Bailout Party Day
by Jerome Armstrong, Mon Sep 29, 2008 at 02:50:39 AM EDT
"We sent a message to Wall Street - the party is over,"Nancy Pelosi.
... and you don't even have to pay for it!
by Jerome Armstrong, Mon Sep 29, 2008 at 02:50:39 AM EDT
"We sent a message to Wall Street - the party is over,"Nancy Pelosi.
... and you don't even have to pay for it!
nancy Pelosi needs to shut the hell up. instead of quips, maybe she could have been proactive in holding republicans accountable for this mess months ago. This was not totally unpredictable.
These banks have much higher liabilities than just 700 billion.
So what's the point? Its like flushing $2000 for each of us down the drain.
Many of these houses have been abandoned for months or even years. They have been stripped of plumbing and/or open to the elements or lacking AC during humid summer months. They have been breeding grounds for fungi.
They will be a total loss.
I completely disagree.
Even if, as you say, the securities prove worthless the tax payer is protected in 2 ways:
1. The banks will have to make up the difference between the purchase and ultimate selling price.
2. The government is basically getting stock options in the companies they bail out. Taking the bad assets from the banks will ultimately allow those companies to flourish again, at which time we execute them for a profit.
Not all distressed loans are for abandoned and looted houses wither. The gov can now work to keep people in their homes.
We needed to do something to keep cash flowing in this country. I don't mean the free and easy credit policies of Greenspan, but you can't let it get to the point where even people and businesses with good credit and income cannot get the cash they need to keep things going.
Pelosi made a ridiculous statement. "Morning Joe" was lampooning her this morning.
Who gives a shit what HE thinks?
Do you give a shit what Mika thinks? She agreed and so did the rest of the crew.
I don't pay attention to pundits.
Oh Yes, I live and die about what Mika thinks and says.
Come on, Soyousay, because she was blasting Pelosi (a known NoQuarter enemies list member) you think it was Important.
But, if you remember, she was pretty pro-Obama, THEN I am sure, you thought she was a hack.
What I've read on mydd recently, I'd say Pelosi is on the shit list of some here.
In reference to Mika; everyone knows she is an Obama supporter. So?
...today simply don't realize how quickly this is going to morph in a freakin' monster that's going to make the shitstorm over votes for FISA and AUMF look like days at the beach.
There will be hell to pay for any Democrat that votes in favor of this bailout.
Hi Jerome. Nice to see you too. I haven't seen you since Obama started winning.
Wow, I have three posts up on Friday and take the weekend off. Maybe it's just because I'd rather hang out with my kids over the weekend than deal with the likes of you.
I was just playing, I didn't mean that as sarcastically as it came out on the screen. I'm sorry. If I had kids, I don't think I'd be spending much time here either.
In all seriousness, though, what did you think of the debate?
Nothing memorable. I'm skipping the next ones, gonna be gone for a mini-trip out west from Thursday to Wed next week.
you will be watching Thursday night from the west. I'd bet!
That thing will be like a car wreck no matter who wins. Either way, one side won't want to watch and the other one will be riveted. Well, I guess that isn't realy like a car wreck. But still, no political junkie in the country will be unaware on Friday of how things turned out.
Wait a sec... what the heck is going on in this thread? Weren't there 4-5 responses to this awhile ago?
I don't think so.
...the past 24 hours...see my diary concerning what Paulson just said on Sunday in a phone conference to a group of bankers...essentially, what we're ending up with is exactly what he wanted--perhaps with even more bias towards the status quo than even he was asking for--in the first place...
...Krugman may have a change of opinion once they read the text of Paulson's comments from his phone conference with his banker friends from yesterday...very little of this money is going anywhere near where it's needed!
"...putting myself in Barney Frank or Nancy Pelosi's shoes, I'd look at it this way: the Democrats could start over, with a bailout plan that is, say, centered on purchases of preferred stock and takeovers of failing firms -- basically, a plan clearly focused on recapitalizing the financial sector, with nationalization where necessary. That's what the plan should have looked like.
Maybe such a plan would have passed Congress; and maybe, just maybe Bush would have signed on; Paulson is certainly desperate for a deal.
But such a plan would have had next to no Republican votes -- and the Republicans would have demagogued against it full tilt. And the Democratic leadership cannot, cannot, be seen to have sole ownership of this stuff.
So that, I think, is why it had to be done this way. I don't like it, and I don't like the plan, but I see the constraints under which Dodd, Frank, Pelosi, and Reid were operating."
Somehow, that rings a little true to me...
Sorry for the long citation but this seemed pretty relevant and it is not a simple problem to wrap one's head around:
Whenever there is a systemic banking crisis there is a need to recapitalize the banking/financial system to avoid an excessive and destructive credit contraction. But purchasing toxic/illiquid assets of the financial system is not the most effective and efficient way to recapitalize the banking system.
In the Scandinavian banking crises (Sweden, Norway, Finland) that are a model of how a banking crisis should be resolved there was not government purchase of bad assets; most of the recapitalization occurred through various injections of public capital in the banking system. Purchase of toxic assets instead - in most cases in which it was used - made the fiscal cost of the crisis much higher and expensive (as in Japan and Mexico).
So instead of purchasing - most likely at an excessive price - $700 billion of toxic assets the government could have achieved the same result - or a better result of recapitalizing the banks - by spending only $175 billion in the direct purchase of toxic assets. And even after the government will waste $700 billion buying toxic assets many banks that have not yet provisioned for such losses/writedowns will be even more undercapitalized than before. So this plan does not even achieve the basic objective of recapitalizing undercapitalized banks.
Thus, the Treasury plan is a disgrace: a bailout of reckless bankers, lenders and investors that provides little direct debt relief to borrowers and financially stressed households and that will come at a very high cost to the US taxpayer.
Congressional Democrats have fallen for this Treasury scam that does little to resolve the debt burden of millions of distressed home owners.
Nouriel Roubini - Is Purchasing $700 billion of Toxic Assets the Best Way to Recapitalize the Financial System? No! It is Rather a Disgrace and Rip-Off Benefitting only the Shareholders and Unsecured Creditors of Banks RGE Monitor 28 Sep 08
The full article is probably worth a read if you are really engaged on this issue, this is one of the guys who has been warning us about this all along, just sayin'. It tends to confirm our worst instinctive fears and suggests there has been a lack of good advice and/or lateral thinking on the part of the decision makers in our Congressional leadership. Am I missing something here?
On the other hand it does tend to confirm that we really are in deep do-do.
...and we are in deep doo-doo for two very basic reasons:
1.) It's going to cost us a hell of a lot more than $700 billion to get out of this;
2.) Misspending the first $700 billion of this in places where it's only going to accomplish a small fraction of what it could (if it was properly allocated) puts us that much farther behind the proverbial eight-ball, coming out of the gate.
It's lose-lose...in light of the fact that we really can't even afford to true/full cost of this bailout no matter how you slice and dice it. This is going to cost us from $3-$5 trillion bucks after everything's said and done. Misspending the first $700 billion is a piss-poor way to start...
Still, it doesn't sound like Roubini is suggesting it is going to cost any less but that we are likely wasting our money as things now stand.
I have been trying to come up to speed on this issue over the past week and I have gotten this far - we are in deep doo-doo, so it isn't a conspiracy to deceive or impoverish us, and the solution we have been offered is potentially ill-conceived and open-ended. The only hypothesis that explains this situation, assuming our elected representatives aren't complete idiots, is that the sense of urgency has been so strongly emphasised that prudence is secondary and that Paulson and Bernacke have won the technocratic high ground and have authoritatively dismissed alternative proposals.
Conclusion? We need more time, which may not be an option. And, counter-intuitively, some real post-partisan activism among the unreconciled minority hold-out factions in both parties assuming some genuine leadership emerges. Obama, is that your phone?
And here's the scary bit:
Credit default swaps (CDS) are the most widely traded credit derivative product and the Bank for International Settlements reported the notional amount on outstanding OTC credit default swaps to be $42.6 trillion in June 2007, up from $28.9 trillion in December 2006 ($13.9 trillion in December 2005) and by the end of 2007 there were an estimated USD 45 to 62.2 trillion worth of Credit Default Swap contracts.
In the US, the Office of the Comptroller of the Currency reported the notional amount on outstanding credit derivatives from reporting banks to be $16.4 trillion at the end of March, 2008.
Credit Default Swap - Wikipedia
Crikey, makes $700B seem like pretty small beer.
Democrats have lied to us.
I know the plan sucks but ultimately it's the bush administration that gets to frame the debate. We are mad at dems for going along with his flawed ideas but it's bush who gets to come up with the solutions. After that the dems get to argue about the cost or benefit of their plan. With new leadership we can frame the debate to more sensible policies.
Kudos Shaun! Roubini's right on the money. He communicates regularly with Ilargi and Stoneleigh over at The Automatic Earth. They personally came over to DKos, where I'd also posted my "Myths" diary about the bailout (currently/still on MyDD's rec list), and said it was right on the money, even jumping in and defending it against a couple of trolls in the comments over there!
Roubini's a god when it comes to economics! I hadn't been over at his site in a couple of days. Thanks for posting this!
The President is useless and both houses of congress are no better.
A Failed President working with a failed congress to bailout failed banks...How can this fail? -- Jay Leno
Anyone who has not yet written their congressional delegation to let them know how bad you think this is should do so. There's an election at stake so maybe we can have some input into this ugly process.
to start a new, alternative party in reaction to overnment corruption. With a commitment to completely naked, open government.
No smoke-filled rooms. No hidden 'agreements'.
Careful, the intolerant petty Democrats here will brand you another Nader. They will dismiss you as an "naive idealist".Just as Bush rules America by fear of terrorism, Democrats rule us by fear of Republicans, they will mandate all liberals or liberal leaning Americans vote Democrats or you will end up with our version of domestic terorrists - Republicans.
I'm sick about it, but the alternative would have neem far worse. I do think at least we did a better job of framing it, though snd the House Republicans can't get their act together.
I would like to retire in 25 years and my wife and I are both socking it away in 401k's. I don't view this crisis as anything that shakes my faith in investing, but I would like to see this pain be short lived.
So people can read it for themselves and make up their own minds.
Hi all, I'm one of the organizers of Get FISA Right and wanted to let you know about the No blank check for Wall Street's Send a message to Congress activism campaign on the bailout. Here's how you can help:
If you're on Facebook:
Thanks -- and please help get the word out!
I'm pleased with the way this deal is shaping up. They will pay for it in the end.
The Gov will be reimbursed by the banks if they cannot sell the securities after 5 years for at least what we paid for them. The banks will be confident to free up liquidity now which we need. At the same time they're on the hook if Gov erred on the side of overpaying for the bad debt.
The government gets an ownership stake (warrants) in the companies so that WE realize benefits when the companies turn around.
CEO pay is limited (if not enough).
The government will step in to renegotiate troubled loans with the goal of keeping people in their homes. This gets to the heart of the crisis and why the securities are toxic in the first place.
Look, nobody wants the government to step in and rescue the hated investment/banking industry, but the fact remains, You can't let credit dry up while the market settles itself without putting the economy in a serious downward spiral.
For those who are opposed to this bill, there is petition against it - whatever that may be worth now.
Credit is about borrowing from the future.
Maybe this goes much deeper than a bad bailout, goes to the way we finance our lives. Maybe it's time to look at all of this very differently.
All of the articles about this sound like broken records because the underlying assumptions are sick and wrong.
How about we focus on a transformation to pay as you go, or not owing everything to the future, securing our kid's lives, taking care of what essentially important (health care, the environment).
This bailout is crap because all of the underlying assumptions that make it seem urgent are crap.
Looks better than what they started with. Unfortunately, it's still closer to that starting point than I think most of us would have liked. I haven't been convinced that doing nothing is a wise move, but I'm going to wait and see how the economists respond to this compromise.
Nancy has a penchant for stupid announcements. She really is an old school pol, trying to make a headline statement whenever she can.
So the plan is for the federal government to buy $700 billion of foreclosed properties.
Did you know the federal gov't doesn't pay property taxes?
Did you know school districts rely on property taxes?
The bailout, as written, will be devastating to school districts and other local gov't that relies on property taxes. See Proviso Probe for a more in-depth discussion.
This issue needs to be addressed in the legislation.
Wealthy Teen Nearly Experiences Consequence
SOMERSET, NJ--In what local authorities are calling a "near tragedy," Charles Wentworth, a 17-year-old Rutgers Preparatory senior and member of the affluent Wentworth family, came perilously close to suffering a consequence resulting from his own wrongdoing Saturday.
Wentworth, reportedly ignoring the protests of his classmates, got behind the wheel of his turbocharged Supra 2000GT after consuming half the contents of a bottle of Goldschläger at a friend's party. While driving westbound on Route 27, a disoriented Wentworth drifted across two lanes of traffic and collided with a minivan carrying a family of four, bringing the teen face-to-face with a potentially life-altering lesson.
Wentworth escaped unscathed and unpunished, however, when his airbags deployed and a team of high-powered attorneys rushed to the scene and rescued him from the brink of personal responsibility...
Well, if wall street is nonplussed... that probably means that the bill is better than we think it is...
There is going to be no Great Depression. We didn't fall into a Great Depression after the 1987 stock market crash, nor after the great Savings & Loans debacle in the late 80s. The bailout is an attempt by the Bush Administration to expand the powers of the executive branch and to redistribute income to the very rich.
Well, I AM looking for some kind of a solution to a potentially tighening up of short term credit?
What do you do for a living, ZZY?
My company is in high tech manufacturing, we carry a very expensive long life inventory due to the products we make, and we live and die by short term credit.
If the banks either crank up the rates OR, god forbid, stop giving us credit, we are screwed.
Layoffs, loss of market share to European and Asian competitors.
Small to medium business like ours is one of the last bastion of STILL succesful American economic power.
We pay plenty of taxes, good wages, etc.
So, sure, I don't want to see Fat Cats on WS get bailed out.
I also don't want to see the baby thrown out with the bathwater....
Think about it.
Who wants the Freemarket to take care of this most admantly?
The Right wing House Idealogues, the guys who wanted all brakes taken off the car in the first place?
If THEY are screaming all is bad with this deal, there probably is some good in it.
I want lots of safeguards, I want the money deal out in chunks, not all at once.
I want the BANKS propped up before any of the leverage investment firms get a dime...
But, if the banks collapes, it may not effect everyone, but it will take thousands of small businesses like us out, OR it will so cripple us that our Chinese and European competition will take us out....
If you guys hate Pelosi so damn much, maybe you liked Hastert and Gingirch better.
I despise Gingrich. But that doesn't mean you let Pelosi off the hook. It's people like you that are responsible for Democrats having such a low bar (just dont be as wretched as republicans).
BTW, Gingrich raised the conflict of interest in Paulsen's case. I did not hear Pelosi mention it publicly.