Do you get nervous when Wall St. gets excited?"The Secretary’s authority to purchase mortgage-related assets under this Act shall be limited to $700 billion outstanding at any one time."
I'm taking this to mean that once assets up to $700 billion have been unloaded by the Treasury at cost then another bad loan will become eligible. This can continue for as long as two years.
Then there's the outrageous Sec. 8. Review. Have you read it?
"Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."
This can't be constitutional.
Why is there such a rush to have this plan enacted by Congress tomorrow? Do you remember other lies told you by this administration where hasty actions had to be immediate? Let me list a couple:
The global War on Terror (GWOT).
Saddam Hussein has weapons of mass destruction.
The Patriot Act.
The Telecommunications Act.
Overturning the Geneva Conventions.
Why would any sensible person believe them now?
Henry Paulson was the Chairman and CEO of Goldman Sachs from 1998 to 2006 when he became Secretary of the Treasury. Does he still have friends and colleagues there? You betcha. Would it be better to let Wall Street bite the bullet? Henry Paulson says no, the financial system must be saved to protect the economy. But I wonder what he really wants to save.
The money spent on bailing out the banks won’t build bridges (not even to nowhere) won’t fix antiquated sewer systems, won’t fix roads, won’t pay for education, won’t be there for health insurance, won’t be there for your veterans, won’t be there for your national security, just won’t be there for anything you’ll eventually need.
There's a good chance it won't work at all. This is such a huge issue it's difficult to make any concise statement but if you haven't had much time for reading this one at Counterpunch is a good summation and another from the same source has more detail.
I'm thinking the current administration is putting a bandaid on an arterial wound in hopes it will stick on long enough for them to leave office and move to Dubai. Remember Dubai?
If I were to make a suggestion it would be to contact your Representatives in Congress and ask them to vote 'no' on this bailout. In its current form it's a dangerous gamble.
Wow. And yet people continue to be fooled. Great links, by the way. Interesting - and worrisome - reading!
ReplyDeleteI notice the effect has been for a rebound in world wide markets but it also came simultaneously as the UK’s stock market regulator, the Irish financial regulator, and ours and your Security Commission have all moved to ban short selling of financial stocks.
ReplyDeleteHow much of the current rally is attributable to the unwinding of these positions is unclear, but I suspect a mixture of both measures.
Congress is certainly being asked to move with extraordinary speed, to approve it all within a week!!.
The most controversial aspect is in the creation of yet another new entity to purchase those impaired assets from financial firms. The process apparently will work like a reverse auction, to buy the toxic debt from the institution that sells its assets for the lowest bid. However there remains an issue of what too pay for those with an unquantifiable value?
This might put taxpayers money at risk for further losses if they pay too much, but alternatively it could be hard nosed about and settle for pennies in the dollar? If the latter course is hopefully adopted, it would force those financial institutions to write down the losses in their Balance Sheets.
Hopefully we may also finally see sensible regulations to reduce the extraordinary generous executive remuneration packages; to be tacked on to the Bill by a Democrat controlled Congress.
On lighter note you would also be interested to know our former coalition treasurer Peter Costello was appointed to the World Bank's new anti-corruption committee, as a member of the four-member Independent Advisory Board which provides the international lender with advice on anti-corruption measures. Costello has said he would remain in federal parliament as a backbencher.
Best wishes
suzi - Great to see you again. I'd say the whole thing is very worrisome. I'm concerned about devaluation of the dollar in the coming weeks.
ReplyDeletelindsay - From what I've read short selling is not the primary problem in this crisis. The problem is in the debt markets, not the equity markets. The ban on short-selling does nothing to combat this problem and might push investors into being more conservative on the debt than they otherwise would be.
Paul Krugman says that historically, financial system rescues have involved seizing the troubled institutions and guaranteeing their debts; only after that did the government try to repackage and sell their assets.
In this case we're looking at the government offering these institutions money for nothing. The deals they've been making have had nothing to do with what we've always understood by the terms capital and assets. The worry is that the US government itself could go broke through this ill considered rescue plan. Goodness knows what effect that would have on the world markets.
Perhaps we should invite Mr. Costello and his team for a visit this week.
Best wishes to you too.
Hi Susan
ReplyDeleteThanks for pointing out the Krugman quote, but I notice his article in the NY times is also rather short on detail as to why he thinks the idea won’t work, other than for reference to a lack of liquidity and how rescue operations operated differently in the past. He concludes his article by saying “I hope I’m wrong about this. But let me say it again: Treasury needs to explain why this is supposed to work — not try to panic Congress into giving it a blank check. Otherwise, no deal.”
I think the only point I totally agree with is in relation to his first sentence of the quote.
I think the biggest single issue is the loss of confidence.
Enterprises have lost confidence all over the world in the quality of their equivalent Balance Sheets which have resulted in those financial institutions sitting on cash or its equivalent and driving up the rates on interbank lending which was well covered in your previous referenced article.
The current plan I think will do much to restore financial market confidence, and allow for those amounts to be lent, although I acknowledge it cannot totally make up for the huge leverage which built over the past decade into the market for securities which is now being unwound.
But if confidence is restored additional capital will also flow back into the system. The accelerated demise of your largest financial institutions was also exasperated by hedge funds short selling stock, hence the move to ban short selling.
Some of these failures could have been avoided or spread over a normal time period to allow for a more orderly liquidation or recapitaliasation as the case may be.
The problem with short selling is it is not transparent and hence the market is uninformed and more prone to short term panic.
The other aspect that Krugman ignores concerns additional liquidity that can be injected into the system by central banks all over the world.
Contrary to popular belief theere has not been an increase on overall injections although announcements have given that clear erroneous impression.
For the same reason he hopes he is wrong I hope I am right. Time will surely tell...
Best wishes
Good morning Lindsay,
ReplyDeleteThanks for your reply. It's early here so I don't have time to respond in any detail before leaving for work. The weekend article that seems to offer the best explanation is one of the links in my post by Michael Hudson who is a real economist. I've been trying to understand the ramifications of the plan as presented and it appears we have two different (although not unconnected) kettles of fish. The first is the real economy that all of us comprehend. Then there is the shadow economy where basically we've had mathematicians and their computers gambling on imaginary percentages: 'I'll see your bet and lower you by -5%'..a quick example of short selling and naked short selling I personally don't agree with.
The intention of the bailout proposed last week is that they want the US government to fund to reinflation, by buying debt at above market prices, of the housing market. They're even planning to have the trillion dollars overseen by the same executives whose businesses have collapsed since there aren't enough wizards working in the SEC or the Treasury to oversee the process. I don't trust them to reverse gravity.
There's a way to do this with supervision and regulation but that's not what this proposal is about.
Anyway, off to work. Best wishes again.
How can we possibly trust them? The last seven years have been one long, painful lesson.
ReplyDeleteIs money created and kept by confidence?
ReplyDeleteThat is like saying: Tomatoes only grow when loved. You might get grumpy tomatoes if you don't love them, but they still will grow, because you put LABOR into it.
Love alone wouldn't work!
To produce assets, humans have to work. It really is that simple. If you "invest" money, you assume that people will create goods, you assume that they will work for you.
I am tempted to side with Raven-Susan on that one, even though it is a heck of a pessimistic outlook. The US is depleted as a nation. There is no way we can produce the assets needed to cover yet an other bail out with money that doesn't really exist. We as a nation have a back-lock of debt that is unrepresented in all of history.
Japanese companies just bought a dominant share of Morgan & Stanley and also bought up the Asian market of that sinking Lehmann.
I might draw a simplistic picture, but I believe the US has been "sold out" - with help of our government!
If you don't have assets anymore to back up debt, there is nothing to borrow anymore. Period. Any pawn-shop handler could tell you that!
The US-government is fucked (pardon my language) and they fucked over the people the ultimately have to depend on, the people who actually produce something.
You can only pet (milk?) the golden calf for so many times before it's collapse. I think we are at this point now!
Let me just say on the side line. In the top ten list of unethical professions who's greed gain is fed by nothing else but other peoples struggle and misery, it would be:
1. Banks and Investment firms
2. Lawyers who protect the above
3. Politicians who buy into it
4. Monsato and Co. destroying the earth
5. Mercenaries who destroy human life for money
Ah, I could go on - but this is good enough for now
Susan, I believe we have seen the end of democracy in the USA. Even the next president will not be able to correct this, no matter if it is Obama or McCaine is voted in.
Greed is a forceful motivation. And I don't see it veining despite of all the recent calamities.
This "crisis" ain't over yet!
dcup - It has been a terrible time. Their trick the last few go-rounds has been to get it close enough to steal by making wingnuts hysterical.
ReplyDeletezee - Great comment and I agree we're in trouble. But at least it looks as though the bill they tried to foist on us over the weekend is DOA. Oh those bastards will get someting but at least it won't be everything. There's still some room to hope.
There is no room for hope, and there is no space for an additional rope. It's done - it's over -face it.
ReplyDeleteI am sorry to be that harsh, but we are facing more than just "a financial crisis" of certain banking institutions. The problem embraces more than that. It is an issue of principle, and that issue is not being addressed with the 700 Billion bail out money the government is willing to spend on my behalf.
Let them drown, let them suffocate. I can not digest any more of this, it is so sick, that the whiskey I indulge in is a mere trickle to a pathway that goes astray, and the bastards flee unnoticed.
Susan, I will be in Europe for two weeks starting tomorrow. Perhaps I get a new "handle" on this.
Cheers, Zee.
Susan
ReplyDeleteI think you mentioned Michael Hudson before, but I will spend some time studying what he has to say –thanks for the references.
As I said on Zees blog there is currently history in the making on the NY bourse as none of the big 5Investment Banks remain!!! Maybe there is one [left] but that will be unrecognizable very soon. I am a little more hopeful than Zee about the future but no less concerned, but those concerns were for how the impaired assets were adversely affecting all of the other sustainable sectors.
Perhaps the focus also needs to be on more transparency which should not be too difficult, although it wil take a lot of unravelling.
Best wishes
Hello Zee,
ReplyDeleteI agree with you that the most important aspects of the situation aren't being dealt with at all. There are things not being talked about either except by Nouriel Roubini at the RGE Monitor (can't seem to attach a link but got one to Financial Times article), who discusses the 'Shadow Economy' in some depth. They've made
the problem look like the entire blame should be put on irresponsible
home buyers and some greedy bankers but they never talk about the Super
Rich whose wealth has been the driving force behind all the speculation.
Currency speculation has gone on as long as there have been currencies
to bet against but this is betting in a whole different arena and only
the richest of the rich are allowed to play. Most people don't even know
about it.
I was remembering the
Tulip Crash this afternoon.. probably the world's first Depression. That was all about pretend too.
I'm hoping you get some time to relax in Europe and a fresh perspective. It's bad and it's going to get worse here in the US
but that's because it really does have to all fall down. What makes us
sick is that it always falls the hardest on the weakest among us.
lindsay - Did you notice that Goldman Sachs and Morgan Stanley are now bank holding companies? Did you know Paulson made $38 million there in 2005? Did you know his former associates have been put in charge of other institutions like Wachovia? Here's a link to a fresh Paul Krugman article.
ReplyDeleteI can't help but see the bailout plan the Administration and the Sec. of the Treasury came up with is nothing short of criminal.. a fine example of 'trickle up economics'.
I agree there should be more transparency in future but there should also be major hearings and prosecutions just so everyone can understand.
It will take years for the economy to heal - I mean mostly the US but the world will be affected if the reserve currency goes down.
So far nobody I know at work has talked about any of this. I appreciate your interest and concern in spending time writing.
Best wishes again.
Let's get life-survival vests, the orange kind, jump over board and swim to an island, avoid the sharks in the water, and crack open some coconuts on arrival.
ReplyDeleteI'll explain later what I mean...
susan...I'd give you an "atta girl" for giving such a fine and incisive post. But this is much too serious a subject for jocular bantering. I didn't know that Henry Paulson was the Chairman of Goldman Sachs and now that I do, it make the section of the proposed legislation that much troubling and dangerous.
ReplyDeleteWhat is this "constitutional" that you speak of? I only know of pieces of paper.
ReplyDeleteOh well, more money will be forked over now and later, and if anything is DOA, it's the idea of transparency ever becoming a reality.
I emailed my representative and my 2 Senators (all Dems) this morning, to tell them that they CANNOT cave to the outrageous demand that Paulson be handed a trillion dollars with no accountability for anything to anyone. It seems that the bailout is a foregone conclusion, but Congress has leverage now to tack on quite a few conditions, and that's what they have to do. I'm appalled at the arrogance of Paulson and Bernanke.
ReplyDeleteOh please! Why can't you just be a good little robot and ignore what the government is doing so they have a completely free hand in selling this country to the highest bidder. :)
ReplyDeleteBesides when was the last time the government gave a c*** about the constitution unless it backed them up in a court case?
That piece of paper has been worthless for some time now.
zee - I hope there's something stronger than coconut juice inside.
ReplyDeletespartacus - I'm still hoping the whole proposal gets dumped - but I'm not holding my breath.
randal - It's all going down and the light at the end of the tunnel was only ever a rumor. sigh..
cdp - I'm glad you did - so did I. There are some Republicans really against it too.
avshar - You're likely right but I don't have to be happy about it.
it's all about confidence. people have lost confidence, and the worry is they are going to take their money out of everything and hide it in a mattress ala the 1930's. that would cause a failure of the whole financial system.
ReplyDeletewe surely wouldn't have enough money now to pay for universal health care!
at least there's this: i'm glad they can't touch the social security trust fund to bail out the system.
oops. i forgot. what social security trust fund?