Does It Have To Be Exactly $700 Billion?

One of the more noteworthy exchanges in yesterday's Senate hearing went down between New York's Chuck Schumer and Henry Paulson over why the Treasury needed $700 billion all at once versus something smaller but still huge, like $150 billion.

Schumer: Could the system work if we put in the legislation, say, this is the first tranche and by January 15th -- just pick a date -- Congress will come back and reexamine?

Paulson: I think that would be a grave mistake --

Schumer: And why?

Paulson: Because I think what this is about is market confidence and having the tools to do the job.

Huffington Post's Sam Stein asked three economists what they thought of Schumer's proposal, with one supporting it and the other two backing Paulson's need for another Bazooka.

In further testimony this morning Fed Chairman Ben Bernanke expanded on how the $700 billion number came about.

"It's not science," Bernanke said. But there are roughly $14 trillion in outstanding residential and commercial mortgages and five percent is also roughly the loss rate on those categories, he added. Five percent of $14 trillion is = $700 billion.

Intrade is giving an 80 percent chance that a bailout will be passed by Sept. 30, but what happens if the Congress doesn't act?

"Having created the expectation in financial markets there will be a package, if there's no package whatsoever, there is very substantial risk of utter financial market chaos," said CBO director Peter Orszag in separate testimony.

Looking to money market spreads, it does seem that conditions have not improved and have actually continued to worsen since last week. Here is the Libor-OIS spread as of this morning:

And the rate on the 1-month New York Funding Rate has moved ahead of the 3-month rate (4.05 versus 3.99) for at least the second day.

Orszag also said that in a best-case scenario, the bailout could work in weeks, not months.

Comments

[a believer]

We'll all look back at 2008 as 'The Year The Leverage Debt Industry...Died'

C'mon folks, was it ever a GOOD THING? An industry that attracted all the shysters, losers, crooks and the worst among us.

Now everyone can go back to actually providing goods and services that have value. The industries that survive will be those that have their own cash on hand to invest and grow. Remember how that worked?

Unfortunately the shysters, crooks, and losers are still with us. Be on your guard!

I'm bullish PRISONS.

2008 Sep 24 11:47 PM

[HARM]

Greetings, taxpayers!

Sure, we completely blew the call on the housing bubble a few years back. Yes, it really existed, and yes, we sort of encouraged (and subsidized) loaning all that money to liars, crooks and deadbeats who had no intention of ever paying it back. Oh, and yeah, we also sort of encouraged reckless risk-taking and turned a blind eye to Wall Street/banking "regulation" (what a quaint term!) when it might have made a difference. And in hindsight, having all those IBs leveraging those funny-money loans 30:1 wasn't the great economic panacea we thought it was.

But... this time it's "different". We really need you to TRUST us to "fix" things this time. And the last thing we want you to do is *think* about it first. I mean, it's a no-brainer. Bailing out reckless IBs and rich gamblers is the AMERICAN WAY. It's "Free Market Capitalism" (tm) at its finest. Remember: four legs good, two legs better.

Well... gotta go now. All these "trash for cash" swaps are really creating awesome opportunities in commodities and other currencies that us insiders need so we can skim all the cream before the rest of you suck--, er, fine citizens catch on.

Anyway, thanks for listening and being so easily manipulated. And don't forget to pick up our tab on our way out!

Sincerely,

Pres. Bush
Dick
Hank
Bernie
Greenie
Congress

2008 Sep 25 12:24 AM

[rhino127]

rather than paying these no-good sheisters on Wall Street, why not recapitalize the American household balance sheet who pay taxes and give them a one time forgiveness of 30% of their mortgages existing at the end of 2007!!!

2008 Sep 25 04:48 AM