Byron: September 2008 Archives

Hank Paulson, the Treasury Secretary, has proposed a $700 billion 'bailout' of Wall Street. At least, that's what the media is telling us. What the media is failing to do is cover the story with any semblance of journalistic credibility.

The most blatant failing is the insistence on calling the scope of the program a 'cost.' The $700 billion number is enormous, and I'm not sure I'm in favor of the plan, but the plan will not cost $700 billion. It may require as much as $700 billion of capital to be invested, but the transactions are not an expense (the most common definition of cost). Rather, the transaction will be a purchase of assets.

Not to go all CPA on you, but the media is covering this story as if the goverment will increase liabilities by $700 billion and increase expenses by $700 billion. In fact, the plan actually calls for increasing liabilities and increasing assets. The income or expense portion of this plan will only be determined once the government sells the securities.

Since the media is getting the first part wrong, they're missing the two most important debates that should be taking place.

Most importantly: Who will determine the government's offer price for these troubled securities?

This (recent) crisis has been tied to the valuation of troubled securities. The owners insist they are worth more than buyers think they are worth, so no one wants to sell and no one wants to buy. I don't see how adding the government as a buyer will magically bridge that gap. However, it's clearly apparent to me that the answer to 'who?' will determine the answer to 'what?'.

The second missing question: What is this? Is it a liquidity measure, or a bailout?

Secretary Paulson suggests that the plan is a liquidity measure (ideally no profit, no expense), the media is covering it as if it is a bailout (giving money away - pure expense).

The plan as a 'liquidity measure'
This view (charitably) explains Secretary Paulson's opposition to executive pay limits for companies that take part in his plan. Why should a companies' executive take a massive paycut for selling an asset at fair value to the government? As long as there's no income/loss on the plan, then the size of the plan is irrelevant in terms of the government's income statement. Therefore, the plan should theoretically be as large as the government's ability to finance it. In sum, if the plan is truly a 'liquidity measure,' it doesn't need to be all that complex.

The plan as a 'bailout'
This view necessitates all the arguments that are being debated in the media now. Executive compensation limits, taking equity stakes in the corporations, appropriateness of a top down bailout, comparisons to spending on social programs, etc.

Now, let's revisit the debate, stripping away this structure that I've suggested, and suddenly you have the media covering this plan as if the two sides are debating the same issue. They aren't! People need to understand that the administration is talking about one thing (Cynic Byron says 'talking and planning aren't the same thing!'), while the Congressional Democrats are debating another. By refusing to explain the basic structure of the argument in their coverage, the media is further encouraging the debasement of public discourse on the subject. It continues to encourage sound-bite driven contemplation of the issues by the American public rather than a comprehensive understanding of public policy.

I'm watching Mike Bloomberg on Meet the Press (from yesterday). I think I'm going to write him in on my ballot in November. I don't know what he stands for in most areas, but he gets the economy! He is saying the things I've been complaining that no one has been saying. Tremendous.

What a crazy, crazy, crazy week. The stock market crashed, the stock market surged. Lehman Brothers went bankrupt, Bank of America bought Merrill Lynch so Merrill wouldn't... the government seized AIG, mere days after seizing Fannie Mae and Freddie Mac... and that was all before Hank Paulson, the Secretary of the Treasury called together the leaders of both the House and Senate and painted a vision of the future so bleak that Republicans and Democrats alike are working on legislation to give the government authorization to essentially start a hedge fund with taxpayers' money. All of this is to say that when the Wall Street Journal runs a headline, 'The week that changed American Capitalism' there really isn't any hyperbole involved.

Some semi-random thoughts. In times of crisis (such as this week, and Tuesday in particular), people have a tendency to hoard. Whether it's bottled water during a Hurricane or money during a recession, resources are scarce in times of crisis and people want the security of knowing they have 'enough.'

To my mind sprung two thoughts repeatedly this week. Christians must remember that our security does not come from money, but from God who provides for us out of love. Yes, a financial crisis that could plunge the country into a depression is a frightening prospect, but it's a significant inconvenience, nothing more. Also, God blesses his people so that we will bless those around us. (Yay Perspectives!) It's an incredibly prominent theme through both the Old and New Testaments... and God's blessing is infinite. Remember the parable of the three servants who are given money to look after while the master is gone. One buries it and is called wicked, but the other two are faithful stewards and each was rewarded.

So, this is to encourage you that in times of crisis like this, be generous! Pass along the blessings God has given you! God is faithful and will continue to bless you. Now is the time when organizations like food pantries are stretched thinnest. Demand for their services goes up while contributions dry up.

See the need. Meet the Need. Proclaim the Kingdom of God is at hand.

As you know, I have a love/hate relationship with politics. That's a good way to characterize my reaction to the Sarah Palin nomination... but the media coverage and reaction to the Veep candidate selection is so incredibly frenzied, it's amazing.

I personally think it was a pick made for political reasons and not good government reasons, and as a result, I'm less likely to vote for McCain because of it... but wow, I can definitely understand why McCain chose her.

I'm sure I'll expand on this idea a little more, perhaps after I've finished my post on the failure of both parties to speak truthfully about economic and income disparity issues... but did you watch her speech last night? You would never know she hadn't been giving speeches like that her entire life. Anyhow, here's an interesting link to a word cloud of both Palin's and Biden's speeches at their respective conventions. It's certainly interesting.

Finally, the funny thing is that the best political speech last night was not delivered by Sarah Palin (although you wouldn't know it by the media coverage), but by Rudy Giuliani. Rudy was the real pit bull last night. He compared McCain's resume to Obama's resume and just tore Obama apart with sarcasm. My jaw just hung open most of the speech in stunned disbelief.

Now, let's be clear. The conventions, both conventions, but the Republicans' specifically have been quite entertaining, but the entertainment is from political intrigue and not because anyone is suggesting good government ideas. Facts are something to be disregarded, humility and compromise unthinkable, the only thing of importance (seemingly) is who can come up with the best one liner, and who can spin the hardest. Entertaining like a sitcom, disappointing because it's government.