“Buy One, Get One Free Dodge Rams in Florida”

May you live in interesting times.

“The more money that was paid, the more men that were laid, the more ladies that were made.”

It comes from this here article from the NY Post on the waning prospects of snaring a sugar daddy in Manhattan during the downturn.

The article, which was starting to seriously annoy me until I reached today’s felicitous phrase, has nevertheless reminded me why I don’t much care for New York City: I prefer people who’re obsessed with power rather than those that are obsessed with money. Yes, there’s a difference. And yes, it matters.

Bill Clinton Helps Out… By letting America know that Senator Obama had no clue what to do when the financial crisis hit. At 3AM, how many people will a President Obama have time to chat with?

“You know what he did?” Clinton said, heralding Obama’s reaction to the financial crisis. “First he took a little heat for not saying much. I knew what he was doing. He talked to his advisers – he talked to my economic advisers, he called Hillary. He called me. He called Warren Buffet. He called all those people, you know why? Because he knew it was complicated and before he said anything he wanted to understand.”

I have to say I’m with Bill on this one. I’m really sick of hip-shooting yahoos “making decisions” in places of power at times of crisis. Judging by how well John McCain’s campaign suspension stunt went over, I’d say that many people would agree with me.

“Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity (myself especially) are in a state of shocked disbelief,” according to Mr. Greenspan. … But when Mr. Waxman pressed “were you wrong” about the benefits of deregulation, Mr. Greenspan responded, “partially.” The “flaw” in the assumptions he had over four decades, Mr. Greenspan said, was that lending institutions themselves were best able to protect the interest of their shareholders. Thus what looked like a solid edifice to his thinking broke down, Mr. Greenspan said.

I look forward to seeing how more orthodox libertarians around the web parse his remarks. More thoughts on this in the coming days from me as well, time permitting.

Financial sector troubles have started to affect consumption decisions on the part of individuals, with consumer purchases down 1.2% in September. Credit getting tight? No flat screen TV this year.

Why are chances good that the end is nowhere near in sight? Have a look at this awesome graph I found on the internets:

You see where that line starts going crazy? That’s around 1996, when Greenspan made his famous “irrational exuberance” remark. (h/t Yves Smith).

In closing, let me introduce you to another awesome economics term: overshooting.

Fasten your seatbelts, my friends. It’s gonna be a bumpy ride.

Whenever any financial institution attracts new private capital in an arms-length transaction, it can access an equal amount of public capital. The taxpayer would get the same terms as the private investor. The only difference is that government’s shares would be nonvoting until the government sold the shares at a later date. This plan would solve the three problems. The private sector rather than the government would weed out the zombie firms. The private sector rather than the government would set the price. And the private sector rather than the government would exercise corporate control.

Sounds really good to me.

That said, with what has been happening during the last three weeks on Wall Street, I don’t think I’ve ever cared less whether Obama or McCain would commit troops to solve a humanitarian crisis in Congo. Or whether the candidates think Russia is an Evil Empire. Or whether they’d send troops to the Middle East to fight Iran if Israel was attacked. Since neither candidate was able to go beyond the standard populist bromides when talking about the financial crisis, hearing them talk about what they would do internationally sounded incredibly silly and irrelevant.

EDIT: I should note that I’m coming down with a cold and am in a foul mood. Reading around the web, it doesn’t seem that people were as down on the debate as I was.

It seems to me that biggest cost of this proposal is not the direct expenditure. The government would commit to up to $700BB to buy and then re-sell some assets. How much they would recoup is unclear, but history suggests that it is far from impossible that this would be close to break-even. How is it possible that the Treasury could avoid paying more than they are worth if the bail-out is to help the banks at all? Because the fact of the Treasury being available to buy them changes their market value. Before we get too excited about this seeming magic, however, we should remember – as I went into in greater detail a prior post – that the ideological costs of this are likely to be extremely heavy over time. This is a terrible precedent on many levels. Further, we can’t be sure that there really would be a cataclysm without the bail-out, nor can we be sure that this will be enough to avoid one if it’s coming. We are making a bet to lower the odds of a bad outcome. It’s just that the severity of a Great Depression is sufficiently bad that it is a worthwhile bet to make. But we will pay dearly for it for many years. In this way, the bail-out should be seen as one move in the course of a long and unpredictable campaign.

Emphasis mine. He concludes, “But now it’s time to swallow hard and vote for the bill.”

Very interesting to see how the aftermath of this afternoon will play out. It sure looks like the House GOP acted just as I feared they would.

UPDATE: Megan McArdle:

I am grimly reminded of H.L. Mencken’s famous observation that Democracy is the theory that the common people know what they want, and deserve to get it good and hard.

Above all, the risk is that the current panic will damage the overall economy and lead to a deep recession that causes a further decline in housing values and continues a spiral to even greater financial problems. The libertarian blogs are full of tut-tutting that the economy has held up surprisingly well, and for a year we’ve been arguing the same thing. But there’s no guarantee this will continue, especially as unemployment climbs and as evidence grows that banking distress is squeezing credit to small and big business alike. Credit spreads over Treasurys are back at agonizing levels, as investors and lenders flee from even plain vanilla risks. Nobel economics laureate Gary Becker is no alarmist, but this week he wrote on his blog, “I have reluctantly concluded that substantial intervention was justified to avoid a major short-term collapse of the financial system that could push the world economy in a major depression.” Anyone who thinks that capitalism will fare better after a crash should recall that the 1930s didn’t end politically until 1980.

What do Paulson and Bernanke have to say about the moral hazard argument — what’ll happen if the government keeps encouraging people to invest in excessively risky or underperforming assets?

Come on, Dave. Call me crazy, but I think the chairman of the Fed has heard of moral hazard before. I think the fact that he’s doing this is a sign of just how bad things are getting. This isn’t about re-inflating a bubble. This is about managing our likely-inevitable decline.

Here’s an anecdotal article about companies not being able to roll over their revolving debt. Here’s some more anecdotal evidence about spillover happening into the real economy.

A friend of Greg Mankiw’s writes him a note:

A LOT of payrolls get paid at the end of the month. The next for many companies is September 30. Three different people with hugely relevant knowledge said to me today words to the effect of: “Why don’t your economist buddies want [insert fortune 100 company/companies here] to be able to pay their employees on Tuesday. If Washington doesn’t do something now, they won’t be able to”.

Mankiw replies in the same post:

On the one hand, I share many of the concerns of the letter signers and other critics of the Treasury plan. On the other hand, I know Ben Bernanke well. Ben is at least as smart as any of the economists who signed that letter or are complaining on blogs or editorial pages about the proposed policy. Moreover, Ben is far better informed than the critics. The Fed staff includes some of the best policy economists around. In his capacity as Fed chair, Ben understands the situation, as well as the pros, cons, and feasibility of the alternative policy options, better than any professor sitting alone in his office possibly could. If I were a member of Congress, I would sit down with Ben, privately, to get his candid view. If he thinks this is the right thing to do, I would put my qualms aside and follow his advice.

Reading layperson commentary these past two weeks is really driving me up the wall—even when it’s generally solid like Dave’s polemic from yesterday.

Take Mankiw’s post to heart, people. This isn’t shady Iraq WMD intel being doctored up. This isn’t a nefarious plot. This is real.