My take on the credit crunch and a little on the bailout

There is yet another thread dealing with the proposed bailout over at Ace of Spades, with the usual "You're an idiot. No you're an idiot back and forth" going on. I posted my response over there but here it is for both my readers:

If credit had dried up next week leading to a market crash, business failures, and massive unemployment the calls for the government to do something would have been overwhelming.

The programs we would have ended up with would have made the New Deal look like a laissez faire capitalists wet dream. Don't forget that at the time a) The Socialist party actually didn't have much input into what was being done. Today they have fully co-opted the Dems, and b) Roosevelt actually did face opposition on his programs, and as I recall many were thrown out by the courts. That lead to his threat to pack the Supreme Court, which led to the expansion of Congress's power under the interstate commerce clause. That battle doesn't have to be fought this time, the precedent has already been set.

Personally I would prefer to not have another go at the National Recovery Administration running the American economy, which is something that Obama has already come very close to proposing.

I have seen a few people saying that local banks are still offering credit and that proves a bailout isn't needed. As I understand it, and I am sure that there are many Economists / Traders who will be willing to correct me, the reason those banks have credit is because the large banks have credit, but the large banks are slowing the lending to an absolute trickle waiting for some sort of sign. If the large banks stop lending it will only be a week or two before the small banks can no longer extend credit.

I have also seen the argument that the WaMu buyout was proof that the bailout wasn't needed, that private enterprise worked the way it was supposed to. That might be except that a) The bank failed precisely because of the problem the bailout is designed to prevent, b) No one would actually buy the damn bank until it actually failed and c) even then as I understand it J.P. Morgan only bought the assets they left the bad debt with the government, which had seized the bank.I was wrong about this JPM did take the mortgages with a big write down, they left other debt behind So the "private" solution really wasn't any better than the public solution everyone is up in arms about.

Do I want to see the government in charge of a huge portion of the private economy? No. Same reason I oppose government intervention in healthcare. It will be costly and inefficient. The cost if we allow the markets to crash and burn will be a lot higher however and the long term consequences a lot worse. I look at this as a firebreak, using a little government intervention now to prevent a full fledged government take over later.

Apparently last night some sort of deal was reached. I was watching Comedy Central so I didn't hear about it until this morning, but honestly I'd rather watch Larry The Cable Guy - Health Inspector anyway. Anyway the bailout deal... the details are a little sketchy, but here is what the NY Times has

The bill includes pay limits for some executives whose firms seek help, aides said. And it requires the government to use its new role as owner of distressed mortgage-backed securities to make more aggressive efforts to prevent home foreclosures.

In some cases, the government would receive an equity stake in companies that seek aid, allowing taxpayers to profit should the rescue plan work and the private firms flourish in the months and years ahead.

The White House also agreed to strict oversight of the program by a Congressional panel and conflict-of-interest rules for firms hired by the Treasury to help run the program.

...

The centerpiece of the rescue effort remains the plan for the government to buy up to $700 billion in troubled assets from financial firms as a way to free their balance sheets of bad debts and to help restore a healthy flow of credit through the economy.

The money will disbursed in parts, with an initial $250 billion to get the rescue effort under way, followed by another $100 billion upon a report by Mr. Bush to Congress.

The president could then request the balance of $350 billion at any time. If Congress disapproved, it would have to act within 15 days to deny the Treasury the money.

And let me go on record as saying Richard Shelby is a fucking tool:

Some lawmakers have made clear that they will not vote for the bailout plan under virtually any terms. “I didn’t want to be in the negotiations because I object to the basic principles of this,” said Senator Richard C. Shelby of Alabama, the senior Republican on the banking committee, who would normally be his party’s point man.

Pressed about his role, Mr. Shelby replied, “My position is ‘No.’ ”

You're opposed? Fine. That doesn't absolve you of you're responsibilities as a Senator. All boycotting the negotiations does is deny your opinion a voice you fucking jack-ass.

Let me say it again:

Richard Shelby is a fucking jack-ass

So how exactly did we get here?