Here’s the video I did for the WSJ on Tuesday — it was the #2 video on the WSJ.com site yesterday:

“Barry Ritholtz, the writer behind the popular economics blog “The Big Picture,” discusses his soon-to-be-published book, “Bailout Nation.” He tells WSJ’s Christina Jeng the government might be too quick to come to the rescue and it might not even benefit the economy. (Sept. 23)

Category: Bailout Nation, Bailouts, Books, Video

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

54 Responses to “WSJ: Bailout Discussion”

  1. Domenic says:

    “Capitalism without failure is like religion without sin.”

    I couldn’t have said it better myself.. Great video, Mr. Ritholtz

  2. Vermont Trader says:

    book cover looks good.

    “Prophylactic approach”

    So are you saying the Paulson Plan is just a trillion dollar condom?

  3. JS says:

    Nice interview!
    Looking forward to the book.

  4. bluestatedon says:

    Normally I’m a strong advocate of birth control measures, but in this case I’d prefer Bailus Interruptus.

  5. Bruce in Tennessee says:

    I’d like to continue on the thread we had yesterday about Debt/GDP ratio, since it appears this bill may pass in the next few days.

    Fact: 14 trillion dollar economy

    https://www.cia.gov/library/publications/the-world-factbook/geos/us.html

    Fact: as discussed yesterday, Hank wants to increase the debt ceiling to 11.3 trillion.

    Fact: 11.3 divided by 14 puts out debt/GDP ratio at 81%..very high…(agreed it is not Italy, yet)

    BUT..as I posted earlier, Bill Gross today says at least another 500 billion will be needed for this handout, er, bailout..

    This also does not include the 50 billion that I read today may be going to Detroit, the “Big 3″…which I thought one of which was privately held, and not a public corportation…

    Let’s see…11.3 plus .55 as noted above is 11.85 sure debt divided by 14 is 84.64% debt/GDP ratio…

    Well, see how easy it is to spend money when your credit card has no limit…

    I think if I was Hank Paulson I would sing,” Ain’t no business like show business like no business I know” every morning while I was shaving. I think he might even win on The Apprentice…

    I wonder if he will find a good job in January that keeps a roof over his head.

  6. Tony says:

    AWESOME. Get those books printed and on the shelves!

  7. Vermont Trader says:

    Yikes!

    Tax on Trades Should Be Part of Rescue Plan, Some Democrats Say

    By Laura Litvan

    Sept. 25 (Bloomberg) — A group of House Democrats is proposing to make Wall Street companies and investors pay more of the cost of any financial rescue plan through a new tax.

    In a letter sent late yesterday to House Speaker Nancy Pelosi, 16 Democrats asked her to ensure any rescue legislation include a “transaction tax” on all U.S. stock trades and on other types of trades, such as credit default swaps, options and futures. They are proposing the tax would be at a rate of one quarter of one percent on all trades.

    “The same Wall Street speculators and investors who are principally responsible for having caused this avoidable financial crisis and profited from it must now be required to pay for it, not U.S. taxpayers,” according to the letter, which was signed by Representative Peter DeFazio, an Oregon Democrat, and Representative Pete Stark, a California Democrat.

    In a news conference today, House Speaker Nancy Pelosi said she would support some mechanism that could return more funds to Treasury coffers if the $700 billion to be spent to acquire troubled investments isn’t later recouped. She didn’t endorse any specific proposal and suggested it is likely to be explored later.

    “You might make a judgment down the road that there is a shortfall and it should be covered,” Pelosi said.

  8. Concerned Citizen says:

    BR, can you get me her phone number? Nice interview. Your book should be a best seller…by the time it hits the market the market will be tanking and everyone will be wanting answers to all the fock-ups.

  9. leftback says:

    It looks like Pelosi is running interference for Treasury here and gathering up Dem votes. Of course she represents Foreclosure Central in California, so there is no way she wouldn’t be in support of bailout entities. There have to be some foreclosure workout clauses in this thing now as well, you would assume.

    As Barry points out, none of this will work in terms of housing prices. Inventory continues to pile up because there is no true price discovery taking place. So even if it is sold as a Housing Rescue it is nothing of the sort.

    How to trade this? Buy the signing in the Rose Garden, and sell the text of the bill on Monday morning? Or just sit tight until all of the jawboning is over and we get through the Sept 30 refinancing deadline? Long GDX and short the 10-year for now.

  10. leftback says:

    @VT Trader: Yikes indeed !!

    A tax on trades and the ban on short selling is a classic example of shooting the messenger. If they keep on doing this, people will walk away and then it is the empty elevator shaft to the basement.

    These people have no idea how markets work…!!

  11. Uncle Jefffy says:

    Somewhere, Karl Marx is laughing his ass off.

    Nice job, Barry.

  12. jdoe says:

    You are a freakin Legend! – Your blog is highly instructive.

  13. Miracle Max says:

    When I hear Barry I think of Regis Philbin.

  14. DL says:

    Vermont Trader @ 1:44:24 PM

    “The same Wall Street speculators and investors who are principally responsible for having caused this avoidable financial crisis and profited from it must now be required to pay for it…”

    Right. The average retail investor at Etrade or Ameritrade caused this.

    What morons they are.

  15. George says:

    I’m glad to see The Wall Street Journal is giving after-school jobs to high school students.

    Was that her first interview?

  16. jtil says:

    Nice interview, Barry. Good soundbites. Your book is gonna make the charts, I predict (couldn’t have timed it better).

    Too bad the WSJ paired you with a little girl reporter with a voice like my 11-year-old. I’m sure she’s a smart gal, but the MSM is shooting itself in the foot when it tries to save money by having print reporters do broadcast. It’s image uber alles, and while you came off as confident and expert, the WSJ reporter, alas, came across as a high school cheerleader. Not really someone you want representing your paper to discuss heavy issues with serious sources.
    Whatever. I’m sure Murdoch likes her.

  17. RW says:

    If the bailout is pretty much as advertised the stock market will probably go up — hard to imagine that much money pumped in w/o comparable impact on equity prices to say nothing of squeezing shorts — but inflation is also probably going to rise as will bond yields so the real question becomes how you preserve your purchasing power: gold and equities could both wind up on the top of the heap in that scenario (with the understanding that the heap is actually in a deep hole so the top is about where level would be). JMO

  18. andre lee says:

    Thank you, Mr. Rithotlz. Thanks to the accurate info I’ve been reading on your site for the past year or so I was able to explain to my wife what was going on with the economy and the governmetn in surprisingly good detail and also answer her very logical questions clearly and sensibly. She understood the implications longer term also. When she understands things, me, for instance, she stays in a good mood for a while. That means good things happen for me…if you know what I mean. Good lookin’ out, Barry. You done gone and got me some!!

  19. MarkTX says:

    So if most people are against the bailout(call it what it is – GRAFT),

    but CONgress passes it anyway(which they will),

    The new math in the US says that

    the winner of the Presidential Election

    is the candidate who receives the least votes and that people hate.

  20. David Chapman says:

    The title of the bill should be:
    “Postpone financial pain till after the election so McCain can be elected.”

  21. Madame Sosostris says:

    Bruce, my crystal ball says…

    Hank Paulson joins a consulting firm after leaving office that bills a lot of hours to GS.

    Ben Bernanke becomes an author of children’s pop-up books, including “The Incredible Mr. Bubble” and “Ben Bernanke’s Big Banzai Boingeroo Up the Bung Hole.”

    George W. Bush continues to be an avid reader of children’s pop-up books after leaving office.

    Dick Cheney returns to his crypt in the ruins of Nineveh to sleep for 1,000 years.

    Arlo Guthrie, Jr. becomes famous for writing “The Ballad of Warren Buffett.”

    Pat Robertson blames the Great Crash of ’09 on homasectials and Hollywood liberals.

    Theodoric and Vercingetorix are named to the Joint Chiefs of Staff, insisting on pay in gold, mutton, and women.

    The AMA successfully lobbies to give its members the right to seize body parts to collect unpaid bills.

    America recovers and becomes dominant once again, thanks in large part to a well-edited heroic montage of Benny Goodman songs, FDR smiling, young people swing dancing, interspersed with dramatic Battle of the Bulge and D-Day footage.

  22. oyster says:

    Congratulations, Barry! Excellent timing, too.

  23. Bruce in Tennessee says:

    Madame:

    Thank you. What does your crystal ball say about the bet of a Whopper tomorrow…that we end lower than we ended Monday? Mr. Leftback eats like he has a tapeworm….

    Thanks.

  24. SPECTRE of Deflation says:

    I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs. —Thomas Jefferson, 1802

  25. Madame Sosostris says:

    Bruce,

    Madame Sosostris always says that future performance is no guarantee of past or present performance…

    My ball is getting hazy… tomorrow’s close will be … volume of …

    Sorry, but the spirits demand another $20 to allow me to read the ball.

  26. leftback says:

    @ Bruce: Not sure if everyone is interested in our burger bet (posting while eating). For the record, I am 150 lbs and in perfect health.

    Yves on NC says it is a done deal, will be done in pieces (typical Congress) and it says something about warrants, plus it will have a lot of silly extra stuff attached to it for campaigning purposes.

    Aunt Nancy is pissed at you, Vermont Trader, she lost money in AIG and LEH and now she is comin’ t get you for ridin that SKF pony. It’s YOUR fault – you brought down the economy.

    These congress people really are tools.

  27. Winston Munn says:

    Quote:
    “But, after all, it is the leaders of the country who determine the policy and it is always a simple matter to drag the people along, whether it is a democracy or a fascist dictatorship or a Parliament or a Communist dictatorship.

    All you have to do is tell them they are being attacked and denounce the pacifists for lack of patriotism and exposing the country to danger.

    It works the same way in any country.”
    End Quote.

    Does it?

    Quote:
    “Without immediate action by Congress, America could slip into a financial panic, and a distressing scenario would unfold,” Bush said as he worked to resurrect the unpopular bailout package. “Our entire economy is in danger.”
    End Quote.

    Indeed, it does.

  28. Bruce in Tennessee says:

    There is a check from my Indymac account on its way to you now….

  29. wunsacon says:

    Bruce, as I asked the other day, I would also like to know whether the GDP figures are inflated by hedonics. If so, I bet the real debt/GDP ratio is worse.

  30. CNBC Sucks says:

    A prophylactic approach…har har!

    I don’t think Hank and Ben are planning to wear any protection as they bend us over. This bailout is a scene straight out of Deliverance.

  31. Mike G says:

    Dear IRS,
    Enclosed is my tax payment,
    Like the Government I printed my own money too!

  32. Bruce in Tennessee says:

    Well, good question. But you know, when the debt/GDP ratio goes from 70% now, to what will be 85% next year, almost certainly, then you do realize how out of control our leaders, GOP and dems, are.

    15% increase in one year…

    Interest rates unless something radically changes will be much much higher at just the time we don’t need it.

    …or maybe we do.

  33. dmlopr says:

    Great interview Barry. It’s too bad Congress won’t spend more that a day or two on the biggest decision of our generation.
    I’ll be looking out for your book.

  34. Eclectic says:

    Barringo,

    Read my writing back through the many postings about this matter.

    You’ll notice I long ago advocated the creation of an Ombudsman to work with Congress and the administration to modify tax and real estate law for this exceptional problem… and I said to DO IT, to install the program b-e-f-o-r-e the credit crisis worsened… before it got out of the box of just being sub-prime related… and for an Ombudsman to run something similar to the RTC used to clear the thrift industry debacle of the 1980s.

    Now the crisis, like the Andromeda Strain, has jumped the bonds of its Petri dish… and infected the ordinary stability of the money market mutual fund (commercial paper) industry.

    According to Shelby of Alabama just now on CNBC, it’s not looking too good for the Paulson/Anke plan, at present. Shelby has taken on a much more negative tone about the merits of the plan.

    Indeed, you are correct in the interview that they ought to apply the greatest diligence before they act.

    Sooner or later… that diligence is going to arrive at the need for an Ombudsman program, with a Czar to run it… with government acting to modify laws and tax policy (on the fly) to allow for an orderly workout of mortgages between the owners and the debtors.

    Also, sooner or later… the executioner will have to be paid. Sooner… or later… the derivatives aren’t going to stay in the box any more. That’s when the fun starts for sure.

    Such an Ombudsman program could still serve to cool the emergency nature of the crisis… temporarily soothe the money market mutual fund industry… and give Shelby, Dodd and the rest of the Hill time to be diligent enough to act on a more acceptable solution… and give the derivatives markets time to unwind a bit more before they finally crack.

    I do maintain, however, that Paulson and Anke have no intentions with this plan of bailing anybody out, but merely forcing all parties to toss the dice and find out who won and who lost. With derivatives, they’ll be tossing the dice in the dark, and the darkness is where they’ve been buried for these many months.

    If they can accomplish the salvation of the credit exchange mechanism that allows the Walking Around Economy to function… I don’t care who are the winners and the losers.

  35. dave101 says:

    What? Less than one week since the Asset Purchase Program was announced and Barry’s promoting a new book on it? I’m sensing hype sensationalism (kinda like socialism, but with out the ideology).

    I hope his book covers how we got into this mess in the first place (namely, too little market oversight).

  36. AGG says:

    This reminds me of the old Peter, Paul and Mary song “The times they are a’changin’” but with some twists:
    Come congress and senators throughout the land,
    And admit that you don’t understand,
    Wall street and Paulson are beyond your command,
    For the times, they won’t be chan-gin.
    The cursed is blessed,
    The good they are damned,
    Order is rapidly fa-ding,
    And the lawless now,
    Still be the rich class,
    For the times they won’t be chan-gin.
    I need a DRINK.

  37. Joe says:

    “If you believe in free market capitalism, you have to let people fail. Capitalism without failure is like religion without sin.”

    Simply brilliant, Barry.

  38. dave101 says:

    AGG Wrote:
    “If you believe in free market capitalism, you have to let people fail. Capitalism without failure is like religion without sin.”

    Simply brilliant, Barry.

    ———-

    Yeah, and ten years of 10%+ unemployment, negative growth, failing businesses, and negative market returns. Simply Brilliant.

  39. brion says:

    Excellent. best interview i’ve seen you do yet….succinct, laymen friendly, hit a lot of points….

  40. Donkei says:

    Kudos Barry. You speak truth to power. These politicians are trying to sell this thing with the fear of unknown consequences when they should have been selling the fear of failure to market participants before the fact.

  41. wunsacon says:

    Dave101, are you describing the past year or the future after the bailout that increases our debt?

  42. bdg123 says:

    What’s up with that 5 o’clock shadow? Are you moonlighting for the Gambino family?

    Does that mean sin is needed to clear out the excesses? I guess that is what we’ve seen.

  43. debreuil says:

    “religion without sin” — man where do I sign up! Around here it is all religion without sex.

  44. Ken says:

    Concerning a $700,000,000,000.00 bailout:
    Every American citizen is being sold out plain and simple. The people that are struggling will continue to struggle to survive. The people with all of the power and money will be given this enormous gift at the expense of our “American Dream”. This is shameful, dishonest and immoral and needs to be stopped.

  45. VoiceFromTheWilderness says:

    Wow, a Book! Way to go Barry! Looks really interesting.

    One thought raised by your interview:

    We all know in our own lives, and it applies triple for big complex systems, the way to solve problems isn’t to just ignore problems until they reach crisis proportions. The way to solve problems is to be solving them *before* they turn into problems.

    If companies are ‘too big to fail’, if we are going to believe that the society has an interest in corporate health, then society always has that interest, not just when it is convenient for large powerful corporations to allow it. They idea that it makes any kind of sense to allow corporations, or anyone else, to run around doing whatever they please, regulating themselves, then when they run into trouble coming to ma and pa and asking for help, maybe a way to run a family but it’s no way to run a country. If we have a notion of ‘too big to fail’, then maybe we should be either 1) making sure they don’t run into failure mode *ahead of time* — through enforcement of regulations designed to make sure these corporations are safe for the society — or 2) out and out caps on the size of corporations, so they do not get too big.

    There is no societal interest in allowing massive concentration of wealth — none. It is only in the interest of the individual. Are we really better off that by allowing massive leverage we allow individuals to concentrate control of resources? No *we* are not, those specific individuals may be.

    The reality is that all of what is happening is right out of Karl Marx: unregulated markets (according to Marx) will lead to a sequence of crisis of capital, which will lead to ever increasing concentrations of wealth and power in the hands of an ever decreasing number of people.

    The reason that Marx’s predictions for society didn’t come true are quite clear — we innovated ‘Limited Capitalism’ which balanced the interests of the group with the benefits of free-ish markets. Everyone who goes around crowing about the glories of free market capitalism, point to the US, is being disingenous, we haven’t had free markets in america for almost 80 years. And, lo and behold, as soon as we deregulate… crisis start occuring. there is no mystery here. They want to use the era of peace and prosperity brought on by limited capitalism as proof of the glory of ‘pure capitalism’ which is quite simply a con job.

    It’s this simple: Any society that doesn’t have an interest in society is a society that will not last long.

    This is more than an abstract concern about ‘moral hazard’. These guys are playing a con game — the rules always change for their benefit. If it isn’t in their benefit, they make up some high falutin’ bs and enlist the support of fast talking fools to convince the society that they are right. Then when they are proven wrong they talk even faster, and start trying to scare people with talk of disaster.

    Leadership like that spells a society headed for the ash bin of history.

  46. Paul Jones says:

    Very apt book title.

    Why is no politician choosing the tactic of honesty?

    Someone please tell the American people that, bailout or no, the party is over.

  47. John says:

    When is the book due?

  48. SR says:

    Senor Barry

    You are a truly prinicipled & honorable man amongst an unprincipled & dishonorable world.

    Where can I obtain an autographed copy?
    Any book signings? Don’t forget the option deals with the entertainment types, trust none of them!

  49. cfe says:

    Will you have a book signing? I’d love to pick up an autographed copy…

  50. Chien Yi Lee says:

    Subject: A Bailout Plan Based On Solution Of Value

    The foundation of economics is value. For example, every transaction is intended to increase value. Thus, the solution of value should be the foundation of a rational bailout plan.

    The solution of value can be describe in one sentence: “The cash flow equation {Total Cash Return = Sum of Cash Flow + Cash From Resale} is satisfied for the price and all the resale prices to infinity in time.” The solution is mathematically rigorous and a non-violable law of nature in social science.

    The solution of value can quantify the supply and demand model for multiple commodities with similar functionality, such as cars, houses, currencies, money supply, etc.

    The bailout plan satisfies two non-violable laws of nature, derivable from the solution of value. The first is the solution of value, and the second is the quantity theory of money, Quantity x Price = Velocity of Circulation of Money x Money Supply. Milton Friedman proposes that the Velocity is an approximate time-invariant, and, thus, Money Supply would be the key to preventing Great Depress. With sufficient effort, the money supply can be determined from a quantitative supply and demand model based on the solution of value.

    The solution of value can detect over-valuation and, thus, can prevent all the recent financial crises. But, since the current crisis has not been detected and prevented by the solution of value, the quantity theory of money needs to be observed to save the US economy from another potential Great Depression due to the chain reaction of bank failures. The current bailout plan is designed to stop the chain reaction.

    The rational bailout plan involves three parts:
    1. Reduce foreclosures by restructuring the foreclosure (and bankruptcy) regulations based on value determination.
    2. Keep money supply from contracting.
    3. Require all investments be valued by the solution of value.

    The mortgage payment should be reduced to a level that the homeowner can afford, even to an amount less than the interest-only payment (the principal will grow). And to be fair, the mortgage interest rate should be raised proportionally. Also, there should be a fine for “littering” the housing market with foreclosed property by a homeowner, just as there is a fine for littering by a driver on the highway.

    The $700 billion bailout proposal should be used efficiently to prevent the contraction of money supply. But, a “reverse” tax and loans to small business might be more efficient than a “reverse” auction and loans to mature corporations in pumping money into the economy.

    Financial crises will no longer occur, if all the market participants, including the government, observe the non-violable laws of nature based on the solution of value. A valuation project can be within just 1% of the cost of the proposed $700 billion bailout plan. Knowledge will be the solution to all our problems. ###

  51. James says:

    Check out this depression video

  52. Ori says:

    Great explanation, one of the best examples of moral hazard, someone even called fed an incubator of of the same.

  53. bondjel says:

    You say we’ve never had an experiment where we let large entities fail so we could see what happened without bailout: were there any aspects of the Great Depression that might illuminate a non-bailout outcome?