Not buying the bailout: Gingrich stirs the pot

News item: Former House Speaker Newt Gingrich (pictured) is urging fellow Republicans to slow down and ask tough questions about the proposed Paulson bailout, warning that implementing the bill "is going to be a mess" and that "Congress has an obligation to protect the taxpayer."  These were not throwaway remarks; Gingrich published a lengthy argument against the bailout at National Review online Sunday evening.

Also not buying it: Conservative columnist William Kristol, who wrote Sunday of the case for the bailout, "I'm not convinced."

Much as I don't want to turn this blog into a political blotter, the politics of the bailout bill are shifting rapidly and worth watching. If Republican leaders can't deliver votes for the bailout, it turns into a purely Democratic bill, and Democrats have little reason at this point to let a lame-duck President tell them what should be in it. That means the bill is more likely to be expanded to include aid to homeowners and limits on executive compensation at banks, whether the president wants those provisions or not.

Analysis: The Paulson bailout is not a done deal. What appeared to be a slam dunk on Friday night no longer looks so certain. Every day that goes by makes it tougher to pass. Every hour brings new objections to the proposal, on numerous grounds; it is expensive, unprecedented, unfair to taxpayers and will generate new profits for the least popular businesses in America, banks and brokerages.  Notice that neither presidential candidate yet supports it. Polls will likely show it to be unpopular. I'm also guessing calls and letters to members of Congress will be heavily against the bailout. (Click here to learn how to call or write your member of California delegation to Congress.)

Of course, the Dow lost 372 points today. Another day or two of selling like that could help make the White House case for action.

-- Peter Viles

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Photo Credit: Getty Images

Comments

[Justin]

Either way, our stock market is going down. If the bailout goes through, the USD will tank. This will mean the cost of commodities and goods for the average taxpayers will go up. So it's not just $700 billion dollars, it's all the additional costs that the taxpayers and businesses will have to pay.

As you know already, more expensive oil does not work out for our economy either.

So instead of distributing the financial market's mistakes across other businesses, lets contain them now.

Stop this bailout, increase regulation on the financial markets so this does not happen again and let the foundations of our economy deal with the end results. Free-markets is the only option.

[bobg44]

My question is what effect will this have on residential real estate? As traditional credit sources tighten up, will only the wealthy, stable neighborhoods be supported by lenders? What will that mean for LA?

[annoyed]

Somewhat off direct topic. But I thought your readers should know the following:

I just got off the phone with someone who tells me that certain mortgage brokers are raking in mucho dinero from modifications. A mtg broker that I know (don't care for) used to fake his clients' paperwork with their help of course, fake their tax returns to get them into million dollar homes, where upon he would make several points plus sales commission, this was during the bubble.

Now he is helping these same clients call the banks and modify their loans since they can't pay their ridiculously high mortgages. The banks go for it since they don't really have a choice and he in turn get his points for the modification on the loan, in other words for brokering a new deal.

Just when I think I can't be disgusted further.

Oh and Barney, Pelosi, Obama want to help these people even further...nice!!!

[E]

The homeowners are going to get help.

A "stimulus" check.

Perhaps that will stimulate them to get off their Heloc'd DWR furniture and find a suitable rental.

[gerald]

This is the same size of the USA expenditure in Iraq, one trillion. Remember the rushed debate to go to war? Well, this is the same size expenditure, except to be spent in less than a month as opposed to over a the period of 5+ years. Why can't we have a debate on this issue? This doesn't need to be rushed in one week.

Do you think Bush magically became smart over the last week and submitted good legislation to congress? Do you trust hm to solve our economic problems? The problems he created?

[The End Is Noir]

I hope this bill dies. I don't want a Republican "Extreme Edition" Bailout or Democrat "Bells and Whistles Edition" Bailout.

No bailout! Low taxes (don't take my money) and no bailouts (don't give me money) is the American way (at least my version of it). Let the people and banks rise and fall on their own. Don't get in their way when they are succeeding, don't bail them out when they are failing.

[Michael Snyder]

Peter,
The DJIA jumped 617 points off it's daily low to close in one day on the rumor of a bailout plan. The removal of AIG and its' replacement with Kraft Foods also tilted the index. I'm thinkin today's drop is the result of sober reflection over the weekend. Money's flooding into commodities producing yet another bubble to inflate the cost of living. Oil made its' biggest one day jump in history today before settling back to $108.

Il'' go out on a limb here (how rare) and call a new point of refusal at 11,000 for the DJIA before months end. The only effective cure for this decline is a codified accounting system that must be applied across the playing field and real transparency in the wild west of derivatives trading. Please note I'm not advocating outlawing these instruments, rather I believe any fully informed investor will bail out of that market once that house of cards is laid on the table.

Circling the wagons around Wall St. is getting real dicey if Newt is weighing in on the side of common sense.

[Digitalian]

According to the WSJ Richard Shelby the ranking republican on the banking committee has come out against the treasury bailout plan. There may actually be a chance, albeit a small one, that sanity and justice will prevail and this plan will be rejected.

[sailor7x]

Hooray for conservatives - I thought they were all gone!

Check out this NYT article on the biggest pork bill of all time! and the lobbyist gearing up to get some!

http://www.nytimes.com/2008/09/22/business/
22lobby.html?ref=todayspaper

a few quotes....

"Even as policy makers worked on details of a $700 billion bailout of the financial industry, Wall Street began looking for ways to profit from it." - thank goodness profits are back on the street!

“Of course there will be fierce lobbying,” said Bert Ely, a financial services industry consultant in Alexandria, Va. “The real question is, Who wouldn’t want to be included in the package?”

Mr. Ely said the open-ended nature of the Treasury’s plan could be interpreted to mean that the government was open to acquiring “any asset, anywhere in the world.”

“The question that I am raising — is there any limit?” Mr. Ely said.

OF COURSE THERE IS NO LIMIT!!!!! HA! HA! HA!

The question that I am raising is which balcony will Paulson be standing on when he says.......

LET THEM EAT CAKE!

[LA-renter]

Peter,

There is an early poll (below) that surprised me; but, people may be getting over their initial shock and may now see things differently, especially if talking heads like Newt "the thinker" Gingrich and "bloody-hands" Kristol turn the masses.

Zogby: Americans Split on Bailout

Sunday, September 21, 2008 7:05 PM

As the national financial crisis gripping both Wall Street and Main Street moves into the halls of Congress this week, American voters are split on support for the sweeping government rescue plan that some say could cost as much at $1 trillion, a new Zogby Interactive survey shows.

The poll, taken Friday and Saturday after the crisis had reached full boil, shows 46% support the bailout, and 46% oppose it. Eight percent were unsure.

The online survey included 2,331 likely voters nationwide, and was conducted Sept. 19-20, 2008. It carries a margin of error of +/- 2.1 percentage points.

Perhaps a reflection of the widespread distrust with which voters currently view Washington, nearly two out of three likely voters in this survey said they blame government entities, led by the White House, for causing this problem. Asked who is most to blame, 27% said the Bush administration, while 20% blamed Congress. By contrast, just 12% blamed investment banks - which will benefit most from this proposed bailout - and 17% blamed mortgage brokers.

[jb]

Lehman set aside 2.5B for bonuses. Make no mistake, it is time for pitchforks and killin'

http://www.huffingtonpost.com/2008/09/22/
outrage-as-lehman-brother_n_128438.html

[Crash and Burn]

I can see that "Journalism" has suffered from the cutbacks at the LA Times; I’d stick to the facts and let the commentors give political opinions.

Actually Democrats are demanding equity in return for taking "toxic" assets and more accountability to the financial "ruler and chief". This would curtail the giveaway to Wall Street, not expand it.

http://www.politico.com/static/PPM41_ayo08b28.html

This revision to the Bush bill would ensure that even if the price the assets were bought at, Wall street wouldn't be able to make a profit because the difference that it was sold at and what it was bought at would be made up for an equity stake in the company. Still leaves a bad taste in your mouth, but at least its a start in moving from Paulson's "How much cash do you need, do you Wall Street Geniuses want me to get the GI forklift or the tractor trailer to carry your cash?" to something that might only cost a generation for US tax payers to pay instead of your children's children's children and stop the exact same people who failed from making huge profits.

As far as Newt trying to rejuvenate his failed career trying to tap into the middle class rage that got him into power last time, give me a break, why are you relevant now? What a hack, you don't represent me or anyone for that matter.

[LA-Architect]

I'm a Democrat yet I strongly disagree with this bailout and ANY bailout. It is ludicrous to allow the very banks / investment houses to walk away with NO debt and then go back to doing what they were doing. The dollar will tank, inflation will go way higher and you KNOW that those very traders will be putting their cash in positions that bet against the health of the US dollar.

I've already sent off a few emails to my local Rep and both Senators. It's terribly unfair to the US taxpayer. WHy should I be saddled with a WORTHLESS dollar when those scoundrels still have millions and millions.

TOTALLY unfair and not an example of a FREE capitalistic market.

Bush and his cronies should be behind bars. This is the final insult!!!!!

[Anonymous]

The critics assume that if we don't pay for the bailout, we just don't pay. Unfortunately, that's not true - govt is still on the hook for depositors, unemployment insurance, falling tax revenues for a Japan style tank, etc etc.

It's like cutting off a leg - no one sane would ever want to do it - but if you're stuck in the woods and accidentally step in a steel bear trap and will die of dehydration if you don't cut off your leg and go back to civilization ... what choice do you have?

[Laker]

I was thinking about the solution to this mess and the justification for this bailout.
As professor Krugman wrote on his blog, we are about to capitalize the banks with money but will unlike an ordinary investor, we will not see a return.
So, I'm asking why not? Instead of buying junk mortgages, and providing cash to the banks, why don't we just provide huge loans to the banks. Loans that need to be repaid, let the bank keep their assets (mortgages) and try to sell them at their own pace.
If you think about it, this will create a condition that the banks will have enough capital, so they would then afford to sit on those (non performing) mortgages or houses, and not sell them. This would guaranty a 15 years of declining market a.k.a Japan lost generation.
However, if the government buys the assets/mortgages even at bubble prices, at least they could liquidate it fast if they (Czar paulson) decide so.
The biggest problem i see with this bailout is the huge inflation it would cause. It will push interest rates to double digit, bankrupt many small businesses, send home prices down, but if you have a fixed rate loan - you will be king. Gas will heat the magic $7.00 a gallon, and food would skyrocket. There is no way out of it, When you print a trillion dollars, you are inflating your debt away.

[arroyogrande]

"Of course, the Dow lost 372 points today. Another day or two of selling like that could help make the White House case for action."

Yeah, oh boy, that would mean that the stock market would go down to levels not seen since...2006. Oh boy, end of world stuff.

Seriously, all of 2005 was below those levels. You remember 2005, right? The year the party REALLY got started, and people really started buying more than they could afford...

Has anyone given thought that the stock market probably *should* be at the levels it was at in 2005, because now people actually have to use money they EARNED (instead of cheap credit) to buy things, and they actually have to be able to AFFORD those things?

Stock prices of 2005 aren't the end of the world. They are just reflective of people stopping buying things they cannot afford, or taking out credit that they never had a hope of paying back.

[Zacksmom]

Stop the Bush bashing. It was Clinton who changed the rules for capital gains on home profits excluding up to $500K every 2 years for owner occupied homes. That is when this run up in housing started back in 2000 when Clinton was in office.

[bigunit]

The capital gains exemption applies only to your primary residence and must meet certain IRS standards including having lived in the home for 2 years + 1 day. That is one of the greatest tax moves of all-time targeted right at the Baby Boomers. Were you dopin' with GW back in the 80s?

[jb]

you are right zachsmom - Bush is completely without fault in this - he was far too busy bombing brown people that we dont know.

[sunsetbeachguy]

$700B would buy most of the troubled firms.

Just do that instead, fire management and reboot the system.

[1929]

STOP this bailout, call your congress person, senator, the president... Like it or not, we are in for some hard times, but bailouts will only make them much worse, not better. They will only prolong and deepen the affects of what is supposed to happen.

We are going to have a recession for sure, now if this bailout goes through we will be in a LONG DEPRESSION. Tax rates will increase 50%, or they will back end us, by creating inflation, which is the same as raising taxes, because now we can't afford as much. Lets just suck it up and let some banks fail, and endure the consequences of the greed that got them into this mess...

[Nancy]

Oh yeah, and I'm sure it had nothing to do with Greenspan lowering the rates again and again, which spurred more buying, which in turn made housing prices skyrocket, which made subprime mortgages more popular, which meant higher risk mortgages...

[RM]

Laker, your idea wouldn't work either, banks would take the money and still file for bankruptcy when all the losses pile up not be able to pay back the loans. They would become the new subprime borrowers. I too don't like the Paulson plan much because it's more in the best interest of the financial institutions than the public.

From what I have read the biggest problem is liquidity due to a breakdown of confidence and trust in almost all types of investments. People with money, lots of it, just don't want to loose any more. So what if this plan does not resolve the underlying problem and the situation just continues to get worse. Will the next bailout be maybe two times as big or bigger? What if our foreign lenders stop lending us, will our printing presses keep up? All things have to be considered before any bill is signed. I would even consider shrinking the size of the bailout if it did pass...and not give the banks a cent until they agreed to much lower pay caps.

[eternal summer]

ok so this is kinda off, but......today on the view Whoopi Golberg demanded a debt forgiveness of half the mortgage loan for homeowners! i was really upset so i went to the view website to ask her why the heck should i support greedy homeowners who AGREED to pay such & such amount for their homes to suddenly get their house for half price? i don't have a house, but would've put my family at risk if i knew i could buy a house for 1M and it would be half price for me later! hello? i own a business and my whole business depends on me vetting the customers to make sure they can pay & them paying what they AGREED to pay! It's called capitalism!!!!

waaaaaaaa!!!!! i want all my excess inventory taken off my hands by the government too! I also want to buy raw materials for my products and forget about what I AGREED to pay, I'll just pay what I WANT to pay. Because heck, instead of using the money my company generates to pay my company bills or to put back into the company, I just want to take that money and buy a 65" plasma tv and some granite counter tops. who the hell are these people?

[MyLessThanPrimeBeef]

I think we should welcome anyone who wants to join the anti-bailout camp, be it Gingrich or Jimmy (I was the president in 1979 whe Chrysler was bailed out) Carter.

Republcians, democrats, American Americans, non-American Americans, whoever, as long as they are against this outrage, we shouldn't hold anything against them.

Just come on down, Newt!