Posts filed under “Bailouts”
Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke are scheduled to testify today before Congress on their massive bailout program.
Here are some questions I would like to hear asked:
1. You two gentlemen have been wrong about the Housing crisis, missed the leverage problem, and understated the derivative issue.
Recall the overuse of the word "Contained." Indeed, you two have been wrong about nearly everything financially related since this
crisis began years ago.
Question: Why should we trust your judgment on the
largest bailout in American history?
2. How are you pricing the purchase of these damaged assets? Is the taxpayer paying 22 cents on the dollar? 5.5 cents? If there is no market price for this junk paper, how are you going to determine a purchase price?
3. Are you now, or have you ever been a short seller? Do you think short selling ban is a smart move? What does this mean to our concept of free trading markets?
4. In the nationalization of AIG, the US taxpayer
received 80% of the company. What is the taxpayer getting for their
money in this $700B bailout?
5. You have said that "The Housing correction is the root cause of
market stability." What about leverage — how significant was that as a
6. Your initial estimates for the cost of this were
$700 billion dollars. Yet you also asked for a blank check, an
unlimited ability to spend more "as needed." What is your worst case
scenario for the total costs of this bailout?
7. The original version of this bailout package
requested no judicial, administrative, or budgetary review of the
spending of this bailout, What was the thought process behind that extraordinary, extra-constitutional request?
8. In 2004, your former firm, Goldman Sachs,
along with 4 other brokers, received a waiver of the net capitalization
rules, allowing these firms to dramatically exceed the 12-to-1 leverage
rules. How much was this waiver responsible for the current situation?
9. Its just cost the taxpayer $50 billion to bail out money market funds, which are clearly non-insured, risk instruments. Why did we do that?
10. The Securities and Exchange Commission has been AWOL during much of the problems we now face. What do you think is the proper role for the SEC in terms of supervising or regulating securities markets? Doesn’t your plan usurp SEC authority and move it to the Treasury?
11. How significant are derivatives and credit default swaps to the current crisis? Why weren’t they regulated the way other insurance products are?
12. The current proposal has the US bailing out foreign banks. Has the USA become the insurer of the worlds financial assets?
13. What other financial firms and funds are likely
to need a bailout in the near future? Are there other banks, brokers,
insures that are at risk?
14. If we make this inordinate grant of unlimited cash, how can we
rein in the budget in the future? How can we as a Congress say no to expensive budget items such as Nationalized
Health Care, or Infrastructure repair programs or fill in the blank on the
grounds they are "too expensive?"
Bonus comedy question: Are you now, or have you ever been, a Socialist? Do you know, or associate, with other Socialists?
If you have any other suggestions for questions, use the comments. I will get them in front of the right people . . .
All of the bad loans made by various banks and mortgage underwriters are now being accepted by the Fed, or are potentially going to be bought by the Treasury Department. Why not us? We can’t we all turn in our crappy paper, stock in Exodus Communications or Pets.Com, and even old lawn furniture to the…Read More
A Modest Proposal: The housing crisis worsened over the summer of 2008, prompting Congress to debate various bailout proposals. But the housing market worsened, raising the default rate on mortgages. The entire inverted pyramid of derivatives built on top of the mortgage market further worsened, adding yet more pressure to the credit crisis. The bankruptcy of Lehman Brothers and the nationalization of AIG were the results.
The response to this financial crisis from the Treasury Secretary Hank Paulson borders on Insanity: An outrageous trillion dollar plus bailout, with the potential for unlimited expenditures at the behest of the Treasury Secretary. It is a terribly expensive plan, one that prevents judicial or administrative or budgetary review. It is fraught with moral hazard, rewarding bad judgment and excessive risk taking. It punishes the prudent and rewards the profligate.It focuses on all the wrong issues.
Worst of all, it is unlikely to work.
Most of the current solutions under discussion amount to throwing obscene amounts of money at the problem, rather than recognizing what the key issues are.
These approaches have several fundamental problems. The goals are less than desirable: 1) they attempt to keep people in homes they cannot afford; 2) The Paulson plan takes bad loans off of the books of poor lenders, and dumps them onto taxpayers; 3) They maintain price supports for homes that remain significantly over-priced.
At the heart of the
$700 billion dollar unlimited finance Paulson bailout is the desire to move weak performing or poorly made loans off of the books of the lenders who made them and onto the taxpayers back (likely via the FHA). To understand the folly of the this housing bailout, one must grasp the magnitude of the prior housing boom, as well as the historical norms that exists in the American housing market.
The current proposal moves bad mortgages from the irresponsible lenders to the innocent. It punishes every taxpayer who was prudent, and every homeowner that behaved in a responsible manner. It eliminates the sanctity of contracts, and allows judges to “cram down” mortgages.
These may be desperate times, but they do not call for ill thought out, desperate measures. Rather than merely criticize the
$700 billion dollar unlimited finance Paulson plan, I would instead like to propose an alternative approach, one that costs much, much less, and is more likely to be effective: The 30/20/10 Proposal.
A MODEST PROPOSAL: A MORE REASONABLE WORKOUT FOR LENDERS AND BORROWERS THAN THE TAXPAYER FUNDED BAILOUT . . .
Bill Moyers sits down with former Nixon White House strategist and political and economic critic Kevin Phillips, whose latest book BAD MONEY: RECKLESS FINANCE, FAILED POLITICS, AND THE GLOBAL CRISIS OF AMERICAN CAPITALISM explores the role that the crumbling financial sector played in the now-fragile American economy.
September 19, 2008
WSJ: NYT: > Sources: Markets Soar, but New Rules Upset Traders VIKAS BAJAJ, ANDREW ROSS SORKIN and MICHAEL J. de la MERCED NYT, September 18, 2008 http://www.nytimes.com/2008/09/20/business/worldbusiness/20markets.html U.S. Bailout Plan Calms Markets, But Struggle Looms Over Details DEBORAH SOLOMON and DAMIAN PALETTA WSJ, SEPTEMBER 20, 2008 http://online.wsj.com/article/SB122186549098258645.html
Paul Krugman, an economics professor at Princeton University, talks about the U.S. government’s move to cleanse banks of troubled assets and halt an exodus of investors from money markets and the outlook for the U.S. financial-services industry and economy
00:00 "Socialization" of U.S. financial system
01:51 Bailout’s justification; "inevitable" rescue
04:13 The outlook for U.S. banks is "not clear."
05:02 "Weakening" economy into next year
Running time 05:57
Krugman Sees `Socialization’ of U.S. Financial System: Video
Bloomberg, September 19, 2008 17:53 EDT