No oversight by administrative agencies or courts, and no federal contracting procedures. So, the gig is on, the guys who caused the mess will make the money from the Feds trying to clean it up. Congress better reign these bastards in.
Apologies for the re-post from a thread yesterday, but it really belongs here.
What can we do about it??? If you want guaranteed results theres nothing that will give you that. AS feckless as it feels, despite anything else you do, you have to voice your opposition to the ONLY people who can actually prevent this, and thats your 2 Senators and your House rep. Do whatever else you think will help, but dont just blow off writing your reps. Its still an election year.
Despite the assumed futility of the effort I believe that it is very important to communicate to our Congressional reps our intolerance for this bailout (TARP). We simply must make the effort to inundate these people with our disapproval.
The plan is due to be announced Monday, so we should each spend the weekend composing a succinct, civil, and non-inflammatory letter to EACH of our reps. Theres no reason it cant be the same letter to all three. We each have 2 Senators and a House Rep.
I personally will then copy all of my associates with a copy of my letter, preceded by a short summary of the situation (not everyone reads CR) and ask them to contact their reps as well.
Im told that these congressional offices put more weight on faxes than emails. Snail mail is useless as the time to pass thru anti-terror inspection negates the urgency of the message. So in order to make it easier, and cheaper, for everyone, heres some info on free faxing from your PC and also a way to use a temporary email address if you want.
Free Fax
Fax from your PC for free (limit 2 faxes per day)
"Basically, market participants the people really in there felt the market died on Wednesday [and] without Paulsons announced plans this morning, we were toast, the source said, under condition of anonymity."
Geez. The fear mongering! Will we ever develop an immunity to it?
"Basically, market participants the people really in there felt the market died on Wednesday [and] without Paulsons announced plans this morning, we were toast, the source said, under condition of anonymity."
Time for a new market, anyway. the old one has become toxic.
"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 Wizard of Oz requests that you not look behind the curtai
1) For 2 years, the secretary plays god with a pool of
2) $700B
3) Congress raises the debt ceiling by $715B
Anyone have a clue about point #3? The debt ceiling gets raised from $10.6B to $11.715B. What's the story with the extra $15B? Not a huge amount in the scope of this dilution of the US dollar, but a chunk of change that isn't terribly small either.
Anyone know what the pertinent details of the Federal Credit Report Acof of 1990 are?
Almost as if by magic, in response to my plea, Krugman put a diagram of the money flow on his blog. He sees it going around in a circle. Man, would I love to be able to sell treasuries. Anyone want to get together and sell treasuries?
Ancecdote from the street: I met a very nice fellow yesterday, a broker/dealer whose clients are big entertainment moneymakers. We were watching the financial news and talking about what's next. He was extremely excited and used the words: "This is fantastic." "That's it, we're at the bottom" He fielded a number of anxious calls while I was there and transmitted the "we're at bottom" news to everyone.
They forgot to include the part about having the power to nationalize the oil industry, to authorize military action anywhere in the world as needed and to become the drug czar of the western hemisphere. Why saddle the man with incomplete powers that will only handicap him? This is for America, after all, and we should give this wise and trusted man everything he needs to do the job right. Oh, also, he should be able to shoot on sight the stock-shorting lowlifes who destroyed the twin towers.
there is a quarterly review. that's the only watch in place. and the guys doing the review have to trust that the information is accurate, which it has not been up to this point
This crisis was not just foreseeable, it was not just foreseen, it was shouted about from the rooftops since 2004, on blogs like Ben Jones' housing bubble blog, by Calculated Risk, by Mike Shedlock, by Russ Winter, by Barry Ritholtz, by Robert Reich, by Paul Krugman, by Joseph Stiglitz, by James Kunstler, by Stirling Newberry -- in short by just about every housing or economic blogger right, center, and left, from bonddad at Daily Kos to blackhedd on Red State, not to mention myself.
And yet two nights ago, Pelosi, Schumer, Frank, Reid, and everybody else in the Capital sat in "stunned silence" as Bernanke and Paulson spelled out the situation for them. Where were they all these years? Protected from the noise of the Dirty Unwashed Hippies beyond the beltway, by their cocktail party neoliberal free market cone of silence in Washington, that's where.
And so, panic-stricken, they will hurriedly and without reading carefully enact into law what will undoubtedly be the "Economic Patriot Act" of the Bush Administration, with all of the corruption and hidden destruction of rights that conveys, an act that has been estimated at costing up to $1,000,000,000,000 (that's $1 TRILLION) of taxpayer moneys. And still may not succeed.
The fledgling Nazi party, whose attempted coup had failed in 1923, won 32 seats legally in the
next election. The right-wing Nationalist party won 106 seats, having promised 100 percent
compensation to the victims of inflation and vengeance on the conspirators who had brought
it.
So... only $700 billion outstanding at any given time. You buy an asset at $10, turn around and sell it (back to the original owner, if you like) for a penny. You could do that an infinite number of times, incurring infinite cost, all while keeping your total portfolio of assets below $700b.
So there is no real limit to the cost other than the national debt ceiling? Do I have that right?
Bill Moyers sits down with former Nixon White House strategist and political and economic critic Kevin Phillips, whose latest book BAD MONEY: RECKLESS FINANCE, FAILED POLITICS, AND THE GLOBAL CRISIS OF AMERICAN CAPITALISM explores the role that the crumbling financial sector played in the now-fragile American economy.
A MUST SEE from fair and balanced objective perspective and cut-to-the-chase incisive insights from multiple lens many of which are not pretty.
BILL MOYERS: You say it's the greatest story never told.
KEVIN PHILLIPS: Well, the greatest story never told in several senses. The first sense and when I do bad money, it's bad capitalism and bad money in the sense of the dollar and bad money in the sense of bad dog, bad Wall Street. But what's here that doesn't get the attention is the United States in the last 20 years undertook an enormous transformation of itself with no attention paid. And what it means is and what makes all this so frightening is the country is at risk because of the size of the financial sector that has never been graded on its competence and behavior in any serious way. They are the economy at this point. And we are now seeing what happens when a 20 to 21 percent of GDP financial sector starts to come unglued.
It's going to be a painful adjustment across-the-board for next decade or more for America and most Americans.
"Anyone have a clue about point #3? The debt ceiling gets raised from $10.6B to $11.715B. What's the story with the extra $15B? Not a huge amount in the scope of this dilution of the US dollar, but a chunk of change that isn't terribly small either."
current national debt is about $9.5 trillion. So in fact, this bill gives Paulson about $1.8 trillion to play with... (and likely even more, since they'll just keep raising the debt ceiling every year like they always do).
"The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States."
Our country has a federal debt of 9.7 trillion as of sept 2008. That 11.5 Trillion means an increase of 1.8 trillion. This is a very meaningful jump. The secretary had to risk tax payers' money and the stability of our currency to bailout the holders of bad assets. Looking out ten years, Our nation faces serious inflation threat on every day cost of living. Imagine the buying power of USD declines versus other major currencies. The lower & middle-class will ultimately get hurt the most in any scenario like this.
StevenA, as to limitations on entities, it says that the Treasury may only buy assets from firms with headquarters in the U.S.
But by definition, the govt will be buying assets at above-market prices. So if you are a smart U.S. firm, you can buy assets from non-U.S. firms at market prices, and then turn around and sell them to the govt at the above-market prices.
I dont like to have my Saturday ruined this way. They should just put out a memo saying "we know best, trust us." Same effect. I feel like I was roofied and arse raped last night.
but hank is out in 2 months, what then??
this smells so rotten..
why amass all this power if you dont be sure you can use it?? seems the fix is in, McCain is Prez..
OK, a correspondent directs me to John McCains article, Better Health Care at Lower Cost for Every American, in the Sept./Oct. issue of Contingencies, the magazine of the American Academy of Actuaries. You might want to be seated before reading this.
Heres what McCain has to say about the wonders of market-based health reform:
Opening up the health insurance market to more vigorous nationwide competition, as we have done over the last decade in banking, would provide more choices of innovative products less burdened by the worst excesses of state-based regulation.
So McCain, who now poses as the scourge of Wall Street, was praising financial deregulation like 10 seconds ago and promising that if we marketize health care, it will perform as well as the financial industry!
Incredible, A total give away with zero accountability in any direction. State planning at its worst, I think the old USSR was somewhat more enlightened.. Maybe someone has been reading too much Marx?
confused. i'm a financial planner and even i am having trouble understanding how this "protects the u.s. taxpayer.
Per section 3, there is no requirement that this protects the taxpayer, only that the all-knowing Secretary gives consideration to protecting the taxpayer before raping them.
Has Bush ever run a successful business? I think not. I don't trust this, I don't want this....can we actually put some accountability into this? Please?
I have had good results in the past through e-mailing the Democratic National Committe and the Republican National Committee on issues. I recommend doing that as well as contacting your individual representatives.
Tell them you will vote against any incumbent who approves of this bill.
One of the most terrifying aspects of this is how often we get to see this movie. Iraq, FISA, now the economy. "Now is not the time for partisanship," insists the President, which means, of course, "Do it my way." And they do. It's just remarkable.
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 concur that this is a deep and dangerous crisis. The idea that we have to turn over all power, instantly, to the guys who couldn't deal with it in the first place is some kind of lunacy. So, of course, that's what's going to happen. Insane.
"...residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages..."
Last summer, CR told us all about bridge loans turning into pier loans, adding more dubious debt to the banks' balance sheets. Assuming that commercial property was involved in the leveraged buyouts funded by these pier loans, is the language in the definitions of the proposed legislation vague enough to allow banks to sweep their pier loans under the TARP?
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.
Why,.. I'll sue! Oh, wait.
Seriously, this trick is tried every few years and every time it is absolutely obliterated in the courts.
Bill of Rights
Amendment I
Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the government for a redress of grievances.
I am still waiting to see how providing this liquidity (buying mortgages at a "fair" price) will solve solvency issues. So far Hank has proven to be a very tough negotiator if you look at AIG.
Reverse auctions sound reasonable to me if there is a concrete way to avoid collusion. It is in effect re-creating the market.
So lets say you had 100 billion of a particular kind of mortgage asset that used to be previously traded. Are you desperate enough to get rid of it for 30 billion? Does taking that loss make you insolvent? If it does - does the market think you have the credit worthiness to recapitalize? What will recapitalization cost you?
What will be your business model in a post regulation world? Nationalization and consolidation in the Financial sector are the only possible outcomes. I for one am not rushing out to buy WC, MER, MS, GS, C, BOA, WM, AIG etc.. Maybe Wells Fargo and PNC but only if you put a gun to my head and only if I could short something else as a hedge.
This "bailout" doesnt solve those issues, IMO. The details are still being written.
Rob,
So how do we get this up to the Supreme court? Doesn't Executive have to object? If Executive doesn't object than they can together screw up the balance of powers... no?
It's not like our Executive power has been running things since Nixon anyway...
Under this plan the Secretary could purchase mortgages at their unpaid balance and then sell the properties or mortgage back to the original holder (or another bank) at 10% of that price, giving the banks perhaps a 40 point gain in the transaction (assuming fair market value was 50%).
Note also, no new Inspector General, supervising outside Board of Review and ANYTHING to limit to what is done.
All I needed to read was the increase in the debt ceiling. Didn't we do this about six weeks ago? Like running up a credit card and, whammo, they increse your limit.
The bill does not use the term "reverse auction," but Bloomberg is reporting that this is the plan.
As I understand it, a reverse auction has a buyer, Comrade Paulson, who says he will buy MBS from the seller who offers it to him at the lowest price. Investment firms and other holders of this toxic debt thus have a chance to flush it out . . .
But - feedback and analytical help, please - it seems to me that the first firms to offer up their MBS to Paulson and compete for the lowest price will only be those firms that are in danger of failing. Stronger firms may well hold their toxic MBS hoping that Paulson will pay more in the future.
Does this make sense? Would firms only sell if they are desparate (or if the only bid to sell is for a high price)?
Can such a scheme successfully establish a market to price MBS and get them into a federal nuclear waste dump?
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.
So this means they could do sweetheart deals w/o any recourse?
YLSP writes:
Rob,
So how do we get this up to the Supreme court? Doesn't Executive have to object? If Executive doesn't object than they can together screw up the balance of powers... no?
IANAL. Supposedly we all have standing in the courts but in practice I expect some State's AG to file over some State's Right giving them power to regulate something or other. Or a Congresscritter could file.
donna wrote:
Oh, to anyone who was even thinking of voting for McCain, he wants to do this to health care, too:
Here come the Daily KOS and Moveon.org folks. Some of the most modern upcoming countries have gotten rid of their Ponzi Social Secuity scams and privatized them...WITH REGULATION. For instance in Chile where you are given a choice between private and ponzi the communist unions after looking it over when it first made it s appearance vote 98.5% to go with the private plan. Dittos Singapore with the Provident Fund.
Interesting interview with Alan Blinder on NPR this morning. He makes the point that in the 1930's the government stood by and did nothing, with the result we all know. The current Administration is clearly not going down the same road.
So scream and shout about the inequity of it all, the cost to the taxpayers, moral hazard, and all the rest of the buzz-phrases of hysteria, but as bad as so many posters seem to think it is, it's better than the alternative.
wally writes:
They forgot to include the part about...
There is nothing they forgot to include. Absolutely nothing; there are, explicitly, no limits whatsoever except for financial caps on Paulson's powers here.
"The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation"
Don't forget that the Fannie/Freddie bailout let them raise the debt ceiling $800 billion. This is another $700 billion on top of that--all of which can be used at Caeser's, I mean Paulson's, pleasing.
is there and UberNerd to give us an UberNerd post on the historic and likely future workings of reverse auctions in situations even remotely akin to the present?
The section indemnifying the Sec Treasury against court or legislative oversight is very scary, and probably unconstitutional. it's one thing to give an officer great leeway (think cops) but to exmept them from any judicial review??????? none?????? Even Dick Cheney hasn't asserted that much authority - close, but not quite.
"The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States."
Sebastian you are the King of Gullible.. i will see you whine when they confiscate your wealth too but then.. no one will hear you because they have all gone before you!!!
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
You were the first to predict that the National Debt would exceed $10 trillion before Bush left office. It was a gutsy call, and for a while it looked like you were underestimating our commander-in-chief, but W managed to drop one last bomb on America before he rides into the sunset.
"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."
Absolutely will be struck down. A junior constitutional lawyer would have no problem with this one.
Which makes me wonder: Why is it there? No lawyers in treasury are that stupid; and it is too obviously stupid to be used as a throwaway item in negotiations.
Is it possible that someone expects the law to be thrown out, but only after the election? (by which point, the transactions have occurred, of course).
I am so dumb. I kept some SRS thinking it would bounce next week.
Didn't Hank have permission already to buy MBS' via fannie and freddie to the tune of 800billion? Does that explain the 1.5trillion added to the debt.
2.Will this be dollar negative? If they do buy at a discount, they have an asset protecting that purchase?
Per Warren Buffet, what next. Does this create a floor for the dollar as it is now a currency backed by land. Didn't Germany do that? Is Paul protecting his buddies, or truly the USA (I'm Canadian). If he doesn't do this, what do the creditors (china et al) do?
Faxing this today...do the same...fuck plagiarize me...not like I am Joe Biden or anything.
Hey doesn't anyone remember that John McCain was part of the Keating 5????
NO MORE BAILOUTS!
THE HONEST AMERICAN TAXPAYERS DESERVE BETTER!
I was not part of this Ponzi scheme , I knew better than to buy an inflated house and yet I have to pay. Do not let our government be taken by criminal legislative appointees. DO SOMETHING TO STOP THIS! Put people that caused this in JAIL!
This includes brokers who sold loans, bankers who wrote bad loans, lenders who inflated incomes, appraisers who fibbed about home values and elected officials who looked the other way and did nothing!
You will mortgage our future for a shiny dime today. This plan will devalue our currency, destroy our ability to have reasonable credit and sink us into a hole we will be crawling out of for generations to come. If you do sign this, ask the hard questions! Do not let this go through without scrutiny. Commercial real-estate SHOULDNT be included!
SELLING BACK HOMES TO OWNERS AT CURRENT MARKET PRICES WILL BE REWARDING PEOPLE WHO MADE POOR INVESTMENT CHOICES!
As a group of elected officials, this Congress will go down as the most corrupt and responsible for destroying America by letting economic terrorism go unfettered in corporate towers while we coward from men in caves. SHAMEFUL!
You are gambling with MY future not yours! You have no right to put this burden on our children and their children for generations to come.
Where's the "Don't Tread on Me" flag motto? The public (taxpayers long into the future) will despise the names of current voters if we let this atrocity become law as is.
Did you note that Bush said yesterday that the Congress shouldn't add anything to the administration proposal (in effect restating his overused threat of a veto, enforced by intransigent Repub. Senators). If the Dems don't take this as is, Bush and McCain will be calling traitor yet another time.
Mr. Congress, throw out this proposal after burningn it, mixing the ashes, and peeing on the remains. Start over with something that makes sense: perhaps an independent body with more than half the members appointed by the Congress and with fiduciary responsibility.
Honestly if they pass this they deserve what comes..
Note from germany: in the 1930s the Social democrats colluded with Hitler against the Kommunists in the believe they could control him! the Price they earned: a premium window seat in the Gas Chamber!!
thx for make me understand my past so much better...
Any chance that the gov will make money on this over time?
If you can buy a distressed asset at a very low price because nobody else has the money to buy it you might do ok if/when the market stabilizes in a few years, no?
(1) Mortgage-Related Assets.--The term mortgage-related assets means residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before September 17, 2008.
Defaulted mortgages from the Spanish-American war era are OK then ?
Unmitigated disaster: welcome to 1929, or the end of capitalism as we know it, whichever you prefer. The day when our government, as a whole, turns against the country in massive financial treason. A banner day indeed.
There is no mention that the "mortgage related asset" has to be non-performing, or in foreclosure, or tied to non-performing mortgages.
Technically, and without review, Treasury could purchase anyone's mortgage or mortgage related asset, whether or not it is non-performing or in foreclosure or otherwise distressed.
Sebastian writes: Interesting interview with Alan Blinder on NPR this morning. He makes the point that in the 1930's the government stood by and did nothing, with the result we all know.
Nonsense. The Federal government meddled extensively in the economy in the 1930s, again under the supposed exigent circumstances of the Depression. Results ranged from bad to none. They managed to prolong the Depression, which really didn't end until WW2 brought the US out of it, and we're still dealing with the disastrous affects of that interference 70 years later. The solution to the problem of government interference in the economy is not more government interference in the economy.
So, if the idiots that provided oceans of paper that entrapped millions of Americans in huge amounts of debt get their bailout, can I haz mine?
I still say we need to have that haircut passed on. If the Treasury buys my debt at 25 cents on the dollar, they should automatically have to offer it to me at 30 cents as a right of first purchase.
But nooooo, Wall Street wins again, or so they think.
I have begun to believe that the United States is no longer too big to fail.
From the overnight thread, both Sean and Misean are correct. The Us government can indeed keep issuing large amounts of debt, just as long as there are willing buyers. Without willing buyers (and bagholders- Xian!) the dollar would indeed begin to approach collapse. We may yet see such circumstances in our lifetime.
But not yet!
Patience is necessary while this bailout is gradually eroded into insignifigance.
That is why I keep ending my rants with my famous quote from A-Now:
The best part so far is that I don't see anything in the draft proposal about, "keeping homeowners in their homes" or "stabilizing home prices". That would be a disaster.
I still don't think this is going to make matters much better, adnd it's going to shift the burden to the taxpayer. But at least it doesn't look thus far like it will make matters much, much worse.
This is subject to this bill being passed in roughly its current draft form. If Congress adds on a lot of politically motivated fluff, who knows what this thing will look like.
They're right wing, but they're not stupid. It reduces their own power.
Once something like that makes it thru, then it sets precedent. NFW does SCOTUS allow a law which is beyond their purview.
Comrade JP | Homepage | 09.20.08 - 12:37 pm | #
I have just contacted my senators for the first time in my life.
Me too. Never written to congress before this. My angle was simply: Do not reward Wall Street for bad behavior. (Congresspeople in DC are very conscious about sending $$ to other states. They want a piece of the pie for themselves.)
If someone wants a template, or a starting point for their own: I put this into the public domain.
Dear Senator Warner,
Please stop the Paulson bailouts. You cannot continue to reward bad behavior by Wall Street executives, especially not with a Trillion (!) of taxpayer dollars as Treasury Secretary Paulson has proposed.
The bailouts of AIG, Bear Stearns, Fannie and Freddie Mae clearly failed stop the problem. Yet-another-bailout isn't going to stop the problem any more than the others.
The sooner we let the bad players fail, the sooner the next generation of great players will replace them.
Greg writes:
There is no mention that the "mortgage related asset" has to be non-performing, or in foreclosure, or tied to non-performing mortgages.
Technically, and without review, Treasury could purchase anyone's mortgage or mortgage related asset, whether or not it is non-performing or in foreclosure or otherwise distressed.
Quite a weapon!
All this to prevent the trillions in CDSs from blowing up.
They chose the easy way out, this debacle continues.
Yoringe said: "Sebastian you are the King of Gullible.. i will see you whine when they confiscate your wealth too but then.. no one will hear you because they have all gone before you!!!"
The only people who are gullible are the ones who think that the Powers that Be are just going to roll over and let the American Way go quietly into the night.
I said this a long time ago, and we can see it coming true right in front of our eyes. An economic, financial or stock market "crisis" isn't ruled by immutable physical laws like hurricanes, floods or earthquakes. Policy makers can't make a hurricane change course or stop a flood, but they can simply change the rules to deal with financial catastrophes.
I find it just amazing that so many posters here are so pissed-off that the U.S. economy isn't going to crash because the government is acting to prevent it.
Sebastian said "So scream and shout about the inequity of it all, the cost to the taxpayers, moral hazard, and all the rest of the buzz-phrases of hysteria, but as bad as so many posters seem to think it is, it's better than the alternative."
Sebastian, what is missing here is a clear explanation of "the alternative". I'm not talking about fear mongering drivel like "a complete meltdown", "the market freezing". or "financial Armageddon". but rather a clear explanation of the details of what is about to happen absent this plan. Something we can all evaluate and decide for ourselves if the argument is factual, is probable, and whether this action will solve avoid the purported alternative.
To date this is just being shoved down our throats with assurances that those at the top have looked things over and are agreed that this is the right course. Sorry, that's bullshit in this country.
WE simmply CANNOT abdicate our rights as a populace to the people in power to fix something that they themselves screwed up. That's madness and the least we can demand is the details of the purported emergency so we can judge for ourselves whether to support or reject the proposed solution.
"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."
-isn't that called "dictatorship"..
Leave Messages! Call again Monday morning at 9 AM. (202) 224-3121 is the switchboard when its operating, just ask for your representative by name and they will transfer you.
Quit blogging and start writing/calling your representatives. This bill must be stopped! This bill will be on par with authorizing war in Iraq if it passes.
Do we know anything at all about this draft? Who leaked it? Who prepared it? Who's seen it?
CR, Michael, anybody?
It's the vaguest, worst crafted piece of legislation I've ever seen, and I'm having a little trouble imagining it as anything other than a rough framework with everything treasury could possibly want, tossed on the table as a starting point.
"Yes, the loans that aren't being paid will be a huge moneymaker for us. "
But is it accurate to say that the loans are not being paid as if all of the loans in a basket are not being paid? What if a basket of loans is sold to the gov for $.30 on the dollar. Isn't it possible that the underlying assets will yield over $.30 on the dollar?
Some of the loans are being paid. Others have assets that can be sold to back them up. True, the value of the homes backing them has dropped, but if you get the loans for a good enough price you still come out ahead. There are no bad assets, only bad prices.
I don't know all of the numbers and am not arguing that this is the case. I'm curious if this idea has any validity.
If this is the proposal, lets see what the final draft is before it is passed. I doubt this will get through both houses of congress without some concessions from Paulson. Of course they are gong to ask for everything but I doubt this passes in this form.
Really, I think someone smarter than me needs to look at the next step.
Don't y'all get land and buildings for your money? If it is purchased at a discount, doesn't the american taxpayer win? ( I know you have to trust that it will be at a discount )
Further, if American banks are the only ones eligible, don't they buy at a discount from the rest of the world and hedgies? resell to the US for more? If it is still discounted, then the US, banks, and taxpayers make out like bandits.
what is really amazing is that in return of this 1T$ subsidy, no compensation is requested whatsoever from:
1) shareholders of those financial situaions- they SHOULD BE SEVERELY DILUTED
2) no salary cuts from those fat Wall Street corrupt executives/employees
American model at its worst! but on top of 1T$ subsidy, main street will now have to pay again in the form of hyperinflation, $ depreciation.... absolutely amazing that such plan is passed
Nemo writes from the previous thread:
"Transferring $1 trillion into the banking system, without regard for the discipline of the market, is about the worst idea I have ever heard."
That's about as crisp a way to sum this mess up as I have heard. Crisp and simple enough for even our elected officials to grasp. I sent this to my senator. My congresscritter wouldn't understand it. She simply votes 100% in agreement with Pelosi. I am sure she doesn't read bills. I know how I am voting, if the election isn't suspended.
"The term mortgage-related assets means residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before September 17, 2008."
Wow every bad loan made in the past 5 years is going to be sunk to the Treasury.
OK, so this is a super-dumb question I should already know the answer to, but what is the total combined value of distressed home and commercial mortgages in this country? Surely it's much, much higher than $0.7T, yes?
So, if we pay a high enough price for each toxic loan to seriously help the bank that's selling it, we won't really make much of a dent in the total number of bad loans. But if we pay a low enough price that we can absorb a lot of the toxic waste, the individual sales will be still result in large losses for the banks, right?
So $700 billion is enough to run up the debt by a significant amount, and to significantly affect the USD, but not nearly big enough to solve anything?
Comrade Clueless Dufus said: "...To date this is just being shoved down our throats with assurances that those at the top have looked things over and are agreed that this is the right course. Sorry, that's bullshit in this country...."
The Patriot Act? "Enemy combatants", and not prisoners of war? Extraordinary rendition? Water-boarding?
Clearly, it's not "bullshit in this country," we allow it all the time. But at least this time it's in response to a genuine threat.
I don't know about anyone else, but if my house was burning down, the cost to the taxpayers of putting out the fire isn't the top priority for me, my neighbors, the firefighters, the police or the ambulance driver.
Bill Moyers sits down with former Nixon White House strategist and political and economic critic Kevin Phillips, whose latest book BAD MONEY: RECKLESS FINANCE, FAILED POLITICS, AND THE GLOBAL CRISIS OF AMERICAN CAPITALISM explores the role that the crumbling financial sector played in the now-fragile American economy.
BILL MOYERS: And you write also that during this period the Clinton Administration aided and abetted this kind of speculation. Bill Clinton's economic advisor, Bob Rubin, who later became Secretary of Treasury wanting to fuel this, right?
KEVIN PHILLIPS: It's been a bipartisan phenomenon. You can go back to the 1980s and say Reagan and George Bush, Sr., got a bubble started. Clinton got in and got an even bigger bubble going. And then George W. Bush with the biggest bubble of all. But it's not that the Clintonites didn't play. They did. Bob Rubin as Secretary of the Treasury I mean, if he was a Hindu and he was being reincarnated, he'd come back as a pail because this guy bailed out everything you can imagine. They had the Mexican loan bailout. They had the long-term capital management bailout, the Russian Southeast Asian currency bailouts.
BILL MOYERS: All of which, however, kept them from coming into this economy, into our economy, coming to our continent.
KEVIN PHILLIPS: Well, except that a lot of the liquidity they created and the momentum and the borrowed money produced the implosion of the bubble in 2000.And a lot of what was imploding was the $2.5 trillion in new debt that was tied to energy and telecommunications, that's Enron, WorldCom, and Global Crossing. So there was a lot more of a bubble blown up there.
Rubin was also central Democrats more than Republicans in a lot of ways with the Clinton Administration in getting rid of Glass Stiegel, was the old restriction that the banks couldn't tie up with brokerage firms and insurance companies. Well, basically after they made their reform led by Clinton and by Bob Rubin, you had like four-color linguini here in a bowl. It's all mixed up together.
BILL MOYERS: So you have it for this disaster has bipartisan parentage.
We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience hath shewn, that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security.
BILL MOYERS: You say it's the greatest story never told.
KEVIN PHILLIPS: Well, the greatest story never told in several senses. The first sense and when I do bad money, it's bad capitalism and bad money in the sense of the dollar and bad money in the sense of bad dog, bad Wall Street. But what's here that doesn't get the attention is the United States in the last 20 years undertook an enormous transformation of itself with no attention paid. And what it means is and what makes all this so frightening is the country is at risk because of the size of the financial sector that has never been graded on its competence and behavior in any serious way. They are the economy at this point. And we are now seeing what happens when a 20 to 21 percent of GDP financial sector starts to come unglued.
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.
Well, that act was so long nobody had actually read or understood it. This one's so short it doesn't even have to be passed to an aide--even a Congressman can make it to the end without drifting off. And it pretty plainly states "I, the Secretary of the Treasury, have unlimited power to do anything I please and there will be no oversight of or judicial recourse against my actions."
You have my utmost respect and admiration, but I don't understand your position on Treasuries. Short treasuries?
Please explain. It seems to me that yield on treasuries will sink toward zero, just as they did this week, and as happened in Japan, no? isn't that what we can expect in a major deflationary spiral?
Krugman has a post on this today.
But, Conjure, I know you have centuries more experience than me, so please explain why I'm thinking about this backwards.
While I fully understand the need to vent there is a finite number of times "call or write your congresscritter" can be repeated before Haloscan runs out of space. Besides, some of us live in California. We have half the representation most of you have and the current crop of representatives would soon as turn down an industry check as listen to a constituent.
I am equally guilty. We all get it now. Unconstitutional, likely ineffective and ultimately harmful. Let's move on and remember Sebastian is just now discovering which side of the monkey cage he is really on so please try to ignore his antics, give him a cookie and stay on topic.
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 think this our S. Ct. will uphold this. Congress has a lot of control over the jurisdiction of the lower cts. and agencies.
This thing is a complete obscenity. It makesw Paulson the economic czar. This is just WRONG in so many ways.
Technically, no. It makes the Treasury Secretary economic czar.
From the time Paulson is authorized to start spending until he is gone, he probably has 90 days max to BUY BUY BUY. Figure really 60 days if Obama is elected, because he would be such a lame duck in the last month that his authority could be gone.
Never in history has one man been given such blanket authority to transfer wealth SO FAST. Scary.
In retrospect, you can trace the steps to hyperinflation, but some of the reasons remain
cloudy. Germany abandoned the gold backing of its currency in 1914. The war was expected
to be short, so it was financed by government borrowing, not by savings and taxation. In
Germany prices doubled between 1914 and 1919.
We have half the representation most of you have and the current crop of representatives would soon as turn down an industry check as listen to a constituent.
Dawg: The goal is to make it seem like they are not getting the check. Their New York counterparts are. That usually pisses them off.
Notice that there are zero provisions in the draft for one key requirement: transparency. The only reporting required is to Congress, not the American taxpayers, and it's long after the fact.
The lack of transparency will never fly.
Also, you are right, there aren't any real protections against financial firms colluding together to rig reverse auction prices.
Does all this sound too familiar. Post-9/11 fears of dire consequences and a demand to act quickly brought us the PATRIOT Act. Before the the invasion of Iraq, fears of mushroom clouds brought the Iraq war resolution. And now painted pictures of economic meltdowns brings us the trillion dollar bailout - again it must be done quickly, quickly.
No oversight. No consequences for the banks. And, of course, those very same firms will make a bundle managing the assets. We've been had once again.
She simply votes 100% in agreement with Pelosi. I am sure she doesn't read bills. I know how I am voting, if the election isn't suspended.
bearly | 09.20.08 - 12:53 pm | #
Tom Delay and Denny Hastert ran the casino for many years.
But the bourgeois habits were very strong. Ordinary citizens worked at their jobs, sent their
children to school and worried about their grades, maneuvered for promotions and rejoiced
when they got them, and generally expected things to get better. But the prices that had
doubled from 1914 to 1919 doubled again during just five months in 1922. Milk went from 7
Marks per liter to 16; beer from 5.6 to 18. There were complaints about the high cost of living.
Professors and civil servants complained of getting squeezed. Factory workers pressed for
wage increases. An underground economy developed, aided by a desire to beat the tax
collector.
Rob Dawg said: "Let's move on and remember Sebastian is just now discovering which side of the monkey cage he is really on so please try to ignore his antics, give him a cookie and stay on topic."
Like I've been saying, so much for intelligent dialogue. Bush-league, Karl Rove-ian, insult instead of response. You've definitely found a home here.
One big difference between the financial crisis and post 9/11 panic that produced the Patriot Act is that the govt cannot claim (truly or falsely) a need for secrecy now as it did after 9/11.
there is a panic now, and that will produce legislation fast, maybe or probably without sufficient safeguards. But, unlike the Patriot Act, there won't be the same kind of barrier against further discussion and modification because there can't be a claim to need secrecy.
just a hopeful thought in an otherwise freaked out situatio
Times of crisis REQUIRE a dictator - cuz there is not a lot of "free" time for debate. This is a crisis - that is just a fact - personally, I take some heart from the fact that the Secretary is limited to - as stated in the following from the main post:
mortgage-related assets from any financial institution having its headquarters in the United States.
Have to agree with your previous post, regarding the production of real goods instead of more bailouts to rent seeking money lending interest owing wealth destructing OTC derivatives.
Infrastructure is a perfect example and the benefits would be spread around too.
"Comrade Midwest Product writes:
OK, so this is a super-dumb question I should already know the answer to, but what is the total combined value of distressed home and commercial mortgages in this country? Surely it's much, much higher than $0.7T, yes?"
Read the proposal:
Sec. 6. Maximum Amount of Authorized Purchases.
The Secretarys authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time
The clue here is "outstanding at any one time". The Treasury is simply going to take the bad loans,write down losses to the taxpayer and then sell them back to the banks as a performing asset so the banks can increase their cap ratios.
The nervous citizens of the Ruhr were already getting their money out of the currency and into real goodsdiamonds, works of art, safe real estate. Now ordinary Germans began to get out of Marks and into real goods.
Pianos, wrote the British historian Adam Fergusson, were bought even by unmusical families. Sellers held back because the Mark was worth less every day. As prices went up, the amounts of currency demanded were greater, and the German Central Bank responded to the demands. Yet the ruling authorities did not see anything wrong. A leading financial newspaper said that the amounts of money in circulation were not excessively high.
Absolutely will be struck down. A junior constitutional lawyer would have no problem with this one.
Which makes me wonder: Why is it there? No lawyers in treasury are that stupid; and it is too obviously stupid to be used as a throwaway item in negotiations.
Because they'll have looted their money and (if necessary) decamped to Abu Dhabi long before it ever reaches the Supreme Court. Won't matter then if the provision is struck down.
I was just wondering, does anyone know of any site which conducts polls on whether the general public is opposed to or for this bailout? A URL would be nice.
Curios to know what others think.
"They're screwing the pooch and each other, but they haven't figured that out yet."
I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody.
James Carville
Sebastian - you said we were all crazy just a few months ago and now it has all come true and now YOU have all the answers...LMFAO...you have zero credibility here!
There are significant numbers of people that think the world is 6000 years old and Palin is Thatcher...I hold few illusions about our collective wisdom about the intricacies of CDS redemption and counter claims. But Lou Dobbs will probably put up a poll on CNN: "Let us Know how you feel:
"Do you thing the Commander in Chief is bound to protect our Nations well-being? OR are you in for cheap whiners who want to inflict suffering on hard working Americans? Let Us Know!!!!"
I take some heart from the fact that the Secretary is limited to - as stated in the following from the main post:
That's not a limitation. His authorities to take any action he deems necessary are "without limitation," and there can be no legal challenge to any decision he makes.
Again, I don't see any chance that this passes with Sec. 8 intact. If it does I'm going to start seriously making emigration plans.
Thanks for explaining your view, and thanks to your imaginary friend MP for reaching the keyboard for you.
Hmmm.....I think there will be a new monetary regime, as you say, with the Euro taking a more equal role alongside the dollar . . . but China, Russia, japan, and the Saudis have amajor interest riding against hyperinflation in the US, don't they? And the global economic slowdown will lead other central banks to lower rates, no?
I agree with you, Conjure, that there are some forces leaning toward hyperinflation, but it seems to me there are more forces pointing to deflation: downward wage spiral, sinking global, GDP, enormous foreign holdings of US debt, flight to "quality" in investments, etc.
than again, if I were a thousand year old bag of dried and ground dog balls then I might see things more clearly. I humbly admit to my limitations. And I thank you for your wisdom. For us humans, panic comes when we can't figure out WTF is going on. This is a panic.
Hey Guys, for the first time in my life, I wrote to my congressman and Senators.
The fact is, this bailout plan will be passed.
As a US citizen, I will vote against my Congressman and Senators on the next election, if they do pass this mother of all bailout.
Instead of kicking the can down the road and passing this onto our next generation and thereafter. Let it be us that take the blow, whatever, the outcome shall be..... Will this happen..
NO...
It's truly a sad moment in our proud history. The dismantling of the US.
The 15 billion is for GS who will no doubt be managing a piece of the taxpayers "assets." And PIMCO and BLackrock etc. I have never been more disgusted to be a part of the financial complex.
IF the banks are allowed to escape this with no hit to equity than we have only ourselves to blame.
Capital controls are no doubt coming. This is going to be ugly. very very ugly
Yves NK has a good synopsis of the audacity of this "legislation".
RE: "The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States."
This only works if you also limit the assets to those held by US headquartered institutions as of September 17 ,2008. With that constraint this becomes less of an open door or buying opportunity for US banks to become the 'waste brokers' for assets held onternationally.
Like I've been saying, so much for intelligent dialogue. Bush-league, Karl Rove-ian, insult instead of response. You've definitely found a home here.
S.
Sebastian
You forgot Limbaugh. LoL, Mr. No Recession Wright Model B invest in NEW presuming to to be taking the intellectual high ground.
You do have one thing "wright." I don't know why all the smart people at CR put up with me either. If there were to be upwelling of calls for me to shut up I'd do some serious soul searching. Advice I suggest you take as well.
The have put the fox in charge of the hen house now.
Paulson is doing more for the rich and his Goldman alum that anyone can imagine. Expect them to buy an island called Goldmenistan where they will live tax-free while calling relative in the over-taxed, broke USA.
My parents used to lay out a TARP on the kitchen floor for me to lay on when I'd come home drunk from parties. They used the plastic kind so it wouldn't get stained from the cheap wine. Sometimes they'd have to drag me in from the back porch.
While I don't agree with government interference in the market, I think that most people would agree that if this works and ONLY costs $700B, it would be worth avoiding a depression. However, who says that it will cost anything? Why is it not possible that the banks will sell the bad mortgages for $.20 on the dollar, wait for the market to stabilize, and sell the mortgages for a profit. It's not like these mortgages have zero value.
My question is $700 bil enough, with the looming $1 trillion in ARMs starting to re-set next year, and the unbeleivable 30 to 1 leverage Wall Street was allowed to go to?
3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;
So the Gov will be able to nationalize ANY financial firm.....
When I first read the draft of this plan, I thought it was a joke. Sarcasm on the part of folks on this board.
My next reaction was holy-mother-of-pearls, this is not a joke?!#?
This isn't a plan. There is no mechanism. There are no safeguards. Its just about offering the markets a 700 point idea of hope. Worse, its a $700B blank check that's a huge invitation to governmental corruption.
This is the bailout equilvalent of the Bridge To Nowhere.
Translation, govt owns 79.9% percent of the banks now. Just like AIG. Massive dilution for share holders.
Citi's 133B level 3 assets are now with the "TARP" , and the Govt owns 79.9% of Citigroup.
I am not sure determining the "market value" of Citi's level 3 assets is too critical. Just pay them 50 cents on the dollar in exchange for the 79.9% ownership.
Because if they tried to buy at the market value, Citi would be bankrupt and then you have to recapitalise it anyway. How much capital to give to Citi would become a another question then.
The truth is nobody knows the real "cost" to the taxpayers yet. There is a largely a possibility the government and taxpayers actually make money (and alot) off this program. Paulson and Bernanke could essentially make the government become one of the biggest hedge funds in the world- one that earns good (or poor) returns. It all depends how they structure these purchases.
So when the media blows things out of proportions with numbers like $700b COST its a bit humorous. Will the government put up $700b? Yes. But they are not stealing $700b from taxpayers and giving it to banks that made poor lending decisions.
They will be purchasing these securities at somewhere between fair value and market value and will be earning returns off these purchases. In fact, depending how the program is structured they could be making returns that would blow the doors off returns of the Social Security fund.
And for those who think the rich are being bailed out, the government stepping in will prevent distressed funds and hedge funds (eg. the rich) from making ridiculous profits off banks that have no choice to sell securities way below fair value.
For example assume there is a mortgage bond that given many borrowers are defaulting should be worth $75 (when normally assuming no mortgage defaults would be worth $100).
Right now that bond is being bid by hedge funds at $50 because they know banks have to sell and they are the only one with money. The hedge/distressed funds are taking advantage of the situation and bidding these at loss-adjusted yields of ~14% when in a normal market the loss-adjusted yields should be around ~8%.
Enter the government who might say we'll give you $70 for said bond and the government:
1. will make good returns (unless they bid too high)
2. eliminate vulture hedge funds from earning ridiculous profits
3. force the bank to share in the pain - ie lose money (most bought these bonds at $100 and will sell at $70 in said example)
4. free up capital for banks to lend (the bank now sells their bond at $70 instead of $50, giving it more capital to lend)
but why won't it work out the way it did in Japan? Japan lowered the discount rate to less than zero in real terms, and Japan primed the pump with massive massive massive infrastructure projects - roads to nowhere, bridges everywhere, new towns where there were old towns and no towns. they couldn't find projects to put the money into. And GDP stayed flat, inflation non-existant, etc.
won't it be pushing on a string?
A japan outcome could be a best case scenario. Maybe I'm just engaging in wishful thinking.
We need to save 10% of the bailout money for a law enforcement body (not headed by Christopher Cox) that investigates these failed institutions. They will seize assets like yachts, private jets and private islands. They can also arrest the people responsible for this mess.
Paulson and Bernanke should resign. Congress should not bail them out.
Sad as it is, the US gov is broke. They need to raise revenues fast. A one percent federal sales tax would help and it could be started quick.
Give it a 1-2 year term, then reassess.
By the way, I hope you Comrades who think this country is on the way to "socialism" are able to appreciate the subtle distinction between Dicatorship of the Proletariat and Dictatorship of the Secretary of the Treasury....
Hank runs GS up the point of the housing bubble bust and inevitable (at some point) failure of the insolvent banking system he created. Check.
Hank takes over the Treasury, and thinks long and hard - Ive got a few years to figure this out. Have to have a solution before I leave. Thinks to himself, first try Plan A, then Plan B, then Plan 9 from outer space, and then when all fail, use plan H Bomb - full taxpayer bailout. Check.
Hank institutes endgame H - Bomb plan, and retires from govt service, to be welcomed back into the fold of the very same people who f-ed everything up, and will now find a way to loot as much of the handout their previous lord has so kindly handed them. Check coming...
No where in all the time that we had to know this was a crisis and come up with solutions, was it ever even debated that the endgame plan was a taxpayer bailout of the BANKING sector. Never once. As if this is the only solution. Perhaps if someone had said a few years ago that there might be another way, like, getting ready to figure out some way to get other firms to keep lending going. And then use any taxpayer money to help out those who are hurt when lending crimps and firms have to lay off people. But at least we'd get to a new equilibrium, and yes it would be painful, but there might be a chance we wouldnt reinforce the bad behavior of the financial industry. But this was never even discussed. Why? Because Hank runs the industry, and he was handed the keys to the palace, and now runs the government.
We may not be born and bred dopes but we're sure getting treated like we are. The irony of all this is off the charts.
This does not solve the real estate bubble's collapse. Prices will not rebound on this and losses to date on mortgages will lead to losses in auto and credit cards.
This buys some time for well to do people to shift their savings over $100k to MMkt accounts and allow people to get out of the stock market before it implodes.
Tell me, how does this prevent a Depression?
Who is going to buy these assets back as Schumer put it? How does this allow for loan restructuring? If they let banks fail, then the loans could be restructured with some possible benefit to homeowners...
Why is it that nobody who trots out this line can be bothered to clearly explain why this is a crisis?
It's a crisis because we were told it's a crisis by a guy who then presented us with legislation that would give him unlimited powers because crises require dictators. That's not good enough for you?
This is outrageous beyond my wildest nightmares. A total blank check, and written to a political appointee from a lame duck administration who will never receive any oversight because he'll be gone by the time Congress is back in session to hold hearings. If they were going to write a blank check they could at least have written it to Bernanke, who is hypothetically independent and will be around to be overseen.
Oh, no power for future Treasury Secs. You think there will be anything left after the election? Paulsen will blow every last penny in the next 5 weeks trying to juice the election and payoff his friends.
I think the real issue was touched on in the previous thread:
The CDS labyrinth is the main reason everyone uses to justify all of these bailouts. Get rid of the opacity, and a resolution is possible.
I think there's a lot of promise in kis's idea of market makers converting CDS contracts into securities with a stripped down, standard form to make tying out exposures much easier.
Whiskey
The problem with the current government plan as presented is that it doesn't deal with the CDS dilemma head-on. It is attempting to keep everybody from defaulting so the CDS market doesn't blow up. I think they've got the cart ahead of the horse. They need a clearinghouse for CDS, introduce transparency there, identify who is going to croak at that point and then liquidate their assets.
I feel better knowing that I agree with Conjure on at least some things.
Now, back to the panic.
By the way, so much confusion out there about the difference between mortgages, which almost always have some underlying asset with value, and MBS that have sometimes been constucted with so much leverage that they can indeed be reduced to zero value with no asset underneath them but the paper they are written on.
Regular CR readers know at least a little about tranches being wiped out. But so much of the public discussion is oblivious to this distinction.......
Which is, by the way, one of the key distinctions that makes Roubini's suggestion to act on the mortgage front first (or at least alongside the MBS front) so wise.
raphael - where do the banks get the capital if the minimum reg cap is 6% any sale below 94 wipes out their capital. Below 94 eats into their wholesale funding OR DEPOSIT BASE!!!
There is a largely a possibility the government and taxpayers actually make money (and alot) off this program.
Sorry, this is just not true. There is plenty of money on the sidelines that could buy this stuff up if it wanted to -- SWFs, FCBs, etc....
The problem is that no one knows what it is worth but everyone knows it is worth a lot less than people are saying. If you have trouble with this concept read the articles on historical real estate pricing. Things got way way out of control with shoddy lending practices. If you adjust the value of the MBS for historical values you'll have an idea of what the MBS are actually worth. Banks aren't writing this stuff down to $.20/$1 because they think it's worth more.
Then read the articles on how much leverage was used to purchase these assets -- up to 30:1 for LEH when they BK'd.
Finally, read the articles on the guys that wrote insurance on this stuff. They simply can't pay up.
Add all that up and you have systemic failure in the wings. Throw in a government bailout at any price that prevents systemic failure and you have a enormous subsidy.
The only way to appear to be made whole on this stuff is through massive inflation -- likely coming soon to a grocery store near you.
It will be interesting when the prices get low enough to make a market. There's going to be a lot of gems tossed in with the manure. I've got a 2005 vintage HELOC in a bubblezone. If you don't do due diligence you might assume it is toxic. Or it might be bundled such that the smallest unit that can be transacted is toxic. Somebody could end up buying in bulk for pennies, sifting through for massive returns and tossing the rest.
I only wish I would be afforded an opportunity to match any offer should my loan(s) be swept up in the deluge.
Guys I called my representatives Friday morning. I ask for them to take a message to my representative. I'm always as friendly as I can be to those on the other end. I sometimes get upset or mad when talking, but I always let them know that I am not mad at them, just what is going on, and since I cant show my representatives the emotion in my message I need them to do that for me, to represent the taxpayer.
I will likely do so again if need be.
Please do this. It takes 15 minutes.
Phones open at 9 am and the main number is (202) 224-3121.
The banks have to be saved,its their fault and that cannot be changed, we have to go in 'again' and clean up their mess,,,actually a never ending story,, and i think it never will end...
I'm not in favor of this plan but can't deny the crisis.
If nothing had happened, MS and GS would have filed bbankruptcy this weekend. (They still might). The fall out of this would be that every hedge fund and other quasi-financial institution would blow up, equity values would plummet by 30% across the board, and the capital allocation system would come to a halt. This would mean that no companies could borrow money to finance operations (might happen anyway) and the great depression would look like a little bump in the road as compared with the fallout.
mp, I've been following you and Conjure Bag, and am astonished by your rapid change regarding our economic future. You were solidly in the deflation camp, and now insist that hyperinflation is inevitable. This is good news to me, because I have been predicting hyperinflation all along, and wondered if perhaps you knew something that I didn't.
So, what is your opinion regarding precious metals now?
The problem with you lovable "30 cents on the dollar" optimists is that, yeah, of course your right at some value this becomes a good investment.
But - you ain't gonna get that. You really aren't if most of the smart people are right, that this isn't a liquidity problem.
But even, in fact especially, if it was a liquidity problem then the liquidity injections we already have had would resolve themselves at, say, 30 cents on the dollar thru the marketplace itself.
What I'm trying to say is that this response, by definition, implies there is no money* to be made, certainly not by the Treasury.
And even if you don't believe me, look again at D2D's law as posted above.
*in the classic investment sense... the carpetbaggers are already revving up their SUV's.
But they are not stealing $700b from taxpayers and giving it to banks that made poor lending decisions
If they have to, they will. The only way it won't be spent is if real estate rebounds miraculously to 2005 prices--which would be almost a 100% gain from present levels in the Sacramento, CA area, for example.
But don't lecture us about what might happen. We the people should decide, not some bald bureaucrat. This vile plan has nothing to do with capitalism.
As an old New Yorker cartoon once put it: "I say it's spinach, and I say the hell with it."
I have always thought that this administration would never go at the end of their term, since they have no respect for the rule of law.
My original odds were 50 / 50 but reading this proposal; I am really scared
Though out this financial crisis I have told people that this was not the end of the world and that we would muddle through this mess. But this administration whats to use this crisis to talk control of USA.
"Geoff writes:
My question is $700 bil enough, with the looming $1 trillion in ARMs starting to re-set next year, and the unbeleivable 30 to 1 leverage Wall Street was allowed to go to?
Geoff | 09.20.08 - 1:24 pm | #"
You're right there is paper worth much lower than say $75 from a fair value perspective.
I was just presenting an example on say a 2006 Alt-A vintage senior piece.
Some of the crap is worth say $40 on a fair-value assuming a TON of losses is being bid at say $20 so a distressed fund can get huge returns. There is also crap worth $10 being bid at $1.
The point is regardless of the security or collateral is that the market values being driven by vulture bids than a more reasonable fair value because they know the holders are stressed. If the government bids somewhere in between they can help the tax payer and the banks at the same time.
"So, what is your opinion regarding precious metals now?"
If this mess had been handled properly, the US would have experienced some deflation, but not like the 1930s.
It's now obvious the government has decided, as a matter of policy, to zoom the system. In short, they've shit themselves because they suddenly realized that they underestimated the problem. So, we're looking at inflation and the real possibility of hyperinflation if they overshoot, which they probably will.
Conjure and I are now going to take a serious look at PMs and continue to monitor the situation closely.
I'm not in favor of this plan but can't deny the crisis.
If nothing had happened, MS and GS would have filed bbankruptcy this weekend. (They still might). The fall out of this would be that every hedge fund and other quasi-financial institution would blow up, equity values would plummet by 30% across the board, and the capital allocation system would come to a halt. This would mean that no companies could borrow money to finance operations (might happen anyway) and the great depression would look like a little bump in the road as compared with the fallout.
The problem is no one bothered to prepare for a real crisis. They're trying to do the equivalent of solve it over a beer with taxpayer funds.
Sadly, I don't have a real alternative either other than to suggest that equity in these firms should be essentially wiped out, the debt holders forced to take a haircut, and the managers sent to prison for life.
I consider that the compassionate solution. The economically efficient solution is to just use rope...
Sebastian: in the 1930's the government stood by and did nothing, with the result we all know.
Corey: Nonsense. The Federal government meddled extensively in the economy in the 1930s, again under the supposed exigent circumstances of the Depression.
Not only that, Herbert Hoover's administration was actively involved. He was known as the "Mr Fix-It" president, before his reputation was buried.
It's a dramatic whatewashing of history to claim that Government just stood by in the early years of the Depression.
It seems, evertime something like this happens,,,'greyhairs ' lead the way,,well it was them that put us here to be gin with,,,how in the heck can we expect them to lead us out??
THE REST OF THE WORLD IS NOT GOING TO ALLOW THE UNITED STATES TO BEGGAR IT."
.....
Well, that was part of my point. China, Russia, Japan, the Saudis, etc, won't want to see the dollar plunge to nothing and they won't want to see Treasury prices collapse. The fact that the US dollar is still, for the moment, the reserve currency will make things lean toward deflation. Foreign holders of dollars do well under deflation.
I think there are only two ways for me and Conjure to resolve this dispute: 1) wait 30 years and see what happens, or 2) break out some single malt and toke some big Cubans and then thumb wrestle.
McCain wants to marketize health care like banking. I guess that means that providers of health care will get richer and patients will get sicker and sicker until their health is ruined and then they will lose their homes attempting to pay off their pay medical bills.
Fiat currency and the world it built has crashed. I thought we'd see deflation but hyperinflation is our future. Only option left is the end of the Federal Reserve.
This is wrong on so many terms. We need to let these bastards go broke and let the market sort out the survivors. We will have to spend money on a social safety net but that is better than keeping this corpse alive. Shame, shame!
What will happen with shareholders and employees of the institutions receiving assistance? will they also be wiped out? or the standard is different for GS? this is outrageous. it reminds me the bailout of the banking sector in mexico. Banamex was bailed out in 1994 and the same shareholders that received the rescue later sold the bank to Citi for $12 billion, and taxpayers didn't see a penny. the banks that receive assistance should be nationalized and management removed!!!
My biggest concern was that the bailout was going to recapitalize banks... solve the solvancy problem and in turn reward risky behavior... cause moral hazard.
I don't think that's the case here. The reverse mortgage plan seems to address only liquidity.
The liquidity crisis is a side effect of the risky behavior, and effects everyone.
Of couse, I still fear the oppertunity cost of this program will be the ablity to fix medicare, institue a sane health care program like other modern countries, or resolve our account inbalences.
" Why is it not possible that the banks will sell the bad mortgages for $.20 on the dollar, wait for the market to stabilize, and sell the mortgages for a profit. It's not like these mortgages have zero value"
LOL. That would be impossible to do. I am quite confident they could find willing buyers now for more than .20. But that renders them insolvent ny a mile. They won't sell for .20 to YOU. THey will sell for .75. The difference between .75 and the .05 they're worth is your loss.
Loudocracy - So your argument is that GS and MS are so well insinuated to the financial system that their bankruptcy (which is a pre-existing fact, just not a legal determination yet) will completely destroy the financial system??? Well then why shouldn't the US taxpayer who is bailing them out get their equity??
Why can't the equity and debt holders of GS amd MS be wiped out, new management inserted and then (but not until then) thery can be bailed out and the new taxpayers (the taxpayers) get the upside?
Why should the wealth of those who made the bad investments in GS and MS equity and debt be protected?
Rob Dawg writes:
TARP. TARP, TARP. How many times do I have to correct this mislabel? A TARP is a large covering useful for heavy work. This is more of a "Hanky."
The esteemed Minister of Cannabis came up with a better term. I believe it was TAMPON. You will have to consult with the Minister for the correct definition, I forgot. It was good though.
I agree the dollar's days as world reserve currency are numbered, though don't know how long: days, months, year or two?????
meanwhile, the wealthiest countries hold lots of dollars because it has been the reserve currency, and (sorry for being so dumb as to sound like a broken record) that looks delationary to me in the near term.
Im with Dufus. Liquidate. Take all the money to pay uninsurance premiums for those laid off that are not in the financial industry. Consider all the illegitimate bonuses paid to financial players as their severance, their unemployment insurance and their bailout. F- those MotherFs. Im so sick I could vomit bile.
The problem with the current government plan as presented is that it doesn't deal with the CDS dilemma head-on. It is attempting to keep everybody from defaulting so the CDS market doesn't blow up. I think they've got the cart ahead of the horse. They need a clearinghouse for CDS, introduce transparency there, identify who is going to croak at that point and then liquidate their assets.
The clearing house was first talked about a few months back. Am sure some form of it would come about if this were to be resolved.
As it is, I maintain that they find it altogether too complex to initiate at this juncture, hence the preventions of the assets imploding is way cheaper than the Trillions in OTC derivatives defaulting and affecting all the counter parties.
If you have a banking system,,,that over a 50 year period, keeps getting in the same type of trouble,,,AKA- not learning,,,something is not right,
if you make the same misque on the job,,,you are going to get fired..
"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"
Contact your Representative and Senator, folks. Now.
P.S. Shout-out to Tisall eyes
How nice that they will "take into consideration" protecting the taxpayer.
Now I feel so much less like puking.
Just eyeballing this, I'm guessing my SRS goes to about, oh, $30 next week.
Commercial MBS? What the hell?!
No oversight by administrative agencies or courts, and no federal contracting procedures. So, the gig is on, the guys who caused the mess will make the money from the Feds trying to clean it up. Congress better reign these bastards in.
Apologies for the re-post from a thread yesterday, but it really belongs here.
What can we do about it??? If you want guaranteed results theres nothing that will give you that. AS feckless as it feels, despite anything else you do, you have to voice your opposition to the ONLY people who can actually prevent this, and thats your 2 Senators and your House rep. Do whatever else you think will help, but dont just blow off writing your reps. Its still an election year.
Despite the assumed futility of the effort I believe that it is very important to communicate to our Congressional reps our intolerance for this bailout (TARP). We simply must make the effort to inundate these people with our disapproval.
The plan is due to be announced Monday, so we should each spend the weekend composing a succinct, civil, and non-inflammatory letter to EACH of our reps. Theres no reason it cant be the same letter to all three. We each have 2 Senators and a House Rep.
I personally will then copy all of my associates with a copy of my letter, preceded by a short summary of the situation (not everyone reads CR) and ask them to contact their reps as well.
Im told that these congressional offices put more weight on faxes than emails. Snail mail is useless as the time to pass thru anti-terror inspection negates the urgency of the message. So in order to make it easier, and cheaper, for everyone, heres some info on free faxing from your PC and also a way to use a temporary email address if you want.
Free Fax
Fax from your PC for free (limit 2 faxes per day)
Free Fax • Free Internet Faxing
Temporary email address
Disposable email address (good for 15 minutes. You can use this for the email address if youre concerned or paranoid)
GuerrillaMail.com
Yes they snuck in commercial properties. This is really disgusting.
What's the 11.5T in section 10 about?
Is that the national debt ceiling?
From Housing Wire
"Basically, market participants the people really in there felt the market died on Wednesday [and] without Paulsons announced plans this morning, we were toast, the source said, under condition of anonymity."
Geez. The fear mongering! Will we ever develop an immunity to it?
"this Act shall be limited to $700,000,000,000 outstanding at any one time"
Wow!
Anonymous --
What's the 11.5T in section 10 about?
Is that the national debt ceiling?
Yes.
"Basically, market participants the people really in there felt the market died on Wednesday [and] without Paulsons announced plans this morning, we were toast, the source said, under condition of anonymity."
Time for a new market, anyway. the old one has become toxic.
"What's the 11.5T in section 10 about?
Is that the national debt ceiling?"
Wow, wow!
"on such terms and conditions as determined by the Secretary"
These are graet details provided here....
I am so in the line of business...
"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 Wizard of Oz requests that you not look behind the curtai
The only details I could parse out of this are:
1) For 2 years, the secretary plays god with a pool of
2) $700B
3) Congress raises the debt ceiling by $715B
Anyone have a clue about point #3? The debt ceiling gets raised from $10.6B to $11.715B. What's the story with the extra $15B? Not a huge amount in the scope of this dilution of the US dollar, but a chunk of change that isn't terribly small either.
Anyone know what the pertinent details of the Federal Credit Report Acof of 1990 are?
OMG: the mother, grandmother, and great-grandmother of all 'blank checks'!
Whatever the secretary wants, the secretary gets, without review.
This is how to dismantle the constitution, in 12 short sections that contain no constaints.
Almost as if by magic, in response to my plea, Krugman put a diagram of the money flow on his blog. He sees it going around in a circle. Man, would I love to be able to sell treasuries. Anyone want to get together and sell treasuries?
Ancecdote from the street: I met a very nice fellow yesterday, a broker/dealer whose clients are big entertainment moneymakers. We were watching the financial news and talking about what's next. He was extremely excited and used the words: "This is fantastic." "That's it, we're at the bottom" He fielded a number of anxious calls while I was there and transmitted the "we're at bottom" news to everyone.
They forgot to include the part about having the power to nationalize the oil industry, to authorize military action anywhere in the world as needed and to become the drug czar of the western hemisphere. Why saddle the man with incomplete powers that will only handicap him? This is for America, after all, and we should give this wise and trusted man everything he needs to do the job right. Oh, also, he should be able to shoot on sight the stock-shorting lowlifes who destroyed the twin towers.
What's the story with the extra $15B?
administration of the plan ciost money too ?
Dufus:
Pretty questionable, eh. Answers to no one? Not even god?
there is a quarterly review. that's the only watch in place. and the guys doing the review have to trust that the information is accurate, which it has not been up to this point
the Biggest bank heist in history!!!
well all you can do is get your money out of the US i say...
This thing is a complete obscenity. It makesw Paulson the economic czar. This is just WRONG in so many ways.
Contact representatives here
:
https://forms.house.gov/wyr/welcome.shtml
Uncle Sam goes all in
from New Deal Democrat
Daily Kos :: Comments The Death of Republican Philosophy
Excerpts
This crisis was not just foreseeable, it was not just foreseen, it was shouted about from the rooftops since 2004, on blogs like Ben Jones' housing bubble blog, by Calculated Risk, by Mike Shedlock, by Russ Winter, by Barry Ritholtz, by Robert Reich, by Paul Krugman, by Joseph Stiglitz, by James Kunstler, by Stirling Newberry -- in short by just about every housing or economic blogger right, center, and left, from bonddad at Daily Kos to blackhedd on Red State, not to mention myself.
And yet two nights ago, Pelosi, Schumer, Frank, Reid, and everybody else in the Capital sat in "stunned silence" as Bernanke and Paulson spelled out the situation for them. Where were they all these years? Protected from the noise of the Dirty Unwashed Hippies beyond the beltway, by their cocktail party neoliberal free market cone of silence in Washington, that's where.
And so, panic-stricken, they will hurriedly and without reading carefully enact into law what will undoubtedly be the "Economic Patriot Act" of the Bush Administration, with all of the corruption and hidden destruction of rights that conveys, an act that has been estimated at costing up to $1,000,000,000,000 (that's $1 TRILLION) of taxpayer moneys. And still may not succeed.
Section 1. Short Title.
This Act may be cited as Real Estate AMERica.
btw get your scan tattoo on the neck now or be a high number!!
JimPortlandOR,
You nailed it.
Each of us has now wriiten a blank check to Paulson.
We have the government of The Street, by The Street, and for The Street.
Contact Senators here
:
U.S. Senate: Senators Home
The fledgling Nazi party, whose attempted coup had failed in 1923, won 32 seats legally in the
next election. The right-wing Nationalist party won 106 seats, having promised 100 percent
compensation to the victims of inflation and vengeance on the conspirators who had brought
it.
Do you think Commercial will stay in there? That's crazy to just throw it in...
So... only $700 billion outstanding at any given time. You buy an asset at $10, turn around and sell it (back to the original owner, if you like) for a penny. You could do that an infinite number of times, incurring infinite cost, all while keeping your total portfolio of assets below $700b.
So there is no real limit to the cost other than the national debt ceiling? Do I have that right?
The taxpayer is second to the market.
And still may not succeed.
Are you kidding? They've succeeded beyond their wildest dreams. They have managed to steal every last American cent.
And Congress will continue its very important job of sending sternly-worded letters to the administration.
Bill Moyers sits down with former Nixon White House strategist and political and economic critic Kevin Phillips, whose latest book BAD MONEY: RECKLESS FINANCE, FAILED POLITICS, AND THE GLOBAL CRISIS OF AMERICAN CAPITALISM explores the role that the crumbling financial sector played in the now-fragile American economy.
Bill Moyers Journal . Watch & Listen | PBS
A MUST SEE from fair and balanced objective perspective and cut-to-the-chase incisive insights from multiple lens many of which are not pretty.
BILL MOYERS: You say it's the greatest story never told.
KEVIN PHILLIPS: Well, the greatest story never told in several senses. The first sense and when I do bad money, it's bad capitalism and bad money in the sense of the dollar and bad money in the sense of bad dog, bad Wall Street. But what's here that doesn't get the attention is the United States in the last 20 years undertook an enormous transformation of itself with no attention paid. And what it means is and what makes all this so frightening is the country is at risk because of the size of the financial sector that has never been graded on its competence and behavior in any serious way. They are the economy at this point. And we are now seeing what happens when a 20 to 21 percent of GDP financial sector starts to come unglued.
It's going to be a painful adjustment across-the-board for next decade or more for America and most Americans.
Does this mean European and Asian investors can dump their toxic waste debt into this dumpster at the US tax payer's expense?
What are the limitations or exclusions as to entities that can take advantage of this program?
Hello World. This is a message from the FREE MARKET: United States of America
"Anyone have a clue about point #3? The debt ceiling gets raised from $10.6B to $11.715B. What's the story with the extra $15B? Not a huge amount in the scope of this dilution of the US dollar, but a chunk of change that isn't terribly small either."
Could be to pay the interest on the $700bn.
current national debt is about $9.5 trillion. So in fact, this bill gives Paulson about $1.8 trillion to play with... (and likely even more, since they'll just keep raising the debt ceiling every year like they always do).
@SteveA
"The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States."
Our country has a federal debt of 9.7 trillion as of sept 2008. That 11.5 Trillion means an increase of 1.8 trillion. This is a very meaningful jump. The secretary had to risk tax payers' money and the stability of our currency to bailout the holders of bad assets. Looking out ten years, Our nation faces serious inflation threat on every day cost of living. Imagine the buying power of USD declines versus other major currencies. The lower & middle-class will ultimately get hurt the most in any scenario like this.
At least we didn't let them steal social security and roll it into this mess... yet...
confused. i'm a financial planner and even i am having trouble understanding how this "protects the u.s. taxpayer."
help me.
REAMER details:
Sec. 3. Considerations.
In exercising the authorities granted in this Act, the Secretary shall take into consideration means for--
(1) providing stability or preventing disruption to the financial markets or banking system; and
(2) protecting the taxpayer.
They don't even have the balls to put the taxpayer first. Their banking buddies are #1.
StevenA, as to limitations on entities, it says that the Treasury may only buy assets from firms with headquarters in the U.S.
But by definition, the govt will be buying assets at above-market prices. So if you are a smart U.S. firm, you can buy assets from non-U.S. firms at market prices, and then turn around and sell them to the govt at the above-market prices.
So... in essence, it works for everyone!
I dont like to have my Saturday ruined this way. They should just put out a memo saying "we know best, trust us." Same effect. I feel like I was roofied and arse raped last night.
but hank is out in 2 months, what then??
this smells so rotten..
why amass all this power if you dont be sure you can use it?? seems the fix is in, McCain is Prez..
Oh, to anyone who was even thinking of voting for McCain, he wants to do this to health care, too:
McCain on banking and health - Paul Krugman Blog - NYTimes.com
McCain on banking and health
OK, a correspondent directs me to John McCains article, Better Health Care at Lower Cost for Every American, in the Sept./Oct. issue of Contingencies, the magazine of the American Academy of Actuaries. You might want to be seated before reading this.
Heres what McCain has to say about the wonders of market-based health reform:
Opening up the health insurance market to more vigorous nationwide competition, as we have done over the last decade in banking, would provide more choices of innovative products less burdened by the worst excesses of state-based regulation.
So McCain, who now poses as the scourge of Wall Street, was praising financial deregulation like 10 seconds ago and promising that if we marketize health care, it will perform as well as the financial industry!
Incredible, A total give away with zero accountability in any direction. State planning at its worst, I think the old USSR was somewhat more enlightened.. Maybe someone has been reading too much Marx?
confused. i'm a financial planner and even i am having trouble understanding how this "protects the u.s. taxpayer.
Per section 3, there is no requirement that this protects the taxpayer, only that the all-knowing Secretary gives consideration to protecting the taxpayer before raping them.
@Comrade Geoff
You're welcome.
Hope is a plan, right?
The new plan sounds like no plan.
Didn't we learn anything from our last experience with poor planning (Iraq)?
dismayed
Jack, they forgot to finish the sentence.
"...protect the U.S. taxpayer in the top 0.01 percentile."
Fixed.
Has Bush ever run a successful business? I think not. I don't trust this, I don't want this....can we actually put some accountability into this? Please?
Heck of a job, Bushie.
I have had good results in the past through e-mailing the Democratic National Committe and the Republican National Committee on issues. I recommend doing that as well as contacting your individual representatives.
Tell them you will vote against any incumbent who approves of this bill.
btw , if the Treasurer has so much budget power, whats Congress for??
Seems like a good time to revisit Daniel Davies' three fundamental laws: name anything which -
[I]s a policy initiative of the current Bush administration
[Is] significant enough in scale that I'd have heard of it (at a pinch, that I should have heard of it)
[Isn't] in some important way completely fucked up during the execution.
D-squared Digest -- FOR bigger pies and shorter hours and AGAINST more or less everything else
One of the most terrifying aspects of this is how often we get to see this movie. Iraq, FISA, now the economy. "Now is not the time for partisanship," insists the President, which means, of course, "Do it my way." And they do. It's just remarkable.
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 concur that this is a deep and dangerous crisis. The idea that we have to turn over all power, instantly, to the guys who couldn't deal with it in the first place is some kind of lunacy. So, of course, that's what's going to happen. Insane.
well...at least we are in this together now.
cozy
BREAKING POLL: White Dems, Everybody Else in the Damn Country Voting for Obama
Daily Kos: BREAKING POLL: White Dems, Everybody Else in the Damn Country Voting for Obama
"...residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages..."
Last summer, CR told us all about bridge loans turning into pier loans, adding more dubious debt to the banks' balance sheets. Assuming that commercial property was involved in the leveraged buyouts funded by these pier loans, is the language in the definitions of the proposed legislation vague enough to allow banks to sweep their pier loans under the TARP?
Hey Calculated Risk!
I think Bush must've seen your estimates for the total debt and wanted to make sure that you were correct... nice call!
Why do we think we can solve this enormous problem if only we do something really fast?
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.
Why,.. I'll sue! Oh, wait.
Seriously, this trick is tried every few years and every time it is absolutely obliterated in the courts.
Bill of Rights
Amendment I
Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the government for a redress of grievances.
Where's the Sargeant At Arms?
Wonder what Naomi Klein would say? She is a cutie
I am still waiting to see how providing this liquidity (buying mortgages at a "fair" price) will solve solvency issues. So far Hank has proven to be a very tough negotiator if you look at AIG.
Reverse auctions sound reasonable to me if there is a concrete way to avoid collusion. It is in effect re-creating the market.
So lets say you had 100 billion of a particular kind of mortgage asset that used to be previously traded. Are you desperate enough to get rid of it for 30 billion? Does taking that loss make you insolvent? If it does - does the market think you have the credit worthiness to recapitalize? What will recapitalization cost you?
What will be your business model in a post regulation world? Nationalization and consolidation in the Financial sector are the only possible outcomes. I for one am not rushing out to buy WC, MER, MS, GS, C, BOA, WM, AIG etc.. Maybe Wells Fargo and PNC but only if you put a gun to my head and only if I could short something else as a hedge.
This "bailout" doesnt solve those issues, IMO. The details are still being written.
Historic times indeed.
Rob,
So how do we get this up to the Supreme court? Doesn't Executive have to object? If Executive doesn't object than they can together screw up the balance of powers... no?
It's not like our Executive power has been running things since Nixon anyway...
Under this plan the Secretary could purchase mortgages at their unpaid balance and then sell the properties or mortgage back to the original holder (or another bank) at 10% of that price, giving the banks perhaps a 40 point gain in the transaction (assuming fair market value was 50%).
Note also, no new Inspector General, supervising outside Board of Review and ANYTHING to limit to what is done.
This is just SHAMEFULL....
I think we need to reallocate our Army from Baghdad into Washington... we can't afford to wait another day!
They should be forced to bring bacjk the M3 line ....
The one question we all must ask....
What would Sarah Palin do? Why she'd kill this nasty mess with her bare hands...just like a moose
All I needed to read was the increase in the debt ceiling. Didn't we do this about six weeks ago? Like running up a credit card and, whammo, they increse your limit.
isnt Congress legislating itsself away??
remarkable i say..
The bill does not use the term "reverse auction," but Bloomberg is reporting that this is the plan.
As I understand it, a reverse auction has a buyer, Comrade Paulson, who says he will buy MBS from the seller who offers it to him at the lowest price. Investment firms and other holders of this toxic debt thus have a chance to flush it out . . .
But - feedback and analytical help, please - it seems to me that the first firms to offer up their MBS to Paulson and compete for the lowest price will only be those firms that are in danger of failing. Stronger firms may well hold their toxic MBS hoping that Paulson will pay more in the future.
Does this make sense? Would firms only sell if they are desparate (or if the only bid to sell is for a high price)?
Can such a scheme successfully establish a market to price MBS and get them into a federal nuclear waste dump?
Thank John McCain
YouTube - Thank John McCain - support @ TruthandHope.org
Section 8's a little scary:
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.
So this means they could do sweetheart deals w/o any recourse?
YLSP writes:
Rob,
So how do we get this up to the Supreme court? Doesn't Executive have to object? If Executive doesn't object than they can together screw up the balance of powers... no?
IANAL. Supposedly we all have standing in the courts but in practice I expect some State's AG to file over some State's Right giving them power to regulate something or other. Or a Congresscritter could file.
yes, it does mean they can do sweetheart deals without any recourse.
So we're taking walmart merchandise and putting it in Neiman's...and that accomplishes what?
Or is that someone else has gone and bought walmart merchandise at walmart but three times the prices (Niemans) goes on our credit card?
AND...none of the merchandise is mine...I (and progeny) now pay for other people's shit?????
This kinda sucks.
You folks better stop whining and figure out how to preserve your wealth.
donna wrote:
Oh, to anyone who was even thinking of voting for McCain, he wants to do this to health care, too:
Here come the Daily KOS and Moveon.org folks. Some of the most modern upcoming countries have gotten rid of their Ponzi Social Secuity scams and privatized them...WITH REGULATION. For instance in Chile where you are given a choice between private and ponzi the communist unions after looking it over when it first made it s appearance vote 98.5% to go with the private plan. Dittos Singapore with the Provident Fund.
Peddle you socialist crap elsewhere.
Interesting interview with Alan Blinder on NPR this morning. He makes the point that in the 1930's the government stood by and did nothing, with the result we all know. The current Administration is clearly not going down the same road.
"Financial Expert Sees Long Road Ahead" at:
Financial Expert Sees Long Road Ahead : NPR
So scream and shout about the inequity of it all, the cost to the taxpayers, moral hazard, and all the rest of the buzz-phrases of hysteria, but as bad as so many posters seem to think it is, it's better than the alternative.
S.
Anonymous writes:
You folks better stop whining and figure out how to preserve your wealth.
Anonymous | 09.20.08 - 12:28 pm | #
hahahahahaahahahahahahhaahhahahahahahahahahaaahahahhahahaha
we're all poor now
wally writes:
They forgot to include the part about...
There is nothing they forgot to include. Absolutely nothing; there are, explicitly, no limits whatsoever except for financial caps on Paulson's powers here.
"The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation"
Don't forget that the Fannie/Freddie bailout let them raise the debt ceiling $800 billion. This is another $700 billion on top of that--all of which can be used at Caeser's, I mean Paulson's, pleasing.
is there and UberNerd to give us an UberNerd post on the historic and likely future workings of reverse auctions in situations even remotely akin to the present?
The section indemnifying the Sec Treasury against court or legislative oversight is very scary, and probably unconstitutional. it's one thing to give an officer great leeway (think cops) but to exmept them from any judicial review??????? none?????? Even Dick Cheney hasn't asserted that much authority - close, but not quite.
"The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States."
Good point.
Sebastian you are the King of Gullible.. i will see you whine when they confiscate your wealth too but then.. no one will hear you because they have all gone before you!!!
How about these provisions of section 2:
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
One law to rule them all!
Look on the bright side - at least Dubya get's to call himself the Six Trillion Dollar Man!
In a reverse auction, after the first offer, couldn't everyone else just match it? And why wouldn't everyone say their stuff is worth par?
Congratulations CR!!
You were the first to predict that the National Debt would exceed $10 trillion before Bush left office. It was a gutsy call, and for a while it looked like you were underestimating our commander-in-chief, but W managed to drop one last bomb on America before he rides into the sunset.
"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."
Absolutely will be struck down. A junior constitutional lawyer would have no problem with this one.
Which makes me wonder: Why is it there? No lawyers in treasury are that stupid; and it is too obviously stupid to be used as a throwaway item in negotiations.
Is it possible that someone expects the law to be thrown out, but only after the election? (by which point, the transactions have occurred, of course).
You were the first to predict that the National Debt would exceed $10 trillion before Bush left office.
And to think CR underestimated. This is just insane.
I am so dumb. I kept some SRS thinking it would bounce next week.
2.Will this be dollar negative? If they do buy at a discount, they have an asset protecting that purchase?
Faxing this today...do the same...fuck plagiarize me...not like I am Joe Biden or anything.
Hey doesn't anyone remember that John McCain was part of the Keating 5????
NO MORE BAILOUTS!
THE HONEST AMERICAN TAXPAYERS DESERVE BETTER!
I was not part of this Ponzi scheme , I knew better than to buy an inflated house and yet I have to pay. Do not let our government be taken by criminal legislative appointees. DO SOMETHING TO STOP THIS! Put people that caused this in JAIL!
This includes brokers who sold loans, bankers who wrote bad loans, lenders who inflated incomes, appraisers who fibbed about home values and elected officials who looked the other way and did nothing!
You will mortgage our future for a shiny dime today. This plan will devalue our currency, destroy our ability to have reasonable credit and sink us into a hole we will be crawling out of for generations to come. If you do sign this, ask the hard questions! Do not let this go through without scrutiny. Commercial real-estate SHOULDNT be included!
SELLING BACK HOMES TO OWNERS AT CURRENT MARKET PRICES WILL BE REWARDING PEOPLE WHO MADE POOR INVESTMENT CHOICES!
As a group of elected officials, this Congress will go down as the most corrupt and responsible for destroying America by letting economic terrorism go unfettered in corporate towers while we coward from men in caves. SHAMEFUL!
You are gambling with MY future not yours! You have no right to put this burden on our children and their children for generations to come.
Absolutely will be struck down. A junior constitutional lawyer would have no problem with this one.
Hello. Roberts, Alito, Scalia, and Thomas will have ZERO problem with this.
Watch this space :
Debt to the Penny (Daily History Search Application)
Where's the "Don't Tread on Me" flag motto? The public (taxpayers long into the future) will despise the names of current voters if we let this atrocity become law as is.
Did you note that Bush said yesterday that the Congress shouldn't add anything to the administration proposal (in effect restating his overused threat of a veto, enforced by intransigent Repub. Senators). If the Dems don't take this as is, Bush and McCain will be calling traitor yet another time.
Mr. Congress, throw out this proposal after burningn it, mixing the ashes, and peeing on the remains. Start over with something that makes sense: perhaps an independent body with more than half the members appointed by the Congress and with fiduciary responsibility.
man, just read that. only time my hear rate increased over this entire debacle.
looking like it's time to bail this sinking ship. damn.
oh well, renting in Grenada Nicaragua and living large is cheap as dirt. lowest crime rate in CA.
I have just contacted my senators for the first time in my life.
Roubini's proposal is much more thoughtful.
I wonder when the capital controls are put in place. I think Yen and Hong Kong Dollars might be safer currencies for the offshore account.
Oy.
Comrade JP
keep in mind the Election could be fixed!!
Honestly if they pass this they deserve what comes..
Note from germany: in the 1930s the Social democrats colluded with Hitler against the Kommunists in the believe they could control him! the Price they earned: a premium window seat in the Gas Chamber!!
thx for make me understand my past so much better...
Hello. Roberts, Alito, Scalia, and Thomas will have ZERO problem with this.
They're right wing, but they're not stupid. It reduces their own power.
Once something like that makes it thru, then it sets precedent. NFW does SCOTUS allow a law which is beyond their purview.
My 500 FREddies are gonna LOVE this!
My senators were in the paper this morning saying that this was a swell idea. It'll be passed easily.
Any chance that the gov will make money on this over time?
If you can buy a distressed asset at a very low price because nobody else has the money to buy it you might do ok if/when the market stabilizes in a few years, no?
Price they earned: a premium window seat in the Gas Chamber!!
actually the social dems were sent to Dachau -- not a death camp per se -- but the point stands.
700B. On top of what was promised to F&F and weekly auctions too.
Be cheaper to buy those foreclosed houses and charge rent on the current occupants than to bail out those banks.
(1) Mortgage-Related Assets.--The term mortgage-related assets means residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before September 17, 2008.
Defaulted mortgages from the Spanish-American war era are OK then ?
Unmitigated disaster: welcome to 1929, or the end of capitalism as we know it, whichever you prefer. The day when our government, as a whole, turns against the country in massive financial treason. A banner day indeed.
Well, at least this bill includes welcome punitive measures against the firms who sell their loans to us.
Oh wait.
There is no mention that the "mortgage related asset" has to be non-performing, or in foreclosure, or tied to non-performing mortgages.
Technically, and without review, Treasury could purchase anyone's mortgage or mortgage related asset, whether or not it is non-performing or in foreclosure or otherwise distressed.
Quite a weapon!
Sebastian writes:
Interesting interview with Alan Blinder on NPR this morning. He makes the point that in the 1930's the government stood by and did nothing, with the result we all know.
Nonsense. The Federal government meddled extensively in the economy in the 1930s, again under the supposed exigent circumstances of the Depression. Results ranged from bad to none. They managed to prolong the Depression, which really didn't end until WW2 brought the US out of it, and we're still dealing with the disastrous affects of that interference 70 years later. The solution to the problem of government interference in the economy is not more government interference in the economy.
So, if the idiots that provided oceans of paper that entrapped millions of Americans in huge amounts of debt get their bailout, can I haz mine?
I still say we need to have that haircut passed on. If the Treasury buys my debt at 25 cents on the dollar, they should automatically have to offer it to me at 30 cents as a right of first purchase.
But nooooo, Wall Street wins again, or so they think.
I have begun to believe that the United States is no longer too big to fail.
From the overnight thread, both Sean and Misean are correct. The Us government can indeed keep issuing large amounts of debt, just as long as there are willing buyers. Without willing buyers (and bagholders- Xian!) the dollar would indeed begin to approach collapse. We may yet see such circumstances in our lifetime.
But not yet!
Patience is necessary while this bailout is gradually eroded into insignifigance.
That is why I keep ending my rants with my famous quote from A-Now:
Someday this war's gonna end...
The best part so far is that I don't see anything in the draft proposal about, "keeping homeowners in their homes" or "stabilizing home prices". That would be a disaster.
I still don't think this is going to make matters much better, adnd it's going to shift the burden to the taxpayer. But at least it doesn't look thus far like it will make matters much, much worse.
This is subject to this bill being passed in roughly its current draft form. If Congress adds on a lot of politically motivated fluff, who knows what this thing will look like.
They're right wing, but they're not stupid. It reduces their own power.
Once something like that makes it thru, then it sets precedent. NFW does SCOTUS allow a law which is beyond their purview.
Comrade JP | Homepage | 09.20.08 - 12:37 pm | #
What do you think "unitary executive" means?
I have just contacted my senators for the first time in my life.
Me too. Never written to congress before this. My angle was simply: Do not reward Wall Street for bad behavior. (Congresspeople in DC are very conscious about sending $$ to other states. They want a piece of the pie for themselves.)
If someone wants a template, or a starting point for their own: I put this into the public domain.
Dear Senator Warner,
Please stop the Paulson bailouts. You cannot continue to reward bad behavior by Wall Street executives, especially not with a Trillion (!) of taxpayer dollars as Treasury Secretary Paulson has proposed.
The bailouts of AIG, Bear Stearns, Fannie and Freddie Mae clearly failed stop the problem. Yet-another-bailout isn't going to stop the problem any more than the others.
The sooner we let the bad players fail, the sooner the next generation of great players will replace them.
Thank you,
Use it at will, or write your own.
Helpful website = Contact Elected Officials: USA.gov
Greg writes:
There is no mention that the "mortgage related asset" has to be non-performing, or in foreclosure, or tied to non-performing mortgages.
Technically, and without review, Treasury could purchase anyone's mortgage or mortgage related asset, whether or not it is non-performing or in foreclosure or otherwise distressed.
Quite a weapon!
All this to prevent the trillions in CDSs from blowing up.
They chose the easy way out, this debacle continues.
Yoringe said: "Sebastian you are the King of Gullible.. i will see you whine when they confiscate your wealth too but then.. no one will hear you because they have all gone before you!!!"
The only people who are gullible are the ones who think that the Powers that Be are just going to roll over and let the American Way go quietly into the night.
I said this a long time ago, and we can see it coming true right in front of our eyes. An economic, financial or stock market "crisis" isn't ruled by immutable physical laws like hurricanes, floods or earthquakes. Policy makers can't make a hurricane change course or stop a flood, but they can simply change the rules to deal with financial catastrophes.
I find it just amazing that so many posters here are so pissed-off that the U.S. economy isn't going to crash because the government is acting to prevent it.
Gullible and perverse.
S.
But the ALTERNATIVE! The complete and total Annihilation of our beloved financial system! We HAVE to do this or we'll all DIE!!!!!!
don't know why, but I have a hard time believing this.
Sebastian said "So scream and shout about the inequity of it all, the cost to the taxpayers, moral hazard, and all the rest of the buzz-phrases of hysteria, but as bad as so many posters seem to think it is, it's better than the alternative."
Sebastian, what is missing here is a clear explanation of "the alternative". I'm not talking about fear mongering drivel like "a complete meltdown", "the market freezing". or "financial Armageddon". but rather a clear explanation of the details of what is about to happen absent this plan. Something we can all evaluate and decide for ourselves if the argument is factual, is probable, and whether this action will solve avoid the purported alternative.
To date this is just being shoved down our throats with assurances that those at the top have looked things over and are agreed that this is the right course. Sorry, that's bullshit in this country.
WE simmply CANNOT abdicate our rights as a populace to the people in power to fix something that they themselves screwed up. That's madness and the least we can demand is the details of the purported emergency so we can judge for ourselves whether to support or reject the proposed solution.
"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."
-isn't that called "dictatorship"..
That is unbelievably broad and vague. And explicitly forbids any judicial or agency review--which is kind of stunning.
My senators were in the paper this morning saying that this was a swell idea. It'll be passed easily.
Your senators are being greased up for the pig men. The high-handedness of this reminds me very much of the Patriot Act.
Any chance that the gov will make money on this over time?
Yes, the loans that aren't being paid will be a huge moneymaker for us.
Up next: we'll buy dead hens from American farmers. Then we'll sell the all of the eggs they lay for massive profits!
Call Call Call! Leave messages
(202) 224-3121
Look up your senators number here
U.S. Senate
Look up your representative number here
United States House of Representatives, 111th Congress, 1st Session
Leave Messages! Call again Monday morning at 9 AM. (202) 224-3121 is the switchboard when its operating, just ask for your representative by name and they will transfer you.
guys, sebastian is an old and sometimes lovable troll here, along with the missing O Joe.
easy on the kibbles.
And here I thought that Bush would just fall short of doubling the national debt before he left office.
What do you think "unitary executive" means?
Something that SCOTUS has studiously avoided. There's a reason.
Quit blogging and start writing/calling your representatives. This bill must be stopped! This bill will be on par with authorizing war in Iraq if it passes.
Act now!
$11.5T/$14T = 82% of GDP
Neato.
whoops, meant to write:
Something that SCOTUS has studiously avoided a definitive ruling. There's a reason.
Do we know anything at all about this draft? Who leaked it? Who prepared it? Who's seen it?
CR, Michael, anybody?
It's the vaguest, worst crafted piece of legislation I've ever seen, and I'm having a little trouble imagining it as anything other than a rough framework with everything treasury could possibly want, tossed on the table as a starting point.
Short US treasuries
Short the dollar
Long commodities
Fuck these bastards
To all at CR:
I have left phone messages with my
Representative and Senators to
OPPOSE the:
LEGISLATIVE PROPOSAL FOR TREASURY AUTHORITY
TO PURCHASE MORTGAGE-RELATED ASSETS
I will followup with a more detailed
email statement to their offices.
I hereby claim the right
of self-promotion to the level of COMMISSAR.
Thank you.
"Yes, the loans that aren't being paid will be a huge moneymaker for us. "
But is it accurate to say that the loans are not being paid as if all of the loans in a basket are not being paid? What if a basket of loans is sold to the gov for $.30 on the dollar. Isn't it possible that the underlying assets will yield over $.30 on the dollar?
Some of the loans are being paid. Others have assets that can be sold to back them up. True, the value of the homes backing them has dropped, but if you get the loans for a good enough price you still come out ahead. There are no bad assets, only bad prices.
I don't know all of the numbers and am not arguing that this is the case. I'm curious if this idea has any validity.
If this is the proposal, lets see what the final draft is before it is passed. I doubt this will get through both houses of congress without some concessions from Paulson. Of course they are gong to ask for everything but I doubt this passes in this form.
Really, I think someone smarter than me needs to look at the next step.
Don't y'all get land and buildings for your money? If it is purchased at a discount, doesn't the american taxpayer win? ( I know you have to trust that it will be at a discount )
Further, if American banks are the only ones eligible, don't they buy at a discount from the rest of the world and hedgies? resell to the US for more? If it is still discounted, then the US, banks, and taxpayers make out like bandits.
yalt-
it's in bloomberg
- Bloomberg.com
what is really amazing is that in return of this 1T$ subsidy, no compensation is requested whatsoever from:
1) shareholders of those financial situaions- they SHOULD BE SEVERELY DILUTED
2) no salary cuts from those fat Wall Street corrupt executives/employees
American model at its worst! but on top of 1T$ subsidy, main street will now have to pay again in the form of hyperinflation, $ depreciation.... absolutely amazing that such plan is passed
Isn't it possible that the underlying assets will yield over $.30 on the dollar?
It possible that the assets are going to yield less.
Do we think that housing estimates are high or low? So far, nobody has had an overestimate of the decline.
Short US treasuries
Short the dollar
Long commodities
Fuck these bastards
Anonymous | 09.20.08 - 12:48 pm ______________________________________
Conjure says, "Amen to that."
1) shareholders of those financial situaions- they SHOULD BE SEVERELY DILUTED
2) no salary cuts from those fat Wall Street corrupt executives/employees
I can only hope that protection of taxpayer = removal of CEO+board, and massive dilution, as was the case with AIG/fnm/fre.
Hope. There, I've made it to faith-based govt.
Can't wait for next year's smash hit on Broadway: Bailout: The Musical
Well, the dollar's uptrend was good while it lasted.
(It may go up again once EU makes the same guarantees)
"Conjure says, "Amen to that."
Conjure my hero
"Of course they are gong to ask for everything but I doubt this passes in this form."
Uh, you evidently don't remember Patriot Act.
Conjure says, "BWAHAHAHAHAHAHA!"
I can only hope that protection of taxpayer = removal of CEO+board, and massive dilution, as was the case with AIG/fnm/fre.
No mention of that unfortunately..
sadly, i think the proposal will only get worse. i've spent some bitter years doing federal politics, which is worthy work for those with the stomach.
i've made calls to my reps, hillary and chuck just to add to the numbers, but it's a tidal wave of solution desire in a dysfunctional system.
Nemo writes from the previous thread:
"Transferring $1 trillion into the banking system, without regard for the discipline of the market, is about the worst idea I have ever heard."
That's about as crisp a way to sum this mess up as I have heard. Crisp and simple enough for even our elected officials to grasp. I sent this to my senator. My congresscritter wouldn't understand it. She simply votes 100% in agreement with Pelosi. I am sure she doesn't read bills. I know how I am voting, if the election isn't suspended.
$11.5T/$14T = 82% of GDP
Neato.
82% OF Former GDP fig, pre-finance ponzi biz collapse.
Fin's made up north of 20% of gdp figs....oops, no longer.!
try 11.5T/11.5T
The ONLY question here is how much extra lard Congress is going to stuff into this pig as it goes through...
If you can go long governmental stupidity, it's a sure thing!
"The term mortgage-related assets means residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before September 17, 2008."
Wow every bad loan made in the past 5 years is going to be sunk to the Treasury.
baby in the bathtub! Hold her down!!!!
we are so fucked
OK, so this is a super-dumb question I should already know the answer to, but what is the total combined value of distressed home and commercial mortgages in this country? Surely it's much, much higher than $0.7T, yes?
So, if we pay a high enough price for each toxic loan to seriously help the bank that's selling it, we won't really make much of a dent in the total number of bad loans. But if we pay a low enough price that we can absorb a lot of the toxic waste, the individual sales will be still result in large losses for the banks, right?
So $700 billion is enough to run up the debt by a significant amount, and to significantly affect the USD, but not nearly big enough to solve anything?
Comrade Clueless Dufus said: "...To date this is just being shoved down our throats with assurances that those at the top have looked things over and are agreed that this is the right course. Sorry, that's bullshit in this country...."
The Patriot Act? "Enemy combatants", and not prisoners of war? Extraordinary rendition? Water-boarding?
Clearly, it's not "bullshit in this country," we allow it all the time. But at least this time it's in response to a genuine threat.
I don't know about anyone else, but if my house was burning down, the cost to the taxpayers of putting out the fire isn't the top priority for me, my neighbors, the firefighters, the police or the ambulance driver.
Sebastia
"Uh, you evidently don't remember Patriot Act."
Thats a good point.
Bill Moyers sits down with former Nixon White House strategist and political and economic critic Kevin Phillips, whose latest book BAD MONEY: RECKLESS FINANCE, FAILED POLITICS, AND THE GLOBAL CRISIS OF AMERICAN CAPITALISM explores the role that the crumbling financial sector played in the now-fragile American economy.
Bill Moyers Journal . Watch & Listen | PBS
BILL MOYERS: And you write also that during this period the Clinton Administration aided and abetted this kind of speculation. Bill Clinton's economic advisor, Bob Rubin, who later became Secretary of Treasury wanting to fuel this, right?
KEVIN PHILLIPS: It's been a bipartisan phenomenon. You can go back to the 1980s and say Reagan and George Bush, Sr., got a bubble started. Clinton got in and got an even bigger bubble going. And then George W. Bush with the biggest bubble of all. But it's not that the Clintonites didn't play. They did. Bob Rubin as Secretary of the Treasury I mean, if he was a Hindu and he was being reincarnated, he'd come back as a pail because this guy bailed out everything you can imagine. They had the Mexican loan bailout. They had the long-term capital management bailout, the Russian Southeast Asian currency bailouts.
BILL MOYERS: All of which, however, kept them from coming into this economy, into our economy, coming to our continent.
KEVIN PHILLIPS: Well, except that a lot of the liquidity they created and the momentum and the borrowed money produced the implosion of the bubble in 2000.And a lot of what was imploding was the $2.5 trillion in new debt that was tied to energy and telecommunications, that's Enron, WorldCom, and Global Crossing. So there was a lot more of a bubble blown up there.
Rubin was also central Democrats more than Republicans in a lot of ways with the Clinton Administration in getting rid of Glass Stiegel, was the old restriction that the banks couldn't tie up with brokerage firms and insurance companies. Well, basically after they made their reform led by Clinton and by Bob Rubin, you had like four-color linguini here in a bowl. It's all mixed up together.
BILL MOYERS: So you have it for this disaster has bipartisan parentage.
KEVIN PHILLIPS: Absolutely.
Seems they just need to add the best clause of all to this act. (from Phantom of the Paradise)
"Everything excluded shall be deemed included"
I dunno, I will try again, but I just might go long SKF on monday.
Need to think about it some more, but I haven't seen any 'bailouts' that have been particularly nice to anyone on wall street so far.
We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience hath shewn, that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security.
that seemed a propos
82% OF Former GDP fig, pre-finance ponzi biz collapse.
Fin's made up north of 20% of gdp figs....oops, no longer.!
try 11.5T/11.5T
yes, + 6% annual budget deficit goinf fwd!!!
BILL MOYERS: You say it's the greatest story never told.
KEVIN PHILLIPS: Well, the greatest story never told in several senses. The first sense and when I do bad money, it's bad capitalism and bad money in the sense of the dollar and bad money in the sense of bad dog, bad Wall Street. But what's here that doesn't get the attention is the United States in the last 20 years undertook an enormous transformation of itself with no attention paid. And what it means is and what makes all this so frightening is the country is at risk because of the size of the financial sector that has never been graded on its competence and behavior in any serious way. They are the economy at this point. And we are now seeing what happens when a 20 to 21 percent of GDP financial sector starts to come unglued.
$11.3 T
Borrow, spend. Print to the end.
Hyper-inflation baby.
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.
Umm, excuse me?
Socialist Tim said: "... but I haven't seen any 'bailouts' that have been particularly nice to anyone on wall street so far."
I'll bet that Hank continues down that path.
Uh, you evidently don't remember Patriot Act.
Well, that act was so long nobody had actually read or understood it. This one's so short it doesn't even have to be passed to an aide--even a Congressman can make it to the end without drifting off. And it pretty plainly states "I, the Secretary of the Treasury, have unlimited power to do anything I please and there will be no oversight of or judicial recourse against my actions."
Conjure
You have my utmost respect and admiration, but I don't understand your position on Treasuries. Short treasuries?
Please explain. It seems to me that yield on treasuries will sink toward zero, just as they did this week, and as happened in Japan, no? isn't that what we can expect in a major deflationary spiral?
Krugman has a post on this today.
But, Conjure, I know you have centuries more experience than me, so please explain why I'm thinking about this backwards.
Dear Fellow Commenters,
While I fully understand the need to vent there is a finite number of times "call or write your congresscritter" can be repeated before Haloscan runs out of space. Besides, some of us live in California. We have half the representation most of you have and the current crop of representatives would soon as turn down an industry check as listen to a constituent.
I am equally guilty. We all get it now. Unconstitutional, likely ineffective and ultimately harmful. Let's move on and remember Sebastian is just now discovering which side of the monkey cage he is really on so please try to ignore his antics, give him a cookie and stay on topic.
Well, it would have been deflation, but they've decided as a matter of policy to zoom the system.
Yes, we are on our way to hyperinflation.
You guys joked about Ben and his helicopters. You're going to get it.
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 think this our S. Ct. will uphold this. Congress has a lot of control over the jurisdiction of the lower cts. and agencies.
Can i borrow money from you, seb. I promise I'll pay 3x the rate you pay on your heloc.
Technically, no. It makes the Treasury Secretary economic czar.
From the time Paulson is authorized to start spending until he is gone, he probably has 90 days max to BUY BUY BUY. Figure really 60 days if Obama is elected, because he would be such a lame duck in the last month that his authority could be gone.
Never in history has one man been given such blanket authority to transfer wealth SO FAST. Scary.
In retrospect, you can trace the steps to hyperinflation, but some of the reasons remain
cloudy. Germany abandoned the gold backing of its currency in 1914. The war was expected
to be short, so it was financed by government borrowing, not by savings and taxation. In
Germany prices doubled between 1914 and 1919.
We have half the representation most of you have and the current crop of representatives would soon as turn down an industry check as listen to a constituent.
Dawg: The goal is to make it seem like they are not getting the check. Their New York counterparts are. That usually pisses them off.
Notice that there are zero provisions in the draft for one key requirement: transparency. The only reporting required is to Congress, not the American taxpayers, and it's long after the fact.
The lack of transparency will never fly.
Also, you are right, there aren't any real protections against financial firms colluding together to rig reverse auction prices.
Does all this sound too familiar. Post-9/11 fears of dire consequences and a demand to act quickly brought us the PATRIOT Act. Before the the invasion of Iraq, fears of mushroom clouds brought the Iraq war resolution. And now painted pictures of economic meltdowns brings us the trillion dollar bailout - again it must be done quickly, quickly.
No oversight. No consequences for the banks. And, of course, those very same firms will make a bundle managing the assets. We've been had once again.
She simply votes 100% in agreement with Pelosi. I am sure she doesn't read bills. I know how I am voting, if the election isn't suspended.
bearly | 09.20.08 - 12:53 pm | #
Tom Delay and Denny Hastert ran the casino for many years.
It's amazing how this blog stays pretty well focused on the economics being presented.
I thought it would have become totally political after this plan.
My point: the Republicans have literally destroyed this country.
Bottom line: whoever wins in November won't get a second term; not after presiding over the Depression.
Read Naomi Klein's The Shock Doctrine.
The Shock Doctrine | Naomi Klein
It's being applied here and now... again.
But the bourgeois habits were very strong. Ordinary citizens worked at their jobs, sent their
children to school and worried about their grades, maneuvered for promotions and rejoiced
when they got them, and generally expected things to get better. But the prices that had
doubled from 1914 to 1919 doubled again during just five months in 1922. Milk went from 7
Marks per liter to 16; beer from 5.6 to 18. There were complaints about the high cost of living.
Professors and civil servants complained of getting squeezed. Factory workers pressed for
wage increases. An underground economy developed, aided by a desire to beat the tax
collector.
joe shmoe- "...I don't understand your position on Treasuries. Short treasuries?"
There is going to be a new monetary order, and sooner than anyone thinks.
Foreign holders are not going to buy into this, so there's going to be yet another "Come to Jesus" moment.
The United States is going to have its credit rating downgraded if this flies, and there's going to be a new monetary regime put together.
The United States will not be able to stop it from happening.
"Conjure says, "Amen to that."
Conjure for President !
Bottom line: whoever wins in November won't get a second term; not after presiding over the Depression.
Are you sure? here's a look back:
1929 crash under hoover
1931 election of FDR
1935 re election of FDR
1939 re election of FDR (US still not at war)
So how long until we face hyperinflation? 1 year? 2 years? 10 years?
Rob Dawg said: "Let's move on and remember Sebastian is just now discovering which side of the monkey cage he is really on so please try to ignore his antics, give him a cookie and stay on topic."
Like I've been saying, so much for intelligent dialogue. Bush-league, Karl Rove-ian, insult instead of response. You've definitely found a home here.
S.
One big difference between the financial crisis and post 9/11 panic that produced the Patriot Act is that the govt cannot claim (truly or falsely) a need for secrecy now as it did after 9/11.
there is a panic now, and that will produce legislation fast, maybe or probably without sufficient safeguards. But, unlike the Patriot Act, there won't be the same kind of barrier against further discussion and modification because there can't be a claim to need secrecy.
just a hopeful thought in an otherwise freaked out situatio
Times of crisis REQUIRE a dictator - cuz there is not a lot of "free" time for debate. This is a crisis - that is just a fact - personally, I take some heart from the fact that the Secretary is limited to - as stated in the following from the main post:
mortgage-related assets from any financial institution having its headquarters in the United States.
Nemo:
Have to agree with your previous post, regarding the production of real goods instead of more bailouts to rent seeking money lending interest owing wealth destructing OTC derivatives.
Infrastructure is a perfect example and the benefits would be spread around too.
It will take a while for the recognition to develop, but that's what's coming.
They're screwing the pooch and each other, but they haven't figured that out yet.
"Comrade Midwest Product writes:
OK, so this is a super-dumb question I should already know the answer to, but what is the total combined value of distressed home and commercial mortgages in this country? Surely it's much, much higher than $0.7T, yes?"
Read the proposal:
Sec. 6. Maximum Amount of Authorized Purchases.
The Secretarys authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time
The clue here is "outstanding at any one time". The Treasury is simply going to take the bad loans,write down losses to the taxpayer and then sell them back to the banks as a performing asset so the banks can increase their cap ratios.
It won't keep them on the US books.
It must be Bak Runs they are afraid of...
The nervous citizens of the Ruhr were already getting their money out of the currency and into real goodsdiamonds, works of art, safe real estate. Now ordinary Germans began to get out of Marks and into real goods.
Pianos, wrote the British historian Adam Fergusson, were bought even by unmusical families. Sellers held back because the Mark was worth less every day. As prices went up, the amounts of currency demanded were greater, and the German Central Bank responded to the demands. Yet the ruling authorities did not see anything wrong. A leading financial newspaper said that the amounts of money in circulation were not excessively high.
and Bank runs too....
[sheesh]
Absolutely will be struck down. A junior constitutional lawyer would have no problem with this one.
Which makes me wonder: Why is it there? No lawyers in treasury are that stupid; and it is too obviously stupid to be used as a throwaway item in negotiations.
Because they'll have looted their money and (if necessary) decamped to Abu Dhabi long before it ever reaches the Supreme Court. Won't matter then if the provision is struck down.
I was just wondering, does anyone know of any site which conducts polls on whether the general public is opposed to or for this bailout? A URL would be nice.
Curios to know what others think.
I too am also curious.....when would inflation really start taking hold?
You will respect my AUTORITIA!
(that's one hell of a power grab by government)
mp, I never joked about it because I knew that they would never allow a deflationary collapse like the 1930s.
BB explicitly promised it on several occasions, including at Uncle Miltie's birthday bash. Print print print, drill drill drill.
Neither of which is more than a platitude.
This huge sale of commodities is a fantastic opportunity, but don't buy US stocks- go for Canadian, Australian, and Chinese equities.
Buy where there is still expansion, here there will only be contraction, no matter what the economic statistics babble.
Someday this war's gonna end...
"They're screwing the pooch and each other, but they haven't figured that out yet."
I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody.
James Carville
Sebastian - you said we were all crazy just a few months ago and now it has all come true and now YOU have all the answers...LMFAO...you have zero credibility here!
I like sec. 2, b, 2 dropping government contracting rules so you can hire your buds. Soon Martial Law.
Holy crap...this bill make the US Treasurer the most powerful man on the planet.
Since this is the case, who will the US presidential candidates, McCain and Obama, pick for their Treasurer?
There are significant numbers of people that think the world is 6000 years old and Palin is Thatcher...I hold few illusions about our collective wisdom about the intricacies of CDS redemption and counter claims. But Lou Dobbs will probably put up a poll on CNN: "Let us Know how you feel:
"Do you thing the Commander in Chief is bound to protect our Nations well-being? OR are you in for cheap whiners who want to inflict suffering on hard working Americans? Let Us Know!!!!"
I take some heart from the fact that the Secretary is limited to - as stated in the following from the main post:
That's not a limitation. His authorities to take any action he deems necessary are "without limitation," and there can be no legal challenge to any decision he makes.
Again, I don't see any chance that this passes with Sec. 8 intact. If it does I'm going to start seriously making emigration plans.
Conjure
Thanks for explaining your view, and thanks to your imaginary friend MP for reaching the keyboard for you.
Hmmm.....I think there will be a new monetary regime, as you say, with the Euro taking a more equal role alongside the dollar . . . but China, Russia, japan, and the Saudis have amajor interest riding against hyperinflation in the US, don't they? And the global economic slowdown will lead other central banks to lower rates, no?
I agree with you, Conjure, that there are some forces leaning toward hyperinflation, but it seems to me there are more forces pointing to deflation: downward wage spiral, sinking global, GDP, enormous foreign holdings of US debt, flight to "quality" in investments, etc.
than again, if I were a thousand year old bag of dried and ground dog balls then I might see things more clearly. I humbly admit to my limitations. And I thank you for your wisdom. For us humans, panic comes when we can't figure out WTF is going on. This is a panic.
"Fast Eddie writes:
I like sec. 2, b, 2 dropping government contracting rules so you can hire your buds. Soon Martial Law."
Goldman Sachs not doubt! Sure they are going to be picking up some good deals?
Well, on the bright side, at least they didn't include leveraged loans, auto loans, and credit cards.
Yet.
Hey Guys, for the first time in my life, I wrote to my congressman and Senators.
The fact is, this bailout plan will be passed.
As a US citizen, I will vote against my Congressman and Senators on the next election, if they do pass this mother of all bailout.
Instead of kicking the can down the road and passing this onto our next generation and thereafter. Let it be us that take the blow, whatever, the outcome shall be..... Will this happen..
NO...
It's truly a sad moment in our proud history. The dismantling of the US.
The 15 billion is for GS who will no doubt be managing a piece of the taxpayers "assets." And PIMCO and BLackrock etc. I have never been more disgusted to be a part of the financial complex.
IF the banks are allowed to escape this with no hit to equity than we have only ourselves to blame.
Capital controls are no doubt coming. This is going to be ugly. very very ugly
Yves NK has a good synopsis of the audacity of this "legislation".
Folks welcome to facism.
Fast Eddie writes:
I like sec. 2, b, 2 dropping government contracting rules so you can hire your buds. Soon Martial Law.
Where you been bud ?? Martial already has the ball.
Sebastian is a complete idiot.... people like him are the problem.....
Agreed.... WRITE your congresspeople, and "To the torches!!"
From one born and bred dope to another, lovingly.
RE: "The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States."
This only works if you also limit the assets to those held by US headquartered institutions as of September 17 ,2008. With that constraint this becomes less of an open door or buying opportunity for US banks to become the 'waste brokers' for assets held onternationally.
"How nice that they will "take into consideration" protecting the taxpayer.
Now I feel so much less like puking."
Nice that it's bullet number two! If it were bullet number one this enactment wouldn't be happening.
Maribkhan writes:
Hey Guys, for the first time in my life, I wrote to my congressman and Senators.
Maribkhan, thank you for your service.
Like I've been saying, so much for intelligent dialogue. Bush-league, Karl Rove-ian, insult instead of response. You've definitely found a home here.
S.
Sebastian
You forgot Limbaugh. LoL, Mr. No Recession Wright Model B invest in NEW presuming to to be taking the intellectual high ground.
You do have one thing "wright." I don't know why all the smart people at CR put up with me either. If there were to be upwelling of calls for me to shut up I'd do some serious soul searching. Advice I suggest you take as well.
The have put the fox in charge of the hen house now.
Paulson is doing more for the rich and his Goldman alum that anyone can imagine. Expect them to buy an island called Goldmenistan where they will live tax-free while calling relative in the over-taxed, broke USA.
Yes, I was right. Sec. 8 -above the law. Sec. 8 means something else in the military doesn't it?
if i was a banker i'd make sure i never left home without a bodyguard
Will there be new base money creation as a result of this bill?Please enlighten me. If that is the case there will be terrible inflation.
Just 7% Favor Fed Bailout for Financial Firms (Rasmussen poll.)
That was as of earlier this week.
People, I can't overemphasize the following:
THEY'RE GOING TO ZOOM.
REPEAT.
THEY'RE GOING TO ZOOM.
My parents used to lay out a TARP on the kitchen floor for me to lay on when I'd come home drunk from parties. They used the plastic kind so it wouldn't get stained from the cheap wine. Sometimes they'd have to drag me in from the back porch.
Happy days are here again!
While I don't agree with government interference in the market, I think that most people would agree that if this works and ONLY costs $700B, it would be worth avoiding a depression. However, who says that it will cost anything? Why is it not possible that the banks will sell the bad mortgages for $.20 on the dollar, wait for the market to stabilize, and sell the mortgages for a profit. It's not like these mortgages have zero value.
My question is $700 bil enough, with the looming $1 trillion in ARMs starting to re-set next year, and the unbeleivable 30 to 1 leverage Wall Street was allowed to go to?
See this:
3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;
So the Gov will be able to nationalize ANY financial firm.....
Section 1. Short Title.
This Act may be cited as __DAS Kapital_(part deux)___.
This Act may be cited as "the Save Goldman Sachs Bill."
I fixed it for you CR.
Now Geoff, how can I ever revert to my former self? Guess I'll try a new name...
When I first read the draft of this plan, I thought it was a joke. Sarcasm on the part of folks on this board.
My next reaction was holy-mother-of-pearls, this is not a joke?!#?
This isn't a plan. There is no mechanism. There are no safeguards. Its just about offering the markets a 700 point idea of hope. Worse, its a $700B blank check that's a huge invitation to governmental corruption.
This is the bailout equilvalent of the Bridge To Nowhere.
"(2) protecting the taxpayer."
Translation, govt owns 79.9% percent of the banks now. Just like AIG. Massive dilution for share holders.
Citi's 133B level 3 assets are now with the "TARP" , and the Govt owns 79.9% of Citigroup.
I am not sure determining the "market value" of Citi's level 3 assets is too critical. Just pay them 50 cents on the dollar in exchange for the 79.9% ownership.
Because if they tried to buy at the market value, Citi would be bankrupt and then you have to recapitalise it anyway. How much capital to give to Citi would become a another question then.
El Cliffo writes:
Just 7% Favor Fed Bailout for Financial Firms (Rasmussen poll.)
That was as of earlier this week.
Thanks. Just what i thought.
The truth is nobody knows the real "cost" to the taxpayers yet. There is a largely a possibility the government and taxpayers actually make money (and alot) off this program. Paulson and Bernanke could essentially make the government become one of the biggest hedge funds in the world- one that earns good (or poor) returns. It all depends how they structure these purchases.
So when the media blows things out of proportions with numbers like $700b COST its a bit humorous. Will the government put up $700b? Yes. But they are not stealing $700b from taxpayers and giving it to banks that made poor lending decisions.
They will be purchasing these securities at somewhere between fair value and market value and will be earning returns off these purchases. In fact, depending how the program is structured they could be making returns that would blow the doors off returns of the Social Security fund.
And for those who think the rich are being bailed out, the government stepping in will prevent distressed funds and hedge funds (eg. the rich) from making ridiculous profits off banks that have no choice to sell securities way below fair value.
For example assume there is a mortgage bond that given many borrowers are defaulting should be worth $75 (when normally assuming no mortgage defaults would be worth $100).
Right now that bond is being bid by hedge funds at $50 because they know banks have to sell and they are the only one with money. The hedge/distressed funds are taking advantage of the situation and bidding these at loss-adjusted yields of ~14% when in a normal market the loss-adjusted yields should be around ~8%.
Enter the government who might say we'll give you $70 for said bond and the government:
1. will make good returns (unless they bid too high)
2. eliminate vulture hedge funds from earning ridiculous profits
3. force the bank to share in the pain - ie lose money (most bought these bonds at $100 and will sell at $70 in said example)
4. free up capital for banks to lend (the bank now sells their bond at $70 instead of $50, giving it more capital to lend)
So the Gov will be able to nationalize ANY financial firm.....
R.E.LEE | 09.20.08 - 1:24 pm | #
No, no, this section isn't about nationalization...this is about hiring third parties to do the work.
Sorry Comrade
Not many of us spell it correctly..
MP
well, yeah, they're trying.
but why won't it work out the way it did in Japan? Japan lowered the discount rate to less than zero in real terms, and Japan primed the pump with massive massive massive infrastructure projects - roads to nowhere, bridges everywhere, new towns where there were old towns and no towns. they couldn't find projects to put the money into. And GDP stayed flat, inflation non-existant, etc.
won't it be pushing on a string?
A japan outcome could be a best case scenario. Maybe I'm just engaging in wishful thinking.
We need to save 10% of the bailout money for a law enforcement body (not headed by Christopher Cox) that investigates these failed institutions. They will seize assets like yachts, private jets and private islands. They can also arrest the people responsible for this mess.
Paulson and Bernanke should resign. Congress should not bail them out.
Sad as it is, the US gov is broke. They need to raise revenues fast. A one percent federal sales tax would help and it could be started quick.
Give it a 1-2 year term, then reassess.
joe shmoe- "This is a panic."
Conjure says, "Yeah, no shit, and it's going to become much worse."
Does this include worthless 2nd lien mortgage paper? Because there's no recovery value in those... in places like FL and CA, right?
raphael: There is a largely a possibility the government and taxpayers actually make money (and alot) off this program.
And the Iraq War will pay for itself.
This is a crisis - that is just a fact
Why is it that nobody who trots out this line can be bothered to clearly explain why this is a crisis?
What is the crisis, who is it a crisis for and what makes it a crisis instead of just a problem that requires deliberative attention?
By the way, I hope you Comrades who think this country is on the way to "socialism" are able to appreciate the subtle distinction between Dicatorship of the Proletariat and Dictatorship of the Secretary of the Treasury....
joe shmoe- "won't it be pushing on a string?"
The yen wasn't THE reserve currency.
THE REST OF THE WORLD IS NOT GOING TO ALLOW THE UNITED STATES TO BEGGAR IT.
Raphael,
Lehman wrote down their toxic paper to 35 cents before they went, so me thinks 70 is way to generous for this stuff
Raphael-
Thanks for explaining it better than I could, plus I didn't even think of the screw the hedge fund aspect.
So, let's see.
Hank runs GS up the point of the housing bubble bust and inevitable (at some point) failure of the insolvent banking system he created. Check.
Hank takes over the Treasury, and thinks long and hard - Ive got a few years to figure this out. Have to have a solution before I leave. Thinks to himself, first try Plan A, then Plan B, then Plan 9 from outer space, and then when all fail, use plan H Bomb - full taxpayer bailout. Check.
Hank institutes endgame H - Bomb plan, and retires from govt service, to be welcomed back into the fold of the very same people who f-ed everything up, and will now find a way to loot as much of the handout their previous lord has so kindly handed them. Check coming...
No where in all the time that we had to know this was a crisis and come up with solutions, was it ever even debated that the endgame plan was a taxpayer bailout of the BANKING sector. Never once. As if this is the only solution. Perhaps if someone had said a few years ago that there might be another way, like, getting ready to figure out some way to get other firms to keep lending going. And then use any taxpayer money to help out those who are hurt when lending crimps and firms have to lay off people. But at least we'd get to a new equilibrium, and yes it would be painful, but there might be a chance we wouldnt reinforce the bad behavior of the financial industry. But this was never even discussed. Why? Because Hank runs the industry, and he was handed the keys to the palace, and now runs the government.
We may not be born and bred dopes but we're sure getting treated like we are. The irony of all this is off the charts.
This does not solve the real estate bubble's collapse. Prices will not rebound on this and losses to date on mortgages will lead to losses in auto and credit cards.
This buys some time for well to do people to shift their savings over $100k to MMkt accounts and allow people to get out of the stock market before it implodes.
Tell me, how does this prevent a Depression?
Who is going to buy these assets back as Schumer put it? How does this allow for loan restructuring? If they let banks fail, then the loans could be restructured with some possible benefit to homeowners...
Why is it that nobody who trots out this line can be bothered to clearly explain why this is a crisis?
It's a crisis because we were told it's a crisis by a guy who then presented us with legislation that would give him unlimited powers because crises require dictators. That's not good enough for you?
Argh! Cant use "how do I get in on the looting" as my middle name.
This is outrageous beyond my wildest nightmares. A total blank check, and written to a political appointee from a lame duck administration who will never receive any oversight because he'll be gone by the time Congress is back in session to hold hearings. If they were going to write a blank check they could at least have written it to Bernanke, who is hypothetically independent and will be around to be overseen.
Oh, no power for future Treasury Secs. You think there will be anything left after the election? Paulsen will blow every last penny in the next 5 weeks trying to juice the election and payoff his friends.
I think the real issue was touched on in the previous thread:
The CDS labyrinth is the main reason everyone uses to justify all of these bailouts. Get rid of the opacity, and a resolution is possible.
I think there's a lot of promise in kis's idea of market makers converting CDS contracts into securities with a stripped down, standard form to make tying out exposures much easier.
Whiskey
The problem with the current government plan as presented is that it doesn't deal with the CDS dilemma head-on. It is attempting to keep everybody from defaulting so the CDS market doesn't blow up. I think they've got the cart ahead of the horse. They need a clearinghouse for CDS, introduce transparency there, identify who is going to croak at that point and then liquidate their assets.
Comrade "How Do I Get In On Th: excellent summary of the situation, I have to say. Thanks.
I feel better knowing that I agree with Conjure on at least some things.
Now, back to the panic.
By the way, so much confusion out there about the difference between mortgages, which almost always have some underlying asset with value, and MBS that have sometimes been constucted with so much leverage that they can indeed be reduced to zero value with no asset underneath them but the paper they are written on.
Regular CR readers know at least a little about tranches being wiped out. But so much of the public discussion is oblivious to this distinction.......
Which is, by the way, one of the key distinctions that makes Roubini's suggestion to act on the mortgage front first (or at least alongside the MBS front) so wise.
raphael - where do the banks get the capital if the minimum reg cap is 6% any sale below 94 wipes out their capital. Below 94 eats into their wholesale funding OR DEPOSIT BASE!!!
There is a largely a possibility the government and taxpayers actually make money (and alot) off this program.
Sorry, this is just not true. There is plenty of money on the sidelines that could buy this stuff up if it wanted to -- SWFs, FCBs, etc....
The problem is that no one knows what it is worth but everyone knows it is worth a lot less than people are saying. If you have trouble with this concept read the articles on historical real estate pricing. Things got way way out of control with shoddy lending practices. If you adjust the value of the MBS for historical values you'll have an idea of what the MBS are actually worth. Banks aren't writing this stuff down to $.20/$1 because they think it's worth more.
Then read the articles on how much leverage was used to purchase these assets -- up to 30:1 for LEH when they BK'd.
Finally, read the articles on the guys that wrote insurance on this stuff. They simply can't pay up.
Add all that up and you have systemic failure in the wings. Throw in a government bailout at any price that prevents systemic failure and you have a enormous subsidy.
The only way to appear to be made whole on this stuff is through massive inflation -- likely coming soon to a grocery store near you.
It will be interesting when the prices get low enough to make a market. There's going to be a lot of gems tossed in with the manure. I've got a 2005 vintage HELOC in a bubblezone. If you don't do due diligence you might assume it is toxic. Or it might be bundled such that the smallest unit that can be transacted is toxic. Somebody could end up buying in bulk for pennies, sifting through for massive returns and tossing the rest.
I only wish I would be afforded an opportunity to match any offer should my loan(s) be swept up in the deluge.
Guys I called my representatives Friday morning. I ask for them to take a message to my representative. I'm always as friendly as I can be to those on the other end. I sometimes get upset or mad when talking, but I always let them know that I am not mad at them, just what is going on, and since I cant show my representatives the emotion in my message I need them to do that for me, to represent the taxpayer.
I will likely do so again if need be.
Please do this. It takes 15 minutes.
Phones open at 9 am and the main number is (202) 224-3121.
From contained to 700 billion in 12 months....
what's the next 12 months going to look like, sebastian?
The banks have to be saved,its their fault and that cannot be changed, we have to go in 'again' and clean up their mess,,,actually a never ending story,, and i think it never will end...
I'm not in favor of this plan but can't deny the crisis.
If nothing had happened, MS and GS would have filed bbankruptcy this weekend. (They still might). The fall out of this would be that every hedge fund and other quasi-financial institution would blow up, equity values would plummet by 30% across the board, and the capital allocation system would come to a halt. This would mean that no companies could borrow money to finance operations (might happen anyway) and the great depression would look like a little bump in the road as compared with the fallout.
mp, I've been following you and Conjure Bag, and am astonished by your rapid change regarding our economic future. You were solidly in the deflation camp, and now insist that hyperinflation is inevitable. This is good news to me, because I have been predicting hyperinflation all along, and wondered if perhaps you knew something that I didn't.
So, what is your opinion regarding precious metals now?
" THE MARKET IS DEAD! LONG LIVE THE MARKET!"
The problem with you lovable "30 cents on the dollar" optimists is that, yeah, of course your right at some value this becomes a good investment.
But - you ain't gonna get that. You really aren't if most of the smart people are right, that this isn't a liquidity problem.
But even, in fact especially, if it was a liquidity problem then the liquidity injections we already have had would resolve themselves at, say, 30 cents on the dollar thru the marketplace itself.
What I'm trying to say is that this response, by definition, implies there is no money* to be made, certainly not by the Treasury.
And even if you don't believe me, look again at D2D's law as posted above.
*in the classic investment sense... the carpetbaggers are already revving up their SUV's.
Well, Conjure and I now know where this is going, so we have got work to do.
Conjure and I wish you guys as much luck as you're going to need.
mp writes:
joe shmoe- "This is a panic."
Conjure says, "Yeah, no shit, and it's going to become much worse."
mp mumbles: "Don't fire until you see the whites of their eyes."
OK, new name Comrade "HDIGIOTL" Geoff
So, anyway, Im still asking - how do I get in on the looting?
And when does it start?
Can I buy tickets?
Is there a raffle?
But they are not stealing $700b from taxpayers and giving it to banks that made poor lending decisions
If they have to, they will. The only way it won't be spent is if real estate rebounds miraculously to 2005 prices--which would be almost a 100% gain from present levels in the Sacramento, CA area, for example.
But don't lecture us about what might happen. We the people should decide, not some bald bureaucrat. This vile plan has nothing to do with capitalism.
As an old New Yorker cartoon once put it: "I say it's spinach, and I say the hell with it."
Marshall Law meter now at 90%
I have always thought that this administration would never go at the end of their term, since they have no respect for the rule of law.
My original odds were 50 / 50 but reading this proposal; I am really scared
Though out this financial crisis I have told people that this was not the end of the world and that we would muddle through this mess. But this administration whats to use this crisis to talk control of USA.
Im scared
Really scared
"Geoff writes:
My question is $700 bil enough, with the looming $1 trillion in ARMs starting to re-set next year, and the unbeleivable 30 to 1 leverage Wall Street was allowed to go to?
Geoff | 09.20.08 - 1:24 pm | #"
Geoff, I can see it now as clear as day: TARP 2.
Geoff g -
You're right there is paper worth much lower than say $75 from a fair value perspective.
I was just presenting an example on say a 2006 Alt-A vintage senior piece.
Some of the crap is worth say $40 on a fair-value assuming a TON of losses is being bid at say $20 so a distressed fund can get huge returns. There is also crap worth $10 being bid at $1.
The point is regardless of the security or collateral is that the market values being driven by vulture bids than a more reasonable fair value because they know the holders are stressed. If the government bids somewhere in between they can help the tax payer and the banks at the same time.
It's a clear betrayal of the citizens of the US. It's treason.
"So, what is your opinion regarding precious metals now?"
If this mess had been handled properly, the US would have experienced some deflation, but not like the 1930s.
It's now obvious the government has decided, as a matter of policy, to zoom the system. In short, they've shit themselves because they suddenly realized that they underestimated the problem. So, we're looking at inflation and the real possibility of hyperinflation if they overshoot, which they probably will.
Conjure and I are now going to take a serious look at PMs and continue to monitor the situation closely.
I'm not in favor of this plan but can't deny the crisis.
If nothing had happened, MS and GS would have filed bbankruptcy this weekend. (They still might). The fall out of this would be that every hedge fund and other quasi-financial institution would blow up, equity values would plummet by 30% across the board, and the capital allocation system would come to a halt. This would mean that no companies could borrow money to finance operations (might happen anyway) and the great depression would look like a little bump in the road as compared with the fallout.
The problem is no one bothered to prepare for a real crisis. They're trying to do the equivalent of solve it over a beer with taxpayer funds.
Sadly, I don't have a real alternative either other than to suggest that equity in these firms should be essentially wiped out, the debt holders forced to take a haircut, and the managers sent to prison for life.
I consider that the compassionate solution. The economically efficient solution is to just use rope...
Sebastian: in the 1930's the government stood by and did nothing, with the result we all know.
Corey: Nonsense. The Federal government meddled extensively in the economy in the 1930s, again under the supposed exigent circumstances of the Depression.
Not only that, Herbert Hoover's administration was actively involved. He was known as the "Mr Fix-It" president, before his reputation was buried.
It's a dramatic whatewashing of history to claim that Government just stood by in the early years of the Depression.
It seems, evertime something like this happens,,,'greyhairs ' lead the way,,well it was them that put us here to be gin with,,,how in the heck can we expect them to lead us out??
MP wrote:
"The yen wasn't THE reserve currency.
THE REST OF THE WORLD IS NOT GOING TO ALLOW THE UNITED STATES TO BEGGAR IT."
.....
Well, that was part of my point. China, Russia, Japan, the Saudis, etc, won't want to see the dollar plunge to nothing and they won't want to see Treasury prices collapse. The fact that the US dollar is still, for the moment, the reserve currency will make things lean toward deflation. Foreign holders of dollars do well under deflation.
I think there are only two ways for me and Conjure to resolve this dispute: 1) wait 30 years and see what happens, or 2) break out some single malt and toke some big Cubans and then thumb wrestle.
Appreciate your smarts and good humor.
donna writes:
Oh, to anyone who was even thinking of voting for McCain, he wants to do this to health care, too:
Economics and Politics - Paul Krugman Blog - NYTimes.com
McCain wants to marketize health care like banking. I guess that means that providers of health care will get richer and patients will get sicker and sicker until their health is ruined and then they will lose their homes attempting to pay off their pay medical bills.
As you watch the cookies crumble;
carefully counting all the crumbs,
The baker is busy baking;
making new plans for new kingdoms.
Will the yeast build even faster
than it ever has in the past ?
become your very last repast?
sorry, sometimes, I get lost... and I know the last rhyme suks.
Crash Course Chapter 19: Future Shock - bubble | Crash Course Videos at Chris Martenson - bubble, Economy, exponential growth, Oil, retirement
Fiat currency and the world it built has crashed. I thought we'd see deflation but hyperinflation is our future. Only option left is the end of the Federal Reserve.
This is wrong on so many terms. We need to let these bastards go broke and let the market sort out the survivors. We will have to spend money on a social safety net but that is better than keeping this corpse alive. Shame, shame!
"The fact that the US dollar is still, for the moment, the reserve currency will make things lean toward deflation."
Joe, I have grave doubts about the $US continuing to be the reserve currency.
Even in the short run.
Note to users of Credit Default Swaps:
READ THE WARNING LABEL BEFORE USING
sheesh
What will happen with shareholders and employees of the institutions receiving assistance? will they also be wiped out? or the standard is different for GS? this is outrageous. it reminds me the bailout of the banking sector in mexico. Banamex was bailed out in 1994 and the same shareholders that received the rescue later sold the bank to Citi for $12 billion, and taxpayers didn't see a penny. the banks that receive assistance should be nationalized and management removed!!!
My biggest concern was that the bailout was going to recapitalize banks... solve the solvancy problem and in turn reward risky behavior... cause moral hazard.
I don't think that's the case here. The reverse mortgage plan seems to address only liquidity.
The liquidity crisis is a side effect of the risky behavior, and effects everyone.
Of couse, I still fear the oppertunity cost of this program will be the ablity to fix medicare, institue a sane health care program like other modern countries, or resolve our account inbalences.
TARP. TARP, TARP. How many times do I have to correct this mislabel? A TARP is a large covering useful for heavy work. This is more of a "Hanky."
" Why is it not possible that the banks will sell the bad mortgages for $.20 on the dollar, wait for the market to stabilize, and sell the mortgages for a profit. It's not like these mortgages have zero value"
LOL. That would be impossible to do. I am quite confident they could find willing buyers now for more than .20. But that renders them insolvent ny a mile. They won't sell for .20 to YOU. THey will sell for .75. The difference between .75 and the .05 they're worth is your loss.
I bet BAC knew about this before they bought MER.
Loudocracy - So your argument is that GS and MS are so well insinuated to the financial system that their bankruptcy (which is a pre-existing fact, just not a legal determination yet) will completely destroy the financial system??? Well then why shouldn't the US taxpayer who is bailing them out get their equity??
Why can't the equity and debt holders of GS amd MS be wiped out, new management inserted and then (but not until then) thery can be bailed out and the new taxpayers (the taxpayers) get the upside?
Why should the wealth of those who made the bad investments in GS and MS equity and debt be protected?
Rob Dawg writes:
TARP. TARP, TARP. How many times do I have to correct this mislabel? A TARP is a large covering useful for heavy work. This is more of a "Hanky."
The esteemed Minister of Cannabis came up with a better term. I believe it was TAMPON. You will have to consult with the Minister for the correct definition, I forgot. It was good though.
MP
I agree the dollar's days as world reserve currency are numbered, though don't know how long: days, months, year or two?????
meanwhile, the wealthiest countries hold lots of dollars because it has been the reserve currency, and (sorry for being so dumb as to sound like a broken record) that looks delationary to me in the near term.
By the way, what's a PM?
PM=Precious Metal
Im with Dufus. Liquidate. Take all the money to pay uninsurance premiums for those laid off that are not in the financial industry. Consider all the illegitimate bonuses paid to financial players as their severance, their unemployment insurance and their bailout. F- those MotherFs. Im so sick I could vomit bile.
Doc at the Radar Station writes:
The problem with the current government plan as presented is that it doesn't deal with the CDS dilemma head-on. It is attempting to keep everybody from defaulting so the CDS market doesn't blow up. I think they've got the cart ahead of the horse. They need a clearinghouse for CDS, introduce transparency there, identify who is going to croak at that point and then liquidate their assets.
The clearing house was first talked about a few months back. Am sure some form of it would come about if this were to be resolved.
As it is, I maintain that they find it altogether too complex to initiate at this juncture, hence the preventions of the assets imploding is way cheaper than the Trillions in OTC derivatives defaulting and affecting all the counter parties.
If you have a banking system,,,that over a 50 year period, keeps getting in the same type of trouble,,,AKA- not learning,,,something is not right,
if you make the same misque on the job,,,you are going to get fired..
"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"
Are you f***in' kidding me???
FART FART FART..... FAILED ASSets RESURRECTION TRUST...
Once Sec 3 Considerations. is expanded to (3) Keeping people in the Homes then the default on mortgages is really going to go up.