Wednesday, September 24, 2008

NYT: "The Issue is Payback, Not Bailout"

David Leonhardt's column on the first business page today is an optimistic, if not entirely unreasonable, review of the choices confronting Congress and the consequences of those choices. But two things he mentions seem to me to be naive, and to ignore them would be to countenance what has become the culture of accepting the inevitable about the entire financial mess.

The first is his sympathy to the individual congressmen and women: "Most members of Congress have no expertise in the byzantine details of mortgage finance --or even have aides on their staff with such expertise." How terrible! Did any of these august members worry about that when they were accepting the thinly-disguised bribes as inducements to remove any realistic restraints on the perpetrators of "mortgage finance?" Sorry, but you can't bemoan how complex all this is now, when you never worried about it when it was your responsibility to police the game. And, by the way, the Wall Street legions could legitimately complain about you guys that, once bought, you are supposed to stay bought. What's all this resistance now that we are coming to get back our campaign contributions, with interest?

Second, Leonhardt addresses briefly, near the end of the article, the notion of limiting the pay of Wall Street executives who waddle up to the public trough. Good Luck: I bet the tax lawyers and accountants are salivating at the prospect (hell, having previously been one such tax accountant, I know they are): please, please accept McCain's wrathful insistence that compensation for such types be limited to $400,000 per year (because nobody who has screwed up so much should get paid more than the President of the US --really, that's his position! How would you like to be held to that standard?). Anyone who couldn't end-run such a limit has long since been put out to pasture. What with options, deferred compensation, severance packages, etc. that $400,000 could be used entirely to buy the little umbrellas that go in the drinks served on the corporate jet, and no one would feel any squeeze at all. If you want to address the problem of obscene compensation, which anyway is as American as secret prisons, just pur the tax rates back to where they were during Eisenhower's administration --indexed, maybe.

Finally, and I guess this is a third thing, Leonhardt says of the government bailout, " would ... help shore up firms' balance sheets (which some economists think is actually a bigger problem than the bad assets)." Unless things have changed since I left Ernst & Young, assets are on the balance sheet, and exchanging one asset for another of equal value leaves the balance sheet the same. Oh, wait: they're not of equal value? Then will the companies recognize the difference as profits, or losses? Of course: if profits, they'll be used to justify higher stock prices, bigger bonuses, and on and on; if losses, they they'll be deducted, and the resulting tax refunds will constitute a second trip to the federal drinking fountain.

Leonhardt's overall point seems to be that the Congress is completely unequal to the task before them. Is anyone surprised?


  1. In the third paragraph, near the bottom, of course I meant to type "put" the tax rate back to ...

  2. "Leonhardt's overall point seems to be that the Congress is completely unequal to the task before them. Is anyone surprised?"

    I am not. Still, even though the SEC and the Fed (both independent agencies) are imperfect, I'd rather have them exercising Congress' delegated Article I powers than suffer through the comedy of Nancy Pelosi and John Boehner running our banking/securities industries.

    Either way, I share your outrage. Our popular branch of government is an embarrassment, and indeed enjoys a lower satisfaction rating than the sitting President.

  3. I am really beginning to detest this canard about 'how complicated' 'mortgage finance' is.

    First of all, mortgage finance is no more or less complicated than other contemporary markets. Second of all, Congress does not, nor should not care about how complicated it is.

    The issue at hand is not mortgage finance, the issue at hand is a much more classical one regarding a democratic government's role in regulation and wealth transfer. Every single member of Congress should be well spoken, regardless of stance, on such issues.


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