More skepticism

Posted by: Michael Mandel on September 23

More skepticism about the Paulson plan from David Cay Johnston, directed toward journalists:

Don’t assume that Congress must act instantly, as so many news stories state as if it was an immutable fact. Don’t assume there is a case just because officials say there is.

The coverage of the Paulson plan focuses on the edges, on the details. The focus should be on the premise. And be skeptical of what gullible Congressional leaders, most of them up before the voters in a few weeks, say after being given a closed-door meeting on supposed horrors.

The Administration has scared the markets and some key legislative leaders, but it has not laid out a coherent, specific and compelling need for this enormous proposal, which is the equivalent of a one-time 55 percent income tax surcharge. (Instead the money will be borrowed, so ask from whom and how this much can be raised so quickly if the credit markets are nearly seized up with fear.)

Ask this question — are the credit markets really about to seize up?

If they are then lots of business owners should be eager to tell how their bank is calling their 90-day revolving loans, rejecting new loans and demanding more cash on deposit. I called businessmen I know yesterday and not one of them reported such problems. Indeed, Citibank offered yesterday to lend me tens of thousands of dollars on my signature at 2.99 percent, well below the nearly 5 percent inflation rate. That offer came after I said no last week to a 4.99 percent loan.

If the problem is toxic mortgages then how come they are still being offered all over the Internet? On the main page AOL generates for me there is an ad for a 1.9% loan (which means you pay that interest rate and the rest of the interest is added to your balance due.) Why oh why or why would taxpayers be bailing out banks that are continuing to sell these toxic loans?

You know, I’ve wondered that too.

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Reader Comments

Swapna

September 23, 2008 04:18 PM

Comrade Paulson and Comrade Bernanke say that if the big banks fail economy will be in recession and people will lose more jobs.

First, what if the big banks fail?
US is a capitalist economy and everyone looks for a profit. If the big banks fail, some other small banks or the existing big banks with conservative lending practices will always offer loans. Ofcourse it will be difficult to get any "subprime" loans.

Second, Americans should understand that money = human labour. How will artificially inflating home values make them richer without an increase in productivity?

Joe Cushing

September 23, 2008 09:46 PM

I mostly agree with this guy. I got an $11000 line from Chase just for opening a checking account. At the same time I was turned down for a mortgage, even though I already have one of theirs.

It's worth pointing out that just because the loan officer wants to sell the loan, that does not mean that the loan will get approved. You have to remember that sales is a numbers game. Now that loans are not going through, the sales people have to increase their prospects in order to close the same number of deals. This means more junk mail and other types of solicitations. It does not mean you can get the loan they are advertising. Maybe they give you the old bait and switch, maybe you can't get a loan at all.

I don't like the government getting bigger. It should be ok in the end, if the government turns around and sells all of this debt and any equity that it takes. If banks are too big to fail then when this is all over the FTC needs to step in and do a break up. Too big to fail sounds a lot like a trust to me.

Mike Mandel

September 24, 2008 07:49 AM

we'll get to "too big to fail" next.

Joe Cushing

September 24, 2008 12:44 PM

I just got an email from Ron Paul. You can add him to your list of skeptics.

Here is how the email starts...

"Dear Friends,

Whenever a Great Bipartisan Consensus is announced, and a compliant media assures everyone that the wondrous actions of our wise leaders are being taken for our own good, you can know with absolute certainty that disaster is about to strike.

The events of the past week are no exception. ..."

Thank you for your interest. This blog is no longer active.

 

About

Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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