re: Bailout and Politics

Someone wrote in response to my last posting, "Bailout and Politics":

What about the 60 or so Democrats that voted against the bill?

Here is my response:

You missed my point. McCain was taking credit for passage of the bill before it actually went down. You know, his "suspension of his campaign", his going to Washington, intervening to get the Republicans to vote in favor, and his self promotion as the one who made the difference in the vote. And when the motion fails, with the Republicans voting 2 to 1 against it, he blames Obama while at the same time claiming to eschew politicizing the issue. Phony!!!! Saying anything , lying about or changing his position depending upon what will be best for him to win the election, he projects his own motives onto Obama when he says that Obama would rather lose a war or say anything than lose an election when in fact it is he who is doing so.

By the way, I was opposed to the passage of the measure. You will notice that both the far left and the far right combined to defeat it. The far left was against it because it was a handout to to the moneyed interests neglecting the middle class. The right was against it because it was a socialist government take over of private industry. I was against it for both reasons but viewed the takeover as fascism with a single Wall Street Czar (Secretary Paulson of Goldman Sachs) sealing the collusion of State and Industry.

Even if President Bush wont or can't, Congress should and could do better! The administration's rush to legislate on the basis of the outrageous Bush-Paulson plan, using fear as a motivator was like the way they orchestrated the run up to the Iraq war based on Weapons of Mass Destruction. Congress should have been urged to spend some reasonably short time to come up with an entirely different approach that would satisfy the populace and the politics. There is a history of such other approaches that have been used in times of financial crises that have proved successful.

Had they done so, the calamitous reaction to the failure of Congress to act as reflected in the shard drop of the US markets could have been avoided.

Michael

Bailout and Politics

Here is the statement released by the McCain campaign just after the defeat of the Wall Street Bailout in congress. After this statement was released, McCain appeared in person to issue a statement (see YouTube video), also politicizing the bailout failure while decrying politicization. All this after the Republican's in the House voted against the bill, 65 Yea - 133 Nay.

McCain-Palin senior policy adviser Doug Holtz-Eakin:

“From the minute John McCain suspended his campaign and arrived in Washington to address this crisis, he was attacked by the Democratic leadership: Senators Obama and Reid, Speaker Pelosi and others. Their partisan attacks were an effort to gain political advantage during a national economic crisis. By doing so, they put at risk the homes, livelihoods and savings of millions of American families.

“Barack Obama failed to lead, phoned it in, attacked John McCain, and refused to even say if he supported the final bill.

“Just before the vote, when the outcome was still in doubt, Speaker Pelosi gave a strongly worded partisan speech and poisoned the outcome.

“This bill failed because Barack Obama and the Democrats put politics ahead of country.”

Michael

Necessary Changes

The bailout plan is just about to be rejected by the House of Representatives unless there are enough votes changed following the initial count (205 Yea, 228 Nay) while the vote is held open past the casting of all available votes but 1. And maybe it will be defeated with good reason. The markets have taken a drastic turn down.

In order to save the world's financial structure and prevent a meltdown of monstrous proportions, possibly leading to a worldwide depression equal to or greater than the "Great Depression, the US Congress is voting to give to single individual the power to dispense favors and money (700 Billion dollars) to the Wall Street robber barons in exchange for an ownership position in private business with the hope of earning a profit for the government. Say what?

The biggest opponents to this plan are the Republican conservatives, the great free market, limited government proponents whose policies of deregulation (and in the case of the Bush Administration - lack of enforcement of existing controls) have led to the problem in the first place.

The current plan to redress the ills of our economic system is being praised by moderate to moderately liberal Democrats and moderately conservative Republicans as a great bipartisan achievement. Rubbish!

The truth is that the plan as originally proposed was such a one sided outrage that everyone was against it. Then, without holding any hearings, a small group of congressmen took steps to make needed changes to the plan to make it more acceptable while leaving intact the basic concept of putting 700 billion dollars into the hands of a single individual to dole out in a manner of his choice to the financial community from which he comes before he became Secretary of the Treasury.

Since Secretary Paulson and possibly President Bush are smart enough to recognize the outrage that the original 3 page proposal would create, is it possible that they purposely proposed it so that the basic idea of making the Secretary the "money czar" would not be challenged and any modifications to the plan would only deal around the edges of that basic concept? So they put some restrictions on and outline more options for the Secretary, put in more after the fact oversight of his decisions, remove his invulnerability to after the fact judicial action, and slows down the allocation of funds from a lump sum to several smaller amounts needing congressional approval.

Still there are no direct actions to forestall foreclosures.

Michael

Pop Culture

To those of you who are amongst the elite who support Barack Obama and are therefore out of touch with Pop Culture:

John McCain was scheduled to appear on last night's "The Late Show with David Letterman". Just as he was about to tape the program Senator McCain called to tell Letterman that he would not be available because he had to rush back to Washington to be available for the negotiations and debate on the economic recovery plan.

Letterman was incensed and he spent the first 3 segments of his program exclusively skewering McCain unmercilessly. These first 3 segments (about 8 minutes each) included his opening stand up monologue, his overall introduction to the upcoming program with comments about the news of the day, "Tonight's Top 10" (Questions people are asking the McCain Campaign), and 1½ segments of his interview with his major guest of the night (Keith Olberman of MSNBC's Countdown replacing John McCain).


There were two significant parts of the Olberman interview that were not much covered by the "Main Stream Media":

1. The first contact to have the two candidates address the economic crisis on a non-partisan basis was made by Barack Obama who called McCain and suggested that they issue a joint statement about the crisis stressing those points that they have in common. Then about 1/2 hour later McCain, upstaging Obama, without mentioning Obama's call to him, unilaterally held a press conference announcing that he was suspending his campaign and suggested that Obama do the same thing and that the first debate scheduled for Friday night be postponed.
2. Letterman showed a clip of McCain preparing for an interview with Katie Couric followed by another clip showing a part of the interview which was broadcast at the time Letterman was taping his show. In other words, McCain lied to Letterman and did not "rush back" to Washington but ditched his appearance for a more opportune event.

One could say that what McCain did was normal politics and should be expected. However, McCain promoted the nature of his action as a bipartisan effort for the welfare of the country rather than as a political ploy. This is just more of the same old politics that McCain originally eschewed as part of his campaign.

The suspension of his campaign and the idea of postponing the debate comes at a time when McCain's polling results have begun to plunge as a result of the news about the economy and just after he released 2 of the dirtiest campaign commercials. The suspicion is that he wants to change the subject from the economy to one that paints Obama as unethical by using the crisis as a political opportunity, deny Obama the opportunity to respond with his own add in to the latest McCain attack ads, and further it has been suggested that postponing the first debate would set up the opportunity to replace the only VP debate with the postponed presidential debate.

These are the types of actions we can expect from a McCain administration. It would be another 4 years of dishonest government with outrageous spin to cover up the further implementation of corporatism and enrichment of the wealthiest at the expense of the rest of the population.

Michael

Largest Bank Failure in American History/Bailout Talks Fail

From The New York Times

September 26, 2008

Government Seizes WaMu and Sells Some Assets
By ERIC DASH and ANDREW ROSS SORKIN

Washington Mutual, the giant lender that came to symbolize the excesses of the mortgage boom, was seized by federal regulators on Thursday night, in what is by far the largest bank failure in American history.

Regulators simultaneously brokered an emergency sale of virtually all of Washington Mutual, the nation’s largest savings and loan, to JPMorgan Chase for $1.9 billion, averting another potentially huge taxpayer bill for the rescue of a failing institution.

The move came as lawmakers reached a stalemate over the passage of a $700 billion bailout fund designed to help ailing banks, and removed one of America’s most troubled banks from the financial landscape.
_________________________________________________________________________________
From The New York Times

September 26, 2008
Talks Implode During Day of Chaos; Fate of Bailout Plan Remains Unresolved
By DAVID M. HERSZENHORN, CARL HULSE and SHERYL GAY STOLBERG

This article was reported by David M. Herszenhorn, Carl Hulse and Sheryl Gay Stolberg and written by Ms. Stolberg.

WASHINGTON — The day began with an agreement that Washington hoped would end the financial crisis that has gripped the nation. It dissolved into a verbal brawl in the Cabinet Room of the White House, urgent warnings from the president and pleas from a Treasury secretary who knelt before the House speaker and appealed for her support.

“If money isn’t loosened up, this sucker could go down,” President Bush declared Thursday as he watched the $700 billion bailout package fall apart before his eyes, according to one person in the room.

It was an implosion that spilled out from behind closed doors into public view in a way rarely seen in Washington.

By 10:30 p.m., after another round of talks, Congressional negotiators gave up for the night and said they would try again on Friday. Left uncertain was the fate of the bailout, which the White House says is urgently needed to fix broken financial and credit markets, as well as whether the first presidential debate would go forward as planned Friday night in Mississippi.

Michael Yanofsky

Consequences Begin

Well, here are the first consequences of the proposed $700 Billion bailout. The dollar tumbled in overnight trading. Quoting from The Wall Street Journal:

The dollar and long-dated Treasury prices took a hit as traders fretted that the vast spending necessary to aid the financial industry will make the government itself a somewhat less attractive borrower.

º º º

Oil prices soared more than $25 at their intra day high and finished with a gain of $16.37, or 16%, at $120.92 a barrel as the dollar was hammered.

As this trend continues the economics are very difficult to predict. Inflation? Deflation? Depression? Short term? Long term? I can paint a myriad of different scenarios. I may be all wet, but I just don't see any positive outcome. And yet, if we learned anything from "The Great Depression", it is that doing nothing a la Herbert Hoover, doesn't work either.

FDR, even if some of his programs were ineffective and it took the war to eventually end the depression, saved capitalism from public riots and a potential Communist takeover. It is a lesson that the right has never learned.

Our politicians dear not say the above because they will be crucified by the public. I have nothing to lose but some friends who may think I am off the deep end.

In any event it is more important to try something. Whatever we try there will be inequalities and manipulations by some to take advantage of any government intervention. However, the goal should be that the intervention be effective even if imperfect. One thing most people agree upon is that the current plan is unacceptable. It is unacceptable because as I have said in previous postings it puts too much power into the hands of a single individual. But there are other reasons that make it unacceptable.

The plan proposes to let the Government buy the problem mortgages, taking them off of the books of the financial institutions. If the price is too high, it will artificially inflate the financial condition of the financial institutions, reward their greed and malfeasance and transfer the potential loss to the Government at taxpayers expense. If too low, then the financial institutions will still have to write off the loss artificially affecting their earnings and their balance sheet and therefor their market value, their liquidity and their ability to make future loans, which is the purpose of the bailout.

So, who determines the price? Real estate is a true free market valued asset, albeit the Government can affect demand by manipulating the interest rates and the money supply. The value of the property depends upon what someone is willing to pay for it. But in this case, there is only a single buyer, a monopoly by the Government, and the sellers who are in distress.

As was said in the King and I: "'tis a puzzlement".

Pay attention to this situation for it will have a significant impact on your future.

Michael Yanofsky

In Credit Able

We now know what it takes to have the country focus on things that matter instead of lipstick and other cover ups. The only thing uncertain about this financial calamity was when it would blow up and become critical.

Who is at fault? Everybody! Ronald Reagen, George H.W. Bush, Bill Clinton, George W. Bush, the Republicans in congress, the Democrats in congress, the Supreme Court, etc., etc., etc. Also add former Secretary of the Treasury Robert Rubin, and especially former chairman of the Federal Reserve, Alan Greenspan. It's an equal opportunity mess. And don't forget the U.S. electorate who have been convinced to vote against their own self interest by the Republican elite and smear machine.

I start with Ronald Reagen but I could go back to Richard Nixon who in 1973 abrogated the 1944 Bretton-Woods agreement by floating the dollar instead of keeping it pegged at $35.00 per ounce of gold. I could go back to the establishment of Freddie Mac (1970) or Fannie Mae (1938) or as far back as 1913 when the Federal Reserve Bank was enacted into law. However, it was Ronald Reagen who started the conservative resolution in this country which has most directly led to this crisis.

With a simple (very simple) philosophy of lower taxes (Dick Cheney: "Ronald Reagen taught us that deficits don't matter"), reduced government (to a bare minimum), and a strong military, Ronald Reagen adopted the lassiez faire free market supply side economic philosophy of the Chicago School of Economics (Milton Friedman) and the strong militaristic foreign policy of the so called neocons (Irving Kristol, William Kristol, Norman Podhoretz, et al) which morphed into George W. Bush's doctrine of "preventive war", promoted unfettered run-away capitalism and the corporate state and done away with most of the social progress this country had made in the past 75 years.

As for William Jefferson Clinton, it was during his administration, with the help of Treasury Secretary Robert Rubin, that our free trade policy was implemented and in 1999 with the passage of the Gramm-Leach-Bliley Financial Services Modernization Act (yes the same Phil Gramm who was McCain's chief economic adviser until he called us a nation of whiners) that the provisions of the Glass-Steagall Act of 1933 were killed thus enabling federally insured commercial banks, and federally uninsured investment banks, securities businesses, and insurance companies to combine and consolidate. This abrogation of the prohibitions instituted by the New Deal under Franklin Delano Roosevelt (FDR) are a significant contributor to the current financial difficulties today.

It isn't just a coincidence that this financial crisis occurs under the "leadership" of George W. Bush. It happens this way because of all the presidents we have had he is probably the least competent and has surrounded himself with yes men, other incompetents, and neocon ideologues (how do you say Dick Cheney?) without the ability to reason things out for himself.

If this country isn't already bankrupt, it is darn close to it and perhaps the actions we must take now to save ourselves will finish us up. Look at our situation:

* Current debt of $9,600,000,000,000 (9.6 trillion dollars) and a request to increase the debt limit to $11,300,000,000,000 (11.3 trillion dollars).
* An operating deficit for the year of $480,000,000,000 (480 billion dollars, almost half a trillion dollars) not counting the expense of the rescue plan being requested. (Estimated cost: $700,000,000,000 - 700 billion dollars)
* An annual trade deficit of over $800,000,000,000 (800 Billion dollars).
* A continually weakening dollar that will increase our trade deficit (in actual dollars as foreign imports will cost more) and increase the interest rate on the debt. Eventually interest rates to service the increased national debt will substantially increase from $430,000,000,000 (430 Billion Dollars) in FY 2007.
* A military depleted of manpower and materiels which needs to be refurbished. (Estimated cost by General Barry McCaffery: Above $50 Billion)
* A crumbling US infrastructure. (Estimated cost to rebuild by the American Society of Engineers: $1.6 Trillion over 5 years)
* Two ongoing wars (Afghanistan and Iraq) with annual costs estimated at $140 Billion.
* Increased cost for lifetime medical care of injured Afghanistan and Iraqi war veterans. (Estimated to be about $1 Trillion (in 2007 dollars) over the next 50 years)
* Gas prices that averaged $1.47/gal. for regular gas on 1/22/01 (2 days after George Bush took office) have increased to $3.86/gal. on 9/15/08 (with a high of $4.05/gal. on 7/14/08). That is a 163% increase in just over 7½ years.
* Annualized CPI increased in July by 5.6%,the sharpest increase since 1991.
* Unemployment rate has risen to 6.1%, the largest in 14 years.
* About 600,000 jobs have been lost since the beginning of January 2008.
* Housing starts were the lowest this August for the past 17 years.

The above list is by no means complete, but it is enough to make my point.

No matter who wins the presidency, there will be no money for universal health care, improvement of education, any increase in veteran's benefits (a proposed G.I. Bill?), a meaningful investment in clean renewable energy, and a host of other programs. In addition, John McCain wants to cut taxes giving the richest people of the nation, many of whom have benefited most from our deregulated corporate state, another massive decrease in their taxes while the nation goes broke.

I support Barack Obam for president, not because I believe he has the answers to our problems, but because I believe he has a significantly better chance of dealing with our problems than does John McCain. Obama has shown that he possesses the necessary temperament and intellect to be president. He is thoughtful and able to carry the myriad of details of complex situations in his mind, examining all of the facets of a problem and the possible consequences before making a decision. He has the patience to hear multiple points of view and to listen to the opinions of those who disagree with him. These are the traits that are missing in our current president and unfortunately also missing in John McCain.

Vote Obama and urge others to do the same. The consequences of not electing Obama could be disastrous for all of us and our children, our grandchildren and beyond.

Unlimitted Power Again?

NECESSARY READING: Legislative Proposal for Treasury Authority to Purchase Mortgage-Relate Assets.

(See attached text document)

The attached document is a copy of the proposed legislation to handle the financial crisis that the Bush administration presented to congress last night. It is a short 3 page document, that I increased in type size to 4 pages so that we elders can read it without difficulty.

The administration is pushing for a quick vote due to the emergency conditions and the need to stabilize the financial markets before there is more damage to the overall economy.

I agree that something needs to be done and done quickly, but this is not the answer. Many in congress and both Obama and McCain have already voiced their objections to the legislation as proposed.

Today the DOW Industrials Index was down $373, NASDAQ was down $95 and S&P Index was down $48. Oil up $15/barrel (a record single day increase).

The proposal gives unlimited powers to the Secretary of the Treasury to expend 700 Billion dollars:

• appointing employees,
• entering into contracts,
• designating financial institutions as financial, agents of the Government,
• purchase mortgage-related assets and issue obligations,
• Issuing regulations and other guidance necessary to carry out the authorities of the Act.
• exercise any rights received in connection with mortgage-relate assets acquired,
• sell, or enter into securities loans, repurchase transactions with regard to any mortgage-related asset purchased, under terms and conditions determined by the Secretary

There is limited oversight provided in this legislation. The first report to congress isn't due until 6 months following passage and then only once a year thereafter. In addition:

"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. "

The last time the congress was rushed into "necessary emergency legislation" the result was the Bush Administration launching an undeclared and unnecessary preventive war against Iraq, the single most disastrous foreign policy decision in the history of the United States. Can we trust them now?

No one person should be authorized to exercise such unlimited and unregulated power. Write your congress person and Senators to insist that they not give this unsupervised unlimited power to a single man. With enough protest and encouragement to do better, the congress should be able to come to a reasonable conclusion including necessary protections before recessing and before the financial crisis becomes much worse.
_____________________________________________________________________________________
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.