Saturday, September 27, 2008

Kudlow: 'Me Sucky-Sucky Wall St. Real Good, Long Time!'

I can't even... This is just... Oh, gag me.  Read this and make up your own already-made-up mind.  (Raaaalph!)

A Paulson-Cantor Plan Is a Win-Win

By Lawrence Kudlow
September 27, 2008 |  National Review

The single-biggest mistake in the Paulson bank-rescue-plan marketing effort has been the failure to explain clearly how taxpayers are going to recoup $700 billion used to buy toxic assets at auction in order to unfreeze the banking system. In other words, folks don't understand how taxpayers will be paid back, and may actually make profits, which will enable the new government debt to be erased after the Treasury bank-rescue is completed.

Here's the key point: Any loan package bought by the Treasury will be 100 percent taxpayer owned. Period.

[Yeah, and any losses on that bad paper will be 100% taxpayer-owned!  We don't know how much those bad loans are worth, Kudlow!  You can't say how much the market is willing to pay for that bad debt when the investment banks haven't been willing to sell it on the free market.  Be honest, for crapsakes! -- J]

Let's walk through this hypothetical for a moment. Through a market-driven auction, the Treasury will purchase some dollar amount — say $100 billion — of loans that banks will sell. The Treasury will then buy those loans at the prices that fill the auction, starting with the lowest prices and working up. Now, the Treasury will hold those bonds either to maturity or for a sale in the open market if rising prices in the market make that sale attractive. In other words, suppose the Treasury buys a bond package at 20 cents on the dollar. They hold it for a while, and if market conditions improve, they sell it for 50 cents on the dollar to some buyer (e.g., an investment fund, a private-equity fund, a hedgie). The Treasury will make the sale at the higher price in order to gain a profit for taxpayers.
In the meantime, as the Treasury holds the loans, the government will get monthly cash-flows coming in on the mortgages, or on any other loans that it owns. So it is win-win for taxpayers. First, taxpayers get the cash flow generated by the assets. (Something like a 10 percent interest rate.) Second, if the loan is sold for profit, the taxpayers will own that profit. And the new law must of course stipulate that all the cash flows and/or profits go for debt-reduction to protect taxpayers.

[If the profits from these bad loans are such a surefire cinch, why do we need to buy them off Wall Street in the first place?  It doesn't make any sense! -- J]
I don't think a lot of folks understand this win-win scenario. Let me repeat: The taxpayers own the bonds the Treasury buys; the taxpayers own the cash flows generated by the bonds; the taxpayers own the profits when the bonds are sold; and the taxpayers benefit when the profits and cash flows are used to pay-down government debt.

[Yeah, you folks are too stupid to understand this.  Bad paper owned by Wall Street = imminent crisis.  Bad paper owned by the US Government = guaranteed profits. Get it?  No?  Oh, well, you're just financial ignoramuses.  Just trust the titans of finance to tell you how to spend $700 billion of your money.  -- J]
Actually, for taxpayers, it's a win-win-win-win.
Think about this. The troubled assets purchased by the Treasury right now are likely to be very under-priced because of the chaotic and frozen market conditions. But over time, through monthly cash-flow payments or through loan sales, taxpayers will get all their money back and in great likelihood a handsome profit.

[I repeat myself.  If they're underpriced, then what's the f-ing problem?  Let the investment banks hold onto this debt and sell it for what it's worth, instead of the U.S. taxpayer taking it off their greedy hands.  -- J]
I have been in conversation with leading House Republicans all day. And they understand these key points. Unfortunately, this understanding did not materialize in their original meeting with Mr. Paulson a few days ago. But now the actual reality is sinking in.
Another point: Republican leader Eric Cantor has an excellent idea for a federal bond insurance guarantee for straight mortgage-backed paper, financed by private-sector insurance premiums. That will improve investor confidence in mortgage bonds and will make those bonds highly marketable. Importantly, senior Treasury officials have told me that Mr. Paulson will accept the insurance idea as an option in the final bill, alongside the ability of the Treasury to purchase distressed assets.

[Oh, thank God Mr. Paulson will accept that idea.  I mean, he's like, the boss, right?  Seriously though, who the f*&# is Henry Paulson?  He's an appointed bureaucrat.  And his track record aint all that great.  Who the f&%# cares what Paulson will or won't accept?  What will Bush accept?  What will Congress accept?  That's what matters.  Paulson is a loser.  -- J]
Sources also tell me that other conditions will be necessary to bring the House GOP along. First, the ACORN slush fund must be removed. Second, the so-called union proxy to run a slate of corporate directors is a big problem. Third, all profits from the Treasury rescue mission must be used to reduce the national debt — 100 percent. Fourth, Republican members are opposed to bankruptcy judges setting mortgage terms and interest rates (Sen. Obama also is opposed). Fifth, the so-called government equity ownership of banks is distasteful because it effectively creates a corporate tax increase on banks at a time when they are struggling. And last, the Treasury secretary's request for $700 billion is regarded as way too high.
Essentially, House Republican leaders want a slimmer, cleaner Paulson plan supplemented by Mr. Cantor's mortgage-bond insurance program. I think it's a good package that would be great news for stock and bond markets that are now ailing badly. It would set the stage for a gradual return to normalcy on the part of bank lenders, including loans to small businesses, consumers, and homeowners. It would be a pro-growth package at a time when the economy desperately needs a prosperity tonic.

Thursday, September 25, 2008

Big Bailout Quote of the Day

My esteem for Treasury and the Fed continues to soar, after reading this Big Bailout Quote of the Day:

"It's [$700 billion] not based on any particular data point," a Treasury spokeswoman told Tuesday. "We just wanted to choose a really large number."

Thinking Outside Paulson's Box

Very interesting proposals, especially the last one!  I don't mind letting Goldman Sachs and Morgan Stanley stew a few more weeks, do you?  Let's talk it over, let's have Congressional hearings, let's do this right if we're going to do it at all.

Thinking Outside Paulson's Box

By Robert Kuttner

September 24, 2008 |



I have two concerns about Treasury Secretary Henry Paulson's plan, one substantive and the other political. The first is that it might not work -- and we will have used up $700 billion of public money and be that much worse off. The second is that it won't work, but Democrats will have gotten enough of their demands met that the Republicans will spin the failure as the Democrats' fault.


So here is my suggestion: Congress should not be herded into acting until lawmakers think harder about the entire approach and its alternatives. Paulson wanted this done in three days. Better to take three weeks. The need for urgent action was based on two assumptions that are not necessarily true.


The first was that Congress had to act -- now! -- or the whole system would collapse. But the assertion that the entire financial system is "frozen" is a gross overstatement. The parts of the system that are clogged up with bad mortgage paper are indeed on life support. But the rest of the system is functioning. Businesses are getting loans. Citizens are cashing checks. Homebuyers are taking out mortgages. Investors are buying and selling stocks.  If another big bank goes down in the next three weeks, Paulson and Bernanke will just do another ad hoc rescue, as they have done for a year.  Better to do this general overhaul right than to do it in great haste.


The second assumption is that Congress is about to adjourn for the election -- it's now or never. But it turns out that the senior members of the key house and senate committees of both parties all have safe seats.


So here is the Kuttner plan, as a wiser alternative to the Paulson plan:


Congress appoints a small bipartisan legislative committee, made up of the senior members of the House Financial Services Committee and Senate Banking Committee and a few other respected and expert legislators. The rest of Congress adjourns and goes home to campaign. The special committee interviews experts, holds hearings, and reports back with draft legislation on Tuesday, October 14, the day after Columbus Day. Congress comes back into emergency session and acts by the end of the week.


Paulson's tactic of demanding instant action because impending catastrophe recalls how the same Bush Administration rushed through the USA PATRIOT Act. But there are two key differences. After 9/11, American citizens were terrified and willing to give the Bush administration whatever it wanted. And Congress totally caved. This time, citizens are frightened -- but not gulled. Congress is hearing from constituents that the Paulson plan is an outrage. The easy vote is to oppose it.


So let's stipulate that Democrats get the other major provisions that the public interest requires. These include:


    * Limits on executive compensation

    * A companion economic stimulus package

    * More help for distressed homeowners

    * An option for government to get some stock in companies it helps

    * An oversight panel to approve Paulson's proposed deals.


But what about the core of the Paulson plan itself? Here, Congress needs to think outside the box. Paulson's basic idea is to have government buy up $700 billion worth of dubious mortgaged-backed securities, hold them for a time until normal markets resume functioning -- is both necessary and sufficient. The plan has three larger purposes: recapitalize banks; get bad paper out of the system; and restore confidence generally so that the downward spiral ceases and the frozen credit markets unlock.


However, Paulson's approach is not the only way of fixing what's broken. At the heart of the problem is that the exotic mortgages that were the underlying basis for additional layers of derivative securities are, to use the technical term, crap. These securities include bonds backed by the mortgages, insurance contracts guaranteeing the bonds against default, etc. They are valued at many times the mortgages themselves, thanks to the miracle of leverage. As the whole show "unwinds," financial institutions and their investors are out many trillions.


So one alternative to the Paulson plan is to stop the foreclosures, allow at-risk homeowners to refinance at below-market rates, and pay off the existing bondholders at so many cents on the dollar.  For a lot less than $700 billion, we could refinance every mortgage in America that is at risk of foreclosure. Along the way, we could keep people in their homes and shore up the collapse in housing prices. Paulson's plan does neither.  Markets would begin loosening up, as in Paulson's plan, but the route would be bottom-up rather than top-down.  Homeowners would be the primary beneficiaries rather than the incidental ones. With Paulson's approach, the wave of foreclosures continues, reducing the likelihood that the government gets its money back.


But don't take my word for it. Spent three weeks taking testimony from dozens of experts and compare the two scenarios. Hold comprehensive hearings before you legislate. Imagine that.


A second alternative is the form that the recapitalizing takes. Instead of just taking bad paper out of the system, government could assume some of the perquisites that go with investment -- namely ownership. The best expert witness here is Sheila Bair, who heads the FDIC. Paulson has given every large and unregulated financial institution in America an implicit government guarantee. The FDIC, by contrast, gives explicit guarantees, but these guarantees are conditioned on regular examinations of their investment policies, their management, and the quality of their assets.  When an FDIC-insured bank fails because of dumb policies, the government doesn't just buy its bad paper and give management another chance; the FDIC often takes it over and cleans it up.


As I have previously noted, the alternative to just pumping in money is to purge some bad actors as well as bad assets. No, the government can't take over every financial institution, but it would be salutary if it took over a few, at least as a powerful minority shareholder.


Re-regulating the whole financial system will take a little longer -- it will be the job of the next administration. But Congress can at least make sure it does this interim recapitalization as well as possible.


And here is one final suggestion, which can be described as constructive mischief. The committee should invite testimony, with plenty of unscripted questions and answers, from Barack Obama, John McCain, Joe Biden, and Sarah Palin. And the unscripted responses of Sarah ("One-Heartbeat-Away") Palin should be aired live, in prime time.

Conservatives believe Fannie caused financial crisis?

Conservatives Don't Really Believe Fannie 'Caused' Economic Crisis
By Dean Baker
September 23, 2008 |

MarketPlace Radio Misleads the Public on the Crisis

Stephen Henn told listeners that free market conservatives "believe" that the financial crisis is attributable to the close government relationship with Fannie Mae and Freddie Mac. Actually, it is extremely unlikely that free market conservatives actually "believe" this assertion because it is so obviously not true.

Fannie and Freddie got into subprime junk and helped fuel the housing bubble, but they were trailing the irrational exuberance of the private sector. They lost market share in the years 2002-2007, as the volume of private issue mortgage backed securities exploded.

In short, while Fannie and Freddie were completely irresponsible in their lending practices, the claim that they were responsible for the financial disaster is absurd on its face -- kind of like the claim that the earth is flat. Free market conservatives know that the claim that Fannie and Freddie were responsible is ridiculous. They just say it because they know that news outlets like Market Place will treat it as a serious proposition and thereby muddy the waters in the mind of the public.

It is bad enough that Market Place repeats such an outlandish claim without giving its listeners any background information. It should not pass along the additional misinformation that conservatives actually believe such nonsense.

Truth behind Census's 46 million uninsured?

Allow me to debunk the debunker.  First, either Sally's not giving us all her numbers, or she can't add.  When the Census's survey was taken, (more or less a snapshot in time), 45.7 million Americans did not have health insurance.  Sally says that "many" of them "may have" been between jobs and lost their insurance.  But how many?  She doesn't say.  

Further, she estimates the number of those who could afford health insurance but don't buy it (17.5 million), those who are eligible for Medicare, Medicaid, or SCHIP but don't apply for it (14 million), and uninsured immigrants (10 million), which adds up to 41.5 million people.  That leaves 4.2 million people unaccounted for.  Then she claims that "roughly" 8 million Americans are "chronically uninsured."  Where does this figure come from?  Is there significant overlap, such as uninsured immigrants who can afford health insurance?  She doesn't specify.  So, Sally better be honest about her own estimates before she criticizes others'.

Even if it is true that "many" of the uninsured in any given year are people between jobs, it's extraordinarily cavalier of Sally to gloss over their anxiety and lack of access to affordable health care for themselves and their families, even if it's only for a few months.  Illnesses and health emergencies, unfortunately, don't wait until the most convenient moment to appear.  

Moreover, the lack of portability of health insurance, and the huge cost of COBRA insurance, scare U.S. workers from leaving dead-end jobs in the first place.  This limits their potential productivity.  According to Adam Smith, labor should flow freely to where it is most useful and highly rewarded.  Lack of health insurance impedes the free movement of labor.  And health care costs employers an arm and a leg, too: $2,000 of the price of every American-made GM car goes toward its health insurance costs.  For both employers and employees, the American "system" hurts our economic competitiveness

Then there's the cost issue, which she totally ignores.  America spends 15 cents out of every dollar on health care, or $2 trillion a year.  That's twice as much on a per capita* basis as in Europe, and 83 percent more per capita than in Canada, which have "socialized" medicine.  (*The cost per capita includes Americans who are uninsured, i.e. those whose health insurance costs are zero, meaning the actual cost of health insurance per payer in America is even higher!)  And our costs keep increasing: health insurance premiums have risen 87 percent since 2000.

So, Obama is correct to note that lack of access is a result of high cost.  If we can bring down the cost, then we can ensure full access to everybody who wants health insurance.  The current system of mainly employer-funded health insurance is not working -- neither for those who do, or don't, have health insurance.

By Sally C. Pipes
September 21, 2008  |  DC Examiner  

Officials at the U.S. Census Bureau recently released new health insurance figures purporting to show that the number of Americans officially classified as uninsured in 2007 was 45.7 million, down from 47 million in 2006.

Despite the decline, the new figure is being spun as proof positive that America's healthcare system is still in awful shape. Advocates of socialized medicine are repeating it ad nauseam, arguing that the main problem with the country's health system is the massive uninsured population. After all, if a whopping 15 percent of the population is uninsured, then the current system must be failing.

As Dr. Oliver Fein of Physicians for a National Health Program wrote when the figure came out, "[t]he plight of the uninsured… shows how the for-profit, private health insurance model of financing health care has outlived its usefulness."

But it's grossly misleading to use the Census Bureau number as an indication of a crisis. A closer look at the agency's survey methods reveals that the situation isn't nearly as bad as the pundits and the politicians would have you believe.

To generate this figure, the Census Bureau relied entirely on a questionnaire known as the Current Population Survey (CPS). The survey is intended to garner information about, among other things, the income, age, race, living situation, and, of course, health insurance status of individuals living in the United States.

As with any survey of this size and scope, the accuracy of the data it produces has substantial margins of error. As the Census Bureau itself explains in its annual report, "health insurance coverage is likely to be underreported on the Current Population Survey."

The Census Bureau doesn't tell us that 45.7 million people are chronically uninsured for the entire year. The agency has stated elsewhere that "the CPS estimate of the number of people without health insurance more closely approximates the number of people who are uninsured at a specific point in time during the year than the number of people uninsured for the entire year."

In other words, many of the survey respondents counted as "uninsured" may have experienced only a temporary interruption in their insurance. This circumstance is quite common. When workers quit or lose their job, they are technically uninsured. But they are usually in transition between one employer-provided insurance policy and another.

Despite the media's tendency to depict the 45.7 million uninsured as a single, homogeneous group, the demographic character of these individuals cuts across age, ethnic, and socioeconomic categories. Many are uninsured for reasons unrelated to cost and don't need to be "rescued" by mandatory socialized medicine.

We may be accustomed to thinking of the uninsured as low-income individuals and struggling families. But the Census Bureau data show that many are relatively affluent. Over 17.5 million -- 38 percent -- of the uninsured make more than $50,000 a year.  And 9.1 million have an annual income of over $75,000 a year.

How can this be? In part, it's because a number of financially comfortable young Americans choose not to purchase health insurance. Known in the healthcare trade as the "invincibles" -- because they're so sure they won't get sick -- these young singles would rather keep their money than shell out for expensive monthly insurance premiums because of the many mandates and regulations place on insurers by the states.

This intentional avoidance of health insurance is quite common. According to the Commonwealth Fund, Americans age 19-29 comprise one of the largest and fastest-growing segments of the uninsured population.

If the fact that over a third of the uninsured are pulling down more than $50,000 a year isn't shocking enough, how about this:  Nearly 10 million uninsured aren't even U.S. citizens!

It's certainly unfortunate that these individuals don't have health insurance, of course. But they can still get free treatment in emergency rooms. And even a fully nationalized healthcare system would be unlikely to provide them with health insurance.

Another 14 million of the uninsured are fully eligible for government assistance through programs like Medicare, Medicaid, and SCHIP.

How does that break down? A 2008 study by the Georgetown University Health Policy Institute showed that a whopping 70 percent of uninsured children are eligible for Medicaid, SCHIP, or both programs. And roughly 27 percent of non-elderly Americans who are eligible for Medicaid haven't enrolled and simply live their lives without health insurance, according to the Urban Institute.

Is it really fair to say that such individuals don't have health insurance? Further, if millions of Americans aren't availing themselves of taxpayer-funded coverage, why should we think that an even bigger government healthcare bureaucracy would solve the problem?

Of course, there are people who really do fall through the cracks. These are the chronically uninsured -- the working poor. They are people who struggle to hold down jobs and support their families. They earn less than $50,000 per year but too much to qualify for government help. They simply can't afford insurance.

There are roughly 8 million of these chronically uninsured. Any attempt to solve the problem of the uninsured should focus on this narrow slice of the 45.7 million person pie.

The key to helping these people isn't to create more government red tape. In fact, too much regulation is why health insurance is so expensive in the first place. What these people need is straightforward, affordable coverage that will cover them in the event of a health catastrophe.  They should be able to purchase insurance in the state that has the best plan for them, regardless of where they live.

It's true that far too many Americans go without health insurance. And that is a serious problem.  But the Census Bureau figure shouldn't be presented as anything other than what it really is: an imprecise snapshot of a heterogeneous group of Americans, many of whom wouldn't benefit from additional government intrusion into the healthcare market. 

Wednesday, September 24, 2008

Kudlow: Give my johns on Wall Street more cash

Below is incontrovertible proof that Lawrence Kudlow is the media's biggest Wall Street whore.  Ever.  Whatever's good for Wall Street, in Kudlow's view, is good for the economy, and therefore good for you and me.  And naturally, when Wall Street's happy, they leave bigger tips on the dresser for Kudlow.  That's the sum of Kudlow's financial knowledge and conservative ideology.  

If you can read this without throwing up in the back of your mouth, you've got a stronger stomach than I do.

By Larry Kudlow
September 23, 2008 | National Review

Honestly. A clean bill as requested by Treasury man Henry Paulson, along with John McCain's oversight board, can help fix the credit-crunch problem. It needn't be this hard.

According to the Paulson plan, distressed assets will be sold by banks through a reverse auction (the low bid wins) to various investment funds, hedgies, private-equity boys, and other banks. And taxpayers will have a strong ownership position in these asset sales. When the assets are worked out over time — as they will be once housing and the economy recover — taxpayers will actually make money on the deal

[Oh, wonderful!  See, we'll make money on this bailout!  Hooray for financial crises and bailouts!  Why didn't we think of this before?  We could have been raking it in all this time, instead of the investment banks! -- J]

This is similar to the RTC story twenty years ago, when Bill Seidman presided over similar asset sales from bankrupt S&Ls and wound up making money for Uncle Sam and his taxpayers. A long prosperity wave followed

[Yeah, remember that long, uninterrupted prosperity wave since 1988?  I mean... except for those 2 recessions and a credit crisis that destroyed the Wall Street investment banks. -- J]

In fact, industry insiders tell me the Federal Reserve and the SEC may be moving toward a five-to-seven year amortization plan for the scoring of bank losses from the sale of this distressed paper. This is very constructive. Fed head Ben Bernanke also is talking about getting rid of mark-to-market accounting and moving towards "hold to maturity." This is good.

But the credit arteries are now clogged with a terrible virus that can be removed by the Paulson rescue plan. And as the problem is solved, credit and loans will be made more available to Main Street homeowners, small businesses, and consumers of every type. Credit markets will gradually unfreeze. It can be done. A deep recession can be avoided.

And maybe along the way we can get a strong King Dollar to fight inflation and attract international investment. And perhaps, just perhaps, we can get more drilling to reduce gas prices at the pump — a big recovery tonic. And, dare I hope, maybe we even can get corporate tax reform with lower tax rates, which along with energy deregulation will spur jobs and wage growth.

But after Tuesday's Senate hearing I'm very concerned. The bells and whistles that would be attached to Paulson's plan by our Democratic friends are anti-capitalist and anti-opportunity. 

[Just to clarify, $1-2 trillion bailouts of Wall Street are pro-capitalist and pro-opportunity.  Just in case you were wondering. Now read on and absorb more of Kudlow's Wall Street wisdom, you financial ignoramuses! -- J]

Capping compensation for both the selling and purchasing institutions? What? Salaries and bonuses are no business of the government. People go to work for profits. For opportunities. It's at the heart of our free-market capitalist system.

Now, I can understand companies like AIG, Fannie, and Freddie, which effectively have been nationalized. That's different. I don't care if they all make $75,000 a year, just like the regulators. But to stretch this to the banks that are selling or buying the assets goes beyond the pale. It's France. But it's France heading toward the old Soviet Union, or at least Tsar Putin's Russia. 

[Yeah, the difference in socialistic France or Russia is, when the taypayers ante up several hundred $ billion to invest in a company, they get to OWN it.  And that's just 'nuts.' Don't believe me?  Keep reading! -- J]

And then there's the ownership question. Some Democrats want Uncle Sam to take an ownership position in all the selling and purchasing banks. This is nuts. In America, this is nothing but property confiscation. It also will sharply curb buyers of the distressed assets. 

[Yeah, giving Wall St. $ billions for nothing in return is capitalistic, because the alternative would be 'property confiscation.'  Are you getting this?  It's Economics 101, folks.  I'm embarrassed that Kudlow even has to explain this to you.  -- J]

You think Henry Kravis or Steve Schwarzman are gonna take a salary cap and lose an ownership share of the private-equity funds they themselves created and built? They shouldn't and they won't.  And these funds are crucial to the new process. The only banks that will sell in this over-regulatory environment are the absolute, near-bankruptcy turkeys. 

[No way, nuh-uh, Henry Kravis and Steve Schwarzman aren't gonna stand for that!  They'll get Bush, Paulson, and Bernanke on the phone and chew them a new a-hole if that's Congress' proposal.  Yeah, Kravis and Schwarzman will tell our President, the Fed, and Congress what's what.  They're financial geniuses.  They built their private equity funds from nothing and zero equity into huge funds with zero equity.  They're Wall St. titans!  -- J]

Meanwhile, Sen. McCain apparently has proposed that the buying and selling banks have comp-levels no higher than the top paycheck in the U.S. government, which I guess is the president's at around $400,000 a year. Hey, I've got an idea. Let's raise the chief executive's pay to $50 million. He probably earns it anyway. 

[Another genius idea for running our government more like a business, straight from Wall Street!  I mean, if we paid Bush $50 million a year, this would be following Wall Street's results-driven pay scale: the CEO who racks up the biggest debt in the company's history gets the highest salary, preferred stock options, and a generous pension.  It's only fair! -- J]

It's these congressional bells and whistles that really trouble me. And they also trouble the stock market. Stocks absolutely roared last Thursday and Friday when they got wind of Paulson's program. But Monday and Tuesday, as the new details leaked out and various Democratic senators put their ideas on the table, shares plunged big time. What does that tell you? 

[It tells me that Congress better make with the bailing-out, stop demanding conditions as if they were Mao or Stalin, and stop telling Wall Street how much to pay its financial whizzes!  -- J]

I can understand legitimate concerns about a big-government intervention and a giant $700 billion number. There's a shock effect here. But once in a while the financial center of capitalism goes into panic mode and something has to be done. 

[True, big numbers do scare you people.  But you people are dumb.  You're easily shocked by lots of zeroes after the dollar sign, but that's just because you're not rich Wall St. geniuses like Kudlow and his buddies Kravis and Schwarzman.  You simple folk will forget all about this soon enough... just in time for the next panic when 'something has to be done.' -- J]

Actually, it's a marvel that we permit government to infrequently come to the rescue of our credit system. It doesn't happen everyday. But it has been necessary going all the way back to Alexander Hamilton's original rescue of our failing debt system in the 1790s.

[Yes, it is indeed amazing that in our capitalistic, free-market, freedom-loving, pull-yourself-up-by-your-own-bootstraps country, we don't allow Big Gubument to come to the rescue of our credit system more often.  But that's just because so many people don't understand capitalism and economics, not like Kudlow and the geniuses on Wall Street do. -- J]

Understanding this history, conservatives should not panic or walk away from the Paulson assistance plan. It would be great to avoid either a deep credit-driven recession or a global banking meltdown — or both. Paulson has always viewed his rescue plan as an economic-growth tool. I think he's right. 

[See?  Doesn't that make you feel better?  This bailout is going to grow our economy.  In fact, Paulson has 'always' seen this bailout as an economic-growth tool.  Always. Ever since he was Chairman and CEO at Goldman Sachs, probably, that's what he's thought about this bailout plan.  Jeez, I'm just in awe of the brains of these guys on Wall Street always thinking 10 steps ahead! -- J]

Buchanan: Amnesty for stupidity and greed

By Patrick J. Buchanan
September 23, 2008  | Human Events
Is it fair that businessmen who fail in neighborhood stores have to close shop and often sell their homes, while Wall Street titans are spared the consequences of monumental stupidity and greed?

No, it is not fair. Yet, Treasury's Hank Paulson may be right. To save the sheep who might have been wiped out in a general financial panic, we may have to save the pigs.

Life is unfair, said JFK.

Yet, this is going to be the mother of all bailouts. Paulson will be voted by Congress authority to spend $700 billion, 5 percent of our gross domestic product, to buy all that toxic paper stinking up the books of our biggest banks.

And this is not the first such bailout of foolish and incompetent financiers and politicians.

In 1975, when its cravenness to extortionate union demands had bankrupted New York, the Big Apple had to be rescued by Gerald Ford.

Marion Barry's Washington, D.C., was next in line at the cashier's window.

In the Reagan era, it was Chrysler. Later that decade, Citibank, Chase-Manhattan and Bank of America were staring into the abyss, as Latin American regimes, to whom they had lent scores of billions, were balking at paying their debts. Uncle Sam stepped in.

Then came the Mexican and Asian financial crises and the U.S.-IMF bailouts of the 1990s. The Mexican bailout was as much a rescue of Goldman-Sachs as Mexico City, as Treasury Secretary Bob Rubin's old firm was choking on all its Mexican paper.

The great myth is that these 1990s bailouts were models of U.S. financial statesmanship and great successes. The reality is the U.S. workers took it in the neck.

For the countries bailed out, like Mexico, Thailand, Indonesia and South Korea, were forced to devalue. This radically reduced the wages of their workers relative to American workers, creating incentives for U.S. manufacturers to shut plants here and move them abroad. The devaluations also slashed the price of foreign goods relative to U.S. goods. Imports flooded in.

Who ultimately paid for the Mexican bailout? Florida tomato growers wiped out by Mexican producers, the price of whose tomatoes was chopped two-thirds by the devaluation. U.S. autoworkers who saw Ford and Delphi plants shuttered as new Ford and Delphi plants opened in Mexico. U.S. textile workers whose mills closed and jobs vanished.

Middle-class American families have paid and paid -- in lost jobs, lower wages, a falling median income -- to save the big banks from the consequences of their follies.  And those bank bailouts are behind the trade deficits that set five records in the Bush era, reached 6 percent of GDP, forced huge U.S. borrowings from abroad and ravaged the dollar.

Having bailed out Latin America, Mexico, Asia and their U.S. creditors, we now find our own country in trouble. And how are our allies reacting?

"Europeans on left and right ridicule U.S. money meltdown," ran the Los Angeles Times headline. Italy's finance minister compares us to corruption-ridden Albania, where "a nationwide pyramid scheme cost hundreds of thousands of people their savings and ignited anarchic civil conflict" in the 1990s.

How will the bailout work? Will every bank that brings in toxic paper be able to dump it on the Treasury? Will the Treasury buy securities based on subprime U.S. mortgages from foreign banks? Apparently so. What about mortgage-backed securities held by U.S. companies and individual investors? Is there to be a general amnesty for bad judgment, or just a bankers amnesty?

About one thing we may be sure. The U.S. deficit and national debt are going to soar. The credit rating of the United States, as this nation of non-savers has to borrow abroad to save its banks, and their banks, is going to fall. We are going to be a poorer nation and people.

As for the promises and plans of Barack Obama and John McCain -- be it for national health insurance or middle-class tax cuts -- they are going by the wayside. For the United States is as bankrupt as Lehman Brothers, with this difference: Uncle Sam can still borrow from abroad because foreigners see many juicy U.S. assets they would like to take off our hands with their hoards of ever-cheapening U.S. dollars.

Looking at the federal budget -- the five or six major items are Social Security, Medicare, Medicaid, defense and interest on the debt. All are going up, as tax revenues fall. Add the cost of two wars and a bailout of U.S. banks that some estimate will cost $1 trillion to $2 trillion, and we appear to be looking at budget deficits ad infinitum.

"There is a great deal of ruin in a nation," Adam Smith once consoled a friend who lamented that Britain would be ruined if the 13 Colonies were lost.

We are about to test Smith's proposition.

Tuesday, September 23, 2008

Gingrich, Bunning break ranks...others to follow?

Gingrinch aint the only Republican jumping ship.  My nutty Senator, Hall of Fame pitcher Jim Bunning, who is as conservative as they come, and who famously said he gets all his info from FOXNews, actually put this statement on his web site:

Bunning Declares Free Market Dead

Washington, DC

Friday, September 19, 2008


U.S. Senator Jim Bunning today issued the following statement regarding the Treasury Department's bailout of Wall Street.


"Instead of celebrating the Fourth of July next year Americans will be celebrating Bastille Day; the free market for all intents and purposes is dead in America," said Bunning. "The action proposed today by the Treasury Department will take away the free market and institute socialism in America. The American taxpayer has been mislead throughout this economic crisis. The government on all fronts has failed the American people miserably.


"My great grandchildren will be saddled with the estimated $1 trillion debt left in the wake of this proposal. We have gotten to this point because nobody has been minding the store. Both Secretary Paulson and Chairman Bernanke should be held accountable for their inaction – and now because of that inaction – the American taxpayer is left with bill.


"We must take care of Main Street. Small businesses in Ashland, Bowling Green, and Paducah are hurting because of high taxes, and energy costs. Those small businesses are the economic engines that fuel our economy. I hope in the closing days of this Congress we can pass legislation to help those good people on Main Street rather than helping the power brokers on Wall Street."  [My God, is this desperate ass-covering populist pandering in the midst of a crisis, or has Bunning actually seen the light? -- J]

Russian navy returns to Caribbean

If this makes you nervous, imagine how America's military presence in Poland, the Baltics, Georgia and Central Asia makes Russia feel.  This is a clever propaganda maneuver by Russia to show that turnabout is fair play! 

Russia engages in 'gangland' diplomacy as it sends warship to the Caribbean

By Tony Halpin

September 23, 2008  | The Times Online


Russia flexed its muscles in America's backyard yesterday as it sent one of its largest warships to join military exercises in the Caribbean. The nuclear-powered flagship Peter the Great set off for Venezuela with the submarine destroyer Admiral Chabanenko and two support vessels in the first Russian naval mission in Latin America since the end of the Cold War.


"The St Andrew flag, the flag of the Russian Navy, is confidently returning to the world oceans," Igor Dygalo, a spokesman for the Russian Navy, said. He declined to comment on Russian newspaper reports that nuclear submarines were also part of the expedition.


The voyage to join the Venezuelan Navy for manoeuvres came only days after Russian strategic nuclear bombers made their first visit to the country. Hugo Chávez, the President, said then that the arrival of the strike force was a warning to the US. The vehemently anti-American Venezuelan leader is due to visit Dmitri Medvedev, the Russian President, in Moscow this week as part of a tour that includes visits to Cuba and China.


Peter the Great is armed with 20 nuclear cruise missiles and up to 500 surface-to-air missiles, making it one of the most formidable warships in the world. The Kremlin has courted Venezuela and Cuba as tensions with the West soared over the proposed US missile shield in Eastern Europe and the Russian invasion of Georgia last month. Vladimir Putin, the Prime Minister, said recently that Russia should "restore its position in Cuba" – the nation where deployment of Soviet nuclear missiles in 1962 brought Russia and the United States to the brink of nuclear war.


Igor Sechin, the Deputy Prime Minister, made clear that Russia would challenge the US for influence in Latin America after visits to Venezuela, Nicaragua and Cuba last week. He said: "It would be wrong to talk about one nation having exclusive rights to this zone."


Moscow was infuriated when Washington sent US warships into the Black Sea to deliver aid to Georgia after the war. Analysts said that the Kremlin was engaging in gunboat diplomacy over the encroachment of Nato into the former Soviet satellites of Georgia and Ukraine.


Pavel Felgengauer, a leading Russian defence expert, told The Times: "It's to show the flag and the finger to the United States. They are offering a sort of gangland deal – if you get into our territory, then we will get into yours. You leave Georgia and Ukraine to us and we won't go into the Caribbean, OK?"  He described the visit as "first and foremost a propaganda deployment", pointing out that one of the support vessels was a tug in case either of the warships broke down.


Latin America was one of the arenas of the Cold War in which the US and the Soviet Union battled for ideological dominance. Russia has agreed to sell more than $4 billion (£2 billion) worth of armaments to Venezuela since 2005 and disclosed last week that Mr Chávez wanted new antiaircraft systems and more fighter jets.


Mr Dygalo denied any link with Georgia and said that Mr Chávez and Mr Medvedev had agreed on the exercises in July.


Reich: What Wall St. must promise in return for our tax money

I encourage you all to read this and forward it to your Representatives and Senators.  This bailout is serious s**t, and we're all paying for it -- $2,000 - $5,000 per family, at least.  You can quickly find your Congressmen's e-mail contacts here:

What Wall Street Should Be Required to Do, to Get a Blank Check From Taxpayers

By Robert Reich
September 21, 2008 | Robert Reich's Blog

The frame has been set, the dye cast. Treasury Secretary Hank Paulson, presumably representing the Bush administration but indirectly representing Wall Street, and Fed Chief Ben Bernanke, want a blank check from Congress for $700 billion or possibly a trillion dollars or more to take bad debt off Wall Street's balance sheets. Never before in the history of American capitalism has so much been asked of so many for (at least in the first instance) so few.

Put yourself in the shoes of a member of Congress, including our two presidential candidates. The Treasury Secretary and Fed Chair have told you this is necessary to save the economy. If you don't agree, you risk a meltdown of the entire global financial system. Your own constituents' savings could go down with it. An election is six weeks away. Besides, in the last two days of trading, since rumors spread that the Treasury and the Fed were planning something of this sort, stock prices revived.

Now – quick -- what do you do? You have no choice but to say yes.

But you might also set some conditions on Wall Street.

The public doesn't like a blank check. They think this whole bailout idea is nuts. They see fat cats on Wall Street who have raked in zillions for years, now extorting in effect $2,000 to $5,000 from every American family to make up for their own nonfeasance, malfeasance, greed, and just plain stupidity. Wall Street's request for a blank check comes at the same time most of the public is worried about their jobs and declining wages, and having enough money to pay for gas and food and health insurance, meet their car payments and mortgage payments, and save for their retirement and childrens' college education. And so the public is asking: Why should Wall Street get bailed out by me when I'm getting screwed?

So if you are a member of Congress, you just might be in a position to demand from Wall Street certain conditions in return for the blank check.

My five nominees:

1. The government (i.e. taxpayers) gets an equity stake in every Wall Street financial company proportional to the amount of bad debt that company shoves onto the public. So when and if Wall Street shares rise, taxpayers are rewarded for accepting so much risk.

2. Wall Street executives and directors of Wall Street firms relinquish their current stock options and this year's other forms of compensation, and agree to future compensation linked to a rolling five-year average of firm profitability. Why should taxpayers feather their already amply-feathered nests?

3. All Wall Street executives immediately cease making campaign contributions to any candidate for public office in this election cycle or next, all Wall Street PACs be closed, and Wall Street lobbyists curtail their activities unless specifically asked for information by policymakers. Why should taxpayers finance Wall Street's outsized political power – especially when that power is being exercised to get favorable terms from taxpayers?

4. Wall Street firms agree to comply with new regulations over disclosure, capital requirements, conflicts of interest, and market manipulation. The regulations will emerge in ninety days from a bi-partisan working group, to be convened immediately. After all, inadequate regulation and lack of oversight got us into this mess.

5. Wall Street agrees to give bankruptcy judges the authority to modify the terms of primary mortgages, so homeowners have a fighting chance to keep their homes. Why should distressed homeowners lose their homes when Wall Streeters receive taxpayer money that helps them keep their fancy ones?

Wall Streeters may not like these conditions. Well, you should tell them that the public doesn't like the idea of bailing out Wall Street. So if Wall Street doesn't accept these conditions, it doesn't get the blank check.

Monday, September 22, 2008

Treasury & Fed take care of their own

It is no coincidence that Treasury Sec. Hank Paulson was Chairman and CEO of Goldman Sachs.  Treasury and the Fed take care of their own on Wall Street.  While little people must be allowed to fail in order to make markets work, the huge investment banks are "too big to be allowed to fail."  Let's remember though how Goldman Sachs reported all-time record profits in 2007, exceeding even their record profits and huge staff bonuses in 2006, when Goldman's income per share exceeded years 2004-2005 combined.  Morgan Stanley also had set a record for its reported profits in 2007.


What happened? Why do they need help now, only one year after their best year ever?  And will their executives give back their $ millions in bonuses from the previous years of their irresponsible sub-prime largess?  Hell, no.  That's not how the "free market" works.  In good times, they keep the profits; in bad times, we the taxpayers bail them out.  You gotta love U.S. Third-World capitalism.


Administration and Fed Move to Deal With Financial Crisis

September 22, 2008 | Associated Press


The Bush administration and the Federal Reserve are moving on multiple fronts in an effort to calm financial markets that have been roiled by the biggest upheavals on Wall Street since the Great Depression.


Another seismic shift occurred late Sunday night when Goldman Sachs and Morgan Stanley, the country's last two major investment banks, were granted approval from the Fed to change their status to bank holding companies.


That change will allow the two venerable institutions to set up commercial banks that will be able to take deposits, significantly bolstering the resources of both institutions. It will also grant them permanent access to emergency loans supplied by the Fed rather than the temporary loan status they have had since last March when the Fed moved to prop up investment banks following the forced sale of Bear Stearns.


Meanwhile, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke kept up their outreach with Congress, holding meetings over the weekend aimed at convincing lawmakers to move quickly to approve a $700 billion package. It would allow the government to buy up a mountain of bad mortgage loans that have been weighing down financial companies since they became engulfed in a severe credit crisis 14 months ago.


Congressional leaders have endorsed the plan's main thrust, but said it must be expanded to include help for people on Main Street as well as the big Wall Street financial firms who have lost billions of dollars through their bad investment decisions.


"We will simply not hand over a $700 billion blank check to Wall Street and hope for a better outcome," House Speaker Nancy Pelosi said Sunday in a statement. "Democrats believe a responsible solution should include independent oversight, protections for homeowners and constraints on excessive compensation."


But Pelosi, concerned about spooking markets with the possibility that the bailout package might not win approval, predicted that Congress would pass the measure this week once Democrats won the changes they are seeking.


Making the rounds of four of the five Sunday talks shows, Paulson stressed that time was critical to get the proposal passed because of the urgent need to get global credit markets functioning more normally after they essentially froze up following a number of shocks last week.


The surprise Fed announcement announcing approval of the status change for Goldman and Morgan Stanley was yet another indication of how quickly events are moving on Wall Street.


The stock of the two companies had come under pressure as investors began to worry about their future following the bankruptcy last week of investment bank Lehman Brothers and the forced sale of another investment bank, Merrill Lynch, to Bank of America.