Will the Government Bailout Work?
News: A reformed Wall Streeter explains the latest Treasury-Fed-SEC plan to revive the markets.
September 19, 2008
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Friday, like an electrical shock to a failed heart, federal money promises lifted the pulse of the financial markets. Unfortunately, Washington still doesn't know how much risk it's taking on.
Treasury Sec. Henry Paulson's multi-billion dollar market rescue includes four things to save the market: Creating a toxic waste fund for worthless mortgage assets, extending the Fed's discount window to investment banks, using a $50 billion Depression-era Exchange Stabilization Fund to guarantee money market investments, and installing a temporary ban on short-selling 799 financial stocks.
The stock market loves all of them, finishing Friday's trading session with a flourish. Even Bush came out of hiding to optimistically note that, "in the short run, adjustments can be painful…in the long run, I'm confident that our capital markets are flexible and resilient and can deal with these adjustments."
The waste-removal vehicle that Paulson is proposing is similar to the S&L crisis one; the Resolution Trust Corporation created in 1989 to assume over $125 billion in bad assets owned by insolvent savings and loan companies. Its primary goal was to sell them into the market slowly, giving the industry time to heal.
Will that work now? Not really. The packaged mortgage assets today are much more complicated than they were 20 years ago, and the entangled credit default products less transparent. Plus, S&Ls were regulated by the government, whereas the institutions that could benefit from such a fund today, like investment banks and hedge funds and insurance companies, are not.
As for a short-sale ban—this isn't the first time that SEC Chairman Christopher Cox has proposed one under a measure provided by the 1934 Securities Exchange Act. After four months of deliberating the role that short selling might have played in the pummeling of Bear Stearns' stock, he installed a 10 day short-sale ban, between July 21st and 29th. That didn't work for long.
But, sort of like with Sarah Palin and the bridge to nowhere, before he was against short selling, he was for it. Last year, the SEC removed a post 1929 stock market crash rule that only allowed short selling when the stock price's last tick was positive, which was designed to prevent the kind of short selling he's concerned about now.
Meanwhile, Central Banks around the world are lavishing cash on the financial industry to keep liquidity alive. Today, Japan, Australia, India and Indonesia pumped $42 billion into their money markets, a day after the US Federal Reserve pushed through an $180 billion package. The Bank of England, Swiss National Bank, and European Central bank lent $70 billion of cash to their markets.
But,
Here's the thing. Bear Stearns and Lehman Brothers didn't go bankrupt because of individual mortgage loans defaults and foreclosures. These were simply the catalysts at the bottom of a huge pyramid of leverage that ultimately uncovered the sheer lack of transparency in the financial markets. Without a clear understanding of the risks in our US financial system, including huge new conglomerate balance sheets like that of Bank of America-Merrill Lynch, this euphoria will soon give way to further disintegration.
Using terms like 'adjustment' and 'correction' makes it seem like this episode of financial destruction can be cured by the equivalent of a chiropractor visit. What we really need is something more drastic: a Glass-Steagall style wall.
Already, the US national debt has nearly doubled in the past eight years, and it will keep going up. If Congress really wants to alleviate this crisis, they need to not set themselves up for another round of handouts while making the public shoulder the risk of the entire banking community.
Here's a breakdown of the $555 billion running total of Wall Street aid to date: The Fed backstopped $30 billion of Bear Stearns risk in its sale to JPM Chase in March, is loaning $85 billion to AIG in return for an 80 percent equity stake, opened a $150 billion window for banks who could use risky mortgage securities as collateral, and extended the use of its discount window to investments banks who aren't supposed to have that privilege, since they're not regulated by the Fed. The Treasury has pledged to backstop Fannie and Freddie up to $200 billion, created an emergency $40 billion worth of T-bills to be auctioned to spot the Fed some extra cash, and is using a $50 Depression-era emergency fund to support the money market industry.
Nothing converts free-marketers to pseudo-socialists like fear and an international spotlight. But instead of discussing intense new regulation, the US government is just writing out checks. The New Deal didn't just include the Glass-Steagall Act of 1933, which disentangled riskier speculative investment banks from the more consumer-oriented commercial banks, it provided safeguards to the entire financial system. Today, Washington is using the ones that it didn't destroy. It would be much better if they were discussing how to resurrect the ones they did.
Nomi Prins is a Mother Jones writer and a former Bear Stearns analyst.
There’s no excuse for allowing the collapse of the U.S. economy to happen.
No amnesty, no pardons.
Pursue the Bush administration beyond January 20 until they are brought to justice.
FREE AMERICA
REVOLUTIONARY (DIRECT) DEMOCRACY
The result is that they have legalized theft. Money has been legally stolen from the system, trillions and trillions of dollars, and now Americans are going to have to replace it. The poor business climate is not an accident, it is the result of deregulation and outright theft. They have eaten your lunch and now they are sticking you with the tab.
How can banking be in trouble when HFC and credit card companies can charge 27 to 32 per cent on consumer debt? They should be ROLLING in cash.
The middle class is doing a disappearing act right before your eyes. Your 401k and retirement plans are spinning down the toilet. Your dollars are turning into pesos.
This hare-brained plan to "socialize" the rich is not going to do anything except postpone the problem. I laugh when I hear commentators say that we are "socializing" this problem like the Europeans. That notion is so far from the truth that it seems that we are now ignorant of what socialism is and how it works for Europeans.
In Europe, (I assume we are talking about Western Europe) socialism works for the people, not corporations, which are imaginary legal constructs, not people. Socialism means that people contribute to a common pool for the good of the people, so their citizens have health care, a living wage, a safety net. This is done because the people of the socialized nation realize that the least wealthy of their citizens is the measure of a country's greatness, not the most wealthy. Calling this bailout of Wall Street thieves "socialism" is an insult to Daniel Webster, the Europeans, and our intelligence.
My wife and I are trying to determine what the best time would be to pull our assets out and flee. We have been thinking either Canada or Mexico, but Europe is also a possibility. Maybe New Zealand. If anyone has any idea about when the best time to divest is, what to put the money into, and where the best place to move is, I would love to converse with you.
-Wexler
editor@stopdubya.com
By some farmland and build a house.
"he draft does not specify which financial institutions would be eligible for the help, leaving open the question of whether hedge funds or pension funds could qualify. Congressional aides said that omission appeared to be by design, as the question of who could get help under the bailout is still up for negotiation.
The proposal does not require that the government receive anything from banks in return for unloading their bad assets. But it would allow the Treasury Department to designate financial institutions as "agents of the government," and mandate that they perform any "reasonable duties" that might entail.
The government could contract with private companies to manage the assets once it purchased them."
Ah, therein lies the rub. This "rescue" is being pushed through Congress as a way to privatize the financial sector or, at the least, make the financial sector "an agent of the government." Talk about making the government not only larger (sorry, Republicans, but that's what it's doing), but also making our banks a government entity...the exact same thing the National Socialist party did in Germany in the early- to mid-1930's.
To whom shall I salute, Der Fuhrer Bush, or possibly McCain? Enjoy your freedoms as they slowly evaporate...
Shouldn't we be able to vote on it?
FREE AMERICA
REVOLUTIONARY (DIRECT) DEMOCRACY
haven't really done much of this. but basically, you just set your camera to a long exposure time, and adjust the F-stop to account for the amount of light. make sure the subject stays very still and the camera is on a tripod, or SohbetI have a feeling that some of these are done with real lights, but some must be photoshoped.
You would do it similar to the lighting tutorials, using color dodge and multiply.
chatsorry for my bad english, im french.
for those asking how was it done :
the simpliest and easiest way is not with photoshop at all !
those pictures, are real pictures, made with 2 things : a camera (reflex-digital) and lights (white, blue, red, green, as you want, since its some pretty powerfull light)
Sohbetsorry for my bad english, im french.
for those asking how was it done :
the simpliest and easiest way is not with photoshop at all !
those pictures, are real pictures, made with 2 things : a camera (reflex-digital) and lights (white, blue, red, green, as you want, since its some pretty powerfull light)
muhabbetsorry for my bad english, im french.
for those asking how was it done :
the simpliest and easiest way is not with photoshop at all !
those pictures, are real pictures, made with 2 things : a camera (reflex-digital) and lights (white, blue, red, green, as you want, since its some pretty powerfull light)
Take a look if you wanbt truth. The Dem's have stopped all oversight for 10 years. I wonder why, Oh, who got the most Money?? OBAMA and DODD, Who was the head? BARNEY FRANK AND CHRIS DODD
http://gatewaypundit.blogspot.com/2 008/09/bush-called-for-reform-of-fannie-mae.html
money to banks in the form of subordinated debenture
While debenture in force, require recipient bank's bylaws amended to include bank monitor on executive committee and unanimous approval of committee necessary for policy or futuree bylae changes. Also clean up other bylaws to close loopholes.
Increase audit frequency and scope during debenture term.
Categorize debt to be relieved in terms of qualifying performance
Profile borrowers whose loans can be rescheduled to performing instruments (bank's projected losses on these loans would be included in debenture amount.)
Include energy speculation in prohibited short sell ban
Bank's failure to meet performance standards would trigger concversion of debenture to takeover by government
Set time limit for government to resolve or liquidate non-performing bank's assets. Don't forget executive compensation in all this.
Just a suggestion. Ham-handed bailout is a gift to financial miscreants without requiring behavioral adjustments.
===========================
The president will have to assume FDR-like powers to solve the derivative collapse.
He should declare all derivatives placed outside of legally regulated markets (90% of them) null and void. These "bets" - worth $180 trillion according the U.S. Office of the Comptroller of the Currency in America alone, and up to $450 trillion worldwide - could not have been made in regulated markets, because the players had insufficient collateral.
If the parties object to the elimination of their derivative bets, they should be reminded of the penalty for fraud; it is inconceivable they did not know they were establishing positions far beyond their ability to repay.
For every buyer there is a seller, so the amounts lost would zero out and no party would gain an advantage. We would just get to reset the clock. This is as fair as things can be made, given where we are.
What is causing the panic in the markets right now is the realization that the losers have insufficient money to pay the winners. The domino effect of multiple collapses cannot be stemmed by any government, even by running the printing press overtime. The only solution is to wipe the underlying derivatives off the books and ensure these bets are never made again by creating laws to send those who make them in the future to jail.
Of course, this is all counter-revolutionary action and our comrades in Washington will soon raign this in as part of their broader effort to "reeducate" the masses. Fortunately, our Great Leader is the embodiment of the Will of the People. Whew!
Take a look if you wanbt truth. The Dem's have stopped all oversight for 10 years. I wonder why, Oh, who got the most Money?? OBAMA and DODD, Who was the head? BARNEY FRANK AND CHRIS DODD
http://gatewaypundit.blogspot.com/2 008/09/bush-called-for-reform-of-fannie-mae.html"
You are an IDIOT.
And, your link is dead.
Man, if I knew that I could take out a ridiculous loan, and then get off scott free, I would have done the same thing!
I hear there was a memo circulating about the trading floors yesterday, which indicated this proposed bail out of Wall Street is necessary to save Main Street folks like McDonald's franchisees so they might afford new coffee machines and such, to compete with Starbucks, and upgrade their breakfast menus. This sad, transparent excuse for justifying bailing out financial institutions is a disgrace! I, the taxpaying constituent, WILL NOT APPROVE funding for such nonsense. If McDonald's, using the example put forth, can't afford to compete, IT IS NOT THE US GOVERNMENT'S--i.e., MY--PROBLEM!
These entities now in trouble are responsible, as well as the Bush Administration, for this debacle. The greed and cronyism over the past 8 years remains unprescedented. Pres. Bush's favorite Republican base of "the have's and the have more's" CAN PAY ALL THEY WANT, FROM THEIR OWN PERSONAL POCKETS, to rectify the many financial problems we now face. However, you will not use me or my tax dollars to save those who have already profited at my expense. Not for those whom this administration would clearly be pleased to see reap continued gargantuan profits, maintaining their nouveau riche, most profitable status quo, rather than face their own restructuring or demise. You guys just want to print more PESOS? Don't think so... Bear Stearns, Morgan Stanley, Lehman, Merrill, the many traditional banks and brokerage houses, but; the LENDERS who took advantage of unsuspecting home buyers with INCOMPREHENSIBLY UNFAIR LOAN 'PRODUCTS', INSTITUTED FOR BUILDERS--NOT PURCHASERS--to move their inventory, will need to correct their own errors. GREED IS NOT GOOD!
We bailed Bear Stearns, to no visible positive outcome. We are bailing AIG, which will likely produce the same result. When & where, and at what dollar figure does this stop? Most every firm holding bad loans, took advantage of the opportunity to dump their bad paper onto Freddie and Fannie (i.e., taxpayers), having been given plenty of time to ditch, profitably, just prior to the Federal bail out of both GSE's. AND, what about the $9M I've heard the FRE or FNM CEO wants to walk with? Executive compensation is yet another major problem. Reward these people for a job well-done? I think not.
Yet, as of 9.22 alone, enough cash exists for stock buy-backs for (AP, Dow Jones News and others reported) Compass Group; CPI Plastics CEO boosting holdings to 600k shares; LBO Capital's letter of intent with iMobile; Flagstone to repurchase 5M shares; Sims acquires Weinert Recycling; Triquent Semi-Conductors buys, by exercise, 17,500 shares; Brookfield buying GMAC; GAP buying Athleta for $150M cash; EDF bids for BGY.LN; and, the ImClone buyout offer. M & A is alive and thriving. Shoring up ownership for the future is clearly paramount. BUT, Paulson, Bernanke, and this Administration tries to sell America on a desperately necessary $700B urgent bail out? The transactions cited herein are only what I had time to note tonight, most of them announced just TODAY. Since Bear Stearns, there have been NUMEROUS STOCK REPURCHASES made on Wall Street, predominately by banks and Wall Street firms. Where did they get the money to buy back their own stock? Don't tell me there is no cash. IF they had to borrow anything to buy back their own stocks, there was cheap money for them to access. The low interest rates go to corporate America, lowered for them by their Fed Friends. With so much emphasis on saving Wall Street firms and banks, there is nothing available for homeowners--not because it isn't there. It's because they want and/or claim they need that cash for themselves. Bailing out Wall Street will not produce loans for people qualified, needing and wanting to purchase homes. This is a case of greed wanting to hold on to profits, and continuing to accrue more, at taxpayer expense.
Either way, we are in trouble, but tossing money at Wall Street has proven one thing only, thus far: They are using it to make more money for themselves, lining their pockets; NOT for making funding available to homeowners with mortages--current or delinquent--or those wanting to acquire homes.
Rest assured, I will not be alone protesting on the D.C. Mall, if and when this sham goes to a vote in its current proposed state. Free markets--are you all so out of touch you have forgotten the basic economics of supply & demand, lazzais faire capital markets? GREED created this massive problem and the GREEDY MUST REPAIR THEMSELVES OR SUFFER THEIR OWN LOSSES AND/OR DEMISE!
*
This is an addition, just for you...
TRY THIS: YOU WANT TO STIMULATE WALL STREET? GIVE US THE $700B--EVERY TAXPAYER. WE CAN STIMULATE THE HECK OUT OF THIS ECONOMY BUT, STILL WHERE WILL YOUR BAD PAPER GO? GOD FORBID YOU JUST WRITE IT OFF, DEAD, GONE; OR, WE SHOULD BE ABLE TO PURCHASE A FORECLOSED HOME AT THE "ECONOMICALLY-APPROPRIATE" PRICE! NOPE. THAT'S NOT PART OF YOUR PLAN, IS IT? PRESERVATION OF WEALTH. I GET IT. AND YOU CALLED THOSE WHO WANTED REASONABLE HEALTH CARE FOR EVERY AMERICAN, "SOCIALISTS"!
SHAME, SHAME, SHAME ON YOU!
M.L. Hondros
Houston
The recent housing bubble is a direct result of the Federal Reserve manipulating interest rates down to 1% which as they were well aware , would fuel wild speculation, greed, and a subsequent collapse which they now want the taxpayers to stand good for. Look who is buying up the failed investment bank assets at pennies on the dollar. It is Corporations owned by the 13 banking families who own the Federal Reserve. ( Most people , including many bankers are unaware that the Federal Reserve is a private bank consortium ). The connection to our Federal Government in name only ) Check your history--- Baron Rothchild -- the richest member of the families supplied false information through his spies to the Brittish stock market about Waterloo and bought up the British stocks for pennies on the dollar and has essentially controlled their market since. Now history repeats itself and it is now our turn. ABSOLUTELY BRILLIANT----CONGRATULATIONS ILLUMINATTI-YOUR FEDERAL RESERVE IS SERVING YOU WELL ---- If you doubt these statements, I challenge you to read the 600 page master work by Griffin entitled " The Creature From Jekyll Island " . The events of the entire 20th century are detailed with names, dates and beneficiaries. It will make you sick, but it will forever open your eyes to the scam now being perpetrated against us.
2) Mortgage Assets should be handled by the firm, with interest rate agreements revised to allow existing home owners the ability to pay off debt under initial interest rates (at time of mortgage); allowing the Government to at least reaquire the original principle amount with some amount of payment to cover (at least) inflation.
3) Fed might consider the drastic move of temporarily lowering Required Reserve Requirements to ensure banks have more available cash on hand.
4) New rules and regulations for the entire banking industry needs to be created (limiting the way Derivatives are written in order to allow easier assessment of their true value and risk, as well as ensuring the components of the derivatives can be easily separated out for individual handling).
4) New temporary Tax Subsidies for small (local) banks (with special emphesis on new banks) in order to reduce the monopolization of the financial industry by the few remaining large institutions.
5) New Legal Protections for the small local banks to ensure continued independent viability in the face of competition from powerfull large institutions; again to prevent monopolization of the industry.
SIMPLE. It's a CONFLICT OF INTEREST for the government to "regulate" what you own. No PHD required to see that.
There’s no excuse for allowing the collapse of the U.S. economy to happen.
No amnesty, no pardons.
Pursue the Bush administration beyond January 20 until they are brought to justice.
FREE AMERICA
REVOLUTIONARY (DIRECT) DEMOCRACY
As others have said before, instead of pumping this bailout money into the "economy" (whatever the hell that actually means), send out a check for $500,000 to each taxpaying member of the USA. We the people know exactly what to do with this cash.
Why not give the money to the people that it belongs to. The hard working Americans. Let them pay off their own mortgages buy new cars new houses with cash ect. Then a real boost to the economey in all aspects. This way the people that pay the taxes would benefit also not just the BS institutes that caused all the crap in the first place.
..It isn't designed to work for the people, anymore than NAFTA - where you ship your jobs overseas and then import everything.....IT CAN NOT WORK -.- IT IS A 100% DRAIN ON THE ECONOMY -.- MONEY GOES OUT NOTHING COMES IN