pillorying capitalism.

3. How we got the housing bubble is complicated, contributed to by both the political left and right, and there is greed and bad judgment and regulatory failure and weird mortgage-backed derivatives all that other stuff. Throw in the rapid growth of world capital (especially because of China) and the pressures brought by high oil prices, and all the pet causes being talked about, and it's no wonder wonder Republicans and Democrats are reduced to just blaming each other. (I know -- it was all Phil Gramm's fault!). But then it got pretty simple: The bubble burst -- that's what bubbles do. My sense is that when government just lets things sort out after a bust (as it sort of did with the dot.com bust), we're better off than when it tries to "fix" things, the most disastrous example being the 1929 stock-market bust.

Fri, 10/17/2008 - 12:16pm

You cannot begin to compare the dot-com bubble with the housing bubble. One is something you'd find with a million others in a bathtub, the other is the stuff of disaster movies.

Of course any reasonable person would ask, "What the--?" when told that something they didn't know about two weeks ago was about to drag the whole country down and we have to pass this package now now now. I certainly did. But when people say, "Let the chips fall," I think they're obligated to add, "The falling chips will likely land on your head," because when the commercial credit market seizes, it's goodnight Irene for an awful lot of people.

This is what I mean about bumper stickers. I don't think most people have the slightest idea what a world without credit would be like. It's very easy to say, "Yeah, well, people would have to live within their means, and high time. My neighbors got a second mortgage and spent it all on cruises and jewelry, and that's wrong." But it would also mean most, maybe all, farmers wouldn't be able to plant crops next spring, because they don't have a few hundred grand in cash lying around to buy seed, fertilizer, pesticides, fuel, etc. A tool-and-die company gets a big order but can't fill it because they can't buy raw materials. They're not kidding when they call credit the lubricant of the economy.

That's not just a ripple effect, which is what the dot-com crash was. That's a tsunami.

Larry Morris
Fri, 10/17/2008 - 12:28pm

Of course we can compare the popping of the dot-com bubble with the housing bubble, we can make any comparisons we like and you can disagree with them - that's what this is all about. But, since neither of us (or all 3 of us) are economists, I think we can all have our own well-researched opinions as to what the problem is and what will solve it. And, I simply point to my last post - I stand by it, ...