About time some questions were asked, and we need oversight of this process.

Amazing, we get to this point because there is no oversight...and now they want to fix the mess with no oversight.

Someone please tell me this is all a bad dream.

I think given the dollar's weakness, in 5 years this deal will be known as "Trash for Trash"

CR for Treasury Secretary!

Where is the ban on bailing out a particular bond issue in a quantity higher than the rescuee owned when the bailout plan started?

Or is this what is meant by "revolving debt"?

The rest of us have been suffering the effects of naked short selling as long as we have been trading stocks. Now the hedge funds have turned the tables on those same naked short sellers and they don't like it. So the SEC changed the rules to stop it.
sheesh.

"Cash for Trash"? The way things are going, the USD is going to be worthless anyway. Save your cash to burn for heat!

Dodd has proposed an alternative bill which would give Treasury an equity stake, create oversight, limit executive compensation and allow compensation clawback for any firm selling assets to Treasury, and include homeowner help and the like.

Why aren't taxpayers receiving some sort of contingent shares in the companies based on the losses to the taxpayers? If there are no taxpayer losses (as some are projecting), then the shares would not be issued - if there are substantial losses, then the taxpayers would own a sizable portion of that institution.

Sorry, you don't get those. It's just like the tobacco company settlements. The "government" lost money through Medicare because of smokers, so the "government" gets to recoup the losses, to pay for whatever it wants, and the tobacco companies get indemnity from lawsuits from people who were really hurt.

The government wasn't really interested in "recouping losses" which were paid for by the tax payers. It was interested in "shaking down" the tobacco companies for money they could spend on more social programs.

gm,

very good question. The White House is also under the gun. If Congress passes a better bill, like the one Dodd is proposing (which includes things Frank likes) then the question is turned on Paulson and Bush. Can they refuse a bill that is less favorable to plutocrats? Bush is a lame duck, and is stupid and stubborn, but he has mostly let this one go whatever direction Paulson wants. I doubt Paulson will flinch at a more up-right bill, if that's all he can get.

Crude is 109 and dollar is looking like a stone.

heard Steve Forbes say 50-60 cents on the Dollar. He's nuts!
Topher | 09.22.08 - 11:36 am | #

In other breaking news, the sun rises in the east.

The fed has announced that the stock of goldman sacks and other choice firms will be convertible to a curious instrument known as a hoopajoop, which follows rules according to an 800 page manual, portions of which have been released, the bulk of which is yet to be written "some time after november." The fed guarantees that this hoopajoop conversion will solve the liquidity/solvency crisis.

Market reaction was mixed because nobody understands what a hoopajoop is, what the implications of a hoopajoop conversion is, and because the few parts of the 800 page manual which were released today involve novel securitization vehicles which are impossible to use for prediction purposes. Market forces reeling, too absorbed in contemplating this "brave new world," of investment instruments to act. Paulson announced that this was just one of a series of planned maneuvers to confuse the market with bells, whistles, and startling regulatory surprises, just long enough to pass the novemer elections.

guy with a rollformer writes:
When are we finally going to wake up and figure out that it is time for smart people to become engineers again?
guy with a rollformer | 09.22.08 - 11:40 am |

In the early 90's I was working on my engineering PhD - a chinese grad student I shared an office with was angry that a lot of her friends were getting job offers from Wall Street and she wasn't.

Go long hoopajoop!

Another question that every Congress member should ask...

WHY AREN'T ANY OF THESE CLOWNS THAT RAN THESE COMPANIES GOING TO PRISON?

All those who called CR a 'sellout' because he thought that one element of the plan MIGHT work in one area of concern (even if the rest would fail miserably), need to step forward with their tails tucked and apologize.

God Bless the President.
God Bless America.

If this shit happened in China there would actually be massive public executions.

Comrade Tech Sargent Chen writes:

If this shit happened in China there would actually be massive public executions.

That be the truth.

Politics aside - Barrack Obama had a pretty decent set of proposals to guide this process. A listing of them is here:
Web Hosting Services and Domain Name Registration : 1&1 Internet Inc.

Watching them squirm on CNBC over the compensation ceiling's is a hoot. I'm no fan of Evan Bayh, but he nailed them good with "they must not need a bailout then".

wasn't that great, he saw that one coming a mile off. Erin is nasty piece of work. She snuck in this ridiculous leap of reasoning in mid-sentence. The sentence began ok, and ended ok but in the middle, between two words, was this huge stupid assumption.

she said something like (paraphrase): "But if CEOs don't want to participate if it meant a pay drop then, uh, wouldn't that minimize the plans effectiveness?"

Who cares what you Plebes want?

Don't you know I'm the Decider?

"But if CEOs don't want to participate if it meant a pay drop then, uh, wouldn't that minimize the plans effectiveness?"

Uhh, no.

CR

John Hussman has an interesting proposal with ideas that should be considered.

My ideas are very simple:

1. All publicly traded financial institutions should open their books. Complete transparency. The public needs to know exactly what they own as assets as well as their liabilities (no summaries).
2. Those that are technically insolvent should be taken over by an RTC2. RTC2 will guarantee all customer and counter-party transactions.
3. RTC2 will liquidate all acquired assets in the open market.
4. After paying back taxpayer funds if there are any funds remaining then creditors and shareholders get paid based on the seniority of their securities.

There is no run on any system since the taxpayer is standing behind all taken over institutions. There is an orderly liquidation and we will find clearing prices. New banks with fresh investor capital will then come into the breach of cleared financial system. Buyers of assets from RTC2 will re-negotiate directly with homeowners.

ANY PLAN BEATS THE THEFT OF TAXPAYER FUNDS PROPOSED BY HANKY PANKY!

To clarify: I have NEVER felt that CR or Tanta were hostile to liberal viewponts. Just many commenters.

Is this just some lame attempt to insure that the last Quarterly account statement before the election doesn't scare the electorate??

In all seriousness, I am very happy to see that the comments section here at CR has developed a healthy disgust for the Bush admin over the last two years.
Comrade Gary | 09.22.08 - 11:56 am | #

Let's see how some time in Gitmo changes your mind.

The rest of you can have these food stamps I just decider-ized o

The process CANNOT be transparent if they DO plan on extracting large equity concessions in exchange for premium-priced purchases to recapitalize. The slightest whiff that he's started buying from some entity will tank their stock before they have a chance to clean up their balance sheet.

Afterwards... yes. But not 'real-time'.

CR wrote "Why isn't the entire process transparent? There are no national security issues, so Treasury could provide an online site that listed each transaction purchased by the government."

I think we officially have in the USA what is called in China "Capitalism with Chinese characteristics" - or Quanxi Capitalism for short. Look at what Hank Paulson is doing, and who are his real comrades. This HeliBen bill is just for buying time, save some IBs that can be saved, and let others die, because in the deleveraged economy when consumption is no longer 70% of $13T GDP, but say 30%, there's no need to that much banking industry after all. It's not prisoners' dilema but miners' dilema. It's the survival game of limited oxygen.

The question is how much time $.7T can buy? And the outrages this bill may leads the population to do...

It's revolution time, comrades.

Cap total compensation (not just salaries) at participating firms at what the salary is for the President of the United States.

Let them argue why their job is tougher than being prez. This would have great resonance on main street.

Cap stays in place until taxpayer's money is returned with interest at the 5yr Treasury rate in effect on the day the assets were taken in by the US.

CR:

You and Hanky Panky just aren't on the same page. This deal has no interest in transparency. Au contraire. Secrecy is of the essence. The Paulson plan is non-negotiable and intentionally opaque.

"Someone please tell me this is all a bad dream.

Sorry to inform you but we're still in the good dream. Bad dream comes next month.

The principal question is this: How scary is the current crisis if the federal government guarantees money market funds and doesn't create the bailout fund.

My guess - not scary enough to warrant a $700 billion blank check to Paulson AND HIS SUCCESSORS to buy mortgage derivatives (that are supposedly mispriced currently).

Wait til the Dems throw Stimulus Check #2 into this legislation. It's coming.

"We are getting the Dodd bill."

We're still screwed but I sure would like to see them take those bastards with us.

People, this is simply a power grab. GS and MS will now control our country and they only have 4 months left to collect as many assets as possible. Its just an asset laundering system they've set up. Assets go into the new institution and get filtered out. The crap goes to the taxpayers, the value goes to GS and MS, and as many friends of Hank as possible.

with the comrades' permission, I refer my blog for an interesting point about this whole scheme made by a Japanese journalist writing for the Asahi Shimbun. The way he reads the three-page language, this will let the authorities manipulate financial reports in detail, and have other types of detailed control over the management of the institutions they buy from.

Sebastian is back in form. He thinks "anecdote" is the singular form of "data".

I like simple principles- if you are using the government to save your institution you should be compensated at the same level that Civil Servants.

I had too much wine last night in an effort to drink away rational thought so I'm just getting my faxes out now:

Dear Congressman Walsh,

The banking bailout bill the Secretary Paulson is trying to hurry through will be the biggest mistake since they bullied you into rushing through war authorization on Iraq. Actually, it's probably an even worse mistake, something not previously conceivable. You have the distinct advantage of not needing to make anyone happy for re-election, so I'm hoping you will do the right thing for the country as a whole, freed from the political downside by your retirement status.

The specific problems with this bill are too numerous to list, but the most heinous is making Secretary Paulson emperor followed closely by a lack of sufficiently punitive downside for the banks' management. Believe me, the cost of congress doing nothing is far easier to swallow than this outrageous legislative assault on everything our forefathers, not to mention both current parties, ostensibly stand for. Let the banks collapse. They deserve to. Those of us who have lived carefully below our means the last decade are happy to help our fellow Americans get back on their feet, but the bankers should be left to wallow in the aftermath of their own bad judgement. They wanted this unregulated environment, they even bribed you guys to get it, so they should get to enjoy it, properly, which means suffering for their greed-driven mistakes.

Of all the people who bear some responsibility for this disaster (over-extended homeowners, unregulated home brokers, real estate agents, banks, the SEC) the bankers should bear the brunt of the responsibility since they played the cheerleading middleman to the whole mess. They knew these mortgages were going to go bad at higher than normal rates--they had to know, since they were the ones relaxing their loan standards. The truth of the matter is, they didn't care, because they were passing the buck when the loans were collateralized. All the banks cared about was booking the profit to collect their ridiculous bonuses. Which, since that money is the result of blatant fraud, should be taken from them, and their actions subject to criminal investigation. Note that deserving criminal prosecution is a long long way from deserving a bailout. A world away.

Please, please, no bailout. You've already got our children yet to be born on the hook for Iraq, you'll be putting their children on the hook for this. The markets will do their job. Let the bubble deflate or, on top of adding to the already stupefying debt, you'll be damning us to 20 years of intractable economic slowdown a la Japan. You're following the Japan script, exactly, by the way. Every action you take to prop up prices higher than a natural market will bear, draws out the pain longer. The markets, be it real estate, or stocks, will return to health when the prices rationalize. We'd prefer to suffer for 4 years rather than for 20 years, thank you. When the bankers whine about this, do remind them that they are asking you to bail them out of money that never really existed. That's the essence of an asset bubble. The money they lost wasn't real but the money they are asking you to take from us sure as heck is.

Thank you for your time,

I realized it was a little long and narrative, so I bolded the key phrases. A little gauche, but such is life.

i suppose one of the reasons the market is down is digestion of the idea that this 700 billion may not be free money for the ticker symbols involved.

Lets get simple

Lets elect SARAH PALIN for president please.

We need another comedian president in these times of distress

"I like simple principles- if you are using the government to save your institution you should be compensated at the same level that Civil Servants"

Agreed, limit them to the GS-15 table, which maxes at about $140k

In all seriousness, here is Mr. and Mrs. Cannabis' 'out of the box' insurance policy.

The Escape Pod: In case civil unrest strikes our area, total collapse happens, or ??? (It's Cali...so the Big One + anarchy?)

One vehicle capable of holding our lives for 1 - 2 years.

Physical gold and silver as 'seed' money for wherever we end up.
Enough food to last us 1.5-2 years.
Water filtration for a base, and a packable filter.
A self-defense solution.
A list of personal items that we would take if we fled. (Necessities and very few 'nostalgic' items.) This should be planned in advance, so you don't grab your wedding album and leave your water filter.

There is more...but you get the idea. 95% will roll their eyes or laugh, but this is serious. We have been planning for over a year. For the other 5%, it's something to consider.

Even if there's not sufficient capital, why should taxpayers absorb any losses before the bondholders are exhausted?

See GD1 for what happened when the bond market collapsed.

Finally, bear market risk premiums are showing up, with 10 yr yield at 3.9 up from 3.3 four days ago, but can the feds really continue the subsidized low mortgage rate charade into this credit contraction, or are we looking at 8-9% mortgages, like I got at the end of the '69 crunch?

Steady As She Sinks.

"If they accept the job and sword, and then refuse to use it when necessary, the security guards are empowered to take action to protect the company's honor."

You have 30 seconds to comply...

japan had a cushion (savings) and the culture to accept - without huge disturbances - non-performing savings and non-performing banks for a decade (until their bad debts were worked off).

right now the US looks like it has a lot less of a safety margin and a lot more liability to convulse in weird ways if cornered.

Please someone....I missed the start of the use of the term Hoopajoop.You know how it is when you fall behind. Hoopajoop = ?........Thank You

This is in part Japan's crisis. They refused to deal with it head on, now it's shattering the global financial system.

bullshit. Utter.

bullshit. Utter.

Stunning rebuttal. Care to elaborate? Sheesh.

homedad: We are prepared to stay as well. We have planted over 20 fruit trees, the youngest being almost 2 now. Most of them are producing, along with our vegetables, berries, etc. Even in the OC, you can grow a ton of your own food. We also have a ton of stored water, etc...

But we live in a rat cage. If the other rats get angry, we need the ability to flee. It would not be our first option.

ew thread up

I should add that I definitely do not think that our crisis is just the effect of Japan's crisis. The carry trade did not cause our crisis. We caused our crisis, and we fueled it by the carry-trade and selling tanker loads of debt to China and allowing the creation of securities made out leveraged thin air and telling our population to borrow and shop and borrow and shop . . . and we caused it all by listening to such Bush-shit and then re-electing it! (not that Clinton, papa Bush, and Reagan don't deserve some blame, along with a host of lesser luminaries).

Marginal Revolution

What responses have people recieved from calling congress today? Anyone say for sure they wont support the current plan?

Im about to go call again

(202) 224-3121

Someone please tell me it's going to be all right.

Thanks....I get up late and it takes a while for the cobwebs to clear.Read the term in the comment and just thought it was a real Wall St. term.It's a poor day when you don't learn a lot of new things. Luck to all.

There is more...but you get the idea. 95% will roll their eyes or laugh, but this is serious. We have been planning for over a year. For the other 5%, it's something to consider.
Coup D’état Smoking Cannabis

I'm in the 5% tinfoil group, and it's slightly reassuring that I'm not the only one in the O.C. Hell Hole like this.

We really must try and get together before TSHTF. I notice you left one thing out of your list. Do you plan to stockpile the green stuff, as it might be hard to find a dealer should the bottom fall out?

Dems seems to be standing strong. Here's a report on Sen Leahy:

Dems say they won’t get fooled again - Glenn Thrush - POLITICO.com

Sen. Patrick Leahy (D-Vt.) says he’s seen this movie before: The Bush administration, citing an unprecedented national threat, puts the hammer on Congress to ram through gargantuan legislation with a minimum of review — and the murkiest of repercussions.

“We will do something this week — but if we learned anything from right after 9/11, it’s that the biggest mistake is to pass anything they ask for just because it’s an emergency,” Leahy says.

The Senate Judiciary Committee chairman knows of what he speaks. He sponsored the original Patriot Act, only to feel betrayed later when the Bush administration used it to justify domestic wiretapping.

Fool me once........

http://www.marginalrevolution..../09/21/paulsonpp_5.png

Marginal Revolution

Shitless: Actually, I am considering ditching the green stuff entirely for financial reasons. If things go 'hardscrabble,' we may need all our money for basics. Of course, I'd need a new moniker.

How does this deal resolve the problems we are seeing in real estate? Sure it takes care of the banks problems with securitized loans, but it does absolutely nothing _ zilch _ to deal with the declining real estate values issue. Until that real estate issue (which brought about this problem )is resolved, we will have a continuing series of crises, from banks to S&L's on up.

Seb,
Your multiples mean f*** all when the debt is leveraged 20:1 and derivatized 20:1.

Ted Spread moving back up today after declining Friday and earlier today.

The level, 2.34, is still way above prior peaks.

Bloomberg.com:
Personal Finance

Hear hear.

CR, for Treasury Secretary? That too, but the world is FAR too imperfect a place for that to be something we should hope for

"Prime borrowers outnumber sub-prime borrowers by multiples, healthy banks outnumber unhealthy ones by multiples, homeowners with equity outnumber those without by multiples, but none of that means anything because it doesn't get mentioned in the MSM or on this blog."

I was quoting, not writing. The quote was an appreciation of a witticism, not a comment on financial matters.

Well, it is very clear that you hate America.

Remember?

The question arises: "Why aren't any of these clowns that ran these companies going to prison?"

That presupposes that these 'clowns' are part of some massive Konspiracy whose goal was - what - to deliberately ruin the economy?

As Steve Pearlstein put it on Meet the Press:

MR. PEARLSTEIN: Yeah. I mean, at some point, you know, if there was real fraud, well, let's go and get that. But someone who made the wrong decision or who, who signed the wrong value to something on his balance sheet when everyone else was going the same thing, and, you know, it might have been reasonable...

MR. LIESMAN: What did they know and when did they know it, when it comes to the actual values out there?

MS. BURNETT: Right.

MR. PEARLSTEIN: Well, I, I have to tell you, the, the thing to understand there is they fooled themselves. They didn't fool us, they fooled themselves. And they were fooling us in the process, but they were not -- this is not something where there's a great conspiracy to pull the wool over our eyes.