The last remaining significant resistance in Congress and the Senate has appears to have crumbled tonight and party leaders announced that they believe that the bailout is a done deal with voting in the house starting tomorrow. At 9:00 EST the Treasury department held a conference call with primary dealers to fill them in on the details and discuss implementation of the plan. According to reports from someone present on the call the treasury was very pleased with the final bill in that they got their money, with no real checks on their control and only token oversight. It was admitted it would take two to three weeks to start implementing the plan and start buying assets once voted on. I think is a flat out admission that the urgency they portrayed to Congress and Senate to ram the bill through was not in fact real.
The bill that will go up for vote tomorrow expanded from it's original 3 pages to 106 pages. Of course is the usual porkly earmarks that politicians can't help but add to these urgent bills that nobody wants to block, but there were also some very disturbing additions too.
Section 132: Allows the SEC to exempt selected firms from mark-to-market accounting rules. Simply the fact these rules are being thrown away is bad enough, the bigger problem is it can be done at only to chosen firms at the SEC's discretion without transparency. This allows the continuation of cronyism where these government agencies can pick favorites and makes it impossible to read a balance sheet and no what is going on.
Section 128: Fast tracks a that was set to take effect in 2011, that effectively eliminates reserve requirements on banks. What?!?! This allows banks to lever up even more when the one of the core problems in this crisis is that banks levered up TOO MUCH.
There are many other hidden "treats" in this bill but plain and simple if passed this bill will be one of the disastrous pieces of legislation ever passed in this country.
Can't say I expected anything different. Especially Section 132...sort of shows the reasoning behind the original "no one can say anything about this bill verbiage" that Paulson wanted included.
Here's an interesting article regarding how we (the taxpayers) are helping out the Royal Bank of Scotland!!!
I heard this evening that the house republicans might block it again. Do you think that is a possibilty?
Marchel: Yes it's still a possibility, but one by one the house republicans seem to be falling inline. I sure hope it's possible, we'll see tomorrow.
I did my part on this one, my MyFax report shows I sent a total of 270 faxes out this weekend, and spent more than 4 hours on the phone. I've never been politically active on anything before, well other than the Bear Stearns bailout. It's been an eye opening experience.
Can we as ordinary people stop this? Do we want to stop this? What should be written into the bill to fix things? I am all about doing something but just what will actually fix it? What if we did things more closer to the one bailout where we bought into things. I like the idea of nationalization if it lets money flow back to the people.
Hrmmmm, seems kind of ridiculous that the same people that caused this mess are the ones proposing the fix. Where are the real experts on this? Economists? Do you want to listen to a singer voice their opinion on politics? Well, I don't want to listen to car salesman (Politician's) when it comes to fixing problems. Especially ones that require some intellect. Our Founding Fathers are rolling in their graves. This is a sad day for me and many others.
Tagman: What do Economists Think of The Proposed Bailout?
Eau: There are three major things that both need to be done to fix this problem. And by problem I refer to the credit crisis and the freezing of lending. That overlies all the housing and other economic issues and threatens to make everything much worse.
1. Introduce regulation that snips the fuse in the derivatives bomb and restore the trust needed to unfreeze intrabank lending.
Right now everybody is afraid to lend. It's not that no one has any money, they just don't think they'll get it back because they don't know who's solvent. Here's the 3 critical pieces of regulation.
a. Regulate the derivatives market by forcing all derivatives onto an exchange where margin requirements can be monitored. People are fixated on the mortgage problems, that could just be the blasting cap that sets off the derivative bomb.
b. Restoring sane leverage requirements on in banking system, it used to be a maximum of 12:1 but many of the companies that are failing are running 30:1 leverage or worse.
c. Get rid of the accounting loopholes, no more level 3 assets, no more off balance sheet crap. When an investor looks at a balance sheet they need to be able to trust it. It's gotten to the point everybody is now assumed to be lying behind accounting loopholes so nobody will invest.
2. Recapitalize the financial system
Simply buying assets from banks does nothing to recapitalize the banking system. The most successful recapitilzation strategies in past financial crisis' has been debt to equity swaps. Basically stock holders get wiped, bond holders become equity holder, and new bond holders can now come in and recapitalize a debt free company. For institutions where they are still insolvent after a debt to equity swap go through an expidited Chapter 11 process. Then if needed you can apply government backstops.
3. Immidiately recapitalize the FDIC
People loose trust to store their money in a bank and everything breaks down. The FDIC is severely undercapitalized to handle the coming bank failures and people are starting to catch on. If banks start failing and the FDIC is disorganized and can't efficiently make good on insurance you will have REAL panic. Congress needs to move now to shore up the FDIC, and this is going to require a lot of capital which we've now wasted on this idiotic bailout.
* These concepts have been borrowed from several plans put together from economists and other financial experts. Of course not one of these points is addressed in the bailout plan up for vote.
Yes I agree with everything you say here. I just wonder how to do it. I also wonder if we (the people) pay for it.. how does corporate america pay us? Why shouldnt we nationalize some of these companies and take some of the profits?
Eau: The plan above with the exception of the bailout of the FDIC would not require significant tax payer funds. It allows to the financial system to remain functional using established processes while the stock and bond holder (rightfully so) take their losses. Yes, lots of wealth evaporates as the system goes through a structured deleveraging. That is unavoidable no matter what the plan, we just can control whether this happens in an organized fashion or an all out economic collapse.
I'm personally against nationalization of companies unless it's unavoidable, such as the case of Fannie and Freddie. I just takes us down a really slippery slope were we are fundamentally changing the principals underlying our capitalistic, "free market" economy. Not that are markets are that free right now...
This whole earth is going to become one financial system someday because of what is being done here..... individual national soverignty will be a thing of the past and borders will NOT be what they once were.....
It started a LONG time ago when other nations started buying up US companies......
The world bank and the United Nations are going to become the political and financial powers of the world. I read your post Matt, about those other nations large banks going under like WaMu just did.
It is only a matter of time......
=-/
A MP3 of the special access US Treasury call can be found here.
http://www.filesavr.com/sifma
Some things they say directly conflict what is coming out of the mouths of Senators. For example them reassuring the execs that the provisions around executive compensation and "golden parachutes" will only apply to new contracts not existing ones. Admitting they believe they have access to the full $700B at once. Oversight is just for show and is toothless. This is absolutely scandalous.
I dropped by to read your insights into this whole bailout...very sobering to say the least but then again so is the whole economy. Thanks for sharing about some of the actual content of the bill. It will certainly be interesting to watch this unfold over the weeks ahead. Scary.
From the call referenced above.
Treasury: "we wonn't be purchasing anything for a few weeks"
Analyst "you could have hundreds of institutions fail in a few weeks"
Treasury "we understand that"
" Calls coming in 100 to 1 against, but my constituents don't understand the complexity of this like we do here in Congress....We must vote yes for this"
Grrrr....
"They there in Congress, individually and collectively, can't find their rear ends with a nine-pronged stick in each hand!" How dare they!?!
Here's how -- they are corrupt. These huge banking institutions have them bought and paid for. And, they are absolutely controlled by them. There's no other explanation for this. The bailout bill is taylor made for the greasing of the skids for these dirtbags.
Yes, we the people have been had, and I am definitely miffed.
Matt, I can't thank you enough for all you have done here during this Crisis....to keep us updated and to help us understand it. I've reblogged almost all your posts to my local area....I love that I can do that and that they can hear it straight from you. I am very grateful.
We need to vote OUT OF OFFICE those involved in pushing this bill through.... I don't care who they are....
=-P
Just got into my hotel from my flight down to LA, very pleased to see this bill got voted down and at least stalled in the house. My fear is that the massive losses in the stock market is going to scare the politicians back into voting. The bill wouldn't have stopped them, it may have delayed it a few days or weeks, but doesn't solve the problems. Will have a long post on it tonight.
I am GLAD the stock market RALLYED after the bill got killed......
It shows SOME people out there understand that this "financial surgery" as they call it, will NOT work...