The House today held an entirely symbolic vote on whether to extend to the Obama administration the second half of the $700 billion authorized for the Troubled Assets Relief Program (TARP), better known as the financial sector bailout. By a 270-155 majority, the House voted to block the second half of the bailout funds from being released. As I mentioned, however, this was entirely a symbolic gestures: both chambers of Congress would have had to vote to block the bailout to prevent its continuance, and with the Senate already having voted to extend the bailout, whatever the House did was irrelevant.
Nevertheless, the vote may be interesting from the standpoint of figuring out where the different coalitions in the Congress stood. There is a notion, which I think is a misguided notion, that the proper "progressive" stance is to oppose the bailout. Occasionally, you'll come across an issue that splits the political spectrum literally down the middle, with the most progressive members and the most conservative members of the House uniting on one direction on a measure, and moderates in both parties taking the other stance. Is the bailout one such issue?
No, it isn't. On the contrary, this was a fairly conventional vote in which the more a Congressman tends to define themselves as liberal or progressive, the more likely they were to vote to extend the bailout. The Congressional Progressive Caucus voted in favor of continuing the bailout by a 49-15 margin; by contrast, the more conservative Blue Dog Democratic Caucus voted 27-17 to block the bailout. And nearly every Republican voted against the bailout.
Now, clearly there is room for some difference of opinion here; some progressive Democrats voted to block the bailout, and some conservative ones voted to extend it. Fundamentally, however, the bailout represents a decision to use taxpayer dollars to reinforce infrastructure -- and that is generally speaking the "progressive" position. In this case, the infrastructure was financial rather than physical, and private rather than public. There is, nevertheless, a strong case that the bailout was and remains a necessary evil, and credit markets are one of the few economic indicators that have actually improved. That is not to suggest that there isn't an economic case to be made against the bailout; but beware ideologues (be they Democrats or Republicans) willing to cut off the economy's nose to spite its face.
1.22.2009
Progressive Democrats Vote for Bailout; Blue Dogs Don't
@ 4:35 PM
Subscribe to:
Post Comments (Atom)
35 comments
nice sliding scale graphics, Nate !
very easy to discern the info you want to transmit
amd when you are charting DEM & GOP votes for later issues, just substitute Blue for Green & keep the yellow for INDs
WV -state
I'm confused by the bailout, frankly. I suppose I would be happier with it if it came with some strings-like owning stock in the banks that receive aid.
Listen, when we offer TANFF money to the poor, it comes with strings. The conservative argument for doing this is to de-incentivize the process, so people don't look at it like a substitute for work. I have my own issues with that, including the fact that some of the strings actually prevent people from getting work and the definition of poverty is based on figures from the 1960's that were never updated to meet the times or for specific localities. Still, if we are going to apply one set of standards to lower-income individuals seeking assistance, I see no reason to offer any standards that are less restrictive to major corporations, whose management is hardly starving or close to homelessness.
If anything, an argument could be made that fewer strings on the poor and more strings on the rich makes more sense, since the poor are closer to death than the rich, and therefore in greater need of mercy. To argue the reverse would be difficult to justify.
Interestingly, this is another case of "Congressional Pay Raise" Game Theory. Had the vote mattered, polititions would have to decide between voting for something that they know is likely necessary vs. making the political decision to vote against it to keep less-informed constituents happy. The ideal solution is to be able to vote against the bill but have it pass anyway. Having the senate make this vote irrelevant let the House members reach that ideal.
I would also like to see more strings and more oversight. The last administration promised but never delivered on those two points, they took the $350 billion and did what ever they wanted and we still don't have an accounting. Although I have more faith in the new administration I don't like the idea of giving away more money without first accounting for what has been given away.Other problem I have is that Barney Frank kept saying "up to" $100 billion would be spent on trying to fix the housing market---why "up to"---does that mean that if you spend a buck you will have kept that promise. I still believe that the housing market needs to be stabalized before a recovery will begin.
@Nate "Fundamentally, however, the bailout represents a decision to use taxpayer dollars to reinforce infrastructure"
That's a description of the upcoming stimulus package, not the bailout. The bailout is using taxpayer dollars to correct financial and credit problems caused by corporate greed and governmental negligence.
WV: wenede, as in "boy, did wenede a new president"
Like it or not, the Democratic party, with a strong base in the Northeast and West Coast and emerging strength in states like North Carolina, is the party of the financial services industry. This is a relatively recent phenomenon, but at the end of the day, the party that is the most aligned with Wall Street are the Democrats.
The TARP represents a large government intervention to help a vital area of the economy. Given most people directly working for banks and Wall Street are moderate to liberal professionals, the Southern and Plains based GOP can easily oppose the bailout without any consequence.
Liberals need to understand that currently, we have alliance with (and ownership over) large parts of the corporate structure. This has a lot of implications on bills we pass.
Christopher: You probably should have read Nate's next sentence. "In this case, the infrastructure was financial rather than physical, and private rather than public."
Nate's clearly claiming that the credit markets are a part of our infrastructure. You're free to disagree with that, but it's not helpful to take text so completely out of context.
Agree with Nam Vet Joe on the oversight issue. We have discussed this here before, and the Kos diary Nate linked to made the point as well - in order for the TARP program to regain any credibility, it must be clearly specified what the funds can and cannot be used for. Rather than playing politics and ideological games, why not impose such restrictions, then clarify for the public why the program is necessary and what steps are being taken to ensure the funds are properly spent? A concise explanation, in laymen's terms, posted on the new WhiteHouse.gov site would be great to see.
"[T]his was a fairly conventional vote in which the more a Congressman tends to define themselves as liberal or progressive, the more likely they were to vote to extend the bailout."
Maybe; but couldn't have just as easily been a vote in which the more a Congressman tends to define themselves as liberal or progressive, the more likely the were to side with a president _who has been defined as liberal or progressive_ in his second day in office?
I wonder if an analysis of what the senate do w/r/t the Leadbetter Fair Pay Act might be even more revealing, as the dems have a somewhat stronger majority in the seante than when the repubs blocked it last year (although i think a number of the repubs who were in favor of it actually were voted out.....) a prelude to the Employee Free Choice Act?
That press confrence today at the state department was pretty damn impressive. I know it's a cliche, but it really was like the adults were back in charge. The President, Vice, Madame Secretary and the two middle east ambassadors were all business. Obama's statement of intent was actually more forceful and intereresting to listen to than his inauguration speech. And he even delivered one good soundbite: "A new era of American leadership is at hand." That should definately have been in the inauguration speech.
These things are usually pretty dour affairs. Not this one. Seriously, if you haven't wetched it in it's entirety, you should. Obama would be smart in doing something similar over at the Treasury once Geithner is confirmed. If nothing else, it'll put significant pressure on the Blue Dogs and the scum to support his stimilus package, even if it's Krugman approved.
What happened to the idea of using
the CD block (squares) diagram to show the vote?
(Not saying your graph wasn't excellent, just that you could also
include the block for every vote
you discuss)
I'd kind of like to see the government buy the properties directly at a seriously reduced rate. The banks might say yes because at least they'll be getting something instead of the nothing they're currently getting.
These properties should then be put to good use. Section 8 housing, for example. Or maybe there can be some sort of a scheme that would allow lower-income tenants to 'rent-to-own' the properties over a twenty year period. Some can be converted to government use as offices or made over into public parks.
Abandoned and unmaintained properties are toxic to neighborhoods. They invite junkies to use them as shooting galleries and drug dealers to turn them into crack dens and meth labs. There's alot of abandoned property down here in New Orleans that is contributing to our already bad crime problems.
I would rather see those buildings kept up and in use by somebody, as housing, office space, or something. If the banks are forced to keep them while they're losing money on them (and paying property taxes on buildings that nobody wants to buy), the bank loses, the neighborhood loses when they stop sending people by to clean the place and mow the grass and fix the windows and do other things that don't invite crime into them. Police lose because now criminals have a place to base their operations in, and I imagine arresting someone inside a crack den is probably harder than out on the street where you can see everything around you.
Something has to be done with those properties. If they just sit there and deteriorate, it does nobody any good and alot of people harm
@PorridgeGun-
Do you have a link that has the whole State Department event on video? Is it available on Whitehouse.GOV? I got to see and read bits and pieces and they did look GREAT. Imagine sending a Arab American with a a strong record of conflict resolution as a special envoy to the Middle East- What a strange "out of the box" idea.
I would like to see this box that is so often referred to- it must be quite small and very dark!
All the best to Mr. Mitchell and Mr. Holbrooke, and many many thanks.
@Christopher
Nate is correct, he is talking about financial, non-physical infrastructure. Not about the physical infrastructure (i.e. roads, public transit, etc) targeted by the upcoming stimulus package.
WV: noutiver, as in when Sarah Palin will be in the Whitehouse (with a Canadian accent).
It's still true... no way, no how, no bailout.
No one person should have control over $350 billion with no real oversight. It was a bad idea in September, and it's a bad idea in January. The $350 billion investment we made... worth less than half that today. If we're lucky. Imagine all the health care reform we could have attacked with a $700 billion kick-start.
Most asinine thing congress has ever done was to approve that bailout. They should all resign in disgrace.
@Statler
As I understand it, it's not as simple as buying up mortgages from banks. Most mortgages were broken up into many small pieces and then recombined with other mortgages before being sold off to different investors in the form of a more complex security it really more of a question of if it is possible to track down all the mortgage pieces and buy it in a single piece.
RE: Graphic
I mostly agree with DCM in FL, but it would be cool if the width (or height, I suppose) of the bars was proportional to the size of the respective categorizations so we end up with area imagery consistent with the outcome of the vote. This graphic seems to make it look like the overall vote was close when it wasn't at all.
Thank you, Nate, for this update. I think you are absolutely right about being skeptical of the presumption that the progressive stance should be to oppose the bailout.
Progressives don't want to see a severe economic collapse that will lead to tremendous levels of unemployment (which is already high, with estimates at over 17%), the destruction of small businesses, etc. That doesn't mean that money should be given with no strings or oversight, but the Obama administration has promised extensive restrictions and oversight (even if it didn't appear in the language of the bill for the 2nd installment of TARP).
Anarchists who would like to see the destruction of capitalism probably rightly oppose the bailout. Moronic Republicans who ballooned the national deficit for giveaways to the rich now, at precisely the wrong time, decide to revert to promoting fiscal austerity. Progressives are just trying to find away to help middle and low income taxpayers the best way they can, and letting banks collapse (which is very different than letting their stocks go to zero, which may well happen), is not going to help the general public.
I am continuing to write about the progressive case for the bank bailouts at http://blog.kamichisholm.com.
Opposing the bailout makes sense ideologically from a Blue Dog point of view, as Nate suggested. But another reason, as Nate's suggested in previous bailout-related posts, might be the desire to win reelection. While not all of the Blue Dogs are vulnerable, many come from Republican districts, and even if they are very popular now they know they can quickly lose that popularity if they stray too far from the views of their constituents.
Mighty,
I'm afraid I don't understand what you mean by a mortgage being broken into little pieces. Can you clarify?
My impression was that the toxic debt (mortgages where the borrower just walked away from it and there's almost zero chance of getting the money) was bundled in with non-toxic debt (loans and mortgages that were good) into CDOs. These CDOs, or credit default swaps as they are sometimes called are liek a grab bag- you buy it and don't know how much is good, how much is bad, but the assumption up until this whole thing went boom was that since property values never decreased it didn't matter, because even the CDOs with alot of bad mortgages left you with something that could only appreciate in value, being the houses they were written for.
These CDOs were traded as assets, and the investment banks like Lehman Brothers et al bought alot of them and overleveraged these assets. Until all of a sudden the housing values began to plummet, because the market was glutted with houses and nobody wanted to pay the outrageous costs they had been driven up to right before the bubble exploded. Banks looked around them and saw their normally quite solvent trading partners saddled with CDOs that were depreciating in value, and started to freeze lending, which caused the overleveraged Lehman to implode, since they now had no ability to borrow enough to cover the debts their creditors were calling in on them. same thing with AIG and Merril Lynch.
Now, I am *NOT* an economist, have almost zero interest in economics, and don't pretend to have any idea WTF I am talking about. So, any or even all of what i just said might be total bullshit. But this is how it was explained to me, so feel free to correct me if I've got it all wrong somehow.
I would be interested in a breakdown of politicians who voted 'no' now, but voted 'yes' but a few months ago.
Porridge: The stimulus package, as I understand it, is actually desired by most Dems. It's the Republicans that are trying to cockblock it out of partisanship.
TARP, on the other hand, isn't really going to matter that much anyway, as Nate noted. The Senate did the dirty work for them by not revoking it; this measure was more a, "Well, it's something we don't want to do!" thing.
Statler: That's the problem - no one else understood what was going on, either.
But basically, the way I understand it (and this is horribly simplified) is...
Let's start with six families in Cold As Balls, Upper Midwest State.
-The Does don't have the best credit in the world. But they want to start a family and heard that the Cold As Balls public schools were really good.
-The Smiths have pretty good credit and qualify for a good mortgage. They heard the same thing, and moved with their small family to CAB a couple of years ago. They have stellar credit.
-Juan Lopez got relocated to CAB from Texas a few months ago by his job, a programming firm. His job is pretty secure, and he has good credit. His wife Nina is a lawyer, which also pays quite well
-The Martinezes are recent immigrants from Mexico that work at the local meatpacking firm. They're a fairly large and extended family, and were talked into buying a large house with a subprime by a realtor that said they could afford it if they pooled all their earnings together (about 80k/year between 10 of them).
-The Larsons, who hail from Cheese Eaters, Other Upper Midwest State, decided to also start a family in CAB. As Lars and Olga have both had a sense of responsibility instilled in them, though they don't have a long credit record, it's quite good.
-Senator Coleslaw (R-UM, formerly D-UM (though some would say he's still the latter at heart)) also lives in the neighborhood. When he's not railing about professional wrestlers and comedians, he's investing in property. Though he makes a good living from being a senator, he also invests in real estate on the side, flipping houses. He owns five houses now, and his residence - which he originally bought for $150k - now carries about $750k in debt.
Okay, now that we've got that out of the way...
John and Jane Doe get an ARM to get their dream house in that new development going up. It's for $600k.
Said mortgage is split into multiple pieces - say, $10,000 dollar pieces.
Their neighbors, the Smiths, have a less exotic mortgage with the same company. The Martinez family down the block also has a subprime, the Lopezes have a regular mortgage, the Larsons also have a regular mortgage, and - well, we already covered the Senator.
All of these mortgages are split up into bits and pieces and combined into securities which are then traded. So, you might get a bit of the Smiths, a bit of the Larsons, a bit of the Does, and maybe a touch of Senator Coleslaw's. Though it contains risky ventures (the Does, the Martinezes, and the Senator's), as a whole it should appear responsible (from the Smiths, the Larsons, and the Lopezes).
Repeat ad infinitum, and bet on the probability that X mortgage defaults, and I think you end up with the US housing market circa 2006.
Now say the Does and the Martinezes default. Instead of that being on just one person, that impact gets spread out all over the place, and since there's a house of cards built up on top of that...you can see where that goes.
If it's just the Does or the Martinezes, then it's not that bad. If it's half of Oh God My Toes Lane and a third of I Can't Feel My Nose Drive - and that's representative of the country at large? Houston, we have a problem.
This is a rough explanation, and I am not an economist, but I think that's the gist of it.
Chris, that was amazing. Now can you explain how that ripple effect led to the collapse of AGI?
I'm not sure I would agree that the bailout is equivalent to an "investment in infrastructure," but I do agree that something along those lines is a "necessary evil" as Nate put it. However, I think it's pretty clear that the bailout so far has been poorly executed, to say the least. I would have liked to see Congress delay releasing the second half of the money until the administration agreed to provide some reasonable accounting of where the money went and to attach at least a few strings to make sure those receiving the money use it as intended.
Regarding the discussion about buying up mortgages - it's certainly instructive to understand the way that securitization of mortgages let the people who wrote subprime loans escape any consequences if the loan couldn't be repaid ... but subprime mortgages were really just the tip of the iceberg - the problem turned out to be much bigger because the banks were so highly leveraged. I think in the case of Bear Stearns it was something like 30:1. To put it in more comprehensible terms, if you were Bear Stearns, you would have taken out 30 mortgages on your house and then invested all that money, say, in the stock market. If your stock holdings went down even a little bit, you would owe more than your holding were worth - i.e you'd be completely insolvent and your 30 creditors would never get repaid. If they in turn were leveraged to the same degree, they'd be out of business as well, and so on. That's basically what happened, and why just buying up subprime mortgages won't make the banks solvent again.
The key point is that the House vote was purely symbolic. I'm surprised any of them actually went on record as supporting this, under these circumstances.
That said, I can't support free money with no language in the bill to ensure accountability. I have some degree of faith in Obama to do things right, but until proven otherwise, I have no confidence in Geithner, who was up to his eyeballs in the bailout of his Wall St. cronies - and I'm talking about a kind of institutionalized corruption, whereby they didn't have to account for how they spent the money in any way and could pocket it personally. Furthermore, the guy did clearly try to get away with cheating on his taxes, and while he paid them eventually, he is thereby unsuited to running the IRS.
I'm glad that Obama imposed cuts on the salaries of his staff. Now, he has to impose salary and perks cuts on the corporate executives who got us into this mess. There must be conditions for Federal aid.
Whomever was first to point out that this vote was meaningless is the winner here. If we want to see where the chips really fall, let's wait for that undemocratic employee "free choice" act to come to vote.
Two Days > Eight Years?
CDO/CDS
@statler
@chris
For not being economists, you guys have quite a bit to say about economics (vbg). If you want to understand CDOs (collateralized debt obligations), go here: http://en.wikipedia.org/wiki/Collateralized_debt_obligation
...scroll down to "Concept" and read the first 2 full paragraphs. You'll probably want to re-read a couple of times to be sure you get it.
Then on to CDSs (credit default swaps, which are an entirely different animal) here: http://en.wikipedia.org/wiki/Credit_default_swap
...read the Description and the section titled Speculation.
Understanding these concepts brings us to the next post.
the banks are insolvent
@statler
@chris
The most important thing to understand about the credit crisis and the bailout is that many of the large US banks are functionally insolvent. That means they are, today, balance sheet worthless and/or can't pay their debts. CDOs and CDSs were among the instruments which they used to get themselves there, but the real culprits in this drama are:
1. too much leverage - Hank Paulsen was one of the leaders of the Wall Street pack who went to Congress and got leverage limits drastically increased, so the big banks were required to provide only $1 of equity for every $30 of assets. This meant a bank which lost 3-4% of its assets lost, effectively, all of its equity - and that's what's been happening. (see also nikip5555 explanation of this, above)
2. too little transparency. The CDOs and other SIVs are impenetrable. They have 200 page prospectuses which can't be read or understood. Nobody knows what they actually own, much less what their business counterparties own. As a result, all of Wall Street lives in fear, and assets which may have had real value can't be sold because nobody can evaluate them - thus their "mark to market" value is almost nothing. I've recently seen CDOs sell for 2% of face value; presumably the underlying assets will pay far more than 2% when sanity returns to the marketplace, but who knows when that will be.
3. SEC/Wall Street incest and corruption. Google "Gary Aguirre" and read up on how your government has been protecting and enriching the rich and powerful at your expense.
Unfortunately, as a result of all this nonsense, what we have in front of us is a situation where somebody must throw enormous amounts of money into the financial system, lest it grind completely to a halt. This is how we got to the bailout scenario.
In a climate of fear, everybody begins to hoard money. This includes especially the big banks, which are nearly insolvent in the first place and, suddenly, in desperate need of cash simply to maintain their operations.
Also unfortunately, the big banks and brokerages are too big, and too intertwined with the system, to be allowed to fail. The gravest error Paulsen, Bernanke, et al have made thus far was allowing Lehman Brothers to fail in September. It was immediately after the Lehman collapse that the situation went from serious to Heart Attack Serious. Lehman's collapse took down with it many, many counterparties to Lehman trades and investors whose assets Lehman held. Investors and funds which had done no wrong except to trust Lehman were suddenly unable to access their funds. Many smaller funds went bankrupt as a result of having their assets entrusted to Lehman.
Once the results of the Lehman collapse began to show themselves, the Fed and Treasury apparently fully realized the possibility of financial system collapse was real and near. Within 2 days they loaned $85 billion to AIG (which was the largest seller of CDSs and could not cover its obligations), and within a week they were pushing the $700 billion bailout package at Congress. The issue is not whether the funds should be injected into the system - what we're experiencing now is a walk in the park compared with the possibility of a financial system collapse.
Rather, the problem is that somebody has to pay to clean up the mess the banks have made, and the banks are doing their best to be sure that it's the taxpayer, or somebody else, but not them, doing the clean up. Hence, we get a (rightfully) panicky Paulsen throwing huge amounts at them, but without any real structure for accountability, or payback (or clawback, which is what I would like to see built into all this enforced charity).
We hope that a new administration can do a better job of it, but the job of re-funding the nearly insolvent system is a job which must be done to keep the economy running. The alternative is worse.
Statler: Was that sarcasm or not? It's late, I can't tell over this comment interface (in addition to being easy to troll, it's also hard to discern intent), etc., etc.
Phil: That's why I said "as I understand it." I'm not a financial guru by any means, but I tried to explain it to the best of my ability (and, of course, with a bit of humor). To be quite honest, I was hoping someone would take me to task and point out where I went wrong or where I cut corners too much.
Yeah, I know, someone on the Internet just admitted the possibility he could be wrong and welcomes corrections. Imagine that.
I do thank you for the links, though. It's late at night (4 AM, in fact), so I'll likely read them in the morning.
Many pundits are noting that Kirsten Gillebrand is a Blue Dog Dem.
This is Great News! For Peter King!
Paul Krugman wrote a column where he said the Feds are going to have to nationalize the big banks - Set up an agency to take them over. The agency will sell off and get rid of the bad/toxic assets, inject capital, and restore them to solvency. The shareholders of the banks lose everything in this scenerio, I think.
Krugman claimed this is what the Feds did with the Savings and Loan crisis. It was expensive but it worked.
I think Brown in Great Britain is doing something like this.
Otherwise, you just keep pouring money down a rat hole.
Not that I really understand it either....
I don't think you've made a strong case that the bailout _is_ progressive. What's clear is that it is politically bad for conservatives. Also, there are a lot of moneyed interests that want the bailout, and they seem to have made a deal with the leaders of the Democratic party. But I'm far from convinced that bailing out bankers is in any sense a "progressive" policy. Now if the program was nationalizing the failed institutions instead of just handing over big stacks of money with little control, I might agree.
情趣用品,情趣用品,情趣用品,情趣用品,情趣用品,情趣用品,情趣用品,情趣用品,情趣用品,情趣用品,情趣用品,情趣用品,情趣用品,情趣用品,情趣用品,情趣用品,情趣用品,情趣用品,情趣用品,情趣用品,情趣用品,情趣用品,情趣用品,情趣用品,情趣用品,情趣用品,情趣用品,情趣用品,情趣用品,情趣用品,情趣用品,情趣用品,情趣用品,情趣用品,情趣用品,情趣用品,情趣用品,情趣用品,情趣用品,情趣用品,情趣用品,情趣,情趣,情趣,情趣,情趣,情趣,情趣,情趣,情趣,情趣,情趣,情趣,情趣,情趣,情趣,情趣,情趣,情趣,情趣,情趣,
酒店經紀人,
菲梵酒店經紀,
酒店經紀,
禮服酒店上班,
酒店小姐兼職,
便服酒店經紀,
酒店打工經紀,
制服酒店工作,
專業酒店經紀,
合法酒店經紀,
酒店暑假打工,
酒店寒假打工,
酒店經紀人,
菲梵酒店經紀,
酒店經紀,
禮服酒店上班,
酒店經紀人,
菲梵酒店經紀,
酒店經紀,
禮服酒店上班,
酒店小姐兼職,
便服酒店工作,
酒店打工經紀,
制服酒店經紀,
專業酒店經紀,
合法酒店經紀,
酒店暑假打工,
酒店寒假打工,
酒店經紀人,
菲梵酒店經紀,
酒店經紀,
禮服酒店上班,
酒店小姐兼職,
便服酒店工作,
酒店打工經紀,
制服酒店經紀,
酒店經紀,
菲
梵,
Post a Comment