Paulson’s bill passes – now what?

Hankpaulsonbailo_1000369c "It is impossible to predict the final cost of the bailout but officials insist it will be far less than $700 billion. Because the Treasury will purchase and then resell assets, potentially at a higher price, there is a chance the program will break even or perhaps turn a profit.

The deal provides for tight oversight by two boards, including an independent Congressional panel. And requires the government to use its status as an large-scale owner of distressed, mortgage-backed securities to take more aggressive steps to prevent foreclosures.

The bill also seeks to limit the pay of executives of some companies that sell bad debt to the government, including restrictions on so-called “golden parachute” retirement plans.

It also provides several taxpayer protections, including a mechanism for the government to take an equity stake, in the form of stock warrants, in some of the firms that seek government help, which will give taxpayers a chance to make money should the companies profit in the months and years ahead.

And, if the rescue plan has lost money after five years, the bill requires the president to submit a plan to Congress for recouping the losses from the financial industry, perhaps through fees or a tax on securities transactions. "  NY Times


With the provisions described in the last two paragraphs above, the bill is minimally aceptable.

Let us all hope that it does act to "unstick’ the credit markets.  The passage of the House version of the bill was immediately followed by admissions on the part of many of those who had led the hysterical demands for the bill that they were uncertain that the new law would affect very much.

In the last few days there have been more and more indications that the claims that "main street" was deeply threatened have been exagerated or at least anticipatory rather than actual.

The financial media have done very poorly in all of this.  Very poorly indeed.  pl

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27 Responses to Paulson’s bill passes – now what?

  1. RJH says:

    PL said: “The financial media have done very poorly in all of this. Very poorly indeed”
    Actually, they did exactly what they were supposed to do: Obfuscate, fear-monger, sell this bill of goods. By that measure they did quite well

  2. different clue says:

    And the Masters of the Moneyverse did their job too; slow-chilling credit, crashing stock markets, etc.
    Their goal was to terrorise enough small bussinessfolk and Main Street Americans into begging Paulson’s forgiveness for ever doubting his ineffably wise bailout. And call their elected officials and say: “we surrender! Pass Paulson!”
    And that’s what happened.

  3. bstr says:

    Dear Sir, This bill moves the economic structure of the United States in the direction of authoritarian capitalism. We have seen Russia and China moving with alacrity to use huge amounts of capital to enact governmental investment. The capability to move vast sums on gigantic projects quickly must be of great appeal to such men as Paulson. Such men as Paulson would seek out such political leadership as offered by the Unitary Executive. I may be paranoid, but I fear our democracy is in growing peril.

  4. jonst says:

    Among many, many, things that struck me about this bill, the two photos I’ve seen of politicians that supported the bill have, most of them, either smiling, or down right jovial. Relieved, tired, embarrassed, sure. But smiling and/or jovial? I don’t think so. Strikes me as odd.

  5. zanzibar says:

    I am still convinced this is a bad bill and will only temporarily alleviate market stress if at all. It does practically nothing to address the root issues afflicting financial institutions – opaque balance sheets, inflated asset values on books and severe under-capitalization.
    Instead it provides an opportunity for incredible corruption and cronyism. What astounds me is why Paulson got a pass? This is the same guy that played a major role in creating this mess and pushed the SEC hard in 2004 to relax capital adequacy rules so that banks could lever up to unprecedented heights that is at the root of why we have this house of cards.
    Those that believe that this $700 billion revolver ends at $700 billion are very naive. I am extremely skeptical that taxpayers will make a profit from this plan.
    Who is going to win with the Paulson plan – managements of financial institutions, well connected foreign investors who made bad bets and shareholders and bond holders of “chosen” firms like Goldman Sachs.
    Who loses? Middle class Americans. This is just the beginning of our fleecing.
    We are just postponing the day of reckoning when we have to decide which banks are insolvent and need to be closed and which banks are illiquid and need to be recapitalized. By procrastinating the inevitable we are compounding the problem. We will have to deal in the future not only with zombie financial institutions that drag even good ones down but also with the impacts of the recession hurtling our way that will demand tremendous financial resources. We are going the route of Japan without their savings. Yesterday the Nikkei closed below 11,000. In 1989 at its peak the Nikkei index was at 40,000.
    It seems in contemporary America we need to look like we are doing something while really just “featherbedding” instead of attacking the root of the issues.

  6. The beaver says:

    About the financial media, this is an interesting read:
    Note: it is long but a timeline of the investigative reporting

  7. João Carlos says:

    I fear that Paul Krugman is right (again): the bailout will only buy some time, with luck enough time for the next administration is controling the ship.
    But I have a frequent nightmare: the bailout is not enough and the tsunami comes with Bush on power.

  8. The beaver says:

    About the financial media, this is an interesting read:
    Note: it is long but a timeline of the investigative reporting

  9. b says:

    The bill will do nothing good. Paulson can now legally spend $1.5 trillion (up to the debt ceiling) to buy and sell whatever he wants from/to whoever he wants until January 20th. He’ll do so.
    The results will be irrelevant but to his personal pockets.
    The real issue is now short term credit for “Main Street” and municipals. The Fed and Treasury should start lending directly to them NOW instead of funneling money into a bankrupt banking system.
    They will not do so until the February 2009 $1-2 trillion emergency measures which will be too late by then.
    The Fed expanded its balance sheet from $850 billion to $1.5 trillion within the last month. Did anybody notice any effect?
    Any realistic report on this in the usual wall-street advertising press or the TV stations owned by GE?
    More people should read Roubini, he at least knows what he’s talking about and he was one of the not-so-few who saw it coming: Financial and Corporate System is in Cardiac Arrest: The Risk of the Mother of All Bank Runs
    Anyway – lets discuss how to manipulate this or that non-existent Afghan tribe to keep the empire up throughout the Hindu Kush. You need another 100 F-22? Let’s buy them now.
    The money will always be there – we’ll just have to grab it. Sorry for the folks ,domestic or foreign, in the way of that plan.
    How about a thread on the geopolitical consequences of a global depression?
    Yes, a global depression.
    It is a distinct possibility now and the consequences in the geo-political and geo- military field, esp. given the predictable U.S. peoples’ dissatisfaction with the upcoming change of the “American way of life”, will be very, very serious.

  10. JohnH says:

    Yes, the bailout will “break even or perhaps turn a profit”… and the Iraq War will pay for itself.

  11. Ed Webb says:

    RJH has it right. The job of the financial media is to serve the financial services sector, not Joe Public. There has been too much cheerleading, too much worship at the altar of Warren Buffet, not enough critical analysis. Wall St pays the piper. But in the long run, we will all pay for the lack of vigilance on the part of the Fourth Estate and the lawmakers.

  12. Dave of Maryland says:

    With all respects to the proprietor’s rules, and with apologies in advance.
    The sons of bitches had best be right. Monday morning stocks had better soar.
    Where was the leadership? Wall Street wants a trillion bucks? We want single payer. Quid pro quo. It is not now, nor will it ever again be a matter of limited budget. There was a trillion bucks for a war. There was a trillion bucks for the banks. There is money for national health care. There is money for Social Security. Forever. Fiat money, if none other.
    Realistically, it’s now a contest between the banks & the Pentagon as to who will end up with all the money. There can be only one winner. They’re both mean, they’re both entrenched, they’re both hard core. If we speculate that the Pentagon needs the banks, but the banks do not need the Pentagon, that makes the banks the ultimate winner.

  13. Trent says:

    “We are dealing with a country that can really finance its own reconstruction and relatively soon.”

  14. WP says:

    One of the most interesting provisions in the bill is Section 128, which was in both the original and amended versions, and says simply:
    “Section 203 of the Financial Services Regulatory Relief Act of 2006 (12 U.S.C. 461 note) is amended by striking ‘October 1, 2011’ and inserting ‘October 1, 2008.’”
    The effect of this bill is that the Treasury may reduce the fractional-reserve requirement to ZERO. An article on this is here
    I have been wondering how the commercial banks could become Bank Holding companies because they would unlikely have sufficient reserves. Now I understand. They need no reserves. We now have a zero-reserve banking system that has nearly an ulimited bank money creation power.
    This provision does not make banks more secure, it makes it turns them into casinos.

  15. Curious says:

    Well. at least my prediction that the $700B bail out will be passed is correct.
    Now we just need to figure out how wall st. is going to scam the tax payer (into buying useless paper)
    my guess. We gonna find out near christmas that the $700B bail out doesn’t work. After the money is gone and the government is saddled with obligation.
    Then the real game begin.
    Just about anybody in the planet say if the fed is going to buy out/bail out the entire ponzi scheme. $700B is not enough.
    How things will unfold:
    1. it will be OK for a few days. just like Paulson imagined.
    2. Then the entire world start moving around those paper so it ends up in Paulson hands one way or another.
    3. it turns into who blinks first. The entire world + hedge funds vs. Paulson.
    4. Paulson lost.
    observe. already the asian market resume the predicted trajectory. Everybody dumping portofolio and deleveraging.

  16. Curious says:

    wall street bailing out wallstreet using tax payer money. Oh yeah….the corruption will go through the stratosphere. buddies will get business first.
    Paulson Recruits Asset Managers as Rescue Moves Ahead
    Oct. 3 (Bloomberg) — Treasury Secretary Henry Paulson is hiring as many as 10 asset-management firms to join the lawyers and bankers he is recruiting to jumpstart the government’s new $700 billion bank-rescue program.
    The Treasury began implementing the plan within an hour of the House of Representatives vote giving Paulson the extraordinary powers he had sought to combat the U.S. financial crisis. Paulson is seeking to assemble a team to determine which toxic securities to target, how to value them and how to arrange purchases.

  17. Tosk says:

    The thought that we should make “Wall Street” pay for their bailout is big with many, but the means that they propose, it seems to me, won’t work.
    For example, Marcy Kaptur (D-OH) and others have suggested that “Wall Street” pay via a 0.25% fee on all stock trades. The NYT article seems to be suggesting the same thing.
    However, if a 0.25% fee is tacked onto stock trades, how exactly is “Wall Street” paying? Seems to me that I will be paying on any stock trades of my own! So, will you, and our 401(k)s too. So, to “make Wall Street pay” and “to protect the taxpayer” (i.e. me and you) the government will be taking money out of OUR POCKETS! Genius! I doubt that the Wall Street honchos are quaking in their boots!
    And, if the rescue plan has lost money after five years, the bill requires the president to submit a plan to Congress for recouping the losses from the financial industry, perhaps through fees or a tax on securities transactions. ” NY Times

  18. David W. says:

    Well, look at the bright side; If we’d forced Congress to hold it another week, they probably would have larded on another $100 billion of pork. Bravo, Madame Pelosi, you’ve been a great enabler at every step of the way; If you were Bush’s wife, you’d thoughtfully be stashing a bottle of Johnny Walker Black in the toilet tank for him every night.

  19. Mad Dog says:

    The Bailout was the financial equivalent of The Surge in Iraq.
    And with the very same undeliverable promises of success.
    Like the Military Surge, the Financial Surge is meant to give time for reconciliation, though in this case it is financial and regulatory.
    But like the Military Surge, the Financial Surge will merely paper over the visible violence while the underlying structural problems still remain, festering and ready to destroy all again the day the Occupation folks depart.
    If folks like re-runs, just stay tuned!

  20. TomB says:

    “With the provisions described in the last two paragraphs above, the bill is minimally aceptable.”
    Pfui, Colonel. Pfui. You’re too good-hearted and not cynical enough. There’s not a single solitary molecule of this as described that doesn’t openly and even shamelessly bear the stigmata of being just another form of the oldest human confidence trick in the world. I.e., “You do this for me today, and oh sure this is what I will do for you tomorrow…” And this time of course the sham of what’s supposed to happen tomorrow is being perpetrated on the public and the taxpayer as political cover. Pseudo-sophisticated boob-bait for us bubbas.
    * “Oh but the government could end up MAKING money on this … tomorrow….” Right, because the gov’t is so efficient. (And yet at the same time it openly talks about this theoretical profitability it openly says it’s mission is to take *the* most toxic debt, and then further talks about forebearing from foreclosures to some undisclosed degree meaning expressly that it’s going to let whatever debt it is buying get worse.)
    *The bill “SEEKS” to limit the pay of CEO’s and etc. Right, “seeks.” Tomorrow. But gee, boy, *if* they really do such seeking then stand back because of *course* they will then be oh-so-much-more-efficient at it enforcing it than the IRS has been in 100 years of failing to even define “income” or “gain” beyond question much less closing loopholes and staying ahead of the rafts of lawyers and accountants who spend their lives tying it into knots over such things. So right, it’ll happen. Tomorrow.
    *It provides a “mechanism” for the gov’t to take an equity stake in “some” of the companies it bails out. Right again! Instead of demanding and taking an equity stake right *now* in *every* company it bails out when the gov’t hands over our money, no, it’s got a “mechanism” to do so “tomorrow,” with “some.” A “mechanism” that may never be used at all, used to ridiculously small effect, used too late, used too infrequently, used only to create an appearance of use, used according to political favor (which has been known to happen in Washington), and/or blah blah blah. All on the come, all like little Orphan Annie singing “tommorow, tomorrow…” And not a word of explanation of why, if taking an equity stake is okay, it’s not taken *today,* in exchange for handing over our money. Indeed, they aren’t even talking about taking a *debt* stake in the future to finance our cleaning up of their mess which is *better* than and superior to an equity stake. So we only get the latter, maybe, at some indefintite time. With some companies….
    *If the plan costs money after five years then we’ll tax the financial industry “perhaps through fees or a tax….” And maybe perhaps golden monkeys will fly out the Treasury secretary’s butt. I can hear the laughter from the lobbyists from the “financial sector” laughing like hell already about this already. “Yeah right,” they’re holding their sides screaming, “as if *that’s* gonna happen. We got ’em to scupper the regulations that got us here in the first place, and now we got ’em bailing us out, and in five *years* they are suddenly going to grow a pair?! Hilarious! Tomorrow, tomorrow, it’s only five years away….”
    I’m not one who is constantly seeing the government or our politicians as being engaged in conspiracies or being corrupt at each and every turn or etc. But just look at this thing Colonel; except for us taxpayers performing *our* duty under this thing just as soon as Paulson can sign the checks, absolutely everything *else* that allegedly benefits or vouchsafes us is on the come. Every jot and tittle. So what’s the reason for this? Why in the world should this be so? And what other conclusion can one draw from this other than that it *is* all just essentially a sham?

  21. NYIrish says:

    What are the American people going to do when they find out that about half of this 700 Billion is going to foreign banks?
    Isn’t that why the British PM was in DC last week?
    This meltdown is global.
    The financial crackheads downtown have been given about a two months supply, but the pump is now primed for dollar hyperinflation.
    I was part of a study group on the Weimar hyperinflation earlier this year. Pessimism prevailed after the assassination of Walter Rathenau in June, 1922, as all hope for producing their way out of the Versaille debt was lost. The panicked actions of the German bankers during that summer remind me of Paulson and his cohorts. At least the bankers of a defeated Germany had a gun held to their heads by the enforcers of the Versaille reparation agreements. What is Paulson’s excuse? I think history will see him as worse than a traitor. What I found most surprising about the Weimar hyperinflation, though, was that at it’s height 94% of income was spent on … food.
    Has anyone taken notice of the fact that there is hardly any physical gold and silver available at coin dealers around the country, and many dealers are only selling at a 30-40% premium to Comex prices?

  22. JerseyJeffersonian says:

    WP et al,
    If you want to research the text of the U.S.Code, go to:
    For further joy and frivolity, information such as vote tallies, committee assignments and hearings, ways of contacting your congressmen or senators, go to:
    For information about legislation, you can visit the Thomas (after Jefferson, that is) site from the Library of Congress. Many valuable links can also be followed from the home page. Go to:
    Through utilization of these sites, you can know – in detail – not only how you have been shafted, but who in particular bears responsibility for it, too.
    The internet is a wonderful thing.

  23. Curious says:

    Well, the people who holds T-Bill start thinking. (Their decision will shape the next fundamental form of global economy.)
    Borrowing money $700B-$1T annually from the rest of the world is not sustainable.
    What Bush does basically is debasing dollar. And the planet will start dumping dollar sooner or later.
    “The U.S. government is moving rapidly to expand fiscal spending, spurring concern about the deterioration of its balance sheet and a possible plunge in the dollar,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “Sales of U.S. Treasuries may fuel such fears and fan panicked sales of those securities.”
    South Korea cut its Treasury holdings by 52 percent to $35.3 billion as of July this year from $72.8 billion in February 2006, according to U.S. Treasury Department data.
    China increased its holdings to $518.7 billion in July, from $477.6 billion at the start of the year, while Japan raised its holdings to $593.4 billion from $581.2 billion.
    Yu Yongding, a former adviser to the Chinese central bank, last week called for holders of U.S. debt to meet to agree not to sell in panic.

  24. zanzibar says:

    Jim Grant’s WaPo oped Bad Medicine
    Low interest rates, easy money and malleable accounting rules are what plunged Wall Street into crisis. Yet it is low interest rates, easy money and malleable accounting rules that top the list of federal fixes. The unifying theme of the new bailout bill, all 451 pages of it, is the hair of the dog that bit you.
    The unblinkable fact is that Americans own too much house. We overpaid and overborrowed, and many of us are “upside down,” as the car dealers say. What to do? Recognize the losses and write them off. What not to do? Inflate the currency and debase accounting standards.
    But inflation and debasement are the very policies being put in place. The Federal Reserve, not waiting for Congress, embarked last month on a radical program of money-printing. Reserve Bank credit — the raw material of bank lending — is growing at the year-over-year rate of 61 percent.

    While Congress and Paulson have been working overtime to STEAL our money, Bernanke’s helicopters have been in full drop mode. As I have noted in earlier posts just this past Monday he dropped over $600 billion. That’s why Paulson’s $700 billion is just a sham – it will turn out to be in the trillions!

  25. Paul says:

    No one seems to know whether the bailout package will help or exacerbate the economic difficulty at hand. My fear is that we only know but a small fraction of the problem. It’s a world-wide problem requiring cooperation from many foreign entity.
    One potential silver lining: the anger of the population will spawn massive investigation(s) to deconstruct the extent of the wrongdoing. Only then can blame be assessed. Hopefully Congress and local authorities will promptly initiate investigation in order to quickly prosecute the right parties and exact significant legal retribution. Typical punishment and sentences for white-collar criminals cannot apply to this massive fraud. The 9/11 attack pales in comparison to the financial crimes and havoc now being exposed.

  26. One of the caveats of Andrew Bachevich’s newest books “The Limits of Power” was that a financial meltdown was unknowable when he wrote it as to both time and extent. Now we know. The limits of US power have now been demonstrated very clearly to the world. No longer merely a financial crisis but one of international relationships also for the US because Paulson and his minions will now have to balance foreign policy issues of the toughest kind against our and their domestic tranquillity. And please note the complete and utter irrelevancy of Condi Rice and State as having any impact on foreign relations for the rest of the BUSH era. There is no section of the STATE DEPT that could possibly even give good advice on foreign versus domestic tradeoffs on economics. Look to the rapid rise of Bob Zellikow (sic) head of the World Bank in next few weeks. Way ahead of Paulson and his Treasury minions and has been working these issues very hard with finance ministers for last few months. Luckily for the country he is the sharpest tack in Washington. Note how neither McCain or Obama picked someone knowledgeable on international or domestic finance as his running mate. Neither Palin or Biden have a clue as to what international impacts of this financial meltdown will be internationally.
    They will be told its impacts, but they don’t know its impacts. This trainwreck was foreseeable long before the VP’s were picked. Both candidates wanted yes men (or women) not competence. Not a good start for either one.

  27. Patrick Lang says:

    I find it amusing that for CNBC and the other 24/7 financial creeps, high oil prices are good prices.
    Why? It is because the reporters and “analysts” identify with the alien trader culture rather than with the citizenry. pl

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