Paulson's Plan

I listened to Treasury Secretary Paulson a lot this morning as he explained the "plan."   Under his concept, the federal government will buy a great deal of presently worthless securitized mortgage debt, hold it for years and then sell it to someone who wants it, presumably because the value of the underlying real estate has gone up.  The institutions from which the federal government will buy the debt will play a large, perhaps decisive, role in setting the price at which they "are willing" to sell the now worthless debt to the federal government. 

Paulson hopes that the institutions that will be unburdened of this worthless paper will once again soar like eagles (wasn't there a song?).  This would seem likely to lead to high profitability for the unburdened institutions with lots of money for all.

Wait!  Not so fast!  Paulson is not enthusiastic about requiring the "unburdened" to give the government warrants for future stock sales to the government.  Such warrants would enable the tax suckers (us little people) to buy the companies at distressed prices (like, now prices) and sell the stock at later higher prices so that the Treasury of the United States (us tax suckers) could make money out of this whole thing.

Paulson also does not think that in return for the US government buying the nearly worthless mortgage securities, the "unburdened" should accept restrictions on executive compensation.  Why?  He believes that such a restriction would cause the presently burdened institutions to refuse to sell the government their "treasured" worthless paper.  Hmmm.

When asked why he thought the presently worthless mortgage "bundles" will become valuable some day "over the rainbow," he expressed faith in the future of America.  Bless him!  pl

If I do not understand this, explain it.  pl

http://www.bloomberg.com/apps/news?pid=20601087&sid=atwDaTfVQX64&refer=home

Comments

[bh]

Even the $700 billion figure is not what it seems. The Paulson plan states that this is the maximum limit of the government's exposure at any point in time. What this means is that as presumed revenue comes in from the eventual sale of assets, that money can be used again to buy more worthless paper "at above market prices."

So under the terms of the plan, the fund is a revolving fund with a maximum limit of $700 billion. This is literally a blank check. As future revenue comes in, there is no guarantee that any of it will be returned to the Treasury to reduce federal debt.

This revolving fund mechanism could easily result in the purchase of well over $1 trillion in "assets" over the next few years.

[bh]

Even the $700 billion figure is not what it seems. The Paulson plan states that this is the maximum limit of the government's exposure at any point in time. What this means is that as presumed revenue comes in from the eventual sale of assets, that money can be used again to buy more worthless paper "at above market prices."

So under the terms of the plan, the fund is a revolving fund with a maximum limit of $700 billion. This is literally a blank check. As future revenue comes in, there is no guarantee that any of it will be returned to the Treasury to reduce federal debt.

This revolving fund mechanism could easily result in the purchase of well over $1 trillion in "assets" over the next few years.

[Dave of Maryland]

So for their final act, the thugs who stole the 2000 elections steal the government's remaining money. Every.last.cent. As well as all the money there will ever be, for the rest of our lives, for the rest of our children's lives.

As our host says, these were one-shot Jacobins. If they were Republicans, they would have left something for their hand-picked successors to steal. How does that saying go, "after me comes a lot of water" - ?

[Clifford Kiracofe]

Grieder's take is to the point:

"Financial-market wise guys, who had been seized with fear, are suddenly drunk with hope. They are rallying explosively because they think they have successfully stampeded Washington into accepting the Wall Street Journal solution to the crisis: dump it all on the taxpayers. That is the meaning of the massive bailout Treasury Secretary Henry Paulson has shopped around Congress. It would relieve the major banks and investment firms of their mountainous rotten assets and make the public swallow their losses - many hundreds of billions, maybe much more. What's not to like if you are a financial titan threatened with extinction?"...
http://www.truthout.org/article/paulson-bailout-plan-a-historic-swindle

[Ingolf]

Rather than comment at length here, I trust it's appropriate to refer to a post I put up a bit earlier today.

http://clubtroppo.com.au/2008/09/22/at-the-crossroads-again/

[Patrick Lang]

Ingolf

I would prefer that you not make a habit of doing that. pl

[William R. Cumming]

Only one question needs to be asked and answered. What will prevent this from happening again after any bailout? Which came first-- Chicken or egg? Which came first--bailout or financial collapse? Note overlooked is that there have been continuous bailouts since 1987 and the melt-down of Long Term Capital Management and its rocket scientists. Note the foreign markets and their traders are watching this unbelieveable US performance and just waiting to pounce? Note even the Chinese have said no more US leadership on finance! Two quick steps finish off the US. First, oil excanges switch to Euro or basket of currency. Second, foreign buyers of US securities say enough is enough. Why go through a fire drill periodically when you don't really need to do so. Interesting that the national security was finally and fatally compromised by the Bush administration. Looking forward to the next Kevin Phillips book.

[Ingolf]

Apologies, PL. It was, on even slight reflection, entirely inappropriate.

[John Howley]

German leader Angela Merkel has issued a frank and angry attack on the US government for its failure to avoid a financial crisis, accusing it of mismanagement and stubbornness.

Merkel said that taxpayers "far beyond the United States and Britain" would now carry the burden of a crisis which she said could have been prevented had the US acted more prudently and for which Britain was also to blame.

As the German government refused to contribute to a $700bn (£378.7bn) rescue package proposed by Washington today, Merkel criticised the fact that despite impending dangers, the financial markets had been allowed to continue operating in a "free-range" and "matter-of-fact way", and were "supported by the governments in Britain and the US".
http://www.guardian.co.uk/business/2008/sep/22/marketturmoil.creditcrunch

[DaveGood]

Great...

Here I stand while a right wing conservative leader of another country points out that my own supposedly " Liberal" , supposedly" Socialist" ( Isn't that a term included in the phrase "Labor Party" government).....

Is responsible for both promoting and now trying to protect ( At our expense) those who have swindled us?

Let me point out ... that in this country (The UK) it is legal to borrow (use) other peoples money to buy large companies such as Arcadia.. Having done so you then award yourself 1.2 billion UK Sterling ( getting on for 3 billion US) in dividends... transfer that offshore into a tax haven so you pay nothing in taxes...... and have now successfully asset stripped a UK company and left it weaker..... useing other peoples money.

And a "labor Government" punishes you for doing so by giving you a seat in the House of Lords!

His name is Philip Green... now Lord Philip Green.

Frankly, when such things are not only legal but rewarded with the highest civics honours a nation can bestow...I have no hope that the anglo-saxon version of " Capitalism" and "Democracy" has a future.

DaveGood

[Clifford Kiracofe]

Logically, there is an issue about the future of the US dollar here at home and internationally.

How much longer can (and will) the international community tolerate an increasingly dysfunctional America and its dollar?

The conservative Telegraph (London) warns:

"Whether or not tomorrow’s accounts of today’s turmoil prove David Owen of Dresdner Kleinwort right; whether or not this is the beginning of the end of the dollar’s pre-eminence in the world’s central banks and foreign exchanges, the economic landscape has undoubtedly changed forever.

The US taxpayer bail-out of America’s banking sector is an event whose significance will reverberate for many years. What it means for free markets, for the way Western economies are run, for the prosperity of the world economy, must remain to be seen.

But as investors scrambled to make sense of last week’s events, already one conclusion was all but irrefutable – the US dollar will have to take another major fall."
http://www.telegraph.co.uk/

finance/economics/3062121/

US-dollar-set-to-be-major-casualty-of-Hank-Paulsons-bailout.html

So what about the current and future state of international financial "architecture?"
FDR pulled together the Bretton Woods Conference in 1944 and it seems that it is about time for another one.

Do the Euros, Russians, Chinese, Japanese, Indians, Brazilians, and others with major international stakes want America's toxic financial waste to bring them down also? What steps will they begin to take now?

[justsomeone]

Chuck Schumer has never been a fav of mine, but atleast he's suggesting monies be transferred to Treasury in increments, with reporting & oversight. Former FedCh Wm M Issac was on Fox saying this massive "bailout" is not necessary. He thinks a solution can be found simply by increasing FDIC limits. Google him, this guy has alot to say.

[Laisseraller]

Great Article! a talk show host claims an Economist Wesberry, has a solution to Paulson's $700 billion bail out plan!http://got700billion.blogspot.com/

http://www.cafepress.com/092308