Wall Street Bailout Act II

Senate leaders are confident they can deliver the votes needed sometime after 7:30 p.m. EDT today (1 Oct 2008) to pass the Wall Street bailout bill. If the retooled legislation clears the Senate with bipartisan support (bipartisan CYA) , the House, under Majority Leader Steny Hoyer, is likely to reconsider this unprecedented give away of our tax money (and Congressional oversight)  on Friday.

Hardly surprising, given the bill includes:

• $100 billion adjustment to the AMT popular with middle-class taxpayers
• increasing FDIC insurance to $250,000 per account 
• $3.8 billion over 5 years for mental health parity
• $3.3 billion over 5 years for rural school aid
• extend renewable energy tax breaks for individuals and businesses
• a deduction for the purchase of solar panels.
• the research and development credit for businesses
• federal deductions for state and local sales taxes

As added inducement to get the bill passed, the usual suspects lined up urging passage of the legislation, insisting swift passage was needed to forestall utter collapse of the global financial system. 

President Bush ..  “It’s very important for members to take this bill very seriously, It’s important to get credit flowing again.”

Senator Obama   “There’s no doubt that there may be other plans out there that, had we had two or three or six months to develop … might serve our purposes better. But we don’t have that kind of time. And we can’t afford to take a risk that the economy of the United States of America and, as a consequence, the worldwide economy could be plunged into a very, very deep hole.”

Fed Chairman Ben Bernanke “The financial markets are in quite fragile condition and I think absent a plan they will get worse. I believe if the credit markets are not functioning, that jobs will be lost, the unemployment rate will rise, more houses will be foreclosed upon, GDP will contract, that the economy will just not be able to recover in a normal healthy way no matter what other policies are taken.”

Senator McCain “if we fail to act, the gears of our economy will grind to a halt…”  Congress has “awakened to the danger” of a full-fledged financial “disaster” if the bill fails.

Senator Clinton  “This is a sink-or-swim moment for our country, and we cannot simply catch our breath.  We must swim for the shores.”

Senate Majority Leader Harry Reid  “The leisure time is gone. We have to do something”

Yes, we have to do something.   The right thing.   Not grind out the usual pork so the House and Senate can recess and go about their real business: getting re-elected. 

To the esteemed members of the House and Senate: do not confuse action with results or effort with ability.  Although Rep. Frank is fond of saying how hard he and his colleagues on the Banking Committee work; it is results not effort that matter.  To quote one of the great leaders of all time, “Do, or do not. There is no ‘try.’ ”

In a previous post, I said I had no idea how to resolve this crisis. Given that our leadership appears to be equally baffled, I think I’ll give a try anyway … might even save us $700,000,000.00.

A Simple(istic?) Solution

1. No handouts; bailouts; “equity stakes” backed by worthless junk. No giveaways. No backdoor deals. No imperial treasury unaccountable to anyone. (Note to Treasury Sec Paulson.  The job “Ruler of The Universe” is filled .. by Someone Infinitely more qualified.)
2. Unwind the CDO’s.  Even if there are hundreds or even thousands of good, semi-good and crappy mortgages bundled together; SOMEONE is receiving a revenue stream from the folks still paying their mortgages.  To borrow a phrase from criminal investigations: Follow the money.
3. Determine the value. Not every mortgage is in default. Not every house is worthless. These mortgages represent real values; not at face perhaps but substantially above zero!  Rack’em and stack’em and find out what this pile of crap is really worth.
4. Dump the junk; sell the good stuff . After weeding out the real crap (and making the investors eat the loss) sell the remaining assets at reasonable prices.  Data available on the Net indicates something around 6% of loans are in trouble; so 94% of folks are paying on time! These are hardly worthless assets.
5. For those banks, lenders etc so unfortunate (or greedy) as to have a lot of semi-crappy loans on their books, have the Treasure sell (yes, sell not give) insurance; with the premium being adjusted for risk. Perhaps as a condition of assistance require banks to reset ARMS to something reasonable. Force cancellation of negative amortization or ballon loans; adjusting the interest rate up if necessary.  It could be argued that as a new partner in these loans, the government is not unilaterally rewriting the terms and conditions (T&C’s) of these mortgages. By having a financial interest in these loans, the government has standing to adjust the T&C’s.
6. Make lending to unqualified borrowers a capital offense (just kidding or maybe not). The Community Reinvestment Act and its Fannie Mae and Freddie Mac enablers lured the completely unqualified into believing they could afford an home.  These mortgages (the basis of the toxic mess we are trying to cleanup) contained provisions that even a loan-shark would find extreme.  That these GSE’s preyed on the very people they were supposed to help and were aided and abetted by the likes of A.C.O.R.N. and other community activists tells me there is a tenth circle being fired up in the hereafter.  That out Congress passed enabling legislation to allow all of this to happen is inexcusable. If noting else, the members of the House and Senate committees having oversight responsibilities should be investigated for possible criminal activity.
7. Temporarily suspend the mark to market rule which some economists believe forced companies to move debt off their books at fire-sale prices thereby creating the self-reinforcing downward spiral in the markets.

Regardless of what the “best and brightest” in Washington DC do, don’t let them tell you there was no other way.  That was the refrain over the weekend of Sep 26-28.  We were told the economic system would implode.  The economy would collapse; children would starve; widows would be thrown out on the street and on and on…

Monday 29 September dawned;

There was no bill;

The market tanked 778 points

THE SUN ROSE ON TUESDAY 30 SEPTEMBER.  THE DOW WAS UP 400+.  CHILDREN LAUGHED. THE WIDOWS SAT AT THEIR WINDOWS WATCHING THE WORLD GO BY.

Life goes on…….

just a thought for these troubled times ….

“Be still and know that I am God.” Ps 46

The unthinkable happened today. 

The House of Representatives allowed a fit of pique to endanger the financial security of the Nation.  The jaw dropping (and gut wrenching) 778 point drop in the Dow Jones index occured in a matter of minutes as a direct result of the 228 – 205 vote against the Emergency Stabilization Bill of 2008 aka “The Bailout Bill”.

Republicans whined partisan politics on the part of Speaker Pelosi was responsible for the collapse of the legislation. 

According to Speaker Pelosi, democrats “delivered on our side of the bargain” by getting 60 percent of House Democrats to support the bill.

The bailout had been touted as a bipartisan solution to the ever widening financial crisis.  The vote totals showed something else: bipartisan CYA. In all, 65 Republicans joined 140 Democrats in voting “yes,” while 133 Republicans and 95 Democrats voted no; apparently deciding their re-election prospects were more important than the health of the financial system.

All weekend, the buzz swirling around these talks with Speaker Pelosi, House Minority Leader John A. Boehner, minority whip Rep. Roy Blunt and House Financial Services Committee Chairman Rep. Barney Frank extolled the wide ranging cooperation and bi-partisan nature of this historic (and extra-constitutional) abrogation of Legislative power to the Executive branch.

But when time came to vote , on the record, for all the world to see, these vermin headed for the shadows trying desperately to avoid any responsibility for the 700 BILLION bailout of an unregulated Wall Street.  Once again, these would be masters of the universe sought the anonymity they so richly deserve. 

So .. approximately one trillion dollars of our retirement accounts, college savings, stock portfolios and related investments went POOF because a few wealthy, spoiled children plunked themselves on the floor of the House and whined Nancy Pelosi hurt their feelings.  Like little kids, they held their breath until their faces turned blue and the market skidded into another Black Monday.

It is time for these elected representatives of the people to put OUR interests first. 

I don’t have the slightest idea how to fix this mess.  To quote Economy Nobel prize winner Joseph Stiglitz “…Some of America’s best and brightest were devoting their talents to getting around standards and regulations designed to ensure the efficiency of the economy and the safety of the banking system. Unfortunately, they were far too successful, and we are all – homeowners, workers, investors, taxpayers – paying the price.”

I don’t pretend to be a match for these Titans of Commerce; the Wizards of Wall Street; these “best and brightest”. 

(I remember the last time the “best and brightest”  ran the country ,visiting devastation on the Nation.)

I do know that anyone currently occupying a legislative, executive or regulatory postion with the US government is NOT a candidate for this undertaking.  Nor, from the examples in Halberstam’s book, are academics a viable choice to lead a team searching for real world solutions to real problems.

That leaves the business community. 

Like Diogenise, America searches for a honest man or woman willing to serve the Nation in a time of peril. 

Not for fame. Not for power. Not for riches. For America.

Now more than ever, we need a leader.