Just because Goldman Sachs was not a conservative bank (it has a long and proud history of being an agressive trading house), does not automatically mean that it was corrupt.

Did Goldman Sachs make a trade in sub-prime mortgages? Yes absolutely. But so did Fannie Mae and Freddie Mac -- agencies of the US government. In fact until quite recently, trading in sub-prime mortgages was considered good for the economic welfare and living standards of the average american. We went from a chicken in every pot to a kitchen for every port.

Perhaps corruption means something different to me than it does to you. But I don't see where Goldman's business deals corrupted anything or relied on the corruption of anything. Goldman identified that sub-primes were going south well before the market had a clue and got out of their positions. Just because they didn't announce to the world that they thought the housing market was going to go to crap doesn't mean they are corrupt.

Which brings me back to my original point -- even if you exclude goldman, there are many other financial firms with risk exposure to a liquidity crunch because the essence of modern banking is to lend more money than you have assets on deposit. To say that financial firms deserve to be 'punished' to correct for their risky behavior is to implicitly acknowledge that banking as a whole is a confidence scam and the use of credit to conduct finance should not occur.

Do you really want to revert to a feudal finance economy?

Memory is a strange bell, jubilee and knell.

Yes, I do consider mere participation in  the sub-prime mortgage industry as corruption.  They bought off the rating agencies.  They were selling snake oil, and they knew it.  They only way Goldman didn't go down with the others was by repeatedly shorting their own issues.

Fannie Mae and Freddie Mac results were based on accounting fraud, so grouping them with Goldman as good corporate citizens doesn't exactly make your case.

Most of these banks need to be punished, but after you wipe out their managers golden parachutes and the banks' equity and corporate level loans, I don't see much value in trying to prevent a moral hazard by punishing their customers.

Raising the FDIC insurance limit from $100,000, where 63 percent of deposits are already covered to $250,000 will actually do very little, since the main problem is banks not being willing to lend to other banks, and a $250,000 limit for a bank is effectively zero.  The limit really needs to be eliminated altogether.

To say that financial firms deserve to be 'punished' to correct for their risky behavior is to implicitly acknowledge that banking as a whole is a confidence scam and the use of credit to conduct finance should not occur"

As for the shadow banking system and the CDS market, let them crash and burn.  Obviously the nearly identical collapse of the Enron-led energy derivatives market just wasn't large enough for anyone including Congress to decide that this kind of unregulated exchange needs to be regulated to reduce co-party risk, so let the AIG-led CDS market burn until market participants actually want it regulated.

As for the Paulson-led bailout plan, yeah it works, but it works with an efficiency like filling a teacup on the ground by pissing at it from a rooftop.  Reputable economists mostly view it with scorn.

Yes, I do consider mere participation in  the sub-prime mortgage industry as corruption.

That's a rather harsh assessment of government-mandated behavior, don't you think?

I meant participation in standard practices of the sub-prime mortgage industry of the time.  There's nothing in itself wrong with sub-prime mortgages.

The FDIC insurance is a joke in the first place given that there isn't enough in the fund to cover even a substantial percentage of existing deposits. That would be another bailout.

It is easy to buy small plaster models of what you think life is like.

But so did Fannie Mae and Freddie Mac -- agencies of the US government.

Fannie Mae and Freddie Mac are NOT agencies of the US government.

And you are making that argument based on what?

Fannie Mae and Freddie Mac used to have a status similar to the Federal Reserve. Now the government has acknowledged that they will cover the obligations of both corporations. How exactly are they different from say the Department of Agriculture?

Memory is a strange bell, jubilee and knell.

Laudable. But I suspect our fellow americans are not really too interested in facing a radical decline in their lifestyle (doing pushups for the failure of banks) just to drive home the issue of due diligence and ethics.

Corporations don't have any inherent morality. They are legal vehicles manned by humans who will go on to work for another corporation if the present one they work at fails. You can't 'teach' ethics to a corporation, and insofar as teaching ethics to bank managers -- who do you think they'll listen to? You or an annual bonus often greater than their annual salary?

Memory is a strange bell, jubilee and knell.

"I don't know what was so great about the depression."
"And how did it sneak up on us, so silently, almost on little cats' feet?"

This is pretty bad.  It's not in a class with Palin, but it's still pretty bad.  It's passing blame for the financial crisis, followed by an explanation of what was wrong with the original bill (to pass blame for delay) and how the Democrats improved it so that it's now good enough, in her opinion, to pass, and gets a bit more on point in the second part.

I'm not feeling a whole lot of love for Pelosi even from Democrats at the moment, and haven't for quite some time.  Maybe we'll have a challenge for the speakership in January.

I'm a bit baffled by the continuing obsession over the 40% of Democrats who didn't support the bill while ignoring the 67% of Republicans who didn't support it.  It was, after all, initially proposed by the Bush administration and the treasury department.  Pelosi and Obama look bad for not being able to turn out more of their party, but what about Bush and McCain?  Don't they look at least as bad?

Have you ever considered that maybe it was just a bad bill, and failed on its merits?  Would you really want your congressman to support a bill this important just because a party leader told them to?

Pelosi and Obama look bad for not being able to turn out more of their party, but what about Bush and McCain?  Don't they look at least as bad?

Bad, yes. As bad, no. The bill failed by 12 votes. Democrat "no" votes included at five committee chairs and the second-highest ranking Democrat on the Banking committee. These people owe their appointments to Pelosi. If she can't even corral them for the most important bill of Pelosi's career, what the hell is she doing in the Speaker's chair?

Have you ever considered that maybe it was just a bad bill, and failed on its merits?

That's certainly possible. But, one would presume that if the representatives in the House know enough (or at least, think they know enough) to recognize this as a bad bill, they should be able to revise it or propose a better one. They haven't. What they have done is take a two-day vacation -- not exactly the wisest choice in the current environment.

Not only have I considered that it was a bad bill, I believe it was a bad bill.

You have an excellent point about Republicans rejecting a proposal by the Bush administration.  Bush also has little control over Republicans in Congress. But, then, no one really thought he had that control after 2004 or so.  Pelosi, though, is supposed to be running the majority party.

She lost them by leaving support for Main Street out of the bill, on the promise that the Republicans would deliver the votes to pass it.

So much for Republican promises.

We need a bill that Democrats can vote for, and let Republicans suck ass for voting against it.

What sort of "main street" things do you think there should have been in the bill?  All the people with resetting ARMs will be taken care of with the $300 billion bailout that passed in July, right?

One thing that was left out of the bill was the measure allowing bankruptcy judges to rewrite the terms of mortgages.

They can rewrite the terms of any other sort of debt already.

Another item that was dropped was a tax on the financial firms themselves to help pay for the bailout.  Heaven forbid they should pay!

The Fannie/Freddie bailout obviously didn't take care of the banks' exposure to bad debt.

"Another item that was dropped was a tax on the financial firms themselves to help pay for the bailout.  Heaven forbid they should pay!"

What kind of sense does it make to give money to someone and then turn around and take part of it back?  How about we just decrease the amount of the bailout and call it even?

If the banks stay in business, they have income.  That income can be taxed to pay back the bailout.  If they fail, they have no income, and the economy goes into a dive.

I have no doubt that we would eventually recover from a crash, but it's going to hurt a lot of people who aren't responsible for the crisis, and the people who are responsible already have quite a few feathers in their nests.

If these financial institutions return to profitability they will be taxed, at one of the highest corporate tax rates in the world.  Is there some reason that rate should be even higher?

one of the highest corporate tax rates in the world.

The book rate is high...the practical rate is very low, because it isn't an income tax, it is a profits tax, so business expenses are not taxed.  For example, I recently calculated that Exxon paid only 11% on its corporate income, because it was taxed on profits after deductions.  In Ireland, they would have paid 12.5%, because Ireland has a corporate income tax, not a corporate profits tax.

Is there some reason that rate should be even higher?

To pay for having their asses saved.

Corporate and personal income tax as a percentage of income for a variety of countries:

http://en.wikipedia.org/wiki/Image:Income_Taxes_By_Country.svg

You will notice the US is second only to Japan.

I have to wonder how that graph was calculated, since the maximum corporate profits tax rate for the US is 35%, but they show the mean income tax rate as 39%.

That math is beyond me.

You might have followed the reference to the underlying OECD report.  The source data for the chart is here: http://www.oecd.org/dataoecd/26/56/33717459.xls .

The corporate tax rate is listed as 35%, which they adjust down to 32.7% to account for deductions.  They then add in 6.54% for "sub-central" taxes.  This is described as "This column shows the basic sub-central (combined state/regional and local) statutory corporate income tax rate, inclusive of sub-central surtax (if any).  The sub-central rate is a weighted average state corporate marginal income tax rate."  The total is then 39.25%.

The fact that whole wheat bread costs roughly three times as much has white bread despite using less wheat has always struck me as saying something very fundamental about our economic system.  Perhaps your price gap is less, but mine is fully three times.

If you thought that was bad, wait to you see what they do with the toilet paper.  Then they make you wait in day long lines for it.

Wow, that is some convincing logic.  Clearly all of the constituent correspondence against this bill is coming from mouth breathing, bible-thumping, young-earth believin', mouth breathers.  Those idiots don't deserve to have the opinions represented in laws that will directly affect their finances.  They should just shut up and listen to all those smart folks whose best argument is "doing something is better than nothing".  What could they be thinking.

They should just shut up and listen to all those smart folks whose best argument is "doing something is better than nothing".

Look, if you're a Republican in Congress this morning you've got two choices here.  You either vote for the bill, or against it.  There's no option "C" to propose a new bill - there's a time limit, and in any case the leadership of both parties has agreed on this compromise plan, so it would be a hard sell to get anyone to vote for something different.  That's the reality you face - for or against.  If you vote for it, you get a bill you're not thrilled with, but one which Wall Street has been crying for, which a large chunk (if not all) of economists think is necessary.  You know the Dow will drop like a meteor if no bill is passed.  You know that a lot of people think that we could be on the verge of a serious recession or even a new Depression.  So what are the possible outcomes?  If you pass the bill, what's the worst thing that happens?  You chase good money after bad.  You raise the debt ceiling.  Maybe the economic downturn happens anyway.  Still, it slows things down.  It gives everyone time to react a little more.  It gives a base on which to build (or to tear down) with further legislation.  Now what's the worst thing that happens if you vote against?  You risk catastrophe.  The markets aren't going to wait for another bill.  They'll tank (and are tanking) right now.  The die has been cast - there's no turning back.  No chance to try again.  By voting against, the decision was made, then and there.  If things go to shit, there's no "woops, let's try a re-do" option.  So, I sincerely hope that those who argue that this bailout isn't needed were right.  We're going to have to live with that decision now, one way or the other.

"The point of having a representative democracy is to allow those representatives to go against their constituents when their constituents don't understand the issues well enough to have an informed opinion."

Who are these representitives with "informed opinions"?  

"Probably this bill isn't exactly the right thing, but it's still better than nothing."

It might not help. It could make things worse. Once it's passed, it makes doing something else that much more difficult.

Let's have a rational debate about what to do. It would be easy enough to bring critics of the plan who actually know something to DC to discuss their concerns with Bernanke and Paulson.

Think about it this way.  Starting from scratch, who, other than a former Wall Street investment bank CEO could possibly come up with this plan?

We're going to buy bad mortgages, and we're going to pay more than we have to.  We're going to just give away money.  How much are we going to overpay?  We don't know, but I'm sure the former CEO of Goldman Sachs knows how to control runaway greed, so we can trust him.

Banks are failing all over the place due to bank runs, and federal t-bills are trading for negative interest rates because they're safer than putting your money in the bank.   But we aren't going to expand the existing FDIC safety net which already exists, in order to restore confidence in the banking system. Saving the banking system is the goal of this bailout, but we don't want to do anything directly to make the banking system safer.  We aren't going to make sure banks have adequate reserves.  We aren't going to recapitalize the banks, and extract equity in return.  But if you bought MBS, we want to give you cash!  Not even from the US?  No problem.  We want to give you cash!

And yet the main response to people who saw this coming and tried to warn us has been a stream of personal attacks and questions about their sanity.

What is the mainstream, approved answer for getting us out of this whole we've dug ourselves into? Keep digging. Sounds great, doesn't it?

I agree. I'm suspicious of Paulson's motives too. Even if we give his motives the benfit of the doubt, he can be biased for non-sinister reasons.  It's hard to see how his background isn't skewing his judgment.

If they evaluated the other options and rejected them, say why. Why not do  conditional loans like they did in Chile, which would cost less and result in less governmental intrusion into the financial markets? Just explain why this is the best plan.

"we don't want to do anything directly to make the banking system safer"

This is crucial. From what I can tell the bailout's goal is to tape Humpty Dumpty back together, and we can all go back to exactly like how it was before the bailout. We should be making an omelette out of Humpty Dumpty.

But, but, but... isn't Humpty Dumpty the entire US free market system?  We can't get rid of him, just because of a few bad apples.  Why do you have America?

They wanted a bipartisan bill so that they could fade future heat from the bailout's possible failure on Republicans when/if President Obama and Democrat control of Congress extend the current crisis another two years. Period.

Gee, nice projection.

A much more extreme plan may well have been able to pick up all 95 of those Democratic votes with no problems (and now I'm guessin that's exactly what we'll see).

I figure more than a few of those Reps are willing about losing their seats in a little over 4 weeks (see the quote in the subQ). I doubt much would mollify their constituents. I think this was larger than demands for a little extra in jobless benefits or the like.

Now it looks like they'll get nothing...hope they're happy with that.

I, for one, am happy with that.

I figure more than a few of those Reps are willing about losing their seats in a little over 4 weeks (see the quote in the subQ). I doubt much would mollify their constituents. I think this was larger than demands for a little extra in jobless benefits or the like.

My feeling is that the biggest opposition to this bill is coming from Republican free marketers, more than from Democrats.  The free marketers are opposed to the bill on principle.  The Democrats were opposed only because the bill wasn't extreme enough (i.e. it was a bailout, not an out and out nationalization with punitive measures for stockholders, what have you).  By deep sixing this bill, the Republicans cut off the bailout option, but that doesn't mean we won't see anything.  I think it just guarantees that we'll see a much more extreme bill, one that will be able to get that 95 vote support.  So you won't be happy with that - you, and the Republicans, will see exactly what you didn't want come to pass (unless you did want an extreme nationalization, or something - but I'm doubting that's the case?).

The Republicans got a decent chunk of what they wanted, but instead of just taking that they demanded the whole cake.

Yeah, it's almost as if the Republicans knew they were being used as political cover. Funny, that.

Still, this kind of stunt says volumes about why Democrats hate Karl Rove so much. He has the stones to take the kind of action they want to, but are too mealy-mouthed and passive aggressive to do themselves.