$40 trillion which was never there. So let it default. Ask yourself the question – what does having worthless paper retain a huge nominal value do for anyone? I can write “$40 trillion” on my napkin, and it remains a napkin, valueless as any other napkin. If you say, Loans are made against that napkin!, well, yes – that’s the whole problem.

I never suggested temporary liquidity. If I did, I’d like to know where. I am for liquidation, so that assets reflect their real market prices, and we can rebuild in a sustainable (unrelated to the sentimental “green” use of the term) manner. We need to reform entitlement programs, and slowly phase them out before they crush my (future) children’s generation.

“All we could do is prop up the system and let it keep running, rather than having it fail and having the entire rotten structure of derivatives collapse.”

That’s the Frum line, to be sure. Can’t say I consider him a leading light. In any event, the engine will seize up, whether you like it or not. I’d rather have a 4 cyl. stall than a 12 cyl; it’s less complicated and cheap to fix.

We’re at 10% and climbing. You just wait until the commercial real estate market collapses. It’s coming. Then we’ll hit 12%, at least.

OK, fine.
What would YOU do about it, if YOU were the POTUS today? Just sit back on your laurels and wait for the economy to self-correct?

Conservatives were recommending payroll tax cuts and other tax cuts. Even Larry Kudlow, who’s no liberal. Kudlow knew that government action was needed; he just disagreed with Obama as to just what action.

You suggested providing “temporary liquidity” to the financial institutions before phasing them out. Well, there was some $40 TRILLION dollars in Credit Default Swaps–that’s triple the GDP of the entire United States for a whole year–which were feared to be worthless, since they had been tied to securitization of subprime mortgages. There was no way for the U.S. to liquefy that market–we don’t have the money.

All we could do is prop up the system and let it keep running, rather than having it fail and having the entire rotten structure of derivatives collapse.

The crash of 1929 led to a mild recovery shortly thereafter:

http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20091018/REG/310189995/1011

We’re at about the same point.

What was it again about that “stimulus?” Unemployment won’t go over 8%? We’re at 10% and climbing. You just wait until the commercial real estate market collapses. It’s coming. Then we’ll hit 12%, at least.

You cannot plug bad paper by printing more money. There M-U-S-T be liquidations. I’d rather liquidate all at once and then rebuild. Putting it off further and further serves only to dispirit the population. Wages must fall. We all must consume less and save more to repay debt. There’s no ready-made solution.

Closer to the truth is the assertion that TARP has made America significantly weaker.

There was no alternative.

In September 2008, the economy was crashing into a depression. The collapse of the market for commercial paper would have caused the entire economy of the United States (except for some isolated farm markets) to grind to a halt.

How high would unemployment have to go before you would modify your free-market ideology with government action? 12%? 15%? 20%?

What I did not see from congressional Republicans in the fall of 2008, was any recognition of the severity of what we were facing. They reminded me of the crew of the Titanic, assuring the passengers that “this ship is unsinkable,” even while the ship was listing badly and sinking into the water.

We were headed for a depression. Really. Not quite as bad as the one in the 1930s (because today we do have a social safety net), but certainly as bad as some panics in the 19th century (in which unemployment rose to some 15%).

The best way to restore freedom to the marketplace would be to shut off the spigot of money to these entities, forbid them from lobbying, and break them into smaller pieces so whatever damage their failures cause, it would not be systemic.

I agree to this extent:

Any corporation that is “too big to fail” is too big to exist in its present form.

Unfortunately, it’s gotten out of our hands. The Credit Default Swap (CDS) market was an international market of speculators. AIG, the giant insurance firm that got bailed out, is a multinational firm with headquarters in New York, Europe, China, and the Middle East. I don’t know how to break up a firm like that with unilateral U.S. action.

It seems to me that the “too big to fail” problem with multinationals will require negotiating some kind of new international agreement.

…………This alas is the position of much of the conservative movement today……….every day their reps elected and unelected stand up and voice opinions that are basically nihilistic and antideluvian in 21st Century America……and the soundbites get replayed at venues like this……..The GOP is simply unfit for government at present……..and the country knows it whatever the latest opinion poll says about some aspect of policy about which most of those polled have skimpy knowledge at best.

The free market created the bubble, Churl. We can agree on that, right?

Now the supposed benefit of a free market is that it allocates resources effectively, or at least more effectively than other systems. The free market system failed to allocate resources effectively during the dot.com and real estate bubbles, and will continue to behave in exactly the same way going forward.

Now I leave it to you to figure out whether anyone stands to gain from bubbles, and whether we will have more bubbles in the foreseeable future.

What if it’s not either of those things, COI? What if it was simply an extraordinary measure to prevent a great calamity?

I supported TARP but I hate it. I hate the fact that the bankers who got us into this mess now view themselves as survivors rather than perpetrators. I hate the fact we’ve poured $750 billion into rescuing large businesses from their own errors in judgement while continuing to lobby in Congress against the sort of regulation that would have prevented this mess in the first place.

I hate the fact that these p****s have reduced credit lines and jacked up interest rates on people like me who’ve managed their credit wisely and always paid their bills on time after taking MY TAX DOLLARS. Just when I needed my lenders the most–my income has been cut in half since 2007–they’ve piled on and made my life far more difficult while continuing to pay lavish bonues to themselves ON MY DIME.

But I still supported TARP because I think this awful recession would have been a depression without it.

TARP as it was structured is indefensible to anybody but an unprincipled banker, who favors privatizing gains and socializing losses, or to a big government liberal, who sees TARP as a necessary price to pay to take over the finance sector.

The notion that America would have collapsed if Goldman failed is a fallacy. The banking crisis could have been averted by providing liquidity on a temporary basis, then liquidating the insolvent institutions. As a result of leveraging the Treasury to save Goldman and other big banks, America now faces at least a decade of economic stagnation, zero or negative returns on investment assets, deflation of leveraged assets like housing, an anemic job market, and a declining currency. The middle class is going to watch their wealth and purchasing power evaporate, while bankers on Wall Street will collect billions of dollars in bonuses, courtesy of the U.S. Treasury.

There is nothing conservative about this plan. This is anathema to a conservative.