Understand the Credit Crisis - Video

This comes by way of Momocrats, who credits Planet Money, which, by the way, offers a great podcast. This video illustrates why Ranting Rick is a nitwit.

The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

We Need the Bailout

The "We" is us. Thomas Friedman, NYT columnist, says the bailout is necessary to save ourselves -- not Wall Street. I've posted some of the story below.

Obama, in Wisconsin this morning (video here), made a strong case for the bailout. He also said that once it's in place it can be changed if it's not working. He argued that the bailout will not prevent him in investing in healthcare, energy, education and tax cuts for the middle class. He said those things will not go by the wayside-- they are needed investments to grow the economy (as opposed to spending).

He said he will go through the government budget and cut waste. He'll axe no-bid contracts, no more Halliburton deals. Obama gave one of his best speeches this morning.

NYT: I’m in both — because I know an unprecedented moment when I see one. I’ve been frightened for my country only a few times in my life: In 1962, when, even as a boy of 9, I followed the tension of the Cuban missile crisis; in 1963, with the assassination of J.F.K.; on Sept. 11, 2001; and on Monday, when the House Republicans brought down the bipartisan rescue package.

But this moment is the scariest of all for me because the previous three were all driven by real or potential attacks on the U.S. system by outsiders. This time, we are doing it to ourselves. This time, it’s our own failure to regulate our own financial system and to legislate the proper remedy that is doing us in.

.....
This is dangerous. We have House members, many of whom I suspect can’t balance their own checkbooks, rejecting a complex rescue package because some voters, whom I fear also don’t understand, swamped them with phone calls. I appreciate the popular anger against Wall Street, but you can’t deal with this crisis this way.

This is a credit crisis. It’s all about confidence. What you can’t see is how bank A will no longer lend to good company B or mortgage company C. Because no one is sure the other guy’s assets and collateral are worth anything, which is why the government needs to come in and put a floor under them. Otherwise, the system will be choked of credit, like a body being choked of oxygen and turning blue.

Well, you say, “I don’t own any stocks — let those greedy monsters on Wall Street suffer.” You may not own any stocks, but your pension fund owned some Lehman Brothers commercial paper and your regional bank held subprime mortgage bonds, which is why you were able refinance your house two years ago. And your local airport was insured by A.I.G., and your local municipality sold municipal bonds on Wall Street to finance your street’s new sewer system, and your local car company depended on the credit markets to finance your auto loan — and now that the credit market has dried up, Wachovia bank went bust and your neighbor lost her secretarial job there.

Why Americans Don't Believe in Bailout Doom

I haven't supported the bailout because 1) I don't trust George Bush 2) No one has offered any specifics on what might happen and how fast it might happen (because no one knows?) Sure, they've all said it would ultimately lead to a loss of jobs but would it be any worse than the job losses we've already seen? 3) The bailout has been urged as a big fat rush, which makes it suspicious 4) Worthy economists seem to think there are alternatives that won't produce dire consequences 5) I like the idea of going back to a cash society -- only small businesses should be able to get easy access to credit 6) The wealthy financial sector should be allowed to drown in their greed.

Time: The most effective warnings are like the most effective TV ads: easily understood, specific, frequently repeated, personal, accurate, and targeted. Paulson and his grim reapers managed only to repeat themselves frequently. They were not easily understood, partly because the problem is so complex. They did not personalize or target their warnings. And, as they themselves admitted, they did not know if their warnings were necessarily accurate, due to the novelty and unpredictability of the crisis.
But their biggest mistake was a lack of specificity. They never clearly told the American people what might happen if Congress did not act. "If you want people to support an action," says Dennis Mileti, an expert on risk communications who has studied hundreds of disasters of the more conventional kind at the University of Colorado, Boulder, "you need to link the action to cutting people's losses. And that link isn't in place."
Here is what administration and Congressional leaders must do if they want to convince the public to get behind the next iteration of a plan — assuming, of course, they come up with a plan worth backing: read the rest.

Why I support the bailout: Because some people are near retirement and they need more money from their IRAs and 401Ks. Stock values have plunged to where they were when Bush took office. But what if the bailout happens and stocks don't go up? There are too many unexplored ifs.