The Republican alternatives to the Paulson bailout

[DogPoundPup]

Source: Time

The "agreement in principle" on a $700-billion mortgage bailout turned pretty quickly into a disagreement Thursday night as House Republicans revolted. Not being a Capitol Hill Kremlinologist, I can't really tell you how significant this is: This summer's big housing bill was opposed by 149 of 199 House Republicans, and that sure didn't stop it. What I can offer a halfway informed opinion on is whether the two Republican counterproposals floating around make any sense.

One, that of the House Republican Study Committee, seems to be a joke. It calls for a two-year suspension of the capital gains tax to "encourag corporations to sell unwanted assets." But the toxic mortgage securities clogging up bank balance sheets are worth less now than when they were acquired. Meaning that no capital gains tax would be owed on them anyway. If you repealed the tax, banks would have even less incentive to sell them because they wouldn't be able use the losses to offset capital gains elsewhere. Seriously, where do these people come up with this stuff?

Eric Cantor, the Republican chief deputy whip, has a more reasonable-sounding if still pretty vague plan to insure more mortgages rather than buy mortgage securities. Taxpayers already explicitly insure several hundred billion dollars worth of mortgages (it was $400 billion at the end of FY 2007, but I imagine it's a lot more by now) through the Federal Housing Administration, and have now also taken responsibility for the $5+ trillion in mortgages held or guaranteed by Fannie Mae and Freddie Mac. Add a couple trillion dollars of troubled private-label mortgages to that, and you don't have the big up-front expense or direct government involvement in the banking system that the Paulson plan calls for. Cantor also seems to think Wall Street would pay the premiums on the insurance (with FHA-insured loans, homeowners pay the premiums).



Read more: http://time-blog.com/curious_capitalist/2008/09/the_republican_alternatives_to.html

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Former Republican who headed the House financial services committee:

Sept.9,2008
In the aftermath of the US Treasurys decision to seize control of Fannie Mae and Freddie Mac, critics have hit at lax oversight of the mortgage companies.

The dominant theme has been that Congress let the two government-sponsored enterprises morph into a creature that eventually threatened the US financial system. Mike Oxley will have none of it.

Instead, the Ohio Republican who headed the House financial services committee until his retirement after mid-term elections last year, blames the mess on ideologues within the White House as well as Alan Greenspan, former chairman of the Federal Reserve.

The critics have forgotten that the House passed a GSE reform bill in 2005 that could well have prevented the current crisis, says Mr Oxley, now vice-chairman of Nasdaq.

He fumes about the criticism of his House colleagues. All the handwringing and bedwetting is going on without remembering how the House stepped up on this, he says. What did we get from the White House? We got a one-finger salute.

The House bill, the 2005 Federal Housing Finance Reform Act, would have created a stronger regulator with new powers to increase capital at Fannie and Freddie, to limit their portfolios and to deal with the possibility of receivership.

Mr Oxley reached out to Barney Frank, then the ranking Democrat on the committee and now its chairman, to secure support on the other side of the aisle. But after winning bipartisan support in the House, where the bill passed by 331 to 90 votes, the legislation lacked a champion in the Senate and faced hostility from the Bush administration.

Adamant that the only solution to the problems posed by Fannie and Freddie was their privatisation, the White House attacked the bill. Mr Greenspan also weighed in, saying that the House legislation was worse than no bill at all.

We missed a golden opportunity that would have avoided a lot of the problems were facing now, if we hadnt had such a firm ideological position at the White House and the Treasury and the Fed, Mr Oxley says.

When Hank Paulson joined the administration as Treasury secretary in 2006 he sent emissaries to Capitol Hill to explore the possibility of reaching a compromise, but to no avail.
http://www.ft.com/cms/s/0/8780c35e-7e91-11dd-b1af-000077b07658.html?nclick_check=1

[spag68]

1. Capital gains

The old saw about capital gains always stuck in my craw. The way I understand it, the big investors get 10 to 20 percent return on the money they invest while we the peons get a measly 2 to 4 percent. Then to scald us more they pay 15% on the income while we pay 20 to 30 percent. This has always been the way that capital< wealthy people> keep labor< workers> under heel. We had it too good after ww-2 and that pissed them off, I mean why should those peons have a house and a car, screw them they said, and started to work on a way to get us. From the 1947 Taft-Hartley act that Nixon screwed us with to the firing of the air traffic controllers by their stooge reagun, we now see that their plan is about to wind up. If, and that's a big IF, we can start on the road back it will take many years to get out of this. We do have a chance because there is no where left for them to hide. Too many people are educated now and the computer and internet keeps them from operating in the shadows. Many of the new rich like the google guys seem to have an interest in promoting the whole country, so we do have a chance. Illigitmi non carborundum or don't let the bastards wear you you down

[kirby]

6. Repeat after me: There IS NO CAPITAL GAIN ON A LOSS!!!

This is just a ruse completely unrelated to the current situation. In fact, companies who write off these bad loans can use the loss on their taxes to offset future profits. When no capital gains, they wont be able to do that so it will actually be worse!

[WriteDown]

9. Huh?

Where are you getting your #'s from?

[Mojorabbit]

2. bookmarking to read in the am. thanks nt

[krkaufman]

3. Warrants highlighting... Oxley: "the legislation lacked a champion in the Senate"

That would be the Senate where John McCain was serving.

[FVZA_Colonel]

4. Lower taxes (on the rich) and deregulate.

That's the true gist of their plan, now matter how they try to spin it, and that's how the Democrats need to present it.

[David__77]

5. Capital gains should not be taxed at a lower rate than "wage gains!"

Labor produces all wealth. It is shameful and immoral that speculation is taxed at a lower rate than labor is!

[WriteDown]

10. That is absolutely false....

No one facet produces all wealth. Investment has a big place in the economy. C and I and T and G and X.... all have to be figured into the equation.

[David__77]

11. Try eating "I."

I'm an economist. I certainly know all the identities and equations. Nominal wealth does not equal use value. Use values are generated only through labor. Investment is only a mediation of labor and tools, capital. It's important, but clearly subsidiary to labor, including the production of the means of production.

[WriteDown]

12. Well, if you know all the factors then....

you certainly know they are intertwined. You can not remove any of them. You surely can eat the profits from "I."

[SharonAnn]

14. Until someone does some "work" with land, there's little to eat. Until someone

does some "work" with hunting, there's little to eat.

Owning land doesn't get you fed. Someone working by farming the land can get you fed. But without someone's labor (your labor or someone else's labor) there's no food being produced other than what might grow wild.

Same with everything else.

"Labor is prior to and independent of capital. Capital is only the fruit of labor and could never have existed if labor had not first existed. Labor is the superior of capital"

Abraham Lincoln said it:

"It is assumed that labor is available only in connection with capital; that nobody labors unless somebody else, owning capital, somehow by the use of it, induces him to labor. This assumed, it is next considered whether it is best that capital shall hire laborers, and thus induce them to work by their consent. Having proceeded so far, it is naturally concluded that all laborers are either hired laborers or what we call slaves. Now, there is no such relation between capital and labor as here assumed . . . . Labor is prior to and independent of capital. Capital is only the fruit of labor and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration. Capital has its rights, which are as worthy of protection as any other rights "

Abraham Lincoln
Source: first annual message to Congress, December 3, 1861
"

[David__77]

15. That first one is a great quote from Lincoln.

He was a real progressive capitalist revolutionary. He recognized that the actual, physical economy relies on real inputs and outputs. Never did I mean to say that investment is not important, but it is a secondary, mediating factor. Wealth can be generated without investment; but, without labor, there can be no wealth generated.

Investment can be public or private in nature. Indeed, the Soviet Union had a very, very high level of investment under Stalin: over 40% of GDP. But the question is: Should a class of individuals through private investing activities accrue income that is taxed at a lower rate than the wage income of working people? I do not think so. Others may disagree.

[joeglow3]

16. Lets be completely accurate here, though

Capital gains and dividends are almost always the result of owning a corporation (or, its stock). If the corporation pays 35% in Federal tax and someone sells or gets a dividend, then they pay 15% on that income that was already taxed, resulting in a 45% tax. Now, I am not saying I think this is too much in taxes. However, the tax CPA in me wants us to use accurate numbers in discussing this.

[David__77]

17. That's like saying that sales tax is "double taxing."

As money moves through the economy, it gets taxed, to put it crudely. I don't see how it's relevant. Corporate taxes come out of the pool of money available for labor wages as well as capitalist profit. "They," meaning corporations, are not the ones paying capital gains. People are. Corporations are distinct entities.

[GinaMaria]

7. Regardless of the merit or uselessness of the 2 puke plans

They had suggestions or ideas held them back while pretending to work with the Dems in Congress just so they could derail efforts. They look horrible. Why not bring the idea to the table while everyone was working on it? The two sides were supposed to collaborate. They (Cons) deliberately deceived the taxpayers. They (cons) undermined America during a crisis, so John McInsane could be staged as a 'hero' with a whole new approach. This fake hero mentality is being driven out of most corporate cultures as it is toxic and hurts the bottom line. It's also known as putting something into production that you know isn't right and when it goes bad, you jump in with the (already known) solution and appear to be the hero.

All we heard was that time was of the essence and the Cons slowed the whole thing down to prop up one man instead of doing what is best for everyone. Anyone who participates in that type of culture needs to be replaced. It is unprofessional, counter productive and wastes resources, not to mention the distrust, ill will and opposition that is created by this type of behavior. They created barriers to crafting a bipartisan solution. Their actions don't say anything about the Democrats in Congress and speaks volumes about the Cons in Congress.

This was ugly and I hope every American sees them as the obstructionists they are.

[Redstone]

8. Excuse me while I go vomit. Those Repubs have NO fucking soul, do they?

Redstone

[Roland99]

13. What? A Repub saying the 2005 bill was NOT the fault of the Dems? Noooo...

I think I saw a pig fly by my window.