Keep looking at the birdie
Oct. 1st, 2008 08:33 am![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
solarbirdGood morning.
The Senate will vote today on the bailout package, by voting to amend it to a previous bill passed by the house. This unusual action is required because all spending bills must originate in the House of Representatives, and this amendment route is a parliamentary trick around that. The bill could then go back to the House for a confirmation vote with this amendment added.
I've written a lot - and argued a lot - about why and how this bill is very bad; why I think it's worse than doing nothing, which is also very bad. I've talked about various things that must happen in order to restart interbank lending.
I have not talked about the strange interactions of certain elements in the bill, and the strange behaviours of various foreign governments over the last week regarding that bill (echoed here, here, here, here, here, and here), and the strange assurances - public assurances - of Chief Executive Bush specifically to foreign leaders that the bill would pass, as is, even with the Monday "no" vote in the House. I took it at the time as general reassurance that the problem would be addressed in some form - not that it was this bill or nothing, in an absolute sense. I was apparently foolish in this thought.
You should wish to watch this video from CNBC of House Representative Brad Sherman (D-CA), and/or read the transcript and commentary at the same location. You might also read Karl Denninger's commentary and more detailed - if ranty - analysis here, and this similar one, at Crooks and Liars. To summarise:
The bill contains provisions for transferring assets from not just US banks, and not just foreign bank US subsidiaries, but foreign banks entirely overseas to US banks for the express purpose of Treasury swap. And not just on foreign bank US-originated securities, but foreign bank non-US securities. Now, what does that mean?
It means that if, say, a bank in the UK had a bad investment on an office block in Germany in a securitised vehicle, this bill would enable them to swap it for US taxpayer money in the form of Treasuries.
All it would have to do is transfer it to a subsidary - or, lacking one, any US operation willing to take it for this purpose - and, from there, it goes to Secretary Paulson in exchange for US treasuries. This would be trading US taxpayer debt for overseas defaulted real-estate paper, without any limit or ability to contest it other than the total US debt ceiling, a ceiling which Congress raises reflexively.
This has been noticed in Congress. (After all, it's Rep. Sherman's protest on CNBC that I'm posting above.) However, Mr. Bush has promised a veto on any bill including changes made to prohibit this type of transaction. It's unlimited power to buy up bad real-estate-related assets from anyone, anywhere, or nothing. At all.
This is the kind of thing that happens when you decide to let other governments finance your endless accounts deficits. I have been arguing for longer than almost anyone reading this knows me that the US cannot sustain both large trade deficits and large budget deficits; you could get away with one, but not both. To do both creates either outright default or a situation of reliance on the largesse of foreign governments to continue to finance these deficits. I do not know and cannot demonstrate but do suspect that several of these liens have been called, and now it's time for some payback - to the tune of 1/3rd or so of the US budget, for a start.
If true, one can make the argument that the US deserves this; that it's simply time to pay up for the hideous binge of borrowing and spending that created messes like the housing bubble and so on. Certainly most of the world is making that argument, and I rather suspect believes it. Regardless, all those Republicans who spent the last eight years ranting about how much foreign opinion doesn't matter are about to find out that it does matter, very much.
This bill is very much not in the interests of the US taxpayer, or average US citizen who did not benefit from this bubble. But if this bailout doesn't pass - this bailout which is, at least in some critical part, a bailout of foreign banks - the US could easily become the most hated country on the planet in a very short period of time. It would as a result find doing anything at all dramatically more difficult than it has been even under the Bush administration. It could be seen as the same as a default, with disastrous repercussions for the cost of the current debt - the interest on which alone is the third-largest budget item at $530B, discovering that this cost could double, or triple. That's a hypothetical; I don't know. But that's what it smells like.
Good luck.
The Senate will vote today on the bailout package, by voting to amend it to a previous bill passed by the house. This unusual action is required because all spending bills must originate in the House of Representatives, and this amendment route is a parliamentary trick around that. The bill could then go back to the House for a confirmation vote with this amendment added.
I've written a lot - and argued a lot - about why and how this bill is very bad; why I think it's worse than doing nothing, which is also very bad. I've talked about various things that must happen in order to restart interbank lending.
I have not talked about the strange interactions of certain elements in the bill, and the strange behaviours of various foreign governments over the last week regarding that bill (echoed here, here, here, here, here, and here), and the strange assurances - public assurances - of Chief Executive Bush specifically to foreign leaders that the bill would pass, as is, even with the Monday "no" vote in the House. I took it at the time as general reassurance that the problem would be addressed in some form - not that it was this bill or nothing, in an absolute sense. I was apparently foolish in this thought.
You should wish to watch this video from CNBC of House Representative Brad Sherman (D-CA), and/or read the transcript and commentary at the same location. You might also read Karl Denninger's commentary and more detailed - if ranty - analysis here, and this similar one, at Crooks and Liars. To summarise:
The bill contains provisions for transferring assets from not just US banks, and not just foreign bank US subsidiaries, but foreign banks entirely overseas to US banks for the express purpose of Treasury swap. And not just on foreign bank US-originated securities, but foreign bank non-US securities. Now, what does that mean?
It means that if, say, a bank in the UK had a bad investment on an office block in Germany in a securitised vehicle, this bill would enable them to swap it for US taxpayer money in the form of Treasuries.
All it would have to do is transfer it to a subsidary - or, lacking one, any US operation willing to take it for this purpose - and, from there, it goes to Secretary Paulson in exchange for US treasuries. This would be trading US taxpayer debt for overseas defaulted real-estate paper, without any limit or ability to contest it other than the total US debt ceiling, a ceiling which Congress raises reflexively.
This has been noticed in Congress. (After all, it's Rep. Sherman's protest on CNBC that I'm posting above.) However, Mr. Bush has promised a veto on any bill including changes made to prohibit this type of transaction. It's unlimited power to buy up bad real-estate-related assets from anyone, anywhere, or nothing. At all.
This is the kind of thing that happens when you decide to let other governments finance your endless accounts deficits. I have been arguing for longer than almost anyone reading this knows me that the US cannot sustain both large trade deficits and large budget deficits; you could get away with one, but not both. To do both creates either outright default or a situation of reliance on the largesse of foreign governments to continue to finance these deficits. I do not know and cannot demonstrate but do suspect that several of these liens have been called, and now it's time for some payback - to the tune of 1/3rd or so of the US budget, for a start.
If true, one can make the argument that the US deserves this; that it's simply time to pay up for the hideous binge of borrowing and spending that created messes like the housing bubble and so on. Certainly most of the world is making that argument, and I rather suspect believes it. Regardless, all those Republicans who spent the last eight years ranting about how much foreign opinion doesn't matter are about to find out that it does matter, very much.
This bill is very much not in the interests of the US taxpayer, or average US citizen who did not benefit from this bubble. But if this bailout doesn't pass - this bailout which is, at least in some critical part, a bailout of foreign banks - the US could easily become the most hated country on the planet in a very short period of time. It would as a result find doing anything at all dramatically more difficult than it has been even under the Bush administration. It could be seen as the same as a default, with disastrous repercussions for the cost of the current debt - the interest on which alone is the third-largest budget item at $530B, discovering that this cost could double, or triple. That's a hypothetical; I don't know. But that's what it smells like.
Good luck.
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no subject
Date: 2008-10-01 05:30 pm (UTC)My less articulate but shorter summary: no matter what we do, we are fuuuucked.
no subject
Date: 2008-10-01 05:33 pm (UTC)no subject
Date: 2008-10-01 05:43 pm (UTC)Currently they're nibbling around the edges - Medicare no longer covers care for in-hospital acquired infections, for example, and is planning on cutting coverage for medical work caused by doctor mistakes. (Presumably the doctor's or hospital's insurance would pay that - if you have a lawyer, anyway.) You'll probably see more of that sort of thing.
Generally, the cure is an austerity programme of substance. Nobody's going to talk about that until they have to.
no subject
Date: 2008-10-01 05:54 pm (UTC)This is not pretty ...
no subject
Date: 2008-10-01 07:44 pm (UTC)no subject
Date: 2008-10-01 08:25 pm (UTC)no subject
Date: 2008-10-01 08:37 pm (UTC)no subject
Date: 2008-10-01 08:59 pm (UTC)There are huge general fund liabilities associated with Social Security because of the trust fund mechanism, but that's an artifact of non-Social Security spending in the main budget. The supposed Social Security crisis is a myth.
Medicare does have a problem but it's mainly one caused by the ill-advised Part D. It can be fixed with a national health care plan, which we can have for the tax dollars we already spend to prop up our current insurance-associated system.
The real problems are ill-advised tax cuts, excess military spending, and an economy that is based on speculation, consumer debt, and an unequal distribution of wealth that suppresses economic growth and produces inevitable economic crises.
Austerity, IMF/World Bank style, does not work.
no subject
Date: 2008-10-01 09:05 pm (UTC)no subject
Date: 2008-10-01 10:03 pm (UTC)no subject
Date: 2008-10-01 11:12 pm (UTC)what happens with those? can we, perhaps, transfer that theoretical money, i mean trade those for money we owe? like, say, sell China the debt from Venezuala? is that even a viable option?
it's a thing that has bugged me for years... we operate on a huge double deficit, and STILL loan money to other countries...
no subject
Date: 2008-10-02 12:17 am (UTC)no subject
Date: 2008-10-02 05:23 am (UTC)it was a thought
no subject
Date: 2008-10-02 05:38 am (UTC)no subject
Date: 2008-10-02 05:40 am (UTC)That probably isn't what you meant tho . . .
no subject
Date: 2008-10-02 05:56 am (UTC)Here is a little chart to put some of these pieces into perspective.
no subject
Date: 2008-10-02 07:40 pm (UTC)thats, thats
well, thats actually one of the scariest things i have seen. i knew the DEBT was that high, i just thought it was more balanced by what we loaned. i didn't know HHS cost that much; i have been under the impression that it cost less than the military. at least my anger at the lack of funds for NASA continues to be allowed...
why is the SSA on there? i see why it"s seperate, but am unsure why it is listed at all?
and by the way, this is why i read your LJ. you are awesome and... well, you know :) thank you for trying to teach me
no subject
Date: 2008-10-02 09:24 pm (UTC)The SSA is listed because the "separate" nature of it is a fiction, and the money going into the so-called "lock box" is actually going into the general fund. I do not think, however, that the $100B+/year for the Iraq and Afghanistan wars are included in that chart, however, because unlike the rest, they are not included in the general budget.
no subject
Date: 2008-10-03 05:55 pm (UTC)