Do you still think this will be a mild to moderate recession, CR.
And yes, where is Tanta? And for that matter, where is Bacondreamz?
Liquidity to be furnished to the bankz in the condition that they loan a certain percentage?
But what do I know?
Is awgee right? Are they going to be buying the alphabet soup, or they going to be buying actual mtges. And yes, many many 2nds are just worthless. In Florida.
lawyerliz, please read Krugman's most recent post too - I think the plan needs a lot of work.
I spoke with Tanta on Thursday, and I was hoping she'd post her thoughts - but maybe she is still thinking about the issues. She is very concerned that the Congress will push Fannie and Freddie to make new bad loans (and/or reduce the G-Fee) in an effort to support the housing market.
I count it as a positive that with modern communication facilities, there is the practical opportunity for many more folks to read, become outraged, and perhaps even act before a bill like this becomes law.
CR - thanks very much. That's very clarifying on the proposal as sketched, critical issues and likely consequences. Let's hope your wide audience picks it up and it gets memed into the general thinking.
Must go clean the kitchen and pull a few weeds. In preparation of victory garden. Ususally I let the squirrels eat the sunflower seeds. Nothing for you this year, squirrels.
Tho I don't think I'll cook you. But don't rely on it.
Can you comment on Treasury proposal for reverse auctions managed by wall street firms for TARP. What is there to prevent firms from bidding >99 cents on dollar, since that is what all of them would want.
I think one thing that gets lost in all these discussions of "liquidity" is that ?1 trillion? ?2 trillion? dollars has been lost (besides housing, there will be trouble with HELOC's, cars loans, and student loans - see Roubini). Long story short - we are singinificantly poorer than we were a few years ago, and that is going to be very unpleasant.
All instruments bought under terms of the plan must be recourse and backed by senior preferred shares paying an cummulative interest rate in excess of LIBOR. As instruments are paid off, these shares will be redeemed. No other common or pother preferred dividends or bonuses may be made while any senior preferred shares are outstanding to the government. This will eliminate the ability of the institutions to off-load investments in excess of their true market value.
Was walking thru this nightmare during yardwork and the more I consider it, the congress should refuse the bill.
In lieu of that, just nationalize the banking system and start immediately to enact strict controls on the financial community. I'm beginning to doubt that this has to be done this weekend and that we do have a few days. Best to use them.
As it's written and on the web - unless there's stuff that we're not seeing - then it's just a bailout of the financial elite for flaming incompetence w/no corresponding pain.
The alternative if they go forward as is, is destruction of the currency and impoverishment of future generations.
Bush/Cheney Doctrine for Idiots- Preemptive Bailouts/Preemptive Wars/Deficits Don't Matter. We can't take a chance, debate, or think this thru, things have gotten worse so quick!!! Anyone remember Katrina or Saddam Hussein.
If we buy into this, I think these are the results: Greatest Ever Destruction of American Freedoms and Way of Life, Lower Standard of Living (except for the rich), Higher Inflation and Interest Rates , and Two to Three More Generations of American Debt Slaves(your kids and your kids' kids). We get what we vote for. The Fed can't control deflation; therefore they have to inflate to regain control. They were the cause of the problem, and we stupidly trust them for the solution....their proposed solution is a blank check from the govt after they just blew $800 billion of their own reserves. Of course it only took their predecessors a hundred years to build it up. Let's slow down and debate this!!!!!
I'm an American Tax Prayer, and I approved this message
Here are America's terms. Have the banks mark there books honestly and see where the chips fall. And then you and Mr. Bernanke and Mr. Cox, on behalf of the banks and the Federal Reserve go ahead and march straight back to your offices and tender your resignation, stopping at every
home along the way to beg forgiveness for 95 years of theft, rape, and pillage of the taxpayers and working classes.
Do that and you shall live. Do it not, and every one of you will die
today.
And also, before we let you leave, you must call a press conference, present yourselves before this country, put your heads between your legs, and kiss your own arses.
There is no sincere plan by this administration to help America or Americans. There is only a plan to slow the financial collapse until after the November elections by throwing a politically palatable amount of money at it and a plan to continue to blame it on a housing bust.
If we, the American people, allow this to happen, were enablers to the unintelligent design model. Before one more penny of our taxes are spent on this ruse, we must demand a seat at the table (I think Ralph Nader should occupy that seat) to discuss breaking up Wall Street, crushing this model, innovating a sensible model that serves the individual investor and deserving businesses, and promises our children a future of more than a banana republic. Pam Martens: The Wall Street Model
If Congress wants to throw $700 billion out the window, why don't they just loan American taxpayers facing foreclosure $700 billion directly?
People would stay in their homes. The housing market would probably stabilize. The bad paper Wall Street holds wouldn't be worthless anymore, and some balance sheets suddenly would look so bad.
And American taxpayers, unlike Wall Street, might actually pay back some of the money -- eventually.
"The Treasury plans to hire managers to purchase the assets through so-called reverse auctions, seeking the lowest prices, a person briefed on the proposal said yesterday."
Getting the banks in a position to lend is one thing, who it is that they will lend to is another.
Lending to households depends on income, and the depends on job creation.
Lending to business depends on an expectation of an increase in sales, which assumes increased consumption.
In both cases, the bottom line is jobs. For this or any such effort to work in getting banks back to lending, will require job creation. So my question is this, where will these new jobs come from? Manufacturing, including an increase in exports, new building construction, the hiring of service workers due to increased sales, auto workers . . . ?
Seems this takes us back to the 'real' economy. Unless the 'real' economy of work and consumption turns around dramatically, seems this is nothing less than keeping the credit system from imploding. But is it anything less than a delay?
The solution is and has always been simple. Prohibit lending (usury) and the prices will reach their correct level. Lending and Borrowing are sin and lead to (debt) slavery.
...the financial "house of cards was much bigger, and it started to stretch beyond just Wall Street in the sense of the effects of failure. So when one card started to go, we were worried about the whole deck coming down."
Why not a tender offer from this new entity ? Post the price at which it will buy assets at a realistic near market price? it worked with the Japanese bank when they were hung with billions of perpetual FRN's in the 1980's. Cretaes liquidity for illiquid assets ( for which there is NO price just now).
Alternatively the consideration for tendering into this "receptacle" could be cash and a contingent value right - ie some of the upside in the asset tendered after the government earns a preferred return.
Your two cents are WORTH more than Treasuries proposed 700B bailout of banks.
It became apparent to me that they are in this to PROP up house prices to SAVE the Banks from further losses and or bankruptcy.
The plan has NOTHING to do with RESOLVING the underlying root cause of the problem, that houses are ESSENTIALLY OVERPRICED and NEED TO CORRECT and not otherwise.
This plan, I have no doubt will in fact PROLONG the crisis.
One would have thought that this requires some degree of control over the government. The activity probably never should have been licensed. In fact, it never was licensed, and hence nor regulated. But there seemed to be a good reason: Investors in hedge funds had to sign a paper saying that they were rich enough to afford to lose their money on this financial gambling. Your average mom and pop investors were not permitted to participate. Despite the high rewards that millions of tiny trades generated, they were deemed too risky for the uninitiated lacking trust funds to play with.
A hedge fund does not make money by producing goods and services. It does not advance funds to buy real assets or even lend money. It borrows huge sums to leverage its bet with nearly free credit. Its managers are not industrial engineers but mathematicians who program computers to make cross-bets or straddles on which way interest rates, currency exchange rates, stock or bond prices may move or the prices for packaged bank mortgages. The packaged loans may be sound or they may be junk. It doesnt matter. All that matters is making money in a marketplace where most trades last only a few seconds. What creates the gains is the price fibrillation volatility. Michael Hudson: America's Own Kleptocracy
"These managers will each run portfolios of up to $50 billion each, according to a source familiar with the plan. The portfolios will be amassed through so-called "reverse auctions" where the seller bids the lowest price it will accept from the government for buying up the asset. "
Interesting proposal, CR, but isn't there the problem that if market prices are established, the non-bank bagholders will revolt? This would include many pension funds and various foreign governments. If the banks simply had an old-school "crap on their books" issue, everything would be easy. Having only individual private American bagholders would simplify things as well. But with the various tranches parceled out around the world, it seems to me that this mess is plate of spaghetti with currency and political implications.
Who wins in this scheme? I think it's a plan for all the poisoned paper bought and stored at the Federal Reserve Bank to get sneakily transferred (for a small fee of course) to the Treasury's Toxic Financial Waste Dumpster. The Fed gets their $700 billion of filtered T-bills back with a small profit and can continue screwing up the economy; while the only dumpster divers will be the EPA or an occasional broke taxpayer.
Hank and Ben have been telling us all along that the financial institutions are "Well Capitalized". They are liars. And now they want authorities that make the constitution look like a dishrag. It's an outrage! I contacted my Senators and COngressperson a few times today.
This should make the citizens of this country plenty angry.
All because GS stock dropped below $90 briefly. Don't short GS or else!
No, it will not "work". Of course not. The old shadow banking system based on loose securitization is out for the next 20-50 years. And there is still the vastly larger derivative mess hanging over everybody. Folks, no it will not "work", if preventing a depression is what is intended. It may delay it a bit, but that is another story.
Maybe I can add my tuppence worth as an outsider (not involved in the markets & not a Ctiezen of the USA)
I could be way off the mark here. But bailing out the Banks & Wall Street;
Will not revitalise the housing market.
Will not simulate consumer spending.
Will not increase Government Revenue.
However, given what Dodd said (Chairman of the Banking, Housing and Urban Affairs Committee!!!) as reported by NYT
that were literally maybe days away from a complete meltdown of our financial system, with all the implications here at home and globally.
And what Schumer said
Its a brave new world. You are in uncharted territory, but the one thing you do know is you cant leave them (credit lines) frozen or the economy will just head south at a rapid rate.
And given that short selling is banned, it seems to me that rather than have a meltdown Paulson has decided to go for controlled demolition.
If an institution does not come forward with a true statement of its position by the end of the ban on short selling (2nd October??) they will not be allowed avail of the bailout.
If they do come forward the shareholders (and possibly bondholders) will get hammered.
Then, when all the chips are on the table Paulson & Bernanke & Bair consolidate the financial system at breakneck speed.
No one gets a chance to short the information and when all is said and done there are 500 / 1000 less banks and the $1T + some Chinese nodding & winking is used to recapitalise the remainder.
The remaining banks will have restricted lending parameters.
If Congress wants to throw $700 billion out the window, why don't they just loan American taxpayers facing foreclosure $700 billion directly?
People would stay in their homes. The housing market would probably stabilize.
People are facing foreclosure because they can't pay off their loans. It's one thing to assist people in refinancing, but if you start giving people incentives not to pay their loans or be responsible with credit the credit markets are going to stop working, and we'll be on the fast track to becoming a third world country.
Credit only works when there are severe consequences for misusing it, otherwise you have borrowers but no lenders.
As Fresno Dan suggests above, the underlying problem may be that after years of living beyond our means, we are about to be forced to live WITHIN our means, because we vaporized so much borrowed money on houses (and other stuff) in the last couple of decades.
So instead of trying to save the financial system that brought us to this pass, perhaps we should use the money we have left to set up a new system, and make the painful transition to a pay-as-you-go system--for households, companies, local, state and federal governments. Is that crazy?
I am sure that you two can somehow get into a position where your ideas get heard by the highest people in the nation, the Dodd's and the Shelby's. Whether it's through media people like Krugman, or I don't know who else... I am sure of it. I mean, this plan as currently structured is ridiculous.
Does anyone remember Bear Stearns' attempted Everquest IPO, where they tried to spin off all their toxic mortgage crap into a separate company funded via an IPO?
The Paulson bailout plan looks an awful lot like Everquest revisited, except an IPO would have some judicial and regulatory oversight.
Section 2's language purports to trump any other provisions of law regarding public contracts:
"entering into contracts, including contracts for services authorized by section 3109 of title 5, United States Code, without regard to any other provision of law regarding public contracts"
Years ago, I was in Belarus (at the time the last Stalinist remnant of the Soviet Union) negotiating a deal. We actually got a presidential decree saying our contract trumped all then existing public contracts, laws and decrees.
Say a bank has X % of toxic assets. Let them sell that toxic asset to the govt agency at a % of their choosing say Y%. The agency then has a ownership of X*Y in the company.
20% bad debt sold at 20% of face value = 4% of ownership in form of equity.
20% bad debt sold at 80% of face value = 16% of ownership in form of equity.
Maybe they should have an auction with "randomization," as follows:
Private bidders each submit valuations for a long list of troubled assets. Then some fraction, say 10%, of the assets, chosen randomly, is sold to the bidders at some small discount to their bids, and the other 90% the government buys at the bid prices. Thus the government supplies most of the liquidity, but the prices are entirely set by the bidders.
Yeah, seriously second that Probert's motion. CR, you appear to a man of high integrity and intellect. It may be time for you to step out of retirement and serve your country for a year or so. The blog is nice, but we need smart, trustworthy people advising these nutjobs at the top.
It's distressing to me that some powerful people are still talking about reversing the decline in house prices. What part of "bubble" do they not understand at this point?
That is a good point and proof really that there is no way the taxpayers don't get reamed with this plan.
This is the same thing as the failed super SIV plan...the same thing as the "bad bank" plan that LEH attempted to float. It didn't work for them because the entities that they were trying to foist the crap on wouldn't take it....even to hold it long term for the "turnaround".
In this case it is still a terrible deal but the "bad bank" is being foisted on the taxpayers who have no say and so no choice in the matter.
Pension funds and 401k funds have a shitload of this garbage on their books. Haircuts there will be hitting main st very very hard as those close to retirement or already retired will get a severe haircut to their assets.
How about a punishing valuation of MBS at Treasury purchase, with bank participation in profits of later liquidation of the assets?
Treasure recapitalizes the banks with CR-style investments, and with a senior interest in the banks' share of the windfall from liquidation of the purchased assets?
I think that Treasury comes out ahead whatever happens, and the banks keep going with the recapitalization.
Mark the assets to market. If lenders fail, so what? If I had a few millions dollars lying around right now, maybe I should start a new bank, with no bad loans on it's books and transparent financial statement. Wouldn't every want to work with me?
I understand a lot of investors will lose money. By no means all of them are American, yet it is American taxpayers that will be asked to guarantee their investments. Well, this is about choices, and I am not sure that taxing my 20 year old son to rescue the Sultan of Brunai's investments in MBS is a property decision.
Here's another one. If a foreign bank has bad assets, what's to keep them from selling them or transferring them to an entity capable of selling htem to the Fed? Are we bailing out the world? We can dump a trillion dollars in that and come nowhere near solving the problem.
Help me out here. I freely admit that a lot of this is above my level of understanding, but the plan so far just seems crazy.
New banks should be formed/capitalized. Let the existing ones muddle along until the assets underlying the mortgage derivatives improve. The new banks could be capitalized and well regulated. They would not have the problems of the current banks, so there would be credit available. With credit available from 1st Clean Bank of America, the argument that the existing banks must be given clean balance sheets so that they can lend again goes away.
If pain means smaller and fewer cars, smaller homes, smaller and fewer TVs, etc. etc., then bring it on. Give me warm quarters, food and clothing, and my family and I will be just fine.
Maybe we should save our money to make sure as many people as possible have life's necessities, and a job to earn them.
The scary part is the politics. What demagogue will arise in our midst to exploit the public anger over the loss of the suburban SUV lifestyle? Where will the search for scapegoats (already beginning) lead us?
Paulson is the problem. The sane thing would be to let the rotten apples die. And that includes Goldman. Let the troubled institutions die, but protect the innocent bystanders such as depositors. Then salvage whatever is left of their assets. Not many institutions might be left, but new ones could be founded. What we need is a brave new and sane financial system. Which should not resemble the old one at all. Again, Paulson is the problem. Even this would not prevent the depression, but would shorten it.
CR makes some very level headed and sobering comments.
I agree that there is no problem with liquidity and never has been, as CR said there are private bids out there for this stuff. The banks just don't want to accept them because that means admitting they are insolvent.
"She is very concerned that the Congress will push Fannie and Freddie to make new bad loans (and/or reduce the G-Fee) in an effort to support the housing market."
vary troublesome indeed. (but hey, if party says the show must go on....the hawks will keep pushing).
would the "possible" (I believe it has already started) interference in the RE prices create mismatch between the demand and supply for housing?
if so, wouldn't the mismatch just prolong the fall of the prices?
also, wouldn't the short selling make the banks more willing to unload the assets at the prices more favorable to TAX PAYERS?
(given the government will go through the social planning, contrary to Monetarism ideas).
Carlomagno, when I wrote "auction" I meant the reverse Dutch auction as leaked by the Treasury. This will not work well in this case because if you define the asset class broadly, you end up with toxic waste, and if you define it narrowly there aren't enough bidders.
This is a key problem: many RMBS and CDOs in the same asset class are different - sometimes substantially different.
"Let the troubled institutions die, but protect the innocent bystanders such as depositors. Then salvage whatever is left of their assets."
That's about what was tried in the Great Depression. In the time between death and resurrection, credit became extremely tight and the real economy was burned to the ground.
When these clowns in CONgress pass this I wonder who they will find for a scapegoat to blame for interest rates rocketing and the dollar falling like a stone along with the commodity inflation (manipulation is only going to lead to shortages) that will come with it. Must be some wicked speculators somewhere hope they have that coved. Any type of proposal that would make any sense at this point is DOA.
The problem I see with Paulsen et al is that to them the death of wall street as they know it is the End Of The World. The sun rose before there was Goldman Sachs, and the sun will still rise after it is gone. I wish we had someone with the proper perspective in the "negotiations" that are going on.
I should add that in Finland the GDP tank almost a whopping 10% over just one year. Painful as hell and an all-time OECD record to my recollection. But the crash was short in duration and strong growth ensued. Paulson is imitating Japan instead.
Okay, now I get it. Bush/Cheney used 9/11 as an excuse to sieze control of everything in this country except Wall Street and the banks. This crisis gives the Bush/Cheney/Paulson triumvirate an excuse to seize control of the financial system. Now all that's left is to find soime excuse to cancel the election.
Right! Propping up the existing insolvent financial institutions is a huge mistake. They will just drive us straaight into the next crisis, if we ever unwind this one. Just let them go, like LEH. We will get over it.
Many months ago, Dr. Hamilton at Econbrowser wrote of his frustration that so many in government and the press were talking as though the Fed could find some safe course to guide the economy through the storm, by charting the safe course between inflation and recession. He suggested that, in the wake of so many billions in real losses, there may not be any safe course that avoids significant economic distress.
I suspect that Paulson and Bernanke know this to be true. Maybe the first, necessary step that has NOT been taken is the political step: Tell us the friggin' truth. Stop trying to reassure us as if we were children. Stop pretending that Daddy will make sure everything is okay.
CR, if the root cause of the problem is valuation of the asset, this is hopeless. The biggest issue in mortgage lending right now is valuation. It's been the wild west for years...there's no way to accurately know what you have. Everyone is essentially guessing on residential appraisals.
main issue here is that Hank is not the right man in the job. Coming from GS, the only thing he knows is making deal with other people money and he/his friends get reward for that. That's what the plan is all about.
It is me from Europe: Ah. I took "let them die" to mean "wait until the institutions run out of money". That would, of course, be far too late. They have to be killed preemptively before their shakiness starts a panic.
Please take a minute to contact your senators. Most have email forms on their senate.gov page (Googling your senators' names will get you right there). They won't have time to read individual emails, but their staff will tally fors and againsts, so just make it clear you are against the proposal. This really can make a different if enough people act. At the very least we can force a real debate on the floor of the senate, and give the public a few more days to turn against this plan. If you have writer's block here's what I sent to mine, you can use it however you like:
Dear Senator Murray,
I hope that in this moment of "crisis", which was born of the reckless greed of Wall Street firms, you do not cave into pressure or panic and vote to support this insane proposal to give the treasury a blank check for $700B with no oversight. This is simply theft, taking from the taxpayers at large and funneling the money to Paulson's cronies on Wall Street, people who have made billions in the past few years while average Americans saw their real wages dwindle. We absolutely cannot trust the Bush administration to "just to the right thing", they have shown over and over again that given (or just by taking) super-constitutional powers they will abuse them for their own purposes and saddle the taxpayer with the result. This cannot be allowed to pass, it will be a disaster of unprecedented proportion, and bankrupt this country for generations. If we must do something then let us use the powers and systems we already have: bankruptcy and existing regulations. Let us at least ensure that any law passed now explicitly protects tax payers first, depositors second, and does not give free money to share holders and debt owners, and preserves Congressional and Judicial oversight over the process.
"Some banks believe the assets are worth more than the current bids. . "
". . .And many banks are unwilling to accept the current bids because the banks would then be insolvent."
Well, that's too bad. They lent too much money. They thought real estate always goes up, but they were wrong. Now they're bankrupt. Game over, thanks for playing.
Let them fail. Some modern-day A.P Giannini, who lent money to people in the smoking rubble of San Francisco just after the 1906 earthquake, will appear to start lending anew with a brand new, clean balance sheet. [Giannini's bank eventually became the Bank of America.]
Rhodesian: you can short treasuries by buying cds coverage on them. I suggested this to a friend at a hedge fund at the beginning of august. He dismissed me as a nut job. On friday he informed me that had he done that trade he would have tripled his money.
Sorry, I am going to repeat myself until folks finally stop thinking that the TARP will be buying mortgages. The TARP will be buying the worst of the worst, which the financial institutions need to get off their balance sheet and their shadow balance sheet. The TARP will be buying derivatives of mortgages, or in TARP speak, "mortgage related assets". The derivatives are the worthless tranches of CDOs, CDO squareds, and CDSes based on mortgage based CDOs. These worthless derivatives will not appreciate in value as time goes by.
This plan specifically removes the possibility of Supreme Court overview or indeed any judicial restraint.
Paulson would have "umlimited powers".
I despair for my country.
If it cannot ~ Then can it call itself a democracy ~ Demos ~ A population of the common people & Cracy ~ Rule.
The USA is no longer a Republic or a Democracy.
The question is ~ what has it become?
If it is possible for an insignificant number of the population to control the vast majority of the population by greed (lets all buy a house it is the creation of all of wealth,we will be rich beyond our (American) dreams) or fear (some creep from a culture we know nothing about kills 3000 people on 9/11).
If it is based on either of these two things then the Italians had a word for it.
There's just no way to get around the fact that there's going to be a lot of pain associated with these market corrections. We can all keep our fingers crossed that this will work, but right now I think we're all in terra incognita.
The toxic combination of easy money and lax regulation directly caused this fiasco. Going forward, I think we need to do the following to prevent this mess from:
1) Eliminate both the mortgage interest deduction and the taxation of interest income. Combined, these create a huge disincentive to actually save. We all know people who bought over their heads or re-financed, rationalizing it because they "needed the tax break".
2) Amend the Fed's charter to focus on controlling inflation rather than also promoting growth and staving off unemployment. Politicians have successfully used this to strong-arm the Fed into promoting easy money and allowing two major asset bubbles in the span of a decade. It's not altogether clear just how independent the Fed is.
3) Greatly expand the scope of the FHFA to actively regulate the mortgage industry in the US.
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency
The public would be better off nationalizing the whole darn thing. This is another stupid attempt to thwart price discovery -- privatize profits and socialize losses.
What's more, there are redundancies in our banking system. We can survive -- it won't be pleasant -- without some of these back alley mofos. Off with their heads. Let them fail.
"Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency"
THIS IS FACISM
Even as we debate, they could be recasting this as an Executive Order.
Michael Hudson:
Economic theory used to explain that profits and interest were a return for calculated risk. But today, the name of the game is capital gains and computerized gambling on the direction of interest rates, foreign currencies and stock prices and when bad bets are made, bailouts are the calculated economic return for campaign contributions. But this is not supposed to be the time to talk of such things. We must act now to protect our nations economic health from serious risk, intoned Pres. Bush on September 19. What he meant was that the White House must make the Republican Partys largest group of campaign contributors whole Wall Street, that is by bailing out their bad gambles. There will be ample opportunity to debate the origins of this problem. Now is the time to solve it. In other words, dont make this an election issue. In our nations history there have been moments that require us to come together across party lines to address major challenges. This is such a moment. Right before the presidential election! The same guff was heard earlier on Friday morning from Sec. Paulson: Our economic health requires that we work together for prompt, bipartisan action. The broadcasters said that half a trillion dollars was discussed for this days maneuverings.
I vote for First Clean Bank. How is this plan one iota better than nationalizing the fucking banking system.
The current crop of bankers has proven themselves completely incapable of handling the business of lending. Give the government a chance so those paying can share in the proceeds.
One that sticks with me is that Schumer made the comment that if this money is injected (or something like that), the credit markets seize up and the economy heasds South.
To me, that sums it up.
In that statement is the entire mess we are in.
Without creating more debt, the economy collpases.
I would ask, "How did we get this way, Mr. Senator from NY?"
When did America become 100% entrenched in debt that it becomes the only mover of an economy?
What about manufacturing? Oh, that's right. The economy is only 9% of manufacturing. Whew, I thought we were in trouble for a moment.
Once again...
70% of the economy is consumerism and we know how much of that consumerism is based on debt and/or money creation (also debt).
Well, that's it...Just throw another 700Billion at the problem.
Heck, when you have a 10+Trillion dollar hole, what's another 700Billion? And you can bet your bottom dollar, when the goobermint gives a price, you can multiply it by 2-3X to get the real amount.
The valuation question does seem intractable in any short term scheme.
The proposals here and by Krugman to focus on recapitalizing companies by buying MBS in exchange for an asset stake in the companies seems a way out.
An RTC-like entity then collects the purchased MBS from this plan, and the leftover hulks of assets from those bankrupt institutions that fall under regulatory orbit. Later, over time, the new RTC can try to milk some value out of this stuff, just like the old RTC did. Valuation may be intractable now, but it won't be forever. Eventually value can sorted out, for better or worse.
the recapitlaization plan can work by extending regulation to require opening books, meeting capital requirments, etc, and, sad to say, requiring participation by class of institution (i.e, hedge funds, investment banks, etc)
I fear though that Paulson/Bush/Bernake are putting a gun to Congress's head, and Congress doesn't have the strength or smarts to maneuver against them.
I wonder if Paulson can put all $700 Billion into Halliburton and Carlyle before the end of Bush's term........I mean whether he can accomplish it that quickly, since he's going to be allowed to do it.
If I played the market in that way (I don't) I'd buy stock in every Bush crony owned compnay in sight.
Aleister, that counterpunch article is ridiculous. As much as the rich like the republican tax structure, you should check the facts...most of the Goldman guys are Democrats.
Maybe the gov buy should buy at the "current" value, and therefore recapitalizes the banks, but at the same time obtain from the banks warrants for equity. The price of the warrant should be determined at a later stage based on the true market value of the assets bought.
This would push the price-discovery to a little later stage and therefore avoid the biggest bottleneck problem right now.
Excellent proposal. Not quite as draconian as the Sweeden/Finland example, but much more tax-payer friendly than the Paulson Plan. Plus it may just, on the margin, increase credit availability to good quality borrowers.
Sure, there's some possibility of adverse selection (i.e., the heaviest borrowers are banks with the most chance of going bankrupt, such that the threat of dilution is meaningless). But that is a small drawback in the scheme of things.
So, one has to ask, why didn't Paulson come up with something similar?
It seems he is trying, in the end, to prop up the stock market by transferring taxpayer wealth to bank shareholders. What other conclusion can one come to?
Unlike the Sovereign Wealth Funds that invest a government's surplus, this will be a "Sovereign Taxpayer Fund".
My thoughts are pretty much we have attempted a bailout too far!
Now, really in the way we are going, the biggest questions are how will the rest of the world decide in the safety of anything this government decides to do.
Now, if the dollar rallies, and our stock market stabilizes, and houses sell for more than last year, all will be well.
I, along with quite a few posters here give it very low odds.
Krugman agrees.
Now you should all begin to quail in terror.
The worst case scenario is starting to materialize.
Now, what should most of us do? Just like LLiz suggests, go get some food, hunker down, and let the folks who made this mess, solve it if they can.
meant to make clear the new RTC would also hold the stock acquired by recapitalizing companies: stock, purchased MBS, and whatver gets taken over along the way in bankruptcy/receivership (like FDIC does with banks). Such a mix gives some hope of recovering some of the costs, and a quid pro quo of regulatory authority.
It's a Bull Market in Government Intervention
It's worth repeating the reality that prices want to fall and interest rates want to rise. It's not clear that the government can change that reality. And while the government theoretically has access to unlimited amounts money to throw at problems, in practice there's a limit if only because the dollar is regularly valued vis a vis other currencies and gold. At some point, cranking up the printing presses to bail out Acme Finance is self-defeating because the marginal gains of injecting liquidity are more than offset by a slump in the purchasing power of the buck.
BTW, CR, what makes you think you are entitled to details, huh? Hehe.
If they arent going to allow review of the plan later, there really isnt even any point in sending out any real information about it before it is enacted.
How about raising the FDIC insured limit to 250-300k?
eliminate the money market protection
allow ib's to fail,
bk the hedgies
any of the cds/cdo are washed.
draws capital into banks, allows banks to continue lending, with the same backstop, and no moral hazard.
those that took the most risk on opaque securities take the greatest loss, as they were the ones who benefitted the most.
I still continue to be amazed by the simplicity of the Paulson Plan's language as well as its brevity. It's what I would expect to emerge from some the fly encrusted jungle office of a third world petty dictator who runs a country with a cowed population and a puppet legislature. It's scary to think that this man controls the Treasury.
Maybe the earth tilted on its axis last night and we are now living somewhere in South America. .
The Pig was Kleptocracy and when the lipstick is applied it will be come Facisim.
Sec. 8. Review.
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency
The only ammo left is this doomed plan & to print more fiat real fast to delay it a few more weeks. The plan is to get out of Dodge(DC) before the real collapse so they need 60-90 days to clear out the cabinets and desks and get offshore ASAP.
That's correct. We have no right to ask for details. They are being saved for the greatest October surprise ever: Sarah Palin will announce the details at the VP debate!
Lipstick on a pig, my ass! We'd be lucky to get a pig with lipstick, or even just a pig, or lipstick. Even a moose would be better, if moose shit is better than bullshit. But I'm getting angry and crude.
I mean seriously, this plan makes too much sense, which is why it wouldn't be implemented. This whole bailout reeks of banks offloading their toxic paper at their valuations onto the taxpayer. Otherwise, there wouldn't be a bailout as they banks can't afford significant losses to what the assets are actually worth.
CR wrote "And many banks are unwilling to accept the current bids because the banks would then be insolvent."
Why wouldn't they take the bids if they are their only bids, and holding on to these assets will for sure make them insolvent anyway. As they become insolvent and start to engage in asset sale, wouldn't they then have to take those bids or even lower?
To make sure that banks remain solvent, the Treasury can buy the bad loans (at market price or a bit higher, but not at a huge premium as to ensure banks can be solvent from these purchases) and can inject further capital into these firms by buying equity or recapitalization.
It seems to be this is a way to make sure banks stay in business but also punish the banks' shareholders and not tax payers.
It seems to me a simpler way is to require the assets to be marked to market now. The banks go bankrupt immediately, and the USG takes them over. No having to worry how much to pay for the mortgages, because now the taxpayers own them all. We are already on the hook for the insurance, so let's just go all the way. Then when the banks become profitable again, they can get re-IPOed, with the proceeds to help pay down the federal debt.
Paulson must have generals on his staff.
Remember that the Bazooka was 70bil so he would not have to use it. He diduse it.Now that it didn't work he wants something 10 times bigger. Like that self-propelled artillery foolery the army kept getting funded that never worked.
What would be his plan C? Maybe the Japanese do have something with expecting suicide for bunglers.
Make him an unelected Secy of Treasury an economic czar?. This is a mania.
I honestly believe that the thought that his beloved GS might go under shook him to his core. This is his version of protecting GS like a bodyguard willing to talk the bullet his (what is a good name for the man the bodyguard protects? Oh well) his Boss.
Was schert mich Weib, was schert mich Kind,
\t
Ich trage weit beßres Verlangen;
\t
Laß sie betteln gehn, wenn sie hungrig sind -
\t
Mein Kaiser, mein Kaiser gefangen!
\t
What matters son? What matters wife?
By nobler needs I set store;
Let them go beg to sustain their life!
My Emperor,(Napoleon) a free man no more!
The plan is nothing gets paid with real money(just promises to pay somewhere down the deficit line) especially the bogus derivatives and a collapse of the ecomomy that has been stripped of the last cash and sellable assets. This is a cover to fool everyone that's it's OK to spend your last little bit of money and not sell assets and make runs on banks. Every bailout just bought a lil more time to cash in and then get the hell out.
No joke: It's purpose is, as i've learned here, to lend freely at somewhat above-market/ punitive rates against good collateral.
Whether you do this via First Clean Bank or the nationalized remains of Frannie etc. is a procedural question.
Good collateral of course is key (return of the old-fashioned 20% downpayment).
What did Warren Buffett say after all when asked about the credit crunch: "There's no shortage of money. There's however a shortage of so-called dumb money" [lending for insufficient collateral].
"I mean seriously, this plan makes too much sense, which is why it wouldn't be implemented"
Eric I agree.
But its too bloddy late.
China want's a guarantee NOW.
The citizens of the USA need to tell China to go f**k.
Instead your airforce/army/navy are up to their necks in s**t in countries you know nothing about other than it is in the best interest of Halliburton.
How much in salaries and bonuses were forked out to wall street people, above and beyond a more normal amount, based on the housing bubble? Why dont we start with clawing that back.
Then we can sell of any second home purchased by a realtor from 2001 to 2008.
The investment banks remaining can use that to shore up their capital base. It would probably work and actually affect only those jackbutts who created the problem.
The Wall Street Journal and the New York Times have started to comment on the Treasuries planned for bailing out the mortgage industry. Unfortunately it doesn't seem to be much said about where the money is going to come from to pay for this bailout. The the Congressional budget office a few weeks ago announced that and that the anticipated budget deficit for 2009 will be slightly less than $500 billion. The latest calculation on the bailout of the mortgage market will be between 700 billion dollars and $1.1 trillion. None of the numbers include the recent bailouts of AIG and Fannie and Freddie. The estimate for these bailouts is approximately $3-$500 billion dollars. Also the recent housing bill requires $300 billion to finance the rescheduling of homeowner mortgages. As you can see the treasury is going to have to raise quickly an awful lot of money via the selling of government securities. The question is where will this money come from? It appears to me that the treasury feels that friendly and not so friendly central banks will come forward and buy the new paper that will be issued by the Treasury Department. I seriously question that this concept of continuing foreign purchase of our securities. There are three things that the foreign central banks can do, one they can continue to buy our securities and even larger amounts, two, they can demand a higher interest for buying the paper. Why except 3.5% for 10 year bonds? or, three back off on their purchases. This is a major dilemma for the Treasury Department on how do you get the foreign central banks to come forward with a huge increase in purchases? The Tresaury has indicated that they want to act quickly. The entire bailout could fail because the treasury will not be able to finance the increase debt by its usual means .
Of course Congress could enact new tax legislation which would raise the necessary funds to make up for the shortfall in foreign central bank participation. Unfortunately by raising the tax rate above $250,000 to 100% will not generate the necessary tax revenue to cover the shortfall. So everyone will feel the pain.
Or the treasury could issue treasury bonds in Lou of a cash payment. This is a well know method of financing for governments in trouble. But doing this will signal that the government is going to inflated self out of the problem. I would assume that they will start this off with the idea that it would just be a one time event to manage the problem of the lack of cash to pay for the bonds. But that history shows that this solution will rapidly lead to hyperinflation and destruction of the ocountry as we know it.
This is not because the assets have no value, but because house prices have not stopped falling and stabilized, the players do not want to buy something only to find that it is worth less a day or a year later.
If the banks were to mark to market now they would be insolvent due to their leverage.
The REAL danger is the OTC derivative market imploding, it is now only illiquid and will be for the foreseen future till the house prices stabilize.
The plan will attempt to ARTIFICIALLY stabilize prices, much like the ban on short selling was done with the intention of propping up stock prices.
This will not work in the current global economic climate.
(Side note : If one looks at the Karachi exchange, one can see the outcome of their market after they banned short selling to try to stop prices reaching their fundamental value.)
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
i find this very disturbing - god forbid there is transparency and accountability for this proposal.
It's also important to note that this bill is not a done deal. The plan was just announced a few days ago and already we're hearing Congressmen on both sides of the aisle raise issues with it.
This trial balloon appears to be lead on the outside, and hydrogen on the inside. They better find a way to generate some more confidence that this is actually going to help, or next week will make last week look like a walk in the park.
"It's also important to note that this bill is not a done deal. The plan was just announced a few days ago and already we're hearing Congressmen on both sides of the aisle raise issues with it."
CORRECT AGAIN
The idiot Paulson has lead us up the hill with all his men.
When he marches then down again (that should tak about ? Tuesday)
The Stock Market TANKS.
The Chinese see that their demand could not be delivered.
Like I said before this bailout was even announced, this whole thing is about asset valuation. These assets aren't illiquid, they're just "illiquid" because the asking price is too high, just like pretty much any sfr in the real estate market today. The plan as it currently stands solves very little.
Tell you what. I'll support the TARP if instead of the Secretary of the Treasury, Pelosi, Dodd, or Schumer head it up above Paulson. Doesn't look so attractive now does it?
(Still looking for an acronym; TAR PIT comes to mind)
"...The underlying problem is that house prices are still too high and no one knows how much further prices will fall..."
Better diagnosis: The underlying problem is that household debt to GDP is at an unsustainable high, and that as households succumb to the high debtload, they are defaulting on loans and curtailing discretionary purchases --> reducing employment --> further household defaults and cutbacks.
Gotta clean the debt from the households, CR and Dr. Blinder. Falling asset prices are just a symptom, not the disease.
Go to the CBOT website. There are papers there about shorting treasury futures.
My strategy: short when the fed first raises interest rates; stay short until they start dropping them. Look at recent history treasuries history to get an idea how it might work. If you don't wait until the direction of interest rates changes, you may experience some undesirable effects.
Note: you can also go long treasuries when they start dropping the rate -- your note's price will increase as the yield goes down.
There is no way the Federal Government can bail out all the derivatives and swaps that have been sold and collateralized by these CDOs and CMBSs.
Any attempts will only be temporary and eventually (probably in October) countries and investors will realize this and hense a major stock market crash.
I believe it is confession time for all the bubble economies of the world!
Democrats Seek Changes To Wall Street Bailout Plan
A $700 billion financial rescue plan was sent to Congress Saturday, and Democrats moved quickly to propose changesincluding possible help for homeowners and a salary cap for CEOs.
Democrats also are pushing for a new $100 billion economic stimulus package, although it's not clear if that would be part of the Wall Street bailout or be voted on separately.
Hmmmmmmm. Either they don't get it or they only know too well what they are doing.
Apologies I appear to be posting beyond manners. If you need to cut me off just do so.
Geoff writes:
"This trial balloon appears to be lead on the outside, and hydrogen on the inside. They better find a way to generate some more confidence that this is actually going to help, or next week will make last week look like a walk in the park."
There is no confidence.
Paulson (a more intelligent man than Bush) has bullied Bernanke (a more intelligent man that Paulson) into a Wall Street solution to a global problem created by Paulson (GS) himself.
lawyerliz writes:
I went shopping yesterday and exchanged some worthless dollars for some nice chinese clothes. I think we will buy a generous amount of groceries tomorrow. I think y'all should do the same.
Many thanks for putting this out there. We can only hope against hope that someone in power listens, understands, and cares. You and PK are doing what you can, at least. Of course, we can't know the chances that they will listen, much less understand and care, but one thing is for sure: If no one of competence who sees this disaster coming speaks up, they will not hear for sure. And the louder and more cogent the speaking, the better the chances.
"If pain means smaller and fewer cars, smaller homes, smaller and fewer TVs, etc. etc., then bring it on. Give me warm quarters, food and clothing, and my family and I will be just fine."
Hear, hear. We haven't watched TV for years, and haven't perished from the deprivation. Try it.
Your plan would have worked 6 months ago, but now is not enough, because investor confidence and lack of liquidity are also seriously straining the financial system. A combination of your proposal and the current Treasury proposal will be needed IMO.
I am all for the stimulus pkg without the bailout .
"Democrats also are pushing for a new $100 billion economic stimulus package, although it's not clear if that would be part of the Wall Street bailout or be voted on separately."
The RTC collected and eventually sold off loans made by thrifts that had gone bust. The administration proposes to buy up bad loans before the lenders go bust. This difference raises several questions.
The first is whether the bailout is necessary. In 1989, there was no choice. The federal government insured the thrifts, so when they failed, the feds were left holding their loans; the RTC's job was simply to get rid of them. But in buying bad loans before banks fail, the Bush administration would be signing up for a financial war of choice. It would spend billions of dollars on the theory that preemption will avert the mass destruction of banks. There are cheaper ways to stabilize the system."
God I love section 8,It could have been written by someone I once knew who got a "section 8" discharge from the Army.He believed he was Caesar Augustus reborn to lead America.Actually he probably would have done a better job than these clowns...
but analyzing each mortgage would be a monumental task
Why? Wasnt the fact that this wasnt done in the first place, what led to the problem we are now seeing?
In my opinion, this is why this plan is BullShit. This is what people are referring to when they demand accountability. I dont care that its a hard job to analyze each mortgage issued during that time frame, DO IT!
Take these "assets" off of the banks hands for some price which will keep them solvent and lending but with the stipulation that as time goes on and price becomes more clear, they have to pay the difference back to the government - esentially an interest free loan for the banks with a known cost to the government (the loss of interest on the capital - so if it costs 2 billion and takes three years to clear up, and assuming a 6% interest rate, the cost would be about $360 billion - painful but would it work? Also it would have the benefit of incentivizing the banks to prudently try to stabilize the economy since they are still on the hook for the securities...
It's heartening to see that folks much more learned and rational than myself, such as Krugman and CR, are equally concerned about the bailout proposal, but I can't help but think that ultimately Congress will fail to share that concern and will pass damn near anything that's handed to them.
Shelby (of American Alabama, not formerly Soviet Georgia) fired the first shot, but the tanks rolling down Wall Street and the jets strafing the streams of refugee investment bankers fleeing Manhattan all have donkey insignia on them.
The proposal so far divulged stinks of two odors--a taxpayer giveaway to the rich (if the assets are bought above market) and a confusion between solvency and liquidity (if purchased at a reasonable price).
Personally, I think the financial institutions have to fail, and the government then has to recapitalize the financial services sector. But maybe a couple of weeks of smoke and mirrors while it's all sorted out is what's needed to keep the whole system from freezing up hopelessly.
I've been writing notes to my senators asking to reject Secretary Paulson's proposal and request a new proposal with more balanced distribution of the costs amongst taxpayers, shareholders (maybe bondholders), employees and, in particular, management of the institutions receiving assistance.
If anyone has any ideas on what else we can do to influence (and educate) our representatives, pls speak.
thanks.
STANZA 97
By Lev Loseff
\t[translated from the Russian]
The dispositions of planets
The gloom of the coffee grounds
Tell us the angels have had it
And God is not to be found
And all of the other letters
The omens, the signs and the runes
Dont clarify anything better
But sink with the rest into gloom
All of the thoughts in my skull
Hop around without a connection
The poems of those I know well
Are formless and often misshapen
When Im off to my business in town
Or only about for a stroll
I is the vowel that sounds
My ear has got used to its toll
Exhausted with work like a truck
Grinning sickfaced like a bitch
[skulyashchii, kak bolnaya suka]
Grammarless language is stuck
And the words are hub-deep in a ditch
The jerk who from far way bellows
Is making a speech from the void
The gossip who catches your elbow
Is whispering crap unalloyed
Which gurgles and then disappears
In a howl that nothing has said,
But still in that chaos I hear
The rustle of wings overhead
Good luck, everyone. Were in uncharted waters now. There is no rule of law if this passes - there are no markets. Weve all been had, and the worst is yet to come.
CR, I agree with everything you and Krugman are saying. In a ceteris paribus world with no outsiders, that would be fine and dandy.
However, you've neglected to talk about foreign holders, specifically holders of treasury, GSE and private paper.
They are not going to take this lightly, and they will be heard.
As David S quoted at 4:53 on the previous thread:
-snip-
"But as new shocks hit earlier this week, Wang flew to Washington to meet with Treasury Secretary Henry M. Paulson Jr."
"Wang sought assurances that if the Chinese government were to encourage its companies to seek investments in the United States, the deals would not face the same political opposition that has undone past Chinese investment proposals."
"Andy Xie, an independent economist who was formerly Morgan Stanley's chief Asia economist, said the United States needs to accept that a large amount of U.S. assets must be transferred to other countries' ownership. "If the U.S. is not willing to accept that," Xie said, "they will have to print money and the dollar will fall. And we will be headed toward a global financial meltdown."
-snip-
Either way, the macro consequences of this will be extremely high. I can't overstate this point.
So, dear people, do you want a dollar when the pain is over, or do you want fuel for your fireplace.
Last comment for awhile...been fun hanging out (LONGtime lurker, rare commenter).
Saying "house prices are too high" is another way of saying "people aren't making enough money".
The long-term prime causes -- that's right, causes, no one root cause -- of the present crisis are more about globalization and structural changes in the american economy than about mortgage finance per se.
There's a lot of punches, but the one-two punch is here:
(A) globalization of labor markets makes a lot of domestic labor-intensive industries internationally uncompetitive.
Sometimes this means "game over" for an industry (and its workers), and sometimes it just means the fun days are long gone (like in autos).
(B) the impact of computerization and telecommunications has radically reshaped a lot of the basic economic playing field: in many industries you see both a net shrinkage of value (going from billion-dollar industries to hundred-million-dollar industries) and increasing concentration of the profits of that industry.
Think: going from tons of local newspapers and some regional classified-ad syndicates to craigslist and ebay: the net value of "classifieds" is way down, and the number of players getting significant chunks of the pot is way down (from hundreds of regional papers to a couple internet sites).
What this has meant for middle america:
a lot of "middle class" jobs were going to evaporate anyways -- they don't add enough value anymore, thanks to (A) and (B)
this wouldn't be a problem if enough new industries were coming online to absorb the workers laid off from the no-longer competitive sectors, but thanks to (B) the new value-adding sectors aren't going to be adequate: they're just nowhere near as labor-intensive as the sectors they replace
thus, middle america's been walking around with a death sentence for a long time (barring meaningful intervention or magical shifts in the economy)
What that would have meant for corporate america / various "elites", if it had played out too quickly:
(A) the american economy was and is mostly consumer-driven, so all those corporations and associated assets would've taken a huge beating if the spending ability of the average middle-class consumer became seriously, permanently impaired
(B) all those real estate holdings would've taken a huge beating (like they did in detroit) as the prices deflated to what the inhabitants could afford
(C) without access to the american consumer as a huge dangling carrot, a lot of our negotiating heft overseas would've been gone
What has instead transpired:
(A) a decades-long, systematic to prop up nominal prices (particularly asset prices) and, indirectly, failing industries, mainly by extending consumer credit.
-- systematically propping up asset prices: eg, "creative financing" allowing homes to sell @ higher multiples of median income than historical norms
-- indirectly propping up failing industries: how much longer is "TROUBLED MAJOR REGIONAL EMPLOYER" going to be a major regional employer if employees start asking for even-higher wages just to afford to live in the area? easy access to credit makes it a LOT easier on a LOT of employers by taking the sting out of wage demands (instead of saying no, many say yes then sweat it out with an exotic loan / heloc / etc).
(B) ...giving those in the know (or with eyes to see) enough time to liquidate domestic investment at good-enough nominal prices to still do fine when the "new new economy" finally arrives.
(C) ...but creating a very real problem: where to stick all the profits you're booking liquidating your domestic holdings? If the rug is going to get pulled out from just about everything, where do you stash your stuff?
-- so financial innovation helps keep the nominal asset prices high long enough to sell out
-- and also has to do double-duty inventing all kinds of exotic places to stash value; being as far detached from the "real economy" is a huge blessing here, if you're looking for a place to preserve value in the face of a huge market decline
What is going on now:
The jig is pretty much up. Creative mortgage financing was probably the last straw in terms of propping up asset prices, because it's already hitting ordinary people right in the nuts (biggest investment they'll ever make; also housing is a necessity of life, and everyone knows how america treats its homeless...), and also because both punches -- (A) and (B) from way above -- directly work against its viability.
Trying to keep house prices steady or climbing against declining employment prospects for many of their inhabitants (due to global competition AND due to net-value-shrinkage of many industries) is like trying to square a very square circle: good luck!
The bailout really looks to me to be the last-ditch effort to keep everything propped up, which really means: a time to get rid of stuff at reasonable nominal values and move it elsewhere...it does nothing to address the underlying issues (a changing global economic environment that eviscerates the source of the previous two generations' prosperity), and isn't intended to do anything about them.
The problem with all this cashing out of domestic assets is: where do you stick all those "profits" (or at least: sales proceeds)?
The present crisis is showing the domestic "leadership" and the rest of the world that the solutions for "where do i stash my heaps of cash" that modern finance had cooked up are not safe enough to be long-term options -- some are too coupled to the performance of the american economy (like anything building on top of MBSes) and many more are too strongly coupled to many more things than initially thought.
I don't know -- short-term (next few years) -- where the liquidation proceeds are going to wind up; commodities, baskets of foreign currencies, and broadly-international hard-asset portfolios seem the likeliest candidates.
I do know that there is ALREADY enormous demand for credible alternatives to US-based assets for "safe havens for surplus cash"...and where there's a demand, it will eventually be met.
Expect to see the rise of a few more financial systems -- including currencies -- only very loosely coupled to the existing system (which is very, very tightly coupled internally). These have been on the drawing boards in many areas for a very long time -- in much the same way that, say, the department of defense maintains plans for dealing with just about every imaginable emergency situation -- but recent events are REALLY going to step those timetables up.
The emergence of those systems, when they do open their doors, is going to be game-changing; I wish I had a good sense of what the new game will be like besides "very different". All I do know is that once the new systems are up and running you'll see a LOT of capital flight INTO the new systems: they'll be competing primarily on the basis of "how good of a store of value are we?".
What You Should Do:
I gave personal advice one thread back.
Politically, if you can get this bailout blocked that's a huge head start, but it's not going to do anything about the fundamentals -- it's just going to avoid handing over a few extra trillion to the nondeserving.
Looking beyond the next week, the country is going to have to very, very strongly refocus its priorities.
The military NEEDS to be downscaled: if your government is employing that many people, those people should be laying new fiber optic lines, public-use wimax lines, rail lines, electrical lines, and efficient mass transit in the 1st and 2nd tier urban areas. Listening to phone calls and maintaining archipelagos of garrisons overseas aren't value-adding activities.
You need to modernize your infrastructure -- transit, energy, communications -- and shoot for food and energy independence. Worry about comparative advantage and the benefits of trade once you're not such a debtor; with the national debt you have, not needing to import food or energy is going to GREATLY strengthen your bargaining position.
You need to revamp your educational system: leaving aside the dismal performance of your existing primary educational system, its conceptual framework is a century out of date, and largely irrelevant to modern goals; it was designed to turn out boring-but-reliable millworkers and middle-managers, but in the future adding value will be labor-light, skills-heavy...focus on foreign languages, useful skills (math / science / computer science / shop / graphic design), and thinking abilities (critical thinking / creative thinking / home ec), cutting whatever you have to to make space for those.
You are going to have to build out a euro-style welfare state (in terms of the benefits it brings -- if you can find a more efficient way to provide universal healthcare and unemployment insurance, go for it), if only to encourage risk-taking and entrepreneurship (how many would-be entrepreneurs won't risk their wife's and kids' health insurance? LOTS).
You are going to have to rope in your religious movement insofar as it threatens the development of basic science (like: stem cell research). Maybe throw it a few "public morality" bones, but only if so doing makes it go away -- if the bones just make it hungrier, don't feed it.
And, finally, you are going to need to have a national goal of being people that make stuff that make stuff (capital equipment). Just relying on being "people who design stuff that makes stuff" isn't going to cut it -- once you're not top dog, you can't count on international intellectual property agreements to work in your favor. If your money's not worth much no one will want to sell you stuff; equipment that helps the owner make money will always find buyers; right now the world needs capital equipment, and infrastructure buildouts (and associated environmental cleanups, etc.) are going to be the world's main economic driver for a very long time.
The above is a real bailout plan: something that, if executed on, strikes at enough of the root causes to correct most of the current situation, over a period of a decade or two. I'd get to it, if I were you.
If I understand Exectuive Order correctly (not a USA Citizen) it requires as a precursor a democratic process.
Executive Orders in the US are issued by the Executive Branch without Congressional Approval.
Wikipedia:
U.S. Presidents have issued executive orders since 1789. Although there is no Constitutional provision or statute that explicitly permits executive orders, there is a vague grant of "executive power" given in Article II, Section 1 of the Constitution and the statement "take Care that the Laws be faithfully executed" in Article II, Section 3. Most executive orders are orders issued by the President to US executive officers to help direct their operation, the result of failing to comply being removal from office.
[...]
Critics have accused presidents of abusing executive orders, of using them to make laws without Congressional approval, and of moving existing laws away from their original mandates. Large policy changes with wide-ranging effects have been effected through executive order, including the integration of the armed forces under Harry Truman and the desegregation of public schools under Dwight D. Eisenhower.
One extreme example of an executive order is Executive Order 9066, where Franklin D. Roosevelt delegated military authority to remove all people (used to target specifically Japanese Americans and German Americans) in a military zone. The authority delegated to General John L. DeWitt subsequently paved the way for all Japanese-Americans on the West Coast to be sent to internment camps for the duration of World War II. Thousands of German Americans and Italian Americans were also sent to internment camps under executive order.[citation needed]
">lawyerliz writes:
I went shopping yesterday and exchanged some worthless dollars for some nice chinese clothes. I think we will buy a generous amount of groceries tomorrow. I think y'all should do the same."
I've got my stash in the garage. Mostly pasta, beans, canned food. Doubles as my earthquake stash, though it's hunkier than it needs to be for that. Will take a look at it and see if we need anything else. Olive oil.... definitely olive oil.
I've got some nice contractors coming in this week to redo our largely nonfunctional kitchen. Bids are agreed on, most of the hardware is pre-paid. Wife had second thoughts and asked, "Can we afford it?" I explained that spending the cash now was a hedge against hyperinflation, especially if we're eating at home more. She got it.
There will be no overview or restraint by the Supreme Court or any court.
Paulson will have "unlimited powers".
This is fascism. This is the death of democracy in America.
Per mp on the French...I wish Americans had half the patriotism and concern of the average French citizen. We are being hijacked without a murmur.
the French at least would put up a fight...the Americans,my fellow citizens...nothing.
linear algebra writes:
The political ceasefire lasted about 24 hours.
"stinks" ~ "a confusion between solvency and liquidity"
"Personally, I think the financial institutions have to fail, and the government then has to recapitalize the financial services sector. But maybe a couple of weeks of smoke and mirrors while it's all sorted out is what's needed to keep the whole system from freezing up hopelessly."
linear,
They have had at least two years.
Paulson/Bernanke/Bair have been kicking this can down the road and laughing.
They have been found wanting.
They can not now lay the blame on the next incumbant.
I am still confused as to how trillions of dollars could have been bet on real estate prices never declining?
How is it possible that so many purportedly intelligent Harvard MBA's could make such horrible decisions?
Are there not some banks who were competitive enough to realize it was a house of cards and wait for the remnants so they could get assets at bargain basement prices?
Conjure and I, after having discussed the situation this afternoon, have come to the conclusion that the United States is about to have its head handed to it.
Think back to all the warnings about derivatives that were ignored. All the activists pointing out the abuses of power the last 7 years(and before of course). The Diebold vote count factor. ATMs are Diebold now. Will they count the withdrawals correctly?
lawyerliz writes:
I went shopping yesterday and exchanged some worthless dollars for some nice chinese clothes.
I think we will buy a generous amount of groceries tomorrow. I think y'all should do the same."
I've been doing that! I'm starting to stock up. I've gone to the Grocery Outlet twice this week. Got like ten boxes of my favorite cereal for half the price. Stocking up on sorts of non-perishables.
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."
"Conjure and I, after having discussed the situation this afternoon, have come to the conclusion that the United States is about to have its head handed to it."
"Seems like it's a race between party lines to the 1T mark."
Funny that the stupid greedy dems are fixated on larding it up rather than reaining it in with all those superpowers conncted to that shit. My hope is it gets frozen indefinitely until someone representing taxpayers and the constitution gets involved.
An attorney for Lehman, the investment bank that filed the largest bankruptcy in history, told U.S. Bankruptcy Judge James Peck in Manhattan yesterday that the bank's broker dealer unit now has only $47.4 billion of securities and $45.5 billion of liabilities to be assumed by Barclays, or a net value of $1.9 billion, a change from the earlier $72 billion in securities and $68 billion of liabilities, or a net value of $4 billion.
``Given the volatility of the week, we started the week with a certain amount of securities, and we can no longer deliver those securities to Barclays,'' said Lehman attorney Harvey Miller of the New York law firm Weil Gotshal & Manges. Lawyers didn't announce any revision to the overall sale price of $1.75 billion.
Some of the hundreds of lawyers and onlookers who packed the hot and humid courtroom gasped when they heard the change in the value of securities, which occurred over the five days since Lehman filed for bankruptcy Sept. 15. The hearing, set to begin at 4 p.m. yesterday, was delayed as marshals tried to clear the entrance, shouting that the crowds were a ``fire hazard.'
The free market for all intents and purposes is dead in America, Mr. Bunning declared on Friday. The action proposed today by the Treasury Department will take away the free market and institute socialism in America. The American taxpayer has been misled throughout this economic crisis. The government on all fronts has failed the American people miserably.
Char,
Gambling can be an addiction that afflicted gamblers are powerless over. Our economy needs to do the 12 Steps of Gamblers Anonymous. Work a program and recover.
This whole mess should lead right back to Greenspan when the investigations start. He may die of old age before he gets called in for congressional testimony under oath.
For everyone's information, as it may or may not be of interest to them, Conjure and I are no longer investing in US markets. The decision was made this afternoon.
"... analyzing each mortgage would be a monumental task."
Would it be too hard for the banks to give the Treasury a list of the Social Security numbers for the mortgagees? The Treasury could simply look up their income tax filings and estimate DTI ratios within a RMBS pool. That would give a very good idea of the number of pool's stress level and therefore predict how many mortgages are yet to explode.
The free market for all intents and purposes is dead in America, Mr. Bunning declared on Friday."
soon to be followed by.
Freedom for all intents and purposes is dead in America. Paulson will have "unlimited powers".
The Supreme Court and all other courts and agencies will have no review or oversight.
Who needs an election.
Paulson has been acclaimed Caesar.
McCain and Obama...the footnotes of history,which will be written by the Chinese.
Will this bail keep the markets up for six weeks or so? That's the question. I think the current DC gang really needs to get McCain in so the official investigations into this mess will be bogus.
Grouch Marx's long post above is well worth reading.
Personally, I'm waiting to hear this speech: "We are about to enter a period of hardship unlike anything that all but the oldest among us can remember. We are past the point where we can avoid it. We could talk endlessly about who is to blame, but that won't change matters. We can get through this and maintain a decent standard of living for almost everyone if enough of us are willing to accept our share of the inevitable hardship and do our share of the work that needs to be done to provide the coming generations with a secure economic future.
The free market for all intents and purposes is dead in America, Mr. Bunning declared on Friday. The action proposed today by the Treasury Department will take away the free market and institute socialism in America."
Comrade
I don't know who this Bunning is. But he seems to know a Facist Coup when he sees one.
I know that gambling is an addiction, but how could so many expert gamblers have made such an idiotic bet? Real estate values have, since the beginning of time, always functioned in a cyclical manner. How is it possible that every single huge investment bank along with the largest insurance company in the world could have thought real estate values wouldn't go down at some point?
Also, everyone who is predicting the demise of the United States, please visit China and Russia. You will realize that we are still MUCH better off than both of those countries. Our military is light years ahead of theirs, and in desperate times, nothing projects better than military power. Not saying that is morally correct, but it is true.
Ya know, it might be easier, from a legislative standpoint, and from an operation standpoint, if they just allocated the $700B to the FDIC insurance fund.
Let the banks fail. Then let FDIC use those funds to go pick up the pieces.
From where I'm sitting, FDIC is going to need more funding, regardless of the success of this proposal. Why not use the existing structure. Then let FDIC decide how to sell off the MBS, held-for-sale portfolio, etc, as it comes in the door.
mp,
I made that conclusion myself. No matter where you are the markets are going to be wild. But in the end there will be little incentive to stick with America.
This crises will truly tell us if we are the friend of the world, or if the world really does hate and despise us.
Char,
What if the Big Investors having access to insiders BET Big that bailouts would save the day for derivatives. Maybe some were smart enough to see the Mother of all Bailouts coming and bet the farm on it.
meant to add, re the main purpose, to get the banks to lend again,
who will want to borrow?
even if a few, and even if other than those who'd just use the money for the same disastrous purposes, i wouldn't think enough to re-create the previous "normal" credit environment
"I am still confused as to how trillions of dollars could have been bet on real estate prices never declining?
How is it possible that so many purportedly intelligent Harvard MBA's could make such horrible decisions?"
has nothing to do with MBA, has everything to do with a human character. Humans, all of us, have the tendency to overstate our rationality. We pretty much copy each other behavior, and call it our own. Often we copy what everyone else is doing on subconscious level in order to fit in and without any realization of such behavior.
I recommend modern social phycology textbook, a marvelous guide that explains it all.
Anyway, for all who proclaim the demise of US and rise of everyone else within one year, please do not discount the benefits and short- comings of globalization. , all are screwed for a while, especially the countries that relied on currency manipulation or resource exploration to feed their own growth.
Comrade yes...the FDIC needs $$$$$$ for the coming withdrawals and mountains of failed loans...print the fiat and depositors get back ___% on the dollar?
Seconding comrade ray, but also thinking, along with G. Marx above, that we could also use billions to pay people to do useful and wealth-creating things.
problem is if this tanks into a Depression, tax reneue will tank with it as foreclosures soar and unemployment rises quickly. The tax base is eroding to pay back all these 'promises to pay' in the ballooning deficit. This bubble is now a monstrosity bigger than Godzilla or Gojira, bigger than King Kong. The Bubble is so big when it pops it'll blow up the planet earth!
Dr Chaos,
Forgive the insult, but did you just emerge from under a turnip? GREED, imbeciles, lying, CRIMINAL activity, no regulation on leverage or proper loan review.. A perfect storm with THe Fed responsible due to lack of over-site for the fiasco.
Greenspan, go to HE!! this is on your watch
I think we will buy a generous amount of groceries tomorrow. I think y'all should do the same."
I've been doing that! I'm starting to stock up. I've gone to the Grocery Outlet twice this week. Got like ten boxes of my favorite cereal for half the price. Stocking up on sorts of non-perishables.
Hmmm, perhaps that explains the unusually heavy traffic in grocery stores last night. I asked some of the clerks I talked with why there was so much business and they said that it "must be the weather is so good, I dunno". There wasn't any stimulus checks, income tax refunds, sporting event, or even a Hot Rod show in town to account for it.
I don't see how a "reverse Dutch auction" will work for price discovery. So if you have one bidder and a lot of sellers - the sellers will try to sell at the lowest price to get the one bidders money. So the seller is motivated to move the product at the lowest "profitable" price because the bidder will only buy one time.
In this gave the Treasury has 700 billion of bidding power. They aren't bidding once. They are bidding all the time. So the sellers have no motivation to sell until the price rises to a VERY HIGH price, because in the end the government has so much money they will buy everything at any price.
Ok I'm all fired up and am going to go do something. Reaching for the computer off switch....Reaching for the computer off switch....Reaching for the computer off switch....oh screw it.
Nader is an egomaniacal jackass who helped determine the 2000 election by insisting there was no meaningful difference between Gore and Bush. That worked out well, didn't it? I second Bob Probert's nomination of Tanta and CR to advise instead.
The clause specifying no review or outside superior authority is completely consistent with President Cheney's views on the so-called "unitary executive." Our experiences over the last eight years ought to make that clause alone the deal-killer. If Congress agrees to it, then the Constitutionally-mandated separation of powers is functionally eliminated.
The dollar will break. The summer is over. As the temps get cooler, people will move southward: "I'd rather be broke in California than broke in Minnesota!"
This bubble is now a monstrosity bigger than Godzilla or Gojira, bigger than King Kong. The Bubble is so big when it pops it'll blow up the planet earth!
Other goals are to minimize the burden for taxpayers,...
You cannot possibly seriously believe that. Take a look at the administration's cast of main characters; are you telling me any of them have ever been overly concerned about taxpayers? And in Congress: those absurd puppets, idiots like Schumer, Frank, and Pelosi, with their fawning reverence for Paulson and Bernanke's bullshit. They have a lot of nerve masquerading as 'public servants'.
Well do you think if the two Bunnings got together, the one who is the great picther could teach the Republican Senator how to beat the f**k out of a member of the Communist Party of The Peoples Republic of China over the head with a baseball bat?
"You are going to have to rope in your religious movement insofar as it threatens the development of basic science (like: stem cell research,,"
Can't go with you there, Grouch. Don't care how profitable fetus farms et.al. turn out to be, we Catholics (and many Protestants, and probably even secular people) will oppose them. Economic competitiveness has moral limits. We're seeing what can happen otherwise.
Think of it this way. They have to put that "minimize burden for taxpayers" baloney in. If they didnt, it would be a holy hell uproar. So what does it cost them? All of two seconds to type the characters. And why not just type them, ya know, since no one can really understand how this works, and heck if anyone knows what it costs one way or another.
You see, the thing is, whether they put it in writing or not, makes no difference. It's just there to pacify people, but they will act as they always do, as if the words never even existed as a thought in their minds.
Bush?
Any good manager surrounds himself with brilliant people to make the right decisions andto make themselves look good.
Saddly, Bush surrounded himself with imbeciles like Greenspan, and Rice, hence the mess.
The CEO is ultimately responsible, so likely Bush and Greesnpan will go down as 2 of the most incompetent buffoons in history.
"Schumer, Frank, and Pelosi, with their fawning reverence for Paulson and Bernanke's bullshit. They have a lot of nerve masquerading as 'public servants'"
That wasn't fawning reverence that was FEAR.
They were told that they would be tortured and shot if they did not comply with Section 8
Any member of Congress who looks at the plan to give Hank unchecked power to transfer $700 billion from the Treasury to his friends' companies and has any reaction other than "You've got to be fucking kidding me" does not deserve to hold office.
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
"We definitely do not want the Treasury to buy RMBS and CDOs at anywhere near the value on the bank's books. Buying at those prices would help keep the banks lending, but it would also severely impact the taxpayers, it would be a transfer of wealth from the many to the few, and it would also encourage future excessive risk taking."
Those are sweet sentiments, CR, but what makes you think the political establishment and economic establishment won't do just what you don't want? You think they view "a transfer of wealth from the many to the few" with alarm? If you believe that, I have the proverbial bridge to sell you. Please don't be naive.
Again CR's wonderful statement about "a transfer of wealth from the many to the few": what on earth, CR, do you think Wall Street has been about for the last hundred years? What do you think the GOP has been about for the last 100 years? Geez.
First
Second?
And I even read the post before I said first!
Do you still think this will be a mild to moderate recession, CR.
And yes, where is Tanta? And for that matter, where is Bacondreamz?
Liquidity to be furnished to the bankz in the condition that they loan a certain percentage?
But what do I know?
Is awgee right? Are they going to be buying the alphabet soup, or they going to be buying actual mtges. And yes, many many 2nds are just worthless. In Florida.
Blinder is a shill. End of story.
lawyerliz, please read Krugman's most recent post too - I think the plan needs a lot of work.
I spoke with Tanta on Thursday, and I was hoping she'd post her thoughts - but maybe she is still thinking about the issues. She is very concerned that the Congress will push Fannie and Freddie to make new bad loans (and/or reduce the G-Fee) in an effort to support the housing market.
Best Wishes.
I count it as a positive that with modern communication facilities, there is the practical opportunity for many more folks to read, become outraged, and perhaps even act before a bill like this becomes law.
CR - thanks very much. That's very clarifying on the proposal as sketched, critical issues and likely consequences. Let's hope your wide audience picks it up and it gets memed into the general thinking.
Welcome to Stalingrad
!
I remember when 300 posts was a lot.
Must go clean the kitchen and pull a few weeds. In preparation of victory garden. Ususally I let the squirrels eat the sunflower seeds. Nothing for you this year, squirrels.
Tho I don't think I'll cook you. But don't rely on it.
Last year when UBS floated a trial balloon about having the US Govt. buy up this garbage everyone thought they were being ridiculous.
Can we have CR instead of Paulson? I trust him a lot more than ANYONE in DC!
Taleb, looking at the cataclysmic situation facing financial institutions today, points out that "the banking system, betting against Black Swans, has lost over 1 Trillion dollars (so far), more than was ever made in the history of banking".
Edge: THE FOURTH QUADRANT: A MAP OF THE LIMITS OF STATISTICS By Nassim Nicholas Taleb
CR:
Can you comment on Treasury proposal for reverse auctions managed by wall street firms for TARP. What is there to prevent firms from bidding >99 cents on dollar, since that is what all of them would want.
Confused
Power corrupts. Even CR. Even Tanta.
Hence checks & balances.
The whores will be busy.
If an investment from the Government is required anyway, why bother buying the impaired assets?
Exactly!
Tarps, are to me, big plastic things you put on damaged roofs.
Usually they are blue.
I think one thing that gets lost in all these discussions of "liquidity" is that ?1 trillion? ?2 trillion? dollars has been lost (besides housing, there will be trouble with HELOC's, cars loans, and student loans - see Roubini). Long story short - we are singinificantly poorer than we were a few years ago, and that is going to be very unpleasant.
All instruments bought under terms of the plan must be recourse and backed by senior preferred shares paying an cummulative interest rate in excess of LIBOR. As instruments are paid off, these shares will be redeemed. No other common or pother preferred dividends or bonuses may be made while any senior preferred shares are outstanding to the government. This will eliminate the ability of the institutions to off-load investments in excess of their true market value.
I went shopping yesterday and exchanged some worthless dollars for some nice chinese clothes.
I think we will buy a generous amount of groceries tomorrow. I think y'all should do the same.
Willem Buiter has argued for some time that in this type of situation, a reverse dutch auction is the most effecient mechanism for price discovery:
YourDictionary.com
This sounds better than what the proposal is.
Was walking thru this nightmare during yardwork and the more I consider it, the congress should refuse the bill.
In lieu of that, just nationalize the banking system and start immediately to enact strict controls on the financial community. I'm beginning to doubt that this has to be done this weekend and that we do have a few days. Best to use them.
As it's written and on the web - unless there's stuff that we're not seeing - then it's just a bailout of the financial elite for flaming incompetence w/no corresponding pain.
The alternative if they go forward as is, is destruction of the currency and impoverishment of future generations.
Bush/Cheney Doctrine for Idiots- Preemptive Bailouts/Preemptive Wars/Deficits Don't Matter. We can't take a chance, debate, or think this thru, things have gotten worse so quick!!! Anyone remember Katrina or Saddam Hussein.
If we buy into this, I think these are the results: Greatest Ever Destruction of American Freedoms and Way of Life, Lower Standard of Living (except for the rich), Higher Inflation and Interest Rates , and Two to Three More Generations of American Debt Slaves(your kids and your kids' kids). We get what we vote for. The Fed can't control deflation; therefore they have to inflate to regain control. They were the cause of the problem, and we stupidly trust them for the solution....their proposed solution is a blank check from the govt after they just blew $800 billion of their own reserves. Of course it only took their predecessors a hundred years to build it up. Let's slow down and debate this!!!!!
I'm an American Tax Prayer, and I approved this message
Hey Paulson....nice proposal...
Well...I have an offer for you.
Here are America's terms. Have the banks mark there books honestly and see where the chips fall. And then you and Mr. Bernanke and Mr. Cox, on behalf of the banks and the Federal Reserve go ahead and march straight back to your offices and tender your resignation, stopping at every
home along the way to beg forgiveness for 95 years of theft, rape, and pillage of the taxpayers and working classes.
Do that and you shall live. Do it not, and every one of you will die
today.
And also, before we let you leave, you must call a press conference, present yourselves before this country, put your heads between your legs, and kiss your own arses.
My apologies to Braveheart.
There is no sincere plan by this administration to help America or Americans. There is only a plan to slow the financial collapse until after the November elections by throwing a politically palatable amount of money at it and a plan to continue to blame it on a housing bust.
If we, the American people, allow this to happen, were enablers to the unintelligent design model. Before one more penny of our taxes are spent on this ruse, we must demand a seat at the table (I think Ralph Nader should occupy that seat) to discuss breaking up Wall Street, crushing this model, innovating a sensible model that serves the individual investor and deserving businesses, and promises our children a future of more than a banana republic.
Pam Martens: The Wall Street Model
If Congress wants to throw $700 billion out the window, why don't they just loan American taxpayers facing foreclosure $700 billion directly?
People would stay in their homes. The housing market would probably stabilize. The bad paper Wall Street holds wouldn't be worthless anymore, and some balance sheets suddenly would look so bad.
And American taxpayers, unlike Wall Street, might actually pay back some of the money -- eventually.
Treasury Seeks Authority to Buy $700 Billion Assets (Update1) - Bloomberg.com
"The Treasury plans to hire managers to purchase the assets through so-called reverse auctions, seeking the lowest prices, a person briefed on the proposal said yesterday."
I am from the government. I am here to help you moderate your opinions.
There is no problem. The economy is strong. Very strong. Shopping is good for you.
Getting the banks in a position to lend is one thing, who it is that they will lend to is another.
Lending to households depends on income, and the depends on job creation.
Lending to business depends on an expectation of an increase in sales, which assumes increased consumption.
In both cases, the bottom line is jobs. For this or any such effort to work in getting banks back to lending, will require job creation. So my question is this, where will these new jobs come from? Manufacturing, including an increase in exports, new building construction, the hiring of service workers due to increased sales, auto workers . . . ?
Seems this takes us back to the 'real' economy. Unless the 'real' economy of work and consumption turns around dramatically, seems this is nothing less than keeping the credit system from imploding. But is it anything less than a delay?
The solution is and has always been simple. Prohibit lending (usury) and the prices will reach their correct level. Lending and Borrowing are sin and lead to (debt) slavery.
CD
Sounds like a plan.
Should have been done 9 months ago.
To late now.
The World won't wait. The USA's competitors will take advantage.
Probably best to batten down the hatches for the coming storm.
As the president put it:
...the financial "house of cards was much bigger, and it started to stretch beyond just Wall Street in the sense of the effects of failure. So when one card started to go, we were worried about the whole deck coming down."
If calculated actions by Wall Street have essentially cost taxpayers trillions of dollars then everybody on Wall Street needs to go to jail.
This endless looting of taxpayers will not stop until people are held accountable for the damage they've cause.
I see no evidence that this is happening.
Why not a tender offer from this new entity ? Post the price at which it will buy assets at a realistic near market price? it worked with the Japanese bank when they were hung with billions of perpetual FRN's in the 1980's. Cretaes liquidity for illiquid assets ( for which there is NO price just now).
Alternatively the consideration for tendering into this "receptacle" could be cash and a contingent value right - ie some of the upside in the asset tendered after the government earns a preferred return.
Just tinking out loud.
CR:
As I read the documentation, the thoughts re F&F and further poor loans also ran thru my head.
Liz:
Hope things are well.
Yeah, we stocked last week and will do so again.
The earlier thread was an eye-opening experience.
Alleluia and thank you.
Hi don!
I am from the government. I am here to help you moderate your opinions.
Our banks are sound. Jobs are plenty. Watch TV. Stay uninformed. Be a brave shopper.
There is no problem. The economy is strong. Very strong. Shopping is good for you.
How soon until treasury bonds are added to the list of investments that can't be sold short?
Moderator, it was funny the first and second and even the tenth time.
Not funny any more.
And I'm hypnotized, not cleaning that kitchen.
How does one short U.S. Treasuries btw?
Hi lawyerliz!
I am from the government. I am here to help you moderate your opinions.
Patriotism is good. Shopping is good. Be a patriot. Keep shopping.
There is no problem. The economy is strong. Very strong. Shopping is good for you.
CR,
Your two cents are WORTH more than Treasuries proposed 700B bailout of banks.
It became apparent to me that they are in this to PROP up house prices to SAVE the Banks from further losses and or bankruptcy.
The plan has NOTHING to do with RESOLVING the underlying root cause of the problem, that houses are ESSENTIALLY OVERPRICED and NEED TO CORRECT and not otherwise.
This plan, I have no doubt will in fact PROLONG the crisis.
That's my 2 cents.
We are ok, homedad. The flooding on the St. Johns river in Fla has NOT abated yet, and won't for a while, since Fla is so flat.
One would have thought that this requires some degree of control over the government. The activity probably never should have been licensed. In fact, it never was licensed, and hence nor regulated. But there seemed to be a good reason: Investors in hedge funds had to sign a paper saying that they were rich enough to afford to lose their money on this financial gambling. Your average mom and pop investors were not permitted to participate. Despite the high rewards that millions of tiny trades generated, they were deemed too risky for the uninitiated lacking trust funds to play with.
A hedge fund does not make money by producing goods and services. It does not advance funds to buy real assets or even lend money. It borrows huge sums to leverage its bet with nearly free credit. Its managers are not industrial engineers but mathematicians who program computers to make cross-bets or straddles on which way interest rates, currency exchange rates, stock or bond prices may move or the prices for packaged bank mortgages. The packaged loans may be sound or they may be junk. It doesnt matter. All that matters is making money in a marketplace where most trades last only a few seconds. What creates the gains is the price fibrillation volatility.
Michael Hudson: America's Own Kleptocracy
Page not found - - CNBC.com
"These managers will each run portfolios of up to $50 billion each, according to a source familiar with the plan. The portfolios will be amassed through so-called "reverse auctions" where the seller bids the lowest price it will accept from the government for buying up the asset. "
Moderator, lawyerliz is right.
Interesting proposal, CR, but isn't there the problem that if market prices are established, the non-bank bagholders will revolt? This would include many pension funds and various foreign governments. If the banks simply had an old-school "crap on their books" issue, everything would be easy. Having only individual private American bagholders would simplify things as well. But with the various tranches parceled out around the world, it seems to me that this mess is plate of spaghetti with currency and political implications.
Who wins in this scheme? I think it's a plan for all the poisoned paper bought and stored at the Federal Reserve Bank to get sneakily transferred (for a small fee of course) to the Treasury's Toxic Financial Waste Dumpster. The Fed gets their $700 billion of filtered T-bills back with a small profit and can continue screwing up the economy; while the only dumpster divers will be the EPA or an occasional broke taxpayer.
Hank and Ben have been telling us all along that the financial institutions are "Well Capitalized". They are liars. And now they want authorities that make the constitution look like a dishrag. It's an outrage! I contacted my Senators and COngressperson a few times today.
This should make the citizens of this country plenty angry.
All because GS stock dropped below $90 briefly. Don't short GS or else!
No, it will not "work". Of course not. The old shadow banking system based on loose securitization is out for the next 20-50 years. And there is still the vastly larger derivative mess hanging over everybody. Folks, no it will not "work", if preventing a depression is what is intended. It may delay it a bit, but that is another story.
Hi RhodesianGreenbackinAZ!
I am from the government. I am here to help you moderate your opinions.
Shorting of U.S. Treasuries will not be tolerated. Shorting is bad. Be a patriot.
There is no problem. The economy is strong. Very strong. Shopping is good for you.
Our banks are sound. Jobs are plenty. Watch TV. Stay uninformed. Be a brave shopper.
Then there is no need for a bailout.
Maybe I can add my tuppence worth as an outsider (not involved in the markets & not a Ctiezen of the USA)
I could be way off the mark here. But bailing out the Banks & Wall Street;
Will not revitalise the housing market.
Will not simulate consumer spending.
Will not increase Government Revenue.
However, given what Dodd said (Chairman of the Banking, Housing and Urban Affairs Committee!!!) as reported by NYT
that were literally maybe days away from a complete meltdown of our financial system, with all the implications here at home and globally.
And what Schumer said
Its a brave new world. You are in uncharted territory, but the one thing you do know is you cant leave them (credit lines) frozen or the economy will just head south at a rapid rate.
And given that short selling is banned, it seems to me that rather than have a meltdown Paulson has decided to go for controlled demolition.
If an institution does not come forward with a true statement of its position by the end of the ban on short selling (2nd October??) they will not be allowed avail of the bailout.
If they do come forward the shareholders (and possibly bondholders) will get hammered.
Then, when all the chips are on the table Paulson & Bernanke & Bair consolidate the financial system at breakneck speed.
No one gets a chance to short the information and when all is said and done there are 500 / 1000 less banks and the $1T + some Chinese nodding & winking is used to recapitalise the remainder.
The remaining banks will have restricted lending parameters.
The USA enters a decade of pain.
Moderator
Did someone give Bizzaro / Elvis a uniform?
We should all remember that Paulson probably will leave with this admin so either Mccain or Obama will carry this plan out.
I think Obama is clearly the person for the job.
If Congress wants to throw $700 billion out the window, why don't they just loan American taxpayers facing foreclosure $700 billion directly?
People would stay in their homes. The housing market would probably stabilize.
People are facing foreclosure because they can't pay off their loans. It's one thing to assist people in refinancing, but if you start giving people incentives not to pay their loans or be responsible with credit the credit markets are going to stop working, and we'll be on the fast track to becoming a third world country.
Credit only works when there are severe consequences for misusing it, otherwise you have borrowers but no lenders.
As Fresno Dan suggests above, the underlying problem may be that after years of living beyond our means, we are about to be forced to live WITHIN our means, because we vaporized so much borrowed money on houses (and other stuff) in the last couple of decades.
So instead of trying to save the financial system that brought us to this pass, perhaps we should use the money we have left to set up a new system, and make the painful transition to a pay-as-you-go system--for households, companies, local, state and federal governments. Is that crazy?
CR and Tanta,
I am sure that you two can somehow get into a position where your ideas get heard by the highest people in the nation, the Dodd's and the Shelby's. Whether it's through media people like Krugman, or I don't know who else... I am sure of it. I mean, this plan as currently structured is ridiculous.
Does anyone remember Bear Stearns' attempted Everquest IPO, where they tried to spin off all their toxic mortgage crap into a separate company funded via an IPO?
The Paulson bailout plan looks an awful lot like Everquest revisited, except an IPO would have some judicial and regulatory oversight.
Gold Medal CMBX diver
Whta job?
You get to eat the S**T sandwich
...
Section 2's language purports to trump any other provisions of law regarding public contracts:
"entering into contracts, including contracts for services authorized by section 3109 of title 5, United States Code, without regard to any other provision of law regarding public contracts"
Years ago, I was in Belarus (at the time the last Stalinist remnant of the Soviet Union) negotiating a deal. We actually got a presidential decree saying our contract trumped all then existing public contracts, laws and decrees.
That works only until the next decree.
We are now Belarus.
Morgan Stanley is in talks with the Chines to sell them a stake in its equity. Do you think they will be very generous with valuation of MS assets?
Remember the Bagehot rule regarding liquidity crisis: central bank should lend freely but at high prices.
Why can't the government offer to buy MBS at, say 10 cents on a dollar?
The government can even say that such sales should not be view as market prices for fair value accounting.
At least it will put floor on prices and give more credibility to banks balance sheets.
And yes, insolvent banks will go down, and the govenrment can do the AIG thing to them.
Simple solution:
Say a bank has X % of toxic assets. Let them sell that toxic asset to the govt agency at a % of their choosing say Y%. The agency then has a ownership of X*Y in the company.
20% bad debt sold at 20% of face value = 4% of ownership in form of equity.
20% bad debt sold at 80% of face value = 16% of ownership in form of equity.
Maybe they should have an auction with "randomization," as follows:
Private bidders each submit valuations for a long list of troubled assets. Then some fraction, say 10%, of the assets, chosen randomly, is sold to the bidders at some small discount to their bids, and the other 90% the government buys at the bid prices. Thus the government supplies most of the liquidity, but the prices are entirely set by the bidders.
Yeah, seriously second that Probert's motion. CR, you appear to a man of high integrity and intellect. It may be time for you to step out of retirement and serve your country for a year or so. The blog is nice, but we need smart, trustworthy people advising these nutjobs at the top.
Whatever form it takes, I just want to say xie xie to our fellow Chinese. Please continue giving us your labor for much less in return.
Krugman just agreed with us. It will not work:
No deal - Paul Krugman Blog - NYTimes.com
It's distressing to me that some powerful people are still talking about reversing the decline in house prices. What part of "bubble" do they not understand at this point?
The USA enters a decade of pain.
Abbott_Of_Iona |
That's being optimistic.
And then there is serious doubt that whatever is thrown into it will be recoverable.
Six Percent Solution
That is a good point and proof really that there is no way the taxpayers don't get reamed with this plan.
This is the same thing as the failed super SIV plan...the same thing as the "bad bank" plan that LEH attempted to float. It didn't work for them because the entities that they were trying to foist the crap on wouldn't take it....even to hold it long term for the "turnaround".
In this case it is still a terrible deal but the "bad bank" is being foisted on the taxpayers who have no say and so no choice in the matter.
What a crock.
Pension funds and 401k funds have a shitload of this garbage on their books. Haircuts there will be hitting main st very very hard as those close to retirement or already retired will get a severe haircut to their assets.
How about a punishing valuation of MBS at Treasury purchase, with bank participation in profits of later liquidation of the assets?
Treasure recapitalizes the banks with CR-style investments, and with a senior interest in the banks' share of the windfall from liquidation of the purchased assets?
I think that Treasury comes out ahead whatever happens, and the banks keep going with the recapitalization.
Ok- Dumb question from a layman time now.
Mark the assets to market. If lenders fail, so what? If I had a few millions dollars lying around right now, maybe I should start a new bank, with no bad loans on it's books and transparent financial statement. Wouldn't every want to work with me?
I understand a lot of investors will lose money. By no means all of them are American, yet it is American taxpayers that will be asked to guarantee their investments. Well, this is about choices, and I am not sure that taxing my 20 year old son to rescue the Sultan of Brunai's investments in MBS is a property decision.
Here's another one. If a foreign bank has bad assets, what's to keep them from selling them or transferring them to an entity capable of selling htem to the Fed? Are we bailing out the world? We can dump a trillion dollars in that and come nowhere near solving the problem.
Help me out here. I freely admit that a lot of this is above my level of understanding, but the plan so far just seems crazy.
Tom O
CR, certainly a more sensible plan.
Transparency First
no transparency, no bailout
The banks signed CONTRACTS (and they'd surely tell you contracts are sacred), whether for mortages, leveraged direvitives, or CDO's).
So, make them do pro-forma disclosures open to public examination. (You can even halt bank equity trading for a while if needed).
Let the paper be auctioned. No buyers, then line up for govt. purchase.
Halt this blank check bailout that is without responsibility for the mismanagement and what looks like a taxpayer rape with the rapist being rewarded.
New Banks!
New banks should be formed/capitalized. Let the existing ones muddle along until the assets underlying the mortgage derivatives improve. The new banks could be capitalized and well regulated. They would not have the problems of the current banks, so there would be credit available. With credit available from 1st Clean Bank of America, the argument that the existing banks must be given clean balance sheets so that they can lend again goes away.
The USA enters a decade of pain.
If pain means smaller and fewer cars, smaller homes, smaller and fewer TVs, etc. etc., then bring it on. Give me warm quarters, food and clothing, and my family and I will be just fine.
Maybe we should save our money to make sure as many people as possible have life's necessities, and a job to earn them.
The scary part is the politics. What demagogue will arise in our midst to exploit the public anger over the loss of the suburban SUV lifestyle? Where will the search for scapegoats (already beginning) lead us?
Paulson is the problem. The sane thing would be to let the rotten apples die. And that includes Goldman. Let the troubled institutions die, but protect the innocent bystanders such as depositors. Then salvage whatever is left of their assets. Not many institutions might be left, but new ones could be founded. What we need is a brave new and sane financial system. Which should not resemble the old one at all. Again, Paulson is the problem. Even this would not prevent the depression, but would shorten it.
CR makes some very level headed and sobering comments.
I agree that there is no problem with liquidity and never has been, as CR said there are private bids out there for this stuff. The banks just don't want to accept them because that means admitting they are insolvent.
BTW- looks like Bush will have no trouble getting to a $10 trillion deficit before he leaves office!
I think he interpreted prior CR posts on the topic as a challenge.
"She is very concerned that the Congress will push Fannie and Freddie to make new bad loans (and/or reduce the G-Fee) in an effort to support the housing market."
vary troublesome indeed. (but hey, if party says the show must go on....the hawks will keep pushing).
would the "possible" (I believe it has already started) interference in the RE prices create mismatch between the demand and supply for housing?
if so, wouldn't the mismatch just prolong the fall of the prices?
also, wouldn't the short selling make the banks more willing to unload the assets at the prices more favorable to TAX PAYERS?
(given the government will go through the social planning, contrary to Monetarism ideas).
Carlomagno, when I wrote "auction" I meant the reverse Dutch auction as leaked by the Treasury. This will not work well in this case because if you define the asset class broadly, you end up with toxic waste, and if you define it narrowly there aren't enough bidders.
This is a key problem: many RMBS and CDOs in the same asset class are different - sometimes substantially different.
Best Wishes.
BB
That's right BB. Too optimistic.
This Controlled Demolition Plan WILL NOT WORK.
Paulson & everybody else is out of their depth.
The markets will tank before Congress can make up its mind.
Then Emergency Powers come into effect.
Shut down the Hedge Funds and seize their assets. Game over.
Lets cut out the middlemen (IBs & MC banks) and borrow directly from asia & the ME. That's where the money is so why pay the vig to the pigmen ?
"Let the troubled institutions die, but protect the innocent bystanders such as depositors. Then salvage whatever is left of their assets."
That's about what was tried in the Great Depression. In the time between death and resurrection, credit became extremely tight and the real economy was burned to the ground.
When these clowns in CONgress pass this I wonder who they will find for a scapegoat to blame for interest rates rocketing and the dollar falling like a stone along with the commodity inflation (manipulation is only going to lead to shortages) that will come with it. Must be some wicked speculators somewhere hope they have that coved. Any type of proposal that would make any sense at this point is DOA.
Feed Up!
Daniel Newby:
It worked marvelously in Sweden and Finland in the early nineties. Simpler economies, but it did work.
The problem I see with Paulsen et al is that to them the death of wall street as they know it is the End Of The World. The sun rose before there was Goldman Sachs, and the sun will still rise after it is gone. I wish we had someone with the proper perspective in the "negotiations" that are going on.
John Stark
I agree no need for unaffordable lifestyles that put your nation in hock to the Communist Party Of China.
"The scary part is the politics. What demagogue will arise in our midst to exploit the public anger"
Look at section of of Herr Paulson's Proposal.
THE POSITION IS VACANT
That's Section 8
Daniel Newby:
I should add that in Finland the GDP tank almost a whopping 10% over just one year. Painful as hell and an all-time OECD record to my recollection. But the crash was short in duration and strong growth ensued. Paulson is imitating Japan instead.
Okay, now I get it. Bush/Cheney used 9/11 as an excuse to sieze control of everything in this country except Wall Street and the banks. This crisis gives the Bush/Cheney/Paulson triumvirate an excuse to seize control of the financial system. Now all that's left is to find soime excuse to cancel the election.
Right! Propping up the existing insolvent financial institutions is a huge mistake. They will just drive us straaight into the next crisis, if we ever unwind this one. Just let them go, like LEH. We will get over it.
Many months ago, Dr. Hamilton at Econbrowser wrote of his frustration that so many in government and the press were talking as though the Fed could find some safe course to guide the economy through the storm, by charting the safe course between inflation and recession. He suggested that, in the wake of so many billions in real losses, there may not be any safe course that avoids significant economic distress.
I suspect that Paulson and Bernanke know this to be true. Maybe the first, necessary step that has NOT been taken is the political step: Tell us the friggin' truth. Stop trying to reassure us as if we were children. Stop pretending that Daddy will make sure everything is okay.
CR, if the root cause of the problem is valuation of the asset, this is hopeless. The biggest issue in mortgage lending right now is valuation. It's been the wild west for years...there's no way to accurately know what you have. Everyone is essentially guessing on residential appraisals.
main issue here is that Hank is not the right man in the job. Coming from GS, the only thing he knows is making deal with other people money and he/his friends get reward for that. That's what the plan is all about.
he does not care of average Joe interest!
It is me from Europe
Correct.
Take the pain now.
F**k the Chinese and their threats.
The USA will be stronger in two years not a Zombie for twenty
It is me from Europe: Ah. I took "let them die" to mean "wait until the institutions run out of money". That would, of course, be far too late. They have to be killed preemptively before their shakiness starts a panic.
Please take a minute to contact your senators. Most have email forms on their senate.gov page (Googling your senators' names will get you right there). They won't have time to read individual emails, but their staff will tally fors and againsts, so just make it clear you are against the proposal. This really can make a different if enough people act. At the very least we can force a real debate on the floor of the senate, and give the public a few more days to turn against this plan. If you have writer's block here's what I sent to mine, you can use it however you like:
Dear Senator Murray,
I hope that in this moment of "crisis", which was born of the reckless greed of Wall Street firms, you do not cave into pressure or panic and vote to support this insane proposal to give the treasury a blank check for $700B with no oversight. This is simply theft, taking from the taxpayers at large and funneling the money to Paulson's cronies on Wall Street, people who have made billions in the past few years while average Americans saw their real wages dwindle. We absolutely cannot trust the Bush administration to "just to the right thing", they have shown over and over again that given (or just by taking) super-constitutional powers they will abuse them for their own purposes and saddle the taxpayer with the result. This cannot be allowed to pass, it will be a disaster of unprecedented proportion, and bankrupt this country for generations. If we must do something then let us use the powers and systems we already have: bankruptcy and existing regulations. Let us at least ensure that any law passed now explicitly protects tax payers first, depositors second, and does not give free money to share holders and debt owners, and preserves Congressional and Judicial oversight over the process.
CR says,
"Some banks believe the assets are worth more than the current bids. . "
". . .And many banks are unwilling to accept the current bids because the banks would then be insolvent."
Well, that's too bad. They lent too much money. They thought real estate always goes up, but they were wrong. Now they're bankrupt. Game over, thanks for playing.
Let them fail. Some modern-day A.P Giannini, who lent money to people in the smoking rubble of San Francisco just after the 1906 earthquake, will appear to start lending anew with a brand new, clean balance sheet. [Giannini's bank eventually became the Bank of America.]
Say hello to the free market.
Rhodesian: you can short treasuries by buying cds coverage on them. I suggested this to a friend at a hedge fund at the beginning of august. He dismissed me as a nut job. On friday he informed me that had he done that trade he would have tripled his money.
Sorry, I am going to repeat myself until folks finally stop thinking that the TARP will be buying mortgages. The TARP will be buying the worst of the worst, which the financial institutions need to get off their balance sheet and their shadow balance sheet. The TARP will be buying derivatives of mortgages, or in TARP speak, "mortgage related assets". The derivatives are the worthless tranches of CDOs, CDO squareds, and CDSes based on mortgage based CDOs. These worthless derivatives will not appreciate in value as time goes by.
This plan specifically removes the possibility of Supreme Court overview or indeed any judicial restraint.
Paulson would have "umlimited powers".
I despair for my country.
bob5540
The USA
A Republic?
Res Publica (A Public Thing) ~ "For the People"
Can the USA call itself a Republic any longer.
If it cannot ~ Then can it call itself a democracy ~ Demos ~ A population of the common people & Cracy ~ Rule.
The USA is no longer a Republic or a Democracy.
The question is ~ what has it become?
If it is possible for an insignificant number of the population to control the vast majority of the population by greed (lets all buy a house it is the creation of all of wealth,we will be rich beyond our (American) dreams) or fear (some creep from a culture we know nothing about kills 3000 people on 9/11).
If it is based on either of these two things then the Italians had a word for it.
FACISIM
There's just no way to get around the fact that there's going to be a lot of pain associated with these market corrections. We can all keep our fingers crossed that this will work, but right now I think we're all in terra incognita.
The toxic combination of easy money and lax regulation directly caused this fiasco. Going forward, I think we need to do the following to prevent this mess from:
1) Eliminate both the mortgage interest deduction and the taxation of interest income. Combined, these create a huge disincentive to actually save. We all know people who bought over their heads or re-financed, rationalizing it because they "needed the tax break".
2) Amend the Fed's charter to focus on controlling inflation rather than also promoting growth and staving off unemployment. Politicians have successfully used this to strong-arm the Fed into promoting easy money and allowing two major asset bubbles in the span of a decade. It's not altogether clear just how independent the Fed is.
3) Greatly expand the scope of the FHFA to actively regulate the mortgage industry in the US.
Sec. 8. Review.
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency
THIS IS FACISIM
"It's not altogether clear just how independent the Fed is."
Bwahahahahaha
To you maybe.
The public would be better off nationalizing the whole darn thing. This is another stupid attempt to thwart price discovery -- privatize profits and socialize losses.
What's more, there are redundancies in our banking system. We can survive -- it won't be pleasant -- without some of these back alley mofos. Off with their heads. Let them fail.
"Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency"
THIS IS FACISM
Even as we debate, they could be recasting this as an Executive Order.
Michael Hudson:
Economic theory used to explain that profits and interest were a return for calculated risk. But today, the name of the game is capital gains and computerized gambling on the direction of interest rates, foreign currencies and stock prices and when bad bets are made, bailouts are the calculated economic return for campaign contributions. But this is not supposed to be the time to talk of such things. We must act now to protect our nations economic health from serious risk, intoned Pres. Bush on September 19. What he meant was that the White House must make the Republican Partys largest group of campaign contributors whole Wall Street, that is by bailing out their bad gambles. There will be ample opportunity to debate the origins of this problem. Now is the time to solve it. In other words, dont make this an election issue. In our nations history there have been moments that require us to come together across party lines to address major challenges. This is such a moment. Right before the presidential election! The same guff was heard earlier on Friday morning from Sec. Paulson: Our economic health requires that we work together for prompt, bipartisan action. The broadcasters said that half a trillion dollars was discussed for this days maneuverings.
Michael Hudson: America's Own Kleptocracy
I vote for First Clean Bank. How is this plan one iota better than nationalizing the fucking banking system.
The current crop of bankers has proven themselves completely incapable of handling the business of lending. Give the government a chance so those paying can share in the proceeds.
Lots of thoughts on this whole mess.
One that sticks with me is that Schumer made the comment that if this money is injected (or something like that), the credit markets seize up and the economy heasds South.
To me, that sums it up.
In that statement is the entire mess we are in.
Without creating more debt, the economy collpases.
I would ask, "How did we get this way, Mr. Senator from NY?"
When did America become 100% entrenched in debt that it becomes the only mover of an economy?
What about manufacturing? Oh, that's right. The economy is only 9% of manufacturing. Whew, I thought we were in trouble for a moment.
Once again...
70% of the economy is consumerism and we know how much of that consumerism is based on debt and/or money creation (also debt).
Well, that's it...Just throw another 700Billion at the problem.
Heck, when you have a 10+Trillion dollar hole, what's another 700Billion? And you can bet your bottom dollar, when the goobermint gives a price, you can multiply it by 2-3X to get the real amount.
The valuation question does seem intractable in any short term scheme.
The proposals here and by Krugman to focus on recapitalizing companies by buying MBS in exchange for an asset stake in the companies seems a way out.
An RTC-like entity then collects the purchased MBS from this plan, and the leftover hulks of assets from those bankrupt institutions that fall under regulatory orbit. Later, over time, the new RTC can try to milk some value out of this stuff, just like the old RTC did. Valuation may be intractable now, but it won't be forever. Eventually value can sorted out, for better or worse.
the recapitlaization plan can work by extending regulation to require opening books, meeting capital requirments, etc, and, sad to say, requiring participation by class of institution (i.e, hedge funds, investment banks, etc)
I fear though that Paulson/Bush/Bernake are putting a gun to Congress's head, and Congress doesn't have the strength or smarts to maneuver against them.
I wonder if Paulson can put all $700 Billion into Halliburton and Carlyle before the end of Bush's term........I mean whether he can accomplish it that quickly, since he's going to be allowed to do it.
If I played the market in that way (I don't) I'd buy stock in every Bush crony owned compnay in sight.
Meant to say,
"...isn't injected..."
Thank you, guy with a rollformer
Aleister, that counterpunch article is ridiculous. As much as the rich like the republican tax structure, you should check the facts...most of the Goldman guys are Democrats.
Commissar 4822
If I understand Exectuive Order correctly (not a USA Citizen) it requires as a precursor a democratic process.
If this section is implemented democracy & republic are redundant
Maybe the gov buy should buy at the "current" value, and therefore recapitalizes the banks, but at the same time obtain from the banks warrants for equity. The price of the warrant should be determined at a later stage based on the true market value of the assets bought.
This would push the price-discovery to a little later stage and therefore avoid the biggest bottleneck problem right now.
It seems like the whole banking committe is Democratic as well....Schumer, Dodd, etc
If you use Ken's template, please correct the "to" to "just DO the right thing"
This has been a public service announcement from Comrade Geoff. You may now return to your regularly scheduled vodka.
CR,
Excellent proposal. Not quite as draconian as the Sweeden/Finland example, but much more tax-payer friendly than the Paulson Plan. Plus it may just, on the margin, increase credit availability to good quality borrowers.
Sure, there's some possibility of adverse selection (i.e., the heaviest borrowers are banks with the most chance of going bankrupt, such that the threat of dilution is meaningless). But that is a small drawback in the scheme of things.
So, one has to ask, why didn't Paulson come up with something similar?
It seems he is trying, in the end, to prop up the stock market by transferring taxpayer wealth to bank shareholders. What other conclusion can one come to?
Unlike the Sovereign Wealth Funds that invest a government's surplus, this will be a "Sovereign Taxpayer Fund".
Rhodesian,
Buy puts on the TLT.
I think you can still short it too!
My thoughts are pretty much we have attempted a bailout too far!
Now, really in the way we are going, the biggest questions are how will the rest of the world decide in the safety of anything this government decides to do.
Now, if the dollar rallies, and our stock market stabilizes, and houses sell for more than last year, all will be well.
I, along with quite a few posters here give it very low odds.
Krugman agrees.
Now you should all begin to quail in terror.
The worst case scenario is starting to materialize.
Now, what should most of us do? Just like LLiz suggests, go get some food, hunker down, and let the folks who made this mess, solve it if they can.
Someday this war's gonna end...
@Nobody
Exactly. Those 3 points would stop this from happening again.
Plus I want punishment for the evildoers.
meant to make clear the new RTC would also hold the stock acquired by recapitalizing companies: stock, purchased MBS, and whatver gets taken over along the way in bankruptcy/receivership (like FDIC does with banks). Such a mix gives some hope of recovering some of the costs, and a quid pro quo of regulatory authority.
This plan is lipstick on a pig.
It's a Bull Market in Government Intervention
It's worth repeating the reality that prices want to fall and interest rates want to rise. It's not clear that the government can change that reality. And while the government theoretically has access to unlimited amounts money to throw at problems, in practice there's a limit if only because the dollar is regularly valued vis a vis other currencies and gold. At some point, cranking up the printing presses to bail out Acme Finance is self-defeating because the marginal gains of injecting liquidity are more than offset by a slump in the purchasing power of the buck.
It's a Bull Market in Government Intervention -- Seeking Alpha
Evildoers...hilarious!
BTW, CR, what makes you think you are entitled to details, huh? Hehe.
If they arent going to allow review of the plan later, there really isnt even any point in sending out any real information about it before it is enacted.
How about raising the FDIC insured limit to 250-300k?
eliminate the money market protection
allow ib's to fail,
bk the hedgies
any of the cds/cdo are washed.
draws capital into banks, allows banks to continue lending, with the same backstop, and no moral hazard.
those that took the most risk on opaque securities take the greatest loss, as they were the ones who benefitted the most.
Hey Ken --
Agree completely about contacting your Senators and Representative. However, I strongly suggest you open with the point:
"Please vote against the Troubled Asset Relief Program (TARP)."
After that, elaborate however you like.
I myself include language mentioning that I will vote for their re-election if and only if they vote against this disaster-in-the-making.
I still continue to be amazed by the simplicity of the Paulson Plan's language as well as its brevity. It's what I would expect to emerge from some the fly encrusted jungle office of a third world petty dictator who runs a country with a cowed population and a puppet legislature. It's scary to think that this man controls the Treasury.
Maybe the earth tilted on its axis last night and we are now living somewhere in South America.
.
the guest
"This plan is lipstick on a pig"
That's right.
The Pig was Kleptocracy and when the lipstick is applied it will be come Facisim.
Sec. 8. Review.
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency
THIS IS FACISIM
This is FORKISM, as in, you are FORKED!
Can someone explain (snark-less) the ramifications for the majority of ordinary folks in this country? The numbers are to big for my puny brain.
The only ammo left is this doomed plan & to print more fiat real fast to delay it a few more weeks. The plan is to get out of Dodge(DC) before the real collapse so they need 60-90 days to clear out the cabinets and desks and get offshore ASAP.
"Now you should all begin to quail in terror."
http://www.financialsense.com/fsu/editorials/dore/2006/disaster.mp3
Geoff writes:
This is FORKISM, as in, you are FORKED!
Yes true.
Except sometimes being FORKED can be pleasent.
Facisim never is.
Geoff
That's correct. We have no right to ask for details. They are being saved for the greatest October surprise ever: Sarah Palin will announce the details at the VP debate!
Lipstick on a pig, my ass! We'd be lucky to get a pig with lipstick, or even just a pig, or lipstick. Even a moose would be better, if moose shit is better than bullshit. But I'm getting angry and crude.
CR for congress?
I mean seriously, this plan makes too much sense, which is why it wouldn't be implemented. This whole bailout reeks of banks offloading their toxic paper at their valuations onto the taxpayer. Otherwise, there wouldn't be a bailout as they banks can't afford significant losses to what the assets are actually worth.
CR wrote "And many banks are unwilling to accept the current bids because the banks would then be insolvent."
Why wouldn't they take the bids if they are their only bids, and holding on to these assets will for sure make them insolvent anyway. As they become insolvent and start to engage in asset sale, wouldn't they then have to take those bids or even lower?
To make sure that banks remain solvent, the Treasury can buy the bad loans (at market price or a bit higher, but not at a huge premium as to ensure banks can be solvent from these purchases) and can inject further capital into these firms by buying equity or recapitalization.
It seems to be this is a way to make sure banks stay in business but also punish the banks' shareholders and not tax payers.
It seems to me a simpler way is to require the assets to be marked to market now. The banks go bankrupt immediately, and the USG takes them over. No having to worry how much to pay for the mortgages, because now the taxpayers own them all. We are already on the hook for the insurance, so let's just go all the way. Then when the banks become profitable again, they can get re-IPOed, with the proceeds to help pay down the federal debt.
the problem is, what is marked to market? no way to assess current value, hence, anarchy!
Paulson must have generals on his staff.
Remember that the Bazooka was 70bil so he would not have to use it. He diduse it.Now that it didn't work he wants something 10 times bigger. Like that self-propelled artillery foolery the army kept getting funded that never worked.
What would be his plan C? Maybe the Japanese do have something with expecting suicide for bunglers.
Make him an unelected Secy of Treasury an economic czar?. This is a mania.
I honestly believe that the thought that his beloved GS might go under shook him to his core. This is his version of protecting GS like a bodyguard willing to talk the bullet his (what is a good name for the man the bodyguard protects? Oh well) his Boss.
Was schert mich Weib, was schert mich Kind,
\t
Ich trage weit beßres Verlangen;
\t
Laß sie betteln gehn, wenn sie hungrig sind -
\t
Mein Kaiser, mein Kaiser gefangen!
\t
What matters son? What matters wife?
By nobler needs I set store;
Let them go beg to sustain their life!
My Emperor,(Napoleon) a free man no more!
from Heine Die Grenadiere" (The grenadiers)
rest at
CHAOS MANOR IN PERSPECTIVE
The plan is nothing gets paid with real money(just promises to pay somewhere down the deficit line) especially the bogus derivatives and a collapse of the ecomomy that has been stripped of the last cash and sellable assets. This is a cover to fool everyone that's it's OK to spend your last little bit of money and not sell assets and make runs on banks. Every bailout just bought a lil more time to cash in and then get the hell out.
"And given that short selling is banned..."
Short selling of 799 stocks -- of already severly impaired financials -- is banned.
There are still quite a few other companies around to short.
Sure makes it seem like a big bold move though doesn't it?
Why not open up the discount window to everyone?
No joke: It's purpose is, as i've learned here, to lend freely at somewhat above-market/ punitive rates against good collateral.
Whether you do this via First Clean Bank or the nationalized remains of Frannie etc. is a procedural question.
Good collateral of course is key (return of the old-fashioned 20% downpayment).
What did Warren Buffett say after all when asked about the credit crunch: "There's no shortage of money. There's however a shortage of so-called dumb money" [lending for insufficient collateral].
Erik writes:
CR for congress?
"I mean seriously, this plan makes too much sense, which is why it wouldn't be implemented"
Eric I agree.
But its too bloddy late.
China want's a guarantee NOW.
The citizens of the USA need to tell China to go f**k.
Instead your airforce/army/navy are up to their necks in s**t in countries you know nothing about other than it is in the best interest of Halliburton.
A $3T war and you can't capture ONE MAN.
How much in salaries and bonuses were forked out to wall street people, above and beyond a more normal amount, based on the housing bubble? Why dont we start with clawing that back.
Then we can sell of any second home purchased by a realtor from 2001 to 2008.
The investment banks remaining can use that to shore up their capital base. It would probably work and actually affect only those jackbutts who created the problem.
The Wall Street Journal and the New York Times have started to comment on the Treasuries planned for bailing out the mortgage industry. Unfortunately it doesn't seem to be much said about where the money is going to come from to pay for this bailout. The the Congressional budget office a few weeks ago announced that and that the anticipated budget deficit for 2009 will be slightly less than $500 billion. The latest calculation on the bailout of the mortgage market will be between 700 billion dollars and $1.1 trillion. None of the numbers include the recent bailouts of AIG and Fannie and Freddie. The estimate for these bailouts is approximately $3-$500 billion dollars. Also the recent housing bill requires $300 billion to finance the rescheduling of homeowner mortgages. As you can see the treasury is going to have to raise quickly an awful lot of money via the selling of government securities. The question is where will this money come from? It appears to me that the treasury feels that friendly and not so friendly central banks will come forward and buy the new paper that will be issued by the Treasury Department. I seriously question that this concept of continuing foreign purchase of our securities. There are three things that the foreign central banks can do, one they can continue to buy our securities and even larger amounts, two, they can demand a higher interest for buying the paper. Why except 3.5% for 10 year bonds? or, three back off on their purchases. This is a major dilemma for the Treasury Department on how do you get the foreign central banks to come forward with a huge increase in purchases? The Tresaury has indicated that they want to act quickly. The entire bailout could fail because the treasury will not be able to finance the increase debt by its usual means .
Of course Congress could enact new tax legislation which would raise the necessary funds to make up for the shortfall in foreign central bank participation. Unfortunately by raising the tax rate above $250,000 to 100% will not generate the necessary tax revenue to cover the shortfall. So everyone will feel the pain.
Or the treasury could issue treasury bonds in Lou of a cash payment. This is a well know method of financing for governments in trouble. But doing this will signal that the government is going to inflated self out of the problem. I would assume that they will start this off with the idea that it would just be a one time event to manage the problem of the lack of cash to pay for the bonds. But that history shows that this solution will rapidly lead to hyperinflation and destruction of the ocountry as we know it.
Anyone see dubya today with the Columbian presidente ?
No "The fundamentals of Our economy are strong" or "Our financial institutions are well capitalized" That is OVER. The charade is now KAPUT!
He is a fraud.
Tom O writes:
Mark the assets to market.
There is NO market for the assets.
This is not because the assets have no value, but because house prices have not stopped falling and stabilized, the players do not want to buy something only to find that it is worth less a day or a year later.
If the banks were to mark to market now they would be insolvent due to their leverage.
The REAL danger is the OTC derivative market imploding, it is now only illiquid and will be for the foreseen future till the house prices stabilize.
The plan will attempt to ARTIFICIALLY stabilize prices, much like the ban on short selling was done with the intention of propping up stock prices.
This will not work in the current global economic climate.
(Side note : If one looks at the Karachi exchange, one can see the outcome of their market after they banned short selling to try to stop prices reaching their fundamental value.)
Tom O:
"Help me out here. I freely admit that a lot of this is above my level of understanding, but the plan so far just seems crazy."
Tom, you have a very firm grasp on the tail of the beast, but it's still busy eating everything in your refrigerator.
plschwartz writes:
"I honestly believe that the thought that his beloved GS might go under shook him to his core."
Correct
But not only GS.
This idiott thins that the entire USA as it currently is and its entireity from inception is actually just one big Wall Street bank.
The man is insane
i agree with Commissar 4822
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
i find this very disturbing - god forbid there is transparency and accountability for this proposal.
It's also important to note that this bill is not a done deal. The plan was just announced a few days ago and already we're hearing Congressmen on both sides of the aisle raise issues with it.
This trial balloon appears to be lead on the outside, and hydrogen on the inside. They better find a way to generate some more confidence that this is actually going to help, or next week will make last week look like a walk in the park.
This is a defining moment. We have 3 choices:
Nobody writes:
"It's also important to note that this bill is not a done deal. The plan was just announced a few days ago and already we're hearing Congressmen on both sides of the aisle raise issues with it."
CORRECT AGAIN
The idiot Paulson has lead us up the hill with all his men.
When he marches then down again (that should tak about ? Tuesday)
The Stock Market TANKS.
The Chinese see that their demand could not be delivered.
America TANKS
Like I said before this bailout was even announced, this whole thing is about asset valuation. These assets aren't illiquid, they're just "illiquid" because the asking price is too high, just like pretty much any sfr in the real estate market today. The plan as it currently stands solves very little.
Tell you what. I'll support the TARP if instead of the Secretary of the Treasury, Pelosi, Dodd, or Schumer head it up above Paulson. Doesn't look so attractive now does it?
(Still looking for an acronym; TAR PIT comes to mind)
Good analysis, sir. Thoughtful alternative.
"...The underlying problem is that house prices are still too high and no one knows how much further prices will fall..."
Better diagnosis: The underlying problem is that household debt to GDP is at an unsustainable high, and that as households succumb to the high debtload, they are defaulting on loans and curtailing discretionary purchases --> reducing employment --> further household defaults and cutbacks.
Gotta clean the debt from the households, CR and Dr. Blinder. Falling asset prices are just a symptom, not the disease.
Shorting treasuries:
Go to the CBOT website. There are papers there about shorting treasury futures.
My strategy: short when the fed first raises interest rates; stay short until they start dropping them. Look at recent history treasuries history to get an idea how it might work. If you don't wait until the direction of interest rates changes, you may experience some undesirable effects.
Note: you can also go long treasuries when they start dropping the rate -- your note's price will increase as the yield goes down.
There is no way the Federal Government can bail out all the derivatives and swaps that have been sold and collateralized by these CDOs and CMBSs.
Any attempts will only be temporary and eventually (probably in October) countries and investors will realize this and hense a major stock market crash.
I believe it is confession time for all the bubble economies of the world!
Financial markets are collapsing and real estate valuations haven't even really been marked down yet. Imagine when it troughs!
Democrats Seek Changes To Wall Street Bailout Plan
A $700 billion financial rescue plan was sent to Congress Saturday, and Democrats moved quickly to propose changesincluding possible help for homeowners and a salary cap for CEOs.
Democrats also are pushing for a new $100 billion economic stimulus package, although it's not clear if that would be part of the Wall Street bailout or be voted on separately.
Hmmmmmmm. Either they don't get it or they only know too well what they are doing.
Henry Paulson - Wikipedia, the free encyclopedia
go ahead , authors, add some
CR wrote "And many banks are unwilling to accept the current bids because the banks would then be insolvent."
And by propping them up, we fail to eliminate the business people and processes that misallocated the capital. In fact, we are going to reward them.
Confidence will not be restored until the rot is removed from the system. Anything less will be seen by investors as life-support.
MODERATOR:
Apologies I appear to be posting beyond manners. If you need to cut me off just do so.
Geoff writes:
"This trial balloon appears to be lead on the outside, and hydrogen on the inside. They better find a way to generate some more confidence that this is actually going to help, or next week will make last week look like a walk in the park."
There is no confidence.
Paulson (a more intelligent man than Bush) has bullied Bernanke (a more intelligent man that Paulson) into a Wall Street solution to a global problem created by Paulson (GS) himself.
THIS CONTROLLED DEMOLITION PLAN
WILL NOT WORK
Problem #1
Born in Palm Beach, Florida,
Problem #2
member Sigma Alpha Epsilon fraternity
You talked me into it!
Here's the link.
Democrats Seek Changes To Wall Street Bailout Plan
Congress Gets Rescue Plan; Democrats Raise Questions - CNBC
Seems like it's a race between party lines to the 1T mark.
CR,
Many thanks for putting this out there. We can only hope against hope that someone in power listens, understands, and cares. You and PK are doing what you can, at least. Of course, we can't know the chances that they will listen, much less understand and care, but one thing is for sure: If no one of competence who sees this disaster coming speaks up, they will not hear for sure. And the louder and more cogent the speaking, the better the chances.
"Fuckin A"
rich - how are you feeling about TWM and EEV given the current circumstances?
"If pain means smaller and fewer cars, smaller homes, smaller and fewer TVs, etc. etc., then bring it on. Give me warm quarters, food and clothing, and my family and I will be just fine."
Hear, hear. We haven't watched TV for years, and haven't perished from the deprivation. Try it.
CR,
Your plan would have worked 6 months ago, but now is not enough, because investor confidence and lack of liquidity are also seriously straining the financial system. A combination of your proposal and the current Treasury proposal will be needed IMO.
I am all for the stimulus pkg without the bailout .
"Democrats also are pushing for a new $100 billion economic stimulus package, although it's not clear if that would be part of the Wall Street bailout or be voted on separately."
There are others that are finding the bailout a bad deal:
A Bad Bank Resue
Sebastian Mallaby - A Bad Bank Rescue
The RTC collected and eventually sold off loans made by thrifts that had gone bust. The administration proposes to buy up bad loans before the lenders go bust. This difference raises several questions.
The first is whether the bailout is necessary. In 1989, there was no choice. The federal government insured the thrifts, so when they failed, the feds were left holding their loans; the RTC's job was simply to get rid of them. But in buying bad loans before banks fail, the Bush administration would be signing up for a financial war of choice. It would spend billions of dollars on the theory that preemption will avert the mass destruction of banks. There are cheaper ways to stabilize the system."
God I love section 8,It could have been written by someone I once knew who got a "section 8" discharge from the Army.He believed he was Caesar Augustus reborn to lead America.Actually he probably would have done a better job than these clowns...
Anonymous writes:
"CR,
Your plan would have worked 6 months ago"
Abbott_Of_Iona writes:
CD
Sounds like a plan.
Should have been done 9 months ago.
To late now.
The World won't wait. The USA's competitors will take advantage.
Probably best to batten down the hatches for the coming storm.
Abbott_Of_Iona | 09.20.08 - 5:39 pm
He still acts like a CEO, not like a government servant.
He has zip political skills.
And he looks, acts and talks shifty. Alwys, like he needs to go pee fast.
The American people don't like that. They don't trust him.
In times of crisis, they want calm soothing words from a person who looks trustworthy.
OMG
I now see that I called CR "CD"
Will I go to hell.
Probably.
But the USA will be there first
CR,
Your proposal makes sense to me.
You should have more power.
But if blog posts and traffic are a leading indicator, you're getting there fast.
I really appreciate all your hard work and insights. You da man!
but analyzing each mortgage would be a monumental task
Why? Wasnt the fact that this wasnt done in the first place, what led to the problem we are now seeing?
In my opinion, this is why this plan is BullShit. This is what people are referring to when they demand accountability. I dont care that its a hard job to analyze each mortgage issued during that time frame, DO IT!
Would this work?
Take these "assets" off of the banks hands for some price which will keep them solvent and lending but with the stipulation that as time goes on and price becomes more clear, they have to pay the difference back to the government - esentially an interest free loan for the banks with a known cost to the government (the loss of interest on the capital - so if it costs 2 billion and takes three years to clear up, and assuming a 6% interest rate, the cost would be about $360 billion - painful but would it work? Also it would have the benefit of incentivizing the banks to prudently try to stabilize the economy since they are still on the hook for the securities...
It's heartening to see that folks much more learned and rational than myself, such as Krugman and CR, are equally concerned about the bailout proposal, but I can't help but think that ultimately Congress will fail to share that concern and will pass damn near anything that's handed to them.
The political ceasefire lasted about 24 hours.
Shelby (of American Alabama, not formerly Soviet Georgia) fired the first shot, but the tanks rolling down Wall Street and the jets strafing the streams of refugee investment bankers fleeing Manhattan all have donkey insignia on them.
The proposal so far divulged stinks of two odors--a taxpayer giveaway to the rich (if the assets are bought above market) and a confusion between solvency and liquidity (if purchased at a reasonable price).
Personally, I think the financial institutions have to fail, and the government then has to recapitalize the financial services sector. But maybe a couple of weeks of smoke and mirrors while it's all sorted out is what's needed to keep the whole system from freezing up hopelessly.
I've been writing notes to my senators asking to reject Secretary Paulson's proposal and request a new proposal with more balanced distribution of the costs amongst taxpayers, shareholders (maybe bondholders), employees and, in particular, management of the institutions receiving assistance.
If anyone has any ideas on what else we can do to influence (and educate) our representatives, pls speak.
thanks.
Democrats will cave. You can bet on it, short it, sell it, buy it, do whatever you want with it but the end result will be the same...Dems cave.
Paulson is running the show. It's his show. He's already bitch slapped Pelosi over the gig about capping the salaries of CEO's.
And that's the best the Dems could come up with?
What does Ron Paul and Kucinich have to say about this.
MLM writes:
rich - how are you feeling about TWM and EEV given the current circumstances?
I have not sold a share of TWM all year. It's just my core holding, I guess.
I sold all my EEV at the top at 142+. But I still have a lot of the single equivalent, EUM.
I took the proceeds of selling EEV and bought SRS at about 83. Dumb move. Second time I've made the same mistake.
If SRS performs better than EEV in the days ahead, I'll switch some money from SRS into EEV.
I've never felt better, though, about being short these sorry asset classes. The only way they can do poorly from here is:
TWM and SRS in particular have had huge headwinds all year. How long can strong headwinds blow against you, before they turn?
STANZA 97
By Lev Loseff
\t[translated from the Russian]
The dispositions of planets
The gloom of the coffee grounds
Tell us the angels have had it
And God is not to be found
And all of the other letters
The omens, the signs and the runes
Dont clarify anything better
But sink with the rest into gloom
All of the thoughts in my skull
Hop around without a connection
The poems of those I know well
Are formless and often misshapen
When Im off to my business in town
Or only about for a stroll
I is the vowel that sounds
My ear has got used to its toll
Exhausted with work like a truck
Grinning sickfaced like a bitch
[skulyashchii, kak bolnaya suka]
Grammarless language is stuck
And the words are hub-deep in a ditch
The jerk who from far way bellows
Is making a speech from the void
The gossip who catches your elbow
Is whispering crap unalloyed
Which gurgles and then disappears
In a howl that nothing has said,
But still in that chaos I hear
The rustle of wings overhead
A myth is being perpetuated that the financial system is in danger of collapsing.
As far as i can see only banks and those involved in the shadow banking system are in danger of collapsing.
So what? New banks will arise as fast as the old ones go.
The king is dead, long live the king.
Only this time the king is in a coma and hooked up to life support on steroids and growth enhancing drugs.
And taxpayers get the bill.
BB writes:
Here's the link.
"Democrats Seek Changes To Wall Street Bailout Plan
Congress Gets Rescue Plan; Democrats Raise Questions - CNBC
Seems like it's a race between party lines to the 1T mark."
I say Obama needs to get his head out of his arse and JUST SAY NO.
Make it a straight fight.
NO BAILOUT.
F**K THE CHINESE.
America can rebuild. China will be devestated by lack of market.
Obama does not need to tell the American people that he is for chnage.
HE NEEDS TO TELL THE AMERICAN PEOPLE THAT HE WILL STAND UP THE THE COMMUNIST PARTY OF THE PEOPLES REPUBLIC OF CHINA
Because Hank (no balls bazooka) wont do it.
There will be panic next week, everybody I know is moving to cash and taking all thier money out of the markets.
I am staying short America.
everybody I know is moving to cash and taking all thier money out of the markets.
It's really hard to recommend going into the markets now. God knows what the next government action is going to be.
Cash is King. The question is: Which cash?
Good luck, everyone. Were in uncharted waters now. There is no rule of law if this passes - there are no markets. Weve all been had, and the worst is yet to come.
London Banker: "Non-Reviewable" - Sometimes there really ARE conspiracies
CR, I agree with everything you and Krugman are saying. In a ceteris paribus world with no outsiders, that would be fine and dandy.
However, you've neglected to talk about foreign holders, specifically holders of treasury, GSE and private paper.
They are not going to take this lightly, and they will be heard.
As David S quoted at 4:53 on the previous thread:
-snip-
"But as new shocks hit earlier this week, Wang flew to Washington to meet with Treasury Secretary Henry M. Paulson Jr."
"Wang sought assurances that if the Chinese government were to encourage its companies to seek investments in the United States, the deals would not face the same political opposition that has undone past Chinese investment proposals."
"Andy Xie, an independent economist who was formerly Morgan Stanley's chief Asia economist, said the United States needs to accept that a large amount of U.S. assets must be transferred to other countries' ownership. "If the U.S. is not willing to accept that," Xie said, "they will have to print money and the dollar will fall. And we will be headed toward a global financial meltdown."
-snip-
Either way, the macro consequences of this will be extremely high. I can't overstate this point.
So, dear people, do you want a dollar when the pain is over, or do you want fuel for your fireplace.
You can't have both.
Last comment for awhile...been fun hanging out (LONGtime lurker, rare commenter).
Saying "house prices are too high" is another way of saying "people aren't making enough money".
The long-term prime causes -- that's right, causes, no one root cause -- of the present crisis are more about globalization and structural changes in the american economy than about mortgage finance per se.
There's a lot of punches, but the one-two punch is here:
(A) globalization of labor markets makes a lot of domestic labor-intensive industries internationally uncompetitive.
Sometimes this means "game over" for an industry (and its workers), and sometimes it just means the fun days are long gone (like in autos).
(B) the impact of computerization and telecommunications has radically reshaped a lot of the basic economic playing field: in many industries you see both a net shrinkage of value (going from billion-dollar industries to hundred-million-dollar industries) and increasing concentration of the profits of that industry.
Think: going from tons of local newspapers and some regional classified-ad syndicates to craigslist and ebay: the net value of "classifieds" is way down, and the number of players getting significant chunks of the pot is way down (from hundreds of regional papers to a couple internet sites).
What this has meant for middle america:
What that would have meant for corporate america / various "elites", if it had played out too quickly:
(A) the american economy was and is mostly consumer-driven, so all those corporations and associated assets would've taken a huge beating if the spending ability of the average middle-class consumer became seriously, permanently impaired
(B) all those real estate holdings would've taken a huge beating (like they did in detroit) as the prices deflated to what the inhabitants could afford
(C) without access to the american consumer as a huge dangling carrot, a lot of our negotiating heft overseas would've been gone
What has instead transpired:
(A) a decades-long, systematic to prop up nominal prices (particularly asset prices) and, indirectly, failing industries, mainly by extending consumer credit.
-- systematically propping up asset prices: eg, "creative financing" allowing homes to sell @ higher multiples of median income than historical norms
-- indirectly propping up failing industries: how much longer is "TROUBLED MAJOR REGIONAL EMPLOYER" going to be a major regional employer if employees start asking for even-higher wages just to afford to live in the area? easy access to credit makes it a LOT easier on a LOT of employers by taking the sting out of wage demands (instead of saying no, many say yes then sweat it out with an exotic loan / heloc / etc).
(B) ...giving those in the know (or with eyes to see) enough time to liquidate domestic investment at good-enough nominal prices to still do fine when the "new new economy" finally arrives.
(C) ...but creating a very real problem: where to stick all the profits you're booking liquidating your domestic holdings? If the rug is going to get pulled out from just about everything, where do you stash your stuff?
-- so financial innovation helps keep the nominal asset prices high long enough to sell out
-- and also has to do double-duty inventing all kinds of exotic places to stash value; being as far detached from the "real economy" is a huge blessing here, if you're looking for a place to preserve value in the face of a huge market decline
What is going on now:
The jig is pretty much up. Creative mortgage financing was probably the last straw in terms of propping up asset prices, because it's already hitting ordinary people right in the nuts (biggest investment they'll ever make; also housing is a necessity of life, and everyone knows how america treats its homeless...), and also because both punches -- (A) and (B) from way above -- directly work against its viability.
Trying to keep house prices steady or climbing against declining employment prospects for many of their inhabitants (due to global competition AND due to net-value-shrinkage of many industries) is like trying to square a very square circle: good luck!
The bailout really looks to me to be the last-ditch effort to keep everything propped up, which really means: a time to get rid of stuff at reasonable nominal values and move it elsewhere...it does nothing to address the underlying issues (a changing global economic environment that eviscerates the source of the previous two generations' prosperity), and isn't intended to do anything about them.
(end part 1 due to haloscan)
What happens next:
The problem with all this cashing out of domestic assets is: where do you stick all those "profits" (or at least: sales proceeds)?
The present crisis is showing the domestic "leadership" and the rest of the world that the solutions for "where do i stash my heaps of cash" that modern finance had cooked up are not safe enough to be long-term options -- some are too coupled to the performance of the american economy (like anything building on top of MBSes) and many more are too strongly coupled to many more things than initially thought.
I don't know -- short-term (next few years) -- where the liquidation proceeds are going to wind up; commodities, baskets of foreign currencies, and broadly-international hard-asset portfolios seem the likeliest candidates.
I do know that there is ALREADY enormous demand for credible alternatives to US-based assets for "safe havens for surplus cash"...and where there's a demand, it will eventually be met.
Expect to see the rise of a few more financial systems -- including currencies -- only very loosely coupled to the existing system (which is very, very tightly coupled internally). These have been on the drawing boards in many areas for a very long time -- in much the same way that, say, the department of defense maintains plans for dealing with just about every imaginable emergency situation -- but recent events are REALLY going to step those timetables up.
The emergence of those systems, when they do open their doors, is going to be game-changing; I wish I had a good sense of what the new game will be like besides "very different". All I do know is that once the new systems are up and running you'll see a LOT of capital flight INTO the new systems: they'll be competing primarily on the basis of "how good of a store of value are we?".
What You Should Do:
I gave personal advice one thread back.
Politically, if you can get this bailout blocked that's a huge head start, but it's not going to do anything about the fundamentals -- it's just going to avoid handing over a few extra trillion to the nondeserving.
Looking beyond the next week, the country is going to have to very, very strongly refocus its priorities.
The military NEEDS to be downscaled: if your government is employing that many people, those people should be laying new fiber optic lines, public-use wimax lines, rail lines, electrical lines, and efficient mass transit in the 1st and 2nd tier urban areas. Listening to phone calls and maintaining archipelagos of garrisons overseas aren't value-adding activities.
You need to modernize your infrastructure -- transit, energy, communications -- and shoot for food and energy independence. Worry about comparative advantage and the benefits of trade once you're not such a debtor; with the national debt you have, not needing to import food or energy is going to GREATLY strengthen your bargaining position.
You need to revamp your educational system: leaving aside the dismal performance of your existing primary educational system, its conceptual framework is a century out of date, and largely irrelevant to modern goals; it was designed to turn out boring-but-reliable millworkers and middle-managers, but in the future adding value will be labor-light, skills-heavy...focus on foreign languages, useful skills (math / science / computer science / shop / graphic design), and thinking abilities (critical thinking / creative thinking / home ec), cutting whatever you have to to make space for those.
You are going to have to build out a euro-style welfare state (in terms of the benefits it brings -- if you can find a more efficient way to provide universal healthcare and unemployment insurance, go for it), if only to encourage risk-taking and entrepreneurship (how many would-be entrepreneurs won't risk their wife's and kids' health insurance? LOTS).
You are going to have to rope in your religious movement insofar as it threatens the development of basic science (like: stem cell research). Maybe throw it a few "public morality" bones, but only if so doing makes it go away -- if the bones just make it hungrier, don't feed it.
And, finally, you are going to need to have a national goal of being people that make stuff that make stuff (capital equipment). Just relying on being "people who design stuff that makes stuff" isn't going to cut it -- once you're not top dog, you can't count on international intellectual property agreements to work in your favor. If your money's not worth much no one will want to sell you stuff; equipment that helps the owner make money will always find buyers; right now the world needs capital equipment, and infrastructure buildouts (and associated environmental cleanups, etc.) are going to be the world's main economic driver for a very long time.
The above is a real bailout plan: something that, if executed on, strikes at enough of the root causes to correct most of the current situation, over a period of a decade or two. I'd get to it, if I were you.
...and that's it.
Thanks for all the great posts CR and Tanta, and thanks all you commenters -- too much to go and do.
Abbott_Of_Iona writes:
Commissar 4822
If I understand Exectuive Order correctly (not a USA Citizen) it requires as a precursor a democratic process.
Executive Orders in the US are issued by the Executive Branch without Congressional Approval.
Wikipedia:
U.S. Presidents have issued executive orders since 1789. Although there is no Constitutional provision or statute that explicitly permits executive orders, there is a vague grant of "executive power" given in Article II, Section 1 of the Constitution and the statement "take Care that the Laws be faithfully executed" in Article II, Section 3. Most executive orders are orders issued by the President to US executive officers to help direct their operation, the result of failing to comply being removal from office.
[...]
Critics have accused presidents of abusing executive orders, of using them to make laws without Congressional approval, and of moving existing laws away from their original mandates. Large policy changes with wide-ranging effects have been effected through executive order, including the integration of the armed forces under Harry Truman and the desegregation of public schools under Dwight D. Eisenhower.
One extreme example of an executive order is Executive Order 9066, where Franklin D. Roosevelt delegated military authority to remove all people (used to target specifically Japanese Americans and German Americans) in a military zone. The authority delegated to General John L. DeWitt subsequently paved the way for all Japanese-Americans on the West Coast to be sent to internment camps for the duration of World War II. Thousands of German Americans and Italian Americans were also sent to internment camps under executive order.[citation needed]
Yeah, I'm not convinced that there are many countries anymore that consider the U.S. too big to fail. That's the ace up our sleeve, isn't it?
Gaucho:
Another thing you might try is writing to your local papers and try to get their support against St.Paulson
Grouch,
Need to and can do in fascism is tricky.
">lawyerliz writes:
I went shopping yesterday and exchanged some worthless dollars for some nice chinese clothes. I think we will buy a generous amount of groceries tomorrow. I think y'all should do the same."
I've got my stash in the garage. Mostly pasta, beans, canned food. Doubles as my earthquake stash, though it's hunkier than it needs to be for that. Will take a look at it and see if we need anything else. Olive oil.... definitely olive oil.
I've got some nice contractors coming in this week to redo our largely nonfunctional kitchen. Bids are agreed on, most of the hardware is pre-paid. Wife had second thoughts and asked, "Can we afford it?" I explained that spending the cash now was a hedge against hyperinflation, especially if we're eating at home more. She got it.
There will be no overview or restraint by the Supreme Court or any court.
Paulson will have "unlimited powers".
This is fascism. This is the death of democracy in America.
Per mp on the French...I wish Americans had half the patriotism and concern of the average French citizen. We are being hijacked without a murmur.
the French at least would put up a fight...the Americans,my fellow citizens...nothing.
linear algebra writes:
The political ceasefire lasted about 24 hours.
"stinks" ~ "a confusion between solvency and liquidity"
"Personally, I think the financial institutions have to fail, and the government then has to recapitalize the financial services sector. But maybe a couple of weeks of smoke and mirrors while it's all sorted out is what's needed to keep the whole system from freezing up hopelessly."
linear,
They have had at least two years.
Paulson/Bernanke/Bair have been kicking this can down the road and laughing.
They have been found wanting.
They can not now lay the blame on the next incumbant.
It will blow up before hte election.
I am still confused as to how trillions of dollars could have been bet on real estate prices never declining?
How is it possible that so many purportedly intelligent Harvard MBA's could make such horrible decisions?
Are there not some banks who were competitive enough to realize it was a house of cards and wait for the remnants so they could get assets at bargain basement prices?
Conjure and I, after having discussed the situation this afternoon, have come to the conclusion that the United States is about to have its head handed to it.
There is no favorable outcome.
---buying impaired assets at a steep discount----
steep discount to what, hopefully not mark to model valuations?
Think back to all the warnings about derivatives that were ignored. All the activists pointing out the abuses of power the last 7 years(and before of course). The Diebold vote count factor. ATMs are Diebold now. Will they count the withdrawals correctly?
lawyerliz writes:
I went shopping yesterday and exchanged some worthless dollars for some nice chinese clothes.
I think we will buy a generous amount of groceries tomorrow. I think y'all should do the same."
I've been doing that! I'm starting to stock up. I've gone to the Grocery Outlet twice this week. Got like ten boxes of my favorite cereal for half the price. Stocking up on sorts of non-perishables.
bail-me-out:
"My strategy: short when the fed first raises interest rates; stay short until they start dropping them."
Respectfully, go crawl back under your rock, preferably in another country.
"Sec. 8. Review.
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."
LOL.
No, not now, not ever.
Thanks for playing.
mp writes:
"Conjure and I, after having discussed the situation this afternoon, have come to the conclusion that the United States is about to have its head handed to it."
Succiently put.
Wish I could have said it myself
"Seems like it's a race between party lines to the 1T mark."
Funny that the stupid greedy dems are fixated on larding it up rather than reaining it in with all those superpowers conncted to that shit. My hope is it gets frozen indefinitely until someone representing taxpayers and the constitution gets involved.
from bloomberg:
An attorney for Lehman, the investment bank that filed the largest bankruptcy in history, told U.S. Bankruptcy Judge James Peck in Manhattan yesterday that the bank's broker dealer unit now has only $47.4 billion of securities and $45.5 billion of liabilities to be assumed by Barclays, or a net value of $1.9 billion, a change from the earlier $72 billion in securities and $68 billion of liabilities, or a net value of $4 billion.
``Given the volatility of the week, we started the week with a certain amount of securities, and we can no longer deliver those securities to Barclays,'' said Lehman attorney Harvey Miller of the New York law firm Weil Gotshal & Manges. Lawyers didn't announce any revision to the overall sale price of $1.75 billion.
Some of the hundreds of lawyers and onlookers who packed the hot and humid courtroom gasped when they heard the change in the value of securities, which occurred over the five days since Lehman filed for bankruptcy Sept. 15. The hearing, set to begin at 4 p.m. yesterday, was delayed as marshals tried to clear the entrance, shouting that the crowds were a ``fire hazard.'
The free market for all intents and purposes is dead in America, Mr. Bunning declared on Friday. The action proposed today by the Treasury Department will take away the free market and institute socialism in America. The American taxpayer has been misled throughout this economic crisis. The government on all fronts has failed the American people miserably.
Administration Is Seeking $700 Billion for Wall Street in Possible Record Bailout - NY Times
Char,
Gambling can be an addiction that afflicted gamblers are powerless over. Our economy needs to do the 12 Steps of Gamblers Anonymous. Work a program and recover.
This whole mess should lead right back to Greenspan when the investigations start. He may die of old age before he gets called in for congressional testimony under oath.
If we had socialism, the workers would be getting the support rather than the Wall St. Investment gamblers and the surviving banks.
For everyone's information, as it may or may not be of interest to them, Conjure and I are no longer investing in US markets. The decision was made this afternoon.
Thanks rich. Haven't sold any of either one, but Friday was, uhh, unpleasant.
CR,
"... analyzing each mortgage would be a monumental task."
Would it be too hard for the banks to give the Treasury a list of the Social Security numbers for the mortgagees? The Treasury could simply look up their income tax filings and estimate DTI ratios within a RMBS pool. That would give a very good idea of the number of pool's stress level and therefore predict how many mortgages are yet to explode.
The free market for all intents and purposes is dead in America, Mr. Bunning declared on Friday."
soon to be followed by.
Freedom for all intents and purposes is dead in America. Paulson will have "unlimited powers".
The Supreme Court and all other courts and agencies will have no review or oversight.
Who needs an election.
Paulson has been acclaimed Caesar.
McCain and Obama...the footnotes of history,which will be written by the Chinese.
mp writes:
There is no favorable outcome"
indeed
the search is not for a solution (s), but the best palliatives
Will this bail keep the markets up for six weeks or so? That's the question. I think the current DC gang really needs to get McCain in so the official investigations into this mess will be bogus.
mp - beat you and Conjure to the draw. I packed it up (anything long, plus dollar cash balances) starting Friday morning.
great suggestions, as usual
but not convinced taxpayers' interest is a primary concern
eliminating bad debt from the money banks so they can ride again, i think, is the real goal
This remind me of the
His Eminence took the paper, and read in a slow voice, dwelling upon
every syllable:
"Dec. 3, 1627
"It is by my order and for the good of the state that the bearer of this
has done what he has done.
"RICHELIEU" --- "US Congress here"
The cardinal, after having read these two lines, sank into a profound
reverie; but he did not return the paper to d'Artagnan.
The Three Musketeers by Alexandre Dumas [Pere] - Full Text Free Book (Part 17/17)
Grouch Marx's long post above is well worth reading.
Personally, I'm waiting to hear this speech: "We are about to enter a period of hardship unlike anything that all but the oldest among us can remember. We are past the point where we can avoid it. We could talk endlessly about who is to blame, but that won't change matters. We can get through this and maintain a decent standard of living for almost everyone if enough of us are willing to accept our share of the inevitable hardship and do our share of the work that needs to be done to provide the coming generations with a secure economic future.
You want the fair market price? I say put it on ebay
Comrade Maven writes:
The free market for all intents and purposes is dead in America, Mr. Bunning declared on Friday. The action proposed today by the Treasury Department will take away the free market and institute socialism in America."
Comrade
I don't know who this Bunning is. But he seems to know a Facist Coup when he sees one.
Remember that Hitler had a Treaty with Stalin.
Pavel Chichikov:
Which gurgles and then disappears
In a howl that nothing has said,
But still in that chaos I hear
The rustle of wings overhead
I humbly add:
The rustle of wings overhead
Angels they look not like instead
Are vultures coming for the dead
A feather i now feel on my head
Describes the mood and it doesn't rhyme with good.
This whole Really Big Show is to stop runs on the banks which were looming and still are!
the guest,
I know that gambling is an addiction, but how could so many expert gamblers have made such an idiotic bet? Real estate values have, since the beginning of time, always functioned in a cyclical manner. How is it possible that every single huge investment bank along with the largest insurance company in the world could have thought real estate values wouldn't go down at some point?
Also, everyone who is predicting the demise of the United States, please visit China and Russia. You will realize that we are still MUCH better off than both of those countries. Our military is light years ahead of theirs, and in desperate times, nothing projects better than military power. Not saying that is morally correct, but it is true.
Ya know, it might be easier, from a legislative standpoint, and from an operation standpoint, if they just allocated the $700B to the FDIC insurance fund.
Let the banks fail. Then let FDIC use those funds to go pick up the pieces.
From where I'm sitting, FDIC is going to need more funding, regardless of the success of this proposal. Why not use the existing structure. Then let FDIC decide how to sell off the MBS, held-for-sale portfolio, etc, as it comes in the door.
If your money is in the banks, ya could very well lose it if this Big Show flops.
mp,
I made that conclusion myself. No matter where you are the markets are going to be wild. But in the end there will be little incentive to stick with America.
This crises will truly tell us if we are the friend of the world, or if the world really does hate and despise us.
Char,
What if the Big Investors having access to insiders BET Big that bailouts would save the day for derivatives. Maybe some were smart enough to see the Mother of all Bailouts coming and bet the farm on it.
meant to add, re the main purpose, to get the banks to lend again,
who will want to borrow?
even if a few, and even if other than those who'd just use the money for the same disastrous purposes, i wouldn't think enough to re-create the previous "normal" credit environment
I don't know who this Bunning is.
He was a darn good pitcher.
Jim Bunning Statistics and History - Baseball-Reference.com
mp: Where are you and conjure going?
Frankly, I don't know who's immune. I think it's going to take everyone down.
"I am still confused as to how trillions of dollars could have been bet on real estate prices never declining?
How is it possible that so many purportedly intelligent Harvard MBA's could make such horrible decisions?"
has nothing to do with MBA, has everything to do with a human character. Humans, all of us, have the tendency to overstate our rationality. We pretty much copy each other behavior, and call it our own. Often we copy what everyone else is doing on subconscious level in order to fit in and without any realization of such behavior.
I recommend modern social phycology textbook, a marvelous guide that explains it all.
Anyway, for all who proclaim the demise of US and rise of everyone else within one year, please do not discount the benefits and short- comings of globalization.
, all are screwed for a while, especially the countries that relied on currency manipulation or resource exploration to feed their own growth.
I don't know who this Bunning is.
Bunning is a Republican Senator from Kentucky.
I'm with Comrade Ray.
the guest,
That is a good point. Moral hazard and all. However, I am willing to bet the Fed will get its pound of flesh. It always does.
Hmm interesting some saying Obama willl lose
Obama Will lose Debate and Election
could be true
Comrade yes...the FDIC needs $$$$$$ for the coming withdrawals and mountains of failed loans...print the fiat and depositors get back ___% on the dollar?
Amazing ...
Dow 5,000 or 15,000?
could be true
"mp: Where are you and conjure going?"
Somewhere safe.
Into the bunker with Jas?
experts:
Obama Can't Win. period.
fascinating
Seconding comrade ray, but also thinking, along with G. Marx above, that we could also use billions to pay people to do useful and wealth-creating things.
"Into the bunker with Jas?"
I don't think so.
problem is if this tanks into a Depression, tax reneue will tank with it as foreclosures soar and unemployment rises quickly. The tax base is eroding to pay back all these 'promises to pay' in the ballooning deficit. This bubble is now a monstrosity bigger than Godzilla or Gojira, bigger than King Kong. The Bubble is so big when it pops it'll blow up the planet earth!
Re: Somewhere safe.
C'mon. I promise not to tell.
Resistance is futile
mp writes:
CR, I agree with everything you and Krugman are saying. In a ceteris paribus world with no outsiders, that would be fine and dandy.
However, you've neglected to talk about foreign holders, specifically holders of treasury, GSE and private paper.
They are not going to take this lightly, and they will be heard.
For every seller there has to be a buyer, who are they going to sell to? It is an obvious issue, but it isn't that cut and dry
Dr Chaos,
Forgive the insult, but did you just emerge from under a turnip? GREED, imbeciles, lying, CRIMINAL activity, no regulation on leverage or proper loan review.. A perfect storm with THe Fed responsible due to lack of over-site for the fiasco.
Greenspan, go to HE!! this is on your watch
I think we will buy a generous amount of groceries tomorrow. I think y'all should do the same."
I've been doing that! I'm starting to stock up. I've gone to the Grocery Outlet twice this week. Got like ten boxes of my favorite cereal for half the price. Stocking up on sorts of non-perishables.
Hmmm, perhaps that explains the unusually heavy traffic in grocery stores last night. I asked some of the clerks I talked with why there was so much business and they said that it "must be the weather is so good, I dunno". There wasn't any stimulus checks, income tax refunds, sporting event, or even a Hot Rod show in town to account for it.
Don't go to Tijuana.
I don't see how a "reverse Dutch auction" will work for price discovery. So if you have one bidder and a lot of sellers - the sellers will try to sell at the lowest price to get the one bidders money. So the seller is motivated to move the product at the lowest "profitable" price because the bidder will only buy one time.
In this gave the Treasury has 700 billion of bidding power. They aren't bidding once. They are bidding all the time. So the sellers have no motivation to sell until the price rises to a VERY HIGH price, because in the end the government has so much money they will buy everything at any price.
This is complete insanity!
Ok I'm all fired up and am going to go do something. Reaching for the computer off switch....Reaching for the computer off switch....Reaching for the computer off switch....oh screw it.
"(I think Ralph Nader should occupy that seat)"
Nader is an egomaniacal jackass who helped determine the 2000 election by insisting there was no meaningful difference between Gore and Bush. That worked out well, didn't it? I second Bob Probert's nomination of Tanta and CR to advise instead.
The clause specifying no review or outside superior authority is completely consistent with President Cheney's views on the so-called "unitary executive." Our experiences over the last eight years ought to make that clause alone the deal-killer. If Congress agrees to it, then the Constitutionally-mandated separation of powers is functionally eliminated.
In the End(Game), I blame The People. You and me.
1 of 6 writes:
Resistance is futile
Shaddup Borg.
We should also set aside a few billion for free circuses, for those who will no longer be able to afford TV--or cable, anyway.
Nader did make the call correctly that the two-party system has lately in this millenium anyway been bogus.
The dollar will break. The summer is over. As the temps get cooler, people will move southward: "I'd rather be broke in California than broke in Minnesota!"
the happiest man in the world right now, Osama Bin Laden, and he thanks Allah that George Bush had come along at this pivotal moment in history.
This bubble is now a monstrosity bigger than Godzilla or Gojira, bigger than King Kong. The Bubble is so big when it pops it'll blow up the planet earth!
Bigger than Godzilla?
YouTube -
MISSION ACCOMPLISHED!
Keep an eye on this :
National Hurricane Center
Might dampen that market rally.
Comrades we need to make a 'list' of zee probleem blog-gers. If you zee a pro-blem blog-gers, contact the Dept of Homeland Computer Security. At ease.
Полное дерьмо товарищ Бэтмен. Все идет в туалет очень быстро!
Other goals are to minimize the burden for taxpayers,...
You cannot possibly seriously believe that. Take a look at the administration's cast of main characters; are you telling me any of them have ever been overly concerned about taxpayers? And in Congress: those absurd puppets, idiots like Schumer, Frank, and Pelosi, with their fawning reverence for Paulson and Bernanke's bullshit. They have a lot of nerve masquerading as 'public servants'.
El Cliffo writes:
"I don't know who this Bunning is.
Bunning is a Republican Senator from Kentucky."
John Stark writes:
"I don't know who this Bunning is.
He was a darn good pitcher."
Well do you think if the two Bunnings got together, the one who is the great picther could teach the Republican Senator how to beat the f**k out of a member of the Communist Party of The Peoples Republic of China over the head with a baseball bat?
They are servants...but not of the public.
"You are going to have to rope in your religious movement insofar as it threatens the development of basic science (like: stem cell research,,"
Can't go with you there, Grouch. Don't care how profitable fetus farms et.al. turn out to be, we Catholics (and many Protestants, and probably even secular people) will oppose them. Economic competitiveness has moral limits. We're seeing what can happen otherwise.
Think of it this way. They have to put that "minimize burden for taxpayers" baloney in. If they didnt, it would be a holy hell uproar. So what does it cost them? All of two seconds to type the characters. And why not just type them, ya know, since no one can really understand how this works, and heck if anyone knows what it costs one way or another.
You see, the thing is, whether they put it in writing or not, makes no difference. It's just there to pacify people, but they will act as they always do, as if the words never even existed as a thought in their minds.
Bush?
Any good manager surrounds himself with brilliant people to make the right decisions andto make themselves look good.
Saddly, Bush surrounded himself with imbeciles like Greenspan, and Rice, hence the mess.
The CEO is ultimately responsible, so likely Bush and Greesnpan will go down as 2 of the most incompetent buffoons in history.
Hank Paulson could play Raymond Burr's part in the new Godzilla Bubble Blows Up the World movie...
mp writes:
"MISSION ACCOMPLISHED!"
Does that mean your going to your ranch in Paruguay
You people have been re-arranging deck chairs for weeks now.
You'd better start figuring out how you're going to get off the damned ship.
Your time would be better spent.
Abbott: Just to be clear. Bunning is a Senator who used to be a pitcher. Same guy.
Conjure and I, after having discussed the situation this afternoon
Was it over martinis?
YouTube - Scene From Harvey
mp writes:
"MISSION ACCOMPLISHED!"
Does that mean your going to your ranch in Paruguay
Come on down. You'll learn to love it as I did.
The 'tax burden' is minimized by making the tax burden UNPAYABLE!
"Was it over martinis?"
Coffee.
Insane in the brain,
YouTube - Cypress Hill - Insane In The Brain
"Come on down. You'll learn to love it as I did."
Conjure says, "Ha! Your're an impostor. I watched Bormann shoot himself in the U-Bahn."
eh writes:
"Schumer, Frank, and Pelosi, with their fawning reverence for Paulson and Bernanke's bullshit. They have a lot of nerve masquerading as 'public servants'"
That wasn't fawning reverence that was FEAR.
They were told that they would be tortured and shot if they did not comply with Section 8
Atrios (http://www.eschatonblog.com):
Any member of Congress who looks at the plan to give Hank unchecked power to transfer $700 billion from the Treasury to his friends' companies and has any reaction other than "You've got to be fucking kidding me" does not deserve to hold office.
Pithy.
Sec. 8. Review.
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
I wish I had $700B to spend somewhere....secretly....and that the people I took it from would have no recourse against me.
"We definitely do not want the Treasury to buy RMBS and CDOs at anywhere near the value on the bank's books. Buying at those prices would help keep the banks lending, but it would also severely impact the taxpayers, it would be a transfer of wealth from the many to the few, and it would also encourage future excessive risk taking."
Those are sweet sentiments, CR, but what makes you think the political establishment and economic establishment won't do just what you don't want? You think they view "a transfer of wealth from the many to the few" with alarm? If you believe that, I have the proverbial bridge to sell you. Please don't be naive.
Just to repeat myself: The one message we should be sending to our elected officials is this: Don't be afraid to tell us the truth.
Abbott of Ionia (where western civilization was preserved by the Irishfor a while):
Yeah, fascism, maybe. More like an imperium. An imperial bureaucracy.
Back to catching up.
Again CR's wonderful statement about "a transfer of wealth from the many to the few": what on earth, CR, do you think Wall Street has been about for the last hundred years? What do you think the GOP has been about for the last 100 years? Geez.
char writes:
"I know that gambling is an addiction,"
So is this blog.