Tfgray’s Weblog

We have an agreement on the bailout! We’re saved!

No, we don’t. We’re dooooomed, well maybe not so much.

What’s up with that?

I’m sticking by my original intuition: it’s a scam. Amazingly, I am not alone in this opinion:

Paulson Bailout a Historic Swindle http://www.thenation.com/doc/20081006/greider

Stop the music, so to speak, instead of allowing individual financiers and traders to take opportunistic moves to save themselves at the expense of the system.

And here’s an article by James K. Galbraith, who doesn’t state things as baldly but offers a more reasoned analysis of the plan. Cliff notes: The bailout is badly thought out and largely unnecessary.

http://www.washingtonpost.com/wp-dyn/content/article/2008/09/24/AR2008092403033.html?nav=slate

Galbraith points out that the basic problem is that the mortgage market became totally corrupted and the problem lies within the mortgages themselves. The notion that these “vehicles” are “too complicated” to unravel is nonsense. People make their mortgage payments and somehow those payments make their way to the correct investors. The notion that the whole thing can’t be unwound and the soundness of each mortgage determined is just not going to fly.

No, the solution lies, like the solution to so many other scandals these past eight years, in old-fashioned law enforcement. Were there abuses? You betcha! From the liar’s loans on the wrong sides of so many tracks to the speculators leveraged up the wazoo, playing Monopoly with real houses, right up to the boardroom, with plenty of retirees looking for safe investments getting schnookered in the process. The notion that the problem can be solved by bailing out the top of the food chain and sweeping the rest of the mess under the carpet is pure gobbledygook. For a more technical analysis, see  Martin Wolf’s article in the Financial Times.

http://www.ft.com/cms/s/0/a09b317e-898d-11dd-8371-0000779fd18c.html?nclick_check=1

But let’s look into the political fallout. In the face of this economic disaster, John McCain’s response began with denial, then partial acceptance, then a desire to jump into the middle of it coincidental to finding an excuse for a bailout of his own, bailing out of Friday’s debate. I tend not to go for economic or political analysis on these things, but look for the underlying psychological logic.

The whole basis of NeoCon thought lies in the concept of short-term gain. At Harvard, back in the 50s, when the concept of the Masters of Business Administration was first hatched, one early research finding was that steering by short-term considerations (such as measuring your success by each quarter’s earnings report) would be more profitable than employing a long-term strategy. Basically, your profits would compound faster. Another tenet of the MBA religion is that you need to privatize your profit and externalize your risk.

This is the thinking that led to Paulson’s plan. Profit is retained for the giant brokerage houses and the risk offloaded to the taxpayers. This is also McCain’s logic. Campaign’s in the doldrums. Hey! Let’s nominate that hot babe from Alaska! Ooops! She doesn’t just look like a Barbie doll…Quick, Robin! The Batmobile to Washington! Then he plots to seize the high moral ground by “suspending his campaign” without actually stopping anyone from campaigning on his behalf. I can imagine the debate, if he does actually show up. “Oh, look Barack! A bird just buzzed your head!” McCain specializes in short-term strategies to leapfrog himself from crisis to crisis. As the editor of The Nation said on Countdown tonight, “McCain’s gone all in, betting on the stupidity of the American people.”

Don’t laugh. Rupert Murdoch’s been betting on that for years and winning billions.

There’s a traditional name for short-term thinking. It’s called “cleverness.” Remember that the next time you hear the phrase “the smartest guys in the room.”

There’s a traditional name for long-term thinking, as well. It’s called “wisdom.” We could use a few wise men and women. I’ve had it with the wise guys.