Thursday, October 2, 2008

CRASH TALK THURSDAY

ABC News - The bill gives the Treasury secretary up to $700 billion to buy mortgages and other troubled assets owned by financial institutions under a new Troubled Asset Relief Program or TARP. The Treasury Department will immediately receive $250 billion to begin the program. An additional $100 billion will be provided if the president certifies that the money is necessary. An additional $350 billion will be provided if the president certifies that the money is necessary and if the Congress approves of funding.

The bill also establishes a program to allow the government to insure, instead of buying, some troubled assets held by banks. The bill establishes an oversight board to monitor the Treasury's use of the funds.

The bill allows the Treasury to establish rules limiting executive compensation, bonuses, "golden parachutes" and other incentives at institutions participating in TARP. Participating institutions will also lose certain tax benefits related to compensation.

The Alternative Minimum Tax was originally intended to prevent America's richest residents from using loopholes to avoid all taxes. Because the tax wasn't indexed to inflation, Congress must regularly pass legislation that amends the AMT so it won't snag some middle class Americans. The "AMT Patch" included in this bill will keep the AMT from hitting 20 million Americans.

There will be $8 billion in tax relief for Americans affected by natural disasters in the Midwest and Gulf Coast.

An extension until 2009 of an above-the-line tax deduction for college tuition. The deduction originally expired in December 2007.

An extension until 2009 of a property tax deduction for taxpayers who do not itemize. The deduction is currently due to expire at the end this year.

The bill raises the Federal Deposit Insurance Commission limits from $100,000 per account to $250,000 account until Dec. 31, 2009. Supporters of the measure say it will prove especially comforting to small-business bank customers.

The same insurance increase applies to the National Credit Union Share Insurance Fund, which backs accounts at most of the country's credit unions.

The provision of $3.3 billion in funding for rural schools between 2009 and 2012.

Also (from Salon): Sec. 105. Energy credit for geothermal heat pump systems. . . Sec. 111. Expansion and modification of advanced coal project investment credit. . . Sec. 113. Temporary increase in coal excise tax; funding of Black Lung Disability Trust Fund. . . Sec. 115. Tax credit for carbon dioxide sequestration. . . Sec. 205. Credit for new qualified plug-in electric drive motor vehicles. . . Sec. 405. Increase and extension of Oil Spill Liability Trust Fund tax. . . Sec. 309. Extension of economic development credit for American Samoa. . . Sec. 317. Seven-year cost recovery period for motor sports racing track facility. . .

Sen. Bernie Sanders, Huffington Post - This bill does not effectively address the issue of what the taxpayers of our country will actually own after they invest hundreds of billions of dollars in toxic assets. This bill does not effectively address the issue of oversight because the oversight board members have all been hand picked by the Bush administration. This bill does not effectively deal with the issue of foreclosures and addressing that very serious issue, which is impacting millions of low- and moderate-income Americans in the aggressive, effective way that we should be. This bill does not effectively deal with the issue of executive compensation and golden parachutes. Under this bill, the CEOs and the Wall Street insiders will still, with a little bit of imagination, continue to make out like bandits.

This bill does not deal at all with how we got into this crisis in the first place and the need to undo the deregulatory fervor which created trillions of dollars in complicated and unregulated financial instruments such as credit default swaps and hedge funds. This bill does not address the issue that has taken us to where we are today, the concept of too big to fail. In fact, within the last several weeks we have sat idly by and watched gigantic financial institutions like the Bank of America swallow up other gigantic financial institutions like Countrywide and Merrill Lynch. Well, who is going to bail out the Bank of America if it begins to fail? There is not one word about the issue of too big to fail in this legislation at a time when that problem is in fact becoming even more serious.

This bill does not deal with the absurdity of having the fox guarding the hen house. Maybe I'm the only person in America who thinks so, but I have a hard time understanding why we are giving $700 billion to the Secretary of the Treasury, the former CEO of Goldman Sachs, who along with other financial institutions, actually got us into this problem. Now, maybe I'm the only person in America who thinks that's a little bit weird, but that is what I think.

This bill does not address the major economic crisis we face: growing unemployment, low wages, the need to create decent-paying jobs, rebuilding our infrastructure and moving us to energy efficiency and sustainable energy.

There is one issue that is even more profound and more basic than everything else that I have mentioned, and that is if a bailout is needed, if taxpayer money must be placed at risk, whose money should it be? In other words, who should be paying for this bailout which has been caused by the greed and recklessness of Wall Street operatives who have made billions in recent years?. . .

If we are going to bail out Wall Street, it should be those people who have caused the problem, those people who have benefited from Bush's tax breaks for millionaires and billionaires, those people who have taken advantage of deregulation, those people are the people who should pick up the tab, and not ordinary working people. I introduced an amendment which gave the Senate a very clear choice. We can pay for this bailout of Wall Street by asking people all across this country, small businesses on Main Street, homeowners on Maple Street, elderly couples on Oak Street, college students on Campus Avenue, working families on Sunrise Lane, we can ask them to pay for this bailout. That is one way we can go. Or, we can ask the people who have gained the most from the spasm of greed, the people whose incomes have been soaring under president bush, to pick up the tab.

I proposed to raise the tax rate on any individual earning $500,000 a year or more or any family earning $1 million a year or more by 10 percent. That increase in the tax rate, from 35 percent to 45 percent, would raise more than $300 billion in the next five years, almost half the cost of the bailout. If what all the supporters of this legislation say is correct, that the government will get back some of its money when the market calms down and the government sells some of the assets it has purchased, then $300 billion should be sufficient to make sure that 99.7 percent of taxpayers do not have to pay one nickel for this bailout. . .

Bloomberg -
The Federal Reserve will pump an additional $630 billion into the global financial system, flooding banks with cash to alleviate the worst banking crisis since the Great Depression.
The Fed increased its existing currency swaps with foreign central banks by $330 billion to $620 billion to make more dollars available worldwide. The Term Auction Facility, the Fed’s emergency loan program, will expand by $300 billion to $450 billion. The European Central Bank, the Bank of England and the Bank of Japan are among the participating authorities. The Fed’s expansion of liquidity, the biggest since credit markets seized up last year, came hours before the U.S. House of Representatives rejected a $700 billion bailout for the financial industry. The crisis is reverberating through the global economy, causing stocks to plunge and forcing European governments to rescue four banks over the past two days alone.

BBC - U.S. car sales fell sharply last month, in the latest sign that the continuing problems in the financial sector are starting to hit the general economy. Led by a 37% decline at Nissan, all the main companies saw sales fall in September compared with the same month a year earlier. Sales declined by 34% at Ford, 33% at Chrysler, 32% at Toyota and 24% at Honda during the month. General Motors faired slightly better. Its sales fell 16% after it cut prices. Overall industry-wide car sales declined 26%. Analysts blamed the downturn to the turmoil in the financial sector. "It was tantamount to a natural disaster," said Ford sales analyst George Pipas.

Senator Russ Feingold
- I oppose the Wall Street bailout plan because though well intentioned, and certainly much improved over the administration's original proposal, it remains deeply flawed. It fails to offset the cost of the plan, leaving taxpayers to bear the burden of serious lapses of judgment by private financial institutions, their regulators, and the enablers in Washington who paved the way for this catastrophe by removing the safeguards that had protected consumers and the economy since the great depression. The bailout legislation also fails to reform the flawed regulatory structure that permitted this crisis to arise in the first place. And it doesn't do enough to address the root cause of the credit market collapse, namely the housing crisis. Taxpayers deserve a plan that puts their concerns ahead of those who got us into this mess.

Deal Book
- The fallout from the Lehman Brothers bankruptcy continues to trip up the markets. Dozens of hedge funds and money management firms that depended on Lehman’s prime brokerage unit to clear trades, provides loans and handle administrative chores are starting to collapse, Bloomberg News reports.

The fallout appears to be rooted in Lehman’s London unit, where the firm handled billions of dollars in transaction from hedge fund clients from all over the world. Many funds chose to clear trades through London because of regulatory rules that allowed firms to borrow more money than they could from brokers in New York.

But when Lehman filed for bankruptcy, the party suddenly stopped and all accounts were frozen.

Funds that did not pull their money out in time found that they could not get their collateral back, which meant that they could no longer make bets.

One executive who used Lehman as a prime broker - and who asked not to be named because his firm is private - estimates that hedge funds had between $50 billion and $70 billion in Lehman prime-brokerage accounts, according to Bloomberg.

Large firms use several prime brokers so that they can stay afloat if one fails. Some smaller funds that depended on Lehman as their sole prime broker now find themselves having to close up shop. Oak Group, a small investment firm in Chicago with $25 million in assets, will have to shut its doors, as the majority of the firm’s capital was locked up in Lehman.

London-based MKM Longboat Capital Advisors said last week it would close its $1.5 billion multistrategy fund in part because of assets stuck at Lehman, according to a letter to investors obtained by Bloomberg News.

Part of the reason why Lehman was forced into bankruptcy was because its prime brokerage clients began pulling their capital out of the firm. Lehman lost 50 percent of its prime brokerage assets in the last week of its existence. So the fear that Lehman could go bankrupt contributed to its quick downfall.

Prime brokerage clients are like depositors. If they feel their money is unsafe they will cause a run on the bank. But unlike with bank deposits, there is no government-backed insurance plan to protect their funds if the broker fails. That lack of security encourages firms to withdraw their funds quickly upon the slightest whiff of trouble.

If funds no longer trust their prime brokers, it could mean more trouble ahead.

John Nichols, Nation
- Oregon Congressman Peter DeFazio says, correctly, that the problem with the Democratic speaker's bailout measure. . . is that it "is still built on the Paulson-Bush premise." DeFazio, a Democratic dissenter, says that the bill Pelosi tried to get the House to back demands that taxpayers take on too much of the risk which creating openings for Wall Streeters to pocket millions (perhaps billions) in federal dollars. . . "We can do better," says DeFazio. "We should start again on a new package."

That's exactly what the Oregon populist is doing with a new proposal,Introduced with co-sponsorship from some of the most outspoken critics of the Paulson machinations - including Ohio Democrat Marcy Kaptur, a leader of the anti-bailout movement in Congress - the measure would impose a securities tax equivalent to one quarter of one percent of profits and empower the Federal Deposit Insurance Corporation to deal more effectively with bank failures.

The plan is based on a proposal made last week by former FDIC chair William Isaac, who recalled that in the 1980s Congress enacted a "net worth certificate" program - which allowed the federal agency to shore up the capital of weak banks to give them more time to resolve their problems - and the FDIC resolved a $100 billion insolvency in savings banks for a total cost of less than $2 billion. "It was a big success and could work in the current climate," argued Isaac.

The chair of the FDIC during Ronald Reagan's first term explained that that: If we were to (1) implement a program to ease the fears of depositors and other general creditors of banks; (2) keep tight restrictions on short sellers of financial stocks; (3) suspend fair-value accounting (which has contributed mightily to our problems by marking assets to unrealistic fire-sale prices); and (4) authorize a net worth certificate program, we could settle the financial markets without significant expense to taxpayers. . .

The banks do not need taxpayers to carry their loans. They need proper accounting and regulatory policies that will give them time to work through their problems.

Lawrence Velvel, Dean, Massachusetts School of Law
- Under the bailout, what will happen to the mortgage rates paid by persons who have adjustable rate mortgages? These persons often were sucked into, and even criminally defrauded into, mortgages they would be unable to afford after the adjustable rates rose. Their inability to afford the higher rates was a major cause -- probably the cause -- of the current debacle. But, as near as I can tell from the media, they will still have to pay higher, probably unaffordable rates after the bailout -- that is, if they haven't already been foreclosed upon and lost their homes. If they still have to pay higher and unaffordable rates -- which I guess they will except in the unlikely event of a drop in rates that is both large and permanent -- they will continue to be drastically hurt even while Wall Street is bailed out, ultimately will likely lose their homes, and we would seem on these accounts to be headed for further disaster in the future. . . Won't somebody answer these questions? Shouldn't the media be asking them?

Fire Dog Lake
- I can't think of any way to sugar coat this, I'm afraid. It's a bad bill and it isn't just that Barack Obama voted for it, it's that everything I'm hearing from the Hill says that he's been actively whipping it, not just in the Senate but in the House. Barack didn't hold his nose and vote for this, he made it his bill as much as it is Paulson's.

With this bill go your chances of having, say, universal health care, or massive infrastructure development, or really getting the US of its dependence on foreign oil, or really rebuilding America's school system-or whatever other big, expensive project you thought Obama was promising. . .

And it's Barack Obama who turned to Nancy Pelosi and Reid and said "this bill must pass". It's Obama who is whipping votes and bending arms for this despite the fact that it is massively unpopular. This is Obama's bill.

I assume he's willing to give up the 700 billion for the near dictatorial power over the US economy which is still embedded in the bill, power which he will wield through his Treasury Secretary. Or maybe, encouraged by his economic advisers, almost all of whom were amongst the architects and cheerleaders of the policies which made this crisis occur, he really believes that bailing out the rich with middle class money is how the country has to operate. . .

Americans are being robbed, reverse Robin Hood style. Take money from ordinary folks, hand it directly to the rich. That's Obama's first real act as the presumptive President and as the Democratic party's de-facto leader.

1 Comments:

At October 3, 2008 1:51 PM, Blogger Avatar said...

Wall Street didn't cause this mess. It was the poor management of Freddie and Fannie. People like Mudd, Gorelick, Franklin Raines, and James A. Johnson pirated Freddie Mae. In the 80's Freddie almost went out of business from investments in mortgage backed securities and investments in real estate. nomedals.blogspot.com

 

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