How Bernanke Stunned Congress with the Truth 43 comments
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The New York Times is reporting Congressional Leaders Stunned by Warnings
It was a room full of people who rarely hold their tongues. But as the Fed chairman, Ben S. Bernanke, laid out the potentially devastating ramifications of the financial crisis before congressional leaders on Thursday night, there was a stunned silence at first.
Mr. Bernanke and Treasury Secretary Henry M. Paulson Jr. had made an urgent and unusual evening visit to Capitol Hill, and they were gathered around a conference table in the offices of House Speaker Nancy Pelosi.
“When you listened to him describe it you gulped," said Senator Charles E. Schumer, Democrat of New York.
As Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the Banking, Housing and Urban Affairs Committee, put it Friday morning on the ABC program “Good Morning America,” the congressional leaders were told “that we’re literally maybe days away from a complete meltdown of our financial system, with all the implications here at home and globally.”
Mr. Schumer added, “History was sort of hanging over it, like this was a moment.”
When Mr. Schumer described the meeting as “somber,” Mr. Dodd cut in. “Somber doesn’t begin to justify the words,” he said. “We have never heard language like this.”
Congress was stunned because Bernanke finally admitted the truth (or at least came closer to doing so). Congress ought to be reading blogs rather than listening to clowns like Paulson and Bernanke.
How many times have we heard Paulson the Parrot sing the praises of the strong dollar and the soundness of the US financial system?
The market called Bernanke's Bluff, and came close to a virtual meltdown.. For now, Armageddon was postponed as the Fed intervened In money markets.
The list of reasons the financial system is unsound grew massively today, by the tune of a $1.2 trillion taxpayer funded bailout designed to bail out the wealthy at the expense of the poor.
Earlier today Paulson had the gall to state "this will cost the tax payer less than the alternative".
No one bothered to ask why it should cost the taxpayer anything at all.
Furthermore, Paulson once again proved he needs simple arithmetic lessons. Shifting losses from those who should bear them (stock and bond holders of failing companies) to the taxpayers is not going to save the taxpayers a dime, rather it is going to cost them plenty, $1.2 trillion plenty as noted in US Taxpayer: A Giant Dumpster For Illiquid Assets.
The Whole Truth And Nothing But The Truth?
Of course not.
Bernanke did not really admit the truth, he only hinted at it. Congress was too dumb to pick it up. The truth is the US financial system is insolvent.
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This article has 43 comments:
The government should tax coporations and the wealthy to pay for this. Just so happens the wealthy already pay 90% of income taxes. They also start and run businesses and provide and create jobs. Not many poor do that. The wealthy help and hurt, much like any other group, but with greater influence.
Just to be accurate - everyone, not just the poor will be paying for this. It is a huge amount for sure. There are only 100 million taxable households. We are going to be hit big in 2010 when this combines with greater gov't spending and elimination of the Bush tax cuts.
on the other hand, i also believe there was no other option. the path we are on i believe completely mortgages economic growth at the expense of a depression.
heaven help us.
We will be fine. Get ready for a short bull market followed by a short bear market before the next expansion phase begins.
The only thing that sinks my heart is the choices we have for the president, neither of them excites me for a good president, no kidding, George W had more promise than either of these 2 candidates. Whatever happened to Ron Paul...
1.1 Trillion divided amongst 110 million households means each household will be paying $11,000. That may seem like a lot, but there is a simple solution. All they have to do is put it on their credit card and pay the minimum amount.
And since the Iraq war will likely cost $3 trillion (because most of the equipment will need replacing), each family will need to get 3 more credit cards.
I don't know why Bush didn't think of this himself. :-)
Willhe
And no one had a clue this would happen sooner or later? Greenspan's loose money policies set the tone for this financial meltdown, and yet he still is out there pumping his book. As with wallstreeters, they got their's, so the hell with everyone else, and here Greenspan is still milking us dry.
As usual, the taxpayer will be left holding the bag, and with the useless worthless dollar floundering, and inflation the only thing I see ahead of us, this is a disaster which like all disasters won't be totally known for some time. Thanks to all the greed motivated politicians, wallstreeters and bankers, a depression is unavoidable, no matter who gets elected.
Disgusted,
god, i love a good laugh i the morning. tks.
The rest of the world has something strange and wonderful called "SAVINGS" They have not blindly been led into debt like the US, and what debt they do have they can afford to repay !
Can I "report abuse"? Perhaps it is leadership like this, and people who support leaders like this that we are in the worst financial crisis of the century!
This is exactly why I moved my money into Gold and Silver. Not only can I not trust our leaders to get us out of this, I don't have faith in the majority of the population to understand the issues or the gravity of the situation.
I agree that W showed his mettle on this. Laugh if you will. Deride my opinion if you will. Derision is no substitute for a convincing counter-argument.
My understanding is that Congress overreacted to Enron by requiring companies to mark their assets to market. In a tumbling market, when no one knows the value of an asset, buyers are scarce. That makes the current market value zero. Hence, assets that might have significant value in time are marked as zero present value.
RTC 2.0 fixes this by buying such assets -- assigning conservative non-zero value to them -- but valuing them above zero. This stops the slide in asset values. Since the assets are covered by collateral that will almost certainly have significant future value (after the panic subsides).
Since the RTC is acquiring these assets for a song, and since these assets are ultimately owned by the taxpayers, this is actually going to end up enriching the Treasury (not necessarily the taxpayers). True, this requires taking on debt in the meantime, but in a panic, people seem to be happy buying US gov't debt as it seems pretty stable in comparison even to money market accts.
I am going to work on Monday, as usual. I expect close to 94% of those eligible to work are also going to work on Monday. The great, ultimate money machine that is our economy is going to continue its massive momentum.
But squirm and panic if it makes you feel better.
As for this being a transfer from poor to rich -- that constitutes one of the most bizarre misstatements I have read in a long time. If the taxpayer is actually being put on the hook for this to the tune of trillions of dollars, then it is high-income earners (aka "the rich") who would pay 90% of such tax. Hence, this is no help at all to the vast majority of wealthy. But, as has been pointed out, this is probably not going to be a net drain on gov't coffers, as these assets are being bought at low prices and will eventually be liquidated at a profit (not a profit for the current owners of the asset, who will take a bath, but these private asset holders prefer something rather than nothing).
Since the assets are covered by collateral that will almost certainly have significant future value (after the panic subsides), these assets will be sold and the proceeds used to retire the debt the RTC takes on to buy them in the first place.
Then again, I haven't heard much out of the Obama camp on the economy either.
Hope Ron Paul is on the ballot in FL when I get down there this Fall.
Of course, explain this nightmare financial situation to McCant and Tootsie, and their faces will go blank, and then a light will come into their eyes....
"Hmmm, guess its time to start a war, that's always good for the economy, and what's good for the economy is good for the GOP!"
Government printing funny money now to reinflate the economy. Only problem is theirs too many holes and it goes right out again, for now. Once they system is deleveraged, it can inflate again. Massive deflation for the last 2-3 years. Now you will see massive inflation(money supply not prices, prices are not inflation, increased prices are increased prices)
They were stunned by the fact they needed to commit political suicide on Friday 9/19 instead of the following week, after the inevitable run on the banks that would have occurred sans bail-out.
The government is going to hire outside advisers to manage this "trust"... So basically, the very people who did such a bang up job managing these assets on their own books-- will now be paid by the taxpayer to mismanage them on the public's books.
Of course, they will now be managing the books under the watchful eye of Congressional politicians (democrats and republicans) who cannot balance a checkbook.
Starting in January of next year, we have two choices. Choice one: General Patton, who wants to go to war with somebody and doesnt seem to care who. General Patton has himself stated that economics are not his thing. Choice two: Peter Pan, whose naivety is more stunning than the financial crisis. Peter Pan plans to fill us with hope by spending money we don't have, and sending the bill to our children. Both General Patton and Peter Pan want to fix the economy by raising taxes and expanding the size of government -- which has never worked in any country in any period of recorded history.
And this being a democracy, we cannot forget about the voters. 300 million people who insist on living way beyond their means and blaming politicians, Chinese, rich people, French people, OPEC, the boogie man, the monsters in the closet -- pretty much anyone other than the face in the mirror.
"We the people" caused this financial crisis. We are addicted to debt. We spend way beyond our means. We vote in politicians who make unrealistic promises of benefits we won't have to pay for. We thought we needed 10,000 square foot homes, because the 2,000sq ft homes we grew up in and the rest of the world has are not good enough. We don't have the income to pay for these McMansions, so we have our politicians bully banks into giving us mortgages with less than 20% down -- which was the standard down payment for our parents and grandparents. We insist on blaming the banks for selling us this mistake, even though we had every right to put down 20% if we wanted. In short, we refuse to take any responsibility for our own actions.
I am very afraid for the future of this country. Neither presidential candidate has the skill set to deal with our debt situation, and even more importantly, neither man has the courage to tell us that we are our own biggest enemy.
By the way let's stop this war immediately if not sooner. THERE ARE NO WINNERS IN WAR, ONLY DEAD PEOPLE SO WE CAN HAVE PARADES AND DRY OUT THE TRESURY FOR THE WEALTHY GUN AND BOMB MAKERS. THEY ARE THE TRUE WINNERS.
Sorry to hurt anyone feelings but better than being dead. Wars and the creation of the old men looking for glory before going to hell to meet the devil and for the young to die before 21 and for the mistakes of the old men. By the way I am 74 years old and a 30 year vet. If we can destory all weapons and have only knives to defend ourselves then we can sit down and talk things over. You I see generals with medals all the way to their butts, they must be 150 years old to gain so many. All the medals and a dollar gets you a cup of coffee somewhere but Starbucks. There a few who really earned their medals like Audie Murphy the most decorated combat soldier in WWII who met the enemy eyeball to eyeball or those who jumped on a bomb to save his fellow soldiers in the battlefield. Read antiwar.com or costofwar.com. Just maybe we can make sense of all this.
"$1.2 trillion taxpayer funded bailout designed to bail out the wealthy at the expense of the poor", why do you think only wealthy are being protected here, you're missing the whole picture. If the US financial system(supposedly a paragon) fails what would be the implication on the world markets and job scenario. I think we should appreciate Ben & Paul for being the Dark Knights here, for the greater good. Only time will tell.
Thankyou.
re-elected time and time again ??
A country that can put a man on the moon cannot impose
reasonable term-limits on it's politicians ??
" We have no REAL pres. candidate ! ! " wake-up people !!
Most politicians have the IQ and/or common-sense of a houseplant.
It's the people they surround themselves with and whose advise they
seek that give you a better picture.
I'm personally less afraid of the McCain camp !
All the BS aside: just ask yourself : Who should appoint the next
Supreme Court Justices ? and: What direction will this country
take then ?
(PS for all the undecided : YOU might make a point with your vote, but Paul or Nader will never appoint anybody to anything !!
However, other than paying more than the assets are worth, there is a much simpler way to price. The investment banks, and the money center banks, have senior debt, priced on the open market. Why not take the 1.2 trillion, and slowly but surely, purchase the senior debt (and maybe the commercial paper as well) at open market prices.
Have the US government hire some canny junk bond traders to purchase the now junk bank and investment bank senior bonds at market prices. Make the actual purchase plan a state secret, with the penalty of life imprisonment in the Texas Correctional system for anyone corrupting the process (that's the Huntsville Correctional Center). Market prices for the securities, and re-liquidification of the capital markets. Any questions ?
That seems to me to be the issue. How are the purchased CDOs to be priced ?
In 2002 and 2005 we had reform bills before Congress that were blocked in committee. Democrats would say its a sign of Republican leadership. But the truth is that they were the primary party blocking the vote. Check the record. Look up who was sponsoring the legislation and who was blocking it in committee. The blockers are our current leaders in the banking committee. I can show you newspaper quotes from a number of stupid politicians including Barney Frank and Christopher Dodd, who said the GSEs don't need this oversight. Its both a shame and a sham.
(to the melody of Big Rock Candy Mountain)
Lyrics By WilliamBanzai7
One evening as the DOW went down and the ABX was burning
Down the track came a banker hiking and he said boys I'm not turning
I'm headin for a land that's far away from Wall Street's crystal towers
So come with me we'll go and see the Bernanke's Big Rock Candy Mountains
In Bernanke's Big Rock Candy Mountains there's a land that's fair and bright
Where the handouts grow from the Bush bailout plan and you sleep sound every night
Where the ABS books are all empty and the sun shines every day
On the birds and the bees and the bonus trees
Where the perrier springs where the squawk box sings
In the Bernanke's Big Rock Candy Mountains
In Bernanke's Big Rock Candy Mountains all the regulators have wooden legs
And the shorts all have rubber teeth and the investors lay golden eggs
The traders books are full of fruit and the bankers play all day
Oh, I'm bound to go where there ain't no snow
Where the rain don't fall and the wind don't blow
In Bernanke's Big Rock Candy Mountains
In Bernanke's Big Rock Candy Mountains you never sell your stocks
And the little streams of Interest come a-trickling down the rocks
The enforcers have to tip their hats and the bears and shorts are banned
There's a lake of stew and of champagne too
You can sail all around 'em in your custom yachts
In Bernankies Big Rock Candy Mountains
In the Bernanke's Rock Candy Mountains white collar jails are made of tin
And you can walk right out again as soon as you are in
There ain't no short handled shovels, no axes saws or picks
I'm a goin to stay where you sleep all day
Where they hung that jerk from Berkshire Hathaway
In Bernanke's Big Rock Candy Mountains
I'll see you all this coming fall in Bernanke's Big Rock Candy Mountains
These problems DO have solutions. But implementing them will mean the end of your way of life. Choose.
I suggest you will hear the names von Mises, F.A. Hayek, and Murray N. Rothbard in the future. They predicted messes like this.
And the way things have gone, I'm not surprised.
I'm stuffed to the gills with reverse ETF's, Gold and who knows what else, dumped financials and by gum made money...
The way some people operate , the ? should be where are your people like Ron Paul?
My wife and I never bought anything on credit that depreciated; no not even a car. We lived within our means, put two sons thru college, saved and invested (but never on margin). We continue to enjoy life in a modest house on which we put 20% down and paid off in 7 years.
I once asked my oldest son how much equity he would have in his McMansion after 120 monthly payments. His 30-year amortization printout showed it would be $10,000. His monthly PITI was $1000.
I tried to explain that I believe in building equity, but that his way was about as hard a way to do it as I could imagine!
But his generation didn't want to listen. Now, you and I, "gramps2" sit high and dry with smiles on our faces while others who insisted on pampering themselves (via debt) are drowning.
Sure, its going to take time for our investments to bounce back, but its all discretionary "spending money" anyway. Hey, "gramps2,", I never earned more than $15K in any year I was working! How about you?
Do you remember 16% interest rates during Nixon's hyperinflation.
Guess what, I think they're coming back.