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An update on the bailout
Gordon Tullock is a smart man:
When the government said it would spend $700 billion to rescue the nation’s financial industry, it seemed to be an ocean of money. But after one of the biggest lobbying free-for-alls in memory, it suddenly looks like a dwindling pool.
Many new supplicants are lining up for an infusion of capital as billions of dollars are channeled to other beneficiaries like the American International Group, and possibly soon American Express.
Of the initial $350 billion that Congress freed up, out of the $700 billion in bailout money contained in the law that passed last month, the Treasury Department has committed all but $60 billion. The shrinking pie — and the growing uncertainty over who qualifies — has thrown Washington’s legal and lobbying establishment into a mad scramble.
The Treasury Department is under siege by an army of hired guns for banks, savings and loan associations and insurers — as well as for improbable candidates like a Hispanic business group representing plumbing and home-heating specialists. That last group wants the Treasury to hire its members as contractors to take care of houses that the government may end up owning through buying distressed mortgages.
The real lesson here is about the massive fiscal stimulus on its way. Beware, and don't be tricked by people simply postulating how the money "should" be spent.
Posted by Tyler Cowen on November 12, 2008 at 10:35 AM in Current Affairs | Permalink
Comments
With the amount of cash we have tossed out so far, one would wonder if we would be just better off with the recession
Posted by: Robert Olson at Nov 12, 2008 10:54:00 AM
When Obama says he wants to create 5 million jobs does that include all the hiring being done at lobbying firms that are pals with the democrats. If so does he count all the jobs lost at lobbying firms that are pals with the republicans?
Posted by: Jay at Nov 12, 2008 11:13:11 AM
The real lesson here is about the massive fiscal stimulus on its way. Beware, and don't be tricked by people simply postulating how the money "should" be spent.
Like if someone tells us it "should" be spent propping up local government spending?
Posted by: Bob Murphy at Nov 12, 2008 11:26:03 AM
Will state-supporting intellectuals continue to ignore the perverse incentives created by interventionism? Its been the elephant in the room for a while, and many have continued to pretend it isn't there. Maybe now that its started excreting large amounts of elephant-dung on the rug people will have to take notice.
Posted by: Grant at Nov 12, 2008 11:34:56 AM
In the simple Keynesian models, an aggregate demand shock is fixed with fiscal or monetary stimulus. Have public choice writers investigated the success of the fiscal mechanism very closely? It seems like this is all contingent, not on the Keynesian model being right, but on government being able to actually get the money into the economy. Maybe this is another reason why we should support more of the automatic stabilizers, like extending unemployment compensation and food stamp vouchers. That money, at the very least, goes to people who have a very high propensity to spend out of current income. Trying to get it out in other ways invites worse forms of rent-seeking it seems like. Is that the case, though? Have applied public choice writers done much on this?
Posted by: jason voorhees at Nov 12, 2008 11:50:18 AM
I'm left-leaning and consider this an abomination. I find it strange that any true conservative would be in favor of it.
The comment about Obama and the lobbyists would be funny if it weren't so ill-informed. I guess the wingnuts don't surprise me much these days.
Posted by: meter at Nov 12, 2008 11:50:23 AM
"Will state-supporting intellectuals continue to ignore the perverse incentives created by interventionism?"
In one word: Yes.
Posted by: Peter Pan at Nov 12, 2008 11:52:39 AM
How do you sell free money?
In conference calls with industry groups, Mr. Mason helped explain the Treasury proposal — a job he and his colleagues did well, judging by the change of heart among banks.
“The biggest surprise was how quickly it went from ‘I don’t need this,’ to ‘How do I get in?’ ”
Boat dealers? Car dealers?
Classic bait and switch.
http://biz.yahoo.com/ap/081112/financial_meltdown.html
Posted by: Andrew at Nov 12, 2008 11:52:58 AM
“ was telling a friend, "this must have been how the Politburo felt,"
Mason, Treasury’s liaison to the business community & first port-of-call for lobbyists.
Posted by: guy in the veal calf office at Nov 12, 2008 12:05:25 PM
Classic bait and switch indeed.
Paulson's just announced that NONE of the $700 billion bailout money will be used to buy troubled bank assets.
http://news.yahoo.com/s/ap/20081112/ap_on_bi_ge/financial_meltdown
Paulson's making it up as he goes along. Since the money won't be used as originally intended, it's now going to become a lobbyist free-for-all. [well, not free for the taxpayer]
Posted by: zbicyclist at Nov 12, 2008 1:13:24 PM
The quote of the week was yesterday in the WSJ's article on Amex'x app to become a bank holding outfit for bailout purposes. Someone said, (roughly) that "Everyone wants to become a bank to get government money."
So if you want a piece of the action, call 1-800-BAILOUT, but hurry, the deadline is 5 PM Nov. 14! All sales are final!
Posted by: Bill Stepp at Nov 12, 2008 1:16:06 PM
Isn't this a bigger stain against the people in charge of executing the bailout than those who seek to gain what is being given away? Maybe I'm simplifying the matter too much, but doesn't this essentially rest at the feet of those who are responsible for overseeing how this money is given out? If not, then who is to blame for what is happening? Who is forcing Paulson and everyone else to give these corporations money? , but is there any sort of legal language that requires the money to be given to companies other than banks? Is it okay, after taking into account the language of the legislation, to give money to financial institutions and no other corporations? If so, then it seems like it only makes sense to fault those in charge for distorting the original purpose of the bill.
Posted by: Brian J at Nov 12, 2008 1:38:51 PM
It's not a good sign that the government bailed on a plan to buy mortgage assets and CDOs from the financial institutions. They may have discovered the true worth of the securities, rendering the capital infusion plan useless.
Posted by: Marcelo at Nov 12, 2008 2:10:25 PM
The government has to support "Jose the plumber"
Posted by: fabrice at Nov 12, 2008 2:12:32 PM
The one overwhelming positive is that this is happening under Bush's watch; 2 years from now when the revisionist wingnuts start crowing that this was all a liberal conspiracy to grow government there will be ample online content to shut them up.
Posted by: meter at Nov 12, 2008 2:30:23 PM
"The one overwhelming positive is that this is happening under Bush's watch; 2 years from now when the revisionist wingnuts start crowing that this was all a liberal conspiracy to grow government there will be ample online content to shut them up."
We have Nancy Pelosi on record to prove that this bailout was a result of bipartisanship.
Posted by: Jay at Nov 12, 2008 2:51:30 PM
Of course it is happening on Bush's look-the-other-way. The last eight years haven't been a straight-forward pilfering of the country's future, and this boondoggle is little different.
Posted by: DPirate at Nov 12, 2008 3:01:23 PM
"We have Nancy Pelosi on record to prove that this bailout was a result of bipartisanship."
I don't think she signed up for anything but the banks getting help.
Posted by: Brian J at Nov 12, 2008 3:35:11 PM
The best part about the situation is that we have republicans and democrats arguing about who is responsible for this. One commentator went so far as to say that this is Bush's fault. As though Bush is the devil but the rest are a bit more angelic. Where does one go mentally to buy into such delusions?
Actually lets just say that all of the crony capitalism of the past 8 years is only because of Bush. Then how do we account for Pelosi and Obama's ringing endorsement of the GM bailout? Or do we just gloss over this uncomfortable fact. Or maybe we actually try to contrive an argument to defend the indefensible. Those are my favor expositions of insane political bias.
Let the religious beliefs continue, it allows the current government in this country to continue its devolved plunge into a plutocratic corporatocracy.
Posted by: John Pertz at Nov 12, 2008 4:08:30 PM
For the record, I would never put the mantle of blame on one person. That's a Republican trick (see all the posts about the Depression, for example).
I am only happy in that the timing and the thorough documentation on these events makes it utterly impossible to lay the blame at the feet of Obama.
Posted by: meter at Nov 12, 2008 4:37:10 PM
How come no one talks about stabilizing the value of the dollar. Things are deflating on a massive scale. Look at whats happening with the price of gold, the most stable commodity there is:
http://goldprice.org/gold-price-history.html#10_year_gold_price
No one knows where the bottom is for anything else in the economy when no one knows what the dollar will actually be worth.
We MUST stabilize the dollar. Deflation is as bad as inflation. We've had a huge amount of inflation in the last 7 years, but letting things deflate back is NOT the solution.
More of my thoughts on the housing boom:
http://blog.reinventdemocracy.org/2008/10/falling-home-prices-and-deflation.html
Posted by: Alan Brown at Nov 12, 2008 4:54:09 PM
Will state-supporting intellectuals continue to ignore the perverse incentives created by interventionism?
I second Peter Pan's response. "yes".
You have to understand that for intellectuals, statism is their religion. It has all the elements of a religion-a few being: unfulfilled promises of perfection, prophets (Marx, Keynes, Galbraith-er was that Gallbreath?) an ordained ministry (in the U.S., Presidents and legislators, financial support (of course they generally want more than a tithe and pass the plate with a gun to your head).
Its funny to hear the looney left worry about a theocracy, when we've had state mandated support and worship of the state for decades.
Posted by: Superheater at Nov 12, 2008 6:23:26 PM
Only in your warped head, Superheater. Take off the tinfoil beanie - it seems to be damaging your neurotransmitters or something.
Posted by: meter at Nov 12, 2008 7:07:57 PM
The situation is well described by my favorite Lincoln quote. The Civil War brought supplicants, contractors and miscellaneous ne'erdowells angling for Federal dollars. Lincoln exclaimed "There are too many piglets for the tits!"
chsw
Posted by: chsw at Nov 12, 2008 7:47:04 PM
Any truth to the rumor that Tyler and Alex have applied to have this blog declared a bank holding company?
Posted by: ZBicyclist at Nov 13, 2008 1:34:07 AM
