Let's Section-8 'Em
I'm getting the idea that "to section-8" will, at some future time, become a popular political buzz-phrase. Probably not right away, because there's too much hysteria, too much raw emotion, too much manufactured urgency, and too much political pressure. But later, when cooler investigations have had time to do their work and we can look back on an historical incident with some distance and objectivity.
The roots of the phrase will be traced, of course, to the much talked about "section 8" of Treasury Secretary Paulson's proposed "bail-out" legislation:
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.
[Quoted, among many other places, here.]
Wow. This must be the ultimate, corrupt, mendacious Bush-administration's wildest wet-dream come true. Give one guy $700 billion to buy as much of America's financial institutions as he wants with absolutely no executive, legislative, or judicial oversight whatsoever, and do it with only three months left in his term of office. Woo hoo!
Even better, suggest this little gem at what seems like the peak moment of crisis. A perfect storm of extortion. Give 'em the ol' section-8! They're ready, let's section-8 'em now!!
Unfortunately the tactic that can stave off the section-8 maneuver more effectively than any other is time: time for thought about what's going on. Fortunately, it seems that there's a tiny, tiny little bit of that finally going on.
Excuse my ignorance, please, but has anybody explained yet just how financial ruin for some badly run investment firms is going to turn into a giant financial black hole and suck the entire world in? Or are we to be convinced solely on the basis of lots of formerly wealthy people, who really did know better, running around, waving their arms, and screaming that "the sky is falling"?
I understand, yes, that there's hundreds of billions of dollars that had been invested in these remarkably modern and clever–and remarkably stupid and unregulated–financial "instruments".* But, if we read the prospectus very carefully, weren't all of these "instruments" described as "high-risk" (and "past performance no guarantee of future returns")?
I suppose there is a loophole if it was never specified for whom the "instruments" were risky. Ah, we should have caught that one.
Robert Reich, at his blog ("What Wall Street Should Be Required to Do, to Get A Blank Check From Taxpayers"), has some nice suggestions for how to give help–if help is needed–without merely fulfilling more adolescent dreams about Daddy's buying a new car when the current one accidentally smashes into a tree. They're not bad, even kind of obvious to normal people, i.e., financial non-"experts" (my paraphrasing):
- If American tax-payers buy it, they get equity;
- CEO compensation starts to match performance;
- Financial institutions stop buying politicians;
- Financial institutions will now enjoy regulation; and
- Mortgage terms can be adjusted by judges, not bankers.
Of course, you will have guessed by now that I have my own proposal to offer, one that we might call the "Free-Market Ownership-Society Real Capitalism Bail-Out" plan. In three easy steps it goes like this:
- Give $3,000 to every American making less than $250,000 per year (i.e., McCain's middle class).
- Let those Americans use their stimulus [!] to buy stock (without brokers) in the "troubled" financial institution, at whatever low, low price they can get.
- Let the CEOs of the "troubled" financial institutions do whatever is necessary to convince enough Americans to buy their cheap, cheap stock to recover liquidity. (That's the "free-market" part.)
For short, this can be referred to as the "Section-9 Plan".
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*Don't you love the euphemistic distancing that goes on while talking about bad things that one has done but doesn't care to admit too? Sort of a broken-cookie-jar vernacular, in which many inflated and abstract words get used with lots of passive voice.
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on Tuesday, 23 September 2008 at 01.38
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As anyone who ever watched Max Klinger in drag on "Mash" knows, to get a "section 8" is to be discharged from the military for being mentally unfit for service, i.e. loony, bonkers, mad as a hatter, prepared to give the Secretary of the Treasury his absolute,unquestionable and unaccountable power to spend money at will.
I am really interested to hear pundits on radio talking about this bail-out being funded by $700 billion of "tax-payers' money." Because of course it isn't: American tax-payers haven't come close to funding the cost of their government for years. It is yet more borrowed money that will pay for this, in addition to all the money borrowed to pay for Bush's war on terror and the occupation of Iraq, in addition to the money borrowed to cover this year's tax shortfall (another $700 billion)and all the deficits past and future. Now, of course, at some point that borrowed money has to be repaid, but it's not the voting taxpayers of 2008 who will repay it, it will be their children, and their children's children, unto the biblical third and fourth generation.
I am stunned that people will believe the administration when, in a year when they are running a $700 billion deficit, they say that they can find the $700 billion for the bail-out by trimming bureaucratic inefficiencies. Like you can pay for the Rolls Royce by making little sacrifices in the housekeeping accounts.
And I have heard no-one comparing this Republican-administration bail-out of financial institutions using Republican-generated deregulation to fleece customers to the last great Republican-administration bail-out of financial institutions using Republican-generated deregulation to fleece customers — that being the Savings and Loan scandal of the Reagan era.
on Wednesday, 24 September 2008 at 00.49
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A salute to Bill Morrison for his excellent comment, especially that first graf pointing out the well-known Army regulation.
In Jeff's fine post, I nearly decorated the monitor with coffee when I got to Reich's suggestion, "Financial institutions stop buying politicians."
Great idea, but it would mean dissolution of the Republican Party. That's highly desirable goal, but not a very realistic one.
FWIW, Paulson today told Congress his Section 8 nonsense (my word, not his) didn't include provision for oversight because he felt it wouldn't be proper for him to do that, but of course he expected Congress would do that. Yeah, right.
I think this is what's known as the fallback position.
on Wednesday, 24 September 2008 at 10.06
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>>>>…has anybody explained yet just how financial ruin for some badly run investment firms is going to turn into a giant financial black hole and suck the entire world in?
'Cause the times call for hyperbole.
>>>>Or are we to be convinced solely on the basis of lots of formerly wealthy people, who really did know better, running around, waving their arms, and screaming that "the sky is falling"?
Well, they knew better, but they are like the drug addict who 'knows better', but still shoots up. The thrill of it all negates long term judgment.
One analogy is that our financial class is driving a bus, with most of us on it. Now we find they are going 120 mph and heading for a gaping chasm, and Paulsen et al want to take some gas from taxpayers to get even more speed up in the bus to jump the chasm. When we get smoothed out on the other side, then we can begin to slow the bus and stop the weaving. (Any bets that will happen?)
If we let it crash, there may be just a few bruises, or it may be bloody. I know, you never signed up for such a bus ride, but the stores and businesses around you depend on the easy flow of borrowed money. Letting the i-banks fold crimps the pipeline of our modern economy. Those of us out here in the hinterland, clinging to our guns in the bunker, don't give a shit and will have more pickings if they fail.
See, the problem is that lending practices became more LIBERAL. Hear that? LIBERAL. They should have stayed CONSERVATIVE, then we wouldn't have this problem. I repeat CONSERVATIVE = good
LIBERAL = bad
As Bill M points out, we are funding this with the promise of future money. Even this will run out, and we are kind of getting close to that point. At that point, will gov't pull back, or start printing money? Stay tuned. Interesting times.
on Wednesday, 24 September 2008 at 12.07
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Yes, Fred, I think I knew that this was the sort of explanation that's current, although I still think it's lacking in specifics. I do like the sort of reverse Reganism aspect: the giant anchor that sinks the cruise ship sinks all the lifeboats, too. Still, it sounds mostly like a hand-waving (to use the technical, scientific term) argument to me.
But I can't think clearly about it right now. I still have to deal with the discovery that there may exist one instance in which CONSERVATIVE = good. Aaargh!