We'll see what today brings, but I really think that the game is over for the financial markets. Listen for this phrase: mark to market. This is the big fear, and I think why the people running the financial markets keep bailing out (or taking over) these big institutions - because actually unwinding their positions on the open market will expose the real value of these financial instruments, and this will force everyone else to mark to market on their own similar assets. In other words, a lot of the supposed value in these complex financial instruments (like credit default swaps) is overstated by their holders and even though everyone sort of knew this all along no one has wanted to admit it since everyone was making so much money. But we might be at the end in a rather cataclysmic sense. Sure, the fed can just print as much money as they need to keep propping it up, but that gets us hyperinflation which will just be the end from a different direction.
My grand economic plan of having no money is really starting to look good!
you pay the rent with love??:>)
i agree w/ Dr Doom, 1/3 of all banks in America go under in 2009 (due to the commercial real estate bubble bursting)....
we too will be flat broke by the end of 2009, like a bizzness were gonna have to fire people, cut some major corners (art is out allready, high end wine is soon), end charity giving, and will still need to borrow money to make ends meet, hopefully from home equity if we have any:>)(, but till than were partying like its 1980 something....
So you're saying that Bush canceling his trips to AL/FL and instead meeting with economic advisers is not going to be enough? Or the cash infusion from Central Banks is a bandaid with no glue? Of course, that have no money scheme might really take off. Ok, everybody--Have No Money, Have No Money, Have No Money. I think it will sell, as long as it doesn't cost anything.
I think one telling thing in all this is the degree to which Bush and the rest of the White House have been out of the loop so far. Supposedly they were "briefed" on the AIG bailout. Briefed? WTF? Remember when the government gave Chrysler those loan guarantees back in the Iaccocca days? That amounted to 3.1 billion in todays dollars and there were Congressional debates for weeks about it. With AIG it's 85 billion and the Treasury and the Fed apparently just decided it themselves! The White House and Congress have both just ceded the whole thing to the cabal of Wall St. guys who run the markets. It's insane. Congress must step in and stop them from printing more money to bail out more of these guys. They must let them fail. It will hurt, but it is the path of least hurt that is available to us. There are no options that avoid pain at this point.
Of course the markets are up so far today, so what do I know? (That's rhetorical please.) On the other hand, that's how the '29 crash happened (down a little, then up, then down more, then up a little, then way down, then back up a little, then down some more, etc... over about a week.)
Alls I can say is thank the lord we gots a Harvard EmmBeeAy CEO Preznit!!!
I agree wit you Jim, i might cash in my 401K for the market reasons plus need the cash....
Yeah, I've been refreshing the Dow quotes throughout this morning and while it has been up somewhat substantially, it is now up only 7 points (or 40) and the Nasdaq and SP are down (or only slightly up). I can't imagine there is anyway around a very harsh adjustment for this economy. I'm going to retain a little of my pollyanna and hope for it to be a good thing in the end.
Speaking of pain, I lost at least 25K off the value of my mother's condo because of this shit, I guess that's mark to market. Hopefully my exposure is now limited, since I ain't got much left to expose.
There is discussion now about how much this 1.3 trillion dollar infusion is going to cost taxpayers and THEY say it isn't certain because the government is positioned to possibly make money on some of these acquisitions but am I supposed to feel confident about this, my governments ability to make money? It seems spending is their forte. God bless America indeed.
Ron Paul may be a little wacky at times, but I often find myself enjoying his perspective.
Gold standard, mother fuckers! (/ron paul)
(I haven't watched the video yet.)
Holy cow. I wonder why Paulson is being so subtle in his request? LOL! "I need the complete and irrevocable power to give away unlimited tax payer money to my buddies on Wall St. OR WE'RE ALL DOOMED!!!!!"
Section 8 of his proposal is classic: Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
This would authorize him to use $700,000,000,000 in tax payer money to buy the most toxic of mortgage related assets from any firm with their headquarters in the US. He is supposed to buy them for a "fair" price, but this clearly means "more than what they are actually worth" since if these financial institutions wanted to sell them for what everyone else understands is a "fair" price - i.e., "market price" - they have been and continue to be free to do that at any moment without any help from the government or tax payers. BUT THEY DON'T WANT MARKET PRICE for their assets since they aren't worth anything like what they have been saying they are worth. In some cases they may not be worth anything at all. And in some cases they may actually be worth less than zero!
In order to pay for this the laws governing how much debt the US can run up have to be changed (although this is fairly standard operating procedure - every time we hit the ceiling Congress just raises the limit.) The new limit will be $11,315,000,000,000 - about $1.5 trillion more than before making GWB the proud father of over $6 trillion dollars in US debt. Heck of a job Georgie!
Keep in mind that when the S&L bailouts happened tax payers were told it would cost around $20 billion. It ended up costing $160 billion. If this deal turns out to be on a similarly misrepresented we will be looking at $5.6 trillion dollars and there really could be that much toxic mortage related products out there! But: NO ONE KNOWS! Hell, it could be more!
They are going to try to rush this through by Monday. If it passes like this it is basically the end of the US as I understand it or would like to see it. Beyond just transferring tax payer wealth into the hands of their buddies on Wall St, this plan has the added benefit (for some crazy world view) of bankrupting the US and thus accomplishing what conservative republicans in the Norquist mold want but know they could never get at the ballot box: the revocation of the New Deal and all government programs not aimed at propping up Wall St or fighting wars. It won't matter if Obama (or the Dali Lama, or whoever) is the next President - there won't be any money left to enact universal health care or anything of that sort.
Now to be fair (or is that naive?) there is some chance this could work out. Paulson could negotiate good deals; he could be tough with his former and future colleagues on Wall St for the benefit of US citizens. Also Paulson could transform into a fifty foot tall robot with laser beam eyes who can crap solid gold and save us that way. But, um, I don't think so.
Re Ron Paul I really enjoy listening to him at times as well. But it's really only when he's outlining how the powers that be have totally screwed everything up. When he starts talking the other side, and lays out what he would have us actually do it usually doesn't sound as good to me.
He has a very frank way of talking, and the ability to make things that politicians usually try to obsfucate appear simple and understandable. That, plus an appeal to some vague notion of "how it used to be", coupled with as a righteous anger aimed at bringing the culprits who screwed everything up to justice, could all be a potent political force in a post economic crash world. I'm not sure he's the man, and for this campaign at least he was a bit ahead of his time, but someone like him could be appealing to a lot of people if there was real widespread economic pain. And, historically at least, someone like that can turn into a really scary figure.
On the other hand, I guess that's all just to say that it would be a scary time if the economy really crashes hard. Paul would at least have been one of the few to warn us if it ends up happening.
naomi klein was suggesting something similar when discussing her book last night on bill maher.
Yeah, speaking of the good ole days and presidents, I bet Obama is already harking back to the good ole days of last year when the only substantially difficult issue he had to deal with was the promise to end a very unpopular war. The timing seems almost right for this next president to move into a period similar to what Hoover failed to deal with. Maybe it would be a kinder of us to spare Obama this and to give the office to McCain. Except he seems a little tired, and the stress of dealing with a bonafide depression would probably kill him, and then...jesus, what a mess. Oh my, look at the clock, it's two, or three hours past my usual cocktail time. That's what I'm going to invest in, whisky and lots of it. Except I'm never going to sell it.
I wonder if Paulson will be limited to assets with some basis in reality. A bank that owns a crappy mortage always has the option of getting the house back. Now it may be a tract home that will be worth 1/3 or the original price.
In a whole nuther category is the highly leveraged shit that has no basis in reality and potentially negative value. A guy I worked with got schnookered into investing into some ridiculous scheme which had ongoing negative impact, and he was stuck dumping more money into a money pit. (This was back in the 80's and had some thing to do with shipping containers. He was stuck paying upkeep or some such thing on a worthless "asset".) I'm sure he would liked dumpingl that investment off on the Feds.
well, that's a nice tight restriction: "mortage-related assets"
The whole point, as far as I can see, is to get the really bad stuff off the bank's books. So while I'm sure the government will end up holding assets with some basis in reality, it's going to over pay for those, and then lots of other completely divorced from reality "mortage-related assets" will be worth nothing or even be underwater like your story. We already have a functioning market that would buy anything that is valued realistically. Paulson is coming to the rescue to specifically buy up all the crap.
Obviously I'm very skeptical about the people devising and executing this plan. But it probably is the case that some sort of bailout is necessary. I don't want the entire banking industry to collapse. That would hurt everyone. Two things though:
1. The taxpayer is going to assume a lot of risk (understatement of the year - "risk" is putting it mildly since we know already we're only buying things that the free market won't touch at prices they would never consider) so the taxpayer needs to somehow share in any possible upside. The way Paulson's bill is written now there is zero upside for the taxpayer. That is insane. It's just robbery.
2. More importantly though, it has to fix the problem. We can't just dump a trillion dollars into the same system without doing something to fix that system first. This is not just a liquidity problem - it's systemic. And the fix requires new regulations that reestablish transparency in the financial markets. The market has to know what things are worth; has to know the real value of assets on banks balance sheets; has to know who owes what to whom. The shadow banking system has to be dragged kicking and screaming into the light. Only government regulation can accomplish this.
I doubt it will go well in any case, but the Democrats had better get language in there to address these two points or, uh, um... or I'm going to be really mad or something! Yeah, that should do it.
If the CEOs, other C-level execs (esp. CFOs), directors, major stockholders get screwed along with the taxpayers, then there will be some degree of shared burden.
In Silicon Valley in the early Aughties there was a phenomenon called "wash out". New money came into (some) startups to keep them viable, but the new investors got 90+ % of the company. (The washed out employees generally got to keep their jobs. So it was win-win, where the second "win" is defined as "mostly but not completely lose")
What really burns me about the proposed bailout is the fuckups aren't getting washed out. In fact, they'll see a pop in stock valuation once they dump the crap they invested in.
America, Fuck Yeah!
Plus, since the bailout is "limited" to companies headquartered in the US, they'll also make out by cleaning the bad stuff off foreign banks books. So Credit Suisse can sell their bad stuff to Goldman for $.40 on the dollar and then Goldman can resell it to Paulson for $.45 pocketing the difference. I think this will happen since the markets are so global it might not be enough to just clean up the US firms balance sheets. They have to clean up everyones.
Also, I keep reading people saying that it's not going to cost $700 billion because most of what is bought will be worth something, and so we'll get that money back. You even hear some people suggest maybe we'll make a profit since we can buy low, stabilize the market, and then sell once prices have risen. Yeah right. If you read Paulson's plan it says that the $700 billion is a cap on investments held at any one time. So it's a revolving door of credit.
He's going to buy $500 billion and then sell it for $380 billion. Then buy another $500 billion and sell it for $300 billion. Then buy $400 billion and maybe sell for $420 billion - but even in this case where a miracle slice of profit might creep in, he'll just use the revenue to buy more bad debt. No profits will be returned to the tax payer. And he can just keep going and going and going. No body knows what's out there but it's very common to hear estimates in the 5 to 10 trillion dollar range. And Paulson can wash it all away, he just has to do it in $700 billion dollar increments. Right now he'll run into the debt ceiling after he's burned through the first 1.5 trillion, but then we'll be in so deep that congress will just raise the ceiling again.
And I'm trying to find the quote - can't locate it now - but Paulson's already said that wiping out executives would be a "poison pill" he refuses to swallow. That's his line in the sand. Nice.
poison pill
You know, if the execs of a particular firm don't want to "get a haircut", "take a bath", "get washed out", or swallow a "poison pill", they can always "go suck on an exhaust pipe".
Also, I like the recommendation in the Fuck Yeah link that they take credit counseling.
When Paulson left Goldman Sachs to head the Fed he had to cash out of his Goldman stocks to avoid any conflict of interest (yeah right.) But because of generous rules designed to "not disuade" top Wall St. talent from moving into the public sector, capital gains taxes are waived in this situation! His cash out right before he joined the Fed was $500 million dollars tax free! Paulson filed to sell 3.23 million shares in a shelf offering of Goldman Sachs stock according to a prospectus filed with regulators. Based on the bank's closing price of $152.50 on Thursday, the stock is worth about $492 million.
The banking chieftain is unloading the shares to adhere to conflict-of-interest rules....
Interestingly, under U.S. government ethics rules, while Paulson is required to sell the shares, he is also exempt from paying taxes on any capital gains on the sale if he obtains a certificate of divestiture. The rule granting the exemption is designed to make sure prospective government employees who own a lot of stock are not dissuaded from joining the government. Earlier this week, the Economist magazine estimated the rule eliminate a tax liability of up to about $200 million for Paulson." So the guy who practically pioneered these mortgage related assets while heading Goldman Sachs, and then got a $500 million tax free cash out to go run the Fed where he did nothing to stop the very shell game he helped design, is now going to be granted unlimited power (with no oversight) to "fix" the problem with a blank check from US taxpayers.
Something tells me there aren't going to be any punitive measures against any execs.
Sunday talks hosted not a single economist. WTMFH*?! The bailout is a significant number compared to the national debt (about equivalent to 20% of the privately held component of the debt). And the national debt is a number so big it's hard to grasp.
Other big numbers: total federal individual income tax collected in 2007: $1,163 B. Total corporate income tax collected in 2007: $370 B.
At that rate, a 10% increase in corporate income tax would cover the projected $1,000 B (including Freddie, Fannie and AIG) over a period of 27 years (not counting the time-value of money).
But we don't need no freakin' economists on the teevee.
*what the motherfucking hell
sent to Boxer, Feinstein and Honda:
NO BLANK CHECK!!!
Dear Senator Feinstein,
Scty. Paulson is prepared to spend -- with no oversight -- an amount that is two, or perhaps three times the amount of income tax the Federal Government receives from corporations in one year.
This is insanity.
If such an amount must be spent to save the global financial system, the program must:
a) have some checks and balances
b) include a massive restructuring of the regulatory system to prevent this from happening again
c) make sure the upside (if any!) accrues to taxpayers, not the genii who got us in this mess in the first place
-Mark
Nice one. How do you send? Fax? I hear that is "better" than email, but then I never know what people mean by better and then I never write anything in the end anyway.
I think they place the most value on a phone call. I've never faxed anything though. I suppose if I got an account at a pdf-to-fax service I could fake it.
I did the phone call thing a couple of times, once when I was really pissed at Feinstein. It's like giving the waiter's assistant a hard time for something the restaurant owner fucked up -- not entirely satisfying. With email/letter/fax I can maintain the fantasy that I'm communicating directly with the office holder.
Krugman -- says massive cash infusions come at the price of an equity stake. Duh! That's how capital markets work.
Perhaps some firms should get a washout round (which is slightly less severe than a complete takeover). Some should get something less severe, like having to issue stock warrants (basically the same concept as stock options) which allow the taxpayer to cash in if the value of the company increases. Bashing exec salaries doesn't get to the crux of the biscuit. True wealth comes through equity. Hit the fuckers right there, which will also hit the stock holders who went along for the ride.
i can haz equity stake?
It always was, I guess, but it's really gone beyond my ability to understand at this point. Goldman and Morgan Stanley becoming commercial banks really made it clear I have no idea what is going on. What does that mean? They get easier access to money from the Fed (and from deposits) in exchange for a bit more regulation and reducing their leverage. Still, seems like something else is going on that I don't understand.
Meanwhile, Paulson's bill has run into a tiny bit of resistance. I now think the outrageousness (and non-obsfucatory nature) of the first draft was a negotiating ploy. Ask for something no one can possibly give you and then you can "concede" a little bit and come to "consensus" over something that is still highly favorable to your interests.
But authorizing all $700 billion is insane. Paulson said his plan is to spend $50 billion a month (can't really spend it all at once) - so why not authorize $150 billion and then let the next President revisit the decision in January? Seems like something is fishy. Or, I guess the opposite argument would be that you need the whole thing authorized at once because the markets are so psychologically driven. If you just do $150 then maybe Wall St. thinks the rest will never come and that won't be enough in which case it won't work. So the $700 isn't really picked because of any predetermined need, it's just a really big number that will impress people into supporting the market again. But if you ask me that's a crazy way for supposed market experts to be making decisions. "We're just going to bluff and get this thing rolling again."
At this point, for what it's worth, I'm completely against this no matter what provisions get folded in. This is something that should be debated over a much longer period of time. Buffet bought in pretty big, why not wait and see if the market can pick itself up? All this rushing just seems like a scam.
Just saying where I'm at since I started this thread. But like I said, it's just really confusing and easily beyond what I understand at this point.
|
My grand economic plan of having no money is really starting to look good!
- jim 9-18-2008 1:48 pm
you pay the rent with love??:>)
i agree w/ Dr Doom, 1/3 of all banks in America go under in 2009 (due to the commercial real estate bubble bursting)....
we too will be flat broke by the end of 2009, like a bizzness were gonna have to fire people, cut some major corners (art is out allready, high end wine is soon), end charity giving, and will still need to borrow money to make ends meet, hopefully from home equity if we have any:>)(, but till than were partying like its 1980 something....
- Skinny 9-18-2008 1:59 pm [add a comment]
So you're saying that Bush canceling his trips to AL/FL and instead meeting with economic advisers is not going to be enough? Or the cash infusion from Central Banks is a bandaid with no glue? Of course, that have no money scheme might really take off. Ok, everybody--Have No Money, Have No Money, Have No Money. I think it will sell, as long as it doesn't cost anything.
- jimlouis 9-18-2008 3:05 pm [add a comment]
I think one telling thing in all this is the degree to which Bush and the rest of the White House have been out of the loop so far. Supposedly they were "briefed" on the AIG bailout. Briefed? WTF? Remember when the government gave Chrysler those loan guarantees back in the Iaccocca days? That amounted to 3.1 billion in todays dollars and there were Congressional debates for weeks about it. With AIG it's 85 billion and the Treasury and the Fed apparently just decided it themselves! The White House and Congress have both just ceded the whole thing to the cabal of Wall St. guys who run the markets. It's insane. Congress must step in and stop them from printing more money to bail out more of these guys. They must let them fail. It will hurt, but it is the path of least hurt that is available to us. There are no options that avoid pain at this point.
Of course the markets are up so far today, so what do I know? (That's rhetorical please.) On the other hand, that's how the '29 crash happened (down a little, then up, then down more, then up a little, then way down, then back up a little, then down some more, etc... over about a week.)
- jim 9-18-2008 3:43 pm [add a comment]
Alls I can say is thank the lord we gots a Harvard EmmBeeAy CEO Preznit!!!
- mark 9-18-2008 3:55 pm [add a comment]
I agree wit you Jim, i might cash in my 401K for the market reasons plus need the cash....
- Skinny 9-18-2008 4:21 pm [add a comment]
Yeah, I've been refreshing the Dow quotes throughout this morning and while it has been up somewhat substantially, it is now up only 7 points (or 40) and the Nasdaq and SP are down (or only slightly up). I can't imagine there is anyway around a very harsh adjustment for this economy. I'm going to retain a little of my pollyanna and hope for it to be a good thing in the end.
- jimlouis 9-18-2008 4:37 pm [add a comment]
Speaking of pain, I lost at least 25K off the value of my mother's condo because of this shit, I guess that's mark to market. Hopefully my exposure is now limited, since I ain't got much left to expose.
- alex 9-18-2008 5:11 pm [add a comment]
There is discussion now about how much this 1.3 trillion dollar infusion is going to cost taxpayers and THEY say it isn't certain because the government is positioned to possibly make money on some of these acquisitions but am I supposed to feel confident about this, my governments ability to make money? It seems spending is their forte. God bless America indeed.
- jimlouis 9-19-2008 3:37 pm [add a comment]
Ron Paul may be a little wacky at times, but I often find myself enjoying his perspective.
- jimlouis 9-19-2008 4:19 pm [add a comment]
Gold standard, mother fuckers! (/ron paul)
(I haven't watched the video yet.)
- mark 9-19-2008 10:11 pm [add a comment]
Holy cow. I wonder why Paulson is being so subtle in his request? LOL! "I need the complete and irrevocable power to give away unlimited tax payer money to my buddies on Wall St. OR WE'RE ALL DOOMED!!!!!"
Section 8 of his proposal is classic:
This would authorize him to use $700,000,000,000 in tax payer money to buy the most toxic of mortgage related assets from any firm with their headquarters in the US. He is supposed to buy them for a "fair" price, but this clearly means "more than what they are actually worth" since if these financial institutions wanted to sell them for what everyone else understands is a "fair" price - i.e., "market price" - they have been and continue to be free to do that at any moment without any help from the government or tax payers. BUT THEY DON'T WANT MARKET PRICE for their assets since they aren't worth anything like what they have been saying they are worth. In some cases they may not be worth anything at all. And in some cases they may actually be worth less than zero!
In order to pay for this the laws governing how much debt the US can run up have to be changed (although this is fairly standard operating procedure - every time we hit the ceiling Congress just raises the limit.) The new limit will be $11,315,000,000,000 - about $1.5 trillion more than before making GWB the proud father of over $6 trillion dollars in US debt. Heck of a job Georgie!
Keep in mind that when the S&L bailouts happened tax payers were told it would cost around $20 billion. It ended up costing $160 billion. If this deal turns out to be on a similarly misrepresented we will be looking at $5.6 trillion dollars and there really could be that much toxic mortage related products out there! But: NO ONE KNOWS! Hell, it could be more!
They are going to try to rush this through by Monday. If it passes like this it is basically the end of the US as I understand it or would like to see it. Beyond just transferring tax payer wealth into the hands of their buddies on Wall St, this plan has the added benefit (for some crazy world view) of bankrupting the US and thus accomplishing what conservative republicans in the Norquist mold want but know they could never get at the ballot box: the revocation of the New Deal and all government programs not aimed at propping up Wall St or fighting wars. It won't matter if Obama (or the Dali Lama, or whoever) is the next President - there won't be any money left to enact universal health care or anything of that sort.
Now to be fair (or is that naive?) there is some chance this could work out. Paulson could negotiate good deals; he could be tough with his former and future colleagues on Wall St for the benefit of US citizens. Also Paulson could transform into a fifty foot tall robot with laser beam eyes who can crap solid gold and save us that way. But, um, I don't think so.
- jim 9-20-2008 9:58 pm [add a comment]
Re Ron Paul I really enjoy listening to him at times as well. But it's really only when he's outlining how the powers that be have totally screwed everything up. When he starts talking the other side, and lays out what he would have us actually do it usually doesn't sound as good to me.
He has a very frank way of talking, and the ability to make things that politicians usually try to obsfucate appear simple and understandable. That, plus an appeal to some vague notion of "how it used to be", coupled with as a righteous anger aimed at bringing the culprits who screwed everything up to justice, could all be a potent political force in a post economic crash world. I'm not sure he's the man, and for this campaign at least he was a bit ahead of his time, but someone like him could be appealing to a lot of people if there was real widespread economic pain. And, historically at least, someone like that can turn into a really scary figure.
On the other hand, I guess that's all just to say that it would be a scary time if the economy really crashes hard. Paul would at least have been one of the few to warn us if it ends up happening.
- jim 9-20-2008 10:41 pm [add a comment]
naomi klein was suggesting something similar when discussing her book last night on bill maher.
- dave 9-20-2008 10:48 pm [add a comment]
Yeah, speaking of the good ole days and presidents, I bet Obama is already harking back to the good ole days of last year when the only substantially difficult issue he had to deal with was the promise to end a very unpopular war. The timing seems almost right for this next president to move into a period similar to what Hoover failed to deal with. Maybe it would be a kinder of us to spare Obama this and to give the office to McCain. Except he seems a little tired, and the stress of dealing with a bonafide depression would probably kill him, and then...jesus, what a mess. Oh my, look at the clock, it's two, or three hours past my usual cocktail time. That's what I'm going to invest in, whisky and lots of it. Except I'm never going to sell it.
- jimlouis 9-21-2008 12:13 am [add a comment]
I wonder if Paulson will be limited to assets with some basis in reality. A bank that owns a crappy mortage always has the option of getting the house back. Now it may be a tract home that will be worth 1/3 or the original price.
In a whole nuther category is the highly leveraged shit that has no basis in reality and potentially negative value. A guy I worked with got schnookered into investing into some ridiculous scheme which had ongoing negative impact, and he was stuck dumping more money into a money pit. (This was back in the 80's and had some thing to do with shipping containers. He was stuck paying upkeep or some such thing on a worthless "asset".) I'm sure he would liked dumpingl that investment off on the Feds.
- mark 9-21-2008 1:07 am [add a comment]
well, that's a nice tight restriction: "mortage-related assets"
- mark 9-21-2008 5:13 am [add a comment]
The whole point, as far as I can see, is to get the really bad stuff off the bank's books. So while I'm sure the government will end up holding assets with some basis in reality, it's going to over pay for those, and then lots of other completely divorced from reality "mortage-related assets" will be worth nothing or even be underwater like your story. We already have a functioning market that would buy anything that is valued realistically. Paulson is coming to the rescue to specifically buy up all the crap.
Obviously I'm very skeptical about the people devising and executing this plan. But it probably is the case that some sort of bailout is necessary. I don't want the entire banking industry to collapse. That would hurt everyone. Two things though:
1. The taxpayer is going to assume a lot of risk (understatement of the year - "risk" is putting it mildly since we know already we're only buying things that the free market won't touch at prices they would never consider) so the taxpayer needs to somehow share in any possible upside. The way Paulson's bill is written now there is zero upside for the taxpayer. That is insane. It's just robbery.
2. More importantly though, it has to fix the problem. We can't just dump a trillion dollars into the same system without doing something to fix that system first. This is not just a liquidity problem - it's systemic. And the fix requires new regulations that reestablish transparency in the financial markets. The market has to know what things are worth; has to know the real value of assets on banks balance sheets; has to know who owes what to whom. The shadow banking system has to be dragged kicking and screaming into the light. Only government regulation can accomplish this.
I doubt it will go well in any case, but the Democrats had better get language in there to address these two points or, uh, um... or I'm going to be really mad or something! Yeah, that should do it.
- jim 9-21-2008 1:20 pm [add a comment]
If the CEOs, other C-level execs (esp. CFOs), directors, major stockholders get screwed along with the taxpayers, then there will be some degree of shared burden.
In Silicon Valley in the early Aughties there was a phenomenon called "wash out". New money came into (some) startups to keep them viable, but the new investors got 90+ % of the company. (The washed out employees generally got to keep their jobs. So it was win-win, where the second "win" is defined as "mostly but not completely lose")
What really burns me about the proposed bailout is the fuckups aren't getting washed out. In fact, they'll see a pop in stock valuation once they dump the crap they invested in.
- mark 9-21-2008 3:43 pm [add a comment]
America, Fuck Yeah!
- mark 9-21-2008 5:07 pm [add a comment]
Plus, since the bailout is "limited" to companies headquartered in the US, they'll also make out by cleaning the bad stuff off foreign banks books. So Credit Suisse can sell their bad stuff to Goldman for $.40 on the dollar and then Goldman can resell it to Paulson for $.45 pocketing the difference. I think this will happen since the markets are so global it might not be enough to just clean up the US firms balance sheets. They have to clean up everyones.
Also, I keep reading people saying that it's not going to cost $700 billion because most of what is bought will be worth something, and so we'll get that money back. You even hear some people suggest maybe we'll make a profit since we can buy low, stabilize the market, and then sell once prices have risen. Yeah right. If you read Paulson's plan it says that the $700 billion is a cap on investments held at any one time. So it's a revolving door of credit.
He's going to buy $500 billion and then sell it for $380 billion. Then buy another $500 billion and sell it for $300 billion. Then buy $400 billion and maybe sell for $420 billion - but even in this case where a miracle slice of profit might creep in, he'll just use the revenue to buy more bad debt. No profits will be returned to the tax payer. And he can just keep going and going and going. No body knows what's out there but it's very common to hear estimates in the 5 to 10 trillion dollar range. And Paulson can wash it all away, he just has to do it in $700 billion dollar increments. Right now he'll run into the debt ceiling after he's burned through the first 1.5 trillion, but then we'll be in so deep that congress will just raise the ceiling again.
And I'm trying to find the quote - can't locate it now - but Paulson's already said that wiping out executives would be a "poison pill" he refuses to swallow. That's his line in the sand. Nice.
- jim 9-21-2008 5:07 pm [add a comment]
poison pill
You know, if the execs of a particular firm don't want to "get a haircut", "take a bath", "get washed out", or swallow a "poison pill", they can always "go suck on an exhaust pipe".
Also, I like the recommendation in the Fuck Yeah link that they take credit counseling.
- mark 9-21-2008 5:24 pm [add a comment]
When Paulson left Goldman Sachs to head the Fed he had to cash out of his Goldman stocks to avoid any conflict of interest (yeah right.) But because of generous rules designed to "not disuade" top Wall St. talent from moving into the public sector, capital gains taxes are waived in this situation! His cash out right before he joined the Fed was $500 million dollars tax free!
So the guy who practically pioneered these mortgage related assets while heading Goldman Sachs, and then got a $500 million tax free cash out to go run the Fed where he did nothing to stop the very shell game he helped design, is now going to be granted unlimited power (with no oversight) to "fix" the problem with a blank check from US taxpayers.Something tells me there aren't going to be any punitive measures against any execs.
- jim 9-21-2008 5:42 pm [add a comment]
Sunday talks hosted not a single economist. WTMFH*?! The bailout is a significant number compared to the national debt (about equivalent to 20% of the privately held component of the debt). And the national debt is a number so big it's hard to grasp.
Other big numbers: total federal individual income tax collected in 2007: $1,163 B. Total corporate income tax collected in 2007: $370 B.
At that rate, a 10% increase in corporate income tax would cover the projected $1,000 B (including Freddie, Fannie and AIG) over a period of 27 years (not counting the time-value of money).
But we don't need no freakin' economists on the teevee.
*what the motherfucking hell- mark 9-22-2008 12:55 am [add a comment]
sent to Boxer, Feinstein and Honda:
- mark 9-22-2008 5:04 am [add a comment]
Nice one. How do you send? Fax? I hear that is "better" than email, but then I never know what people mean by better and then I never write anything in the end anyway.
- jim 9-22-2008 5:42 am [add a comment]
I think they place the most value on a phone call. I've never faxed anything though. I suppose if I got an account at a pdf-to-fax service I could fake it.
I did the phone call thing a couple of times, once when I was really pissed at Feinstein. It's like giving the waiter's assistant a hard time for something the restaurant owner fucked up -- not entirely satisfying. With email/letter/fax I can maintain the fantasy that I'm communicating directly with the office holder.
- mark 9-22-2008 1:20 pm [add a comment]
Krugman -- says massive cash infusions come at the price of an equity stake. Duh! That's how capital markets work.
Perhaps some firms should get a washout round (which is slightly less severe than a complete takeover). Some should get something less severe, like having to issue stock warrants (basically the same concept as stock options) which allow the taxpayer to cash in if the value of the company increases. Bashing exec salaries doesn't get to the crux of the biscuit. True wealth comes through equity. Hit the fuckers right there, which will also hit the stock holders who went along for the ride.
- mark 9-23-2008 3:09 am [add a comment]
i can haz equity stake?
- mark 9-23-2008 4:20 am [add a comment]
It always was, I guess, but it's really gone beyond my ability to understand at this point. Goldman and Morgan Stanley becoming commercial banks really made it clear I have no idea what is going on. What does that mean? They get easier access to money from the Fed (and from deposits) in exchange for a bit more regulation and reducing their leverage. Still, seems like something else is going on that I don't understand.
Meanwhile, Paulson's bill has run into a tiny bit of resistance. I now think the outrageousness (and non-obsfucatory nature) of the first draft was a negotiating ploy. Ask for something no one can possibly give you and then you can "concede" a little bit and come to "consensus" over something that is still highly favorable to your interests.
But authorizing all $700 billion is insane. Paulson said his plan is to spend $50 billion a month (can't really spend it all at once) - so why not authorize $150 billion and then let the next President revisit the decision in January? Seems like something is fishy. Or, I guess the opposite argument would be that you need the whole thing authorized at once because the markets are so psychologically driven. If you just do $150 then maybe Wall St. thinks the rest will never come and that won't be enough in which case it won't work. So the $700 isn't really picked because of any predetermined need, it's just a really big number that will impress people into supporting the market again. But if you ask me that's a crazy way for supposed market experts to be making decisions. "We're just going to bluff and get this thing rolling again."
At this point, for what it's worth, I'm completely against this no matter what provisions get folded in. This is something that should be debated over a much longer period of time. Buffet bought in pretty big, why not wait and see if the market can pick itself up? All this rushing just seems like a scam.
Just saying where I'm at since I started this thread. But like I said, it's just really confusing and easily beyond what I understand at this point.
- jim 9-25-2008 11:40 pm [add a comment]