Why the Left Should Back Paulson….
By Steve Diamond on September 25, 2008 at 11:00 AM in Economy, Hank Paulson, Housing & Housing Crisis, Real Estate
SusanUnPC’s note: We all know Steve Diamond for his investigative work on Obama’s ties to Bill Ayers. Steve is a lawyer, political scientist and law professor. His blog is Global Labor and Politics.
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The Paulson Plan is not well understood. It is not a bail-out of failing Wall Street companies. Those companies are being destroyed as we speak. Lehman, Bear Stearns, Merrill Lynch – all are gone now. The problem is that the housing debt they created lives on after them and hangs over the heads of ordinary Americans.
Without establishing a new market for those loans growing default rates could threaten, in fact have already threatened, the real economy. The Paulson Plan enables the federal government to step in and “make a market” for real estate where the broken private sector will not dare tread.
Very few Americans seem to understand what is at stake. If the market for mortgage and other asset backed securities is not stabilized by a very large financially sound player, the risk is that it will cause financial markets that ordinarily are very safe to totter. For example, a key market is the commercial paper market. This is a market for short term loans to very sound large businesses like GE, IBM and GM. They borrow billions through their finance arms to fund their working capital. They sell commercial paper to money market funds.
If those funds sell off their CP or refuse to buy newly issued CP then those large industrial companies lose their working capital. Last week, this was happening to a small group of money market funds. As a result, in one example, IBM’s cost of borrowing tripled in a matter of days. To make this even more clear, one of the large players in commercial paper markets are power plants that use CP to finance their purchases of fuel for power plants.
It is conceivable if the CP market fails that power plants could run out of fuel and the lights would start going out.
Fortunately, we have solved this kind of problem before – in the New Deal that rescued the country from the Great Depression. A key institution was the Reconstruction Finance Corporation that pumped money into a moribund mortgage market to lead the way for private capital, in pension funds and elsewhere, to step back in. By renegotiating mortgage payments, by being willing to stand behind the ability of ordinary Americans to pay their mortgages countless homes and businesses were saved by public intervention where the free market had failed the country.
What Paulson and Bernanke propose is very similar to the efforts of the New Dealers.
Here is a description of how that effort worked from someone who was there, Jesse H. Jones:
Lessons from the New Deal
Reviving the Real Estate Mortgage Market
From Fifty Billion Dollars – My Thirteen Years with the RFC by Jesse H. Jones
What is the largest single type of investment in which the American people put their money? It isn’t the railroads or highways or insurance policies or savings accounts or corporate stocks and bonds. It is the mortgage on real estate. From the ten-acre farm to the tallest skyscraper, almost every piece of property in the country has carried a mortgage at one time or another. Mortgages have financed the construction of nearly every home, factory, store, or office building in this country
During the depression the almost measureless market for mortgages went into total eclipse. The RFC [Reconstruction Finance Corporation] helped to bring it back into the light of day – and also into the light of reason.
That accomplishment required a good many years of hard work. Even after the banking structure had been made sound and agriculture was again moderately prospering, and most of the water had been wrung out of railroad finances, the real estate mortgage market remained immobile, congealed with fear. The part taken by the RFC in its recuperation was accomplished without cost to the taxpayer, although we used millions to put life into it. We got the money back and made a small profit for the government. Better still, we helped restore faith and confidence in the orderly financing of real estate.
When the RFC went directly into the mortgage business in 1934 countless mortgage loans were in default throughout the country. Thousands of costly, useful buildings, such as apartment houses, hotels, offices, stores, warehouses, and factories put up by corporations and covered by mortgage bonds, had gone into receivership. At that time real estate mortgages on urban loans alone – all farm and rural properties being out of consideration – aggregated more than thirty five billion dollars.
Of that sum about nine billion dollars in mortgages was held by commercial banks and trust companies and mutual savings banks, seven billions by building and loan associations, and six billions by life insurance companies. Five more billion dollars was in real estate mortgage bonds held by the public. The remainder was held by trustees, educational and charitable institutions, fire and casualty companies, and individuals.
Many of the properties then in default could have been safely reorganized both in the interest of the bondholders and equity owners and without loss to the new money. But there was no new money available in the real estate field – none for retirement of maturing mortgages, none for new construction except, in spots, from one of the more prosperous life insurance companies….
In the booming 1920’s many of our larger cities had been overbuilt or at least expanded in advance of requirements by optimistic promoters.
The mortgage bond houses which financed these promotions not only charged excessive interest rates but, to make matters worse, required amortization payments much beyond the earning power of the properties even in prosperous times.
But this was not a valid reason for forever condemning real estate or real estate securities….the whole real estate market couldn’t remain in collapse….Having convinced ourselves that there was no mortgage money available to save the situation, we asked Congress in 1934 for authority to buy preferred stocks in mortgage companies, much as we had been doing in banks…But we were never able to get anyone to start a mortgage company. Times were so pessimistic that no one would put up money for common stock in such an enterprise….
So, in the spring of 1935, we started the RFC Mortgage Company with a capital of $10,000,000 which later was raised to $25,000,000. The company did a lot of good, and it made some money for the government.
We bought and sold…mortgages to make a market and encourage financial institutions to buy them. We wanted to prove that the mortgages were good and then withdraw from the field….
We immediately offered to buy…mortgage[s]…at 99 per cent of the face value of the mortgage and to sell it at par. We soon had insurance companies and other big investors interested. Then we raised our price, paying par for the mortgages and selling them at a slight premium. They finally became a popular investment with fiduciaries and trust companies.
[Over time this effort resulted in] profitable enterprises for the government as well as a great help to the public….
(Release: November 13)
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Bill Clinton: Don’t parse McCain’s decision – it’s in good faith
http://edgeoforever.wordpress.com/2008/09/25/bill-clinton-mccain-postponed-debate-in-good-faith/
Thanks, Steve, for helping to explain this mess we are in. I literally had nightmares last night, worried about my life’s savings and the stability of my son and his family who recently bought a home on one of those 5 year fixed deals.
Ipray for us all.
Well that should do it. Call the Congress home.
Don’t read this. Is OT and out of place.
From the Washington Times
http://washingtontimes.com/news/2008/sep/24/media-chronicles/
Tony’s original commentary was discussed at length yesterday:
http://noquarterusa.net/blog/2008/09/24/the-man-who-never-was/
The 24×7 Internet cycle makes all of this stale before it gets read or discussed much. His article had some great discussion.
ROFL – so true!
The bail-out is inevitable. Otherwise, the consequences will be terrible. But there has to be responsible congressional oversight. In the end, it may even be profitable.
Benny – Full agreement. We are at a baseline, and the FBI is making good in-roads to root out people. And hopefully the lobbyists for both democrats and republicans ( they are the same people), will be running for the hills.
Phil Murphy,
If there is an FBI vetting process, I hope the vetting extends up to Sen Obama’s senior level campaign advisors who helped create/facilitate/nurture the outcome we are now witnessing in the mortgage industry.
http://www.youtube.com/profile?user=themouthpeace&feature=iv&annotation_id=event_525530
http://noquarterusa.net/blog/2008/09/27/consumer-rights-league-obama-acorn-and-the-subprime-mortgage/#more-5104
Consumer Rights League, Obama, ACORN and The SubPrime Mortgage
http://www.justsaynodeal.com/acorn.html (Schematic of players & process)
The Liberty Bell Rang for Liberty and Equality – Does Obama? It is hard to tell given the media’s role in obfuscating his life.
http://zachjonesishome.wordpress.com/2008/09/24/obama-the-liberty-bell-rang-for-liberty-and-equality-larry-sinclair/
Half of life is showing up:
O STUMPS AS JOHN TRUMPS
By DICK MORRIS & EILEEN MCGANN
Published in the The New York Post on September 25, 2008
Facing a postconvention fall in the polls, John McCain once again reshaped the dimensions of the race by suspending his campaign and calling for postponement of tomorrow’s debate.
This bold move could have an impact on the race akin to McCain’s choice of Sarah Palin as his running mate. Defensively, McCain had to act to stop the fall in his poll numbers.
Offensively, he has placed himself at the epicenter of the only issue on the national agenda – proactive action to stop a total international financial collapse.
Obama’s response to McCain’s initiative is lame. As with his initial reaction to Sarah Palin, Obama has miscalculated. While he tries to spin McCain’s move as a mere response to his initiative, it was the Republican who first issued the call for a suspension of the campaigns.
Both McCain and Obama will now go to Washington. McCain on his own initiative. Obama as a result of the president’s call for an economic summit.
But it is McCain who will play the proactive role. Obama will come to Washington, but will keep one foot outside the Beltway.
Even though the president has called both candidates to Washington to save the country, Obama continues to campaign. Politics as usual.
He doesn’t want to cancel the debate. He would debate while the markets burn.
McCain is going to work while Obama is phoning it in.
Oddly, McCain and Obama agree on the bailout package. But it is only McCain who can pass the bill. Only McCain can deliver the administration and the Republicans.
McCain will be at the center of the process, managing it through to success while Obama lingers on the outskirts, irrelevant and uninvolved.
McCain will pass Barack Obama’s bill (which parallels his own proposals), and will get the credit for it.
There are compelling reasons why McCain may be saving his campaign by this bold move.
McCain’s entry into the legislative foray personalizes the economy issue.
As long as McCain stayed away from Washington, it was the Democrats against the Republicans. Polls give the Democrats the edge. But voters trust McCain personally more than they trust Obama to manage his way out of a crisis.
By showing up in Washington, McCain makes the issue personal, not partisan.
And the rescue legislation will pass. Washington has no alternative but to act. And it probably will work. The markets will calm down. The bailout legislation will have done it.
Including the Democratic amendments, it will become a fairly popular piece of legislation and it will have been McCain’s bill. Obama can claim authorship, but it will have been McCain who will have brought the Administration into line.
Once the bill is passed, McCain will have the credentials to go on the offensive and warn of the impact of Obama’s tax increases on the recovery.
Had McCain not acted, Republican opposition to big government might have doomed the economy and destroyed Republican hopes.
By going to Washington, McCain makes it imperative that the Republicans pass the legislation. His presence makes it an issue of party survival in a way that lame duck Bush could never do.
As Woody Allen said “half of life is just showing up.”
Content aside, why am I not surprised that Morris chooses to quote pervert Woody Allen?
[ADMINISTRATOR: Comment removed for inappropriate content.]
Dang, and I spent all that time listen to that Dave Chappelle skit too, lol
What a fucking joke. As of this morning, McCain admitted on television that he hasn’t even read the bailout proposal. (It’s 3 pages long.) He LIED about suspending his campaign — his attack ads are still running all over the country. He LIED about returning to D.C. yesterday; he was still making media appearances last night. He will NOT play any relevant role in the bailout itself; relevant Congressional leaders have been working around the clock and as of last night had pretty much finished negotiating a compromise bill. McCain is a flailing, desperate, posturing asshole. Oh, and if he doesn’t show his face in Mississippi tonight, he’s also a coward. The American people don’t like cowards. He will never be president.
tomorrow night, rather.
Good catch. I was going to give you the assist, but glad you got the two points!
John McCain said yesterday:
Tomorrow morning, I will suspend my campaign and return to Washington after speaking at the Clinton Global Initiative.
Hyperbole is not your strong suit. You do much better when you keep to reasoned argument.
You are hyperventilating. Please take a deep breath….
His schedule is as you stated and as he stated yesterday.
He said he was ordering the ads halted, I doubt that occurs immediately and some are likely stuck running regardless of his change.
I think you over simplify his role in Congress.
I’m not sure what he read or did not read. The 3-page plan is DOA anyway.
And the rest of your comment is ranting trash and offensive language.
What to start over?
Thank you, Matthew.
No, but I’m sure he does. A week ago the man was saying the economy is fundamentally sound. Then he said we shouldn’t bail out AIG. Then he wanted to fire the SEC commissioner. Then he wanted to establish a “9/11 Commission” to study the financial problem. Then he decided we should bail out AIG. Then he decided that the economic situation was so dire that in order to lead the effort to pass a bailout he had to suspend his campaign and return to D.C. immediately. But he didn’t return to D.C. and admitted on television that he hadn’t even bothered to read the original proposal, let alone play any role whatsoever in crafting a new one.
He is a posturing fool, and clearly a coward. They are obvious terrified of allowing him to debate Obama, and after the laughable, pitiable debacle of her appearance on Couric’s newscast last night, they’ll do anything in God’s name they possibly can to keep Palin from appearing in front of a single other TV camera for the next 40 days.
What an utter joke.
And I am NOT oversimplifying his role. He has had ZERO role in crafting this bill, and he will NEVER have any role in doing so. The work is already done. He is posturing for political purposes because he is losing, badly, and is now desperate. And Palin — wow. Go watch her on Couric last night. Nobody can possibly say with a straight face that she ought to be anywhere near the Oval Office. Their campaign is a laughingstock. When you have Dave Letterman — a good friend of McCain’s going back many years — openly angry and mocking you on national television, that tells you everything you need to know about how McCain’s actions of the last few days are being perceived by the nation at large.
The “crafting” of this legislation is done by a very small chosen view… and that doesn’t include Obama either. Bernanke and Paulson for the WH, Dodd and Barney Frank for the DNC are the main players.
Reid says Obama isn’t needed. And notice the he and Pelosi are backing off, throwing the ball to Dodd and Frank. They have as little cred for the DNC as Bush as for the WH admin. That’s why it’s all the lesser players, writing up the bill.
All of Congress is needed because before funds can be released from the Treasury for this, Congress must put their stamp of approval via the US Constitution.
Last I looked, Obama’s job was as the jr. Senator from IL, and a member of that body.
In fact, McCain, Obama *and* Biden are all sitting Senators on the US payroll. They should be present for a vote, and campaigning should take a back seat. This is not a moment in time to be absent, or send in a “present” vote. Before they get a new job, they are responsible for doing the job they have.
McCain is absolutely necessary since the GOP is not on board, and it will take McCain to sway them into acceptance. Talk about “crossing the aisle”.
And of course McCain wasn’t for the AIG bailout. So far, the bailouts for AIG and other Wall St firms, plus the stimulus package, were bandaids that did nothing to stave off this impending failure. McCain, like most of the citizens, are not “for” this, but don’t see another solution that is feasible for quick action.
Count me still skeptical on it all.
This comes down to something simple. McCain is leading by placing staying a’top this legislation, making sure it’s crafted with compromises to get thru both chambers. He is key to the GOP’s acceptance.
Obama is a follower, continuing on with his campaign since he can have Pelosi and Reid speak for him in his absence. He’s not “needed” in the sense McCain is, because the majority of the DNC are in the yea column already. This, however, does not preclude his participation in such an unprecedented release of authority and taxpayers funds by Congress to a single individual.
Make that crafted by a “chosen few”… sorry for the typo
SF Hillary-
who is the posturing fool?
http://www.youtube.com/profile?user=themouthpeace&feature=iv&annotation_id=event_525530
http://www.thenation.com/doc/20080211/fraser
The Nation, “Subprime Obama” by Max Fraser 1/24/08 Post 2/11/08 issue
“Obama’s disappointing foreclosure plan stems from the centrist politics of his three chief economic advisers and his campaign’s ties to Wall Street institutions opposed to increased financial regulation”, according to the article.
More examples of how Sen Obama has SABATOGED efforts to help the middle class and working class people in this country.
http://www.motherjones.com/commentary/columns/2008/03/i-am-barack-obama.html
Mother Jones, “ I am Barack Obama” by Mark Winston Griffith 3/17/08
“And on the question of a federal response to subprime lending abuses and foreclosure, an issue I’ve been passionate about since my days running a financial cooperative in Bedford-Stuyvesant, I’m convinced that extensive regulation and government intervention is the only way to curb predatory lending and prevent massive foreclosures. Obama, on the other hand, relies far more on the market correcting itself. Max Fraser recently wrote in The Nation that “As he has done on domestic issues like healthcare, job creation and energy policy, Obama is staking out a position to the right of not only populist Edwards but Clinton as well”
Why would Gov Palin Not want to appear in a debate?
Learn about the real Gov Palin & what she has accomplished in Alaska
http://www.youtube.com/watch?v=Jt6VzuseI30
Now,
Learn about the real Sen Obama and what he has accomplished in Chicago
http://vodpod.com/watch/857180-why-chicagoans-are-against-obama
Nearly 125 Shot Dead In Chicago Over Summer (2008)
http://cbs4denver.com/national/chicago.summer.shootings.2.810882.html
Sen Obama’s ACTUAL Legislative
Accomplishments:
http://www.beyondchron.org/articles/The_Obama_Craze_Count_Me_Out_5413.html
Wow, SF – that was quite the little hissy fit – lol! Please – get yourself some anger management counseling so you won’t totally go off the deep-end when barky loses in disgrace and humiliation.
Actually, I just realized it’s probably too late for you on the deep-end thing – you’ll no doubt end up in a padded room – but maybe, just maybe, counseling can prevent you from committing suicide when it all hits the fan for you.
SF you wasting business time coming here to post?
Blogging on company time?
Just wondering?
Whatever. Here’s the reality: they’ve already cut a deal, and McCain hasn’t even shown up yet. From the Associated Press:
“The bipartisan consensus on the general direction of the legislation was reported just hours before President Bush was to host presidential contenders Barack Obama and John McCain and congressional leaders at the White House for discussions on how to clear obstacles to the unpopular rescue plan.
Key lawmakers said at midday that few difficulties actually remained.
“There really isn’t much of a deadlock to break,” said Rep. Barney Frank, D-Mass, chairman of the House Financial Services Committee.”
But you PUMA clowns will spend the next week lying to yourselves about the crucial role McCain played. Good thing there’s an agreement, though, so the coward will have to show up at tomorrow’s night’s debate after all.
Sorry, low-information voter SF..
as of 3:38 EST, there has been “no deal” according to folks on the hill.
I guess you don’t keep up with the news, do you? Or do you just read MSNBC who mis-reported that there was a deal? Hah, right now they are busy getting the pie off their face..
I saw several video clips on Fox TV today of Treas. Sec. Snow, Alan Greenspan and John McCain warning about the upcoming debacle regarding Freddie Mae / Fannie Mac a couple of years before the fact. Then they showed Chuck Schumer and Barnie Frank declaring that there was no potential crisis and that the two agencies were just fine, so they blocked the bill.
Guess we know who was right in this particular case. As a long-time (now former) Democrat I was sure surprised to see that a lot of the fault of this rests at the Dem’s feet. I guess the Bushies didn’t do everything wrong although they sure did enough.
Anyways, credit where credit is due (no pun intended).
But the left would need to stop being left if they would understand what’s happening. (Did I said that right?)
These are different times. The bailout, as described above will work now only if we elect Gov. Sarah Palin as Vice President. Why? Because the service sector economy that we have built under Greespan has an upper limit and will not allow for the prosperity required to rid us of the vast sums of money needed to return to normalcy. Palin will return to an economy based on ‘resources.’ In order to lift America out of its precarious position in the global economy, America needs to become a ‘resource oriented’ re-industrialized nation. At present, only Gov. Palin is advocating this form of re-industrialization.
McCain is good, but Palin is better, the best.
And the left will be hard press to accept her medicine.
Nice analysis, lark. Thanks.
I’m not sure of your assertion that Palin is advocating a resource-based economy, but if she is, wow, that’s a big one.
I live in Seattle, where product manufacturing, be it of planes at Boeing or software at Microsoft, is big. It’s interesting to note that one of our biggest service businesses (to the point of being the namesake of our major league baseball field), Safeco insurance, was recently bought out by a larger player. And I think the whole country knows about WaMu’s current instability. The machinists are striking at Boeing right now, but that will get resolved (as it always does… this happens periodically…) and Boeing will march on.
Creation of new assets, and responsible use of existing ones, seems to be a better idea than service entity after service entity “adding value”. At least, in Seattle, the manufacturing sector seems to be doing better. Most of the people in our service sector aren’t paid as well as those in the manufacturing sector.
Okay. I know I was harsh earlier and quite upset about all of this.
The financial markets create a mess and once again it’s the responsibility of the taxpaying public to help fix it. I get angry because no one cared what we thought until the bottom was about to fall out.
Paulson and Bernanke get paid to help prevent things like this. That’s part of their job.
I don’t do my job I get fired. They don’t do their jobs they get billions.
Pardon me for not being happy about that.
I am bothered that history is repeating itself. I think the appetite for government handouts by business is too great–not only the companies on Wall Street, but now I see $25B for auto industry and FDIC is asking for $150B. Who’s next?
It might be populist but there is a problem with government being the source of first resort for these folks. Companies have made billions, they can save themselves or wither away. Government should work with successful companies not with the failed ones. They failed for a reason–saving them now is not necessarily saving them.
Other than some sense of preventing a collapse, what do we get for our money? Where is the profit in this?
It stroke me funny that in a forum shown on C-span this morning, the moderator and a few of the speakers identified themselves as previously from Lehman’s but now with Barkley’s. I said to myself, how nice. So easy the just switch companies and now they are at the top of their game again, providing counseling and consulting.
What’s funny is that many of the solutions to these problems do not need money but methods. Yet these consultants/experts are always speaking in past tenses. They can analyze perfectly what happened but can’t for the life of them say what needs to happen. Of course, they want what needs to happen for themselves. To get richer. No more rich.
Matthew – The profit ( immediate) is that a worldwide network of banking institutions that cover businesses will be able to continue to make loans. Last night on one news it showed one company got a loan that was double the normal price. GM had also applied for a loan and it was refused. So you have companies operating without capital, having to decide on who not to pay.
On top of that you have all the W/C policies, etc…
So you get stability.
The profit ( long term) is that if they cut the correct deal, the US will get initial profits that come back into these companies. And we get a better dollar out of this.
The downside is that as the US dollar gets better, countries like China, Japan and others may decide that the $$ they invested they want out. In which case we would either have to borrow money, or get it from the taxpayer.
Bottom line though is that its a hobson’s choice
The RTC cost taxpayers $132B according to the GAO. One difference – aside that it was peanuts compared to this – is that these mortgages were discrete, tangible assets. One of the problems now is the cancerous way the bad debt has infected the entire system. Paulson keeps demanding more money as a solution, but the question remains, how many players, how deep will this go, and ultimately will it work even then?
He has, essentially, put a gun to American’s head and demanded a payout under incredibly arrogant terms. We need for the congress to really stand up for the people here and demonstrate that in the coming bad times the citizens are thought about with has much concern being shown for bankers.
“Too big to fail” has gotten us here. Maybe LTCM should have gone under. But when Paulson reduced CEO pay bonuses from $17m to $9m as if that was an austerity program, it tends to lose the guy who can’t pay his doctor’s bills.
I seem to recall we had to hurry to invade Iraq, too. Paulson has been in office for sometime now, doing a serial bailout. If he now says the sky is falling if he doesn’t get $700B by Monday, I’m guessing that the sky is falling. I still don’t want to write him a blank check for it, because I think we’re going to need the money.
Bill Clinton Blames Dems for Financial Meltdown
Video
How much more proof do we need that Bill Clinton wants to take Obama out?
http://patriotroom.com/?p=2402
He’s absolutely correct — see my post above re: TV clips of Barney Frank and Chuck Schumer pooh-poohing any impending disaster with Fannie and Freddie.
Frankly, I don’t think that Bill gives a hoot about the political fallout for either he or Hillary right now. He’s just going to tell it like it is. I think that both of them have just about had it with those creepy Dems.
Thanks for explaining this Steve. Something does have to be done.
Paulson said in his opening comments at the bailout hearings “The fundamentals of our economy are strong”. Who else said that? Oh yes, John McCain, who Obarmbi supporters are deriding him for making the exact same statement when the emergency was first known over a week ago! Just like with Fannie and Freddie, John McCain is ahead of the curve on knowing what to do, even if it is not American Idol stuff that the media love Obambi for.
Oh, but it was politically incorrect — no matter that it was TRUE! Who cares about that anymore?
Mr. Diamond is dead wrong.
First off it puts over $9000 of debt on every working man and woman in this country. Its insane.
Paulson’s plan isn’t about saving the credit markets its about allowing banks and every other finanicial outfit to unload about $5 trillion dollars of worthless mortgages and other instruments at YOUR EXPENSE.
This is why his plan is set up the way it is. Doubt it? go read it, its only 3 pages.
Its cash for trash all at your and your children’s expense.
Not to mention putting this country into hock with OPEC, Japan and China. Who will have a major say in American politics and finance if Paulson’s bill gets passed.
Here’s a better idea, take $700 billion and invest it in building new railways, rebuilding our over taxed and old power grid, repairing bridges and investing in wind and solar power plants and we’d have something to show for our money, plus a healthy national infrastructure. Versus giving it to a bunch of rich scam artists who created the problem to begin with.
And would stimulate our economy as well.
But hey that would help ordinary Americans, we can’t have that, can we Mr. Diamond?
Yes, it has turned out to be a great redistribution effort that has enriched companies that then dump their debris on the taxpayer.
Exactly. We bail out the banks bad debt, and then the banks get to buy the assets back at fire-sale prices once the housing market stabilizes. The banks make out like bandits once again.
I disagree. The underlying assets (homes) are worth much more than the fire-sale prices the government will be paying for the securities representing the mortgages. As in the S & L bailout, the government will later sell these securities for more than they paid for them. China announced it’s no longer lending to U.S. banks and the credit rates were raised last night so that no U.S. banks are lending to each other – we are already frozen. If this bill doesn’t pass, we are headed for a worldwide financial debacle.
Are you so sure the government will pay firesale prices? I suspect they’ll pay the insured or loan balance price, then take a hit on actual sale price less costs to sell.
I expect they’ll pay at least that.
One of the strategies I heard was that the govt would offer a PREMIUM as an incentive for financial institutions to sell the paper.
Why? Because the institutions may recognize that with the sale goes a chunk of their profits, and if the institution is not yet on death’s door, they may view that as an unnecessary hit to their bottom line. Paying a premium would get those businesses to see a reason to give up some of their later profits, for some income today.
you don’t know much about financial markets. that is what drives all the things you speak of. do your homework. the bailout is more like a loan. When the companies get back on their feet, they have to pay back the money. we can’t do construction or anything else if the banks won’t give out credit. As for Paulson, alot of people didn’t do their jobs including the Democratic Comgress. They are still getting paid too.
I don’t believe infrastructure projects will repair the credit market. The US is a debtor nation full of debtor citizens. You do not build wealth with paper. Until the people live within their means and the govt leaves within it’s means, the economy is at risk and govt will increase the privatization of profits for the wealthy and socialize the risk to further separate the haves and have nots.
We will be forced as taxpayers to resolve this govts mess. I want to see a bottom up solution. The loans should have been re-financed at the start and the bankruptcy addition to the legislation will allow judges to do this for people who are legitimately able to afford a home (demonstrating financial responsibilty by having no other debt). The only compensation limits will be on golden parachutes not salaries etc as the rich jerks will find any and every loop hole so the can suck at the public trough.
I don’t want to bail out any individual or any firm but I have no say. Projects will not resolve ‘debt’ issues. But I prefer to bailout the people not the industry or foreign concerns.
Here is the only draft available to the public, I know of at this time, from the NYTs on the 20th.
I understand they have agreed to some verbal changes, however we don’t know what they are changing, nor other details that may be added until we see a new bill *in writing*. “just words”….
Not that the actions of the Secy of the Treasury are not subject to review by courts. He can purchase and sell at prices determined by one man.
The first accounting to Congress and the public may be up to three months, and semi-annually after that. That’s a lot of time inbetween for one man to be playing real estate broker for the taxpayer.
And who will that man be with a new admin?
Conservative Republicans do not support this bill – their constituents are totally against it. McCain is taking a huge risk trying to get them to pass it and there’s no guarantee that he’ll succeed, and if he does a segment of his base will be angry. That’s leadership – country first, not his election chances. Sounds like a guy who would undergo torture rather than leave prison ahead of fellow prisoners who were there longer. Thank you John McCain.
No, sounds like someone who is desperately trying to save his campaign. Were he the leadership guy, he would have been on the phone to members of the Senate Banking Committee before yesterday, and would have been on top of the problem rather than saying the economy was sound – Mr. Deregulation.
yes, desperate is the word I would use to describe Obama and his supporters.
How so wodie? Desperate when we have more money and more boots on the ground in more states? Desperate when the polls showing women flocking to the Obama side. Desperate when Obama is leading in Battleground States. Desperate in terms of Electoral votes right now?
Its the kind of desperate that wins elections I guess.
Here is desperate and Why McCain is scampering like a rat back to Washington:
WASHINGTON (CNN) – By a 2-to-1 ratio, Americans blame Republicans over Democrats for the financial crisis that has swept across the country the past few weeks, a new national poll suggests.
Sen. Barack Obama greets supporters during a rally in Green Bay, Wisconsin, on Monday.
1 of 2
That may be contributing to better poll numbers for Sen. Barack Obama against Sen. John McCain in the race for the White House.
In a CNN/Opinion Research Corp. survey out Monday afternoon, 47 percent of registered voters questioned said Republicans are more responsible for the problems currently facing financial institutions and the stock market; only 24 percent said Democrats are more responsible.
Twenty percent blame both parties equally and 8 percent say neither party is to blame.
The poll also indicates more Americans think Obama, the Democratic presidential nominee, would do a better job handling an economic crisis than McCain, the Republican presidential nominee.
I think you gave yourself away by stating that your from that liberal pit…sf
The way you write and copy and paste I have concluded that you are
sf
I apologize swill..
I hadn’t realized that they let sfHillary back on this blog.
No apology needed. I always tell people where I am from. Born and raised in San Francisco, and now partly in New Orleans.
I go for the food and music and people.
As to San Francisco Politics these days – nothing to be proud of. Im a liberal but fiscal conservative, so I dont fit in well with the “progressives” these days.
ahhhh… the power of media indoctrination to misinformation.
They are TIED in the polls. Why does reality escape the Obama supporters so easily?
Something HAS to be done on this bill. McCain shows up , Obama campaigns.
Doesn’t it frustrate you that campaigning is the ONLY qualification or intention Obama has?
He uses it to say he’s more qualified than a Governor, which by the way, his buddy Gov Rod Blagoviech blatantly calls wrong.
He uses it to exlain why he doesn’t have to do his current job as a sitting US senator. He is a Senator for my state. He shows no willingness to go to work to represent what his constituents want.
As far as Obama having more money, that is patently false. Take into account that the DNC is well behind the RNC in funds.
Besides, money won’t buy him votes..been there, done that. Haven’t you been paying attention? Outspends his opponents by ridiculous amounts and LOSES, the primaries sound familiar? His 49 million buy in FL isn’t getting him a thing and his ads are largely UNANSWERED..zip, nitch, nada for Obama.
And lastly, YOU ARE NOT GOING TO CHANGE ANYONE’S MIND here at NQ, nor are you interested in considering a change of your mind, so why are you here?
If it is simply to annoy, then you are further proof of why people won’t vote for Obama.
thats true. John McCain made an informed decision to solve the problems. hes gonna whip the conservative repubs into line. Now that hes the head of the republican party, the repubs cannot overrule him, although they hate him.
Obama, on the other hand just doesn’t care about the economy. he just wants to win. he isn’t even a true democrat. he supports FISA and wants to expand faith-based initiatives. Obama is Bush-3. He is using the democrats to become president. thats all.
You nailed that one Benny! Barack Obama is an equal opportunity user to the nth degree.
Thanks Steve and Jesse for explaining this in simple enough language that even I can understand. This makes me feel better.
And thanks and kudos , too, to Larry and Susan and NQ for always have the best and most insightful posters on NQ.
Also here’s another thing to consider via BigPicture blog:
Sorry, but what happened to the thread on Hillary’s WSJ Op-Ed?
I tried posting and it said page not found. Now it’s gone.
Here’s my comment in response to the idea that McCain is making 0bama look bad:
Unfortunately, I just turned off CNN because they’re going with the 0bama camp spin: “he can walk and chew bubble gum at the same time.” Obama will show up at tomorrow’s debate.
They’re also ONLY interviewing people who have this opinion, thus reinforcing it across the airwaves. They have not replayed Harry Reid’s remarks from the other day.
The frustrating thing this whole election is the freezing out of facts and varying opinion over the airwaves. They stack the deck in 0bama’s favor and sadly, there are people who will not investigate beyond what they see on msm. The msm knows this, the people in the 0bama camp know this, this is what destroyed Hillary’s candidacy and now their in overdrive with McCain.
I’m of the opinion that Soros helped expedite this economic crisis.
I can’t prove it, of course. But it doesn’t mean that anyone can prove that he didn’t. In fact, is anyone investigating behind the scenes manipulation?
So, I’m going with my gut.
This is why a candidate who is a weak debater, by everyone’s estimation, is so bound and determined to show up at a debate on his least strong suit: foreign policy.
0bama and his cabal WANT the crisis to continue. It helps 0bama if the economy is in turmoil because low information voters will blame the Republicans even though there is more than enough blame to go around. And since the msm is in the tank for him, he’s getting carte blanche.
I have no crystal ball, but I do know we are in the fight of our life.
No matter how this plays out, the economic woes are being perceived as Republican-driven. Even as McCain shows leadership, it doesn’t bode well for him. He’s in Hillary country now.
You are right in many ways but not about the perception. You may be watching too much CNN. McCain now needs to actively campaign against the media and I think he will. I just don’t see how Obama can come out of this looking good.
The attempts by Obama surrogates to smear McCain’s bold effort are weaker this am than I expected. But they committed themselves to that course of action and now can’t back away from it. McCain is showing up for work while Obama is seen as phoning it in.
lol, this is hilarious. the polls that I really trust has interchanged positions. Rasmussen has Obama +3 (49-46), and Gallup just released their results – both are even (46-46). man, its fun to watch the polls this election.
Watch the polls – just don’t believe them.
I’m a good left-wing liberal. As such, I want to believe that the bailout (with VERY strong preconditions and VERY intense oversight) really is necessary, but I fail to be convinced that artificially maintaining high housing prices is really the way to help our economy long-term. I would much rather see the bailout money going into job-creating infrastructure projects that would help our country and provide good-paying jobs than continually prop up this fake economy. Yes, I have a 401K and I am worried, but no, I don’t “own” a home because I refused to spend 5-10X my salary to rent my living space from a bank.
But I will be the first to admit that I am not knowledgeable about economics and financing, so I’m willing to listen to solid reasons why we need to do this. And if we need to do this, I repeat that it should not be done without EXTREMELY tight conditions on the bailees. And I expect Congress to wring every last benefit for taxpayers that it can out of this deal. Sadly, past experience tells me that it won’t happen this way and Congress will just hand these con artists another blank check.
That’s why I’m worried. I’m willing to be convinced, but not there yet.
My understanding is that the three page document is no longer going forward, and will be modified.
The article posted is absolutely correct.
Our entire economy runs on credit.
Without credit, no community in this country could float bonds for any form of capital projects.
That is why they earn credit ratings, and strive to maintain good ones!
Yes, there has been no over-sight, but that is changing as we speak, and we need a solution.
Every small business in this country could lose out, and we need to keep those jobs!
That’s cruel. McCain did what he did because that’s the way he is. Presidents don’t take care of crises like this – congressmen do too. McCain is a congressman. They parley on the floor and in the corridors. It’s about communication. That’s why they were elected in the first place. To wish to abort campaigning to help take care of the biggest financial crisis in the history of the country is simply patriotism. Not pretentious patriotism but simple “country first” patriotism. Obama finds excuses and votes “present”; McCain is a patriot.
RWC said it better than I did!
Yep. If we put that $700 billion into a crash alternative energy program, in ten years we’d be standing at the beginning of an American Economic Renaissance. (Actually, it would only cost a fraction of that.) The Arabs would be scratching their heads, trying to figure out what happened and where to sell their oil. And during those 10 years, the economy would be booming from all of the new jobs relating to research, development, and expansion of the alternative energy infrastructure. There’s be all sorts of new investment opportunities in something with a real future.
Or, we could muddle along the way we have been, drilling for decreasing domestic supplies of an obsolete energy source that we’ll have to compete for in a global market with increasingly worthless dollars–all while dumping money into the military to try to protect increasingly costly foreign supplies, because we’ve only got 3% of the global reserves to begin with.
When you go into that voting booth in November, you’re choosing between two possible futures.
I understand the necessity for the bail-out. I understand who it is that we’re actually rescuing.
But I also understand whose deregulation and whose economic policies got us in this FUBAR situation.
No way, no how will I vote to put another republican administration in the White House this November.
You might want to research the legislative and changes to compliance to the Community Reinvestment Act, which was a major component to this failure, Angry. You will find there is ample blame for all of Congress… both parties… for this. CRA was led by the DNC, but could not have survived without the GOP’s support.
Neither party is blameless, however as many have stated here, McCain was doing floor speechs about this coming problem back in 2005 and 2006. And where was Obama? Who knows…
I’m aware of McCain’s pre-campaign political posturing relating to S.190 of 2005. He signed on as a co-sponsor in 2006, after the bill had already died the previous year in the Senate Committee on Banking, Housing, and Urban Affairs. (A committee which Barack Obama did not serve on, btw.) This is one of my gripes with McCain: He takes stands, but nothing materializes; he’s been a reformer for years, but not much has ever gotten reformed; he’s against lobbyists, but his campaign staff and advisors consist of nothing but.
John Mccain is a Repubocrat. In the middle. Remember, John Kerry wanted him as his VP.
I am very upset over this. Are Obamacrats really democrats? makes you wonder…
The leftwing blogosphere has a new villain in addition to John McCain and Sarah Palin: Bill Clinton.
They have been suspecting that Clinton has not been giving all out support to Barack Obama including his announcement to Larry King that he wouldn’t begin campaigning for Obama until after October 9 out of respect for the Jewish High Holy Days.
However, the straw that really broke the leftwing camel’s back was Clinton’s statement today to Chris Cuomo on ABC’s Good Morning America defending John McCain’s request for a debate delay until after the financial bailout crises is resolved. Here are a couple of things that Bill Clinton said that drove the left absolutely bonkers:
We know he didn’t do it because he’s afraid because Sen. McCain wanted more debates.
…I presume he did that in good faith since I know he wanted — I remember he asked for more debates to go all around the country and so I don’t think we ought to overly parse that.
This caused a firestorm of anger at both the Daily Kos and the Democratic Underground. So just how angry is the leftwing blogosphere with Bill Clinton? You can get an idea by reading this sampling of comments posted at the Democratic Underground:
SHUT THE HELL UP BILL!!! I can’t stand his ass anymore.
the reality is that his presidency was All About Bill, he screwed interns and progressive values with equal abandon, and he ushered in Republican control of all three brances of the government.
What “Jewish Holidays” was he talking about on Larry King,He said he would campaign for Obama after. The Jewish Holidays, WTF message is he trying to send. This is a man that knows exactly what his words are and mean.
Bill Clinton is a black hole that runs on egotism. I am so sick of tired, old act. Don’t go away mad, Bill. Just go away.
The Daily Kos is also quite angry with Bill Clinton as you can see:
he has now put his legacy and his wife’s future on the line with his comments this week…people will look back and place a lot of blame on him…otherwise Obama wins and Clinton is sent into the dust bowl of history…
now Bill clinton is hiding behind his freindship with McCain as cover for not attacking him. Would he be so charitable if Hillary were the nominee? i think not. The sooner we get both Clintons off the national stage, the better off we all are. I for one intend to rally New Yorkers to defeat Hillary in the next Senate race. Hers ad Bills type have seen their best days, and we should put them out to pasture. We all saw the real side of Bill Clinton during the primaries. He is a two faced little coward who once did some good things for the country, but that was then. What exactly has he done for anyonre lately besides side with Hillary in dragging down the Democratic party? besides, if he is the great all-knowing and powerful campaign person, why didnt Hillary win? Give me a break!!!!
The Bill Clinton administration: 8 years of economic prosperity and peace, ending with fiscal surpluses.
Show me a republican presidency that’s equalled that. Basically, all recent republican presidents have been total screw-ups.
The left-wing blogosphere doesn’t speak for me, any more than right-wing blowhards speak for true American conservative values.
LOL.
Awwww,
Poor little obots, no one’s buying the Obotics and Bill Clinton won’t save his sinking ship.
Waaa Waa Waa,
We called him a racist. Obama said his presidency was a failure, but he won’t help us.
Too Funny.
Obamatrons who are blaming the Republicans for this subprime mortgage meltdown mess, Bill Clinton said in an interview with ABC News today that it was the Democrats fault for fighting the Republicans (and Clinton when he was President) and not allowing more stringent oversight.
Oversight of Fannie Mae and Freddie Mac.
He didn’t actually say that.
Steve,
good article.
I agree- a new market has to be established for the housing debt-no question about that.
Before I can give my opinion on this proposal however, I need to know the following:
Where do the issues of accountability, conflict of interest, regulatory and oversight rules PLUS
caps on executive compenstaion come into the discussion?
How are the taxpayers to be rewarded for agreeing to a proposal like this-a proposal which is necessary only because of the greed, ineptitiude, political osturing of others-including financiers AND legislators. Many innocent hardworking taxpayers are being made to suffer the consequences of the decisions made by others. This is not fair, equitable, or just.
How are the financiers and bankers and lobbyists and politicians who knowingly and/or through derelection of fiduciary responsibility (to the voters, taxpayers and shareholders) ‘grew’ this mortgage problem and personally- profited in the interim situation-how are these individuals to be penalized (criminally and/or financially)?
The fact that there are no public hearings on this bill makes it even worse. This leaves the taxpayers in a very vulnerable position based upon ignorance of the repurcussions of the bill’s contents.
I can’t discuss any bailout plan until/unless I discuss what methods have been included in this same plan that will prevent this fiasco from occuring again.
Any bailout should have strict accountability, conflict-of-interest, regulatory, and oversight rules attached, including a cap on executive compensation. In addition-penalties for breach of fiduciary responsibility and/or criminal activities need to be included in this bill-otherwise…this bill is merely a ’stop gap’ measure until the next financial catastrophe.
This proposed solution, in my opinion, is a bandaid approach. The portion that is missing from this bill’s discussion is what will prevent this disease from occurring again-
A C C O U N T A B I L I T Y
and
T R A N S P A R E N C Y
Am I missing something here?
I appreciate Prof. Diamonds take on this confusing issue. This is a difficult subject for me to understand.
Here is another point of view from WaPo:
“A Bailout We Don’t Need” by James K Galbraith (economist, Prof). Link:
http://www.washingtonpost.com/wp-dyn/content/article/2008/09/24/AR2008092403033.html?hpid=opinionsbox1
Have a good day everyone!
Truth is I don’t trust Paulson or anyone else with that much money and that much power. I say give them the money in sections and buy mostly mortgages. Paulson seems to want more flexibilty to buy a bunch of other things that I’m sure should be available. If you want to have extra money left over to help out any failing banks fine, but the ROOT of the problem are bad mortgages. I’m not a fan of potentially giving money to foriegn business because if their own country is not willing to help them out- screw ‘em.
Mortgages will have to be refinanced in order to keep a steady flow of money and help pay of the buy up these mortgage securities. It should have been done in 2007 by the banks who gave the mortgages themselves. It would have meant some loss in money but not the meltdown seen today. (I distinctly remember Clinton calling for that action and then was shot down by everyone including Sen Obama.)
Priority:
1. American homes
2. American banks
3. Wall Street
why argue with a group of people that thinks someone who has never done anything in his life except for himself is a good choice for president, in a period of economic crisis, and this was before the melt down. It’s obvious obama supporters are as irrational as they accuse Christians of being, so why bother, trying to explain to these mental midgets why mccain is a better choice for president, is about as futile as trying to get billy graham to believe in evolution. There choice for president shows you they are illogical, stop trying. Ignore them.