Wednesday, September 24, 2008


Anyone else out there worried that the economy as we understand it won't exist anymore in another year or so? I'm sure there's nothing to be worried about. I mean it's not like all the financial institutions are interconnected in one big web or anything. Actually I have no idea how it's all going to turn out. Can't say I'm happy about the government bail out plan costing 700 billion dollars. And I still don't completely get why this bail out is necessary and bailouts of things like Lehmans and Worldcoms don't need to get considered. But to top it off the thing about this that I really don't get is this line in the bailout plan for the execution of spending the money:
Sec. 8. Review: Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

Is it just me or is that a huge blank check that we're just suppose to trust he's going to spend in our best interests. Part of me understands limiting oversight since too many people involved gets too many agendas involved and then prevents anything from getting done, but no oversight at all? And we're just suppose to trust them to make decisions in our best interests? Nope, no sir, I don't like it.

And I really don't like what this means for the next President whoever it may be. The fact is this is going to be a huge hit and it's going to leave very little money for other projects in the coming years. Obama has at least admitted that the bailout may force him to rethink some of the plans he had. And he's hedged that by saying he still plans to implement all of his lofty goals, but will have to evaluate their feasibility when the time comes. That's politician speak for "I don't think the money I need to do what I want is going to be there." McCain has decided use more forceful wording saying he still plans to go ahead with all his changes and doesn't even qualify it with a "we may need to reevaluate". I feel that's being a bit dishonest though, since it would be like me saying I plan on taking a trip to the moon next year knowing full well that there's no way I can make the trip. I just don't get how either of them can legitimately say they still *plan* on being able to do everything on their agenda with this bailout situation when it's obvious the bailout will force concessions in what either of them want to implement. Basically that's saying the plan is now to run the deficit up even more and bring in less revenue and then do more with less money. This sounds like a great plan. Of both their statements at least Obama is acknowledging the reality of the situation whereas McCain seems determine to just pretend the problem doesn't exist (after all, the fundamentals of our economy are strong, right?).


wtfree3 said...

James - I was going to make this comment on your other thread, but never got around to it. Neither guy's plan is valid - the revenue plain wasn't there, even before the latest challenges. Typical wishful thinking. Tax raises for many (most?) are likely necessary, especially if current economic malaise is going to be contained. Current borrowing rates cannot continue.

Also, don't think of it as $700B lost. That's upfront capital that is probably going to be committed. In the end, those assets will be sold off - there's a chance that, if the contagion is contained, that the government could even turn a profit on this whole thing. I'm expecting this to ultimately cost $200B to $300B net, when the whole thing is finished. (Just a wild swag.)

That's in part because I don't think the pain is over. Far from it. But this is absolutely necessary to keep some level of credit flowing around the world. You're right about the interconnectedness. This isn't a US problem we're facing - it's a global problem.

And I'm all for turning the screws on these entities. There should be a reward at the end of the tunnel for keeping things greased. (At least, for this go round. This may not be the end of the damage.) So, let me caution by saying - I think this bailout will only cost $200B or so net. But I have a feeling other things are going to be necessary before the global economic situation gets righted.

JamesF said...

Yea, I had heard that they might be able to resell some of the assets and potentially turn a profit. But they didn't expect for that to happen until many years out (if ever) I thought.

And I've heard there's the potential that we might lose our AAA credit rating (I don't think there's a large chance of that, but there is a chance), which would be all kinds of bad.