This is a classic Shock Doctrine moment. This excerpt from the Amazon.com review says it better than I could:

“Naomi Klein’s The Shock Doctrine advances a truly unnerving argument: historically, while people were reeling from natural disasters, wars and economic upheavals, savvy politicians and industry leaders nefariously implemented policies that would never have passed during less muddled times. As Klein demonstrates, this reprehensible game of bait-and-switch isn’t just some relic from the bad old days. It’s alive and well in contemporary society, and coming soon to a disaster area near you.”

Posted by Janis Jaquith on 21 September 2008 @ 10pm

Here’s text of the bailout legislation. Pay attention to Section 8:

Sec. 8. Review.

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

That’s freaking scary. How could anyone back anything with wording like that?

Posted by grs on 21 September 2008 @ 10pm

We agree.

Any time we have the government essentially taking over large portions of the private sector not only is it fishy, it is just plain dangerous and we should all be on high alert.

Some of these financial institutions were not truly in the private sector in the first place because they had government guarantees backing their holdings therefore removing their private risk causing them to make stupid decisions without fear. Here government “oversight” clearly helped cause the problem. More “oversight” will just cause more of the same.

Other of these institutions just plain should go belly up. Otherwise, we’ll get more stupid lending practices since there will be the perception of a government bailout if things go south. We cannot as a nation privatize profits but socialize losses.

But here’s the problem. Do you let all the banks fail in chain reaction and let the country dive into a depression?

It ain’t an easy or pretty decision, but any time the government intervenes, the smell of fish you smell is due to the fact that something is rotting.

Posted by Watts on 21 September 2008 @ 10pm

Yes.. I’m reminded of Lucy & the football in Peanuts.

Posted by LarryG on 21 September 2008 @ 10pm

HRC agrees with you.

Posted by Vivian J. Paige on 21 September 2008 @ 11pm

Brilliant graphic from Marginal Revolution here: http://www.marginalrevolution.com/photos/uncategorized/2008/09/21/paulsonpp_5.png

Posted by Genevieve on 22 September 2008 @ 9am

The thing that strikes me about that particular part of the proposed legislation quoted by grs is that I don’t know why the Administration is even going to bother writing it in! The Supreme Court didn’t respect the administration’s wishes to stay out of the military tribunal process in Gitmo, why in the hell do they seriously think the SCOTUS is going to stay out of domestic policy issues?

I frequently disagree with the new majority on the court, but I respect them enough to understand that they haven’t yet embraced their Bush-imposed irrelevancy and agreed to a Constitutional unilateral disarmament. After eight years, why hasn’t the administration figured that out yet?

Posted by Sam on 22 September 2008 @ 9am

Between this and the weekend bailout of the two largest private mortgage lenders (Mae & Mac), I can’t believe the headline isn’t reading “capitalism has failed.” Clearly our lawmakers believe it has failed because they feel so strongly that the market can’t be permitted to run its course.

Posted by Duane Gran on 22 September 2008 @ 9am

These institutions have proven to be more in cahoots with Congress’s power brokers then their own branch. Look at the power they already had and who in Congress was benefiting and blocking any reforms suggested in Congress or from the White House. Lets stop giving the Barney Frank’s of the world a pass

Posted by Bitter Clinger on 22 September 2008 @ 6pm

why isn’t a penny going to Americans who are losing their homes?

I agree wholeheartedly that this bailout (if that’s what we have to call it) is fishy, and probably a bad idea. As for people “who are losing their homes” — that’s, as they say, a whole ‘nother matter.

People are losing their homes because they bought homes they never should have to begin with. I do foreclosure sales as a trustee for lenders. Of the last thousand or so foreclosures that I’ve done, at least 990 are of this variety — zero money put down on the house, interest only loan, 3 year ARM. There’s only one reason people get a mortgage like that — they want as much house as they can possibly qualify for, and instead of buying slightly less house with a traditional mortgage, they figure out some way to buy more than they can really afford.

The lenders are absolutely culpable. After all, they’re the idiots who gave these people the loans. Still, it’s hard to have much sympathy for John and Jane Doe who just HAVE to have the most house possible, ’cause, gosh darnit, they deserve it!

Posted by I.Publius on 22 September 2008 @ 10pm

I have little sympathy for anybody in this mess, though I have slightly more for the homeowners, because I can appreciate how intimidating that the mortgage process is—if a lender says “of course you can afford a $300k house!” I can understand how many people would think “well, I guess this guy knows what he’s saying.” That’s still a seriously bone-headed thing to do, don’t get me wrong.

The difference is that the homeowner was foolish or ignorant, while the lender was malicious.

Posted by Waldo Jaquith on 22 September 2008 @ 10pm

There are only 1 million mortgages that are in default. It is stunning that a default rate of about 3-4% has caused this level of panic. Leverage of 30 to 1 will do that. Americans want someone to be lead away in handcuffs.

The hedge fund boys and the country wealth funds are the most likely the biggest culprits. This means almost nothing will happen to them. The lack of regulation covering them make a legal trail of misdeeds hard to find. Who will be stuck with the blame?

The next problem is what happens when consumer debt starts to tighten. Less credit cards or home equity lines then Consumer spending slows down and thus the raging recession gains a big head of steam.That’s when it gets ugly for main street.

Posted by burt not ernie on 23 September 2008 @ 9am

I agree with Waldo and Publius at the point where their opinions intersect, and I think there’s a lot of agreement that there aren’t a whole lot of people directly involved in this melt-down who are blameless or innocent. I’d further say that I don’t believe it’s in anyone’s interest for the government to attempt to keep homeowners as a broad category in their houses, which Sec. Paulson has stated to be one of his primary intents in the proposed legislation:

1. It’s not in the interests of the real-estate market because it reduces the volume of housing available on the market while simultaneously reducing the number of potential buyers (since, if you’re selling a home, you’re probably planning on buying another home eventually, perhaps after an intervening period of renting).

2. Reduced volume of sales on the housing market will be deadly for banks. Banks need a market for mortgages to get their own finances back in order, and until people are buying and selling homes, people aren’t going to be looking for mortgages.

3. Banks that don’t make money don’t generate tax revenue, and we’ve already established that failing banks sometimes mean huge government outlays to support them. Thus, it’s not actually in the Government’s interests, either.

Unfortunately, I don’t think anyone (Republican, Democrat, Libertarians, Vegetarians) can tell voters that you’re going to let housing prices fall and help at-risk homeowners move into smaller, more-affordable housing units six weeks before an election, so instead of coming up with a plan that allows for us to responsibly manage a market correction, we’re going to get obligated into socialism for the long haul by using the government to prop up artificially high housing prices (which, in turn, obligates us to help stabilize failed banks that can’t afford to keep selling mortgages of this size to buyers who can’t reasonably be expected to keep up with the payments).

It wouldn’t be so bad if this wasn’t something that could have easily been prevented with just a bit of responsible market regulation. An ounce of prevention really is worth a pound of cure (and it costs a whole hell of a lot less).

Posted by Sam on 23 September 2008 @ 9am

I would support the bailout if the firms helped had to match dollar for dollar the relief they get with corresponding relief for homeowners through mortgage reductions.

Posted by Bill Kuster on 24 September 2008 @ 1am

I wouldn’t, Bill. The correct response to an obscene expenditure of public resources is not *additional* expenditure of public resources.

And even so, relief for homeowners from what? Living up to the agreements they made in the first place? Mmkay. I’d be open to reforming some mortgages (or giving authority to bankruptcy courts to do that) in which the borrower was obviously incapable of understanding the transaction, but that’s about it. I’m not interested in using public money to prop up that ridiculous rise in home values.

Posted by MB on 24 September 2008 @ 11am

Well, that’s what we’re doing. Unfortunately it will go to banks rather than homeowners. Given the choice between those two, I would opt for the latter.

Posted by Bill Kuster on 24 September 2008 @ 3pm