Why You Should Ignore the Bailout Vote 15 comments
Mark McQueen
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Ignore the vote that just took place in Washington on the proposed $700 billion TARP program. It is a political tactic, and nothing else.
Events of the past seven days are all starting to make sense now. Senator McCain puts his Presidential campaign on hold one day last week, and rushed to Washington to get into the mix on the proposed $700 billion TARP program. Soon thereafter, a well-organized group of House Republicans starts to kick sand in the face of anyone in favor of Treasury Secretary Paulson’s proposal.
The all-hands-on-deck meeting at the White House serves to accomplish nothing, with Mr. McCain and Mr. Obama each coming out with a different spin about who is to blame for the state of affairs. Over the weekend, a deal is struck that was thought to be passable by all sides. If politicians needed any reminder about how tough the world is right now, Wachovia (WB) sells itself to CitiGroup (C) Monday morning for what appears to shareholders to be 10% of the Friday closing share price.
And yet, to the surprise of most senior elected U.S. officials, the plan is voted down.. Market sells off 500 points. House Republicans huddle to devise next steps, having just yesterday appeared to have been in favor of a proposal to solve the overhang currently clouding the credit and equity markets.
With an eye to November 4th elections, and losses predicted in both the House and Senate, Congressional Republicans seem to see this crisis as providing the opportunity for a Hail Mary pass. By voting down the proposal, newspapers tomorrow will report that “The Deal Is Off”.
Local television stations would be running double-enders during the supper hour. Those that opposed the bill will be pounding their chests, with the theme: “this Bill did nothing for the average family”. The folks in Congress who opposed the bill at noon knew that they were going to vote it down, recognizing that the market would throw a fit.
Tomorrow, or the next day, or the day after that, I predict that the Bill will be amended just enough to show some victory for enough lawmakers to get a package through the Congress. In the meantime, the market gyrations served to ensure that most voters would be watching television Monday night, or reading their paper Tuesday morning.
With a few weeks to go, few politicians want to appear to take the side of Wall Street over Main Street. That’s why the Bill went down. If Mr. McCain can play his cards right over the next 48 hours, he’ll be able to claim some victory from the jousting that is to come.
But, as the Terminator would say: “I’ll be back.”
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This article has 15 comments:
now is the time for our candidates to get in front, take leadership, make decisions, develop a point of view and rally the country together.
House leadership probably knew failure was coming before the voting started and cooked up the Pelosi speech for a smokescreen.
Tell me something. For every other issue under the sun, the main stream media parades a never-ending stream of poll results to show what the public thinks of an issue. Some of those issues are downright moronic, yet the polls flow like Lake Ponchetrain into New Orleans.
Where are the polls for the bailout issue? I haven't seen one reported or discussed yet in prime time.
Any guesses why? Maybe they hope to gloss over the fact that the vast majority of the country is against the bailout?
Seems suspiciously quiet on that front to me.
At least there are SOME with scruples still left in government. Their comments say a lot about the way things are run in DC.
Rep. Marcy Kaptur (D-Ohio):
"The normal legislative process that should accompany a monumental proposal to bail out Wall Street has been shelved. Yes, shelved! Only a few insiders are doing the dealing. These criminals have so much power they can shut down the normal legislative process of the highest lawmaking body in this land. All the committees that should be scanning every word that is being negotiated have been benched. And that means the American people have been benched. We are constitutionally sworn to protect this country against all enemies foreign and domestic, and yes, my friends, there are enemies....The people who are pushing this bill are the very same one's who are responsible for the implosion on Wall Street. They were fraudulent then; and they are fraudulent now.We should say No to this deal".
Rep. Michael Burgess (R-Texas):
"We have seen no bill. We have been here debating talking points ...House Republicans have been cut out of the process and derided by the leaders of the House Democrats as "unpatriotic" for not participating in supporting the bill. Mr. Speaker, I have been thrown out of more meetings in the last 24 hours than I ever thought possible as an elected official .... Since we didn't have hearings, since we didn't have markup, let's at least put this legislation up on the Internet for 24 hours and let the American people see what we have done in the dark of night. After all, I have never gotten more mail on a single issue than on this bill that is before us tonight."
Rep. Dennis Kucinich (D-Ohio):
"The $700 bailout bill is being driven by fear not fact. This is too much money, in too short of time, going to too few people, while too many questions remain unanswered. Why aren't we having hearings...Why aren't we considering any other alternatives other than giving $700 billion to Wall Street? Why aren't we passing new laws to stop the speculation which triggered this? Why aren't we putting up new regulatory structures to protect the investors? Why aren't we directly helping homeowners with their debt burdens? Why aren't we helping American families faced with bankruptcy? Isn't time for fundamental change to our debt-based monetary system so we can free ourselves from the manipulation of the Federal Reserve and the banks? Is this the US Congress or the Board of Directors of Goldman Sachs?”
They have sold us out to corporations for years. Now the corporations are bankrupt.....and they don't want to get out of their building? The corporate banks have had no problem dragging americans out of their homes, for ludicrous resets, in the homeowners mortgage payments.
If the banks set up these homeowners for failure.....why should we bail them out because of their greed?
The banks could have sold fixed rate loans. They chose to sell resetting interest rate loans to gouge the consumer. The made hecka more money on these loans. The banks had no trouble dragging the homeowners out of their homes, with the sheriff departments help either.
Why should I feel pity when the owner of the building drags the banks out of their building....into the street?
Have the banks changed their policies to homeowners? They have lobbied the congress, and the Senate, for tougher restrictions to file for bankruptcy.
But the banks shouldn't be put through their own enacted legislation?
Pleaseeee!
Interest rates are artificially low, below the inflation rate, and kept there by excessive Fed rate cuts. Historically, savings accounts pay 2%-2% above inflation, and mortgages cost about 6% above inflation. So, right now, mortgages should be selling for around 11%. Auto loans should be around 14%. Much of the current mess comes from trying to run the economy on negative real interest rates.
A tightening of credit is exactly what the economy needs. Money will be available when rates rise to traditional levels. There's no liquidity shortage. There's plenty of cash looking for safe investments that pay a reasonable return. People will take their money out of T-bills and put it into banks when the banks start paying serious interest.
for Reviving the Economy
The Federal Reserve is out of Federal Funds rate options and now the Congress is about to pass legislation which will be the largest bailout bill in the history of the world. Fannie Mae and Freddie Mac are now penny stocks with perhaps over 1000 bank failures yet to come. The American taxpayer will be told that they and their children will be writing big checks to rescue the Wall Street crooks and congressmen that caused all the problems, while receiving nothing in return.
Anyone who has been following recent congressional hearings knows by now that this is unacceptable to Main Street, the voters who will be firing their congressmen for turning the USA into a socialist country. It is also widely believed that this bailout bill may not be embraced by Wall Street because of its onerous terms even if passed. Finally, it will not provide sufficient liquidity for improving the rest of the economy.
A much more effective and fairer way to end our economic crisis is easily attainable. To state it simply, all Congress has to do is to pass a Mortgage Investment bill which allows individuals a one-time option to use some of the funds in their IRAs to pay off their mortgage balance in full, without any penalty, interest, or taxes for doing so. In return, individuals choosing to exercise this option give up their mortgage interest tax deduction for life. This bill could be passed quickly and independently of any other economy-related legislation currently being debated, or included in the current bill. Individuals choosing this option would need sufficient IRA funds to pay mortgage balance in full. The actual payment to the individual’s mortgage company would be done by the IRA managing institution to avoid fraud.
As one senator recently stated, ‘for most people their home is their IRA’. For many others, their 401-K plans hold many trillions of dollars, much of which by now is parked in money market funds or T-bills as mine is. If these IRA funds could be released to pay off mortgages, we could possibly avert, or at least significantly shorten, the economic recession we now find ourselves in. In fact, no other bailout legislation may even be necessary, although more regulatory legislation is certainly needed.
I asked Allan Meltzer, Arthur Segel, and Ellen Zentner to review this proposal and received some positive responses. Ellen said it seemed to be fool-proof and better than a reverse mortgage. In fact, it is a no-brainer for the homeowner with a large 401-K balance, and for the government. The only people who might object, as Ellen stated, are the bankers who want to keep homeowners dependant on them, especially those in the upper-income group. But even the bankers can not want the government to own a large stake in their business for a multitude of reasons.
It makes sense to allow people to use their IRA money, which they earned, to invest in the best and safest investment they could ever make, their home. Presumably they will need a place to live in retirement on a fixed income. It makes no sense for someone with more than enough IRA funds to cover their mortgage balance to loose their home because they lost their job and can not pay their mortgage. It also makes sense because it is not some form of government bailout which rewards the bad behavior of mortgage companies and unqualified borrowers. Instead, it rewards the good behavior of those who have saved and invested in the economy
If only 5 million people chose this option, for an average of only $200,000 each, the result would be $1 Trillion in paid-off mortgages, providing liquidity to the mortgage industry. By executing the option, an individual’s annual mortgage payment would become disposable income to put back into the economy or back into IRA accounts. To the individual, the effect is the same as lowering taxes. If only 5 Million people were able to put back $20,000 per year into the economy, the result would be a $100 Billion per year stimulus package for many years to come.
In my case, with $800K in IRAs and a secure pension, I would increase disposable income by $1600 per month while reducing the IRA balance by only $160K, but saving over $120K in future interest payments. I could retire, which I can not afford to now, and leave my six figure job to someone else. I could also quickly replenish the IRA money used to pay off my mortgage with the extra income.
Adding a further provision to delay receiving Social Security payments for a year in order to exercise the option would be a baby step towards privatization of Social Security. Anyone financially able to exercise the option should be able to delay the payments. For every 5 million people choosing the option, approximately $100 Billion would remain in the Social Security fund. This could fix our problems with Social Security for good.
Some of the benefits of this plan would be to:
• Immediately increase an individual’s or married couple’s disposable income by tens of thousands of dollars each year while enabling them to become debt free
• Save homeowners hundreds of thousands of dollars in mortgage interest payments
• Encourage individual IRA savings by many who have never saved
• Allow many people to retire earlier than they otherwise could
• Create demand for housing, reducing inventory, and stopping the decline in home prices
• Stimulate the overall economy, creating and saving jobs
• Not cost the government anything, and actually Increase federal, state, and local tax revenues by eliminating individual mortgage interest tax deductions, without raising tax rates
• Force the banks to sell their good loan assets to cover their bad loan losses, instead of forcing the taxpayer to buy their worst loans, and increase liquidity for new loans to those who need them
• Allow the free market economy to work through the crisis rather than resorting to socialism
• Not increase the national debt nor the money supply as a bailout would do and contribute to inflation
• Allow the individual home owner to the freedom to become their own banker with the money they earn, reducing America’s dependence on bankers, and changing America from renters and borrowers to homeowners and savers
The merits of this simple plan, the Mortgage Investment bill, for saving the economy, instead of trillions of dollars for a Wall Street bailout which will socialize the finance industry, are obvious and would benefit everyone involved. The individual gets more disposable income and a chance to live debt free, the capital markets get needed liquidity, the government collects more taxes and collects them sooner at the expense of the bankers, the housing market gets more demand, and the general economy gets a much needed boost for the next few years.
Democrats should like this plan because they can claim that it lets the wealthy pay for this mess. Republicans should like it because it increases disposable income, which has the same effect the same lowering taxes. The average voter should like it because it addresses all segments of the economy with a huge economic stimulus package, not just Wall Street, and costs nothing while helping to pay off the national debt and potentially fixing Social Security.
"Paulson and Bush threatened to veto the legislation if there was an explicit prohibition of transfers from foreign banks to an American subsidiary."
THE ASSETS DO NOT EVEN HAVE TO BE AMERICAN MORTGAGE ASSETS - THEY CAN BE AN OFFICE TOWER IN SHANGHAI!
YOU ARE GOING TO GET FLEECED FOR HUNDREDS OF BILLIONS OF DOLLARS IF THIS BILL PASSES - THAT MONEY IS GOING TO GO IMMEDIATELY OUT OF THE COUNTRY!
SEC. 112. COORDINATION WITH FOREIGN AUTHORITIES AND CENTRAL BANKS.
The Secretary shall coordinate, as appropriate, with foreign financial authorities and central banks to work toward the establishment of similar programs by such authorities and central banks. To the extent that such foreign financial authorities or banks hold troubled assets as a result of extending financing to financial institutions that have failed or defaulted on such financing, such troubled assets qualify for purchase under section 101.
votenobailout.org/
Hey User 272736 and Smarty Pants: You know in Washington its all about THEM! They (politicians) don't give a bleep about you and yours. If they WOULD work together they could reap the benefits, like we would. However, they see where they can get the whole enchalada, and get you and me to PAY for it! There is no heart, soul, or conscience in Washington. That all died decades ago.
Now, you need to learn from them. Be wary, think of you and yours, and hope for the best. But, don't screw someone over to get yours, and you will be fine. God Bless us all!
This mess can trace back to Reno threatening banks with lawsuits if they didn't lend to people without money, demanding they count welfare and food stamps as income. Then Fannie and Freddy were instructed to buy these loans. So now we need gobs of cash to bail them all out and keep the corruption going.
We need to FIX things, not just keep the system up and running. Start with repealing Sarbanes Oxley and the mark to no market rules.
my electric & water still work. There's gasoline & groceries. No rioting in the streets. a new bank being built down the street.
you mean to tell me that the same folks who couldn't see this "crisis" coming are now going to predict what's coming next?
give me a break.