See here, sports fans. At least it isn’t three pages long any more.
I haven’t gotten past noting that it is a “discussion draft”. Hope to have more substantive comments in due order.
The Troubled Assets are initially limited to commercial and residential mortgages and instruments based on them. The Treasury has to go to Bernanke and get his consent and then write a note to Congress. It’s pretty clear the bill is going to be full of fig leaves like that. Perhaps readers can start a fig leaf tally; we’ll hoist it with attribution back into this post.
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On the assumption that there actually is a crisis,
Should a Financial Institution not wish to take part because of the requirement for equity participation by the Government (on behalf of the Taxpayer), then so be it. They are on their own. They can sink or swim.
Should a Financial Institution not wish to take part because of the requirement for restrictions on executive compensation, then so be it. They are on their own. They can sink or swim.
Should a Financial Institution not wish to take part because of the requirement for independent oversight and transparency, then so be it. They are on their own. They can sink or swim.
So if large Banks, Wall Street or otherwise, find the terms less than palatable that leaves more for small regional banks. And if a prolonged recession (depression) occurs the money will be better placed there rather than Wall Street.
I like the idea (ok it may not happen) of “requiring posting of transactions online”. I hope they mean within a short space of time following the transaction. If this is the case the market will have information it can use to discover price.
However, even if there is a crisis, and presuming that these measures stave off that crisis, the USA still needs to way up to the fact that as a Nation and as Individuals the game is over. Too much debt at a National and Individual level.
These measures may or may not stop imminent Armageddon.
But one thing is for sure they do nothing to stop the inevitable deep recession.
The funny money is gone and it’s not coming back any time soon.
Of course if Hank actually needed $700 right now to pay off his gambling debts it won’t work.
The debt collector will give him two days and promise to break his legs after that.
In other words either Hank was telling the truth or he was not.
If this bill does not pass by Friday then Armageddon should have happened.
If Armageddon does not happen the the WORD OF THE US GOVERNMENT was sufficient = Hank lied.
Well I got my wish. They can suspend FASB 157 if they want. I always wanted to know if this was the last straw that tripped the mother of all margin calls.
It also has
1] Banks can have 0% reserves [no reserve requirements – god help us].
2] Mark to Model [Fantasy – isn’t that how we got here]
3] Oversight by Bernanke and Cox [Irony – Proof the universe was created by the devil].
4] Only the top 3 employees of an assisted corporation will have their compensations capped.
I require a drink..
Allowing the SEC to suspend mark-to-market is a victory for the lobbyists protecting incumbent managements. It also solves the problem of raising fresh capital by making it impossible.
Plan B — AIG-style nationalizations by operation of law instead of whim of the Fed — will be coming soon.
satan said:
4] Only the top 3 employees of an assisted corporation will have their compensations capped.
I agree. Not sufficient at all.
What is required is a complete wage freez and NO BONUS.
If someone in onre of the distressed institutions thinks they are a Master of The Universe.
Then they can go find another job.
Also a dividend freez until any Government aid is paid back.
In other words,
as long as Financial Armageddon is averted there is no reason to support the excess remuneration of those who failed, nor is there any requirement to support the share prices of institutions that have failed.
But maybe Financial Armageddon is not happening. Maybe Hank lied.
There’s a better way to deal with level 3 and mark-to-model: all bonuses, dividends, and interest payments on subordinated debt must be made as fractional interests in the company’s level 3 book, until the entire book has been distributed.
Buffett is a really pushing for this? Why? Also, he’s a great investor, but what does he really know about all this such that the bail out is the only real option?
I would very very much appreciate opinion, additional info: Financial Sense site reports that in the AIG rescue legislation is buried a clause that says a brokerage may ‘raid’ or borrow stock etc from individual account to ease liquidty problems without authorization from individual. So, even though stock may be in your name, you may only find an IOU in it’s place and if the company fails, your account is part of their bankrupcy.
Anyone have additional information on this??
Thanks in advance.
Last chance.
Pick up the phone.
Fire up the fax machine.
Let them know they will be out of office if they pass this bill in anything close to this form. Start over!
Do it now … 5:30 p.m. in Washington.
Thanks to Yves and to all who have been commenting here through this crisis.
Once the details of the plan start to become public tomorrow (Monday), we’ll have a better idea of what we’re dealing with from the Fed and Congress. Once everyone sees the likely horrifying details, other and better alternatives may be taken more seriously (i.e., listen to Arnold Kling who, co-edits EconLog, a weblog devoted to economic issues, and is an independent scholar who writes about a wide variety of economic issues. He was an economist on the staff of the Board of Governors of the Federal Reserve System from 1980-1986, and served as a senior economist at Freddie Mac from 1986-1994 — he strongly and convincingly argues that another Great Depression is NOT in the cards, and this leaves room and time to consider better alternatives):
http://www.cato.org/dailypodcast/podcast-archive.php?podcast_id=741
Once the details of the plan start to become public tomorrow (Monday), we’ll have a better idea of what we’re dealing with from the Fed and Congress. Once everyone sees the likely horrifying details, other and better alternatives may be taken more seriously (i.e., listen to Arnold Kling who, co-edits EconLog, a weblog devoted to economic issues, and is an independent scholar who writes about a wide variety of economic issues. He was an economist on the staff of the Board of Governors of the Federal Reserve System from 1980-1986, and served as a senior economist at Freddie Mac from 1986-1994 — he strongly and convincingly argues that another Great Depression is NOT in the cards, and this leaves room and time to consider better alternatives):
http://www.cato.org/dailypodcast/podcast-archive.php?podcast_id=741
From the NYT story:
“Under the [Paulson plan] provision, if the Treasury Department program to purchase and later sell mortgage-backed securities records losses after five years, Congress is directed to develop a program to recover the losses from the participating financial communities.”
Now, where I have heard this before? Oh, right — in the perennial promises of political candidates, from both parties, to “balance the budget in five years.”
So even as the cash deficit metastasizes toweard $600 billion, or maybe a trillion (your guess is as good as mine), we’re gonna tighten that belt and lash ourselves to the austere mast of fiscal rectitude — five years from now.
HA HA HA! And as that debauched cynic Maynard Keynes quipped, “In the long run, we’re all dead.” Like Greenspan, he didn’t have any offspring, and so had no personal stake in the matter. His lifetime was his horizon.
Very long-term, actually, conpared to a KongressKlown, whose planning horizon is two years. Democracy encourages short term kludges to conceal long-term catastrophe. Fiat currency provides “free money” to fund the kludge. Conclusion: we are scroomed.*
* Glossary: “scroomed” = screwed + doomed. [coinage attributed to ‘Rasputin’ of the Prubear forum]
— Juan Falcone
It’s the Paulson plan with some toothless window dressing that utterly lacks credibility. What a surprise!
http://www.bloomberg.com/apps/news?pid=20601087&sid=aNLExAZ..wfw&refer=home
Fed gets power to pay interest on reserves. Here comes the long awaited corridor system.
I think it would be helpful if the document described the purpose of the Plan and the price to be paid for assets.
Is it a bailout of firms or to save the world?
Will it be above, below or at fair market prices.
Weird we can’t even get that now.
As to money markets, I think something could have been worked out to provide liquidity. The Fed is lending against all sorts of assets, could they not find some way to lend against commercial paper instead of some guarantee that still has to be worked out weeks after it was announced?
And, at least they highlight the root cause – the accountants.
First, kill the messenger.
Did any of the big firms which have failed actually have negative book value? (no)
Your shares are held in ‘street name’ at your broker. Your name is not on them. Jim Sinclair has been urging to take shares in certificate form in your name which as time goes on is not always possible which leaves you at the mercy of your broker or you sell and take your cash which is not a bad idea the way things are going.
It’s all up to the Secretary of the Treasury to establish the rules. Same with Warrants. The US bailout path is similar to Argentina’s crisis because it relies on rule by executive degree under emergency powers.
Like Argentina, the use of executive degrees may eventually result in large-scale civil unrest and class divisions. In a nutshell, when people lose faith in democracy because their elected representatives abdicate their traditional constitutional role, nothing good happens.
For example, the great unwashed Americans may expect the USA repudiate all debt to foreigners. Or will Helicopter Ben (or his successor if Obama wins) rely on inflation and a weak dollar.
I’m betting on higher inflation — but not starting until after a severe economic downturn ends in early 2010. High inflation (eg., a15% to 20% annual rate) will partially repudiate Joe Six-Pack’s mortgage debt and will also tend to make his house price return to “par.” Case closed.
Sorry to be so ‘ad hominem.’ But I’m looking at the unflattering photo of Nancy Pelosi in a BBC story about the bailout. And I see:
– The fascist-style serried array of flags behind her.
– Her severe hairstyle.
– The heavily-lidded eyes.
– Her severe, hypermasculine dark-blue suit.
– The weary, war-criminal poker face.
– Her pimpled, sun-damaged cleavage.
And I think, OMG, 20 years ago I actually used to admire this woman. Before she got sucked into the untethered, morally-compromised, inside-the-Beltway universe of unbridled power.
Now she presents a horrific, degraded, syphilitic, ‘Picture of Dorian Gray’ visage to an appalled world. Au revoir, Nancy-pants. You’re all used up.
http://news.bbc.co.uk/2/hi/americas/default.stm
Here’s a bailout-related photo that don’t lie:
http://www.chrismartenson.com/blog/breaking-news-bailout-turns-ugly/5619
How much worse will Main Street look this time next year? One in ten out of work? Three in ten?
Can anyone offer a worst case/best case picture? To a layman lover of economics. Or any links to other blogs that discuss this in a intelligent way and not a conspiracy theory knee jerk way?
In other words, I read a lot of words and hear a lot of numbers but they do not offer any image. Are we talking final scene of grapes of wrath here or what?
Should I start saving thread and hoarding toilet paper?
Music to enjoy TARP by:
http://www.youtube.com/watch?v=zYrVwGxlcFA
Anonymous said…
“How much worse will Main Street look this time next year? One in ten out of work? Three in ten?”
You with a bag of rice and a shot gun
Armageddon,
Great. I already live in the hood, where when I sit outside with my laptop I carry my pistol on my hip. Oops, just heard a gunshot in fact. I guess I better stock up on dried goods and ammo. I’d sell the house and move but I hear the real estate market sucks! BTW: When I bought this house it was a nice lower middle class starter neighborhood. In the last year, crime is increased as empty houses are taken over by squatters who use them to store items they steal at night and sell at the local mini mart in the am to construction workers.
I guess I am getting to see this all first hand. Lucky me. In the last 10 months we’ve been robbed three times already. So far they left the rice. Goes to show they have no idea what is of real value. But then again, they get food stamps, something I am too rich for.
No, I’m not bitter. And if you believe that I have a condo in South Florida I’ll sell you.
Below is the asset pricing language of the draft:
http://financialservices.house.gov/essa/ayo08c04_xml.pdf
“PREVENTING UNJUST ENRICHMENT.—In making purchases under the authority of this Act, the Secretary shall take such steps as may be necessary to prevent unjust enrichment of financial institutions participating in a program established under this section, including by preventing the sale of a troubled asset to the Secretary at a higher price than what the seller paid to purchase the asset. This subsection does not apply to troubled assets acquired in a merger or acquisition, or a purchase of assets from a financial institution in conservatorship or receivership, or that has initiated bankruptcy proceedings under title 11, United States Code.”
Does that mean that prices up to book value are acceptable? And is JP Morgan is free to sell Bear paper at level higher than it paid for them?
Anonymous said…
September 28, 2008 8:29 PM
“I guess I am getting to see this all first hand”
Consider your position.
Are you married with children?
If so can you go to a palce where people won’t rob you every night.
If not, are you in that space because you have a job that pays for the place you now have, and cannot leave that place because it is the locus of your job.
What I mean by this is,
If your are a single man.
Dump your mortgage.
Dump your dream.
Dump your job.
SURVIVE!!!!
Taggart Galt said…
“Does that mean that prices up to book value are acceptable?”
No it dosent.
It is, if I understand it correctly, the posion pill for any taker of the bait.
It they end up with more money that “was justified” whether they did it with or without knowledge of their own enrichment ALL OF THE ENRICHMENT CAN BE TAKEN BACK.
“Unjust enrichment” does not require knowledge of being unjustly enriched.
In short. The State can take any thing it likes back to the State by proving (not difficult in the case of Wall Street) that Wall Street was unjustly enriched.
In short, again, the next Presedency call take back the entire $700 without opposition.
Abbott_Of_Iona said,
“It is, if I understand it correctly,”
No you’re not understanding it correctly, this allows the Treasury to pay value bought at, the problem now is nothing is worth that.
Second part is specifically for Bear Sterns, Lehman debt, Fannie and Freddie and AIG, allowing Treasury to pay more.
The lobbyist are busy. I mean geez look at what they just did with Morgan and Goldman, allowed them to become banks, so they can use the deposits, its just all ludicrous.
Armageddon,
Really? I feel my stomach dropping out of my body right now. Do you really think it is going to get that bad?
And Yes, I am married with children and my husband is in a highly competitive and poorly paid field. (College professor, full time) that would make it hard to get a job elsewhere.
We would have to walk away from all we have (our house) and move in with our parents because rent is too high in any better area and our credit would be ruined by walking away from our house.
Something I am willing to do to survive but still a rough choice.
Really though. It’s going to get that bad?
What appears to be a later version at http://www.house.gov/apps/list/press/financialsvcs_dem/press092808.shtml
One detail that few seem to be noting, Section 113, subsection (d)(2)(E), which speaks to the strike price that the govt will pay for the stock warrants.
(E) EXERCISE PRICE.—The exercise price
for any warrant issued pursuant to this sub
section shall be set by the Secretary, in the in
terest of the taxpayers.
Remember, this equity provision was supposed to be one of the crucial differences between Paulson’s original proposal and what the Democrats’ improvements. Now if the strike price were zero or just over zero, then in those cases where the participating financial firm stays solvent, any overpayment for toxic securities would be recovered by the taxpayers. But if the strike price is close to the current trading price of the stock, then this whole “MINIMIZATION OF LONG-TERM COSTS AND MAXIMIZATION OF BENEFITS FOR TAXPAYERS” section 113 is window dressing.
Now we have a 110 pg bill instead of three page bill, but we are still left with having to trust Henry Paulson not overpaying.
“…in the interest of the taxpayers.”
I think it is important to remember that Hank and Ben believe that a gift (helicopter drop) to the banks is in the interest of the taxpayers. So this clause is not in conflict with striking a poor bargain on the price of the warrants.