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This is the archive for September 2008

Tuesday, September 30, 2008

The government of Iceland figured out how to re-capitalize a major distressed bank without dumping worthless assets on the taxpayer.
"Americans don't have enough money to pay their mortgages."
More on the disastrous legislation

Truth be told, I only managed quickly to review the front end of the bill that fortunately went down yesterday. Here is an absolutely essential piece on the bill's back end, explaining some of the most puzzling financial news of the last couple of weeks:

Congress Didn't Dare Say Yes: What Wall Street Hoped to Win
Counterpunch -- By PAM MARTENS
But the most duplicitous and frightening aspect of the plan, as always, was to found, buried in the back of the document, located there in the hopes everyone would have fallen asleep from the legalese before they made it that far. There?s the innocuous sounding Section 128, which was in both the original and amended versions, and says simply: "Section 203 of the Financial Services Regulatory Relief Act of 2006 (12 U.S.C. 461 note) is amended by striking 'October 1, 2011' and inserting 'October 1, 2008.'"

What would this effectively do? It was intended to speed up the enactment of this section of the law from 2011 to this week.

And what is the impact of the change in this law? (Take a moment to let this sink in.) This wonderful bipartisan bailout proposal, negotiated into the wee hours of the morning by sleep-deprived members of Congress was designed to come with a furtive Trojan Horse embedded by Wall Street lawyers. Banks already in trouble for lack of capital would get to hold as little as "zero" capital for transactions.

But it does solve one giant mystery. All of Wall Street has been attempting to understand why firms like Goldman Sachs and Morgan Stanley, who have concentrated on mergers, acquisitions, stock and bond underwriting for more a cumulative 212 years, decided in a heartbeat to enter the bean counter world of retail banking and transform into bank holding companies. (That?s like asking General Motors to retool overnight for washing machines.) Now we know. Effective this week, if this bailout proposal would have passed in its current form, these firms would have had a new best friend at the Fed that was going to let them hold zero reserves for transactions. No wonder the stock of both firms sold off yesterday when Congress rejected the plan: Goldman closed down 12 per cent; Morgan down 15 per cent.
Anyone have any doubts left about for what this bailout was intended? Tom Allen, are you listening?
Rationales interesting and revealing

As I reported yesterday, Representatives Michaud and Allen split on the bailout, Michaud being against, Allen for. A Bangor Daily News story today quotes each on the rationales for their votes:
Rep. Mike Michaud: I voted against the Wall Street bailout bill because it provided largely unchecked authority to the Treasury Department to spend $700 billion of taxpayers' money without adequate safeguards.

Rep. Tom Allen: It is unconscionable that the House failed to reach consensus on legislation to stabilize financial markets as America stands on the brink of the worst economic crisis since the 1930s. ... The jobs, the savings, the homes, the educational opportunities and the retirement security of millions of Americans are at risk.
Mike gets it from the working class perspective. Tom is drenched in the decptive Bush-Democratic-leadership "mushroom cloud" rhetoric. My opinion is that it's unconscionable to pass this in a rush with "worst since 30s" fear mongering in the lead. Mike has working class sensibility on this. There is more time to work out solutions more favorable to the working class, and yes, much much MUCH more "punitive" to Wall Street.

It's not that I think there is no problem, or that Congress should not act. I just think the Paulson approach is rash, stupid, and dangerous. The bill fails to do the things necessary to keep the economy from falling off the metaphorical cliff. Sure, it would open a taxpayer floodgate into Wall Street for a former Goldman Sachs CEO to manage as he pleases. But look, they won't pass an unemployment/health/jobs bill (see HERE), they won't help individuals with bankruptcy and foreclosure (which would have a MAJOR positive effect on the crisis), they won't even discuss surcharges on millionaires or any sort of revenues to help pay. The "oversight" in the bill was a joke. And, it's hard to know, but the amount of junk the taxpayer could go on the hook for (multiple times the $700 billion) could threaten the US Treasury itself.

CALL MIKE and thank him. I'm afraid that from what I see in Tom Allen, it's too late for him.

Monday, September 29, 2008

Maine 2nd District Rep in majority blocking taxpayer hosing in Wall Street bailout

Representative Mike Michaud, despite tremendous pressure from Democratic leadership, came down today on the side of working people everywhere by joining a 228-205 majority against the deceptive, rush $trillion Wall Street bailout bill. I deeply thank Congressman Michaud and hope he has the guts to stand against the backlash of traders who had their salivation for taxpayer money dashed today, tanking the Dow by 777 points.

The basic effect of the bill would have been to create a financial czar out of Paulson. Paulson would have been authorized to operate "on such terms and conditions as are determined by the Secretary, and in accordance with this Act and the policies and procedures developed and published by the Secretary." He would have had virtually dictatorial authority over "TARP," a "Troubled Assets Relief Program"--save for an extremely weak oversight board stuffed with inside people and a toothless Inspector General empowered to write reports.

This is being fashioned as a lose-lose proposition for Democrats. No matter that the opposition was more Republican than Democrat, as I expected, the blame is already being heaped upon Pelosi. What the Speaker did was give Bush a couple of mild jabs in her message just before the vote. This is her infuriating style. Just before another awful taxpayer hosing, the $165 billion Bush Iraq war blank check back in June, she decried the whole thing after engineering its passage. The only difference this time is that the Bush-Paulson measure failed to pass.

Call Mike at (207) 942-6935 and thank him for seeing through this taxpayer disaster care of Barney Frank, Nancy Pelosi, Henry Paulson, and George Bush. As I wrote a few days ago, the pressure is only beginning because the markets are voting "with their feet by going on a credit strike while the stock market tanks." It will take a lot of fortitude for any Rep in the "nays" today to remain standing.

(Some analysis about how bad this bill is continues below.)

Friday, September 26, 2008

Unregulated insurance is a license to steal.

Thursday, September 25, 2008

Ms. Owl: The rich need the money! Don't you know how expensive it is to lead a rich lifestyle?
I'm watching Pat Buchanan on my new favorite show, Rachel Maddow. He's lays it out for any Democrats not yet knowing how they are getting creamed by the Bush-Paulson panic.

Basically, if there is no deal along the terms of what the conservative Republicans want, then it's the Democrats fault after the markets vote with their feet by going on a credit strike while the stock market tanks. If the Democrats pass their own deal with Bush without the right-wing Republicans, then it's the fault of the Democrats for fleecing the taxpayer. If the Democrats go along, then all possibility for progressive reform is foreclosed for years, while the rich can go back to their favorite pastime of drinking money from fire hoses.
Ms. Owl: What are they saying? The next thing we'll see is a smoking gun in the form of a mushroom cloud?
She was talking about a Linda Wertheimer interview Wednesday morning broadcast on NPR's Morning Edition with Lionel Barber, editor of the Financial Times:
Barber: It's important to remember just how serious things came last week. You saw a virtual meltdown of the financial system on the Wednesday. I likened it to that scene in Independence Day when the president is leaving town and he looks behind him and there's the White House, it's crumbling.
Building over the last couple of days there has been much more background din that the only way we can save our house value, business credit, and 401ks is to ram through the Bush-Paulson-Bernanke $trillion bailout of the crooked investment houses. Bush himself, reminding us that he's still around for the first time in a while, piled on the dire warnings in a prime-time address, "More banks could fail, including some in your community. The stock market would drop even more, which would reduce the value of your retirement account."

What is this really about?

The clear answer I believe is that Bush, the crooked financial dealers, and Democratic enablers like Rep. Barney Frank are overreacting to more crisis than actually is there.

No one seems to be able to prove why it's so important that the bailout go through before anyone has the chance to even think about it. Jonathan at Past Peak has it right in two good posts, this "reeks of disaster capitalism." That's the "shock doctrine" described by Naomi Klein.

Klein gave a very compelling interview with Amy Goodman on Wednesday, including these observations:
Klein: We know [McCain] has said ... in the first 100 days of his administration he?ll look at every program and either reform it or shut it down. This is really a recipe for economic shock therapy. So, while you have all of these trivial issues being discussed in the election season, I think what we could?what we're really?you know, under the surface, they?re actually being quite clear. They're going to take?if they take power, it will be in the midst of an economic emergency. They'll invoke that emergency to push through very, very radical changes. So, you know, what I?ve been saying is, this is not four more years of Bush; it's much, much worse in the case of another Republican administration.
Today, Ralph Nader provided additional clarity, also on Democracy Now!, "The Bush regime is creating its own panic."

Meanwhile, as Naomi Klein has discussed, the Republican right is exerting a play for an even more onerous plan:

House GOP: We have leverage on bailout
By Jackie Kucinich - Posted: 09/25/08 03:33 PM [ET]
House Republicans say they have significant leverage on the revamped bailout package, claiming that Democrats will scramble for votes unless they make changes to it.

Republicans in the lower chamber are balking at the bailout package, saying that Democrats will be solely responsible for the ramifications of what they see as a flawed compromise.
Brilliant! This is how what I discussed Tuesday will go down. The Republicans will blame the Democrats for anything that happens, unless they get a menu of more-of-the-same, private-profit-public-risk, transfer-wealth-from-poor-to-rich policies:
The Republican proposal backs the removal of regulatory and tax barriers to help facilitate the use of private capital to produce liquidity; temporary tax relief provision to help companies free up capital; and temporary suspension of dividend payments by financial institutions.
There's more on the politics and pathetic machinations of the McCain campaign HERE.

Tuesday, September 23, 2008

Old friend of Deep Blade Journal and Peacecast

Danny Schechter in the past has been a good friend of my blogging and media efforts. He has been in my sidebar almost since the beginning as "News Dissector." I just want to point out that the News Dissector is practically live blogging the financial crisis, today's post HERE.

Excellent information for scary times. Shoot Danny's mediachannel.org a contribution if you can. Things are rough for this invaluable source of real journalism.
Bernanke, Paulson & their companies want to use the US Treasury as an open line of credit to continue the massive scam financial operations on a new level. This would be a very dangerous game that could put U.S. taxpayers in the same condition as the crooked investment houses now find themselves.

Can there be a big enough voice in Congress to say no? Call your Congresspeople. Tell 'em that if they can even contemplate a $trillion bailout, they could pass
  • a taxpayer-backed workout program for markets only where absolutely essential as determined by an independent authority (not a former Goldman Sachs executive who is Treasury Secretary);
  • extremely tough restrictions on such a workout, including strict limits on executive compensation and a fair equity stake for taxpayers--no one gets rich off of the workout;
  • a surcharge on millionaires to help pay; and
  • funding of numerous progressive programs and benefits to help the struggling lower and middle classes (w/housing, health, energy, pensions, and so on).

The Democrats would be fools to take the bait thrown to them over the weekend, stated succinctly by House Republican Leader John A. Boehner: "This is about our way of life, our society, our economy."

In fact, the bailout is a trap (see Digby on this). If Democrats go along, they'll be blamed for selling out the taxpayer and hung out to dry by McCain and the rest of the 2008 Republican campaigns. If they try to stand up and stop this thing, markets will react negatively and the Democrats will be blamed for that too. But the Democrats must take that latter medicine. If Bush and the Republicans won't play with a progressive bill as I've outlined, then hang them with any resulting difficulties.

This crisis should be the biggest progressive opportunity of our time.

Call your Congresspeople:
Rep. Mike Michaud, Bangor: (207) 942-6935
Rep. Tom Allen, Portland: Voice: 207-774-5019, FAX: 207-871-0720
Sen. Olympia Snowe, DC Toll Free: (800) 432-1599
Sen. Susan Collins, DC: (202) 224-2523

Below, I include a model letter.

UPDATE: Gerald has a couple of GOOD POSTS up at Turn Maine Blue. He references Monday's Democracy Now!, which was excellent.

Monday, September 22, 2008

I can't disagree with one word of what Newt Gingrich said in an NPR interview

Of course I don't trust him for one second, but check out THIS
NPR: This $700 billion bailout plan, this potential 20-year mess that you're talking about, comes from a Republican administration, comes from your own party. What's happened to Republican faith in small government and free markets?

Gingrich: Well, I think you have a Goldman Sachs chief of staff to the president and the Goldman Sachs secretary of the Treasury. And they convinced the president that the American people ought to send $700 billion to Wall Street, which I think is a very, very bad idea, and I would argue is a very un-Republican idea. I don't understand what they think they're doing.
Is he a man of principle? I don't think so. He's been a strong proponent of unlimited spending for war and unremitting attack on the working class. Maybe he just senses that the current epic financial scandal is the death of conservatism as a working economic theory. So he's taking aim at the nail about to go in the coffin.

Sunday, September 21, 2008

Why is urgency justified?

The narrative we're hearing is that over the last few days, key lawmakers in Washington were given briefings where Federal Reserve Chairman Ben Bernanke and Treasury offered "starkly grave assessments of the economic cost of inaction." Some accounts refer to a "gasp" in the room during one Bernanke session when he laid out the facts of the true situation

On ABC's This Week, House Republican Leader John A. Boehner, evidently concerned about resistance from his own conservative caucus, drew this flatly grim picture for those thinking about delaying the breakneck pace of the bailout:
Boehner: This is not a time for ideological purity. ... This is about our way of life, our society, our economy. ... This isn't about Wall Street.
Wow, that's pretty grave. Our whole house comes crashing down if we don't hand virtually unlimited fiscal authority over to Paulson, the former head investment banker at Goldman Sachs where he pulled down tens of millions in excess compensation.

My grave questions concern what is missing. Why is no one except Barney Frank and, perhaps gingerly, Joe Biden, talking about how revenues will be raised for the bailout? Who will pay how much extra in taxes to pay for the bailout? Or, Will they just try to hang paper and send the bill to our grandchildren?

And then this question: If this situation is in fact a threat to "our way of life," as Boehner states, if it's really that bad, how is it that transferring to taxpayers, without a plan to pay, the worst toxic liabilities from this period of what amounts to mass banking fraud, helps alleviate the risk?

In order for me to believe that the proposal being floated with such urgency was really serious, I would want to hear that a portion of the assets accumulated during party time will be attached. This means that the rich will have to pay substantial surcharges on income over, as Frank suggested, $1 million. Also, the very wealthy must be required to turn back to the treasury some portion of their holdings.

That would be "country first," the patriotic thing to do, as Biden suggested Thursday in support of Obama's plan to raise taxes on those earning over $250,000. The Obama plan is inadequate, but this is the right direction.

Palin responded with ridiculous mockery, saying "to the rest of America, that's not patriotism. ... Raising taxes is about killing jobs and hurting small businesses and making things worse."

The Democrats better defend the Obama tax position full-throatedly. They should attack these Palin remarks. They must take the mockery of Biden on taxes head-on. Sarah, the government can afford a trillion-dollar bailout, but nobody has to pay?

The Republicans just don't have any ideas other than let the crooks off scot-free, charge no one, rinse, repeat the crisis. Next time, they will leave the bill for our great grandchildren.

Saturday, September 20, 2008

Welcome to the USSA, you don't know how lucky you are, eh?

Things have gone through, as the Times puts it, "stomach-flipping turmoil" in the week since I last posted on the financial shitstorm.

$700 Billion Is Sought for Wall Street in Vast Bailout
By DAVID M. HERSZENHORN
Published: September 20, 2008
WASHINGTON ? The Bush administration on Saturday formally proposed a vast bailout of the United States financial system, requesting unfettered authority for the Treasury Department to buy up to $700 billion in mortgage-related assets from financial institutions based in the United States. ...
I don't think this is happening the way Trotsky imagined it would:

If America Should Go Communist
Leon Trotsky (August 1934)
Should America go communist as a result of the difficulties and problems that your capitalist social order is unable to solve, it will discover that communism, far from being an intolerable bureaucratic tyranny and individual regimentation, will be the means of greater individual liberty and shared abundance.
Trotsky is extremely optimistic about America's advantages and its ripeness for revolution during the 1930s Great Depression. He thought, "civil war of a revolutionary nature isn?t fought by the handful of men at the top ? the 5 or 10 percent who own nine-tenths of American wealth."

Boy, did Trotsky ever have this wrong. The Revolution is not coming from the bottom up. It is being formed at the top with the acquiescence of an invertebrate Congress.

Will the new financial take-over plan soon become known as the September 20 Revolution? Bush has done nothing short of asking Congress to repeal its Constitutional power of the purse and create a dictator in Treasury Secretary Paulson--handing him unlimited authority to appropriate middle class taxpayers' sweat in order to re-assert--in fact vastly increase--the privilege and control of the wealth-laden classes who find themselves teetering under the weight of failure of their last round of destructive schemes.

The prospects for the majority of the population will remain subordinate to the wealth holders, unless resistance does rise from the bottom up. I don't see it.

Monday, September 15, 2008

Links thanks to Atrios

A.I.G. Seeks $40 Billion in Fed Aid to Survive
The American International Group is seeking a $40 billion bridge loan from the Federal Reserve, as it faces a potential downgrade from credit ratings agencies that could spell its doom, a person briefed on the matter said Sunday night. ...
After Frantic Day, Wall St. Banks Falter
In one of the most dramatic days in Wall Street?s history, Merrill Lynch agreed to sell itself on Sunday to Bank of America for roughly $50 billion to avert a deepening financial crisis, while another prominent securities firm, Lehman Brothers, said it would seek bankruptcy protection and hurtled toward liquidation after it failed to find a buyer.
And this just posted:

Lehman to File for Bankruptcy After Suitors Drop Out (Update1)
Sept. 15 (Bloomberg) -- Lehman Brothers Holdings Inc., once the fourth-largest U.S. investment bank, will file for bankruptcy after potential buyers abandoned talks and the U.S. government declined to fund a takeover of the crippled firm.
Does that mean THESE dire consequences will come to fruition?
Roubini (on Saturday): It is now clear that we are again ? as we were in mid- March at the time of the Bear Stearns collapse ? an epsilon away from a generalized run on most of the shadow banking system, especially the other major independent broker dealers (Lehman, Merrill Lynch, Morgan Stanley, Goldman Sachs). If Lehman does not find a buyer over the weekend and the counter parties of Lehman withdraw their credit lines on Monday (as they all will in the absence of a deal) you will have not only a collapse of Lehman but also the beginning of a run on the other independent broker dealers (Merrill Lynch first but also in sequence Goldman Sachs and Morgan Stanley and possibly even those broker dealers that are part of a larger commercial bank, I.e. JP Morgan and Citigroup). Then this run would lead to a massive systemic meltdown of the financial system.
With this, can we finally just admit that Milton Friedman and the last few decades of free marketeering rest on the shoulders of the taxpayers and treasury of what we now rightly should call the Soviet States of America?