Today the Paulson/Bush bailout bill failed by 13 votes. The final vote was 228 to 205 against. About 60% of Democrats and about 33% of Republicans voted for the measure.
It has been a surprising day in Washington and Wall Street.
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Also nice call - criticizing the Republicans before the vote and then calling THEM partisan after the vote? What color is the sky in your world?
Who's fault is that?
It was a bad bill, and Democrats needed to ask for more consumer protections in the bill. The bill did too much for Wall Street and not enough for main street. All that being said, how come John McCain couldn't get 13 more Republican's to vote for the bill? How about George Bush?
It was a bad bill and Republicans tried to play politics by making sure Democrats carried the water on the largest bailout bill in American history. They gambled and lost.
Let's talk partisanship. If neither John McCain or George Bush can get 50% of House Republicans to vote with them, how do you call that leadership? If it was so critical, how come they let the bill fail?
This doesn't rest on one person's shoulders. However, John McCain, Henry Paulson, Phil Gramm, George Bush, and many many many other Republicans failed to realize that our economy was in jeopardy. It wasn't until this year Bush or Paulson admitted our economy is at risk. Just a few weeks ago John McCain said the fundamentals of our economy are strong.
One bill doesn't destroy the economy, but it is clear one party can. Help build a progressive movement in Texas. Join Progress Texas.
Time is running out on this issue. We need to move past the past and focus on the here and now. After we get a remedy in place then let's deal with the past.
I'm telling you (and this is a financial services sector guy who believes we need reform on the system) we have loaded the credit system of the US so full of junk that there's not much left for normal functions. I don't think a lot of people realize this. Citi and Chase got Wachovia and WaMu at firesale prices but now they are even more loaded with bad loans.
Part of the problem is that many of the Rs think the solution is a continuation of free market policy. That without regulation is what got us into this mess to start with.
You're just wrong if you think differently. Period. This isn't an opinion, it's objective FACT.
On the other hand without the CRA the market would have worked and they would not have written the sub-prime loans.
But even THEY aren't the reason for this.
You clearly have no concept of what you're talking about. Seriously, just stop because reading your woefully incorrect information is just infuriating.
Even though the ratings agencies have said they are great. Oh, and there's some nice fat 'enhancement' from our good friends at AIG.
Fannie and Freddie were bystanders in this game. This is a breakdown of a market entirely because of structured finance. And Fannie, Freddie and the damn CRA had nothing to do with it.
You won't hear about that from Rush or Hannity. They don't know a damn thing about it.
Meanwhile, McCain couldn't get a single Arizona congressman to vote for the bill. That's supposed to be leadership?! Only three Texas Republicans voted for the bill, showing that Bush doesn't have any more clout than McCain.
The good news is that the House of Representatives was truly representative today. Most of the country thinks the bill was bad, so the House refused to approve it. That's democracy in action. The result may have been wrong, but the process was kinda refreshing.
We're still left with an economic meltdown and 435 (scaredy?)cats that nobody seems capable of herding. Lord knows what happens next.
We need greater transparency and accountability on Wall Street. Investors have a right to know what they are buying. Right now they don't. Unless we fix that fundamental flaw, our markets will continue to swing wildly.
I've proposed several market based reforms. These changes will restore investor confidence.
Why give away $700 billion to financial terrorists who will do it again? It's up to us to make sure this type of stealing ends now. Fighting for Texas families Democratic Nominee for US Congress, TX 4th, 2006, 2008
How about reducing/eliminating capital gains tax?
As to "How about reducing/eliminating capital gains tax?" Could you please explain to me why a school teacher should have to pay a higher tax rate than Wall Street speculators? All income should be treated the same irregardless of the source. I'm not in favor of a tax break for an elite special interest. Fighting for Texas families Democratic Nominee for US Congress, TX 4th, 2006, 2008
As for the school teachers, hopefully they are invested in the market and would benefit as well . But the school teacher has a guaranteed salary. A speculator is risking his capital with no guarantee of a return. However the money invested is used to fuel the economy. People get jobs, start businesses, hire people and they pay taxes with that investment. High taxes.
One last point, although Obama may be a racist elite I don't think he is trying to divert attention with the CRA. In fact he loved the CRA. Community groups & organizers through 2000 received 9.5 billion in salaries and services. Banks also committed billions more to community groups including 760 million to ACORN.
Fighting for less government & lower taxes
Not trying to be the ratings police but we have some good dialogue on a difficult issue. Let's keep it going that way.
I do agree with one of McBlogger's points -- that Obama should ditch one of his financial advisors, Larry Summers, (but not for the reasons McBlogger would!)
That doesn't change the fact that McBlogger has peppered his discourse with really personal and unsubstantiated putdowns, four-letter words and telling people to shut their mouths and that they're "dumb" and "unfit to serve in Congress."
That rates a "1" in my book. Deal with it.
Unproductive is putting it kindly at best.
Troll is more like it.
I mean, he's obviously for the bailout, and you're against it. He does a pretty good job, both here and on his blog explaining why he's for it. I can't, however, see how he blames women or minorities.
I'm an abrasive asshole but I don't scapegoat either the people who got CRA loans (and I got to underwrite a BUNCH of them) or the Wall St. people who made a lot of these GOOD loans happen.
I'm pissed as hell at both sides, right and left. On one side, they're blaming Fannie and Freddie, the two companies that have actually kept the banks from driving up the costs of homeownership for decades. And then they light into the CRA.
On the other, it's all the Wall St. fatcats. WHO THE HELL DO YOU THINK PROVIDES THE FUNDING FOR MORTGAGES? Depositors?!?!?! Quit trying to lump everyone into one group. Not everyone was Bear Stearns.
This ISN'T It's A Wonderful Life. Grow up.
For one thing, none of you understand the Laffer Curve yet you're endlessly bleating on about it as if it creates an endless pool of free money when you cut taxes. And it does it magically. We're ONE THE LEFT SIDE OF THE DAMN GRAPH. Which means revenues don't go up when you cut taxes, they go down.
This requires thinking far above your meager capabilities. Withdraw.
Oh, and once again, YOU'RE WRONG ABOUT THE CRA. Rush lied to you. Go get mad at him on the NRO or Freep.
The reality, Glenn, is that you're WRONG. We are literally at the brink. This isn't like the Iraq War, this is real. Lloyd should have understood that and I'm HUGELY disappointed he didn't.
Sometimes, Glenn it's better to keep one's mouth shut, know what I mean?
Glenn has proposed some good reform ideas in his post. However, as I also posted, I agree that it's political grandstanding now without any solution to the current problem.
I'm amazed at how many people in BOR seem to be overlooking the financial aspects of where we are. They seem to want to focus on lambasting the past and bogging the bill down with stuff that needs more vetting. Reforms are going to take time to author and implement, more time than we currently have.
I think the picture has been painted many times what this will result in so there's no reason to go into it more here. Personally I'm beginning to understand a lot of people, especially those in Congress, seem to have slept through those finance and econ classes. It may be a good time for some refresher courses on the finance system and a market based economy.
Now I may be dumb, but I'm not stupid. Don't try to sell me a lemon and tell me it's a peach. This bill was a lemon right from the start. Democratic leaders tried to pour sugar into the water and make lemonade, but it was to soar for the American people to swallow.
As far as being "different" the my opponent what does that have to do with anything? Because he voted against it, I'm supposed to be for it? Fighting for Texas families Democratic Nominee for US Congress, TX 4th, 2006, 2008
Glenn, markets can only function when there ARE buyers and sellers. Right now, the entire credit universe if dislocated. It's been going on for a year but it's finally reached a choke point. As for the value of these securities, this is so nuanced, it's going to take some time to explain.
For one thing, these are, at their base, a HARD asset. They are home loans. The VAST majority are performing. Even the deep subprime portfolios overweighted with geographically disadvantaged properties (read : Inland Empire) are mostly performing. Because these securities have been packaged and pieces resold, they are marketable securities which have to marked to market. Now, the market is pathologically afraid of any risk now and has gone into full panic mode. So, no buyers yeilds no bid and a write down to zero.
What this bill would have done was allowed Treasury to go out and buy these pools, in some cases in their entirety, break them apart and deal with the problem assets and then resell back into the market after they'd been recast.
As for the purchase price, it would have been based on off the performance of the pool underneath using a discounted cash flow model. That will be become the market price. The problem is, government is the only entity big enough to handle all this.
Quit trying to see conspiracies where none exist.
I hope seeing the market tank for a couple of days will wake some people up and realize they are now directly affected by this situation. I assume the reformers in here probably think we ought to take over the market and freeze those prices as well.
Right now I'm not directly affected by this crisis in the markets. In fact, if anything, it will help my 401K as I buy securities at lower prices and hopefully reap the rewards when I retire. As for my parents, I hope they have moved their assets into fixed rate instruments to lock their value. Otherwise, thank you reformers for screwing up their retirement funds. Nero fiddles while Rome burns.
As you yourself pointed out on your blog a year ago, any rational person saw this truck coming down the road. Paulson admitted that he realized a year ago that there would be a problem. Did any of this get fixed in a normal legislative process. No. Is anything really being fixed by this bill? No.
Why can't we deal with both sides of the coin at once? In other words put forth a real deal. Wall Street gets its bailout and we get reforms that stop reckless investments.
Pelosi and Reid didn't do that. Instead they put lipstick on a pig. Don't get mad at me for still calling it a pig. Fighting for Texas families Democratic Nominee for US Congress, TX 4th, 2006, 2008
Now, my fear has been realized. It's gone. GM has frozen all it's dealers credit lines which means marginal dealers are about to die. And their payrolls with them. The repercussions of this are endless.
I've known for YEARS this was a problem. II ran a series in 2002 or 2003 about some of the balance sheet BS going on at CSFB where they were borrowing in the CP market using their balance sheet and then purchasing whole subprime loans.
However, this has devolved into a full fledged panic. When there is NO BID for performing assets, even ones that aren't performing to spec but can still be bought for pennies on the dollar, something is DEEPLY wrong.
And this IS the best way to fix it. One way or another you have to racap the banks and fix the crap in the system. IT's not instant, but it DOES work.
If you're injured and your lungs have collapsed would you like the Dr. to deal with that first or your broken index finger?
As for the credit spigots, we're already doing that. If Fannie, Freddie the govt programs (FHA/VA) weren't there, there would be NO home lending in the US right now.
THAT'S how bad this is. However that can't go on indefinitely. And this isn't throwing money at Wall St. You can't understand what's going on so that's what you choose to say. Brill. Thanks.
For example, if WaMu had been left along in about 3 weeks based on the deposit withdrawl rate of the past 8 days they would have gone bankrupt. Did you consider that in your proposals?
So provide some relief solutions now and focus on a reformed market economy after the election.
If Hank Paulson is correct that 80% of these assets are good, then proper accounting will prove him right. By opening their books, we can all see that these assets are real. Real assets create confidence. Confidence will reopen the flow of credit.
If these assets are bogus, then the tax payers are left with a trillion dollar of worthless paper.
What good would it do to give away one trillion dollars and continue the reckless behavior that got us here? Do we really want to give a drunk another drink and another car to crash? I don't. Fighting for Texas families Democratic Nominee for US Congress, TX 4th, 2006, 2008
The are real assets and good. The problem is that their worth is less than the credit used to secure them. In other words you can't secure the same value. Essentially you have a loss on your hands. In other words, they can't trade the assets on the market now due to the loss in value. All they can do is hold them hoping for a recovery. In the meantime, guess what. No more credit capacity. I hate to be blunt but it is critical you understand this if you truly want any support for a seat in Congress. So what do you not understand about that situation?
No one is saying avoid regulation. The problem is that while Congress argues about what the regulatory environment is the economy continues to sink into recession. Dang, why are there so many people that do not understand this situation? Do we need to use crayons and puppets to explain it?
So let's move a recovery act forward and then address regulation once that's in place. Please at least admit that without recovery this economy is doomed.
If you really want to get serious about the situation talk to some homeowners who borrowed more than they could afford. What were they thinking? I agree the market was irresponsible letting it happen but we also need to either educate some consumers (send them to credit counseling school) or get them into something they truly can afford.
I'd be more than willing to consider a deal that addressed this issue, but this bill doesn't. It simply throws money at a broken market and tells people to gamble some more.
Now, you can say wait until later for that. When? As soon as this crisis subsides Wall Street lobbyist will pay off their protectors in Congress (in both parties), and we'll never get real reform. Fighting for Texas families Democratic Nominee for US Congress, TX 4th, 2006, 2008
The problem I have with negotiating this now is that we all know how long complex legislation takes. That lengthy debate (and we should have it) will only result in an economy that falls further and further into recession. Real people's lives will be affected while we pontificate about the problem.
Is there anything to hold their feet to the fire to correct the problem? No there isn't but I don't agree with using the crisis as a bargaining chip. We need real solutions now and tighter regulations later. No change in the regulatory environment now will solve the current problem. Using this crisis as a play for agendas is pure politics and absent of leadership.
And so many banks are technically insolvent even though they have the capacity to meet current obligations.
What's really going to make people realize this is real is when they're credit lines get frozen. Consumer debt is about to freeze like a Thanksgiving turkey bought in August.
Auto loans have already seized up and the credit cards will be the next thing to go.
If you don't understand oligarchy, go to Mexico. Then you will understand. The middle-class in Mexico is now just the worker-class. There are two classes. The ruling families and the worker-class. Everyone else was exported to the United States. The question is where will we be exported to?
Amazing how people refuse to see the dots let alone connect them.
The salient points, organized more linearly, logically and less mockingly than in the original article are:
Section 2, Subnote A of 12 U.S.C. 461. reads:
A) Each depository institution shall maintain reserves against its transaction accounts as the Board may prescribe by regulation solely for the purpose of implementing monetary policy- (i) in the ratio of 3 per centum for that portion of its total transaction accounts of $25,000,000 or less, subject to subparagraph (C); and (ii) in the ratio of 12 per centum, or in such other ratio as the Board may prescribe not greater than 14 per centum and not less than 8 per centum, for that portion of its total transaction accounts in excess of $25,000,000, subject to subparagraph (C).
Title 12 of the Financial Services Regulatory Relief Act of 2006, passed by the then Republican-lead Congress, SEC 202 reads:
SEC. 202. INCREASED FLEXIBILITY FOR THE FEDERAL RESERVE BOARD TO ESTABLISH RESERVE REQUIREMENTS. Section 19(b)(2)(A) of the Federal Reserve Act (12 U.S.C. 461(b)(2)(A)) is amended-- (1) in clause (i), by striking `the ratio of 3 per centum' and inserting `a ratio of not greater than 3 percent (and which may be zero)'; and (2) in clause (ii), by striking `and not less than 8 per centum,' and inserting `(and which may be zero),'.
Section 19(b)(2)(A) of the Federal Reserve Act (12 U.S.C. 461(b)(2)(A)) is amended-- (1) in clause (i), by striking `the ratio of 3 per centum' and inserting `a ratio of not greater than 3 percent (and which may be zero)'; and (2) in clause (ii), by striking `and not less than 8 per centum,' and inserting `(and which may be zero),'.
This clause was originally scheduled to go into effect October 1 2011 (why?), but would have been amended by the bailout bill to go into effect October 1 2008. That's tomorrow banks would not be required to hold any capitalization against transactions and deposits what so ever.
So, McBlogger. You still want to go back to your Charlie Savage/Michelle Malkin Talking Points (tm) of blaming it on minorities and women who were disproportionately given subprime mortgages through CRA (including the ones who qualified for normal mortgages)?
PLUS, you have to fund it. In many cases, we have regs on the books that are FANTASTIC. But we don't have the funding. FUND THEM.
As for your last point, Malkin and I are about as far from each other as you can get. You're are a MORON if you think we're even remotely close. And I haven't blamed ANYTHING on minorities. Where the HELL are getting that?
http://www.cnn.com/2008/POLITI...
The only thing I disagree with is the comment about CRA since I haven't seen any real proof that it was the problem. The problem seems to have unscrupulous lenders literally pulling people in off the streets and telling them "they, too, could own their own home" and having them sign the papers before explaining the financial terms which often were only explained at closing at which point the financial terms still weren't really explained.
The bailout only helps the crooks. No one else. But then this administration has only served the crooks. No one else.
The only ones that had a problem were the vintage 2006 and 2007 loans (MOSTLY My Community). However, even those have a default rate FAR lower than subprime.
This CRA is at fault talking point is just a load of shit. Seriously, only a Republican would have dreamed it up.
The only people worried are the crooks and the people who believed their scams. Oil obviously is not worth $140 a barrel. And most stock is not worth what everyone thought it was. Cash is king. Smart people who had anything to liquidate started liquidating a long time ago. Sorry you can't buy your new toy. Save for it. The way people used to do. We all brought this on in a way with our little plastic cards and our need for instant gratification and the maxim of "I have, therefore I am."
Too bad this administration didn't follow the maxim before it flushed trillions of dollars of taxpayer money down the toilet.
If Nancy Pelosi truly represented the people, which she doesn't, she would have had Congress flush this adminstration down the toilet as well.
Obviously despite the partisan rhetoric 2/3 of the Republicans in Congress have had enough of Bush.
Apparently Nancy Pelosi is too busy hamming it up for the cameras to pay attention to the other side of the aisle let alone her own side.
Sooner or later flashbulbs will go off in the halls of Congress and Nancy Pelosi and Sheila Jackson Lee will collide head-on in the rush down the hall in search of the flashes of light that both cannot live without and can detect ten miles away.
If you want to bail out crooks, send them a check. But don't expect everyone else to send one.
Chris Skinner is a noted commentary on the financial markets around the world. He is based in the UK but is a noted authority in the SWIFT community. His commentary today shows that the world has lost faith in America's ability to deal with a crisis like this.
This entry is from The Bank Watch and discusses some of the reform points brought out above. However it also talks to the current situation. Basically until we can provide relief for the credit market that is at capacity no money is going to move in the economy. It does speak to some added language in the bill to prevent further risk taking. My only issue is the time challenge in getting that language solidified on both sides of the aisle.
Business Week provides an even more in depth review of the credit crunch and the basis behind the fear quoted so many times in here. The markets are bunkering for survival while Congress jerks around with the politics. These are the people that are the bloodlines of our economy and they are constricting to preserve themselves, as they should.
Hopefully this provides more context outside the political blogosphere that has industry relevance. Very honestly I rely on these folks much beyond Daily Kos or McBlogger (nothing against ya buddy) or any others in here.
The investment bankers have had only a negative effect on the economy, directing capital away from productive use and into a serious of Ponzi schemes. "Normality" at the price of breaking the dollar is a very bad deal.
Regarding the schemes, come up with something more realistic. New financial instruments can be good innovations if managed properly. The absence of a good regulatory environment allowed bad schemes to mature. To go a step further uneducated consumers bought into the instruments offered by predatory lenders. We all know that and the plans are to deal with that.
However, as you seem to continue to ignore, we have a crisis on our hands that needs to be dealt with now. As I said before, do we need to use crayons and puppets to help you understand the situation? Actually I'm kind of hoping it plays through only for you so you can see your credit dry up and your job disappear as a result of the impending recession. No economic expansion, no economy. Econ 101 or was that a class you skipped.
I hate to be blunt about this discussion but it's like talking to kids on this situation. Today I had a discussion with the lady that cuts my hair on it and explained how we got where we are today. I didn't offer my opinion on the solution but asked her what she thought we should do. She is now for the bailout understanding the consequences. When you do the research (as in reading the articles) it becomes pretty darn obvious.
So rootless2 offer some real solutions other than blame and we'll continue the dialogue. Right now you are wrapped up in rhetoric.
If the private banking system is refusing to offer loans to good credit risks, the Feds can offer loans directly until someone decides to make money on it.
If needed, we can add (4) direct purchase of mortgages from SIVs (no purchase of SIV shares)
There is no good argument I have heard for rescuing the bankers who have demonstrated their incapacity for judging risk. Why give more money to people who have proven that they don't know how to manage it?
Regarding AIG you might rethink that one. They were severely undercapitalized prior to the Fed rescue so unless you're suggesting we channel the $700B into them.
As for the rest I guess you are suggesting a nationalization of the banking system to solve the problem. Yikes. That gives me a lot of confidence. Granted the current situation wasn't good but a lot of that is due to poor regulation by... uh ... the same people you want to turn this over to. Did I miss something in that?
Oh, and remember my good buddy across the pond? His latest blog might suit you reformers nicely. Enjoy.
"I wonder now what Ernest Hemingway's dictionary looked like, since he got along so well with dinky words that everybody can spell and truly understand." -- Kurt Vonnegut
'Bad for Investors' "It's just bad for investors," said Beth Brooke, global vice chair at Ernst & Young LLP, in Washington, D.C. "Suspending mark-to-market accounting, in essence, suspends reality."
"It's just bad for investors," said Beth Brooke, global vice chair at Ernst & Young LLP, in Washington, D.C. "Suspending mark-to-market accounting, in essence, suspends reality."
I think the same thing can be said about the last 8 years. Fighting for Texas families Democratic Nominee for US Congress, TX 4th, 2006, 2008
Here's the excerpt:
That is an interesting twist by the SEC and is playing with the Sarbanes-Oaxely rules that were put in place after Enron and other accounting debacles. It means the value of your holdings could be valued differently than market which flies in the face of free market. The problem is that no one has been able to put a fair market value on the toxic holdings. As soon as one firm or the Fed puts these on the open market in either a reverse auction or some other method we immediately set a value and all bets are off on current solvency. In other words, if these things come up lower than stated value, which they very well possibly could, the crisis could worsen. But the accounting would be sound.
The counter argument for suspending mark to market relates to crisis situations like we have now. In other words, should you impose the market value of a financial crisis on assets that would actually drive a higher price without the crisis? It's a matter of interpretation about what the true value of assets should be.
Dave has a package of reforms. The only one that gives me heartburn is the suspension of capital gains taxes.
According to his explanation of mark to market, its suspension would translate Paulson's assertion that these asserts have future value into bookkeeping reality. This "gimmick" sounds too good to be true. Would it really fool banks into lending to each other again? Fighting for Texas families Democratic Nominee for US Congress, TX 4th, 2006, 2008
His capital gains proposal also bothers me. This sounds very supply side which I have yet to see truly work. There's never been enough data to support supply side practices.
Finally it boils back to what the true value of the assets are. These are real assets that have been depressed by various unrelated circumstances. Auditors love mark to market because there is no question on the value of the asset. Remember, accountants love absolutes. Economists and many financial analysts feel these are false prices that would be set during an oppressed market. Timing is the critical factor here. When and against what baseline do you set the price?
Good article from the Joint Economic Committee of Congress detailing actual numbers http://www.house.gov/jec/fisca...
Right now we're on the left hand side of the curve. Cutting taxes from here actually hurts gov't revenue.
In other words, you exacerbate inflation and create an asset bubble with your idea. I'm so sick of supply side bullshit I could puke. Your ideology and theory ONLY work under certain conditions. We're NOT in those certain conditions. We haven't been there since 1980.
Based on the situations we have now there is no way the curve could even apply now. The problem is Rs who have no freaking clue as to how it operates have cut their baby teeth on the damn thing and have no other chant but to use capital gains tax cuts as the solution to all things. It's the Ronco product of the Rs - "it slices, it dices, it makes Julienne fries." It's time for them to find a new chant other than that.
Now that Bear and I have explained this to you, if you need further education, please feel free to email me. I LOVE teaching economics to those who have training only from Rush.
The empirical evidence shows I'm right. Always. As on cap gains... you look at the bounce or the drop, but you never look the longer term nor do you ask why. It's simple... tax planning. If I have a gain of $1000 on a stock, it's December and on Jan 1 cap gains will increase from 15 to 20%, I'm going to have to make a decision based on the holding. Simplistically, if taxes are my ONLY consideration, I'm going to sell. So will many others. So the #'s will look like there was a surge in cap gains revenue, followed by a drought for a few months. From this, you would infer that raising cap gains taxes drives down government receipts. In the short term, you'd be right. However, six months AFTER the change, all things being equal, you'd see about the # of capital gains reports as you did six months BEFORE the change. The only difference? The receipts to the government will be higher in the former case.
If you're curious enough, you'll learn rather quickly that everything you 'know' just ain't so.
And, in the event you're wondering about my socioeconomic status, I AM one of the people who will pay more under Obama than McCain. However, SOMEONE HAS TO BECAUSE THE COUNTRY IS FALLING APART. We've got to pay for the last 30 years of inattentiveness.
So, SD, why not just say thank you and shut up?
No commentary from me, just enjoy the read and draw your own conclusions.
