“I think what Paulson hopes to do is say, ‘If you don’t do exactly what I want you to do, the whole world’s going to collapse on Tuesday’,” Gingrich said.
The former Speaker, talking to reporters at a lunch, added that he expects Democratic presidential candidate Sen. Barack Obama (Ill.) to back the plan. He predicted that, if Republican presidential candidate Sen. John McCain (Ariz.) ends up opposing the administration proposal, there will be an overnight “emergence of a McCain/reform wing of the Republican Party.” The Hill
——————————————————————–
Gingrich is right. He may back down, but he got it right in these statements. Paulson and Bernancke are trying to "bulldoze" the Congress and citizenry into accepting this plan. They are doing it in just the same way that the Bush Administration "bulldozed" the people and the Congress into both the Patriot Act and war against Iraq. The broadcast media are cooperating in this.
Well… There wasn’t any Iraqi nuclear program left. There was no cooperative relationship between Saddam’s wretched government and al-Qa’ida. There will be no "end of days" if Wall street is left to stew in its own broth.
Our friend, "WP," wrote to suggest an alternative way of dealing with the present economic crisis. He writes that, at root, the crisis rests on the issue of defaulted and soon to be defaulted mortgages, mortgages that for the most part should not have existed. Bad credit card debt is another big piece of the problem. The huge structure of bubble debt created by unlimited trading of derivatives rests on consumer defaults. "WP" suggests directly funding the consumers so that they can pay their debts.
Let the rest "Go South." The worthwhile bits of the companies will be bought by other firms. The death of the rest will serve as an example for the foolish and greedy.
American society in recent years has moved steadily in the direction of becoming one in which there are two classes, "les nobles," and everyone else. That process will be slowed up for a few years by this disaster if the American taxpayer refuses to fund the nobles’ grandchildren’s trust funds. pl
Download national_relief_program_for_consumer_mortgages_and_credit_card_defaults.doc
http://thehill.com/leading-the-news/gingrich-urges-vote-against-stupid-paulson-plan-2008-09-23.html
Fool me once (Iraq), shame on you.
Fool me twice (warrantless wiretapping), shame on me.
Fool me thrice ($700 billion of wealth to Wall Street), strike 3, I’m out. Take whatever you want.
“Les Nobles” own the USA.
According to blogs I read written by people who have won Nobel prizes for economics…. ninety per cent of America’s income now goes to one per cent of Americans…. as a result….. the median income of an American has dropped by over 2000 dollars per year under Bush…… and as a result it is no longer possible for the “average” husband and father to provide housing, food and shelter to his family on what he gets to take home after a weeks work.
DaveGood
We need alternatives to Hank Panky’s Wall Street Crony Welfare Bill.
I believe we should consider several alternatives including economist and investment manager John Hussman’s plan.
Today’s testimony by the gang that couldn’t shoot straight should make it clear to every American – their plan is to transfer our money to their Wall Street cronies with no oversight.
All their plan would do is increase the debt substantially. It will not solve the root problem that housing is still way too expensive for American’s with their current wages. Nor solve the problem that many American’s who bought overpriced homes recently are underwater on their exotic mortgages.
Some of the consequences of this bill (The Sacking of America Act of 2008):
1. The United States effectively subordinates itself to a new sovereign government with Henry Paulson as fuhrer. One of the sections of his bailout plan is to essentially assume all control over this mess with explicit bans on checks-and-balances oversight from the legislature and judiciary.
2. The United States will have chosen, by legislative mandate, to convert to a Third World nation. The income inequality that had been steadily growing and the social infrastructure that was not being built had been in motion for decades. Now, though, we will also begin to see that most of the population will be shut out from the economic and political spheres. Because of the crushing costs of cooperating in this sphere, Americans will have to set up a parallel social sphere with its own trading rules, customs and enforcers. (Think of how FARC and Shining Path are effectively the second national governments where they operate).
3. The plan for the bailout will come by wringing out every last drop of wealth from the 90%+ of the population. Argentina saw this early in this decade with its financial meltdown. The banksters would seize any nonmilitary outlay in the budget, all public assets (highways, national parks, etc.) would be sold off at fire-sale prices and wages will be controlled through peonage (say, working 18 hours a day for 7 days a week) and manufactured unemployment (companies will not be permitted to hire people for a period of time, and workers must comply with the longer hours or lose their jobs).
Paulson and Bernanke should have been dismissed. They have known about the credit situation for weeks yet they spring the $700 Billion bailout on the Congress and the public at the last minute. Why is Bernanke, at this time, so sure that the economy will detonate? Until now, he never wanted to say the word “recession”. Paulson is a Wall Street retainer so it is natural for him to carry their water.
They are suggesting that we hand George Bush’s Wall Street supporters a “thank you” in the form of free capital. As they said, the taxpayer’s best protection is capitalization of Wall Street. I don’t get the logic, but clairvoyant they are not.
What it difficult to fathom: if a telephone company is able to track and price billions of phone calls, why is it impossible to price the value of these stiff mortgage notes? Wall Street has one of the most sophisticated database systems in the world; that they cannot price bad loans is a canard. They know the precise amount of the exposure, they just do not want to disclose it.
I watched/listened to the Senate hearing today and both yokels should have been thrown out of the room. Civility has its place, but their threats and uncompromising demands require a profound and loud “hell no”.
Unless we all write and complain, those wimps in Congress will get skittish and agree to some kind of bailout.
Col:
The Financial Times’ economics editor, Martin Wolf, agrees with you:
http://www.ft.com/cms/s/0/a09b317e-898d-11dd-8371-0000779fd18c,dwp_uuid=11f94e6e-7e94-11dd-b1af-000077b07658.html
Wolf says:
“What then is the challenge? The answer given by Hank Paulson, the all-action US Treasury secretary, last Friday, in announcing his “troubled asset relief programme”, is that “the underlying weakness in our financial system today is the illiquid mortgage assets that have lost value as the housing correction has proceeded. These illiquid assets are choking off the flow of credit that is so vitally important to our economy.” The core challenge, then, is viewed as illiquidity, not insolvency.”
…BUT…
“The fundamental problem with the Paulson scheme, as proposed, is then that it is neither a necessary nor an efficient solution. It is not necessary, because the Federal Reserve is able to manage illiquidity through its many lender-of-last resort operations. It is not efficient, because it can only deal with insolvency by buying bad assets at far above their true value, thereby guaranteeing big losses for taxpayers and providing an open-ended bail-out to the most irresponsible investors.”
…THEREFORE…
“Yes, there may well be a place for intervention in the market for toxic securities. But this is a costly and ineffective way of meeting today’s deepest challenge. What is needed, still more, is a clear and effective way of deleveraging and recapitalising the financial sector, ideally without using taxpayer funds. If such funds are to be used, they must also be injected in as carefully targeted and controlled a way as possible. Comprehensive action is essential, as Mr Paulson has decided. But let the US take the time to make that comprehensive action right.”
Also, everyone might be interested in the following article out of U. of Chicago:
“Why Paulson is Wrong”
http://faculty.chicagogsb.edu/luigi.zingales/Why_Paulson_is_wrong.pdf
Fool me once, shame on you! Fool me twice (and thrice, and . . . ), shame on me!
the leadership of bush and his co-president cheney is conspicuously absent in this crisis
it looks as though paulson and bernacke are on their own
except they gotta do things the way that don bartlett and the remaining bushies on the white house staff direct
another thought:
how can the former ceo of goldman sachs operate in this situation with integrity?
that he has not recused himself or at talked about his “obvious” or potential conflict of interest is outrageous
he has skin in the game
something like a half a billion dollars in goldman, sachs stock
a walking, talking exemplar of crony capitalism
What I find obscene is that the bad debt was treated as an asset and bloated the balance sheets of the companies now in peril, where it then generated fictitious profits that then turned, mutatis mutandis, into real money – dividends and premiums – and was put into the real bank accounts of shareholders and execs. Duly deprived of their liquidity, and by the discovery of their gross overestimation of their assets the companies are now shaking, but thanks to Paulson’s plan the taxpayer is left to pay the bill.
It isn’t made any better by the fact that Paulson had the impertinence to go to Europe and ask for our taxpayer’s money to fix this mess. I am relieved that our governments are unpersuaded by US administration assertions that the cure for the apparent failure of laissez faire is be carte blanche.
One lesson I see is that scandals like ENRON and Worldcom and others and now the current crisis, strongly suggest to review some of the real life aspects of America’s once vaunted accounting standards.
Obama’s Press Conference Video & Transcript
(youtube clip, conference this morning. I think he is being clear. I am confidence with how he lays out his position.)
http://www.dailykos.com/story/2008/9/23/173412/387/249/607927
WP’s plan that is detailed in the PDF file looks like a fantastic place to start a debate and certainly offers an intriguing counter to the Bernanke Wall Street grab . For those whose preference is a government remedy that starts from the “bottom up”, then WP’s plan outlined in the pdf file will pique your interest.
Perhaps one could even make an argument that WP’s plan is consistent with Hayek’s views, although, in all likelihood, some of the Austrian school would see such as a stretch.
Anyway, WP’s deserves a thanks for thinking out of the box.
Not far off topic, but I am beginning to believe that, generally speaking, individual states, not the federal government, should decide how to redistribute money and wealth among its citizens through taxation. If California wants to go the way of Norway, then great, go for it. If Oregon wants to go a more libertarian route, then great, go for it.
As Shelby Foote commented once, before the WBS, the sentence “The United States are…” was considered grammatically correct. Suggests more diversity and even respect between cultures.
Great image included with this thread by the way.
Hints of a massive shake down:
http://openleft.com/showDiary.do?diaryId=8451
As I understand it: The derivatives market is the really overinflated bubble. A large part of it is sliced and diced mortgages. The problem appears to be one of valuation. That is: What is the mark-to-market value of the derivatives? Obviously the financial sector wants the highest value possible. Don’t forget that part of the financial sector pulled the profits from the mortgages at the front end and the rest does not have the patience to wait for the mortgages to extinguish themselves in the traditional manner. Until the derivatives are valuated in the here and now the public will not know whether the financial sector is ill-liquid or insolvent. Considering the panic, I lean towards the latter.
If I were a Wall Street banker I too would push for the Paulson Plan because it will pay triple. First, I already collected up front on the securitization of credit. Second, I get as much for my bad paper as the outgoing Republicans can steal from the treasury. Third, the Democrats after their ascent to power will bailout struggling homeowners. Of course, I will have taken my money and purchased the bad paper from the Treasury just in time for the Struggling Homeowners Act of 2009 or 2010.
Have I missed anything?
I actually don’t believe it is owner occupied housing that it the problem. It is investor owned housing that they (the investors) bet on the upside increase in housing prices and now are walking away. Isn’t there a way to rescue working homeowners who occupy their houses and sanction those who invested hoping for the bubble to keep going? If so that is what should be done. And before leaving Treasury in 1974 I was one of several attorney’s recommending a detailed study of the taxation of derivatives. Never done to my knowledge and I doubt that correct taxes were paid while this bubble was going up but you can be sure losses will be deducted somehow. Maybe that is what Paulson fears most. A collapse would let people see for the first time how long ago Wall Street started playing fast and loose with their risk management knowing someday someone else might have to pay the piper. Help the little guy out! Henry Ford had it right. Let the factory worker have a decent wage so he could buy the model T. Its not class warfare its common sense. No trickle down and no trickle down through WALL STREET. No wonder IRS spent time tapping Spitzer’s phone. He was the kid truthfully saying the king (Wall Street) had no clothes on.
The Paulson bailout, late last week reminds me of the standard operating procedures of the Bush administration. Scare everyone for one last raid on the treasury. This is the same M.O. they used with Iraq. When will our representatives figure out what the rest of us have figured out? Bush is a one trick pony…scare, scare, scare.
It is a nifty device to leave the next administration hamstrung. There won’t be any discretionary spending for sucessors.
It makes no difference what Congress passes. Bush gets what he wants, or he issues a signing statement & gets what he wants. This is a charade.
And since it’s true that Bush can, by means of a signing statement, turn any Act of Congress into anything at all, the best plan is for Congress to do NOTHING.AT.ALL.
Starve the bastards out.
I know!
I know!
Congress can regain its authority to pass Laws by immediately impeaching the president & vice president & installing Pelosi as a make-shift caretaker. (You did title a recent post, “Revolution”.)
Well, it’s the only way I can think to stop the stick-up. Until the current administration is gone, Congressional legislation WILL.BE.IGNORED.
Some things we know.
Paulson’s background is investment banking, he is not a politician. Bernanke’s background is that of a College Professor of Economics, he is not a Politician. Gingrich is a politician. WP is a creative and thoughtful individual with a good concept of the problem and a solution. So now we know where they come from and how they create solutions.
Our future economic health is now in the hands of Congress and their solution seems muddled.
Its my view that Paulson’s solution solves an immediate problem and that further solutions are needed. So WP how about melding your solution with Paulson’s and lets send it off to congress to muddle again.
Paulson and Bernanke should be praised for the most chutzpah ever. I’m in awe of con men that are this bold. They didn’t stop me from emailing my Congress Critters with my simple answer to them.
No.
The issue is considerably larger than a bailout for some Wall Street sharks. There is the matter of the overall international financial system (“architecture”) and also the matter of the Federal Reserve System itself.
1. As eyebrows are being raised around the planet, it is not unlikely that increasing calls for new international financial architecture (a New Bretton Woods in effect) will increase. And they should.
From Bloomberg:
“Sept. 23 (Bloomberg) — French President Nicolas Sarkozy urged a summit meeting on the U.S. financial crisis as African, Asian and Latin American presidents used United Nations speeches to blame American mismanagement for creating the economic peril.
Sarkozy, whose country currently holds the rotating presidency of the European Union, called for a meeting of leaders of the world’s industrialized nations in November to deal with what he called the “mad system” that produced the meltdown.”….
http://www.bloomberg.com/apps/news?
pid=20601087&sid=aRO_NNUxunJo&refer=home
2. It is useful to review the various analytical reports of the Bank for International Settlements. For example, here is new one (Sept 18) on the US housing meltdown:
” The crisis enveloping global financial markets since August 2007 was triggered by actual and prospective credit losses on US mortgages. Was the United States just unlucky to have been the first to experience a housing crisis? Or was it inherently more susceptible to one? I examine the limited international evidence available, to ask how the boom-bust cycle in the US housing market differed from elsewhere and what the underlying institutional drivers of these differences were. Compared with other countries, the United States seems to have: built up a larger overhang of excess housing supply; experienced a greater easing in mortgage lending standards; and ended up with a household sector more vulnerable to falling housing prices. Some of these outcomes seem to have been driven by tax, legal and regulatory systems that encouraged households to increase their leverage and permitted lenders to enable that development. Given the institutional background, it may have been that the US housing boom was always more likely to end badly than the booms elsewhere.”
http://www.bis.org/publ/work259.htm
Even if my homeboy Newtie is right and telling the truth you may be _sure_ there is an evil motive behind his statements and actions. This man makes no moves unless those moves benefit the power elite vs. We the people.
As with Iraq, the problem is mis-specified and the proposed solution won’t work. The resulting disaster will benefit only the insiders who will get to pick through the wreckage first. Meanwhile, the real problems of the nation are neglected even while they grow in number and severity while the needed resources are looted.
This reflects systemic defects of our governance system, defined broadly to include constitution, selection and training of elite, resource and structural challenges, and so forth.
We are wasting precious time, effort and money on a bailout which, at best, will shuffle paper around and leave us pretty much where were last week.
Since the US is now well on the way to becoming a monarchy, resort to that old standby of European kings when they ran out of money – arrest a few people and ransom them for most of their wealth. The top 200 wealthiest people would be good for $750 billion even allowing them each to hang on to the odd billion.
Did you see this?
http://www.rollcall.com/news/28599-1.html
[White House Deputy Press Secretary Tony Fratto]
Quote: Fratto insisted that the plan was not slapped together and had been drawn up as a contingency over previous months and weeks by administration officials. He acknowledged lawmakers were getting only days to peruse it, but he said this should be enough.
— A contingency plan draw up over previous months – unlike Iraq’s alleged WMD and military plans, there is absolutely no national security reason nor any other reason to have kept this plan hidden. In fact public knowledge that there was a plan discussed with Congress and agreed upon by President and Congress to handle any crisis might have averted the crisis, because the market would have taken that into consideration.
This is the height of irresponsibility.
Bernanke warns of recession if bailout is not approved? Isn’t this how a free market works, cycles of boom and bust?
Why all of a sudden the fear of recession? This is a craven ploy to foist this mess onto the next administration by the most incompetent administration ever.
I shifted between nausea and rage watching Paulson on Sunday blaming this on bad lenders and borrowers, and leaving out completely the Ponzi schemes he and his cronies devised that caused this cluster****.
Paulson pulled out $500 million from this scam and he should be held accountable along with his fellow scam artists.
I remember very well the feeling I had on the evening when the 1st bombing near Baghdad was suddenly announced as I listened to KNX News Radio driving my daughter to a concert in Hollywood.
A clear L.A. evening driving along Sunset Blvd. in March 2003.
The sick feeling that something was terribly, horribly going wrong that caused me to pull over was the same as while listening to Paulson/Bernanke et al. during the hearing today…just saying,
Graywolf
This isn’t about Washington. Bureaucrats didn’t do this. Bureaucrats are administrators. They don’t make policy. The SEC, Treasury, etc. are run by political appointees. They were appointed by the people that the country elects. Paulson, Bernancke, etc. were all appointed by Bush 43. I seem to remember that you approve of him. Wall Street? Hey, man. You see a difference between them and the kind of people who get made political appointees? pl
I love it.
I forwarded it to my senator and congressman, who knows me, so he actually responded, in the positive, but had one interesting comment that I feel I must pass on.
In the preamble, please change the “bottoms up” to “bottom up”.
I rather agree….
I wonder if the number of combat brigades currently resting and refitting in the United States would be sufficient to put down a revolt?
Add to the limited numbers the animus many in those numbers must feel towards the government for the multiple deployments to Iraq (where there were no WMDs) and I wonder if today’s McArthurs could or would even try to put down an angry mob on the Mall.
Mark my word,
The financial meltdown and recent bickering with Russia will converge. Creating a headache.
http://www.nytimes.com/2008/09/24/world/europe/24russia.html?ref=world
Russia said on Tuesday that it would not participate in a meeting with the United States this week to discuss Iran’s nuclear program, the most significant indication yet of how Russia’s war with Georgia has spoiled relations regarding other security issues.
Russia’s move effectively scuttled the meeting.
The Russian Foreign Ministry issued a biting statement that criticized remarks last week by Secretary of State Condoleezza Rice, who declared that Russia had taken “a dark turn” away from democracy and respect for international norms.
“We would very much like Washington, in the end, to make up its mind what kind of relations they want with Moscow,” a ministry spokesman, Andrei Nesterenko, said in the statement. “If they want to punish Russia, that is one thing,” he said. “If they agree that we have common interests that need to be jointly advanced, then that’s another.”
Russia and the United States, with China, Britain, France and Germany, had been scheduled to meet Thursday in New York to discuss additional punitive actions against Iran in the wake of a new report by the International Atomic Energy Agency criticizing Iran’s failure to fully answer questions about its nuclear activities.
—
added Bonus: Iran, North Korea both now are full speed nuclear ahead.
Everybody now is putting their bet on the table.
If Israel attacking Iran is an October surprised, then we win the giant debt bingo war. Cash will drain out of US system.
A little late, but applicable:
Fannie Mae and Freddie Mac check into a motel. “Did you bring protection?” asks Fannie. “Aw Baby,” sez Freddie, “everyone knows taxpayers have our risk covered.”
http://www.homelandstupidity.us/2008/03/09/ben-bernanke-walks-into-a-bar-andrew-cuomo-appraises-the-nation/
I think its important to look back at the Economic Stimulus Act of 2008, which could be viewed as both a confidence scam and a Trojan Horse; A confidence scam, because it was a little ‘grease’ to keep the rubes restive…and possibly to prep them for the big shakedown; A Trojan Horse because this bill also raised the FHA loan limits.
If you go back and read some of Hanky Panky’s quotes, he was quite sunny, and predicted that 600,000 jobs would be created from the stimulus.
(As I type this, I see Hanky Panky on tv, testifying to Congress that he felt that adding oversight conditions to his memo would be ‘presumptuous!’)
I do think there is systemic bureaucratic rot in HUD/FHA, and it is by bipartisan design–Alphonso Jackson was just the latest carpetbagger to ride the HUD train, but the gravy train has been going for a long time:
HUD was well-known in the 1980s for rampant corruption. Catherine Austin Fitts wrote that when she arrived at HUD as head of operations of the FHA program in 1989, it was comparable to a “sewer” for all the mortgage fraud that had occurred during the ’80s:
“After issuing $9 billion in mortgage guarantees, HUD/FHA was to lose something approaching 50% of the value of the portfolio – a level of losses hard to explain with mortal logic. When my staff approached me with a proposal to bail out a mortgage company so they could continue to lose money for us, I asked why we should spend money to lose more money in a way that would harm communities. After a long silence during which 30 staff members intently studied their feet, one brave soul explained to me that the mortgage bank was owned and run by a major Republican donor. Shocked, I said. ‘I am a major Republican donor,’ and pointing to my presidential cufflinks that were adorning my French cuffs, ‘I got a pair of cuff links. You get cuff links. You don’t get $400 million of federal credit to throw down the drain.’ My staff looked at me like I was so naive and clueless that there was no point in trying to communicate with me – better to let me learn the hard way.”
http://www.dunwalke.com/7_HUD_is_a_Sewer.htm
I haven’t seen this hit major press yet, but the FBI is apparently investigating:
http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2008/09/23/national/w161113D60.DTL&tsp=1
Let’s hope the FBI gets further than Eliot Spitzer!
There is still hope. The Republican Party may cleave over the bailout issue. And word has it the Democratic leadership hit a buzzsaw from their constituency over the weekend after initially endorsing the bailout proposal on Friday.
The banksters are starting to tip their hand with the latest developments, and it won’t work, though they may kill us all in the process.
The Sunday evening announcement that Goldman Sachs and Morgan Stanley were restucturing to become bank holding companies under the umbrella of the Fed along with Monday’s announcement that the Fed is rewriting their regulations for bank holding companies to allow unregulated financial entities (hedge funds) to hold a minority interest without disclosure means that they intend the whole pack of thieves and scoundrels having a seat at the bailout table. Goldman Sachs and Morgan Stanley can absorb either WaMu or Wachovia and complete their transformation in the image of Citi and JP Morgan. Within the framework of the Fed System, the reserve ratio of the commercial banking structure can then turn that 700 Billion into the 10 trillion or so they currently estimate is needed. Then the PPP proposals will surface – Public Private Partnerships – along the lines of what Schwarzenegger, Bloomberg, Ed Rendell and Judith Levin of the Rockefeller Foundation have been stumping this year. Financial interests will supposedly then privatize State assets for our mutual profit and benefit. They will call it investment in infrastructure, but I have a bridge I can sell you if you’ll believe that one, literally!
What they are up to was originally called corporativism but came to be known as Mussolini Fascism. Look up the career of Count Giuseppe Volpi di Misurata for a preview of where we are headed.
These people need to be stopped or in due time the Constitution will be suspended.
There needs to be a bankruptcy proceeding with full disclosure to shine some light on the situation before the Federal government agrees to any funding. A firewall needs to put in place between the federally chartered branch banking system and the rest of this speculative mess. This will protect the essential functions of households and businesses. A two-tiered credit system, one with a lower interest rate on lending within the firewall, and another with a higher interest rate outside the firewall to desiccate speculation, needs to be introduced. Maintain at least a 4% interest rate domestically within the firewall to protect the dollar and prevent deposits from being drained overseas. A new Bretton Woods along the lines of what Cliff Kiracofe has outlined should be convened. Then we should start to rebuild the country along the lines of programs introduced by Hamilton, John Quincy Adams, Lincoln, FDR and JFK. For instance, is anyone aware that the Russians have proposed building a cross Bering Straits rail tunnel with the U.S.?
Watching C-SPAN Tuesday did anyone else get put off by Paulson’s body language? Having been merged, LBO’d and downsized in the past I read it as “Lying CEO”.
I’d also like to thank the Colonel for hosting an excellent website. It has a very good signal-to-noise ratio with great contributors who have led me to other good resources.
1. Seems the Russians have noted McCain’s top aid, Rick Davis, was a lobbyist for the mortgage types. Weren’t we just talking about him at SST?:
“September 23, 2008, 17:03
Mortgage giants paid McCain aide
A top McCain aide received over $US 30,000 a month for five years from top mortgage companies Fannie Mae and Freddie Mac, according to current and former executives.
Rick Davis, John McCain’s campaign manager and adviser, worked as head of an advocacy group for the mortgage companies set up to battle tougher regulation of their operations, it was reported Monday in the International Herald Tribune.”
http://www.russiatoday.com/news/news/30841
Of course as it is in the International Herald Tribune, the Euros and many others have duly noted it.
2. Russia just withdrew from a meeting with the US etal. per Iran:
“The Russian Foreign Ministry issued a biting statement that criticized remarks last week by Secretary of State Condoleezza Rice, who declared that Russia had taken “a dark turn” away from democracy and respect for international norms.
“We would very much like Washington, in the end, to make up its mind what kind of relations they want with Moscow,” a ministry spokesman, Andrei Nesterenko, said in the statement. “If they want to punish Russia, that is one thing,” he said. “If they agree that we have common interests that need to be jointly advanced, then that’s another.”
http://www.nytimes.com/2008/09/24/
world/europe/24russia.html?_r=1&partner
=rssuserland&emc=rss&pagewanted=all&oref=slogin
3. Former US Ambassadors to Russia not pleased with Bush-ism and the state of US foreign policy, if one can call it that:
“NATO membership for Georgia and Ukraine is not in Washington’s or the alliance’s interest, former U.S. ambassador to Moscow Jack Matlock said Tuesday as he and other ex-U.S. envoys decried the poor state of ties with Russia.
At a gathering of five former U.S. and Russian ambassadors, Matlock, the last U.S. envoy to the Soviet Union, questioned a central tenet of Bush administration policy: its firm support for the NATO membership bids of both Georgia and Ukraine.”
http://wiredispatch.com/news/?id=371209
4. Any wonder Putin is suggesting a new international initiative to refashion international financial architecture? He just said this week that the world should not be held hostage to the printing press of one country…..
As much as I’m solidly against this bill and have expressed my opinions to my Congressmen, I’m sorry to say that it will pass this week. Bush admin has decreed it; Cheney is enforcing it; and Buffet is signalling that it will pass. RIP USA
I actually don’t believe it is owner occupied housing that it the problem. It is investor owned housing that they (the investors) bet on the upside increase in housing prices and now are walking away.
It’s a mix. My family and I own quite a few rental properties in Florida (over twenty units). The foreclosures are a mix of flippers, amateur investors and homeowners (primary residence).
The flippers who were the last fool in the chain are trying to eek out the mortgage payment with rent. But since they bought at the peak, the local rental market cannot meet the mortgage payments. They are sinking while the glut of rental properties is forcing the average rent down. People like me who bought before the run-up can lower our rents accordingly and flush these flippers out of the market.
The amateur investors are in the same boat as the flippers – they didn’t do their homework about the local rental market and assumed they’d make their money in appreciation as well. We’re flushing them out, too.
Finally, my last purchase was on a foreclosure where the owner went crazy with equity loans and ended up losing the house. Citibank took a serious hit, too. Complete stupidity. Others didn’t read the fine print nor do the math, finding themselves in homes they can’t afford. I don’t feel sorry for any of them – they are adults who didn’t take the time to think things through.
Who I do feel very, very sorry for are those folks who got slammed dunked by external forces such as layoffs and illnesses, or by out and out fraud by mortgage brokers. They are the ones who need a helping hand from Uncle Sam. Unfortunately, my guess is that the flippers, amateurs and just plain dumb are the vast majority of foreclosure cases.
Trying to whittle through who deserves a helping hand and who doesn’t seems like a nightmare. Plus, from a political standpoint, a very common argument I’m hearing is: I’ve been paying my mortgage and living within my means for years, so why should I bail out flippers, amateurs and dumb homeowners as well as Wall Street?
How will the politicians deal with those constituents who feel that way?
one has to wonder just what ‘hammer’ that bush/paulson cabal are using on the congress to force them to ok their bailout scheme? are they using the threat of ‘exposure’ of members of congress’s dark secrets (i.e. their pedophilia activities, homosexual activities, stealing govt. funds and salting it away in offshore accounts, etc.).
one has to wonder what ‘hammer’ the bush/paulson cabal are using to force members of congress to commit treason against our nation.
Dirty Secret Of The Bailout:
Thirty-Two Words That None Dare Utter —
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
…saving for last the fullest expression of Bush Co criminality. The gall is breath-taking.
http://www.iht.com/articles/2008/09/23/business/sorkin.php?pass=true
Bailout is financial equivalent of the Patriot Act
NEW YORK: The passage is stunning:
“Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency,” the original draft of the proposed bill says.
And with those words, the Treasury secretary – whoever that may be in a few months – would be vested with perhaps the most incredible powers ever bestowed on one person over the economic and financial life of the United States. It is the financial equivalent of the Patriot Act, after 9/11.
Treasury Secretary Henry Paulson Jr.’s $700 billion proposal to bail out Wall Street is both the biggest rescue and the most amazing power grab in the history of the American economy.
In many ways, it is classic Wall Street: a big, bold roll of the dice that one trade can save the day. But at the same time, the hypocrisy is thick. The lack of transparency and oversight that got our financial system in trouble in the first place seems written directly into the proposed bill, known as TARP, or the Troubled Asset Relief Program.
Just take a look at the original draft: “The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this act,” the proposed bill read when it was first presented to Congress, “without regard to any other provision of law regarding public contracts.”
It goes on to say, “Any funds expended for actions authorized by this Act, including the payment of administrative expenses, shall be deemed appropriated at the time of such expenditure.”
Slowly but surely, as new versions of the bill are making the rounds in Washington, some legislators are pressing to include new language to give them at least a modicum of oversight. Democrats have complained that the bill gives the Treasury Department “a blank check” – and they’re right.
But given the rush to push the bill through, even if Congress cobbles together some oversight language, it will almost surely be inadequate.
Joshua Rosner, a managing director at Graham Fisher, says TARP should stand for “Total Abdication of Responsibility to the Public.” He calls it “a clear abdication of all congressional oversight and fiscal authorities to a secretary of Treasury that has bungled this crisis from the beginning.”
He argues that the bill grants “greater powers to the secretary of the Treasury than even the president enjoys.”
The bigger issue is that the bill effectively creates protections not just for the Treasury, but for the executives on Wall Street who created this near Armageddon. Rosner says the draft bill “prevents judicial review that could allow the protection of decisions that create false marks, hide prior marks, or could be used to prevent civil or criminal prosecution in situations where a management knowingly provided false marks that aided the growth of this crisis of confidence.”
False marks – using mark-to-market accounting to hide the true value of security, rather than disclose it honestly – has a lot to do with why Jeffrey Skilling, the former Enron chief executive, is in jail.
It is absolutely true, of course, that Paulson needed to do something. By Thursday afternoon, less than 48 hours after the bailout of American International Group, the financial system was near meltdown. The mere rumor that Paulson and the Federal Reserve chairman, Ben Bernanke, were devising a big bailout fund cause the stock market to soar.
In truth, I’m not sure I agree with Rosner’s assessment of Paulson’s job performance. I think he is one of the most competent Treasury secretaries we’ve ever had, and it is hard to imagine anyone else handling this crisis any better. His predecessors, who lacked his grounding in the world of high finance, would most likely have been like deer in headlights.
And when Paulson says, as he did on all the television talk shows Sunday, “I hate the fact that we have to do it, but it’s better than the alternative,” I believe him. (It would have looked better, of course, if he had come up with this plan before it looked as if his former firm, Goldman Sachs, was in jeopardy.)
But the question on the table now is whether the government’s latest response to this crisis – the way it has been constructed, and frankly, the way it is being crammed down everyone’s throat at the eleventh hour – is the right approach. Already the market has its doubts; just look at its performance Monday.
Let put aside the bill’s most offensive aspect – the raw power it gives the Treasury Department, and the lack of oversight it provides – and take a closer look at the practicalities. First off, there is nothing in the bill that will prevent these problems from happening again.
The bill doesn’t address adding greater transparency in investments in subprime loans and securities and credit derivatives, which led directly to the debacles at Lehman and AIG. The bill does nothing to rein in the credit-default swap market, which has turned out to be the weapon of financial mass destruction that Warren Buffett always said it was.
Nor are the Democrats going to help matters with their own changes.
It is all well and good that they hope to use the bill to restrain executive compensation, and add stipulations to help people in danger of losing their homes. But nothing the Democrats have suggested so far tackles the core issues of oversight, transparency or regulation.
Of course, the sickest part is that Wall Street is lining up at the trough for a piece of the action, lobbying to run some of the $700 billion fund – and take huge fees – for their own mess.
However the bailout is structured, no matter what safeguards are put in place, it is likely to be a conflicted mess. How can we possibly trust that the price the government agrees to buy the securities will be fair?
And then there is the jockeying among the banks so they can sell their absolute worst stuff to the government – even loans that have nothing to do with mortgages – and change the rules in the process.
The Financial Services Roundtable, which represents big financial services companies, wrote an e-mail message to members Sunday suggesting, laughably, that “the government bid for the assets should not count as a mark-to-market value for accounting purposes.”
In other words, if the government drives a hard bargain – as it should – the banks don’t have to take write-downs based on the price the feds pay to take junk off their balance sheets.
Watching Wall Street double-dip makes even some in the industry’s top tier cringe.
“Maybe I should move to Russia,” one titan of finance said to me. “It’s obscene, the whole thing. I’m embarrassed for myself.”
Actually, I’ve got a better suggestion: Venezuela.
On Friday last week, Hugo Chávez, the Socialist president of Venezuela, gave a speech in Caracas where, according to Reuters, he said, “The United States has spent $900 billion, four times what Venezuela produces in a year, to try to boost the troubled finance system and housing market.”
Gloating, he added: “They have criticized me, especially in the United States, for nationalizing a great company, Cantv, that didn’t even cost $1.5 billion.”
Colonel, All,
now the wall street crooks and their congressional/white house cronies see how ‘bailout’ is such sour note on the ears of the public, they’re going to now practice ‘word play’ from ‘bailout’ to ‘rescue plan’.
the bush/paulson cabal think that we the public are such dummies that we’ll fall for their ‘word play’ of ‘rescue plan’ versus ‘bailout’.
will you succumb to the ‘word play’ by the bush/paulson cabal from ‘bailout’ to ‘rescue plan’?
Accounting = Hold on to Your Wallet
I’ve been flipping through my accounting books trying to find something about the “hold to maturity” accounting that Fed Chairman Ben Bernanke was talking about yesterday at the Senate hearings on the bailout. I haven’t been able to find anything exactly described as “hold to maturity” accounting, or a hold to maturity price, and on the internet all you get is references to Ben Bernanke’s speech yesterday. Maybe this is something new the government has come up with.
Read the Rest On Numarian’s deconsrution of Hold to Maturity Accounting at the link below.
http://agonist.org/numerian/20080924/hold_to_maturity_accounting_hold_on_to_your_wallet
This is getting to be quite a bit of political drama that would be utterly fascinating if our own behinds weren’t so directly involved.
On the one hand, there is no question that there is a sizable component of psychology undermining the market–that assets (and through them, the value of the dollar) are rather more depressed than they should be and that some form of government intervention is desirable to alleviate that part of the problem. Sadly for all of us, I don’t think that part is quite so much as we’d like it to be–and by the nature of gov’t bailouts, the portion of the assets that the taxpayers will be left saddled with will be the worst of the worst anyways–which would be dubious under better circumstances and these times are pretty bad.
The nature of the messenger (the current administration) and the timing of the crisis are making things even cloudier. Given the past record of the Bush administration, the cure it’s proposing almost unquestionably has to be sprinkled with questionable components that, once the crisis passes, others will come to regret. Nobody wants to play ball with these folks…quite justifiably. What’s worse, though, is that Gingrich’s prescription, politically speaking, is exactly right: this is good time for playing demagoguery…economic costs will be born some time later (and most of the blame will be on GWB anyways). It is such a terrific opportunity for the Republicans to show their independence from the Bush administration.
Heck, I’m finding myself torn about this: even in the medium to long term, the cure is probably barely better than the disease…at best. Why bother to put up with it? Why not just say “stuff it” and grab the short-term advantage?
Colonel Lang,
I know you are not a Ralph Nader fan, but I can’t help but believe that you would agree with this posting from a blog on the http://www.votenader.org website:
This is the link:
http://www.votenader.org/blog/2008/09/24/wise-guys-shock-and-awe-and-the-great-depression-sequel/
==========================
The top of the news is still dominated by fears of Great Depression II. No mention of hope fever, field stripping moose, or lipstick.
I’m sure that the Democratic and Republican presidential candidates are tirelessly working behind the scenes to insure a better deal for voters. Yet, from the ghost-like details of their bailout and accountability plan, it seems more like they are in the Federal Witness Protection Program.
To be fair, there was a little item reporting that Senator Obama thought the bailout needed a more “muscular regulatory” component. A cool observation. John McCain has gotten deregulation religion, and he is angry — angry, my friends, demanding a 9.11-type commission to get to the bottom of this, dammit.
Sneaking a glimpse of Treasury Secretary Henry Paulson — heralded as “King Henry” on the cover of Newsweek — testifying before the Senate reminded me of Godfather II. But this time, it is not Michael Corleone at the table.
The new wise guys of Wall Street have brought their remorseless schemes from the corporate syndicates to Washington –the taxpayers — for a $700 billion bailout, which some predict will likely balloon to $ 1 trillion.
It’s kind of like when things get tight and the wise guys need more money. There is no real fretting, they just shake down the neighborhood — customers, neighborhood businesses, ordinary citizens, and everything is fine. Like in Good Fellas, “Just pay me!” Hauntingly similar to William Greider, writing in The Nation, predicting that this bailout will be one the great swindles in American history. Something you can tell your grandchildren about.
To switch analogies, the media atmosphere driven by the Bush Administration is starting to feel like a 9.11 moment, complete with CNN alerts (minus the flags) that bipartisan and passive compliance with its dictums is urgent to save the nation from catastrophic collapse. No time for annoying questions about the fine print, executive accountability, and certainly don’t bring up that little quaint document called the Constitution.
Senator Mitch McConnell bravely warned the skeptics on Capitol Hill, “When there’s a fire in your kitchen threatening to burn down your home, you don’t want someone stopping the firefighters on the way and demanding they hand out smoke detectors first or lecturing you about the hazards of keeping paint in the basement.” The good senator from Kentucky is a great one with metaphors, but rather than firefighters I think arsonists would be a better one to suit this burning house. Still, there is a “shock and awe” feel to King Henry’s media campaign to save Wall Street — sorry, I meant the nation.
President Bush is looking a bit befuddled these days. Always the courageous and mighty cheerleader, however, he is at his best with the much-rehearsed line about “protecting the American people,” a kind of template for media consumption. But, no questions please, time is of the essence. Foot-dragging is un-American and a danger to national economic security. To beat back the quarrelsome skeptics, all we need now is a Power Point presentation from Colin Powell. This time in the U.S. Senate rather than the UN.
Re-tool the message from WMD to GFM — “Global Financial Meltdown.” Instead of “invade,” they could just use “give us all the money we want from taxpayers with no questions asked, no strings attached. Now.”
Powell could even hold up a little vial and announce that is all of the money left in the U.S. unless we fork over the bailout.
Mercifully, we have not heard Bush bellowing warnings about mushroom clouds. The problem with the boy crying wolf is that when there really was a wolf, no one believed him. As for the Wall Street wise guys, we should have heeded the warning that if we didn’t fight them there, they would just follow us to Washington and we would have to fight them here. That is the fierce urgency of now.
Charles Fulwood
The Nader Team
Here is what seems to be a realistic analysis by qualified observers. Too bad the American people are not being told this by the corporate “news” media and the politicians:
….”The financing of previous large fiscal deficits under the George W Bush Administration has already caused external deficits (current account) to widen to 5-7% of GDP, turned national savings negative, sent the dollar plummeting, and ignited rapid inflation, particularly in food, energy, and housing prices. Further financing of extraordinary large fiscal deficits, as required by the MFI, can only disrupt economic stability both in the US and world-wide. It will only further undermine the dollar, exacerbate widening external deficits, soaring energy and food prices, and rising unemployment.”…
If the fiscal deficit exerts pressure on interest rates, then the deficit will rise even further, the cost of monumental private debt increase, and mass default both nationally and internationally will set off.
As previous fiscal deficits during 2001-2008 clearly showed, the financing of excessively large deficits will take its greatest toll on the US dollar and will undermine confidence in it as reserve currency. For the US to run a current account deficit, the rest of the world must be willing to finance it. This financing task would principally fall on China and a few major oil-exporting countries. These countries, instead of throwing good money after bad, will try to diversify out of dollars in an orderly fashion.
Foreign holders of dollars are unlikely to finance ever-growing US current account deficits but will instead convert their dollar holdings into stable currencies or gold. This would, in turn, cause a major economic contraction in the US, possibly exceeding 10%.”….
and so on
http://www.atimes.com/atime
s/Global_Economy/JI24Dj03.html
Germany is not happy with all this. (It seems the pre-WWII power structure scenario is unfolding)
http://news.yahoo.com/s/nm/20080925/ts_nm/us_financial_germany_steinbruecknews_2
Germany blamed the United States on Thursday for spawning the global financial crisis with a blind drive for higher profits and said it would now have to accept greater market regulation and a loss of its financial superpower status.
In some of the toughest language since the crisis threw Wall Street banks into financial disarray earlier this month, German Finance Minister Peer Steinbrueck told parliament the turmoil would leave “deep marks” on both sides of the Atlantic, but called it primarily an American problem.
“The world will never be as it was before the crisis,” Steinbrueck, a deputy leader of the center-left Social Democrats (SPD), told the Bundestag lower house.
“The United States will lose its superpower status in the world financial system. The world financial system will become more multi-polar,” he said.
This comment is from “tosk”
Unfortunately I don’t believe this will happen amy time soon (i.e. the alleviation of my state of confusion)
I’m not sure exactly where to go to get a real understanding of what is happening with the U.S. financial meltdown and with what some are calling “the mother of all bailouts” (MOAB)? I’ve read what must be a couple of hundred articles in newspapers, financial magazines, and on the web; and just as I found it quasi-impossible to get a “correct” answer re why oil prices rose so far earlier in the year (was it supply and demand? Speculators? Exchange rate and value of the greenback? peak oil?) it has been an exercise in frustration. Dueling economists, arguments re ‘Wall Street’ vs. ‘Main Street; ‘we have to intervene’ vs. ‘let them crash and burn’, etc. Even getting solid numbers is not easy e.g. some figures are for mortgage delinquency and others for mortgage foreclosures (NOT the same thing).
So, I remain confused and my questions are:
1. Exactly how much “toxic waste” is out there? And exactly what are they talking about when they say “toxic waste”?
I’m assuming that “toxic waste” refers to near- and sub-prime MBS/CDOs, and not to the more exoteric derivatives thereof… (however, I have not seen Bernanke or Paulson define exactly what is “in scope” for the MOAB!)
The entire U.S. housing mortgage market stands at approximately USD thirteen trillion, while Fannie and Freddy have approximately USD 6 trillion of this. I assume that since Freddie/Fannie have already been taken over by the government, Messrs. Bernanke and Paulson are not including them in their plan… That leaves USD 7 trillion. Assuming the split is 70% prime and 30% near- and sub-prime (the closest I could find on the web..), then we are talking about USD 4.9 trillion of prime and USD 2.1 trillion of near- and sub-prime. Right now delinquencies are running at 25% of near- and sub-prime and 2.5% of prime. Earlier we assumed that “toxic waste” did not include prime, so let us exclude that (the financial institutions need to manage some things themselves, and surely shouldn’t be bailed out for every non-performing loan!) Scenario: 50% of subprime is “toxic” i.e. USD 1.05 trillion. Assuming that the MOAB pays 50 cents on the dollar, the “toxic waste” should be able to be purchased for the mere bagatelle of USD 525 billion. So, perhaps the USD 700 billion is “rounding up” plus swag, or else Messrs Bernanke and Paulson want to define “toxic waste” more broadly. Instead of speechifying and posturing it would have been nice if the Senate Banking Committee members had asked Messrs. Bernanke and Paulson to explain in plain English terms what exactly is the “toxic waste” they are proposing to buy up. And if the Senators were too shy to say that “in plain English” was for their own benefit (since we know they all consider themselves veritable Einsteins who don’t need any explanations), then they at least could have requested it for the benefit of the viewing audience.
2. When I bought my house (incidentally at the height of the bubble!) I was assessed PMI (private mortgage insurance) because I put down slightly less than 20% of the value of the home. This is insurance that protects the lender – if the borrower defaults and the lender is not able to recover its costs after foreclosure and sale of the mortgaged property then the insurance kicks in. OK, since the vast majority of near- and sub-prime loans probably have a loan-to-value ratio appreciably above 80% they would all require PMI. So, how come this I have not seen word one re PMI. If you consider PMI, then it looks like the banks should be covered and that it should be the insurers that are screaming about “toxic waste”! However, they don’t seem to figure into any of the articles, news, etc. – are Messrs. Bernanke and Paulson bailing out the banks or the insurers?
Hard to say what is actually happening, this crisis is generating more heat than light!
Tosk
http://www.ph2dot1.com/2008/09/confused-and-nowhere-to-go.html
I keep wondering “why now?”. The extent of this crisis has been obvious for well over a year, and yet a deal is needed immediately, no later than this weekend.
What’s so special about “right now”? Are there massive redemptions due at the end of the quarter (or federal fiscal year) because rich investors are stampeding for the exits and their cash is due at quarter’s end? Has some major financial player (e.g., Japan or China, who hold considerable U.S. treasury paper) made a demand with a specific due date?
Why the rush? Anybody have any ideas?
strange things start to happen. This type of dithering usually is an indicator of instability.
Going to be bumpy ride.
http://www.dailykos.com/storyonly/2008/9/25/10152/7052/275/609919
China Banks Told to Halt Lending to US Banks
China denies shunning foreign banks
Well, no wonder we can’t make the numbers add up. From Forbes (link below):
“In fact, some of the most basic details, including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy.
“It’s not based on any particular data point,” a Treasury spokeswoman told Forbes.com Tuesday. “We just wanted to choose a really large number.”
http://www.forbes.com/home/2008/09/23/bailout-paulson-congress-biz-beltway-cx_jz_bw_0923bailout.html
Tosk/Pat
I draw your attention to this article which outlines some of the possible “toxic waste” that Paulson hopes to purchase with his blank check.
The only language of the legislation that I saw on the WSJ provides a very broad definition of what securities Paulson can buy from his buddies on Wall Street including his former employer Goldman Sachs. It authorizes purchases of not only mortgage related securities but also credit card, auto loan, LBO debt and even swaps such as credit default swaps and interest rate swaps.
At this point since the legislation is very fluid we really don’t know until we see the actual language.
Note also that Bernanke in his testimony has been saying that they intend to pay above market prices since the commissars know better than the market what the “correct” prices for these instruments are and that is how they intend to re-liquify the banks.
Despite all the “mushroom cloud” talk by George Bush and Hank Paulson this proposal to buy securities at above market prices will only benefit a few Wall Street banks and will really do nothing for Main Street except make them even more poor.
What I find amazing is no one is demanding transparency as a pre-condition to this bailout (aka theft)! Unless all financial institutions disclose in detail (not summary form) their balance sheet investors have no idea what their assets (or “toxic waste”) really are as well as their liabilities. And this should include all their off-balance sheet items too. There are hundreds of billions of dollars of assets in off balance sheet vehicles like SIVs. As soon as all those level 2 and 3 assets are disclosed then independent parties can evaluate the value. We can then determine who has a liquidity problem and who are insolvent. Banks can then even start to lend to each other and investors can step up to the plate. There’s a reason why the private credit markets have seized and the TED and LIBOR spreads are so wide. It should be obvious to the most casual observer that the only reason these institutions have such opaque balance sheets is that there is a lot of crap that is essentially worthless. That’s what folks who took a look at Lehman’s books found out. You can bet its similar across all of them. Note the deal that Warren Buffet did with Goldman Sachs – this is what credit card companies charge those that get late on their payments. He get’s 10% (after tax to Goldman) coupon on a preferred that can be called at a premium and he get’s an in the money option. This deal makes it clear that Goldman needs the capital as the money has come at significant cost.
BTW, you mentioned PMI. There’s a reason why “insurers” like MBIA and Ambac are also essentially insolvent. And why municipalities are in such trouble.
IMO, we should be using the $700 billion in first shoring up FDIC which will need a lot more than the $45 billion it has now.
Anytime you have George Bush, Hank Paulson, Barney Frank, Chuck Schumer and Chris Dodd on the same page you know there is corruption and grand theft/larceny going on.
Dallas Fed’s Richard Fisher Worries About Cost and Effectiveness of Bailout Bill
Mirabile dictu, one of the Fed governors is expressing reservations about the stalled bailout proposal. IRichard Fisher’s concern is that it would push Federal debt precariously high. From Bloomberg:
Dallas Federal Reserve Bank President Richard Fisher said the proposed $700 billion rescue of financial institutions backed by Fed Chairman Ben S. Bernanke would plunge the U.S. government deeper into a fiscal abyss.
The plan by Treasury Secretary Henry Paulson to buy troubled assets from financial institutions would put “one more straw on the back of the frightfully encumbered camel that is the federal government ledger,” Fisher said today in the text of a speech in New York. “We are deeply submerged in a vast fiscal chasm.”…
“Holding the Fed funds rate steady at 2 percent was the right thing to do, while our colleagues at the New York Fed and at the Treasury turned to dealing with the risk of AIG and other choke points in the markets,” Fisher said. He had dissented in favor of tighter policy on five votes this year by the rate- setting Federal Open Market Committee. This month he voted with the majority.
Money market rates worldwide surged today on concern lawmakers may weaken the Treasury’s proposed rescue of financial institutions.
Banks have all but stopped lending to one another. One money-market indicator, the Libor-OIS spread measuring the availability of cash among banks, widened today by 32 basis points to nearly 2 percentage points, the most on record. It averaged 8 basis points in the 12 months before the credit squeeze began in August last year.
http://www.nakedcapitalism.com/2008/09/dallas-feds-richard-fisher-worries.html
Welp apparently the deal is off right now. Huge meltdown behind closed doors with the House Republicans, of all people, refusing to support it.
I believe an important point that has not been raised at all during this debate on the bailout of Wall Street is Hank Paulson’s conflict of interest.
Paulson was the CEO of Goldman Sachs from 1998 to 2006 just before he became Treasury Secretary. It was on his watch that Goldman Sachs played a major (some would claim it was the epicenter) role in inflating the credit bubble to its epic proportions. He naturally profited personally. Now he is the central authority in a bailout with no restrictions and limited oversight that will directly take taxpayer funds to purchase illiquid and dodgy securities that can directly benefit his previous employer and obfuscate investment decisions he may have been personally involved in while CEO of Goldman Sachs.
Is this par for the course in contemporary DC?
A crisis years in the making, Paulson’s 3 page solution months in creation (in secret), and now comes the old Bushco shock.
What if Congressional response doesn’t much affect the long run? The public is obviously 99% against any action. I think the subsequent drive to eliminate Social Security, and squeeze this country with IMF like ‘reforms’ will cause big trouble for both politcal parties.
Actually, I watch FDR’s speech on “fear itself” on TV about once a week on the David Letterman show on his segment on famous Presidential Speeches! Why shouldn’t someone who is not paying too much attention think that FDR had made that speech on TV?
Cieran,
‘Why the rush?’ is certainly a very good question — particularly if one is trying to figure out whether there is a real need for it.
It may very well be that there is. But be that as it may, it is also worth bearing in mind that while the extent of the crisis may have been obvious for over a year to some, it was patently not obvious either to Paulson or to Bernanke. Repeatedly the two made statements indicating that they were in denial.
Part for the reason for this may be that in both cases, facing up to the extent of the crisis involved confronting the possibility that they are catastrophic bunglers.
A central premise of the Fed policy over the past decade has been that there is no reason for monetary authorities to be concerned about preventing asset bubbles, because they have the means to preventing their collapse seriously impacting the real economy. A significant part of the academic support for this contention comes from Bernanke’s interpretation of the Depression.
So for Bernanke to accept that since 1998 the Fed has been in essence a serial bubble blower, and that as a result it might be digging itself into ever deeper and deeper holes, may not exactly be easy.
As to Paulson, one has only to look back to a gushing Business Week profile published when he became Treasury Secretary back in 2006:
‘Think of Paulson as Mr. Risk. He’s one of the key architects of a more daring Wall Street, where securities firms are taking greater and greater chances in their pursuit of profits. By some key measures, the securities industry is more leveraged now than it was at the height of the 1990s boom. It has also extended its global supremacy since then.’
(See http://www.businessweek.com/magazine/content/06_24/b3988001.htm.)
If one has thought of oneself as a master of the universe, it is difficult to contemplate the possibility that one may little more than the latter day equivalent of a riverboat gambler who did not know how to calculate the odds.
The belated collapse of denial can produce panic — which is not to say the panic is necessarily unjustified, by any means.
Tosk,
Part of the problem, I think, is that securities which are supposed only to have prime material in them do not always do so.
It is clear that financial institutions are genuinely convinced that much of the paper they hold is underpriced because of panic — which also appears to be a central premise of the thinking of Paulson and Bernanke.
However, a piece in yesterday’s Financial Times by Gillian Tett, their best markets commentator, suggests that this conviction may not take adequate account of the effects of the increasingly reckless and corrupt behaviour of financial institutions in the closing stages of the bubble.
She suggests that AAA ratings on CDOs (collateralised debt obligations composed of asset-backed securities, such as mortgage bonds) may often be dubious. This, according to Tett,
‘is partly because there appears to have been widespread fraud in the mortgage brokerage world in the latter stage of the credit boom. But what is equally important is that, from late 2006 onwards, bankers appeared to have stuffed CDOs with a higher than normal proportion of rotten debt.
‘Janet Tavakoli, a structured finance expert, for example, recently investigated some 30 CDOs of ABS worth $32bn issued by Merrill Lynch in 2007. She discovered that in 27 cases the AAA chunks of those had been downgraded to junk, due to impending losses. That might be extreme; but unfortunately it is hard to know, since this sector is pretty opaque. Hence the core policy headache: if the government buys debt at “rotten” market price, banks may be forced to make more writedowns, which they can ill afford; but if it tries to paper over the rot, it will suffer future losses.
(See http://www.ft.com/cms/s/0/d418aad6-8b22-11dd-b634-0000779fd18c,s01=1.html.)
If Bernanke and Paulson produced a plan which was essentially premised upon the assumption that much of the paper was seriously underpriced, that may reflect denial.
aha, so the rumor about Fortis few months back were correct. Fortis is going bust.
http://www.dailykos.com/storyonly/2008/9/27/223814/840/333/612936
BELGIUM’s Fortis is this weekend poised to become the first large continental bank to fall victim to the credit crunch, as the global chaos continues with Bradford & Bingley and American savings giant Wachovia both teetering on the brink.
The Belgian central bank and the country’s regulator are paving the way for a bailout of the huge banking and insurance group, which has a £540 billion balance sheet and a market value of £12 billion.
Col.,
An interesting study on this kind of bail out done by the IMF.
It seems this attempt WON’T work.
Courtesy of Yves Smith.
Link: http://www.nakedcapitalism.com/2008/09/new-imf-study-of-banking-crises.html