Treasury's Plan Is Breathtakingly Awful 52 comments
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Okay. Let's leave no room for ambiguity here. The Treasury's draft plan for saving the world is breathtakingly awful. It would give the Secretary of the Treasury entirely unchecked discretion over up to 700B dollars. Even that "limit" has a loophole big enough that you could drive a truck through it, so the Secretary could in effect spend up to 1.8T dollars, right up to the newly raised Federal debt ceiling, without further Congressional action. This act would be such a wholesale delegation of the power of the purse that I wonder whether it is even constitutional. Of course, the act explicitly puts the Secretary's actions beyond any judicial review, so perhaps questions of legality or constitutionality are merely academic. (Paul Campos shares these concerns.)
As Paul Krugman has pointed out, for the plan to help insolvent institutions, the Treasury would have to overpay for these assets. Yves Smith unearths an account that Secretary Paulson has acknowledged this fact in private, although he won't cop to it on the Sunday talk shows. It is almost old-fashioned to raise questions about whether or not the former Wall Street banker will offer sweetheart deals to his industry (an industry that has harmed the American economy more deeply than most people realize). Just as big lies boldly asserted can trump plausible untruths nervously defended, overt corruption on a massive scale (but "in the public interest") might leave a lot of naysayers dumbstruck. It becomes the way we do business. Of course, none of Dean Baker's progressive conditions, none of Brad DeLong's dealbreakers, not even my plea for a little transparency are incorporated into the proposal.
The oldest technique for the usurpation of power by the executive from the legislative is the manufacture of a state of emergency. That is not to say the present financial crisis is not actually an emergency. But the how the crisis is understood by legislators and the range of options by which it might be addressed have been set by Messrs Paulson and Bernanke. They have presented a single option, one more radical than seemed reasonable even at the height of the depression. (ht Brad DeLong)
It is worth noting that Paulson and Bernanke have thus far proven themselves to be capable technocrats. (Although, as Dean Baker points out, they've been awful prognosticators.) There's a lot to disagree with in how the dynamic duo have handled the torrent of crises that began last August. But they have acted aggressively and creatively, and in their ad hoc interventions so far, they've gone to some lengths to create upside for taxpayers and to squeeze miscreants at least a bit. Until reading the text of the Treasury's proposal and stewing on it overnight, I was inclined not to fight too hard. I saw things as I'm sure legislators see things: Something must be done, a megabailout is disagreeable and imperfect, but it's something that we can do quickly, and it's what our experts, whom we trust, recommend. Let's fiddle at the margins to get it done as best we can.
But the proposed text flipped a switch in my brain. This is not, as Senator Schumer put it, "a good foundation of a plan that can stabilize markets quickly”. It is a raw arrogation of power. My trust, my willingness to extend the benefit of the doubt, has evaporated.
This is overreach. This is bad.
See also... Glenn Greenwald, John Hempton, Sebastian Mallaby, David Merkel, Robert Reich, among many, many others, I am sure.
For a contrary view, check out the always thoughtful knzn. I disagree pretty strongly, but he's always worth reading.
FD: I am short broad stock indices, which seem to like the prospect of a bailout, so opposing the plan might seem self-interested. But I am longer precious metals and I'm short long-maturity Treasuries. My guess (and of course it is only a guess) is that those positions would do well under the plan.
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This article has 52 comments:
www.nytimes.com/2008/0...
Anyways, this is what brought me out of my apathy, getting turned on to an amazing man fighting for us, Karl Denninger who put up this 10 min video that lays out what happened to our financial system from banks down to us these past 5 yrs in a comprehensive, logical manner;
www.youtube.com/watch?...
Here is the SOLUTION he posted today, September 21, 2008. Very important - Watch this:
www.youtube.com/watch?...
Again this solution is a document you can read through and has been submitted to the senate this weekend. It has been hand-signed and distributed to each member of the Senate Banking Committee and hopefully is considered there.
This is the solution & the best, realistic shot at starting to address & fix the problems we are facing today. All I ask of you is to check out the videos, consider it, think about it, discuss it, share it with others, distribute it please. At the very least this will create much needed discussion amongst us for a realistic solution today or at the very best it will lead to the first step in many to halt a finacial collapse & stop a government shutdown on the people, preserve our ability to financial prosperity and ability to get a job (a good paying one in this country), and provide an example for others to follow. It can lead to a much brighter future for our ourselves, our families, and friends.
Please tell me what you think and copy/paste this to others you know.
Thank You,
Pete
(I had not had any communications with Karl Denninger, however since he moved me to get out of my seat & do this, I copied and pasted this message to him and I hope he appreciates this message as a token of respect to the message he is fighting to get out to the rest of us).
Given that the global financial turmoil could turn into a global economic implosion,the broad powers given to the Treasury are the
necessary evil in order to address potentially systemic financial Armageddon.
Mr.Paulsen ,as a banker certainly comprehends the issues and the necessary resolutions of the problems.
Perhaps some mistakes will be made but there is no doubt in my that the "stability plan" will be effective in addressing the "financial bleeding" .
The time for concern was two years ago.Now the expressed concerns are waste of time.
Proposed solution is effective and with time may have effective zero cost.
Failure to implement this solution will lead to a systemic failure and global economic implosion.
On the other hand ,implementing the proposed program will contribute to a major economic rebound and unprecedented stock market rally.
More importantly it will keep Americans working.
will move house prices up again, (with all other prices of course) ...
There is no accounting in the bill because Paulson is the most accountable/liable for this toxic paper.
He created derivatives on derivatives while at Goldman, all roads lead back to King Henry.
Long live the King!
Prepare for the wholesale criminalization of all manner of political activity; the only way this kind of usurpation of power by the executive can persist is with aggressive clampdowns on dissidents. This too will be rushed through a compliant congress under the guise of some emergency ("domestic terrorism" seems a good bet).
Thomas Jefferson, I believe, wrote that from time to time the tree of liberty must be fertilized with the blood of tyrants. In November we have the opportunity to "spill their blood" peacefully by kicking out every single member of the House of Representatives, and 1/3 of the Senate. In my opinion, anyone who votes for an incumbent this year is absolutely as much of a treasonous monster as the 535 people who currently sit in office. And yes, that includes McCain and Obama. These people are actively working to destroy YOUR life and YOUR potential prosperity in order to line the pockets of their campaign contributors. That is the simple, unavoidable truth. Vote them out.
I don't care if you are a short seller, democrat, republican or hari krishna.
Giving one guy (that helped contribute to the mess) unchecked authority to bailout financial service firms is BS.
Merrill Lynch was able to sell a huge pile of their bad assets (prior to the BofA acquisition) at 15-20 cents on the dollar -- proving the assets are liquid at the right price.
Henry Paulson spent the summer of '07 telling us the subprime debacle was well contained. He spent the summer of '08 telling us that Fannie/Freddie were well capitalized and in no need of a bailout.
Now Paulson is telling us he is going to buy assets that are clogging up the system.
(1) if the banks were willing to sell at a price that would yield the taxpayer a reasonable profit, smart money (Buffet, Blackstone, Carlyle, etc) would have already done it
(2) if Paulson offers a "fair" price (where the taxpayer neither profits nor loses), there is no reason for banks to want to participate. There is already liquidity at these prices
(3) Paulson will need to drastically overpay for the assets. This is the only scenario in which the banks are "helped". It also results in hundreds of billions in losses to be paid for by the taxpayer.
And just to add insult to loss, Paulson wants to be named defacto dictator. Able to spend taxpayer money however he sees fit, without any oversight.
Throughout the history of Wall Street, the "big names" have changed many times -- so I really wasn't worried that, once again, the big names are changing. Its a little scary while it is happening, but in the end it has historically worked out for the best...
...but now I am really scared for the markets and for America. We don't need a dictator, period. We don't need an ex-Goldman CEO bailing out his crony friends at taxpayer expense.
This is a disaster.
I'm no longer sure it's such a daft question, particularly if you put what is planned into the broader context of post-9/11 curtailments on personal freedoms. Boiled down to basics, is Congress not handing between $700B and $1.8T to one unelected and unaccountable individual to spend as he chooses, based solely on the armageddon scenario put to them by this same individual? Things are certainly bad, but I doubt anybody writing on or reading SA has any more idea than I do whether they really are bad enough to justify what must surely be one of the most significant tears in the fabric of American democratic accountability since the redcoats were (quite rightly) booted out. We might argue about whether or not 'coup' is too emotive a word, but quite clearly something very profound is happening to the American system of democracy this week. For those of us overseas who - despite Iraq, Bush and one or two other 'missteps' - still admire what the United States and (most of) her people stand for, it is deeply worrying.
Sorry folks, you will not be allowed to destroy the American financial system to fund an even bigger yatch for your cruises to the Caymans. You wanted it to be about raw firepower and confidence, fine it is about faw firepower and confidence. And we have it, you don't.
Give it up already. Nobody cares what you whiners think anymore.
This isn't about free markets. Its about FREE anything. Its another case of the erosion of our rights and our way of life by an administration and its party apparatus and its stooges and bureaucrats who are interested in one thing and one thing only - unlimited power for themselves and their business partners.
And they will manipulate, and lie, and intervene, and fail to disclose the truth, and do all the things that totalitarian governments do to "protect" their citizens.
They spy on us "to keep us safe", they lie about the reasons to go to a monstrous, costly war to save us and our children from what they knew to be a lie (costly in lives and grievous injuries, in so many sad tragic ways besides the obvious huge financial cost) and now they want to "save" the American people, the taxpayers, from the financial armageddon that they themselves let get out of control through denial, and lack of transparency, and greed, suddenly the administration spin machine says it is "to save the American people, to save the taxpayer".
Save us from whom? Ourselves?
I'd rather be saved from THEM.
If they had cared a good goddamn for the American people, for the taxpayer, we would never be in this position in the first place.
This is in fact the latest step in the enslavement of the American people by big government and big business, the latest piece of the American myth to be stolen from its citizens, and make no mistake, when they take something, its gone for good.
We the People and our US Constitution are heading down a long, slippery slope here, and our government is not our ally.
I do not think we can survive much longer if they continue to save us from ourselves.
Keep your eyes and ears open citizens, its a long way to the election. If they can't succeed in saving us from ourselves, they may just decide there's no reason to have an election at all.
We are on the brink of a police state, and these are evil, terrifying people we are up against.
So in effect they were actually paid 5 cents/dollar with the hope that the other 15 cents/dollar would come from MBS income (ie. the mortgages that were still paying).
gramps is right. IF the FED/USTreasury pays the market price for MBS the banks will STILL have to take at least 50% of the losses they are carrying right now, probably more.
Not what I'd call a good reason to buy stocks: huge losses are only half of what we thought (or worse, but still huge). I think I'll pass for now, thank-you-very-much.
globaleconomicanalysis.../
If things are so bad, is 6% unemployment comparable to the great depression? Are we really predicting breadlines in a country with rising exports?
Has no one questioned this mass panic / giveaway of our wealth?
so...
Government = National Debt + Taxpayer Equity
Which do you think has control over the assets - the foreign creditors who own the debt or the taxpayers?
Since the government would run out of money if the lending was ever cut off, I would say the foreign creditors. Just like in a bankruptcy, the assets have been seized and used to try to make the creditors whole. The fact that our own government would shift open market investment losses from the creditors to the taxpayers illustrates this realization nicely. We no longer own the government. We squandered it away on silly wars and porky budgets.
What a fabulous idea, use the government's phony statistics against them:
"Bailout? What emergency are you talking about? The economy grew last quarter at a 1.3% annual rate! Unemployment is only 6.1%! We're not even in a recession! Inflation is only 2.2%! Our exports are growing, and oil is off its highs! The banking system is strong, the economy is Goldilocks, and the US dollar is the envy of the planet! We don't need no stinking bailout!"
Interesting thoughts and links here, folks. Thanks!
Now that the revolution is coming, you WILL be first with your back against the wall. I can hardly wait.
-rmcb
The average person has never taken economics in their life and gets the whole or a great part of their understanding of the world from television sound bites. Television shows them impending doom, and the populace demands action, by the government, NOW.
My goodness, just listen to the President. It's not a very great oversimplification to paraphrase him as saying, "At first I was going to let the market be, but then some advisers said that its all interconnected and now I am going to take bold and decisive action to save the economy."
This bailout seems to be more than just bailing out banks. It seems to be about convincing people to keep their money in the markets and the banks, so there's liquidity for the economy. Unfortunately, bad business practices are partially vindicated when this is done. Expect a First-100-Days declaration by the presidential hopefuls on this issue, and please watch the debates.
What worries me far more than this temporary crisis is the following question: How do you convince people who don't think deeply about the world that "bold and decisive action," while sounding good in the short term, ultimately undermines the basis of our society?
Bottom-line: Paulson is a salesman. He wants to do the big deal. He has a head the size of a planet. He wants to go down in history as a "savior". I hope he is checked by "We the People." If not, we deserve this new socialism. I refer readers to Friedman who has stated that (paraphrased but sentiment intact):
"...there is an intimate connection between political freedom and economic freedom. Those that believe such a connection doesn't exist are, I submit, delusional."
It was a wise man who noted that the only corporate structure more insidious than a government-sponsored monopoly is a government-sponsored and investor-owned monopoly. In the end, as Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) have now so painfully proved, trying to serve the master of public policy while generating returns for investors will lead to disaster.
Fannie and Freddie collapsed because they were part and parcel of the widespread gross financial misconduct that has taken place in the United States over the past decade. It's easy to miss this fact, but the reality is that too many people were making too much money pumping up the housing market. In 2005, the Office of Federal Housing Enterprise Oversight (OFHEO), the erstwhile regulator of the two, attempted to limit their use of off-balance sheet entities to groom earnings. In the end, it didn't, because, as one reform-minded politician admitted, Congress was afraid of undermining the housing boom.
Some are more culpable than others
As part of the conservatorship, the Department of the Treasury has demanded that Daniel Mudd and Richard Syron, the CEOs of Fannie and Freddie, respectively, step down. Certainly, at the time of a corporate collapse, those in charge have to bear some responsibility. But Mudd and Syron came into their roles when the great pillaging was well in process.
At some point not too long from now, the nation's attention is going to turn from the immediate players to those who benefitted the most, shouted down the skeptics, and/or stood by as Fannie and Freddie deviated from their core business in the name of growth and/or mission. These people are keeping a low profile right now, until the taxpaying public starts paying attention to something else. As taxpayers, we don't particularly enjoy our role in this relationship, and we're hopeful over the longer term that the following folks cease to enjoy theirs.
Franklin Raines
Fannie Mae was always a political beast, but it reached its elbow-swinging heights during the time when former Clinton administration budget director Franklin Raines sat in the CEO chair. Under Raines' leadership, Fannie overstated earnings by a stunning $10.6 billion, all the while paying Raines and his senior management team massive bonuses.
It was under Raines' management that Fannie morphed from being a company in a sleepy business -- issuing debt to buy mortgages from lenders -- into a far more risky and exciting one: buying up mortgages and holding them, thus capturing the spread between its borrowing costs (which were lower than anyone's other than the federal government's) and the interest rate received. It was a great business, except that it had nothing to do with Fannie's charter. According to a May 2006 report from OFHEO, Raines became obsessed with keeping earnings per share as high as possible and motivated management to achieve that goal by setting up a bonus system that rewarded increasing earnings per share (EPS).
The thing is: Any company can hit an EPS number if it doesn't worry about little things like accounting rules, debt levels, and risk factors. All told, Raines pulled in some $90 million between 1998 and 2003, the majority from bonuses. And when OFHEO began to ask uncomfortable questions, Raines actively lobbied Congress to cut its funding. In April, Raines agreed to disburse $24 million for his role in the accounting "errors."
Timothy Howard
Former Fannie Mae CFO Timothy Howard is another major player who is probably cowering in a corner somewhere. For all of the expletives and derogatory names thrown at former Enron CFO Andrew Fastow, he at least stayed around to take his punishment. Inmate No. 14343-179 pleaded guilty to fraud and is serving a six-year prison term. Howard, on the other hand, saw the writing on the wall -- largely because he was the author -- and got out of Dodge.
As Fannie's CFO from 1990 to 2005, Howard signed off on the financials that overstated the company's earnings by $10.6 billion from 1998 to 2004. His reward? A cool $14 million in salary and $16.8 million in bonuses during the period -- bonuses based on the earnings plan that Raines set up.
While Howard was not the only person at Fannie guilty of constructing fraudulent financial statements quarter after quarter, as CFO he is most responsible for the integrity of said statements. Whether he left early enough to avoid culpability remains to be seen. However, we've heard through the low-security-prison grapevine that Fastow is lonely these days and wouldn't mind talking shop with a fellow former CFO.
Barney Frank
The House Financial Services Committee chairman and Democratic congressman from Massachusetts has long been a proponent of both Fannie and Freddie, assuring the public that their mission to encourage home ownership outweighed the distortive risks they brought to the market, and that the federal government was not, in fact, on the hook for their liabilities. In fact, it seems clear now that Frank had no idea of just how poor a grasp Fannie and Freddie had on their lines of business. As recently as Aug. 25 he told Money magazine, "Fannie and Freddie are better off than the market thinks. ... Part of the problem is rumormongering by short-sellers."
What's more, though Frank will blame past political opponents for failing to further regulate the mortgage market by banning products such as subprime loans, the fact of the matter is that the very presence of Fannie and Freddie incentivized brokers to overstate the creditworthiness of borrowers and then pass on that risk to the federal government, all while being cheered for helping more people "realize the American Dream." While we can all agree (I hope) that mortgage markets only function when -- as Frank told Money, banks "do not lend money to people who can't pay it back" -- Frank's ideology in this case blinded him for decades to the realities of the marketplace and the operations at these companies, leading him to stonewall realistic reform efforts that might have helped us avoid the current calamity.
Angelo Mozilo
There's good reason for Angelo Mozilo to hide under a desk these days. Few, if any, extracted more personal profit from the credit bubble than the CEO and founder of Countrywide Financial. Mozilo's talking points always borrowed heavily from the propaganda of our government-sponsored enterprises (GSEs). Countrywide liked to pretend that it was performing some kind of public service -- "breaking down barriers" -- by making homes more "affordable" to the average (or subaverage) wage earner. Unfortunately, as speculation drove home prices to ridiculous levels across the U.S., "affordability" came to be the code word for gimmicky, high-interest subprime loans lavished on the riskiest of borrowers in order to get them into a mortgage that would soon be bundled and shipped off to the suckers on Wall Street.
Unfortunately for borrowers and investors in Countrywide's mortgage paper, the American Dream of home ownership quickly morphed into a nightmare. Default rates surged, followed by the inevitable foreclosures, and mortgage paper backed by Countrywide loans became as valuable as post-bubble, dot-com stock options. Countrywide was only spared the ignominy of bankruptcy when its longtime sugar daddy, Bank of America (NYSE: BAC), stepped in to take it out.
As captain of this sinking ship, CEO and founder Mozilo was, for a time, very vocal in defending his company's legacy. But like so many others in America's great housing bubble, talk was one thing, and actions were another. As the housing bubble began peaking in 2003 and 2004, through the period when Countrywide's risky lending fell apart, Mozilo engaged in one of history's greatest stock dumps, selling more than $480 million worth of shares, according to the tally of insider filings on secform4.com. This graph tells the tale.
Alan Greenspan
If not the boldest of the group, then at least the most public, Greenspan, the man many are now blaming for the housing bubble (there were a brave few that piped up years ago), has refused to go quietly into his well-padded retirement. The man charged with providing the country with a financial voice of reason fell far short, so much so that it might be comical if it weren't so tragic.
Greenspan's denial of the possibility of a housing bubble has been widely derided in the past year, but a single statement could be excused as human error. However, a quick scan shows that this wasn't a single event. He also promoted the adoption and expansion of adjustable-rate mortgage (ARM) products in early 2004, when short-term rates were at or near historic lows. That same year he claimed, "securitization by Fannie and Freddie allows mortgage originators to separate themselves from almost all aspects of risk associated with mortgage lending." And separate themselves they did, ceasing to perform any kind of due diligence as to the ability of borrowers to pay for the homes they were buying.
Now retired from his role as the nation's monetary conscience, Greenspan continues to espouse his, er, theories on the financial crisis through editorials in which he denies any culpability for the events of the past three years. He is also applying his experience and insight as an advisor for Paulson & Company, a hedge fund which cashed in on billions of dollars by calling the collapse of the subprime mortgage market that Greenspan helped create.
(How the Grinch Stole Christmas revised by
William Banzai7)
williambanzai7.blogspo.../
Every Banker down on Wall Street Liked CDOS a lot...
But the Grinch,Who lived just north in Greenwich, Did NOT!
The Grinch hated those investment bankers for a whole list of reasons!
Now, that is why we are having this exciting fall season.
It could be his trader head was screwed on just right.
It could be, perhaps, that his white shoes were a little too tight.
But I think that the most likely reason of all,
May have been that his NAV was 12 sizes too small.
Whatever the reason, His smarts or his shoes,
He stood there last week, hating all Wall Street's Whose Whos,
Staring down at his trading P&L with a sour, Grinchy frown,
Detesting those warm lighted screens in Wall Street town.
For he knew every Captain down in Wall Street beneath,
Was busy now, trying to sail through the great Subprime reef.
"And they're firing their traders" he snarled with a sneer,
"In three months its Christmas! It's practically here!"
Then he growled, with his Grinch fingers nervously drumming,
"I MUST find some way to give those investment bankers a drubbing!"
For Tomorrow, he knew, all the Whose Who of Bankers,
Would wake bright and early. And rush to save all their bonus earnings!
And then! Oh, the noise! Oh, the Noise!
Noise! Noise! Noise!
That's one thing he hated! The NOISE!
NOISE! NOISE! NOISE!
Then the Whose Whos, young and old, would all fly Far East.
And they'd try to talk Korea and China into feasting on trading book yeast!
And they'd feast! And they'd FEAST!
FEAST! FEAST! FEAST!
They would feast on champagne and rare banker roast beast.
Which was something the Grinch couldn't stand in the least!
And THEN They'd do something He liked least of all!
Every Who down in Wall Street, the Bulls and the Bears,
Would stand close together, with opening bells ringing.
They'd stand hand-in-hand. And the Whos would start singing!
They'd sing! And they'd sing! And they'd SING!
SING! SING! SING!
And the more the Grinch thought of this Singing,
The more the Grinch thought, "I must stop this whole thing!"
"Why, for year after year I've put up with it now!"
"I MUST stop a Wall Street bailout from coming! But HOW?"
Then he got an idea! An awful idea!
THE GRINCH GOT A WONDERFUL, AWFUL IDEA!
"I know just what to do!" The Grinch laughed in his throat.
And he made a some quick calls to spread rumours of a giant toxic CDS boat.
And he chuckled, and clucked, "What a great short seller trick!"
"With this phone and this screen, I'll batter those Wall Streetwalkers selling asset backed tricks"
"PoohPooh to the Whose Whos!" he was grinchishly humming.
"They're finding out now that no Chinese White Knight is coming!"
"They're just waking up! I know just what they'll do!"
"Their mouths will hang open a minute or two,
Then the Whose Whos down in Wall Street will all cry BooHoo!"
"That's a noise," grinned the Grinch, "That I simply MUST hear!"
So he paused. And the Grinch put his hand to his ear.
And he did hear noises over the trading screen glow.
It started low. Then it started to grow.
But the sound wasn't sad! Why, this sound sounded merry!
It couldn't be so! But it WAS merry! VERY!
He stared down at Bloomberg and Reuters! The Grinch popped his eyes!
Then he shook! What he saw was a shocking surprise!
Every banker down in Wall Street, the Bulls and the Bears,
Was singing! Without any White Knight at all!
He HADN'T seen a Big Federal bailout coming! IT CAME!
Somehow or other, it came!
And the Grinch, stood puzzling and puzzling: "How could it be so?"
"It came with out tickers! It came without a tab!"
"It came as Federal largesse in boxes and bags!"
And he puzzled three hours, till his puzzler was sore.
Then the Grinch thought of something he hadn't before!
"Maybe a Bailout," he thought, "is not just for financial Whooers"
"Maybe Fed bailout...perhaps...me... a little bit more!"
And what happened then? Well...on Greenwich Main Street they say,
That the Grinch's taxes grew 12 sizes that day!
And the minute his wallet didn't feel quite so tight,
He whizzed with his Lexus through the South Bronx morning light,
And he met those Wall Street boys for a Smith & Wolensky feast!
And he, HE HIMSELF! The Grinch carved the beef!
you dont seem to understand the meaning of the word bailout, do you?
and if the plan is so good and will be beneficial to the taxpayer, why the heck hunky paulson is asking for non reviewable authority?
if he's doing good, he should not be afraid by 'any court of law or any administrative agency' that may peek into his deeds.
Stand up for your rights and your children's right.
Why should the profits on wall street be privatized and the losses be socialized?? I truly don't get this. Change the rules in the middle of the game.... How convenient for Paulson's buddies at Goldmann.
everyone holding gold and precious minerals will recognize that their holdings got more valuable compared to the dollar. everyone in the stock market will realize that the financial system is no longer frozen and will not collapse. since that armagedon event was priced in, our stock markets will go back up and all the 401ks owners can swallow their hearts again when they open their next statements.
arguing that power is being moved from a bunch of idiots to the representative of a bunch of idiots does not impress us or make us want to reconsider the giant bailout. most of us do not think our votes count for anything now. we are always given a choice between two evils, democrats and republicans. both parties sacrifice their main goals to their vocal extremists.
we want to be able to write a check and make things right. that is the american way. if we can put it on the charge card, even better.
if we were playing monopoly, and we are, and the banker said that he would no longer play, no longer make change or pay when we crossed go, unless we doubled the amount of fake money and doubled the price of every property, we would not hesitate. who cares if board walk or park ave cost twice as much? when we land there, we pay rent, anyway. the banker always wins, anyway.
do we care if gates, buffett, mittal or anyone else has kabillions of dollars? no, in fact, the more they collect, the better off we are. with any luck, they will keep those dollars out of circulation and they will not compete with my dollars for goods and services. if they spread out their wealth to every man, woman and child in america, suddenly we would all have more money and have to pay more for a gallon of milk, a dinner out, a haircut or a movie.
to live in a truly fair system, we should cap the income of anyone doing business in america. as soon as anyone gains financial advantage, they become like the banker in monopoly and the end of the game is in sight. until we take that action, everything else we do is just a holding action, delaying the inevitable.
(Charge of the Light Brigade, Alfred Lord Tennyson)
(Modified by WilliamBanzai7)
Half a trillion, half a trillion,
Give or take 200 billion, onward!
All in the valley of Balance Sheet Death
Rode the seven hundred billion tax dollars.
"Forward, the TARP Brigade!
"Charge for the ABS Credit Default Swaps!" he said:
Into the valley of Balance Sheet Death
Rode the seven hundred billion tax dollars.
"Forward, the TARP Brigade!"
Was there a politician dismay'd?
Not tho' the Congress knew
Some guy named Hank had blunder'd:
Their's not to make reply,
Their's not to reason why,
Their's but to do and die:
Into the valley of Balance Sheet Death
Rode the seven hundred billion tax dollars.
CDOs to right of them,
CDSs to left of them,
AIG and the GSEs in front of them
Volley'd and thunder'd;
Storm'd at with Wall Street shot and shell,
Boldly that load of Federal largesse rode and well,
Into the jaws of Balance Sheet Death,
Into the mouth of subprime contagion Hell
Rode the seven hundred billion.
Flash'd all the workout sabres bare,
Flash'd as they turn'd in air,
Sabring the asset backed losses there,
Charging an army of tawdry bankers, accountants, and shysters, while
All the world wonder'd:
Plunged in the seedy subprime-smoke
Right into the red numbers they broke;
Lehman and Bear Stearns
Spared from the sabre stroke
Shatter'd and sunder'd.
Then they rode back, but not
Not the seven hundred billion.
Subprime CDOs to right of them,
Subprime CDSs to left of them,
Fat Wall Street advisory fees behind them,
Volley'd and thunder'd;
Storm'd at with derivative losses, asset backed shot and shell,
While level 3 zeros fell,
They that had fought so well
Came thro' the jaws of Balance Sheet Death
Back from the mouth of subprime contagion Hell,
All that was left of it?
Nothing left of seven hundred billion!
When can its glory fade?
O the wild loss charges!
All the world wondered.
Honor the huge expenditures they made,
Honor the TARP Brigade,
Noble seven hundred billion taxpayer dollars.
(TARP--Troubled Asset Relief Plan of 2008)
williambanzai7.blogspo.../
Since you think the plan is so bad, can you please post your own detailed plan.
Here is a Post article with criticisms and alternatives. Show it to the othe Seeking Alpha authors.
Alternative Solutions Diverge From Administration's Approach
By Anthony Faiola and David Cho
Washington Post Staff Writers
Wednesday, September 24, 2008; A01
To hear Henry M. Paulson Jr. and Ben S. Bernanke tell it, there is only one plan to save the economy -- use $700 billion in taxpayer money to take the worst of Wall Street's assets off its books.
But leading economists and financial analysts argue that there are a host of alternatives that would reduce taxpayers' liabilities and perhaps more effectively address the urgent crisis in financial markets. Although these experts concede that the clock is ticking, they say other approaches have been dismissed too quickly.
While the government's plan is built around buying troubled assets, other options offer sharply different visions.
One approach seeks to reduce taxpayers' liability by offering collateral-backed loans to troubled banks, leaving them to work out their own solutions. Another idea is to have the government set up a profit-driven investment fund with the aim of infusing the financial system with cash without taking on bad debt. Still others suggest radically different tactics of directly helping homeowners by reducing mortgage principal or bolstering banks by suspending capital gains taxes.
The administration has said it is willing to negotiate key parts of its plan -- including a possible concession allowing the government to take equity stakes in financial firms in exchange for bailing them out -- but senior officials stand by the fundamental approach they have adopted to solve the crisis.
"They presented this as a comprehensive, decisive solution, but it's clearly not comprehensive and probably not decisive," said Simon Johnson, a former chief economist at the International Monetary Fund and a professor at Massachusetts Institute of Technology.
A mistake could result in a catastrophic collapse of the U.S. financial system that could ripple across the world or in a staggering cleanup bill for taxpayers. At the core of the debate is whether Paulson, the former chief executive of Goldman Sachs now charged with rescuing Wall Street as Treasury secretary, and Bernanke, the Federal Reserve chairman and one of the leading academics on financial crises, are serving up the best possible recipe for purging the U.S. financial system of billions of dollars worth of distressed mortgage-related debt.
Under the administration's rescue plan, the Treasury secretary would have broad discretion to buy as much as $700 billion worth of troubled mortgage-backed assets and other securities that Wall Street firms have been struggling to sell. Administration officials hope that once those assets are cleansed, money will flow freely through the financial system again and that the government can hold onto the securities until they recover some of their value.
In testimony on Capitol Hill yesterday, Bernanke and Paulson explained that they formulated their plan after considering past crises, including the U.S. savings-and-loan bailouts of the 1980s and the bursting of Japan's economic bubble a few years later. But they ultimately decided that the response to the current crisis needed to be a fast and massive fix.
"The situation we have now is unique and new," Bernanke said. He later continued, "The firms we're dealing with now are not necessarily failing, but they are contracting. They are de-leveraging. They're pulling back. And they will be unwilling to make credit available as long as these market conditions are in the condition they are."
Many of the alternatives fall under four basic approaches:
Government as Lender
Critics of the administration's plan argue that one alternative could be crafted to minimize the exposure of the government -- and taxpayers -- to risk. Johnson, the MIT professor, suggested that the government, instead of taking on the bad debt, could offer loans to troubled banks, allowing them to put up their compromised portfolios of mortgage-backed debt as collateral.
This would give the banks access to badly needed cash at attractive interest rates set by the government. But it would not completely let them off the hook for making those bad investments in the first place. Because government money would come in the form of loans, rather an outright purchase of the risky investments, taxpayers would be offered greater protection. Ultimately, the banks would have to pay off the loans and take back the securities, though at a time when the market for them may have improved. If the value of the securities is still depressed, that would be a problem for the banks, not taxpayers.
"The risk to the government/taxpayer is that the bank goes out of business and so isn't around to settle up," Johnson said. "But the government is also the regulator, and they can do a more forceful job of making sure the banks have enough capital, so the incentives are pretty well aligned."
Interest rates would be set at a level attractive to banks, the relatively low rate at which the Treasury borrows plus a small premium. Only if the banks were nearing default would the government take a more active role in propping them up, perhaps even taking them over.
Government as Hedge Fund
Some market analysts and fund managers worry that the Paulson plan would allow Wall Street to dump the worst kind of mortgage securities on the federal government. One solution could be the establishment of a fund that limits its purchases to profitable mortgage securities and other assets.
The creation of a $700 billion investment fund could help reinvigorate the business of trading mortgage securities, greasing the wheels of the credit markets by bringing in a new, cash-rich investor: the federal government. While this solution runs the risk of not cleaning up enough of the bad debt on firms' books, taxpayers could be more confident of getting their money back because the government would be selective about which securities it bought.
Mortgage Breaks
Liberal analysts say the government could intervene in the financial system by addressing the ailing mortgages at the heart of the crisis. Under this approach, the government could reduce the amount of principal that struggling homeowners owe.
"It's about foreclosures, stupid," said John Taylor, chief executive of the liberal National Community Reinvestment Coalition.
One idea is for the government to take control of some mortgage-backed securities -- most likely by buying them from financial firms -- and then work to restructure the underlying loans into something homeowners could afford. The value of the securities, both those bought by the government and those in private hands, could improve as foreclosures and late payments drop. If so, financial firms holding mortgage-backed securities could see a recovery in their balance sheets.
To make it fair for homeowners who keep up with their payments, borrowers who receive federal help would be required to give the government some of their gains if they eventually sell their homes for a profit.
But advocates of the idea acknowledge that it may take time to address the problems of millions of struggling homeowners. In the meantime, critics of this approach say, the financial system could fall deeper into chaos.
Tax Breaks for Wall Street
Conservative analysts take a different tack, though their criticism of the Paulson plan has been no less sharp. They say that because the proposal forgives Wall Street for its past sins, it creates an incentive for investors to behave irresponsibly in the future.
Some of these analysts complain that the government's rescue punishes taxpayers too severely for Wall Street's mistakes. They propose a cheaper alternative that calls for the repeal of the capital gains tax for two years, which would provide Wall Street a stimulus to reinvigorate the financial system.
Accounting rules that require banks to estimate the market value of their troubled mortgage securities would also be suspended for five years, giving financial firms the ability to value these assets at prices more reflective of the market before the panic gripped Wall Street.
Rep. Jeb Hensarling (R-Tex.) said this plan, which he announced on Capitol Hill yesterday, was still being finalized. Hensarling said the cost of the capital gains tax repeal, for instance, was still being determined.
"We agreed that inaction is not an option, but that doesn't mean that we've concluded that the Paulson plan is the only option," Hensarling said. "There are alternatives to consider, and we think we have a worthy one."
All of these alternatives try different ways to get at the root of the turmoil facing the financial markets and the economy. According to Lawrence Summers, former Treasury secretary, the government might have to try multiple approaches.
"If you have hypertension, you're way overweight and you're in the process of having a heart attack, what's your most fundamental problem? It's really not that useful to distinguish between them," Summers said at a Brookings Institute forum. "They're all components of the situation, and you're not going to get to a very satisfactory place unless you address all of them. That's how I think of our financial reality right now."
williambonzai7 must work for the Federal Reserve. ;-)
Should we start a non-profit fund to erect a statue to the 700 Billion and put it in front of the FED in DC? It seems like the least we could do.
Or, start our own private relief effort based on similar charities:
Adopt a CDO! For only $3 Billion you can get letters and photos from your very own CDO as it stuggles to remain viable.
searchwww.sec.gov/EDGA...
Search on Text ("Paulson Henry")
It looks to me like he is bailing out his own investments. Dam I wish I had the power to do that.