If you believe the Fed Chairman, the economic future of America is at stake now
Submitted by andym on September 20, 2008 - 2:14am.
If you believe the Fed Chairman, the economic future of America is at stake right now (this week). The only question is how the very large sums of money needed to stabilize the American economy will be distributed and the ramifications for all of us.
It sounds like they're trying to avoid a Depression.
One related thought-- perhaps the Fed Chairman is really the most powerful person in the country when it comes to the economy.
http://www.nytimes.com/2008/09/20/washington/19cnd-cong.html
Congressional Leaders Stunned by Warnings
By DAVID M. HERSZENHORN
WASHINGTON — It was a room full of people who rarely hold their tongues. But as the Fed chairman, Ben S. Bernanke, laid out the potentially devastating ramifications of the financial crisis before congressional leaders on Thursday night, there was a stunned silence at first.
Mr. Bernanke and Treasury Secretary Henry M. Paulson Jr. had made an urgent and unusual evening visit to Capitol Hill, and they were gathered around a conference table in the offices of House Speaker Nancy Pelosi.
“When you listened to him describe it you gulped," said Senator Charles E. Schumer, Democrat of New York.
As Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the Banking, Housing and Urban Affairs Committee, put it Friday morning on the ABC program “Good Morning America,” the congressional leaders were told “that we’re literally maybe days away from a complete meltdown of our financial system, with all the implications here at home and globally.”
Mr. Schumer added, “History was sort of hanging over it, like this was a moment.”
When Mr. Schumer described the meeting as “somber,” Mr. Dodd cut in. “Somber doesn’t begin to justify the words,” he said. “We have never heard language like this.”
“What you heard last evening,” he added, “is one of those rare moments, certainly rare in my experience here, is Democrats and Republicans deciding we need to work together quickly.”
Although Mr. Schumer, Mr. Dodd and other participants declined to repeat precisely what they were told by Mr. Bernanke and Mr. Paulson, they said the two men described the financial system as effectively bound in a knot that was being pulled tighter and tighter by the day.
“You have the credit lines in America, which are the lifeblood of the economy, frozen.” Mr. Schumer said. “That hasn’t happened before. It’s a brave new world. You are in uncharted territory, but the one thing you do know is you can’t leave them frozen or the economy will just head south at a rapid rate.”
As he spoke, Mr. Schumer swooped his hand, to make the gesture of a plummeting bird. “You know we’d be lucky ...” he said as his voice trailed off. “Well, I’ll leave it at that.”
As officials at the Treasury Department raced on Friday to draft legislative language for an ambitious plan for the government to buy billions of dollars of illiquid debt from ailing American financial institutions, legislators on Capitol Hill said they planned to work through the weekend reviewing the proposal and making efforts to bring a package of measures to the floor of the House and Senate by the end of next week.
Lawmakers in both parties described the meeting in Ms. Pelosi’s office on Thursday night with Mr. Paulson and Mr. Bernanke as collaborative, and that they were prepared to put politics aside to address the needs of the American people.
While Democrats initially said after the meeting that they planned to use the administration’s proposal of a huge rescue effort to win support for an economic stimulus package, they pulled back slightly on Friday morning, saying that their top priority was to help put together the bailout package and stabilize the economy.
But it was clear they continued to examine ways to make clear that the government was stepping up not just to help the major financial firms but also to protect the interests of American taxpayers and families by safeguarding their pensions and college savings, and by preventing any further drying up of consumer credit.
In addition to potential stimulus measures, which could include an extension of unemployment benefits and spending on public infrastructure projects, Democrats said they intended to consider measures to help stem home foreclosures and stabilize real estate values.
Among the potential steps Congress can take include approving legislation to allow bankruptcy judges to modify the terms of primary mortgages — authority that the bankruptcy laws do not currently allow and that the banking industry has strenuously opposed.
But the Democrats said it was too soon to discuss such details, and that they were awaiting a draft of the proposal from the Treasury Department.
“We have got to deal with the foreclosure issue,” Mr. Dodd said. “You have got to stop that hemorrhaging..If you don’t, the problem doesn’t go away. Ben Bernanke has said it over and over again. Hank Paulson recognizes it. This problem began with bad lending practices. Those are his words, not mine, and so this plan must address that or I’ll be back here in front of a bank of microphones at some point explaining the next failure.”
Even before the drafting of the plan was complete, the Bush administration and the Fed began efforts to sell the idea of a huge rescue to potentially skeptical rank-and-file members of Congress. Mr. Paulson and Mr. Bernanke held a conference call with House Republicans to explain their thinking.
Senator Richard C. Shelby of Alabama, the senior Republican on the Senate banking committee, said in a television interview that cost to the government of purchasing bad debt could run to $1 trillion — a potential warning sign since Mr. Shelby is a longtime skeptic of government intervention in the private market.
Until Mr. Shelby was interviewed on Friday morning, officials on Capitol Hill had been careful not to discuss specific figures, though the rescue envisioned by the Treasury Department clearly entails a government appropriation of hundreds of billions of dollars.
It's one thing when a bunch of bloggers (regular Americans) are fearful of the general effects of deregulation. It's another when the Chairman of the Federal Reserve tells us the chickens have NOW come home to roost. Every decision that is made at this very moment or in the near future, will essentially determine America's future. That makes the policies of the next few months (and the coming administration critical).
I've been fearful since Reagan, because of his strong influence in making deregulation the law of the land and the philosophy of choice. The last 28 years have been a disaster of deregulation. The Garn-St. Germain Depository Institutions Act (1982) that led to the Savings and Loan crisis and the irresponsible Gramm-Leach-Bliley Act of 1999 (that Phil Gramm pioneered but both Bill Clinton, and the majority of Democrats supported) are two shining examples of how we got into the mess.
But I (and others who feel similarly) have no power to change things. The government does and right now will make the critical decisions that determine the future for all of us for many years to come (probably in the coming weeks and months). Whatever decisions are made, the impact will be enormous.
and the end of Bretton-Woods. It's also about people not being willing to live within their means. that's not something the government made them do. People got greedy. Time for them to have a reality check. it's been along timecoming.
that all these clowns trying to "save" the economy were responsible for it collapsing in the first place.
The Bi-Partisan Origins of the Financial Crisis
Shattering the Glass-Steagall Act
By WILLIAM KAUFMAN
"If you're looking for a major cause of the current banking meltdown, you need seek no farther than the 1999 repeal of the Glass-Steagall Act.
The Glass-Steagall Act, passed in 1933, mandated the separation of commercial and investment banking in order to protect depositors from the hazards of risky investment and speculation. It worked fine for fifty years until the banking industry began lobbying for its repeal during the 1980s, the go-go years of Reaganesque market fundamentalism, an outlook embraced wholeheartedly by mainstream Democrats under the rubric "neoliberalism."
The main cheerleader for the repeal was Phil Gramm, the fulsome reactionary who, until he recently shoved his foot even farther into his mouth than usual, was McCain's chief economic advisor.
But wait . . . as usual, the Democrats were eager to pile on to this reversal of New Deal regulatory progressivism -- fully 38 of 45 Senate Democrats voted for the repeal (which passed 90-8), including some famous names commonly associated with "progressive" politics by the easily gulled: Dodd, Kennedy, Kerry, Reid, and Schumer. And, of course, there was the inevitable shout of "yea" from the ever-servile corporate factotum Joseph Biden, Barack Obama's idea of a tribune of "change"--if by change one means erasing any lingering obstacle to corporate domination of the polity.
This disgraceful bow to the banking industry, eagerly signed into law by Bill Clinton in 1999, bears a major share of responsibility for the current banking crisis. Here's the complete roll call of shame:
REPUBLICANS FOR (52): Abraham, Allard, Ashcroft, Bennett, Brownback, Bond, Bunning, Burns, Campbell, Chafee, Cochran, Collins, Coverdell, Craig, Crapo, DeWine, Domenici, Enzi, Frist, Gorton, Gramm (Tex.), Grams (Minn.), Grassley, Gregg, Hegel, Hatch, Helms, Hutchinson (Ark.), Hutchison (Tex.), Inhofe, Jeffords, Kyl, Lott, Lugar, Mack, McConnell, Murkowski, Nickles, Roberts, Roth, Santorum, Sessions, Smith (N.H.), Smith (Ore.), Snowe, Specter, Stevens, Thomas, Thompson, Thurmond, Voinovich and Warner. DEMOCRATS FOR (38): Akaka, Baucus, Bayh, Biden, Bingaman, Breaux, Byrd, Cleland, Conrad, Daschle, Dodd, Durbin, Edwards, Feinstein, Graham (Fla.), Hollings, Inouye, Johnson, Kennedy, Kerrey (Neb.), Kerry (Mass.), Kohl, Landrieu, Lautenberg, Leahy, Levin, Lieberman, Lincoln, Moynihan, Murray, Reed (R.L), Reid (Nev.), Robb, Rockefeller, Sarbanes, Schumer, Torricelli and Wyden.
REPUBLICANS AGAINST(1): Shelby.
DEMOCRATS AGAINST(7): Boxer, Bryan, Dorgan, Feingold, Harkin, Mikulski and Wellstone.
NOT VOTING: 2 REPUBLICANS (2): Fitzgerald (voted present) and McCain.
The House Democrats were no less enthusiastic in their endorsement of this invitation to plunder--the repeal passed there by a margin of 343-86, with the Donkey Party favoring the measure by a two-to-one margin, 138-69. Current House speaker Nancy Pelosi managed not to register a vote on this one, so great was her fear of offending her party's corporate paymasters even though she knew passage was a sure thing.
According to Wikipedia, many economists "have criticized the repeal of the Glass-Steagall Act as contributing to the 2007 subprime mortgage financial crisis. The repeal enabled commercial lenders such as Citigroup, the largest U.S. bank by assets, to underwrite and trade instruments such as mortgage-backed securities and collateralized debt obligations and establish so-called structured investment vehicles, or SIVs, that bought those securities. Citigroup played a major part in the repeal. Then called Citicorp, the company merged with Travelers Insurance company the year before using loopholes in Glass-Steagall that allowed for temporary exemptions. With lobbying led by Roger Levy, the 'finance, insurance and real estate industries together are regularly the largest campaign contributors and biggest spenders on lobbying of all business sectors [in 1999]. They laid out more than $200 million for lobbying in 1998, ' according to the Center for Responsive Politics. ' These industries succeeded in their two decades long effort to repeal the act. ' "
This lust for banking largesse is as wanton among Democrats as Republicans--right up to the current presidential campaign. According to the Phoenix Business Journal,
Obama and McCain . . . have accepted a substantial amount of campaign money from Wall Street bankers, investment and securities firms and their executives during this election cycle.
Investment firms have donated $9.9 million to Obama and $6.9 million to McCain this campaign thus far, according to the Center for Responsive Politics. Commercial banks have given Obama $2.1 million and McCain $1.9 million. Private equity firms and hedge funds have given Obama $2 million and McCain $1.4 million, according to CFRP.
Lehman Brothers, Goldman Sachs, JP Morgan Chase & Co., UBS and heavyweight law firm DLA Piper are among Obama's top contributors. JP Morgan acquired Bear Stearns with the federal government taking on as much as $30 billion Bear assets as part of the deal. McCain's top donor sources include Merrill Lynch, Goldman Sachs, Citigroup and Blank Rome and Greenberg Traurig LLP law firms.
So . . . the next time a mass-media-lulled Democrat ridicules Ralph Nader for arguing that there are few significant differences between the two major parties on the truly important issues, you might refer them to this atrocity, along with all the other ones."
William Kaufman can be reached at
RUSSERT: So you will not run for president or vice president in 2008?
SEN. OBAMA: I will not.
It's not just amazing that the same folks who got us into this are making the decisions, it's deeply concerning. The fact that Bill Clinton and many Democrats supported the Phil Gramm supported nonsense in 1999 shows us how late in the day it has become and how much has been lost.
The best thing that can come out of this is the discrediting of laissez faire economic conservatism. But, that means that the people who led us into this have to change. I wonder how many who led us into this will shout "mea culpa." There will be just a lot of lies and finger pointing.
The real problem is where are the people with courage to experiment on the economy (like FDR and his team) and stabilize it in a way that actually makes America stronger.
It's not only re-regulation that's needed. Fro example, there are long-term goals related to science and technology development (for example better science education in America) that must be advanced or America will lose the lead in technology (which it already has in many industries). Somehow the anti-intellect strain of America's popular culture (which traces back more than a century and has increased with passing years) must be reduced. The people who create new technology (and thereby stimulate the economy) do not get recognition. Few children have the desire to pursue careers that will help develop new technologies. People like GW Bush, Warren Harding or especially Ronald Reagan should never have been elected President.
Also, do the numbers you provide represent investment firms that have contributed to Obama and McCain or just their employees acting as individuals?
There is a big difference to me whether individuals working in an industry give the $2300 campaign maximum or whether a corporate entity contributes. The individuals do not necessarily wield aggregate power and would presumably not have the influence of one larger contribution from a "concerned" single entity.
I'm much more interested in how much is given by the corporations themselves to the Democratic and Republican parties and their related PACs.
At least not directly. It's the employees, however various levels of "encouragement" is often given. Lots of companies have their own PACs, too, which are associations of employees, but each PAC can only give $5000 to campaigns (each calendar year).
Stan Davis
Lakewood, CO
Wes Clark -- Make America All It Can Be!
the corporations have organically merged with each of the major political parties seamlessly. That is how we ended up where we are.
"The liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic state itself. That, in its essence, is fascism --ownerships of government by an individual, by a group, or any controlling private power."
--Franklin D. Roosevelt
"I hope we shall crush in its birth the aristocracy of our moneyed corporations, which dare already to challenge our government to a trial of strength and bid defiance of the laws of our country."
– Thomas Jefferson
I don't think so, but I'm less sure about those.
Stan Davis
Lakewood, CO
Wes Clark -- Make America All It Can Be!
Good point. Bundling seems to be a way around campaign regulation and a possible way that corporations could retain financial influence. Probably needs to be regulated ASAP.
PACS don't bundle the way bundlers do. Bundlers become official fundraisers and can invite anybody to send contributions to the campaign. Those donors pay directly to the campaigns, but through the registered fundraiser. In that way, the bundler is responsible for an unlimited amount of donations, but each donor is limited to the regular individual limits. PACs are limited to $5000 to each campaign each calendar year.
I think.
Stan Davis
Lakewood, CO
Wes Clark -- Make America All It Can Be!
I was discussing the scenario where the bundler focuses on the employees of one company or a set of related companies.
The bundler then can unofficially "represent" the company or companies.
The possibility of collusion between the bundler and the boards of such companies becomes a possibility. Of course, it can't be official, just a wink and nod thing. They might then do the wink and nod thing with the campaign.
From wikipedia: http://en.wikipedia.org/wiki/Campaign_finance_in_the_United_States
Corporations can contribute to non-federal campaigns in many states: "Over half the states allow some level of corporate contributions. Some states have limits on contributions from individuals that are lower than the national limits, while others have no limits at all."
"Corporate and Union Activity
Even though corporations and labor organizations may not make contributions or expenditures in connection with federal elections, they may establish PACs. Corporate and labor PACs raise voluntary contributions from a restricted class of individuals. In the case of unions, this consist of union members and their families. For corporations, the restricted class consists of managerial employees and stockholders and their families. These funds may be used to support federal candidates and political committees, either through independent expenditures or through contributions to candidates. A PAC is limited to a maximum contribution of $5000 to a candidate committee.
Although prohibited from using their resources to "expressly advocate" the election or defeat of federal candidates, or to make contributions directly to candidates or parties, corporations and labor organizations may conduct a variety of activities related to federal elections, in addition to those conducted through a PAC. Though they may not use general treasury funds to pay for "electioneering communications" - broadcast ads referring to candidates for federal election without expressly advocating their election or defeat -- in the 60 days prior to a general election, or 30 days prior to a primary election, they may advocate for political issues and mention federal candidates while doing so, if outside the 30/60 day time frame for "electioneering communications," or at any time through non-broadcast media. They may also engage in certain non-partisan voter registration and get-out-the-vote campaigns.
Additionally, over half the states allow some level of direct corporate contributions or spending in state and local races."
Also it looks like they can contribute to 527's with no restrictions.
The most important doctor is the President as he will appoint the next fed chief among other things,
McCain's chief economic advisor is Phil Gramm. Enough said.
Obama just held a teleconference on economic policy that included Robert Rubin and Lawrence Summers (as well as Laura Tyson and Paul Volcker). Rubin and Summers helped convince Bill Clinton to support Republican deregulation and that is far from encouraging. Alhough Paul Volcker hopefully provides some counterpoint, this is not reassuring that Obama would move strongly enough to repair the crisis in a way that saves the American economy.
Arianna Huffington makes some good points here about Obama needing to show some courage and bucking the Democratic party. So far, he has not shown any inclination toward the kind of difficult decisions and courage needed to cure the patient (USA).
See http://www.huffingtonpost.com/arianna-huffington/how-obama-can-demonstrate_b_127575.html
got the boot; also Oba's chief is Austin Goolsby, a Chicago Boy (Disaster capitalism dude.) Not goof in either case.
RUSSERT: So you will not run for president or vice president in 2008?
SEN. OBAMA: I will not.
...in July
Why have Obama and the New Democratic Party chose to rehabilitate the Republican Party at a time when it and conservatism has proven to be such a failure? Answer: "Because that's where the money is."
You're right that Gramm stepped down as official co-chair of McCain's campaign, but is apparently still advising as a very good "friend." McCain's team consists of a group of businessmen and economists who favor Reagonomics.
Jason Furman (a Robert Rubin protege-- someone help us) is Obama's chief economic advisor. Goolsby is a senior advisor.
Here is a recent article comparing the teams;
http://www.usatoday.com/news/politics/election2008/2008-09-18-econteams_N.htm
Advisers give clue to candidates on economy
By David Jackson, Kathy Kiely and Richard Wolf, USA TODAY
Who would President Barack Obama or President John McCain call?
The answer might be found in the people they call now: former Cabinet officials and corporate titans, staffers to past presidents and Congresses, economists who tamed double-digit inflation and beat back budget deficits.
Some of the candidates' economic advisers have deep ties to Wall Street — and to the wildly lucrative, lightly regulated environment that contributed to the financial crisis rooted in risky mortgage lending.
As McCain rails against greed on Wall Street and Obama casts the current problems as the legacy of Republicans' devotion to deregulation of the financial industry, both candidates are in daily contact with a broad range of economic advisers — some of whom could be in the next administration.
Team Obama is an ideologically diverse group including policy veterans such as Paul Volcker, Robert Rubin and Lawrence Summers — people who served Jimmy Carter and Bill Clinton at the Federal Reserve, Treasury Department and White House. "A very reassuring team," says Maya MacGuineas, president of the Committee for a Responsible Federal Budget.
Team McCain is more professionally eclectic, reaching beyond Washington to Silicon Valley entrepreneurs who have run companies such as Hewlett-Packard and eBay. It trumpets low taxes and — at least until now — less regulation. "It's Reagan Republicanism," says Grover Norquist, president of the anti-tax group Americans for Tax Reform.
As the economy came to dominate the campaign agenda this week, it became clear that such advisers would play an increasingly important role in the seven weeks leading up to Election Day. The demise of Lehman Bros., the swallowing up of Merrill Lynch by Bank of America and the government's takeover of insurance giant American International Group seem to have given Obama the debate he sought to have with McCain over how the Republican administration of George W. Bush has managed the economy this decade.
Both candidates have been ducking into meetings with economic advisers. Stanford University professor John Taylor, author of a globally recognized rule that guides central banks on setting interest rates, flew to Green Bay, Wis., on Thursday to meet with McCain before a campaign stop. Today, Obama will meet with several of his economic specialists in Coral Gables, Fla.
The learning curve is large for two politicians with a combined 30 years in Congress but who have never run a major company — a point indelicately made by this week by McCain adviser Carly Fiorina, the former Hewlett-Packard chief who said none of the candidates for president or vice president was qualified to be CEO of a major company.
Don't look for all of these Democratic or Republican advisers to come to Washington in January. They're "not necessarily the cast of characters" who'll be in the next White House, says Stephen Hess, a Brookings Institution political scientist who worked in the Eisenhower and Nixon administrations. "Once Nov. 5 comes along, everything may be a different equation."
Veterans of economic wars
When Robert Reich, a University of California-Berkeley economist, showed up for an economic summit with Obama earlier this year, he was surprised by some of the company he was keeping.
"I never thought I would be sitting across a table from Paul O'Neill," says Reich, who was Clinton's Labor secretary. O'Neill was President Bush's first Treasury secretary.
The encounter encapsulated the diversity of Obama's economic team. The Illinois senator is "very, very insistent" on getting views from across a political and ideological spectrum, says Jason Furman, who directs economic policy for Obama's campaign and referees weekly conference calls to generate ideas.
Billionaire investor Warren Buffett and Jared Bernstein of the left-leaning Economic Policy Institute have been asked to provide advice to Obama. The team also includes veterans of the Clinton administration — some of whom helped write the legislation that tore down the regulatory walls between banking and investment firms — and others, such as Reich, who think that such deregulation of financial markets laid the groundwork for today's problems.
"It was a mistake," says Reich, who had left the Clinton administration by the time the president signed the legislation.
Thomas "Mack" McLarty, Clinton's former White House chief of staff, and New Jersey Gov. Jon Corzine, a former Goldman Sachs CEO who was in the Senate at the time, say abuses proliferated because the Bush administration refused to enforce protections within the law.
"The goal shouldn't be just to facilitate business, but to protect the public," says Corzine, another Wall Street veteran whom Obama has consulted.
In recent days, Obama has sought advice about the financial crisis from Summers and two other Clinton administration veterans — Rubin, who preceded Summers as Treasury secretary, and former White House economic adviser Laura D'Andrea Tyson. Obama also has spoken with Volcker, 81, an emeritus professor of economics at Princeton University who chaired the Federal Reserve under Carter and Ronald Reagan.
All are deficit hawks likely to give Obama "fiscally conservative" advice, says Leon Panetta, who was Clinton's chief of staff and budget director. Volcker and Rubin also are veterans of major financial crises: Volcker is hailed for ending the double-digit inflation of the 1970s, Rubin for preventing the Mexican government from defaulting on its debts in the 1990s.
Several of Obama's advisers have ties to companies mired in the Wall Street crisis. Tyson is on the board of Morgan Stanley, which paid her $350,830 in stock and cash in 2006, according to Securities and Exchange Commission records.
Rubin is a senior adviser to Citigroup, a company embroiled in the crisis surrounding subprime mortgages that have been given to high-risk borrowers. Rubin's compensation from Citigroup in 2005 was $17 million, according to the SEC.
Another Obama adviser, William Donaldson, is a former Republican SEC chairman who once infuriated some on Wall Street by pushing for tougher regulations on hedge funds and mutual funds. Donaldson also is on the advisory council of a firm that's been retained by a former CEO of AIG. He says he has "no role at all" in the AIG matter.
Big business at the table
McCain's economic team is a far-flung enterprise, including dozens of specialists from Wall Street, universities and conservative think tanks — most dedicated to Republican ideals of low taxes and less regulation.
"I have a big Rolodex," says Douglas Holtz-Eakin, a former Congressional Budget Office director who is McCain's domestic policy adviser. "McCain likes a broad array of views. He's not an ideological sort of guy."
The campaign's top economic advisers include Fiorina and Meg Whitman, formerly of eBay.
Democrats delight in pointing out Fiorina's dismissal by the Hewlett-Packard board, which granted her an $11 million payout, the type of going-away package McCain rails against. Fiorina notes McCain has called for shareholder approval for executive pay packages and says hers was backed by shareholders.
Many members of McCain's team are executives with strong ties to Wall Street:
• John Thain became CEO of Merrill Lynch in December, after its board ousted Stan O'Neal. Thain's $81 million pay package made him the second highest-earning CEO in the nation this year. Bloomberg News reported that Thain could make another $11 million in accelerated stock payouts in light of the sale of Merrill Lynch to Bank of America.
• During 2007, Whitman's last full year as CEO at eBay, her salary, bonuses and stock options totaled $10 million. Forbes magazine estimated her personal wealth this year at $1.3 billion. In 2001 and 2002, she was director of Goldman Sachs, one of the two remaining independent investment banks in the USA.
Holtz-Eakin says he sees no conflict about consulting Thain, who joined the McCain team before taking over Merrill Lynch. He says Thain did a great job taking the company from a "troubled place" to a "successful purchase."
Other McCain advisers include deregulation specialist Peter Wallison of the American Enterprise Institute and Taylor, the Stanford professor. Also on McCain's list is Martin Feldstein, a top economics adviser to President Reagan.
Wallison, who has backed deregulation of business and financial markets throughout a career in government and the private sector, says he and McCain have "been for regulation when it's necessary." A former White House counsel to Ronald Reagan, he says McCain favored cracking down on the excesses of mortgage giants Fannie Mae and Freddie Mac "when the Democrats were opposed to it."
The financial crisis — and the calls for increased regulation it has inspired — has seemed to catch McCain off-guard at times. This week, he said he was opposed to a government bailout of insurance giant AIG. Then, after such a bailout was announced, he said it was probably necessary. (Obama did not express an opinion on the bailout but said it was the product of "failed economic policy" by Republicans.)
Thursday, McCain unveiled a plan to create a "mortgage and financial institutions trust" that would "identify institutions that are weak and take remedies to strengthen them."
but has been mcC's close advisor for many moons, and will continue to be so.
IMO, this is the best(worst?) example of mcC's horrible judgment, and either ignorance about economy or complicity in 'starve the beast.'
The point is that the patient has been getting sicker to the point that there is now a crisis.
Surgery is needed right now and the type and quality of the surgery will determine whether the patient recovers. There may not be a second chance to get it right.
The patient is the USA economy and the surgeons are the Fed chairman and the President/Treasury Secretary and Congress. The next President will appoint the next Fed chairman and control the treasury department. The next congress (and this one) will have the power to determine how the bailout is structured and who benefits.
Turns out the last election might have been the most critical one, if Kerry (or Clark) had recognized the deregulation nightmare and tried to reverse it as #1 priority. I don't remember anyone stating that this was the #1 priority in 2004. There is also serious questions about whether the Republican controlled congress (or even the Democratic one after 2006) would have passed true pro-regulatory legislation.
A lot of damage is now done. The next administration may (but it is not certain) be in a position to do more good (depending on what is done right now). So the coming election at the Presidential level is also very important (and may be as important as the last one) if there is a chance to fix things.
Better hope that whoever wins the election (either McCain or Obama) have some very good financial advisers and that one of them has the courage to experiment on the economy as FDR in 1933 and not stick to doctrinaire nonsense like the "best market is a completely deregulated one."
Watch this video of her appearance on Jim Cramer's show last April. She has known exactly what to do for quite a while now. Unfortunately, Jim Cramer was one of the few Wall Streeters to openly acknowledge that; and the rest of the news media were either too stupid, too sexist, and/or too in the tank for Obama to even cover the story.
Nick Kelly
Wes Clark could still secure America as a national security candidate.
CDS with a Koolaid chaser does indeed rot the brain :/
Why have Obama and the New Democratic Party chose to rehabilitate the Republican Party at a time when it and conservatism has proven to be such a failure? Answer: "Because that's where the money is."
Acronyms to watch for: Roubini supports Hillary's HOLC, not RTC/RFC solutions to financial crisis
Submitted by lambert on Sat, 2008-09-20 10:59.
Here’s a litmus test for whatever Congress comes up with as they huddle with the finance boiz over the weekend: HOLC good, RTC/RFC bad
I may not understand this
class warfarefinance stuff, but I can sure quote people who do! Nouriel Roubini:snip
..........So of the five possible uses of fiscal policy – income relief to households (the 2008 tax rebate), rescue/bailout of financial institutions (Bears Stearns, Fannie and Freddie, AIG), purchase of assets of failed institutions (an RTC-like institution), recapitalization of undercapitalized financial institutions (an RFC-like institution), government purchase of distressed mortgages to provide debt relief to households (an HOLC-like institution) – the last option is the most important and effective to resolve this severe financial and economic crisis. During the Great Depression the Home Owners’ Loan Corporation was create to buy mortgages from bank at a discount price, reduce further the face value of such mortgages and refinance distressed homeowners into new mortgages with lower face value and lower fixed rate mortgage rates. This massive program allowed millions of households to avoid losing their homes and ending up in foreclosure. The HOLC bought mortgages for two year and managed such assets for 18 year at a relatively low fiscal cost (as the assets were bought at a discount and reducing the face value of the mortgages allowed home owners to avoid defaulting on the refinanced mortgages). A new HOLC will be the macro equivalent of creating a large “bad bank” where the bad assets of financial institutions are taken off their balance sheets and restructured/reduced; thus it will be the macro equivalent of the “bad bank” that Lehman tried to create for its bad assets.
Creating a new HOLC mechanism is likely to be more effective than creating a new RTC (whose purpose was to buy and dispose over a number of years of the assets of already failed S&Ls): we need to provide debt reduction to households well before hundreds of banks failed as working out the bad assets only after banks have failed is costly.
Bottom line: Households first, then the banks (which, in the end, turns out to be better for the banks, too).
And HOLC, while Obama is still waiting for word from his finance guys to scroll up on his teleprompter, is the solution Hillary has already advocated:
A new government entity like the HOLC with a focus on attacking the source of the problem can serve the purpose of clearing a lot of those toxic mortgage securities from the market. We know there will not be any semblance of a normal or orderly marketplace until we have found a way to resolve these mortgage securities that are metastasizing in the bottom of our markets. By taking this paper out of the market and quarantining it in this new entity we will be able to give the market breathing room to recover.Last spring when I called for a modern version of the HOLC, that’s the Depression-era entity that bought up old mortgages and issued new, more affordable ones in their stead, most people did not pay much attention. But I think it’s important to note that by the time the HOLC closed its books, that agency had turned a small profit and helped over a million people keep their homes. And this was 70 years ago. Our population has grown dramatically. So, obviously, if we did it right, we would be able to save a lot of homes. And I think if it is administered correctly it could be actually a net expenditure or even winner for the federal government.
Read the whole thing. It’s great. It’s what we should be doing.
Bottom line: Wall Street’s treating Obama as if he were President right now (and that probably makes sense, though Constitutionally, I hate it). If Obama does not come out with a HOLC solution, and Harry, Nancy and the rest of ’em go for an RTC/RFC solution, we are even more totally f*cked than we already are. For HOLC, we’ll have to wait ’til 2012, because the other proposals just won’t work.
NOTE Let’s remember, too, that Hillary also, as a Senator from New York, also states as an explicit goal maintaining Manhattan as a financial center — which is hard to do when the markets collapse. So, HOLC is not only good for the people, it saves the bankers’ bacon as well. This is a classic fix for a runaway capitalist system in the FDR-mode, and shows the systems thinking that was a hallmark of the Hillary campaign (after it righted itself in February).
From the comments.......
Two big problems probably: 1) It's Hillary's plan, and 2) "the new soul of the Democratic Party wears pinstripes,”...
Why have Obama and the New Democratic Party chose to rehabilitate the Republican Party at a time when it and conservatism has proven to be such a failure? Answer: "Because that's where the money is."
Obama had no problem "borrowing" ideas from Hillary before during the primaries, so hopefully he will not have a problem now if he understands the situation and need for an HOLC. So problem (1) may not be a problem.
As for problem (2) the "pinstripes", you are correct. One of Obama's problems seems to be is that he is very chummy with Bill Clinton's pinstriped financial advisors: William Summers, Robert Rubin and his protege Jason Furman (who is Obama's chief economic advisor). Rubin helped convince Clinton to repeal parts of Glass-Steagall in 1999.
....Austan Goolsbee.
Why have Obama and the New Democratic Party chose to rehabilitate the Republican Party at a time when it and conservatism has proven to be such a failure? Answer: "Because that's where the money is."
I'm worried about the whole crew. Especially after how they "fixed" Glass-Steagall in 1999. Although Goolsbee's pro free trade economics is egregious.
have damn near ruined the country
again, WORST f PREZNIT in history
4 months people four months!!!!!!!!!!
1/20/09
Bill (from RI)
That I am delighted to see an in depth discussion about the candidate's advisers here! And a recognition of the important role they play and might play in a future administration.
So they both demoted their senior's (Gramm & Goolsbee) a notch or two down - after they both embarrassed their campaigns and the candidates. Gramm is a nightmare and Goolsbee isn't much better -- but I'm intrigued by the fact that he also does improv comedy on the side...(seriously) I can envision economic conferences being more entertaining. Heh.
===================
RE the contributions to the two campaigns from the various sectors, these are the latest numbers from Open Secrets
===================
TOP CONTRIBUTORS - (those contributing highest amts listed first)
Pretty much a Wall Street cocktail buffet for both
OBAMA
Goldman Sachs
Univ of California
Citigroup
JP Morgan
Harvard Univ
MCCAIN
Merrill Lynch
Citigroup
Morgan Stanley
Goldman Sachs
JP Morgan
CONTRIBUTIONS BY SECTORS
-----
Finance Insurance & Real Estate (the ones we're focused on right now with meltdown mode)
OBAMA: $24,860,257
MCCAIN: $22,108,926
------
Energy & Nat Resources (oil & gas)<-- the reason we go to war.
OBAMA: $1,459,153
MCCAIN: $2,831,322
-----
Defense (the people who get rich off those wars)
OBAMA: $479,588
MCCAIN: $445,051
-----
More at link
http://www.opensecrets.org/pres08/sectorallc.php?cycle=2008
BUNDLERS:
OBAMA
Lawyers/Law Firms........ $11,700,000
Securities & Investment... $8,900,000
TV/Movies/Music.......... $3,150,000
Computers/Interne....... $2,150,000
Business Services....... $2,100,000
MCCAIN
Securities & Investment... $11,350,000
Real Estate............. $9,500,000
Lobbyists............... $6,250,000
Lawyers/Law Firms....... $4,900,000
Misc Finance............ $4,500,000
a Trillion is? How much does that work out for each man, woman, and child in America? What is the amount each of us owes already? Last I remember it was something like $25,000 (?). Anyone?
And anyone foolish enough to think the country will have a dime to spend on anything else (like healthcare, infrastructure, education, etc)...well, I have a bridge up for sale......
We are in DEEP DOO!
According to my kitchen arithmetic, if there are 300 million people, it works out to $3.333.33 a head.
Stan Davis
Lakewood, CO
Wes Clark -- Make America All It Can Be!
Remember how the Iraq War resolution was slammed through congress with the idea that we should trust the Bush administration. Well it appears that the financial rescue plan (that may take a lot of future flexibility from whomever is the next President) comes with the same administration disclaimer "trust us."
http://www.nytimes.com/2008/09/20/business/20cong.html?em
Behind Closed Doors, Warnings of Calamity
By CARL HULSE and DAVID M. HERSZENHORN
Published: September 19, 2008
WASHINGTON — Gathered in the conference room just off House Speaker Nancy Pelosi’s personal suite on the second floor of the Capitol, the Congressional leadership had just received the sobering news Thursday night that America’s economy remained in peril despite a series of sudden interventions by the Federal Reserve.
Senator Christopher J. Dodd met with members of his staff on Friday. He was in the meeting Thursday night when Treasury Secretary Henry M. Paulson Jr. and Fed Chairman Ben Bernanke unveiled a plan to use billions in dollars to buy bad debt.
Then the other shoe dropped. Treasury Secretary Henry M. Paulson Jr. told top members of both parties — about to leave Washington to assail one another in a bitter election season — that they had no choice but to pull together and quickly pass legislation providing billions of public dollars to take bad assets off the hands of the nation’s financial institutions.
“Do you know what you are asking me to do?” said Senator Harry Reid, the Democratic majority leader who has struggled all year against concerted Republican opposition, according to multiple participants at the Thursday night session. “It takes me 48 hours to get the Republicans to agree to flush the toilets around here.”
At that point, Senator Mitch McConnell of Kentucky, the Republican leader who duels constantly with Mr. Reid, reached over to assure his colleague they could work it out. “Harry,” Mr. McConnell said, “I think we need to do this, we should try to do this and we can do this.”
As Congress waited Friday for details of the plan, Congressional officials said members of both parties remained willing to move ahead despite reservations from the rank-and-file about exposing taxpayers to staggering costs that have yet to be disclosed.
In telephone briefings with lawmakers, Mr. Paulson and the Fed chairman, Ben S. Bernanke, sought to make it clear that the price of doing nothing could be calamitous.
“If we don’t get this, it will be nothing short of a disaster for our markets,” Mr. Bernanke told House Republicans in a conference call Friday, according to a detailed account of the call.
At the same time, Democrats sought to make it clear the final proposal had to take care of the general public as well as Wall Street.
Referring to a phone conversation with President Bush early Friday, Ms. Pelosi said: “As I told the president this morning, we are committed to quick, bipartisan action while ensuring that we uphold key principles — insulating Main Street from Wall Street and keeping people in their homes by reducing mortgage foreclosures, restoring market confidence and protecting American taxpayers from incurring hundreds of billions of dollars of debt.”
Yet it is evident that sentiments disclosed by the financial officials in the meeting Thursday night and in other briefings have made a strong impression on Congress. And the seriousness with which the administration is approaching the issue was evident in the fact that Mr. Bush for the first time in weeks also telephoned Mr. Reid, with whom he has had a strained relationship, to ask for his help in pushing through legislation.
Senator Charles E. Schumer of New York, the No. 3 Democrat, said that the Thursday-night session contained not a bit of levity and that the description of the financial predicament made him gulp. “When you get 20 politicians together and no one makes a joke, you know something is going on,” he said.
Although Mr. Schumer and others have declined to repeat precisely what they were told by Mr. Paulson and Mr. Bernanke, they said the two men described the financial system as effectively bound in a knot that was being pulled tighter and tighter by the day.
“There was a long pause in the room,” Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the Banking, Housing and Urban Affairs Committee, said.
In the Republican conference call Friday, Mr. Bernanke sought to remind lawmakers that voters have money at risk, not just Wall Street executives.
“Many of your constituents hold money in money markets — those funds are losing money,” he said, according to the account of the call provided by a listener. He blamed the deep problems in the housing market and said that the “critical issue is what do we do about these bad assets clogging up our credit system.”
The financial crisis comes at a delicate time for Congress. Lawmakers had been preparing to dispose of a few legislative issues and then adjourn at the end of next week for the elections. But the push for financial legislation has upended the schedule and given the two parties some incentive to work together.
Republicans warned Friday that Democrats should not try to take advantage of the situation, with Representative John A. Boehner of Ohio, the Republican leader, saying the plan has to be kept “as simple and straightforward as possible.”
“Loading it up to score political points or fit a partisan agenda will only delay the economic stability that families, seniors and small businesses deserve,” he said.
Some conservatives who had already raised the alarm over federal intervention in the markets remained deeply skeptical of the plan.
“We are being asked to go ‘all in’ with taxpayer dollars, and once our government and the taxpayer is on the hook, there is no fallback option,” said Representative Jeb Hensarling of Texas, chairman of the conservative Republican Study Committee. “My fear is that taxpayers will be left with the mother of all debts, the federal government becomes the lender and guarantor of last resort and our nation finds itself on the slippery slope to socialism.”
Yet Republican leaders appeared determined to go along with the administration plan. “This is a very serious, very unpleasant problem to deal with,” said Senator Lamar Alexander of Tennessee, No. 3 in the Senate Republican leadership. “But we must act next week to solve this situation.”
In their Friday conference call with Treasury and Fed officials, House Democrats, according to participants, accepted that the bailout was necessary but also faulted the administration for a reckless economic approach that combined deregulation, deficit spending and bad management.
In the closed-door Thursday night meeting, Democrats sought to make it clear to Republicans that the underlying initiative for the financial rescue was coming from the administration and that it was the White House that owned the proposal.
Participants said Representative Steny H. Hoyer of Maryland, the majority leader, was particularly emphatic, noting that the administration was requesting unprecedented action on short notice, effectively telling Congress, “Trust us.”
After examination the Administration's bailout plan appears to be leading the USA down the wrong road according to several prominent economists including Paul Krugman. Criticism is from both the right (free marketers) and the left. Of course, it is the criticism from the left that I believe is most significant.
My question: why would anyone give President Bush a blank check after the mess he has made elsewhere?
http://news.yahoo.com/s/politico/20080921/pl_politico/13689
Economists becoming skeptical of bailout
Avi Zenilman Sun Sep 21, 8:58 AM ET
Many of the same economists and opinion-makers who'd provided a bipartisan sheen of consensus to Treasury Secretary Henry Paulson's previous moves have quickly begun casting doubts on the wisdom of a policy that would allow Treasury to purchase without oversight hundreds of billions of dollars of difficult-to-price assets from financial institutions.
Under the proposal, Paulson would not have to report to Congress until December, and the only safeguard for taxpayers was a provision that the “Secretary shall take into consideration means for — (1) providing stability or preventing disruption to the financial markets or banking system; and (2) protecting the taxpayer.”
Skepticism toward the plan reflected more than the predictable desires of the left to spread the wealth to Main Street or of the right to reject government bailouts, although those sentiments were also expressed.
Paul Krugman, the Princeton University economist and liberal columnist for The New York Times who had until now been cautiously supportive of Paulson's and Federal Reserve Chairman Ben Bernanke’s efforts to prop up the system, wrote that the new plan would be a taxpayer rip-off. “I hate to say this, but looking at the plan as leaked, I have to say no deal,” he wrote on his blog at 4:46 p.m. Saturday. “Not unless Treasury explains, very clearly, why this is supposed to work, other than through having taxpayers pay premium prices for lousy assets.”
President Bush is “asking for a huge amount of power,” said Nouriel Roubini, an economist at New York University who was among the first to predict the crisis. “He's saying, ‘Trust me, I'm going to do it right if you give me absolute control.' This is not a monarchy.” (Roubini told the New York Times that despite these concerns, he also thought the plan could help stave off a recession.)
Yves Smith, a longtime banker and contributor to the influential finance blog Naked Capitalism, published an angry post there titled, "Why You Should Hate The Treasury Bailout Proposal":
"Given that continuing to buy U.S. assets will come under increasingly harsh scrutiny overseas, the U.S. needs to bend over backwards to devise a plan that at least looks credible in terms of directing the funds that come from taxpayers and lenders to their highest and best uses and implementing reforms that will restore active and prudent oversight of financial firms," she wrote. "The administration's demand for a free pass, even if Congress unwisely goes along, is likely to backfire with our foreign creditors."
Gregory Mankiw, a professor at Harvard University and a former chairman of Bush's Council of Economic Advisers who was the economic guru for Mitt Romney's campaign, favorably linked to Smith's post under the headline "A Blank Check" and approvingly quoted a correspondent who wrote, "Has more money ever been given with fewer restrictions on how it is used? Ever?"
Sebastian Mallaby, the center-right economic columnist for The Washington Post and scholar of the modern financial system, was equally dubious. “The plan is being marketed under false pretenses," he wrote in his Sunday column, rejecting comparisons of the plan to the Resolution Trust Corporation, which the government formed in response to the savings and loan crisis to purchase and sell off the bad loans made by bankrupted thrifts.
“The administration proposes to buy up bad loans before the lenders go bust,” Mallaby noted, keeping the banks alive but doing little to solve the problem infecting the markets. “Bad loans are weighing down the financial system precisely because private-sector experts can't determine their worth. The government would have no better handle on the problem.”
University of Chicago Graduate School of Business economist Luigi Zingales, in a short essay titled "Why Paulson Is Wrong" that was cited by Mallaby and a raft of other economics blogs across the ideological spectrum, wrote: "For somebody like me who believes strongly in the free market system, the most serious risk of the current situation is that the interest of a few financiers will undermine the fundamental workings of the capitalist system. The time has come to save capitalism from the capitalists."
Justin Fox, Time magazine's top financial writer and columnist, also worried about the lack of an upside for the taxpayer. "What I still can't figure out is how Treasury hopes to structure the bailout so there's at least a chance of getting a fair return on that risk-taking," he wrote on his blog.
"How on earth will these things be priced?" Portfolio's Felix Salmon asked about the bad debt Paulson plans to purchase. He also pointed out that Treasury would need to stock its office with bond-trading professionals. "All we know so far is that it's going to be set up as a reverse auction, but that raises more questions than it answers."
One notable proponent of the plan was The Financial Times' unsigned Lex column, which acknowledged the lack of oversight but mostly praised the plan:
"This bailout is necessary and the bill should be pushed through quickly. … Nor is the package necessarily a disaster for the taxpayer or the U.S. dollar. If the Treasury buys assets well, and confidence is restored, there is [a] chance that Mr. Paulson could win fund manager of the year."
Sounds like democrats are trying not to just rollover, but we'll see. What about creating new regulations, shouldn't this bill be tied to that?
http://online.wsj.com/article/SB122200573768460503.html
SEPTEMBER 22, 2008
Lawmakers Battle Over Rescue Plan
By GREG HITT, DAMIAN PALETTA and DEBORAH SOLOMON
WASHINGTON -- Lawmakers are scrambling to put their mark on the Bush administration's $700 billion plan to save financial markets -- a fast-moving test of wills that could reshape one of the biggest bailouts in U.S. history.
There's no sign yet that Congress will delay or derail the proposal. Democrats are looking to add provisions that include beefed-up congressional oversight, aid for individual homeowners and changes to bankruptcy laws.
Paulson is seeking public approval after plans were put forward to Congress to buy up $700 billion worth of risky loans. Video courtesy of Reuters.
Some of the measures are opposed by the administration. Perhaps the biggest looming fight is over Democratic efforts to require the program's participants to curb what they pay their executives.
Last week, as deep new fissures opened in global financial markets, the U.S. Treasury unveiled a plan to spend up to $700 billion to buy soured mortgages and mortgage-related securities from financial institutions. In many respects, the financial sector last week all but ceased to function.
In discussions with lawmakers late Sunday, Treasury Secretary Henry Paulson prodded Congress to move forward, voicing worry about how financial markets will react Monday and whether those institutions still standing could be in for more turmoil, officials said. Since unveiling the plan, the administration has kept up pressure for rapid action, in hopes that relieving banks of their troublesome holdings will help lending markets to stabilize.
The bailout is raising thorny questions that could be tough to address as the bill speeds through Congress. Until this proposal, the government's response to the worst financial crisis in 80 years had been led largely by the Treasury and the Federal Reserve, with Congress consulted often only after the fact. As a result, lawmakers view the bailout plan as a chance to reassert their authority. Many are unnerved by Treasury's request for a blank check with few conditions.
The proposal has also stirred a populist backlash, with many members of Congress saying the bill needs to be better geared to Main Street than Wall Street.
"This is not in anyway to deprive [Treasury Secretary Paulson] the opportunity to act. We totally understand the gravity of the moment," said Senate Banking Committee Chairman and Connecticut Democrat Chris Dodd. But, he added: "You cannot just turn over $700 billion of taxpayer money and not insist that that taxpayer is going to be protected in this."
The Treasury's latest draft, sent to Congress on Sunday, could let overseas firms participate. It also leaves the door open for hedge funds to sell distressed assets to the government.
Resisting Efforts
Congress and the Treasury Department appear to be in agreement on the big picture, namely the need and the cost. The differences lie on issues such as what, if anything, the government should extract in return for helping out struggling financial firms.
Mr. Paulson is resisting efforts to limit the pay of executives whose firms participate in the program and plans to fight it "hard," according to a person familiar with the matter. He fears that provision would render the program moot, since many firms might choose not to participate.
There seems willingness to negotiate on other issues, such as how Treasury hires asset managers to oversee the immense investment portfolios it soon could own.
Another likely area for compromise is aid for homeowners. The administration already believes its plan will provide relief to borrowers even though the specific legislative language doesn't address the question. Because Treasury will own mortgage-backed securities and actual home loans, Mr. Paulson said on ABC's "This Week" that the government will be able to exert pressure on mortgage servicers to modify terms.
The debate could expose a peculiar irony in the government's rescue planning, because taxpayers are now both creditors and debtors in the housing mess. While some taxpayers would benefit from attempts to aid homeowners by modifying mortgages or easing the bankruptcy process, others could be hurt if those moves increase the overall cost of the bailout.
The chances of Congress saying "no" to the plan remain slim just weeks from an election, because lawmakers could be reluctant to be tarred with stopping what the Treasury and Fed officials have said is the economy's last best chance.
But among both Democratic and Republican leaders, there's concern that the more populist tilt on Capitol Hill could pose difficulties. The biggest problem is likely to be in the House, where conservative Republicans are uneasy with the size of the bailout and the scope of powers being given to Treasury, while rank-and-file Democrats are calling for fresh assistance for distressed homeowners.
Rep. Jeb Hensarling, a Texas Republican, said there are "widespread concerns" among House conservatives. Mr. Hensarling said most haven't yet taken a public position. But he suggested "a number may very well" oppose the plan. "It's a very, very tough vote," he said. Mr. Hensarling expressed concerns about the cost and scope, but said he is keeping an open mind.
Sen. Richard Shelby of Alabama, the ranking Republican on the Senate Banking Committee, said in a written statement that he "remains at this point unconvinced" as the proposal's merits.
Congress and the White House began negotiations over the weekend, and hope to wrap up a compromise plan late Monday. Rep. Barney Frank, chairman of the House Financial Services Committee, is leading negotiations, with input from Democratic leaders in both the House and the Senate.
Mr. Paulson is scheduled to testify before House and Senate committees on Tuesday and Wednesday. That would set the stage for a vote Thursday in the House and Friday in the Senate.
Negotiations intensified Sunday, when House Democrats presented their own outline of possible legislation to Treasury officials. The Treasury's original proposal, authorizing Mr. Paulson to create a $700 billion fund to buy mortgage-related assets from troubled institutions, was only two-and-a-half pages long. It sent a more detailed plan to Capitol Hill on Sunday.
The Treasury would buy assets through a process to be determined, hold them until the market stabilizes and then sell them back into the private market. That would remove the toxic assets at the root of the current crisis.
Valuing these assets will be one of the trickiest questions. For the plan to succeed, financial institutions must be able to get these assets off their books at a high enough price that their balance sheets aren't further pinched.
[Henry Paulson] AP/Meet the Press
Treasury Secretary Henry Paulson pressed for Congress to act on the bailout plan, calling this a "humbling time" for the U.S.
The government is, in some respects, constrained in driving a hard bargain because the whole point of the program is to help banks get back on solid footing -- not to force them into deep write-downs, potentially exacerbating their pain. At the same time, the market turmoil has complicated efforts to determine the "real" value of the assets.
The mechanics of any sale are expected to be worked out between the asset managers and the Treasury. One option is a reverse auction. In that case, the Treasury could determine a type of asset it wants to buy (say, all AAA-rated mortgage-backed securities) and would then buy securities from financial institutions that offer to sell at the lowest price.
Congressional officials suggested the plan would create a rolling borrowing authority, with the $700 billion limit acting as a cap. That gives the bailout a potential value that's bigger than the entire annual Pentagon budget.
The proposal also calls for raising the public debt limit to $11.3 trillion. It would be the second time this year that ceiling has been lifted.
Treasury wants broad discretion in the program. If market conditions worsen, for instance, it wants flexibility to buy more or different assets.
'Humbling Time'
Mr. Paulson appeared on four Sunday network television news shows to explain and defend the plan. In an appearance on Fox News Sunday, Mr. Paulson said the bill shouldn't have additional items added onto it. "We want this to be clean and we want this to be quick and it's urgent that we get this done," Mr. Paulson said.
"This is a humbling, humbling time for the United States of America as we go around the world and talk to people about our financial system," he said. "We will work through this."
Regarding executive pay, Rep. Frank's draft would mandate that any company selling assets into the program "meet appropriate standards for executive compensation," including limits on what could be deemed excessive or inappropriate, according to a copy seen by The Wall Street Journal. The government would also have the ability to "claw back" incentive pay that was based on "earnings, gains, or other criteria that are later proven to be inaccurate." Mr. Paulson is resisting those efforts.
The Treasury also seems to be at odds with a proposal being pushed by Sen. Charles Schumer, a Democrat of New York, to give judges leeway to adjust the terms of mortgages that wind up in bankruptcy court. The idea is to use the bankruptcy process to help homeowners avoid foreclosure.
While supported by several senior Democrats, including House Speaker Nancy Pelosi, the measure is controversial among Republicans, who argue that the contracts should be sacrosanct.
No Role, No Authority
One area of likely compromise is the question of oversight. Under the initial Treasury proposal, the administration would make a report to the House and Senate committees on budget, taxes, and financial services within three months, and then report only twice a year thereafter.
Democratic leaders argued over the weekend Congress had effectively no role and no authority to shape the bailout under this plan -- despite putting lawmakers on the hook for votes that could threaten their careers if the bailout later runs into trouble.
Democratic leaders discussed Sunday enhancing oversight by carving out a special monitoring role for the Government Accountability Office, the investigative arm of Congress. The Republican leadership echoed similar wishes for tougher scrutiny, suggesting creation of congressional panel, led by top leaders in both parties, to lead oversight. More regular reports would be required, perhaps monthly.
The Treasury is open to giving Congress more frequent reviews of its program, a person familiar with the matter said.
Democratic presidential candidate Sen. Barack Obama of Illinois stressed the need for taxpayer and homeowner relief to be a part of any Wall Street rescue at a rally on Sunday. Sen. Obama hasn't said whether he would support a measure that didn't include such provisions.
His top economic adviser, Jason Furman, said Sunday that the Illinois senator insisted on "shared responsibility" for any solution. "As we ask taxpayers to take extraordinary measures to protect the financial system, we have to ask the financial system to do its part, especially in regards to CEO compensation and helping homeowners stay in their homes," he said.
Sen. John McCain backs a "very tight, targeted bill" without the Democratic-backed add-ons, said Douglas Holtz-Eakin, the Republican presidential nominee's top economic adviser. "There's a consensus that Congress has to act and has to act quickly," he said. He said the bill should include only provisions that enjoy bipartisan support. Anything else, he said, "will slow it down."[/b]
explicit language (fair warning) why we are totally and completely f*cked.
~ snip ~
You want to know why Democrats, liberals and progressives keep getting rolled like the easiest, stupidest mark in the world? First is the fact that they don't disagree about the basic goals of governance. Here, the relevant goal is the establishment of an unassailable, all-powerful corporatist-authoritarian state at home. (Scroll through the archives if you're interested in finding the numerous essays on that subject. I frankly don't have the patience or interest for holding anyone's hand at this point.) Second is the fact that:
THEY'RE STUPIDER THAN SH*T.
Fasten your bleeding eyes on this:
House Speaker Nancy Pelosi said in a statement today that Congress will take action this week, while adding that Democrats want more oversight of the proposed federal program. Democratic presidential candidate Barack Obama also said lawmakers must insist on more oversight.
Pelosi said that the administration's $700 billion proposal "does not include the necessary safeguards."
"Democrats believe a responsible solution should include independent oversight, protections for homeowners and constraints on excessive executive compensation."
"We will not simply hand over a $700 billion blank check to Wall Street and hope for a better outcome," she said.
Make sure you get the message. The Democrats will provide the check, it just won't be a blank check. The Democrats want "independent oversight." But the money will flow -- to insolvent financial institutions, precisely those institutions responsible for this debacle, and to buy up bad debts which will thus not be allowed to wash out of the system.
The Bush administration is not genuinely intelligent by any measure, but these criminals are shrewder than hell. Why do you think they made the initial proposal in the extreme form they did? Because they know that if they finally give the Democrats a few "safeguards," if they "attach a few strings," and perhaps if they allow for "independent oversight," the Democrats will give them the momentous bailout they want -- all to be paid for by American taxpayers for the next hundred years (assuming the U.S. survives in any recognizable form, which becomes more doubtful by the hour). The Democrats have already announced to the world that is exactly what they'll do.
The Democrats, liberals and progressives fall right into the trap, as they do every single f*cking time.
At this point, does anyone believe "strings" or "oversight" are worth a goddamned thing? Let me remind you of something that no Democrats and none of their defenders wants to be reminded of: the Iraq catastrophe. The Democrats have had the biggest "oversight" mechanism in the world -- or to be precise, in the Constitution -- since early 2007. The Democrats could have cut off all funding for this criminal war and occupation. They will not do it.
They could have impeached Bush, Cheney and several more of the leading criminals. They will not do it.
Add in the pattern the Democrats followed in the FISA debacle, with regard to the Military Commissions Act, and on a host of other questions, and you see what the Democratic opposition is worth. In a word: nothing. ...
~ snip ~
I'm not done. So the central piece of this extortion scheme, the $700 billion check, will be supplied, covered with the blood of Americans. IT WILL BE PROVIDED TO SOLVE A PROBLEM THAT CANNOT BE SOLVED.
Once again, Mike Whitney -- and for f*ck's sake, try to get your brain in gear:
The system is at the breaking point, and despite Wall Street's elation from the proposed $1 trillion dollar bailout to remove toxic mortgage-backed debt from banks' balance sheets, the market is still correcting in what has become a vicious downward cycle. This cycle will persist until the bad debts are accounted for and written off or until the exhausted dollar-system collapses altogether.
...
The problems cannot be resolved by shifting the debts of the banks onto the taxpayer. That's an illusion. By adding another $1 or $2 trillion dollars to the National Debt, Paulson is just ensuring that interest rates will go up, real estate will crash, unemployment will soar, and foreign central banks will abandon the dollar. In truth, there is no fix for a deleveraging market anymore than there is a fix for gravity. The belief that massive debts and insolvency can be erased by increasing liquidity just shows a fundamental misunderstanding of economics. That's why Henry Paulson is the worst possible person to be orchestrating the so called rescue project. Paulson comes from a business culture which rewards deception, personal acquisitiveness, and extreme risk-taking. Paulson is to finance capitalism what Rumsfeld is to military strategy. His leadership, and the congress' pathetic abdication of responsibility, assures disaster.
Bush and the Republicans moved the goalposts and reconfigured the field -- and the idiot Democrats have fallen for it all over again. The Democrats can add all the strings and oversight they want, but they will have provided a monumental amount of money extorted from Americans for generations to come, all to solve a problem that cannot be solved, and with no meaningful method of controlling or directing what happens.
In brief: the Bush administration will get exactly what it wanted all along.
Stupider than sh*t. That's an insult to sh*t.
WE ARE COMPLETELY F*CKED.
This is your world now. Make yourself at home, and get used to it.
Once in a while you get shown the light, In the strangest of places if you look at it right.
Plan is now getting criticized from both the right and left.
Free marketers hate it because it goes against their "principles." Left-leaning politicians hate it because it does little to really fix the situation with appropriate regulations and equitable treatment of regular people.
http://www.nytimes.com/2008/09/23/business/23cong.html
September 23, 2008
Bailout Plan Talks Advance in Congress
By DAVID M. HERSZENHORN
WASHINGTON — The Bush administration and Congressional leaders moved closer to agreement on a historic $700 billion bailout for financial firms on Monday, including tight oversight of the program and new efforts to help homeowners at risk of foreclosure.
But lawmakers in both parties voiced anger over the steep cost and even skepticism about the plan’s chances of success.
As heated debate began on Capitol Hill, Congress and the administration remained at odds over the demands of some lawmakers, including limits on the pay of top executives whose firms seek help, and new authority to allow bankruptcy judges to reduce mortgage payments for borrowers facing foreclosure.
Congressional leaders and Treasury officials also said they were close to an agreement over a proposal by some Democrats in which taxpayers could receive an ownership stake, in the form of warrants to buy stock, from firms seeking to sell distressed debt.
Lawmakers want to require an equity stake, while the administration wants flexibility on that matter, a Treasury official said.
Despite the progress, the rancor in Congress ratcheted up the pressure on Treasury Secretary Henry M. Paulson Jr. and Federal Reserve Chairman Ben S. Bernanke, the architects of the proposal to let financial institutions, including some foreign firms, pass their most distressed assets to the United States Treasury.
Both are scheduled to testify before the Senate banking committee on Tuesday morning, where they must now sell the bailout plan to dubious lawmakers and to an increasingly angry public. They will also appear before the House Financial Services committee on Wednesday afternoon.
“I am concerned that Treasury’s proposal is neither workable nor comprehensive despite its enormous price tag,” Senator Richard C. Shelby of Alabama, the senior Republican on the banking committee, said in a statement. “It would be foolish to waste massive sums of taxpayer funds testing an idea that has been hastily crafted.”
While Congressional leaders in both chambers said they were confident that they could reach a quick deal, it was also clear that Mr. Paulson and Mr. Bernanke would face rough questioning and that initial support for the bailout had begun to fray. Some Democrats said they simply did not trust the president, and drew a parallel to Mr. Bush’s request for authority to wage war in Iraq.
Some conservative Republicans also expressed outrage, echoing scornful comments by Newt Gingrich, the former House speaker, and Lou Dobbs, the CNN anchor, among other right-leaning critics.
Treasury officials brushed off the protests from influential Republicans like Mr. Shelby and said they were confident that Republican leaders could bring their members along. “We are making progress and have confidence that a plan will pass by the end of this week,” said Michele Davis, a spokeswoman for Mr. Paulson.
The financial markets, however, reacted badly to the wrangling in Washington, with the Dow Jones industrial average tumbling 372 points.
President Bush urged Congress on Monday to act fast. “Americans are watching to see if Democrats and Republicans, the Congress and the White House, can come together to solve this problem with the urgency it warrants,” he said in a statement. “The whole world is watching to see if we can act quickly to shore up our markets.”
The majority leader, Senator Harry Reid of Nevada, said Democrats were prepared to do so. “Democrats in the Senate aren’t going to drag our feet,” he said in a speech on the Senate floor. “We’ll respond with the urgency of action that this situation demands, but after eight years of fiscal dereliction of duty, it’s time for accountability.”
“Should we resolve the issue in one day?” he asked. “I think not.”
Republican leaders who support the administration’s plan warned the Democrats on Monday to exercise restraint and not slow the bailout package, even as they prepared for an aggressive internal campaign to rally Republican support.
“When there’s a fire in your kitchen threatening to burn down your home, you don’t want someone stopping the firefighters on the way and demanding they hand out smoke detectors first or lecturing you about the hazards of keeping paint in the basement,” Senator Mitch McConnell of Kentucky, the Republican leader, said in a speech on the Senate floor. “You want them to put out the fire before it burns down your home and everything you’ve saved for your whole life.”
Mr. McConnell added: “The same is true of our current economic situation. We know that there is a serious threat to our economy, and we know that we must take action to try and head off a serious blow to Main Street.”
House Speaker Nancy Pelosi, after a meeting with party leaders on Monday evening, said she, too, remained committed to getting a bill to the president as quickly as possible.
But powerful lawmakers in both parties said they would not be rushed into granting Mr. Bush’s request.
“I walked down LaSalle Street on Friday, a great street in Chicago lined with banks and big office buildings,” said Senator Richard J. Durbin of Illinois, the No. 2 Democrat. “A lot of people came up and said ‘hi.’ But a lot of them came up and said: ‘Are you really going to do this? $700 billion bailing out the banks? And I said: ‘I don’t know. At the end of the day, I just don’t know.’ ”
Mr. Durbin, in a speech on the Senate floor, angrily recalled that the administration had similarly requested swift approval of its plan to attack Iraq. “Just as we should have asked more questions about weapons of mass destruction six years ago before we found ourselves in this war,” Mr. Durbin said, “we need to ask questions today about where this is leading.”
Representative Henry A. Waxman, Democrat of California who leads the Oversight and Government Reform Committee, said: “The taxpayer is being asked to risk billions to protect the bonuses of investment bankers.”
The skepticism was equally palpable at the other end of the ideological spectrum.
“This is going way too fast,” said Representative Mike Pence, Republican of Indiana and a conservative leader who said constituents he met this weekend were flabbergasted at the plan. “The American people don’t want Congress to make haste with the financial recovery legislation; they want us to make sense.”
And Mr. Shelby, of the banking committee, said: “Congress must immediately undertake a comprehensive, public examination of the problem and alternative solutions rather than swiftly pass the current plan with minimal changes or discussion. We owe the American taxpayer no less.”
Mr. Gingrich, the former House speaker, said he expected Republican lawmakers to oppose the plan in increasing numbers. “I think this is going to be a much bigger fight than he expected,” Mr. Gingrich said, referring to President Bush.
In a sign of how complicated the negotiations over specific provisions of the bailout could become, Senator Mel Martinez, Republican of Florida, and a member of the banking committee, said that he would strongly support limiting the pay of executives whose firms seek government aid. But Mr. Martinez said he would oppose any effort to change the bankruptcy laws.
In his prepared testimony, Mr. Paulson sought to underscore the huge risks to everyday Americans. “The market turmoil we are experiencing today poses great risk to U.S. taxpayers,” Mr. Paulson plans to testify. “When the financial system doesn’t work as it should, Americans’ personal savings, and the ability of consumers and business to finance spending, investment and job creation are threatened.”
Mr. Bernanke, in his remarks, will implore the Congress to act. “Despite the efforts of the Federal Reserve, the Treasury and other agencies, global financial markets remain under extraordinary stress,” he says in his remarks. “Action by the Congress is urgently required to stabilize the situation and avert what otherwise could be very serious consequences for our financial markets and for our economy.”
Early on Monday, Senator Christopher J. Dodd, Democrat of Connecticut, and chairman of the banking committee, introduced a 44-page draft bill that his staff pulled together on Sunday incorporating many priorities of Senate Democrats — a hefty counterproposal to the administration’s initial three page proposal.
Representative Barney Frank, Democrat of Massachusetts, and chairman of the Financial Services Committee, who had already submitted a series of demands to the Treasury, worked Monday to revise his version of the legislation to reflect various agreements with the administration on oversight and other issues.
Officials said that the administration was also prepared to adopt conflict-of-interest rules for any private firms that are hired to help the Treasury manage the bailout program. Some lawmakers were worried that such firms might also own assets that could grow in value depending on how the rescue plan was run.
Officials said there was also a deal to mandate that the government develop a plan to prevent foreclosures by renegotiating any mortgages that it purchases.
Because the markets are eager for a final deal and because Congress is trying to adjourn for the fall elections, lawmakers are bypassing the normal committee process and working toward an agreement in hopes of votes in both chambers within days.
And some lawmakers said it could be done. “We are convinced that inaction could be a disaster,” said Senator Robert Bennett, Republican of Utah. “We don’t believe that inaction is an option, so therefore we are going to do whatever we can to make sure that the action that is taken is as responsible and well thought-out as possible.”
We've been blogging about all of this for years. The government has just caught up with us trying to stave off a depression. What does it mean? It means our national debt has just increased by another very big number to go with the $10 trillion we already owed. Obviously, the government is going to have to attract revenue in the form of increased taxes, increased rate of savings by people buying something like savings bonds (at a good rate of interest, say 6%) and who knows what else...selling off assets. Sure hope they don't go selling off our national parks.