Lessons learned from business school...and applied to the bailout

Ok so let me give you the gist of a case/session I've seen presented by one of the faculty members of the MIT Sloan School of Management present several times to one of our biggest executive education clients.

The basics of it are a negotiation exercise where two employees are having a disagreement and a third person (the boss) is acting as arbiter. The boss has $50,000 to use as a bonus or incentive as they see fit but the employees do not know that the boss has the money to give so until the boss brings it up (or the boss doesn't have to bring it up).

When the professor does the debrief he tells a story about his kids arguing and asks the class what happens when he offers his children money to stop arguing. Inevitably most of the class understands guesses that the children stop fighting for a short period of time but only learn that they can make money by fighting. This does not solve the problem it merely postpones it and in most cases it enforces bad/destructive habits

So, tell me again why essentially irresponsible organizations should be given $700B without severe regulations? Won't they learn from this that acting irresponsibly is profitable and that the government will always bail them out?

I encourage everyone to read the progressive alternative to the bailout proposed by Rep. Donna Edwards and others.

Oh wow the markets are back up again, I guess that means...

little to nothing except that the stock market realized that it over reacted to the failure of the bailout. Everyone just needs to calm down and let this bailout/rescue plan run its course. I'd rather we take our time and get it right than rush into it (like the war and the patriot act).

The sky is not falling chicken little and if it is then this is the situation of the boy (Bush) who cried wolf. Either way, let's not mess this one up too by listening to the fanaticism, panic and fear of Bush and the bankers and economists who got us into this mess.

Mmmm, market over-reaction

So there is a credit crisis but the markets today went crazy and over-reacted and lost more in one day than they've ever gone down before (number wise, not percentage wise).

So republicans tried to saddle democrats with the bill (thinking that democrats were going to whole heartedly support it) and then they were going to run against the democrats on this. There was also some far right resistance because they hate regulations and accountability for corporations.

There were also some moderate democrats (who also didn't vote for this for electoral reasons) also did it because they are budget hawks and hate spending for anything.

There were progressive democrats who didn't support it because they think it's irresponsible, not the only way to improve the economy, and more bullying by an irresponsible administration.

All of these groups claim to want to protect the taxpayers. I'm not sure how much truth there is to that but I do think that a great portion of the crisis is created by stock holder panic.

Credit is tightening but that is due in large part to the mega banks making crappy loans and cooking the books (or lying to themselves about risk). Here's a question: where are the small regional banks who were less greedy and made sound investments and have decent liquidity? I imagine that they could really grow in a situation like this. I'm sure credit would still drastically tighten but isn't this how the markets work? Some corporations are irresponsible and have to sell their assets (even good ones) at firesale prices to corporations who can take on a little extra risk if it comes cheap. Or maybe the large corporations just sell off pieces of themselves at firesale prices until they achieve some liquidity and can survive as smaller companies.

Bail out home owners who were preyed upon but I'm still needing a really good explanation to bail out some greedy bastards.

Anyone catch Sarah Palin with Couric?

This just in: Sarah Palin may be the stupidest person who has ever gotten this close to the president (don't worry W, I said may be)

Braindump and when your bs philosophy comes crashing in on you (Republicans and the $700B bailout)

Ok, so much shit to talk about concerning this bailout. I'll delve into the details about some of these points but there is a lot of just random things I would like to note.

McCain hasn't voted in the Senate since April 8th. Not for the FISA vote, not for the medicare vote (that Ted Kennedy left the hospital to vote for). And people in McCain's campaign have the audacity to criticize his 'present' votes in the Illinois legislature? Even after liberal groups with a stake in the votes have already defended Obama's present votes. And even though McCain is suspending his campaign (not really) to return to talk about the bailout he's still not sure if he'll show up for that vote.

Henry Paulson's initial proposal was one of the stupidest ideas I've ever heard. Give me $700B dollars and make sure the courts or government has no authority to question or prosecute me because of the way I use it. (I encourage you to read this bull esp. Section 8 because it's very short and then you will be ahead of John McCain. I guess he's banking on the fact that American's don't like voting for readers).

Ok now here's the interesting bit and what stake everyone has in it:
Bush and Paulson: Stupid/evil fucks who were laughing (along with other Republicans) when they were deregulating and allowing their crony buddies to engage in predatory lending practices. There buddies lost money so they need to give them money with no stipulations (they don't care about the debt because they're on their way out.

House/Senate Republicans: Many are up for re-election so they still have to be republicans and cry anytime we want to regulate anything but they are torn because big business are the people who fund them so they want a bill that helps big business but has nothing to do with regulation or taxes. So they want to use this opportunity to suspend capital gains taxes for individuals and corporations (something they could have never dreamed of in normal circumstances because it's such an elitist idea that favors the rich and does nothing for the poor)

Blue Dog democrats: They're wringing their hands over the national debt and don't understand any other aspect of this debate (record numbers of people losing their homes and being crushed by debt, credit freeze or anything like that). They'll have no good options because the republican plan will decrease government revenues while democratic plans will spend money (if history repeats they will probably cave to republicans because theirs has a smaller short term effect).

Typical democrats: Do not question the fact that a massive bailout is needed. Suggest regulations and stipulations on the money such as

1. Government purchases sketchy securities and sees benefits on any that pan out (ie taxpayers pay for it they should see some benefits/get as much back as they can)
2. Cap on executive pay
3. Give courts the right to restructure bad mortgage

That being said, democrats will probably fold on enough important issues to make most of their gains meaningless (in the interest of "bipartisanship")

Progressives and people who care about the people: They are a little split on the issue and I can see why they believe the following things

1. Some think that there is no crisis and this is just a last ditch effort of the Bush administration to grease the palms of his corporate buddies (the 'YOU HAVE TO DO THIS NOW OR WE'LL ALL DIE' rhetoric was already used for the War in Iraq and the Patriot Act and we now realized we we're lied to
2. Some make very compelling cases that the sum should be MUCH smaller (and there should be all the regulations that other democrats suggest)
3. Bernie Sanders has proposed a great idea that charges the rich for this bailout (because they're the ones who got us into it) and addresses systemic causes that lead to the situation in the first place

I think all of these can be rectified. There is a situation that could develop into a crisis but it is not crucial that a solution happens in the next 20 seconds, the sum should be smaller, and we need to sufficiently fix these problems systemically and fix the problems for the future.

I still don't get why McCain and Obama were invited to Washington (neither are economic whizzes and it only serves to politicize the issue and slow down progress). I will say that McCain is probably in the toughest political spot because he's already claimed (parroting Paulson) that something needs to get done now and the proposal getting pushed through is a democratic taxpayer model with regulation so it can't seem to be partisan and vote against it.

What do I think will happen?
Mediocre deal (hailed by limp wristed democrats) that spends $700B with some regulations but not enough

What is the best thing that might be able to realistically happen?
$200B - $350B initial bailout with pledge to revisit it later and all democratic stipulations including judicial right to renegotiate

Replies to posts

Is it just me or are the only comments I get not related to the post?

Of all the people to give McCain a break...

Bill Clinton today says that McCain's suggestion to delay the debates was in good faith. Wasn't this the man getting attacked left and right by Republicans when he was in office? Bill Clinton knows exactly what's going on and he's politically posturing AGAINST Obama. What a sack of shit. He's been in the political game long enough. He can see through McCain's bull and he's intentionally choosing to be coy and 'diplomatic.' Now I'm not sure if Hillary's pledge to campaign for Obama in Ohio is genuine or is just hedging.
Hedging in this sense:
If Bill's McCain pander works and Obama loses and Hillary runs in 2012 she can say she did everything she could to help.

Every time I begin to respect Clinton again he pulls some stupid shit like this. If I were Obama I would anticipate winning with little or no help from the Clintons.

Today's reasons why McCain is a moron

Ok so what's wrong with McCain today. Let's list some things:

1) Did anyone catch that McCain's campaign and Palin herself said that we need to pass the bailout quickly to avoid "an economic calamity the likes of which has not been seen since, potentially, the Great Depression"? What happened to the 'fundamentals of our economy are strong'? That was just a week ago.

2) What is with this suspend the debates and your campaign bullshit? How does that help anything? I tend to agree with Harry Reid that McCain should stay away from DC because it would only politicize the talks and slow them down. Apparently W doesn't feel the same because he's invited Obama and McCain to DC.

Those are the two major points that are pissing me off about McCain today. I'm sure tomorrow will bring more.

Live Blogging W's address to the nation

Bush is addressing the nation about the national economic situation.

8:59 PM Call me crazy but Bush doesn't seem to know what he's talking about. Not very teacherly and understanding like FDR

9:01 PM Bush is not really being honest. He's blaming this ENTIRELY on the borrowers who 'borrowed more than they could pay.' Just tell America that mortgage lenders got greedy, gave too many high-risk high-reward loans and then jacked up the prices to unreasonable levels

9:04 PM Foreclosures have already risen traumatically moron.

9:05 PM What do McCain and Obama have to offer specifically? I mean really? Neither of them are financial whizzes and it will just bring a circus around the process

9:07 PM WOW! Bush just became a whipping boy. 'Protect the taxpayers. Avoid windfalls for high level executives' those aren't Bush's talking points. He hates those things

9:08 PM Did Bush just imply that we ARE going to buy the securities at fire-sale prices AND get the profits back in the government? This might end up being a good deal if judges have the ability to restructure mortgages.

9:10 PM Mmmmm, don't forget to suck cock at the altar of capitalism there Bush. BEST SYSTEM EVER IN THE BEST COUNTRY EVER! WOOO! You're a dick.

Overall thoughts: Bush is stupid, was a lap dog to Paulson's bullshit plan until everyone who knows anything said he was a stupid evil fuck. This may be a moment in history where politicians and Americans wake up and realize that the republican party line is an evil piece of shit in this case and Democrats are the party of helping people.

Note: Watching Chris Dodd's response to the speech on the Rachel Maddow show. He is holding back but he did say two important points
1. There were regulators but the 'cops weren't on the beat'
2. Fannie and Freddie weren't the huge culprits of Fannie and Freddie
3. Dodd bitch slapped McCain by saying he's just politicizing and didn't seem to care about the issue before it started hurting him

The economic scoop

This week we have proof that the conservative de-regulation theory of the economy doesn't work. Aka greed will catch up to you in the end.

From now on if someone suggests to you that deregulating industries is the best way to get low prices and 'let the market work' don't bother arguing with them. Their brain doesn't work and it is impossible to talk any sense into them because they will be unable to understand it.

I'm not saying that a market economy is bad. Here's what I'm saying:
1. Conservatives think free market=laissez faire economics. First of all the term 'free market' is a bullshit term so let's stop using it and laissez faire economics is what got us into our current mess
2. Markets (like children or sports) need structure and rules because they (or those participating in them) are too stupid and self destructive on their own.
3. Certain things should not operate on a economic market: health, justice, education, and possibly more that I am not thinking about currently.

These are the basics of sifting through some or most of the bullshit that conservatives have been trying to feed the world for more than a century. More on John McCain's ridiculous economics and the proposed Wall Street bail out when I'm not so tired.

Sarah Palin is a disgraceful VP pick

I don't know how else to frame it. Sarah Palin is from one of the most corrupt and mooching states in the US, she has no experience, is essentially George W. Bush in a dress but possibly even less informed and she is a candidate for VP of the United States. Let's go through various sorts of crazy scandals/facts about Palin

1. She would be the first VP in AT LEAST 40 years to have not met with a Head of State before being nominated for VP

2. She has lied about the why she fired Walt Monegan (Trooper Gate).

3. She lied about being against the bridge to nowhere and then kept the money even though it wasn't used for the bridge

4. Palin claims to be against earmarks (as does McCain) but Palin is in one of the most earmark laden states and Palin requested large numbers of earmarks as governor and hired lobbyist as Mayor of Wasilla (something no other Mayor of Wasilla had ever done).

She doesn't know what the Bush doctrine is, doesn't know what the VP does, is a pathological liar, least experienced person on a major presidential ticket in more than a century...phew. I could go on forever but let's leave it at her being an insanely terrible choice from the perspective of being a good human being or being competent at anything useful

Where have you gone Joe Biden? A nation turns its lonely eyes to you...woo woo woo

So it is noted that Sarah Palin is an overexposed vice president who is getting more press than most but where the hell is Joe Biden? It seems he disappeared for weeks and now he's reemerged but just barely.

I don't understand. He gave an impassioned speech at the DNC that suggests that he understands the problems facing our nation and can connect with people. Apart from his gem about rich people paying taxes being patriotic he really hasn't been seen or heard much.

Now Biden's most recent is that Obama's add about McCain's computer illeteracy is "terrible." Nice message control Joe. That may be a character attack on John McCain but it's also important because it means that McCain essentially isn't part of this century. He isn't part of society. People essentially don't work without computers now and new laws and policies are being crafted about and around the computer and the internet. How can we elect a president who doesn't even understand the basis of these problems?

Anyway I digress. I think Biden may be good but he's been a ghost for a while and I'm not sure if that's a good thing

Update(s) tonight

Ok there is a lot of stuff going on and I should be blogging it. I promise to have at least one blog post tonight. I intend to address

• economic meltdown
• proposed 700 billion dollar bailout
• Sarah Palin antics
• John McCain antics
• Joe Biden

I'm not sure if there is much else I should be railing about but that will probably be a few posts tonight