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Author Topic: The $700B+ Bailout of Wall St.  (Read 1405 times)
Finnegans Wake
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« on: Sep 24, 2008 at 11:28 »

Sorry, I'm not buying.  This is beyonda partisanship, as both parties have proponents and opponents of this plan.  I have to disagree with both mcCain and Obama on going through with the bailout, even with their calls for tighter regulation and possible mortgage help for homeowners.

NPR had a very good interview with Newt "I am still mesmerized by Finny's jacket" Gingrich, where he basically said that Congress' role is NOT to fast-track everything the executive branch wants to do, but rather the opposite: slow down, ask questions, make sure we're not jumping into a giant mistake that will mire us and future generations in debt.  $700B?  As one Republican, forget his name, asked: is that the floor, or the ceiling?

Why do we have endless resources for the ill-considered Iraq war, and now this bailout of Wall St., but the well is dry for healthcare, for alternative energy, for education, and infrastructure?  Why are we becoming a SOCIALIST state at the behest of the creme de la creme of the capitalists?  Does this make ANY sense?

Quote
The $700 Billion Wall Street Bailout: One More Weapon of Mass Deception
by Richard W. Behan

Not since the Bush Administration's lies about Iraq's "weapons of mass destruction" have the American people been so despicably misled.

The Bush Administration's proposal to buy, with taxpayers' money, $700 billion of toxic liabilities from the corporate financial titans of Wall Street is a fraud. It is by no means necessary, as Treasury Secretary Henry Paulson claims in the agency's Fact Sheet, "...to promote market stability, and help protect American families and the U.S. economy."

It is necessary only to assure the financial survival of Wall Street banks and brokerages, the Administration's most loyal supporters and its greatest political contributors-and in large measure the cause of the financial meltdown the country is facing.

These financial corporations lobbied ferociously to be free of government regulation. Had they not succeeded, they could not have done what they did next. They created and leveraged trillions of dollars of complex "derivatives"-mortgage-backed securities, collateralized debt obligations, and credit default swaps-all riding on an unprecedented real estate bubble stimulated by their frenzy of creative finance. When the bubble burst, as bubbles do, many of these financial titans faced bankruptcy, their obligations far exceeding their assets.

The $700 billion of taxpayers' money, in the plan suggested by Treasury Secretary Henry Paulson, will buy enough of the toxic obligations to allow the companies to avoid bankruptcy. Not coincidentally a major beneficiary of the scheme will be the investment bank Goldman, Sachs. Mr. Paulson resigned as CEO of Goldman, Sachs to become Treasury Secretary in 2006, having amassed a personal net worth of $700 million during his 32-year tenure at the bank. (On average, $21.9 million per year.)

We need to "remove the distressed assets from the financial system," Mr. Paulson suggests. Relieved of the burden, the great Wall Street banks can then regain, presumably, their folksy function: assuring that "...money and capital flow to and from households and businesses to pay for home loans, school loans, and investments that create jobs."

For the good of the American economy, Mr. Paulson is correct that credit needs to flow and the distressed assets need to be removed. He is not correct that credit needs to flow from Goldman, Sachs and other Wall Street financial houses. And the distressed assets do not have to be assumed by the taxpayers.

There are other, far more equitable and justified ways to accomplish both.

The distressed assets-that is the losses-can and should be absorbed by the executives, directors, and stockholders of the corporate banks and other institutions that propagated the financial firestorm. They can and should, as the dictates of the free market insist, stand accountable for their actions and accept bankruptcy. It is not the responsibility of the American taxpayers to shield them.

Mr. Paulson wants to rescue Wall Street so Wall Street, he assures us, can get back to lending. That is certain to save Mr. Paulson's former firm and the others, but it is by no means certain credit will then flow to "...home loans, school loans, and investments that create jobs." The Wall Street firms are far more likely to revive their lucrative trade in complex and esoteric financial "products."

$700 billion is a lot of money. It is more than we've spent so far on the Administration's fraudulent "war on terror." (See http://www.alternet.org/waroniraq/63632/ ) Is it not better public policy to channel the money to "households and businesses" in some other, more direct, more effective, and far more reliable way?

There are hundreds if not thousands of Main Street banks and thrift institutions which played no part in the real estate securitization/derivatives game. Certainly the $700 billion could be made available to them instead, at low but positive interest. Or special publicly-held banks could be set up in statute and capitalized with the $700 billion.

The crisis is real, but there are ways to serve the nation's interests at large, and even to earn a modest return on its assets. We do not need to subsidize the failure of Wall Street and hope thereafter for better days.

The welfare of the Wall Street financiers should not be the focus of public policy, and this clever attempt by the Bush Administration is a perversion of decent governance. We should not be stampeded into the greatest corporate theft of public assets, arguably, in the nation's history. Instead, to paraphrase one of our presidential campaigns, we need to put our country first and stop Mr. Paulson dead in his tracks.
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Finnegans Wake
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« Reply #1 on: Sep 24, 2008 at 11:31 »

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September 24, 2008
Editorial
An Inadequate Case for the Bailout
Under skeptical questioning in the Senate Banking Committee on Tuesday, Treasury Secretary Henry Paulson and the Federal Reserve chairman, Ben Bernanke, gave no ground in defense of their $700 billion proposal to bail out the financial system.

They also gave little reason to believe that their proposal would protect taxpayers from huge losses. Instead, they said that any eventual loss would be less than the losses that Americans would endure if lending froze up, as it did briefly last week in the panicked aftermath of the failure of Lehman Brothers and the near-death of the American International Group.

The candor is appreciated, but it is not a good enough answer for Congress or the American people. Rather than rushing to approve the $700 billion bailout, lawmakers need to examine alternatives. They should look for one that ideally would let taxpayers share in the gains from any postbailout revival, along with the bankers and private investors who will make money if the bailout succeeds. Several ideas have been advanced that Congress should examine.

Prominent among them is a plan to make a direct investment of taxpayer dollars into financial firms, rather than buying up their bad assets. With that money, the firms could absorb the losses that they are bound to take as their investments go sour and avert failure and panic. Once the firms begin to recover, taxpayers would earn a return. Such equity investments are risky, however, and careful analysis is needed to show if they would be riskier than what the administration has proposed.

Another proposal, advanced by Senator Christopher Dodd, would buy up bad assets, as proposed by the administration, but would give the government the option to acquire stock in the firms receiving help. The danger is that private investors, fearful of seeing their ownership stakes diluted if the government becomes a shareholder, might be reluctant to invest money. That would deprive the firms of investments they need to recover.

There is time to clarify that sort of uncertainty. The financial system is vulnerable to more severe problems, but the credit squeeze has eased a bit since the administration
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bamf16
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« Reply #2 on: Sep 28, 2008 at 19:45 »

I won't lie.  This whole situation scares me.

I'm about as "free market" as they come.  But I think in this situation SOMETHING must be done.  I'm not sure $700 billion allocated in the proposed way(s) is best.  But I think something needs to be done if only for the psychological effects on investors here and abroad.

My fears are this...

1.  Government meddling in the market always comes with it the risk of a bigger meltdown in the future.  Is it a band-aid or a vaccine?

2.  Those calling for government regulation of this sector of the economy probably lack an understanding of exactly how big of an undertaking this is.

3.  The economy of a capitalist nation will forever be going through periods of ups and downs.  All we can hope for is short downs and long ups.  I'm afraid the wrong action could make this an incredibly long down.

4.  This is being called the worst situation since the Great Depression.  Let us not forget that government meddling in the market did not end the Depression.  FDR could not figure out a way out of the Depression.  (Unless you believe he knew of an upcoming attack on Pearl Harbor and did nothing.)

5.   The best way to deal with this long term is to let the market crash and rebuild itself.  If this is truly the best thing, buckle up.
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« Reply #3 on: Sep 28, 2008 at 21:56 »

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5.   The best way to deal with this long term is to let the market crash and rebuild itself.  If this is truly the best thing, buckle up.
On this, we can agree Bamf.

I am against the bailout. As Finny's mesmerizing jacket says, how can socialism save capitalism?

I don't know where the gov't thinks its going to get the money while proposing tax cuts. And if they just print the money, inflation is a concern as well as currency devaluation.

 How come the gov't can come up with $700 billion for this, but we can't invest in energy independence?

I don't really feel sorry for people who made bad investments on these sub prime loans. I also don't feel sorry for the people who took out home equity loans in the boom to finance investment properties only to have home values tank. They don't call it speculating for nothing. I also don't really feel sorry for individual's bad judgment because they thought they could pay for their loan later or didn't put any money down. These banks were making outragous money on interest rates for these subprime loans, and instead of working with people when the rates adjusted, they foreclosed on them, hoping to make even more money in the auction market.

I do feel sorry about people who were victims of shady brokers and were taken advantage of.

Both Dems and Repubs are to blame for the regulation mess, but the Repubs were in power in both houses and had the White House when all this shady lending was done. The Dems are just as guilty of ignoring the signs of this mess too.

And what a mess. We are kinda in uncharted territory here. I'm certainly no economist, but it seems like this isn't going to save us and doesn't address the root problems for America's struggling economy. It might prop up Wall St. for a while, but it might be putting off the real and necessary pain of fixing this properly.
The free market will eventually right itself and business "natural selection" should run its course. The gov't should help taxpayers stay in their homes and make sure lenders can't do what they did. It seems like the bailout is going through. Hope it works.
 
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« Reply #4 on: Sep 28, 2008 at 22:52 »

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The free market will eventually right itself and business "natural selection" should run its course. The gov't should help taxpayers stay in their homes and make sure lenders can't do what they did. It seems like the bailout is going through. Hope it works.
Natural selection.  Funny choice of words there.  How can we expect this administration to allow natural selection to take its course when all they believe in is intelligent design?  You gotta hand it to them though, it's one damned intelligent design they've made to literally rob the American taxpayer.  No doubt about that.

Thieving bastards.
 
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vinman3
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« Reply #5 on: Sep 29, 2008 at 13:08 »

I would have so voted for Newt if he had ran....Bailout looks to be failing in the House. Glad about it, but still nervous.
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« Reply #6 on: Sep 29, 2008 at 13:23 »

Mark to Market May Be Better Answer

Quote
Financial Socialism? No Thanks
Brian S. Wesbury and Bob Stein 09.23.08, 12:00 AM ET

The Treasury Department has told members of Congress that the U.S. faces an economic tsunami if a bill allowing the government to purchase up to $700 billion of toxic securities from financial firms is not passed this week.

Unfortunately, this solution of giving the U.S. Treasury almost unlimited power to buy distressed securities could be avoided if the government made some simple (and temporary) changes to mark-to-market accounting rules. So far, and for many unknown reasons, these changes have been considered off limits.

Why drawing such a hard line in the sand is so important is a real mystery. Certainly, firms that took excessive risk should be punished. And the U.S. should avoid creating moral hazard whenever it can. But saying "I told you that you would stay in your room for a whole week if you disobeyed, and I don't care if the house is burning down
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vinman3
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« Reply #7 on: Oct 02, 2008 at 06:17 »

Senate passed the bailout. BOOOOOOOOOOOOOOO!
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Finnegans Wake
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« Reply #8 on: Oct 02, 2008 at 09:50 »

Senate passed the bailout. BOOOOOOOOOOOOOOO!


I'm sure the House will pass some version of this bastardized creation, but you never know.  Folks like Peter Defazio (D, Ore.) are still vocal in their opposition and has introduced a No Bailout Act

Defazio has mentioned an alternative from William Isaac, who served under Carter and Reagan, and was behind the S&L bailout of the 80s.

Quote from: Isaac
A Better Way to Aid Banks

By William M. Isaac
Saturday, September 27, 2008; A19



Congressional leaders are badly divided on the Treasury plan to purchase $700 billion in troubled loans. Their angst is understandable: It is far from clear that the plan is necessary or will accomplish its objectives.

It's worth recalling that our country dealt with far more credit problems in the 1980s in a far harsher economic environment than it faces today. About 3,000 bank and thrift failures were handled without producing depositor panics and massive instability in the financial system.

The Federal Deposit Insurance Corp. has just handled Washington Mutual, now the largest bank failure in history, in an orderly manner, with no cost to the FDIC fund or taxpayers. This is proof that our time-tested system for resolving banking problems works.

One argument for the urgency of the Treasury proposal is that money market funds were under a great deal of pressure last week as investors lost confidence and began withdrawing their money. But putting the government's guarantee behind money market funds -- as Treasury did last week -- should have resolved this concern.

Another rationale for acting immediately on the bailout is that bank depositors are getting panicky -- mostly in reaction to the July failure of IndyMac, in which uninsured depositors were exposed to loss.

Does this mean that we need to enact an emergency program to purchase $700 billion worth of real estate loans? If the problem is depositor confidence, perhaps we need to be clearer about the fact that the FDIC fund is backed by the full faith and credit of the government.

If stronger action is needed, the FDIC could announce that it will handle all bank failures, except those involving significant fraudulent activities, as assisted mergers that would protect all depositors and other general creditors. This is how the FDIC handled Washington Mutual. It would be easy to announce this as a temporary program if needed to calm depositors.

An additional benefit of this approach is that community banks would be put on a par with the largest banks, reassuring depositors who are unconvinced that the government will protect uninsured depositors in small banks.

I have doubts that the $700 billion bailout, if enacted, would work. Would banks really be willing to part with the loans, and would the government be able to sell them in the marketplace on terms that the taxpayers would find acceptable?

To get banks to sell the loans, the government would need to buy them at a price greater than what the private sector would pay today. Many investors are open to purchasing the loans now, but the financial institutions and investors cannot agree on price. Thus private money is sitting on the sidelines until there is clear evidence that we are at the floor in real estate.

Having financial institutions sell the loans to the government at inflated prices so the government can turn around and sell the loans to well-heeled investors at lower prices strikes me as a very good deal for everyone but U.S. taxpayers. Surely we can do better.

One alternative is a "net worth certificate" program along the lines of what Congress enacted in the 1980s for the savings and loan industry. It was a big success and could work in the current climate. The FDIC resolved a $100 billion insolvency in the savings banks for a total cost of less than $2 billion.

The net worth certificate program was designed to shore up the capital of weak banks to give them more time to resolve their problems. The program involved no subsidy and no cash outlay.

The FDIC purchased net worth certificates (subordinated debentures, a commonly used form of capital in banks) in troubled banks that the agency determined could be viable if they were given more time. Banks entering the program had to agree to strict supervision from the FDIC, including oversight of compensation of top executives and removal of poor management.

The FDIC paid for the net worth certificates by issuing FDIC senior notes to the banks; there was no cash outlay. The interest rate on the net worth certificates and the FDIC notes was identical, so there was no subsidy.

If such a program were enacted today, the capital position of banks with real estate holdings would be bolstered, giving those banks the ability to sell and restructure assets and get on with their rehabilitation. No taxpayer money would be spent, and the asset sale transactions would remain in the private sector where they belong.

If we were to (1) implement a program to ease the fears of depositors and other general creditors of banks; (2) keep tight restrictions on short sellers of financial stocks; (3) suspend fair-value accounting (which has contributed mightily to our problems by marking assets to unrealistic fire-sale prices); and (4) authorize a net worth certificate program, we could settle the financial markets without significant expense to taxpayers.

Say Congress spends $700 billion of taxpayer money on the loan purchase proposal. What do we do next? If, however, we implement the program suggested above, we will have $700 billion of dry powder we can put to work in targeted tax incentives if needed to get the economy moving again.

The banks do not need taxpayers to carry their loans. They need proper accounting and regulatory policies that will give them time to work through their problems.

The writer was chairman of the Federal Deposit Insurance Corp. from 1981 to 1985. He is chairman of Secura Group, a Washington financial services consulting firm that is a subsidiary of LECG.


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vinman3
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« Reply #9 on: Oct 02, 2008 at 10:10 »

Proof positive that there is more than one fucking solution to this problem. So many solutions that cost a fraction on the $700 billion Congress and this administration is trying to shove down our throats. It is complete and utter bullshit. The more I hear it, the angrier I get. And the absolutely amazing thing is that the Dems are leading the charge. The party that is allegedly for the little guy and against big business, wants to give big business $700 billion? I have my differences with the Dems, but this is one where I thought they would not pass and try to find alternative solutions. Our system is broken. The parties are two heads of the same animal.

Bob Barr for President.
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