Bailout Deal Reached...
Nick Gillespie | September 25, 2008, 2:08pm
It's all over but the details, which kind of matter:
Congressional leaders from both political parties said today they had agreed to the outlines of a proposed $700 billion bailout of U.S. financial markets, with limits on executive pay and help for homeowners in distress.
The agreement came a few hours ahead of a meeting called by President George W. Bush with House and Senate leaders, along with presidential candidates John McCain and Barack Obama this afternoon.
Lawmakers said many of the final details were still being hammered out, and that the deal still needed input from the Bush administration, but that the map for the largest government move in the U.S. financial system since the Great Depression had been drawn.
"We are prepared to act expeditiously on a plan with our colleagues that will allow us to send a very strong message to the markets," said Sen. Christopher Dodd, D-Conn.
The Dow Jones Industrial average was up about 240 points after the deal was announced.
Sen. Bob Bennett, R-Utah, said lawmakers had a deal "that will pass the House, pass the Senate, be signed by the Senate and bring a sense of certainty to the markets."
Good luck hammering on the details, fellas! There's no upside here at all except perhaps this one: It likely means the end of any major new spending initiative under President McCain or Obama (or Barr!). And maybe all this new spending will mean bringing the boys and girls home from Iraq sooner rather than later.
Then again, this bailout might just make it tougher to make Bush's tax cuts "permanent." Or free markets free.
More here.
Sens. McCain and Obama have issued CYA statements, but both are behind a plan, which likely means the one just agreed-to, though worse (given that they're running for president, they'll be grandstanding all the way to the finish line):
``Inaction is not an option,'' McCain said yesterday in Freeland, Michigan. ``We must pass legislation to address this crisis.'' At the same time, he said the bailout represents ``an unprecedented sum,'' and ``that money can't simply go into a black hole of bad debt.''
Obama said the government should get a stake in any company that benefits from the bailout.
``If taxpayers are being asked to underwrite hundreds of billions of dollars to solve this crisis, they must be treated like investors,'' the Democratic presidential nominee said in Clearwater, Florida.
I don't want to be treated like an investor here. That means I could lose even more money, especially if the government is managing my money.
McCain is pushing a proposal to cap the salary of any executive at any company that benefits from the bailout at $400,000, "the same pay as the U.S. president's."
You know, isn't it about time we think about cutting the pay of the nation's CEO, rather than worrying too much about how much dumb jamucks at Lehman Brothers are making? I mean, really, the past eight years have been nothing short of disastrous, with Bush spending like a drunken sailor and regulating like, like, like, Capt. Queeg (?) or something (all that's left is for Bush to start complaining about his frozen strawberries). And the war. And the prescription drug plan. And civil liberties. And...
More here.
BG | September 25, 2008, 4:36pm | #
I read the article, but I'm not clear on this point:
Will the government be purchasing the mortgage-backed assets and reselling them later? Or will they merely be providing insurance for private firms/individuals that do so, funded by premiums that those firms/individuals pay?
If it’s the later, then it’s probably not a big deal. The private buyers will probably only be willing to buy at a significantly discounted rate, so the firms that are selling these assets will still take significant losses (as they should). But they'll at least get
some money for them
now. If they still go out of business, at least creditors would be getting more cash, and fewer mortgage-backed securities, with the bankruptcy settlement. And we won't have this "Credit Crunch to End the World" that some are predicting. And the taxpayers shouldn't be on the hook for too much in that case.
If it’s the former, then there's much more risk of a serious problem.
If the companies with these bad assets are so desperate to get
something for them quickly; they should sell them at a super-discounted rate, take their losses, and avoid such bogus deals in the future. This is especially true if taxpayers are buying them (though unfortunately, that may be the one case where such companies
won't have to take too much in losses).
Another thing: If the goal here is to avoid a credit crunch in the short-term, increasing the deficit to fund this thing would seem to undercut that goal. If the government has to borrow more money, that creates more competition among borrowers.
It seems they would need to increase taxes (at least temporarily) to get this thing to work even in the short term. Although, I wouldn't trust them when they say "the tax increase is temporary" unless there is a sunset provision in the bill to increase them - which would automatically put tax rates back down in a few years.
The Rex | September 25, 2008, 5:22pm | #
I think now is a good time to reflect on a bit of wisdom I gleaned from a book recently.
"Good evening, [America]. I thought it time we had a little talk. Are you sitting comfortably? Then I'll begin... I suppose you're wondering why I've called you here this evening. Well, you see, I'm not entirely satisfied with your performance lately... I'm afraid your work's been slipping and... and well, I'm afraid we've been thinking about letting you go. Oh, I know, I know. You've been with the company a long time now. Almost... let me see. Almost ten thousand years! My word, doesn't time fly? It seems like only yesterday... I remember the day you commenced your employment, swinging down from the trees, fresh-faced and nervous, a bone clasped in your bristling fist... "Where do I start, sir?", you asked, plaintively. I recalled my exact words: "There's a pile of dinosaur eggs over there, youngster", I said, smiling paternally all the while. "Get sucking". Well, we've certainly come a long way since then, haven't we? And yes, yes, you're right, in all that time you haven't missed a day. Well done, thou good and faithful servant. Also, please don't think I've forgotten about your outstanding service record, or about all of the invaluable contributions that you've made to the company... Fire, the wheel, agriculture... It's an impressive list, old-timer. A jolly impressive list. Don't get me wrong. But... well, to be frank, we've had our problems too. There's no getting away from it. Do you know what I think alot of it stems from? I'll tell you... It's your basic unwillingness to get on in the company. You don't seem to want to face up to any real responibility. To be your own boss. Lord knows you've been given plenty of opportunities... We've offered you promotion time and time again, and each time you've turned us down. "I couldn't handle the work, Guv'Nor", you wheedled. "I know my place". To be frank, you're not trying, are you? You see, you've been standing still for far too long, and its starting to show in your work... And, I might add, in your general standard of behavior. The constant bickering on the factory floor has not escaped my attention... nor the recent bouts of rowdiness in the staff canteen. Then of course there's... Hmm. Well, I didn't really want to have to bring this up, but... Well, you see, I've been hearing some disturbing rumors about your personal life. No, never you mind who told me. No names, no pack drill... I understand you are unable to get on with your spouse. I hear that you argue. I am told that you shout. Violence has been mentioned. I am reliably informed that you always hurt the one your love... the one you shouldn't hurt at all. And what about the children, its always the children who suffer, as you're well aware. Poor little mites. What are they to make of it? What are they to make of all your bullying, your despair, your cowardice and all your fondly nurtured bigotries? Really, its not good enough, is it? And its no good blaming the drop in work standards on and management either... though to be sure, the management is very bad. In fact, let us not mince words... The Management is terrible! We've had a string of embezzelers, frauds, liars and lunatics making a string of catastrophic decisions. This is plain fact. But who elected them? It was you! You who elected these people! You who gave them the power to make your decisions for you! While I'll admit that anyone can make a mistake once, to go on making the same lethal errors century after century seems to me nothing short of deliberate. You have encouraged these malicious incompetents, who have made your working life a shambles. You have accepted without question their senseless orders. You have allowed them to fill your workspace with dangerous and unproven machines. You could have stopped them. All you had to say was "No". You have no spine. You have no pride. You are no longer an asset to the company. I will, however, be generous. You will be granted two years to show me some improvement in your work. If at the end of that time you are still unwilling to make a go of it... you're fired. That will be all. You may return to your labors."
and a nugget of truth for people who are saying "just this once it's ok."
"An inch. It's small and it's fragile and it's the only thing in the world worth having. We must never lose it, or sell it, or give it away. We must never let them take it from us."
John | September 25, 2008, 5:29pm | #
Fannie Mae Eases Credit To Aid Mortgage Lending
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LinkedinDiggFacebookMixxYahoo! BuzzPermalinkBy STEVEN A. HOLMES
Published: September 30, 1999
In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.
The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.
Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.
''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''
Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.
In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.
''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''
http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260&sec=&spon=&pagewanted=1
From the NYT in 1999. We did this to ourselves. As far as tax payers bitching about this, why the hell didn't anyone say anything when they were doing this? No that would have been racist. Your economy is only as good as the society that runs it.
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