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23 September 2008

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JohnH

Fool me once (Iraq), shame on you.

Fool me twice (warrantless wiretapping), shame on me.

Fool me thrice ($700 billion of wealth to Wall Street), strike 3, I'm out. Take whatever you want.

DaveGood

"Les Nobles" own the USA.

According to blogs I read written by people who have won Nobel prizes for economics.... ninety per cent of America's income now goes to one per cent of Americans.... as a result..... the median income of an American has dropped by over 2000 dollars per year under Bush...... and as a result it is no longer possible for the "average" husband and father to provide housing, food and shelter to his family on what he gets to take home after a weeks work.

DaveGood

zanzibar

We need alternatives to Hank Panky's Wall Street Crony Welfare Bill.

I believe we should consider several alternatives including economist and investment manager John Hussman's plan.

Today's testimony by the gang that couldn't shoot straight should make it clear to every American - their plan is to transfer our money to their Wall Street cronies with no oversight.

All their plan would do is increase the debt substantially. It will not solve the root problem that housing is still way too expensive for American's with their current wages. Nor solve the problem that many American's who bought overpriced homes recently are underwater on their exotic mortgages.

Chris

Some of the consequences of this bill (The Sacking of America Act of 2008):

1. The United States effectively subordinates itself to a new sovereign government with Henry Paulson as fuhrer. One of the sections of his bailout plan is to essentially assume all control over this mess with explicit bans on checks-and-balances oversight from the legislature and judiciary.

2. The United States will have chosen, by legislative mandate, to convert to a Third World nation. The income inequality that had been steadily growing and the social infrastructure that was not being built had been in motion for decades. Now, though, we will also begin to see that most of the population will be shut out from the economic and political spheres. Because of the crushing costs of cooperating in this sphere, Americans will have to set up a parallel social sphere with its own trading rules, customs and enforcers. (Think of how FARC and Shining Path are effectively the second national governments where they operate).

3. The plan for the bailout will come by wringing out every last drop of wealth from the 90%+ of the population. Argentina saw this early in this decade with its financial meltdown. The banksters would seize any nonmilitary outlay in the budget, all public assets (highways, national parks, etc.) would be sold off at fire-sale prices and wages will be controlled through peonage (say, working 18 hours a day for 7 days a week) and manufactured unemployment (companies will not be permitted to hire people for a period of time, and workers must comply with the longer hours or lose their jobs).

Paul

Paulson and Bernanke should have been dismissed. They have known about the credit situation for weeks yet they spring the $700 Billion bailout on the Congress and the public at the last minute. Why is Bernanke, at this time, so sure that the economy will detonate? Until now, he never wanted to say the word “recession”. Paulson is a Wall Street retainer so it is natural for him to carry their water.

They are suggesting that we hand George Bush’s Wall Street supporters a “thank you” in the form of free capital. As they said, the taxpayer’s best protection is capitalization of Wall Street. I don’t get the logic, but clairvoyant they are not.

What it difficult to fathom: if a telephone company is able to track and price billions of phone calls, why is it impossible to price the value of these stiff mortgage notes? Wall Street has one of the most sophisticated database systems in the world; that they cannot price bad loans is a canard. They know the precise amount of the exposure, they just do not want to disclose it.

I watched/listened to the Senate hearing today and both yokels should have been thrown out of the room. Civility has its place, but their threats and uncompromising demands require a profound and loud “hell no”.

Unless we all write and complain, those wimps in Congress will get skittish and agree to some kind of bailout.

Twit

Col:

The Financial Times' economics editor, Martin Wolf, agrees with you:
http://www.ft.com/cms/s/0/a09b317e-898d-11dd-8371-0000779fd18c,dwp_uuid=11f94e6e-7e94-11dd-b1af-000077b07658.html

Wolf says:
"What then is the challenge? The answer given by Hank Paulson, the all-action US Treasury secretary, last Friday, in announcing his “troubled asset relief programme”, is that “the underlying weakness in our financial system today is the illiquid mortgage assets that have lost value as the housing correction has proceeded. These illiquid assets are choking off the flow of credit that is so vitally important to our economy.” The core challenge, then, is viewed as illiquidity, not insolvency."

...BUT...

"The fundamental problem with the Paulson scheme, as proposed, is then that it is neither a necessary nor an efficient solution. It is not necessary, because the Federal Reserve is able to manage illiquidity through its many lender-of-last resort operations. It is not efficient, because it can only deal with insolvency by buying bad assets at far above their true value, thereby guaranteeing big losses for taxpayers and providing an open-ended bail-out to the most irresponsible investors."

...THEREFORE...

"Yes, there may well be a place for intervention in the market for toxic securities. But this is a costly and ineffective way of meeting today’s deepest challenge. What is needed, still more, is a clear and effective way of deleveraging and recapitalising the financial sector, ideally without using taxpayer funds. If such funds are to be used, they must also be injected in as carefully targeted and controlled a way as possible. Comprehensive action is essential, as Mr Paulson has decided. But let the US take the time to make that comprehensive action right."


Also, everyone might be interested in the following article out of U. of Chicago:

"Why Paulson is Wrong"
http://faculty.chicagogsb.edu/luigi.zingales/Why_Paulson_is_wrong.pdf

Minnesotachuck

Fool me once, shame on you! Fool me twice (and thrice, and . . . ), shame on me!

jamzo

the leadership of bush and his co-president cheney is conspicuously absent in this crisis

it looks as though paulson and bernacke are on their own

except they gotta do things the way that don bartlett and the remaining bushies on the white house staff direct

another thought:

how can the former ceo of goldman sachs operate in this situation with integrity?

that he has not recused himself or at talked about his "obvious" or potential conflict of interest is outrageous

he has skin in the game

something like a half a billion dollars in goldman, sachs stock

a walking, talking exemplar of crony capitalism

condfusedponderer

What I find obscene is that the bad debt was treated as an asset and bloated the balance sheets of the companies now in peril, where it then generated fictitious profits that then turned, mutatis mutandis, into real money - dividends and premiums - and was put into the real bank accounts of shareholders and execs. Duly deprived of their liquidity, and by the discovery of their gross overestimation of their assets the companies are now shaking, but thanks to Paulson's plan the taxpayer is left to pay the bill.

It isn't made any better by the fact that Paulson had the impertinence to go to Europe and ask for our taxpayer's money to fix this mess. I am relieved that our governments are unpersuaded by US administration assertions that the cure for the apparent failure of laissez faire is be carte blanche.

One lesson I see is that scandals like ENRON and Worldcom and others and now the current crisis, strongly suggest to review some of the real life aspects of America's once vaunted accounting standards.

Curious

Obama's Press Conference Video & Transcript

(youtube clip, conference this morning. I think he is being clear. I am confidence with how he lays out his position.)


http://www.dailykos.com/story/2008/9/23/173412/387/249/607927

Sidney O. Smith III

WP’s plan that is detailed in the PDF file looks like a fantastic place to start a debate and certainly offers an intriguing counter to the Bernanke Wall Street grab . For those whose preference is a government remedy that starts from the “bottom up", then WP's plan outlined in the pdf file will pique your interest.

Perhaps one could even make an argument that WP’s plan is consistent with Hayek’s views, although, in all likelihood, some of the Austrian school would see such as a stretch.

Anyway, WP’s deserves a thanks for thinking out of the box.

Not far off topic, but I am beginning to believe that, generally speaking, individual states, not the federal government, should decide how to redistribute money and wealth among its citizens through taxation. If California wants to go the way of Norway, then great, go for it. If Oregon wants to go a more libertarian route, then great, go for it.

As Shelby Foote commented once, before the WBS, the sentence “The United States are…” was considered grammatically correct. Suggests more diversity and even respect between cultures.

Great image included with this thread by the way.

Gozer

Hints of a massive shake down:
http://openleft.com/showDiary.do?diaryId=8451

Things are getting a little suspicious about this "crisis."

1. Why did the Bush administration suddenly declare a "crisis" during the final two weeks when Congress would be in session during his presidency? Is it maybe because, after the election, Congress would know it wasn't dealing with Bush anymore?

2. If this is such a sudden crisis, why is it that the Bush administration was drawing up the plan for this bill for months beforehand?

3. Why is it that Congress is supposed to bail out many banks and firms that are actually quite successful and profitable right now, and not just those that are failing?

4. Why is Paulson blatantly lying to Congress about oversight?

5. Where did the $700 billion figure come from?

6. Why is Paulson urging that debate on the matter be held after the legislation is passed?

john in the boro

As I understand it: The derivatives market is the really overinflated bubble. A large part of it is sliced and diced mortgages. The problem appears to be one of valuation. That is: What is the mark-to-market value of the derivatives? Obviously the financial sector wants the highest value possible. Don't forget that part of the financial sector pulled the profits from the mortgages at the front end and the rest does not have the patience to wait for the mortgages to extinguish themselves in the traditional manner. Until the derivatives are valuated in the here and now the public will not know whether the financial sector is ill-liquid or insolvent. Considering the panic, I lean towards the latter.

If I were a Wall Street banker I too would push for the Paulson Plan because it will pay triple. First, I already collected up front on the securitization of credit. Second, I get as much for my bad paper as the outgoing Republicans can steal from the treasury. Third, the Democrats after their ascent to power will bailout struggling homeowners. Of course, I will have taken my money and purchased the bad paper from the Treasury just in time for the Struggling Homeowners Act of 2009 or 2010.

Have I missed anything?

William R. Cumming

I actually don't believe it is owner occupied housing that it the problem. It is investor owned housing that they (the investors) bet on the upside increase in housing prices and now are walking away. Isn't there a way to rescue working homeowners who occupy their houses and sanction those who invested hoping for the bubble to keep going? If so that is what should be done. And before leaving Treasury in 1974 I was one of several attorney's recommending a detailed study of the taxation of derivatives. Never done to my knowledge and I doubt that correct taxes were paid while this bubble was going up but you can be sure losses will be deducted somehow. Maybe that is what Paulson fears most. A collapse would let people see for the first time how long ago Wall Street started playing fast and loose with their risk management knowing someday someone else might have to pay the piper. Help the little guy out! Henry Ford had it right. Let the factory worker have a decent wage so he could buy the model T. Its not class warfare its common sense. No trickle down and no trickle down through WALL STREET. No wonder IRS spent time tapping Spitzer's phone. He was the kid truthfully saying the king (Wall Street) had no clothes on.

Jackie Shaw

The Paulson bailout, late last week reminds me of the standard operating procedures of the Bush administration. Scare everyone for one last raid on the treasury. This is the same M.O. they used with Iraq. When will our representatives figure out what the rest of us have figured out? Bush is a one trick pony...scare, scare, scare.

It is a nifty device to leave the next administration hamstrung. There won't be any discretionary spending for sucessors.

Dave of Maryland

It makes no difference what Congress passes. Bush gets what he wants, or he issues a signing statement & gets what he wants. This is a charade.

Dave of Maryland

And since it's true that Bush can, by means of a signing statement, turn any Act of Congress into anything at all, the best plan is for Congress to do NOTHING.AT.ALL.

Starve the bastards out.

Dave of Maryland

I know!

I know!

Congress can regain its authority to pass Laws by immediately impeaching the president & vice president & installing Pelosi as a make-shift caretaker. (You did title a recent post, "Revolution".)

Well, it's the only way I can think to stop the stick-up. Until the current administration is gone, Congressional legislation WILL.BE.IGNORED.

Bobo

Some things we know.
Paulson's background is investment banking, he is not a politician. Bernanke's background is that of a College Professor of Economics, he is not a Politician. Gingrich is a politician. WP is a creative and thoughtful individual with a good concept of the problem and a solution. So now we know where they come from and how they create solutions.

Our future economic health is now in the hands of Congress and their solution seems muddled.

Its my view that Paulson's solution solves an immediate problem and that further solutions are needed. So WP how about melding your solution with Paulson's and lets send it off to congress to muddle again.

Michael Torpey

Paulson and Bernanke should be praised for the most chutzpah ever. I'm in awe of con men that are this bold. They didn't stop me from emailing my Congress Critters with my simple answer to them.

No.

Clifford Kiracofe

The issue is considerably larger than a bailout for some Wall Street sharks. There is the matter of the overall international financial system ("architecture") and also the matter of the Federal Reserve System itself.

1. As eyebrows are being raised around the planet, it is not unlikely that increasing calls for new international financial architecture (a New Bretton Woods in effect) will increase. And they should.

From Bloomberg:

"Sept. 23 (Bloomberg) -- French President Nicolas Sarkozy urged a summit meeting on the U.S. financial crisis as African, Asian and Latin American presidents used United Nations speeches to blame American mismanagement for creating the economic peril.

Sarkozy, whose country currently holds the rotating presidency of the European Union, called for a meeting of leaders of the world's industrialized nations in November to deal with what he called the ``mad system'' that produced the meltdown."....
http://www.bloomberg.com/apps/news?

pid=20601087&sid=aRO_NNUxunJo&refer=home

2. It is useful to review the various analytical reports of the Bank for International Settlements. For example, here is new one (Sept 18) on the US housing meltdown:

" The crisis enveloping global financial markets since August 2007 was triggered by actual and prospective credit losses on US mortgages. Was the United States just unlucky to have been the first to experience a housing crisis? Or was it inherently more susceptible to one? I examine the limited international evidence available, to ask how the boom-bust cycle in the US housing market differed from elsewhere and what the underlying institutional drivers of these differences were. Compared with other countries, the United States seems to have: built up a larger overhang of excess housing supply; experienced a greater easing in mortgage lending standards; and ended up with a household sector more vulnerable to falling housing prices. Some of these outcomes seem to have been driven by tax, legal and regulatory systems that encouraged households to increase their leverage and permitted lenders to enable that development. Given the institutional background, it may have been that the US housing boom was always more likely to end badly than the booms elsewhere."
http://www.bis.org/publ/work259.htm

exomike from Georgia

Even if my homeboy Newtie is right and telling the truth you may be _sure_ there is an evil motive behind his statements and actions. This man makes no moves unless those moves benefit the power elite vs. We the people.

John Howley

As with Iraq, the problem is mis-specified and the proposed solution won’t work. The resulting disaster will benefit only the insiders who will get to pick through the wreckage first. Meanwhile, the real problems of the nation are neglected even while they grow in number and severity while the needed resources are looted.

This reflects systemic defects of our governance system, defined broadly to include constitution, selection and training of elite, resource and structural challenges, and so forth.

We are wasting precious time, effort and money on a bailout which, at best, will shuffle paper around and leave us pretty much where were last week.

blowback

Since the US is now well on the way to becoming a monarchy, resort to that old standby of European kings when they ran out of money - arrest a few people and ransom them for most of their wealth. The top 200 wealthiest people would be good for $750 billion even allowing them each to hang on to the odd billion.

Arun

Did you see this?
http://www.rollcall.com/news/28599-1.html

[White House Deputy Press Secretary Tony Fratto]

Quote: Fratto insisted that the plan was not slapped together and had been drawn up as a contingency over previous months and weeks by administration officials. He acknowledged lawmakers were getting only days to peruse it, but he said this should be enough.

--- A contingency plan draw up over previous months - unlike Iraq's alleged WMD and military plans, there is absolutely no national security reason nor any other reason to have kept this plan hidden. In fact public knowledge that there was a plan discussed with Congress and agreed upon by President and Congress to handle any crisis might have averted the crisis, because the market would have taken that into consideration.

This is the height of irresponsibility.


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