The last report I picked up noted Treasury Secretary Henry Paulson urged the measure be passed “clean and quick”. You can bet on that given what he said on one of the Sunday news shows.
On new aid for homeowners, Paulson signaled a willingness to compromise. The Treasury secretary said that while the bill could include “mortgage relief components,” the administration’s plan already addresses the issue.
Paulson also said that “the vast majority of foreclosures in this country — as regrettable as they are and as painful as they are — are coming from people who either don’t want to stay in their home and live up to their obligations or those that never had the financial capability to stay in their home.”
I suspect this comment from a viewer expresses the reaction on Main Street as well.
As a Wall Street guy…I find it incredible that he would use language like that while asking taxpayers to send a trillion dollars to Wall Street because investment banks made irresponsible investments and aren’t able to live up to their obligations.
In any loan transaction there are at least two parties. If I give my unemployed and uneducated brother-in-law a half a million dollar loan wouldn’t I be just as irresponsible giving it as he is taking it? Moreover, a large majority of borrowers did not have financial training to be able to understand complex mortgage terms and risks of the underlying investments. Investment banks have armies of Ph Ds working for them that helps them analyze market risks and credit exposure. They got it wrong too! It strikes me as strange that unsophisticated borrowers are being held to much higher standard than ultra-sophisticated bankers.
Paulson is clearly out of touch with reality. Worse yet, it’s now in print, No one believes Henry Paulson. Click on the link to the NYT story at your own risk.
The financial picture is changing by the hour. Remember way back to this morning when Treasury Secretary Henry Paulson said that if Congress didn’t immediately give him a $700 billion blank check the financial system would collapse? He became upset because the Democrats didn’t believe him and decided to include conditions like restrictions on CEO pay.
It turns out that the Democrats aren’t the only ones who don’t believe Paulson. According to the NYT, the financial industry doesn’t believe him either. That is why they are seeking to expand the bailout to include a wide range of assets in addition to mortgage backed securities.
In addition to calling into question Paulson’s threat, this points out another important problem with the bailout.
If the bailout were properly structured, firms would not be lining up to get in. It should be a last resort that involves selling most of the firm to the government, as happened with AIG. If banks are lining up to get in, then the people who designed the bailout should be chased out of town.
One of Paulson’s problems is that Speaker Pelosi, Senator Frank and others with a grip on reality are speaking up.
Pelosi said that the administration’s $700 billion proposal “does not include the necessary safeguards.”
“Democrats believe a responsible solution should include independent oversight, protections for homeowners and constraints on excessive executive compensation.”
“We will not simply hand over a $700 billion blank check to Wall Street and hope for a better outcome,” she said.
Frank said it would be a “grave mistake” not to include a executive pay provision, while Paulson called such a measure “punitive.”
The NYT Q&A on Paulson’s draft proposal on-line early Sunday predicted the parties are likely to reach an accord.
Many members of Congress are eager to leave Washington to go home and campaign for the November elections, and no one wants to face the voters without having done something to protect modest savings portfolios as well as giant investors.
Hopefully, no one wants to face voters with a “pig in a poke” plan either. It’s only five more weeks until the election and a better idea IMO may be to come back after the voters make their decision and develop a more detailed plan.
Both McCain and Obama made their positions known on Sunday.
McCain offered his own plan. It has about as much appeal to me as his running mate’s yoo-hoo-I-see-you foreign policy – chiefly because it looks as much like the most expensive jobs program ever as it does a bailout plan.
John McCain is calling for the formation of a Mortgage and Financial Institutions Trust (MFI). The MFI will be a vital element in managing the current financial crisis.
The MFI Will Be Part Of The U.S. Department Of The Treasury. The MFI will be managed by a board of directors consisting of at least the Secretary of the Treasury, Federal Reserve Chairman, Chairman of the FDIC and two public members.
Obama, on the other hand, will not propose a specific plan until the details of the proposed draft plan are finalized. Comments from his staff suggest he is working with the Congressional leadership instead of proposing a competing plan. Click on the link for his position on various elements of the plan and suggestions for others than need to be added. Here’s his bottom line:
The bottom line is that we must change the economic policies that led us down this dangerous path in the first place. For the last eight years, we’ve had an “on your own-anything goes” philosophy in Washington and on Wall Street that lavished tax cuts on the wealthy and big corporations; that viewed even common-sense regulation and oversight as unwise and unnecessary; and that shredded consumer protections and loosened the rules of the road. Ordinary Americans are now paying the price. The events of this week have rendered a final verdict on that failed philosophy…
My bottom line is that the indications ordinary Americans are now paying the price were clearly evident everywhere on my two day turn-around to the northern most part of our State. It’s something similar to what I suspect most every member will see when they go home for the remaining weeks of the campaign – and it will be a very sobering experience. It certainly was for me.
Hey Y’all.
I’m getting the weirdest looks in the grocery story check out lines these days when bringing up the coming Reich.
Well, if you put it that way, Editilla, noooo wonder.
But can one of you smart people tell me where this wholesale shanghai of our Treasury is not National Socialism 6.0?
Are we dancing around this question of fascism?
This looks so much like Germany 1933 only with better media.
This looks so much like Naomi Klein.
Why is this not grand theft automatic?
Imminent Domain or Mortgage Bundling.
How does this work with Insurance?
Who has the money?
If everyone in the world is required to follow our lead then who will have the money to allegedly buy these properties that our government is buying.
Sorry, this is where I get really lost.
I just want to know if this is fascism,
and are we cool with it?
Editilla, I think fascism is too stong of a terrm.
Without launching into a dissertation suffice it to say Sop blogged before Slabbed, on finance and stock boards mostly. I was there in the spring of 2006 on Yahoo! Countrywide, the king of the subprime mortgage. They had a nasty habit of hanging onto their Katrina customers insurance proceeds thus my interest. It didn’t take me long to figure out the whole Subprime gig was a scam. (And I have the “timestamps” to prove it).
You’ll also find me on builder CTX in the pre Katrina 2005 expressing similar sentiments; they wrote their own subprime paper and transfered it off book to captive subsidiaries who then securitized and sold the loans. The related financial guarantees were shams IMHO. (Again I have timestamps to prove it).
As Brb as my witness (he was there) I’m not saying that to gloat. Being cursed with detailed knowledge of how the scam worked also meant we had plenty of time to wonder how badly it would hurt when the balls started falling. From that standpoint I’m glad the Bush administration blinked and finally faced the problem.
As this has unfolded I’ve seen two broad lines of thought in the blogosphere. By far the most popular of the two involves recriminations for what went wrong from a political standpoint. To me that is not as important as the straight economics behind what had to happen to fix the mess. If the feds had not intervened everyone in this country would have been very negatively impacted by the implosion.
This has happened once before, back in the 1980 with the S&L crisis and formation of the RTC.
Notice none of this precludes going after the ppl that caused this disaster. The execs with Fannie and Freddie shouldn’t get another nickle for the damage they’ve done the taxpayers. I’ll note that in China executives such as those guys would have been executed.
Finally Your Right Hand Thief got their taleb analysis right (which is a rarity in the blogosphere). Subprime itself is not a blackswn but a culture that forgot ri$k$ coupled with a lack of federal regulation got us here.
Finally to answer your question insurance plays into this because they bought the bad paper (think AIG). To the extent the financial strenght of AIG was used to back bond guarantees they were hit with the double whammy of owning worthless paper in the securitised mortgages but also being stuck with the bill for some of the related failures.
Right now on the RSS feed from the National Underwriter is a story quoting Sec Paulson saying this proves insurers should be regulated at the federal level. Politically I sense this bailout as an opportunity for consumers. After all it everyday people, consumers like me and you, that are paying the bill to bail out large insurers from their investing mistakes.
SInce I’ve wandered off into the political I’ll add the questoin to me is who do we want handling the reform effort? McCain and the Gop or Obama and the Dems. For me the answer is easy and it isn’t the party of less regulation that brought us to this point.
In the end George Bush is the best gift one political party has given another since Jimmy Carter.
Bottom rail on top?
sop
You obviously take your bread butter side Down. Go on admit it. I’m right aren’t I?
Me? I take my bread butter side Up always.
However, the Lithuanians agreed with you about Fascism being too strong a word, until Hitler dropped one bomb on their only airport and sent all the men to one camp and all the women to another. That is a true story told to me by an old doctor with numbers tattooed on his forearm. All I’m saying is they were real numbers, blue, done with a machine. His point was well taken though never forgotten: Fascism is never too strong a word for an unchecked State.
Coincidence enough that the S&L / Bank failures you mentioned happened on his father’s watch and involved his brother Neil, but that bail-out did not involve unchecked authority of Treasury as Bush is positing above us now. The scale alone is telling. The S&L Crisis involved congressional committees, while here they ask us to place All Of It in the hands of a Cabinet Secretary who, to put it nicely, has done a remarkably bad job thus far.
Everyone seems to be operating with the assumption that this is an open democratic process when in fact that is not at all what Paulson is proposing. That is not what I heard him say yesterday.
I asked about Germany ’33 but that was naive. What we will see will be different, new, just like the nature of this near total government acquisition. I had been wrong to look to the German Model.
All this might indeed be fine if we were talking about representative government, but are we? Perhaps it is a bit early to look for uniforms… just yet.
We (Congress) handed them their War…
Now they demand that we let them run Wall Street?
This will probably all work out in the wash. I just think it is short to compare it to the S&L Bailout.
Editilla
I like my toast sandwhiched (one butter side down one up) thank you very much. 🙂
I think the process will only be as open and democratic as we the people demand. As Nowdy made clear in the previous post Pelosi and company are not completely on board nor should they be. And any agreememnt should include a full public accounting of what got us here.
I certainly may be naive but I think the political process will work. The Feds will be liquidating AIG so they shouldn’t be in the insurance biz long.
I look to history for perspective. This problem is bigger than S&L (also think McCain and the Keating 5) for certain but the approach to Uncle Sam setting things right is very similar. In the case of AIG I think we need to go back to the 70’s and Chrysler for additional perspective.
I hope for the sake of our kids this works out, as much money as we’re in for, they’ll also be paying off this debt more than likely too.
sop
I read the tea leaves to say that what is being pitched as short-term crisis management is not intended to be short-term at all.
Given the tight race for President and control of Congress, I can’t help but wonder if the “crisis” underlying the financial crisis is not the potential loss of power.
Anyway you cut it, Paulson is going to control the purse and hold the power.
IOW are we about to have a shot gun wedding when the bride really isn’t expecting, she just wants to have folks shower her with gifts.
Just as after the market crashed in 1929 we need to take a comprehensive look at our securities laws, and commit to properly funding the regulatory bodies.
I saw this on Morgan Stanley and Goldman Sachs first thing this morning. Even they are running home to momma or in this case Uncle Sam. Subprime happened because there was no regulation of the investment activities of the investment houses and financial services companies like AIG.
Our securities law originated after the depression and has been tweeked but not comprehensively looked at to adjust for technological change (Sarbanes Oxley deals with reporting more than overall market regulation). IMHO this is a good place to not only look at those but areas like exec comp, the minimum standards of accountability for executives that make these terribly flawed business decisions as well as new financial oversight. And yes I think part and parcel to this McCarron-Fergueson is fair game too.
The current way we do things of hands off and head in the sand isn’t working and is fundmentally flawed. JMHO.
sop
I agree, Sop, and think what you’re suggesting is the type of change the Democratic leadership, Obama, and a good many Republicans in Congress are talking about.
However, it doesn’t solve the immediate problem of giving the fox the key to the hen house as well as the job of guarding it – and that just isn’t acceptable. Not when the indications are they the intent is to outsource the management – which, btw, is what’s taking place with Fannie and Freddie. Little too much incest in this deal, as you say JMHO.
Oh! Now on Toast we completely agree. Both sides up and down, holds the milk better that way too.
But Oysters? How about your Oysters? I like mine anyway I can get’em, but usually raw on da’slide. Sometimes with a little drop (I mean a drop) of Ouzo.
However, on the nature of oxymorons we part ways, if only slightly. Take the term Democratic Reform. Ha! Or, Bi-Partisan. It wasn’t Chrysler but Nixon! They started dismantling the post depression safe-guards with Nixon. Soooo, now we can expect them to “reinstate” regulations that have been painstakingly and diligently thrown out with the baby, the bathwater, and the little shrunken tub that used to be OUR US Government. I don’t see them getting religion. I see them moving fast like they did in 2000.
They are making their move before the next election. Get ready. And don’t get me started about 3 day old pizza!
Editilla
That stuff that gives you heartburn will never make it past Pelosi and the House for certain.
The dot com bubble of the late 1990s and then the implosions of ENRON and Worldcom in major financial frauds fundimentally changed the way my profession was regulated and IMHO those changes and resulting dialogue have been very healthy for it.
What makes subprime a poster child for more regulation is the info was there for everyone to see in the SEC filings. Of course not everyone is a CPA capable of reading such things. Then again the ppl behind all the bad decision making would know their way around 10-K’s and 10-Q’s yet still ignored the obvious.
Depression era banking laws went too far IMHO but we’ve fixed that and by and large our banking system is in the proverbial Goldilox zone of balance between regulation and an unfettered marketplace. From that standpoint Goldman and Morgan Stanley running home is good.
One other tie into the concept and trend of securitisation (Mortgage Linked Securities, Insurance linked Securities etc) and regulation is the current “hot market” of Cat Bonds whch are also largely unregulated. The guarantees and cross guarantees of the insurers, reinsurers and SPE (Special Purpose Entities) are very convoluted.
HR 3355 would give state pools the ability to direct tap the credit markets via Cat bonds. The pricing is mathmatically calculated but then again so were the derivative contracts involving mortgage linked securities. It is no secret this has always made me uncomfortable and now ppl that aren’t as financially oriented as a CPA can understand why given the current financial disaster.
To me on these issues there can’t be Republican v Democrats. We all rise and fall on the strength of this Nation’s economy so we as Americans need to face it head on and tackle it. I’m confident the statesmen in each party will step up, reach a solid compormise and do what is right. in the best interests of the nation.
sop
Editilla I’m like you on Oysters Bro. But Dragos has got me liking them charbroiled with garlic butter and italian cheeses.
I duly note this month has an Rrrrrrrrrr.
sop
“I
I understand the cynicism and partisanship Belle. Hopefully you’ll be pleasantly surprised.
The connections from Wall Street to our little corner of the world and the topic of insurance will be a continuing source of material here at slabbed for several months,
It also converges nicely with the federal charter legislation currently stuck in Congress.
sop
Aw Helle! I’m with Belle. I can’t see where you get this statesmanship thing anywhere in Congress from either party since 2000. That is a ship arriving too late to save a drowning witch. Statesmanship…HA! Ship of Fools that one.
I mean really, Jeez Louis, you act as if the lowest paid member doesn’t make nearly $150,000/yr to entertain lobbyists to get re-elected.
Come on for God’s sake don’t accuse me of being cynical either. They stood down and let those bastards take over in 2000. I watched them. All of them.
They signed the Patriot Act without reading it. There are only 2 maybe 4 members who actually read the damn thing before the vote. Literally. Robert Byrd is one.
Now they are about to do the same thing over this Glass House Econo’brick. Gotta do it now! NOW! Remember that? After 9/11? Gotta do it now! Remember the election theft in 2000? Now Now Now!
Fast Clean Bernanke says.
Gotta move fast trouble deep!
What was he saying last year?
I just can’t buy this horse twiddle’berry.
It is unmitigated berry. Done deal’berry.
We still haven’t paid a dime down on the interest of the money for the Iraq War yet. We didn’t finish paying for Vietnam until about ’82. Come on. Are we not getting facked by fakiers?
Oysters grilled…now that is living.
and btw, as one savvy blogger has noted I are an aggregator so I don’t know these bloggy acronyms: IMHO– I am working with In My Holy Orifice? No? Or, Is Methuselah Humping Osiris? Didn’t think so…how about: I Miss Having Oysters! No? Damn… ok a friend suggests you mean “In My Humble Opinion” and I’m like, riiiiight. HA! As I usually say “In My (Oh So) Humble Opinion” IMOSHO which backwards would be OHSOMI which is the name for a Japanese ghost from the 14th century, a pirate samari of the sea.
Soooo… ISBLU (I Should Be Locked Up) WC (Without Crayons) IWJALD (In White Jacket After Labor Day)
Editilla
And who was Thissen’s accountant? Why, Thissen of course. But who was Thissen’s banker at the end of the war?
Hmmmm…
And this Is a Very Hot Post!
Jus’sayin….one fine day I’mgonnaseeit!
Why thank you Editilla and yes Methuselah is lusting after Osiris.
On this one I’m practical because saving AIG saves us all. The bad guy, the one I want to kick in the nuts, is Angelo Mozilo.
PPL want to know where the money went? Besides expenses (salaries for the staff and servants) the rest isn’t hard to track down if you know the players. He has a million dollar smile that Mozilo does……
sop
Wha’da name! Yikes! MoLo Contendre!
“So let’s be absolutely clear: there are no saviors who are going to look out for us in this crisis. Certainly not Henry Paulson, former CEO of Goldman Sachs, one of the companies that will benefit most from his proposed bailout (which is actually a stick up). The only hope of preventing another dose of shock politics is loud, organized grassroots pressure on all political parties: they have to know right now that after seven years of Bush, Americans are becoming shock resistant.”~Naomi Klein
http://www.huffingtonpost.com/naomi-klein/now-is-the-time-to-resist_b_128433.html
Now we’re talking Editilla. As an added bonus there is an election coming up so some some of the pols may just listen.
I see even Belle has a post in drafts on this. Now the hell raising is really gonna kick off.
sop
Sorry I got a Naomi thing on here:
http://www.huffingtonpost.com/naomi-wolf/the-battle-plan-ii-sarah_b_128393.html
I am not alone! Yea! But uh oh… election essschmection HA!
We are forked. Forkin’forkitty’fork’forked I say!
Oh helle! Sorry y’all. Another day another “Did I say That?”
Whoa…I’d have a headache if I could just find the damn thing. Heeeerrre Head. Come oooonnn… come on out….(it is probably afraid of me now, shhhhhh) GOTCHA! OUCH! IT BIT ME!!!
Coitainly made a mess of that discussion, eh?
Well, no more Ouzo for Editilla. Aaaallll gone I swear.
However, if you really want to true slabbitry then I would suggest this circuit with Absinthe. Imagine the movie “Gothic” on the grounds of the MS State Capitol….oh! jus’sayin…
Ouzo? You are a very brave man Editilla.
sop