The more I've thought about this, even with the equity stake to dilute existing shareholders, CEO compensation rules, and allowing cram downs, ... its still a horrible plan.
We're going to end up paying for this with a run on the dollar. We'll all be wishing that we drove Priuses, but we won't be able to afford them.
In addition, negotiators neared agreement on allowing the government to take equity stakes in companies that participate in the rescue, a measure Treasury had wanted to avoid.
No equity? Who exactly is Hank representing in these negotiation, the Republic or Wall Street?
satan, I think so. Propose an outrageous plan, and then concede to something a little less outrageous. The "no oversight" part was probably a negotiating tool. I doubt Paulson likes the equity participation, but I've talked to a number of people (at key institutions) that think the government is going to make money on this bailout - so they shouldn't oppose the contingent equity sharing.
Will this be a 'Mucha Ado About Nothing' if it turns out that 1) Paulson's Plan is ineffective by design since it does not address the underlying reality that many declining financial instruments are collateralized by declining real estate valuations or the declining solvancy of the Ameerican consumer; or 2) Foreign Creditors may not extend enough credit at low-enough rates to allow Paulson to get out the gate?
Without equity, it will be open to looting in that prices paid for these "assets" by the taxpayer will be far too high in order to fool the public that this was "profitable" plan. Equity will prevent the free for all looting IMO. It has to be there.
Use the words "CEO compensation", "Barney Frank", and "cram downs" in a sentence together, and it's hard not to have an image come to mind that will make you feel just a little bit better about the direction of these negotiations.
I would open a chequing account with Goldman-Sachs if they were subject to the same rules as commercial banks. I also have a feeling that they would like that too..
If this thing doesn't include some kind of restriction, clawback, or whatever, on executive compensation, I'll bet that next year's revisions to the tax code will be positively brutal on earned income in seven figures, and the impact will be felt by the entire aristocracy of finance, not just the bunglers.
Since I don't foresee another turn at the trough for myself anytime soon, either outcome is fine by me.
What I find surprising about all of this is that people who really don't follow this stuff very closely have strong feelings about it. In conversations over the weekend, I've heard a couple of different people say 'we ought to be getting stock for bailing those clowns out' and 'damned right make those CEOs pay for it.
Does anyone else think it's completely nuts to have the government taking equity stakes in all these companies?
No. If taxpayers are going to be liable (as in take risk) then they should share in any upside. And frankly, these companies need to have the government root around in their balance sheets for a while.
We are really screwed if this plan passes. One more attempt to evade what needs to happen, cathartic change. This is nothing more than crisis mode Greenspan-low-apr-therapy.
If there was ever a time the nation needed bitter partisan gridlock, it is NOW.
WASHINGTON (AP) -- It's the largest government bailout in U.S. history and two days after it was introduced to the Americans paying for it, the proposal is still largely a mystery.
Among the unanswered questions: How will the government mop up the bad mortgage debt on banks' books, who will run the process and how much will it cost?
satan writes:
I think the absolute minimum for a bailout would be for all shareholders to lose their shares (and employees their bonuses)
satan | 09.22.08 - 8:34 pm | #
I agree with satan. (i never thought i'd type those words)
It's gonna happen. Barney Frank was scared into thinking there is no alternative. They are just going to tack on some things. Unbelievable. It'll help the market for a week or two... then BOOM.
All the details are a load of hooey. It is all a smokescreen to keep from addressing the issue that this is a blatant transfer of wealth from the populace to the wealthy.
Why cant these insolvent institutions be taken over by the Fed as business as usual. Then the assets/banks can be turned over to strong management or shut down. Then the govenment only needs to give the Fed additional capital and no need for any additioal legislation and we dont have to give a blank check to Paulson to be the Broker of Last Resort.
I think these firms screwed up pretty well w/o any government assistance. Remember the conservative mantra: "the government is not the solution, it's the problem." For now, government is the savior for these pigmen.
That would be hilarious to see these 'masters of the universe' reporting to a GS-12 though.
Fed Limits Minority Investment in Banks to 33 Percent (Update2) - Bloomberg.com
Fed Limits Minority Investment in Banks to 33 Percent
"The Federal Reserve issued revised guidance today for investors in bank-holding companies after consulting with groups including private equity firms seeking to make more investments in struggling financial institutions. The new policy outlines a 33 percent limit for those with a minority stake and allows some investors to have as many as two board seats. The announcement came in a 16-page policy statement issued by the Federal Reserve Board."
zongqua@yahoo.com.cn writes:
Why cant these insolvent institutions be taken over by the Fed as business as usual. Then the assets/banks can be turned over to strong management or shut down. Then the govenment only needs to give the Fed additional capital and no need for any additioal legislation and we dont have to give a blank check to Paulson to be the Broker of Last Resort.
Without equity, it will be open to looting in that prices paid for these "assets" by the taxpayer will be far too high in order to fool the public that this was "profitable" plan. Equity will prevent the free for all looting IMO. It has to be there.
I know, I know. This may be less evil than the original proposal. But I still think it is an extraordinarily bad idea.
Relax, the game is over. The fear mongering goes on, but the game is over. All this money was lost years ago, the only difference is recognition of insolvency. Basically we got a rough patch coming up in America.
Does anyone else feel like someone at treasury intentionally put a poison pill(s) in this proposal? I can think of a few, but that section 8 is a doozey. Were they put in to initiate negotiation?
How bad would it really be if the US just defaulted on all it's loans- and used the money otherwise spent on interest to build infrastructure, power plants etc?
OT - A lot of people I talk to are worried about the job market. I live in North Texas and our foreclosure rate is bad especially in Collin County. The media here has tried to suppress stories about foreclosures, saying that it wont be so bad its different here.
Does anyone else think it's completely nuts to have the government taking equity stakes in all these companies?
lets try thinking about it this way... these entities are toast if the UST/FRB doesn't step in and help. giving the taxpayers a chance to make something off this trash is the price for not ending up in the employment line (which some of them should anyway).
I am convinced that the link you provide to http://iamned.com/blog is actually some kind of AI humor-bot-in-development... could a thinking human have actually believed, and written, paragraphs like:
This opposition to the bailout plan is yet another example of the socialist, pro-Obama liberals trying to interfeare with whats best for the US economy and the free market. Printing money is good for the economy and wallstreet. Thats why we need to bailout these financial institutions and later invade Iran in order to drive the dollar lower, and the price of oil and other commodities higher. Rising commodities and a falling dollar benefits numerous export heavy sectors such a technology, energy, and industrials.
If "ned" is serious, then we're about to get some serious "benefits" raining down upon our economy! Yee-ha!
Calculated Risk writes:
satan, I think so. Propose an outrageous plan, and then concede to something a little less outrageous. The "no oversight" part was probably a negotiating tool. I doubt Paulson likes the equity participation, but I've talked to a number of people (at key institutions) that think the government is going to make money on this bailout - so they shouldn't oppose the contingent equity sharing.
Best to all.
Calculated Risk | Homepage | 09.22.08 - 8:31 pm | #
CR,
I'm a nobody, but can I just register my astonishment that anybody can believe that?
What about all the skimming that went on?
What about the fraudulent use of charitable trusts?
Straw men in any future litigation.
No offense, Misean and Nemo, but it's not like we're talking about highly profitable companies that do the work of social equity here. They're getting taken over because they blew up totally and utterly while systematically looting the Republic.
I'd find arguments of future bungling mismanagement by the state easier to buy if there were non-bungling non-mismanagers visible. This is from someone far enough to the right I capitalize "Republic" when I say it.
Structure it how you want, but there is no way on god's green earth current equity holders shouldn't lose every tiny scrap of any stake they might have. Nor should America offer them for sale on the open market so we can have no large domestic banks.
An equity stake does not necessarily mean control. I have an equity stake in a lot of companies and have no control. It all depends on how the deal is structured and what's agreed to up front.
As to the comment about "gov't beurorats" running the company, it might be relevant if anyone were proposing that.
Of course, companies have the option of not participating in the bailout if they don't like government having a say in their businesses.
I don't think the "just give us your money and leave us alone" strategy is going to work here.
"But differences remain on two big items: possible limits on executive compensation at firms taking advantage of the bailout"
Again, not to push the point too hard, but if we and the financial companies are facing "financial Armageddon", why would they even THINK of balking at this? This is a non issue if we are indeed talking about 'stepping back from the brink of disaster'. If it's that bad, you should be able to get the financial companies to agree to have their CEOs lick a live squirrel on national TV if that's what it takes to save the world's financial system.
Unless, of course, we are not at the brink...in which case, we wouldn't need to give Henry Paulson a blank check for $700,000,000,000 paid for by the American taxpayer.
"This is a black week. Those of us who have supported financial capitalism are open to the charge that the system we championed has merely enabled a few spivs to get rich. But it helped produce healthy economic growth and low inflation for a generation. It would take a very big recession indeed to wipe out those gains. Do not forget that in the debate ahead."
These guys have been wrong wrong wrong for ages about how all this financial alchemy spread risk. They were right about the accelerated growth it produced, but guess where all that wealth got squirreled away?
But you see their tactic now? Look how much finance did for you? The recession we are going to have wont take all that away, therefore, it was still a good idea. B -f-in-S. This is the kind of event that when all is said and done will be shown to be one giant redistributive machine. And that is all. In the boom the wealth gains flow to the rich, and in the bust, the risks taken accumulate losses all around. Then you get a period of below average growth afterwards which leaves you back in a decade where you would have been.
Prices of houses were overinflated and will come down,
MBSs were overprices too, and are worth far less than thought a few years ago.
If these don't happen, then house sales and MBS sales will continue to hurt.
So for the sake of future house buyers, let's make sure that, as we give bailouts to people with toxic mortgages, the government forces them to realize that the value has fallen.
Let's start with Thains pay package from BAC deal. What a crook. There are many more. Executive compensation has gotten out of control. And yes tax the hell out of anyone making $10 million a year or more. They will have enough money to last many lifetimes, its the small person who is hurting and will struggle through out life. More power to the little people, this isnt a democratic or republican talking. It's a person who wants to see everyone enjoy the good life and let everyone have a taste of the good life, not the select few who are greedy executives, movie stars, or athletes who make insane amounts of money while the school teacher is struggling with thier $35,000 job or cop who is risking thier life for $45,000.
satan writes: I would open a chequing account with Goldman-Sachs[...]
"chequing"?
So satan is BRITISH?? Whocoodanode?
However, satan opening a checking account at Goldman Sachs does make eminent sense. He closed his WaMu account after they rejected his last HELOC increase.
There is zero chance the government will run a profit on this bailout, regardless of how it is structured. However, getting equity in return for capital might keep participation limited to those firms that actually need it.
I know, but it is desirable that they do not dig us into a deeper hole..
Yancey Ward writes:
There is zero chance the government will run a profit on this bailout, regardless of how it is structured. However, getting equity in return for capital might keep participation limited to those firms that actually need it.
Let's see, we have a proposal that spends $700 billion of taxpayer money. Congress is unhappy, and fixes it by spending even more. Barney Frank, Chris Dodd, and Chuck Schumer must be just loving this. Christmas and New Year came early this year for them.
arroyogrande writes:
If it's that bad, you should be able to get the financial companies to agree to have their CEOs lick a live squirrel on national TV if that's what it takes to save the world's financial system.
Yet according to the WSJ, the plan as revised would merely allow, as opposed to require, the government to take an equity stake in exchange for buying the stinky assets. If such option were to be included in the final draft, we can assume government would rarely get such a stake. Once again, Congress is proving to be a tough negotiator.
By the Mother of All Criminal Gangs in History! Par none.
Born-and-bred American dopes don't understand what they are in for the worst depression in US history. The gang has baked it all nicely in the econ-cake.
"Structure it how you want, but there is no way on god's green earth current equity holders shouldn't lose every tiny scrap of any stake they might have."
Then let 'em go t-up. I ain't got no problem with that 'plan'.
jay writes:
Let's start with Thains pay package from BAC deal. What a crook. There are many more. Executive compensation has gotten out of control. And yes tax the hell out of anyone making $10 million a year or more. They will have enough money to last many lifetimes, its the small person who is hurting and will struggle through out life. More power to the little people, this isn't a democratic or republican talking. It's a person who wants to see everyone enjoy the good life and let everyone have a taste of the good life, not the select few who are greedy executives, movie stars, or athletes who make insane amounts of money while the school teacher is struggling with thier $35,000 job or cop who is risking thier life for $45,000.
Don't forget additional "incentives."
$25,000,000/2000hrs.=$12,500hr.
Is there anyone on Earth deserving of 3 teachers' yearly salaries per day?
Sickening what that rag has become.
Geoff | 09.22.08 - 8:53 pm | #
______________________________-
Just to add to your comment, this 'economic recovery' from the dotcom bust was created just based on debt growth, no real job growth or wage growth, not much to show for it. One of the weakest 'booms' the US has experienced.
I don't consider myself a petty person. But I cannot stomach the idea of their being no limit on executive compensation and no clawback provision on ill-gotten bonuses. For no other reason than symbolically showing we have not totally lost our compass, we must have those provisions in this bill.
I just can't understand why Paulson would object to the exec compensation limit.
I mean, besides his friends in GS would get a hit (they're going to get hit regardless given they won't be able to leverage as much anymore), what's so bad about it?
I am of the opinion that doing nothing would be worse...some of the ideas I've agreed with that I've seen include
(1)restricting executive compensation along the lines of Rep. Sherman's ideas
(2)increasing tax rates along the lines of what we saw during and immediatly following WWII
(3)substantially increased oversight
(4)equity stakes
If Bush wants to veto this, then HE'LL be on the hook for doing nothing (par for the course!
)
In the future I think that Glass-Steagall should be re-enacted (&/or in some updated form) and that as Bernie Sanders says "If a company is too big to fail, it is too big to exist."
gotta go pick up the wife...thanks to CR, tanta for all your work and to everyone here for your ideas...
"If it's that bad, you should be able to get the financial companies to agree to have their CEOs lick a live squirrel on national TV if that's what it takes to save the world's financial system."
With respect, I think you're worng because you're assuming these people have honor. You assume these folks care more about the common good -- the financial system -- than themselves.
Think back to the AIG farce. It seems to me that AIG was more than willing to take as many of us with them unless they got a deal.
I think that's why Paulson's original proposal had the dictator clause. And I think that's why he's worried about the compensation question.
I'm not saying I agree with Paulson's original plan, and I certainly don't like this whole mess.
But I think we need to think about this problem as a hostage situation. Some (many?) of these people running these companies will not hesitate to threaten "financial meltdown" to save their asses.
I think the AIG's and WaMu's and Citi's have more power in this situation than the government.
mmckinl : it is actually worse than that picture would make you think. We will not have to wait quite so long for that big second wave of option ARMs to go into recast. At the rate the economy is heading downhill, the LTVs on that stuff are going to trigger well before the regular time period for a normal recast.
"Older Americans with investments are among the hardest hit by the turmoil in the financial markets"
This is a little OT (not much really). There is a book titled "The coming Democratic majority" or something close, which says that while the Baby Boomers were Republican/FreeMkt/Globalization/TaxCuts advocates in middle age, they will turn dominantly Democrat/Social Blanket/Nationalist as retirement approaches (which is about now).
For obvious reasons. And this Great Undertaking will turn the generation toward whomever seems to offer the best financial outcome for the public, win lose or draw for the financial system. That's most likely the Dems.
--
"tbapple writes: Please stop using the word SOCIALISM. It's Fascism"
Sorry, it worse. Far worse. Just look back in another 10-15 years for the correct historical perspective, or comparison.
BTW, Mussolini was extremely popular among Amerikans and Wall Street crowd in 1930s. Even FDR tried to emulate Mussolini in some ways. Just wait for really bad times to see Amerikans true colors.
The banks did not know what these CDOs, CDO^2, etc are worth. That is a fact.
The government will not be able to figure out, even if they hire some other bank to come in (that couldn't value their own MBS book) to try.
The removal of non-reviewability, and secrecy, are necessary conditions to a reasonable deal. It's just obvious, but we should not agree to it because they gave us that.
Actually we should just flat not agree to it. Look we will never know what that garbage is worth. Let the banks worry about it. Just don't buy it from them!
If the bank wants capital infusion it can issue new equity and the government might buy some. That idea is not original with me but I liked it.
Let's suppose that CR is right about Paulson & Co.'s motive for Sec. 8.
Therefore, even though we were supposedly days away from financial Armageddon, they saw fit to include Unconstitutional language certain to delay passage of any bill - even as it frightened, antagonized and caused a media uproar. Right?
curious why democrats oppose the "bailout" of these companies but are all about bailing out homeowners being foreclosed on...most of those foreclosures are their direct fault just as much as bad decision making at the affected financial institutions...
just sticking up for the little guy mentality? pretty weak imo...just as crooked behavior, just without the golden parachute...neither should be "rewarded"...
"If you think that doing nothing is a better option...say so, don't just rip on the existing suggestions."
Have been. No bail. Fail.
Although I think Warshington DC needs to do something about this whole squirrel licking thing. Do you get a buzz from that? Certain toads give you a buzz if you lick them.
Squirrels are a mainstay food product. Licking them might give them diseases.
All this plan does is theoretically unfreeze credit markets. It doesn't mean that suddenly home prices are in line with rents and incomes. It doesn't mean that we aren't in the midst of a recession. It doesn't mean that Americans are no longer swimming in debt.
So I repeat - to whom do these banks lend any money? Would-be homeowners still cannot qualify for loans. Consumer spending is still off. What does this actually fix?
Has anyone yet heard a coherent, fairly complete answer to this question:
Why can't we let these ailing financial firms, all of them, declare bankruptcy, and
a. write a law like what Paulson is advocating, except the public buys the assets at (low) market value upon BK
b. allocate the $700B to providing liquidity to the remaining solvent banks via equity stake purchase
In essence, let the zombies fail, save our remaining resources and credit to provide capital to the real economy. That would penalize the dummies and reward the competent managers.
Also, why is the "derivative" market casting such a big shadow? Don't nearly all those derivatives cancel out - hence all we need is a clearing vessel and a triggering event - which the public can precipitate simply by doing nothing.
I think the emperor has no clothes. Can someone point me to a clearly stated explanation proves my assertions wrong?
I did my part, called my Congressman, Sen. Spector and McCain office, opposing this bailout. Both the Congressman and Spector's office said they have received alot of calls opposing the bailout
--
"drob writes: I just can't understand why Paulson would object to the exec compensation limit."
Crooks need incentives! Biggest Crooks need big incentives. And we do need big Crooks to run Fraudential firms, no?
I made a killing in Goldchain Silverknife last week. I was loaded with Jan'09 80P, Jan'10 40, 50 and 60 puts. I sold 75-80 of my put holdings. The most amazing thing was that I was able to sell naked Jan'10 300C at $2.2 a pop on Tuesday, 16th of Sep. Of course, I cant sell more naked calls until Oct 2.
Yes, you are right. The sum of all derivatives is zero (if they were all triggered simultaneously). But if more people realized that bankers could not a**rape people and steal their money.
Also, why is the "derivative" market casting such a big shadow? Don't nearly all those derivatives cancel out - hence all we need is a clearing vessel and a triggering event - which the public can precipitate simply by doing nothing.
I think the emperor has no clothes. Can someone point me to a clearly stated explanation proves my assertions wrong?
Share holders of record as of the close of business on 9/17 will be required to pay "X" dollars per share of any company that needs to be recapitalized.
This brightened my day a bit. Seems like a fair amount of the big numbers these guys throw around that they have been making is tied up in restricted stock and so the way to live the good life was to borrow against the stock.
Bet you can guess how that works out.
On Friday, September 12, the Wall Street Journal reported that Lehmans former president, Joe Gregory, who was demoted along with former CFO Erin Callan in a management shake-up in June, was listing his Bridgehampton house on Surfside Drive for $32.5 million. The collapse of Lehmans stock is a blow to Gregorys lifestyle. He reportedly used to travel by helicopter to midtown from his $3.5 million mansion in Huntington, which was recently renovated, according to a Sothebys broker. According to one source, Gregorys financial adviser was in negotiations with Lehmans attorneys at Simpson Thacher & Bartlett, working to avert his filing for bankruptcy, after he borrowed money against his Lehman stock to pay for the renovation. He owes a lot of money for it. They called the margin loan late last week, the source said.
The relative size of executive pay is not what matters. We need to punish these guys for being either incompetent or criminal. The same frankly applies to Paulson and Bernanke. Either they are idiots who believed that all was well, or they were criminals who conspired to hide the truth from the American people.
We have prisons and fines to dissuade criminal activity. Executive pay MUST be cut. Furthermore, criminal investigations and compensation clawbacks must be part of any bailout.
Chuck Prince, Dick Fuld, Hank Paulson, Hank Greenberg (yes, even him), et al should be investigated for their roles in the greatest financial swindle in history. Take back bonuses and salaries, seize assets like homes and yachts, impose prison sentences. They could all be convincted under the RICO acts.
The financial markets are moribund. We need to save them, but not at any price.
Then let 'em go t-up. I ain't got no problem with that 'plan'.'
Comrade Misean, I'm down with that too, but if we must have a plan (and apparently we must) then it better be incredibly hostile to current ownership and leave the culprits no upside whatsoever.
"Chrysler attempted to make up the difference by giving the government 14.4 million warrants, which are certificates that give the government the right to purchase a share of Chrysler stock at 13 a share."
satan writes:
How bad would it really be if the US just defaulted on all it's loans- and used the money otherwise spent on interest to build infrastructure, power plants etc?
satan | 09.22.08 - 8:49 pm | #
Instant balanced budget and not by choice. The minute we default is the same minute no one in the world lends to us - to our gov't or our businesses.
We still borrow three billion $$$ a day (CAD) from the world... either we then pony that up OR we don't do some of the stuff we do... in short we'd have LESS for infrastructure, education, heath care, etc., NOT MORE if we default.
I'm all in favor of balancing CAD and even a surplus for a while if possible but NOT doing it like that. Forced instantaneous cold turkey.
With $700 billion, the government should be able to not just prop up the market for toxic securities, it should be able to do so at a profit.
Here's one way:
The Treasury department spends $100 billion on a selected portfolio of subprime-mortgage-backed securities.
Treasury spends another $100 billion to acquire tens of thousands of distressed properties covered by the securities in its portfolio.
With so much of the underlying risk eliminated, these particular securities are likely to become much more valuable, boosting the balance sheet of any institutions holding the same securities while allowing the government to gradually sell them off at a profit.
The distressed properties can also be gradually sold off, probably at a loss, but a loss that might conceivably be covered by the profit from the appreciated securities.
In other words, the government should do exactly what an intelligent capitalist with a huge war chest would do -- ruthlessly manipulate the market, only for public rather than private gain.
The true goal, after all, should not be to shield financial institutions from all losses or to restore them to their previous level of profitability; rather, it should be to provide just enough of an opportunity so that a critical mass of the strongest and smartest financial institutions can barely survive.
Anyway, enough with Chrysler already. As pointed out, it was kiddie play next to this. What I was pointing out was that (as I had remembered it), there was precedent for taking an equity kicker in govt intervention in private bailout.
"negotiators"???
There's no 'negotiation' here. Congress holds all the cards and the Treasury and the administration hold exactly none. Congress can pass anything it wants - including putting somebody other than Paulson in charge and Bush simply cannot veto it.
If this is done as a reverse auction, the firms will simply sell all their junk at 95 cents on the dollar. Pauslon and Bush will declare that the free market has spoken and stuff more dogshit down our throats.
Mmm, free market. Almost makes me long for Reaganomics. Hee hee.
Is the size of them relevant? Or is it simply (not "easily", but simply) the fact that the defaults occur out-of-balance and in an unpredictable sequence?
Getting all of them into one bucket and triggering all of them at once would address that problem, no?
If that's so (and I'm hoping you'll confirm/deny this) our challenge is to establish the receptacle and force the trigger.
Can our government do that? I just saw Paulson trot out an edict that said the Treasury could spend $700B however it pleased with no judicial restraint. He nearly panicked the nation into accepting this, and my still get away with it.
I realize this is simplistic, and I'm searching for the factors that make it impossible.
Thanks for humoring me, as I'm sure this has been asked before.
satan writes:
Yes, but if they are all triggered simultaneously- it is a zero sum game.
~~~~~~~~
but they won't all be triggered simultaneously . they have different terms and conditions that could bankrupt a company even though through other derivatives it is solvent ... They are all bets and if your counterparty goes belly up you are shit out of luck ...
that is why we need a bank holiday , to net these all at once and then pick winners and losers.
So the republicans think low income minorities caused this. This is their attack plan, 'they made us loan to all these poor people.'
And what about these people that lined up for the option to buy condos that weren't built yet? What about the house flippers, the condo flippers, and speculators? And when all the commercial real estate and construction loans go bad, who will they blame then? Sam Zell?
If this is where the republicans intend to point their finger of blame for the trillion dollar debacle, toward poor minorities, they've just given the democrats a veto proof majority.
Yeah, thankfully, I think we're gonna get a front-loaded reaming because I think anyone with a scratch pad can see the numbers don't fly.
Frankly, I think we would be better off with just ringfencing personal savings and what local and regional banks aren't doomed from CRE holdings. Let them grow up like wee plants after a forest fire, along with a lot of domestic minifinance and microfinance projects.
Finding foreign interests to fund this is going to be a hell of a roadshow for ole Hank. Put money you don't have on a hand of cards that killed the last guy who had them. Not my kinda bet, but hey, there's one born every minute.
At a million dollars a sucker, we'll just need about two years worth of suckers by about, umm, next Thursday at the absolute latest.
But it could happen. If it does, I want to make sure that the people who vote on the future of Hank's delayed compensation package have never worked one minute with him.
Does anyone know the historical recovery rate for a bank's senior debt in the event of an FDIC takeover? In other words, how many cents on the dollar have creditors gotten, on average? And how long did it take?
OT, but reasonably germane:
"With Wall Street in turmoil, some turn to religion" Yahoo! 404 - Page Not Found
Just outta curiosity, how many of the readers here who don't regularly go to church/temple/etc have attended worship services in the last ten days? I mean real worship services, not attendance at Lefty's.
the size means that just a small portion of default is a huge amount of money ...
theoretically they could be netted but they are all different , that's right, each contract has its own terms and conditions, there is no standard derivative contract whatsoever, which also means most derivatives are boutique and cannot be mass marketed ... it's a mess...
Who would call it, how would issue the edict that would require all banks to reciprocally liquidate their derivative contracts, and how would this regime be extended (by invitation?) to entities outside U.S. Gov't jurisdiction?
What's the sequence of steps that stretches from announce the plan, halt the markets, execute the cleanup operation, re-open the markets, deal with fallout problems?
a fresh BK'er is a better credit than one teetering on the edge.
perhaps debt would be available.
dc1000 | 09.22.08 - 9:44 pm | #
In US BK law that is because you can't do BK again for what... seven years? After BK they got you by the short hairs for seven years.
Internationally who says we can't default every week if their dumb enough to lend to us? Plus we would be the mother of all defaults - it would be a generation before we could find somebody in the world who hadn't been burned the first time.
We'd be living our own self-inflicted IMF 'austerity plan'... maybe not a terrible idea but there are better ways to kick a habit than that.
"The new fund, assuming it is approved by Congress, could pull the United States deeper into a form of capitalism in which the most powerful financial entities are not risk-happy investment banks, but more cautious state-sponsored entities. While not necessarily a third economic way, this general approach presumes that the government in addition to the private sector plays a crucial role in deciding how best to deploy a nations investment capital. This gets to the point of state capitalism and defining what the role of the government is in a free-market economy, said Douglas Rediker, a former investment banker who studies sovereign funds at the New America Foundation in Washington."
dc1000 writes:
did anyone read that link above about the supposed JP Morgan bailout under cover of the Lehman BK?
dc1000 | 09.22.08 - 9:45 pm
yes. Kind of wonder if that could be true. I thought it was Lehman went BK because of leverage in part and they were let go. Kind of the lone bankruptcy of the IBs. Hey that's business.
OTC derivatives aren't zero sum. Options, commodities, coin flip games, they're zero sum because they all share something the OTC's dont: mark to market.
You bot gold today at 880, it closed at 900, you made 2000. Real, ACH it out of your account money, because tonight at settlement, the clearing entity of the exchange took 2K out of the account of each short, and put 2K in the account of each long. That's true even if you didn't close the gold position (good thing you didn't: its 904.70 as I write this).
These plans need to consider taking bits of grass, dead beatles, and licked squirrels onto the Treasuries balance sheet at par. It would help with capitalization and these things are both easily obtainable and marketable.
This makes so little sense I can't even wrap my mind around it.
Does anyone have any doubts about the Bush Administration reaction would have been if the banks involved in the entire bubble and subsequent implosion had been Arab banks?
Bush would have said, "This bubble and collapse are a direct attack on our great nation by people who hate our freedoms. I'm the freedom lover here, you know that means I love freedom. so I will now kill all the Arab bankers and blow up their countries to make them free."
Boston Legal about to come on TeeVee as part of ABC's "National Stay At Home Week"... no money to go out and now we have National Stay At Home Week and get screwed while we watch Dancing With The Stars who by the way are all God awful this season... Thankfully, we have CR!
I have no problem with staying home and getting screwed. It's just the breaking an entering by the government and THEN getting screwed, forcibly, that I object to.
OT, but what will Chinese product bans do to general conusmer price levels? I am not inviting a new spat over inflation, but it seems that just about everything China makes will kill you, but it's a cheap way to die.
If we need to make our own milk powders, cookies, and toys at five times the cost, what will CPI do? Will be end up with deflation in a rising price environment?
I accept that there's no standardization. Can you imagine the terms of an edict wherein all derivative contracts would have to assigned to a third party (Gov't edict trumps existing contract) as of a point in time.
The gov't is responsible for closing them all out, and is also responsible for addressing any residual unclose-able circumstances by either forcing bankruptcy of a party, or passing through remittances?
Again, recognizing the over-simplification, I'm trying to get a grip on what the gov't would have to override, and the implications/requirements of the resolving/matching mechanism that would be necessary to match/cancel out the pieces, and get a sense of what the residual elements would be, and what it would take to deal with them.
"Will be end up with deflation in a rising price environment?"
The Austrian school guys like Mr. Shedlock sometimes write about just that kind of thing. To them (and to me, although I'm no gold standard guy) deflation is about credit. That's the dog, and price levels the tail.
Just outta curiosity, how many of the readers here who don't regularly go to church/temple/etc have attended worship services in the last ten days? I mean real worship services, not attendance at Lefty's.
Jes | 09.22.08 - 9:49 pm | #
Part of the problem now is the faith, trust and devout love many have wrongly placed in our faith based government.
From Krugman - he posted a link to the Dodd proposal as it stands now. Here (with funky PDF formatting junk) is the section regarding shares in exchange for capital - such issuance is required, not optional:
24 (1) IN GENERAL.The Secretary may not pur
25
chase, or make any commitment to purchase, any
4
O:AYOAYO08B28.xml Discussion Draft S.L.C.
1 troubled asset unless the Secretary receives contin
2
gent shares in the financial institution from which
3 such assets are to be purchased equal in value to the
4 purchase price of the assets to be purchased.
"Just outta curiosity, how many of the readers here who don't regularly go to church/temple/etc have attended worship services in the last ten days?"
I've been attending Mass almost daily at one of the most affluent Catholic parishes in the DC area. It just happens to be easy for me to get to.
Today's evening Mass was notably well-attended - more so than usual, and the priest referred in his homily to 'job-loss' as one of life's travails. It's not the first time in the past few weeks he's mentioned economic difficulties.
So let's get this straight, Senator Dodd and Rep. Frank want to reduce the ultimate cost of the Bush/Paulson bailout by providing additional protection/ security for the taxpayers in cases of excessive defaults or mispricing, right?
It'd be interesting to see a plot of the net cost/return to taxpayer over time of the Dodd proposal and Paulson's proposal plotted against potential default rates or pricing mismatches.
Someone ought to be able to come up with a telling graphic
One has to wonder how bad things really are if the powers that be are making these kinds of deals behind the scenes.
theyieldcurve | 09.22.08 - 9:52 pm | #
Its been talked about for years and we are finally there - the land of cross defaults.
There is an article in todays London Telegraph about the demise of the dollar. Read the comments attached, I am paranoid enough but they certainly pile it on. I would have laughed at them a year ago but given what we are seeing, naybe some these reports about secret congressional meetings have some truth to them.
david s and I had the same basic thought: that's an interesting game theory modeling problem. But, in any case, it ought to keep gouging down, as the econo's would say, ceteris paribus.
"Its been talked about for years and we are finally there - the land of cross defaults."
The land of CASCADING cross defaults. It's coming. No matter what they do.
And thus the mistaken belief that the bailout is cheaper than failures. For some strange reason the guvmint thinks those trillions in notionals are real money and a cascade failure would pull trillions from the economy.
No bailout. Kill the Paulson Plan, do not try to gussy it up to make the turd easier to swallow. It is poison for this country, and it will kill those who embrace it.
If the Democrats buy into this trap, the GOP will hang this around Dem necks even though this whole mess is a GOP creation.
IF we are going to spend $700 Billion, let it be on rebuilding our nations infrastructure: mass transit, sewage plants, green energy generation, and other public works.
@David S - I don't think your graph would be possible, since under his ideal plan Hank wasn't going to tell us what he bought, from whom, or how much he paid for it.
"This is the third time we've done it with this bunch. First the war, that didn't get paid for. Then the tax cuts, that didn't get paid for, and now King Henry takes over to distribute 700 billion dollars. He's going to be there for four months. And in four months he will make deals and then he'll go out and he'll be able to catch a pass he threw to himself."
satan writes:
The real problem we are facing is that the US government cannot pay off it's debt unless we accept possibilities such as-
1] We discover and commercialize a new source of energy.
2] An asteroid/comet hits our creditors.
3] Aliens give us large amounts of precious metals.
4] Something along these lines.. sci-fi type stuff
5] President Palin prints vast amounts of money to finance the war against Iran, India, Pakistan and Russia after the Iranian/Indian Gas pipeline goes through. Russia retaliates by cutting of gas to Western Europe.
Embittered by bailout? Try Zen Millionaire's 12-step meditation Paul B. Farrell - MarketWatch
Reaganomics $3.9 trillion debt outrages taxpayers
Mad as hell? Try the Zen Millionaire's 12-step 'antirage' meditation
"Are you mad as hell? I am! Bumbling politicians are dumping trillions of new debt on us taxpayers! First neocons triggered a $3 trillion war debt. Then government piles nearly another $1 trillion in new debt on taxpayers, mostly bailing out greedy, incompetent Wall Street co-conspirators."
Haven't read all the comments so don't know if someone has brought this up or not, but please explain to me how the gov. (us) is going to make money off of BETS (CDS's). Is this the elephant in the room that nobody is talking about? These are not mortgages, they are bets on whether mortgages go south or not. CDS's are the dark matter on the financials/banks balance sheets that the govt. is now proposing to buy...the "assets" that have put them in the black hole in the first place. Please explain how the govt. (us) could eventually make money on these things. I really would like to know. Thanks.
For 700 billion, why doesn't the government just forgive all student debt? That will reward people for investing in non-ignorance and future earning and I can guarantee that it would free up a lot of discretionary income.
Why idiot bankers who bet on a bailout and people who overconsumed homes deserve a bailout is just bizarre.
BTW, does the fact that the government takes an "equity stake" make the employees "public?" Are these companies now "state actors?" When and for how much will the government see all of its shares? In 2 years? Won't that make the "short selling" appear to be de minimis versus having 20-40% of entire industries dumped into the public market simultaneously?
"For some strange reason the guvmint thinks those trillions in notionals are real money"
It's scary, but a piece of them are. And even the tip of a 500T iceberg is a lot of ice.
For example, remember how everybody is in awe of Southwest Airlines' fuel hedges? Those hedges are some banks' underwater oil swaps: SWA pays them a fixed rate, and the banks pay SWA the current market price, or an average thereof, every month or every quarter. If the bank defaults that swap, then SWA's fuel hedges are gone, and their costs unexpectedly shoot up.
Same with Home Depot's interest rate swaps, UPS's diesel swaps, etc..
Over the past 14 months I have done far better than I expected in the following Fraudentials (my way of getting back at fraudsters; I did the same for tech Crooks during the tech bubble spanned by Scam Options accounting fraud).
MER
FRE
FNM
BAC
Goldchain Silverknife (GS)
Last week I was sipping cognac in near-full moon night with a buddy and had the screen door open with TV going inside. I was short in MER with naked Jan10 10 put and Jan10 50 call strangle (I had sold out all the Jan09 60 puts I had). I heard the news that BAC agreed to buy MER for 29. I almost jumped but did put out a load shout because I had strangled the fraudster as safely as one can. Right now I have a Jan10 80P and Jan11 200C straggle in Goldchain Silverknife (the fraudster I hate the most) with a cover on puts with Jan10 60 puts that I still have left.
I have had smaller positions in MS (quite profitable) and JPM.
I hate NYC Fraudsters more than some people hate German Nazis,
The land of CASCADING cross defaults. It's coming. No matter what they do.
Yep. The MMs are starting to buckle en masse, I saw in the FT tonight. That'll pretty much do it. No way the USG can backstop all 3 trillion domestic with the pitiful 50bn the "W" put up -- that was just 10% of the Friday outflows alone. So it's, "grab your MM funds or lose them" and we know how that works out.
The no-shorting rule running around the globe is going to be seen as the Smoot-Hawley Act that kicks off the real fireworks.
WD 40: I don't consider myself a petty person. But I cannot stomach the idea of their being no limit on executive compensation and no clawback provision on ill-gotten bonuses.
Yeah, that. I find myself muttering "a la lanterne" lately.
Also, why isn't anyone talking about doing this on a pay-go basis? If the system is really on the verge of collapse, the people who do best from the system shouldn't mind paying nice high taxes for five years or so, right? If they object, I really wonder if the collapse is all the imminent.
If the Democrats buy into this trap, the GOP will hang this around Dem necks even though this whole mess is a GOP creation.
Easy fix - make congressional GOPers vote for it too... tell Bush Paulson that if they want it to pass Dems will provide half the votes necessary to pass but no more than half... rest of the votes have to come from GOP ranks if the administration wants it get their own to walk lock-step... so start twisting arms & knocking heads together.
The proposal would be DOA by Friday afternoon if that were part of 'the deal'.
Sarah writes:
Is it time to buy a house in OC? Meaning, could this put a bottom to housing? I have been waiting for about 2 years...
Sarah | 09.22.08 - 8:57 pm | #
Sarah - Just buy a 12 gauge and a case of shotgun shells. Then move into an empty house........
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 transactin 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.
I didnt know the Replicans were working hand in hand with the bank lobby when all the regs were done away with,,that when the saving and loans fell,,,the republicans were right in the middle of it,,,,and when it was over,,it was the republicans who decided it was not important enough to add new regulations,,,
Sorry if this has been covered before, as I haven't had time to read any of the comments today.
What if the GS/MS conversion to bank holding companies is just a temporary thing? They no longer have to mark-to-market, as they can claim all their MBS stuff is held for investment. They might even have some write-ups as a result. Then a few years down the line, they just switch back to IB's, or spin off their IB divisions.
As somebody said between you and now...If they were voided by decree, then SWA would be damaged by decree. Contract law, if not the constitution, would be violated.
Matters worse, a US party is likely against an Asian or European counterparty. So then there's international "confiscation" going on.
If they "just fail," then its bancrupcy and the loss that comes along. Decree would be Pandora's box of legal and ethical issues.
That's exactly where I'm heading. I think the time is rapidly approaching that the complexities of law are going to be overtaken by events.
I'm trying to sort out which big sticks are necessary, and to sort the the ordinal problems from the noise.
The more clarity we can create, the less buffalo-herd-stampeding gets done by our pals in the Treasury department.
Jas Jain: I am envious of you because you had the intelligence and foresight to fight so well. I've positioned myself to help clean up the mess, but I think I've missed my chance to step on these crooks.
"If we need to make our own milk powders, cookies, and toys at five times the cost, what will CPI do? Will be end up with deflation in a rising price environment?"
We don't import milk from China. We don't import that much food - farmer protectionism and all.
Instead of having farming in the 3rd world, we bring the 3rd world here to work on our farms. You can't offshore land and water rights.
Unfortunately, there are such concepts as repentance and atonement, so good luck with the atonement part.
As to Lefty's, I'll send my son over. They changed teh communion wine and he hates it passionately. He's more of a fruity red kind of kid and doesn't like the dry stuff.
I could get into all kinds of theological nonsense, but I've frankly let other things slide in this ringside trainwreck.
The Wall Street Masters took Martin Luther partially correct when he stated "Sin Boldly!" They just blew off the rest, about believing in Grace of God.
Man, you DEMs are one defeatist bunch. COming up with excuses for losing already. Why not have your guy raise the white flag now ?
bearly | 09.22.08 - 10:19 pm | #
bearly, this won't touch the top of the ticket . . . it would only affect downticket races.
At this point I am ready to triple down on our bet.
Am I not thinking it through, or would a decree of repudiation of derivatives have something in common with FDR's ordered confiscation of the gold? Of course, they paid for it.
Forgetting the international issue for the minute...
That's exactly where I'm heading. I think the time is rapidly approaching that the complexities of law are going to be overtaken by events.
As a bit of advice, autocracy is an elephant trap for policy makers. You will like the outfit, you will never find a good successor, and you tend in general not to develop strong institutions. The idea that "pretty soon we'll be able to handwave the complexities" will bring you many unintended consequences which will require ongoing autocratic meddling.
As long as you don't lose all process headway, you're really better off letting the policy structure hack it with the minimum amount of plenipotentiary powers.
Part of the burden of weak states is that the people who do stick through the brain drain have been part of dysfunction for so long they have no reference to hold up as effective policy. Plenipotentiary powers to "git r done" brought us Ben Bernanke and the modern American police gendarme. Haven't you had enough of that yet?
Not just hurling darts. If you really hope to change things, you will need to change the ways you frame problems and solutions first.
"Decree of repudiation" I'm horrified that I would even write such a thing! I'm a "system" guy to my core. I've been turned to the dark side by all of you. Fortunately, it's movie time at the ranch. Good night.
CR said, "negotiators neared agreement on allowing the government to take equity stakes in companies that participate in the rescue...."
What happens to share prices of participating firms? Look at AIG, FNM, FRE. How much equity will participating firms have to give? 25 pct? 50 pct? What percentage of financial firms make up the stock market? It's de facto nationalization or at a minimum partial nationalization.
The more I think about it, the more I agree with those who indicated the Paulson plan was a head fake. We're supposed to get behind the revised Democratic plan because it isn't as utterly sickening as the Paulson plan.
The Frank/Dodd plan is still going to run up the national debt, inflate the dollar, etc. And I can't say I'm encouraged about the idea of the US Govt/taxpayer owning a share in so many half-dead companies with utterly opaque and likely worthless assets. Given the corruption and incompetence in Washington/Wall Street, I don't see it working well.
I don't pretend to know exactly how bad it would be to induce mass bankruptcy and shut down the US financial system for a time. But I'm willing to gamble on Great Depression II only lasting 2-3 painful years, and I believe I'd prefer it to a pair of "lost decades" ala Japan. One way or another the US economy is going to contract massively - let's get it over with.
Whoever suggested this was good-cop/bad-cop may have had it right . The best way to control the answer to an issue of debate is to control the question, and the question put to us so far has been "Stark raving insane plan or still-pretty-bad plan"?
I find myself hoping that Wall Street execs will prefer bankruptcy to losing their bonuses, preventing participation for a large number of companies. The less companies that go for such a deal, the better. In fact, if a large number of companies DO go for it gladly, I'll be even more convinced it is a raw deal for the American taxpayer.
P.S. Does anyone else think Paulson looks like Skeletor? Sorry, couldn't help a bit of demonization there.
Yes, it would be a taking. But government's job is to balance the interests of all parties - that's the principle behind eminent domain, zoning laws, etc.
Yes, the government would be responsible for working out the claims of wrongful taking, but that would be a court process that could be done later, once the threat had abated.
There doesn't seem to be any other mechanism big enough to take in all the parties and force them to act in unison.
W/respect to the intl aspect, I think each of our international trading partners would love for us to take this lead, and the details could be sorted out in whatever court had jurisdiction. This is, after all, an international problem, and they stand to lose at least what we do if it's not addressed.
Tripleplay writes: What happens if obama gets in and Rev wright gets an office in the Whitehouse? Come now. That won't happen. We all know he's a Muslim. -- DCRogers
Exactly. In fact Rev Wright is gonna get stoned to death in Obama's Rose Garden Madras when he "invites" him to the Whitey House
Remember the way a con works: you have to convince people that there's something they not only need, but that they need right now, something that if they miss out on, it will wreck their lives. You can only get this deal now. If you don't do it, you'll regret it. The world will fucking fall apart unless you pony up. It's the same whether you're callin' Granny for her savings or the American people for their Treasury.
When you tell a con artist to slow down for a minute so you can think, the grifter will just up the intensity. You gotta be willing to walk away from the deal. If Democrats don't look Henry Paulson and George W. Bush in the eye and say, "Go fuck yourselves" to the deal in its current form, we will be fucked by this for a generation.
First!
The devil is in the details.
Actually, the devil is in the entire idea. But also in the details.
Paulson is playing a game.. make up something irrational and then act like he is conceding..
TC, if you read this - yes, I hadn't checked, but there was a real traffic spike around 1 PM. What was that about?
Best to all.
Can I short this plan?
Ba de ya - say do you remember
Ba de ya - crashing in September
Ba de ya - never was a debt to pay.
The more I've thought about this, even with the equity stake to dilute existing shareholders, CEO compensation rules, and allowing cram downs, ... its still a horrible plan.
We're going to end up paying for this with a run on the dollar. We'll all be wishing that we drove Priuses, but we won't be able to afford them.
In addition, negotiators neared agreement on allowing the government to take equity stakes in companies that participate in the rescue, a measure Treasury had wanted to avoid.
No equity? Who exactly is Hank representing in these negotiation, the Republic or Wall Street?
satan, I think so. Propose an outrageous plan, and then concede to something a little less outrageous. The "no oversight" part was probably a negotiating tool. I doubt Paulson likes the equity participation, but I've talked to a number of people (at key institutions) that think the government is going to make money on this bailout - so they shouldn't oppose the contingent equity sharing.
Best to all.
Paulson = Devil?
Does anyone else think it's completely nuts to have the government taking equity stakes in all these companies?
I vaguely recall that there is historical precedent. (Not in free countries, but...) And it even has a name which I cannot quite recall at the moment.
iceman writes:
We're going to end up paying for this with a run on the dollar.
I'll see it when I believe it.
Go Democrats. Thank god someone is actually still using their brains (and their integrity).
ice man
just got to practice riding ponies
CR --
I think in part it was tax dollars at work...
You are providing free up-to-the-minute polling data!
Will this be a 'Mucha Ado About Nothing' if it turns out that 1) Paulson's Plan is ineffective by design since it does not address the underlying reality that many declining financial instruments are collateralized by declining real estate valuations or the declining solvancy of the Ameerican consumer; or 2) Foreign Creditors may not extend enough credit at low-enough rates to allow Paulson to get out the gate?
Equity stake = control.
Every lobbyist in 50 miles of D.C. is already licking their chops over Fannie, Freddie, and AIG. These institutions will no longer be run for profit.
Neither will any company in which the government has significant ownership. How could it?
I predict the taxpayers do not profit from this venture regardless of how it is structured.
I am finally encouraged for a minute or two.
Thanks CR.
I think the absolute minimum for a bailout would be for all shareholders to lose their shares (and employees their bonuses)
Persecuted Comrade Anonymouse,
"I'll see it when I believe it.'"
Bwahahahahahahahaha!
Nostrovia,
Nemo,
Without equity, it will be open to looting in that prices paid for these "assets" by the taxpayer will be far too high in order to fool the public that this was "profitable" plan. Equity will prevent the free for all looting IMO. It has to be there.
Use the words "CEO compensation", "Barney Frank", and "cram downs" in a sentence together, and it's hard not to have an image come to mind that will make you feel just a little bit better about the direction of these negotiations.
I would open a chequing account with Goldman-Sachs if they were subject to the same rules as commercial banks. I also have a feeling that they would like that too..
Check the LEH bonds. Equity? Please. Give it up.
Propping up failed businesses with failed managements. Less than the peak of our society. If I may be so bold.
Comrade Nemo,
"I predict the taxpayers do not profit from this venture regardless of how it is structured."
You mean...shock!...The gov't will run these things into the ground like everything else they do!?!
Come, come my good man. The gov't beurorats will run these things like fine tuned Maserati's.
Nostrovia,
Of course the taxpayers will never make money on this. That would be, well, un-American.
If this thing doesn't include some kind of restriction, clawback, or whatever, on executive compensation, I'll bet that next year's revisions to the tax code will be positively brutal on earned income in seven figures, and the impact will be felt by the entire aristocracy of finance, not just the bunglers.
Since I don't foresee another turn at the trough for myself anytime soon, either outcome is fine by me.
What I find surprising about all of this is that people who really don't follow this stuff very closely have strong feelings about it. In conversations over the weekend, I've heard a couple of different people say 'we ought to be getting stock for bailing those clowns out' and 'damned right make those CEOs pay for it.
The Economic Doomsday Clock can be set back 2 minutes thanks to this great cooperation in fleecing the taxpayer! Hoo Ra!
Does anyone else think it's completely nuts to have the government taking equity stakes in all these companies?
No. If taxpayers are going to be liable (as in take risk) then they should share in any upside. And frankly, these companies need to have the government root around in their balance sheets for a while.
We are really screwed if this plan passes. One more attempt to evade what needs to happen, cathartic change. This is nothing more than crisis mode Greenspan-low-apr-therapy.
If there was ever a time the nation needed bitter partisan gridlock, it is NOW.
$700 Billion Dollar Bailout Good For Economy
WASHINGTON (AP) -- It's the largest government bailout in U.S. history and two days after it was introduced to the Americans paying for it, the proposal is still largely a mystery.
Among the unanswered questions: How will the government mop up the bad mortgage debt on banks' books, who will run the process and how much will it cost?
satan writes:
I think the absolute minimum for a bailout would be for all shareholders to lose their shares (and employees their bonuses)
satan | 09.22.08 - 8:34 pm | #
I agree with satan. (i never thought i'd type those words)
OK, so we restore liquidity in the credit markets. Now, to whom do banks lend any money, other than one another?
If banks sold MBS at steep discounts, it could be profitable.
5 cents for subprime
5 cents for any refinanced loans
10 for AltA
15 fro prime ARM
and maybe 30-40 cents for full document prime
It's gonna happen. Barney Frank was scared into thinking there is no alternative. They are just going to tack on some things. Unbelievable. It'll help the market for a week or two... then BOOM.
Comrade PeakVT,
"And frankly, these companies need to have the government root around in their balance sheets for a while."
What makes you think that's going to happen? Seriously? They're gonna come clean on this stuff like they did on the torture stuff.
This is to bury this stuff where NO ONE can see it.
Nostrovia,
How and when will the government eventually divest itself of it's "equity stake"? purchased assets?
All the details are a load of hooey. It is all a smokescreen to keep from addressing the issue that this is a blatant transfer of wealth from the populace to the wealthy.
I would not pay over 10 cents/ dollar on any LBS based on an unsecured line of credit.
Why cant these insolvent institutions be taken over by the Fed as business as usual. Then the assets/banks can be turned over to strong management or shut down. Then the govenment only needs to give the Fed additional capital and no need for any additioal legislation and we dont have to give a blank check to Paulson to be the Broker of Last Resort.
Nemo writes:
Neither will any company in which the government has significant ownership. How could it?
You said it!
I think these firms screwed up pretty well w/o any government assistance. Remember the conservative mantra: "the government is not the solution, it's the problem." For now, government is the savior for these pigmen.
That would be hilarious to see these 'masters of the universe' reporting to a GS-12 though.
How much of a stimulus payment will I get? I haven't spent the last one but it would be nice to know what I can expect.
Fed Limits Minority Investment in Banks to 33 Percent (Update2) - Bloomberg.com
Fed Limits Minority Investment in Banks to 33 Percent
"The Federal Reserve issued revised guidance today for investors in bank-holding companies after consulting with groups including private equity firms seeking to make more investments in struggling financial institutions. The new policy outlines a 33 percent limit for those with a minority stake and allows some investors to have as many as two board seats. The announcement came in a 16-page policy statement issued by the Federal Reserve Board."
Bankers must make a profit!!
zongqua@yahoo.com.cn writes:
Why cant these insolvent institutions be taken over by the Fed as business as usual. Then the assets/banks can be turned over to strong management or shut down. Then the govenment only needs to give the Fed additional capital and no need for any additioal legislation and we dont have to give a blank check to Paulson to be the Broker of Last Resort.
Are we going to get another "stimulus" too? just in time for holiday flat panel tv purchases.
RE --
Without equity, it will be open to looting in that prices paid for these "assets" by the taxpayer will be far too high in order to fool the public that this was "profitable" plan. Equity will prevent the free for all looting IMO. It has to be there.
I know, I know. This may be less evil than the original proposal. But I still think it is an extraordinarily bad idea.
Wait a minute...does this sound like
"Good Cop,Bad Cop" to anyone else...
Relax, the game is over. The fear mongering goes on, but the game is over. All this money was lost years ago, the only difference is recognition of insolvency. Basically we got a rough patch coming up in America.
They're gonna come clean on this stuff like they did on the torture stuff.
True if McSame is elected.
Why cant these insolvent institutions be taken over by the Fed as business as usual.
That's what I would do but it seems some amount of equity is the best deal available with Bush and Paulson sitting on the other side of the table.
This is big news:
DealBook Blog - NYTimes.com
Increase the limits on bank holding cos to 33% for economic interest and 15% for voting interest.
Why not default on soverign debt?
Does anyone else feel like someone at treasury intentionally put a poison pill(s) in this proposal? I can think of a few, but that section 8 is a doozey. Were they put in to initiate negotiation?
Why not default on soverign debt?
The fact that this question is so obvious leads me to worry about my retirement, which has been shifted chiefly into TIPS.
Didn't we just raise the debt ceiling for Paulson? Why don't we let him spend that and see how it goes?
How bad would it really be if the US just defaulted on all it's loans- and used the money otherwise spent on interest to build infrastructure, power plants etc?
Yes this is setup . The taxpayer loses. It the modified plan is just "nicer" .
Wait a minute...does this sound like
"Good Cop,Bad Cop" to anyone else...
OT - A lot of people I talk to are worried about the job market. I live in North Texas and our foreclosure rate is bad especially in Collin County. The media here has tried to suppress stories about foreclosures, saying that it wont be so bad its different here.
Does anyone else think it's completely nuts to have the government taking equity stakes in all these companies?
lets try thinking about it this way... these entities are toast if the UST/FRB doesn't step in and help. giving the taxpayers a chance to make something off this trash is the price for not ending up in the employment line (which some of them should anyway).
Persecuted Comrade Anonymouse writes:
iceman writes:
"We're going to end up paying for this with a run on the dollar."
"I'll see it when I believe it."
Persecuted Comrade Anonymouse
Might be time to start believing. Who wants to buy oil using these things?
Bob34,
I am convinced that the link you provide to http://iamned.com/blog is actually some kind of AI humor-bot-in-development... could a thinking human have actually believed, and written, paragraphs like:
This opposition to the bailout plan is yet another example of the socialist, pro-Obama liberals trying to interfeare with whats best for the US economy and the free market. Printing money is good for the economy and wallstreet. Thats why we need to bailout these financial institutions and later invade Iran in order to drive the dollar lower, and the price of oil and other commodities higher. Rising commodities and a falling dollar benefits numerous export heavy sectors such a technology, energy, and industrials.
If "ned" is serious, then we're about to get some serious "benefits" raining down upon our economy! Yee-ha!
I know, I know. This may be less evil than the original proposal. But I still think it is an extraordinarily bad idea.
I agree completely! It is nuts and we are simply debasing the currency. It will likely lead to an overly quick adjustment of our CA balance.
"And frankly, these companies need to have the government root around in their balance sheets for a while."
Yep. Let all those former Wall Street execs and wanna be hedge fund managers team up with their lobbyists and really give those companies a reaming.
PeakVT,
You're confusing government with taxpayers!
Calculated Risk writes:
satan, I think so. Propose an outrageous plan, and then concede to something a little less outrageous. The "no oversight" part was probably a negotiating tool. I doubt Paulson likes the equity participation, but I've talked to a number of people (at key institutions) that think the government is going to make money on this bailout - so they shouldn't oppose the contingent equity sharing.
Best to all.
Calculated Risk | Homepage | 09.22.08 - 8:31 pm | #
CR,
I'm a nobody, but can I just register my astonishment that anybody can believe that?
What about all the skimming that went on?
What about the fraudulent use of charitable trusts?
Straw men in any future litigation.
Please consider what I say here:
rigorousintuition.ca :: View topic - The White House Bailout Proposal
Any thoughts?
Foreign Creditors may not extend enough credit at low-enough rates to allow Paulson to get out the gate?
--avl dao
BINGO! That's right, who's going to buy a couple trillion in Treasuries over and above what they already don't like buying?
No offense, Misean and Nemo, but it's not like we're talking about highly profitable companies that do the work of social equity here. They're getting taken over because they blew up totally and utterly while systematically looting the Republic.
I'd find arguments of future bungling mismanagement by the state easier to buy if there were non-bungling non-mismanagers visible. This is from someone far enough to the right I capitalize "Republic" when I say it.
Structure it how you want, but there is no way on god's green earth current equity holders shouldn't lose every tiny scrap of any stake they might have. Nor should America offer them for sale on the open market so we can have no large domestic banks.
The US has two choices
1] Debase currency and crumble slowly
2] Default and start again.
I think 2] is a better option- we still have the largest functional nuclear arsenal.
An equity stake does not necessarily mean control. I have an equity stake in a lot of companies and have no control. It all depends on how the deal is structured and what's agreed to up front.
As to the comment about "gov't beurorats" running the company, it might be relevant if anyone were proposing that.
Of course, companies have the option of not participating in the bailout if they don't like government having a say in their businesses.
I don't think the "just give us your money and leave us alone" strategy is going to work here.
"But differences remain on two big items: possible limits on executive compensation at firms taking advantage of the bailout"
Again, not to push the point too hard, but if we and the financial companies are facing "financial Armageddon", why would they even THINK of balking at this? This is a non issue if we are indeed talking about 'stepping back from the brink of disaster'. If it's that bad, you should be able to get the financial companies to agree to have their CEOs lick a live squirrel on national TV if that's what it takes to save the world's financial system.
Unless, of course, we are not at the brink...in which case, we wouldn't need to give Henry Paulson a blank check for $700,000,000,000 paid for by the American taxpayer.
"How and when will the government eventually divest itself of it's "equity stake"?"
Look back at the Chrysler deal. I don't know the particulars, but it is a precedent.
BINGO! That's right, who's going to buy a couple trillion in Treasuries over and above what they already don't like buying?
The Federal Reserve has an unlimited ability to purchase US treasuries.
sorry for reposting from previous thread, but this is making me livid :
From the economist lead to last Friday's edition :
Economist.com
opinion...ory_id=12263158
"This is a black week. Those of us who have supported financial capitalism are open to the charge that the system we championed has merely enabled a few spivs to get rich. But it helped produce healthy economic growth and low inflation for a generation. It would take a very big recession indeed to wipe out those gains. Do not forget that in the debate ahead."
These guys have been wrong wrong wrong for ages about how all this financial alchemy spread risk. They were right about the accelerated growth it produced, but guess where all that wealth got squirreled away?
But you see their tactic now? Look how much finance did for you? The recession we are going to have wont take all that away, therefore, it was still a good idea. B -f-in-S. This is the kind of event that when all is said and done will be shown to be one giant redistributive machine. And that is all. In the boom the wealth gains flow to the rich, and in the bust, the risks taken accumulate losses all around. Then you get a period of below average growth afterwards which leaves you back in a decade where you would have been.
Sickening what that rag has become.
the end result of this HAS to be price discovery:
If these don't happen, then house sales and MBS sales will continue to hurt.
So for the sake of future house buyers, let's make sure that, as we give bailouts to people with toxic mortgages, the government forces them to realize that the value has fallen.
Let's start with Thains pay package from BAC deal. What a crook. There are many more. Executive compensation has gotten out of control. And yes tax the hell out of anyone making $10 million a year or more. They will have enough money to last many lifetimes, its the small person who is hurting and will struggle through out life. More power to the little people, this isnt a democratic or republican talking. It's a person who wants to see everyone enjoy the good life and let everyone have a taste of the good life, not the select few who are greedy executives, movie stars, or athletes who make insane amounts of money while the school teacher is struggling with thier $35,000 job or cop who is risking thier life for $45,000.
Comrades,
Plan....Yeah. Let's just go without one.
The gov't is impotent at this point, so let's stop pretending.
All of this nonsense that we're money good in the toxic crap is pure horse spit. If we're so money good, why the bail out.
So damned illogical, I could just spit!
Nostrovia,
satan writes: I would open a chequing account with Goldman-Sachs[...]
"chequing"?
So satan is BRITISH?? Whocoodanode?
However, satan opening a checking account at Goldman Sachs does make eminent sense. He closed his WaMu account after they rejected his last HELOC increase.
zongqua@yahoo.com.cn
the banks have to bedone all at one time because of interdependence on derivatives ...
What needs to happen is a bank holiday whereby solvent banks stand and insolvent banks are liquidated.
Nothing new , just like FDR did it ...
Retirees Filling The Front Line In Market Fears - NY Times
More to Fear in World of Retirees
Older Americans with investments are among the hardest hit by the turmoil in the financial markets and have the least opportunity to recover.
Meanwhile Bucky's drunken shamble, stumbling into one lamp post after another, continues unabated.
Man the guillotines!
You're confusing government with taxpayers!
Yes, yes, but I still have some hope for the dopes.
There is zero chance the government will run a profit on this bailout, regardless of how it is structured. However, getting equity in return for capital might keep participation limited to those firms that actually need it.
just a thought- if Al Qaeda said they would destroy our economy unless we gave them $700 billion, what would America do?
Austin Tex writes:
"How and when will the government eventually divest itself of it's "equity stake"?"
They'll trade the paper back and forth with the Fed a few times so it leaves no trail...
It's all going that way anyway!
Is it time to buy a house in OC? Meaning, could this put a bottom to housing? I have been waiting for about 2 years...
I know, but it is desirable that they do not dig us into a deeper hole..
Yancey Ward writes:
There is zero chance the government will run a profit on this bailout, regardless of how it is structured. However, getting equity in return for capital might keep participation limited to those firms that actually need it.
Let's see, we have a proposal that spends $700 billion of taxpayer money. Congress is unhappy, and fixes it by spending even more. Barney Frank, Chris Dodd, and Chuck Schumer must be just loving this. Christmas and New Year came early this year for them.
Isn't this what they wanted to do with Social Security money, take equity stakes in a lot of companies?
Back when they were really expensive, that was.
Now that they're cheap, it's a bad idea?
What part of capitalism are the taxpayers not supposed to participate in, again?
This is a good paper on why Paulson is wrong:
http://faculty.chicagogsb.edu/luigi.zingales/Why_Paulson_is_wrong.pdf
arroyogrande writes:
If it's that bad, you should be able to get the financial companies to agree to have their CEOs lick a live squirrel on national TV if that's what it takes to save the world's financial system.
ROFL!
You do not require an academic paper to come to the conclusion that the ex-head of GS is cooking up a nasty brew
Dick Fold writes:
This is a good paper on why Paulson is wrong:
Older Americans with investments are among the hardest hit by the turmoil in the financial markets and have the least opportunity to recover.
It's OK! They will be bailed out. Risk no longer exists.
Yet according to the WSJ, the plan as revised would merely allow, as opposed to require, the government to take an equity stake in exchange for buying the stinky assets. If such option were to be included in the final draft, we can assume government would rarely get such a stake. Once again, Congress is proving to be a tough negotiator.
There is no retirement, suckers!!
"Older Americans with investments are among the hardest hit by the turmoil in the financial markets and have the least opportunity to recover."
--
"The Mother of All Bailouts"
By the Mother of All Criminal Gangs in History! Par none.
Born-and-bred American dopes don't understand what they are in for the worst depression in US history. The gang has baked it all nicely in the econ-cake.
Dopes and Crooks are codependents.
Jas
The Second Default Wave is Coming ...
Distressing picture of the day from econobrowser
Econbrowser: Distressing Picture of the Day
now add to that the consumer and student loans that the Fed has taken for collateral ...
The Subprime wave was just the beginning, a longer higher wave will be upon us shortly ...
We are not even half way through this mess.
SARAH! Do NOT buy yet! Check out "housingbubbleblog.com" and you'll see the light.
Wait at least two more years (I know, sounds sucky) - pennies on the dollar, my friend, pennies on the dollar.
Only when everyone is RUNNING from real estate like their hair's on fire will it be time to buy.
Comrade Byzantine_Ruins,
"Structure it how you want, but there is no way on god's green earth current equity holders shouldn't lose every tiny scrap of any stake they might have."
Then let 'em go t-up. I ain't got no problem with that 'plan'.
Nostrovia,
Bears repeating, I think.
Don't forget additional "incentives."
$25,000,000/2000hrs.=$12,500hr.
Is there anyone on Earth deserving of 3 teachers' yearly salaries per day?
We are not even half way through this mess.
so what? we'll just crank up the printing presses some more. don't worry, be happy.
who, me? --
Isn't this what they wanted to do with Social Security money, take equity stakes in a lot of companies?
Um, who are "they"? Not me...
But sure, what the heck, let's just nationalize everything. There, all problems solved!
I cannot believe some people are relieved to see one big horrible idea replaced by another big horrible idea.
The US has two choices
1] Debase currency and crumble slowly
2] Default and start again.
I think 2] is a better option- we still have the largest functional nuclear arsenal.
This is a repost.. any ideas? I mean, we are in an unprecedented situation, why not think outside the box.
Please stop using the word SOCIALISM
It's Fascism
I know that it's a loaded word but it's still the right one.
Sickening what that rag has become.
Geoff | 09.22.08 - 8:53 pm | #
______________________________-
Just to add to your comment, this 'economic recovery' from the dotcom bust was created just based on debt growth, no real job growth or wage growth, not much to show for it. One of the weakest 'booms' the US has experienced.
--
"...its still a horrible plan."
What else is new? What should one expect from Financial Nazis of Amerika?
It is all according to my schedule of the collapse of the American econo-political system sometime during the next 20-25 years.
Be Safe!
Jas
But sure, what the heck, let's just nationalize everything. There, all problems solved!
I cannot believe some people are relieved to see one big horrible idea replaced by another big horrible idea.
Not to mention the fact that this doesn't actually FIX anything.
FFDIC writes:
Older Americans with investments are among the hardest hit by the turmoil in the financial markets and have the least opportunity to recover.
It's all in the timing...you gotta love it...
Really sad thing is that most of them actually worked really hard for it...
We're just losing our inheritances!!!
I don't consider myself a petty person. But I cannot stomach the idea of their being no limit on executive compensation and no clawback provision on ill-gotten bonuses. For no other reason than symbolically showing we have not totally lost our compass, we must have those provisions in this bill.
The US is diving into this mess just before it gets reallly bad , sometime in 2009.
Econbrowser: Distressing Picture of the Day
bet just to declare a bank holiday and sort the good from the bad ... pay insured depositors and to hell with stock and bond holders .
maybe the Bond Boys will get Congress to pay attention to regulation once they get good and soaked.
I just can't understand why Paulson would object to the exec compensation limit.
I mean, besides his friends in GS would get a hit (they're going to get hit regardless given they won't be able to leverage as much anymore), what's so bad about it?
Why is the option so hard to contemplate?
-The US has two choices
1] Debase currency and crumble slowly
2] Default and start again.
I think 2] is a better option- we still have the largest functional nuclear arsenal.
This is a repost.. any ideas? I mean, we are in an unprecedented situation, why not think outside the box.
satan | 09.22.08 - 9:05 pm | #
Karl Denninger & FedupUSA has a much better plan. Please checkout FedUpUSA
Comrade Nemo,
"I cannot believe some people are relieved to see one big horrible idea replaced by another big horrible idea."
You mean like the S&L housing bubble, replaced by the dot bomb bubble, replaced by the next housing bubble?
Americans are born and bred dopes.
I note Jas has been extremely civil tonight, which is nice, but...could use a Jas blast on that. You know for nostalgia's sake.
Nostrovia,
ok so maybe this is a sucker's deal to put dems on the hook for the bailout...At this point, what are the options?
If you think that doing nothing is a better option...say so, don't just rip on the existing suggestions.
Here's one from Rep. Sherman D-Ca
TPMMuckraker | Talking Points Memo | New Democratic Bailout Proposal
Mish Shedlock appears to believe that doing nothing is not a better option
Mish's Global Economic Trend Analysis: Open Letter To Congress On The $700 Billion Paulson Bailout Plan
Mish also includes a link to this plan
Hussman Funds - An Open Letter to the U.S. Congress Regarding the Current Financial Crisis - September 22, 2008
I am of the opinion that doing nothing would be worse...some of the ideas I've agreed with that I've seen include
(1)restricting executive compensation along the lines of Rep. Sherman's ideas
(2)increasing tax rates along the lines of what we saw during and immediatly following WWII
(3)substantially increased oversight
(4)equity stakes
If Bush wants to veto this, then HE'LL be on the hook for doing nothing (par for the course!
)
In the future I think that Glass-Steagall should be re-enacted (&/or in some updated form) and that as Bernie Sanders says "If a company is too big to fail, it is too big to exist."
gotta go pick up the wife...thanks to CR, tanta for all your work and to everyone here for your ideas...
"If it's that bad, you should be able to get the financial companies to agree to have their CEOs lick a live squirrel on national TV if that's what it takes to save the world's financial system."
With respect, I think you're worng because you're assuming these people have honor. You assume these folks care more about the common good -- the financial system -- than themselves.
Think back to the AIG farce. It seems to me that AIG was more than willing to take as many of us with them unless they got a deal.
I think that's why Paulson's original proposal had the dictator clause. And I think that's why he's worried about the compensation question.
I'm not saying I agree with Paulson's original plan, and I certainly don't like this whole mess.
But I think we need to think about this problem as a hostage situation. Some (many?) of these people running these companies will not hesitate to threaten "financial meltdown" to save their asses.
I think the AIG's and WaMu's and Citi's have more power in this situation than the government.
mmckinl : it is actually worse than that picture would make you think. We will not have to wait quite so long for that big second wave of option ARMs to go into recast. At the rate the economy is heading downhill, the LTVs on that stuff are going to trigger well before the regular time period for a normal recast.
If you think that doing nothing is a better option...say so, don't just rip on the existing suggestions.
Doing nothing is a better option.
"Older Americans with investments are among the hardest hit by the turmoil in the financial markets"
This is a little OT (not much really). There is a book titled "The coming Democratic majority" or something close, which says that while the Baby Boomers were Republican/FreeMkt/Globalization/TaxCuts advocates in middle age, they will turn dominantly Democrat/Social Blanket/Nationalist as retirement approaches (which is about now).
For obvious reasons. And this Great Undertaking will turn the generation toward whomever seems to offer the best financial outcome for the public, win lose or draw for the financial system. That's most likely the Dems.
Austin Tex,
If memory serves, the Chrysler bail-out involved debt ( a loan), which was, in fact, repaid ahead of schedule, as I recall.
would that this were anything as simple as the Chrysler bailout.
Comrade satan,
"2] Default and start again."
What about my T-up comment up thread was unclear about my position. Comments are flying fast and furious here now. Difficult to respond to everyone.
Nostrovia,
--
"tbapple writes: Please stop using the word SOCIALISM. It's Fascism"
Sorry, it worse. Far worse. Just look back in another 10-15 years for the correct historical perspective, or comparison.
BTW, Mussolini was extremely popular among Amerikans and Wall Street crowd in 1930s. Even FDR tried to emulate Mussolini in some ways. Just wait for really bad times to see Amerikans true colors.
Jas
The banks did not know what these CDOs, CDO^2, etc are worth. That is a fact.
The government will not be able to figure out, even if they hire some other bank to come in (that couldn't value their own MBS book) to try.
The removal of non-reviewability, and secrecy, are necessary conditions to a reasonable deal. It's just obvious, but we should not agree to it because they gave us that.
Actually we should just flat not agree to it. Look we will never know what that garbage is worth. Let the banks worry about it. Just don't buy it from them!
If the bank wants capital infusion it can issue new equity and the government might buy some. That idea is not original with me but I liked it.
Is anyone organizing a protest in Washington DC to stop this bailout?
Are we allowed to have protests anymore or will everyone be tazed?
Let's suppose that CR is right about Paulson & Co.'s motive for Sec. 8.
Therefore, even though we were supposedly days away from financial Armageddon, they saw fit to include Unconstitutional language certain to delay passage of any bill - even as it frightened, antagonized and caused a media uproar. Right?
Daffy Duck said it best: "Dethhhpiccable!"
This is the grandmother of all bailouts. Just wait until you see her daughter in a few months.
At least they won't have to worry about jobs for NE RE Agents and laid off Wall Streeters.
Now what about all the banks that will be undercapitalized after selling their overvalued assets into this program?
And what about the $62 Trillion in Credit Default Swaps?
And what about the $2T in new borrowing the Treasury will need?
Oh well, all for another day....
curious why democrats oppose the "bailout" of these companies but are all about bailing out homeowners being foreclosed on...most of those foreclosures are their direct fault just as much as bad decision making at the affected financial institutions...
just sticking up for the little guy mentality? pretty weak imo...just as crooked behavior, just without the golden parachute...neither should be "rewarded"...
"Chrysler bail-out involved debt ( a loan)"
Are you sure there wasn't equity taken by the Govt?
satan
The best way to go would be to nationalize te Federal Reserve andd print our own money without debt ...
Think about it , why should we pay interest on our own money.
It is time to take the money monopoly away from the banksters.
I found a very safe banking institution
The New Power In Banking - Interactive Features - Portfolio.com
ROFL
The real problem we are facing is that the US government cannot pay off it's debt unless we accept possibilities such as-
1] We discover and commercialize a new source of energy.
2] An asteroid/comet hits our creditors.
3] Aliens give us large amounts of precious metals.
4] Something along these lines.. sci-fi type stuff
Some are suggesting that this could be a political play, so that the GOP can vote against the bill and then use this to attack Dem candidates.
Link:
Hullabaloo
On another topic, Helena Cobban has interesting observations about Paulson:
'Just World News' with Helena Cobban: Paulson's Goldman Sachs bonuses...
The information she provides makes it seem odd indeed that Paulson should be considered at all appropriate for being involved in this.
Someone else pointed out that since Paulson leaves in 4 months he could catch his own pass. . .
Comrade Freeman Bevan,
"If you think that doing nothing is a better option...say so, don't just rip on the existing suggestions."
Have been. No bail. Fail.
Although I think Warshington DC needs to do something about this whole squirrel licking thing. Do you get a buzz from that? Certain toads give you a buzz if you lick them.
Squirrels are a mainstay food product. Licking them might give them diseases.
Nostrovia,
Master Jas,
This is going to be a GLOBAL hit.
All this plan does is theoretically unfreeze credit markets. It doesn't mean that suddenly home prices are in line with rents and incomes. It doesn't mean that we aren't in the midst of a recession. It doesn't mean that Americans are no longer swimming in debt.
So I repeat - to whom do these banks lend any money? Would-be homeowners still cannot qualify for loans. Consumer spending is still off. What does this actually fix?
What's the point of an equity stake if the assets Treasury is buying come from Fannie or Freddie?
Has anyone yet heard a coherent, fairly complete answer to this question:
Why can't we let these ailing financial firms, all of them, declare bankruptcy, and
a. write a law like what Paulson is advocating, except the public buys the assets at (low) market value upon BK
b. allocate the $700B to providing liquidity to the remaining solvent banks via equity stake purchase
In essence, let the zombies fail, save our remaining resources and credit to provide capital to the real economy. That would penalize the dummies and reward the competent managers.
Also, why is the "derivative" market casting such a big shadow? Don't nearly all those derivatives cancel out - hence all we need is a clearing vessel and a triggering event - which the public can precipitate simply by doing nothing.
I think the emperor has no clothes. Can someone point me to a clearly stated explanation proves my assertions wrong?
TIA.
"Im on me own now. Spose I'll have to face the fearless foes alone."
Foreign Nations Pledge Support, but Not Financing, for Bailout Proposal - NY Times
But seriously, Foreign Nations Pledge Support, but Not Financing.
Translation : We dont really pledge anything.
most of those foreclosures are their direct fault just as much as bad decision making at the affected financial institutions...
What you said, halpmeh.
I clearly remember throngs of people outside all the banks a few years ago brandishing their signs and placards - "Give Us Free Mortgages NOW!"
I also remember all the commercials those same people put on TV, every hour of every day, telling banks to lend at ridiculously low rates - OR ELSE!"
Open Left:: Evening Thread: Bush Hits 19% Approval
Open Left:: An Anonymous Lawmaker Diagrams the High Stakes Chicken in the House
Paulson and Dodd just played this same game with Bear....
Geoff writes:
would that this were anything as simple as the Chrysler bailout
Yeah, comparing the current situation to the Chrysler affair is like comparing removing a sliver with removing a brain tumor.
Austin Tex, Yeah, it was a loan...perhaps there was some sort of convertible aspect to it which was never triggered.
I did my part, called my Congressman, Sen. Spector and McCain office, opposing this bailout. Both the Congressman and Spector's office said they have received alot of calls opposing the bailout
Foreign Nations Pledge Support, but Not Financing, for Bailout Proposal - NY Times
Foreign Nations Pledge Support, but Not Financing
--
"drob writes: I just can't understand why Paulson would object to the exec compensation limit."
Crooks need incentives! Biggest Crooks need big incentives. And we do need big Crooks to run Fraudential firms, no?
I made a killing in Goldchain Silverknife last week. I was loaded with Jan'09 80P, Jan'10 40, 50 and 60 puts. I sold 75-80 of my put holdings. The most amazing thing was that I was able to sell naked Jan'10 300C at $2.2 a pop on Tuesday, 16th of Sep. Of course, I cant sell more naked calls until Oct 2.
Profiting by hating Bankrupters and Fraudsters,
Jas
Inflation, inflation, inflation. This is what you will get with the bail out.
Yes, you are right. The sum of all derivatives is zero (if they were all triggered simultaneously). But if more people realized that bankers could not a**rape people and steal their money.
Also, why is the "derivative" market casting such a big shadow? Don't nearly all those derivatives cancel out - hence all we need is a clearing vessel and a triggering event - which the public can precipitate simply by doing nothing.
I think the emperor has no clothes. Can someone point me to a clearly stated explanation proves my assertions wrong?
TIA.
OuterBeltway | 09.22.08 - 9:26 pm | #
Share holders of record as of the close of business on 9/17 will be required to pay "X" dollars per share of any company that needs to be recapitalized.
This brightened my day a bit. Seems like a fair amount of the big numbers these guys throw around that they have been making is tied up in restricted stock and so the way to live the good life was to borrow against the stock.
Bet you can guess how that works out.
On Friday, September 12, the Wall Street Journal reported that Lehmans former president, Joe Gregory, who was demoted along with former CFO Erin Callan in a management shake-up in June, was listing his Bridgehampton house on Surfside Drive for $32.5 million. The collapse of Lehmans stock is a blow to Gregorys lifestyle. He reportedly used to travel by helicopter to midtown from his $3.5 million mansion in Huntington, which was recently renovated, according to a Sothebys broker. According to one source, Gregorys financial adviser was in negotiations with Lehmans attorneys at Simpson Thacher & Bartlett, working to avert his filing for bankruptcy, after he borrowed money against his Lehman stock to pay for the renovation. He owes a lot of money for it. They called the margin loan late last week, the source said.
The Rage of the Previously Rich
How a Lehman Trader Copes With Income Shrinkage -- New York Magazine
Think Tanta can help him write a hardship letter?
This is absolutely unbelievable if it is even close to being true...
Lehmans Demise Was Most Assuredly All-About J.P. Morgan
This is a bailout of biblical proportions. There is more going on behind the scenes than the average informed U.S. taxpayer is aware of.
The relative size of executive pay is not what matters. We need to punish these guys for being either incompetent or criminal. The same frankly applies to Paulson and Bernanke. Either they are idiots who believed that all was well, or they were criminals who conspired to hide the truth from the American people.
We have prisons and fines to dissuade criminal activity. Executive pay MUST be cut. Furthermore, criminal investigations and compensation clawbacks must be part of any bailout.
Chuck Prince, Dick Fuld, Hank Paulson, Hank Greenberg (yes, even him), et al should be investigated for their roles in the greatest financial swindle in history. Take back bonuses and salaries, seize assets like homes and yachts, impose prison sentences. They could all be convincted under the RICO acts.
The financial markets are moribund. We need to save them, but not at any price.
TIA
there are over 600 TRILLION in derivatives
the default of just 2% of those is 12 TRILLION DOLLARS !
the way the derivatives and counterparties are falling 2% may not be low ...
Comrade Misean,
Then let 'em go t-up. I ain't got no problem with that 'plan'.'
Comrade Misean, I'm down with that too, but if we must have a plan (and apparently we must) then it better be incredibly hostile to current ownership and leave the culprits no upside whatsoever.
Yes, but if they are all triggered simultaneously- it is a zero sum game.
TIA
there are over 600 TRILLION in derivatives
the default of just 2% of those is 12 TRILLION DOLLARS !
the way the derivatives and counterparties are falling 2% may not be low ...
mmckinl | 09.22.08 - 9:32 pm | #
"Chrysler attempted to make up the difference by giving the government 14.4 million warrants, which are certificates that give the government the right to purchase a share of Chrysler stock at 13 a share."
The Chrysler Bail-Out Bust
That's what I had remembered.
See Jubak today for a basic description of the problem in credit default swaps.
Investing articles from the past week - MSN Money
YouTube -
Frank Sinatra - My Way - 1974 New York
"but I've talked to a number of people (at key institutions) who believe the government will make money off this"
Would perchance be the same people that:
18 months ago believed housing prices were supported by salary and economic fundamentals?
12 months ago insisted this was limited to sub-prime and was contained.
6 months ago believed the BSC bailout was the end of this fiasco
Continue to insist that this isn't an issue since only 2% of all mortgages are in arrears?
satan writes:
How bad would it really be if the US just defaulted on all it's loans- and used the money otherwise spent on interest to build infrastructure, power plants etc?
satan | 09.22.08 - 8:49 pm | #
Instant balanced budget and not by choice. The minute we default is the same minute no one in the world lends to us - to our gov't or our businesses.
We still borrow three billion $$$ a day (CAD) from the world... either we then pony that up OR we don't do some of the stuff we do... in short we'd have LESS for infrastructure, education, heath care, etc., NOT MORE if we default.
I'm all in favor of balancing CAD and even a surplus for a while if possible but NOT doing it like that. Forced instantaneous cold turkey.
Comrade Byzantine_Ruins,
"then it better be incredibly hostile to current ownership and leave the culprits no upside whatsoever."
Yeah, you and I are on the same page. This whole thing sucks eggs, and at the end of the day, we'll get reamed.
Nostrovia,
Jas writes:
"I made a killing in Goldchain Silverknife last week. I was loaded with Jan'09 80P, Jan'10 40, 50 and 60 puts. I sold 75-80 of my put holdings."
So, ah, Jas, are you, you know, kinda acting like a crook?
How exactly are you actions different from those of the hedgies and the big trading floors?
P.S. It's nice in a nostalgic way to have you back, now that autumn is here. "Hey kids, Uncle Jas is back! Warm up some cider!"
With $700 billion, the government should be able to not just prop up the market for toxic securities, it should be able to do so at a profit.
Here's one way:
In other words, the government should do exactly what an intelligent capitalist with a huge war chest would do -- ruthlessly manipulate the market, only for public rather than private gain.
The true goal, after all, should not be to shield financial institutions from all losses or to restore them to their previous level of profitability; rather, it should be to provide just enough of an opportunity so that a critical mass of the strongest and smartest financial institutions can barely survive.
There is more going on behind the scenes than the average informed U.S. taxpayer is aware of.
~ theyieldcurve
The Clearing House LLC
The Clearing House LLC: Board of Directors - BusinessWeek
check out the board members and their firms ...
Anyway, enough with Chrysler already. As pointed out, it was kiddie play next to this. What I was pointing out was that (as I had remembered it), there was precedent for taking an equity kicker in govt intervention in private bailout.
Austin Tex,
Thanks..I did say there might have been some sort of convertible aspect (or a potential equity kicker), but the warrants were never exercised, right?
satan writes:
The US has two choices
1] Debase currency and crumble slowly
2] Default and start again.
I think 2] is a better option- we still have the largest functional nuclear arsenal.
satan | 09.22.08 - 8:51 pm | #
It will be Door #1.. debase currency... at least if they can. Do too many Paulson Plan's and it will be #1 then #2... in series.
"negotiators"???
There's no 'negotiation' here. Congress holds all the cards and the Treasury and the administration hold exactly none. Congress can pass anything it wants - including putting somebody other than Paulson in charge and Bush simply cannot veto it.
Comrade mash,
"ruthlessly manipulate the market, only for public rather than private gain."
Do you actually think this is about helping the public?
Nostrovia,
Not exercised Chrysler warrants: correct. Hard as it is to believe, there was political pressure to not do so
If this is done as a reverse auction, the firms will simply sell all their junk at 95 cents on the dollar. Pauslon and Bush will declare that the free market has spoken and stuff more dogshit down our throats.
Mmm, free market. Almost makes me long for Reaganomics. Hee hee.
mmckinl:
Is the size of them relevant? Or is it simply (not "easily", but simply) the fact that the defaults occur out-of-balance and in an unpredictable sequence?
Getting all of them into one bucket and triggering all of them at once would address that problem, no?
If that's so (and I'm hoping you'll confirm/deny this) our challenge is to establish the receptacle and force the trigger.
Can our government do that? I just saw Paulson trot out an edict that said the Treasury could spend $700B however it pleased with no judicial restraint. He nearly panicked the nation into accepting this, and my still get away with it.
I realize this is simplistic, and I'm searching for the factors that make it impossible.
Thanks for humoring me, as I'm sure this has been asked before.
satan writes:
Yes, but if they are all triggered simultaneously- it is a zero sum game.
~~~~~~~~
but they won't all be triggered simultaneously . they have different terms and conditions that could bankrupt a company even though through other derivatives it is solvent ... They are all bets and if your counterparty goes belly up you are shit out of luck ...
that is why we need a bank holiday , to net these all at once and then pick winners and losers.
So the republicans think low income minorities caused this. This is their attack plan, 'they made us loan to all these poor people.'
And what about these people that lined up for the option to buy condos that weren't built yet? What about the house flippers, the condo flippers, and speculators? And when all the commercial real estate and construction loans go bad, who will they blame then? Sam Zell?
If this is where the republicans intend to point their finger of blame for the trillion dollar debacle, toward poor minorities, they've just given the democrats a veto proof majority.
"Thank god "
God is upper cased.
dry,
a fresh BK'er is a better credit than one teetering on the edge.
perhaps debt would be available.
Actually, the Tsy should use the $700 billion and buy $14 trillion worth of securities and hedge the price risk with note futures.
Could easily return 100%
Comrade Pavel Chichikov
So is Glod!
Just sayin'
Nostrovia,
did anyone read that link above about the supposed JP Morgan bailout under cover of the Lehman BK?
Yeah...scary, if even a little true.
Comrade Misean,
we'll get reamed.
Yeah, thankfully, I think we're gonna get a front-loaded reaming because I think anyone with a scratch pad can see the numbers don't fly.
Frankly, I think we would be better off with just ringfencing personal savings and what local and regional banks aren't doomed from CRE holdings. Let them grow up like wee plants after a forest fire, along with a lot of domestic minifinance and microfinance projects.
Finding foreign interests to fund this is going to be a hell of a roadshow for ole Hank. Put money you don't have on a hand of cards that killed the last guy who had them. Not my kinda bet, but hey, there's one born every minute.
At a million dollars a sucker, we'll just need about two years worth of suckers by about, umm, next Thursday at the absolute latest.
But it could happen. If it does, I want to make sure that the people who vote on the future of Hank's delayed compensation package have never worked one minute with him.
I read it. I can believe anything these days, if it involves shady bankers.
Does anyone know the historical recovery rate for a bank's senior debt in the event of an FDIC takeover? In other words, how many cents on the dollar have creditors gotten, on average? And how long did it take?
OT, but reasonably germane:
"With Wall Street in turmoil, some turn to religion"
Yahoo! 404 - Page Not Found
Just outta curiosity, how many of the readers here who don't regularly go to church/temple/etc have attended worship services in the last ten days? I mean real worship services, not attendance at Lefty's.
OuterBeltway
the size means that just a small portion of default is a huge amount of money ...
theoretically they could be netted but they are all different , that's right, each contract has its own terms and conditions, there is no standard derivative contract whatsoever, which also means most derivatives are boutique and cannot be mass marketed ... it's a mess...
makes sense to me but why could morgan just go it itself?
mmckinl:
How would the bank holiday plan work?
Who would call it, how would issue the edict that would require all banks to reciprocally liquidate their derivative contracts, and how would this regime be extended (by invitation?) to entities outside U.S. Gov't jurisdiction?
What's the sequence of steps that stretches from announce the plan, halt the markets, execute the cleanup operation, re-open the markets, deal with fallout problems?
dc1000 writes:
dry,
a fresh BK'er is a better credit than one teetering on the edge.
perhaps debt would be available.
dc1000 | 09.22.08 - 9:44 pm | #
In US BK law that is because you can't do BK again for what... seven years? After BK they got you by the short hairs for seven years.
Internationally who says we can't default every week if their dumb enough to lend to us? Plus we would be the mother of all defaults - it would be a generation before we could find somebody in the world who hadn't been burned the first time.
We'd be living our own self-inflicted IMF 'austerity plan'... maybe not a terrible idea but there are better ways to kick a habit than that.
I mean real worship services, not attendance at Lefty's.
I have no idea why you are so anti-Lefty's. I worship the guy.
why couldn't
Headlines now on Bloomberg:
Dollar Falls as Bailout Plan Erodes Confidence in U.S. Government Finances
Oil Declines as Dollar Rebounds, Paring Record Gain on End-Month Squeeze
I think the headline writer at MarketWatch is moonlighting.
A U.S. Step Toward State-Run Investments - NY Times
A Fund to Rival Those of Other Governments
"The new fund, assuming it is approved by Congress, could pull the United States deeper into a form of capitalism in which the most powerful financial entities are not risk-happy investment banks, but more cautious state-sponsored entities. While not necessarily a third economic way, this general approach presumes that the government in addition to the private sector plays a crucial role in deciding how best to deploy a nations investment capital. This gets to the point of state capitalism and defining what the role of the government is in a free-market economy, said Douglas Rediker, a former investment banker who studies sovereign funds at the New America Foundation in Washington."
dc1000 writes:
did anyone read that link above about the supposed JP Morgan bailout under cover of the Lehman BK?
dc1000 | 09.22.08 - 9:45 pm
yes. Kind of wonder if that could be true. I thought it was Lehman went BK because of leverage in part and they were let go. Kind of the lone bankruptcy of the IBs. Hey that's business.
"it is a zero sum game"
OTC derivatives aren't zero sum. Options, commodities, coin flip games, they're zero sum because they all share something the OTC's dont: mark to market.
You bot gold today at 880, it closed at 900, you made 2000. Real, ACH it out of your account money, because tonight at settlement, the clearing entity of the exchange took 2K out of the account of each short, and put 2K in the account of each long. That's true even if you didn't close the gold position (good thing you didn't: its 904.70 as I write this).
Same with options, same with the coin toss.
Not so with the OTC's.
Comrades,
These plans need to consider taking bits of grass, dead beatles, and licked squirrels onto the Treasuries balance sheet at par. It would help with capitalization and these things are both easily obtainable and marketable.
This makes so little sense I can't even wrap my mind around it.
Nostrovia,
Does anyone have any doubts about the Bush Administration reaction would have been if the banks involved in the entire bubble and subsequent implosion had been Arab banks?
Bush would have said, "This bubble and collapse are a direct attack on our great nation by people who hate our freedoms. I'm the freedom lover here, you know that means I love freedom. so I will now kill all the Arab bankers and blow up their countries to make them free."
dry,
you made me LOL about the IMF austerity plan.
now that'd be something.
hey shit you just brought up GREAT IDEA!
it wont be long before paulson heads to the IMF for money.
One more time with that link...
Lehmans Demise Was Most Assuredly All-About J.P. Morgan
One has to wonder how bad things really are if the powers that be are making these kinds of deals behind the scenes.
"But it helped produce healthy economic growth and low inflation for a generation. "
Some sort of fallacy being expressed here, eh? My seed corn made delicious fritters - now, what else is there to eat?
How long before Chavez offers financial aid?
Boston Legal about to come on TeeVee as part of ABC's "National Stay At Home Week"... no money to go out and now we have National Stay At Home Week and get screwed while we watch Dancing With The Stars who by the way are all God awful this season... Thankfully, we have CR!
I think the headline writer at MarketWatch is moonlighting.
Baca | 09.22.08 - 9:50 pm | #
Make that moonshining...
I have no problem with staying home and getting screwed. It's just the breaking an entering by the government and THEN getting screwed, forcibly, that I object to.
OuterBeltway
FDR did a bank holiday , and it worked well ...
I'm not sure of the particulars but it would have to transpire under the auspices of the institutions regulating agency.
You call all the agencies and say , close your shops and have them meet for the reckoning ...
OT, but what will Chinese product bans do to general conusmer price levels? I am not inviting a new spat over inflation, but it seems that just about everything China makes will kill you, but it's a cheap way to die.
If we need to make our own milk powders, cookies, and toys at five times the cost, what will CPI do? Will be end up with deflation in a rising price environment?
mmckinl:
I accept that there's no standardization. Can you imagine the terms of an edict wherein all derivative contracts would have to assigned to a third party (Gov't edict trumps existing contract) as of a point in time.
The gov't is responsible for closing them all out, and is also responsible for addressing any residual unclose-able circumstances by either forcing bankruptcy of a party, or passing through remittances?
Again, recognizing the over-simplification, I'm trying to get a grip on what the gov't would have to override, and the implications/requirements of the resolving/matching mechanism that would be necessary to match/cancel out the pieces, and get a sense of what the residual elements would be, and what it would take to deal with them.
Tks again for helping me understand this.
"Will be end up with deflation in a rising price environment?"
The Austrian school guys like Mr. Shedlock sometimes write about just that kind of thing. To them (and to me, although I'm no gold standard guy) deflation is about credit. That's the dog, and price levels the tail.
Just outta curiosity, how many of the readers here who don't regularly go to church/temple/etc have attended worship services in the last ten days? I mean real worship services, not attendance at Lefty's.
Jes | 09.22.08 - 9:49 pm | #
Part of the problem now is the faith, trust and devout love many have wrongly placed in our faith based government.
This plan leads to Fascism. I honestly would rather stand in a breadline.
So what you're telling me is
Bin Laden wins?
it wont be long before paulson heads to the IMF for money.
dc1000 | 09.22.08 - 9:51 pm | #
I'm sure they are on each others IM 'contact list'... text each other all day.
From Krugman - he posted a link to the Dodd proposal as it stands now. Here (with funky PDF formatting junk) is the section regarding shares in exchange for capital - such issuance is required, not optional:
24 (1) IN GENERAL.The Secretary may not pur
25
chase, or make any commitment to purchase, any
4
O:AYOAYO08B28.xml Discussion Draft S.L.C.
1 troubled asset unless the Secretary receives contin
2
gent shares in the financial institution from which
3 such assets are to be purchased equal in value to the
4 purchase price of the assets to be purchased.
"Just outta curiosity, how many of the readers here who don't regularly go to church/temple/etc have attended worship services in the last ten days?"
I've been attending Mass almost daily at one of the most affluent Catholic parishes in the DC area. It just happens to be easy for me to get to.
Today's evening Mass was notably well-attended - more so than usual, and the priest referred in his homily to 'job-loss' as one of life's travails. It's not the first time in the past few weeks he's mentioned economic difficulties.
So let's get this straight, Senator Dodd and Rep. Frank want to reduce the ultimate cost of the Bush/Paulson bailout by providing additional protection/ security for the taxpayers in cases of excessive defaults or mispricing, right?
It'd be interesting to see a plot of the net cost/return to taxpayer over time of the Dodd proposal and Paulson's proposal plotted against potential default rates or pricing mismatches.
Someone ought to be able to come up with a telling graphic
One has to wonder how bad things really are if the powers that be are making these kinds of deals behind the scenes.
theyieldcurve | 09.22.08 - 9:52 pm | #
Its been talked about for years and we are finally there - the land of cross defaults.
There is an article in todays London Telegraph about the demise of the dollar. Read the comments attached, I am paranoid enough but they certainly pile it on. I would have laughed at them a year ago but given what we are seeing, naybe some these reports about secret congressional meetings have some truth to them.
Every one of these failing banks should be subject to a workout, and bank officers should be removed without compensation packages.
Re the Dodd proposal.
david s and I had the same basic thought: that's an interesting game theory modeling problem. But, in any case, it ought to keep gouging down, as the econo's would say, ceteris paribus.
Comrade dryfly,
"Its been talked about for years and we are finally there - the land of cross defaults."
The land of CASCADING cross defaults. It's coming. No matter what they do.
Nostrovia,
"Part of the problem now is the faith, trust and devout love many have wrongly placed in our faith based government."
I see this in members of my own Church, although the Holy Father has warned us recently against hoping for salvation by secular means.
But you don't have to be a believer to see the fallacy - an open-minded reading of history should lead to a similar conclusion.
Andy Taylor:
So what you're telling me is
Bin Laden wins?
Yes, perfect shot. He knew us better than we knew ourselves.
Small Banks Pursue Piece of Bailout - WSJ.com
Small Banks Pursue Piece of Bailout
bar none, you fucking turd.
Comrade Misean writes:
Comrade dryfly,
"Its been talked about for years and we are finally there - the land of cross defaults."
The land of CASCADING cross defaults. It's coming. No matter what they do.
And thus the mistaken belief that the bailout is cheaper than failures. For some strange reason the guvmint thinks those trillions in notionals are real money and a cascade failure would pull trillions from the economy.
I've given this a lot of thought since Friday.
No bailout. Kill the Paulson Plan, do not try to gussy it up to make the turd easier to swallow. It is poison for this country, and it will kill those who embrace it.
If the Democrats buy into this trap, the GOP will hang this around Dem necks even though this whole mess is a GOP creation.
IF we are going to spend $700 Billion, let it be on rebuilding our nations infrastructure: mass transit, sewage plants, green energy generation, and other public works.
The bankers can go to hell.
"min Laden wins."
It must be all the over priced real estate he sold.
@David S - I don't think your graph would be possible, since under his ideal plan Hank wasn't going to tell us what he bought, from whom, or how much he paid for it.
Rep. McDermott "Paulson can throw a pass to himself"
YouTube - Rep. McDermott "Paulson can throw a pass to himself"
Rep. Jim McDermott just had the quote of the day:
"This is the third time we've done it with this bunch. First the war, that didn't get paid for. Then the tax cuts, that didn't get paid for, and now King Henry takes over to distribute 700 billion dollars. He's going to be there for four months. And in four months he will make deals and then he'll go out and he'll be able to catch a pass he threw to himself."
satan writes:
The real problem we are facing is that the US government cannot pay off it's debt unless we accept possibilities such as-
1] We discover and commercialize a new source of energy.
2] An asteroid/comet hits our creditors.
3] Aliens give us large amounts of precious metals.
4] Something along these lines.. sci-fi type stuff
5] President Palin prints vast amounts of money to finance the war against Iran, India, Pakistan and Russia after the Iranian/Indian Gas pipeline goes through. Russia retaliates by cutting of gas to Western Europe.
Embittered by bailout? Try Zen Millionaire's 12-step meditation Paul B. Farrell - MarketWatch
Reaganomics $3.9 trillion debt outrages taxpayers
Mad as hell? Try the Zen Millionaire's 12-step 'antirage' meditation
"Are you mad as hell? I am! Bumbling politicians are dumping trillions of new debt on us taxpayers! First neocons triggered a $3 trillion war debt. Then government piles nearly another $1 trillion in new debt on taxpayers, mostly bailing out greedy, incompetent Wall Street co-conspirators."
Haven't read all the comments so don't know if someone has brought this up or not, but please explain to me how the gov. (us) is going to make money off of BETS (CDS's). Is this the elephant in the room that nobody is talking about? These are not mortgages, they are bets on whether mortgages go south or not. CDS's are the dark matter on the financials/banks balance sheets that the govt. is now proposing to buy...the "assets" that have put them in the black hole in the first place. Please explain how the govt. (us) could eventually make money on these things. I really would like to know. Thanks.
Bush has literally done bin Laden's work for him.
--
"the guest writes: Master Jas, This is going to be a GLOBAL hit."
I totally agree. Most of the world has copied Amerika's Crooks. Indian Crooks are the worst in that respect.
When one gang succeeds immensely other gangs try to emulate. Normal gangs things.
Jas
I thank thee, Satan, for blessing Hank with an abundance of pride and vanity... so he doth overreached and pissed off the Congress.
austin tex: yes but it is also positioning a meme against contrarian republicans seeking to blame dems for the cost of the bailout.
kos
digby
kilgore
dryfly,
If the cross-defaults is the threat, why not create an entity designed expressly to address that threat?
Paulson's loyalties and perspectives notwithstanding, isn't that what the Treasury secretary should be doing?
And then manage the orderly BK of the larger banks, and then
inject capital into the ones still standing via equity purchase.
SRS ROCKED MY WORLD TODAY!
Upthread, Nobody wondered, even after the bailout "to whom would banks lend?"
Apparently not Target shoppers.
Target's credit-card users find it harder to pay up | StarTribune.com rom MPLS Strib: nearly 10% of Target's credit card portfolio written off in August. Up from 5.66 yoy.
Target. Expect more. Don't even bother paying less.
For 700 billion, why doesn't the government just forgive all student debt? That will reward people for investing in non-ignorance and future earning and I can guarantee that it would free up a lot of discretionary income.
Why idiot bankers who bet on a bailout and people who overconsumed homes deserve a bailout is just bizarre.
BTW, does the fact that the government takes an "equity stake" make the employees "public?" Are these companies now "state actors?" When and for how much will the government see all of its shares? In 2 years? Won't that make the "short selling" appear to be de minimis versus having 20-40% of entire industries dumped into the public market simultaneously?
"For some strange reason the guvmint thinks those trillions in notionals are real money"
It's scary, but a piece of them are. And even the tip of a 500T iceberg is a lot of ice.
For example, remember how everybody is in awe of Southwest Airlines' fuel hedges? Those hedges are some banks' underwater oil swaps: SWA pays them a fixed rate, and the banks pay SWA the current market price, or an average thereof, every month or every quarter. If the bank defaults that swap, then SWA's fuel hedges are gone, and their costs unexpectedly shoot up.
Same with Home Depot's interest rate swaps, UPS's diesel swaps, etc..
gary - "If the Democrats buy into this trap, the GOP will hang this around Dem necks even though this whole mess is a GOP creation"
Man, you DEMs are one defeatist bunch. COming up with excuses for losing already. Why not have your guy raise the white flag now ?
--
Joys of Strangling the Fraudsters
Over the past 14 months I have done far better than I expected in the following Fraudentials (my way of getting back at fraudsters; I did the same for tech Crooks during the tech bubble spanned by Scam Options accounting fraud).
MER
FRE
FNM
BAC
Goldchain Silverknife (GS)
Last week I was sipping cognac in near-full moon night with a buddy and had the screen door open with TV going inside. I was short in MER with naked Jan10 10 put and Jan10 50 call strangle (I had sold out all the Jan09 60 puts I had). I heard the news that BAC agreed to buy MER for 29. I almost jumped but did put out a load shout because I had strangled the fraudster as safely as one can. Right now I have a Jan10 80P and Jan11 200C straggle in Goldchain Silverknife (the fraudster I hate the most) with a cover on puts with Jan10 60 puts that I still have left.
I have had smaller positions in MS (quite profitable) and JPM.
I hate NYC Fraudsters more than some people hate German Nazis,
Jas
The land of CASCADING cross defaults. It's coming. No matter what they do.
Yep. The MMs are starting to buckle en masse, I saw in the FT tonight. That'll pretty much do it. No way the USG can backstop all 3 trillion domestic with the pitiful 50bn the "W" put up -- that was just 10% of the Friday outflows alone. So it's, "grab your MM funds or lose them" and we know how that works out.
The no-shorting rule running around the globe is going to be seen as the Smoot-Hawley Act that kicks off the real fireworks.
JAPS have a holiday today ?
Austin Tex:
Can't those swaps be voided by decree?
If the choice is to wreck the economy, or hurt some companies unfairly, wouldn't it be better to apply the hurt and work out the details later?
WD 40: I don't consider myself a petty person. But I cannot stomach the idea of their being no limit on executive compensation and no clawback provision on ill-gotten bonuses.
Yeah, that. I find myself muttering "a la lanterne" lately.
Also, why isn't anyone talking about doing this on a pay-go basis? If the system is really on the verge of collapse, the people who do best from the system shouldn't mind paying nice high taxes for five years or so, right? If they object, I really wonder if the collapse is all the imminent.
If the Democrats buy into this trap, the GOP will hang this around Dem necks even though this whole mess is a GOP creation.
Easy fix - make congressional GOPers vote for it too... tell Bush Paulson that if they want it to pass Dems will provide half the votes necessary to pass but no more than half... rest of the votes have to come from GOP ranks if the administration wants it get their own to walk lock-step... so start twisting arms & knocking heads together.
The proposal would be DOA by Friday afternoon if that were part of 'the deal'.
OuterBeltway
I would say an act of Congress would be needed to sort through the derivatives
Fooling with private contracts is not easy so a state of emergency or some such condition would have to be declared.
Once you've declared enough insolvency's I'm sure the parties would be more reasonable ...
Sarah writes:
Is it time to buy a house in OC? Meaning, could this put a bottom to housing? I have been waiting for about 2 years...
Sarah | 09.22.08 - 8:57 pm | #
Sarah - Just buy a 12 gauge and a case of shotgun shells. Then move into an empty house........
Re:satan.
I believe option 2 has been an ongoing proposition for years now.Estimated date for scrapping of dollar 2010.
All this political posturing is pure circus entertainment
Come 2010,like it or not, we can all embrace the AMero.
i can haz 700000000000 revulving xpens acount plz
We could use a new MM thread CR. This is big.
Simple Interest writes:
JAPS have a holiday today ?
well, well informed masses does it?
Bearly:
Man, you DEMs are one defeatist bunch
J'accuse.
points finger
Hank Paulson's bailout 419 letter
Posted by Cory Doctorow, September 22, 2008
Hank Paulson's bailout 419 letter - Boing Boing
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 transactin 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
I didnt know the Replicans were working hand in hand with the bank lobby when all the regs were done away with,,that when the saving and loans fell,,,the republicans were right in the middle of it,,,,and when it was over,,it was the republicans who decided it was not important enough to add new regulations,,,
i must have been asleep at the wheel also...
Here's the MM link so people don't think I'm just talking my book:
FT.com / Financials - Money market funds suffer huge outflows
Sorry if this has been covered before, as I haven't had time to read any of the comments today.
What if the GS/MS conversion to bank holding companies is just a temporary thing? They no longer have to mark-to-market, as they can claim all their MBS stuff is held for investment. They might even have some write-ups as a result. Then a few years down the line, they just switch back to IB's, or spin off their IB divisions.
"Chrysler bail-out involved debt ( a loan)"
"Are you sure there wasn't equity taken by the Govt"
The Gov only guaranteed the loans. Since Chrysler repaid in full, no taxpayer dollars were spent.
From a lifelong Michigan resident.
.
jas is hammered, and has dollar signs bulging out the eyes....
sure sign of a reversal.
http://finance.yahoo.com/q?s=^HSI
Hang Seng down almost 2% for people missing the ^n225 quote to sleep on.
FT MM story. Last weeks news.
"Can't those swaps be voided by decree?"
As somebody said between you and now...If they were voided by decree, then SWA would be damaged by decree. Contract law, if not the constitution, would be violated.
Matters worse, a US party is likely against an Asian or European counterparty. So then there's international "confiscation" going on.
If they "just fail," then its bancrupcy and the loss that comes along. Decree would be Pandora's box of legal and ethical issues.
byzantine...that is sort of last week's news, innit? Has anyone read anything on what happened TODAY?
yes, asia will bleed today for sure. they were on drugs yesterday ...they are slowly gettting out of it
scr** the japs
mmckinl:
That's exactly where I'm heading. I think the time is rapidly approaching that the complexities of law are going to be overtaken by events.
I'm trying to sort out which big sticks are necessary, and to sort the the ordinal problems from the noise.
The more clarity we can create, the less buffalo-herd-stampeding gets done by our pals in the Treasury department.
Jas Jain: I am envious of you because you had the intelligence and foresight to fight so well. I've positioned myself to help clean up the mess, but I think I've missed my chance to step on these crooks.
Commissar Rob Dawg writes:
Comrade Misean writes:
Comrade dryfly,
"Its been talked about for years and we are finally there - the land of cross defaults."
The land of CASCADING cross defaults. It's coming. No matter what they do.
And thus the mistaken belief that the bailout is cheaper than failures."
Check and mate. Nice Rob.
Nostrovia,
FT MM story. Last weeks news.
I would say it is today's news too, with a "storyline" extending hereafter for quite some time.
Here's a version that seems to be exposed:
FT.com / Financials - Money market funds suffer huge outflows
Time for a break people, since the argument ain't goin nowhere. Found this clip thru the miracle of the tubes - have a look: lots of metaphors here:
YouTube - Snapper - Buddy
I believe I coined this phrase, several months back:
We are all Jas Jain now.
india will puke today in most certainity. the country is having lotsa problems including this
http://sify.com/movies/fullstory.php?id=14763164
I mean ..this has to drive down the global markets.. innit ?
the fundamentals are strong...
if so, then we can wait for a new administration to work out any plans.
"If we need to make our own milk powders, cookies, and toys at five times the cost, what will CPI do? Will be end up with deflation in a rising price environment?"
We don't import milk from China. We don't import that much food - farmer protectionism and all.
Instead of having farming in the 3rd world, we bring the 3rd world here to work on our farms. You can't offshore land and water rights.
CR -
What if this isn't "The Mother of All Bailouts" (as labeled)?
If there's further stimulus needed (God forbid), how will you label it?
"Part of the problem now is the faith, trust and devout love many have wrongly placed in our faith based government."
You must be joking. What happens if obama gets in and Rev wright gets an office in the Whitehouse?
Comrade Misean writes:
Commissar Rob Dawg writes:
Comrade Misean writes:
Comrade dryfly,
"Its been talked about for years and we are finally there - the land of cross defaults."
The land of CASCADING cross defaults. It's coming. No matter what they do.
And thus the mistaken belief that the bailout is cheaper than failures."
Check and mate. Nice Rob.
Nostrovia,
Comrade Misean
That's why I'm a Commissar and you are just a Comrade.
Seriously, you guys are great. It is hard to follow with all the traffic but your contributions are appreciated.
MM Funds.
All last week before gov't guarantee.
New thread...
mmckinl writes: Fooling with private contracts is not easy so a state of emergency or some such condition would have to be declared.
Would being "literally maybe days away from a complete meltdown of our financial system" qualify?
I thought I heard someone say that recently.
Good, they found religion.
Bastards.
Unfortunately, there are such concepts as repentance and atonement, so good luck with the atonement part.
As to Lefty's, I'll send my son over. They changed teh communion wine and he hates it passionately. He's more of a fruity red kind of kid and doesn't like the dry stuff.
I could get into all kinds of theological nonsense, but I've frankly let other things slide in this ringside trainwreck.
The Wall Street Masters took Martin Luther partially correct when he stated "Sin Boldly!" They just blew off the rest, about believing in Grace of God.
Good night.
Man, you DEMs are one defeatist bunch. COming up with excuses for losing already. Why not have your guy raise the white flag now ?
bearly | 09.22.08 - 10:19 pm | #
bearly, this won't touch the top of the ticket . . . it would only affect downticket races.
At this point I am ready to triple down on our bet.
McSame is f'ing toast, thank glod.
Ok. You guys are freaking me out!
Why is THE CLEARING HOUSE board comprised of the heads of the biggest financial institutions that haven't failed YET?
Am I not thinking it through, or would a decree of repudiation of derivatives have something in common with FDR's ordered confiscation of the gold? Of course, they paid for it.
Forgetting the international issue for the minute...
All - Why is Volcker for a plan like this? I don't get it?
Outer Beltway:
That's exactly where I'm heading. I think the time is rapidly approaching that the complexities of law are going to be overtaken by events.
As a bit of advice, autocracy is an elephant trap for policy makers. You will like the outfit, you will never find a good successor, and you tend in general not to develop strong institutions. The idea that "pretty soon we'll be able to handwave the complexities" will bring you many unintended consequences which will require ongoing autocratic meddling.
As long as you don't lose all process headway, you're really better off letting the policy structure hack it with the minimum amount of plenipotentiary powers.
Part of the burden of weak states is that the people who do stick through the brain drain have been part of dysfunction for so long they have no reference to hold up as effective policy. Plenipotentiary powers to "git r done" brought us Ben Bernanke and the modern American police gendarme. Haven't you had enough of that yet?
Not just hurling darts. If you really hope to change things, you will need to change the ways you frame problems and solutions first.
You must be joking. What happens if obama gets in and Rev wright gets an office in the Whitehouse?
Tripleplay | 09.22.08 - 10:36 pm | #
Racism is one of the most effective methods of separating fools from dollars.
"Decree of repudiation" I'm horrified that I would even write such a thing! I'm a "system" guy to my core. I've been turned to the dark side by all of you. Fortunately, it's movie time at the ranch. Good night.
Tripleplay writes: What happens if obama gets in and Rev wright gets an office in the Whitehouse?
Come now. That won't happen. We all know he's a Muslim.
CR said, "negotiators neared agreement on allowing the government to take equity stakes in companies that participate in the rescue...."
What happens to share prices of participating firms? Look at AIG, FNM, FRE. How much equity will participating firms have to give? 25 pct? 50 pct? What percentage of financial firms make up the stock market? It's de facto nationalization or at a minimum partial nationalization.
The more I think about it, the more I agree with those who indicated the Paulson plan was a head fake. We're supposed to get behind the revised Democratic plan because it isn't as utterly sickening as the Paulson plan.
The Frank/Dodd plan is still going to run up the national debt, inflate the dollar, etc. And I can't say I'm encouraged about the idea of the US Govt/taxpayer owning a share in so many half-dead companies with utterly opaque and likely worthless assets. Given the corruption and incompetence in Washington/Wall Street, I don't see it working well.
I don't pretend to know exactly how bad it would be to induce mass bankruptcy and shut down the US financial system for a time. But I'm willing to gamble on Great Depression II only lasting 2-3 painful years, and I believe I'd prefer it to a pair of "lost decades" ala Japan. One way or another the US economy is going to contract massively - let's get it over with.
Whoever suggested this was good-cop/bad-cop may have had it right . The best way to control the answer to an issue of debate is to control the question, and the question put to us so far has been "Stark raving insane plan or still-pretty-bad plan"?
I find myself hoping that Wall Street execs will prefer bankruptcy to losing their bonuses, preventing participation for a large number of companies. The less companies that go for such a deal, the better. In fact, if a large number of companies DO go for it gladly, I'll be even more convinced it is a raw deal for the American taxpayer.
P.S. Does anyone else think Paulson looks like Skeletor? Sorry, couldn't help a bit of demonization there.
Austin Tex:
Yes, it would be a taking. But government's job is to balance the interests of all parties - that's the principle behind eminent domain, zoning laws, etc.
Yes, the government would be responsible for working out the claims of wrongful taking, but that would be a court process that could be done later, once the threat had abated.
There doesn't seem to be any other mechanism big enough to take in all the parties and force them to act in unison.
W/respect to the intl aspect, I think each of our international trading partners would love for us to take this lead, and the details could be sorted out in whatever court had jurisdiction. This is, after all, an international problem, and they stand to lose at least what we do if it's not addressed.
Comrade Noobish
The Clearing House LLC is the pivot for the banksters trading.
Nice group eh ? they will be around when everybody else is toast ... count on it ...
@OuterBeltway:
Very interesting perspective! I saw it during the "just one last refresh."
But I do have to go. A higher authority is demanding it.
Thanks.
Tripleplay writes: What happens if obama gets in and Rev wright gets an office in the Whitehouse?
Come now. That won't happen. We all know he's a Muslim. -- DCRogers
Exactly. In fact Rev Wright is gonna get stoned to death in Obama's Rose Garden Madras when he "invites" him to the Whitey House
Would being "literally maybe days away from a complete meltdown of our financial system" qualify?
I thought I heard someone say that recently.
~ DCRogers
probably but be ready to go to court....
Byzantine_ruins:
What you say makes a lot of sense. Yes, I have had plenty of stupid powerful people.
I'll ponder more.
Can you think of a way to use the existing process to address the problem of derivatives mismatch and cascading default syndrome?
It doesn't look like the existing process is prepared to take it up.
The Clearing House runs CHIPS right? Isn't CHIPS a key part of most all financial transactions? Even CC, checks, DD, etc?
Back of envelope:
$700 Billion is not enough and the White House knows it.
Every report I read has the scare of oil closing at $120.
But bloomberg and the BBC has it now about $108 Gold at 889.
But nobody attall quotes this as a further drop and very few (NYT did IIRC)discuss closing of contracts
It couldn't be that we have a controlled press could it??
The Rude Pundit says:
Remember the way a con works: you have to convince people that there's something they not only need, but that they need right now, something that if they miss out on, it will wreck their lives. You can only get this deal now. If you don't do it, you'll regret it. The world will fucking fall apart unless you pony up. It's the same whether you're callin' Granny for her savings or the American people for their Treasury.
When you tell a con artist to slow down for a minute so you can think, the grifter will just up the intensity. You gotta be willing to walk away from the deal. If Democrats don't look Henry Paulson and George W. Bush in the eye and say, "Go fuck yourselves" to the deal in its current form, we will be fucked by this for a generation.
RudePundit