Bush and McCain In Sync : Henny Penny and Chicken Little

President Bush tonight:

“The government’s top economic experts warn that, without immediate action by Congress, America could slip into a financial panic and a distressing scenario would unfold,” Bush told the nation. “More banks could fail, including some in your community. The stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet. Foreclosures would rise dramatically.”

Bush and McCain are as in sync as Henny Penny and Chicken Little:

One day when Chicken Licken was scratching among the leaves, an acorn fell out of the sky and struck her on the tail. ‘Oh,’ said Chicken Licken, ‘the sky is falling! I am going to tell the King.’ So she went along until she met Henny Penny. ‘Good morning Chicken Licken, where are you going?’ ‘Oh, Henny Penny, the sky is falling and I am going to tell the King.’ ‘How do you know the sky is falling?’ asked Henny Penny. ‘I saw it with my own eyes, I heard it with my own ears, and a piece of it fell on my tail!’ said Chicken Licken. ‘Then I will go with you,’ said Henny Penny.

This is how we got the Patriot Act. Memo to Congress: Act in haste, repent at leisure.

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    Ooooo. (5.00 / 1) (#1)
    by LarryInNYC on Wed Sep 24, 2008 at 09:30:22 PM EST
    It would be great if the Democrats could manage to saddle McCain with the sobriquet Chicken Little.

    metaphoric excellence (none / 0) (#35)
    by wystler on Thu Sep 25, 2008 at 10:57:53 AM EST
    but bush isn't Henny Penny. that'd be Henry Paulson. (note the alliterative fit)

    tag dubya with Turkey Lurkey (Turkee Lurkee?)


    Politically, I think passing any bill (5.00 / 2) (#2)
    by andgarden on Wed Sep 24, 2008 at 09:39:06 PM EST
    without substantial, obvious, and painful concessions from the Republicans would be very bad for Democrats.

    Essentially, if Chris Dodd can get everything he wants, and Bush can produce a majority of Republican votes in the House and the Senate for it, we should take that deal. Otherwise, forget it.

    IMHO, act at leisure (5.00 / 1) (#3)
    by gyrfalcon on Wed Sep 24, 2008 at 09:56:07 PM EST
    repent in haste.  This bears no resemblance to WMD in Iraq, folks.  The data about what's going on out there in the financial markets-- or more accurately, what's not going on-- is freely available and not in serious disagreement.  Nobody has to take George Bush's, or Henry Paulson's, word for the urgency of the situation.

    If anybody actually listened to Bush's statement, Paulson and Bush have already agreed to an oversight body, some kind of mortgage relief for home owners and restrictions on executive windfalls from the bail-out.

    That should tell you, if nothing else does, that this is no bluff and the situation is indeed urgent.

    Well, he could be right. That doesn't mean (5.00 / 1) (#4)
    by tigercourse on Wed Sep 24, 2008 at 09:56:34 PM EST
    congress needs to give in to his every demand (I like most of what Dodd proposes). He's a crook and an idiot, but everything isn't wine and roses out there.

    I can't figure out if McCain is dumber (5.00 / 1) (#8)
    by ruffian on Wed Sep 24, 2008 at 10:05:53 PM EST
    than I thought or smarter.  I thought he'd run from Bush and leave Obama embracing him on this thing. Where does it leave Obama if Bush and McCain agree on the a bill with most of not all of Dodd's ideas?  

    Could it be that they really are not playing presidential politics with this?  I mean, they were willing to play politics with terrorism and the Iraq war, but not this?  OK, I'm officially worried about it now. I take back most of what I've said in the last week.

    Good for you, Ruffian (5.00 / 1) (#22)
    by gyrfalcon on Wed Sep 24, 2008 at 11:25:08 PM EST
    Despite all the partisan nonsense being spouted all over the place, this is real, not a scam, not a bluff, not WMD in Iraq or al Qaeda operatives hiding under the bed.

    Don't worry about Obama.  He knows it's real, too, and that the core of Paulson's plan is the most likely successful -- and ultimately least expensive -- way of dealing with it.  He's on board with it, and handling it far, far more honorably than McCain, IMHO.

    If you listen carefully, pretty much all the pols but a few are railing and screeching and waving their arms around, but they're not saying they're not going to vote for it, including Obama.  They want to get credit for objecting to it but they know it's necessary.

    Some of the congressional reporters I'm hearing, in fact, think this bill will be approved by Congress in time for the debate to happen Friday as scheduled.  That may be optimistic, but I'd be surprised if they didn't have it done by Sunday at the latest, in time for the opening of the crucial Asian financial markets.


    Frankly O is overlimit (5.00 / 1) (#26)
    by Jeralyn on Thu Sep 25, 2008 at 12:12:49 AM EST
    for anti-Obama comments today. I've deleted those in excess of four.

    Bamboozled (none / 0) (#5)
    by ProgressiveSD on Wed Sep 24, 2008 at 09:58:14 PM EST
    Great move by the righties.  Pass a huge bill before Senator Obama gets elected that pretty much guarantees his administration will be left with no money to fund a universal health care program.  Didn't Bush use the exact same scare politics into tricking the American people to think that Iraq posed a great immediate threat and that we had to act now?  Comeon Demmies, don't get bullied like we did last time.  Why not just use 700 billion dollars to invest in alternative energy.  We'll see new investments, more jobs, and less reliance on foreign energy.  That'll kick start the economy in a better (notice I didn't say right) direction.

    700 billion put into alternative energy (5.00 / 1) (#7)
    by tigercourse on Wed Sep 24, 2008 at 10:00:39 PM EST
    would do nothing to help the financial sector.

    who cares about the financial sector (none / 0) (#9)
    by of1000Kings on Wed Sep 24, 2008 at 10:11:21 PM EST
    if it's this bad now then why would things change in the future during the next 'bubble'...

    these guys made their graves, let them die in it, even if most of us go with them (or at least our HIGHLY INFLATED lifestyles)...

    our country will be better off in the end if 35% of our economy is based upon paper-passing...

    when will we learn that?  how many times must things like this happen before trickle-down-economics is a joke?


    I'll just never understand the "let it all (5.00 / 1) (#11)
    by tigercourse on Wed Sep 24, 2008 at 10:16:46 PM EST
    fall apart and see if things get better someday" philosophy. I'm not willing to risk the health and well being of so many people on that.

    Huh? Now you have a highly inflated (5.00 / 2) (#15)
    by Cream City on Wed Sep 24, 2008 at 10:36:42 PM EST
    lifestyle?  In the last thread, you were going to declare bankruptcy.  Well, I guess now we know why!

    It's not "our" lifestyle, for those of us who pay as we go, as much as we can, to keep down debt.  So -- no thanks, I'm not willing to go to the financial graves with these guys.  But you sure have a shovel to start digging your own. . . .  


    I don't have a highly inflated lifestyle (5.00 / 1) (#30)
    by of1000Kings on Thu Sep 25, 2008 at 02:09:50 AM EST
    America does...
    I'd be homeless if it were not for family, considering the job market right now...

    why else do you think we have so much debt...

    our whole economy is based upon black magic...nothing produced, nothing exported...35% of our economy is produced by money being money, and nothing more...


    correction (none / 0) (#10)
    by of1000Kings on Wed Sep 24, 2008 at 10:12:14 PM EST
    that should be 'if 35% of our economy ISN'T based upon mere paper-passing'

    Bingo.... (none / 0) (#32)
    by kdog on Thu Sep 25, 2008 at 06:32:13 AM EST
    any economy which is 35% based on moving money around is doomed to be needing bailout after bailout after bailout.

    It is not sustainable...sustainable economies need to make sh*t and export sh*t...not just move money around.


    700 billion to bail out the financial sector (none / 0) (#12)
    by ProgressiveSD on Wed Sep 24, 2008 at 10:17:42 PM EST
    is like a tax rebate, short term effect.

    Investors still have a lot of money, just need a new, more profitable market to put it into.  Profit and profit expectations drive investments.  Not bailouts.


    But the short term problem is the (5.00 / 2) (#14)
    by tigercourse on Wed Sep 24, 2008 at 10:24:17 PM EST
    most pressing one right now. The financial sector needs to be shored up. 700 billion into alternative energy doesn't do anything to prevent banks from falling.

    ProgressiveSD (none / 0) (#19)
    by gyrfalcon on Wed Sep 24, 2008 at 11:12:25 PM EST
    Do you have the slightest clue what the proposal consists of?  It really doesn't sound like it.

    As a matter of fact (none / 0) (#29)
    by ProgressiveSD on Thu Sep 25, 2008 at 12:53:08 AM EST
    I was an econ major.  The problem with the plan is this.  Housing prices before the bailout were OVERINFLATED.  They will NOT RETURN TO THOSE LEVELS until demand gets there.  I live in San Diego where the average costs of homes as of now is roughly 325K and the average household income is 70K.  THE MATH DOESN'T ADD UP. The value of houses will have to drop at least another 25% for any reasonable household to afford it, or interest rates will have be essentially 0. How will buying mortgage back securites and waiting till the value of houses increase work?  We'd have to wait at least 10 years.  There is NO LIQUIDITY problem.  Its not like the money that was created by the banks to lend and refinance overvalued homes just dissappeared.  That money is still floating around, just not in the traditional housing sector anymore.  There are just no sound investments right now.  The economy is heading towards a recession and it is just a business cycle, albeit a big one.  Structurally about the only thing I would agree with is insuring money market accounts.  

    Important point I think.... (5.00 / 1) (#33)
    by kdog on Thu Sep 25, 2008 at 06:36:04 AM EST
    No matter how many billions we give to Wall St. and the banks, home values ain't gonna rise, because they were never worth what people paid for them...not even close.

    Any moron, including this one, knows that.



    That's what I thought (none / 0) (#34)
    by gyrfalcon on Thu Sep 25, 2008 at 09:53:21 AM EST
    You have no clue.

    The proposal is not aimed at, is not intended to address, nor does anybody at all think it will improve the broader economy, never mind housing prices specifically, so your whole rant here is entirely irrelevant.

    It is designed to do only one thing, unfreeze the business credit markets and get the flow of money going through the system again.  Insuring the money market accounts helped slightly and temporarily, and it's what has given Congress the breathing room to posture and wrangle and wave their arms around about executive compensation and bankruptcy judges for a few days, but it was nowhere near enough to solve the whole credit problem.

    Paulson's plan will not make life any better for you or me or fend off the likely recession, and nobody ever pretended it would.  What it will do is stave off the looming collapse of the financial system.  That's all.  It keeps us from going from bad to much, much, much worse.


    I bet (none / 0) (#36)
    by ProgressiveSD on Thu Sep 25, 2008 at 09:51:22 PM EST
    You know nothing about bank reserves, liquidity, and how banks created their own money supply during the housing surge.  Some banks will fail, some homeowners will lose their homes, and some investment companies will go under.  At least that will bring the market back to an equilibrium.  This whole nonsense is about people believing that their 401Ks and high house prices were permanent and not overvalued. There are plenty of companies that are perfectly sound with stable financials right now.  This is about the DOW dropping below 10K not about "saving" the financial sector.  The reason for the bipartisan...because both dems and reps have money tied up in 401K and are worried and calling their congressman.  It is an election year.  I'm out.

    Now we've smoked you out (none / 0) (#37)
    by gyrfalcon on Thu Sep 25, 2008 at 10:36:59 PM EST
    Good.  You imagine yourself a free market absolutist, and the hell with the millions of ordinary people who did nothing wrong, not even buy a house they couldn't afford, who might go under.

    Now we know.

    (PS I know a fair amount about bank reserves, liquidity, etc.  Looks to me like you actually don't, though.)


    The Government would have to do two things (none / 0) (#6)
    by supercameron on Wed Sep 24, 2008 at 10:00:34 PM EST
    and very quickly to switch the course of the current financial "disaster".  It should first be noted that this is not a disaster at all.  It's an incident of much-needed deflation in the housing market.  This scares those in Government.  It will ultimately benefit consumers.

    25% of the troubles financial institutions are feeling are due to leveraged purchases of mortgage-backed-securities that turned out to be inaccurately graded.  75% is due to a three line change in an obscure accounting rule.

    What changed?  In the past, public corporations could value bonds and other securities based on their expected return to maturity.  Now, they must "mark security values to market".  Since mortgage-backed securities are fairly new and nobody really knows what their worth, their market prices (what they can be sold for right now) have ALL declined immensely.  Sinse most of them were bought with leverage, those paper losses are being turned in to very large real losses.

    If the President and Congress want to stop the "meltdown" they need to pass a law changing that one accounting rule back to what it was in the past.  If the Congress and the President were from the same party, this would have already been done.  As it is, Congress would never allow such a change.  Politics is politics, after all.

    Secondly, Congress passed and the President signed legislation a few months ago that rewrote regulations regarding sub-prime loans.  In order to qualify for a sub-prime loan, borrowers must now show and adequate income history, a postive payment history, and have at least a 3.5% down payment.

    If you have all three of those, you are not a sub-prime borrower.  You are a prime borrower.  With non-prime borrowers shut out from home purchase markets across the country, prices cannot remain where they are.  They will continue to decline, significantly.

    If the Feds want housing markets to inflate again, they will have to rewrite that law.  Political considerations will not permit them to do so.

    So the "disaster" and the "meltdown" will continue, and they will continue for years.  Housing prices will deflate.  Future home buyers will benefit.  Other than having a few hundred political haymakers in Congress using it to score political points, and of course several millions of dollars changing hands on Wall St, the rest of us will suffer very little, if at all.

    Er (5.00 / 1) (#13)
    by Steve M on Wed Sep 24, 2008 at 10:18:59 PM EST
    Mark to market is most definitely not the problem.  Right now, there is a liquidity crisis because no one wants to loan money to the institutions that hold a bunch of impaired mortgage-backed securities.  If you change the accounting rules to permit those institutions to value their securities differently, you're not doing anything that would give the lenders added confidence.  They're still not going to loan to those institutions because they're still afraid the loans might not get repaid.

    Mark to market is depressing securities prices (none / 0) (#24)
    by supercameron on Wed Sep 24, 2008 at 11:39:40 PM EST
    far below the level they would be at if the rules had not changed.  As a result, corporations are having to write down assets they would not have had to write down in the past.  This is 75% of the cause of the "massive losses" we keep seeing in their quarterly reports.

    75% of this "crisis" is a massive revaluation based on new accounting rules.  If you were reading financial blogs 18 months ago, you saw this coming, because that's when mark to market was written.  It was fully implemented in November of last year.  Losses that had been slowing at the end of 2007 sped right back up in 2008.

    Congress can throw all the hundreds of billions they want into the hole, and mark to market on the $6.5 trillion domestic MBS market will be there to chomp it up.

    On the other hand, buying some of those marked to market securities right now would give you a great return in the future.  Bank of America and JP Morgan Chase are taking advantage of that reality left and right.


    Thr best anti-bailout argument, perhaps? (none / 0) (#16)
    by vector on Wed Sep 24, 2008 at 10:51:47 PM EST
    Normally, I have little good to say about the Republican party.

    But, I think the Democrats should simply take this position, as stated in the 2008 Republican Party Platform - adopted just 3 weeks ago.


    "We do not support government bailouts of private institutions. Government interference in the markets exacerbates problems in the marketplace and causes the free market to take longer to correct itself."

    I would argue that the fact that (5.00 / 2) (#18)
    by tigercourse on Wed Sep 24, 2008 at 11:05:11 PM EST
    Republicans are opposed to bailouts is a point in the favor of bailouts.

    There will be a financial meltdown (none / 0) (#17)
    by Edger on Wed Sep 24, 2008 at 11:00:47 PM EST
    if Congress passes this bill.

       With the creation of the so called Mortgage and Financial Institutions Trust (MFI), the unfolding financial crisis, considered by many to be the worst in over 60 years, has become ever-more dangerous.

        While such an institution has not existed in any country, the MFI could prove to be disastrous for US public finance, economic growth, the dollar, relations with major foreign holders of dollars, the global financial system, and could ignite the worst inflation in the economic history of the United States and reverse globalization to levels not seen since the Great Depression.

        The initial cost of the MFI, put at US$700 billion, could easily escalate to trillions of dollars. At the same time, the Congressional Budget Office had previously projected a record fiscal deficit of US$500 billion for 2009. The MFI will further blow up the deficit to an unprecedented level, exceeding US$1.4 trillion. US debt, jumping with the takeover of Fannie Mae and Freddie Mac to 86% of GDP, has moved to an unsustainable level.

        The financing of previous large fiscal deficits under the George W Bush Administration has already caused external deficits (current account) to widen to 5-7% of GDP, turned national savings negative, sent the dollar plummeting, and ignited rapid inflation, particularly in food, energy, and housing prices. Further financing of extraordinary large fiscal deficits, as required by the MFI, can only disrupt economic stability both in the US and world-wide. It will only further undermine the dollar, exacerbate widening external deficits, soaring energy and food prices, and rising unemployment.

    Nonetheless, the main architects of the MFI, Messrs Henry Paulson and Ben Bernanke, Treasury Secretary and Federal Reserve chairman respectively, are determined to protect Wall Street. They have decidedly transformed the US budget and the US central bank into vehicles that only care for the welfare of Wall Street and divert public resources to bankers, under the guise of protecting the economy and averting systemic risk.

    Albeit evidence of a systemic risk has not been established, vast public resources have so far been devoted to bailouts at the expense of growth-generating spending. The Fed has been pouring billions of dollars into financial institutions, buying worthless paper, and incurring huge losses. To quote Paulson "I am convinced that this bold approach [that is creation of the MFI] will cost American families far less than the alternative - a continuing series of financial-institution failures and frozen credit markets unable to fund economic expansion."

    Contrary to Paulson's claim, domestic credit is still expanding at a fast rate, at 9% per year as of July 2008, and the notion of frozen markets cannot be supported by Fed's published monetary data. Banks have excess liquidity and are still extending loans to safe customers. Certainly they are no longer in the mood of reigniting a new speculative euphoria by lending to speculator and impaired credit.

    And contrary to Paulson's belief, the MFI will in the end cost American families more than other alternatives.


    Asia and Persian Gulf oil exporters will no longer continue to trust the United States with their money. Financial trust, a needed but already a rare commodity in finance, will evaporate. Countries will withdraw from participating in the global financial system and autarchy will once again raise its ugly head. Moreover, oil exporters with large financial surpluses, Kuwait, Qatar, Saudi Arabia and the United Arab Emirates, may cut back their oil exports. Why would they want to sell their depleting oil reserves for worthless paper?

    --Hossein Askari is professor of international business and international affairs at George Washington University. Noureddine Krichene is an economist at the International Monetary Fund and a former advisor, Islamic Development Bank, Jeddah.  

    Now is not the time to panic about anything. There is no impending financial meltdown crisis--that's a figment of the imagination. Corporate America goes into this with cash on hand, knowing full well for over 18 months that the mortgage sector was going to cause this type of a meltdown. The gurus are safe. Those in the know are waiting and watching. The market could lose a lot of inflated, bloated value and America would continue on. This is a sucker's bet, and they're betting we're suckers. And they tried, and failed to run that by the Congress.

    People who are smart about money still have their f***ing money, don't they? And the people who were caught on the bubble are the ones who weren't smart, weren't prepared, weren't ready. And they're scrambling to keep a 500 million dollar fortune from turning into a 5 million dollar fortune.

    Man (5.00 / 1) (#21)
    by Steve M on Wed Sep 24, 2008 at 11:19:36 PM EST
    I would love to see the fuzzy math that allows anyone to claim that domestic credit is currently expanding at a fast rate.

    I'm reminded of the clowns at National Review who keep pulling a new statistic out of their rears every 6 months to prove that the Bush economy is going gangbusters, thanks to those awesome tax cuts.


    Always consider the source (none / 0) (#23)
    by Cream City on Wed Sep 24, 2008 at 11:26:03 PM EST
    and could it be that the readers of the Asia Times might just be able to buy more of this country if it becomes even cheaper to do so in an economic meltdown?  How much of the us does China already own?  Just saying -- it is a source to toss in the mix, but every source has an agenda.

    Just seeing clips of Bush now.... (none / 0) (#20)
    by Oje on Wed Sep 24, 2008 at 11:15:19 PM EST
    I just love watching Bush talk about the economy and "mortgage-backed securities." He is just such a remarkably stupid man that his assertive utterances completely undermine the pretense to seriousness and expertise on the entire subject.

    Wtf? If this tool can read a teleprompter about the cause and remedy of the financial crisis, then of course every American is qualified to speak about the economic crisis. This simp empowers the people to tell the so-called experts in emperor's robes to shove it up their arses!

    Jeralyn, you have a nice site and (none / 0) (#27)
    by Green26 on Thu Sep 25, 2008 at 12:15:05 AM EST
    I'm sure you are a great lawyer, but your above comments about this financial crisis reflect what I view as a major problem with democrats, i.e. they don't know enough about business and don't understand the how the economy works.

    Moving to a different subject, mark to market has contributed to some of the current issues, but going away from mark to market won't solve the present crisis.

    I haven't made any comments today (none / 0) (#28)
    by Jeralyn on Thu Sep 25, 2008 at 12:24:44 AM EST
    about the financial crisis -- as you point out, it's not my area of expertise. But I can comment about what they sound like (chicken little) and McCain's phony response of suspending his campaign and trying to cancel or suspend the debate.

    I am also pretty confident in saying that legislation should not be passed in haste, without an adequate opportunity for reflection and review.


    You have to go fast..... (none / 0) (#31)
    by SomewhatChunky on Thu Sep 25, 2008 at 05:22:52 AM EST
    I really think time is of the essence here.

    The Investment banking industry in the United States disappeared in a week.  There are no independent bulge bracket investment banks left.  That is amazing and very scary.  

    Without the US Treasury, AIG would have been gone and dragged down countless banks around the world that rely on its credit defaults swaps with it.  John Thain sold Merrill Lynch to Bank of America overnight because he thought Merrill Lynch might not be a viable entity in week.   If you are a financial institution and the market thinks you're broke, your stock drops like a rock and you lose access to credit.  You're gone.  Overnight.

    Fannie Mae and Freddie Mac are now under government control.  The losses embedded in the balance sheets of firms holding mortgage and credit related securities are both large and very very real.  It's wishful thinking to guess that holding securities to maturity implies they'll be worth more than current distressed market prices. If housing prices keep dropping, they could be worth far less.

    The credit markets are under tremendous stress.   Banks are not willing to lend to each other - the TED spread (the difference between treasuries and the rate that banks lend to each other) is at all time highs.

    The only thing holding the credit markets together right now is the belief that this deal is going to get done in the next few days.  If this deal falls apart or the markets perceive that it is going to be reviewed endlessly, the risk of a major worldwide crash in the next several days is very real.  Bernanke and Paulson know this and are terrified.  That's what's driving the haste - not some nefarious Republican plot to handcuff Obama when he's elected or ram something through.

    Review and revise all you want in the next 2 days - I believe the plan has to be passed this weekend.