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[John Halliburton]

Took me a while, but here's what really has Congress miffed about the $700billion bailout proposal, and rightly so:

"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."

Articles to read:

http://www.nakedcapitalism.com/2008/09/why-you-should-hate-t reasury-bailout.html

A paper by U of C professor Zingales:

http://faculty.chicagogsb.edu/luigi.zingales/Why_Paulson_is_ wrong.pdf

http://www.ft.com/cms/s/0/622acc9e-87f1-11dd-b114-0000779fd1 8c.html?nclick_check=1

And a comment:

If there are two things that continue to strike me in all of the things that I have been reading is that the financial people still view the assets out there as undervalued when the evidence suggests that the bottom of their value has not been reached, and that they still view loans as a stable aspect of their business and that increasing available capital at the banks for the purposes of loan-making is a positive step rather than merely a dose of heroin for the junkie or gasoline on the well-burning fire. In short, the financial people are not to be trusted with their own solutions, and thus Paulson is not the right person for the job, given his former CEO-ship at Goldman.

[dave stojan]

Yeah, and the real shits of it is that whopping 3 page "plan" wasn't pounded out over the weekend as portrayed - the administration has been planning this for several MONTHS.

There is no bottom to the attitude some in the government has towards the American public - it's like the epiphany from 2001 with a twist: instead of "My God, it's full of stars" it's "my God, they're all idiots".

Give me 700 billion dollars with no strings and no oversight and no responsibility and do it RIGHT NOW because the sky is falling! Right. As Mr. Hendrix said: "I'll get right back to you one of these days". Bite me.

[Sam York]

If I lived in the US, I'd be writing a letter to the IRS explaining why I would be refusing to pay my taxes for the next ten years.

It's absolutely ridiculous. The Thatcherite/Reaganite completely free market capitalism model has imploded, but it's OK - if you set up a business, make years worth of bad/greedy decisions and your business goes to the wall, the taxpayer will bail you out!

Big business can't have it both ways. Except, yes it can, because the governments have become the lapdogs of the capitalist economy.

(apologies if this is too political for the basement, I'm feeling incensed by the way the market problems are being dealt with in the US and UK at the moment)

[Josh Oswald]

Let the failing, non-fiscally responsible companies fail. Will my investments suffer sure, but i'd be like a nice wall street cleansing.

If a bucket's gotta a leak...fix the leak...don't just keep putting more water in.

Josh

[Eric Hendricks]

Sam York wrote on Wed, 24 September 2008 10:21

If I lived in the US, I'd be writing a letter to the IRS explaining why I would be refusing to pay my taxes for the next ten years. It's absolutely ridiculous. The Thatcherite/Reaganite completely free market capitalism model has imploded, but it's OK - if you set up a business, make years worth of bad/greedy decisions and your business goes to the wall, the taxpayer will bail you out! Big business can't have it both ways. Except, yes it can, because the governments have become the lapdogs of the capitalist economy.

I don't know how the economy in the UK works, so I won't comment on that.

However, we do not have free market capitalism here.  The following definition for the word "free" is from the Meriam Webster site:

4 a: having no trade restrictions b: not subject to government regulation cof foreign exchange : not subject to restriction or official control

Government is the problem with the economy.  If this were truly a free market there wouldn't be any talk of bailing out failing companies.  They would simply fail, and the investors would take the hit for there own decisions to back these companies.

[John Halliburton]

Josh Oswald wrote on Wed, 24 September 2008 09:28

Let the failing, non-fiscally responsible companies fail. Will my investments suffer sure, but i'd be like a nice wall street cleansing. If a bucket's gotta a leak...fix the leak...don't just keep putting more water in. Josh

From Professor Zingales's paper:

"The Paulson RTC will buy toxic assets at inflated prices thereby creating a charitable institution that provides welfare to
the rich—at the taxpayers’ expense. If this subsidy is large enough, it will succeed in stopping the crisis. But, again, at what price? The answer: Billions of dollars in taxpayer
money and, even worse, the violation of the fundamental capitalist principle that she who reaps the gains also bears the losses.
Remember that in the Savings and Loan crisis, the government had to bail out those institutions because the deposits were federally insured. But in this case the government does not have do bail out the debtholders of Bear Sterns,AIG, or any of the other financial institutions that will benefit from the Paulson RTC."

Best regards,

John

[Dennis Wiggins]

It is my understanding that only 3% of the total loans are actually "toxic".  The banks just don't know where the bad loans are, after all the repackaging and reselling.  No one wants to get stuck with Old Maid.  

This whole thing seems way overblown to me.

NO BAILOUT!

-Dennis Wiggins

[Phillip_Graham]

John Halliburton wrote on Wed, 24 September 2008 10:04

Took me a while, but here's what really has Congress miffed about the $700billion bailout proposal, and rightly so: "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." Articles to read:     http://www.nakedcapitalism.com/2008/09/why-you-should-hate-t reasury-bailout.html A paper by U of C professor Zingales:     http://faculty.chicagogsb.edu/luigi.zingales/Why_Paulson_is_ wrong.pdf     http://www.ft.com/cms/s/0/622acc9e-87f1-11dd-b114-0000779fd1 8c.html?nclick_check=1 And a comment: If there are two things that continue to strike me in all of the things that I have been reading is that the financial people still view the assets out there as undervalued when the evidence suggests that the bottom of their value has not been reached, and that they still view loans as a stable aspect of their business and that increasing available capital at the banks for the purposes of loan-making is a positive step rather than merely a dose of heroin for the junkie or gasoline on the well-burning fire. In short, the financial people are not to be trusted with their own solutions, and thus Paulson is not the right person for the job, given his former CEO-ship at Goldman.

Hey John,

Here are a few comments that I hope will provide some perspective, and perhaps lend some clarity to this mess.  The problem with economists is that if you put ten in a room you get 20 opinions.

I will start with the letter from your UC economics professor.  While I totally agree with his points about the requirements of an equity share in these firms, he is ignoring the immediate history of the Fed so far in regards to this.  Fannie/Freddie were placed into conservatorship, their assets seized, and will generally be dismantled.  This is clearly the Fed taking an equity stake in these firms.

A further example is AIG.  If you read the details of the loan agreement with AIG, their loan is for $85 billion dollars at "850 Points above LIBOR".  That is investing speak for paying an 8.5% interest rate above the primary interbank interest rate.  That works out to about %12 interest.  Further, the agreement with the Fed allows the Fed to sell ALL AIG assets to collateralize the loan, and provides the Fed with an 80% equity share in the company.  12% interest is completely unmanageable for AIG, so effectively all of their assets will be sold and the company unwound.  This is a clever de facto bankruptcy of AIG without all complications of such a proceedings, and a coup on the Fed's part.  A finance friend of mine who read the AIG agreement commented "They forgot to add a sentence about the Fed providing AIG a really big tube of Astroglide"

Once the Fed became the majority equity holder, they fired the AIG executives, and appointed Edward Liddy, former CEO of Allstate, to hack up the pieces.

In both of these cases, the Fed has driven very hard bargains, and gained equity shares.  There is no reason for this process to not continue.

Paulson should not be given complete immunity, but I suspect the removal of court review might not be as purely evil as it first seems.  If I knew the Fed was about to bend my company over, I might try to stop the proceedings in court.  I suspect Paulson wanted to be able to work additional AIG-style agreements without legal roadblocks from the firms.

The logic for no CEO pay limits follows the same path.  Pay the greedy bastards at the top to hand their firms to the fed, so the fed gets the equity share they want to insure they drove hardest bargain for the taxpayers.

It also pays to look at the history of the Resolution Trust Company.  Initially the government took a bath on those assets, but towards the end they got clever.  They sold out the siezed assets to private hatchet firms, but retained an equity stake, so that when stuff was turned around, they gained a share of the profits.  While the S&L debacle cost a bundle, this latter equity stake process was quite effective at minimizing loss, or even making money in some cases.  Anything the Fed does now will probably mirror the last days of the RTC.

The only really valid alternative I have seen is the suggestion that would prevent firms from having to value to market these junk assets every day, and then setting up a foreclosure backing fund to minimize the downside, and let these firms ride it out.  Removing their mark to market requirements might get stuff trading again, coupled with the Fed FDIC-style foreclosure fund.

The real here is whether or not the sky is truly falling.  If it is, then Paulson's plan makes more sense than the above plan.  If all these loans are already completely junk, then insuring against foreclosure makes no sense, and is a waste of money.  Why insure, at full market value, properties that are already in complete default with no upside.

If the sky has fallen then Paulson's plan provides a floor to the mortgage derivative's value, gets the illiquid assets off the books, and lets lending continue.  Banks have legal debt to asset ratios to maintain, so anything stuck on their books hurts their lending or borrowing ability.  If the sky has truly fallen, and the properties are already toast, then it makes sense to buy them at a discount in trade for equity, and try to clear them out over time to private entities to minimize the downside.

At this point the question becomes, do you believe the sky has fallen?  If it hasn't there is the alternative plan I mentioned above; if it has, their is Paulson's plan.  Since corporate America generally tries to hide everything until the monster is too big for the closet, I personally am inclined to believe it is as bad (likely worse) than Paulson indicates, in which case his very ugly plan would be the best long-term alternative.

Food for thought...

[dave stojan]

Phillip Graham wrote on Wed, 24 September 2008 16:07

Paulson should not be given complete immunity, but I suspect the removal of oversight might not be as purely evil as it first seems.  If I knew the Fed was about to bend my company over, I might try to stop the proceedings in court.  I suspect Paulson wanted to be able to work additional AIG-style agreements without legal hurdles.

Ya know, if it was the first time around or a different administration I'd be more than willing to give it the benefit of the doubt; but THIS administration has proved itself time and again to lie, cheat, steal, badger, browbeat, fear monger and everything else to have its way for the benefit of the top 1% and the hell with everyone else. Poop stinks - it always does and it always will. This stinks.

Quote:

The logic for no CEO pay limit follows the same path.  Pay the greedy bastards at the top to hand their firms to the fed, so the fed gets the equity share they want to insure the hardest bargain for the taxpayers.

I'm not sure I understand everything I know about that. Is that the hardest bargain FOR or AGAINST the taxpayer? In any event if the CEO's truly think they "earn" that much they are delusional. The only way they could merit that much is by illegal or immoral means. Top that off with the lobbyist driven tax loop hole that allows them to be paid in stock taxed at the low-low capital gains (15%) rate and they have only scorn coming to them.

Quote:

It also pays to look at the history of the Resolution Trust Company.  Initially the government took a bath on those assets, but towards the end they got clever.  They sold out the siezed assets to private hatchet firms, but retained an equity stake, so that when stuff was turned around, they gained a share of the profits.  While the S&L debacle cost a bundle, this latter equity stake process was quite effective at minimizing loss, or even making money in some cases.  Anything the Fed does now will probably mirror the last days of the RTC.

Yeah, ya see how well advertised that result was. What the hell was the actual bottom line? The "liberal" press was all over that one, huh? Maybe Rupert Merdoch left it in his will for his media empire to finally publicly reveal the end of that story. We shall see  

Quote:

The real here is whether or not the sky is truly falling. ... If all these loans are already completely junk, then insuring against foreclosure makes no sense, and is a waste of money.  Why insure, at full market value, properties that are already in complete default with no upside.

fricken bingo!

IF the reported mortgage crisis is TRULY the reason for the sky falling there are much simpler and fairer remedies available. I strongly suspect "they" painted a goat green and stuck it on top of the dead elephant (it died because they screwed it to death) and are pushing it down main street blaming the awful stench on the goat while forbidding anyone to investigate the true cause because of the "urgency" of the situation.

[John Roberts {JR}]

John Halliburton wrote on Wed, 24 September 2008 09:04

Took me a while, but here's what really has Congress miffed about the $700billion bailout proposal, and rightly so: "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." And a comment: If there are two things that continue to strike me in all of the things that I have been reading is that the financial people still view the assets out there as undervalued when the evidence suggests that the bottom of their value has not been reached, and that they still view loans as a stable aspect of their business and that increasing available capital at the banks for the purposes of loan-making is a positive step rather than merely a dose of heroin for the junkie or gasoline on the well-burning fire. In short, the financial people are not to be trusted with their own solutions, and thus Paulson is not the right person for the job, given his former CEO-ship at Goldman.

I recognize but don't share your high regard for congress. While there are many fingers to point in this situation the bottom line is that this whole thing has been driven by unrealistic housing policy.

Fannie and Freddie, bought all the crap paper from Countrywide because that was what congress wanted them to do. When regulators tried to clamp down on size and leverage of F&F they were blocked by their protectors in congress.

The sierra finally hit the fan when people stopped buying this crap paper, and sarbanes oxley says that paper assets must be marked to market... well there is no market at the moment so all this paper is now worth what? Marked to zero? since that's the current market price.

These assets are not worthless. There is real property involved, while many sub prime homeowners are upside down, the value of all this paper depends on how we resolve this, over time.

If we look at the best case scenario, resolution of this favorably, means housing values will rise, and therefore so will the value of ALL this paper. A lot of money has been siphoned off by loan originators, packagers, and sellers at the top of the market. That money will never be recovered, but the the cost of this program depends significantly on how it is handled. News reports are going for sensational gross amounts, not net.

I am also of the opinion that letting weak companies fail is healthier for the economy, but not stepping in now will cause our entire economy to spiral down. It will touch all of us. How many people do you think are buying new cars right now? I wish we could just isolate the pain to people who bought houses they knew they couldn't afford, and many on the lending side have already lost their jobs. The unfortunate reality is we are all in this together. Even you non-US readers. Who do you think bought all that packaged mortgage paper, and many countries copied our dubious practices?

I suspect the deal is already cut, and now our fine senators and congressmen are extracting their public pound of flesh weeks before a presidential election. There is also some payback for breaking the Fan and Fred piggy bank congress enjoyed parcelling out, for whatever quid pro quo.

Regarding your specific points, if Paulson and by extension "us", was subject to lawsuits for transactions, the stockholders from sundry financial institutions getting their clocks cleaned would sue him (us) for their capital losses.

If congress was involved in the specific deal making details we would see lobbyists influence in the middle of all these deals and provincial interests promoted at a cost to the rest of the country.

Pasulson and Bernake are the smartest guys in "those" hearing rooms for sure, and you couldn't pay me enough to show deference to and be attacked by the holier than thou congressmen who caused the problems in the first place.

Barney Frank is STILL insisting that Fannie and Freddie should not be reduced in size and broken up... give me a f'n break already.

If we are are going to send a sheriff to clean up wall street, who better than a guy who knows where the skeletons and gold is buried (Paulson). He could be off fishing somewhere.    

The congress is harping on populist issues. Regulating fixed low salary levels for leadership of major corporations will discourage the best and brightest from working there (like congress now). In the grand scheme of things the salaries taken home by Mozzilo at Country wide and leaders of F & F is obscene, BUT NOT THE REAL PROBLEM. The real problem is too much credit (greenspan not bernake) and lax regulation with flaky ratings agencies. How does the same paper go from AAA rated to worthless overnight? (Hint Spitzer chased off in house analysts at many investment banking firms that might have avoided some of this mess, so these smart guys walked across the street and joined hedge funds where they could trade on this understanding and drive the markets down faster and further. )

Smart money is already jumping in. Buffet (Berkshire Hathaway) has already bought one troubled company, and made a major multi billion dollar investment in one of the still standing investment houses.

Paulson has already demonstrated how he will deal with troubled companies with the AIG takeover. Look at details of that deal.. it makes a loan shark jealous. The deal just got worse for AIG since the interest rate is on top of LIBOR which is going up right now.

I don't claim to know all the answers but some of this is painfully obvious. We are on the knifes edge of the economy getting much worse if we don't resolve this favorably and quickly, and congress is fiddling for a couple more days of circus. I just hope they don't spook even more of the public, and will let those who can, get to work.

Congress blocking this, or delaying this is just too painful to ponder. I hope they are smarted than their public statements suggest.  Of course I could be wrong, but I'm a buyer rather than seller at this point.

Foolishly optimistic.

JR

PS: I love Ron Paul.. his economics are fundamentally sound but he is too fixated on telling people how wrong or bad things are, and not offering practical solutions. We are dealing with a lesser evil here, not some idealistic solution.