How's That Bailout Going?
Henry Paulson's bank-rescue program was always a turkey of a deal.
Perhaps this is stating the obvious, but the big US bailout plan hasn't worked so far. I don't just mean the $700 billion granted by Congress through the Economic Emergency Stabilization Act on October 3. I mean none of the related measures have worked, either.
Treasury Secretary Henry Paulson convinced Congress that the sky would fall without a $700 billion cushion. The Fed has initiated a loan program for troubled financial firms, spending trillions of dollars to bail out any company that ever overleveraged anything, and it has chopped interest rates in concert with its global central bank brethren.
And yet, the bloodbath continues. This week jobless claims clocked in at a 16-year high—and these figures don't even include the 53,000 job cuts announced by Citigroup, 3,000 by JPMorgan Chase, or up to 6,000 by Sun Microsystems. Nor do they count the cuts that will come from the auto industry, which will be in the tens of thousands if the Big Three survive, and in the millions if they don't. Last week, the Department of Labor announced that in October the US Consumer Price Index had staged its biggest drop in 61 years.
Why are we still listening to painful debates about whether to fix the bad decisions made by top corporate executives, rather than addressing the people at the foundation of the economy?
Recently, Sheila Bair, chair of the Federal Deposit Insurance Corporation, deftly explained the very sensible idea of helping homeowners in danger of foreclosure, as opposed to Paulson's idea of injecting arbitrary amounts of money into banks. This isn't a shot-in-the-dark solution Bair's offering; it's one that the FDIC has made work in a very short period of time. The same period during which Paulson's decisions have, well, not worked.
Bair wants private lenders to do what the FDIC has done successfully: help distressed borrowers. Since the FDIC seized Pasadena-based IndyMac in July, it's been able to reduce loan payments for some borrowers to 38 percent of their income by reducing interest rates, extending terms, or deferring principal payments.
According to the FDIC, "IndyMac has sent out more than 23,000 modification letters to eligible borrowers and has completed more than 5,300 modifications..." With that kind of proven efficiency, Bair proposed a similar $24 billion government-backed bailout program to be used for homeowners more generally.
Paulson didn't warm to her approach.
Since the bailout package was signed into law in October, the global economy has nose-dived. Maybe that wasn't Paulson's fault, but buying equity in banks was his choice.
In mid November, members of Congress on both sides of the aisle were incensed that Paulson flip-flopped on the original intent of his Troubled Asset Relief Program, which was purchase toxic assets from imperiled financial firms, deciding that injecting capital into troubled banks was the best way to dethaw the frozen credit markets. The rest of us can let that concern go. Buying junky assets would have been just as ineffective as buying stock in the companies that processed the junk. On October 28, the Treasury Department spent $125 billion to purchase preferred shares in Goldman Sachs, Merrill Lynch, Bank of America, JPMorgan Chase, Citigroup, Wells Fargo, State Street, and Bank of New York Mellon. Since then, shares in those firms have plummeted an average of 55 percent. That makes the $125 billion investment worth about $69 billion right now.
The big lie was that this capital would go toward easing credit, but it hasn't. Nor will it, for three reasons. First, with banks like Citigroup trading at roughly 10 percent the price of McDonald's shares and struggling for survival, they need to conserve all the capital they can. Second, as long as there is uncertainty among banks as to what kinds of losses lurk within their books, there will be no true credit flow in the industry. And third, consumers will always come dead last on their list of priorities.
But as the nation turns to the next bailout question, whether to come to the rescue of the auto industry, we've got to ask if capital injections or loans are the best way to go. Perhaps the leaders of the Big Three need what the finance industry needs: a Sheila Bair-style solution.
The problem with automakers is their lack of operating cash, not withstanding the group CEO trip to DC to ask for $25 billion more of it. Simply providing cash will only prolong the problem. If Bair's plan can convert 5,300 loans to manageable assets rather than declining ones, and keep people in their homes, maybe a similar program could help GM, Ford, and Chrysler. Say the FDIC took these firms over. A comparable plan could negotiate affordable loans (since banks are sitting on their money) for consumers to purchase auto inventory with appropriate incentives, like upgradeability to energy-friendly cars as they get produced. A sustainable program providing ongoing cash infusion through inventory movement while reducing leverage could have a shot.
But even that might be too late. The fact that their cars weren't selling (first because the companies weren't forward thinking, and then because consumer throttle back on big ticket purchases in general) has created a potentially irrevocable cash shortage. There are those who blame this on pension and health care programs. But GM had $17 billion The Joy of The Mundane used under a Creative Commons license.
Page 1 of 1 
Why aren't we talking about possible modifications of the existing fleet of privately owned automobiles and trucks to improve fuel efficiency ? A program designed to achieve this would create jobs , decrease the deficit, improve the environment.
A huge reduction of fuel consumption could be just a computer chip swap away. Just think if 50% of the US fleet increased mileage by two MPG - OK - you do the math.
I believe this is possible because a Chrysler Corp recall changed the computer chip on my Jeep and I lost two MPG.
All Paulson has done is preside over a system which, if not encouraged, at least condoned hyper-greed motivated risky trading. He then stoked a panic reaction to an imminent financial meltdown to secure an endless stream of public funds to quench that greed. Paulson lied about the cause and extent of the crisis, how the funds would be used, how soon they would be used, who would receive them, how much would be needed, etc.
This is the Bush Clan's Parthian shot at what they perceive as an ungrateful populace. This is the last ignominious gasp of a dethroned, defrocked despot.
This is the ultimate redistribution of wealth--taking what's left of middle-class affluence and giving it to those who don't really need it, the upper 1%.
America now has an almost perfectly bifurcated economic class structure, best depicted by a backwards "L": 99% of the populace struggling for a diminishing share of less than half of the country's income, while 1% luxuriate in the other increasing half of all wealth and income.
The greedy pigs that Paulson represents are never sated. The more they get, the more they want, and the fatter they get, the greedier they get. They are psychotic, megalomaniac hoarders of wealth and power. They hire political advisors and PR firms to obfuscate the shocking truth that they would relegate the 99% of us to abject poverty if they could, and take from us everything we have of any worth. They privately despise us, as the Nazis despised their captives, but kept them alive on starvation diets in order to work them to death.
Shed your childish illusions of the inherent goodness and altruism of any government: trusting, complacent citizens like us are always subjugated. See the Paulson/Bush/Elite "crisis/bailout" for what it really is--a coup d'etat of unfathomable financial magnitude. The coming weeks and months will reveal that the America we knew has been dealt a fatal blow; what remains is a rotting corpse, being washed and dressed by Ivy League undertakers.
This is what needs to happen (it won't but indulge me). 1. We totally wipe clean the tax code and replace it with a 10% flat tax and a 65% capital gains tax. 2. Single payer, universal health care. 3. Free University education. 4. Domestic manufacturing mandates directly corresponding to the buying power of the economy. 5. A carbon tax so high no one in their right mind would even touch carbon again. 6. Kick the Federal Reserve out and go back to the gold standard. 7. Drastically cut military spending. a) Shut down foreign bases b) No more two theatre army at the ready. c) No more mercenaries d) No more out-sourcing 8. Any kind of military conflict is considered war and thus needs congressional approval. 9. A Federalized standard of voting with paper ballots and automatic registration. 10. Campaigning will start one month before election. 11. Any Church entering in politics via financially or with public support loses tax exemption status. 12. Shift policy from "too big to fail" to "too many to fail". In other words, if a business becomes too large that it would be detrimental if it went bankrupt then impose anti-trust laws to break it down into more manageable size (duh). 13. The all important anti-duschbag law. Because, let's face it, that's really why we're in this mess -- we've let duschbags run a muck. So, when your pompous, pencil-dick boss at work gives you some stupid, trivial task to do just to make him feel important; call him out. Tell him it's [deleted]-heads like him that are fist-[deleted]ing this country into the [deleted] hole it is. We've let the insane, arrogant jerk-offs run the show too long. I'm calling for an anti-dusch revolution.
Finaly i enjoyed reading the comments with people like that there is lite at the end of the tunnel
Dan Houston
vidi
Occidental Peninsular
thank you
I was reading of the 'originate to distribute' model of the Basel banking accord which changed banking rules. IE move risk off balance sheets, reduced credit quality and less capital.
Seems to me this 'crisis' is intentional as its really just a transfer of wealth.
Any thoughts on that Nomi?
Thanxx -J
For years, these companies swore that you had to give huge pay packages and bigger bonuses to attract the very best people. Wow, thank God they didn't hire the incompetent ones, can you imagine the mess we would be in now!
Right on, Occidental Peninsular!
This whole mess is the biggest fraud in the history of mankind. It's happening in broad daylight, right in front of our eyes and all anyone will do is shrug their shoulders and say "oh well". The Federal reserve, A PRIVATE BANK, and it's schill Paulson get to decide who gets "bailed out" and who doesn't. An guess who's getting the checks? The usual suspects JP Morgan, Goldman Sachs etc. It's a scam.
Here's an example. Goldman Sachs and JP Morgan get rescued from their own incompetence and bad business practices with YOUR TAX MONEY, because they are to big to fail,theyan start lending again. So they get billions. But instead of lending that money, they take it and buy up THE GOOD assests of smaller banks at pennies on the dollar. JP Morgan bought 40 Billion dollars worth of assests from Wachovia and Washington Mutual for 1.9 Billion. WAMU and WASH get screwed becasue the Fed and the FDIC used their leverage to broker the deal.
This whole scam is about consolodating the banking insudtry. I read in the NYT just yesterday that China and Great Britian are doing the same thing with thier cantral bank system. Globalization has truly landed.
JP Morgan bought 40 Billion dollars worth of assests from Wachovia and Washington Mutual for 1.9 Billion. WAMU and WASH get screwed becasue the Fed and the FDIC used their leverage to broker the deal.
They also got a tax shelter when Paulson changed a tax rule, 382 I think it was. And buy buying up these other banks they were also buying back derivative bets.
googd point www.makkale.blogcu.com
A culture that defines its very raison d'etre by endless accumulation of material possessions; by the unbounded acquisition of more money, money, money, money; by recklessly overconsuming and relentlessly hoarding limited resources, demonstrably declares to all the world that greed is good.
Are we not members of a culture that worships consumerism? Are the products of greed nothing more or less than the objects of our idolatry?
Are the pin-striped suits, fleet of cars, chauffeur, private jets, McMansions, distant hideaways, secret handshakes and exclusive clubs...... all signatures of success in a culture borne of the 'goodness' of greed?
Consider for a moment what greed has wrought.
Steven Earl Salmony
AWAREness Campaign on The Human Population,
established 2001
One of the issues of Rolling Stone
magazine ran an article on the fact.
THE PEOPLE THE BROKE THE SYSTEM GET
TO FIX IT!!! It is a very interesting
article.
Solving the Derivative Crisis - The Nuclear Option:
As the DOW gives back about half of its recent record rally, as of this writing, it's worth considering that we haven't even tackled the Big Stuff - yes, despite the trillions spent on various financial rescues, the real mammoth in the room is the derivative market.
The president must assume FDR-like powers. The first thing he should do is to declare all derivatives placed outside of legally regulated markets null and void. These bets - worth $180 trillion according the U.S. Office of the Comptroller of the Currency in America alone, and over half a Quadrillion dollars worldwide - could not have been made in traditionally regulated markets, because the players did not have sufficient collateral.
Because for every buyer there is a seller, the amounts lost would zero out and no one 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. Right now, this enormous sum is only good for driving companies into bankruptcy and tying up the courts for years while the winners of these bets squabble over the crumbs of the bankrupt companies. This is already happening with creditors fighting over the last crumbs of Lehman Brothers. This is a pointless and destructive squabble and the administration – or the next one, if we can wait that long - must act to prevent years more of these.
If the parties object to the elimination of their derivative bets, they should be reminded of the penalty for fraud.
What's 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 them off the books and ensure these bets are never made again by sending those who make them in the future to jail.
How exactly is it greed to want a house, whether you can afford one or not? Should only people with lots of money be able to buy houses while the rest of us are doomed to rent forever?
right. call the casino out, declare all bets are off, and make sure it never happens again. But I'd say we should jail some or most (or all) of the people who took these bets they couldn't afford to lose, not the people on the winning side.
it's not greed to want a house. it is greed to "buy" it with borrowed money you know you can't pay back unless you find some sucker to buy the house for way more than you paid. If your deal looks like that--and I'd say maybe half or two-thirds of the deals in my neck of the woods from 2004 through 2007 looked like that--then one who makes it is either stupid or greedy or, most probably, both. Renting is a good deal when housing prices are way higher than rent rates. If you don't know what that sentence means, then you better ask someone.
How exactly is it greed to buy a house with a loan you know you can't pay back when there are bailouts being handed out? Obama promised that he would help people keep their houses if he was elected.
Sure. Auto "bailout": They may NOT make ANY trucks, van, SUV's, crossoevers, just cars that get at LEAST 35 MPG city for the next 5 years. No corp jets, no pay over 50 k per year.
Boy are these Democrats who rule Congress, to dumb to figure out if the bailout package was the right way to go? Remember, it was also Congress that was to dumb to figure out that Iraq War was wrong. Democrat-Republican Congress, all to dumb to ad 2 plus 2. Change, right, now the dumb Congress will approve some of Obama's appointees who were knee deep in the causes of this financial mess.
"If long cherished ideals and time honored institutions, if certain social assumptions and religious formulae have ceased to promote the welfare of the generality of mankind, if they no longer minister to the needs of a continually evolving humanity, then let them be swept away and relegated to the limbo of obsolesent and forgotten doctrines. Why should these in a world of subject to the immutable law of change and decay be exempt from the deterioration that must needs sooner or later overtake every human institution? For legal standards, political and economic theories are solely designed to safeguard the interests of humanity as a whole, and not humanity to be crucified for the preservation of the integrity of any particular law or doctrine." S. Effendi
typical democrats. Let's throw money at the problem. The correct policy should be to let the free market decide this issue. This whole issue only began when the country became frightened about a democrat win at the polls. Once that happened, the whole economy went into a tail spin because of the marcsist fascist policies that dems have. If Americans were allowed to drive the vehicles that they want to drive, and the big 3 are wise enough to realize this without government interference, they would not be in this kind of trouble either.
Seems simple to me... the banks only wanted to offload their mortgage securities under the threat that FDIC would write down the terms of loans entrenched IN these mortgage backed securites... Now that the fix is in, and consumers will NOT get any term relief, the banks want to hold onto the securites and milk it for all it's worth... they only wanted to offload the securities if they were going to be written down.
Some believe we are all now on the “Edge of Political Darkness”. They believe that the election of an articulate president will lead to “a little intellectual elite” that “can’t control the economy without controlling the people” (Ronald Reagan). They fear for us all, and their words may well make some of us think this fear comes from a mistrust of intelligent people.
But intelligent people have always led this country, either through intelligent presidents, or through intelligent elites manipulating dumb presidents. And a sharp intellect is like a sharp knife. Each can be used to prepare a meal for someone or to hurt someone - all depends on how these tools are used. The real problem, then, is not intelligence.
Personally, I believe the real problem in this world, now as in the 1920’s, is greed. Will a dumb president allow a greedy elite to enrich themselves by conning working families? Or will an intelligent president protect the American people from the economic crises brought on by the very greedy? To me, those are the real questions. And the real answers cannot come from simply trusting in elite beliefs (like, for instance, the blind belief in trickle-down economics). The only real test of any belief system is in the results of that belief system when put into practice. We’ve seen what trickle-down deregulation hath wrought. From trickle-down deregulation came the “Gramm-Leach-Bliley Act” (which gutted the “Glass-Steagall Act”, which had kept the American banking system solvent since the end of the Great Depression). From trickle-down deregulation came Phil Gramm’s “Commodities Futures Modernization Act” (which created the Enron Loophole, deregulating credit default swaps). From trickle-down deregulation came the 2003 “American Dream Downpayment Act” (which pushed banks and Fannie and Freddie to make loans to people they knew could not afford them). From trickle-down deregulation came the 2004 SEC “Rule Change” (deregulating bank-required 12:1 debt-to-capital ratios, allowing banks to risk 30 times what they held in reserve, putting the entire banking system at risk of default). The systematic dismantling of the economic safeguards that have supported the American economy since the New Deal is the result of trickle-down deregulation.
To the extent the greedy have controlled enough American voters through talk radio and attack ads, they have controlled our economy these past 8 years. Make no mistake - the very greedy are making out very well these days. While our jobs and our pension plans disappear, they’re buying up America for pennies on the dollar and selling her to China. Former CEO elites, with their hands now on the government till, have hundreds of billions of tax dollars for their partners at Halliburton and Goldman-Sachs and other bastions of greed, but job cuts and broken pension promises for honest working folks. That’s the legacy of trickle-down economics.
Jesus said, “Wherefore by their fruits ye shall know them.” [Matt 7:20] The fruits of the greedy elite these last 8 years have become increasingly bitter.
Now comes the promise of a new, intelligent president. I believe, with this new president, we may now be stepping back from the edge of political darkness. Whether we move to safety depends upon him, and upon us. We don’t know if he will be strong enough and intelligent enough to outwit and outlast the greedy forces aligned against him. He will certainly need our support, and our prayers. If he fails to do what’s right, and caves to the forces of greed, I will be the first to vote against him, as I did his predecessor. But I will not be among those who would prejudge our new, intelligent president, because I believe as Jesus believed - the proof is in the fruit.
Gary AndrewS, author of "No Gods Before Me"
It's obvious this guy is a crook. How does one get a personal fortune of over a billion on a bureaucrat's salary? America, stop buying these tinny monster gas guzzling cars, look what the Indians are doing for a people's car, soon to take over the small car needs of the world....
What I am most concerned about is when does this all end?We all need worse cause we all have yet to really care about each other's welfare,right?It's only in times of disasters that humans start noticing one another.Then maybe as a nation we will prosper again!!
Treasury Secretary Henry
Treasury Secretary Henry Paulson convinced Congress that the sky would fall without a $700 billion cushion. The Fed has initiated a loan program for troubled financial firms, spending trillions of dollars to bail out any company that ever overleveraged anything, and it has chopped interest rates in concert with its global central bank brethren.
