Bailout Saga Proves that Elites Don’t Care What We Think

Bailout Saga Proves that Elites Don’t Care What We Think

October 4, 2008 – by Tom Blumer

In mid-September, when it became clear to Hank Paulson, Ben Bernanke, and George Bush that extraordinary measures were needed to address the mess that had built up in the financial markets during the past decade or so, their first instincts should have been to say:

  • “We need to have a complete plan to deal with this.”
  • “We need to make a case to Congress and the American people that our plan will work.”

They did neither of these things; nor did they even seem to consider whether what they wanted was even constitutional.

Instead, they in essence demanded that Congress and the American people give them a blank check, saying, “Do this, or else.” Last Sunday, I [1] called it blackmail. I stand by that.

Of course, a large plurality of Congressmen and Senators, along with a majority of the American people, were repulsed. The wonder is that everyone wasn’t.

Among the repulsed were well over 150 economists from across the political spectrum, including three Nobel laureates, [2] who signed a letter of protest (also [3] carried here; bolds are mine):

As economists, we want to express to Congress our great concern for the plan proposed by Treasury Secretary Paulson to deal with the financial crisis. We are well aware of the difficulty of the current financial situation and we agree with the need for bold action to ensure that the financial system continues to function. We see three fatal pitfalls in the currently proposed plan:

1) Its fairness. The plan is a subsidy to investors at taxpayersÕ expense. Investors who took risks to earn profits must also bear the losses. Not every business failure carries systemic risk. The government can ensure a well-functioning financial industry, able to make new loans to creditworthy borrowers, without bailing out particular investors and institutions whose choices proved unwise.

2) Its ambiguity. Neither the mission of the new agency nor its oversight are clear. If taxpayers are to buy illiquid and opaque assets from troubled sellers, the terms, occasions, and methods of such purchases must be crystal clear ahead of time and carefully monitored afterwards.

3) Its long-term effects. If the plan is enacted, its effects will be with us for a generation. For all their recent troubles, America’s dynamic and innovative private capital markets have brought the nation unparalleled prosperity. Fundamentally weakening those markets in order to calm short-run disruptions is desperately short-sighted.

For these reasons we ask Congress not to rush, to hold appropriate hearings, and to carefully consider the right course of action, and to wisely determine the future of the financial industry and the U.S. economy for years to come.

The monstrosity that became law yesterday (PDF-formatted first 250 pages [4] here) does not begin to adequately address the group’s three key concerns.

Fairness? Let’s talk about fairness to taxpayers and future generations. What assurances do we have, if any, that monies recovered when purchased assets are resold will go towards reducing the just-increased national debt? I fear it will instead be diverted to Uncle Sam’s day-to-day operations, enabling Congress and future presidents to further cover up an already over-the-top annual structural deficit. If you don’t think this can happen, just remember how Social Security has been [5] stripped bare for four decades.

Ambiguity? You can’t get much more ambiguous than what a Treasury official [6] told Forbes Magazine on September 23 (bolds are mine):

….. some of the most basic details, including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy.

“It’s not based on any particular data point,” a Treasury spokeswoman told Forbes.com Tuesday. “We just wanted to choose a really large number.”

Again: Blackmail.

Oh, and do you think that even the made-up $700 billion now enshrined into law is any kind of real limit? Think again.

The supposedly limiting language in Section 115 of the bill has to do with “the authority of the Secretary to purchase troubled assets” to certain amounts “outstanding at any one time.” Treasury’s authority starts at $250 billion; Congress can increase that authorization to as much as $700 billion.

With this language, under its “Troubled Assets Relief Program” (TARP) authorization, Treasury can initially purchase $250 billion in “troubled” loans. If it auctions off $50 billion of that amount, there will then be only $200 billion “outstanding.” Treasury can then go out and purchase another $50 billion. This can go on and on and on.

As far as I can tell, there is nothing that would prevent Treasury from continually buying, reselling, and replacing loans, thereby busting the supposed “limits” by hundreds of billions, if not trillions.

Given the billions that financial firms [7] appear poised to make in managing the largely outsourced program, Wall Street has the ability, and every incentive, to turn TARP into a fee-generating perpetual-motion machine while it is in place (theoretically, until the end of 2009).

Long-term effects? Heck, we’re already seeing proof of the long-term effects in the short-term. California’s Arnold Schwarzenegger, whose state has a welfare dependency rate that [8] is 2-1/2 times that of the rest of the nation, is making noises about getting [9] his own $7 billion bailout. The auto industry [10] is getting what was unthinkable even two years ago: $25 billion in loan guarantees, and with barely a whimper of objection.

[11] As I wrote yesterday:

….. what possible response, other than “okey-dokey,” is there to anyone who says, “Well, if you could handle $700 billion for the financial-services industry, how can you not provide $_____ (fill in the blank) for _________ (fill in the blank)?”

When the problem became clear, a mature Washington political culture would have done something close to the following:

  • Bush, Bernanke, and Paulson would have consulted with some of the aforementioned economists to craft a plan that would meet the three concerns they were forced to raise after the fact.
  • Bush would have called a joint session of the Senate and House to give Bernanke, Paulson and economists the chance to make their case to Congress and the nation.
  • Bush would have insisted that any changes to what they proposed would have to be germane to the plan (i.e., no pork, and nothing else extraneous).

Instead, what was three pages turned into 451. What was a bill with a made-up $700 billion price tag became a pork-laden bill with a made-up $850 billion price tag chock full of unrelated and dangerous provisions too numerous to mention here.

The just-enacted legislation will likely haunt the economy, and the nation, for years.

That we have a nearly incorrigible and immature Washington political culture has never been more clear.


Article printed from Pajamas Media: http://pajamasmedia.com

Why and How the financial crisis happened

http://www.youtube.com/user/TheMouthPeace

This is based upon “FACTS AND EVENTS DOCUMENTED WITH GOOGLE SITES
REFERENCING ACTUAL DOCUMENTS VERIFYING  EACH AND EVERY TRANSACTION”, so
don’t fail to view its ten (10) minutes long video.  You won’t be sorry.
After you view it……pass it along to everyone you know.

Dear Congress: Put the gun down now

Senate package would bail out major foreign investors, including China

Fire (Or Impeach) Paulson and His Stooges!

Fire (Or Impeach) Paulson and His Stooges!

September 29, 2008 – by Ron Rosenbaum

Now that the first vote on the bailout has shot it down (thanks to the urging of Mike and me–see post below–actually thanks to the rare working of representative government by those on both sides of the aisle who rejected it), it’s time for some accounting. First of all, Treasure Secretary Paulson should have been fired when he sent Congress a flagrantly unconstitutional bill that would make him tin-pot dictator with no judicial review for his actions. As if the constitution were toilet paper.

Then he should have been fired yesterday when it was revealed (on the front page of The Times) that he brought a fellow stooge from his old firm, Goldman, Sachs–the chief executive!–into an emergency meeting about the fate of A.I.G.–a fate in which Goldman had huge undisclosed (to the public) stake–and one from which all other corporate finance stooges were excluded.

This is breathtaking contempt for the rule of law (the no judicial review provision) and then an astonishing, shameless naked display of crony capitalism corruption. Where were the law school profs to protest no judicial review? An astonishing dereliction of civic duty.

Paulson should be kicked out of his office forthwith and all his papers and e-files locked down so the Feds can see the full extent of his corruption. And anyone else who signed off on that original blatantly unconstitutional bill should be identified and fired as well. It was the well-earned bad faith created by these acts that were the final nails in the coffin of this attempted “shock doctrine” coup. (The reference by the way is to Naomi Klein’s book of that title (The Shock Doctrine) which I once thought was a disturbing account of the kind of things plutocrats got away with only in banana reublics. Paulson tried to turn us into one.

Yes I know both parties and both campaigns are riddled with corporate stooges who are complicit in this crisis. So purge them! Now! Whichever campaign is the first to insitute a fire-all-investment-banker policy can win the election. Yes it’s too late but it will have symbolic value.

But I’m sick of hearing it blamed on would-be homeowners. No, it’s the fault of those who spun derivatives out of derivatives out of derivatives from the bad paper and turned the economy into a casino. It’s the culture of greed.

Once again: put Ralph Nader in charge of the clean up. If you’ve stilll got 700 billion kicking around (as aparently we did) then distribute it (proportionately) to the poor.


Article printed from RonRosenbaum.com: http://pajamasmedia.com/ronrosenbaum

URL to article: http://pajamasmedia.com/ronrosenbaum/2008/09/29/fire-or-impeach-paulson-and-his-stooges/

God Bless the House Republicans Read the whole thing long but right on

http://www.rushlimbaugh.com/home/daily/site_093008/content/01125106.guest.html

Democrats left and right. That’s another thing.  I am agitated today.  I am sick and tired of our conservative intelligentsia media trying to balance things out by saying “both sides are at fault.”  Both sides are not at fault!  They may be talking about the vote yesterday on the bailout.  Both sides are not at fault.  Stop trying to impress people are going to hate you no matter how much you might think they like you.  Stop trying to get invited to cocktail parties and dinner parties in Washington.  Both sides are not to blame for this!  What is the point of having a conservative media if they’re not going to stand up for conservatism?  What’s the point of having a conservative media if all they’re going to do is wring their hands? “Well, we know that both sides are at fault, Mr. Limbaugh, and we must be assessing blame accurately and fairly on both sides.”

Both sides are not to blame.  If you could find a Republican guilty here, he would be in the hoosegow.  As I keep saying, they would have had congressional hearings led by, Barney Frank, Harry Reid, John Conyers, et al.  Both sides are not at fault here, and until we can come to grips with that, we’re just going to be whistling Dixie (no offense to Dixie) about fixing this problem, and Lecturer Miron here sums it up in one brief sentence. “The fact that government bears such a huge responsibility for the current mess means any response should eliminate the conditions that created this situation in the first place, not attempt to fix bad government with more government. The obvious alternative to a bailout is letting troubled financial institutions declare bankruptcy. Bankruptcy means that shareholders typically get wiped out and the creditors own the company

If you really want to undestand the global financial crisis, watch these videos

If you really want to undestand the global financial crisis, watch
Humor close to the truth
Democrat that gets it

Democrat Leaders Played to Lose

Democrat Leaders Played to Lose
By The Prowler
Published 9/30/2008 12:50:21 AM

 
House Speaker Nancy Pelosi ordered her Majority Whip, Jim Clyburn, to essentially not do his job in the runup to the vote on Monday for the negotiated Wall Street bailout plan, according to House Democrat leadership aides.

“Clyburn was not whipping the votes you would have expected him to, in part because he was uncomfortable doing it, in part because we didn’t want the push for votes to be successful,” says one leadership aide. “All we needed was enough to potentially get us over the finish line, but we wanted the Republicans to be the ones to do it. This was not going to be a Democrat-passed bill if the Speaker had anything to say about it.”

During the floor vote, House Majority Leader Steny Hoyer and House Democrat Conference chair Rahm Emanuel could be seen monitoring the vote on the floor, and gauging whether or not more Democrat votes were needed. Clyburn had expressed concerns, says the leadership aide, of being asked to press members of the Black and Hispanic caucuses on a bill he was certain those constituencies would not want passed.

“It worked out, because we didn’t have a dog in this fight. We negotiated. We gave the White House a bill. It was up to the Republicans to get the 100 plus votes they needed and they couldn’t do it,” said another Democrat leadership aide.

Emanuel, who served as a board member for Freddie Mac, one of the agencies that precipitated the economic crisis the nation now finds itself in, had no misgivings about taking a leadership role in tanking the bill. “He was cheerleading us along, mothering the votes,” says the aide. “We wanted enough to put the pressure on the Republicans and Congressman Emanuel was charged with making it close enough. He did a great job.”

Pelosi and her aides have made it clear they were not going to “whip” or twist the arms of members who did not want to vote, but they also made no effort to rally any support for a bill they attempted to hijack over the weekend.

Further, according to House Oversight Committee staff, Emanuel has received assurances from Pelosi that she will not allow what he termed a “witch hunt” to take place during the next Congressional session over the role Fannie Mae and Freddie Mac played in the economic crisis.

Emanuel apparently is concerned the roles former Clinton Administration members may have played in the mortgage industry collapse could be politically — or worse, if the Department of Justice had its way, legally — treacherous for many.

Opposing view: The sky is not falling

Opposing view: The sky is not falling

By John Shadegg

 

Every Republican who voted against the Emergency Economic Stabilization Act on Monday believes that Congress must address this crisis. They take it seriously and stand ready to vote for reasonable legislation. They were unwilling to give Treasury Secretary Henry Paulson a blank check.

The sky is not falling. The market will return. Secretary Paulson is getting a lesson in civics. The world he has entered is different than the wheeling-and-dealing Goldman Sachs world where he made his fortune.

Members of Congress have a duty to protect the interests of the American people. That is precisely what they did. The vote against the measure was solidly bipartisan.

Paulson’s $700 billion dollar plan was fundamentally flawed. The bill asked for a blank check. It did not specify which assets could be purchased or the procedure by which they would be purchased.

Regrettably, Congressional Democrats inserted extraneous provisions and chose to put groups such as ACORN (a liberal housing advocacy group) and trial lawyers before the American people. After Sen. John McCain, R-Ariz., courageously halted the stampede, most negotiation time was spent removing harmful Democrat language, rather than improving Paulson’s proposal.

House Republicans want to protect the American people and our nation’s financial institutions, enabling them to make the loans needed to run America’s economy. It is also critical to calm public anxiety.

To begin, “mark to market,” the accounting rule that requires mortgage-backed securities to be valued at fire-sale prices, must be suspended. For reasons that are incomprehensible, Paulson and congressional Democrats refused to include such a provision. It’s a systemic reform Congress must insist upon to reduce taxpayer exposure and prevent this crisis from reoccurring. Further, an update to the Federal Deposit Insurance Corp., increasing its $100,000 limit, would relieve the concern of millions of Americans for their life savings. It’s hard to imagine why anyone would oppose such a change.

Many House conservatives do not like the structure of Paulson’s proposal to have the government purchase troubled assets. But there is nothing inherent in this plan that’s inconsistent with the two reforms outlined above.

Americans need to understand that the Senate was not scheduled to vote on this bill until Wednesday evening, as a result of the Jewish holiday of Rosh Hashanah today. We have ample time to reach an acceptable compromise if all parties act in good faith. The Democratic House majority can move to reconsider its bill if Speaker Nancy Pelosi will allow an amendment to improve it by making changes, including those I have outlined.

This problem can be solved in the very near future, and the market will come back.

Rep. John Shadegg, R-Arizona, first elected in 1994, has held a number of Republican leadership positions in the House.

Who caused “the biggest financial crisis since the Great Depression?”

Who caused “the biggest financial crisis since the Great Depression?”

September 29, 2008 – by Roger Kimball

http://www.youtube.com/watch?v=r2RZ0sUcVcE&eurl=http://www.powerlineblog.com/

[1] Powerline links to a video that answers this question with admirable clarity. I’ll link to the video below. First, here are a few data points from the video and other sources:

The Root Cause

* According to Senator Chris Dodd (D. CT) the “root cause” of the problem is “the housing foreclosure crisis.”

Not 100% accurate, perhaps–it’s really a credit crisis–but close enough for government work, especially from someone who has just happens to chair the Senate Banking Committee and who, completely coincidentally, has been such a [2] conspicuous beneficiary of preferential mortgages and who, also coincidentally, leads the list of those who have received campaign contributions from Fannie Mae and Freddie Mac. (Guess who comes in [3] 2nd and 3rd?)

* But what caused the housing crisis to which Senator Dodd alludes? The housing “bubble.”

* And what caused the housing bubble? “Sub-prime,” i.e., risky, mortgages; that is, mortgages made to people who, in the normal course of things would have to pay a premium in order to obtain a mortgage (if they could obtain one at all) because

a) they had bad or non-existent credit

b) their income was insufficient or

c) both.

Packaging the American Dream

A home of your own. It’s part of the American dream. Work hard, save up for a down payment, pay your bills on time and, presto, you, too, can buy a home.

For decades the government has done things to help Americans to realize the dream, e.g., graciously allowing citizens to keep some of their own money to help pay for the interest on a mortgage (the official term for this is a “tax deduction,” but I prefer my locution since it emphasizes the fact that it is YOUR MONEY we are talking about).

But what about people who do not work hard (if they work at all)? What about people who have not saved up for a down payment? What about people who do not pay their bills on time (if they pay them at all)? Why shouldn’t they get to live the American dream?

That was the question that led to

 ”The Community Reinvestment Act” (see [4] here for more).

* The original Community Reinvestment Act was signed into law in 1977 by Jimmy Carter. Its purpose, in a nutshell, was to require banks to provide credit to “under-served populations,” i.e., those with poor credit.

The buzz word was “[5] affordable mortgages,” e.g., mortgages with low teaser-rates, which required the borrower to put no money down, which required the borrower to pay only the interest for a set number of years, etc.

* In 1995, Bill Clinton’s administration made various changes to the CRA, increasing “access to mortgage credit for inner city and distressed rural communities,” i.e., it provided for the [6] securitization, i.e. public underwriting, of what everyone now calls “sub-prime mortgages.”

Bottom line? It forced banks to issue $1 trillion in sub-prime mortgages.

$1 trillion, i.e., a thousand billion dollars in sub-prime,i.e., risky, mortgages, in order to push this latest example of social engineering.

But wait: how did it force banks to do this? Easy. Introduce a federal requirement that banks make the loans or face penalties. As Howard Husock, writing in City Journal way back in 2000 [7] observed: “Bank examiners would use federal home-loan data, broken down by neighborhood, income group, and race, to rate banks on performance. There would be no more A’s for effort. Only results—specific loans, specific levels of service—would count.” Way back in 1994, for example, Barack Obama sued Citibank on behalf of a client who [8] charged that the bank “systematically denied mortgages to African-American applicants and others from minority neighborhoods.”

* In 1997, Bear Stearns–O firm of blessed memory–was the [9] first to get onto the sub-prime gravy train.

* [10] Fannie Mae & Freddy Mac–were there near the beginning, too.

Anatomy of a bubble

Step 1. The intoxication: “My house is worth millions!” From 1995 – 2005, the number of sub-prime mortgages skyrocket. So did the house prices.

Step 2. The hangover: “Oh my God, my house isn’t selling. What went wrong?”

Why didn’t someone try to stop it?

[11] Someone did: “The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago,” The New York Times, September 11, 2003.

But someone intervened to stymie the Bush administration. Who? The New York Times reports:

Supporters of the companies said efforts to regulate the lenders tightly under those agencies might diminish their ability to finance loans for lower-income families. . . . “These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. “The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

Why didn’t someone else ring the alarm?

Someone else did. In 2005, [12] John McCain  co-sponsored the “[13] Federal Housing Enterprise Regulatory Reform Act,” which among other things provided for more oversight of Freddie & Fannie. The bill didn’t pass. Guess who blocked it?

The bill was reintroduced in 2007. But again, no luck. Fannie Mae and Freddie Mac had friends in the Senate:

* Chris Dodd, [14] a recipient of “sweetheart” loans from a Freddie and Fannie backed company.

* The junior senator from Illinois, i.e., Barack  Obama, who turned to Jim Johnson, [15] former head (1991-1998) of Fannie Mae, to help advise him on whom to pick for the vice-presidential slot on his ticket. From 1985 to 1990, incidentally, Johnson was managing director of Lehman Brothers. Remember them?

* You might also want to check out one of Barack Obama’s other advisors: Franklin Raines, former CEO of Freddie Mac: see [16] here , for example, or [17] here , or [18] here.

Towards the end of the video, we read this salutary observation: “Everyone deserves a home, not a house of cards.”

Who gave us the house of cards? Watch the whole thing [19] here   (original link was  [20] here). And then pass it along to everyone you know.


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