Is Purchasing $700 billion of Toxic Assets the Best Way to Recapitalize the Financial System? No! It is Rather a Disgrace and Rip-Off Benefitting only the Shareholders and Unsecured Creditors of Banks

Author: Nouriel Roubini · September 28th, 2008 · 2537832008-09-28+09%3A03%3A01Nouriel+Roubini › Share This Print

Whenever there is a systemic banking crisis there is a need to recapitalize the banking/financial system to avoid an excessive and destructive credit contraction. But purchasing toxic/illiquid assets of the financial system is not the most effective and efficient way to recapitalize the banking system. Such recapitalization – via the use of public resources – can occur in a number of alternative ways: purchase of bad assets/loans; government injection of preferred shares; government injection of common shares; government purchase of subordinated debt; government issuance of government bonds to be placed on the banks’ balance sheet; government injection of cash; government credit lines extended to the banks; government assumption of government liabilities.

A recent IMF study of 42 systemic banking crises across the world provides evidence on how different crises were resolved. First of all only in 32 of the 42 cases there was government financial intervention of any sort; in 10 cases systemic banking crises were resolved without any government financial intervention. Of the 32 cases where the government recapitalized the banking system only seven included a program of purchase of bad assets/loans (like the one proposed by the US Treasury). In 25 other cases there was no government purchase of such toxic assets. In 6 cases the government purchased preferred shares; in 4 cases the government purchased common shares; in 11 cases the government purchased subordinated debt; in 12 cases the government injected cash in the banks; in 2 cases credit was extended to the banks; and in 3 cases the government assumed bank liabilities. Even in cases where bad assets were purchased – as in Chile – dividends were suspended and all profits and recoveries had to be used to repurchase the bad assets. Of course in most cases multiple forms of government recapitalization of banks were used.

But government purchase of bad assets was the exception rather than the rule. It was used only in Mexico, Japan, Bolivia, Czech Republic, Jamaica, Malaysia, and Paraguay. Even in six of these seven cases where the recapitalization of banks occurred via the government purchase of bad assets such recapitalization was a combination of purchase of bad assets together with other forms of recapitalization (such as government purchase of preferred shares or subordinated debt).

In the Scandinavian banking crises (Sweden, Norway, Finland) that are a model of how a banking crisis should be resolved there was not government purchase of bad assets; most of the recapitalization occurred through various injections of public capital in the banking system. Purchase of toxic assets instead – in most cases in which it was used – made the fiscal cost of the crisis much higher and expensive (as in Japan and Mexico).

Thus the claim by the Fed and Treasury that spending $700 billion of public money is the best way to recapitalize banks has absolutely no factual basis or justification. This way of recapitalizing financial institutions is a total rip-off that will mostly benefit – at a huge expense for the US taxpayer – the common and preferred shareholders and even unsecured creditors of the banks. Even the late addition of some warrants that the government will get in exchange of this massive injection of public money is only a cosmetic fig leaf of dubious value as the form and size of such warrants is totally vague and fuzzy.

So this rescue plan is a huge and massive bailout of the shareholders and the unsecured creditors of the financial firms (not just banks but also other non bank financial institutions); with $700 billion of taxpayer money the pockets of reckless bankers and investors have been made fatter under the fake argument that bailing out Wall Street was necessary to rescue Main Street from a severe recession. Instead, the restoration of the financial health of distressed financial firms could have been achieved with a cheaper and better use of public money.

Indeed, the plan also does not address the need to recapitalize those financial institutions that are badly undercapitalized: this could have been achieved by using some of the $700 billion to inject public funds in ways other and more effective than a purchase of toxic assets: via public injections of preferred shares into these firms; via required matching injections of Tier 1 capital by current shareholders to make sure that such shareholders take first tier loss in the presence of public recapitalization; via suspension of dividends payments; via a conversion of some of the unsecured debt into equity (a debt for equity swap). All these actions would have implied a much lower fiscal costs for the government as they would have forced the shareholders and creditors of the banks to contribute to the recapitalization of the banks. So less than $700 billion of public money could have been spent if the private shareholders and creditors had been forced to contribute to the recapitalization; and whatever the size of the public contribution were to be its distribution between purchases of bad assets and more efficient and fair forms of recapitalization (preferred shares, common shares, sub debt) should have been different. For example if the private sector had done its fair matching share only $350 billion of public money could have been used; and of this $350 billion half could have taken the form of purchase of bad assets and the other half should have taken the form of injection of public capital in these financial institutions. So instead of purchasing – most likely at an excessive price – $700 billion of toxic assets the government could have achieved the same result – or a better result of recapitalizing the banks – by spending only $175 billion in the direct purchase of toxic assets. And even after the government will waste $700 billion buying toxic assets many banks that have not yet provisioned for such losses/writedowns will be even more undercapitalized than before. So this plan does not even achieve the basic objective of recapitalizing undercapitalized banks.

The Treasury plan also does not explicitly include an HOLC-style program to reduce across the board the debt burden of the distressed household sector; without such a component the debt overhang of the household sector will continue to depress consumption spending and will exacerbate the current economic recession.

Thus, the Treasury plan is a disgrace: a bailout of reckless bankers, lenders and investors that provides little direct debt relief to borrowers and financially stressed households and that will come at a very high cost to the US taxpayer. And the plan does nothing to resolve the severe stress in money markets and interbank markets that are now close to a systemic meltdown. It is pathetic that Congress did not consult any of the many professional economists that have presented – many on the RGE Monitor Finance blog forum – alternative plans that were more fair and efficient and less costly ways to resolve this crisis. This is again a case of privatizing the gains and socializing the losses; a bailout and socialism for the rich, the well-connected and Wall Street. And it is a scandal that even Congressional Democrats have fallen for this Treasury scam that does little to resolve the debt burden of millions of distressed home owners.

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253783321 Responses2008-09-28+09%3A03%3A01Nouriel+Roubini to “Is Purchasing $700 billion of Toxic Assets the Best Way to Recapitalize the Financial System? No! It is Rather a Disgrace and Rip-Off Benefitting only the Shareholders and Unsecured Creditors of Banks”

Tal • September 28th, 2008 at 9:19 am

1st

Medic • September 28th, 2008 at 9:30 am

What else can I say? You are correct professor.I will be notifying my representatives again of my displeasure and desire for new representation.Now, off to write to my local papers…..PS if anyone out there isn’t outraged, you’re not paying close enough attention.

Guest • September 28th, 2008 at 9:31 am

2nd!

mammon • September 28th, 2008 at 9:34 am

We need to put together a list of specific grievanceswith the plan!Everyone read it and contribute!In the meantime let’s give Congress and the Fourth Estatesome general feedback!!

Guest • September 28th, 2008 at 9:35 am

Roubini for Treasury Secretary

Guest • September 28th, 2008 at 9:38 am

@Wild Bill: “My learned friends, Please enlighten me. I never expected conservative Republicans to oppose this bailout. Why would they? Was it because they might have had a vested interest in seeing banks fail?” (previous thread)I am a conservative, a former Republican. I left the Republican Party when the wealthy moderate Democrats and the neo-conservative movement founded by Norman Podhoretz and former Troskyists led by the Kristols, moved into the party and veered the remaining Republican leadership away from free enterprise government. These pretenders to conservatism have worked with the Democrats to build government ever larger and more dominant in our daily lives than ever before. They are primarily big government people. A big government, self-called conservative is not a conservative.I have invested my money, not for greed of profit, but for securing as much value as I could hold onto of my lifetime of work. After having lost almost all of it in a former market crash, I put the bulk of my money into savings, and became known and mocked by the MSM financial crowd as a “chicken” investor. Since 2001, my retirement savings have earned an average of 3.5%, meaning I have lost half of its value since. And now, Congressman Nancy Pelosi has just announced that she and the rest of Congress have come to an agreement on how they can use the rest of my savings to bail out Wall Street banks and investors – the professional investors.

Man • September 28th, 2008 at 9:41 am

and for Nobel Prize as well.

crgordon • September 28th, 2008 at 9:46 am

Dear prof,Do you ever get the feeling that you are p*ssing in the wind? Please keep your sanity and more importantly your health. Your voice is an important beacon of truth.In a future post it would be interesting to read your thoughts on whether the current model of a private banking cartel (Fed Res) is one that is as suitable for the future as it has been suitable for the past. Should the Treasury revert to managing the supply of greenbacks instead of the banking cartel?Stay strong.

Anonymous • September 28th, 2008 at 9:50 am

I have appreciated your thoughts and writings for some time now. With all the talk of progress to putting something forward to a vote, I just can’t stop the recurring thought: adding more debt to this problem will only create a(nother) period of extended pain and one of deeper pain (see Chinese history lesson F430). I listen to references of the risk to the American way, and that this “package” will return things to normal. Isn’t it the American way and “normal” what played a significant part of getting the financial world into this predicament? Isn’t it possible that 10:1 or 15:1 or 25:1 leverage is just (in the long term) a bad idea? I am truly hopeful that the vote does NOT pass. Maybe I am totally naive to the consequences of that path (financial Armageddon), but believe I understand the consequences of the other path, and I do not want to go there. My solution in the interim? cash and zero debt. I’m waiting it out, marveling at the enormity of the change in scope and breadth of this new forthcoming financial world.

Anonymous • September 28th, 2008 at 9:57 am

Nouriel,I find it truely stunning that AIG was bailed out only once Goldman Sachs was clearly hit with a minimum of 20 to 30 billion balance sheet hit. Once Paulson became aware of this, privately funding AIG became an immediately necessity – apparently one he had not considered prior to the Lehman collapse. It surely would have been less expensive to support some sort of false pretense for propping up Lehman rather than necessarily providing 85 billion (and likely more) to AIG without approval and by manipulating the powers of the Fed. It is patently clear that Paulson’s goals are conflicted…what is Blankfein doing on the Fed board at all? Why is he participating in discussions aimed at saving himself? Why is paulson floating disastrous concepts like this one to bail out his buddies?I think the answers to those questions are less important that the picture they paint…which is that Paulson and Bernake do not know what they are doing and DO NOT have the interests of the public in mind in any of their decisions. The invisible hand is their boss and makes the decisions… Fed presidents are openly berating Bernake and Greenspan – while the Invisible hand is trying to gain any public credibility it can…normally dissension like this would result in immediate disciplinary action of dismissal…apparently Paulson and Bernake are pretty close to dismissal.Paulson did not have to pay takes on his 800+ million dollar sale of Goldman shares as a part of his deal to go to Treasury. Even though I know paulson personally, my perception of his ethics and commitments has totally changed. He is not the religious and modest person he would like us to believe he is. Rather, he typifies the wall street greed by using and manipulating the government to achieve personal objectives.

Guest • September 28th, 2008 at 10:01 am

Our government is failing. Our pols are mostly lawyers and others who are good at public relations. Financially they are ignorant. The 2 party system is no longer providing a choice to voters because both sides have learned that the voters want more spending or equivalent tax cuts. Responsible prudent long term administration has no political constituency. Gov is expected to prevent all painful adjustments. The only choice the public will have is between fascism (socialism for the rich and institution elites) and socialism for the masses. With political yo-yo-ing between times of crises. Eventually a crisis will cause the system to fail.

ptm • September 28th, 2008 at 10:05 am

The $700 billion request for banks is red herring. The real motive of Paulson & Bernanke is to replenish the Federal Reserve bank’s spent reserves. Once they are whole again, then they can say “Well, we tried but the problem, it turns out, is too big. We would need trillions more to really fix the problem they say, but we know the American tax payer cannot afford that. And they walk away with their central banks intact.In simple terms, the Fed is broke. (Which was pointed out by London Banker and Brad Setser http://www.federalreserve.gov/releases/h41/Current/http://blogs.cfr.org/setser/2008/09/26/extraordinary-times/)Once it is revealed that the Fed is broke, this request can be seen as a true scam and it beats all the Wall Street scams that we have seen to date. My epiphany for the day…

MissIndia • September 28th, 2008 at 10:09 am

Since I belong to India I fail to understand that people in your liberalized country are so helpless.If this thing would have happened here in India, there would have been hue and cry, people would have gone to streets by now.I don’t know whether this is an ideal way, but I also know that unless people voice concerns by demonstrations nobody is going to give a serious thought.

Gloomy • September 28th, 2008 at 10:19 am

Nouriel,Have we now passed the point of no return? Is it possible to avoid the financial disaster that you have been so concerned about for so long? Isn’t depression now inevitable?

Alessandro - http://castellidicarte.blogspot.com/ • September 28th, 2008 at 10:21 am

Nouriel,I understand that it is not easy to tell it loud and that you are already doing an amazing public service in speaking truth like nobody else, but ptm is right.The mother of all bailout is really a rescue of the FED. The FED is broke.The Treasury of the United States of America is next. In due time.

Guest • September 28th, 2008 at 10:26 am

Roubini: “Thus, the Treasury plan is a disgrace: a bailout of reckless bankers, lenders and investors that provides little direct debt relief to borrowers and financially stressed households and that will come at a very high cost to the US taxpayer. “In its essence, the plan may be even simpler than that. By retaining the language that no provisions can be reviewed by any court, it allows the banks to hide assets that could make them subject to criminal prosecution. This plan is an attempt to provide immunity to the major players on Wall St – against charges of possible mortgage fraud and illegal derivatives contracts.PeteCA

John Law • September 28th, 2008 at 10:32 am

If this $700 Billion Bailout Bill Pass. America will face the mother of All crashes somewhere around the middle of Dec 2008. But Right, Who will believe me. But who believe the Gov will not Bailout Lehman Brother? USA has run out of Bullet. Recession is so common in history. It is part of the system.

Man • September 28th, 2008 at 10:41 am

Reading a News Item on CNBC that Bailout package may be passed today ie Sunday. Also Senate committee contacts Warren Buffett (a capitalist) to give his opinion on a Socialist package. Seems amusing, especially when Warren has invested only USD 5 bn in a failed enterprise. I thought because Senate committee was criticized for not inviting any economist on table they were forced to speak to Warren Buffet, probably members might have also shared thoughts on where he is going to invest so that Taxpayers money is safe .

alessandro • September 28th, 2008 at 10:46 am

I have the pleasure to read THE CLEAR THINKER professor Roubini for a few years (almost three) and I am very sensitive to his forecasts as you can SEE them and PERCEIVE them day by day. Infact you can say:…but that’s true,…it’s clear, it’s common sense. I am a portfolio manager and I said to my customers (november 2006): OUT from the stock markets, don’t give a dime to the suckers rally. I can say that I have almost reached a “Roubini method” and I don’t understand why so many professional guys are so full of “uncommon sense”, we all have a moral liability.So please professor Roubini SHOUT, and of course thank you very much for your clear thinking, honesty and love of truth.Alessandro – MILANP.S. Maybe not everyone knows that his way of being is, I think, a family quality.Same approach by his cousin (medical man) Daniel Roubini

Michelle • September 28th, 2008 at 10:51 am

All the independent research I’ve performed on our problems leads me to believe why our government is willing to bailout Wallstreet: Fear of additional bank failures that will surely expose how truly toxic and worthless these instruments have become, or will become through continued defaults. Foreign investors’ appetites for these instruments were voracious at the peak of bubble, and if it becomes known that what they purchased was junk, there would be a fire sale of epic proportions. Not only would existing instruments be dumped, but new issues would be shunned, creating a doomsday scenario nobody wants to witness. So by supporting Wallstreet through taxpayer money, this expose can be averted, at least for the time being. Paulson surely must know this, which is why selling this plan to Congress is vital.What a sad day it is that we have to continue this ponzi scheme at taxpayer expense, but the alternative would be catastrophic as we rely heavily on foreigners to continue to buy our debt.

mammon • September 28th, 2008 at 10:56 am

REVIEW THE DRAFT WHEN AVAILABLE!Issues1)Is there going to be proper valuation of troubled assets or overpayment?2)Why did we not get preferred senior shares convertible to common stock in exchange?3)Why are we not injecting capital by way of preferredshares in the institutions4)Are dividends going to be suspended? Who is going toprovide new First Tier Capital(Private Equity?)(Bank Holding Act issue)5)Where is the debt mitigation to borrowers?6)Where is there a guarantee that the capitaladequacy ratios will not be loosened and a newbubble will ensue7)Where is the reform of regulations to providecontrols in the future.Any other issues you see are necessary to examinewhen we get the draft?

Guest • September 28th, 2008 at 10:59 am

Another way to look at this crisis is that there will be a depression, but before it happens the wealthiest people in America want their $700 billion back!

Renodino • September 28th, 2008 at 11:00 am

Triumph of ideology over good sense. Bush et al. must not be seen as grand nationalizers of private enterprise in his final hours after eight years of saying the market knows best. That’s why no significant equity stake and dilution.His only marching orders to Paulson were, “Don’t make it look like any of those funny Scandinavian countries with their socialized everything.”

Peter Davis • September 28th, 2008 at 11:02 am

I would expect nothing less from a morally bankrupt government that, for the past 20+ years, has shown that it has the economic IQ of a banana slug. From regulators criminally asleep at the switch; to Congressman (1/3 of whom, by the way, have a credit rating so poor they cannot get a credit card) who know absolutely nothing about the markets and economics and whose coffers have been filled by Wall Street; to a Treasury secretary with obvious Wall Street biases and who claims ignorance of his firm’s involvement in the trading of toxic securities with excessive leverage – while he was CEO; to a Fed chairman living in academic fantasyland and who has absolutely no understanding of both markets and real-world economics; to a lame-duck President.This is what America has become. I honestly could care less who gets elected because either one will likely just make it worse. Either we have a free market or we don’t. Instead, what we’ve gotten for two decades is selective and idiotic government intervention, foolishly directed at the absurd notion that something as vast as an economy (much less the world’s biggest) can be centrally managed in order to avoid the natural occurrence of a recession. Coupled with negligent regulators, we now have our current mess.The continued bailouts represent the ultimate act of hubris. Paulson really seems to believe that he can save everything. As the Bible says, “Pride cometh before the fall.”This will do nothing to stop the slide. The worst is yet to come on all fronts.

Anonymous • September 28th, 2008 at 11:02 am

I was at a protest rally in front of the White House last Thursday and was disappointed to see only a handful of people participating in the rally. My feeling is that americans dont care anymore whats going on this country. This is certainly not a good sign.

Anonymous • September 28th, 2008 at 11:09 am

Thank you sir, for your service to our country – and yes, people like you, who are speaking out against this deconstruction of the Republic form of our government, are serving this country as well as any of our military men and women. At some point, Wall Street, bankers, greed and corrupt politicians have hijacked our country.Warren Buffett, who by public admission, has a $5Billion conflict of interest in this whole deal, has been the ONLY EXPERT ALLOWED IN TO SPEAK TO CONGRESS! THIS IS OUTRAGEOUS when we have you, the Weiss Institute and over 160 academic experts in economics and finance who have been completely shut out from advising on this situation.Our last defense is the People. The People must not be fooled. The People must stand up and not allow this to happen.

Guest • September 28th, 2008 at 11:09 am

Bond market is ready to keel over big time

Guest • September 28th, 2008 at 11:11 am

The only hope for the US would be a ticket with Ron Paul as Pres and Nouriel Roubini as Sec of Treasury and Paul Volker back as Fed Chairman

mammon • September 28th, 2008 at 11:12 am

Isues8)Is there going to be suspension of mark to marketvaluation? I read some reference to this in Hot Air!

Guest • September 28th, 2008 at 11:13 am

in regards to accounting, they are likley to eliminate FAS 157 mark-to-market to make it more opaque on what the asset values are

Guest • September 28th, 2008 at 11:13 am

What a gift to the bastards who made the mess. Heckuva job Paulie. We are all so screwed now it almost hard to comprehend. I would say the collapse may have been postponed by 30-90 days tops.

Guest • September 28th, 2008 at 11:13 am

probably yes since this would make the valuation more opaque

Anonymous • September 28th, 2008 at 11:22 am

This would be a good ticket.

Guest • September 28th, 2008 at 11:26 am

I can’t believe the Dems got rolled this badly and just to let Bush postpone the economic reckoning until next year. That way the Bushies can blame it on someone else. What fools.

Guest • September 28th, 2008 at 11:32 am

What better example of Washington’s one-party system can be found than the image of the President’s representative down on his knees before the opposition party leader, working out grand theft of the people’s purse? Paulson, the Democrat, representing both a discredited GOP president and the interests of his crooked billionaire friends, works out details of the burglary with the Congressional majority, giggling on their good fortune to gain points in an election year and pick up a pile of goodies for their buddies as well.All across the country, the people — who have no party — cry out, “Stop.” To paraphrase Patrick Henry’s emotions: Gentlemen cry, stop, stop…but they won’t stop. “Why stand we here idle?”

Martin • September 28th, 2008 at 11:41 am

alrightie folks, listen up The discussion over last 3 days wasnt abt economics. Its all game theory and Politics.We are at an advanced stage now but deal is NOT DONE yet.Some GOPers are still a cat on the wall.McCain & Friends in limboIn my personal view, this deal is utterly useless. I am shameful to be a part of the deal thats not gonna work

Guest • September 28th, 2008 at 11:49 am

Two dynamic forces, in this so-called financial crisis, are now headed for a collision.The big-government, lobbyist infested, legislative blackmailing, currency manipulating, grand larceny cabal of crooks is one last approaching force.The other force, anticipating the impact, is standing still. It is the body of honest, well-intentioned, hard working, productive Americans, backboned within the middle class. It is the professionals, blue-collar workers, small businessmen and all the rest, who are, in a word, the U.S. economy — consumers, producers, taxpayers, freedom-lovers.The coming collision is going to be far too large for both forces to survive; one will fail, one remain.To believe in the American dream and in the American people’s reserve strength, as I do, I’m convinced that the domestic enemies of our well being will be found out, rooted out and moved out.

CNSteele • September 28th, 2008 at 11:52 am

They’d get my vote.

Mother of God!! • September 28th, 2008 at 11:56 am

Lets get really, really real.Please raise your hand, Fellow Posters, if you seriously believe that I am the very smartest woman on the whole planet – smarter than all of the wall street economists and all of congress and all of the mainstream media – smarter than all of the people behind this piece of legislation and in support of it – combined.Yah, right. I’m a genius. That do-it-yourself genius kit was worth the $9.99 I spent.Listen, I am a workingclass nobody housewife from the Midwest who spent many years building shelter for people in the construction and remodeling trades, amongst other jobs. I am not higher educated, never had money for college. I got the same dumbed-down high school edumacation that all Americans get. But, by merely reading resources such as those already in my favorite informative sites list, and such as HERO Dr. Roubini’s site here, and mining the readers’ comments for gold oh absolutely, and checking some of the shared links to other reliable, savvy sources – in short just by seeking and doing some reading and thinking – I have EASILY gained a comprehensive understanding of this whole situation, and I know full well based on nothing but known history, proven fact, logic, and sound reasoning that this failout plan is indefensible and the suggested fix is a premeditated prescription to actually make things worse.There is no WAY Congress does not know what I know. There is no WAY your representatives can remain ignorant of what I have learned. It is IMPOSSIBLE that ANYONE who wants the truth of this thing, does not have it.I propose right here right now that every person in America (and beyond) with a computer connection do a Google Search on these exact words:USA Congressional TreasonI propose this not as a search for definitions or for specific knowledge – I propose this action with no other goal in mind than to send a message by making ‘USA Congressional Treason’ the most popular engine search ever done.But I mean this next sincerely: I am now actually wondering if it is possible that a legal case for treason can be made and brought before the courts of the United States of America on behalf of her people – and yes, I’ve done a little reading about what Article III means.In my book, what we are witnessing is not ineptitude, this is not stupidity, this not a series of coincidences nor accidents that this bailout plan is being passed against all good sense, all the wishes of Americans, all scruple, all human decency.This is MAD PURPOSEFUL UNCONSCIONABLE BETRAYAL.Here’s my prediction in all of this: If the human species ever comes to its senses, our descendents will build statues to Dr. Nouriel Roubini. Dear Sir, there are no words big enough to hold my personal gratitude to you. In a time when Honourable men seem to be the scarcest commodity on Earth, you keep the flame alive.I could drown in the tears and rage that are mine for what is being done to the underpaidunderpowered overworked ants by the overpaidoverpowered leisure class wealth giants we keep erecting!And lastly, those who don’t yet know that the military wars are inseparable from the financial wars, do not know history.

CNSteele • September 28th, 2008 at 12:01 pm

Public messages to Congress are running 100 to 1 against this theft, happily. But most people cannot understand what’s happening because 1) it’s extremely complex, 2) the media is ignorant, and 3) our leaders are liars. I suggest everyone here do what they can to spread intelligent information about the crisis and ripoff. Because people are mad as hell, there’s an opportunity here, but uninformed anger is useless, and simply makes people vulnerable to populist demagogues.

kilgores • September 28th, 2008 at 12:03 pm

It appears to me that most politicians would have to be somewhat skilled at public relations or they wouldn’t be able to get elected.A few facts on the mix of lawyers and non-lawyers currently leading us:President Bush is NOT a lawyer (he holds an M.B.A. from Harvard – presumably knows something about finance and the economy).Vice-President and President of the Senate Dick Cheney is NOT a lawyer.Senate Majority Leader Harry Reid IS a lawyer.Senate Minority Leader Mitch McConnel IS a lawyer.Senate Finance Committee Chairman Max Baucus IS a lawyer (his father was an economist).Senate Finance Committee Ranking Member Chuck Grassley is NOT a lawyer.House Speaker Nancy Pelosi is NOT a lawyer.House Majority Leader Steny Hoyer IS a lawyer.House Minority Leader John Boehner is NOT a lawyer (he was a businessman before running for office).House Financial Services Committee Chairman Barney Frank IS a lawyer (but he certainly knows something about finance).House Financial Services Committee Ranking Member Spencer Bachus IS a lawyer.Republican presidential candidate and Senator John McCain is NOT a lawyer (on 09.15.08 said economic fundamentals were sound).Republican Vice-Presidential candidate and Governor Sarah Palin is NOT a lawyer (on 09.17.08 said the economy is a “mess”).Democratic presidential candidate and Senator Barak Obama IS a lawyer.Democratic presidential candidate and Senator Joe Biden IS a lawyer.About 60% of the members of the Senate hold law degrees, while about 37% of the members of the House of Representatives do.___P.S. – The first United States Secretary of the Treasury, Alexander Hamilton, was a lawyer, too.SWK

Anonymous • September 28th, 2008 at 12:04 pm

Many inciteful comments: let me add a few more. One main reason there has not been huge protests against this plan is because our illustrious leaders keep changing it! They will then quickly pass it before the American people even have a chance to analyze it and voice there opinion about the final version. These tactics are well planned and ensure passage of an unfair, probably unviable solution even though the majority of voters may be against it! Welcome to the “New Demon ocracy” of the U.S.A. And to top it off, there is no guarantee that the banks will loosen credit or provide it in a fair manner! Maybe it’s time for Americans to live without credit and free ourselves from the ever increasing economic slave strings the kings of the banking industry as well as our own government which to attach to us!

kilgores • September 28th, 2008 at 12:11 pm

Nobel economics laureate Gary Becker has been quoted by the Wall Street Journal as saying, “I have reluctantly concluded that substantial intervention was justified to avoid a major short-term collapse of the financial system that could push the world economy in a major depression.” Seems to me that if there is NO intervention, or the WRONG FORM of intervention, there is a much higher risk of a global recession on the order of the Great Depression that could last for years.SWK

P1AQL • September 28th, 2008 at 12:18 pm

All the press, people and the politicians want to know are who the goodies and who are the baddies.Who wants to understand the basic fact that America will stand by her obligations and not default?Aye to the $700 B deal.P1AQL.

Guest • September 28th, 2008 at 12:19 pm

Demonstrate your feelings on Streets

Miss Italy • September 28th, 2008 at 12:21 pm

There are more people in the streets in communist China than in America.How is that possible?http://biz.yahoo.com/ap/080928/as_hong_kong_lehman_protest.html

Guest • September 28th, 2008 at 12:24 pm

I recommend including the professor’s last paragraph with a link to this latest post.

Marco • September 28th, 2008 at 12:30 pm

There are others admirers of prof. Roubini here in Italy (and Milan).Hang in ! And do not lose heart !!

devils advocate • September 28th, 2008 at 12:36 pm

this past week of Washington “hearings” for The Big Bill to Save Us All from the Precipicemay have triggered another Great Depressionthe American people “got it”for the past year and half, we heard All is Okay and Right with the Almighty USA,and then the R word (Recession) and then but a month ago: “the economy is sound”…and now:USA is in the most serious financial crisis of the past 100 years since the Great Depressionand WE MUST PASS THIS BILL NOW NOW NOW NOW!!!or elseBernanke and Paulson et al have underestimated the psychology–the American people are finally scared and most will now STOP SPENDING AND SAVEBECAUSE BAD TIMES ARE HERE — ushering in Great Depression IIp.s. you are a hero

Guest • September 28th, 2008 at 12:36 pm

Thanks M. In terms of game theory/politics, I echo others in not understanding why the Dems are so eager to do this deal. any insights?

Guest • September 28th, 2008 at 12:38 pm

Americans are too poor to lose their jobs (as they likely would not be able to get time off from work with their employers approval). Or too busy and stressed out to worry about this type of “complex issues”.Besides Americans have protested against many things since 9-11, and what have those protests helped? The government just keeps dealing with the protests according to the “currently best teflon principles”, i.e. by keeping the non-protesters from being drawn into the issue (so as to minimize the size and effect of the protests)…and so forth…

Guest • September 28th, 2008 at 12:39 pm

fear is a form of control.

Anonymous • September 28th, 2008 at 12:39 pm

“In a future post it would be interesting to read your thoughts on whether the current model of a private banking cartel (Fed Res) is one that is as suitable for the future as it has been suitable for the past. Should the Treasury revert to managing the supply of greenbacks instead of the banking cartel?”BINGO ! THIS is the question !!Anyway, you can’t ask prof. Roubini to expose himself to the risk of being killed… because this is the risk, if you touch this extremely dangerous topic (do you remember JFK ?)

Guest • September 28th, 2008 at 12:50 pm

So these morons think they solved the largestfinancial crisis since the Great Depression,in only a week, and now they can go home andparty?

L. Morgan Stanislaw, III • September 28th, 2008 at 12:55 pm

I was among the Wall Street professionals, educated beyond our ability, who contributed to the crisis. Our value at risk models assumed that the default of a large counter party, such as Lehman Brothers, would occur once every 250 years. That was a decade ago; at the time, the thought of Lehman going bust was inconceivable. But the models were wrong by a factor of 25.The proposed government intervention should be informed by professional economists at the highest level, in an effort comparable to the production of the Septuagint, the translation of the Hebrew bible into Greek by seventy scholars, commissioned during the reign of Ptolemy II, the King of Egypt, in 300 BC. But Congress has intentionally avoided consultation with independent professional economic scholars with deep knowledge of financial markets.I joined the protest against the $700,000,000,000 giveaway to Wall Street on September 25th. You can see me at 1:44 in the following video: http://www.youtube.com/watch?v=nG2ojZhDsps

RedCreek • September 28th, 2008 at 12:59 pm

Just a rough guess: 700B should be enough to save JPM, Citi, Goldman, Morgan Stanley, Bank of America (incl Merrill) and should incentivize Deutsche Bank and Barclays to continue their US activities. It should also prevent – for now – the collapse of the entire CDS market.As for the other banks – most of them will be “allowed” to fail…

värdera • September 28th, 2008 at 1:06 pm

There is NO Nobel prize for economics.Physics, Medicine, Chemistry, Literature and Peace are Nobel prizes and were established in 1895.The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel prize in Economics was founded in 1968 (first awarded in ’69)

Guest • September 28th, 2008 at 1:07 pm

I have sent several paragraphs of it to my two senators (from California). We need to keep up the pressure on them to hear the real alternatives from impartial economists with real expertise… number one of course, our good professor.No more panic responses or shock doctrine decisions!

Guest • September 28th, 2008 at 1:08 pm

Why would it have any beneficial effect on the CDS markets?

Guest • September 28th, 2008 at 1:09 pm

The only hope for this country is for a political uprising to destroy the 2 party system. These events could be the driver for that, if only the sheeple would wake the f*** up.

PhilT • September 28th, 2008 at 1:12 pm

What is extremely complex is what the “leadership” and the media are doing to make it that way.What is not complex is :Every person/voter/taxpayer who is paying attention knows that they are being lied to and scammed, and that once again FEAR is being applied as leverage to act immediately.Every person/voter/taxpayer who is paying attention knows that all of this is happening behind closed doors and with no transparency.Every person/voter/taxpayer who is paying attention knows that the principals involved all have conflicted interest and that those in charge have summarily excluded alternative points of view or alternative plans.Every person/voter/taxpayer who is paying attention knows that no matter what is being touted at the moment, the voter/taxpayer/citizen is not being considered, but cast aside.Every person/voter/taxpayer who is paying attention knows that the underlying toxicity, both financial and behavioral, is still in tact and will be fostered by this action.Strength and Honor moving forward …

Guest • September 28th, 2008 at 1:14 pm

It takes two to communicate. Alessandro, you deserve credit for being open to new interpretations, and when these interpretations to not match your biases, you deserve even more credit for digging deeper and using fact-based reasoning and logic to draw the best possible outcome for your clients. One could even say that if all portfolio managers were like you, we would not be in the position we are today!

Flanders • September 28th, 2008 at 1:17 pm

From Reuters:Senate seen voting on financial bailout bill on Wednesday at the earliest: sources

Guest • September 28th, 2008 at 1:19 pm

The gov is preparing for just that.http://video.google.com/videoplay?docid=-5117315361647950322&ei=zMjfSKbUE6XcqAP7poH4BQ&q=3rd+Infantry%E2%80%99s+October&vt=lf&hl=enNot consulting economist?Using Warren Buffet as their financial advisor!These “leaders” are either lacking some basic common sense or they are sinister. Either way they are scaring mehlowe

mammon • September 28th, 2008 at 1:19 pm

Let us think back to the 60S. If we demonstrate withouta coherent set of criticisms of this plan, we will justbe spinning our wheels. We must be visceral, but intellectual at the same time. We need to explain theproblems of this plan. They will not get their vote onMonday! We will have some time. Voters in the Midwestwould rather have a Warren Buffett type tell them thedefects than an Abbie Hoffman type. Grab you suits and briefcases and remember nobody respects jokes when it comes to money. We need to approach this like a MadisonAvenue campaign. We have time! They will not get the vote on monday! We will need a respected intellectualto call a news conference to present the defects of thedraft! We will need an army of business people to present the logic behind voting against the plan!We are living in a YOUTUBE environment. It is importantto immediately disseminate a YOUTUBE powerpoint presentation of the plan defects. I know the professorhas access to creative talent to make this happen. We will disseminate it. We will use the internet! We mustuse the internet community approach. We must use everyapproach, but we must be coherent and business like!

Guest • September 28th, 2008 at 1:20 pm

Joseph Stiglitz won the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel in 2001… Vardera, you are correct but it is quibbling. Roubini for the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel then!!

Mother of God • September 28th, 2008 at 1:20 pm

Two bingo’s in a row. Could somebody please tell the planet that there is no logic or reasoning behind letting a few private parties lend money into existence and pocket the interest when we ourselves, our government, could just be spending it into existence as needed without interest or with our own selves getting paid any interest on the debt? How come this is not a no-brainer? Somebody tell me what I’m getting wrong here?

Guest • September 28th, 2008 at 1:21 pm

Don’t worry, you’ll have plenty of company soon!

Guest • September 28th, 2008 at 1:21 pm

I bet they did

Guest • September 28th, 2008 at 1:28 pm

They are also funded (bribed) by Goldman Sachs. Duh!

Passaconaway • September 28th, 2008 at 1:45 pm

I emailed NH Senators/Rep (one of which was Judd Gregg)and expressed my displeasure yesterday.Keep it up Medic..

bcdogs • September 28th, 2008 at 1:48 pm

It’s not that they don’t care, it’s that they don’t know!!! Unless a person has some amount of natural curiosity or concern, they are not getting very much in depth information on this situation at all.The average person has very little knowledge of economics and this whole mess. I have been trying to educate myself in the last few years and know more than most, but it has taken a great deal of effort on my part and what I know is just the tip of the iceberg. Trust me people CARE about their money! A lot of average Joe’s have no earthly idea what is going on right now…in the Southeast a large part of the population is more concerned about finding a gas station open so they can get to work on Monday…The only issue I would have with NRs asute (as always) analysis above, is that he says – Congresional Dems have fallen for the plan.I personally am not at all sure “fallen” would be the correct word here. I believe that many of them are looking out for #1 as greedy and corrupt and staying wealthy and on the corporate gravy train is what it’s all about. I can not comprehend any other reason for them engaging in the behavior that they are presently – “fallen”. Fallen indicates an accident of some sort, this is NO accident.I believe it was Ralph Nader (paraphrasing) who said something to the effect that both parties were exactly alike (corporate involvements), they just voted differently some of the time….If anyone has any recommendations for self education in the regards of economics, I would greatly appreciate it.

RedCreek • September 28th, 2008 at 1:50 pm

counterparty risk?

RedCreek • September 28th, 2008 at 1:52 pm

FORTIS BAILOUTfrom http://www.tijd.beBelgian and Luxembourg govts to inject EUR 7bnStake in ABN Amro to be sold for EUR 10bn probably to INGStructured credit portfolio (currently EUR 41bn) to be written down by undisclosed amount.Official statement to follow by 4 pm EST.

Guest • September 28th, 2008 at 1:54 pm

The Congressional prima donas are wrapped up in their egos and yes persons. No intellectual response will move them; only a visceral violent response will do so. They have never seen such, in the last 30 years, in this heretofore peaceful middle class polite society. Rotten tomatoes and loud jeering greeting them whenever and wherever they try to speak might work.

bcdogs • September 28th, 2008 at 1:55 pm

I was so amazed by this, they should have NR and other renowned economists advising them NOT Warren Buffett.

mammon • September 28th, 2008 at 1:55 pm

http://sify.com/finance/fullstory.php?id=14767561This story shows different approaches to attack thebailout!

kilgores • September 28th, 2008 at 1:57 pm

Tack så mycket. Jag står korrigerad, värdera. I mitt försvar, amerikanerna allmänt hänvisa till ett Sveriges Riksbankpris i ekonomi som ett Nobelpris i ekonomi.Om ni undrar, jag studerade svenska vid universitetet i Florida på 1970-talet. Jag gillar att träna när jag kan.SWK

chuck205Guest • September 28th, 2008 at 1:58 pm

billery is not answering??my congressman is milking her kid in the kongress,the judicial comite is at the jazz concert they set up for themselves…and it is time to not rely on the internet. e-mails get [delete] all too easy. my personal letters go unanswered?! the law demands that letters be answered?! who does “redistricting” anyway?? people vote the mindlessness of the herd, rangle is the longest discerving pol in the congress 30 years?!rendition is the answer to all this,any pol that has been in there longer than 10years! ya think?? my belief is the financial fools do not want us to know the extent the forces outside of the u.s. have manipuliated this mess!!conspericy??NO! fact!!think the chinese are going to bail us out this time?no way! so maybe some basic language ‘THROW THE ASSHOLES OUT” needs to be forward. god bless america/bring in the professionals…

Guest • September 28th, 2008 at 1:59 pm

I second your motion! SWK

DWA, Bozeman, Montana • September 28th, 2008 at 2:02 pm

In response to Neville Chamberlain’s accommodation of Hitler at Munich, Winston Churchill said, “You have been given the choice between war and dishonor. You have chosen dishonor, and you will have war!” One can now just as well say to Congress, “You have been given the choice between meltdown and dishonor. You have chosen dishonor, and you will have meltdown.”

Guest • September 28th, 2008 at 2:11 pm

You could be right. I lived through the Swedish meltdown in the beginning of the 90′s. Similar to this one but smaller. From umenployment rose from 4% to 12% or maybe even 15% and houseprices fell 40%. We also had some sort of bailout but and I remember that taxes soured.

Guest • September 28th, 2008 at 2:14 pm

I think you are wrong, in that thebill WILL be past on Monday, andwe do not have some time.

Guest • September 28th, 2008 at 2:17 pm

Let me guess Morgan, you were that bald-on-top long-in-the-back gray haired guy with the microphone yelling slogans

Guest • September 28th, 2008 at 2:20 pm

Your leaders do not care what you think, what you write, or what you say. The anti-giveaway ratio is 100 to 1 (Sunday Telegraph) and still they march forward. All that counts — regardless of party — is getting past another election.

Mother of God! • September 28th, 2008 at 2:21 pm

Has this photo been put up here, yet?

Mother of God! • September 28th, 2008 at 2:22 pm

Complicit SMILES

Guest • September 28th, 2008 at 2:23 pm

This is MAD PURPOSEFUL UNCONSCIONABLE BETRAYAL.this is a fact. Bob Chapman frames it in his latest rant:internationalforecaster.comA worthwhile read.I have said this before-the people in Nancy Pelosi’s district hold the keys to stopping this kleptocracy. Should they justifiably kick her to curb in Nov. for supporting this bailout and taking impeachment off the table, it will send shock waves through the enabling Democratic Party,like nothing else and begin to restore representative gov’t.where it belongs.Come on Bay Area activists! We need you now, more than ever

L. Morgan Stanislaw, III • September 28th, 2008 at 2:28 pm

Would you believe the earnest banker in the bowler hat at 1:44 in this video?

TTL • September 28th, 2008 at 2:28 pm

Well that’s it … $600 Billion deal has been put together!THe fact of the matter is that Main Street really does not know what is happening. There is simply NO OUTRAGE! The Outrage will happen when Unemployment goes up, Inflation Goes up. That’s when it wil be TOO late. Mark Faber predicts S&P to be cut in half and Dollar to be stable over the next few years.

Brian • September 28th, 2008 at 2:39 pm

The problem in getting people out into the streets (other than that Americans have simply become too complacent and somehow simply believe that everything will always be ok for them), is that no one is out there discussing the implications for Main Street (ie Joe Public) if the plan actually passes.Yes, there is outrage about a “bailout” that most Americans see as being a gift to bankers, but there is no discussion about how this giveaway will hurt them directly.How about starting to spread the work that this bailout:1- Will cost each TAXPAYER about $8,000 (ie will raise your taxes by $8,000 or else reduce your services by $8,000 in value. Don’t like public schools for your kids, or don’t mind bridges collapsing, don’t care if clean water keeps flowing into your house?)2- Will devalue the dollar, and cause hyperinflation (which, in dumbed down Americanpublicease would be “Make gas go up to $6-8 per gallon. Milk at $10 per gallon…”)3- Make your savings go away. The banks that need to go bankrupt because they perform no function other than to feed a bubble of lending to people that can’t afford to pay the money back are being bailed out, so that they can keep lending to people that can’t pay it back. They are still going to go bankrupt, it’s just that on the way out, they now get $700B of your money. So now, when the Depression hits, there is no money left to dig the country out of it, and you will NEVER get your savings back (rather than, without the bailout, at least having some hope of getting some of it back where the govt. able to fund public works and other useful projects with this money).3- Will actually

Guest • September 28th, 2008 at 2:40 pm

Bush said:Even if you have good credit history, it would be more difficult for you to get the loans you need to buy a carSo then it’s going to cost me 10 to 20 thousand dollarsin taxes JUST to get an opportunity for a 10 to 20 thousand dollar loan. Hmmm why don’t I just use the moneyto buy the car directly.I can do without the loan, the government is the one that needs billions EVERY day to keep their scam going. Theyare the ones that got themselves into trouble and refuse to fix the root causes.

TTL • September 28th, 2008 at 2:40 pm

I agree .. people REALLY Do not care .. however, they will once they do not have jobs / Gas amd Milk goes for 6 bucks / Utilities have gone up by 25% … basically when the Good Life is gone …. then there will be outrage … we are entering a time when RUSSIA is starting a COLD WAR and the Middle East is going to get more unstable … they always do this when the USA is about to enter a recession … then there will be Outrage …

L. Morgan Stanislaw, III • September 28th, 2008 at 2:41 pm

On July 2, 2008, the Financial Telegraph predicted a “complete meltdown of US banking system.”The Financial Telegraph had a rather alarming article yesterday. It’s in Dutch, but François Cellier has provided a translation.by our correspondentJune 28, 2008, 09:10 a.m.BRUSSEL/AMSTERDAM (DFT) – Fortis expects a complete breakdown of the American financial markets within days or weeks. This explains, according to the bank insurer, the series of interventions on Thursday with the aim of strengthening themselves by € 8 billion. “We are ready at the last moment. The U.S. is doing much worse than we had thought,” said Fortis chairman Maurice Lippens, who insists that CEO Votron shall not be replaced. Fortis expects bankruptcies among the 6,000 U.S. banks that have low coverage. “But the same goes also for Citigroup and General Motors, and thereby starts a complete meltdown in the U.S.”

TTL • September 28th, 2008 at 2:46 pm

The actuall cost could be much higher per TAXPAYER ..10,000 more per year for the next 20 years is my estimate … how are people earning 20K a year going to survive?So, I have to spend $200K more in taxes … and in fact, if I had just invested it carefully (TIPS) at 5%, heck, I could have made $400K … so, in effect, I have just become 400K poorer!

Zaid Khalil • September 28th, 2008 at 2:53 pm

Nouriel,I think you are quite wrong about the Democrats falling for this deal. The Dems are as beholden to Wall St. as the Republicans and have acted as enablers of Republican ideology for decades. To see any real opposition to this bailout you have to look outside the two parties. This should serve as a wake-up call to the American public that the elites are waging a full-fledged class war and the first thing that we the people must do is break the two party duopoly.

Ernst • September 28th, 2008 at 2:54 pm

Sorry SWK but I have no Swedish characters in my keybord. Du skriver bra svensk. Jag pratar svensk for att min familj ar svensk sa dar for forstarar jag dej.Ernst

Mother of God • September 28th, 2008 at 2:54 pm

L. Morgan Stanslaw, You are seriously adorable, and a you and everyone at that protest is a living hero. LOVE the video. NAMASTE

mammon • September 28th, 2008 at 2:54 pm

http://thehill.com/leading-the-news/kucinich-says-not-enough-votes-for-bailout-2008-09-28.htmlJust keep hitting the phones with all your representatives for the monday vote andthe Senators after. Every one of us can make a difference! We can keep the pressure on!Do anything that comes to mind!I am waiting for a post of the draft by staffers! If anybody here has it, post it!If anybody here knows how to get it, tell us!This is not a political issue anymore! It is an american issue!There is no real thinking Democrat or Republican who can be for this!Just the little we know gives me the creeps!I know that some of our bloggers are very articulate and capable!Put together a succinct point by point DEFECTS LIST THAT WE CAN DISSEMINATE!IT HAS TO BE SIMPLE TO COMPREHEND, YET IT MUST GO TO THE CORE OF THE HEIST BY THE FINANCIERS!

Anonymous • September 28th, 2008 at 2:59 pm

This dude has made some pretty good videos on the macro situation and the bailout (that seem to be in line with what roubini is saying):http://www.youtube.com/view_play_list?p=9ECA8AEB409B3E4F

mammon • September 28th, 2008 at 3:01 pm

http://thehill.com/leading-the-news/rank-and-file-gopers-not-thrilled-by-deal-2008-09-28.htmlI don’t care what party you belong to! hit the phones!If you have children, hit the phone!

Ernst • September 28th, 2008 at 3:05 pm

How right you are.

Guest • September 28th, 2008 at 3:07 pm

Folks … please.Let’s lay this out.”Whenever there is a buble on Wall Street,there’s almost always fraudulent behavior going on”Go back to when Bear Stearns went bankrupt.Two major hedge funds went down.And two fund managers were indicted on securities fraud.What does this do?Sure, some of the palyers are found guilty.But it opens up a window for federal investigators.They start to learn what’s really going on.They start to figure out how to follow the rabbit trail.Now, the scope of the investigation is much bigger.And guess what … more people are talking.Which means that the top execs of some of these banks re getting very nervous. They’re staring at the possibility of criminal charges and jail time.So what do they do?Of course, they cook us this grand rescue scheme.Why?Not because the economy is going bust in 24 hours.It’s because they’ve got to bury the evidence.They need to sanitize the paperwork that ties them to charges of mortgage fraud and illegal derivatives trades.What better way to do this than to throw all the paperwork into one massive pile of $700 billion in assets. And you better believe the that questionable securities will all have essential info erased, so they are untraceable.Now do you see why some members in Congress are bending over backwards to help pass this recue bill?Wall St has taken a knide, stuck it in the ribs of Congress, and now they’re twisting the blade. The threat is if the top banksters go down, then all kinds of dirty laundry will come out into the open. That’s why Congress is ignoring the fact that 90% of the American public don’t support this legislation.* Where are all investigative journalists these days? Doesn’t anybody dig out the truth any more? Get to it … this is a once-in-a-lifetime story!* Don’t bother FAX’ing your Congressmen and asking them what the bill says. You need to be asking them why they’re giving immunity to big bankers on Wall St, and who’s twisting their arms to get these votes.PeteCA

PeterJB • September 28th, 2008 at 3:08 pm

“Thus, the Treasury plan is a disgrace: a bailout of reckless bankers, lenders and investors that provides little direct debt relief to borrowers and financially stressed households and that will come at a very high cost to the US taxpayer.”@ RoubiniNo Sir, you err; it is nothing but TREA$ON!Ho hum

Mother of God • September 28th, 2008 at 3:10 pm

Martial Law from on the house floor are you KIDDING MEGo ahead, explain this to me…listen to CSPAN from the house floor!!!!!!!

PeterJB • September 28th, 2008 at 3:24 pm

Indeed @PeteCA… indeed…fraud and treason at the highest levels – the game the whole of Congress can play.and besides interbank lending has been seized for months now…the world is being scammed by a few of the treacherous and treasonous. Learn your lessons.Ho hum

MOTHER OF GOD • September 28th, 2008 at 3:26 pm

WHY IS THERE A REPRESENTATIVE FROM TEXAS SAYING THIS?! WHAT DID PELOSI SAY LAST NIGHT?!

Anonymous • September 28th, 2008 at 3:29 pm

Stop calling it a bailout. It is a handout.

Guest • September 28th, 2008 at 3:30 pm

That is a very good comment. Though I’m sure Churchill would have spelled it “dishonour”; not “dishonor”. Some day you Americans will learn good English.

Marc August • September 28th, 2008 at 3:34 pm

For Your ConsiderationThe Drafthttp://money.cnn.com/2008/09/28/news/pdf/index.htmMarc August

PeterJB • September 28th, 2008 at 3:34 pm

I am somewhat staggered (but not at all surprised, or shocked) by all that this gentleman states: Pelosi has shut the doors of the House? This now has my full attention.Martial Law declared? By the Speaker? Pelosi?What next? Expect more of the unexpected and unimaginable.Ho diddly hum

Alessandro - http://castellidicarte.blogspot.com/ • September 28th, 2008 at 3:38 pm

Not sure if this is old news. Word is that an AIG collapse would have left a $20bn hole into Goldman Sachs books. Somehow the GS CEO participated to the emergency meetings that decided the bailout and GS sudden death has been avoided.@martin, can you confirm/deny?http://www.nytimes.com/2008/09/28/business/28melt.html?bl&ex=1222747200&en=486a776f9f184e9c&ei=5087%0A

PeterJB • September 28th, 2008 at 3:39 pm

Interestingly I can’t get this yet – the server appears to be over-loaded – good sign.Thank you very much for the link.Ho hum

PhilT • September 28th, 2008 at 3:40 pm

! DON’T FEED THE GREED !

MOTHER of GOD • September 28th, 2008 at 3:40 pm

Found it. They are using a procedure called martial law to wave rules and ram this through FAST. committee on rulesNow I gotta go look up what clause 6a of rule XIII says…I already can tell this is meant to give no time to read and understand the language that will be presented as final!

Guest • September 28th, 2008 at 3:49 pm

FEMALE RON PAUL!running home to moma.http://www.youtube.com/watch?v=dZFCVhZsPe8&eurl=http://housingpanic.blogspot.com/hlowe

lenny • September 28th, 2008 at 3:53 pm

another great post by the professor…i’m not a business person so i could have this wrong but it seems imprudent to me that major corporations have become so dependent on the commercial paper market…and that they have remained dependent on it even after the meltdown last fall…maybe corporations are going to have to keep more cash on hand to meet their funding needs…for example GE has a big real estate division that must tie up funds longer than the manufacturing arm where things are built and routinely sold so money is coming back…to a nonbusiness person it seems absurd that corporations would depend on cp for fundamental operations such as payrolls…i haven’t heard this talked about, but if the cp market freezes up more, there’s the possibility that some american workers might not get paid until, say, a firm’s receivables come in…over the past two weeks the cp market has fallen by $103.1 billion…with the nonfinancial category up $1.1 billion in the latest week (ended wednesday) and the financial category down $50.3 billion…to a level of $1,702.1 billion…with asset-backed cp at a level of $753.8 billion outstanding…the canadians worked out a deal whereby the holders of cp were forced into longer terms with interest paid…i would think holders of cp, the money markets and others, would be wary of lending even on a short term basis for fear that their funds get tied up for longer periods because of a canadian-type deal or inability to pay by the issuers because of accounting scandals or something unforeseen like that…or even a sudden downturn in business…if the money market funds are strapped for cash because of a downturn in the stock market or other reasons…they could choose not to roll over the loans…i wonder if it’s not just the banks that borrowed short and invested long, but many nonfinancial firms as well…

Guest • September 28th, 2008 at 4:00 pm

Morehttp://www.youtube.com/watch?v=LzFDQjAzw1gh

Guest • September 28th, 2008 at 4:04 pm

I believe some Congressmen including Kucinich are meeting “ex-parte” with some economists they have invited. There is hope.

artichoke • September 28th, 2008 at 4:06 pm

I agree with the sentiment.Unfortunately Sir Warren Buffett is a big proponent of this bill. He even bought into GS assuming that a bailout like this would pass, he says otherwise he would not have bought in! So now Warren wants his Bailout.The midwesterners need someone else. I’ve admired Paul Kasriel, what’s he say about this?

Cashcow • September 28th, 2008 at 4:07 pm

I don’t understand Nouriel. He mention all the troubles that are going to hit the US financial/economic system. They are many. Still, he maintains that sure the US gonna have a severe recession. Not a major depression.I believe this crises is more severe then even Nouriel realize. Or perhaps he wanna stay on the optimistic side?

Guest • September 28th, 2008 at 4:08 pm

The Bill calls for suspending FAS 157 Mark to Market Accounting. The Fraud is NOW COMPLETE. Where are the journalists? Get this out in the discussion, this is Huge. Wow.

artichoke • September 28th, 2008 at 4:11 pm

Now that doesn’t make much sense. If the voters are currently against it, won’t that motivate the Representatives to vote against it?By the way I think tomorrow is Pearl Harbor. If it gets past the House, the Senate can find a way for the 33 or 34 members up for election this year to vote No, and it can still pass.

Christain Marx • September 28th, 2008 at 4:13 pm

The hand of Paulson. This is beyond outrage: this is taxation without representation.

devils advocate • September 28th, 2008 at 4:17 pm

Dr. Roubinihalf-rightunder Pres.Bush the FDIC has been “renegotiating” the Indymac mortgages it took over = zero foreclosuresif only $500 billions of the $700 billions buys bad mortgages;assume each individual mortgage was for $200,000, then that equals 2,500,000 homes = zero foreclosuresthe Govt will not foreclose on its citizens even under Pres. bushPres. Obama = every citizen is entitled to a house(whether they pay for it or not)this will expand into: every vacant-already foreclosed house is entitled to an owner/citizen(whether they pay for it or not)the idea is to stop foreclosing owner-occupied homes = No More Foreclosures =shrink supply = higher home pricesif the third of America with money stops consuming out of fear”bad times” – bad business – bad government – then the USA =IOUusa WELFAREusa Great Depression———–it’s going to be a race to the bottombad economy dropping faster and fasterwith the Govt Landlord homeowners not paying their mortgages but spendingwhile they still have jobs and when they land “unemployment” it’s Welfare ForeverUSA

Anonymous • September 28th, 2008 at 4:19 pm

is it possible to bail out a leaky boat ?the answer is NO !

Guest • September 28th, 2008 at 4:23 pm

this makes sure no one knows the actual valuation of the toxic derivatives

peter campbell • September 28th, 2008 at 4:24 pm

Roubini for President, Mike Shedlock for for vice president.Paulson and Bernake for parking attendants to roubini and shedlock

devils advocate • September 28th, 2008 at 4:25 pm

the next step will be to reassure – to allay the fear – now all is well

Christian Marx • September 28th, 2008 at 4:34 pm

Right. And it ensures that financial firms (40% of the economy) who sell distressed assets to the US Govt will receive premium prices for them. The Govt “may, in some cases” (meaning, it won’t in any case) take equity in the firms seeking corporate welfare assistance.

Guest • September 28th, 2008 at 4:34 pm

yes. But perhaps not directly after this 700b bail-out, because after the bail-out we might get another facet of the economy “about to go belly-up”…and needing to be rescued (and the rescue might require another bill with extra powers for some part of the government). After that we may get yet another and so forth…ok, but eventually they get to the point where they have accomplished the changes they wanted to have. Then we will start hearing that now all is well. Who knows, by that time we might have some “strong man” as the President.How would you say “hail” in english? hmmm…

AfA • September 28th, 2008 at 4:44 pm

Back to square one:If I well understood the new compromised plan, new provisions have been added but the execution of each one of these provisions will be at the discretion of the Treasury Secretary.- The fact that the $700B to be broken into SMALL amounts is an aesthetically question. As it can still be demanded by Paulson to release the full amount. And even if that was the case, I doubt the US Bond market would accept an additional $700B auction in one week.- “The bill includes pay limits for some executives whose firms seek help”- “In some cases, the government would receive an equity stake in companies that seek aid”- A self-oversight board. Formed by who? Treasury, SEC, Fed and Commerce department.We shall see (hopefully if the Congress does not change its mind and think we are not qualified to have an opinion of view about the plan) the details…

Guest • September 28th, 2008 at 4:47 pm

it is essentially a few token gestures and even in the flaky language you mention to quell the masses of the population, plus the big handouts to the Wall Street firms whose investments have gone sour

Guest • September 28th, 2008 at 4:49 pm

is it the case that there are no Basel Accord II requirements now for any bank in the US? can someone please confirm, thanks

kilgores • September 28th, 2008 at 4:50 pm

Ernst:If you’re using a PC running Windows, you can access the full range of Swedish characters from the ascii-II extended character set by holding down the Alt key while typing in the three- or four-digit code for the character. For example, to type the letter ‘ ä ‘ you would simply hold down the Alt key while typing in the number code 132 (or 0132). You can get a complete table of the ascii-II character online by searching using Google or any other standard search engine.I have an easier time at home, where I use a Mac. At work, I use a PC.SWK

Guest • September 28th, 2008 at 4:54 pm

I’m willing. In fact, I’ve been thinking about it.

Anonymous • September 28th, 2008 at 4:58 pm

I hear evryone talking but i dont see anything bad happening.When is all this bad stuff going to take place ?

yankee • September 28th, 2008 at 4:58 pm

oh, i’m outraged… i need some miss clairol to cover the gray hair this is giving me. we need to vote out all the a-holes who caved.

Guest • September 28th, 2008 at 5:05 pm

The current model of a private banking cartel has never been a suitable model. It is not now nor was it nearly 100 years ago when it became law through trickery and deception. Because we have had enough economic growth and prosperity throughout the past century to distract us from this truth, people have forgotten what really happened. And although the reality of this scam against our nation had been lost from the collective memory of passing generations, it is now being revived.

PhilT • September 28th, 2008 at 5:15 pm

…The meeting was organized by Rep. Brad Sherman (D-Calif.)and has been termed the “Skeptics Caucus.” Lawmakers were meeting withwell-known economists, such as James Galbraith, economics professor atthe University of Texas, and William Isaac, former chairman of theFederal Deposit Insurance Commission….

Entire Article => Kucinich says not enough votes for bailout

Guest • September 28th, 2008 at 5:18 pm

Sure beats the asses of evil, Bush/Cheney, Paulson and Bernanke

Guest • September 28th, 2008 at 5:29 pm

Minority party rolls majority party. Administration asks for blank check and royal immunity.Congress writes bill that is bad for taxpayers.Minority party refuses to vote for it unless it is made much worse for taxpayers.Majority party desperate for cover rewrites the bill so it will be worse for taxpayers.Bipartisan agreement reached ayt expense of taxpayers.Fed, treasury, administration are happy. Pelosi doesn’t understand why she feels screwed; but the taxpayers understand perfectly.

mammon • September 28th, 2008 at 5:35 pm

SECTION 132 SUSPENDS MARK-TO-MARKET ACCOUNTING(FASB 157)AND CLEARS THE WAY FOR THE INVESMENT BANKS TOBE OVERPAYED!From the Chicago-Sun TimesBailout legislation section by sectionByLynn Sweeton September 28, 2008 4:03 PM | Permalink | Comments (1)SECTION-BY-SECTION ANALYSIS OF THE LEGISLATIONSection 1. Short Title.”Emergency Economic Stabilization Act of 2008.”Section 2. Purposes.Provides authority to the Treasury Secretary to restore liquidity and stability to the U.S. financial system and to ensure the economic well-being of Americans.Section 3. Definitions.Contains various definitions used under this Act.Title I. Troubled Assets Relief Program.Section 101. Purchases of Troubled Assets.Authorizes the Secretary to establish a Troubled Asset Relief Program (“TARP”) to purchase troubled assets from financial institutions. Establishes an Office of Financial Stability within the Treasury Department to implement the TARP in consultation with the Board of Governors of the Federal Reserve System, the FDIC, the Comptroller of the Currency, the Director of the Office of Thrift Supervision and the Secretary of Housing and Urban Development.Requires the Treasury Secretary to establish guidelines and policies to carry out the purposes of this Act.Includes provisions to prevent unjust enrichment by participants of the program.Section 102. Insurance of Troubled Assets.If the Secretary establishes the TARP program, the Secretary is required to establish a program to guarantee troubled assets of financial institutions.The Secretary is required to establish risk-based premiums for such guarantees sufficient to cover anticipated claims. The Secretary must report to Congress on the establishment of the guarantee program.Section 103. Considerations.In using authority under this Act, the Treasury Secretary is required to take a number of considerations into account, including the interests of taxpayers, minimizing the impact on the national debt, providing stability to the financial markets, preserving homeownership, the needs of all financial institutions regardless of size or other characteristics, and the needs of local communities. Requires the Secretary to examine the long-term viability of an institution in determining whether to directly purchase assets under the TARP.Section 104. Financial Stability Oversight Board.This section establishes the Financial Stability Oversight Board to review and make recommendations regarding the exercise of authority under this Act. In addition, the Board must ensure that the policies implemented by the Secretary protect taxpayers, are in the economic interests of the United States, and are in accordance with this Act.The Board is comprised of the Chairman of the Board of Governors of the Federal Reserve System, the Secretary of the Treasury, the Director of the Federal Home Finance Agency, the Chairman of the Securities and Exchange Commission and the Secretary of the Department of Housing and Urban Development.Section 105. Reports.Monthly Reports: Within 60 days of the first exercise of authority under this Act and every month thereafter, the Secretary is required to report to Congress its activities under TARP, including detailed financial statements.Tranche Reports: For every $50 billion in assets purchased, the Secretary is required to report to Congress a detailed description of all transactions, a description of the pricing mechanisms used, and justifications for the financial terms of such transactions.Regulatory Modernization Report: Prior to April 30, 2009, the Secretary is required to submit a report to Congress on the current state of the financial markets, the effectiveness of the financial regulatory system, and to provide any recommendations.Section 106. Rights; Management; Sale of Troubled Assets; Revenues and Sale Proceeds.Establishes the right of the Secretary to exercise authorities under this Act at any time. Provides the Secretary with the authority to manage troubled assets, including the ability to determine the terms and conditions associated with the disposition of troubled assets. Requires profits from the sale of troubled assets to be used to pay down the national debt.Section 107. Contracting Procedures.Allows the Secretary to waive provisions of the Federal Acquisition Regulation where compelling circumstances make compliance contrary to the public interest. Such waivers must be reported to Congress within 7 days. If provisions related to minority contracting are waived, the Secretary must develop alternate procedures to ensure the inclusion of minority contractors.Allows the FDIC to be selected as an asset manager for residential mortgage loans and mortgage-backed securities.Section 108. Conflicts of Interest.The Secretary is required to issue regulations or guidelines to manage or prohibit conflicts of interest in the administration of the program.Section 109. Foreclosure Mitigation Efforts.For mortgages and mortgage-backed securities acquired through TARP, the Secretary must implement a plan to mitigate foreclosures and to encourage servicers of mortgages to modify loans through Hope for Homeowners and other programs. Allows the Secretary to use loan guarantees and credit enhancement to avoid foreclosures. Requires the Secretary to coordinate with other federal entities that hold troubled assets in order to identify opportunities to modify loans, considering net present value to the taxpayer.Section 110. Assistance to Homeowners.Requires federal entities that hold mortgages and mortgage-backed securities, including the Federal Housing Finance Agency, the FDIC, and the Federal Reserve to develop plans to minimize foreclosures. Requires federal entities to work with servicers to encourage loan modifications, considering net present value to the taxpayer.Section 111. Executive Compensation and Corporate Governance.Provides that Treasury will promulgate executive compensation rules governing financial institutions that sell it troubled assets. Where Treasury buys assets directly, the institution must observe standards limiting incentives, allowing clawback and prohibiting golden parachutes. When Treasury buys assets at auction, an institution that has sold more than $300 million in assets is subject to additional taxes, including a 20% excise tax on golden parachute payments triggered by events other than retirement, and tax deduction limits for compensation limits above $500,000.Section 112. Coordination With Foreign Authorities and Central Banks.Requires the Secretary to coordinate with foreign authorities and central banks to establish programs similar to TARP.Section 113. Minimization of Long-Term Costs and Maximization of Benefits for Taxpayers.In order to cover losses and administrative costs, as well as to allow taxpayers to share in equity appreciation, requires that the Treasury receive non-voting warrants from participating financial institutions.Section 114. Market Transparency.48-hour Reporting Requirement: The Secretary is required, within 2 business days of exercising authority under this Act, to publicly disclose the details of any transaction.Section 115. Graduated Authorization to Purchase.Authorizes the full $700 billion as requested by the Treasury Secretary for implementation of TARP. Allows the Secretary to immediately use up to $250 billion in authority under this Act. Upon a Presidential certification of need, the Secretary may access an additional $100 billion. The final $350 billion may be accessed if the President transmits a written report to Congress requesting such authority. The Secretary may use this additional authority unless wit
hin 15 days Congress passes a joint resolution of disapproval which may be considered on an expedited basis.Section 116. Oversight and Audits.Requires the Comptroller General of the United States to conduct ongoing oversight of the activities and performance of TARP, and to report every 60 days to Congress. The Comptroller General is required to conduct an annual audit of TARP. In addition, TARP is required to establish and maintain an effective system of internal controls.Section 117. Study and Report on Margin Authority.Directs the Comptroller General to conduct a study and report back to Congress on the role in which leverage and sudden deleveraging of financial institutions was a factor behind the current financial crisis.Section 118. Funding.Provides for the authorization and appropriation of funds consistent with Section 115.Section 119. Judicial Review and Related Matters.Provides standards for judicial review, including injunctive and other relief, to ensure that the actions of the Secretary are not arbitrary, capricious, or not in accordance with law.Section 120. Termination of Authority.Provides that the authorities to purchase and guarantee assets terminate on December 31, 2009. The Secretary may extend the authority for an additional year upon certification of need to Congress.Section 121. Special Inspector General for the Troubled Asset Relief Program.Establishes the Office of the Special Inspector General for the Troubled Asset Relief Program to conduct, supervise, and coordinate audits and investigations of the actions undertaken by the Secretary under this Act. The Special Inspector General is required to submit a quarterly report to Congress summarizing its activities and the activities of the Secretary under this Act.Section 122. Increase in the Statutory Limit on the Public Debt.Raises the debt ceiling from $10 trillion to $11.3 trillion.Section 123. Credit Reform.Details the manner in which the legislation will be treated for budgetary purposes under the Federal Credit Reform Act.Section 124. Hope for Homeowners Amendments.Strengthens the Hope for Homeowners program to increase eligibility and improve the tools available to prevent foreclosures.Section 125. Congressional Oversight Panel.Establishes a Congressional Oversight Panel to review the state of the financial markets, the regulatory system, and the use of authority under TARP. The panel is required to report to Congress every 30 days and to submit a special report on regulatory reform prior to January 20, 2009. The panel will consist of 5 outside experts appointed by the House and Senate Minority and Majority leadership.Section 126. FDIC Enforcement Enhancement.Prohibits the misuse of the FDIC logo and name to falsely represent that deposits are insured. Strengthens enforcement by appropriate federal banking agencies, and allows the FDIC to take enforcement action against any person or institution where the banking agency has not acted.Section 127. Cooperation With the FBI.Requires any federal financial regulatory agency to cooperate with the FBI and other law enforcement agencies investigating fraud, misrepresentation, and malfeasance with respect to development, advertising, and sale of financial products.Section 128. Acceleration of Effective Date.Provides the Federal Reserve with the ability to pay interest on reserves.Section 129. Disclosures on Exercise of Loan Authority.Requires the Federal Reserve to provide a detailed report to Congress, in an expedited manner, upon the use of its emergency lending authority under Section 13(3) of the Federal Reserve Act.Section 130. Technical Corrections.Makes technical corrections to the Truth in Lending Act.Section 131. Exchange Stabilization Fund Reimbursement.Protects the Exchange Stabilization Fund from incurring any losses due to the temporary money market mutual fund guarantee by requiring the program created in this Act to reimburse the Fund. Prohibits any future use of the Fund for any guarantee program for the money market mutual fund industry.Section 132. Authority to Suspend Mark-to-Market Accounting.Restates the Securities and Exchange Commission’s authority to suspend the application of Statement Number 157 of the Financial Accounting Standards Board if the SEC determines that it is in the public interest and protects investors.Section 133. Study on Mark-to-Market Accounting.Requires the SEC, in consultation with the Federal Reserve and the Treasury, to conduct a study on mark-to-market accounting standards as provided in FAS 157, including its effects on balance sheets, impact on the quality of financial information, and other matters, and to report to Congress within 90 days on its findings.Section 134. Recoupment.Requires that in 5 years, the President submit to the Congress a proposal that recoups from the financial industry any projected losses to the taxpayer.Section 135. Preservation of Authority.Clarifies that nothing in this Act shall limit the authority of the Secretary or the Federal Reserve under any other provision of law.Title II–Budget-Related ProvisionsSection 201. Information for Congressional Support Agencies.Requires that information used by the Treasury Secretary in connection with activities under this Act be made available to CBO and JCT.Section 202. Reports by the Office of Management and Budget and the Congressional Budget Office.Requires CBO and OMB to report cost estimates and related information to Congress and the President regarding the authorities that the Secretary of the Treasury has exercised under the Act.Section 203. Analysis in President’s Budget.Requires that the President include in his annual budget submission to the Congress certain analyses and estimates relating to costs incurred as a result of the Act; andSection 204. Emergency Treatment.Specifies scoring of the Act for purposes of budget enforcement.Title III–Tax ProvisionsSection 301. Gain or Loss From Sale or Exchange of Certain Preferred Stock.Details certain changes in the tax treatment of losses on the preferred stock of certain GSEs for financial institutions.Section 302. Special Rules for Tax Treatment of Executive Compensation of Employers Participating in the Troubled Assets Relief Program.Applies limits on executive compensation and golden parachutes for certain executives of employers who participate in the auction program.Section 303. Extension of Exclusion of Income From Discharge of Qualified Principal Residence Indebtedness.Extends current law tax forgiveness on the cancellation of mortgage debt.From House Speaker Nancy PelosiSummary of the “Emergency Economic Stabilization Act of 2008″I. Stabilizing the EconomyThe Emergency Economic Stabilization Act of 2008 (EESA) provides up to $700 billion to the Secretary of the Treasury to buy mortgages and other assets that are clogging the balance sheets of financial institutions and making it difficult for working families, small businesses, and other companies to access credit, which is vital to a strong and stable economy. EESA also establishes a program that would allow companies to insure their troubled assets.II. Homeownership PreservationEESA requires the Treasury to modify troubled loans – many the result of predatory lending practices – wherever possible to help American families keep their homes. It also directs other federal agencies to modify loans that they own or control. Finally, it improves the HOPE for Homeowners program by expanding eligibility and increasing the tools available to the Department of Housing and Urban Development to help more fam
ilies keep their homes.III. Taxpayer ProtectionTaxpayers should not be expected to pay for Wall Street’s mistakes. The legislation requires companies that sell some of their bad assets to the government to provide warrants so that taxpayers will benefit from any future growth these companies may experience as a result of participation in this program. The legislation also requires the President to submit legislation that would cover any losses to taxpayers resulting from this program by charging a small, broad-based fee on all financial institutions.IV. No Windfalls for ExecutivesExecutives who made bad decisions should not be allowed to dump their bad assets on the government, and then walk away with millions of dollars in bonuses. In order to participate in this program, companies will lose certain tax benefits and, in some cases, must limit executive pay. In addition, the bill limits “golden parachutes” and requires that unearned bonuses be returned.V. Strong OversightRather than giving the Treasury all the funds at once, the legislation gives the Treasury $250 billion immediately, then requires the President to certify that additional funds are needed ($100 billion, then $350 billion subject to Congressional disapproval). The Treasury must report on the use of the funds and the progress in addressing the crisis. EESA also establishes an Oversight Board so that the Treasury cannot act in an arbitrary manner. It also establishes a special inspector general to protect against waste, fraud and abuse.Categories:* 2008 Race for the White House,* Barack Obama,* John McCain

Wild Bill • September 28th, 2008 at 5:37 pm

Beware the man with crooked pinky,With guile so smooth and gait so slinky.Eschew his words they’re false and stinky,Trust not this man, this Winkie Dinky.

Guest • September 28th, 2008 at 5:45 pm

“I voted for the Save America rescue bill because it is in the best interest of the hard working folks in my district. In this time of crisis we have to stand together and look out the window and see the Universe.”The yes or no vote depends on the Representative’s district. Is it a safe district for the incumbent? Are the voters in my district (aside from the cranks that read and know how to work a computer) paying any attention? What goodie is the leadership prepared to offer me for my vote? Am I retiring? What am I going to get for voting yes? I am not going to get anything for voting no.

Guest • September 28th, 2008 at 5:55 pm

This underscores what I believe…that the fraud — such as the massive pile of fake HUD mortgages unsecured by properties, and the derivative dangers within the excess debt — is so great and explosive that only a completely-trusted and connected insider, such as a Buffet or a Forst from Harvard or a Ramanathan from Goldman, can be trusted to move it through the political canyons and keep his silence.Congressional fences on the banking committees are Barney Frank and Christopher Dodd. In the oval, buck-stops-here office, it’s Bugsy Siegel Bush.

Guest • September 28th, 2008 at 6:06 pm

Calculated Risk has an excellent post!Great researcher found the 0 reserve withaccelerated Oct 1,2008 effecive date forpaying interest!Draft: Emergency Economic Stabilization Act of 2008by CalculatedRiskFrom the House Financial Services Committee:Emergency Economic Stabilization Act of 2008Washington, DC – Click the following links to view documents:Emergency Economic Stabilization Act of 2008Summary of Emergency Economic Stabilization Act of 2008Section-by-Section of Emergency Economic Stabilization Act of 2008On suspending Mark-to-Market:SEC. 132. SUSPENSION OF MARK-TO-MARKET ACCOUNTING.(a) AUTHORITY.—The Securities and Exchange Commission shall have the authority under securities laws (as such term is defined under section 3(a)(47) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47)) to suspend, by rule, regulation, or oder, the application of Statement Number 157 of the Financial Accounting Standards Board for any issuer (as such term is defined in section 3(a)(8) of such Act) or with respect to any class or category of transaction if the Commission determines that is necessary or appropriate in the public interest and is consistent with the protection of investors.And on allowing banks to earn interest and maintain a “zero reserve ratio”:SEC. 128. ACCELERATION OF EFFECTIVE DATE.Section 203 of the Financial Services Regulatory Relief Act of 2006 (12 U.S.C. 461 note) is amended by striking ‘‘October 1, 2011’’ and inserting ‘‘October 1, 2008’’.Here is the previous text (hat tip Falcor):Financial Services Regulatory Relief Act of 2006 – Section 203.”Interest on Reserves and Reserve Ratios”Federal Reserve Banks are authorized to pay banks interest on reserves under Section 201 of the Act. In addition, Section 202 permits the FRB to change the ratio of reserves a bank must maintain relative to its transaction accounts, allowing a zero reserve ratio if appropriate. Due to federal budgetary requirements, Section 203 provides that these legislative changes will not take effect until October 1, 2011.”Here are some parts on pricing mechanism:(d) PROGRAM GUIDELINES.—Before the earlier of the end of the 2-business-day period beginning on the date of the first purchase of troubled assets pursuant to the authority under this section or the end of the 45-day period beginning on the date of enactment of this Act, the Secretary shall publish program guidelines, including the following:(1) Mechanisms for purchasing troubled assets.(2) Methods for pricing and valuing troubled assets.(3) Procedures for selecting asset managers.(4) Criteria for identifying troubled assets for purchase.So it’s all up to the Secretary to establish the rules. Same with Warrants – it’s up to the Secretary to negotiate.Here is the section on transparency:SEC. 114. MARKET TRANSPARENCY.(a) PRICING.—To facilitate market transparency, the Secretary shall make available to the public, in electronic form, a description, amounts, and pricing of assets acquired under this Act, within 2 business days of purchase, trade, or other disposition.(b) DISCLOSURE.—For each type of financial institutions that is authorized to use the program established under this Act, the Secretary shall determine whether the public disclosure required for such financial institutions with respect to off-balance sheet transactions, derivatives instruments, contingent liabilities, and similar sources of potential exposure is adequate to provide to the public sufficient information as to the true financial position of the institutions. If such disclosure is not adequate for that purpose, the Secretary shall make recommendations for additional disclosure requirements to the relevant regulators.At least transactions will be made public online.Posted by CalculatedRisk at 4:01 PM Comments (453)Labels: The Mother of All Bail

Guest • September 28th, 2008 at 6:10 pm

Sounds like a plan that will cost in the trillions and it sounds like they are going to stop forclosing on people anyway they can including renting out homes…crazy!!

mammon • September 28th, 2008 at 6:15 pm

http://banking.senate.gov/public/_files/AYO08C04_xml2.pdffull text

AfA • September 28th, 2008 at 6:46 pm

Good and bad progress and changes have been made to the TARP. However, I still stick to my first opinion that if there is only one major thing in the whole bail-in plan that is worth consideration and focus, it should be PRICING. I believe that the no-reporting, no-oversight and other eye-popping provisions in the initial 3-page draft was just smoke in the eye and negotiation tactics.Two major developments have been made in the wrong direction about pricing. The suspension of mark-to-market accounting rules as under section 3(a)(47) of the Securities Exchange Act of 1934. The pricing procedures and models were not fixed and are made at the discretion of the Treasury Secretary. On the bright side, there seems to be provisions for more pricing transparency.To paraphrase MofG, we just moved from illegal stealth to legal stealing.

Guest1984 • September 28th, 2008 at 6:52 pm

I searched the pdf and found “dividend” occurring only one time (p.48). The text does NOT mention the suspension of the dividend.Sweet deal – they would accept bailout by taxpayers and still could pay dividend to shareholders.

Guest • September 28th, 2008 at 6:52 pm

http://www.youtube.com/watch?v=Feyu2Db2QuUIs this the U.S.Congress, or the Board of Directors of Goldman Sachs?????

Guest1984 • September 28th, 2008 at 6:55 pm

Sorry, my error. It is on page 38 (page 48 in pdf published by CNNMoney http://money.cnn.com/2008/09/28/news/pdf/index.htm)

artichoke • September 28th, 2008 at 6:58 pm

That’s right, the Paulson plan is not inflationary. It borrows from the economy to give to the banks, the same sort of sterilization Bernanke has been doing for the past year.We need to stop the sterilization, stop picking the people’s pockets. We need to PRINT. It’s that simple. If China won’t roll over their bonds, the Fed can buy them. It has unlimited balance sheet, or that balance sheet can be expanded by act of Congress. PRINT.

artichoke • September 28th, 2008 at 6:59 pm

Because of course Bush doesn’t like scumbuckets like me, or you, who buy cars for cash.

artichoke • September 28th, 2008 at 7:03 pm

The last time I remember martial law in Congress, it was during the Senate trial of the impeachment of President Clinton.

CDN observer • September 28th, 2008 at 7:04 pm

Couldn’t agree more, seems the pols didn’t really consider the options .Capitalization is the key and my only question to NR is ” do you think it may have been impossible to raise the 350b in equity if the Fed had done a share purchase with a matching requirement?” Would have been a god deal all round but I dont see many lining up to invest .

Guest • September 28th, 2008 at 7:06 pm

Which provisions involve stopping foreclosures?

Lloyd Gillespie • September 28th, 2008 at 7:11 pm

Thanks for the sanity, Noriel. Haven’t any of the D.C. dummies contacted you? Been following your work for years, keep up the great work.

Guest • September 28th, 2008 at 7:15 pm

I can tell you what’s going to happen from here on out. The investment fraudsters are going to get their piles of money, float it around. And in a week or so, they’re going to be back in Congress to say they need more. And the public is going to say to Congress, if you give them more, we’ll cut your throats.The ‘investors” need to cover their fraud and there just ain’t enough money to go ‘round.Paulson and his billionaire banksters had to go to Congress and get down on their worsted knees and beg… for $700,000,000,000 because they’ve already emptied out the Treasury. They broke their piggy bank. It was an odious thing to see these coifed investment bankers go to the politicians hat-in-hand to get another bailout handout, and suffer condemnation from the American people.But they’ve scratched their gold-plated veneers and the people are beginning to withdraw their voluntary support of the system.

Guest • September 28th, 2008 at 7:20 pm

Dear United States, Welcome to the Third World!It’s not every day that a superpower makes a bid to transform itself into a Third World nation, and we here at the World Bank and the International Monetary Fund want to be among the first to welcome you to the community of states in desperate need of international economic assistance. As you spiral into a catastrophic financial meltdown, we are delighted to respond to your Treasury Department’s request that we undertake a joint stability assessment of your financial sector. In these turbulent times, we can provide services ranging from subsidized loans to expert advisors willing to perform an emergency overhaul of your entire government.Continued at: http://www.latimes.com/news/columnists/la-oe-brooks18-2008sep18,0,2481300.column

AfA • September 28th, 2008 at 7:20 pm

Although I am afraid this would come a little bit too late, what about people on this board participating to draft a 3-5 page long description of what went wrong and how we got ourselves here, what are the risks going forward, a factual criticism of Paulson’s plan (even in its modified version) and its consequences, as well as the consequences of inaction, and basic/ critical points that any said-bailout should focus on and take into consideration …As many expressed here, most people lack understanding of what is going on. So probably they need a simple (not simplistic) expose to be aware of risks and consequences.They need to get MAD.

AfA • September 28th, 2008 at 7:22 pm

The 3-5 pages can then be circulated to the maximum of people through “send to all contact” e-mailing and other viral and mass news circulation.

Guest • September 28th, 2008 at 7:42 pm

I suggest the above as the official definition of the U.S. Federal Reserve System in future versions of 21st Century dictionaries.

PhilT • September 28th, 2008 at 7:48 pm

What ? No Paulson Plan necessary to manage toxicity in the UK:

…Alistair Darling, the Chancellor, will announce on Mondaythat the Government is taking over the bank’s mortgages and selling offthe savings business and the branches. Savers are reassured that theirmoney is safe although people owning shares in the bank will lose out …

Entire Telegraph Article => Bradford & Bingley will cost taxpayers £150bn

Guest • September 28th, 2008 at 7:55 pm

“Old ‘97”It’s as if all America today is riding “Old ‘97” … “down the three-mile grade from Lynchburg to Danville.”Airbrakes were gone as the engineer was…“Going down the grade makin’ 90 miles an hour…“When his whistle broke into a scream.“He was found in the wreck with his hand on the throttle“A scalded to death by the steam.”Like the engineer, it’s beginning to look like America won’t be able to put “Old ‘97” into Spencer on time. Like the fate of that famous Virginia locomotive, down the hill from “that White Oak Mountain” waits the destruction of the American free enterprise system.Bailout!

PhilT • September 28th, 2008 at 8:17 pm

The center-right Frankfurter Allegemeine Zeitung writes:

“It’s the rhetoric of Sept. 11. … But this crisis actuallyhas much larger dimensions than the attack against thetwin towers and collapse seven years ago. Why? Because,this time, the attack on all-American doctrines is notthe work of some foreign enemy. It comes from within,from the depths of the system. Largely unobstructed byits own state controls, American capitalism has createdits own suicide bomber whose explosives — derivatives –have had an even greater effect than the flying bombs ofthe jihadists. The whole world — and not just New York –has a new ground zero now — Wall Street.”

As quoted in a translated survey of German newspapers from Der Spiegel => ‘Germany Will Pay a High Price for US Sins’Our suffering disposition in the world is rapidly accelerating…

Anonymous • September 28th, 2008 at 8:18 pm

Many many thanks to Nouriel RoubiniOne of the very very rare non corrupt independant voice in the USA.A true hero.Your have been catapulted to celebrity status and rightly so.

Anonymous • September 28th, 2008 at 8:33 pm

That would indeed be a dream team

PeterJB • September 28th, 2008 at 8:37 pm

As free-market pricing has been declared dead, from where is the sustainability for the economic dynamic derived?Interesting times.Ho hum

Martin • September 28th, 2008 at 8:39 pm

DENY.ridiculous claims these

Theta • September 28th, 2008 at 8:50 pm

A friend passed this link along to me and I though I’d share it here, since I’ve gotten so much helpful information from these forums in the past week.http://www.heritage.org/Research/Economy/wm2086.cfmIt deals with how fundamentally unconstitutional the Paluson proposal is and how the revisions haven’t helped in the slightest. I plan to add some of there objections to my complaints when I call my congresspeople tonight.So now the clock is ticking. I’m betting that now the ball is in motion this 110 page monster will pass, and I’d also wager they pass it as soon as they can in the morning, before anyone in the public can get a decent look at it. This whole vote had better be recorded. I want to know who not to vote back into office.

AfA • September 28th, 2008 at 8:51 pm

“from where is the sustainability for the economic dynamic derived?”From self-interested, -motivated political interactions, where the loudest barking dogs get to set prices modeled according to the physics of supernovas and black sholes.

AfA • September 28th, 2008 at 8:54 pm

dammit, it didn’t work, the s in sholes should have been an sc and strikethrough…. according to the physics of supernovas and black (sc)holes.

Anonymous • September 28th, 2008 at 9:03 pm

Takeaways from the Analyst Call:Broad Discretion for Treasury SecretaryAlmost impossible to stop immediate allocation of all $700B, especially if Paulson asks for all of it immediately after Congress goes on break!Purpose was to maximize the liquidity boost (wealth transfer) to the system, not to optimize for the taxpayer. No requirement that banks relend cash they receive.Will wait a few weeks before anything is done (weak banks can fail), even then prefer to deal with strong banks than rescue weak ones.Exec comp. provisions won’t really affect strong banks.Pricing TBDAll matters of implementation will be done as “guidelines” meaning they are exempt from public review and comment.

Anonymous • September 28th, 2008 at 9:06 pm

Congressmen will report at 8am. They should know what was discussed on that analyst call. The whole tone was “we’ve dealt with the taxpayer, this bill is meant to take care of us in the system”. Any help in faxing or otherwise notifying them of the content of that analyst call would be appreciated. It’s the 9th inning now.

AfA • September 28th, 2008 at 9:08 pm

Roubini is on Bloomberg tonight and he is making a very compelling case – so to speak.

Anonymous • September 28th, 2008 at 9:13 pm

This is absolutely stunning”Financial Stability Oversight Board….The Board is comprised of the Chairman of the Board of Governors of the Federal Reserve System, the Secretary of the Treasury, the Director of the Federal Home Finance Agency, the Chairman of the Securities and Exchange Commission and the Secretary of the Department of Housing and Urban Development.”So the board is composed of the same people who brought us this mess.Congress did not require their dismissal and their replacement by more competent people.What a joke.We must do everything so that Nancy Pelosis and Christopher Dodd and Barney Franks and sold out the taxpayers bites the dust on their next election.

AfA • September 28th, 2008 at 9:14 pm

So maybe if this bailout is passed -in its current form – it will just add more debt burden to the already “debt-burdened, shopped-out, saving-less” consumer – either through higher taxes or through higher higher market interest rates or both (in addition to rising unemployment, less available credit and expensive exports) – and will be an additional trigger to show more cracks in the credit markets but in different places other than the mortgage-related debt instruments.

Julius Vizner • September 28th, 2008 at 9:22 pm

“In establishing any premium under 10 paragraph (1) [to be paid by banks for participation in the program], the Secretary may provide for variations in such rates according to the credit risk associated with the particular troubled asset that is being guaranteed.”- I guess the government is taking the whole mispricing of risk into its own hands.

I, Claudius • September 28th, 2008 at 9:38 pm

General Observations:1) The bailout is no surprise because “the full faith and credit of the US govt” was always the insurance policy of last resort, and the premiums were kept up and paid regularly to Congress by WS — why did you ever think it wouldn’t pass??2) “Republic” comes from Latin “res publica” for “public thing”. For neo-cons/neo-liberals, free marketers, there is no place for a “public sector” except where it can use force to defend the private sector.3) This is the culmination the “hollowing out” from within we’ve all been feeling in our politics for the past 28 years. FDR-society was targeted to be dismantled ENTIRELY, and most truly democratic politicians have mistaken their opponents as “all part of the balancing give-and-take game”, rather than realizing that they were deadly serious about dismantling the government.4) Welcome to History, my fellow Americans. We have now awakened from the comfortable Dream which never required us to make choices with real consequences.Ave atque vale,I, ClaudiusPs. My father was a 20-year-old Marine in WWII on Guam, Guadalcanal, and Iwo Jima. When he died in 2005, I wept for losing him personally. But now my sadness is even greater for the loss of his contributions to this country.

Guest • September 28th, 2008 at 9:56 pm

@ Anonymous:” I listen to references of the risk to the American way, and that this ‘package’ will return things to normal. Isn’t it the American way and ‘normal’ what played a significant part of getting the financial world into this predicament? Isn’t it possible that 10:1 or 15:1 or 25:1 leverage is just (in the long term) a bad idea? … My solution in the interim? cash and zero debt. I’m waiting it out, marveling at the enormity of the change in scope and breadth of this new forthcoming financial world.” 09:50:00According to figures provided a year or two back by Prudent Bear, the Fed is keeping about 1/4 of 1% in deposits as “fractional” reserve money in its system, i.e. 25 cents in receipts for every $100 of debt creation.As this fraction becomes infinitesimal, the dollar resembles less and less receipt money and more and more fiat money created out of nothing. At .00026%, I suggest we quit nitpicking, and just call it pure fiat.The dollar’s transition from fractional-reserve money backed by a commodity to fiat money backed by nothing required the participation of government through a mechanism called a central bank, i.e., the duplicitous, privately-owned Federal Reserve System. Unfortunately, the narcotic of blowing money out of thin air became a habit too strong for Paulson and Bernanke and Greenspan and their investment banker friends to kick—-and the dollar is rapidly on its way to joining the peso.Now that the public has discovered the truth via bailout, that its money is just a lot of unbacked paper notes issued by a bunch of guys in a marble building, bank runs are beginning as people rush to pull their “money” out and spend it before it becomes totally worthless.Race you to the bank?

Guest • September 28th, 2008 at 10:06 pm

SUNDAY, SEPTEMBER 28, 2008 10:51 P.M. –Mussolini-Style Corporatism in Action: Treasury Conference Call on Bailout Bill to InvestorsVarious readers wrote us, and it was confirmed by a detailed report on the call at DealBreaker, that the Treasury Department held a conference call for investors. A memo was evidently sent to SIFMA members; others may have been contacted by other means. But the report I got from one person who was on the call was the the questions came from financial services industry members. In other words, this was most assuredly not intended to be an open call and if anyone from the media or the public at large was listening in, it was by accident.This is simply scandalous. To have a group of interested parties get a privileged briefing on a matter of keen public interest flies in the face of what a democracy is supposed to be about. The proper method would either be a published FAQ on the Treasury website or a briefing with the media included. But why should I be surprised? Favoritism has been a staple of the Bush Administration.There is a live blogging recap at DealBreaker. Someone who was on the call is going over his notes and other recaps on the Wev and sending me his version, which I hope will add some color. Check back for that update. (Yves Smith)http://www.nakedcapitalism.com/

Mother of God • September 28th, 2008 at 10:12 pm

that martial law thang lasts until tomorrow, the 29th, and when you try to phone your house and senate reps now, you are shut down 100%. all you can get is a recording that “their voicemailbox is full – goodbye”i have 2 canines from the rescue league who are finer people than my reps in congressby farand now the pattern will hold true, i bet anything: an event has been planned to strike terror into americans to keep them from voting out every last damn rep who votes for this treacheryno one wishes more than i that i’m wrong about this, but the patterns are so clear…mourning in…whatever the dead carcass of this country should be called now

Guest • September 28th, 2008 at 10:20 pm

Maybe we should replace the red, white and blue stars and stripes of Old Glory with the black and white strips of Old Penitentiary.

Guest • September 28th, 2008 at 10:27 pm

I am confident our beloved govt. is fully aware of all the brillian economist that are speaking of this globally. So the next question in my mind is..why wouldnt they want to invite in the brilliant economists to offer up ideas and strategies? What is the specific reason they are choosing not to? My guess is they don’t want the remedy, they want this to happen, moving us closer to one global economic system. This is a scam people. There is a higher agenda here.

Anonymous • September 28th, 2008 at 10:32 pm

What is wrong with you guys? If this bailout is not passed, there will be worldwide panic. The Dow will fall at least 5000-6000 points over a week. Most important, banks will completely halt lending. More banks will fail. The FDIC will be overwhlmed. Again, lending will halt. Most companies in the U.S. depend on short-term lending to pay their payrolls. Unemployment could reach as high as 20-25%. Consumer spending (which makes up 2/3 of the U.S. economy) will halt. There will be a vicious cycle. Is this what all you folks want? A Depression is guaranteed if this bailout is not passed.

FRIEND OF WASHINGTON MUTUAL • September 28th, 2008 at 10:34 pm

MR PIATTI AND SIGNORA SERENI ALSO LOVES NURIELVIVA PARTIGIANISTA MATINA MI SONO SVEGLIATO A BELLA CIAO BELLA CIAO BELLA CIAO CIAO.

Average Jane • September 28th, 2008 at 10:35 pm

Don’t despair yet, MOG. I did get through to one of my senators and my congresswoman tonight at their Washington DC numbers. I resorted to calling a senator from a neighboring state too at his D.C. number. I also called Dennis Kucinich’s office (who is not my congressman) and actually got a live person–this was about half an hour ago. Keep calling, folks. This is crucial. Speaker Pelosi has sold us out.

Average Jane • September 28th, 2008 at 10:36 pm

We’re in one now, Anon.

FRIEND OF WASHINGTON MUTUAL • September 28th, 2008 at 10:37 pm

YEAH ALESSANDRO PUSH DEEPER ,HARDER AND HARDER

FRIEND OF WASHINGTON MUTUAL • September 28th, 2008 at 10:44 pm

MISTAKE THERE ARE MORE PEOPLE IN THER STREETS IN INDIA.

Mother of God • September 28th, 2008 at 10:49 pm

you just don’t get it. there is NO POSSIBILITY this plan works, NO POSSIBILITY this plan does NOT make things WORSE LATER ON. MATH SAYS SO.All this plan does is make certain the pain is greater in the future. Like i said, the people who will pay and pay for this were tucked into bed at 7pm and still suck their thumbs – and their kids will pay and their kids will pay…with this plan we have LITERALLY enslaved the yet-to-be-born.

Wolf in the Wilds • September 28th, 2008 at 10:56 pm

Look, there are other ways around this. Keeping the banks afloat this way DOES NOT WORK. It makes it worse because instead of cutting off the gangreneous arm that is the banking system, you have decided to let it infect the whole country. This plan will destroy the US of A to save the handful of bankers. If you really want to avoid a long depression, the only way is to let the banks fail, recapitalise them and restart the engine, not this tax-payer financed transfer of wealth. Risk takers will lose money for taking excessive risk. Sure, bank equity and debtors will be wiped out, but that is the price they pay for overleverage. The government can then come in, replace management, recapitalise the banks, and restart the lending process. I give you 2 years of pain at the max. Adopting this plan will put the taxpayers and the government of the US on the hook for the next 10-20years ad the risk takers get away scott free. Is that what you want as an American? Are you so short sighted as to not see the real problems of the economy.There will be pain in this adjustment, of that there can be no doubt. The question lies in whether you save the country or you save the fat bankers at the expense of the country. It is your choice.

Mother of God • September 28th, 2008 at 10:56 pm

Goodness bless you, AJane, and goodness bless Dennis Kucinich. I don’t know if i have ever been sadder than at this moment, but don’t you worry about me giving up the fight for what’s right.aint gonna happen.they can’t own me – i’m one of the ones they’ll have to shoot.i have opened my own nail factory: I’m SPITTING them! you know we mothers can do several things at once. mourning and spitting nails simultaneously aint the hardest things i’ve ever done!

aleister perdurabo • September 28th, 2008 at 10:58 pm

Toborrow and toburrow and tobarrow! That’s our crass, hairy andevergrim life, till one finel howdiedow Bouncer Naster raps on thebell with a bone and his stinkers stank behind him with thesceptre and the hourglass. We may come, touch and go, fromatoms and ifs but we’re presurely destined to be odd’s withoutends.

mammon • September 28th, 2008 at 11:02 pm

Floyd Norris(NYTIMES) intimates that the wide discretion of Hank Paulson in this Draftis akin to complete power.The leadership is going to brow beat the Goldwater Republicans and the Kucinich progressive democrat types inthe morning at 5 am. They would like to get a quick vote and pull off a Senate vote before Rosh Hashanahat sundown on Monday. They know the longer the american people have to call their representatives theworse it is going to get to control the principled congressmen!Treasury Would Emerge With Vast New PowerArticle Tools Sponsored ByBy FLOYD NORRISPublished: September 28, 2008During its weeklong deliberations, Congress made many changes to the Bush administration’s original proposal to bail out the financial industry, but one overarching aspect of the initial plan that remains is the vast discretion it gives to the Treasury secretary.The draft legislation, which will be put to a House vote on Monday, gives Treasury Secretary Henry M. Paulson Jr. and his successor extraordinary power to decide how the $700 billion bailout fund is spent. For example, if he thinks it wise, he may buy not only mortgages and mortgage-backed securities, but any other financial instrument.To be sure, the Treasury secretary’s powers have been tempered since the original Bush administration proposal, which would have given Mr. Paulson nearly unfettered control over the program. There are now two separate oversight panels involved, one composed of legislators and the other including regulatory and administration officials.Still, Mr. Paulson can choose to buy from any financial institution that does business in the United States, or from pension funds, with wide discretion over what he will buy and how much he will pay. Under most circumstances, banks owned by foreign governments are not eligible for the money, but under some conditions, the secretary can choose to bail out foreign central banks.Under the bill, the Treasury is to buy the securities at prices he deems appropriate. Mr. Paulson may set prices through auctions but is not required to do so.Rarely if ever has one man had such broad authority to spend government money as he sees fit, with no rules requiring him to seek out the lowest possible price for assets being purchased.The secretary is supposed to do what he can to maximize the profit or minimize the eventual loss to the federal government as a result of its purchase of mortgages and other financial instruments. But in the case of mortgages controlled by the government, he is required to approve “reasonable requests for loss mitigation measures, including term extensions, rate reductions, principal write-downs” and other possible changes. Such requests could help homeowners at the expense of the government.Congress forced the Bush administration to agree to a provision requiring financial institutions that sell securities to the program to give an equity or debt stake to the government. But Mr. Paulson will have wide latitude in deciding how large a stake is needed. His discretion in setting those limits could have a major impact on how many institutions choose to participate.The limits on executive pay in the bill, also added in response to pressure from legislators, appear unlikely to be used very often. The secretary could take such steps if he bought substantial assets “from an individual financial institution where no bidding process or market prices are available.”Presumably, if there is some kind of bidding process, those limitations, over which the secretary also has considerable discretion, will not apply. However, institutions that receive $300 million or more from the program would face limitations on executive pay.One of the most important decisions the secretary will make is the price the government pays for securities. Here again, there is wide discretion. He is directed to “make such purchases at the lowest price” that is “consistent with the purposes of this act.”Those purposes, however, are expansive and leave him room to pay well over the lowest price available if he wishes to do so. The act is designed to “restore liquidity and stability to the financial system of the United States” and protect homeownership, home values and economic growth. If he concludes that a higher price is needed to provide stability in the financial markets, that is evidently acceptable.When the Bush administration submitted its original proposal, there was an uproar over the lack of oversight of the secretary’s actions. This bill requires frequent reports to Congressional committees, including a Congressional oversight panel; audits by the comptroller general; and appointment of an inspector general for the program.The bill also sets up an oversight board, which is directed to “ensure that the policies implemented” by Mr. Paulson are proper. Mr. Paulson is to be one of the five members of the board watching over his actions, joined by the chairman of the Federal Reserve, the chairman of the Securities and Exchange Commission, the Housing Secretary and the director of the Federal Home Finance Agency.If Mr. Paulson wishes to use his authority to buy financial assets not linked to mortgages, he can do so after consulting the Fed chairman. But he does not need the approval of the Fed chairman or the oversight board.The bill does allow legal challenges, but attempts to assure they are quickly handled and that the most important decisions can be challenged only on constitutional grounds, not on the ground that they conflict with some other law.While the bill does not drop the accounting rule that requires banks to report on the market value of their assets — a rule that some banks believe has forced them to report excessive losses — it gives the S.E.C. permission to suspend the rule for any individual company if it thinks that is in the public’s interest. That is likely to lead to intensive lobbying of the commission.More Articles in Business » A version of this article appeared in print on September 29, 2008, on page A1 of the New York edition.

Mother of God • September 28th, 2008 at 11:06 pm

Power connects, and absolute power connects absolutely.

Guest • September 28th, 2008 at 11:07 pm

Scandalous, in my opinion, doesn’t quite go as far as I would in describing it.

Guest • September 28th, 2008 at 11:20 pm

Poignant, and sadly too true.

mammon • September 28th, 2008 at 11:20 pm

Joseph Stiglitz said to Scott Pelley on 60 minutes that the American Taxpayer was thesucker in this bailout. They finished the piece by intimating he agreeswith the congress compromise! He did not say it! They said it for him!

Guest • September 28th, 2008 at 11:26 pm

Shape of Massive Bailout Bill Starts to Develop DefinitionBy DEBORAH SOLOMONWASHINGTON — Congress will decide on broad new powers for the Treasury Department in sweeping legislation that could be put to a vote as early as Monday.At its core, the legislation would give Treasury Secretary Henry Paulson the authority and as much as $700 billion to buy rotten financial assets that Mr. Paulson says are choking business by making it all but impossible for banks to lend.After days of negotiations, Treasury agreed to such concessions as curbs on executive pay, government acceptance of equity stakes in companies and oversight that will include the inspector general. Here are the details of the proposed compromise. Some terms could change before a final vote:The Troubled Asset Relief Fund:The bill authorizes $700 billion for the fund in installments. Treasury will first get $250 billion, with an additional $100 billion immediately accessible. Congress would have the option of blocking the final installment of $350 billion by issuing a joint resolution within 15 days of any requests.How it works:Treasury plans to hire asset managers to determine how to buy bad loans and other ailing assets from financial institutions. Many of the details, including pricing and purchase procedures, will be worked out between those managers and Treasury. The legislation requires Treasury to set guidelines within 45 days for pricing methods and setting the value of troubled assets, as well as mechanisms for purchasing assets, procedures for selecting asset managers and criteria for identifying troubled assets to buy.The legislation requires Treasury to purchase assets at the lowest price, and allows the government to buy through auction or direct from institutions.Treasury expects to start buying the simplest assets first — mortgage-backed securities, for example — followed by more complex securities. Treasury likely will publish a list of the assets it is seeking to purchase. Banks and other institutions are expected to submit bids in a competition to sell bad loans and securities.Executive compensation:The legislation places restrictions on executive compensation for certain companies that sell assets to Treasury. If Treasury buys assets from a company directly — something it would do if a firm were failing — then all “golden parachute” exit-pay provisions would be canceled. Companies that sell assets to Treasury through an auction process will be subject to some limits. Firms that sell more than $300 million of assets to Treasury won’t be allowed to make any new golden-parachute payments to top executives. A tax-deduction limit on compensation above $500,000 also will apply.Equity stakes:The legislation requires Treasury to receive warrants in companies that participate in the program. If a company sells its assets through an auction, Treasury will get a nominal amount of nonvoting warrants. If Treasury buys assets directly, it would get a majority equity stake.Oversight:The Troubled Asset Relief Fund will be overseen by a bipartisan congressional commission that will receive reports from Treasury every 30 days. The program will also be overseen by a board comprised of the heads of Treasury, the Federal Reserve, the Securities and Exchange Commission, the Housing and Urban Development Department and the Federal Housing Finance Agency.The office of accountability will have an inspector-general office within Treasury.Treasury will have to submit a written report to Congress no later than April 30 on the overall financial regulatory system and “its effectiveness at overseeing the participants in the financial markets, including the over-the-counter swaps market and government-sponsored enterprises” and recommend improvements.Protecting taxpayers:If after five years the government has a net loss, the president will be required to submit a legislative proposal to seek reimbursement from the financial institutions that participated.Help for homeowners:Treasury will buy mortgage-backed securities, mortgages and other assets secured by residential real estate. The legislation requires Treasury to use its position as the investor in those loans and securities to “encourage the servicers of the underlying mortgages” to help minimize foreclosures.It also calls for Treasury to “identify opportunities” to acquire “classes of troubled assets” that will improve the ability of Treasury to help modify and restructure loans. The idea is that Treasury would be more patient with homeowners who have fallen behind on their payments than commercial lenders.Insurance:The bill would require Treasury to establish, alongside the asset-purchase plan, a program to insure mortgage-backed securities. Financial institutions that want to participate would essentially pay the government a fee and, in return, the government would insure their assets against any future losses.Write to Deborah Solomon at deborah.solomon@wsj.com

JLC • September 28th, 2008 at 11:28 pm

Socialist is the wrong word Man. If it were socialism, we would be spending 700 Bil on public works and increasing the safety net for the average joe. This is closer to fascism.

Guest • September 28th, 2008 at 11:30 pm

lol

Stratonovich calculus • September 28th, 2008 at 11:39 pm

UN*X shell script to fax every member of Congress:1. Write document. Save As… Postscript (file names, locations for Senate and House below.)2. Run this script.

#!/bin/bash -xPREFIX=”*70-1-”FROM=\””+1-617-354-6464″‘\’NAME=\””If you vote for this rip-off Bailout Bill I will vote against you”‘\’SENATE_PS=”$HOME/Desktop/OpposeBailout_Senate.ps”HOUSE_PS=”$HOME/Desktop/OpposeBailout_House.ps”SENATE_FAX=”$SENATE_PS.00?”HOUSE_FAX=”$HOUSE_PS.00?”echo FROM=$FROMecho NAME=$NAME# Create the fax files on the desktop(cd $HOME/DesktopCMD=”fax FROM=$FROM NAME=$NAME make $SENATE_PS”eval $CMDCMD=”fax FROM=$FROM NAME=$NAME make $HOUSE_PS”eval $CMD)# All Senatorsfor PHONE_NUMBER in \2022281377 2022285417 2022240454 2022248858 2022280012 2022282183 \2022281371 2022241193 2022241388 2022246020 2022283027 2022241083 \2022245213 2022246747 2022242126 2022280325 2022283954 2022242417 \2022241100 2022284054 6144697733 2022283997 2022247327 2022249787 \2022280282 2022280380 2022242852 2022243149 2022281373 2022285143 \2022282856 2022284131 2022282193 2022244680 2022248525 2022282862 \2022285429 2022246295 2022280724 2022242207 2022240139 2022249750 \2022244952 2022240776 2022285036 2022247776 2022283398 2022281067 \2022245301 2022280514 2022280908 2022249735 2022885171 2022281375 \2022280359 2022242499 2022241152 2022241946 2022246331 2022243514 \2022243479 2022240238 2022280900 2022280400 2022280360 2022243416 \2022241168 2022280002 2022282717 2022242725 2022281265 2022240103 \2022242693 2022242354 2022282190 2022285765 2022249369 2022246471 \2022280325 2022283954 2022242417 2022241100 2022284054 6144697733 \2022283997 2022247327 2022249787 2022280282 2022280380 2022242852 \2022243149 2022281373 2022285143 2022282856 2022284131 2022282193 \2022244680 2022248525 2022282862 2022285429 2022246295 2022280724 \2022242207 2022240139 2022249750 2022244952 2022240776 2022285036 \2022247776 2022283398 2022281067 2022245301 2022280514 2022280908 \2022249735 2022885171 2022281375 2022280359 2022242499 2022241152 \2022241946 2022246331 2022243514 2022243479 2022240238 2022280900 \2022280400 2022280360 2022243416 2022241168 2022280002 2022282717 \2022242725 2022281265 2022240103 2022242693 2022242354 2022282190 \2022285765 2022249369 2022246471 \; doCMD=”fax FROM=$FROM NAME=$NAME send $PREFIX$PHONE_NUMBER $SENATE_FAX”eval $CMDdone# All Representativesfor PHONE_NUMBER in \2022250585 2022255828 2022255893 2022250207 2022252947 2022257564 \2022258714 2022260792 2022251171 2022255615 2022260611 2022282186 \2022252504 2022258890 2022267253 2022269567 2022253057 2022259817 \2022250182 2022266866 2022256887 2022254744 2022252122 2022241651 \2022255898 2022280776 2022251968 2022252266 2022255782 2022252486 \2022280566 2022255662 2022259073 2022259681 2022261177 2022260386 \2022260333 2022253284 2022250181 2022255879 2022253478 2022252558 \2022260347 2022556666 2022259764 2022253094 2022261169 2022255822 \2022254709 2022255730 2022255758 2022260777 2022253392 2022255392 \2022251915 2022250816 2022255797 2022255724 2022260778 2022252234 \2022263944 2022255907 2022252234 2022255629 2022250375 2022248149 \2022259594 2022257768 2022255933 2022259629 2022252237 2022240858 \2022253973 2022251593 2022260439 2022252256 2022256393 2022253038 \2022250016 2022261298 2022250145 2022255641 2022255699 2022253303 \2022259679 2022260757 2022254282 2022253516 2022255714 2022257018 \2022252014 2022251984 7158424488 2022254628 2022250739 2022259497 \2022255679 2022258456 2022253529 2022250819 2022255745 2022252807 \2022255687 2022253404 2022255657 2022252422 2022253251 2022250425 \2022255284 2022254160 2022250566 2022250235 2022258941 2022260893 \2022251655 2022255278 2022261477 2022251018 2022260092 2022260335 \2022253547 2022253002 2022253178 2022255513 2022255914 2022251100 \2022254403 2022258757 2022250011 2022253190 2022263805 2022253318 \2022258698 2022259665 2022250437 2022254986 2022253354 2022250378 \2022266962 2022251589 2022259903 2022257074 2022250003 2022255609 \2022253402 2022260861 2022266559 2022250027 2022255774 2022264169 \2022258135 2022260691 2022252237 2022250940 2022253263 2022266422 \2022254975 2022254099 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Guest • September 28th, 2008 at 11:40 pm

Thanks but….arent the CDS markets just a tad bigger than $700 Billion??

Average Jane • September 28th, 2008 at 11:45 pm

Right on, Wolf. I can take the pain now as long as I know what it is. Better the devil I know than the devil I don’t. And the worst part is these fraudsters who’ve had their hands in my pocketbook this entire time and are still picking it. They’re just getting dust bunnies now. I got nothin’.

PeterJB • September 28th, 2008 at 11:45 pm

I understand – as today’s ‘physics’ of supernovas and black holes is pure fantasy.Thank you for your confirmation: we are doomed for the next decade or so… sighHo hum

friend of washington mutual • September 28th, 2008 at 11:46 pm

Monday view: Paulson re-activates secretive support team to prevent markets meltdownBy Ambrose Evans-PritchardLast Updated: 12:07AM GMT 30 Oct 2006Monday view: Paulson re-activates secretive support team to prevent markets meltdown Judging by their body language, the US authorities believe the roaring bull market this autumn is just a suckers’ rally before the inevitable storm hits.Hank Paulson, the market-wise Treasury Secretary who built a $700m fortune at Goldman Sachs, is re-activating the ‘plunge protection team’ (PPT), a shadowy body with powers to support stock index, currency, and credit futures in a crash.Otherwise known as the working group on financial markets, it was created by Ronald Reagan to prevent a repeat of the Wall Street meltdown in October 1987.Mr Paulson says the group had been allowed to languish over the boom years. Henceforth, it will have a command centre at the US Treasury that will track global markets and serve as an operations base in the next crisis.The top brass will meet every six weeks, combining the heads of Treasury, Federal Reserve, Securities and Exchange Commission (SEC), and key exchanges.Mr Paulson has asked the team to examine “systemic risk posed by hedge funds and derivatives, and the government’s ability to respond to a financial crisis”.”We need to be vigilant and make sure we are thinking through all of the various risks and that we are being very careful here. Do we have enough liquidity in the system?” he said, fretting about the secrecy of the world’s 8,000 unregulated hedge funds with $1.3trillion at their disposal.The PPT was once the stuff of dark legends, its existence long denied. But ex-White House strategist George Stephanopoulos admits openly that it was used to support the markets in the Russia/LTCM crisis under Bill Clinton, and almost certainly again after the 9/11 terrorist attacks.”They have an informal agreement among major banks to come in and start to buy stock if there appears to be a problem,” he said.”In 1998, there was the Long Term Capital crisis, a global currency crisis. At the guidance of the Fed, all of the banks got together and propped up the currency markets. And they have plans in place to consider that if the stock markets start to fall,” he said.The only question is whether it uses taxpayer money to bail out investors directly, or merely co-ordinates action by Wall Street banks as in 1929. The level of moral hazard is subtly different.Mr Paulson is not the only one preparing for trouble. Days earlier, the SEC said it aims to slash margin requirements for institutions and hedge funds on stocks, options, and futures to as low as 15pc, down from a range of 25pc to 50pc.The ostensible reason is to lure back hedge funds from London, but it is odd policy to license extra leverage just as the Dow hits an all-time high and the VIX ‘fear’ index nears an all-time low – signalling a worrying level of risk appetite. The normal practice across the world is to tighten margins to cool over-heated asset markets.The move is so odd that conspiracy buffs are already accusing SEC chief Chris Cox of juicing the markets to help stop the implosion of the Bush presidency.As it happens, I used to eat Mexican enchiladas with Mr Cox 20 years ago at a dining club in Washington, where California Reaganauts gathered to plot the defeat of Communism. Die-hard Republican he may be, but I can think of nobody less likely to betray the public trust in such a way.So one is tempted to ask if Mr Paulson and Mr Cox know something that we do not: whether other hedge funds are in the same sinking boat as Amaranth Advisers and Vega Asset Management, keel-hauled by bets on natural gas and bonds.Or whether currency traders with record short positions on the Japanese yen and the Swiss franc are about to learn the perils of the Carry Trade, a high-stakes game of chicken where you bet against fundamentals with high leverage to make a quick profit. Everybody knows it will blow up if the dollar goes into free fall.They had a fright last week when US growth for the third quarter came in at just 1.6pc, and new house prices plummeted 9.7pc year-on-year in the sharpest drop since the property crash of 1981.The dollar dived from 119.65 to 117.57 yen in a heartbeat. With $2.9trillion of derivatives now trading daily on the currency markets alone – according to the Bank for International Settlements – is this the start of the most vicious short squeeze ever seen?The futures markets have priced in a 77pc chance of a flawless soft-landing for America’s obese economy, now living 7pc of GDP beyond its means off foreign creditors. They are counting on moderating oil prices, and – a contradiction? – another year of torrid world growth. Nice if you can get it.They have not begun to price in the risk of recession, typically entailing a drop in the S&P 500 stock index of 28pc from peak to trough. Evidently, the equity markets assume the Fed can and will rescue them by slashing rates in time, if necessary.They should examine a recent report by the New York Fed warning that whenever the yield on 10-year Treasuries has fallen below 3-month yields for a stretch lasting over three months, it has led to each of the six recessions since 1968.The full crunch hits 12 months later as the delayed effects of monetary tightening feed through, even if the Fed starts easing frantically in the meantime. By then it is too late. “There have been no false signals,” it said.As of last week, the yield curve was inverted by 29 basis points, was continuing to invert further, and had been negative for over three and a half months. If the Fed is right this time, the recession of 2007 is already baked into the pie. Those speculative positions may have to be unwound very fast.* ambrose.evans-pritchard@telegraph.co.uk

Anonymous • September 28th, 2008 at 11:48 pm

Great post Mother of God!! You said, “There is no WAY Congress does not know what I know. There is no WAY your representatives can remain ignorant of what I have learned. It is IMPOSSIBLE that ANYONE who wants the truth of this thing, does not have it.” And I agree. It is exactly what I was thinking in the run up to the war against Iraq. There is NO WAY they do not know what I and millions of others know.

Guest • September 28th, 2008 at 11:48 pm

The Dems are desperate for Socialism.

Guest • September 28th, 2008 at 11:52 pm

It’s called learned helplessness. The populace has learned long ago that the government will act on it’s own accord and is responsible, not to the citizens that they are symbolized to represent, but to the sponsors of their path to congress. It’s crude but money does indeed talk.In addition, since the Iraqi invasion, it’s painfully obvious that the media in no way holds the government accountable but merely acts as their highly efficient propaganda machine. We don’t have a chance.By the way, is it a good time to buy Goldman Sachs?

friend of washington mutual • September 29th, 2008 at 12:03 am

Flow of Funds Accountsof the United StatesFlows and OutstandingsSecond Quarter 2008http://www.federalreserve.gov/releases/z1/Current/z1.pdf

PeterJB • September 29th, 2008 at 12:09 am

Well, here is the answer then:Mr. Paulson will run his Bordello by hand;-[>And get as much sustainable business too.Ho hum, I just hate plastic – give me the real thing or give me nothing!.

MissIndia • September 29th, 2008 at 12:09 am

@TTLI may not agree with you, because media/govt/power brokers will always try and project events so that citizens give their rights and don’t question them. This has been happening in third world countries, developing countries and in developed world as well. I can see from here because we are not deeply involved in this mess. Think about this WTC, Iraq, Iran as an example.

AfA • September 29th, 2008 at 12:14 am

The major difference between this bailout and Greenspan’s 1% FFR is that now there is no more “good” bubbles left to inflate. Most people (I believe Roubini included) who predicted a severe recession in early 2000′s, were wrong not because their economic models and predictions were wrong, but because they did not factor in the creation of a new and bigger bubble. We are living through Spurious Wealth and Growth based on unsound banking and corporate systems.Your point “Most companies in the U.S. depend on short-term lending to pay their payrolls[, working capital and current operations in general]” just expose the degree of travesty we reached, where (as I stated many times previously) most corporate America – not only shadow banking – business model is now based on treasury management and borrow short, lend long. What is the value of a system which own existence is dependent on, addicted to, continuous, increasing, ever-expanding short term funding – life support?As many stated previously, what you just stated will/is happening regardless the bail-in plan is implemented or not. The $700B is too little, too late for the credit/money markets and too much, too sudden for the US Bond market. I do not know if you realize what this implies? The plan is not enough to save but very few, which means many banks will go under anyway. The plan does cannibalize (in its marketing definition) the financial sector, which will lead to ever greater consolidation – read more systemic risk – of Wall Street. FDIC will have to be recapitalized regardless of the plan. Consumer spending will and SHOULD halt and unemployment will rise regardless. The plan would just add more costs to the “debt-burdened, shopped-out, saving-less” taxpayers, either directly through higher taxes or indirectly through higher inflation and higher credit costs, or both, depending on how the Fed, Treasury and your new Masters (China) will react in the future.The DOW is the weakest of all arguments and should be put at the end not at the beginning of your discussion – these are people who supposedly accepted to take the greatest risk among all investment classes.The credit markets are based on trust and nothing but trust. This crisis became so widely publicized and discussed that that trust is official broken. Trust in the system is never reestablished or fixed in a matter of days or through more broken promises and more fuzziness – it takes years for it to be won back. It was a love from the first sight story, but the cheating boyfriend broke lenders’ heart. If you think that a mere trillion dollar would convince lenders to do business as usual, you are mistaken. Mark-to-market accounting is suspended, who in their right mind would invest in such an environment, except mad government officials, and who would buy anything from the government at any price close to what it was bought at. If you think the Treasury can just buy toxic waste, bury it under a dumping ground, for few years until the problem goes away by itself you are again mistaken. For the plan to make any impact on markets, the Treasury needs to turn over the $700B many times – buy and sell toxic waste many times in a short period – which means that it will have to sell this stuff at close to liquidation/market prices. And that also assumes prices will turn around in a matter of a couple of years. If anything, home prices will be L-shaped – i.e. after bottoming out somewhere between next year and 2009, hopefully, they will stay their at low levels for many more years. Add to all this the fact that most losses (realized or not yet) are mostly related to subprime loans, and the beginning of Alt-A. Just imagine with me how much will be needed when the losses tied to prime mortgages, then credit cards, auto loans and other bogus loans hit the markets and tell me the amount of disruptions will ensue in the US Bond market. If you think that the full-faith of the government and the ability of the US Tsy to raise money will be intact, look at all the levies and dams that has been destroyed so far by the credit tsunami where, each time, we thought the next would hold. As explained by Morgan Stanislaw above “risk models assumed that the default of a large counter party, such as Lehman Brothers, would occur once every 250 years”. In a matter of less than 6 months about 10 such “counter-parties” went under – a once in a 5 centuries event. I believe that a government bankruptcy should a once-in-less-than-a-century event.I can continue on and on indefinitely, but hopefully you find some substance here. I will just close with a question, if you had a choice – and if you believe that we are here in part THANKS TO Greenspan – would you prefer to go through a somewhat nastier recession in early 2000′s instead of needing to deal with current issues – and I am not even talking about Moral hazard?If YES, then I hope you get the picture of where Government/Treasury/Fed interventions will lead us.If NO, then be ready to party!

friend of washington mutual • September 29th, 2008 at 12:14 am

OCC’s Quarterly Report on Bank Trading and Derivatives ActivitiesFirst Quarter 2008Executive Summary• U.S. commercial banks generated first quarter 2008 trading revenues in cash and derivative instrumentsof $1.13 billion, compared to $9.97 billion of trading losses in the fourth quarter of 2007.• Net current credit exposure increased 50% to $465 billion from the fourth quarter, and is 159% higherthan a year ago. The rapid increase in credit exposure results from sharply lower interest rates andhigher credit spreads, which created a large increase in derivatives receivables.• The notional value of derivatives held by U.S. commercial banks increased $14.7 trillion, or 9 percent, to$180.3 trillion in the first quarter.• Derivative contracts remain concentrated in interest rate products, which comprise 79% of totalderivative notional value. The notional value of credit derivative contracts, 99% of which are creditdefault swaps, increased 4% during the quarter to $16.4 trillionhttp://www.occ.treas.gov/ftp/release/2008-74a.pdf

AfA • September 29th, 2008 at 12:30 am

In part. They are as reliable as Black Scholes derivative-based pricing model.The other meaning is the description of a boom-bust procedure, where matter is projected in all directions due to the explosion, in a spurious sign of prosperity and fake activity, before collapsing on itself.

Latanne • September 29th, 2008 at 12:32 am

It appears that there will not be serious discussion or revolt within our congress about dismanteling the Federal Reserve in our future. We should abolish it as it does not operate in the interest of the public good but for profit.FRACTIONAL BANKING or FRACTIONAL LENDING is the ability to create money from Nothing, lend it to the government or someone else and charge Interest.The practice evolved before banks existed. Goldsmiths rented out space in their vaults to individuals and merchants for storage of their gold or silver. The goldsmiths gave these “depositors” a certificate that showed the amount of gold stored. These certificates were then used to conduct business.Small amounts would move in and out but the large majority never moved. Sensing a profit opportunity, the goldsmiths issued double receipts for the gold, in effect creating money (certificates) from nothing and then lending those certificates (creating debt) to depositors and charging them interest as well.Keep that Fractional Banking concept in mind as we examine our current and past crises.Ask your representative, in light of that information, how it is possible for the Federal Reserve Act of 1913, and the Federal Reserve Bank that it created, to be constitutional. Ask them why this private banking cartel is allowed to reap trillions of dollars in profits without paying taxes. Insist on an answer.In reality, “the FED act” created a private, for profit, central banking corporation owned by a cartel of private banks. Who owns the FED? The Rothschilds of London and Berlin; Lazard Brothers of Paris; Israel Moses Seif of Italy; Kuhn, Loeb and Warburg of Germany; and the Lehman Brothers, Goldman, Sachs and the Rockefeller families of New York.Thomas Jefferson said, “If the America people ever allow private banks to control the issuance of their currencies, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their prosperity until their children will wake up homeless on the continent their fathers conquered.”Jefferson saw it coming 150 years ago. The question is, “Can you now see what is in store for us if we allow the FED to continue controlling our country?”There is an opportuntiy here and now to revisit this issue of the Federal Reserve….but it will require a gutsy public and the “Ron Pauls” of this country to reclaim and restore the principles of our identity and true liberty.

Anonymous • September 29th, 2008 at 12:40 am

You do NOT understand the implications here. If this bailout is not passed, the WHOLE banking system will collapse. 20-25%+ (I personally think it will be more) unemployment. ATM’s will stop working. Credit cards will stop working. Transportation system will halt. You say let the banks fail, then RECAPITALIZE them. It will cost FAR MORE to RECAPITALIZE them at that point than to by this junk now for $700 billion. We are talking about Citigroup, Bank of America, JP Morgan failing. Is this what you want? There will be absolute chaos. CHAOS. Payrolls will not be paid. Trash will not be picked up. Lines at banks. In this day and age when very few people keep, let alone have, cash at hand, this will be a disaster. Millions and millions of people rely on ATM’s and credit cards for daily expenses. And who do you think will end of paying for your RECAPITALIZATION? Yes, the Wall Street crowd already made their money. It is too late to do anything. But this bailout must occur. It will not just be pain, as you say. It will be an even worse DEPRESSION. We will lose our credit rating, and NOBODY will buy U.S. treasuries again. Your way will NOT save the country. It will crush it.

AfA • September 29th, 2008 at 12:42 am

Oops, that was a … one in a 50-centuries event …

FRIEND OF WASHINGTON MUTUAL • September 29th, 2008 at 12:59 am

HE IS A REAL EXPERT OF MASSAGING THE G SPOT BY HAND.IN ADDITION, HE KNOWS HOW TO PUSH THE HEMORRHOID IN BY HAND.

AfA • September 29th, 2008 at 1:01 am

Yes, – I do not believe I am saying this – no more drinking water, no more police, no more schools … Paulson got you too by his Armageddon now if we do not act?Even if we assume you are correct. Tell me ONE way how this plan is supposed to stop anything of what you stated above.I want to laugh and I want to cry. You mean buying few dodgy papers will save banks while recapitalization won’t? Bernanke want to overpay for the toxic waste just to – indirectly – recapitalize banks (well, without taking equity.)

friend of washington mutual • September 29th, 2008 at 1:08 am

Washington mutual bankruptMubarak Mubarak.Insahlah JP MORGAN CHASE WILL BE NEXT THOSE THIEF’S STOLE WASHINGTON MUTUAL BY JUST PAYING 1.5 BILLIONSTHIEF’S.I FEEL SORRY FOR ALL THOSE HOUSE HOLD WHOM HAD MORTGAGES WITH WASHINGTON MUTUAL. WHILE THEY HAVE TO STRUGGLE TO PAY FOR THEIR MORTGAGES THOSE THIEF’S FROM JP MORGAN JUST PAID ONE CENT ON THE DOLLAR FOR THEIR MORTGAGES AND END UP OWNING THEM.

AfA • September 29th, 2008 at 1:20 am

Inshallah InshallahSo would you consider changing your name to “friend of JP MORGAN CHASE MANHATTAN BANK ONE CHEMICAL MANUFACTURERS HANOVER BEAR STERNS WASHINGTON MUTUAL”?

Guest • September 29th, 2008 at 1:26 am

Full text of the bailout legislation:http://rawstory.com/images/other/bailoutbill-092808.pdf

FRIEND OF WASHINGTON MUTUAL • September 29th, 2008 at 1:53 am

I WOULD LOVE TO BUT IT WILL TAKE A ZILLION YEAR TO TYPE IT,LETS BURN SOME DVDS

AfA • September 29th, 2008 at 2:02 am

The bailout is apparently “officially” agreed on.So why are Asian markets tanking?

Alessandro - http://castellidicarte.blogspot.com/ • September 29th, 2008 at 2:07 am

thanks. Your insight is always welcome.

Little Saver • September 29th, 2008 at 2:10 am

Looks like a lost case for the US treasury and taxpayers. Also John Hussman suggests to repeat what Buffett did with Goldman Sachs:Buffett’s investment… suggests that the government should have gone the same route – namely, provide capital in return for a financially viable security that is senior to common shareholder equity, have it accrue a relatively high rate of interest, and allow it to be repaid early (Buffett’s preferred is callable by Goldman) as soon as the financial institution can secure cheaper financing.With this example so visibly present, why is the entire US political and financial top not capable of repeating it? Spooky things must be going on in the background, with Paulson on center stage.http://www.hussmanfunds.com/wmc/wmc080929.htm

Guest • September 29th, 2008 at 2:11 am

Too little too latedo you think you can save the financial system with $350 bn ?HOW FUNNY

Amnon Portugaly • September 29th, 2008 at 3:09 am

There’s one glaring weakness in Paulson’s Bailout Plan to save the U.S. financial system: It most probably won’t work as intended. It also could make things worse. By removing these troubled assets from the balance sheets of the financial institutions, the Plan MAY enable the banks to lend again without lingering doubts about their solvency and viability. However, the Paulsen Plan does not ENSURE that those banks and financial institutions that receive bailout aid will increase lending.Banks must have BOTH the capability to lend and the willingness to lend. The Paulson plan is aimed at restoring the banks ability to lend, at a huge cost to the American taxpayers. However, even with a healthy balance sheet the banks will not lend because of lingering doubts about the solvency of their customers, their ability of paying the loan and the viability of the economy. In short the banks’ potential customers – enterprises and individuals – also have broken balance sheets.The Paulson plan does not address the root cause of the problem. The American consumer has no more purchasing power. For most middle class and workers, earnings since the mid-1970s have not kept up with the cost of living, while their real expenses for healthcare, education, housing, has grown much faster than the CPI, consequently their discretionary spending has decreased.In order to bridge the earning gap and to keep their standard of living, middle class Americans turned to borrowing on a large scale. They turned their homes into ‘personal’ banks by refinancing home mortgages and taking out home-equity loans. But now, with the bursting of the housing bubble, Americans are reaching the end of their ability to borrow and lenders have reached the end of their capacity to lend. At the same time, Credit-card debt has reached dangerous proportions, and Banks are now pulling back. This debt based consumer economy is also to blame for the huge trade deficit.Households in the US have too much debt, the price of their houses is plummeting, they are getting buried under rising debt servicing burdens, and their savings are evaporating. Unemployment has already jumped up and will continue to grow to rates approaching 10%,These observable facts took place PRIOR to the Paulson bailout/economic stabilization plan.Currently, there are several millions Americans without jobs, and several millions of American who lost their home or are going to lose their home. It seems that the government and congress do not care about these people and at the same time are going to inject $700 billion into the financial system.Amnon Portugaly

John Law • September 29th, 2008 at 3:31 am

There will be no more Bailout.This is great, the market can finally show it true form. The congress election will change the landscape. Congressmen who support the bailout will be voted out. No more companies will be save after this 350 Billion bailout.

Anonymous • September 29th, 2008 at 3:40 am

http://www.vdare.com/roberts/080928_ahmadinejad.htm

Guest • September 29th, 2008 at 3:43 am

Emergency Economic Stabilization Act of 2008The text of the Bailout Legislation is now available. It gives broad discretion to Paulson to do everything he wanted to do in his 3 page proposal, and he will be able to evade all the oversight and restrictions imposed by Congress in designing the acceptable deal structures under the program. Also, the executive can expand the program to get around Congressional review.Executive compensation limits will have no effect on existing executives who caused the mess.The program will primarily funnel cash to banks that don’t need it (e.g., aren’t illiquid) – violating a principal tennet of Bagehot that central bank/treasury funds should only be available to illiquid banks.Deals can be broken into CDO structures below the $100 million threshold before being passed to Treasury so that no institution will ever trigger the punitive limits or warrants for taxpayer participation – effectively no taxpayer equity.The staging of payments is a fraud – the whole $700 billion can be drawn within weeks by Paulson’s determination which automatically triggers a new tranche so the Treasury will be fully looted and offshored before the current administation leaves office.In addition, the Fed snuck in authority to immediately start paying interest on reserves – a huge tax break effectively for the banking sector as they get paid interest and the value would otherwise have accrued to the Treasury.Listen to the conference call from Treasury briefing the banks’ insiders on the bill. This is ugly for the taxpayer and for democratic accountability and the rule of law.MP3 bittorrentMy advice: Buy property in Dubai because that’s where the cash is going.

Alessandro - http://castellidicarte.blogspot.com/ • September 29th, 2008 at 3:47 am

Anon,1. Paulson Plan does nothing for the economy save from moving wealth from those who deserve it (the prudent and productive ones) to those who don’t (the reckless and unproductive ones)2. the current banking panic is orchestrated by those who cry wolf and are asking more power to stop it, by the FED and Treasury.There is no way anything Paulson or Bernanke plan to do will help anybody but the bankers.There are things that can be done to lessen the pain, but doing absolutely nothing is way better than letting Paulson or Bernanke decide what to do with a blank check.

Guest • September 29th, 2008 at 3:54 am

From the conference call:”On behalf of all the industry members we want to thank you [the Treasury] for an extraordinary job. . . One comment on the money, not only is the amount obviously large and important, but the manner in which you achieved the tranching is a real achievement. As you all know, when I was on the RTC Board we tried to achieve what you did but never achieved it. . . So kudos for what you did here.”

Guest • September 29th, 2008 at 3:57 am

This conference call recording is absolutely damning. Listen to the whole thing. Amazing insight into how the government loots the Treasury for the benefit of crony capitalists.If Obama wins, he will be left with the biggest economic crisis in 3 generations and a bankrupt Treasury with nothing left to give and no credibility to borrow.

Guest • September 29th, 2008 at 4:04 am

Naked Capitalism is working on a transcript and summarises the key points of the call.http://www.nakedcapitalism.com/2008/09/mussolini-style-corporatism-in-action.html

Alessandro • September 29th, 2008 at 4:04 am

I don’t know if you think I am a PARTIGIANO or not. If yes, don’t think I “drink” everything that comes from Nouriel Roubini. I always and always read the REASONS that stay behind a forecast and the real facts. And I know very well that even in doing so, it’s always difficult. So let’s discuss of the reasons WHY. Be sure that I DON’T LIKE at all the MAGICIANS as Mr. Roubini.Alessandro

Guest • September 29th, 2008 at 4:14 am

Section 119 – Judicial ReviewInjunction can only issue against Paulson for a violation of the Constitution.Section 122. Increase in the Statutory Limit on the Public Debt.Section 123. Credit Reform.Details the manner in which the legislation will be treated for budgetary purposes under the Federal Credit Reform Act – effectively rendering it Enron-style off balance sheet.Raises the debt ceiling from $10 trillion to $11.3 trillion.Section 132. Authority to Suspend Mark-to-Market Accounting.Explicit SEC authority to suspend the application of FASB 157.

Wild Bill • September 29th, 2008 at 4:20 am

Well friends, I wrote to my representatives in the Senate and the House. I expressed my concerns about the bailout. Then I expressed my opposition to the bailout. Then I told them my support for them is contingent on their opposition to the bailout. Then I warned them that I was watching them to see how they voted.I ranted in rage. I resorted to satirical stories and lampooning limericks. It now looks as though we lost in more ways than one. There is only so much rage one can handle before it becomes self-destructive.As a veteran, I once stood ready to give all to preserve the principles upon which this country was founded. I march in parades in my ill-fitting uniform, filled with pride for the part I played. I’ve entertained foreign visitors and proudly showed them our national treasures. I’ve stood in front of the Jefferson and Lincoln Memorials and read the inscriptions with tears streaming unashamedly down my face. I excercised my constitutional rights to oppose the Viet Nam war and the war in Iraq.At the moment, I’m low on bullets so I’ll hunker down and wait for for a clean shot. But don’t for a moment believe that I’ve given up. Nor should any of you. Take a few deep breaths and reduce your anger to a simmer so you keep a clear head. When you see an opening, take your best shot, and look out for each other.

Guest • September 29th, 2008 at 4:41 am

7:30 it took an extra :30 to convince them to go to bed.In 91 as I was pushing back police on horses and trowing down police barriers , I tried to get others to join me in charging the white house. MOG will you now join me ?

AfA • September 29th, 2008 at 4:44 am

Spot on, Amnon.The banks need a new bubble to inflate if they want to keep the same or more expanded balance sheets and keep the party going. They need to find the right environment where; the supplier monetizes some debt; middlemen buy debt and sell more debt; and the end users buy more debt by taking even more debt.The financial system can keep creating many levels of redebtivization, e.g. securitization, differentiation (the procedure of finding derivatives), … However, they would need an indefinitely differentiable “fractally” shaped asset class backing the whole Ponzi game, which can be transformed by the banking system in to ugly, chaotic and sometimes unexpectable monstrosities (e.g. housing mortgage and consumer credit lines in general). That asset class needs to be, or easily be made, an income generating one (housing thru HEW, speculative stocks, but not commodities for example which are income consuming rather than income generating assets – the higher the price the more people tend to loose in purchasing power than make in investment return).I am still looking for an asset that satisfies these criteria. The treasury is reliquifying financials’ balance sheets in the hope to create a new bubble. If no one is found very fast, then there is no way banks will be willing to lend again, and there is no way banks can keep the same inflated balance sheets if they don’t lend in mass. No lending means less leverage AND/OR less borrowing, which just means less bonuses for everybody, and less everything else.

Guest • September 29th, 2008 at 4:48 am

There’s probably always more people on the streets in India – even without a demonstration…

AfA • September 29th, 2008 at 5:03 am

Kudos to you.Again, I will say this. It seems that the financial/banking cartel, learned much from the military industrial complex’s lobbying techniques. One of the most effective ways to attract and lobby as many officials is not only to give and contribute, but also to promise “consulting and advising seats” when or if their political careers had to cease. This way, they lose any fear from their constituents.So, you also need to “Then I warned them that I will do everything [that is still legal] in my power, by myself as well as anybody else I can convince or influence, to boycott any bailed out institution”

Alessandro • September 29th, 2008 at 5:30 am

Errata-corrige: I don’t like as Mr ROUBINI DON’T, the MAGICIANS

Marco • September 29th, 2008 at 5:51 am

Just another example:http://globalresearch.ca/index.php?context=va&aid=10359ahem, how Lincoln died ?

JasonB • September 29th, 2008 at 5:54 am

US Congress passes 25 bln loan guarantees to automakersA billion here, a billion there, and pretty soon you’re talking some real moneyhttp://www.breitbart.com/article.php?id=080928164938.dtc44u1c&show_article=1&lst=1

jomos • September 29th, 2008 at 5:56 am

My letter to congress,”The pressure by leadership on this 700 billion freedom grabbing package must be strong for passage but compared to signing the Declaration of Independence, you don’t know pressure.Be brave,bold and decisive and don’t cave to the moneychangers and their salesmen of this Hoover administration.The peoples’ house members are showing real leadership we need someone to show real leadership in the senate. Join Rep. Brad Sherman (D-Calif.) Skeptics’ Caucus and Rep. Ron Paul (the one they laughed at but shown to be 100 percent correct to date). You will be on the side of Thomas Jefferson, Andrew Jackson on sound money principles which will be shown to be prophetic in accuracy.

London Banker • September 29th, 2008 at 6:03 am

I thought that if the cronies got their hands on the $700 billion that they could engineer a pre-election bull market. Now I’m not so sure they can even achieve that much.So far reaction in London, Europe and Asia is uniformly pessimistic. They don’t see how repealing mark-to-market accounting can enhance confidence in banks in trouble. They don’t see how unreviewable taxpayer largesse to cronies can reassure less connected investors or improve the fragile credit of the USA. They aren’t sure they recognise the imperial USA with its corporatism as the same country they invested in as a free market democracy.If Americans react the same way, a lot of investors are going to pull out. Private capital flight was already a huge problem (check out Brad Setser’s latest), and I think the bailout will make it much worse. If all the rich Americans can only see loss, turmoil, higher taxes and political instability ahead, they are going to be heading for the exits.

ballerina • September 29th, 2008 at 6:23 am

It’s also true that when this nation was, in fact, still producing goods that the rest of the world wanted (besides armaments)that we could afford to not be paying attention. This is certainly no longer the case!

FRIEND OF WASHINGTON MUTUAL • September 29th, 2008 at 6:40 am

They should relief themselves in the bathroom before exiting because there is going to be a big line.

Guest • September 29th, 2008 at 6:59 am

I think Congress is thinking that the regular Main Street public will be content on the few non-specific tokens of executive pay compensation issues while they [Main Street public] gets shafted for the full brunt of the plan’s cost

Guest • September 29th, 2008 at 7:07 am

TED Spread is 314 bps and rising

Guest • September 29th, 2008 at 7:13 am

This is it exactly and why the only solution is debt relief for the consumer but the elitist are so greedy they’re trying to prevent that. It may be time for a revolution our politicians do not fear us they laugh in our face. We need to pay very close attention to who votes for this bill!!!!! Educate everyone you know, buy bummper stickers, protest, we need to take our country back!!!!

Guest • September 29th, 2008 at 7:21 am

This is more evil than terrorism, it’s cloaked slavery!! Even if Fractional Reseve Banking is tightly regulated and used conservatively after it’s initial boost it ultimately turns into a mere tax on productivity or a tax on the working class directed to the wealthy. It’s an absolute sham and offers no bennifits to society and becomes a drain on society over the long haul.

Guest • September 29th, 2008 at 7:27 am

Wachovia now under Citigroup

friend of washington mutual • September 29th, 2008 at 7:40 am

There is nothing wrong to be a partigianoThey were the one that defeated those bastard Nazis during Second World War.I am a partigaiono tooViva patigiani

Taxpayer • September 29th, 2008 at 7:44 am

Prof. Roubini says,”The Treasury plan also does not explicitly include an HOLC-style program to reduce across the board the debt burden of the distressed household sector; without such a component the debt overhang of the household sector will continue to depress consumption spending and will exacerbate the current economic recession.Thus, the Treasury plan is a disgrace: a bailout of reckless bankers, lenders and investors that provides little direct debt relief to borrowers and financially stressed households and that will come at a very high cost to the US taxpayer.”Exactly.While the debt saturation remains, the economy is going nowhere.

bcdogs • September 29th, 2008 at 7:55 am

I don’t see a reply button for anonymous, but the videos from khanacademy are probably one of the best resources, I’ve come across. Thank you so much anonymous!! I didn’t quite understand CDS and CDO and other things, and now I do. I’m going to watch everything he has up. He is a great teacher. Thank you, thank you, thank you anonymous! I really can’t thank you enough.

Mother of God • September 29th, 2008 at 7:59 am

Do I get to bring the arsenal of pots and pans I always bring to bang together – making a loud and truly obnoxious racket that can’t be missed? Like the housewives in South America do when they take it to the streets? Guest, I DO walk my talk, but I WON’T be a martyr. If you don’t have the numbers, you are not coming from a position of power that can make demands; you can only make REQUESTS. That is why I keep saying and saying that only a grassroots growth in awareness, realism, rationality, maturity, practicality, economic clarity in the people can drive events to safety, happiness, sustainability.Yes, I do put my feet on the street, but I also worry it makes me a bit of a hypocrite to do so. Why?Because I look at protesting – when you just don’t have the numbers yet – as merely begging the wealthpower giants for our rights – and that sends precisely the wrong message to other people.Begging wealthpower giants for our rights sends the message that it is RIGHT to beg wealthpower giants for our rights, that it is GOOD to beg wealthpower giants for our rights, that it is NECESSARY to beg wealthpower giants for our rights, that we must ALWAYS beg wealthpower giants for our rights.taint so.The thing to do is to get rid of the idea to HAVE wealthpower giants to have to beg our rights from!!!!If I let the powers that be lock me behind their bars, how am I going to keep trying to re-educate my species?James Joyce wanted to fly beyond the nets of church and state, to “create the uncreated consciousness of his race” – and he didn’t mean just the Irish but the human race.I picked up that torch.All the machinations going on today in this latest crisis?repeat after me:THIS is what wealthpower giants DO.This IS what wealthpower giants DO.This is WHAT wealthpower giants DO.This is what WEALTHPOWER giants DO.This is what wealthpower GIANTS DO.This is what wealthpower giants DO.THIS IS WHAT WEALTHPOWER GIANTS DO.Our task is to murder the idea of having wealthpower giants. We will rid our species of the idea to allow unlimited personal fortunes, or we WILL succumb to the results of having the next and the next and the next wealthpower giants, ad infinitum!Isn’t everyone aware that the next round of wealthpower giants is ALWAYS waiting in the wings??You can see right on this board – the anonymous who has bought the lie hook, line, and sinker – the lie that no bailout for the wealthpower giants equals disaster for the rest of us: people just DO NOT know that we DO NOT have to give away our money, to make it work for commerce.

Guest • September 29th, 2008 at 8:09 am

TED Spread now 336 and rising

Mother of God • September 29th, 2008 at 8:13 am

Personally, folks, I stay FAR away from vdare and paul craig roberts. I want nothing to do with racists and the Eugenicists, and that’s the territory you’re in with vdare and roberts, though I’m NOT saying the person who posts this is aware of that; you have to go deep behind the veils to discover that truth.

Mother of God • September 29th, 2008 at 8:18 am

WORD!

ptm • September 29th, 2008 at 8:19 am

Senate Roll Call VotesThese reports provide Senate “Roll Call Vote” results for the current and several prior Congresses including votes taken today. Roll call vote results are compiled through the Senate Legislative Information System by the Senate Bill Clerk under the direction of the Secretary of the Senatehttp://www.senate.gov/pagelayout/legislative/a_three_sections_with_teasers/votes.htmU.S. House of Representatives Roll Call Votes, 110th Congress – 2nd Session (2008)as compiled through the electronic voting machine by the House Tally Clerks under the direction of the Clerk of the Househttp://clerk.house.gov/evs/2008/index.aspThought you would want to look at this later today to see who voted for what…

Guest • September 29th, 2008 at 8:22 am

Actually 9-11 was not “the work of some foreign enemy” either. It also came “from within, from the depths of the system.” A false flag operation.But just like 9-11 and the War On Terror (WOT?), this one will be used to pass through some changes that otherwise would constipatedly get stuck somewhere within the system. Laws that are needed for something larger in the near future.

Guest • September 29th, 2008 at 8:30 am

holy mackeral – TED Spread now 348 bps and rising

Mother of God • September 29th, 2008 at 8:41 am

THANKS for that link, AfA, and yet another Thanks to Dr. Roubini for his tireless efforts.

Mother of God • September 29th, 2008 at 8:52 am

Yes, exactly. A society that taxes work instead of wealth, has its economic (non)thinking exactly backwards.

Guest • September 29th, 2008 at 8:56 am

When you call, make sure to give the URL for the SIFMA Analyst Callhttp://www.filesavr.com/sifma

Guest • September 29th, 2008 at 8:56 am

Focus on Representatives, not Senators, today. The Senators don’t vote today.

Mother of God • September 29th, 2008 at 9:36 am

I got through to both house and senate this morning. (Don’t worry I abused anybody – firm coolness rules my brain when I’m talking to staffers, officials, media.)Are you guys watching the house cspan? Can you believe that lowsnake barney frank?Will somebody in here be available later today – to hold my head while i go mad?I’m off to go take names.

Guest • September 29th, 2008 at 9:40 am

Me thinks without bailouts it’s 1929. Wtih bailouts it’s Japan in the 90ies. Question is – which you prefer? And is there a time left to structure a better bailout?

Mother of God • September 29th, 2008 at 10:01 am

Excuse me, Guest, but how can you say and ask what you did after reading the article you’re posting comments to??*******great googly mooglys – i just heard this “logic” from a Rep: there is no guarantee either way, so we have to pass this bill.

Different Guest • September 29th, 2008 at 10:11 am

I want to bang my head into a wall.

Mother of God • September 29th, 2008 at 10:22 am

Miracles Keep Happening!The Sun rose in the East today, for one,and Barney Frank hasn’t disappeared right up the ass of his own hubris – yet.

Guest • September 29th, 2008 at 10:25 am

I can’t say that disagree with your general assessment, MOG. However, P. C. Roberts has been screaming at the top of his lungs in every environment willing to print his message and to date I’ve found him to be relatively sane. My sense is that he’s experienced a shift in consciousness.Does my radar need tweaking?

Guest • September 29th, 2008 at 10:27 am

http://www.filesavr.com/sifmaWith bailouts we suck much needed capital out of the Main Street economy. The banks are not required to relend the cash they pull out of our pockets. I think the 1930′s scenario is more likely if we give away our wealth with this bill.

Guest • September 29th, 2008 at 10:28 am

Let’s hope they know we now know …http://www.filesavr.com/sifma

Mother of God • September 29th, 2008 at 1:15 pm

for those who haven’t heard, House has voted it DOWN. NAYS have it 228 to 205.

Yo Headcount • September 29th, 2008 at 1:16 pm

Bob Dylan quote: money doesn’t talk, it swears”

AfA • September 29th, 2008 at 1:20 pm

This is just even more thrilling to watch than I ever expected.Stocks and credit markets bounces as a Congressperson breaths and expires.Did the markets just realize it is not as catastrophic without a bailout plan, are they in hope, or are they in the know?

AfA • September 29th, 2008 at 1:22 pm

Not so fast MoG, not so fastSomehow, by miracle, the session is extended and some are starting to SWITCH to the wrong side.

Mother of God • September 29th, 2008 at 1:31 pm

AfA, they had already moved on to other business when I wrote that. Immediately after I did, my dog caught a squirrel in the yard and she’s bit up bad (and on her way to the vet with “daddy” as we speak) – so did i miss something? (i’ll go look at tv again in a sec)There was some vote switching at the last minute, but they finally ended the failout vote at the 205 to 228 – was supposed to be 15 minutes vote but they let it take like, 40.off to recheck what’s going on…

AfA • September 29th, 2008 at 1:34 pm

KEEEEEEEEEEP PUSHSHSHSHSHING!You are so close, baby.Yes, I can see himKEEP PUSHINGDon’t let go just yet.I would like to see the expression on Warren Buffet’s face when he hears the good news.

Mother of God • September 29th, 2008 at 1:48 pm

The no vote in the House on the failout plan is a done deal, like i thought. 205 yeas to 228 nays. i missed some last-second switched votes, because i have down 140 dem yes to 93 no and 65 repeb yes to 133 no, so my numbers don’t add up there.It did seem weird how fast they moved on to the next thing they voted on, AfA, and it WAS confusing whether they were trying to pull some kind of fast one, what with that parliamentary question that one guy threw out and then, i guess, immediately withdrew.

AfA • September 29th, 2008 at 1:56 pm

They just extended the session for 3 more hours – don’t ask about its legality – and since 2 members veered to the dark side.They could keep the party going until Wednesday to try to obfuscate more Yeas.

AfA • September 29th, 2008 at 2:02 pm

Oh, and the Fed just injected the equivalent of the bailout plan budget into the financial system in an apparently bad sign for Buffet.We may probably soon hear stories about hedge fund managers jumping off their skyscraper’s windows.

Mother of God • September 29th, 2008 at 2:18 pm

Only the battle was won, I know, and the war is still on, fer sure. Hopefully, it gets harder and harder for the yes voters to explain why the bloody blue blazes they are ignoring – nay, shutting OUT – sensible heads like Dr. Roubini and the other choices they keep lying don’t exist. For this moment in time, my faithful dog is back home from good Vet Dr. Barb’s clinic and I’ll be seeing to it she’s kept quiet and resting for awhile, so she can heal best.Hava good afternoon, all yiz.

Guest • September 29th, 2008 at 7:24 pm

While I am often in agreement with much of what is written on RGE, the outpouring of emotion about the recovery plan is absurd. I am an investor, not full time, but as a second income. The problem here is that there is little that separates “main street” from Wall Street. They very much need one another to function. With that said, I cannot wait for those of you who have 401k’s to get you quarterly statement.Today was a disgrace!! While I understand the academic arguement (as I’m trained in international economics) there is no question that I don’t want the government owning part of private companies or the debt to get larger, but there has to be a first step. The reason that overnight lending has halted and credit is frozen is because there is no confidence in the market or the system. Many of the proposals, including those of economists that I studied such as Charles Calomeris, seek to solve all problems in one step. Or they seek to take on a large number of steps at once. It is my view that giving the market rules by which it can play should be the primary concern to regulators at this juncture.I will conclude once again…enjoy the 401k statements.

Guest • September 30th, 2008 at 1:18 pm

I know, I’m from LAC and people would have been on the streets already and the minister of fiannce, central bank officials -and probably the president- would have been ousted already.

Guest • September 30th, 2008 at 10:12 pm

Doesn’t the market already have rules by whichto play?And hasn’t the behavior of the FED andTreasury subjugated these same rules?So you think the bailout plan is effective, efficient, and sufficient?

Guest • October 1st, 2008 at 1:15 am

What a great idea, instead of freeing up the clogged credit markets, let’s bail out the stupid homeowners who overpaid for property and lied about their income to get loans they could never afford. i am sure that’s wal streets fault not the mortage banker or real estate agents, or heaven forbid, they jerk who signed the loan agreement!

Guest • October 1st, 2008 at 7:17 am

So save your 401k by turning it into inflation for the general public? You should be asking why was I suckered into putting my retirement into the stock market, who was behind that and even worse who wanted to take S.S and put that into the stock market. Wall Street for the most part is not part of the real economy unfortanutely it has deep tentacles into it in the form of Fractional Reserve Banking and abusive Leverage that siphons off productivity in the real economy. Largely its gains your 401k gains are not real only an illusion created by an excessive supply of money in the form of credit. The problem is that society becomes reliant to this illusion and when it can nolonger be denied the Emporer has no clothes a feeling of great loss can be felt. Pain could be defined as expectations not being realised and I think going forward the U.S. is going to be having a lot less expectations.

Guest • October 1st, 2008 at 7:18 am

Exactly.By the way, the criminality likely goes far back into the 1980s and 1990s

Guest • October 1st, 2008 at 7:24 am

It’s sick that Wallstreet has the right to leverage peoples retirement accounts!!!!!! Even when it works you make 10% they make 100% gains.

Lila Rajiva • October 1st, 2008 at 7:30 am

They’re around.http://www.lewrockwell.com/rajiva/rajiva9.htmlhttp://www.lewrockwell.com/rajiva/rajiva10.htmlhttp://www.lewrockwell.com/rajiva/rajiva11.htmlwww.mindbodypolitic.com

Guest • October 1st, 2008 at 7:32 am

Exactly they have no intention of lending this money to main street this is only about plugging holes to preserve their stature and level of power.

Greg Collins • October 1st, 2008 at 6:26 pm

I agree and couldn’t agree more this is not bailout or rescue of the system chasing good money after bad and dumping it into toxic waste.I have read though the Senate agreement and the powers granted to the Treasury Secretary and they are so broad as to virtually eliminate oversight and accountability.Really what is going on here is there has been much financial irresponsibility and even overt fraud, and this so-called bailout bill transfers the liability.In my opinion even if the economy was strong and the fundamentals solid this kind of knee jerk throw a bomb in the banking system and hope it kills the bad guys and leaves the good would thrown the economy into a recession, since the system is so highly leveraged and they are attempting to inject liquidity into leveraged assets instead of insurance the solvency of the backing it’s just continuation and expansion of Pulsons plan which hasn’t worked and allowed the government to take over Fannie and Freddie.All the emphasis was on shielding the decision makers and just dumping massive amounts of money in a shotgun approach.I have done quite few jobs in my life including investing and mortgage fraud/investment research and even if it was carpentry making donuts, or picking strawberries. TO do any job you much asses the situation, make a plan and take action, then make adjustments if your initial plan was wrong.Also in the diagnostics of electronics, mechanics, the medical field etc. you first make a diagnosis run a test make a change and then verify the results of your test.Well this plan of Paulson’s would not work in any situation economic or not you would not change every part in a car or airplane and take it on a trip, or operate on a person or animal and replace every part.You would not prescribe massive doses of every king of medicine and hoping you got the right medication and by some miracle the patient will survive.If we have liquidity crises then declare a moratorium on mortgages, If there is a run on banks boost the FDIC and reassure the public.Lets just try one or two things and work quickly and confidently.I have made several calls to Congressman and they seem to show no interest in public testimony from economists, the general public, or even mortgage fraud experts such as myself and others.What happened is in the mad speculative boom to write as much paper as possible in order to transform the notes into RMBS and CDO’s to gain leveraged assets anything went low or no money down. loans with rates and terms destined to fail such as high debt to income ratio, no doc (liars loans) self employed, etc.Even worse is origination fraud to create loan terms the borrower was unaware of and did not agree to.One of the most egregious issues was manufactured default whereby loans that had been made on time were intentionally thrown into default. Why for at least two reasons one to create multiple title claims and create a tax loss while maintaining the assets (on cooked books) to back securities.How does that work Bank transfers loan to servicer, servicer manufactures default loan gets transferred to B.K. court, Sheriffs sale, or judicial saleand note is transferred to a sequence of trustees usually at least 3 crating multiple title claims.Freddie Mac held majority ownership in Mers and though Mers electronic title claims were made and in fact Mers even foreclosed under Mers even though they neither were the lender or had an original note. That would not be any different from a legal perspective that you or I creating a titles claim in our computer and using it to foreclose on someone else. Mers doesn’t own anything it’s registration service and the courts have even found the electronic registration itself to be of no legal merit so if the lenders, servicers and investors wan to use electronic records of titles that’s fine for internal records but they are note executable notes.Another fine trick the mangers of pooling and serving agreements PSA’s did was hedge these pools or have CDS credit default swaps issued insurning the notes or pools of notes and then creating the defaults to cash in on the hedged payout and then laundering the created foreclosures though the freclosure mill process using multiple trustees in an Enron style hide the liability shell game.In fact this leveraged securities theme backed by mortgages has more than a similarity to Enron because Skilling actually hired Fastow based on his ability to implement the scheme he pioneered while at Continental Illinois designed to convert mortgages into securities to create off the books profits.So here we have catch 22 the lawmakers cannot address the root of the problem because the donation trail comes back to them in many cases and in any event it was the lawmakers responsibility to gaurd the economic hen house.Can the shift the blame to the Fed, OTS, OCC etc well no because those agencies are involved in the solution and how could they be the solution if they are the problem. Could they blame Fannie and Freddie since they are shut down, no a quick trip to opensecrets.org will reveal the money trail going again straight to the lawmakers.So our options are to leave the sharks in the water cut a deal with them and hope they change their ways, or get them to turn on a handful of their own kind and pave the path for genuine solutions.I’m not saying I have all the answers because this crises is a tangled mess, but certainly we need as much information as possible from as many sources as possible to get to the bottom and come up with a real and workable solution. I had worked on the issue for many years and done all I could to inform the public and lawmakers of the coming liquidity crises due to bad loans, a speculative boom and arms resets along with outright manufactured defaults.

Garrett • December 18th, 2008 at 2:48 pm

completely agree

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