The U.S. Government Lie: $700 Billion Bailout

When the U.S. government begins renaming terrible things like killing civilians with misplaced bombs “collateral damage,” we should all know we’re in trouble. When the media doesn’t challenge this government gobbledy-gook but rather adopts it, we’re in bigger trouble. The de-sensitizing has begun. Read more

Text: President Bush Speech on the Economy, October 10

10:25 A.M. EDT (Source: White House Press Office)

THE PRESIDENT: Good morning. Over the past few days, we have witnessed a startling drop in the stock market — much of it driven by uncertainty and fear. This has been a deeply unsettling period for the American people. Many of our citizens have serious concerns about their retirement accounts, their investments, and their economic well-being.

Here’s what the American people need to know: that the United States government is acting; we will continue to act to resolve this crisis and restore stability to our markets. We are a prosperous nation with immense resources and a wide range of tools at our disposal. We’re using these tools aggressively. Read more

Greenspan: Why History is not Written Contemporaneously

Today the New York Times has what I would call the definitive mainstream media piece (so-far) regarding just what 19 years of Alan Greenspan meant as head of the Federal Reserve. You can read it here.

One cannot place the blame for today’s out-of-control financial system on person or one institution. Greenspan’s still unyielding scorn for government regulation of the financial sector and markets does invite debate. There is a conversation and ensuing action that needs to take place over such issues as transparency and governance – and what role the federal government will take. Today’s mess also invites another look at the rules which were loosened under Presidents Bill Clinton and George W. Bush affecting what businesses should be engaged in lending, securities, and insurance. Under the old system where banks lent, insurers insured and brokers made markets I don’t think we would be dealing with problems which may cost the “little people,” taxpayers, trillions.

Another point worth debating is human nature. Just last week, at a speech at Georgetown University, Greenspan concluded:

Wealth creation requires people to take risks, and thus we cannot be sure our actions to enhance our material wellbeing will succeed. But the greater our ability to trust in the people with whom we trade, that is, the more enhanced their reputation, the greater the accumulation of wealth. In a market system based on trust, reputation has a significant economic value. I am therefore distressed at how far we have let concerns for reputation slip in recent years.

Reputation and the trust it fosters have always appeared to me to be the core attributes required of competitive markets. Laws at best can prescribe only a small fraction of the day-by-day activities in the marketplace. When trust is lost, a nation’s ability to transact business is palpably undermined. In the marketplace, uncertainties created by not always truthful counterparties raise credit risk and thereby increase real interest rates and weaker economies.

During the past year, lack of trust in the validity of accounting records of banks and other financial institutions in the context of inadequate capital led to a massive hesitancy in lending to them. The result has been a freezing up of credit.

As I noted in my opening remarks, trust will eventually reemerge as investors dip hesitantly back into the marketplace. From that point, history tells us, financial and economic revival sets in. I suspect it will be sooner rather than later. In either event, human nature being what it is, revival will come. It always has in this society governed by that remarkable document we call the Constitution of the United States.

What I would say to Greenspan is that humanity is broken by nature. Take a look at history and the things people still do to one another on a daily basis all over the world. The bad actors are a minority, but common sense regulation protects the rest of us from the minority of bad actors who are apparently able to take a whole loosely or unregulated system down. When Greenspan speaks of trust as foundational to the marketplace, I can’t help but think: “Trust but verify.” If there is weak regulation, and there are billions or trillions of dollars at stake who other than the government can guarantee the “validity of accounting records of banks and other financial institutions …?”

Americans should hope that the next president is willing to take back the control Wall Street has had over federal financial and economic policy since at least the Clinton Administration. It might even be nice to have a Treasury Secretary who is not an alum of Goldman Sachs.

Everyone hailed Greenspan as “The Oracle” when his low interest rates inflated the value of the housing market and helped create the boom of the nineties and early 2000s. Now those same interest rates and his relentless fight against regulation are being derided. At some point, years from now, we’ll know the true legacy of Alan Greenspan’s Federal Reserve.

Click Here for Text of Greenspan’s Speech at Georgetown

Dow 8,000?

Financial, Markets, Economy News Roundup

Do you call a day like today bad or just reality?

• Chaotic day with Dow down 3.8% - New York Times
• Dow below 10,000 for first time since 2004 - Bloomberg
• B of A cuts dividend, offers stock – Bloomberg
• Paulson looking for ways to unlock credit – Bloomberg

I think we just gave him 700 billion ways.

• Lehman managers portrayed as irresponsible – New York Times
• Fuld blames Lehman’s collapse on ‘rumors’ – Bloomberg

Fuld is obviously a hopeless jackass.

• Bond risk rises – Bloomberg
• Oil prices fall below $90 per bbl – New York Times
• Bailout’s limit on pay will be tough to realize – Wall Street Journal
• Jim Cramer: Time to get out of market – NBC
• Germany takes hot seat as Eurpope falls into the abyss – The Telegraph

  We face extreme danger. Unless there is immediate intervention on every front by all the major powers acting in concert, we risk a disintegration of global finance within days. Nobody will be spared, unless they own gold bars. — Ambrose Evans-Pritchard

The $50 Trillion Swindle the Investment Class Doesn’t Have Us on the Hook For - Yet

Credit Default Swaps and the Potential Cost of a Las Vegas Financial System

If you’ve been paying any attention to my posts and choice of content over the last two weeks, you know I’m not for the current $700 billion federal bailout of Wall Street which is underway thanks to the jackasses in Washington – and I’m talking all of them regardless of party.

Granted, I’m not a financial expert. But, I have tried to educate myself, and this bailout just seems to be rewarding bad behavior with worse public policy. One book I’m about done with is Kevin Phillips’ Bad Money. This book is currently ranked 63 on Amazon and I highly recommend it. At any rate, just when I was getting resigned to the fact the bailout is now a fact of life, and there’s nothing I can do about it, I got a little more education this weekend.

On Sunday morning, I heard the latest edition of This American Life. Part of the show dealt with the impending doom that is ‘credit default swaps.’ You should give this show a listen online. Ira Glass’s gang simply defines and exposes the scope of the risk out there with these ’swaps.’ Later in the day came this report by 60 Minutes. This is another great piece of journalism exposing the problem with these financial vehicles. So, what are they – and why should we care?

Let’s say I’m a hedge fund and I have $1 billion wrapped up in a collateralized debt obligation (CDO) – aka a bunch of mortgages bundled together, many of which are shit. Lehman Brothers or CitiGroup comes to me and says, “We will insure you against loss for 2% of what you paid for the CDO.” I’m a little worried about the underlying assets in the CDO, so I say, sure, and fork over $20 million. CitiGroup has now made $20 million for nothing. When banks, investment banks, and hedge funds were doing these deals, they were merely placing a bet that the CDOs they were “insuring” wouldn’t tank.

We know what’s been happening. There’s more junk in the CDOs than anyone realized or cared to admit. I believe part of the reason Lehman failed is that the folks they sold credit default swaps to began to come calling for their insurance payout. But wait, I’m talking about insurance, right? Why are they called ’swaps?’ Simply put, if they called it insurance, it would be regulated, ie. the Lehmans of the world would have to show capital, or a risk reserve fund, backing up their deals. That’s cash. They call them swaps so the whole transaction remains the unregulated, gambling pile of poo that it is.

So far, taxpayers, we’re on the hook for $700 billion. If you watch the 60 Minutes segment, you’ll find out that the estimated value of all the credit default swaps out there in the world’s markets is around $50 trillion. That’s a “T” and an “R” at the beginning of that “illion.” How many more of the “insured” are going to demand payment from the underwriters of these swaps? How many more banks, insurance companies, or investment houses are going under? Who is going to pay for that?

Bailout Bill Done Deal - News Roundup

Bush Signs Rescue Bill After House Passes - New York Times

How Your Member Voted - New York Times

House Approves $700 Billion Bailout - Washington Post

How Bailout Politics Changed - Washington Post

Bailout Pork - MSNBC

Bailout Bill’s Value to Economy in Long Term Worth the Expense?

Apparently, the first Wall Street Bailout wasn’t big enough for the House Republicans and Democrats who voted against it on Monday. Congressional leaders from both parties are now saying heading into Friday’s planned vote that they’ll have the support they need to saddle the federal government with $700 billion in junk investments and billions more in tax breaks. What doesn’t appear to be in the bill, as passed by the Senate, is even the beginning of rulemaking or regulation to see that the investment class in New York and Washington doesn’t do this to the rest of us ever again.

It still seems ironic that all of the “free market” politicians in Congress are lining up behind what appears to be a huge social program for yachtsmen and polo players. The question tonight is will the action in Congress do anything at all constructive for an American economy that seems to be leading the world only due to the sheer size of an inefficient health care system and more imagination than value in our investment markets.

Full Text: Senate Bailout Bill – All larded up to 451 pages!

Treasury Secretary Henry Paulson’s original plan was three pages. The House rejected bill had turned into 102 pages. Tonight, the Senate is poised to pass a bill that is 451 pages long. Wonder how much pork the sanctimonious McCain is voting for tonight?

Click Here for Full Text of Senate Bailout Bill

Transcript: President Bush Statement on Bailout Failure

(Source: White House Press Office)

7:34 A.M. EDT

THE PRESIDENT: Good morning. Yesterday, leaders here in Washington reached an extraordinary agreement to deal with an extraordinary problem in our economy. Working closely with my administration, congressional leaders from both parties produced the Emergency Economic Stabilization Act — a bold bill that will help keep the crisis in our financial system from spreading throughout our economy. Read more

John McCain and the Bailout

The truth is, neither Sen. John McCain nor Sen. Barack Obama had any natural affinity to add value to the work of fashioning the bill for the proposed $700 billion bailout of Wall Street. What each did have was the opportunity, as titular heads of their parties, to take the temperature down, reassure and convince holdouts, and stay out of the way.

What wasn’t needed at such a serious time in our nation’s financial history was for either one of them to turn Washington into one more campaign stop. That’s what McCain did.

Today, after the House defeated the bailout bill, McCain released a statement, which said, in part:

I returned to Washington last week to work on a bipartisan rescue plan. It was the only plan at that time on the table but lacked enough support to pass. It also lacked sufficient accountability and transparency to justify expenditure of the taxpayers’ money.

What a pompous ass. Guess what, John? Apparently the plan “lacked enough support to pass” after you left Washington as well. Since well over 100 Republicans voted against the bill, either McCain didn’t work hard enough or he still has a problem with conservatives. Read more

Bailout Downed: Monday Night – Tuesday A.M. Coverage

Will We Get a Better Bill?

• Bush & Party Leaders Defied – New York Times
• How voter fury stopped bailout – Wall Street Journal
• Bailout rejected, markets plunge, scramble for answers – Wall Street Journal
• Asian markets nosedive – Times of London
• House leaders vow compromise – Washington Post

• Analysis: House rejection of bailout wounds McCain – Associated Press
• Leaders’ cajoling couldn’t move bailout – Congressional Quarterly
• Selling takes heavy toll on Wall Street – Los Angeles Times
• Stephanopolous: What’s Next? Four Options – ABC News

Monday Morning Bailout Blues

World Markets

• World Markets fall as U.S. seen taking time – Associated Press
• Stocks in Europe, Asia slump – Bloomberg
• European central banks cut sales of gold – Financial Times
• Britain nationalizes Bradford & Bingley – Reuters

U.S. Bailout News

• Lawmakers face difficult vote on Bailout – Washington Post
• Bailout plan in hand, House braces for tough vote – New York Times
• Boehner’s standing with conservatives tested – Congressional Quarterly
• Obama, McCain express cautious support for plan – Washington Post
• On bailout, candidates were surely themselves – New York Times
• Bailout effects to be felt in weeks – Associated Press
• Op-Ed, Paul Krugman: The 3 a.m. call – New York Times
• Lots of money and uncertainty – Washington Post
• Op-Ed, Michael Barone: Do markets work or don’t they? – Washington Times
• Analysis: Dr. Paulson’s tough medicine – Washington Post
• Analysis: First step on a long road – New York Times
• Op-Ed, Lawrence Summers: A bailout is just a start – Washington Post
• Op-Ed, Robert Samuelson: Bankrupt economics – Washington Post
• Op, Ed, Joel Berg: No rescue for the hungry – Washington Post
• Treasury would emerge with vast new powers – New York Times
• Foreclosed properties a suburban headache – Chicago Tribune
• Op-Ed, Clarence Page: How to avoid next bailout – Chicago Tribune

Video: Henry Paulson on ‘60 Minutes’ September 28

Watch CBS Videos Online

Bailout Bill Draft - Read it and Weep

Click Here for a PDF of the Draft Bill (110 Pages)

Transcript: McCain on ABC’s ‘This Week’ with Stephanopolous

(Source: Congressional Quarterly)

Sept. 28, 2008

SPEAKERS: GEORGE STEPHANOPOULOS, HOST; SEN. JOHN MCCAIN, R-ARIZ.

STEPHANOPOULOS: And we are joined this morning by Senator John McCain .

Welcome back to “This Week.”

MCCAIN: Thank you, George.

STEPHANOPOULOS: So Speaker Pelosi hopes to post the details of this deal on the Internet around noon today. Is this something you can be for? Read more

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