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 . . .
Is the media coddling Banks and Brokers in their coverage? Gawker observes:
In July, when Richard Fuld was blaming rumormongers and short-sellers for troubles as Lehman Brothers, the Times ran a column by finance writer Andrew Ross Sorkin echoing his complaints and calling one of the rumors, that Barclays would acquire Lehman, "absurd." Today, with Barclays buying Lehman’s U.S. operations, the Times is still siding with investment banks over investors, depositors and others who benefit from the free flow of information. Here’s some data the paper won’t be providing about the mess on Wall Street, according to an article it published today:
"…said Lawrence Ingrassia, business editor of The Times. “We aren’t going to say, ‘Here are three or five institutions that might fail next week.’ It’s one thing to say an industrial company is having trouble paying its debts, and another thing to say it about a financial institution.”
The Wall Street Journal is also censoring itself on behalf of large banks. Its spokesman said the newspaper would "stay away from" the words "crash," "panic," "pandemonium" and "apocalypse."
Both interesting and amazing . . .
Hat tip Scott
Press Coddles Banks With Pulled Punches
Gawker, 8:41 AM on Mon Sep 22 2008
Gasparino vs Einhorn, Kohn & Ritholtz
TBP, June 05, 2008 | 01:52 PM
Amid Market Turmoil, Some Journalists Try to Tone Down Emotion
NYT, September 21, 2008
Category: Financial Press
Jeffrey Saut, chief investment strategist at Raymond James & Associates Inc., talks about the performance of equities and the impact of short covering on market activity, the outlook for a recession in 2009, and investment strategy.
click for video
Running time 03:50
00:00 Equity market: "lows are in for the year"
00:59 Outlook for recession in 2009; strategy
02:19 Performance of stock market, short coverings
Jeffrey Saut Sees Rising Odds for U.S. Recession in 2009: Video
Bloomberg, September 22, 2008 08:35 EDT
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
click for ginormous chart Bloomberg: The CHART OF THE DAY shows the jump in short interest this year in the six worst-performing financial shares in the S&P 500 – American International Group Inc., Washington Mutual Inc., National City Corp., Genworth Financial Inc., XL Capital Ltd. and Wachovia Corp. — along with the percentage of…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 . . .