Kos continues his blind hysteria re: bailout:

Those of us who argued against the $700 billion based that argument on that facts that 1) we didn’t have a good handle on what the problem was, so 2) it was stupid to rush to a solution that might not solve the actual problem. Throw in the additional fact that $700 billion is a whole fucking lot of money, and it seemed all so absurd.

And of course, we skeptics were right.

And then goes on to cite the new GAO report, basically saying that Treasury hasn’t done a very good job managing some key oversight functions.  Now, this is definitely a concern, and should be remedied, and, in response, Treasury has agreed with 8 out of the 9 suggested solutions from the GAO, but this is a far-cry from being a declaration of failure that kos seems to read it as.  In fact, the GAO makes no such assertion:

It is too soon to determine whether the program is having the intended effect on credit and other markets. While TARP’s CPP could improve confidence in participating financial institutions and may have beneficial effects on credit markets, attributing any such improvement solely to TARP is problematic because of the range of actions that have been and are being taken to address the current crisis. [...]

We have identified a set of preliminary indicators that we will monitor for indications of improvements in credit and financial markets, such as the narrowing of various interest rate spreads that signal perceptions about the level of risk associated with lending among banks, in corporate debt markets, and throughout the general economy and reductions in the cost of credit for banks, businesses, and consumers.

Notice the types of indicators that the GAO will be monitoring, and how they do not include the Dow.  Although, this is exactly what kos cites when proclaiming utter failure of the bailout:

Of course, passing the bailout, and pissing away hundreds of billions of dollars to Bush’s and Paulson’s best friends haven’t really done much to stem the bleeding, we’re in a brutal recession and job losses are piling up in numbers unseen for decades, and the market sure as heck wasn’t propped up.

Needless to say, this is incredible misguided.  The Dow will continue to be volatile and will drop, simply because we are in a recession.  This is not an indicator of health in the credit markets.  Luckily, we have an indicator for the health of credit markets, one that kos willfully ignores in his quest to discredit all aspects of this package, the TED spread:

The TED spread is the difference between the interest rates on interbank loans and short-term U.S. government debt (“T-bills”). [...]

The TED spread is an indicator of perceived credit risk in the general economy.^[1] This is because T-bills are considered risk-free while LIBOR reflects the credit risk of lending to commercial banks. When the TED spread increases, that is a sign that lenders believe the risk of default on interbank loans (also known as counterparty risk) is increasing. Interbank lenders therefore demand a higher rate of interest, or accept lower returns on safe investments such as T-bills. When the risk of bank defaults is considered to be decreasing, the TED spread decreases.^[2]

Before 2007, this indicator typically fluctuated between 0.1 and 0.5.  After it has been almost consistently above 1.  So let’s take a peak at an actual legitimate indicator of credit risk:

As you can see, the TED spread was bouncing between 1 and 2 until the middle of September, when it skyrocketed above 3, which prompted Treasury and the Fed to freak out.  Then, it continued to climb until a package passed, and is now back in the 2 range.  I, like the GAO, am hesitant to declare victory, or even attribute this to the bailout, but I think it is clear that action was taken, and things got better.

So after kos plays his blame-game/i-told-you-so card, what was his proposed plan?  We should have talked about it more:

I understand the argument that had nothing been done, then things might be worse today. That’s an unprovable assertion, but it’s a plausible one. Yet can anyone really argue that had Congress waited a few more weeks for the smart economists and policymakers to weigh in, thus allowing for a better diagnosis and solution for the problem, that things would be that much worse?

You mean, like listen to Krugman?  What did he say when the bailout was trying to be passed?

So what should be done? Well, let’s think about how, until Paulson hit the panic button, the private sector was supposed to work this out: financial firms were supposed to recapitalize, bringing in outside investors to bulk up their capital base. That is, the private sector was supposed to cut off the problem at stage 2.

It now appears that isn’t happening, and public intervention is needed. But in that case, shouldn’t the public intervention also be at stage 2 — that is, shouldn’t it take the form of public injections of capital, in return for a stake in the upside?

Let’s not be railroaded into accepting an enormously expensive plan that doesn’t seem to address the real problem.

This is what every liberal wanted to happen.  Let’s not buy up troubled assets at inflated prices, which would amount to a giveaway to big finanacials.  Let’s inject capital and take equity stakes.  And guess what happened?

The original plan was to use the money in the Troubled Assets Relief Program to purchase, as the name suggests, troubled assets, especially mortgage-backed securities. Well, not anymore, Paulson revealed. Instead, the administration decided that buying troubled assets of financial institutions at the current time was “not the most effective way” to use the bailout package.

The government will use $250.0 billion of the money to purchase stock in banks it deems in need of a boost and encourage them to resume more normal lending. In addition, the focus of the program will change: It will now support financial markets, which deal with consumer credit in areas such as credit-card debt, auto loans and student loans.

Hooray!  We started to do what the smart economists said we should do!  Without having to wait 3 more weeks months to get the House Republicans on board with a bill resembling the Swedish socialist takeover of their financial system.

Kos has just competely lost it with this issue.  He came out so strong against it, simply because of it’s rollout (which was real bad, admittedly) and it’s associations (BUSH!!), that he can’t see reality.

A much larger point I’d like to make here is that it’s really, really easy to be against this bailout.  You don’t need to know anything about credit markets, macroeconomic policy, or finance.  All you need to see is AIG junkets and CEO’s on private jets.  Then you can say, “Where’s MY bailout?” or, the variant, “The [insert last name] household didn’t see one cent from that bailout.”  And everyone will nod their heads and bitch and moan.  But it takes an actual policy discussion to understand that there was a huge fucking problem, and we needed to do something big to avert disaster.

Tags: bailout

This entry was posted on Wednesday, December 3rd, 2008 at 3:52 pm and is filed under Some Pulp. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.