Back in May, This American Life aired a widely-acclaimed show on the mortgage crisis. In The Giant Pool of Money, Alex Blumberg and Adam Davidson pepper their analysis with dialogue from a cast of characters including:
Richard Campbell, ex-Marine, behind on his mortgage: “At one point, my son had $7,000 in a CD and I had to break it. That really hurt.”
Clarence Nathan, who got a $540K second mortgage while working 3 part time not very steady jobs: “I wouldn’t have loaned me the money. And nobody that I know would have loaned me the money. I know guys who are criminals who wouldn’t loan me that and they break your knee-caps.”
Glen Pizzolorusso, just out of college, making $1 million a year selling mortgages to people like Clarence Nathan: “These people didn’t have a pot to piss in. They can barely make a car payment and we’re giving them a 300, 400 thousand dollar house.”
It’s a powerful show. If you don’t have the time or inclination to listen, you can read the transcript.
Last Friday, Alex Blumberg and Adam Davidson returned with Another Frightening Show About the Economy. There’s no transcript yet, but I just listened while doing housework. It’s just as compelling, and also amazingly prescient. Here’s Adam Davidson from that 10/3 show:
We’ve surveyed a bunch of economists, and most say there’s another approach that’s clearly better. It’s called a stock injection plan. In the Paulson plan, we give 700 billion to the banks and get back these toxic, crappy assets. With the stock injection plan, we still give something like 700 billion dollars to the banks, but in return we get an ownership plan.
From the Planet Money blog, also on 10/3, referring to the TAL show:
That White House plan wasn’t the only plan. It wasn’t even necessarily the plan you think it is. In this podcast, Adam Davidson tells This American Life host Ira Glass about a mysterious phone call in which a tipster suggested that an alternate proposal had crept into the language of the reworked bill. Davidson says that it concerns so-called stock injection, and that economists like it — a lot.
And sure enough, we learned about that alternate plan today. I heard it on the news, and today’s Planet Money is a well-deserved “I told you so”:
That backdoor bailout we’ve been talking about came now front and center. U.S. Treasury Secretary Henry Paulson says the U.S. is prepared to use public money to buy up portions of private banks. Alternately called a stock injection and a capital one, the move would amount to at least a partial nationalization of the financial system.
Why wasn’t this the original plan? Because banks hate it, Davidson says, and they’re a powerful lobby. But, push has come to shove.
The 10/3 TAL show paints a brighter picture of this alternate plan, calling it simpler, fairer, more economically sound, and a better deal for the taxpayer. We’ll see how the market responds tomorrow. But here’s the line that stuck in my head:
Someone, and we still don’t know who, put in very subtle language into the Senate bill that gives this as an option to the Treasury Secretary.
Repeat: “Someone, and we still don’t know who.” Excuse me? The future of our economy depends on subtle language inserted into the bailout bill, we can’t point to who wrote it, or when, and reporters have to receive anonymous tips to learn about it?
I’ve written recently about a Congressional content management system. Micah Sifry makes the same point in an outstanding episode of Phil Windley’s Technometria podcast. The stakes are way too high for these shell games. We need a whole lot more transparency in the legislative as well as financial realms, and we need it now.
I couldn’t agree more. Shell games trying to correct a grandiose pyramid scheme of bad mortgages repackaged as investments. If elected officials or the staff of elected officials cannot stand up and take blame or credit for the language of a bill why do we even trust them? Congressional content management today, congressional content management tomorrow, congressional content management forever.
When I listened to the show last weekend, that someone gave me the chills. I mean, from the sound of it, it seems like a good thing in this case, but it’s obviously just as easy for “someone” to slip something evil into a bill too.
I want to believe that this sort of thing shouldn’t even be possible today with version control and our other collaborative technologies, but then I remember we’re talking about government, and that most politicians will fight accountability for as long as they can.
Thanks for your interviews with people like Micah Sifry, John. They’re important, and are making a difference.
Cheers,
Jason
> most politicians will fight accountability
> for as long as they can
The point about financial transparency is also very compelling. Nobody wants to lend because nobody knows who is or is not lying about their ability to pay back.
> Thanks for your interviews with people
> like Micah Sifry
Although I’ve done interviews with people like Micah, and wish I’d done that one, I didn’t. Phil Windley and Scott Lemon did, for Phil’s Technometria podcast.
Transparency works both ways. Those bank lobbies would know who to punish, and precisely who’s giving them value for money… :)
To the best of my knowledge the “backdoor” provisions for the capital injection plan were less about mysterious language being put into the bill than interpreting what Congress intended.
Accordin to Nouriel Rounbin the capital injection plan is based on Congress and the treasury verbally agreeing, on the floor of Congress, that the word “asset” can mean equity in addition to the distressed mortgage based securities that we’ve heard so much about in the news.
I think this points to the very important fact that the written content of the law, whether it’s captured in a content management system or not, is of equal importance with how all three branches of government choose to interpret the law. Sometimes this is a good feature, sometimes it is a bad feature, but it clearly seems to be a feature that we’ve had for a long time.
> the written content of the law, whether
> it’s captured in a content management
> system or not, is of equal importance
> with how all three branches of government
> choose to interpret the law
Great point. One aspect of this hypothetical content management system would, therefore, be a way for anyone to publish a link between a piece of legislative text, and a segment of audio or video where critical interpretation of that piece of text occurs. That link would then become the focus of attention and discussion. In this case it is, literally, the “missing link” — although, in theory, we have the raw textual and video resources and could create it.
Lifting a quote from that Roubini article:
“It is a sorry reflection of the state of the US democracy that hundreds of Senators and Congressfolks did vote for the biggest bailout ever in US history ($700 bn) without even knowing exactly what they were voting for. They effectively and rightly allowed for a partial nationalization of the US financial system (the only solution that will prevent a systemic financial meltdown) without even exactly knowing that they were voting for this.”
They didn’t, and we didn’t. I guess you can argue it two ways. One, that broader realtime awareness of what was actually happening would have calmed the panic. Two, that such awareness would have created a “too many cooks” situation that would have unacceptably slowed the process.
Tough call, maybe, but I think historical forces are pushing us toward the former. With many eyes (and many brains), all bugs aren’t necessarily shallow, but when you’re dealing with complex interconnected fast-moving systems — which is the nature of everything from now on — I don’t think we can afford not to harness the power of the collective.
I think this is a case where lack of transparency helped. I can’t get the Roubini article, but my understanding was that Dodd fought to get that power in there in thse sessions from the start, but one of the conditions was not to make too much of a public stir about it when presented, to really try to keep it vague — not so much because of the Representatives but because of the constituents — had this been picked up by the news as a “nationalization plan” those Reps would have been in trouble in their home districts.
If this was settled on the floor, it was likely because they were not able to sneak it completely by — e.g. its meaning wasn’t created on the floor but discovered before the vote.
Anybody who’s ever done committee work in business or higher ed knows precisely the sort of manuever I am talking about. Sometimes it *is* better if the law is given room to evolve. Laws aren’t source code, and the administrative branch is not a runtime, after all.
But I’ll have to read the Roubini article — is there a way to read it free?
The odd thing was how little was made of this — the pichfork wavers on the left, I know, were explicitly told to settle down because if it came to it Paulson could talk the action Krugman and DeLong and Galbraith had been pushing since the beginning (i.e. direct capital injection via purchase of preferred stock).
The thought then, though, I think was that Paulson would muddle around for 3 months, and use $150 billion for his buy bad asset nonsense, but that Obama would in January direct the money to be used to nationalize the banking system. That is — the idea was Paulson could stave it off and the key was to make sure Obama had that power when he stepped in. What’s extraodinary here is how little the asset solution bought — so that even this administration is turning towards nationalization.
There’s a scond piece Krugman is hammering on, which we have to watch — the other half of the Brown solution (and the Swedish solution etc) is to guarantee interbank loans. The government has inexplicably failed to do that yet, so keep crossing fingers. That has to happen by Monday or Tuesday, or things still go down the flusher.
What does all this mean for us Many Eyes people — that the American Public was screaming for something that could have brought us into depression? And that the fewer eyes papered over stuff to get a bill through?
I think it’s a good indication that voting is broken and that TV refuses to do it’s job. We have a system that allows participation without requiring communication (or education). That’s going to seriously screw with results. The equity/asset distinction can be explained in about 2 minutes. There’s a river of TV news on, and the closest I saw to anybody doing that was Krugman on his Olbermann and Maddow interviews. The crowdsourcing we need here is not on the bill — but some way of making sure the public understands the bill. Fix that, an lawmakers will write better bills.
> But I’ll have to read the Roubini article
> is there a way to read it free?
It’s free, but registration required.
> What does all this mean for us Many Eyes
> people — that the American Public was
> screaming for something that could have
> brought us into depression? And that the
> fewer eyes papered over stuff to get a bill
> through?
I’d say the public was screaming for relief, not for Plan B vs. Plan A. Unclear how ideological it (we) would have gotten about bank nationalization, but nobody’s squawking now that B is a contrast gainer relative to A.
Meanwhile, in hindsight, almost everybody wishes that more eyes had been watching the multi-trillion dollar gambling game that brought all this down on our heads and necessitated this choice between evils.
I was hoping to read more about Jock Gill. Will there be a part 2 ? Just bought a pellet stove here in Nashua,NH and interested in here how the grass to biofuel projects are going.
http://www.jockgill.com/
Nice blog BTW,
Jim
The NPR shows are tremendous – they should be required listening for every American. They are so well done. There’s another site out there that’s really informative – http://www.StockInjectionPlan.org. The site is really informative and well done. It’s not This American Life – but it’s really, really good & informative.
I just realized your interview is on a podcast. I’m sure I will find this and your other interviews of interest. Thanks, Jim
Great point. One aspect of this hypothetical content management system would, therefore, be a way for anyone to publish a link between a piece of legislative text, and a segment of audio or video where critical interpretation of that piece of text occurs. That link would then become the focus of attention and discussion. In this case it is, literally, the “missing link” — although, in theory, we have the raw textual and video resources and could create it.
John, this happened on the floor of the House of Representatives while Congress was in session. So we have a complete transcript of the exchange – the kids are calling it the “Congressional Record”. I think you’re right, that critical interpretation should be captured, but relevant critical interpretation occurs in very few places – legislatures, courtrooms, and perhaps writings in the press. Luckily, these venues all provide a record in text.
> Luckily, these venues all provide a record
> in text.
Yes, they do. But much of what becomes the focus of public discourse happens on TV, or in Internet video clips, and these are almost invariably divorced from their textual context.
There ought to be a canonical way to refer to a segment of video, and it should correspond to a canonical way to refer to the corresponding text. Either reference should be able to function as an anchor for commentary from any source that can form a URL. And that commentary should then be accessible from the points of origin in video and text.
It’s all doable. You see it happening in spectacular fashion in the recent NYTimes debate treatments.
I think we’re moving inexorably toward getting this done much more broadly. I have an interview later today with a company that’s working on making these capabilities available not only for Congressional proceedings, but for state and local proceedings as well.
I just want to add another important source of information to the mix: administrative agencies. A recent article on an SEC hearing in 2004 reveals that the leverage/borrowing requirements for major financial institutions (Bear Stearns, Lehman Brothers, Merrill Lynch…gee this list sounds familiar) were dramatically increased without much objection.
I especially like this quote: “The proceeding was sparsely attended. None of the major media outlets, including The New York Times, covered it.”
The NYT news story has an audio recording of the meeting. I assume this was made by the SEC but haven’t confirmed that.
One potential locus for this information gathering to condense around might be Open Congress.