Republican Bailout Counterproposal? Utterly Idiotic

Okay, on the Bailout, I’ve been silent for a while. Mainly because it’s not the same from day to day and my thoughts change a lot… Also, John McCain decided he should get in the mix, although Americans seem to have disagreed, and confused the whole thing… But on Friday I heard some things that prove the Republican party, specifically the House of Representatives’ Republicans, are complete and utter idiots.

From Politico (emphasis, mine.):

House Republicans say the potential losses for the taxpayer are excessive. Rather than purchase bad assets, one alternative would be to extend government-backed insurance for the securities with industry paying a fee for the added coverage that could improve their value.

Okay, geniuses, what are you going to charge for this magical insurance? I don’t have to remind readers that there is no way to determine this… If one could know what “insurance” like this would cost then they would know what the underlying securities were worth.  Oh, and let’s not forget that the same person who would have to use this authority, Hank Paulson, thinks it’s useless (emphasis, mine):

Frankly, he said, ‘If that was added as an option, it wouldn’t hurt, but I couldn’t use it,’ the chairman said of his discussion with Paulson. As for Frank himself? 'I wouldn’t mind, but it doesn’t do anything. It’s useless but not harmful,' Frank said. 'The problem was in displacing the other stuff.'

Oh, and these same stupid partisan arch-conservatives cited Fannie and Freddie (FNM) (FRE) as proof that mortgages can be insured… Need an educated person, with even a minimal knowledge of finance and current events, say anything more?

My favorite, though, is how the House Republicans, just like the Underpants Gnomes, want to suspend the capital gains tax so that the economy can recover (”Step 1: Remove Capital Gains Tax, Step 2: Economy Fine”)! What do they say, (emphasis, mine):

'By encouraging corporations to sell unwanted assets, this provision would unleash funds and materials with which to create jobs and grow the economy,' an outline of the proposal said. 'After the two-year suspension, capital gains rates would return to present levels but assets would be indexed permanently for any inflationary gains.'

Someone needs to tell these free market champions the definition of the word “gains” …

To be sure this is a complicated problem. However, having idiots running around pandering to their base with senseless proposals that are counter-productive complicates things further.

As for the other provisions? Well, I think one needs to step away from their “Wall St.” hat here and look at what’s best for everyone…

For many reading this blog I anticipate that’s a hard thing to do. In general, oversight is something I support. I also think that companies that want to avail themselves of public money should give the taxpayers some upside and assurance that they won’t be rewarding people who were responsible for this problem in the first place.

How does one implement those things? Seems like the consensus bill being reported gets closer than the other proposals… We’ll have to see what emerges.

Comments

[Steven Hansen:]

Personally, i do not see any congressman capable of analyzing and proposing a solution - whether republican or democrat. the lobbyists from the special interest groups are flocking around the congressmen to "help" them express their ideas. this is a cluster-f**k.

i would feel better to have the least knowledgeable contributor on seeking alpha vetting this bailout than any member of the pork brigade. americans in the infinite wisdom have elected congressmen who do not have a clue how the economy works.

i guess i should close by saying everything always works out in the end - so be happy.

2008 Sep 28 03:18 AM

[1worldcurrency:]

We've seen that huge paper gains in boom times don't necessarily represent real economic gains. The burden now falls on wage earners, because there won't be any gains this year. The tax structure should be designed to promote real growth over paper wealth, to the extent possible.
The argument that raising the capital gains tax limits private investment is weak. What are the winners going to do with their cash, put it in the safe and watch it get swallowed by inflation?

Disclosure: I have more capital gains this year than any other by far because I saw this disaster coming right after Bear Stearns.

2008 Sep 28 05:05 AM

[john s. gordon:]

house republican politicos want to repeat r.reagans trickledown theory (it didn't work the last time either). when you give each millionaire another million out of the public treasury all that happens is the yacht-builders get rich & everybody else suffers,
> jack

2008 Sep 28 08:50 AM

[Bonnie:]

This SUDDEN Republican concern for the process and particulars of the Bail-out...is really amusing to me!!!

They were in power (Congress (House) and Senate) for TEN YEARS!!! They are the ones who NEVER want OVER-SITE!!! They have (BUSH) VETOED every possible effort by the DEMOCRAT to PASS ANY BILLS, then the REPUBLICAN members of the CONGRESS AND SENATE will not vote (you have to have 61% of the majority) to over-ride any veto...THUS...NOTHING GETS DONE...EXACTLY WHAT THE REPUBLICANS WANT!!! EVERYTHING TO STAY THE WAY THEY WANT IT!!! NO OVER-SITE, NO CHANGE, CORPORATE AMERICA RUNNING RAMPANT ON THE SIDE-WALKS OF WALL STREET!!!

NOW desperation has set in...they have selected a man that most of them don't even talk to anymore because he is so disagreeable and nasty to run as their representative for President! He picks someone who is a real Barbie Doll...can't think, can't talk, has no experience in high finance and foreign affairs!!! (sorry, but sometimes the truth hurts)

THEN, A MAJOR FINANCIAL CRISIS (caused by the lack of rules and regulations promoted by Republicans) OCCURS! Everything seems to be, at least, salvageable! Gallop in the Maverick (that most of them can't stand) and he puts in that if they actually do something BI-PARTISAN that it would look as if they were "selling out" to the DEMOCRATS...AND WOULDN'T IT BE BETTER IF THEY ACT AS IF IT WAS ALL OF THE DEMOCRATS FAULT THAT IT HAPPENED IN THE FIRST PLACE...AND NOW THAT A PROPOSAL AGREEMENT REQUESTED BY THEIR REPUBLICAN PRESIDENT AND HIS REPUBLICAN STAFF...HAS FLAWS!!!

Now comes the moment of truth...OFFER SOMETHING THAT THE AMERICAN TAXPAYERS FEEL IS FOR THEIR PROTECTION!!! WHAT A FARCE!!! THE REAL REASON THAT THE REPUBLICANS ARE PUTTING US SUCH A FUSS IS FOR ATTENTION (#1), SO THAT THEY CAN RESIST AGREEMENT SO THAT THE DEMOCRATS WILL HAVE TO COME MORE TO THEIR SIDE (#2), THEN THE REPUBLICANS WILL TRY TO SQUEEZE IN LESS OVER-SITE AND MORE OF THE SAME POLICIES THAT GOT US IN THIS POSITION IN THE FIRST PLACE!!!(#3), LAST, THEY STILL DO NOT WANT TO DO ANYTHING FOR THE AMERICAN TAXPAYERS AND IN ORDER TO GET AN EXPEDITED AGREEMENT SIGNED THEY PUT US, THE TAXPAYERS IN THE MIDDLE AS THE BARGAINING CHIP!!! SAME OLD...SAME OLD!!!

THE REPUBLICANS AND McCAIN THINK THAT ALL OF US TAXPAYERS, THE LESS THAN $5 MILLION A YEAR PEOPLE IN THIS COUNTRY ARE TOTAL IDIOTS!!! Some taxpayers will never understand, some don't want to think that this could possibly happen, but the reality is the the REPUBLICANS are a VICIOUS GROUP OF SELF-SERVING POLITICIANS (that is the nice word)!!!

They and their cohorts have PANDERED to the SPECIAL INTEREST GROUPS (those who will donate money and support their campaigns across the United States). THEY INVEST in CORPORATIONS that make mega-money and are so ruthless that they UNDERMINED MIDDLE-AMERICA BY BEING GIVEN TAX INCENTIVES TO "GO ABROAD AND GLOBALIZE" (George Bush)!!!

Now...China and India are LOADED WITH MONEY AND JOBS...AND BENEFITS FROM US!!! CHINA, a Communist Country, has used our money to build their MILITARY STRENGTH, their SPACE VENTURES, and their purchases of oil from IRAQ, IRAN, VENEZUELA, AND RUSSIA!!! THIS IS ALL TRUE AMERICANS!!!

HALLIBURTON has violated SANCTIONS against IRAN and signed in 2004 Multi-Billion Dollar, Multi-Year Contracts to Renovate their old oil refineries and build new ones (Congressional Record (Senate), February 7, 2005, pgs. S1051-S1053)!!! With their money going to off-shore accounts in the Cayman Islands (not paying any U.S. taxes) finally, when they feared OVER-SITE and perhaps LEGAL ACTION by the Democrats now the Majority in the Congress and Senate...they move from HOUSTON TO THE UNITED ARAB EMERITS who has free-trade with IRAN!!! DICK CHENEY'S STOCK OPTIONS WITH HALIBURTON, at the end of 2005, was over 4000%!!!

THE STUPIDITY AND GREED OF THE REPUBLICAN PARTY AND ALSO McCAIN WHO SAT ON HIS HANDS AND DID NOTHING TO STOP THEM...IS NOW AT A SHOW DOWN AT THE O.K. CORRAL!!!

WILL THE REPUBLICANS STAND UP AND FINALLY TRY TO SAVE THIS COUNTRY INSTEAD OF LYING, MISLEADING, MANIPULATING, AND LYING BY OMMISSION??? I TRULY HOPE SO...BECAUSE IT IS THEIR FAULT THIS MESS HAPPENED, IT IS THEIR FAULT AMERICA HAS NO JOBS, NO MONEY, NO GOOD REPUTATION, AND ALMOST......NO HOPE!!! THEY BETTER GET THEIR ACT TOGETHER...or as Nikita Kruchev, once the head of the U.S.S.R. (United Soviet Socialist Republic), COMMUNIST RUSSIA said, "WE WILL TAKE YOU FROM WITHIN"!!! Russia may not have done it, but COMMUNIST CHINA IS DOING IT NOW!!! WE MUST REGAIN OUR FINANCIAL STRENGTH, OUR MILITARY STRENGTH, AND OUR UNITY OF SPIRIT...NO RED STATES, NO BLUE STATES, JUST THE UNITED STATES OF AMERICA!!!

BARACK OBAMA HAS THE POWER AND OUR INTERESTS TRULY IN HIS HEART. THIS EVANGELICAL CHRISTIAN MAN (Read the book, "The Faith of Barack Obama", by Stephen Mansfield, an Evangelical Minister), BARACK OBAMA REALLY CARES ABOUT US, THE AMERICAN CITIZENS, ALL OF US...NOT THE WEALTHY ALONE...NOT THE CORPORATIONS ALONE...BUT ALL OF US!!!

While writing this comment, a pop-up came on my commuter, a vote for the Bail-Out has been made by the Senate MINUS THE SET-ASIDES....See the Republicans bitched and moaned and held the Democrats over a barrel to NOT INCLUDE THE LITTLE GUYS...US...THE TAXPAYERS...at least not for the moment!!! THE REPUBLICANS WANT TO SAVE THEIR TAX PORTFOLIOS AND THEIR ANNUITIES, BUT...ACT LIKE THE BIG PROTECTORS OF US LITTLE GUYS...WHEN REALLY THEY ARE THE USERS AND ABUSERS!!! SAD...SO SAD...BECAUSE SOME PEOPLE REFUSE TO SEE IT...WHEN THE FACTS ARE SO OBVIOUSLY HITTING US SQUARE IN THE FACE!!!
WAKE-UP AMERICANS!!! DON'T BE FOOLED AGAIN!!!

Since 2000, this Administration has siphoned out from all of the "Trust" Funds, such as the Social Security Trust Fund (they have stolen over $1.5 TRILLION DOLLARS alone), the Military Retirement Trust Fund, the Federal Employee Trust Fund, the Railroad Retirement Trust Fund, all of the American Indian Trust Funds and more over
to a total of over $5.2 TRILLION DOLLARS!!! SOME USED FOR THE WAR AND SOME USED TO BACK THE LOANS BORROWED FROM 12 FOREIGN COUNTRIES FOR THE WAR AFTER WE RAN OUT! ALL OF THE LOANS FROM THE TRUST FUNDS HAVE NO PLAN TO PAY THEM BACK AND NOW, NO WAY TO PAY THEM BACK!

THE MONEY FOR THE BAIL-OUT??? MORE MONEY TAKEN OUT FROM OUR TRUST FUNDS (money worked for by every American Citizen since the day they started working) to put into the Federal Reserve in order to use as Collateral AGAINST THE LOAN THAT WE HAVE TO BORROW ($700 BILLION) FROM COMMUNIST CHINA!!!
HOWEVER, NOW THERE IS NO ALTERNATIVE!!! THANKS REPUBLICANS...DO WE WANT MORE OF THE SAME???
I DO NOT!!!

2008 Sep 28 11:06 AM

[borderman:]

Rebublicans did what they were supposed to do causing more detailed scrutiny of Paulson and the Democrats original 3 page plan and making changes that are more favorable to the taxpayer such as transparency and oversight.

2008 Sep 28 11:57 AM

[williambanzai7:]

Wall Street and the Subprime Sting
WilliamBanzai7

Doyle Lonnegan: Your boss is quite a card player, Mr. Kelly; how does he do it?
Johnny Hooker: He cheats.
(From the Sting)

"This Sucker Could Go Down" "W"

It is ironic, that on the weekend that arguably
the greatest confidence game of all time is
reaching its climax in Washington in the form of the
mother of all
Wall Street bailouts, Paul Newman, the star of The Sting,
the greatest Confidence movie of all time, has passed on.
In the Sting, Newman plays Henry "Shaw" Gondorf, a master con man who
orchestrates the greatest con ever, that is until September 2008.

The Sting is chuck full of gangsters, incompetent cops, grifters,
colorful schemers, con men, marks
and shills, and keeps you on the edge of your seat straight though to its conclusion.
Just like the Great Subprime Swindle of 2008, there are
twists and turns galore, and you don't know how it
is going to until the final 10 minutes.

Welcome to the Great Subprime Swindle of 2008.
We are barely into what could not be a more fitting sequel to The Sting.
In this new episode, the Wall Street gang succeeds
in conning Main Street USA out of its real
estate/retirement nest egg by
employing thousands of mortgage brokers, investment banking con men and
dubious ponziesque securities called Collateralized Debt
Obligations and Credit Default Swaps. Like the Sting, the cast
is chuck full of colorful characters like Alan (the "Maestro") Greenspan, Dick (the "Gorilla") Fuld,
Maurice "Hank" Greenberg, James "Jimmy" Cayne
Henry "Hank" Paulsen and
Ben Bernanke (who will soon be known as "Father Moral Hazard"). What is it
with gangsters, con men, bankers and
nicknames? In the plot we get to watch innocent
bystanders, a dopey mark like
AIG and now the American taxpayer, get conned and swindled out of
roughly $700 Billion USD-- no one knows for sure. As
in The Sting, the key stone cops (the SEC), show up
long after the action has taken place. Unlike the Sting,
there is no Shaw character to exact poetic justice against
the Wall Street gang.

One hundred years ago a man named Franklin Keyes, Esq.
(you guessed it, a Wall Street lawyer) published a tract
titled: "Wall Street Speculation, Its Tricks and Its Tragedies".
In it he says: "Wall Street is dominated by some of the brainiest
and shrewdest men in the country, natural born sharpers and schemers,
and before the average man can get the better of them,
except through the merest chance,
he will have to eat brain food for a long time."

Nothing could be further from the truth.

Paul Newman, you're than man, rest in peace.

2008 Sep 28 12:13 PM

[tg:]

First of all, the initial cause for all this was Fannie and Freddie writing bad loans at the behest of Congressional leaders. The top five recipients of donations, or would you call them bribes, from Fannie and Freddie were all Democrats: Dodd, Kerry, Obama, H. Clinton, and Kanjorski. Franklin Raines, former Clinton budget director, ran Fannie from '91-'96 and again from '99-'04. I don't think you could call Mr. Raines a Republican. But you COULD call him a crook. Mr. Raines left Fannie Mae in '04 in the midst of an investigation by the SEC and The Office of Federal Housing Enterprise Oversight for extreme accounting irregularities. His salary for almost ruining the American economy was an estimated $90 million dollars. How about Jamie Gorelick? As a democrat and Vice Chairman of Fannie Mae from '97-'03, she helped Mr. Raines manipulate their accounting practices to the tune of $9 BILLION in unreported losses. In '05 she said: "We believe we are managed safely. We are very pleased that Moody's gave us an A-minus in the area of bank financial strength -- without a reference to the government in any way. Fannie Mae is among the handful of top-quality institutions." What an idiot. With democrats like these "on your side," who needs enemies?

2008 Sep 28 12:35 PM

[PhillyD:]

Bonnie:

While I appreciate your enthusiasm ... your rants are filled with falsehoods and illogic. For instance:

1- The Demorcrats don't have to worry about what the Republicans think, say, or do concerning bailouts. They have the majority and can pass the bill without any Democratic support. If in fact their plan is what this country needs (which it's not in my opinion) then shut up, pass the bill, and take all the credit for the great results. My own personal opinion is that other than Ron Paul there is no one in our Federal Government who understands monetary policy and by the way predicted this mess when his campaign began. Neither McCain or Obama said anything.

2- You claim that the Republicans have been in power for 10 years and made a mess of this. In fact, the deregulation of Fannie and Freddie began in 1999 under Bill Clinton. Bush did nothing to reverse it. When Bush came to the Presidency in 2000 he had a Republican Congress and Senate. That ended in 2002 or 2004. It has been in Democratic hands since then. Where were they all these years? What specific proposals to they enact to regulate these thieves better? They had the majority and all they needed was to give Bush the legislation. What specific legislation did they give to Bush that he overrode?

In the end the whole country is in a mess and both parties are lying, thieving, crooks. If you really belive that Obama tells the truth and McCain is a liar then you need a reality check. They will both lie, cheat, and steal, to gain power.

McCain, after 25+ years in the Senate cannot identify one single dollar to cut in a debate where he talks about cutting spending?

Obama is asked what programs he will cut and he proposes more money for Medicare, education, oversight, Real Estate bailouts, etc etc. Not a single specific dollar mentioned to be CUT.

And you believe one is inherently better than the other? Jeez ....

2008 Sep 28 01:48 PM

[JAY BOSLIN:]

Thank you, Bonnie!

And I am so sick of right wing morons saying the Democrats have the votes, so pass the bill. They can't wait to go up against Democrats in the Election and say "I didn't vote for this outrageous raid on the taxpayer" while reaping the benefits of the stock market NOT going down 1000 points and their ATM's NOT giving them a receipt for their frozen balances.

2008 Sep 28 02:34 PM

[tg:]

And to the original article....what a crock. The so-called "idiots" in this story are the ones like Barney Frank, who in '00 said that there was no federal liability "whatsoever" in Fannie and Freddie. From the WSJ : “Mr. Frank was publicly arguing for an increase in the size of their combined $1.4 trillion portfolios right up to the day they were bailed out. Even now . . . he opposes Treasury’s planned reduction in the size of the portfolios starting in 2010.” Yes, thank Mr. Frank and those like him for the Community Reinvestment Act and the true cause of this mess. And as far as eliminating capital gains, can you think of a better way to free up capital? It did wonders for Singapore.

2008 Sep 28 05:44 PM

[mediapro:]

Ay, ya, yai!

Just look at all the swinging gates in this post. How can I be right when everybody's wrong?

To pin this mess on any one party or any one thing is foolish. The mess in fact did start with the 1999 repeal of a depression-era law (Glass-Steagall) that did serve to keep a check on commercial lending and re-packaging financial products into incomprehnsible paper that was constantly re-sold. Sound familiar? If we want to pin the blame, McCain chief financial advisor, Phil Gramm, literally inserted in the middle of the night the key provision that allowed the financial industry waters to be muddied with no distinctions between insurance, banking and investing.

Do you really believe the lie that Fannie and Freddie CAUSED this crisis? If you really want to look at who was repackaging the clean mortgage paper into CSE's look no further than the same investment company that was the key reason for the passage of Glass-Steagall -- JP Morgan and the rest of the Investment Banking community. They were doing exactly the same thing they did in 1932 -- re-packaging debt into complex instruments and re-selling.

Though I agree with the premise of this article, there's enough blame to go around. This FIX does not solve the problem until we look at how the accounting rules, lax regulation and religious devotion to unfettered capitalism got us into this mess.

My one regret about the structure of the fix, as far as I can tell, is that the taxpayer still has no skin in the game. Let's just look at this logically: If Warren Buffet offered to invest his entire wealth to help solve this problem by purchasing paper of unknown real value, do you thin that he would exact majority control over the business operations of these companies in which he is literally investing?

We are simply left with the hope that someday about twenty years down the road, most of the honest borrowers will adhere to their debt obligations.

For now, the bankers get their money up front, and it's business as usual.

2008 Sep 28 07:31 PM