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1. spatny
   Member

   In a few days all the children of America will be saddled with an enormous debt just so a few guys can escape from this mess. Read it and weep.

   Paulson Bailout Plan a Historic Swindle
   by William Greider

   [National affairs correspondent William Greider has been a political journalist for more than thirty-five years. A former Rolling Stone and Washington Post editor, he is the author of the national bestsellers One World, Ready or Not, Secrets of the Temple, Who Will Tell The People, The Soul of Capitalism (Simon & Schuster) and--due out in February from Rodale--Come Home, America.]

   If Wall Street gets away with this, it will represent an historic swindle of the American public--all sugar for the villains, lasting pain and damage for the victims. My advice to Washington politicians: Stop, take a deep breath and examine what you are being told to do by so-called "responsible opinion." If this deal succeeds, I predict it will become a transforming event in American politics--exposing the deep deformities in our democracy and launching a tidal wave of righteous anger and popular rebellion. As I have been saying for several months, this crisis has the potential to bring down one or both political parties, take your choice. . . .

   Let me be clear. The scandal is not that government is acting. The scandal is that government is not acting forcefully enough--using its ultimate emergency powers to take full control of the financial system and impose order on banks, firms and markets. Stop the music, so to speak, instead of allowing individual financiers and traders to take opportunistic moves to save themselves at the expense of the system. The step-by-step rescues that the Federal Reserve and Treasury have executed to date have failed utterly to reverse the flight of investors and banks worldwide from lending or buying in doubtful times. There is no obvious reason to assume this bailout proposal will change their minds, though it will certainly feel good to the financial houses that get to dump their bad paper on the government.

   A serious intervention in which Washington takes charge would, first, require a new central authority to supervise the financial institutions and compel them to support the government's actions to stabilize the system. Government can apply killer leverage to the financial players: accept our objectives and follow our instructions or you are left on your own--cut off from government lending spigots and ineligible for any direct assistance. If they decline to cooperate, the money guys are stuck with their own mess. If they resist the government's orders to keep lending to the real economy of producers and consumers, banks and brokers will be effectively isolated, therefore doomed.

   Only with these conditions, and some others, should the federal government be willing to take ownership--temporarily--of the rotten financial assets that are dragging down funds, banks and brokerages.

   This reminds me of the leverage hold our Village governemnt had on the property where the VC now stands. We had the hammer that could have determined if we got a quality building of appropriate size and design, or not. Once you give away the hammer, the other guys don't need you anymore, and you have to take what they give you. It's the same in tiny Riverside or across the country.

   Posted Sunday Sep 21, 2008 18:40 #

2. spatny
   Member

   Here are what I consider to be better ideas than having the government sign up generations of Americans who had nothing to do with this to paying for the stupidity and greed of others.

   . . . under the current proposal, the government would go out and shop for bad loans. These come in all shapes and sizes, so the government would have to judge what type of loans it wants. They are illiquid, so it's hard to know how to value them. Bad loans are weighing down the financial system precisely because private-sector experts can't determine their worth. The government would have no better handle on the problem.

   In practice this means the government would make subjective choices about which bad loans to buy, and it would pay more than fair value. Billions in taxpayer money would be transferred to the shareholders and creditors of banks, and the banks from which the government bought most loans would be subsidized more than their rivals. . . .

   Raghuram Rajan and Luigi Zingales of the University of Chicago suggest ways to force the banks to raise capital without tapping the taxpayers. First, the government should tell banks to cancel all dividend payments. Banks don't do that on their own because it would signal weakness; if everyone knows the dividend has been canceled because of a government rule, the signaling issue would be removed. Second, the government should tell all healthy banks to issue new equity. Again, banks resist doing this because they don't want to signal weakness and they don't want to dilute existing shareholders. A government order could cut through these obstacles.

   Meanwhile, Charles Calomiris of Columbia University and Douglas Elmendorf of the Brookings Institution have offered versions of another idea. The government should help not by buying banks' bad loans but by buying equity stakes in the banks themselves. . . .

   Posted Sunday Sep 21, 2008 22:04 #

3. spatny
   Member

   FYI -
   http://www.bbc.co.uk/blogs/thereporters/robertpeston/2008/09/bye_bye_bulgebracket.html

   Bye bye bulge-bracket
   Robert Peston
   22 Sep 08, 09:43 AM

   That the last two bulge-bracket firms standing, Goldman Sachs and Morgan Stanley, have become licensed deposit-taking banks is extraordinary.

   It is precisely the opposite of what happened after the Great Crash of 1929.

   Back then, the US government decided that the best way to protect US citizens' savings was to prevent investment banks having access to those retail savings.

   So investment banks which engaged in what was perceived as high-risk securities trading and underwriting were banned from taking insured retail deposits, under the Glass-Steagal Act of 1933.

   That prohibition was removed on 12 November 1999 - and since then there has been a rapid convergence between commercial banking and investment banking.

   The preferred new banking model became the universal bank, typified by Citigroup, with its mixture of retail banking, commercial banking and investment banking.

   The universal model hasn't been an unalloyed success: Citi and UBS, to name just two, have lost colossal sums on their subprime-related investments, imperilling their depositors (though both have survived).

   Even so, in the wake of the credit crunch, the new orthodoxy is that all investment banks must have access to retail deposits.

   Why? Well this is where it becomes a touch surreal.

   First, retail deposits are supposed to be stickier. Or to put it another way, you and I are less likely to panic en masse and withdraw our savings at the first whiff of trouble at our banks.

   Banks are counting on our inertia for their survival. Which is not altogether reassuring.

   Second, the political and economic fallout from any damage to our savings is such that retail banks that take our deposits receive much greater protection from the authorities than banks that don't look after the public's savings.

   In the US context, for example, there's the official insurance provided for deposits. And, more importantly, there's access to the Federal Reserve for day-to-day and emergency funding - which Goldman and Morgan Stanley will be able to access in full, now that they are formal "Federal Bank Holding Companies".

   So the conversion into banks by Goldman and Morgan may perhaps be redolent of the greatest failure of global financial regulation over the past decade or so.

   The original separation of investment banking and retail banking was designed to prevent ordinary savers from being damaged by the collapse of a Goldman Sachs or a Morgan Stanley.

   But Goldman Sachs and Morgan Stanley have been permitted to grow so enormous, and other banks which look after our savings have become so inextricably dependent on them, that even they are now too big to be allowed to fail.

   Just a week ago, the US Treasury took a big risk and allowed Lehman to fail.
   Since then, the repercussions have almost brought the US, the world's biggest economy, to its knees.

   The collapse of Lehman is what - in part - has led to all money-market funds being insured at an incremental cost to the taxpayer of $400bn and to the US Treasury's proposal to spend $700bn on buying distressed mortgage and other assets.

   So the attitude of the Treasury and of the Federal Reserve, the US central bank, is that it would be better to allow Goldman and Morgan to become formal banks - benefiting from the full protection of the US government - than to sustain the illusion that they could be allowed to collapse.

   But Morgan Stanley's claim that its conversion into a federally insured bank will not lead to "limitations on its activities" will doubtless be viewed by some US politicians as contemptible.

   Now that the US taxpayer is in a formal sense underwriting Goldman and Morgan Stanley, their days of buckling the swash on the worldwide high seas of finance are over, possibly for good.

   You can follow all the comments online here:
   http://www.bbc.co.uk/blogs/thereporters/robertpeston/2008/09/bye_bye_bulgebracket.html#commentsanchor

   Posted Monday Sep 22, 2008 14:22 #

4. spatny
   Member

   So you take on another trillion in bad debt, to go along with what are already record deficits, and the dollar has to lose value. And oil is priced in dollars. So what happens? Can't these guys see what they are doing?

   http://www.newssniffer.co.uk/articles/158506/diff/0/1

   Record one-day jump in oil price
   The price is still well below its peak of $147 a barrel

   The price of oil has jumped by more than $16 to $120.92 a barrel, the biggest one-day gain on record.

   Some traders believe that the US government's bail-out plan will help the economy, increasing demand for oil.

   There is also uncertainty in the financial markets about how the plan will work, causing investors to switch to perceived safe havens such as oil.

   There are also concerns about supply as production in the Gulf of Mexico is still affected by Hurricane Ike.

   However, analysts said the US rescue package was key.

   "[It] has changed sentiment in the oil market," said analyst Paul Harris from Bank of Ireland.

   At one point during trading, the price of oil rose by more than $25. The volatility in the price has been exacerbated by the fact that the contract for the supply of oil in October expires on Monday.

   The contract for oil to be delivered in November was not up as sharply. It rose by $6.62 to $109.37 in New York.

   Last week oil traded as low as $91 a barrel. It had fallen from the peak of $147 a barrel it reached in July.

   Can someone explain how increasing the demand for oil is good for us? Grab your pitchforks and head for Washington, with a stop on Wall Street. Kids at Hauser can do better than this.

   Posted Monday Sep 22, 2008 16:47 #

5. spatny
   Member

   And now these incompetent crooks want to tap into investor deposits to boot...
   http://news.bbc.co.uk/1/hi/business/7628578.stm

   US banks make shock status switch
   It has been a testing time for traders around the world

   The last two major investment banks in the US have changed their status to become bank holding companies, allowing them to take deposits from investors.

   The changes should enable Goldman Sachs and Morgan Stanley to raise more funds by opening commercial banks.

   The move - part of a huge restructuring effort on Wall Street - will also give them access to Federal Reserve support.

   The US government has announced a $700bn (£382bn) package to tackle the worst financial crisis for decades.

   CHANGING WALL STREET
   

   May 2008: JP Morgan Chase buys Bear Stearns for $2.2bn, ending its 85 years as an independent firm
   September 2008: Lehman Brothers files for bankruptcy, the largest in US history, ending its 158-year history
   September 2008: Bank of America acquires Merrill Lynch, founded in 1918, in a $50bn deal
   September 2008: Goldman Sachs and Morgan Stanley request to change their status

   Congress is considering the plan, drawn up by Treasury Secretary Henry Paulson, which would set up a fund to buy up much of the bad debt held by financial institutions, which had triggered the credit crisis.

   The BBC's business editor Robert Peston said transforming these investment giants into licensed, deposit-taking banks marked the end of an era for Wall Street.

   "Now that the US taxpayer is in a formal sense underwriting Goldman and Morgan Stanley, their days of buckling the swash on the worldwide high seas of finance are over, possibly for good."

   'Greater safety'
   There had been fears, given the recent turbulence in the financial markets, that Morgan Stanley and Goldman Sachs would not be able to survive as independent players, and both their share prices have come under pressure.

   HAVE YOUR SAY
   They speak about 'economic forces' as if they are natural disasters - they are man made
   James, Southend

   Both banks had filed requests with the Federal Reserve to change their status, and late on Sunday, the Fed announced it had granted the requests.

   The last few weeks have seen dramatic and unexpected changes among banks, with Merrill Lynch being bought by Bank of America and Lehman Brothers filing for bankruptcy protection.

   Earlier this year, Bear Stearns was acquired by JP Morgan Chase.

   Flexibility and stability
   Goldman Sachs said it already had two existing deposit businesses, Goldman Sachs Bank USA and Goldman Sachs Bank Europe, into which it is transferring assets from other parts of the business.

   "With over $150bn in assets, GS Bank USA will be one of the 10 largest banks in the US," the bank said.

   GOLDMAN SACHS
   Founded 1869

   It became a listed company in 1999 having been a private partnership
   Provides investment banking, securities and investment management services
   Recently reported a 70% fall in third-quarter earnings to $845m (£473m)
   "We intend to grow our deposit base through acquisitions and organically," it added.
   Commenting on the change for Morgan Stanley and Goldman Sachs, Chip MacDonald, mergers partner at law firm Jones Day, said: "It creates a perception of greater safety and supervision. It really rationalises the regulatory system".

   "It should be good for both Goldman Sachs and Morgan Stanley."

   Goldman Sachs said it decided to be regulated by the Federal because it "provides its members with full prudential supervision and access to permanent liquidity and funding".

   John Mack, chairman and chief executive officer of Morgan Stanley, said: "This new bank holding structure will ensure that Morgan Stanley is in the strongest possible position - with the stability and flexibility to seize opportunities in the rapidly changing financial marketplace."

   "It also offers the marketplace certainty about the strength of our financial position and our access to funding."

   Solution sought

   Mr Paulson has urged other countries to follow the American example in dealing with the international financial crisis.

   MORGAN STANLEY
   Founded 1935

   Areas include institutional securities, wealth management and asset management

   Merged with Dean Witter, Discover & Co in 1997

   Recently saw third quarter earnings fall 3% to $1.43bn

   Both presidential candidates have been having their say about the financial crisis.
   Republican John McCain said President George W Bush should take the blame for the crisis along with both parties in Congress.

   Mr McCain said he was enraged by the greed of Wall Street speculators and said the rescue plan should be funded by cutting government waste, rather than through taxation.
   Meanwhile Democrat presidential candidate Barack Obama suggested Mr Paulson could be asked to play a role in his administration should he win the presidency.

   But Mr Obama criticised the bail-out proposal, calling for independent supervision of its implementation.

   And some of these guys are saying that if the deal limits their "Golden Parachutes" they may not participate. How stupid do they think we are? The answer - "Plenty stupid."

   My dog is smarter than Paulsen. And much better looking.

   Posted Monday Sep 22, 2008 18:38 #

6. Catherine
   Member

   I think it is safe to think there go any tax cuts or universal health care. Tax increases seem a more likely outcome.

   Posted Tuesday Sep 23, 2008 09:17 #

7. ChrisHajer
   Member

   How do I get this deal? (section 8 of the draft proposed bailout plan)

   Sec. 8. Review.

   Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

   http://www.nytimes.com/2008/09/21/business/21draftcnd.html

   Posted Tuesday Sep 23, 2008 10:42 #

8. spatny
   Member

   A friend sent me this today:

   " Dear Friends, Family and Neighbors,
   >
   The Paulson/ Bernanke plan is a prop-up for the November election and a ludicrous Wall Street give-away which benefits only the firms and people whose unchecked greed created the current financial crisis in the first place. This is a transfer of wealth from the U.S. taxpayer to asset holders, which means the wealthy and foreigners. The transfer will be on a scale far greater than the Bush tax cuts, and all done under the fig leaf of "containing the financial crisis." (Note the rhetorical shift away from "protecting the real economy," which effectively ended with Bear Sterns.) The Troubled Asset Relief Program is not detailed, not bound by law, and would grant unprecedented, non-reviewable power to the Secretary of the Treasury, whoever that may be in the future. It is the financial equivalent of the Patriot Act, and does not even promise that this will be the final bail-out. It offers no accountability, does not help the families struggling to keep their homes, and taxpayers do not get any share of the firms being bailed out or benefit from any eventual profit. Top executives, whose multimillion-dollar salaries and golden parachutes are still protected, suffer no real consequences for their heinous mistakes, and will most likely be double-dipping by serving as consultants in their next incarnation, ironically advising the very industry they helped collapse.
   >
   I signed the petition below to register my opposition to TARP, or the Troubled Asset Relief Program, and called the offices for Congressman Lipinski, Senator Durbin and Senator Obama to voice my adamant opposition to the proposed bail-out. I hope you will join me by signing and forwarding the petition, calling your representatives and presidential candidate of choice to register your opposition to the bail-out, and if you are an Obama supporter, please drive with your headlights on tomorrow. If you are a McCain supporter, please drive with your headlights off after dark."
   >
   > http://pol.moveon.org/wallstreet/?r_by=13979-7208360-fGZaqkx&rc=comment_paste
   >
   > To which I would add:

   Right On! Oppose the Hock Your Children's Future initiative in every way you can! This is BS much akin to the WMDs in Iraq. Note that as soon as this was announced Mitsubishi Bank came in and bought 20% (essentially controlling interest) in one of the remaining dominos. This was not altruism.
   ________________________________

   >
   >

   Posted Tuesday Sep 23, 2008 14:35 #

9. spatny
   Member

   Goldman Sachs Socialism
   by William Greider

   [National affairs correspondent William Greider has been a political journalist for more than thirty-five years. A former Rolling Stone and Washington Post editor, he is the author of the national bestsellers One World, Ready or Not, Secrets of the Temple, Who Will Tell The People, The Soul of Capitalism (Simon & Schuster) and--due out in February from Rodale--Come Home, America.]

   "Wall Street put a gun to the head of the politicians and said, Give us the money--right now--or take the blame for whatever follows. The audacity of Treasury Secretary Henry Paulson's bailout proposal is reflected in what it refuses to say: no explanations of how the bailout will work, no demands on the bankers in exchange for the public's money. The Treasury's opaque, three-page summary of plan includes this chilling statement:

   "Section 8. Review. Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency." In other words, no lawsuits allowed by aggrieved investors or American taxpayers. No complaints later from ignorant pols who didn't know what they voted for. Take it or leave it, suckers.

   Both political parties may submit to this extortion because they don't have a clue what else to do and bending over for Wall Street instruction, their usual posture, seems less risky than taking responsibility. Paulson and Bernanke evoked intimidating pressure for two reasons. The previous efforts to restore investor confidence had all failed as their slapdash interventions worsened the global panic. Besides, the Federal Reserve was running out of money. Nearly three-fifths of the Fed's $800 billion portfolio is now loaded down with junk--the mortgage securities and other rotten assets it took off Wall Street balance sheets. The imperious central bank is fast approaching its own historic disgrace--potentially as discredited as it was after the 1929 crash.

   Despite its size, the gargantuan bailout is still designed for the narrow purpose of relieving the major banks and investment houses of their grief, then hoping this restores regular order to economic life. There are lots of reasons to think it may fail. The big boys are acting, as usual, in self-interested ways since the government allows them to do so. Washington's money might pull firms back from the brink--at least the leaders of the Wall Street Club--but that does not guarantee the banks will resume normal lending, much less capital investing. The financial guys may well hunker down, scavenge the wreckage for cheap profits and wait for the real economy to get well. Likewise, global investors--China, Japan and other major creditors--have been burned and may step back from pumping more capital in the wobbly house of US finance.

   Secrecy and opacity are crucial to achieve Wall Street's purposes. It could allow Paulson to overpay his old pals for near-worthless assets and slyly recapitalize the damaged banks while telling public and politicians the money is to save the system. To achieve this, Wall Street needs to keep control of the process whoever is elected president (the Wall Street Journal recommends John Thain, ex-chief of the New York Stock Exchange to succeed Paulson). Not everyone will be saved, of course, but high on the list of endangered nameplates is Goldman Sachs, Paulson's old firm. The high-flying investment house looks doomed by these events. The Fed quickly agreed to convert Goldman and Morgan Stanley into banks. Think of Paulson's solution as Goldman Sachs socialism.

   The most hopeful comment I heard from an astute economist was by Nouriel Roubini of NYU, who has been darkly prescient during this crisis. The bailout should help, he told the Times. "The recession train has left the station, but it's going to be 18 months, instead of five years," he said. Hope he's right, but voters are unlikely to regard this as fair return on their $700 billion. The bandits will be back in business and partying, while the victims are still gasping for air.

   If Paulson's gamble fails--just as possible--then maybe government will finally undertake forceful intervention rather than friendly solicitude for Wall Street. Washington should literally take control of the banking and finance sector and employ its emergency powers to oversee and direct these private, profit-making enterprises. If any bankers do not wish to play, cut them off from any public assistance (and wish them good luck). Then government can exercise temporary supervisory powers that force banking to cooperate with economic recovery by sustaining lending and investment to the real economy. Washington can put profit on hold.

   Order full stop to the many financial gimmicks and accounting illusions that led to inflated lending and falsified asset valuations. Unwind the complicated time bombs known as credit derivatives and shut down this lucrative line of business. Meanwhile, instead of throwing millions of homeowners and debtors out of their homes and into bankruptcy, hold them harmless temporarily so people can work out reasonable terms for recovery. Finally, force-feed new life into the real economy with government spending on public projects and capital formation. How much spending? Rescuing America from irresponsible Wall Street is worth whatever it costs to save the bloodied bankers."

   MORE at http://www.twf.org/News/Y2008//0919-Swindle.html

   Posted Tuesday Sep 23, 2008 15:59 #

10. spatny
    Member

    Remember, Paulson was head of Goldman Sachs. Obviously these companies are worth something if Mitsubishi is willing to buy 20% equity. Why shpould the treasury buy mortgage-based securities from these thieves if their value is unknown. We (the Treasury) could lend these banks money but they should have to repay with interest and not be able to pay dividends to their stockholders until the loans are repaid. The sky is not falling. Faith in people like Paulson and Bernanke is. This is a monstrous swindle that will not accomplish what is intended.

    Posted Tuesday Sep 23, 2008 19:45 #

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