Sunday, September 21, 2008

MOAB

MOAB used to mean "Mother of All Bombs". Now we have Washington debating on the "Mother of All Bailouts". How do the taxpayers know MOAB will not be the former instead of the latter? How does any one know? Calculated Risk basically gave the analogy of a drunk slot machine gambler playing the slots as an illustration of how the Treasury will spend the $700 billion dollars Congress will give it. (That money would buy 3.5 million $200,000 homes, but it's likely that the banks are overcommitted for much, much more than $700 billion, because of speculation in the housing market and other shady deals.) Can the US and the World afford the Republican Party and their policies (or the lack of them) after this "drunken" binge? Will the Democrats do any better, or will the job descriptions of politicians have to be rewritten along with those of the financial wizards who made this mess? I would hope that lobbyists aren't welcome on Capitol Hill this weekend, but that's likely in vain. We will likely see the Middle Class save the Wealthy from economic loss, but who will save the Middle Class (and their children) from foreclosure, unemployment, and higher taxes? If taxes double, then the tax rates on the extremely Wealthy (greater than $5 million/year income) should double or triple, capital gains be damned. As a percentage of their overall income, it's likely to be less than what the Middle Class pays. We will likely have to leave Iraq and move some of those troops to Afghanistan while disbanding other units to save money, as well as kill some expensive weapons systems. If the government goes broke, then we all go broke because our money will be worthless pieces of paper, and all of this nonsense was for naught. Maybe then we'll find out people's true worth and wealth, not just their wealth by how many pieces of paper they own.

Does any one feel like our leaders are just throwing money at a problem and hoping that it fixes it without exploring other options? They certainly don't seem to know if this idea will actually work. All of these measures thus far will likely cost the taxpayer $2-3 trillion dollars after all is said and done. It seems the financial industry is stuck in what scientists and engineers call a negative feedback loop or futile loop in biochemical terms (see Krugman). As Reich and Krugman point out, there needs to be an upside to this deal for the taxpayer, or it's not only a bailout, but a gift from the taxpayer to any one who applies and the Treasury deems eligible including foreign banks.

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