Monthly Archives: September 2008

Updates on the $700,000,000,000 Fed / Wall Street / Mortgage Bailout

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Lori Montgomery & Paul Kane:

The proposed legislation would authorize Treasury Secretary Henry M. Paulson Jr. to initiate what is likely to become the biggest government bailout in U.S. history, allowing him to spend up to $700 billion to relieve faltering banks and other firms of bad assets backed by home mortgages, which are falling into foreclosure at record rates.
The plan would give Paulson broad latitude to purchase any assets from any firms at any price and to assemble a team of individuals and institutions to manage them. In wielding those powers, Paulson and others hope to contain a crisis that already has caused the failure or forced the rescue of a half-dozen major Wall Street firms and unnerved markets around the world.

  • Draft Bailout bill (200K PDF)
  • Letter to Paulson & Bernanke
  • Larry Summers:

    Congressional negotiators have now completed action on a $700bn authorisation for the bail-out of the financial sector. This step was as necessary as the need for it was regrettable. There are hugely important tactical issues regarding the deployment of these funds that the authorities will need to consider in the weeks and months ahead if the chance of containing the damage is to be maximised. I expect to return to these issues once the legislation is passed.
    In the meantime, it is necessary to consider the impact of the bail-out and the conditions necessitating it on federal budget policy. The idea seems to have taken hold in recent days that because of the unfortunate need to bail out the financial sector, the nation will have to scale back its aspirations in other areas such as healthcare, energy, education and tax relief. This is more wrong than right. We have here the unusual case where economic analysis actually suggests that dismal conclusions are unwarranted and the events of the last weeks suggest that for the near term, government should do more, not less.

  • Tom Wolfe’s latest is worth a read.
  • My email to our Washington delegation.

My Thoughts on the Proposed $700,000,000,000 Fed/Wall Street / MortgageBailout

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My email to Wisconsin Senators Russ Feingold and Herb Kohl. I also sent this to Congresswoman Tammy Baldwin:
Dear Senator Feingold:
I am writing to express my opposition to the proposed $700,000,000,000 toxic debt instrument bailout.
I believe it is wrong for us to continue the practice of spending beyond our means and simply passing more debt to our children and grandchildren. It is also wrong to stoke the fires of inflation.
If you believe these funds are necessary, then I suggest the following:

  1. Mandatory across the board spending cuts that pay for at least 50% of this initiative. They must be across the board.
  2. A slight change in tax policy so that every American pays some taxes. The annual base tax cost should follow spending changes. Choose a small number. Think of this as a “co-pay”. We have a real problem with the perception that federal (and state) dollars somehow fall out of the sky.
  3. You might be able to insert the beginning of a consumption tax. I would be in favor of such a tax on luxury vehicles, large boats and private aircraft over $1M.
  4. Restore the estate tax rate to early 1990’s levels.
  5. Gas tax. Add a provision to raise the gas tax annually. We need to do this for economic and national security reasons.

In other words, if necessary, support the initiative, but not on the backs of our children and grandchildren.
Best wishes,
Jim
Related:

Financial Sector Fetes Lawmakers Making Bailout Decisions

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Sunlight Foundation:

Some 258 parties, a number of them hosted by lobbyists for the finance, insurance, and real estate industries, have been thrown for members of the U.S. House Financial Services Committee this year, according to an investigation by the Sunlight Foundation’s Party Time project. Members of the House committee, along with the Senate Banking Committee, are considering the $700 billion bailout legislation for the financial sector proposed by the administration.
A sampling of parties include:

Just a touch and you’re dining gate-side

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Mary Kirby:

Apart from the fact that JetBlue Airways will offer passengers free Wi-Fi at its new Terminal 5 at New York JFK airport (as it does in Terminal 6), my favourite part of the new facility is…
The remote food ordering systems in the gate areas! Called re:vive, the touch-screen monitors let travellers order meals that are delivered directly to their gate-side tables.
Re:vive received a tremendous reception at Monday’s ribbon-cutting ceremony, with plenty of “oohs and aahs” from the crowd.

America Must Rescue the Bonuses at Goldman Sachs: Michael Lewis

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Michael Lewis:

Anyone who caught even a sliver of yesterday’s hearings in the U.S. Senate on the proposed Treasury bailout of the mortgage-backed securities market knows that the current financial crisis is far from over. Suddenly all sorts of previously unthinkable catastrophes seem possible.
The total collapse of the global financial system is one thing — everyone at Davos in January saw that coming. But the shrinkage of the Goldman Sachs Group Inc. bonus pool is another. Whatever else the Treasury achieves it must know that if the employees of Goldman suffer any sort of pay cut, it will be judged to have failed. And our country may never recover.
Last year Goldman paid its employees $20 billion, 44 percent of the firm’s revenue. Chief Executive Officer Lloyd Blankfein took home $68.5 million, and many otherwise ordinary human beings took home $10 million or mor

Notes from the Federal Bailout Hearing

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Mike Nizza:

From Paulson to You | 11:41 a.m. In response to a question, Secretary Paulson sought to clear the air about who the bailout was supposed to help. “This is all about the American taxpayer,” he said. “That’s all we care about.” He continued:
Any banking operation in the United states that is doing business with the American public is important. The American public in dealing with the financial system doesn’t know who owns that bank.
Later, he added, “You ask me about taxpayers being on the hook? Guess what, they are already on the hook.”

Related: Public Markup of the Dodd bailout proposal.

The Power of One

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A few years ago, I had an opportunity to hear “her deepness” Sylvia Earle speak. She included this short video in her presentation – “the Power of One“.
Earle emphasized the opportunities we all have to change the world. I recalled her talk while visiting with Hal Herron recently. Herron, of Riverton, Wyoming has been adding outdoor art to his home town in an interesting way.
Museums often create large banners to promote an exhibit. Herron sought out these banners after a showing is complete. He pays for shipping to Riverton and places them around the community for all to enjoy. Fascinating. He forwarded two photos, seen below:



Bill Perkin’s full page New York Times ad in today’s paper is another illustration of the “Power of One”.

Perkins approach requires a certain size checkbook, of course 🙂
All of which reminds me of the “two greatest commandments”.

“The Era of Leverage is Over”

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Gillian Tett:

A few years ago, senior officials at the Bank for International Settlements started ringing alarm bells about the scale of leverage that was quietly building up in the financial system. Back then, though, it was fantastically hard to get American policymakers – let alone bankers – to listen.
In the go-go days of the credit bubble, Washington policymakers blithely assumed that the Western financial system had plenty of capital to cope with any potential risks. Consequently, as one former BIS official admits: “Worrying about leverage wasn’t fashionable at all – no one wanted to hear.”
Fast-forward a couple of years and, my, how those Western financiers are having to eat humble pie (even to the point of accepting a helping hand from the once-ailing Japanese). After all, the events of the past year have now made it patently – horrifically – obvious that the Western banking system has become dangerously undercapitalised in recent years, to the point where even the Federal Reserve is having to shore up its defences.
Moreover, it is now also clear that Western policymakers are belatedly trying to correct this state of affairs. The days when high leverage, mega bonuses and wacky instruments were equated with financial virility have gone; instead a more humble, back-to-basics and slim-line approach is what investors are demanding. Thus, deleveraging is now all the rage – in whatever form it might take.

Five Reasons to Give Thanks for the Financial Collapse of the Decade

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Michael Lewis:

One of life’s rules is that there’s bad in good and good in bad. The total collapse of the U.S. financial system is no exception. Even in the midst of the current financial despair we can look around and identify many collateral benefits.
A lot of attractive office space seems to be opening up in midtown Manhattan, for instance, and the U.S. government is now getting paid to borrow money. (And with T-bills yielding 0 percent, they really ought to borrow a lot more of it, and quickly.)
And so as Morgan Stanley Chief Executive Officer John Mack blasts short sellers for his problems, and Goldman Sachs CEO Lloyd Blankfein swans around pretending to be above this little panic, we ought to step back and enjoy the positives.