I was right about what Bush was going to say, but I was wrong about how he said it. This was one of the best speeches of his presidency, if not the best. I was watching in a noisy bar, and got the gist -- but more importantly I got the body language. He wasn't panicked, and he wasn't angry, and he wasn't telling us that we really had to Act Now Or Else. He was calm, and surprisingly coherent, and he took first-person responsibility for the bailout, and he explained the urgency without sounding like he was reacting in a knee-jerk manner.
Put it this way: if Chris Dodd has been a surprise to me over the past week, Bush tonight was a revelation. It was like he was a completely different politician from the one I've gotten used to for the past eight years.
Whoever wrote this speech deserves some kind of medal. It explained complex matters clearly, without oversimplifying, and without talking down. You want the history of the credit crisis in 355 words? I don't think you could do much better than this:
For more than a decade, a massive amount of money flowed into the United States from investors abroad, because our country is an attractive and secure place to do business. This large influx of money to U.S. banks and financial institutions -- along with low interest rates -- made it easier for Americans to get credit. These developments allowed more families to borrow money for cars and homes and college tuition -- some for the first time. They allowed more entrepreneurs to get loans to start new businesses and create jobs.
Unfortunately, there were also some serious negative consequences, particularly in the housing market. Easy credit -- combined with the faulty assumption that home values would continue to rise -- led to excesses and bad decisions. Many mortgage lenders approved loans for borrowers without carefully examining their ability to pay. Many borrowers took out loans larger than they could afford, assuming that they could sell or refinance their homes at a higher price later on.
Optimism about housing values also led to a boom in home construction. Eventually the number of new houses exceeded the number of people willing to buy them. And with supply exceeding demand, housing prices fell. And this created a problem: Borrowers with adjustable rate mortgages who had been planning to sell or refinance their homes at a higher price were stuck with homes worth less than expected -- along with mortgage payments they could not afford. As a result, many mortgage holders began to default.
These widespread defaults had effects far beyond the housing market. See, in today's mortgage industry, home loans are often packaged together, and converted into financial products called "mortgage-backed securities." These securities were sold to investors around the world. Many investors assumed these securities were trustworthy, and asked few questions about their actual value. Two of the leading purchasers of mortgage-backed securities were Fannie Mae and Freddie Mac. Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk.
Of course, one can quibble. Was the credit boom because America "is an attractive and secure place to do business" or was it because Alan Greenspan cut interest rates too much? But as potted economic history, addressed at an audience of millions who have no idea what a bond is, this is first-rate stuff. And the rest of the speech is just as good. In fact, it's exactly the kind of thing that Hank Paulson has signally failed to deliver: he might be good at talking to Wall Street, but he's dreadful at talking to Main Street.
Bush also said quite explicitly that the bailout plan calls for the government to buy distressed assets "at their current low prices and hold them until markets return to normal" -- not to buy them at some notional "fair value" price. Is this exactly what Paulson will do if and when he gets his druthers? I have no idea, and Floyd Norris, for one, doubts it. But with the President breathing on his shoulder impressing on him the need to buy low, the government might not, in the end, lose as much money as I feared on this venture.
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The alternate proposals in the blogosphere about buying equity in the institutions at low prices in order to re-liquify them makes a whole lot more sense to me. Dilute the shareholders and give the taxpayers a realistic probability of seeing a reward on this investment. Simply buying distressed assets that financial institutions chose to sell does not sound like a great plan to me.
Like what?
First, it was FEAR of Al Qaeda to justify the torture (OK, "enhanced interrogation") of prisoners, deprivation of civil and human rights for accused terrorists at Guantanamo, warrantless and illegal wire taps of Americans in their homes and workplaces, and the creation of the bureaucratic beast of the Department of Homeland Security.
Second, it was FEAR of a nuclear-armed Iraq that might attack the United States that led to the Bush Doctrine (ask Sara Palin if you don't know what it is), the use of an elaborate, yet seemingly authoritative lie in the Iraq WMD national intelligence estimate to justify an invasion, and the absolutely unnecessary loss of more than 4,000 brave young men and women and waste of one trillion dollars (or more depending on whose numbers you use) over nearly six years. And, the underlying premise of the invasion--a prospectively nuclear-armed Iraq tied to Al Qaeda--was known to be a lie at the outset. I won't even get into the horrendous mis-management and lack of leadership over the military campaign.
Now, having found a basis in FEAR for attacking our most precious civil liberties and destroying the century-long role of America as the moral leader of the developed world, Bush and his cronies are using FEAR to drive America to make outrageously stupid economic security policies. His speech last night was nothing except about FEAR and the warning that if Americans don't follow his lead, we will all live through an economic h***.
Leadership can not be based on FEAR alone as it has been now for eight years. It must be built on a motivating vision for a better world, a clear understanding of the complexities of achieving that vision and the limitations of the policy and other tools in that effort, and an appreciation that the American people seek the opportunity to excel, not act in irrational FEAR.
FDR said, "The only thing we have to FEAR is FEAR itself." I FEAR leaders who can only try to motivate through FEAR. It is negative, irrational, and ultimately leads to greater societal losses than gains.
no wonder
"the body language. He wasn't panicked, and he wasn't angry, and he wasn't telling us that we really had to Act Now Or Else"
as for turning the bald eagle in to a vulture
fund sweeping up the table at a distressed purchase price, see you in 2012
I liked the style of the speaker too,
he transmits certain feeling
of inminent danger, do you feel it?
great performance, by the way,
who wrote the script? Very good text.
Maybe there is an opportunity
in Hollywood after November,
who knows? call it Reagan W. Ronald.
I already mentioned one in the post directly above the one you quoted. Off the top of my head, though, I would prefer:
(1) To start a government investment fund that invests in financial institutions with a reasonable opportunity of surviving. The government would buy equity at negotiated prices from institutions that direly needed to be reliquified. If the institutions stayed afloat (and the odds would greatly increase if the government is helped them stay liquid), then the government profits from the increase in stock price. The other benefit of this is that the shareholders suffer dilution when the government buys in (why should they get off the hook?). This proposal could allow the market to still punish the institutions yet reward the taxpayers.
(2) If this is really about businesses not being able to find capital, then let the government lend out money directly. Call it a new National Bank. The major benefit of this is not only could the government take advantage of the lack of capital currently floating in the market (high demand, low supply), it could also influence the behavior of financial institutions and keep them in line if structured properly. Not that I particuarly envision Congress structuring anything wisely --- but it's possible.
Very well written and excellent delivery.
The better solution here is for Treasury to make an "all-or-nothing" deal for the securities in question at somewhere between 9 and 12 cents on the dollar. Banks can choose to participate or not, but they do NOT get the option of simply passing the trash to the taxpayer.
Thinking that this plan will be designed in any way to "protect" taxpayers is utterly ridiculous. At best, this is extortion on the grandest scale in human history, and every government official involved in it thus far has proven him or herself either a liar or a dupe.
www2.journalnow.com/co.../
This bailout is complete crap. Either we should find a way to re-liquify institutions that have a chance of survival (with the government making a profit on it), the government should lend out money itself by establishing a National Bank (thereby making a profit), or we should do nothing and let those with reckless lending practices fail and those with the responsible lending practices can benefit.
The last option will be "painful" for a while, but this bailout is going to be even more painful.
Fannie and Freddie became political instruments for providing housing loans to anybody who wanted them regardless of race color or creed or, more importantly, their ability to repay the loan. The NINJA loan - No Income, No Job loans was improbably born because we could not discriminate (that is, refuse a loan to anyone)
And poor widdle Khalid Sheik Mohammed, he had some water put in his nose and he broke like a baby crying for his mama. Too bad - we should give him his rights and let him out so that he can go slaughter more infidels like the score of other ex-Gitmo detainees who returned to the jihad.
This website is for people to talk about making money, not for listening to your half-baked claptrap. Go put your tinfoil hat back on.
Clinton was a pretty lousy President, as well. But it'd be a stretch to suggest he was as bad as Bush II. I'll probably get assailed for this, but the last good President we had was Richard Nixon. Sure, he might've been slimy and somewhat despicable on a personal level, but he understood policy.
"This bailout is complete crap. Either we should find a way to re-liquify institutions that have a chance of survival (with the government making a profit on it), the government should lend out money itself by establishing a National Bank (thereby making a profit)."
What do you think they are doing? Do you not understand that the government will be buying these securities at a discount and holding them till maturity. A lot of people don't understand that a good portion of subprime securities have had no defaults but have been severely marked down because there is no market for them. I highly doubt the gov't is going to lose any money on this deal.
I don't believe the government is going to be buying at a "discount" any more than I believe "Weapons of Mass Destruction" are going to be uncovered sometime soon in Iraq. It makes absolutely no sense for financial institutions to sell off their "undervalued" assets, but keep the "overvalued" ones. No one runs a business that way. The institutions that use this bailout are going to dump off their worst junk on the US government.
It makes infinitely more sense to simply reliquidify the companies by purchasing equity at a negotiated price. That way, the government stands to profit. I don't see them making money off buying the absolute worst assets from the absolute worst institutions.
"Warring against [the principles] of the people,... there is no length to which [the delusion of the people] may not be pushed by a party in possession of the revenues and the legal authorities of the United States, for a short time indeed, but yet long enough to admit much particular mischief. There is no event, therefore, however atrocious which may not be expected." --Thomas Jefferson to Samuel Smith, 1798.
TRANSLATION: Because of the massive and ongoing trade deficits. Foreign 'investors' were gathering billions yearly and had nowhere else to put the money except their reserves (aka US Govt debt).
"This large influx of money ... made it easier for Americans to get credit."
TRANSLATION: Recycling of the trade deficit allowed the US Govt to live beyond it's means without needing to raise interest rates. Ditto for any US consumer who chose to 'live better' through borrowing.
Partial truths well packaged and delivered to the public as reasons for "what went wrong". Notice that nothing is blamed on Govt/FED policy which is what fueled the process via artificially low interest rates and lending to avert past slowdowns.
What they deserve is to suffer from their past decisions and not be rescued by burdening those who didn't gamble with their financial future.
Anyone voting for either the Republicans or Democrats, while expecting anything to change, well, I have a bridge to sell you. Oh never mind, there's no credit available. Want real change? Take a stand and send the politicians in Washington, along with their private sector cronies, a message even they can understand. Vote, but vote for a third party candidate. Otherwise, just get in line with the other sheep and get shorn.
Should read: By the way, those who insist the seeds of the mortgage debacle were sown under Clinton....
Why not suspend "marking to the market" troubled assets? This will certainly help capital requirements.
We don't need this bailout!!!! All of the posters on here that are like "what other plans to we have" please move to China as your entrepreneurial spirit is deplorable -- not to mention you are a sucker.
Let this situation rot in the short term. Now that there is attention to this matter let the market create itself!!
QUIT SOCIALIZING THE RICH YOU FOOLS!!
Have faith in the free-market, and buy a bottle of hot sauce to enjoy with your crow.
ou are a sucker and should yourself move to Mexico so that an illegal can have your free house courtesy of this bailout.
If you actually had two cents in your irresponsible skull, you'd quickly realize that a free market will rise from the ashes of this.
You're no hero, you are a coward that subscribes to "Fear Magazine".
"Screwing over banks in distressed times is a form of price gouging. Why is that acceptable?"
It's acceptable as summer is to winter. Banks have been predatory through aggressive lending to unqualified borrowers thus screwing me over with self-preservationist bailout.
Quit subscribing to the notion that only good things come from government handouts.
This is a short term consideration that YOU SHOULD BE DEMANDING TIME BE DEVOTED. Not some decades old surprise waiting to happen when the credit curtain was pulled away from the wizard.
Is there a serious problem? YEP.
Can capitalism fix it? YOU BET.
Is the Bush/Paulson/Elitist plan a joke? YOUR PATRIOTIC ASS, AND ALL WHOM HAVE DIED FOR THE FREE MARKET WOULD SAY IT IS!
The 'average guy' is at the disposal of banks unfortunately, and if they aren't lending, nobody is producing, and nobody is hiring, people will lose even more jobs, therefore people will default on more homes, and the cycle goes into an even deeper spiral. I hate Wall Street greedy bastards like the next guy, but tell us your plan and how it would work. People keep complaining about how the average American will pay for this mess, but explain how your plan of letting things work themselves out, will go.. I've yet to hear a make-sense explanation of that.
I fear for America if there is no deal. The world has purchased US debt till this time.
If America will not make a deal similar to Paulson's and acceptable to the global banking system, the world as we know it will be dramatically and tragically altered for the long term future -- to America's irretrevable detriment.
For those of you who didn't drink the Kool-aid.
This train wreck is the result of DECADES of irresponsibility, hubris, and greed. There is plenty of blame for all.
It was founded on the rediculous proposition that prosperity could be built out of a mountain of debt. Congress, the FED, and the Treasury all colluded in this because there was so much nice sweaty money that every body got a cut. (Ever wonder where all those fat bonuses and lavish campaign contributions came from?)
This corrupt Ponzi scheme is collapsing because that mountain of debt was built on the back of the American Consumer and we are TAPPED OUT.
That bank that just jacked your credit card interest rate to 30% needs more juice. Nobody will loan them any money or buy any of their toxic garbage assets. The only way they can get any more juice is by CONFISCATING YOU FUTURE EARNINGS using the force of law through TAXATION. Remember "No taxation without representation!"? Our forefathers fought a revolution against an Empire over this crap.
What we are seeing now is a few honorable men (god bless them I care not what political party they spring from) in an EPIC struggle to defend your Democracy and your Freedom against the forces of Fascism.
Anyone who tells you that this plan is "good" for the average American is a LIAR and a TOOL.