Maine Owl

Did I just hear Rahm Emanuel on CNN tell Wolf Blitzer that all the pork in the bailout bill was the fault of those members of the House of Representatives who voted against the bill?

Mike held fast. Tom Allen again voted--this time along with Susan Collins--to punt the taxpayers. This would have been a great chance for Tom Allen to demand a progressive alternative to the Collins-Bush bailout. Squandered.

Their conduct should be like it was for a funeral


Only Barney Frank has an appropriate scowl.

Not that I think Rush Limbaugh does much besides ramble stupidly, but he had one good observation a little bit ago--the Democratic leadership in Congress was seen celebrating the bailout bill in an unseemly fashion. I concur that such whooping over a taking of taxpayer scalps is completely inappropriate, even if you figure this medicine was for the good of the country.

House Approves Bailout on Second Try
By DAVID M. HERSZENHORN - NY Times - October 3, 2008

WASHINGTON — The House of Representatives gave final approval on Friday to the $700 billion bailout for the financial system, reversing course to authorize what may be the most expensive government intervention in history.

At 1:21 p.m., applause and cheers echoed through the House chamber as the number of "aye" votes crossed the threshold needed for passage with just seconds remaining in the official 15-minute voting period. The vote was 263 to 171.

This morning on Democracy Now!, Robert Johnson, former chief economist of the Senate Banking Committee had this to say:

Johnson: I think this bill, five weeks before an election, is illustrating for the American people, when there are two currencies of power—votes and money—that even at this time, when the power of votes is at its cyclical high, meaning just before the election, they are almost laughing at the American people, in the—by the nature and structure of this bill. This is a very sad result.

Later Johnson says he himself would have voted for it if it was the only thing offered to address the grave situation, but that in crafting the bill the way it was crafted--in fact a senate provision will increase for distressed mortgagees the difficulty in getting workouts--incumbents in Congress who voted for this thing are "daring" voters to turn them out of office in five weeks.

Ms. Owl saw this come over A & E at about 3:15 this afternoon:


I would never say anything other than that these guys are 100% on the up-and-up. (Note: The ad. refers to the "Housing and Economic Recovery Act of 2008" see update below.) Can't quite make out the fine print, but I assume there would be a fee for the job loss and default "protection." Still, surely it is legal to offer over the teevee money loans with whatever terms like these. Yet I do wish our crack-shot journalists would ask crisis doomsayers how all this easy money can be flowing with all the credit seized up, when supposedly no one can buy a car, and the Great Depression is just around the corner.

At any rate, Chris Dodd approves so it must be okay.

But isn't "subprime lending" the supposed trigger problem in the economic "crisis" requiring the political class in Washington to drag the taxpayers kicking and screaming into a $trillion mud hole? What the hell is going on here?

Let's speculate. The lenders have learned something very important--The president and Congress will back up any lending practice with a taxpayer bailout, taking "toxic" paper off the books as deemed fit by officials owned by the industry. It's a nice arrangement that the political class is loathe to change in order to provide support for distressed people. This leads to the belief of many tuned to the teevee during the daytime that the types of loans you see here are their best option to keep their little middle class existences alive for one more day. Hence, these strange fee-eating "privatized" loan companies spring up to direct this business to the money flows insured against loss by taxpayer-sponsored bailout.

I haven't bitten on one of these loans yet, but I oughtta know because I resemble that remark. Is there a real day of reckoning on the horizon? I'd have to think so. But for now the political class prefers just to punt us into an increasingly uncertain future.

Update: HERE is a summary of the legislation referred to in the ad. The concept of the Bill claims as one of its principles, "No investor or lender bailout." Also, the borrower must pay back part of any benefit of the workout. Mmmmm. How would the current bailout interact with this program? Maybe someone could help explain. It seems to me the "privatized" aspect of promulgating this program, as seen in the ad., should raise some questions about just how the taxpayer is supporting it.

Update 2: Upon reflection, I suppose conceptually this somehow could fulfill what is discussed HERE: mortgagee bailout, not fat cat bailout, or what Dennis Kucinich discussed HERE. If so, why doesn't anyone mention this FHA legislation already passed? And why the need for the teevee loan hawking? Am I right about the fees involved?

Needless to say, the Sanders Amendment did not become part of the bailout package that passed the Senate last night. Nevertheless, I am posting its text below. If there was a single iota of thought (beyond Bernie & ilk) within our political class that this would be the just, right, and moral thing to do, I'd be much more likely to believe any of 'em have the public interest in mind.

Text of the Sanders Amendment follows:

Even after reading THIS sober explanation and somewhat more spirited exchange of what might be going on underneath the "zero reserve requirement" provision in the bailout bill, I'm not convinced there are no dangers of abuse. I still think Pam Martens was onto something when she characterized this bit of de-regulation as a "Trojan Horse embedded by Wall Street lawyers."

That, my friends, is the change we need: McCain, "aye"; Obama, "aye"; Collins, "aye"; Snowe, "aye".

The proper term is "sweeteners." Gerald has some righteous indignation going HERE.

FOR GOD SAKES, CALL MIKE MICHAUD AND TELL HIM TO VOTE "NO"!!

Ask them to support the Sanders amendment.

Snowe: 202.224.5344
Collins: 202.224.2523

Kucinich: "It kinda raises the question of what a Democrat is."



This is Bailout 101. I'll update this with the transcript link when it becomes available. (Update: Transcript HERE, now correct.) I want to thank MSNBC for putting up the best mainstream cable news show--ever.

The bailout solution: accounting tricks, make under-capitalized banks even MORE under-capitalized

Many Republicans think valuation fantasy games might be just the thing to save the banking system:

Focus turns to 'mark to market' accounting rules
Some in Congress want to lift a requirement that mortgage securities be reported at market value. Opponents worry that values would be overstated. A U.S. accounting board considers the issue today.
By Tom Petruno, Los Angeles Times Staff Writer - October 1, 2008

An angry debate over accounting rules for banks may be coming to a head.

All year, many bankers have said it was unfair that accounting standards required them to use market value when reporting the value of mortgage securities they own. The frazzled market, they said, was unrealistically pessimistic about the assets' long-term worth.

Markdowns of mortgage assets have devastated the balance sheets of leading banks.

Some in Congress now want to suspend "mark-to-market" accounting altogether and give lenders much more leeway in valuing mortgage securities at levels that, in theory, more realistically reflect what the assets would return over time.

Accounting purists say a rule change would raise the risk that the banks would resort to fantasy accounting -- "mark to make-believe" -- that would overstate the value of their assets to investors. ...

Also, as I wrote yesterday, a piece by Pam Martens in Counterpunch pointed out that the bailout bill would allow banks immediately to operate with zero reserves. In other words, you could have a bank filled with worthless assets that could continue to make loans against them.

Fantasy accounting? Worthless assets? Sounds like more of the same. What does Obama have to say about that? Oh, he's for it. Oy.

I've been reading cranky tech/business writer and blogger John C. Dvorak for longer than I can remember. His post yesterday on the bailout ...

The Bail Out Stinks — Give the Money to the Public Instead
Published on September 30th, 2008 - John C. Dvorak

The administration talks a big game about economic stimulus packages and claims that the public is the winner when taxes are low or they are simply given a handout to spend. So take $600-plus billion and give each man, woman and child $2000 each. ...

Why not let the public buy up the mortgages at these low-ball prices and move in? Why can’t that be arranged? ...

You just have to go over there and see what he has up with this great column. ROFL!

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.