Democrats & Liberals Archives

Bailout or Power Grab?

Everybody is scared. The stock market is having a fit, homeowners are losing their homes and people are being kicked out of their jobs. Over and over again we have been reassured: we may be headed for a recession but we are not there yet. When the gyrations of the stock market became obviously unbearable, Secretary of the Treasury Henry Paulson came up with a plan that MUST BE PASSED IMMEDIATELY.

I'm not sure I understand what has happened. But based on what economists say, it all started when the housing boom collapsed and many homeowners lost their homes to foreclusure because they had gotten imprudent loans and now could not pay their mortgages. Financial institutions had made reckless loans to those obviously unable to pay. They bore little or no risk because they sold the debt to other financial institutions who, in turn, made securities out of them in such a way that nobody knows their value. All the big financial organizations encouraged this money machine.

According to Henry Paulson we are at a crisis point. We had already bailed out several financial powerhouses and still the market does not respond. He and FRB Chief Bernanke hatched a bailout for Wall Street costing $700 billion (they say) which they want passed by Congress IMMEDIATELY!

OK, OK! Wait a minute. Maybe economists can evaluate the plan. But I, you and everybody can evaluate this provision:

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

No oversight! No agency! No review! No court! Whatever the Secretary of the Treasury wants the secretary gets!

Didn't we hear this song before? We've been attacked. We're in crisis. We MUST attack Iraq. There is no time to waste. We must have permission from Congress immediately. We followed this routine with the Patriot Act and the other measures that stlfle liberty. We acted in a hurry and are now paying the price.

I think the body of the Act may be wrong too. The emphasis is entirely on helping Wall Street. Doing this, the logic goes, will eventually help the rest of us - trickle down. Since Wall Street and Main Street are connected, why not help Main Street and it will trickle up to Wall Street?

I'm not sure how to do this. But our economists do not even think about it. At any rate we should insist on adherence to the following principles that were formulated by Obama:

First, there must be no blank check when American taxpayers are on the hook for this much money.

Second, taxpayers shouldn't be spending a dime to reward CEOs on Wall Street.

Third, taxpayers should be protected and should be able to recoup this investment.

Fourth, this plan has to help homeowners stay in their homes.

Fifth, this is a global crisis, and the United States must insist that other nations join us in helping secure the financial markets.

Sixth, we need to start putting in place the rules of the road I've been calling for for years to prevent this from ever happening again.

And finally, this plan can't just be a plan for Wall Street, it has to be a plan for Main Street.

If most of what you do is part of Main Street, tell your Congressmen and senators to provide relief for Main street and rigorous oversight on Wall Street.

Posted by Paul Siegel at September 22, 2008 8:48 PM
Comments
Comment #263919

Paul,
Henry Paulsen was chairman of Goldman Sachs, the biggest shark in a pool of sharks, the top guy at the firm of some of the sharpest people on Wall Street. His opening offer was the opening of a negotiation. That’s just smart.

“According to Henry Paulson we are at a crisis point.”

According to? The DJIA dropped over 900 points in two days. The 2nd, 4th, and 5th largest investment banks went down or were taken over. One of the largest insurers in the world, AIG, was essentially taken over by the government.

A lot of people who should have known better were slow to recognize the developing situation, including Paulsen. He’s assessed the situation, and presented his best idea for a bad situation. No one likes this. Anyone familiar with the description of Shock Doctrine and Chaos Capitalism knows the possible outcome.

Conservatives are threatening to reject the proposal. They want to be ideologically pure. Screw ‘em. Sometimes life offers only bad choices, and we’re forced to choose the option which is least bad, knowing the choice may not prevent the worst outcome anyway.

Obama and the Democrats made their point, and demanded oversight as well as provisions for mortgage holders. If anyone has a better idea, they had better speak up, because it’s time to act.

Posted by: phx8 at September 22, 2008 9:22 PM
Comment #263920

Doesn’t matter whether this gets the nod or not. The problem is that the banks are holding “assets” that are actually less a helluva lot less than their valuations imply. The reason for this is that the valuations are based on bubble prices. At those prices, no one is interested and no one could buy them. Essentially what Paulson wants to do is to float these things off at above market prices so as to inflate the bubble all over again. Bubbles need to burst. When home prices come down to prices that people can afford, they will buy. Trying to inflate these values will at best simply enslave people to mortgages they can at best barely afford. The fact is that the piper has to be paid now. Voodoo economics has had its run, and now the bill is due. This will almost certainly lead to a massive depression, but actions have consequences, and that is the natural consequence of the gangster crony capitalism that has been masquerading as free markets. Free rigged markets more like. The US has the best government money can buy, open to the highest bidder, and that ain’t the voter or taxpayer.

The fact is that when you goof, you have to pay the price. That’s what education is supposed to be about. The system is now busted. Time to start over, and the best place to start is with the perp walk. Clean out the augean stables.

Posted by: Paul in Euroland at September 22, 2008 9:43 PM
Comment #263921

Paul in Euroland,
You may be right, and the US may very well face depression. Nothing we try here will work if the real estate market continues falling. However, I am unwilling to go through an economic depression if there’s a way of avoiding it, and I am unwilling to passively accept it. I think Paulsen’s going to attempt to re-liquify some very large, leveraged markets. He’ll enter the fray with some very large hammers at his disposal, and I think people would be wise not to underestimate what a guy like that can do with enormous sums of money and control of mortgage markets.

Sure, it might all be a huge mistake, and we’ll crash anyway. But doing nothing seems guaranteed to result in a crash…

Posted by: phx8 at September 22, 2008 9:58 PM
Comment #263924

phx8

I am not so sure we haven’t already crashed. I am tired now and not thinking clearly but it seems to me that what is being attempted is really nothing more than an attempt to sustain what isn’t working. Paulsen is trying to fix the problem by refreshing the problem. Kind of like hitting the heart attack patient with the defibrillators. You may get him going again but the problem still exists and at some point will return unless it is treated. As Paul from Euroland says people will not buy homes until they can afford them. Simply buying up bad mortgage debt will not put more money in the pockets of middle class America. 600 thousand jobs lost this year alone. Combine that with increasing energy costs, wages that have been stagnate for at least six years, inflation, the ongoing cost of two wars, a depleted treasury which relies on borrowing to stay fluid etc. etc. etc. And I think we may have completed the recipe for an economic disaster that can only be avoided in the short term. At this point in time, if I were relying on investments to sustain my life I would be buying gold as fast as possible.

You seem to have a lot of faith in Paulsen. I hope you are right and my instincts are wrong. Personally I have no faith in anything anyone in this current administration might think or do. You must also remember that even though he is a pretty sharp fella, he also has been a big player in the business for a long time which makes him a very real part of the problem. With that in consideration I am not so sure that putting him in charge of this thing is proper or wise.

Posted by: RickIL at September 22, 2008 10:33 PM
Comment #263925

There are those who believe, phx8, that many of he decisions immediately after the crash of 1929 by Hoover made the Depression deeper and longer. Time is of the essence, but here’s the thing: we might act now, but not know what the hell we’re doing. If that’s the case, we may just simply be no more screwed waiting to figure something of this out than we would be otherwise.

Hell, we might be even better off, because then, rather than rushing to throw our good money after bad, we might figure out a better solution to the problem.

We can’t prevent all suffering here. The question is, will we inflict more on ourselves with a lousy solution?

Posted by: Stephen Daugherty at September 22, 2008 10:45 PM
Comment #263927

Okay, first I want to apologize for those multiple posts the other day ! I was not allowed on here due to reiterations. I actually replaced my keyboard and darn if that didn’t work ;) I pleaded my case and was granted a reprieve.
I’ve been watching this for the last two days, and I’m not any less confused than I was then. My proclivity to conspiracy just won’t shake itself loose and it just seems that so many things point to it.
We’ve got just about the right amount of time to make a hasty and not necessarily well-thought out decision when we go to the polls. Right now we are overwhelmed with crap with no short or easy route to anything better. I’m truly wondering now why Obama seriously wants to step into this quagmire !
Anyway, what we think, say or do is going to have no effect on the decisions made. The deadline set is too close really for even making phone calls or any other attempts to contact representatives. We’ve been sc***ed once more and didn’t get so much as a “thank-you-ma’am”.
I appreciate that there are a lot of people “whatiffing” all this, but it seems that we are all going to have no choice but to settle for what shakes out. I just feel bad that our kids and etc., are not going to have a decent chance to see what a great place this used to be, and may not for a long time to come.
Hey Bills, I know what the ratio of the Phillipine peso used to be to our $….guess that will change but still looks like you made a good decision when you moved.

Posted by: janedoe at September 22, 2008 10:57 PM
Comment #263928

I said this earlier today in the ‘No Bailout Without Safeguards’ thread, but no one commented on it — maybe because it seems naive? I don’t know. But let me just throw it out here again:
Why can’t all trading and selling be temporarily halted to prevent a complete meltdown –- just long enough to buy a little time so the entire issue can be looked at carefully and thoroughly – maybe even until after the election?
If the market was frozen for a short time, wouldn’t we have more time NOT to make a giant mistake in an all-fired hurry?

Btw, I think Paul in Euroland made several good points. And you too, Stephen. As you say Heckuva Job in a Heckuva Hurry Paulson could well end up making everything even worse. And like most of the men hired by George W, I simply don’t trust this guy’s judgment AT ALL.

Posted by: Veritas Vincit at September 22, 2008 11:10 PM
Comment #263930

RickIL,
What we’re doing right now is triage. We’re stabilizing a sick patient. If we can buy enough time, then there will need to be a lot of reforms. A lot of changes have already happened, with the end of investment banking, and the beginning of financial supergiant corporations combining commercial banking, investment banking, insurance, and brokerage; and, these supergiants will have access to federal funds and FDIC backing. That’s not a tenable situation.

The old Wall Street died. The outlines of what will replace it are still coalescing. Whether we planned to do it or not, we are about to become more ‘socialist,’ or ‘corporatist,’ take your pick, but a competitive market economy didn’t work out too well for the financial sector.

Do I have faith in Paulsen? I suppose so. Like I said, he’s a shark. Like Obama, he is a guy who has always been at the top of his game. Different arena, of course. Paulsen’s sharp, well educated, experienced, and articulate. He’s flexible, aggressive, and able to adjust to rapidly changing circumstances.

He might fail anyway. I’ll take that chance.

Stephen,
Bernancke is a student of the Great Depression. It is the bad fortune of the Japanese to have suffered a real estate crash in the 90’s, but it is our great fortune that we can learn from some of their mistakes.

As Dodd pointed out on PBS tonight, we only have once chance at this. We don’t have another $700 billion sitting around. So it’s a bad situation, full of uncertainties, with no guarantees, and yet the cost of inaction is horrifying.

I just don’t think this is a situation where people can afford to sit on the sideline preserving their ideological purity, and shout ‘socialism’ or ‘shock doctrine’ when everyone knows perfectly well that this is already a bad situation and there’s a real chance we won’t pull it out.

Posted by: phx8 at September 22, 2008 11:22 PM
Comment #263931

VV,
Closing markets for a day or two would do more harm than good. When markets re-opened, there might be huge dislocations. Also, even if the US closed its markets, the international markets would continue trading. Finally, there are dark pools of trading, markets which operate privately, without oversight or regulation, and shutting down official markets would encourage people to go to the dark pools instead…

Posted by: phx8 at September 22, 2008 11:31 PM
Comment #263932

Paul,
I think you’ve found one of the two biggest problems with this proposal. It’s typical Bush legislation. Overreaching and anti-Constitutional. I guess he hates our freedoms. The second is it understates the real costs. We weren’t out of Iraq in 6 months and a few billion. We won’t be out of this for 700 billion and we sure as hell shouldn’t cede oversight. I liked this article:

http://www.huffingtonpost.com/2008/09/22/dirty-secret-of-the-bailo_n_128294.html

Posted by: googlumpuugus at September 22, 2008 11:44 PM
Comment #263933

phx8:

Exactly, the whole point of the exercise is to stimulate trade, and confidence, not kill it. Halting a market is something you do to stop disorder, and panic.

Posted by: googlumpuugus at September 22, 2008 11:47 PM
Comment #263934

janedoe,

McCain felt compelled to jump into the fray, and now he is contradicting himself, yet again. First he was for immediate action, and now a day later he is calling for caution in acting too hastily, trying to have it both ways, as he criticizes Obama for standing back to weigh the situation and not let his campaign impede the efforts of the White House and Congress.

Who is providing the more intelligent and disciplined response here, the “I always have my finger on the trigger”, McCain, who pulls it and then runs chasing after his call to recall it, upon seeing what others think?

Or, Obama who immediately recognized the complexity of the issue and chose to keep his remarks on it general and non-interfering with those charged with the responsibility for acting on the matter?

Posted by: David R. Remer at September 22, 2008 11:51 PM
Comment #263935

Gee, could it be that he wanted the right immediate action and is in disagreement with Bush on what that action is?

Meanwhile, Obama twiddles his thumbs. I guess his advisors haven’t told him what to do yet? Well, other than try to scare old people with a bunch of lies like every election cycle since the 50s.

Posted by: Jimmy James at September 22, 2008 11:59 PM
Comment #263936

Why is no one raising the question about the elephant in this proposal, taking Article 3 of the Constitution and throwing it in the toilet? Article 3 has a few words about the Judiciary as co-equal branch of government and having oversight as to the constitutionality of actions by the other 2 branches of government.

Paulson’s proposal indicates the agreement remove judicial review of the executive’s actions in this matter and its use of 3/4 of a trillion dollars of tax payer’s money. This would be a blank check for outright theft of Tax Payer’s dollars, without legal recourse.

What nonsense is this? Bush and Paulson have the same regard for the U.S. Constitution as the paper they wipe their soiled posteriors with.

Is it possible your and my Congress persons are idiot enough to go along with this? Gawd, I hope not. But, if they do, Americans need to call another Tea Party.

Posted by: David R. Remer at September 22, 2008 11:59 PM
Comment #263938

Arianna: The Bailout Plan: Welcome to Economic Shock and Awe
She asks a great question:

In the battle over the proper role of government, the forces of the Right, the high priests of the church of the Free Market — including Bush, Paulson, and the Masters of Wall Street — have suffered a monumental defeat. So why are we allowing them to dictate the terms of their surrender?
Posted by: Veritas Vincit at September 23, 2008 12:08 AM
Comment #263939

David I agree completely that Obama is by far the more intelligent and disciplined of the two candidates. This whole thing is a last-ditch effort borne of desperation on McCain’s part to become the President. It is truly pitiful and pathetic to watch anyone grovel and literally sell his soul for anything and not care who he destroys on the way.
I just hope this isn’t a self-destructing move on Obama’s part in all of this to still maintain his positions. All of this based on the mountain of s**t he is going to have to climb and the mindset and animosity he will have to try to work with. I hate to see anyone with his intelligence, desire to make things better and tenacity of hope to have such questionable possibilities of success.

Posted by: janedoe at September 23, 2008 12:10 AM
Comment #263940

Krugman thinks Dodd’s Plan may work out better than Paulson’s:
Daddy Doesn’t Know Best

Posted by: Veritas Vincit at September 23, 2008 12:18 AM
Comment #263941

FYI….Bill Clinton to be on Letterman tonight for the whole show….friend in Ohio told me it was great.

Posted by: janedoe at September 23, 2008 12:33 AM
Comment #263945

To those who have confidence in Paulson, fuggedit! He doesn’t know how to fix it. How many times over the last months has he said the situation is under control? Remember people, Paulson is Wall Street’s man. That’s why he is where he is. It’s a revolving door between NY and Washington. His focus is on bailing out his buddies in GS, and he’ll sell out everyone else. Why would he do that? Because that’s what scorpions do! They sting, it’s in their nature.

Following Veritas Vinnies link to Krugman on Dodd makes a lot more sense, and requires the gangsters to pony up in ways that will hurt them while keeping them alive. But major reform is required regarding oversight and regulation. Unregulated marketplaces give primacy to every thug and shyster to depradate and pillage, which is exactly what they have done, and how we are where we now are. The only way to hope to stop these people is to replace American Idol with the Perp Walk Shuffle. Let’s see these scum shuffle along in their designer orange suits while holding onto their ankle irons, pour encourager les autres.

Posted by: Paul in Euroland at September 23, 2008 3:52 AM
Comment #263950

Paul, a bit of your argument is illogical. Yes, Paulson is a wall street CEO exec by trade. But, to solve this mess requires someone knowledgeable of the markets intricacies and its cascade failure potentials. Paulson is one of the very few, if not the only person in the Bush Administration with both the appointed position of power and background to suggest a viable course of action. Paulson is a man with a stellar professional record in the private sector.

That said, he is also a political appointee. And therein lies the danger to Americans. Paulson will chart a path with the most likely assurance of success as resolving the crisis, but, if there are also ways to walk that path AND insure partisan political benefits along the way, what is to stop him except the Congress and the Judiciary?

And hence, the proposal’s language of immunity from the other two branches of government. If Paulson can prevent the crisis from cascading, that helps McCain. And if McCain is elected, it will be McCain’s treasury secretary in charge of the 3/4 Trillion dollars in mortgage properties, and that is a very deep well to tap to reward campaign supporters, party loyalists, and future supporters with properties at cents on the dollar for investment purposes.

The potential for corruption in the handling of these properties by treasury secretary who is immune from judicial review and Congressional interference, is galactic in scope.


Posted by: David R. Remer at September 23, 2008 7:40 AM
Comment #263953

David

Who is providing the more intelligent and disciplined response here, the “I always have my finger on the trigger”, McCain, who pulls it and then runs chasing after his call to recall it, upon seeing what others think?

I too have noticed McCain’s knee jerk reactions since this campaign began. I think others have to be seeing it also. It is obvious that he isn’t able to keep a clear head when faced with situations he can’t immediately control. I know this because I tend to be that way myself from time to time. I have to remind myself to sit back and let the confusion or anger or both dissipate before attacking the situation. I really am wondering how he has managed to survive in congress all these years.

I just saw on CNN that Obama has opened a 10 point lead with voters who would be voting on the economy. One thing is for sure at the moment. The advent of this crisis has voters watching very closely right now.

Posted by: RickIL at September 23, 2008 8:57 AM
Comment #263954

janedoe

Okay, first I want to apologize for those multiple posts the other day ! I was not allowed on here due to reiterations. I actually replaced my keyboard and darn if that didn’t work ;) I pleaded my case and was granted a reprieve.

Those damned keyboards will get you every time. I was wondering what happened to you. I kind of figured you had to be having computer problems of some kind. Glad to see you back!

Posted by: RickIL at September 23, 2008 9:00 AM
Comment #263955

Lord knows I am quite unknowledgable regarding wall street and economics but a few things that make sense to me:

DO NOT TRUST anyone in or related to the bush adminstration.

Step back and breathe. No emergency, medical included, can be solved by panicking and just doing anything. Emergencies need to be assessed and then a treatment tried.

Less is better a first. If you have a dying patient you don’t just throw everything at him hoping a treatment will help. You think, you plan, and you try the least restrictive course of action first.

I also heard that Chris Dodd’s purposal was better.

I think it is extremely important that we not panic and become afraid, that we take a short period of time for congress to review the purposal and then come up with a plan be it their own or paulson’s. Excuse me if I don’t trust Paulson, I have learned my lesson on that one-don’t trust anything coming from the current administration.

I have no comment re: whether to bail out or not. My desire would be to let them suffer the consequences of their actions but sometimes that’s like cutting off your nose to spite your face. In the end the one that hurts worse is you not the other guy.

I do believe they are trying to do this now to keep things a float and to keep us from seeing what is just around the bend until they are out of office. I do worry that the worst is yet to come.


This smells very much like the run up to Iraq. We gotta do something and we gotta do it now. That think any policy implemented that way is a diaster waiting to happen.

Posted by: Carolina at September 23, 2008 9:05 AM
Comment #263957

David R

Paulson’s proposal indicates the agreement remove judicial review of the executive’s actions in this matter and its use of 3/4 of a trillion dollars of tax payer’s money. This would be a blank check for outright theft of Tax Payer’s dollars, without legal recourse.

As I write this Bush is assuring us that Paulsen has the proper approach. Boy, is that a big relief. I think are country would be well served if they locked him up in the white house basement until January.

I am not totally convinced that Paulsen and Bush’s approach to this issue is of a pure nature. It seems to me that they may be using this situation to shape a financial landscape that may give advantage to the wealthy of this country. As if they did not have enough already. In that I find their approach less than acceptable. Hopefully congress will not cave to their demand for unmitigated and unchallenged use of that money. I don’t doubt for a minute that this is going to happen. What I do doubt is what long term effect it will have. Regardless of what happens, we can all bet our a—es that the wealthy of this country will not be required to cover their fair share.

Posted by: RickIL at September 23, 2008 9:17 AM
Comment #263959

VV

I took a glance at Dodd’s plan. Like Carolina I like it. And also like Carolina I have absolutely no faith in anything Bush or anyone associated with his admin might propose. I think they should all be locked away until January so they can not do any more harm to this country, either directly or indirectly. I think this is one time which it is necessary to go above Bush appointees and dictate to them how it is going to be. Let the man manage it, but under our terms. It is the only way we can insure that there are no behind the scenes objectives being pursued.

Posted by: RickIL at September 23, 2008 9:30 AM
Comment #263961

When you put the fox in charge of the chicken house the chickens get ate. To not allow oversight and judicial review is as fascist of a thought as it gets. For an administration to put forth such a plan shows the true colors of the administration. Any elected representative that falls for Paulson,Bush& McCain plan is not worthy of office or an outright fascist. Throw’em out of office.

The facts still remain and Paul is right if we don’t pay the price now it will only prolong the agony. We do reap what we sow and its time to clean this whole trickle on economics fraud up and get back to fiscal reality.

I mean when you think about it raise your hand if you have trust and confidence in the Bush administration to put the best interest of this country ahead of their failed ideological plans. Right. Now why would you think they will do it this time. What we need is a no confidence vote on the whole administration and a cooling off period for the market to fix itself without government intervention.

Posted by: j2t2 at September 23, 2008 9:47 AM
Comment #263963

From TNR (emphasis mine):

Paulson, the former Goldman Sachs banker, whose stock when he cashed out in 2006 was worth half billion dollars, is sure to argue that the appropriations are necessary because the market is illiquid. Yet a market for mortgage paper still exists. “Sellers just don’t like the bids,” a hedge fund manager told me. A manager with a big money management company confirmed that if Citigroup, Goldman, and the rest want to unload their securities, his firm has money to spend. “We just can’t spend as much as Paulson,” he noted.

The only conceivable purpose of Treasury intervention is to buoy the market (using taxpayer funds) by paying higher-than-market prices. After all, if the government merely intended to match the market, what would be the point?

Posted by: womanmarine at September 23, 2008 9:52 AM
Comment #263965

And this:

America’s economy does not face an emergency—only its financial system does. This is a distinction lost on the bankers in Washington, but it is one worth remembering. On Main Street, unemployment is 6.1 percent. Home prices are down close to 20 percent and presumably headed lower. These numbers are not pretty, but they do not add up to an economic Pearl Harbor or even close.

And this:

The only emergency is on Wall Street, and that is entirely of Wall Street’s making. It was the banks that made the loans, the banks that bought the paper, the banks that dumbly believed the models that said that housing prices wouldn’t collapse. The pinstriped bankers who leveraged their institutions’ capital thirty-to-one so as to inflate their profits (and their personal take) now complain they were done in by those nasty short-sellers. How touching to see executives from the likes of Lehman Brothers, not normally an institution associated with widows and orphans, squawk about cutthroat tactics. Regardless, had they not borrowed so much, they would not have been vulnerable.
Posted by: womanmarine at September 23, 2008 9:58 AM
Comment #263966
America’s economy does not face an emergency—only its financial system does.

I couldn’t agree more. So I guess you are agreeing with McCain when he said that the fundamentals of the economy are sound?

Posted by: Rhinehold at September 23, 2008 10:10 AM
Comment #263968

Rhinehold:

Those are just quotes. I’m still trying to figure things out.

But, I doubt that I agree with McCain on much of anything any more. That didn’t used to be the case.

Posted by: womanmarine at September 23, 2008 10:17 AM
Comment #263970

Yeah, a lot of Democrats are saying the same thing now that they are put on the spot. I won’t be voting for McCain myself, but I don’t have a history of saying that I wished he had been elected instead of Bush because of his long record of working across the aisle in both Democrat controlled and Republican controlled senates…

Partisanship is a harsh mistress.

Posted by: Rhinehold at September 23, 2008 10:29 AM
Comment #263975

David R

What nonsense is this? Bush and Paulson have the same regard for the U.S. Constitution as the paper they wipe their soiled posteriors with.

I don’t know if you were watching this morning but Dodd had this to say.

Saying that the plan would allow Mr. Paulson to act with “absolute impunity,” Senator Dodd said, “After reading this proposal, I can only conclude that it is not our economy that is at risk, Mr. Secretary, but our Constitution, as well.”

This seems to indicate to me that Dodd at least has taken a broad view of the situation. I hope he sticks to his guns. Personally I don’t think there should be negotiation on this. Paulsen has been a long time vip in the markets. He is for all intent and purposes part of the problem. If our money is to be used to assuage the investment industries failings then it is us who should be doing the dictating, not considering concessions to demands by those who created the situation.

Posted by: RickIL at September 23, 2008 10:54 AM
Comment #263977

David, Paulson is the company man. It is clear from what congressmen have said and from what Paulson himself has said that this is a hail mary pass. In fact, if you look at the proposed bill, it specifies what securities may be taken over, and then goes on to list unspecified ones. According to the New York Times on September 20, 2008, the Secretary of the Treasury is supposed to be empowered by Congress to spend $700 billion on mortgage related securities, obligations, and instruments. Note that last one; instruments. These are the derivatives that Warren Buffett called financial weapons of mass destruction. They are reckoned to be somewhere between one and two quadrillion dollars stashed in these illiquid notional “instruments”. So kiss your $700 billion goodbye and then some.

The fact is, we have all been defrauded by these shysters and banksters, and it happened because the venal vermin in Washington, both sides of the aisle and in the White House made it possible for them by taking their bribes. You don’t have public representatives in Washington. You have big corporate whores in Washington. Why else would they invest so much in lobbying and political donations? Get real here. Your system is totally corrupted. Face the truth and decide to do what needs to be done or else live with your new found peonage. When these “instruments” start to go belly up, and the almost certainly will, its game over.

Posted by: Paul in Euroland at September 23, 2008 11:17 AM
Comment #263978

Rick, I agree, Paulson is part of the problem and we shouldn’t trust him for a minute.
In fact, check this out: Paulson Debt Plan May Benefit Mostly Goldman
That wouldn’t be a real big surprise, would it? Kind of reminds me of Cheney’s Secret Energy Summit with Big Corporate Energy.
If we have to move fast, Dodd’s plan makes way more sense.

Posted by: Veritas Vincit at September 23, 2008 11:19 AM
Comment #263979

You know, I’m not an economist. I really don’t understand how these markets work. But as I understand it, these companies are in trouble because they made loans to people who could not pay them back. Is that accurate?

If it is, then I have to wonder: why are we bailing out the lenders, and not the borrowers? If we gave long-term low-interest federal loans to each of the borrowers for the sole purpose of paying off their present loans, we’d still effectively bailing out the industry but we’d be doing it in a trickle-up manner and benefiting both the borrowers and the corporations rather than just benefiting the latter.

As I understand it, we’re still basically buying those bad loans either way but under the present Bailout plan we’re keeping them at the same terms they are now where the people can’t pay them and just changing who owns the “bad paper”.

Posted by: Jarandhel at September 23, 2008 11:20 AM
Comment #263980

j2t2:

When you put the fox in charge of the chicken house the chickens get ate.

Indeed. And Paulson is the richest member of Bush’s Cabinet.

Following the money in the Wall Street shakeout? Start here.

Posted by: Veritas Vincit at September 23, 2008 11:25 AM
Comment #263981

Any plan that gives one cent of my money to a CEO who is on his way out is one cent too much. Any plan that gives money to a company who messed up and still has its leadership in place is one cent too much. The only thing these guys deserve is to be escorted to the door and their little box of belongings dumped in the street behind them - no pension, no severance package, nada.

If Paulson is saying they won’t accept a bailout unless their golden parachutes are in tact then I say it must not be the crisis they say it is.

This whole bailout smells to me like Bush is shaking loose the last few pennies in our treasury for his “base.” What he did not give away to his oil buddies or to Haliburton will now go to his Wall St. pals. I have also heard that foreign (Swiss & German) banks would receive some of our money too. Is there any reason WE should be bailing out foreign banks?

No oversight = no money. Period, end of story. Bush has zero credibility left and I don’t care if Paulson has more than Wall Street’s best interests at heart. No way, no how.

Posted by: tcsned at September 23, 2008 11:28 AM
Comment #263982

The whole reason immediate action is absolutely imperative is because Paulson says so. I don’t believe it.
We sheep who don’t know anything go along with whomever pretends they know. Just like we followed the few who have always pretended to know exactly what would happen when we went into Iraq and what would happen if we pulled out of Iraq.
I say let it all be.

Posted by: Schwamp at September 23, 2008 11:33 AM
Comment #263984

tcsned

No oversight = no money. Period, end of story. Bush has zero credibility left and I don’t care if Paulson has more than Wall Street’s best interests at heart. No way, no how.

Agreed 100%. I just saw on CNN that over 90% of us feel the same. To be honest I think that Paulson has in effect with his dire forecast created an unneccessary panic. And I also think that was part of his plan. Place fear among the voters to quickly and effectively scare people into supporting a knee jerk response to a situation of which he is a part of the problem. Heads need to roll here, then we need to attack the problem with heads we can trust. We are four days into this so called crisis and our markets have not in any way resembled that of collapse. I think something very putrid may be causing more stink than necessary in Washington and the world.

Posted by: RickIL at September 23, 2008 12:14 PM
Comment #263990

I just watched most of the public hearing, and the panel of senators asked some pretty good questions, from both sides of the aisle.
You could tell when Paulson had a tough one to field, and kind of started losing it a little.
Dodd asked a good one about just fronting a portion of the requested amount to see if it had the right effect, and Paulson didn’t like that idea! All the panel seemed to have one mind in this, and if they can maintain that strength, grow some balls real quick, then the country can kind of catch its’ breath and look at everything with a clearer mind and not in a panic mode. Maybe that’s way too naive and simplistic, but is how I have to lay it out to be able to grasp more.
Nothing seems to be able to make the outcome any different for “us”….it will still be the lenders who will recover at least something, but the borrower will lose it all. And we are all stuck with the bill.

Posted by: janedoe at September 23, 2008 1:28 PM
Comment #263992

Thanks RickIl…I felt like a kid with my nose pressed against the candy store window and no jingle in my pockets… ;)
There is truly a lot of wisdom in here and I’m glad that it’s (mostly) on the side where my beliefs are.

Posted by: janedoe at September 23, 2008 1:34 PM
Comment #263993

Janedoe,

One of the things that would help is for both sides of the election to lay off on the economy for a while too. If Obama had backed up McCain’s ‘The fundamentals are sound’ it might have helped give a little bit of stability as well. Unfortunately, there’s an election to win and now they are outdoing themselves to say how bad it is.

Terrible. Maybe the Senate can help reassure investors a bit, and Bush while at the UN for foreign investors, but without muzzles on Obama and McCain, it is going to be hard to do…

Posted by: Rhinehold at September 23, 2008 1:35 PM
Comment #263995

Even my very republican bro, who is usually supports this administration, called this stupid. Congress is being asked to create an extra- constitutional branch of government. As written this proposal, when given broad interpretation, places all three branches of government subserviant to the fiat of one man. NO. NOT NOW. NOT EVER.

Posted by: Ted at September 23, 2008 2:07 PM
Comment #263996

Even my very republican bro, who is usually supports this administration, called this stupid. Congress is being asked to create an extra- constitutional branch of government. As written this proposal, when given broad interpretation, places all three branches of government subserviant to the fiat of one man. NO. NOT NOW. NOT EVER.

Posted by: Ted at September 23, 2008 2:08 PM
Comment #263999

Here is a good description of the crisis by Ben Stein:
“The crisis occurred (to greatly oversimplify) because the financial system allowed entities to place bets on whether or not those mortgages would ever be paid. You didn’t have to own a mortgage to make the bets. These bets, called Credit Default Swaps, are complex. But in a nutshell, they allow someone to profit immensely - staggeringly - if large numbers of subprime mortgages are not paid off and go into default.

The profit can be wildly out of proportion to the real amount of defaults, because speculators can push down the price of instruments tied to the subprime mortgages far beyond what the real rates of loss have been. As I said, the profits here can be beyond imagining. (In fact, they can be so large that one might well wonder if the whole subprime fiasco was not set up just to allow speculators to profit wildly on its collapse…)

These Credit Default Swaps have been written (as insurance is written) as private contracts. There is nil government regulation of them. Who writes these policies? Banks. Investment banks. Insurance companies. They now owe the buyers of these Credit Default Swaps on junk mortgage debt trillions of dollars. It is this liability that is the bottomless pit of liability for the financial institutions of America.”

http://finance.yahoo.com/expert/article/yourlife/109609;_ylt=AihYXGa_2tf9PJDeCl.2G0S7YWsA

Inaction is not an option.

This is what the crisis is about.

Posted by: phx8 at September 23, 2008 2:40 PM
Comment #264002

Rhinehold, if you weren’t leaning so far to the right of the middle, your vision wouldn’t be so skewed.
You just can’t see that McCain’s responses are primarily knee-jerk and tainted with anger and impatience. I think that it was absolutely right for Obama to do what he did with McCain’s bumbling assessment of the situation when he responded as he did. It just shows further that without his herders and script within eyesight, McCain doesn’t have a clue as to the depth of most situations.
In fact, Obama is making a lengthy statement now as far as his opinions and ideas regarding the situation. I’ll watch it later in its’ entirity, but what I caught and was spot on, is that no way is this bail-out to provide a welfare check for the administrative execs that screwed up.

Posted by: janedoe at September 23, 2008 2:45 PM
Comment #264003
Rhinehold, if you weren’t leaning so far to the right of the middle, your vision wouldn’t be so skewed.

LOL

Posted by: Rhinehold at September 23, 2008 2:56 PM
Comment #264013

phx8

“The crisis occurred (to greatly oversimplify) because the financial system allowed entities to place bets on whether or not those mortgages would ever be paid. You didn’t have to own a mortgage to make the bets. These bets, called Credit Default Swaps, are complex. But in a nutshell, they allow someone to profit immensely - staggeringly - if large numbers of subprime mortgages are not paid off and go into default

Sounds to me like financial markets gone Vegas. So what you are saying is the fix was in and the bookie doesn’t have the funds to pay out. Maybe we should just send a couple of goons over to the fed to break some legs. I agree that inaction is not an option. However I have come to the conclusion that if we do not rush into this, it will not be the end of the world. Those who allowed this to happen should be stepping down, they should not be allowed the task of further managing it. There have been ethical and probably even criminal misdeeds here. I don’t know if there is such a procedure, but I think it is time congress step in and find capable people to handle this situation. That does not include Bush and his financial cabinet.

Posted by: RickIL at September 23, 2008 3:37 PM
Comment #264017

I am curious… what laws were broken? If the government set up a law to force private companies to make loans they would normally not have touched for political reasons, and then the private companies set up a way to profit off of this law, do we blame the companies or the government?

Throw in some nice fraud in the packaging of these loans and some people who were looking out for some fat government-backed cash…

Posted by: Rhinehold at September 23, 2008 3:48 PM
Comment #264023

RickIL,
As far as I know, Rhinehold is correct, and no laws were broken. This was an unregulated, unsupervised market. As far as I know, the contracts are legally binding. As of December 2007, the CSD market had a contract value of $62 trillion. The actual value of the contracts cannot be priced because the market is illiquid, but I suspect the underlying value is easily in the trillions.

Normally, institutions such as commercial & investment banks, insurance companies, and brokerages use the CSD market to hedge, and lower risk. At least, one would think… If the underlying securities were riskier than advertised- in other words, if investment quality turned out to be junk- well…

So, I’m pretty sure that’s where the bailout is going, and why the financial system is on the verge of catastrophic collapse. It’s not the end users or FNMA or Freddie Mac, though there’s plenty of fault there too, who caused a real estate downturn to turn into a catastrophe. It was the incorrect assessment of risk by financial institutions that transformed a problem that might have cost at the most a few hundred billion in total a decade ago, to a multi-trillion dollar boondoggle.

Btw, it’s worldwide. At least 6 major foreign banks are also threatened by the CSD market disaster.

Posted by: phx8 at September 23, 2008 4:19 PM
Comment #264051

If only we could harness the energy contained in the heated verbiage of the writers above we could solve our energy crisis.

For many months I have heard those on the left wail and complain about the wealthy and the greedy corporations. I’ve read screeds filled with nasty language directed exactly at those who are going to be the recipients of any government bailout.

I don’t understand your problem liberals. Clearly, from voluminous past writings, you should urge your liberal politicians and wanna-be’s to walk away from this and let the chips fall where they may.

You finally have your chance for revenge and some of you are still waffling. You claim advocacy for the poor, the disadvantaged, the over worked, underpaid, everyman. Stand behind your beliefs and insist that Obama and all your liberal lawmakers just close down congress and go home.

There has never been a corporation, wealthy person, or wall street operative who has merited any praise for anything so why are you even considering bailing them out.

When all the financial markets, banks, insurance companies, corporations, etc. have failed you will have won. Celebrate…be happy…thank whatever God you believe in for your good fortune.

And, when the dust has settled, you can start again and reform our country to your liking. You can write a new constitution and include or exclude whatever you wish. All the nasty rich and greedy businesses will be gone, done, kaput. You’ll have lots of time to dance, drink, celebrate and think as there will be no jobs to go to. Chris Dodd, Nancy, Joe, Barry, and all the rest of your liberal hero’s will be in power and they will take care of you.

No longer will we have to argue about taxing the rich, there won’t be any. No longer will we argue about “new rights”, or how to save Social Security, Medicare, Medicaid, education, etc. they will no longer exist…as there will be no money to fund them. Man-made global warming will no longer be our concern as we will no longer be contributors. We will fund no “unnecessary” or necessary wars, will not violate any terrorists rights, and perhaps best of all, the illegal aliens will all leave for greener pastures.

Why the angst?

Posted by: Jim M at September 23, 2008 7:17 PM
Comment #264052

phx8, rhinehold

I don’t know that what has led to this was illegal. But I do think it is obvious that there are infractions of an ethical nature. The fact that this could be allowed to happen speaks to the fact that those watching over this system have not been on the ball. They were either deliberately unconscious of the situation or else incredibly naive. They had to know that this eventuality was in the cards down the road. I am thinking that perhaps they turned their heads the other way in favor of huge sums of money. After all, to these people money and more money is next to God. Now we have bank lobbyists stampeding Washington trying to fashion whatever legislation comes down the pike to suit there needs. So far as I am concerned this is a situation in which absolutely no lobbyists should be allowed any input. This is at the very least disgusting. These folks are virtually fighting to see who can get the biggest share of the riches and to avoid reform. What a bunch of sleazy scumbag a—es. I personally would like to have a record of every congress person who has entertained these leeches on society so that I can include them in my list of worthless predatory financial parasites.

Posted by: RickIL at September 23, 2008 7:23 PM
Comment #264055

Jim M

No angst here Jim. All I want is a level headed non rushed package, answers, transparency, reform, prosecution where needed, accountability and replacement of the bums who allowed this to transpire. Yeah some of you folks are going to have to take a hit on your investments. Tough crap. The rest of us are already taking the hit. Join the crowd. Oh, wait I forgot, the exceptionally solvent crowd would prefer us minions bail them out to lessen their suffering. Sorry dude, but you can not expect any forthcoming sympathy from this liberal. And this should really make you happy. This liberal is placing all the blame squarely on the folks currently in charge of our less than respectable financial system. Free markets my a—! The day I have to bail them out they are no longer free. It seems we now have a new term for the political dictionary. Conservative Socialism

Posted by: RickIL at September 23, 2008 7:40 PM
Comment #264063

There’s much wisdom in the statement about those who fail to learn from history are doomed to repeat it.

The Great Depression began in 1929, after about 12 years of Republican administrations. It wasn’t until FDR and the New Deal arrived that things started to turn around.

Secretary of the Treasury Andrew Mellon advised President Hoover that shock treatmentwould be the best response: “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate…. That will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people.”[22] Hoover rejected this advice, and started numerous programs, all of which failed to reverse the downturn.[23]

Hoover launched a series of programs to increase farm prices, which failed, expanded federal spending in public works such as dams, and launched the Reconstruction Finance Corporation (RFC) which aided cities, banks and railroads, and continued as a major agency under the New Deal. To provide unemployment relief he set up the Emergency Relief Agency (ERA) that operated until 1935 as the Federal Emergency Relief Agency. Quarter by quarter the economy went downhill, as prices, profits and employment fell, leading to the political realignment in 1932 that brought to power the New Deal.”


It makes you wonder, how would things have played out if Hoover had taken Andrew Mellon’s advice? I remember telling folks in 2004 that Bush was another Hoover. It looks like I was wrong. He’s actually more incompetent.

All the White House has done is react. There’s no planning, there’s no foresight, there’s no thought. Just one knee jerk reaction after another. This is one knee jerk reaction we shouldn’t even be considering.

Posted by: QueenBee at September 23, 2008 8:59 PM
Comment #264068

How about we ask the Country First Crowd to donate large chuncks of their net worth assets for the bailout? Since they obviously haven’t thought of it themselves this could be their chance to prove their patriotism.

Posted by: Stephen Hines at September 23, 2008 10:00 PM
Comment #264071

Country First, that’s laughable. Like that group is interested in anything besides #1.

Posted by: QueenBee at September 23, 2008 10:32 PM
Comment #264072

Instead of bailing out Wall Street lets use that money to refinance and rewrite all those bad mortgage loans. We can put all those people back in their homes with affordable loans. We help the people and at the same time alleviate Wall Street of all that bad debt.

I know this isn’t going to happen. But what the hell it seems to me like it makes just as much sense as bailing out an entity who’s careless greed induced practices put us in this situation. Now matter how you look at it those of us who had no hand in this situation are going to pay regardless. Personally I would just as soon see the little guy get as much benefit as Wall Street. Why should those of us who can’t afford to send a lobbyist to Washington every time a new dollar is to be made at our expense always have to be on the losing end.

Posted by: RickIL at September 23, 2008 10:49 PM
Comment #264082

the United States of ROCKEFELLER. the urgency is ridiculous. socialism, here we come. which arm are they going to put “the chip” in? i echo everyone’s opinion on this topic. i don’t know whether to cry, pack and move to another country or just shake my head in disbelief. this is manipulation at it’s finest. well planned by the Federal Reserve in my opinion. They have put themselves ONLY in a win/win situation. the rest of us, we are doomed!

Posted by: nunyabitness at September 24, 2008 5:04 AM
Comment #264083

Good(?) money chasing bad. We all know what happens next.

Posted by: nunyabitness at September 24, 2008 5:10 AM
Comment #264104

“How about we ask the Country First Crowd to donate large chuncks of their net worth assets for the bailout? Since they obviously haven’t thought of it themselves this could be their chance to prove their patriotism.” Posted by: Stephen Hines at September 23, 2008 10:00 PM

Stephen, what a great idea…ooops, Joe Biden just the other day told American’s that paying higher taxes is patriotic, sorry you won’t get the credit. I can’t recall if this statement was made before, or after, Biden’s request that the state politician in the audience stand up and take a bow as he didn’t bother to know enough about the guy he was praising to realize he was in a wheelchair.

Biden, should he be voted VP will provide endless hours of laughter to ease the pain which will accompany a Barry and Joe administration.

Posted by: Jim M at September 24, 2008 12:02 PM
Comment #264225

“We gotta do something and we gotta do it now.”
AKA the sky is falling.

Carolina is right, the people who created the mess should not be telling us how to solve the problem. Their solution is always more deficit spending. They should be forced to propose a tax plan to pay for the debt. Neither side wants to make this into a political football so close to the election, hence the hurry. I would hope this is the last mess from W, but I think that he still has more up his sleeve.

Posted by: ohrealy at September 24, 2008 8:37 PM
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