Sean has done an estimable job knocking down some of the more piqued reactions to the financial bailout in comments, but this really is a topic that deserves above-the-fold treatment. The crisis raises a host of big-picture questions about the proper role of oversight in the financial industry, but wherever the blame for the current mess eventually falls, the "let Wall St. burn" approach won't do anybody any good, least of all the environment.
To be clear: I'm not suggesting that the bailout plan as currently proposed is a good one. But banks do matter, credit matters, and voters matter, particularly when it comes to climate change. All of these factors will be deeply and negatively affected by a spreading financial panic.
A commonly held notion is that if the government can find a trillion dollars in its pocket to buy toxic mortgages, it ought to be able to cough up at least some comparable figure to solve the climate crisis. And there's a large kernel of truth to this notion. Our current level of investment in both R&D and infrastructure is a travesty.
But this line of thinking quickly runs into a hard limit. It's going to take more than a trillion dollars to fix climate change. It's going to take more than ten trillion dollars. In fact, it's going to take a lot more.
That's the scary bit. The happy bit is that this money is going to be spent anyway, as the private sector pours unimaginable sums into infrastructure over the coming decades. The important question is whether the economic and political incentives will favor clean development, or whether we'll continue down the path we're presently on.
Do you want offshore wind farms to beat out coal plants in competitive bids? Then wind developers need access to capital. Politicians need space to maneuver. And voters need not to be scared out of their wits by the prospect of slightly higher electricity bills. (Note that the potential for offshore wind in the mid-Atlantic region of the United States is by itself a "trillion-dollar-plus build-out.")
Again, this is in no way a defense of the status quo ante in the financial industry, or an argument against accountability. But the things that made sense a week ago -- carbon pricing, efficiency measures, investments in renewable energy -- continue to make sense today. And all of these things will be held back by prolonged sickness in the financial sector.
‘Heretic’ battles straw man
Top 25 reasons to give a damn about climate change
Comments
View as Flat
Tom Philpott Posted 3:22 am
23 Sep 2008
Victual Reality
Permalink
Jon Rynn Posted 3:29 am
23 Sep 2008
The capital for a sustainable infrastructure is not going to depend on derivatives and all of the other "financial engineering" that the financial industry has been pushing. It seems to me that it's pretty straightforward stuff. And, it could easily be done by government-financed development/infrastructure banks, you don't even really need Wall Street to do it.
The reality is that Wall Street is going to be a mess for quite a while, no matter what happens, so we need to talk about how to finance without them.
Permalink
Adam Stein Posted 3:47 am
23 Sep 2008
Jon -- I don't know the answer to that question, although I don't think your analogies really hold. The financial system today is a lot different than it was in 1931. And Japan faced a set of structural issues that I'm pretty sure don't really pertain either. I haven't heard many people suggesting that the takeover of Fannie Mae and Freddie Mac was a bad idea. So, yeah, I'd guess that there are plenty of steps the government can take to stanch the flow. As always, the devil is in the details on this stuff.
As for Wall Street, there seems to be a confusion of issues here (which isn't surprising -- these issues are confusing). But a bailout doesn't have anything to do with ensuring a steady supply of exotic derivatives. It's much more fundamental than that, and it runs deeper than a collection of banks clustered in lower Manhattan.
www.terrapass.com/blog
Permalink
Adam Stein Posted 4:21 am
23 Sep 2008
But a) these sources of financing aren't typically regarded by environmentalists as totally awesome and non-problematic pools of capital; b) the overarching policy environment is still a critical piece of the puzzle, and one that will be negatively impacted by a financial crisis; and c) picking up some of the slack is a far cry from picking up all or even most of the slack.
So making sure Wall St. doesn't burn still strikes me as pretty important.
www.terrapass.com/blog
Permalink
Jon Rynn Posted 4:24 am
23 Sep 2008
So, for instance, let's say Bank A has $1 million in loans, and it has $100,000 in assets to cover those loans. But because of the mortgage meltdown, it effectivly has $50,000 in assets, not $100,000, so it legally can't loan out any more money, therefore, the entire credit system jans up. So what the bailout would do is "loan" the bank the $50,000 -- with hopefully some equity in the bank in return. Does that sound right?
Permalink
Spence Posted 4:25 am
23 Sep 2008
Maybe a crash will wake us up to the unsustainable nature of our lifestyles. Maybe it will make us re-think globalization and the 700 billion dollars we send overseas every year to buy oil. Maybe we will have to tighten our belts, start saving again, downsize, and learn to make things last.
And maybe that will be a good thing.
This meltdown may be the chemotherapy our cancer-ridden economic system needs. I don't delight in the downfall of others, but I also don't see the economy as a race, as a linear growth curve that must forever move forward. It doesn't make us happier, it doesn't make us healthier. We need a sound economy. We don't need a greed-driven casino, a spring of inequity, a perpetual motion machine of junk. Which is exactly what we have had for the last quarter century.
Permalink
Jon Rynn Posted 5:21 am
23 Sep 2008
Permalink
Zephaniah Posted 5:32 am
23 Sep 2008
Secretary of Treasury Paulson, defending this $700 bailout for the financial sector in a hearing, says that they will use experts and do what makes the most sense, that they cannot have any limitations on their actions because the market is frozen and fragile.Their main goal is 'to get lending going again." This is a novel situation, so they should not be told how to handle it, he said. Huh?
(This is the same administration that has been refusing to collect, make available or act on expert scientific information about global warming, choosing instead to follow recommendations by fiction writers and lobbyists for the oil companies.)
The chairman, Senator Chris Dodd, pointed out that this bill provides that the actions of the group that would use our $700 billion for market bailout, COULD NOT BE REVIEWED BY ANY AGENCY OR ANY COURT OF LAW. (red flag)
Sen Tester of Montana noted that in his experience when there is a great rush to pass a bill, the outcomes are not good, (I think he said, disastrous!) He asked for time for Congress to consider the issue carefully.
Other Senators asked relevant questions. Senator Brown noted that people don't want the same people who caused the crisis still in control of the failing institutions. He said that the people who sell high risk securities should have to live with the consequences instead of shifting the risk like iin musical chairs. Paulson's response was that we have to keep capital flowing.
Sen Bunning R Kan said that he could not see a solution in the plan, and that the previous Secretary of the Treasury said that $700 billion will not solve it. Senator Bayh asked why US citizens should not get equity participation for spending their tax money in this bailout. This is market participation, but they are denied a chance of winning, just covering someone else's loss.
I have written my Senators and Representative expressing opposition to this bailout. There is no guarantee that it would stabilize markets, and the US taxpayers should not be the ones to pay for it.
There is clearly a need for regulations that would make permanent the ban on naked short sales. Also, regulations should stop the bundling of mortgages of varying risk as that separates of responsibility from the people who issue the mortgage and allows and untracked shifting of risk. Boards of directors including or even headed by the CEOs of the corporations they are supposed to oversee is a bad idea. Finally, we should not bail out failing institutions. Every parent knows that rewarding bad behavior increases it. Reward the responsible institutions instead. My opinion. Listen to the 'financial experts'. If it doesn't make sense to you, let's not spend $30,000 per person to do what they are asking!
Permalink
Adam Stein Posted 6:05 am
23 Sep 2008
Two other links, just for fun. First, there's this one describing the skepticism the proposed bailout is meeting in Congress. This is heartening, because the carte blanche bailout does seem like a pretty terrible idea. But I also noticed this sentence (referencing an alternative bailout proposal): "A similar approach was used successfully in Sweden in the early 1990s when its financial system melted down." Point being, there are useful interventions available to the government.
Second one is this one, questioning whether a bailout is even necessary. Most observers seem to feel that something should be done, but it's always worth considering the contrarian view. Perhaps a much smaller intervention is in order.
Finally, I can't see how this issue possibly hurts Obama more than McCain. Pocketbook issues, scandals involving lax regulatory oversight, and mistrust of Wall Street are all factors that tend to favor Democrats.
www.terrapass.com/blog
Permalink
Jon Rynn Posted 6:10 am
23 Sep 2008
Permalink
Adam Stein Posted 1:26 am
24 Sep 2008
And I notice that Obama has, for the moment, surged in polls.
www.terrapass.com/blog
Permalink
amazingdrx Posted 1:42 am
24 Sep 2008
Reimburse the insured account holders with accounts in the solvent banks.
And a big part of it all, rescue actual homeowners, for their main residence (not vacation or rental property) from foreclosure.
If the DOW goes to 5000, so what? It's all a scam now anyway. Insider manipulation determining every market move.
http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin
Permalink
Gar Lipow Posted 5:55 am
24 Sep 2008
However the comparison to a bailout is NOT total cost of a green transition, but size of a reasonable public investment. And that is comparable this cost. I have made a case for 150 billion to 300 billion per year annual investment- that is that there key infrastructure investments that either can't be done privately or are very unlikely to be privately that we could make with public funds. That really is a reasonable comparison to this bailout.
And of course we should not let the credit markets collapse. But the "Masters of the Universe" crack that annoys you is dead on. How did we get into this mess?
There is a tendency of financial markets to create huge bubbles. Short term success is measured by how much you loan or how much your investment is. So the natural tendency is to over-leverage and for competitive pressures to gradually rachet up riskiness of investments and loans. Faith that the Masters of the Universe would invest more intelligently if left unchecked led to decades of deregulation which took off one the checks on this self-destructive tendency.
The whole argument for lowering corporate taxes and personal taxes on the rich for decades has been that if we leave money in the pockets of the masters of the universe they will create more value than wasting it on trains, and healthcare and education, and energy infrastructure.
The bailout should take the form of any institution needing to be bailed out being taken over. Not partial equity, not loans. If your institution can survive on its own or find someone to take it over fine. But the bankruptcy option should be gone. If you can't pay your creditors or work something out with them, your business becomes government property, and the new owner will work something out with the creditor. And the fucking rich can start paying their share of taxes for a change. And we can put in some strong regulations in place to keep the bubble from continuing and the next bubble from starting.
Permalink
amazingdrx Posted 12:56 pm
24 Sep 2008
Good comment on that pallisades rat house story, BTW, hehey.
http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin
Permalink
Pangolin Posted 2:18 pm
24 Sep 2008
Let Wall Street burn.
The argument that we must somehow bail out these Wall Street banker and yet somehow leave their outrageous salaries and benefit packages intact shows that they are pulling a con.
I've seen rich people in a panic and they grab their kids, dogs and pictures just like everybody else and run before a fire. This stinks of the masters of the universe using the windblown smoke to pull on last con.
I'll save your house, $700 billion. No time for details. Just give me the money. C'mon, the fire's getting closer.
Put the Carbon Back
Permalink
MAD MAC Posted 2:49 pm
24 Sep 2008
Having said all of that, however, it sounds like you are saying "I don't care what the government or senior finance people say, we can't trust them, and therefore nothing should be done at all." That rationale could cause major economic dislocation. The last time "Wall Street Burned" the man on the street felt it, and felt it in a big way. Letting Wall Street Burn is not an option.
Victory in Pattani
Permalink
Gar Lipow Posted 3:09 pm
24 Sep 2008
Permalink
MAD MAC Posted 4:07 pm
24 Sep 2008
Victory in Pattani
Permalink
MAD MAC Posted 4:13 pm
24 Sep 2008
Gar, there is truth to this. But like all else, if the theory is run to extreme, it ends up doing more damage than good.
I am now an advocate of the flat tax rate because it's impossible to come up with a graduated rate that's fair and equitable. I don't know what the rate is, but it needs to be something like 30%. Everyone pays that rate, no write offs for anything. Either you can live within the existing budget or not and you modify your expenditures. I didn't use to feel this way, but it's become apparent that the tax incentive system doesn't do what we want it to at reasonable cost.
Victory in Pattani
Permalink
John former Marine Posted 10:55 pm
24 Sep 2008
Article 1:
Corporations have an intrinsic right to exist. We cannot allow them to go bankrupt. Therefore, we will guarantee their existence forever by subsidizing them in our new system of "command economy modified-free-market government-protected lobbyist-influenced crony-capitalism."
(example...instead of posting $60B profits, Exxon gives its executives and lobbyists $80B and comes up short $20 Billion. Rather than let this corporation go bankrupt, the government would make up the difference, year after year).
What do you all think? I think it would definitely help out our Senators, who are working hard to stomp the last breath out of our Republic.
Il faut cultiver notre jardin.
Permalink
MAD MAC Posted 1:52 am
25 Sep 2008
I think that most of your solutions are not solutions at all, but the spewing of vile from someone obviously dissatisfied with his life.
I think you're a scapegoat artist who can't accept his own issues and seeks to shift the blame on someone else or "the system".
I think you're full of it.
That's what I think.
Victory in Pattani
Permalink