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September 21, 2008

A brief history of U.S. government bailouts

ProPublica created a handy table of U.S. government bailouts since 1970.


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Al Gore wouldn't have started the Iraq War.

Al Gore wouldn't have turned a budget surplus into a budget deficit.

And you know this how?

Since when have we ever tried to B.S. our way around the failures of Democrats? We know how miserable they often are at protecting our interests. The difference is, they're at least half-assedly trying.

Cass, I don't think they are.

An investment bank doesn't have to treat the debt of people who can't afford their houses as a valuable "mortage related asset."

It doesn't follow that if Fannie Mae and Freddie Mac encouraged house loans to people who couldn't afford them, that the federal government should now buy "mortgage related assets" from investment banks.

parse -

Al Gore was against the Iraq War before it started.

Gore would have continued the economic polices of Clinton-Gore which gave us a budget surplus.

God knows, if there's ever been a presidential candidate who knows a thing or two about banking, it's John McCain.

And what parse said. There are any number of issues where the difference between the D's and the R's is clearly defined. This isn't one of them. The Dems are every bit as compromised as the Repubs, and I fully expect them to cave to Bush on this obscene bailout proposal. I'd still crawl over broken glass to vote Obama this year, but the notion that he (or any other Democrat) is going to "get tough" with Wall Street is laughable on its face.

In order to have real debate about questions of this nature, you would need an actual Left, something this country doesn't have.

"I am not sure that anyone would have or could have seen the fallout from AIG's credit default swaps."

People within the financial industry saw this coming a few years ago. When the debt to equity ratios were raised from 8 to 1 to 30 to 1 for larger investment banks, I remember reading a couple of articles in the FT and Economist who warned of grave consequences. The regulators who made the changes argued it would allow companies greater flexibility to meet the demands of a hard charging bull market. However, this past bull market was quite different from others: it was mostly run up via the deflating dollar.

My financial adviser warned me to stay away from the major investment banks and debt conglomerates like AIG well over 2 years ago, despite the stocks' performance. So don't say that no one saw this coming. It was widely predicted in the financial sector, the only thing people didn't know was when exactly the floor would crash. The companies themselves didn't do much to rectify their problems because the side effect of taking on those massive debt assets was a surging stock price which made investors (like me) happy in the short term.

"Cass, I don't think they are."

Do you have a more scientifically exact percentage of assedness in mind?

Do you have a more scientifically exact percentage of assedness in mind?

Sadly, no. But the question made me smile. Thanks for that.

Phantom, by 2006-7, most of the subprime loans had nothing to do with Fannie and Freddie. They were made by private banks with no federal guarantees. Reforming Fannie and Freddie could have helped in 2003, but by 2007, it was too late.

Eric, the Clinton-Gore policies gave the US small deficits or at most a balanced budget. The surplus came from windfall capital gains tax revenues from the tech bubble, and would've evaporated or been greatly reduced by 2002 even without the Bush tax cuts. Phantom is right here - Clinton's economic policies contributed to the bubble every bit as Reagan and the Bushes'.

Uncle Kvetch, the actual Left you wish for is exactly what the US doesn't need right now. Leftist ideologues know about economics even less than rightist ones. The world has enough leftist governments for us to see what leftist economic policy brings: universal health care, universal literacy, and sometimes good labor rights, but very little economic growth. Cuba is a good case study here, once we strip away the political connotations.

I do hope, by the way, that everyone in a position to do so is burning up to the lines to their Congresspeople this morning. I'll be there in just a few hours.

Cuba is a good case study here

I would submit that there are any number of intermediate stopping points between our current free-for-all kleptocracy and Castro's Cuba, Alon. But because we don't have a Left to speak of, proposing anything other than free-for-all kleptocracy is met with cries of "Communism!" and horror stories about Cuba--a point you just amply demonstrated.

I guess you're right--everyone is equally guilty, and any attempt to cure the system would be worse than the disease. Best to just give Hank Paulson $700 billion of taxpayer money to bail out his friends as he sees fit. I'm sure he'll do a heckuva job.

"McCain Campaign Manager Paid Millions To Lobby Against Regulation On Behalf Of Fannie & Freddie"

Just think of the straights we'd be in if McCain had privatized social security as he advocated in 04 and invested it in the stock market, and think of what health care in this country would be if McCain gets his stated wish to deregulate it and run it like the banks.

But because we don't have a Left to speak of, proposing anything other than free-for-all kleptocracy is met with cries of "Communism!" and horror stories about Cuba--a point you just amply demonstrated.

First, you need to understand I'm talking about Cuba economically, not politically. Even if Cuba were democratic, it would be poor and capital-deprived; this is my current objection. The same applies to Kerala, which due to its communist state government has had leftist economic development but no repression. Kerala made remarkable achievements in infant mortality, literacy, and gender equality, but has little to show beyond that; its economy has few jobs for educated people, so they all left to other states and countries, so that now 20% of the state's GDP comes from remittances.

(I would say the same thing about Chile, the favorite story of everyone from the center rightward. Forget the repression; economic growth from 1973 to 1986 was dismal, even by Latin American standards, while poverty doubled and foreign debt quadrupled.)

Second, many moderate socialists and even liberals are supporting the Cuban and Keralan models. Amartya Sen, a liberal democrat to boot, is plugging Kerala at every turn. European intellectuals insist that unemployment is not a problem as long as social benefits are good enough (and then act surprised that ghettos with 50% unemployment have riots). American labor liberals, like Robert Reich, actually want trade sanctions on countries without first-world labor standards, even though only in the communist model of development does a developing country even start with these standards. Most development economists, even leftists like Stiglitz and Krugman, don't support this model, but leftist parties do.

On another note, any system that gives anyone power is going to have corruption. It needs to be stamped out whenever possible, but not at the expense of flushing the entire financial system down the drain. Economies with both free enterprise and corruption do way better than those with neither. It's just like how you'd rather the Treasury Secretary be an expert who's an ideologue, like Krugman or Mankiw or Summers, than a random schlub who's neither.

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