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I never thought that Americans are hysterical as a people. But after the post-911 mass madness and this Paulson coup d'etat it's hard to avoid the notion that Americans are easy to scare silly. Literally. This makes Italians look like the Swiss.
you are dearming if you think you will get that kind of detail...if its not in the plan Paulson will not disclose it...he has immunity from punishment and can do as he pleases
Watch the treasury be unable to raise the $700 billion or the interest rates go up significantly. Or watch oil go over $150.
We either get the assets above market and the taxpayer gets screwed OR
We get them below market and the banks refuse to sell..
Well, none of the other plans have worked, so why should this. More importantly, what will be the effect of yearly fiscal deficits in the $600-700 billion range. If it unsustainable, it won't be sustained. The same is true for housing prices, internet stocks and government debt. The next administration will have to deal with these huge bailouts, a recession, 2 expensive wars, and the continued explosion of social spending (including Bush's prescription drug plan). I forsee a funding crisis within the next year. I am off to do my part an order a couple of needle valves for $25,800 a piece (that's what the Navy pays for a valve you can buy out of a catalog for $700).
I'm wondering why the Paulson Plan has to include a section that gives Paulson immunity for any action he will take.
I "second" the last 2 paragraphs.
It will never happen, but you've got my vote.
"By removing these troubled assets from the balance sheets of the financial institutions, the banks will able to lend again without lingering doubts about their solvency and viability"
But WILL the banks lend, to WHOM will they lend, and under what terms?
Banks should be allowed to sell at a discount of their liking. The greater the discount the less equity we get.
20% of capital base is toxic. Govt buys the toxic stuff at 20 cents on the dollar = govt gets 20%*20% = 4% owner ship in the firm
50% of capital base is toxic. Govt buys the toxic stuff at 80 cents on the dollar = govt gets 50%*80% = 40% owner ship in the firm
Simple and fair.
CR, you are using the wrong criteria when you judge whether or not the plan will work.
If the plan doesn't prevent the problem from arising again, the plan doesn't work.
Does anyone know 1) what the projected deficit is for FY 2008, and 2) when the Treasury will start borrowing for this bailout?
ottnot - right on.
Where are the provisions to prevent this from happening again?
Nothing. Big fat nada.
I can see another run in oil and commodities. Gold should be good, in theory, but tin foilers suspect manipulation, and I'm not so sure.
I think you have miscalculated maximum losses - because there aren't any (aside from those innate in the 2-year time limitation). Assume the bailout fund can hold only $100 billion outstanding. It buys $100 billion, sells for $50 billion (all of the portfolio). Now it holds nothing, but has $50 billion in losses. Repeat 30 times, and you have $15 trillion in losses. THERE IS NO LIMIT TO LOSSES ON THE PLAN.
And best yet, the Secretary gets to run the program without any supervision. Wow, how lucky one would be, to be a good friend of the Secretary.
CR, sometimes, I think that you are a shill for the system...
Also, does this mean Paulson will still loosen lending standards for mortgage applicants?
Naked Capitalism has printed a report from a congressional aide who says that, in the infamous meeting, Paulson all but admitted that they would be paying more than market value for the securities. This seems to fit with what CR, Dr. Krugman and others have said about that being possibly the only way to recapitalize insolvent banks.
One interesting comment from that site:
For the Congress to vote for a bill which abrogates the constitutionally mandated separation of powers is prima fascie treason.
Calculated Risk, I might agree with your analysis except that these people are completely incompetent. They could lose money buying postage stamps.
This is a $700B slush fund to be used to buy the election.
The whole goal is to loosen lending standards. That is the only way to slow down housing market tankage. Banks who are now bailed out will calculate they will be bailed out yet again. Executives won't lose their jobs or bonuses if Paulson gets his way - they have every incentive to continue reckless lending.
former Goldman Sachs executive saved the country
i feel so much better...
http://www.nypost.com/seven/09212008/business/almost_armageddon_130110.htm
do you think the secondary and tertiary effects of this bailout + other ongoing problems will lead to widespread social unrest in the next few months?
What happened to you CR? Or are you CR's evil twin?
I think it important to distinguish between the explicit goals and implicit goals. I've no doubt the the "Hanky" will admirably achieve the implicit goals of buying the banks some time and disposing of some of their waste not only without penalty but a likelihood of benefit accruing to the banks. It's also disingenuous to talk about $700 billion as if it were a NTE cost. Indeed the likely tax consequences alone have got to eventually reach into the hundreds of billions in reduced government revenue.
As to lending, we don't have to speculate. In real time the TED spread and LIBOR tell the story. If the banks are not lending to each other they aren't lending to the general economy. This is where I expect the the "Hanky" to fail. HTe banks are going to use this time and new window to shore up their capital reserve and unwind exotic leverage instruments. That's in the macro sense less lending not more. In the same vein the consumer and small business is being taught to fear debt. It will be a long time there is new willingness to take on new obligations no matter the terms.
So, if you are a cynic then yes, the "Hanky" will dry the tears of the crocodile bankers but it won't be able to cover up all the people caught swimming naked.
It is a 2 part question. Second Part - Will this plan also destroy the credit of the US Treasury and seriously weaken the US$?
It is a 2 part question. Second Part - Will this plan also destroy the credit of the US Treasury and seriously weaken the US$?
Exactly.
Imagine you are in the 9th inning.
You are losing 14 to 0.
How may you win?
Easy. You change the score to 15 to 14 and call the game.
YOU HAVE WON.
??
CHICAGOANS:
I am trying to organize a protest tomorrow at Buckingham Fountain in Grant Park, at 5:30 p.m. I will supply flyers with the text of the proposal.
The message is simple: WE ARE PAYING ATTENTION.
The necessity of intervention to avoid catastrophe does not mean this is the right intervention; specifically, the idea of giving carte blanche to the Treasury Secretary, with no oversight or review, is anathema to our democracy.
If you want to join us, send me an email. It is Kenworthey (don't forget the extra "e") at gmail. I will keep you abreast of developments (such as whether there are enough people committed to doing this that it will come off.)
crispy&cole, yes, I know I'm dreaming. I suspect this will be forced through Congress with no taxpayer protection - and my forecast yesterday of $700billion in costs will be correct.
Owner Earnings, there will be unintended consequences for sure ...
Lars, after all those harsh posts I wrote over the last two days? Wow. Oh well, I just write what I think - and I think this will get the banks to start lending again.
karelian, looseing lending standards is something both Tanta and I have been afraid of - especially for Fannie and Freddie. That would extend the problem.
All, I'd also like to see CEOs take a credit counseling class - and write an apology letter to the taxpayers for each security the government purchases. We can all dream ...
Best to all.
CR - did someone in a black lincoln vist you last night??
The next bailout may be Ford and GM. They are looking for low interest loans from the government to manufacture fuel efficient vehicles.
Is the government going to support this blatant end run around the Gulf oil states by providing these loans?
Or are we too cozy with the Saudis to erode their oil monopoly.
we've lost CR.....heaven help us.
"A goverment that can give you everything, can take away everything you have ! "
Somewhere in China, there's a shitload of financial peeps throwing the Mother Of All Parties right now.
Welcome to America, a colony of the Chinese.
Transparency should be a top priority in terms of what is required of any deal to be considered.
Thanks, CR for highlighting this point.
crispy&cole has stated concisely what every newspaper editorial should: somebody gets hosed, and it's either the banks or the taxpayers. Let me just ponder a moment who owns the country...
I am sorry, this will not work (the bailout) without dealing with the issue as to how these financial institutions will make profits in the future.
The public is up to their eye balls in debt. This is the linch pin in resolving this problem or its possible solution.
No one is talking about what drives 70% of the economy.
Americans' addiction to borrowing root of crisis
By Dean Calbreath
UNION-TRIBUNE STAFF WRITER
September 21, 2008
As Congress considers a plan for the government to take over hundreds of billions of dollars of bad debt from Wall Street, many economists say it is only treating the symptoms, rather than the cause, of the nation's economic problems.
The real disease is the American addiction to borrowing.
For the past decade, the nation has been floating in a deepening sea of borrowed money. The U.S. financial sector had $16 trillion worth of debt on its books at the end of June; households had debts of $14 trillion; and nonfinancial businesses owed $11 trillion, according to Federal Reserve data.
Although the federal government was running budgetary surpluses as recently as 2000, renewed deficits have increased the federal debt to $5.3 trillion, with state and local governments owing $2.2 trillion more.
Debt has become the American way, but we've been too proud of our financial gymnastics, said Sung Won Sohn, a former economist with Wells Fargo Bank who now teaches at California State University Channel Islands. Now we have been humbled. We will have to live with the consequences.
The consequences became crystal clear this week.
Wall Street giant Lehman Brothers collapsed because of its ties to mortgage-related debts. The American International Group the world's largest insurer was virtually taken over by the federal government because of massive exposure through instruments that insured the credit of now-troubled financial institutions.
By the end of the week, the Bush administration, the Federal Reserve and Congress began crafting a plan to take over as much as $1 trillion of questionable assets in the financial system.
Sohn calls the bailout plan a necessary evil that could help the nation avoid a 1929-like collapse of the financial market. Many other economists agree, but they note that the plan does not eliminate the bad debts. It merely shifts the risk to the U.S. taxpayer.
The government is already in hock up to its ears, but now it will put up to $1 trillion into this bailout plan, which would be the equivalent of two years' worth of deficit spending hitting all at once, said Peter Morici, an economist at the University of Maryland. In return, the banking sector will have a good balance sheet, but the federal government will have a bad one.
Like Sohn, Morici believes a government fix may be appropriate, but adds that it will push federal debt to its absolute outer limits. Any additional debt, he said, could cause the economy to collapse.
You just can't keep borrowing this much money, he said. This economy can collapse, just like others do.
Even if the bailout stabilizes the financial sector, it will probably not lead to cheaper credit, since banks and other lenders still face major hurdles ahead. Tougher terms on credit, they add, could force Americans to do something that they have avoided for much of the past decade: live within their means.
Credit has already sharply contracted because of the downfall of the mortgage market. Lenders have increased their restrictions and cut back on their extension of loans for autos, credit cards and college educations. Because of the lack of credit, consumer spending has already slowed to anemic growth rates, damaging the fragile economy.
And foreign investors, who bought up mortgage securities and other U.S. debt, could become less willing to fund U.S. borrowing.
Consumers will actually have to pay their credit cards down each month and save money for down payments on a home, Morici said.
Daniel Penrod, industry analyst for the California Credit Union League, said that if consumers started saving money and turned away from relying on credit to maintain their lifestyles, it would be good for the economy in the long run.
But given the current situation, with unemployment growing and costs of goods like gasoline rising, that's a difficult path, he said.
Easy money
Economists trace the rapid growth of debt to the economic slowdown of 2001, when the Federal Reserve began slashing interest rates and injecting massive amounts of money to prevent the economy from going into recession after the dot-com crash.
Those rock-bottom interest rates the lowest in 40 years triggered massive borrowing by banks and other financial institutions, which saw an opening to make money. By borrowing money at low rates and then relending it to consumers at higher rates, they could generate huge profits.
Investors increasingly saw an opportunity to boost their returns by using borrowed money. That leverage can pay off spectacularly when an investment does well, but it can lead to disaster in a down market.
Financial sector borrowing rose at a rate of 10 percent a year from 2002 to 2007. Even after adjusting for inflation, financial sector debt is now 74 percent higher than it was in 2000 and 10 times as high as it was in 1980.
The banks used that money to extend cheap loans and credit cards to U.S. consumers. To attract customers, they stripped away the normal requirements for loans, offering easy credit terms to borrowers. Between 2002 and 2006, household debt grew at an annual rate of 11 percent, far outpacing overall economic growth. Much of that came through home equity loans.
During the height of the housing boom, home buyers used the loans to buy necessities as well as such luxuries as SUVs or flat-screen TVs. Between 2002 and 2007, homeowners took out $1.7 trillion more in home loans than they spent on their homes or home improvements.
Scott Lilly, a senior fellow at the Center for American Progress, a liberal think tank in Washington, said the cheap mortgages made up for the fact that growth in U.S. wages stalled in 2000 and has since fallen behind the inflation rate.
Lilly said that under normal circumstances, the slowdown in wage growth would have led to an economic recession. But the availability of cheap credit helped Americans afford goods and services they could not have afforded with their salaries alone.
The prescription was easy credit car loans, credit cards, and most importantly, mortgages, he said.
The lenders then repackaged the loans into mortgage-backed securities that they sold on Wall Street and overseas. Financial institutions in China, Japan, Europe and the oil-rich nations of the Middle East vied to buy the loans, since they saw the United States as being a safe, predictable place to invest.
There was such demand from abroad for U.S. mortgages that lenders competed with one another to attract borrowers, offering teaser rates of as low as 1 percent to pull people in. They assured borrowers that by the time the rates adjusted upward, they would be able to refinance at cheap rates or resell the home for a profit.
The cheap lending drove demand for homes to record highs. In San Diego County, the median price of a home hit $517,500 at its peak in November 2005 almost double what it had been just four years earlier.
When the interest rates began to adjust upward, however, many of those borrowers found they could not pay for their loans. And with home values falling, they couldn't sell the homes at the price they had paid for them. Many stopped making payments, driving down the value of the mortgage-backed securities being peddled on Wall Street.
In the wake of the collapse the bursting of one of the biggest financial bubbles in the nation's history dozens of mortgage firms went bankrupt or were acquired by competitors, including Countrywide Mortgage and San Diego's Accredited Home Lenders. Wall Street firms that dealt in the securities such as Bear Stearns, Merrill Lynch and Lehman Brothers also nose-dived. The semi-privatized Fannie Mae and Freddie Mac mortgage agencies were seized by the federal government.
Because so many foreign investments were tied to the U.S. mortgage market, the crash resounded throughout the world. Stock markets in Tokyo, Hong Kong, London and Frankfurt swooned. Russia temporarily closed the Moscow exchange to prevent a panic.
'Already broke'
Although the federal move has temporarily stanched the bleeding, economists are skeptical about what the government can do.
Sylvain Champonnois, a finance specialist at the University of California San Diego, compared the federal initiative to a similar move by the Japanese government in the early 1990s, which took place after Tokyo's stock market imploded at the tail end of a real estate bubble.
In Japan, they call the 1990s 'the lost decade' because of the crisis. And the level of debt in Japan remains enormous, he said. Hopefully, things will rebound faster here, because our government is acting faster than the Japanese did.
Laurence Kotlikoff, an economist at Boston University, questioned the government's ability to take on much more debt. He noted that in addition to offering a bailout of the mortgage-related assets on Wall Street, the government has also committed itself to backing money-market funds and checking accounts.
The government is already broke, Kotlikoff said. The official debt level is the least of our problems. When you consider all the baby boomers that will be retiring in the next few years, requiring Medicare benefits and Social Security, we have huge fiscal problems hanging over the marketplace. This administration has been the most fiscally profligate in modern times.
How are politicians going to demonize single payer healthcare when they have given out the mother of all bailouts ?
"Transparency." Balls. This plan is as transparent as you get - a transfer of 700 B Usd from the US government to financial firms. And it will get passed. So what does transparency get us, except knowing that a boot is stomping on our face? Transparency or not, the boot will still stomp.
Talk about moral hazard!
If this plan is passed through Congress, I think every homeowner whose mortgage is even a dollar underwater will stop paying it, essentially daring the government to foreclose on them.
If they are allowed to get away with it, the practice would spread far and wide and put the entire credit system in danger
Simply hand out 100 billion check to each major bank will also achieve the first goal. The question is at what price?
Regarding:"By removing these troubled assets from the balance sheets of the financial institutions, the banks will able to lend again without lingering doubts about their solvency and viability"
I respectfully disagree. The plan does not prevent "lingering doubts", because no steps are being taken to prevent a repetition of the reckless lending that led to the current crop of "doubts".
This bailout plan, with no transparency and no accountability, does not provide any of the real investors -- the people who actually have money, not the banks who are broke -- with any reassurances other than the word of the Secretary of the Treasury.
Only a transparent solution will have any lasting effect.
In the meantime, home prices continue to fall and citizens continue to tighten their belts. The fundamentals of the economy do not justify further lending at the bubble levels in any case.
The train can't be stopped, but if enough of the bad loans are hidden away, non-transparently, in Paulson's $700B shell game, causing investors to completely lose confidence in the integrity of the U.S. financial system ... it can be derailed further.
I was wondering since the laws aren't going to change won't they just do this all over again and 10yrs WS will be back to begging again. How about put 500B up to us Americans to hold through the collapse of WS and then start a new. I don't want to save Amerika.
jo6pac
CR,
When you say the plan will achieve the primary objective, I think this will need to be clarified more.
Perhaps the banks will start to lend again, BUT, to whom will they lend and more importnantly, to whom will they NOT lend?
I cannot see the banks be willing to take but the smallest risks in their lending. Hence, they will lend to only those large well capitalized firms - financial and non-financial and the rest will have to go without.
Won't this mean that the small and medium sized businesses will be severly hampered in their cashflow financing needs?
What about the retail level? Will we see mortgages being offered again? To who? More credit cards? Personal and Auto loans? I seriously doubt that. I think we will get a two-tier credit system - liquidity and credit for the very safest and a drought for the rest.
I would really appreciate your thoughts on this as I feel it will be the measure by which the economy is affected (the two-tiered lending that is, not just your opinion...!!)
Many thanks
"The Mother of All Bailouts" and we're technically not even in a recession.
I hope there's one unintended consequence that rocks Washington and Wall Street to its core.
F them. Commie degenerates.
Bernanke has made a career out of agonizing over Friedman's myth that the Fed caused GD1 by not reinflating.
However, as Rothbard says:
"The Fed tried frantically to inflate after the 1929 crash, including massive open market purchases and heavy loans to banks. These attempts succeeded in driving interest rates down, but they foundered on the rock of massive distrust of the banks. Furthermore, bank fears of runs as well as bankruptcies by their borrowers led them to pile up excess reserves in a manner not seen before or since the 1930s."
"[T]he inflationary policies of [President Herbert] Hoover and [Federal Reserve Board Governor Eugene] Meyer proved to be counterproductive. American citizens lost confidence in the banks and demanded cash Federal Reserve notes for their deposits (currency in circulation rising by $122 million by the end of July), while foreigners lost confidence in the dollar and demanded gold (the gold stock in the United States falling by $380 million in this period). In addition, the banks, for the first time, did not fully lend out their new reserves, and accumulated excess reserves these excess reserves rising to 10 percent of total reserves by mid-year. A common explanation claims that business, during a depression, lowered its demand for loans, so that pumping new reserves into the banks was only pushing on a string. But this popular view overlooks the fact that banks can always use their excess reserves to buy existing securities; they dont have to wait for new loan requests. Why didnt they do so? Because the banks were whipsawed between two forces. On the one hand, bank failures had increased dramatically during the depression. Whereas during the 1920s, in a typical year 700 banks failed, with deposits totaling $170 million, since the depression struck, 17,000 banks had been failing per year, with a total of $1.08 billion in deposits. This increase in bank failures could give any bank pause, especially since all the banks knew in their hearts that, as fractional reserve banks, none of them could withstand determined and massive runs upon them by their depositors. Second, just at a time when bank loans were becoming risky, the cheap-money policy of the Fed had driven down interest returns from bank loans, thus weakening banks incentive to bear risk. Hence the piling up of excess reserves. The more that Hoover and the Fed tried to inflate, the more worried the market and the public became about the dollar, the more gold flowed out of the banks, and the more deposits were redeemed for cash."
GD2, like GD1, has been baked in by the years of excess credit. Gigantic misallocations of real goods and services have taken place. More excess credit/loosened lending standards will not magically correct this. It will only destroy what faith remains in the system.
Total cost now - $1.8 TRILLION:
Page not found - - CNBC.com
Rob Dawg,
"As to lending..."
Yes, my thinking exactly, but you articulate it so much better than I ever could.
CR, yes this plan could "work". Or another plan, where all bad debts are forgotten by decree and all creditors can go f@#k themselves would "work" too. Or maybe we could all go into a camp and work off those debts under the banner "Arbeit macht die Banken frei!".
The point is, if there is a plan that could "work" does the cost matter?
How sad, CR.
So the banks will be able to lend. So what? Who's borrowing? Finance is not the problem. The economy is the problem. All this does is loot the treasury for Wall STreet. After the looting for Halliburton et al, how can we be so stupid?.
This does nothing for the economy except make any future economic initiatives and social programs impossible.
I am awed by Paulson's arrogance. When asked if he wants to bail out foreign institutions, the answer is "of course". When asked if 700 Billion is enough, the answer is "probably not".
He is like Dick Cheney - no shame, no sign of decency or regrets. Devil take the hindmost. This is what at least 45% of Americans find reassuring.
"If this plan is passed through Congress, I think every homeowner whose mortgage is even a dollar underwater will stop paying it, essentially daring the government to foreclose on them."
This may have largely already happened. Plenty of mortgages already in default, stories of people buying new houses just before defaulting on the previous one, etc. What do you think triggered this mess? Lots of people have already dared the banks to foreclose, and the banks, in many cases, couldn't do it.
Step 2 of this plan will undoubtably be for Fannie/Freddie to significantly loosen lending rates and standards (think 4%, no-reappraisals, no-credit checks), in order to get people out of the toxic garbage into other loans. It will put a floor under the current CDOs, as the first loans will be repaid as people refinance. The problem will be kicked down the road a bit.
CR - thanks for the straight skinny on what you think about this plan as I very much value your opinion. I realize many of the angry comments in this thread are fellow renters flailing about because they are angry at the cost (I am too), but amidst all this flailing, an honest reasoned, educated, opinion is valued. Cheers!
CR's arguments look reasonable, but isn't it better to use this much money to buy homes directly out of foreclosures at above markert prices? This would have direct impact on housing prices and will provide direct releaf to (some) taxpayers.
$700 Bil can support inventory of 2 Mil homes (randomly assuming avg price of $350K). That's a whole lot of homes ...
I agree about - "no shame, no sign of decency or regrets" - seems to typical of the GMW admi
"...make any future economic initiatives and social programs impossible."
Maybe that will save us some pain. All we need is another program like the "Ownership Society" to dig the hole a bit deeper.
I absolutely cannot get past the the very questionable judgement of Paulson and Bernanke as two of major players that helped lead us into this mess, denied there was a mess, and then assured us that it was all "contained". Since it has now become obvious that this is not at all "contained", they have stumbled from bailout to bailout throwing taxpayer money around. Now, we should believe that in a matter of hours they have devised a plan to fix the mess, if we will only immediately have our congress members sign over dictator-like powers and nearly a TRILLION taxpayer dollars,
Congress and the American people are being threatened that if this is not done immediately, without discussion and debate, there will be Armageddon. Naturally, our congress members, not wanting to be on the hook for unleashing "Armageddon", have only one question, "where do I sign".
I dont' think it will work as is.
Hundreds of billions of dollars have been pumped into the system and now there's this urgency to get 700 billion into it or the failures will be catastrophic.
I posted more details on my thoughts on my blog.
Borrowing has and will continue to decrease. I'm not sure the banks are prepared to deal with that slower pace and thighter lending standards.
To paraphrase Nancy Reagan:
"JUST SAY NO TO BAILOUTS"
Why not just open a new federal bank with $700b in assets and have it compete with the existing banks. That would provide liquidity and protect the taxpayer.
As the other bad banks failed, have the new fed bank pick up their assets and keep everything moving.
Sounds better than Hank's plan.
an astute observation from Bernie Sanders
Sanders Billions for Bailouts! Who Pays? - Newsroom: U.S. Senator Bernie Sanders (Vermont)
" We must end the danger posed by companies that are too big too fail, that is, companies whose failure would cause systemic harm to the U.S. economy. If a company is too big to fail, it is too big to exist. We need to determine which companies fall in this category and then break them up. Right now, for example, the Bank of America, the nations largest depository institution, has absorbed Countrywide, the nations largest mortgage lender, and Merrill Lynch, the nations largest brokerage house. We should not be trying to solve the current financial crisis by creating even larger, more powerful institutions. Their failure could cause even more harm to the entire economy."
Will the plan achieve the primary goal? I think the answer is yes.
Let me point out that CR is NOT saying that this plan is the only way to clean up the mess.
I don't doubt for a second that it's possible to save the banks. But is it really worth trashing the rest of the economy (and the currency) for it?
I think the goal should be the opposite. Trash the financial system and help the rest of the economy for 2 weeks until the replacement system comes in place.
If we are to believe that this plan is the panacea for all the financial sectors troubles we would have to make some key assumptions
If 3/5 of these problems still linger we will be right back where we started.
Total cost now - $1.8 TRILLION:
Page not found - - CNBC.com
Roubini had it at 2 trillion I believe , we're getting close ...
problem is, what will black swan next ?
I'm with Gainas. The Paulson plan is more trickle down -- ie, let's give the banks money so that they can lend it. If the goal is to lend, let's do it directly and screw the banks.
cr i have to strongly disagree as this does nothing to solve the problem.
well the problem is too much leverage on the part of consumers and businesses. this does nothing to solve that. only a fool would borrow today to buy an asset (housing) whose value is falling or at best uncertain. the problem is housing affordability beacuse of over-extended consumers and a lack of income gains. in fact, this does nothing to solve that problem and even perhaps make it worse because of the tax burden.
an easier way to do this would be for the federal government to take the $700b to capitalize a new bank that stands ready to make loans to sound consumers and businesses. let the others fail because of thier irresponsible behavior.
CR: "The primary goal of the Paulson Plan is to get the banks to lend again - or "unclog the system" as Secretary Paulson put it.
"Will the plan achieve the primary goal? I think the answer is yes."
I see nothing in the plan that requires Paulsen to buy trash only from lenders.
I see nothing in the plan that requires lenders selling trash to lend the proceeds.
When Paulsen says "unclog the system" he means only "get the trash off their books and send the taxpayers the bill."
There is no highminded purpose to this ripoff.
Did you get a visit from the Men in Black? If I see Mish posting that this bailout is going to work I'll have my answer.
As Krugman pointed out ...
what if the banks are still insolvent ?
they still cannot lend ...
then there are the coming defaults in Alt A, car, CC, CRE etc,etc ...
This bailout does not mean banks will lend again ... period !
--
"And making sure the banks continue to lend will minimize the impact of the credit crisis on the general economy."
Lend to whom? Households in trouble with credit cards and mortgages?
Will it increase aggregate demand by households?
What if financial institutions use the cash for speculative purposes by taking bets on various instruments?
Jas
CR (with all due respect),
Have you accounted for the massive loss of confidence in the system? While it may clean up balance sheets to the point that banks are able to lend, I fear that the panicked way in which this moral hazard is introduced will induce a crippling amount of fear on the part of borrowers and lenders.
I think it's certainly safe to say that many potential house purchasers (for instance) are going to sit out and wait for a sense of normalcy to return.
JP
It seems disingenuous at best to speculate on the impact of "the plan" when the legislation as proposed contains no plan whatsoever. There is a list of possible proposed actions, but that list is not binding or limiting in any way. The lack of limitation is quite explicit, in fact. And then there is a fact sheet handed out by Treasury spelling out what they intend, or at least what they're willing to disclose about what they intend.
We can, I suppose, take it on faith that an agency given essentially unlimited powers with no oversight or recourse will restrain themselves, and the "plan" will go forward as described in the fact sheet.
I'd like to think we know better than to take such matters on faith, but I'm probably wrong.
CR,
I agree with Andrea's comment above. The maximum amount of ABS outstanding at any one time is 700 billion. This is not the same as the amount of funding as the TARP can sell on the assets it buys at a loss. There is no limit to the losses it could make, as Andrea says, other than the time limitation.
PS Don't think you've sold out at all. I agree with you that it might loosen the constipation in the banking system. Sadly, enemas have a habit of being unpleasant to be around...
Ciao,
YM.
I think there are two reasons taht Paulson doesn't want transparency. First, he wants to hide the price he is paying compared to the price these assets are "intrisically worth" as long as possible, to keep taxpayers pacified. Secondly, he wants the flexibility to bail out failing institutions before others.
Do you really believe WaMu is going to go in the "dutch auction" line and wait their turn, just like everybody else?
Of course, he also could favor his cronies or other companies that stand to compensate him in some way or other.
Transparency is essential, especially in an environment of so many crooks and thieves. It should be non-negotiable. Good for you, CR, for saying so.
D. Leonhardt takes one for the team :
PUNCTURED; Bubblenomics - NY Times
Apologist extraordinaire.
Im really starting to abhor the NYTimes.
Last Thursday was a historic day in the US because America that we have known has ended formally, even though signs that it would happen have been there for many years. Hank Paulson was given dictatorial power over the economic policy (a condition of final say on which he accepted the job) and on Thursday he exercised that power in the dark of the night by painting a very scary scenario to the Congressional leaders, many of whom are paid agents of the bankers and financiers whom Paulson represents. Some think that this plan was hatched some time ago and Paulson was waiting for the right moment to get an emergency approval. I am not the only one who thinks so. For example:
The end of America as you knew it is at hand. It was a good 232-year run. But it is about to be stolen in the night.
America is about to be legally stolen from the people, and given to a very small group of powerful men.
HousingPanic
Anyway, the move by Paulson was intended to inflict maximum pain on the bears with futures positions as the settlement of the expiring stock futures and options are based on the prices at 9:35 A.M. NY time (5 minutes after the markets open for trading) on Friday. As one CNBC headline said, Fed to the Bears: Get Lost.
Jas
Short the dollar
short treasuries
long commodities
join underground economy
Sell all US stocks and bonds
Fraud is fraud and that all this is.
Fuck'em
The ONLY valid point of the $700+billion dollar bailout isn't about whether it will work, it's about usurping Congress's Constitutional power and handing it to Mr. Paulson. Mr. Paulson's allegiance is to the illustrious House of Goldman Sachs and fellow bankers.
"Our peculiar security is in the possession of a written Constitution. Let us not make it a blank paper by construction." --Thomas Jefferson to Wilson Nicholas, 1803. ME 10:419
Long time lurker here. Faxed my Senator and Representative for the first time today. Thanks CR, Tanta, and all the commenters.
Dear Senator Larry Craig:
I am writing to express my extreme concern at this bailout proposal: LEGISLATIVE PROPOSAL FOR TREASURY AUTHORITYTO PURCHASE MORTGAGE-RELATED ASSETS.
As a taxpayer, I should not have to bail out private companies that made poor investment decisions. These companies made billions of profits and placed our economy at risk through their recklessness. The CEOs and executives at these companies are some of the most richly compensated individuals in the history of the world. WE MUST NOT USE TAXPAYER MONEY TO BAIL THEM OUT. As Americans we should allow the free market to correct the excesses and let these companies fail. Spending taxpayer money on intervention is misguided and highly inappropriate.
I feel very strongly about this and I will vote against any of my elected representatives that support such a heinous misuse of taxpayer money. I hope you will vote against this proposal.
Sincerely,
Paulson really gets immunity on the whole thing? Are u f#cking serious? What's his incentive to even try?
If the bailed out institutions have to cough up options, warrants or preferred shares, it puts an automatic deterrent on funny money transfers, especially from hedge funds.
For example, what's to stop a hedge fund (domestic or abroad) from dealing its crap to a U.S. bank and then having the bank resell it to Paulson?
If that bank had to cough up some shareholder value, that would put a high premium on any such transfers. There's nothing in the Paulson plan that addresses deterrence of such transfers. So, his plan aims to potentially bail out all hedge funds, too.
Wipe out equity holders
Claw back bonuses
Prosecute the most egregious violators (fraud, self-dealing, etc.)
Equity interests to government
Completely eliminate the "section 8 Paulson Supremacy Clause"
AND
fund a new WPA to kickstart the economy.
There is no doubt that we are going into a recession to rival the great depression. It is utter folly to trust Paulson to dole out $700 Billion to his buddies.
Now that Paulson has shown his plan, which is a complete joke, the Democrats must scrap it in its entirety and come up with their own plan, or they WILL pay the price politically . . . and we will all pay the price in every other way.
To be very clear, this is PAULSON'S, and by extension, George Bush's administration's plan (got that, bond girl?). This is not Congress's plan, and they should wad it up, throw it in the garbage can, and start fresh on a real plan that does not reward failure, greed, and deceit.
Rant over.
I already contacted my rep, and will reach pout to Senator's tomorrow morning. This must not be allowed to pass.
puerhfan - you didnt need to fax Larry just find the local restroom hangout and give it to him there...
Chris Dodd: Campaign Finance/Money - Top Donors - Senator 2008 | OpenSecrets
Biggest decision of your life. Remember the little guy.
Do the right thing.
For example, what's to stop a hedge fund (domestic or abroad) from dealing its crap to a U.S. bank and then having the bank resell it to Paulson?
Why do they have to work through a bank? The Secretary can take any action he considers necessary, without limitation. Why can't he buy directly from the hedge fund?
Spoke with someone a lot smarter than me and he put it this way, if this plan works and stabilizes growth over the next 10 years at around 1.5% on average, that is $2.5t annual benefit to the economy, a pretty good return on a $1t investment especially when compared to the alternative
the best way to make sure the plan works is to keep it as simple as possible, there are a lot of good ideas that add nuance, but the bottom line is what has the best chance of working, and it is a straight vanilla bailout, as distasteful as it may be.
Paulson today mentioned on Meet the Press that he isn't paying any attention to the equity market. He is solely focused on the Credit market.
So that gives me hope that this new plan will in fact wipe out the management and equity holders and potentially sting the bond holders.
imagine, within 2-4 weeks of this scheme in effect, the entire 700 bil is used up. And paulson & co could not sell back anything to a private player(what would be a market clearing price)
If this happens, the market will be scared big time.
Anonymous - you are right that the guy is a lot smarter than you. I bet he could prove to you any day that black is white and you would just nod and agree.
Third World wages == Third World house prices.
What so is hard to figure out here?
More lending accomplishs nothing except another crash and debt default.
Where shall the coronation of his highness Herr Paulson take place?
I sincerely believe ... that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity under the name of funding is but swindling futurity on a large scale.
Thomas Jefferson to John Taylor, 1816
maybe the whole problem is that wall street crooksters are too smart for Mr. Average Joe, who doesn't know where to even start fighting back. It's hopeless.
Everyone should add "quadrillion" to their vocabulary.
By the time the next Pres. is sworn in that will probably be the US National Debt
fwiw (=$0.00), here is my morning letter to Pelosi:
Dear Madam Speaker,
Thank you for standing up to the administration on the $700B bailout bill. The lack of oversight in the bill as currently written is unconscionable.
In finance, confidence cannot be bought: It must be earned with proper action over long periods of time. The current bill rewards incompetent investors for making bad decisions, and such a response will only exacerbate the long-term loss of confidence in the markets despite Secretary Paulson's assertions to the contrary.
Please do not let urgency be an excuse for unsound governing. We need to act decisively and swiftly, but the current proposal is a terrible waste of taxpayer dollars.
Your sincerely,
Please use or plagiarize as necessary. Ya know, 2 days ago, I had never written congress. Now I can't stop.
Completely eliminate the "section 8 Paulson Supremacy Clause"
You know, I'm less concerned with section 8 than I am with the "without limitation" language in section 2. The bill should precisely delineate Treasury's powers in accordance with whatever is determined to be the "plan". Specify what, how, and to/from whom he can buy and sell, and how prices are to be determined.
If he needs more, he has to come back and ask--ideally through the legislative process again, but at the very least through a congressional oversight committee.
Why is this unworkable?
CR, you cannot trust in the potential efficacy of a plan which gives Paulson the unlimited power to make it up as he goes along, or change his mind about everything he's said so far.
Nique said: "CR - thanks for the straight skinny on what you think about this plan as I very much value your opinion. I realize many of the angry comments in this thread are fellow renters flailing about because they are angry at the cost (I am too), but amidst all this flailing, an honest reasoned, educated, opinion is valued. Cheers!"
A couple of things. First, I have complete confidence that CR has neither: A) Had his body taken over by triffids, nor B) Succumbed to pressure by The Government to change his point of view.
Here's what I don't get: I, as a homeowner with a ton of money tied up in my house and considerable untouched equity, have A LOT more to whine about than any renter. I've got a lot more at risk, and one of the reasons I've got a lot more at risk is because I've been conscientious with my money, unlike so many others that I'm now being called upon to bail out.
If anyone should be up in arms about all this, it should be me and others like me, not agitators who don't even have any meaningful money on the line.
Yet I'm not, because I've been around long enough to know that there are always compensations. In addition to poor-quality homes, stocks and bonds that are selling for steep discounts, there are also good quality ones available, too.
And because I've been conscientious, because I can remain calm, I'm going to be exercising control over one of the few things an individual citizen can exercise control over, and that's myself.
That's why, again, I say it's time to look for things to buy. Maybe we're getting screwed one way, but that doesn't mean we have to just take it and not get compensated for it some other way.
And now I'll return to simply reading the screams of the mortally aggrieved.
Sebastia
ot paying attention to the equity markets? are you kidding me? i'll bet every tick in the goldman stock is watched. How many more times can this dictator lie? are americans really that stupid?
If it is not completely understood by "all" yet, this is just the beginning of these "liquidity adjustments"...
This is the "DOOR" which allows the continuence of the financial strip
mining, only at a faster rate.
.7 trillion is the "lighter fuid",
the barbeque is yet to come.
Merely ask yourself one simple question, throughout the unfolding of this financial crisis, has the truth ever been portrayed...
I live in Tom DeLay's former Congressional District. A quick survey of my neighbors shows near zero support for Paulson's Plan. Normally this would cause me to support this "bank aid" fund drive. Now I am scared my fellow Texans may be correct for the first time in my memory. Despite what Paulson may want, this plan will be a hard pill for this Congress to swallow when even the true belivers are not behind it.
what has the best chance of working, and it is a straight vanilla bailout, as distasteful as it may be. ~ Anonymous
Wrong ... the Swedish Plan has the best chance of working ... Nationalize and liquidate ...clean the whole mess up and boot the perps ...
are americans really that stupid?
I have heard that they are born-and-bread dopes.
THIRD WORLD WAGES == THIRD WORLD HOUSE PRICES.
More lending doesn't fix this.
Gad, I've never seen such incredible stupidity.
And flipping Sebastian STILL hasn't figured out that his beloved government has already destroyed his "equity".
THIRD WORLD WAGES == THIRD WORLD HOUSE PRICES.
Deal with it.
The solution to the financial crisis does not reside on Wall Street, or in Washington D.C. It lives in the living rooms of the American people.
The plan to get us out of this calamity is simple.
Problem
The banks, insurance agencies and brokerage houses cannot asses the value of their bonds because the falling housing values and the more that 5 million homeowners that will soon default on their mortgages. As they can't assess their value, no one will purchase their bonds or any other financial products that the institution offers.
Solution
Reassess the value of the at-risk, Adjustable Rate Mortgages by reducing their value by 30% and refinancing the mortgages at a fixed rate of 6%. Anyone who took out an ARM loan in the past 4 years is eligible.
This means:
* The banks (IE., Wall Street) will absorb the loss and move on, now able to value their assets. If each of the 5,000,000 homeowners take an average of 30 percent off of their mortgage it will approximately cost Wall Street 500 billion dollars.
* Treasury Secretary Paulson has asked for the authority to spend 1.2 Trillion dollars.
* The Peoples Plan saves the country 700 billion dollars.
* The 5 million at-risk homeowners will stay in their homes.
* The tax payer won't bail out the corporations.
* Life will go on.
Sebastian that has to be bollocks. You have a vested interest in the maintenance of the system because of your investments in the system. The angry renters want it to collapse or be depressed so they can afford to join the system.
At least make a show of having some integrity please.
Banks are distributor middlemen of money. What they have right now are two problems:
This bailout does nothing to help with #2.
Just because you decide to comp the customer at your restaurant who got food poisoning, doesn't mean they're going to start eating there again.
I know I sound like a broken record, but
please call Congress tomorrow and speak to the offices of your senators and your house representative.
Most enjoy talking to intelligent people and you all can articulate well how (1) yes there is a problem but (2) this bill will not solve or even help the problem.
(202) 224-3121 is the switchboard number for the senate and the house. Just as for your rep by name
You can find your reps here
United States House of Representatives, 111th Congress, 1st Session
U.S. Senate
(202) 224-3121
We can bring the switchboard down if enough people call (happened in 2007 for Amnesty bill and that bill was stopped) and I guarantee you that will get attention.
We are all busy, we all have to go to work, please make the time to call.
Cheers.
tbapple writes:
Everyone should add "quadrillion" to their vocabulary.
Even with all this I'm still in the deflation camp. Still, as long as we're on the subject and for those who have never seen it:
http://www.coinworld.com/news/090505/bw2_big.jpg
If you can't read Hungarian, that's a 100 million billion pengö note. And since the European billion is our trillion, that's 100000000000000000000 pengös.
(I don't believe this particular note ever went into circulation--they printed them but the currency reform went through before they were circulated.)
Wow, CR? This is like you agreeing that the subprime problems is "Contained"...
And you even Bold printed your support of the "Level 3" Bailout!
We can't let Hank throw good money after bad!
If they think this stop housing prices from dropping they are dead wrong.
I have enough to buy a decent house without debt, and there is no way I am going to buy house in this environment.
How will this plan force those like me to by real estate?
It won't.
Repeat ...
There is nothing in this so called plan that will make banks loan money again ...
As Krugman pointed out ... many of these banks will still be insolvent. The banks that are solvent still have AltA , CC, Auto, Heloc and other defaults coming and are not likely to lend.
as jas pointed out ... who is going to borrow ... the middle class is done ...
This bailout does not necessarily unfreeze the financial system ...
2. The people who lend money to banks went on strike last year after being peddled fraudulent AAA securities. This is what is freezing the credit markets and the velocity of money.
This bailout does nothing to help with #2.
This is precisely what I mean by crisis of confidence above. Confidence cannot be bought, it can only be earned by proper action demonstrated over long periods of time.
worried said: "Sebastian that has to be bollocks. You have a vested interest in the maintenance of the system because of your investments in the system. The angry renters want it to collapse or be depressed so they can afford to join the system."
If it collapses or is depressed, they won't be able to join the system. They just don't realize it, although they have no excuse not to.
They scream about the unfairness of bail-outs, but who's getting bailed out? Somebody in the Inland Empire who's being kicked out of his house? Small businessmen like dryfly's buddy?
Nope.
"Workers of the world unite" is a great-sounding slogan, but it's hardly a sophisticated, adult view of how the world works.
Sebastia
Komrade Karl writes:
Third World wages == Third World house prices.
In the 3rd world, nice safe neighborhoods often sell for prices above those of the 1st world and the HOA must also pay for the guards. Think Manila (amoung others). It costs a premium in the 3rd world to hold onto what you already have.
I'm not so sure about this plan. Oh... I agree it needs to be done. But as Stockmonger noted:
2. The people who lend money to banks went on strike last year after being peddled fraudulent AAA securities. This is what is freezing the credit markets and the velocity of money.
Those people lost their shirt. The people who invest in them want their money out.
Got Popcorn?
Neil
Since the "bailout" is being extended to foreign institutions, perhaps Westminster Abbey is the proper venue for His Royal Magnificence Majesty Herr Paulson; The House of Goldman Sachs coronation. At the least, Her Majesty Queen Elizabeth II shall graciously allow Herr Pauslon the use of her crown, scepter, and royal purple mink robes. As we all proudly proclaim; Long live His Majesty Herr Paulson the First.
"How will this plan force those like me to by real estate?"
Housing prices will drop because they are far too high wrt incomes. Funny money residential loans are not coming back for quite a while, at least until a generation passes so that it's only old fogies that remember what happened.
I will buy real estate again in a few years, or whenever the rate of decline in price has slowed to a trickle. But certainly not now.
"Sebastian that has to be bollocks. You have a vested interest in the maintenance of the system because of your investments in the system. The angry renters want it to collapse or be depressed so they can afford to join the system.
At least make a show of having some integrity please.
worried | 09.21.08 - 5:47 pm | #"
worried, I could not have put it better myself. This is behind a lot of the sentiments expressed here. (And you've pegged me accurately here.)
Not only will you have to recapitalize banks, but the problem of individuals not being able to afford their mortgages is still there. If people are debt burdened, who will actually be lent to? Who can even qualify after this. This does not take care of the entire problem. Only a part of it. This administration will go down as the worst in history.
rps
Musn't let the English Banksters go broke ....
On transparency... the originators of the loans
How about the names and home addresses of whatever managers approved the programs under which the loans were approved?
"Workers of the world unite" is a great-sounding slogan, but it's hardly a sophisticated, adult view of how the world works.
True. "Shoplifters of the World Unite," a much more accurate slogan, was penned by the great Steven Patrick Morrissey in 1987.
"the Swedish Plan has the best chance of working ... Nationalize and liquidate ...clean the whole mess up and boot the perps"
The Swedish plan involved the banks asking for their money back to save themselves and bringing the entire economy to the brink so that only when they were entirely destroyed were able to be "saved". The US banks seem unable to recover their money as people can walk away due to none recourse and their administration systems have been dismantled during the brokers as originators style created by securitization. Therefore a wealth transfer takes place from richer to poorer. In the nordic region everybody was brought to their knees more or less.
The systems are so different that no meaningful comparison can be made.
Yalt,
Over here on the Pest side, we like pengos. Many pengos.
Reminds me of "Little Shop Around The Corner" with Jimmy Stewart.
Deflation is impossible except in standards of living.
Wall ST/Paulson. We will conduct enormous operations in the most reckless manner possible. When it causes a crash we will use the crisis to grab power. Repeat until absolute power is obtained.
Instead of buying dodgy rMBS's at inflated prices, the US government should start buying, and buying big, into the residential properties. That will preclude the decline in house prices that is at the root of the problem. The market for MBS's will slowly pick up, and produce fair prices. The government could start a federal residential rental program with properties thus acquired.
Coup Détat Smoking Cannabis said: "
True. "Shoplifters of the World Unite," a much more accurate slogan, was penned by the great Steven Patrick Morrissey in 1987."
LOL! Probably a world-view much closer to reality.
One of my favorite slogans with regard to trading stocks is "Think Like a Criminal.":)
S.
Anonymous - I assume your smart friend was talking about 1.5% on top of the growth rate which would have happened without the bailout? That base case growth rate would be about 2-3% over 10 years, so the assumption of 1.5% on top of it is wildly optimistic.
Now, many people argue that the timid response of the Japanese government to their real estate bubble caused the decade of growth stagnation in Japan.
So, is your friend willing to consider a possibility that we spend $700Bil and because of that the economy growth over the next 10 years will be 0.5% LESS than the base case ?
Paulson today mentioned on Meet the Press that he isn't paying any attention to the equity market. He is solely focused on the Credit market.
How naive are you? Did you observe how much the Fed pumped into the market on Thursday and on Friday in order to prop up the market? You cannot believe a word this guy says!
". . .one of the reasons I've got a lot more at risk is because I've been conscientious with my money. . ."
Yes, of course, he made money the old-fashioned way--he earned it, by riding along on the real estate bubble.
"...a sophisticated, adult view of how the world works."
A sophisticated, adult view of how the world works is not likely to be of practical avail in a chaotic crisis. Usually, shrewdness and ruthlessness help more. But even these have limitations.
The economic crisis is a secondary, even a tertiary effect of what is wrong.
But primary causes are off-topic here.
WHAT KIND OF A FOOL
Hes ill with pneumonia and says the pneumonia is ill,
His leg has been broken he says that the horse has a fracture,
Hes crippled for life and says that the world cant walk,
The opera ends and he says its the overture...
FYI, here's a petition from my inbox:
No Bailouts!
There aren't enough fiat dollars or federal lies with which to construct a replacement for the foundation of business trust and confidence ruined by years of wreckless federal lending and WS 30:1 leveraged speculation.
Federal reassurances and corrupt expenditures of public funds will obscure the ongoing earnings, credit and employment decline, but then those are the same rules as yesterday.
The systems are so different that no meaningful comparison can be made. ~ worried in Finland
LOL ... simple ...
nationalize , liquidate , recapitalize ...
fire all the banksters ...
tax payers get paid first, then bonds etc ...
Then you are guaranteed of real books and continued lending at decent interest rates...
Even if bailed the banks can just hold onto their money and the problem blows up ...
I agree it needs to be done.
It's this particular piece of language that's been pissing me off the most, lately. It takes the entire discussion of what, precisely, should be done and condenses it into the word "it".
Does "it" mean:
(1) making sure clearance-of-payment systems continue to work and firms are able to convert cash equivalents into cash?
(2) ensuring credit continues to be available to creditworthy firms?
(3) transferring vast sums of public funds to select financial institutions, without transparency or accountability?
(4) giving the Secretary of the Treasury dictatorial powers?
You don't specify, so you get (3) and (4).
Think of me as Moses leading the Chosen People, born and bred American dopes, to the Promise Land of milk and honey. If you put your faith in me, I will deliver the goods, not only the ones you want, but the ones you truly desire. I have been anointed at this point in history, but you just have to have faith.
Thank you for your time and God Bless Captain Vere!
Pavel Chichikov writes: "A sophisticated, adult view of how the world works is not likely to be of practical avail in a chaotic crisis. Usually, shrewdness and ruthlessness help more...."
What did you think I meant, if not those qualities?
I didn't make the rules and don't agree with a lot of them, but I certainly know what they are and how to take advantage of them.
S.
RE - I was being facetious.
Paulson is a walking talking piece of total BS.
CR wrote: "Under an optimistic scenario perhaps the government might pay close to the intrinsic value for the MBS, and the taxpayers would lose little or nothing. A more pessimistic scenario would suggest that the government would lose something on every transaction - and because of the structure of the plan, this might cost the taxpayers $700 billion."
There is no $700 billion limit on the losses, it is a continual pipeline that can only hold up to $700 billion, but the loss on each transaction could amount to much,much more as more MBSs are bought and sold at a loss.
"if this plan works and stabilizes growth over the next 10 years at around 1.5% on average, that is $2.5t annual benefit to the economy"
Here comes the man for investment and profit. Unfortunately it's our investment and their profit.
That's why he is smarter than you
Question: Is the goal of this bailout to keep house prices where they are, so property taxes stay where they are?
Question: Are federal taxes going to pay for this or are property owners going to have their property taxes raised to pay for this?
total bailout now $1.8 trillion
I like that CR is avoiding the herd mentality and is a free and independent thinker. I do disagree with him though on this one.
Another way to see this financial crisis is by an analogy to the war on drugs. Instead of the Columbian cartels, the foreign powers supplying the dope are China, Russia, the ME, etc. The big time domestic (and sometimes foreign) king pins supply the dope are Wall Street and the major retail banks. Law enforcement would be the US government while the crack whores are of course the America people.
In both cases, in the drug world and the credit crisis, the wholesale dope suppliers need the cash for their poor peasants, the intermediary distributors want to cash fat checks and the end users just want their fix.
Seen through this obviously slanted but interesting looking glass, is a plan where the police fight to recapitalize the crack dealers really the way forward? Perhaps a better government strategy would be one that aimed to cure the American people of their addiction to easy and irresponsible credit?
As it stands, the crack whores will be bailing out their dealers, but the real story is that the foreign wholesalers are bitch-slapping the US government into getting their racket back into order.
How naive are you? Did you observe how much the Fed pumped into the market on Thursday and on Friday in order to prop up the market?
Actually, I believe him--those pumps were directed at events in the credit market. That the liquidity wound up funneled into commodities and equities while credit spreads continued to blow out is a telling sign of the futility of this approach.
Futures don't like it. dow -61, s+p down 4, glod up 18, silver up 40, yen and euro up a little.
That the liquidity wound up funneled into commodities and equities
I think it is hard to back out the effect of the no-shorting rules.
"The government could start a federal residential rental program with properties thus acquired."
It makes a huge amount of sense and if you add in bulldozing overly populated slum type housing to create parks it could create affordable attractive housing/living for the disinfranchised.
The only problem being that would be socialism along the lines of the Nordic model involving high taxation free education and health and so forth. Gas here is now 8 dollars a gallon.
We are making deals with institutions that have off balance sheet assets of unknown value and L2 & L3 assets also with no pedigree. Making deals with crooks is a bad idea.
IF they come 100% clean and they are insolvent - LIQUIDATE and sell assets to sound institutions. That is where this 700B should be spent and also to make loans directly to businesses that are experiencing real distress.
1.8 trillion - might as well ask for 10 trillio
I think taking control of banks that are insolvent, and then firing the management, wiping the shareholders, and feeding capital in over time is the only way to do this. Buying the CDOs, MBSs, etc. at market value (or worse, face value) is an opportunity for huge amounts of fraud, all on the taxpayer dime. Let the vehicles go to maturity while also setting up a nation-wide process for cramdowns at the other end. Bagholders can either unload their instruments on the market now or wait it out and hope for the best.
And insolvent foreign banks can either accept US federal ownership, or suck it.
And please, please do not underestimate the potential of hyperinflation. It didn't create National Socialism, but it sure made it look attractive.
This is low-hanging fruit:
"JP writes:
are americans really that stupid?
I have heard that they are born-and-bread dopes."
And I saw who we re-elected in 2004.
QED. Case closed. Say no more. Wink, wink; nudge, nudge; know what I mean?
Let's play a new game. Ask a more difficult question this time, like, uh, I don't know.....what was the color of Geroge Washington's White Horse? Or, who is better expert on energy policy than Sarah Palin?
[answers: white and almost anyone. see the priceless cnn clip of Palin on energy policy: YouTube -
Thanks, c&c, for the link to $1.8 trillion.
Amazing and sad.
McPain: to win, you must throw Bush under the bus. Filibuster this bill!
People, people, tsk, tsk, will everyone get on the same page. Paulson and Bernanke and Bush don't care whether the "bailout" works anymore than FEMA in NOLA. It's not about the bailout, IT'S ABOUT OBFUSCATION OF CONGRESS'S CONSTITUTIONAL POWERS.
Personally, I think a sparkly crown upon Paulson's shiny bald head would be an added bonus and confidence booster. And his royal purple robes would prove his ability to rule THE EMPIRE in God's name. I know that His Majesty will have my best interests at heart as he renders laws upon us and sends a tax collector to my meek hovel or perhaps seize my property and throw me out onto the streets.
Who needs a constitution when Paulson has imperial powers?
Sorry CR, the answer is a resounding NO.
First, the financial system's woes are reflective of the overall economy & population, and this does nothing for their respective balance sheets. What good is the ability to lend if you have few that are credit-worthy? Besides, you can't fix an unsustainable business model.
Second, this bailout could very well be the straw that breaks the dollar's back. Nothing like the cure that kills the patient.
Pardon me, (English not being my native language) but I thought that the proposal would not limit the losses to the 700 bio. Its says: "The Secretarys authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time".
"Outstanding"; that is the maximum amount (mark to market or nominal value or something else? )that they can have in their books at any one time?
If they buy and sell and make a loss, that does not limit their ability to buy up to the limit again. Thus actually enabling them to lose unlimited amount of money. ?
$5,000 per man, women and child
By removing these troubled assets from the balance sheets of the financial institutions, the banks will able to lend again without lingering doubts about their solvency and viability.
I think 'removing troubled assets' may not even be achieved.
Reasons :-
-Counterparties, some institutions involved are not under US jurisdiction, hence Paulson is looking to 'bailout' foreign banks
-There is value for the troubled assets but NO market for it. Buyer and seller cannot agree on the price, till now there is no clearing house unless the treasury itself proposes to be one. That would mean taking on TREMENDOUS risk which may involve trillions.
-The only way to remove troubled assets in the banks is to OVERPAY for them substantially, since the banks are all leverage more than 20+:1 and am guessing they will need to deleverage massively to feel 'confident' again to lend among each other and their clients.
-They may be marking more assets to model and am not too sure if the counterparties(foreign) will agree to the model proposed by treasury.
However if they do overcome all of these issues, it would be years if not a decade before they can recover anything near the value they paid for them. This is because house prices may yet tumble for another 2 years in the very least if not longer.
This long term inflationary effect of this plan would make Mugabe proud.
Just my thoughts.
face the truth:
if this country had leadership capable of coping with this crisis, it would not get into this crisis in the first place.
So there is no need to get all emotional now and try to call congress. Just try to stay safe.
"What did you think I meant, if not those qualities?"
I didn't stop there.
"I didn't make the rules and don't agree with a lot of them, but I certainly know what they are and how to take advantage of them."
The rules are also secondary and tertiary phenomena.
Even myopics have clear vision at a near distance. I can read a book without aid if I hold it close my nose, but if I want to drive I need to wear glasses. The world is much bigger and moves much more quickly than the little circle around me and my book.
Like many other people I find this blog attractive and enjoyable because there are many live minds here.
Shrewdness and ruthlessness are not evidence of a live mind.
Ask For A Filibuster
Please email and phone the following. Specifically ask for a filibuster and tell them to vote no to any bailout.
Tell them that anyone who votes for this bailout will never get your vote again.
Shelby, Richard C.- (R - AL)
110 HART SENATE OFFICE BUILDING WASHINGTON DC 20510
(202) 224-5744
E-mail: senator@shelby.senate.gov
Bunning, Jim- (R - KY)
316 HART SENATE OFFICE BUILDING WASHINGTON DC 20510
(202) 224-4343
Web Form: United States Senator Jim Bunning, Kentucky : Contact
Kyl, Jon- (R - AZ)
730 HART SENATE OFFICE BUILDING WASHINGTON DC 20510
(202) 224-4521
Web Form: kyl.senate.gov/contact.cfm
Ensign, John- (R - NV)
Washington D.C. Office
119 Russell Senate Building
Washington, D.C. 20510
Phone: (202) 224-6244
Fax: (202) 228-2193
Web Form: ensign.senate.gov/forms/email_form.cfm
Hagel, Chuck (R - NE)
248 RUSSELL SENATE OFFICE BUILDING WASHINGTON DC 20510
(202) 224-4224
Web Form: hagel.senate.gov/public/index.cfm?FuseAction=Contact.Home
Please email and phone both of your senators as well.
Once Is Not Enough
I want to emphasize that once is not enough. Here is what to do.
Flood the senators with emails and phone calls.Tell them in no uncertain terms that if they vote for this bailout they will not get your vote, ever again.
Send an email or call every day, preferably both.
Put each message in your own words.
Make the phone message sort and sweet.
Use one of the following verbs: concerned, frightened, scared, afraid, mad rush to action
Use one of the following themes: US dollar, unconstitutional, national debt, how do we pay for this?, printing money, lies, etc
Vary each message so they do not all sound alike
Send this post to 5 or 10 of your friends and have them do the same. Do it now, while you are thinking about it.
I must be honest and state that this action is highly unlikely to work. However. It is the only shot we have.
PeakVT writes:
I think taking control of banks that are insolvent, and then firing the management, wiping the shareholders, and feeding capital in over time is the only way to do this.
We still need to address the fact that these institutions have demonstrated completely dishonest and incompetent investment strategies. Why would anyone start doing business with a (for example) Countrywide rep again?
Confidence needs to be restored. Money alone will not do it.
I think it is hard to back out the effect of the no-shorting rules.
JP | Homepage | 09.21.08 - 6:07 pm | #
That's fair. What's clear is that the liquidity pump did nothing to clear the credit markets.
"And a final suggestion: In an effort for transparency"
Chapter One
Title: Goldman Sacs Repurchase
Chapter Two
Title: No mo money left
Unintended consequences: Goldman is now the Fed.
Well look at it this way. Last weekend 10 years to the day that lehmans took out at a 10 year loan to bail out LTCM all the kings horse and all the kings men could not come up with a rescue plan for Lehmans.
Lehmans then went into a disorderly winddown and sucked 8 billion out of europe leaving counterparties there high and dry to bring the money back to the USA.
The authorities were impotent even though they tried to find a saviour. And now who is going to trust any US bank? Last week seemed like a nightmare from where i was.
With the 700 million some hope of an orderly windup of the waiting lehmans is possible and life can carry on while you sort out the mess.
I detect a fork in the road.
I have great respect for CR as do most others here.
This post lends some cover to the proposal, which I find unfortunate.
I find the Treasury proposal to be utterly repugnant and not worthy of any positive commentary.
Let the banks/brokers fail. Liquidate the debts in BK court.
We are capable of building new banking institutions. How hard can it be?
Perhaps its hard to build new banks if the currency tanks with the old banking system?
Sometimes I find myself evilly rooting for these lousy ideas to become law, simply so this corrupt system can burn to the ground and then rise anew from the ashes in better form, Phoenix-like.
The interim period would be ugly, though.
dow fut -98
I think Australia just announced that they too ban all short selling for 30 days.
Looks like massive concerted effort by regulators everywhere to prop the markets.
test.
It's not just transparency this plan lacks. It lacks accountability and responsibility.
I would feel like a chump just agreeing to write a $25k check to someone who says, "Just give it to me, don't ask any qustions, agree never to review anything I do, and agree to waive all rights you may have to recourse should I do anything incompetent, unethical, or illegal."
Especially if that someone was one of the CEO's who presided over one of the most responsible firms' activities leading up to it.
That would really make me feel like a chump.
Paulson is on MSNBC now..... But I'm guessing everyone here knows that already
"Is there any reason why the American people should be taxed to guarantee the debts of banks, any more than they should be taxed to guarantee the debts of other institutions, including merchants, the industries, and the mills of the country?"
Senator Carter Glass, Author of the Banking Act of 1933
While the bailout train is still not left the station is there a possibility I can get my stupidity bailed out? It isn't my fault my IQ is so damn low!
What's clear is that the liquidity pump did nothing to clear the credit markets.
True. (And a worthy observation, despite my prior nitpicking.)
Paulson is allowed to lose unlimited funds.
- What the latest bailout plan means - Sep. 21, 2008 | Blogs at Chris Martenson -
Is the primary goal to really keep home mortgages flowing? It seems to me that it's the GSEs who are providing the money for new mortgages. The Treasury plan is designed to save the investment banks from the bad loans and loan like obligations that they already have in level 3.
Why would anyone start doing business with a (for example) Countrywide rep again?
At some point, people will need loans. Either they will go back to the old companies the government controls, or new companies will arise and the government-controlled companies can be chopped up and sold off to the new players. Also, the government-installed new manangement would be charged with creating a different (more honest, more small-c conservative) culture within each company.
IB-type companies that are taken over should be dismantled forthwith.
Mike Whitney is always good.....
Mike Whitney: Full-Spectrum Breakdown
life can carry on while you sort out the mess.~
worried in Finland
Nationalize, orderly liquidation , recapitalization ...
It's the only way to get hands around the whole problem ...
PS ... fire the banksters
The financial system is a sideshow. We are a nation of consumers with real declining incomes. House inflation was the last buffer. Someone had to be left holding the bag. It's this generation. Finance, it seems clear, is just a first order knock on.
When Paulsen says "unclog the system" he means only "get the trash off their books and send the taxpayers the bill."
I still believe the critical nature of this action is to get the trash off their books by the end of the Sept 30th reporting period. If this gets held off until then, maybe the public/taxpayer will actually get to see the shape these institutions are really in.
As the Federal Reserve places the jeweled crown upon Paulson's bald head they should play Darth Vader's/Evil empire's theme song.
Actually I am amused by this agitators (renters!?) not having skin in the game.
I am a renter.
I am NOT a gambler
This is the equivalent of the casino going out and taking the money out of the wallets of the folks passing by on the sidewalk to cover their losses.
I can't stop it, for crying out loud the police are with the casino owners!
But please, don't make me wrong for not playing the game and gambling and then being just a tad bit cross at having to pay up for the losses.
Oh and my job is on the line as well...so this whole house of cards ponzi scheme comes crashing down and I'm supposed to be docile and accept the inevitable so homeowners can get a pass....fine.
but I reserve the right to have an attitude about it, for a while anyways.
its down to 300.
this feels like the movie.
how many survived?
Comrade RayOnTheCollective
Paulson is just kick the can down the road ...
In two years when we've swalllowed 3 trillion in bad debt they'll say " Who could have known ? "
worried in Finland writes:
"the Swedish Plan has the best chance of working ... Nationalize and liquidate ...clean the whole mess up and boot the perps"
The Swedish plan involved the banks asking for their money back to save themselves and bringing the entire economy to the brink so that only when they were entirely destroyed were able to be "saved". The US banks seem unable to recover their money as people can walk away due to none recourse and their administration systems have been dismantled during the brokers as originators style created by securitization. Therefore a wealth transfer takes place from richer to poorer. In the nordic region everybody was brought to their knees more or less.
The systems are so different that no meaningful comparison can be made.
worried in Finland | 09.21.08 - 5:56 pm | #
Don't worry - we'll be brought to our knees before this is done - we borrow something like $3B EVERY DAY from the world just to keep our imperial lifestyle yet don't want to face the real cost of excessive debt.
Won't be hard to bring that kind of hubris down to its knees.
The Scandinavian Solution will look wonderful in 'future hindsight'...
PeakVT, I meant the other side of the transaction, when Countrywide needs money and is soliciting for it. Who would lend it to them, even if they carry a AAAAAA++++++ rating? Who would buy their preferred? or convertibles?
They have demonstrated extreme incompetence for those who entrust their money to them.
dow fut down 148
With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people.
Friedrich A. Hayek (1899-1992) Austrian Economist, Author and 1974 Nobel Prize-Winner for Economics
"You can fool some of the people all of the time, and all of the people some of the time, and that's good enough."
Dr. Edwin Vieira, FAME Foundation Scholar
Winter coming. Go long soup kitchens. I am renting the grapes of wrath to give the family a peek at the future.
The bank bailout legislation proposed by the Administration is an outrageous abuse of the US taxpayer that tramples on the Constitution and free markets, and will, in the end, not substantially change our weak economic condition while bailing out the fools who caused the crisis.
Moreover, while offering the Secretary of the Treasury unlimited authority and $700 billion to bail out his friends on Wall Street, the only thing the other 300 million Americans will get is a larger national debt and a bigger tax bill.
If there is going to be an effort to stabilize financial markets involving large sums of taxpayer money, it needs some balance. For example:
--The boards of directors and executive committees (and maybe others) at the banks receiving US taxpayer money are automatically fired, forced to return their ill-gotten bonuses for the last 3 or more years, and banned from any executive or board position in a publicly-traded US company for 5 years. (Its the Millken solution.)
--Ban the creation, sale, purchase, or brokering of any asset-backed credit derivative by any bank operating in the United States. Similarly, ban the placement of any asset-backed security in foreign credit derivatives.
--Every American taxpayer receives a stimulus check of approximately $6,300 to offset the cost he/she will absorb for this $700 billion bailout. (It makes as much sense as spending the money on banks that knowingly took excessive risks for big profits.)
--The $700 billion may only be used to acquire the mortgage-based assets of US banks (only) that are insolvent, not just illiquid. This was the way the RTC handled assets. Otherwise, the bailout only rewards the outrageous behavior of the banking sector and its shareholders--not all Americans. (So, it could buy LEH assets, but not GS or MER assets.)
--Require that the money be used to acquire a just less than 80% equity in the bank (a la AIG) to ensure effective USG control over banking practices. Also cut out preferred shareholders all together and establish a 30-70% haircut on the bank's outstanding bonds--consistent with the toxicity of its asset holdings.
--Finally, absolutely and completely eliminate any language (such as is the current draft) that puts the Secretary of the Treasury above the law ("non-reviewable"). In fact, put stringent language in that states he must obey all US laws.
The draft legislation is an outrageous effort by the Administration to bail out its buddies. It defies the Constitution, destroys free markets, insults the role of Congress in overseeing national policies and laws, and irrepairably damages all American taxpayers for the benefit of a few.
IT CAN NOT BE PASSED! WRITE YOUR CONGRESSMAN/CONGRESSWOMEN RIGHT NOW AND TELL HIM OR HER IN CLEAR, SIMPLE, POLITE, AND EVEN CONSTRUCTIVE TERMS WHAT YOU THINK OF THE PROPOSED BAILOUT
Taiwan bans short selling in 150 stocks.
Asia set to rally.
I've gotta disagree with CR. This bailout won't even achieve its primary goal for long. They're kicking the can down the road. Within four months or so we'll have an even larger crisis. The worst-case scenario will be a "creditors strike" by our Asian financiers, and the U.S. Treasury will get sucked into Subprime status.
We'll all be subprime then.
Good commentary from Ron Paul:
We are following the same routine that we did in the Depression, and that is artificially try to keep prices up. People were starving in the Depression and the only thing they did was try to keep wages artificially high and keep food prices high. We are doing the same thing nowwe are trying to keep housing prices high.
It's those 'unintended and unanticipated consequences' that worry me. Goals be damned, you can't fix stupid.
"I will not wait on events, while dangers gather," Bush told Congress. "I will not stand by, as peril draws closer and closer. The United States of America will not permit the world's most dangerous regimes to threaten us with the world's most destructive weapons." 2002 State of the Union Address
next speech I say:
"I will not wait on events, while dangers gather," Bush told Congress. "I will not stand by, as peril draws closer and closer. The United States of America will not permit the world's most dangerous financial instruments to threaten us with the world's next Great Depression."
you can't fix stupid.
Well, you can, but it requires enforcing a meritocracy. That sure as hell isn't going to happen soon.
Cut income tax in half for both citizens and corporations for 24 months. This would stimulate the consumers to get out of debt or at least pay the house note. It may in fact stimulate some corporations to expand. They would not need additional capital from biz loans and could finance growth from it's savings. The gov't will print more money for it's own use no matter what the tax rates are. It seems to spend more than it takes in every year anyway. Just a thought....
"I will not wait on events, while dangers gather," Bush told Congress. "I will not stand by, as peril draws closer and closer. The United States of America will not permit the world's most dangerous financial instruments to threaten us with the world's next Great Depression."
"therefore I am suspending elections"
Actually, I believe him--those pumps were directed at events in the credit market.
I agree with you regarding the futility of it. But let's be clear there is no better tell than removing short selling of 800 companies that they wanted to DIRECTLY address the equity market. This is outright and unprecedented EQUITY market manipulation!
Pull out the healthy CDO tranches, and exempt them from mark to market. Banks are happy, they can use it for collateral at the discount window. This alone could save the people a trillion or more.
PeakVT, I meant the other side of the transaction, when Countrywide needs money and is soliciting for it.
Well, by taking them over they would have the backing of the Federal government for a while, and could get capital from it while re-earning trust on the private markets. If the trust is never re-earned for the brand, then it could be chopped up and sold off.
Anyway, I'm not an expert but it seems to me that the current plan is a disaster. With a takeover you eliminate the moral hazard issue and can reshape these companies from the top down - because most of the rot was at the top with the perverse incentive structure for C-levels and big traders. It's probably the only way to get transparency as well.
BB writes:
Taiwan bans short selling in 150 stocks.
Asia set to rally.
But s&p futures already down 10+. If that holds, and we get a gap down from yesterday, that's a very powerful reversal ("island top" it's called). Esp. on the R2k, which was a light volume shooting star.
Oh come off it. Nobody will go to the trouble you talk about. The thing if Congress is stampeded into passing it will simply bail out the rich and send the bill to the rest of us. Simple yes. Fair no. Outrageous yes. Disgusting yes. And so on and so forth.
How do these putzes manage top convince the little people that the only way to save our society is to bail out the Credit Dfault Swappers? WTF, are we a nation of retards?
Cynic...that is a distinct possibility..
Well there are far too many retards in the nation and they never know how they are being duped. The enthusiasm for Palin makes clear the number of retards (millions and millions) and the fact that this will get done makes clear how easy it is to dupe them all. Just as in the Iraq war. There is no meaningful resistence to being duped in the USA.
Some common sense from Obama
Barack Obama: Principles for the Nationalization of Mortgage Finance - J. Bradford DeLong's Grasping Reality with All Eight Tentacles
* No blank check. If we grant the Treasury broad authority to address the immediate crisis, we must insist on independent accountability and oversight. Given the breach of trust we have seen and the magnitude of the taxpayer money involved, there can be no blank check.
*Rescue requires mutual responsibility. As taxpayers are asked to take extraordinary steps to protect our financial system, it is only appropriate to expect those institutions that benefit to help protect American homeowners and the American economy. We cannot underwrite continued irresponsibility, where CEOs cash in and our regulators look the other way. We cannot abet and reward the unconscionable practices that triggered this crisis. We have to end them.
*Taxpayers should be protected. This should not be a handout to Wall Street. It should be structured in a way that maximizes the ability of taxpayers to recoup their investment. Going forward, we need to make sure that the institutions that benefit from financial insurance also bear the cost of that insurance.
*Help homeowners stay in their homes. This crisis started with homeowners and they bear the brunt of the nearly unprecedented collapse in housing prices. We cannot have a plan for Wall Street banks that does not help homeowners stay in their homes and help distressed communities.
*A global response. As I said on Friday, this is a global financial crisis and it requires a global solution. The United States must lead, but we must also insist that other nations, who have a huge stake in the outcome, join us in helping to secure the financial markets.
*Main Street, not just Wall Street. The American people need to know that we feel as great a sense of urgency about the emergency on Main Street as we do the emergency on Wall Street. That is why I call on Senator McCain, President Bush, Republicans and Democrats to join me in supporting an emergency economic plan for working families a plan that would help folks cope with rising gas and food prices, save one million jobs through rebuilding our schools and roads, help states and cities avoid painful budget cuts and tax increases, help homeowners stay in their homes, and provide retooling assistance to help ensure that the fuel-efficient cars of the future are built in America.
*Build a regulatory structure for the 21st Century. While there is not time in a week to remake our regulatory structure to prevent abuses in the future, we should commit ourselves to the kind of reforms I have been advocating for several years. We need new rules of the road for the 21st Century economy, together with the means and willingness to enforce them.
worth considering also that last weeks crisis involved a seizure of the interbank credit markets and record high interbank loans.
Each time you get your plastic out and money goes from your account to another account at another bank an interbank loan at LIBOR is created to allow the deposit liability transfer to be accounted for.
As one CNBC headline said, Fed to the Bears: Get Lost.
Fed to Economic Collapse: Get Lost.
NOAA to Katrina: Get Lost.
King Canute to Tide: Get Lost.
etc.
Their arrogance is exceeded only by their ignorance.
"FUCKIN A"
Sure, futures are down now. No way the PPT lets that stand before open.
To McPain:
'Save the Republic,
and filibuster this bill!
Save the Republic,
and filibuster this bill!
Save the Republic,
and filibuster this bill!
One point I'd like to make is that its possible that intrinsic value on some of these assets may in fact be greater than market value (I mean all these assets were basically worth 0 Thursday since there were no bidders for anything) simply because no one knows what the things are worth (ie what mortgages are in many of these securities) especially in an environment where everyone is hoarding cash.
I also think its quite possible that the government is in a position here to create value in many of these securities through any of a number possible actions down the road.
Finally, as we've seen time and again in these past 8 years "market" value itself can be a ton of rubbish.
The peasants, uhmmm rabble, Arghhh, I meant the citizens of France had recognized that they could not rehabilitate the aristocracy. The guilotine was very persuasive during the French Revolution! Perhaps, a guilotine in the Rose Garden at the White House would be the perfect backdrop as the bankers and ponzi schemers and govenment officials who participated in this recklessness are marched forthwith!
The Constitution is not an instrument for the government to restrain the people, it is an instrument for the people to restrain the government - lest it come to dominate our lives and interests.
Patrick Henry
Great job Brownie err Hank
the money paulson gets will be used to continue funding or payoff the outstanding derivatives contracts of the already and future deceased financial institutions. much of the focus here seems to be on mbs and the feds purchase of such. its not assets its the derivatives.
Money Man writes:
Cut income tax in half for both citizens and corporations for 24 months. This would stimulate the consumers to get out of debt or at least pay the house note. It may in fact stimulate some corporations to expand. They would not need additional capital from biz loans and could finance growth from it's savings. The gov't will print more money for it's own use no matter what the tax rates are. It seems to spend more than it takes in every year anyway. Just a thought....
Money Man | 09.21.08 - 6:33 pm | #
Why stop at half - cut it all and for a whole decade!
Print the money & just hand it out. Spend just a 'little more than it takes'...
What could go wrong?
That's Emperor Hank!
so how long will it take before the market hits a meltdown point again?
say we retest 1130 - is this a (good) sign that congress will find its nuts and refuse to rubber-stamp ala patriot act? or will a quick move lower just feed the panic and push it through the house?
40 Million people without health care, and we have to feed the Republican pigs again?
How's about we get some fuckin' health care with the deal?
so how long will it take before the market hits a meltdown point again? ~ Anonymous
how long before a fool and his money are parted ?
Anonymous writes:
so how long will it take before the market hits a meltdown point again?
Anonymous | 09.21.08 - 6:46 pm | #
I'm a contrarian here - but I don't think this deal gets done. There aren't enough ponies in the whole world to make this thing palatable from BOTH left & right.
The minute the market figures that out - watch out.
Ok it seems we are hunting the terriorists again
"U.S. SEC says certain institutional money managers must report new short sales of some publicly traded securities, starting 12:01 a.m. Monday; reported information will be made public 2 weeks after filed"
shorting is unpatriotic ...
anything bad said about the Paulson so callled Plan of crap called TARP is unpatriotic ...
Hey,
Where's Elvis and Rich ? Do they take the Sabbath off ?
Any of the congress who vote for this plan are quietly agreeing with Dick Cheney that "deficits don't matter." Their acquiescence becomes a lot more comprehensible if you take that as a working premise.
Since "deficits don't matter" let's add some more goodies to the proposal.
Since "deficits don't matter" who cares if we're giving Treasury unprecedented power?
OK, this just pissing me off. What can the average joe do? I say don't buy anything that you don't need. Many of the average people I know are finally taking notice. I was at a local restaurant in Cascade, Idaho this morning and everyone there was talking about it, they were saying the natives are restless and they're not taking it anymore..we'll see..hopefully the little people will take notice..and this is a little town in Idaho.
Bipartisan Support for Wall St. Rescue Plan Emerges
- NY Times
Ok it seems we are hunting the terriorists again
That only works once.
FYI: I spoke with a market maker over the weekend. He said friday was a beautiful market (lots of MMs could not trade due to software trouble & the sec rules. Those that could made a bundle.)
I also think there should be three conditions (at least) attached to whatever plan is passed:
1) Anything that is too big to fail should be chopped up immediately, takeover or not (part of Bernie Sander's proposal).
2) That it any plan be paid for (at least partially) with a .05% financial markets transaction tax (a sales tax on stocks, bonds, options, futures, etc. - the UK already has this for stocks), by resetting the capital gains tax to the pre-1997 levels, and by repealing the Bush tax cuts.
3) Hank Paulson be fired immediately and a non-Wall Street/NYC/Northeast Corridor person be brought in.
PeakVT, that is waaaay too sensible to stand any hope of implementation.
Foreign Banks Hope Bailout Will Be Global
Foreign Banks Hope An American Bailout Will Be Global - NY Times
Two sets of phone messages have been left on my Senators' and Representative's machines. I am now on my way to Kinkoes to fax a one page letter to each as well.
Econbrowser: Paulson bailout
.....the Federal Reserve has already extended something on the order of $455 billion in loans collateralized by some of these same troubled assets, namely $125 billion in repos, $150 billion in the term auction facility, $50 billion in "other loans", $30 billion from the Bear Stearns deal, and $100 billion in "other Federal Reserve assets".
That $455 billion total does not include this week's $85 billion loan to AIG, nor the $180 billion in reciprocal currency swap lines.
My primary criticism of these previous unconventional actions by the Fed is that they are better characterized as fiscal policy rather than monetary policy. They unquestionably represent an implicit potential commitment of Treasury dollars. If the latest $700 billion Treasury proposal were to take these assets off the books of the Federal Reserve and put them onto the Treasury's balance sheet, and have Paulson rather than Bernanke be the guy who makes these calls of when and where to put the taxpayers at risk, I would be all for it.
But I gather that instead the $700 billion is construed to be in addition to the comparable sum that's already been committed by the Federal Reserve. And it seems to be in addition to the $1.7 trillion in debts from Fannie and Freddie that the U.S. Treasury has now apparently assumed, and is in addition to the guarantees on $3.1 trillion in agency MBS for which the Treasury has again apparently assumed responsibility.
I'm a contrarian here - but I don't think this deal gets done. There aren't enough ponies in the whole world to make this thing palatable from BOTH left & right.
Hey, didn't the Iraq war deal get done? All you need to do is say the sky will fall down if it isn't done NOW and the Congress of wimps will fold in a minute. Don't think the Congress can stand up to the bastards; it can't.
The Wall Street Bailout Plan, Explained
The Wall Street Bailout Plan, Explained - NY Times
A Bailout Plan, but Will It All Work?
NEWS ANALYSIS; But Will It All Work? - NY Times
CR, regarding your comment on intrinsic value: The government only recovers intrinsic value if the selling price, plus interest received, nets out to a rate of return adequately reflecting the risk. Just getting the principal back is not enough and costs the taxpayer.
You have to assume sell on open orders are going to be epic. Everyone knows the last 700 points aren't any more real than the last 20% uptick of the housing bubble.
You reap what you sow.
Commissar 4822, try Free Fax • Free Internet Faxing
Free online fax
I blame the immigrants. We never had any of these problems before they showed up.
You have to assume sell on open orders are going to be epic. Everyone knows the last 700 points aren't any more real than the last 20% uptick of the housing bubble.
No big deal, cuz it's not like the housing market. There will be some shorts that will cover and take their profits, so it won't fall into the abyss.
Errr, wait a minute. never mind.
You have to assume sell on open orders are going to be epic.
I imagine so. Hell, I told my brother to take advantage of the 8% gift he got last week to sell before things implode further.
But I think that goes to Paulson's argument that they have to get something approved by 9:30 am tomorrow.
dow fut down 166
godhatesfangs writes: dow fut down 166 ...
the smart money is booking profits and heading to the sidelines ... until Oct 2 ....
I know most of you think this situation is still salvageable but Congress is not going to listen.
it's time to think serious about purusing State-based secession.
godhatesfangs:
What's the URL you are using to track the Futures? I'm using INO but it's delayed 15 minutes.
Some of the arguments made here, especially those about supporting the prices of houses, do not reflect some vital details as to housing:
Overall it is not at all a liquidity problem or a simple problem. It is a huge solvency problem, and one that cannot be solved by restoring the bubble and making house with a trend value of $150k sell for $500k again.
Unless one wants annual inflation to run at something like 20% for a few years.
Hank Paulson on ABC "This Week with George Stephanopoul" now.
In terms of the detailed disclosure CR asks for in the last paragraph, isn't that a similar proposal to the one Tanta ridiculed Gretchen M. for making?
Just asking...
Treasuries Prove Irresistible as Deflation Bet Trumps Paulson
By Daniel Kruger and Sandra Hernandez
Sept. 22 (Bloomberg) -- As details of Treasury Secretary Henry Paulson's plan to revive the U.S. financial system by pumping as much as $700 billion into the markets emerged Sept. 19, bond investor Michael Cheah was reminded of Japan.
When that country's real estate bubble burst, leaving a trail of bad real estate loans, officials flooded the economy with cash only to see banks hoard the money instead of lending it out. The result has been a series of recessions and persistent deflation for more than a decade.
so which is it folks ? Inflation or deflation ?
JP writes:
You have to assume sell on open orders are going to be epic. Everyone knows the last 700 points aren't any more real than the last 20% uptick of the housing bubble.
No big deal, cuz it's not like the housing market. There will be some shorts that will cover and take their profits, so it won't fall into the abyss.
Errr, wait a minute. never mind.
Bingo. Law of Unintended Consequences.
Dear CR
I really appreciate your view, we are probably getting screwed and you all should know it, but let's not panic and see how it will work out first...
However I must disagree with the belief that this plan will work. Let me illustrate why.
Right now we can divide our economy into two parts, the par that works - none financial firms with solid books and good product and the part that does not work - financials with their toxic assets.
I am aware that none financial sector needs the loans from banks to operate well. However by bailing out all of the financial sector we waste our resources on money loosing inefficiently run enterprises that will stay afloat longer and drag everyone with them.
What I would propose is creating a temporary US commercial bank (from the assets of seized banks + some cash inflow) that would land to none financial firms and create temporary competition to financial industry.
This way the none financial firms would have sufficient cash for operations and financial firms would ether re invent themselves or die out creating a space for better banking institutions.
The current plan, beyond the unknown and large taxpayers liabilities, will give advantage to inefficiently run businesses and will create the value mismatch between the demand for those none performing assets and supply. In return it will take longer for bad loans problem digest itself, and it will be drag on our economy for much longer time.
And of cause I agree, the insufficient transparency of any plan will create lack of trust and possibility of preferential treatment of some at the expense of the others, etc, etc, etc...
What is the significance of Oct. 2?
I blame the immigrants. We never had any of these problems before they showed up.
Perfect. I just love it!
My knee's tellin' me a storms a'comin'.
Two roads diverged in a wood, and I\t
I took the one that was batshit krazy,\t
And that has made all the difference.
what Blissex said....
What the Hell is happening?
Hank Ponziboat writes:
What is the significance of Oct. 2?
~~~~
Shorts allowed again ...
bet on an extension of the ban ...
3rd world wages == 3rd world house prices.... you can imply racism if you like but it's simple economic fact.
3rd world wages == 3rd world house prices.
Secession.
Think about it.
George Stephanopoul: What if the plan doesn't work?
Paulson: It has to work...
George Stephanopoul is tossing out some hard questions (now on to "why foreign institutions as well" and "what do we get in return").
so which is it folks ? Inflation or deflation ?
Inflation in the things you need. Deflation in the things you own.
Inflation in the things with value. Deflation in the things with ongoing costs.
couple of things that i haven't seen addressed: much of the problem mortgages and mbs are based on teasers, alt-a, and opt-arms. this junk is going to head for delinquency/foreclosure over the next 2 years or so. so, if the government buys a mortgage with a resetting teaser rate that will force the borrower into default, what happens then? is the government going to foreclosure on millions of mortgages/homes? are they (we) going to pay the taxes and upkeep on the foreclosed properties? there's a lot more there, but i'm sure you get the idea. i'm also curious how the current number of fed/treasury employees are going to handle the details of dealing with 2-8mn mortgages, many of which will be in foreclosure? jim, you or tanta have any thoughts on this stuff?
"Hank Ponziboat writes:
What is the significance of Oct. 2?"
the investment returns for the second quarter are based on the prices for September 31...
it might produce a better consumer/investors sentiment ...
ROFL
Just looking at the MLS in our metro area, wow, blood in the streets...prices on non-foreclosures /shorts are at 2002 levels and below. You can pretty much write off the last four years of home sales.
No need to go to Kinkos and PAY to fax...use Free Fax • Free Internet Faxing first two faxes free....see they were planning on us needing to spam our Senators the whole time!
Paulson is dodging the question of limiting executive compensation of rescued firms.
p.s.
sorry , I meant 3 rd quarter ....
Thanks, JP.
There really needs to be more talk about how to pay for this intervention. It's clear that a ginourmously huge amount of taxpayer money is going to be spent in one way or another. We shouldn't put the cost off on future generations - especially since nearly all of the people who profited from the bubble are still alive.
Funny how you never heard about any "windfall profits tax" on IB's when the Street was fomenting this crisis. Where's the provisions for recovering all those ill-gotten gains??
Paulson: no additional protection for homeowners because they either cannot afford the loans, or they do not wish to stay in their homes. (That is kind of true I guess.)
p.s.s
sorry if my thoughts are jumpy a bit, i just had 3 double expressos
nice day all.
George Stephanopoul: What if the plan doesn't work?
Paulson: It has to work...
ah.
That's what I was afraid of. They don't have a clue what's really happening.
It's the Greatest Bluff in History...
But Hank is starting to sweat.....He might crack!
Here's my "Paulson Plan":
Instead of bailing out Wall Street greed, why not bail out Main Street consumptivitis. Cancel consumer debt...credit cards and car loans. This way everyone starts with a clean slate and we are "loanable" again.
I listened to Paulson this morning --- he never uttered a complete coherant sentence --- everything was a fragment that if put together in print would make no sense. And the shtick was all about saving the American worker and jobs and CRISIS CRISIS CRISIS, which is the new 9/11.
Bush is bookending his eight years of constituional wreckage with a financial Tsunami.
Not one bloviator mention Sec 8 and Czar Paulson's immunity from any and all accountability.
George Stephanopoul moving onto legislative representatives.
Chris Dodd: We want to be cooperative because this issue suprecedes even the election. We need to give the secretary the authority to work.
John Boehner: this is not about wall street, it is about protecting our economy, protecting our jobs, protecting our bank accounts, etc.
Both of the seems to be generally supportive to the Paulson plan.
New thread alert
Peak VT
Right on! as to paying for this bailout. I think the bailout bill should have a $100 billion per year tax increase included. (For example, a 10% surcharge for married couples making over $60,000) That way people would know who is paying for this mess. It also would show our credit masters in Asia that we genuinely plan to pay for it.
I like dryfly's suggestion best -- suspend all taxes for a decade; let the government borrow and/or print what it needs.
Frankly, I don't know why DC wouldn't go for that, since it seems to fit their economic sensibilities.
Looks like it's getting ugly in the House
Open Left:: An Anonymous Lawmaker Diagrams the High Stakes Chicken in the House
Daily Kos: An Anonymous Angry Member on the Bailout
Popcorn anyone?
John Boehner: This isn't about Wall Street. This is about our way of life. This is how serious it is.
(Yeah, the American way of life is really about cheap credit.)
George Stephanopoul: So what would happen if we don't act?
Both Dodd and Boehner immediately begin to described how Paulson scared them good.
Why didn't Paulson say no additional support to Wall Street managers because they either cannot afford to pay their obligations or they do not want to stay in charge of their credit houses?
At first I thought the proposal to somehow limit or recover CEO's pay would be a distraction from getting a more solid and accountable plan together.
But now I think there has got to be some system of fines that must accepted as a condition for bailing out a company - e.g., giving up a year's pay (salary, bonus, options, etc) and dividing the sum with 1/2 to the govt and 1/2 to pay off the company's debts.
There's probably some fancy footwork needed to maneuver around limited liability laws, but for $700 billion of propping up it ought be possible.
Oh. Time to change the tax laws on hedge fund managers, too!
Comrade LeftEm I suggest you checkout The Dishonorable Chris Dodd's financiers/campaign contributors
SAC Capital Partners $279,700
Royal Bank of Scotland $162,450
Citigroup Inc $157,694
United Technologies $145,200
Bear Stearns $123,150
Goldman Sachs $105,400
American International Group $99,300
St Paul Travelers Companies $98,300
The Hartford $94,350
Merrill Lynch $71,300
Ernst & Young $70,750
JPMorgan Chase & Co $67,850
Morgan Stanley $67,800
Lehman Brothers $63,400
Bank of America $63,000
General Electric $62,650
Apollo Advisors $61,900
PricewaterhouseCoopers $61,800
KPMG LLP $56,350
Credit Suisse Group $55,300
Top Contributors to Christopher J. Dodd | OpenSecrets
Rob Dawg writes:
so which is it folks ? Inflation or deflation ?
Both. Inflation of Paulson's imperial powers and deflation of Congress's Constitutional Authority. Just wondering will his Highness Herr Paulson demand the privelege of signing statements as well?
Wasn't that the Federal Reserves long range plan;)
"[When] corruption.. has prevailed in those offices [of]... government and [has] so familiarized itself as that men otherwise honest could look on it without horror,... [then we must] be alive to the suppression of this odious practice and... bring to punishment and brand with eternal disgrace every man guilty of it, whatever be his station." --Thomas Jefferson to W. C. C. Claiborne, 1804. (*)
Naive question perhaps, but widening bailout to foreign banks could then include purchasing junk assets from branches of banks headquartered in China and Dubai, right?
Should sell well on Main Street.
The "paulson plan" is an abomination. If the government is just going to spend $700 billion, why not simply send all taxpayers a check for $5,000, and see what happens? We know that both such plans would be deficit-busting and inflationary, but I'd rather see the latter than the inane paulson plan.
Far be it from me to halt a march to Socialism... but, 700 billion is what 700 Bill Gates are worth.
I mean, is there ANY problem that 700 billion and NO OVERSIGHT won't solve?
Again, just thinking here, before it's forbidden.
Just now on 60 Minutes: McCain was asked who he would replace SEC Chairman Cox with. His answer: "Andrew Cuomo".
If the problem is main street needing access to money in order to keep the train on the tracks, why can't we set up a special fund to generate those loans without having to bail these scumbags in the financial services industry out? As long as the money passes through their hands they continue to rip off the system.
"Two roads diverged in a wood, and I
I took the one that was batshit krazy,
And that has made all the difference."
Robert Flossed?
The over-the-counter derivatives market grew last year from $298 trillion to a notional outstanding value totaling $415 trillion worldwide as of December 2006, according to a report by the Bank for International Settlements.
That 12-month surge nearly 40 percent was the largest since the bank began issuing its twice-yearly report in 1998, according to Bloomberg. The BIS pointed out, though, that after a 24 percent jump in the first half of the year, total over-the-counter growth held to 12 percent in the second six months, "in line with the long-term average rate of increase in the market."
Report: OTC Derivatives Up 40 Percent in 2006 - Finance - CFO.com
They could lose money buying postage stamps.
No way. Postage stamps are the key to unlimited wealth for all.
david s writes:
Naive question perhaps, but widening bailout to foreign banks .....right?"
Yes, it's called Globalization of Debt to be paid by the US taxpayers/indentured servants owned by the Bank Dynasties/G7/slavemasters.