How are they still sitting there testifying after 4 hours? Are they all wearing depends?

Tester up. Love his haircut, love his tie.

Nemo, at least we guessed the intent correctly. But this puts the taxpayers are significant risk.

Best Wishes.
Calculated Risk

Exactly, that's why I think there should be no approval of any plan. Let the market correct, it's going to do so eventually anyway.

Marcy’s Kaptur rep from Ohio totally on point …..this is beyond party lines…she gets it REAL good.

YouTube -

I would urge you to watch the following it will take you 10 minutes..and then call

Call your Senators and Congressperson TODAY and tell them there IS a solution- don’t just yell at the staffers …They are getting ALOT of phone calls from pissed off people and their staffers are primarily getting screamed at. They need to hear that congress has already been provided with a solution that provides for no taxpayer $ and solves the trust issues in the market. Marcy Kaptur was delivered the white paper today after a personal phone call with her from one of her constituents and a Ticker Forum / Fedup USA member and is now asking questions why no one considered this option as every member of Congress was faxed this solution months ago - this is getting traction be part of it.

FedUpUSA

Also press release went out today Denninger - Google News getting picked up from multiple media outlets.

Speak up sir.

YES OR NO ?

WASHINGTON (AP) -- As Congress moves on the financial bailout plan, restructuring of troubled mortgages should be part of the final package, the head of the Federal Deposit Insurance Corp. said Tuesday.

FDIC Chairman Sheila Bair said she hoped that changes on home loans "will be a feature of that."

Under the $700 billion proposed bailout plan, the government could acquire troubled mortgage assets or provide a guaranty for delinquent loans, buying them and removing them from the overall pool of mortgages, Bair suggested.

What is the reason Paulson is giving for resisting an equity stake for the government? I can't think of a good argument and I am wondering why his proposal isn't just dead in the water.

TED spread inching up to 2.44

HTM = Book

Book = unrealistic

About as un-realistic as fire sale.

So how the fuck can Ben or anyone else subscribe to this shitty logic OR even say shit like this on national TV....and expect me to take them seriously?

Bernanke:

"The too big to fail problem is a very big problem (gulp)..."

The concept of "when we get through this period" keeps coming up. I wish somebody would ask them to define how we will know when we "have gotten thru this period" and demand a specific definition.

Don't piss on my back and tell me it is raining.

at some point, the prophecy that the prices in a firesale are significantly less than those achieved by a long term hold must come true because if the system freezes up totally then the firesale price becomes $0 for all securities (everyone is buying guns and canned goods) even US treasuries. Then the taxpayer bailout is a money maker because it literally is the only horse remaining in the race.

Kind of like putting people to work on government projects in a depression.

When the gamblers bail out the casino--
(asian perspective)
Paulson's dreadful scheme will become law, because Americans love their bankers. The bankers enable their collective gambling habit. Think of America as a town with one casino, in which the only economic activity is gambling. Most people lose, but the casino keeps lending them more money to play. Eventually, of course, the casino must go bankrupt. At this point, the townspeople people vote to tax themselves in order to bail out the casino. Collectively, the gamblers cannot help but lose; individually they nonetheless hope to win their way out of the hole. Americans are so deep in the hole that they might as well keep putting borrowed quarters into the one-armed bandit. They have hardly saved anything for the past 10 years. Instead, they counted on capital gains to replace the retirement savings they never put aside, first in tech stocks, then in houses. That hasn't worked out. The S&P 500 Index of American equities today is worth what it was in 1997, after adjusting for inflation (and a pensioner who sells stock purchased in 1997 will pay a 20% capital gains tax on an illusory inflationary gain of 40%). Home prices doubled between 1997 and 2007 before falling by more than 20%, with no floor in sight.

As it is, many of the baby boomers now on the verge of retirement will spend their declining years working at Wal-Mart or McDonalds rather than cruising the Caribbean.

Dear American:
I need to ask you to support an urgent secret business
relationship with a transfer of funds of great magnitude.

I am Ministry of the Treasury of the Republic of America.
My country has had crisis that has caused the need for large transfer of
funds of 800 billion dollars US. If you would assist me in this
transfer, it would be most profitable to you.

I am working with Mr. Phil Gram, lobbyist for UBS, who will
be my replacement as Ministry of the Treasury in January. As a
Senator, you may know him as the leader of the American banking deregulation movement in the 1990s. This transaction is 100% safe.

This is a matter of great urgency. We need a blank check.
We need the funds as quickly as possible. We cannot directly transfer
these funds in the names of our close friends because we are constantly
under surveillance. My family lawyer advised me that I should
look for a reliable and trustworthy person who will act as a next of
kin so the funds can be transferred.

Please reply with all of your bank account, IRA and college
fund account numbers and those of your children and grandchildren to
wallstreetbailout@treasury.gov so that we may transfer your
commission for this transaction. After I receive that information, I will
respond with detailed information about safeguards that will be used to
protect the funds.

Yours Faithfully Minister of Treasury Paulso

Why is the market spiking up??

Excellent closing by Tester, that should be quoted in any summary of this hearing.

William Poole: What a mess! This is a terrible, terrible plan.

OMG.

Dodd is questioning Paulson on the infamous section 8.

I thought these 2pm rallies weren't supposed to happen with the short ban in effect?

Dodd - Why is Sec 8 (non-reviewable actions) in there? There will be real problems with this language

Hold-to-Maturity value in a liquid market would not be the same as book or par.

We know 2nds, held to maturity in the current environment, will pay out at pennies on the dollar, because the economy just isn't strong enough.

We know option-ARMs, held to maturity, will also not pay out full value, because many people who took out those loans either had no idea what they were getting into or foolishly expected to refi out later, and are now hosed.

IF the government had a fully-baked plan that transparently produced a real market for these things, that wouldn't necessarily be a bad thing.

But they would still have to fix the CDS time bomb, and so many other issues.

You can't fight "financial weapons of mass destruction" (Buffett's term) with a mere "bazooka".

$700B won't be enough to fix everything, and above all the steadily worsening lack of trust needs to be addressed or the people with funds to lend (not the taxpayers - the 1%-ers) will simply pull back due to lack of trust.

Dodd to Paulson: You, sir, are demolishing confidence in the market!

Is possibly the reason that equity stakes wouldn't work is the use of leverage?

If the institutions are levered up 15x and they have to give up an equity stake equal to the amount of loss, a 5%-7% loss on securities will wipe out existing shareholders.

Is this a possible reason why B&P wouldnt want equity stakes?

Happy Hank: "I Didn't Want To Be In This Position."

Lather, Rinse, Repeat

Hidden in an article reporting that Cheney's going to go hunt up some support for the $700,000,000,000 bailout is this admission that the Bush Administration has been sitting on it for some time:

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. [my emphasis]

snip...

C) Or, did they simply not tell us about their fuck-up so they could spring the $700,000,000,000 surprise on us on a Friday and demand results by Monday?

Firedoglake

for the whole thing and another comment thread.

p.s. I think the "Paulson Plan" was a smokescreen, if Paulson came out and said what he wanted he would have never got it.

He gave them a blank sheet and let them fill in the blanks. He lets them think that they are getting concessions (and are coming up with this stuff themselves) and he gets much more of the plan he wants.

Optimism of the will, pessimism of the intellect.

We know Congress has failed many times, but trying to make it work is the only hope. the record of failure means we need to try harder.

black dog writes:
I called both my senators - Webb and Warner to bitterly oppose the paulson plan on thursday.

Same here, did you get a response on to what their positions were?

Comrade Bagholders,

This is nuts. BB doesn't know the value, but they're worth more than the market is offering, so we'll just guess, and hope everything works out in the end.

I guess hope IS a plan now.

Nostrovia,

frank, if the Tsy is not going to hold to maturity, but says they will sell, then where is the lack of liquidity

paulson plan died over the weekend,

we're talking Frank/Dodd now.

How much above minimum wage the CEOs should get isn't the most important issue, but it sure sends a good message!

back to your regularly scheduled looting and pillaging

Someone needs to tell me exactly how taxpayers are MORE hurt by doing nothing. So the market opens down 50% - all markets - any market. Tomrrow they open down 50%. How does that really hurt the average person.

As a wall street guy it will hurt me I understand that. But it is FAR better for the Country than this bailout plan.

SR

this is a circus, giving voters some TV blood.

what they say (on both sides) in front of cameras doesn't mean anything.

watch what they do.

de ja vu, didn't the treasury buy something before that caused an uproar, something this year. I can't remember now. They are always buying things at some bubble prices. looks like they always get away with it too.

Bernanke and Paulson serve at the pleasure of their masters. And "they" ain't us. This power play to save their true constituency is so arrogant and "in our face" that it's nauseating. At least the Congress seems to understand that writing a blank check here may lead to painful questions from the voters.

Liv

heard that. This isn't going to go away. that creaking you hear is the sound of lots of people of differnet political persuasions waking up, getting up out of bed, and growing spines

Members of the crowd are calling for Paulson's stock options as collateral.

Earnest money ?

Cue: GHWBush ... "Wouldn't be ... prudent ..."

Oh wait, how did we measure growth again? Here’s a hint for you:

"Bank lobbying groups today asked Congress and the U.S. Securities and Exchange Commission to suspend a rule that forces companies to put a price on difficult-to-value assets such as subprime mortgages."

Difficult-to-value, right? The only thing that’s difficult about those assets is that they make bankers look like losers, and what’s more, until the Paulson plan is shoved down our throats, they will make them feel like losers too. They risk losing everything they have. And that’s why this insane plan exists.

(From Automatic Earth)

I think this hearing was the closest thing to what's called a "vote of no confidence" in a parliamentary system

we ought to have a parliamentary system with question time.

Read up on the Great Depression and Mellon's advice to liquidate everything, then let's talk about the costs of doing nothing"

Exactly what were the implications of Mellon's advice? Was it 2 decades of great Deprssion? Mellon had it exactly right, take your medicine and move on.

Bearbarians repelled from the inner keep (1190), now fighting on the outer battlements. Bulls appear to be holding 1200 at the moment.

Probably a good thing.

My faith in the system has stopped its free-fall. But is there room for hope?

Paulson plan is now deader than a well-beaten horse, but what will Congress do?

Seriously. No bailout. The world will not end. It's college football season, after all.

what are the next steps ?

It's all staged.. Paulson plan or Dodd plan...

So long as any plan is initiated, the debt grows and the crisis continues.

lama

Bernanke is screwed no matter what.

He has been completely lost in this entire episode.

He thinks he is picking the right side. He fears deflation above ALL ELSE. It's all he can see from so deep in his a$$hole.

joe shmoe writes:
SR

Read up on the Great Depression and Mellon's advice to liquidate everything, then let's talk about the costs of doing nothing.

joe shmoe | 09.23.08 - 2:30 pm | #

This Country's greatest days came FOLLOWING the GD. Your comment shows a fundamental lack of understand of what is going on in my opinion.

SR

and the longer it takes, and the more staged in steps the allocation of funds, the less control over it Paulson will have, and then the less of it goes to his cronies.....

Not only must there be oversight, but Paulson simply cannot be the central player. Simple as that.

I say give it to Sheila Bair at FDIC, whether under FDIC's umbrella or by moving her to head the new version of RTC. She knows how to do this, and all the investment banks are now depository banks, right?

bair ahs showed some competence. Paulson has not

Bair is on board with workouts and would accept cramdowns.

Bair has not openly lied, so far as I know.

Oh, let's have the fire sale already. This bailout is bullshit.

Paulson needs to RESIGN. NOW.

Why the hell do we still have pennies???

Why do people price things 19.99?

Why do Bush not hang himself?

WTF does Nemo mean if it is not a fish or a captain?

Pennies...I understand.

Who wants "equity" in any of these companies, anyways? What equity, besides some office space and computer terminals is actually going to be worth anything?

Don't buy this stuff at/near maturity pricing under any circumstance. Provide the minimum amount of backstop needed to generate real price discovery on this stuff, and let the debt-holders figure this out.

NEW YORK (CBS) ― Sen. Hillary Rodham Clinton said Tuesday she worries that taxpayers could be left "holding the bag" with plans for a $700 billion government program to stabilize the country's distressed financial markets.

Interviewed on Tuesday morning on CBS's "The Early Show," she said she agrees that the situation is critical and that something must be done quickly. She said, "the house is on fire and we've got to call the fire department and put the fire out." But Clinton also said that Congress should not "give the Treasury a blank check" to straighten out the problem.

"What we also have to do is make sure that homeowners get some relief, that it's not just for the banks and the lenders," she said. Clinton added that "we also must begin to look at the root cause of this, which is these mortgages that people cannot afford."

The senator said she didn't think all responsibility for solving these problems should be vested in the Treasury Department, suggesting that "once we get through this immediate crisis," the country should look at some Great Depression-era type of governmental entity to deal with it.

"If we just turn this over to Treasury, I worry about what the outcome would be," she said in an interview on NBC's "Today" show.

Correct me if I'm wrong, but, after the initial "flight to quality" to US debt, wont foreign holders soon wake up to the fact that the only way the US will be able to pay off so much debt is to either:

1. Continue to roll over the recently ballooned debt to new investors (which requires continued faith in the US system), to finance the payments to the old financiers...in other words take out new loans to pay the current loans.

or

1. Print up money to make good on paying "dollars" for the debt owed.

1 requires extended confidence in the US and its ability to pay back or refinance its debt. Otherwise, a snowballing lack of confidence may progressively shut off refinancing of the debt (ie the teaser rate ends, and you have to actually start paying back some of the loan).

2 is the final "fail safe", but then foreign holders get back $$$ that are "worth" less and less (printing more $$$ with the same demand means that each is worth less).

Are we now at a point where foreigner holders of US debt are nonchalantly inching for the door, hoping that no one notices them, so they can get out of the building before there is a stampede?

I have no training in economics, so I would appreciate any comments offered.

SR

I agree the bad paper needs to exposed and disposed, and the financial sector needs a big shakeout.

Absolutely. the question is how should that happen.

I can't recreate a post I put up yesterday, but the gist was that there is no fix or cure. We need to take our medicine. We agree that far.

Ideally we would have swedish style nationalization to clean the financial system, but that won't fly here, at least not yet. So the best alternative is something like Frank/Dodd, plus massive infrastructure investment to keep unemployment below 10% and rebuild the country. If we do that, then we can hope for 10 plus years of stagnation followed by a rebuilt country, absed on the infrastructure spending.

Do nothing and we'll have the great depression but worse. I really believe that. the country is bigger, much more urban, much more divdieed now than in the 1930s. It would crack and the suffering would be worse because fewer people have the skills they did in the 30s to survive.

you and I won't resolve our differences. just wanted to lay out my view. and have us stare the costs straight in the face.

Phoned both senators and representative from OR yesterday and all were still reviewing the Paulson plan.

I am getting ready to call them and let them know that the testimonies of BB and HP did nothing to convince me why this 700 Billion plan would work and why this much money was needed. HP is holding the American taxpayer as a financial hostage but I call his bluff. I will risk my 401K rather than recapitalize wall street executives.

Why must there be only bad plans?

Because that is the essence of disaster capitalism.

Create a crisis, or let one fester a long time, then falsely claim there are no "good" solutions. Only really bad ones and slightly less bad ones. Give the consoling, "Son, this is going to hurt me more than you," then let the flogging with the pain stick begin.

joe shmoe writes:

Do nothing and we'll have the great depression but worse. I really believe that. the country is bigger, much more urban, much more divdieed now than in the 1930s. It would crack and the suffering would be worse because fewer people have the skills they did in the 30s to survive.

I know we are basically on the same page but I really don't think it will be that bad. I will layout a few reasons why (these are the points people usually bring up).

1. 401k plans will lose money. - yes of course they will but the ave 401k is so small it is not going to matter much. Further more most people don't save anything - asset deflation would help them.
2. We will lose jobs! - yikes we can't have that.... Come on we are already losing jobs. Let's say GM is forced to CLOSE DOWN tomorrow. You know what would happen? Some guy in a garage would invent a fuel efficient engine and build a new GM around it. That is what America does we INNOVATE. Then poof capital would rush into that company and we would have auto jobs again. That is how capitalism works.
3. Global money would leave the US - good let it at first then we become more efficient and innovative and capital flows back.

As for people starving in the streets I don't see that - I just don't.

SR

You can't stop the coming collapse of our hollowed out economy.

Instead of trying to shock the patient back to life, we should be looking to start NEW projects in energy and infrastructure, etc.

These projects can provide what WILL revive the economy, JOBS to replace all of those jobs which have been and will be destroyed by the demise of finance and banking OVER-CAPACITY.

Save the money printing for when we actually need it.

If any plan is approved involving 700B, I would deem that the Shock and Awe has worked again.

I wonder why they don't put away Naomi Klein for writing The Shock Doctrine.

Market seems just fine to me without the 700 billion.

I would love to see who is opposed to a bailout using taxpayer money in any form. It seems to me that all the senators keep saying that THIS proposal is unacceptable. Why isn't ANY proposal unacceptable?

WASHINGTON (AP) — Leading senators of both parties are expressing strong reservations about the administration’s financial bailout plan despite pleas from the treasury secretary and Federal Reserve chairman for quick passage.
\tSen. Chris Dodd, a Connecticut Democrat, said on Tuesday, “What they have sent us is not acceptable.”
\tSen. Richard Shelby, an Alabama Republican, said, “We have got to look at some alternatives.”

Bears losing at 1200, now defending 1210. S&P green for the day... for now. Trendline resistance being pushed hard.

Best case scenario:
1. Tonight the feds announce "no bailout"
2. Bank regulators seize Goldman, Morgan, & Bank of Merrillmerica
3. Banks are liquidated
4. Illiquid investments across the world are now marked to market
5. Bankruptcies take place around the globe
6. 2 months later, economic vomit complete, market trust & faith in remaining banks returns and the economy gets moving agai

BDiego, Trust me I am a big fan of Ron Pauls Financial and Foreign policies.

We need to just take our medicine and be done with it. No one wants to accept that and we will fight it tooth and nail until the end, when nothing is left and the transfer of wealth is complete.

I haven't read most comments, but have a pretty good guess at their tenor.

I'd like to take a shot at what Hank & Ben's theory is:

[ 1 ] We currently have a market that is in a recession and faltering further. If we don't do something, we are facing a depression and a serious one.

[2] The core cause of a further fall focuses on the toxic waste held by financial institutions. If we quarantine that toxic waste and give the financial institutions a boost, it is possible that society can avoid the ravages of a full blown depression.

[3] To effectively quarantine the toxic waste, we have to give all financial institutions a pass. We have to pay them more for their toxic waste than it is currently worth; even though we know it would be worth even less in a fire sale conducted during a full blown depression.

[4] The hoped for return on our investment is not potential profit; it is the possible avoidance of a very serious depression.

I AM NOT DEFENDING IT - I'M JUST TRYING TO UNDERSTAND IT. ...... but wadda I know.

Klein lives in Montreal.

More to the point of this specific post - Ben Bernanke's comments about pricing should cause this plan to crash and burn.

They are planning on paying too much for this paper - that is their only plan. That means taxpayers lose.

I have to take a cheap shot at Tanta because she reminded everyone that all this paper is really an ASSET. LMAO. I think Paulson tried the same misdirection in the hearings. Yes they are assets until they are marked to market.

This plans sole purpose is to avoid price discovery - all the rest is noise.

SR

@arroyo -

Yes, our national debt is financed on a pay-option ARM sort of basis. If we aren't producing more $$ to pay the interest, then we have to borrow it and the balance goes up.

We have the option of printing more money to pay the debt, but then those lending us the money will recognize that we aren't a good lending risk anymore and stop lending. Not just people overseas, but people here as well. Down this road we become Zimbabwe, Argentina or Weimar Germay.

Another option is to just not pay the debt, but if we default on so much, no one will trust us on anything and the ensuing collapse of economic activity will be catastrophic.

We also have the option of selling off available assets and working our way out of the hole. That will take time and be painful but is widely regarded as "the right thing to do" - it's the recipe we've preached at the rest of the world whenever they've gone into this hole. The fear is that if we put off taking this medicine for too long, the debts will grow too large relative to the assets, and this option will not longer be available.

There are various options available which amount to a quiet devaluation of the dollar, creating inflationary pressure. If done right and not to excess, this might stabilize things. The $700B Paulson plan was such a scheme, but not done right.

If that was a fight, they would have stopped it and thrown in the towel.

Paulson and BB should be ashamed to have attempted to ram that piece of garbage down our throats. For the fisrt time in a long, long time, I am proud of Congress. The did the right thing. Let's hope it's not election year politics.

There is no way that the Treasury is going to hang on to these products until their maturity. As suspected, they will sell back to these same bad actors at a fraction of the orginal purchase price. The banks will be recapitalized all at the expense of the American Taxpayer. Nostradamus | 09.23.08 - 3:03 pm | #

The S&L owners did this; they purchased assets from the RTC at bargain prices and profited immensely. It's sickening.

Do they testify in front of the House tomorrow? I would love to see Ron Paul take them to task. Four words, "I - told - you - so."

R:

Paying above market prices to re-capitalize the banks.

Yep.

@ella

ella writes:
The Treasury can now buy and sell gems, CDS, futures, yen interest swaps, derivatives ... whatever.

WTF! are you serious?

The language in the Dodd bill is:

The Treasury can buy and sell troubled assets with :

"The term ‘‘troubled assets’’ means—

... any other financial instrument, as the Secretary determines necessary to promote financial market stability."

That's clear enough, isn't it?

So the answer to your question is YES!

The Treasury Morphs Into A Hedgefund

Santelli is the only guy you can trust on cnbc.

Even Ben want's his fraud back.

The worst part of today's hearing was Bernanke's justification for the bail out.

To paraphrase:

If we don't do it,
-unemployment will rise
-foreclosures will rise
-the economy will contract
-the economy will not be able to recover in a "normal" way.

Wow. That's why we need to spend $700b?

The first three items occur in a typical recession. No "emergency" there.

The last item is true IF we pass the bail out. Avoiding market-clearing prices for assets is the best way to ensure the economy cannot recover in a NORMAL way. Japan proved that.

Is this the best Bernanke can do? Is he afraid to scare us with the truth, or is he congenitally unable to stomach a recession?

Dow up 40, LOL

Go die, BB and HP

"The only money left in the US is the $8-9 trillion in customer deposits at commercial banks, plus whatever is left in pension funds, money funds etc. And they’re coming for it. Just watch them.

That is the Paulson plan. What we see is that Goldman Sachs and Morgan Stanley are the by far biggest beneficiaries of the $700 billion plan, which will provide them with the credit space to buy up hundreds of smaller banks. Paulson will get the authority to let those banks fail, and he will do so. The customer deposits in those banks will subsequently be used to keep the game rolling. "

How about one more roll?