The Bailout

[wiegie]

A ringing endorsement of the bill.

let me be perfectly clear since you seem to be trying to make me be saying what you want me to say--they should have passed the freaking bill

[CaP'N GRuNGe]

More from the same research source (note the "Analysis" section is theirs, not mine):

 

Response from Europe and Asia Goes Beyond Concern to Real Anger

 

The average American isn’t closely following the commentary from the European press or from the leaders in Europe and Asia. That is probably a good thing given the generally anti-foreign attitude that has been emerging in the US these days. A week ago the commentary was polite but concerned as the leaders of other nations had some confidence that Winston Churchill’s quote on US behavior still held water – “the Americans will do the right thing…after they’ve exhausted the alternatives”. Now the global community is not sure given the self serving attitude demonstrated in Congress. The comments have ranged from tight lipped critiques to full on rage that the nation whose actions provoked the problem now seems to be sitting passively while the world spins into recession.

 

The most dramatic remarks have been coming from the nation that is closest to the US and has the most to lose if the plan fails – Britain. The comments from Peter Mandelson have been stinging and to the point. He is currently the Trade Commissioner for the European Union but has been a major figure in British politics for years as one of Tony Blair’s allies. His testiness has been an issue in Britain but he now channels that into being an attack dog for the EU. He accused the US Congress of abdicating hits responsibilities for purely political reasons and indicated that he found this activity “disgusting”. He lays the blame for the global situation squarely on the US and demands that action be taken that accepts this responsibility. He is far from alone although the others have been a bit more diplomatic.

 

Analysis: The US voter could probably not care less what the rest of the world has to say about the behavior of the American politician, but the US leadership can ill-afford to adopt the same position. One of the major criticisms of the Bush Presidency was the serious erosion of relations with US allies. It became abundantly clear that the US was suffering from having to address world issues like terrorism, the Iraq War, global trade and others from an isolated position. During the last few years the US has also lost some key allies as Tony Blair in the UK, Junichiro Koizumi in Japan and Paul Howard in Australia left office. The US is now facing a world of leaders that are not hostile to the US but are also not exactly supportive. They have had their differences with the US but most of the areas of contention were manageable. The issue of the global economy is another thing entirely as the situation threatens their countries directly. One of the most active voices in the current conversation is the French President – Nicolas Sarkozy. He is much less hostile to the US than his predecessor Jacques Chirac but he is still first and foremost a nationalist and is very concerned about what all this chaos means to the French economy. He has been calling for a global response to the crisis and is trying to organize a summit for later this year. He has long asserted that there is too little management of global financial affairs and he advocates a much more closely monitored system. This theme is echoed by many in Europe – Angela Merkel in Germany as well as Jose Luiz Rodriguez Zapatero from Spain. It is very likely that the next few meetings of the G-7 and OECD will focus almost exclusively on this issue. There will be considerable input from the IMF and Dominique Strauss-Kahn as well.

 

The commentary from the Asian leaders has been a bit more subdued but there are also remarks suggesting that the UIS would do well to learn the lessons of Japan. The decisions by Japanese politicians in the early 1990s are very similar to those being made by the US leadership today. The bubble bursting in Japan evoked the same kind of anger as in the US and there was no desire to rescue the big banks and investors that had driven the price of real estate into the stratosphere. It was assumed that the banks could lick their wounds and recover as it seemed obvious that these giant institutions had all the resources they would ever need. That proved to be an inaccurate assumption and Japan fell into a decade long recession despite interest rates of zero. The status of Japan declined and China overtook them as the dominant economy in Asia. The threat of recession remains with Japan today as their economy has still not recovered its strength. The Asian analysts keep reminding the US that they are on the same path but thus far this seems to be falling on deaf ears.

 

From what you are saying, I hope all the smart people involved in tackling this mess are really studying the history of what happened in Japan. If a bill fails to pass again, I blame Bush for not being an effective enough leader to get on television and throroughly and clearly explain to the American people what is at stake and what we can do to try to prevent or lessen the pain. Maybe he needs to put Ross Perot on a retainer and wheel him out there with his charts and graphs.

[Perchoutofwater]

From what you are saying, I hope all the smart people involved in tackling this mess are really studying the history of what happened in Japan. If a bill fails to pass again, I blame Bush for not being an effective enough leader to get on television and throroughly and clearly explain to the American people what is at stake and what we can do to try to prevent or lessen the pain. Maybe he needs to put Ross Perot on a retainer and wheel him out there with his charts and graphs.

 

Why not blame the democrats in the House and Senate since they hold a majority of the the seats in both the house and senate and are actually the ones voting on it? Look at the crap they put in the bill. Unlike what they stated on TV, the bill did next to nothing about golden parachutes. If it would have been profitable, 20% of any profits would have gone to ACORN which is in bed with Obama. I know you are so partisan that you don't want to blame your own party, but had your party stuck together they could have passed it by themselves, and Bush said he would sign off on it. Take the blinders of Grunge.

[H8tank]

A week ago the commentary was polite but concerned as the leaders of other nations had some confidence that Winston Churchill’s quote on US behavior still held water – “the Americans will do the right thing…after they’ve exhausted the alternatives”. Now the global community is not sure given the self serving attitude demonstrated in Congress.

 

Great Job Nancy Pelousey!

[H8tank]

If a bill fails to pass again, I blame Bush

 

This is for Sueprcuts you really, really smart guy!

 

MORAN

[CaP'N GRuNGe]

This is for Sueprcuts you really, really smart guy!

 

MORAN

 

Don't be dense. You know very well that the public doesn't understand this bill. You know that phone calls to Washington have been 100 to 1 against the bill 5 weeks before an election. And you know nobody has done a good job in educating the public. As Harry Truman once said, the buck stops at the President's desk. A clear lack of leadership.

 

And yes, I blame Pelousy and Boner, Reid and McConnell, Obama and McCain, all of these idiots for both getting us into this mess and not being able to work together to solve it.

[Azazello1313]

From what you are saying, I hope all the smart people involved in tackling this mess are really studying the history of what happened in Japan. If a bill fails to pass again, I blame Bush for not being an effective enough leader to get on television and throroughly and clearly explain to the American people what is at stake and what we can do to try to prevent or lessen the pain. Maybe he needs to put Ross Perot on a retainer and wheel him out there with his charts and graphs.

 

actually, bush got on last week and gave a very good explanation of where we're at, how we got here, and what needs to happen. the problem is, 6 weeks before an election, nobody in congress, nobody in the country, nobody in the media gives a damn what he says.

 

I know you've become accustomed to simply blaming bush for every ill....but those training wheels are going to have to come off soon.

[wiegie]

I actually think this plan (which is pretty much what I was talking about above) would be better than the currently proposed plan. Unfortunately, I don't think there is the political will to support it right now.

Soros floats alternative bailout plan with Dems

By Alexander Bolton

Posted: 09/30/08 11:19 PM [ET]

 

The billionaire financier George Soros, a major Democratic financial backer, is floating his own rescue plan among Democratic lawmakers who are uncertain what to do in the wake of a surprise defeat of a proposed $700 billion rescue package proposed by Treasury Secretary Henry Paulson.

 

Soros has outlined his plan in an opinion editorial in the Financial Times and circulated a concept paper among decision-makers.

 

 

Specifically, the liberal philanthropist has proposed that government funds should be used to recapitalize the American banking system by purchasing equity in banks and investment firms.

 

Democratic Rep. Jim Moran (Va.) scheduled a meeting Tuesday afternoon with Robert Johnson, a former manager of the Soros Fund Management, to discuss the proposal.

 

Moran compared the proposal to Warren Buffet’s $5 billion investment in the investment firm Goldman Sachs Group in return for preferred stock and warrants to buy common stock at a discount.

 

Soros has also contacted Sen. Barack Obama’s (D-Ill.) presidential campaign to share his views on the financial crisis and the best way to solve it.

 

Soros described the plan he outlined in his concept paper in an opinion editorial that appeared in the Financial Times early Wednesday morning, Greenwich Meridian Time.

 

“Instead of purchasing troubled assets, the bulk of the funds ought to be used to recapitalize the banking system,” Soros wrote.

 

“The Treasury secretary would rely on bank examiners rather than delegate implementation of [the Troubled Asset Relief Program] to Wall Street firms,” he wrote in reference to the plan first crafted by Treasury Secretary Henry Paulson. “The bank examiners would establish how much additional equity capital each bank needs in order to be properly capitalized according to existing capital requirements.”

 

“The recapitalized banks would be allowed to increase their leverage, so they would resume lending,” he wrote.

 

Soros has emerged as a harsh critic of the Treasury Department, especially of Paulson’s proposal for the government to buy $700 billion of distressed mortgage-backed securities to restore the flow of credit in the financial markets.

 

It is unclear whether his entry onto the debris-strewn field of the debate will help lawmakers reach agreement on an alternative proposal or further anger House Republicans, who blew up a compromise plan on the House floor Monday.

 

“The two main principles are to inject more cash into the securities market and shore up home mortgages,” said Moran, who has been briefed on the proposal. “He thinks it has to be more direct than the government buying up tranches. He doesn’t think the government should be buying up toxic stock.”

 

“There are a lot of people with ideas, I’m going to look at what they want,” said Moran, who added that he also scheduled a meeting with Robert Dugger, managing director of Tudor Investment Corporation, a fund connected with the billionaire trader Paul Tudor Jones.

 

Soros, who is widely regarded as a financial wizard, could jumpstart congressional negotiations in a new direction, especially now that some strategists believe the Paulson-based plan that failed Monday will be difficult to revive.

 

One banking industry lobbyist said it would be very difficult politically for Republicans who voted against the package Monday to change their minds and vote for it a few days later. More than two thirds of the House Republican conference voted against the plan, which failed by a vote of 228-205.

 

Michael Vachon, Soros’s spokesman, said: “There have been a lot of conversations going on about the Paulson plan and George has been very critical of it.”

 

Democrats are fond of Soros, who has emerged as one of the party’s biggest financial backers in recent years. He spent close to $24 million to defeat President Bush in the 2004 election.

 

For this reason Soros is a bogeyman among many Republicans. He clashed famously with former Republican Speaker Dennis Hastert (Ill.).

 

During the 2004 election Hastert questioned the source of Soros’s wealth and suggested it could have links to the drug trade.

 

Soros has fiercely criticized Paulson’s proposal.

 

“Mr. Paulson’s proposal to purchase distressed mortgage-related securities poses a classic problem of asymmetric information,” Soros wrote in a Financial Times op-ed dated Sept. 24. “The securities are hard to value but the sellers know more about them than the buyer: in any auction process the Treasury would end up in the dregs.”

 

Soros would like the government to restore the flow of credit to the financial markets by purchasing equity in companies saddled with distressed assets, said Moran.

 

The international financier would also like the government to take direct action to shore up the ailing housing market.

 

“The scheme addresses only one half of the underlying problem -- the lack of credit availability. It does very little to enable house owners to meet their mortgage obligations and it does not address the foreclosure problem,” Soros wrote in Wednesday’s commentary .

 

“A revised emergency legislation could also provide more help to homeowners,” he wrote of a package based on his own proposals. “It could require the Treasury to provide cheap financing for mortgage securities whose terms have been renegotiated, based on Treasury’s cost of borrowing.”

 

He has also suggested prohibiting mortgage companies from charging fees on foreclosures. Many companies are quick to foreclose because they no longer own the loan itself, which has likely been turned into a security.

 

Instead, these companies make money by charging delinquent borrowers during the foreclosure process.

 

Soros’s plan could find favor among members of the Congressional Black Caucus, many of whom voted against the Paulson-based plan Monday.

 

Foreclosures of subprime mortgages, considered the root of the housing crisis, affects African-American homeowners disproportionately.

 

Robert Shapiro, chairman of Sonecon, an economic advisory firm, who served as Commerce Department undersecretary during the Clinton administration, raised questions about Soros’s proposal.

 

He said that if the government bought stock in troubled firms, a problem would arise regarding how Uncle Sam would be represented as a shareholder.

 

“How does the government vote the shares?” he asked. “It puts them in a potential conflict of interest. Regulatory interests may hurt the bottom line.”

http://thehill.com/leading-the-news/soros-...2008-09-30.html

[SuperCharger]

Why do people assume that those who are saying NO to this bill don't understand it?

[AtomicCEO]

Here are some of the earmarks included in the new and improved bill being voted on tonight:

 

Wish I could say that I'm surprised.

 

I wish that the names of anyone adding unnecessary pork to this bill would have their names added in 700 point type to a giant scrolling message until they were shamed into removing it. This seems like a really unconscionable time to be slipping in extra spending.

 

let me be perfectly clear since you seem to be trying to make me be saying what you want me to say--they should have passed the freaking bill

 

I know what you're saying.

 

I actually think this plan (which is pretty much what I was talking about above) would be better than the currently proposed plan. Unfortunately, I don't think there is the political will to support it right now.

 

You're saying that you have no faith that congress will get it right, so you are settling. I am not as willing to do that.

[Perchoutofwater]

I actually think this plan (which is pretty much what I was talking about above) would be better than the currently proposed plan. Unfortunately, I don't think there is the political will to support it right now.

 

http://thehill.com/leading-the-news/soros-...2008-09-30.html

 

I've also read that Steve Wynn and Donald Trump agree with Soros on this.

[Rebellab]

Warren seems to be pretty confident of the market

[wiegie]

You're saying that you have no faith that congress will get it right, so you are settling. I am not as willing to do that.

That is exactly what I am saying.

I am not as willing to do that.

Is this because you have faith that congress will get it right? If so, you give Congress way more credit than I am willing to do so.

 

If you oppose the proposed bailout plan because you think that the economy is better off without it, then you are almost certainly wrong.

 

If you oppose the proposed bailout not because you think it is will hurt the economy worse than doing nothing, but merely out of principle, then you have a warped set of values in which you derive more utility from being able to think of yourself as "principled" than for doing what is right for the country in general.

[Pope Flick]

actually, bush got on last week and gave a very good explanation of where we're at, how we got here, and what needs to happen. the problem is, 6 weeks before an election, nobody in congress, nobody in the country, nobody in the media gives a damn what he says.

 

I know you've become accustomed to simply blaming bush for every ill....but those training wheels are going to have to come off soon.

 

 

az is 100% correct. We've been hammering his policies for years, his approval rating is in the toilet, he's done in 42 days. He's the lamest of lame ducks and he's supposed to get people to suddenly listen to him? As wrong as he's been, he's wrong on this too and I'm glad people finally blew him off.

 

but you're trying to have your cake and eat it to: you can't hammer him into that status then hold it against him when it doesn't go your way.

[Azazello1313]

 

pretty good article here detailing many of the steps that got us here, and arguing finally that congress should stay out.

[Pope Flick]

pretty good article here detailing many of the steps that got us here, and arguing finally that congress should stay out.

 

Let's be clear: This is a Wall Street crisis, not a national economic crisis. The overall economy, while a bit weak, is still growing. Some politicians are comparing the current environment to the Great Depression. But in 1932, when the federal government last moved to bail out the banking sector, economic output had fallen 45 percent and unemployment was a staggering 24 percent. Today, economic output is actually up and unemployment is a historically modest 6.1 percent.

 

When we hit half of those numbers, then we should help.

[wiegie]

pretty good article here detailing many of the steps that got us here, and arguing finally that congress should stay out.

OK, here's what I don't get. If Freddie Mac and Fannie Mae were the ones buying up all of the garbage (as your link seems to imply), why wasn't the problem contained to just Freddie and Fannie?

 

(Seriously, if anybody can address this question, I would like to read your reply.)

[Perchoutofwater]

OK, here's what I don't get. If Freddie Mac and Fannie Mae were the ones buying up all of the garbage (as your link seems to imply), why wasn't the problem contained to just Freddie and Fannie?

 

(Seriously, if anybody can address this question, I would like to read your reply.)

 

Just a guess on my part, but if Feddie and Fannie had been buying it all up, and banks knew they were buying it all up, they continue to make these loans and all of a sudden Freddie and Fannie stop buying them up and the banks are left holding the bag. Plus as the article Az posted noted when the housing market got flooded, home prices actually started to decline so banks are stuck with mortgages in default that are less valuable than when they issued them. I'm sure that the banks all factor in a certain percentage of foreclosures, but when the asset that they are able to seize is now in many case 20% less valuable than it was when they issued the loans, it really puts them in a bind to meet regulations on capital reserve.

[Azazello1313]

OK, here's what I don't get. If Freddie Mac and Fannie Mae were the ones buying up all of the garbage (as your link seems to imply), why wasn't the problem contained to just Freddie and Fannie?

 

(Seriously, if anybody can address this question, I would like to read your reply.)

 

don't fannie and freddie buy mortgages from the originators, bundle them up, and then sell them as "mortgage backed securities"? I mean, I realize other entities can generate these MBSs as well, but aren't an enormous amount of them packaged and sold by the GSEs themselves? presumably, they sold a lot of these securities to bear stearns, lehman, etc.

 

edit to add: from wikipedia...

Fannie Mae (and Freddie Mac) buy loans from mortgage originators, such as banks and non-bank mortgage firms. It repackages the loans, as mortgage backed securities, and sells them on the secondary mortgage market, with a guarantee that the interest and principal will be paid, whether or not the original borrower pays. Also, Fannie Mae may hold the purchased mortgages for its own portfolio. By purchasing the mortgages, Fannie Mae and Freddie Mac provide banks and other financial institutions with fresh money to make new loans. This gives the United States housing and credit markets flexibility and liquidity.[9]

 

In order for Fannie Mae to provide its guarantee to mortgage backed securities it issues, it sets the guidelines for the loans that it will accept for purchase, called "conforming" loans. Mortgages that don't follow the guidelines are called "non-conforming"; typically the secondary market for non-conforming loans deals in mortgages larger (termed "jumbo") than the maximum mortgage that Fannie Mae and Freddie Mac will purchase.

Edited October 1, 2008 by Azazello1313

[Caveman_Nick]

actually, bush got on last week and gave a very good explanation of where we're at, how we got here, and what needs to happen. the problem is, 6 weeks before an election, nobody in congress, nobody in the country, nobody in the media gives a damn what he says.

 

I know you've become accustomed to simply blaming bush for every ill....but those training wheels are going to have to come off soon.

 

 

And I could not understand why the address wasn;t carried on all major networks. Seemed to be pretty important...

[WaterMan]

actually, bush got on last week and gave a very good explanation of where we're at, how we got here, and what needs to happen. the problem is, 6 weeks before an election, nobody in congress, nobody in the country, nobody in the media gives a damn what he says.

 

I know you've become accustomed to simply blaming bush for every ill....but those training wheels are going to have to come off soon.

 

They will come off once he's out.

[AtomicCEO]

That is exactly what I am saying.

Is this because you have faith that congress will get it right? If so, you give Congress way more credit than I am willing to do so.

 

If you oppose the proposed bailout plan because you think that the economy is better off without it, then you are almost certainly wrong.

 

If you oppose the proposed bailout not because you think it is will hurt the economy worse than doing nothing, but merely out of principle, then you have a warped set of values in which you derive more utility from being able to think of yourself as "principled" than for doing what is right for the country in general.

 

I oppose a panicked fast action to give a staggering amount of money to a single person who was actually working to exacerbate this problem 2-3 years ago, in order to have him fix it. Even giving it to him with an alleged "oversight committee" made up of congress is an incredibly poor idea, because Bush has spent the last 7 years showing that congress has NO authority over his staff.

 

I do think that congress can do a better job, and I refuse to lower my expectations of the people controlling a trillion dollars on a whim. Both of my letters to congressmen that I have sent have said "There are smarter ways to accomplish your goals", not "Screw it, let the economy tank."

[wiegie]

don't fannie and freddie buy mortgages from the originators, bundle them up, and then sell them as "mortgage backed securities"? I mean, I realize other entities can generate these MBSs as well, but aren't an enormous amount of them packaged and sold by the GSEs themselves? presumably, they sold a lot of these securities to bear stearns, lehman, etc.

Ok, that still doesn't explain things as, to the best of my knowledge, Freddie and Fannie have not said that they won't pay for mortgages that they are backing.

 

if Feddie and Fannie had been buying it all up, and banks knew they were buying it all up, they continue to make these loans and all of a sudden Freddie and Fannie stop buying them up and the banks are left holding the bag.

From Az's wiki link, borrowers and originators knew up front whether or not Freddie and Fannie would back the loans. Hence, saying that they were surprised when Freddie and Fannie suddenly deciding to stop backing the mortages doesn't really follow. Edited October 1, 2008 by wiegie

[wiegie]

I oppose a panicked fast action to give a staggering amount of money to a single person who was actually working to exacerbate this problem 2-3 years ago, in order to have him fix it. Even giving it to him with an alleged "oversight committee" made up of congress is an incredibly poor idea, because Bush has spent the last 7 years showing that congress has NO authority over his staff.

uh, the oversight committee in the bill didn't have anybody from congress in it

I do think that congress can do a better job, and I refuse to lower my expectations of the people controlling a trillion dollars on a whim. Both of my letters to congressmen that I have sent have said "There are smarter ways to accomplish your goals", not "Screw it, let the economy tank."

ok--by the way, what sort of plan did you advocate?

[Azazello1313]

Ok, that still doesn't explain things as to the best of my knowledge Freddie and Fannie have not said that they won't pay for mortgages that they are backing.

 

aren't the very "securities" they sold the ones that are now viewed as toxic assets that nobody can accurately value? I believe they are.

 

I found something that said that the fraction of outstanding home mortgage debt that was either held or guaranteed by the GSEs rose from 6% in 1971 to 51% in 2003. 51% of all mortgage debt, and the huge majority of mortgage debt they DON'T own would clearly have to be all the non-conforming "JUMBO" mortgages over $400K or whatever -- the mortgages they CAN'T buy according to their charters. and I'm doubting most jumbo borrowers have subprime credit, though no doubt a fair number of those mortgages are ending up in default as well.