Sunday, September 21, 2008

Will the Wall Street bailout rouse a passive public? by gimleteye

"There are no atheists in fox holes and no libertarians in a financial crisis." The line belongs to Bill Mahrer. It is funny and true.

It is no wonder that Republicans in Congress are urging the Democrats to quick bipartisan consensus on the details of the $700 billion Wall Street bailout. So far, the details exist in a document only three pages long according to the New York Times.

President Bush said, last week, "This is a big package, because it was a big problem." It is worse than a big problem: it is the manifestation of economic policies and politics that have run the economy straight off the rails. Are American voters ready to accept their own complicity?

For twenty years the ascendancy of the Republican agenda was based on smooth sound bites ripping apart the New Deal and Great Society programs supported by Democrats ("tax and spend liberals") in favor of "free market" ideology including claims for "limited government" (proven, of course, not to be true.)

What is this trillion dollar crisis if not a call by a Republican White House for a New New Deal?

This day of reckoning for Congress and Wall Street is a repudiation of failed ideology that has done massive harm to equity, fairness, and the promise of democracy. If it could have been postponed by the Bush White House, it would have.

The Wall Street bailout represents the failure of an ideology that claimed to be conservative but was radical in its effects. If you think that $700 billion is the final price tag, I have a bridge in Brooklyn to sell you. It is a number drawn from thin air, anyone's guess-- yours or mine. It is the most palatable number that the Bush White House could summon before its exit from the stage on January 20, 2009.

Think about this: the total value of the market for credit default swaps-- a form of derivative insurance against the failure of other forms of debt-- is $62 trillion and no one knows what the true value of the market is worth because it is virtually unregulated. Why is it unregulated? Well, for the same reason that children's toys from China contain excessive amounts of lead and other toxics: it is profitable. (Mahrer also joked; the Chinese sell us toxic products and we sell them back our toxic debt.)

In Florida, for a decade under Jeb Bush and a Republican legislature, the bias against regulation was so fierce and so thorough that it literally paved the way-- with cement plants permitted illegally in Everglades wetlands, for instance-- for mortgage fraud and criminality (reported in the terrific Miami Herald series) that ran the economy off the tracks. Anyone who stood in their way was dismissed, denigrated, and marginalized: most of the Republican players in the Florida legislature are still in place. A full accounting of Senator Mel Martinez' role in fostering the housing asset bubble awaits good investigative journalism.

After leaving the governor's mansion, Jeb went to work for Lehman Brothers as a "consultant": we still don't know what that means exactly, as the terms of his agreement with Lehman have never been disclosed. The firm was the major broker of derivative financial debt to the Florida state pension fund. Lehman went bankrupt last week.

Jeb isn't talking to the mainstream press; but as an architect of Florida's future, we should have the benefit of a detailed explanation of this crisis and how he would pay our way out.

The production home builders and rock miners who dominated local government for decades in Florida, propelling Jeb to the governor's mansion and W. to the White House, demanding that new laws be erected against citizens objecting to platted subdivisions in farmland, or rock mines in Everglades wetlands, all now are crying for help; they want incentives for jobs, they want to write-off current losses against profits generated during the housing bubble, their financiers want taxpayers to accept the final responsibility for all their cumulative errors of judgment, crystallized in the hubris and confidence of Bush campaign finance chairman Al Hoffman in 2003, who literally warned off anyone who stood in the way of developers and their profits. Suburban sprawl is "an unstoppable force", Hoffman claimed to the Washington Post.

Well it certainly seemed so, only a few years ago when the K Street Project micromanaged by Tom Delay for Karl Rove and the Bush White House insisted that all lobbying and legislation be done through Republican lobbyists exclusively like Jack Abramoff who is now in prison.

The long and short of it: if this is a week of reckoning for the US economy, it is also a week of reckoning for a failed ideology.



Lehman bankruptcy hits Florida state pension funds
By Beatrice E. Garcia | Miami Herald
The bankruptcy of Lehman Brothers, a prestigious Wall Street firm, will touch Florida's pension funds and the state-run insurer because both hold its securities.

The State Board of Administration holds $322 million in Lehman stock and bonds. The SBA manages the state's employee fund and more than two dozen other funds, including assets for the Florida Hurricane Catastrophe Fund and the Florida Prepaid College Plan.

Dennis McKee, a spokesman for the SBA, said the agency has an $84 million unrealized loss on its holdings.

About two-thirds of the securities are held by the Florida Retirement System, which includes the pension funds for local counties such as Miami-Dade and Broward. The rest is spread out in the catastrophe fund and the Lawton Chiles Endowment Fund, which helps fund Medicare.

McGee said because the SBA is such a substantial investor in the financial markets, with more than $159 billion in funds under management, the agency has a relationship with most of the large Wall Street houses.

The agency said it was trying to quantify its relationship with Merrill Lynch and American International Group, a major insurance company that is seeking a $40 million capital injection from the Federal Reserve Bank to avoid being downgraded by the credit rating agencies.

4 comments:

Anonymous said...

UN-Fu!@$!ing Believable!


September 21, 2008
Text of Draft Proposal for Bailout Plan

LEGISLATIVE PROPOSAL FOR TREASURY AUTHORITY

TO PURCHASE MORTGAGE-RELATED ASSETS

Section 1. Short Title.

This Act may be cited as ____________________.

Sec. 2. Purchases of Mortgage-Related Assets.

(a) Authority to Purchase.--The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.

(b) Necessary Actions.--The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation:

(1) appointing such employees as may be required to carry out the authorities in this Act and defining their duties;

(2) entering into contracts, including contracts for services authorized by section 3109 of title 5, United States Code, without regard to any other provision of law regarding public contracts;

(3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;

(4) establishing vehicles that are authorized, subject to supervision by the Secretary, to purchase mortgage-related assets and issue obligations; and

(5) issuing such regulations and other guidance as may be necessary or appropriate to define terms or carry out the authorities of this Act.

Sec. 3. Considerations.

In exercising the authorities granted in this Act, the Secretary shall take into consideration means for--

(1) providing stability or preventing disruption to the financial markets or banking system; and

(2) protecting the taxpayer.

Sec. 4. Reports to Congress.

Within three months of the first exercise of the authority granted in section 2(a), and semiannually thereafter, the Secretary shall report to the Committees on the Budget, Financial Services, and Ways and Means of the House of Representatives and the Committees on the Budget, Finance, and Banking, Housing, and Urban Affairs of the Senate with respect to the authorities exercised under this Act and the considerations required by section 3.

Sec. 5. Rights; Management; Sale of Mortgage-Related Assets.

(a) Exercise of Rights.--The Secretary may, at any time, exercise any rights received in connection with mortgage-related assets purchased under this Act.

(b) Management of Mortgage-Related Assets.--The Secretary shall have authority to manage mortgage-related assets purchased under this Act, including revenues and portfolio risks therefrom.

(c) Sale of Mortgage-Related Assets.--The Secretary may, at any time, upon terms and conditions and at prices determined by the Secretary, sell, or enter into securities loans, repurchase transactions or other financial transactions in regard to, any mortgage-related asset purchased under this Act.

(d) Application of Sunset to Mortgage-Related Assets.--The authority of the Secretary to hold any mortgage-related asset purchased under this Act before the termination date in section 9, or to purchase or fund the purchase of a mortgage-related asset under a commitment entered into before the termination date in section 9, is not subject to the provisions of section 9.

Sec. 6. Maximum Amount of Authorized Purchases.

The Secretary’s authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time

Sec. 7. Funding.

For the purpose of the authorities granted in this Act, and for the costs of administering those authorities, the Secretary may use the proceeds of the sale of any securities issued under chapter 31 of title 31, United States Code, and the purposes for which securities may be issued under chapter 31 of title 31, United States Code, are extended to include actions authorized by this Act, including the payment of administrative expenses. Any funds expended for actions authorized by this Act, including the payment of administrative expenses, shall be deemed appropriated at the time of such expenditure.

Sec. 8. Review.

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

Sec. 9. Termination of Authority.

The authorities under this Act, with the exception of authorities granted in sections 2(b)(5), 5 and 7, shall terminate two years from the date of enactment of this Act.

Sec. 10. Increase in Statutory Limit on the Public Debt.

Subsection (b) of section 3101 of title 31, United States Code, is amended by striking out the dollar limitation contained in such subsection and inserting in lieu thereof $11,315,000,000,000.

Sec. 11. Credit Reform.

The costs of purchases of mortgage-related assets made under section 2(a) of this Act shall be determined as provided under the Federal Credit Reform Act of 1990, as applicable.

Sec. 12. Definitions.

For purposes of this section, the following definitions shall apply:

(1) Mortgage-Related Assets.--The term “mortgage-related assets” means residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before September 17, 2008.

(2) Secretary.--The term “Secretary” means the Secretary of the Treasury.

(3) United States.--The term “United States” means the States, territories, and possessions of the United States and the District of Columbia.


Copyright 2008 The New York Times Company
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Anonymous said...

Here's another take: Lucrative Patronage... now wouldn't that be a change...

2:19p ET Saturday, September 20, 2008

Dear Friend of GATA and Gold:

The Wall Street Journal story appended here discloses what seem to be the two crucial details of the Bush administration's plan to rescue the financial system.

First, distressed securities would be purchased by the Treasury Department through a "reverse auction" system, in which sellers would set the minimum price they'd be willing to accept from the government. This would seem to create the most lucrative patronage imaginable, for there's no telling how the government's purchasing agents might decide what to buy and at what price. Indeed, since there is no market for these securities and the government itself will be making the market, purchases will be entirely a matter of government favor.

Second, the purchasing system would be, like the U.S. Exchange Stabilization Fund, beyond review by any court or other regulatory agency. That is, the system would have no accountability at all, unless, perhaps, Congress wanted to look at it eventually or change the law. In effect it would declare martial law throughout the U.S. financial system and the economy at large.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

High priced Welfare Queen said...

Gee its just amazing, like what kind of gold-plated health care system could we have gotten for a trillion dollars? How about gold-plumbing housing projects for all those who scream affordable housing? Amazing that the public just turns a blind eye, this makes me so mad. I know some of these people in NYC, London, etc... That they got away with these yuppie scames is just amazing. While a few working poor got some crapy developer housing, that they can barely afford and have to work like mad to keep, people on Wall Street and the City of London got second/third/fourth homes, expensive private/university educations, best private health care in world, PJs (private jets) and then the working poor taxpayers get stuck with the bill. Shouldn't this be funded by a new tax/fee on financial transactions? Wouldn't that be the responsible thing to do? Shouldn't the financial markets be responsible for their own actions or are they just a bunch of high priced welfare-queens? What about moral hazard? Compair this to the "waste" in the food stamp programs? And that they are going to cut food stamps to pay for this is just all the more amazing?

Anonymous said...

I suggested a Federal Bailout plan back in Jul this year. But this is not exactly what I was suggesting. Now its evident to see more greedy professionals at work behind the scene. The TAXPAYER GOT RIPPED OFF (and we are going to take it where the SUN DONT SHINE and our CHILDREN ARE TOO!!!), the government just sold off WaMu directly to JPM!! WAIT!! WAIT!!! WAIT!!! THIS PLAN IS NOT THE ANSWER... why, we have been undergoing an econmic crisis since 2005, when the housing bubble busted... um, homeowners have been losing their homes, why a PLAN all the sudden??? Oh yes, the financial industry is going to hell... wait, were they not the ones that suggested the MARKET TAKE ITS COURSE. Oh but when LEH goes bankrupt - we see the top federal governement officials along with their fraternity brothers come to the rescue with a Government Bailout - for the sake of their livelihood!! HELL NO!! THIS PLAN IS GOING TO RAPE US!!! RAPE OUR CHILDREN!! We should let the market take its course, homeowners are already hurting, this bailout plan is for only the rich via their business entities and how does this help the homeowner? Lets not forget there were homeowners who bought homes in 2005, right when the housing bubble cracked, those (3/1 and 5/1 ARMS) are just starting to reset... this means the shake-out for a whole lot of homeowners starts now ... but is this plan for the homeowners or them? Why give the money to them, because they know how to handle money and the common person does not? B.S. Even if that was the case, if you gave the money directly to the people, there would not be a reason for government oversight. Which is now required, but just how? Another government task? With what? Another government instition? - one that requires more government people? What to hang out at the same parties? I guess we do nothing, and just take it, take it where the sun don't shine and watch our children get raped as we look for them to support us because we've been taxed soo much and we were unable to retire... but these lawmakers and their buddies (and their children) get to retire in style!!! Oh, and to believe both Democrats and Republicans are in with this plan, only further suggests our Politicians are supporting corrupt industries!! This Election, lets remove all of them and replace them with the opposite party, just to radically change things up. Rationally, the most practical approach would be to establish a system that allows homeowners to trade their homes, i.e. MyHouse4Trade.com or www.TrySwappingIt.com , freeze all ARMs, zero out the debt with those who lent money to the banks, return the remaining amount back into the treasury. Then ask where is this financial crisis, Wall Street? If so, let the market takes its course there!!! Those equities were overinflated since the brokers and fancy investors have been chasing earnings since the 90's - its time we get back to value investing!! All this Plan will do is screw the common man, and further put our country into debt!!! GOD SAVE AMERICA - PLEASE!!!