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How Big Will the Bank Bailout Get?
Sep 19, 2008

 

'Significant Progress' in Bailout Talks
By CHARLES BABINGTON
,
WASHINGTON (Sept. 27) - Congress made significant progress on a financial bailout of Wall Street and the Senate's Democratic leader said Saturday he hoped to announce a deal by the end of the weekend.
President Bush expressed confidence that lawmakers soon would pass a rescue plan before leaving Capitol Hill to campaign for re-election. He acknowledged that many Americans are frustrated by a situation that has led to a possible $700 billion bailout and angered that they may have to cover Wall Street firms' mistakes.
Financial Industry in Turmoil
Charles Dharapak, AP
President Bush spoke on the economic bailout bill and financial crisis Tuesday, demanding action from Congress. "We are in an urgent situation, and the consequences will grow worse each day if we do not act," the president said.

http://news.aol.com/article/white-house-summit-ends-on-sour-note/187754?icid=200100397x1210062306x1200628005

 Compensation
What The Wall Street Titans Earned
Matthew Craft 09.26.08, 6:00 AM ET

 

http://www.forbes.com/2008/09/25/compensation-wall-street-biz-wall-cz_mc_0925fatcats_slide_2.html?thisSpeed=15000 In Pictures: What The Wall Street Titans Earned

Bill Frist On The Govt. Bailouthttp://www.forbes.com/video/?video=fvn/business/er_frist092508&partner=contextual

Buffett Bets On Goldmanhttp://www.forbes.com/video/?video=Wednesday/cw_gbu092408c&partner=contextual

Much of the outcry in the current fight over a fat bailout for Wall Street focuses on the size of Wall Street's fat paychecks.

Bottom line: If Wall Street executives want part of the $700 billion bailout proposal, they'll need to accept some curbs on their pay. The details have yet to be settled, but Congress and legions of irate constituents managed to push Treasury Secretary Henry Paulson into accepting some restrictions. Most likely they'll have to give up lucrative exit packages from failing firms.

In Pictures: What The Wall Street Titans Earned

Executives at the center of the current financial storm happened to collect some of the largest. Lloyd Blankfein, chief executive officer of Goldman Sachs (nyse: GS - news - people ), took home $74 million in salary, bonuses and other awards last year. Richard Fuld, chief executive of the now bankrupt Lehman Brothers (nyse: LEH - news - people ), received $71.9 million.

Over the past five years, Fuld made $354 million leading his company on a wild ride that ultimately ended bankruptcy. He was Lehman's biggest individual shareholder.

Other failed leaders did equally well. James E. Cayne, former chief executive officer of Bear Stearns made $49.31 million over the last two years. He famously fought the bailout of Long-Term Capital Management, the debt-heavy hedge fund in 1998, only to steer Bear Stearns into a fatal debt-heavy foray into mortgage securities. The avid bridge player was busy at a tournament this spring when Bear Stearns melted down.

Martin J Sullivan, former chief executive officer of American International Group (nyse: AIG - news - people ), raked in $39.6 million in the last three years. Sullivan oversaw two quarters of record losses as the insurance giant's head. Shareholders pressured him to quit in June. Severance package plus bonus: $19 million. The Fed took effective control of the company after bailing out its bad bets on credit default swaps. Price tag: $85 billion for 80% of the stock.

The argument for limits is straightforward. Some of the highest-paid executives in the country run banks whose practices have dragged down the entire financial system. In exchange for taxpayers shouldering the burden of their risky assets, Wall Street's executives should submit to some restrictions. Rescue money shouldn't reward mistakes.

"It's hard to argue that any of the compensation for top executives on Wall Street is reasonable," said Rolfe "Rik" Kopelan, a managing partner at Capstone Partnership, an executive search firm. Kopelan, who recruits for companies across Wall Street, wonders how anyone can justify the rise in pay for executives.

In 2007, for instance, corporations paid top executives 275 times the earnings of an average worker, compared with 71 times in 1989, according to research from the Economic Policy Institute. Kopelan said Wall Street compensation looks out of whack even when comparing executives. Lehman's Fuld made only $1.8 million less than Goldman's Blankfein. "Goldman was three times the size and three times as successful, so where's the sense in that?"

The real problem, according to corporate governance researchers, isn't the amount executives receive, it's how companies pay them. "The limit is OK--that's fine," said Paul Hodgson, a senior researcher at the Corporate Library, a governance group. "But pay packages need to be restructured."

Most companies link compensation to quarterly performance, encouraging short-term gambles. When the bets pay off, executives reap the rewards, but when the bets sour, as they have in the latest financing crisis, the people who took the risks don't have to return their bonuses. Some, such as Lehman's Fuld, choose to hold onto their company's equity. But without holding periods, even restricted stock can be sold as soon as it vests.

One way to align pay with long-term incentives and discourage risky bets would be to stretch compensation over more years. That's already how many companies reward their managing directors, Kopelan notes. Directors sometimes make a third of their pay in cash in the first year and receive the rest in equity over three to five years. "That's how they do it with their own employees," he said. "They're holding their employees accountable, but they don't hold themselves accountable."

Hodgson likes two proposals in a draft bill currently in the House of Representatives. One makes it easier for shareholders to nominate board members. Another allows shareholders to hold a non-binding vote on executives pay packages. "At least that way, the shareholders can say, 'We agree with you, that's going to work,'" Hodgson said.

In Pictures: What The Wall Street Titans Earned

http://www.forbes.com/home/2008/09/25/compensation-wall-street-biz-wall-cz_mc_0925fatcats.html
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Lillian D. (41) 		Friday September 19, 2008, 4:00 am
The politics of bailout: a waiting game
Commentary: 'Truly extraordinary measures are required'
By Lou Barnes, Friday, September 12, 2008.
Inman News


Mortgage rates have not been able to hold the early-week low at 5.875 percent, but are no worse than 6 percent for the lowest-fee deals.

The Fannie-Freddie takeover instantly knocked retail mortgage rates down 0.375 percent, but that's been it. The sky-high spread versus the 10-year Treasury note has compressed from 270 basis points to mere cloud-height 235 basis points -- but that's still 70 basis points too high. I have argued all year that the spread was not a credit matter, instead an artifact of an insolvent banking system unable to leverage positions. I win, and wish I hadn't.

Economic data are sliding all over the world. U.S. retail sales in August were the worst of the year, minus 0.7 percent excluding autos. Newly surveyed consumer confidence rose here, probably on cheaper gas, but anxiety and confusion among civilians runs deep.

To describe where we are today, begin with a review of the last year: In August 2007, the large end of the banking system suddenly froze. Sixty percent of total U.S. banking assets reside in the top 10 institutions, and the freeze came from sudden awareness that too many of those assets were bad. The bad ones were spread across all large firms, banks and securities dealers alike.

From August to early spring oil spiked from $90 to $145 while the housing bubble blew -- one inflationary, the other deflationary. The Fed fought both threats: one by letting the credit freeze slow the economy, the other by slashing its interest rate and making massive loans to the banking system. In that August-March interval, most people thought markets would heal with the Fed's help. Bottom would be found. The halfway point would be reached. Surely we were in a late inning. Then Bear Stearns blew, and the Fed again rescued the system -- extraordinary action in its finest hour.

The political world was not ready. Post-Bear, Congress flayed Bernanke & Co. The average citizen and pol were more angry at perpetrators than in pain. Bailouts, big and inventive ones, never fly through Congress until pain exceeds anger. That moment came in August, the Fannie/Freddie takeover marking the moment. Except for a pair of legislators (Dodd, D-Conn.; Bunning, R-Ky.), congressional reaction has been "well done."

The hell of the politics of bailout: You can't get permission until it's really ugly, and then it might be too late.

In public and private messages the authorities now know that the banking system is beyond self-healing, is in a downward and self-reinforcing spiral, and traditional measures are exhausted. Ordinary rate cuts and discount-window lending will not fix the fundamental problem: "Capital" in the banking system is net worth and equity, and the large end of the system is just as underwater as too many homeowners. Truly extraordinary measures are required.

I think I hear the hoofbeats of cavalry. The Fannie-Freddie takeover was routine except for the astounding, plain-English word that the Treasury will begin to buy mortgage-backed securities to drive down spreads. Housing must bottom and it will require cheap credit.

We now know that President Bush, with striking courage at the end of a tough run, has backed Hank Paulson, will not kick the can to January, and will act as necessary in the middle of an election. Well done, indeed.

Lehman Brothers will not exist on Monday. It may be bought whole or in pieces, but it will not receive Bear-style federal assistance and may be liquidated (that's my guess). It has had a year to sell itself, but the apparent massive arrogance of its CEO and fiduciary failure of its board have brought its end.

Then, right quick, showtime for the cavalry: WaMu, AIG, and several other banks and firms threaten a failure cascade. That spiral must be stopped. Right now.

And it must be done with as little federal cash as possible: T-bill yields are falling on credit fear, but bonds are losing value on fear of a bailout avalanche of Treasury sales. There is no way to know quite how (direct injection of capital, accounting fiction, glom wrecks into a giant workout zombie ...), but the authorities have the will, the skill and support.

Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@boulderwest.com.

http://www.inman.com/buyers-sellers/columnists/loubarnes/the-politics-bailout-a-waiting-game***


Lillian D. (41) 		Wednesday October 1, 2008, 7:21 am
How Big Will the Bank Bailout Get?
By Christopher Barker
February 26, 2008
Comment (0)
Recommend (17)
Judging by Monday's gains in shares of most big banks, investors must have missed a certain New York Times article over the weekend.

The piece cited a confidential Bank of America (NYSE: BAC) bailout proposal the bank presented to members of Congress. In its plea for help from the federal government, the Times reported, the document "warns that up to $739 billion in mortgages are at 'moderate to high risk' of defaulting over the next five years and that millions of families could lose their homes."

$739 billion? With a "b"? Numbers this huge demand a moment to pause for reflection. Total losses to date from this crisis throughout the global finance sector amount to $200 billion. Apparently, Bank of America not only foresees that total rising by 370%, but also warns that the trouble may drag on for half a decade. The sum is nearly five times the $150 billion total of the fiscal stimulus package that Congress approved earlier this month, representing nearly 5% of U.S. GDP.

What does this mean for Bank of America?
If Bank of America has adopted forecasts that quantify the potential cumulative industrywide losses from the mortgage crisis, has the bank conveyed its projected portion of those losses to shareholders within the company's recent earnings report?

Bank of America's 2007 annual report revealed $8.18 billion in remaining exposure to mortgage-related CDOs after writedowns, which sounded like a lot until this news. Although B of A did report an eyebrow-raising $104 billion in "special purpose entities liquidity exposure," it's clear that the market didn't think the company would actually lose that much. With Bank of America now becoming the largest mortgage lender, the company's share of a $739 billion loss would be substantial indeed.

How does it affect the Countrywide merger?
This revelation raises questions about Bank of America's acquisition of Countrywide Financial (NYSE: CFC), announced last month. After initially reading the move as CEO Ken Lewis' giant gamble that the U.S. slowdown would be less severe and shorter than many anticipated, I now wonder whether it was an entirely different sort of bet.

The Federal Reserve and the Bush Administration have drawn their lines in the sand with respect to the U.S. markets, indicating that they will consider any measures to stave off massive equity losses. Within this context, they can ill afford to let any of the enormous banks go under.

Was the Countrywide merger a strategic gamble that the resulting size of the company would exert even greater pressure on those in power to guarantee the company's survival? What did Ken Lewis know, and when did he know it? These are all questions that shareholders will undoubtedly be asking as these losses unfold.

With the merger priced at an 80% discount to Countrywide's 52-week highs above $40, though, it is entirely plausible that Bank of America perceived long-term value at $8 per share. At least one Countrywide stakeholder agrees.

Will Bank of America be the only victim?
Hardly. Major mortgage-lending competitors Wells Fargo (NYSE: WFC), JPMorgan Chase (NYSE: JPM), Washington Mutual (NYSE: WM), and Citigroup (NYSE: C) will presumably face their share of losses as well. Across the pond, too, European banks with significant exposures to mortgage-backed securities, such as UBS (NYSE: UBS) and Deutsche Bank, are sure to join the fray. The results for European markets and the euro itself could be similarly painful.

What's the bottom line for investors and consumers?
If the losses spur the type of bailout for which Bank of America is lobbying, consumers will foot the bill through tax increases and/or inflation. If the government leaves the markets alone, a reversal from recent actions, we'll face plummeting equity markets and a continued credit crunch, matched with severe home devaluation and overall stagflation.

In either case, investors can expect further spillover from mortgage defaults into losses on credit card debt, auto and student loans, commercial real estate, etc. Somehow, I suspect that even this $739 billion number will not be the banks' final answer.

For me, the light at the end of the tunnel was extinguished this weekend. For anyone who owns a major mortgage lender, this is your last call to run, not walk, to the nearest exit.

Further Foolishness:

http://www.fool.com/investing/dividends-income/2008/02/26/how-big-will-the-bank-bailout-get.aspx


Lillian D. (41) 		Wednesday October 1, 2008, 7:23 am


News from Common Cause/New York

For more information contact: Susan Lerner, 212-691-6421 / 917-67-5670

Congress Must Get it Right on Bailout Plan
At Lehman Brothers’ Midtown Office, Common Cause and Others Urge Congress to Consider Alternative Bailout Plan

NEW YORK, NY (09/24/2008; 0930)(readMedia)-- Congress must consider alternative bailout plans from independent economic experts - not just the special interest industry experts who brought Wall Street and the US economy to the brink of financial disaster - before approving a legislative fix for the economic meltdown, said Susan Lerner, executive director of Common Cause New York.

"Congress must do this right," Lerner said Wednesday morning outside a Lehman Brothers office building in Midtown Manhattan, releasing a new Common Cause report which examines the lending industry's use of generous campaign contributions and lobbying to stop Congress from taking bold steps to prevent, and now counter, the meltdown of the housing and mortgage markets. "Congress is supposed to recess Friday so members can go home and start campaigning. But this issue is far too important to put aside. Common Cause calls on Congress to stay in Washington through next week to thoughtfully consider plans that are in the public's best interest. Too much is at stake for hasty decisions."

Common Cause also called on Congress not to grant the level of immunity and unprecedented power that the Bush Administration wants to include for the Treasury Secretary in its bailout plan. "Do not cut the Secretary of the Treasury a $700 billion check without providing assurances of accountability, oversight and protections for the taxpayers," Lerner said.

The new Common Cause report, "Ask Yourself Why They Didn't See This Coming," examines the major role of campaign contributions and lobbying in blocking measures that would have helped more American families in a timely manner. The New York economy alone will lose $36 billion as a result of foreclosures on homes financed with subprime loans, according to the report.

"The sheer scale of the economic crisis should be a wake-up call that we need to fundamentally reshape our financial system in this country," said Sarah Ludwig, Co-Director of the Neighborhood Economic Development Advocacy Project, based in New York City. "Not only does the Administration's plan utterly fail to address root causes, but it seeks a bailout for wrongdoers, while doing nothing for distressed homeowners and communities. The Administration is trying to railroad its proposal through Congress without meaningful debate."

The report also spotlights the story of the nation's two largest housing lenders, Fannie Mae and Freddie Mac, their lobbying and campaign activities, and how the government bailout contrasts with how legislators approached the crisis.

The top five spenders among mortgage brokers and bankers paid more than $31 million in political contributions and lobbying fees since the beginning of last year. Fannie Mae and Freddie Mac, the largest home loan companies that have been offered a bailout package by Congress, have spent roughly $180 million on lobbying and campaign contributions since the 2000 election cycle. In the first three months of 2008 alone, the two companies spent a combined total of about $3.5 million on lobbying and hired 42 outside lobbying firms.

"Even unscrupulous lenders responsible for steering people into predatory loans have escaped government intervention because the lending industry has so much influence in Washington, thanks to their incredible lobbying and campaign spending," Common Cause President Bob Edgar said. "The inability of Congress to break through the wall of money built by the financial services industry in order to directly help struggling families in this country is striking."

Roughly 20,000 families are losing their home every week. Estimates of total foreclosures nationwide run about 3 million during 2007 and 2008. There are about 2.3 million vacant homes on the market - the highest rate ever recorded. Most of these figures have not been seen since the Great Depression. Most troubling, analysts predict a second wave of foreclosures still coming.

One proposal supported by many consumer advocates and economists would allow bankruptcy judges to adjust the mortgages of families to reflect the current value of their home. Hundreds of thousands of families now owe more than their home is worth because of the housing market collapse. The lending industry opposes this approach and has successfully killed it. To date, Congress has relied exclusively on voluntary participation among lenders to help struggling families.

"It's amazing how little Congress is doing for people who are clearly in need right now," said Edgar. "This industry's deep pockets has enabled it to stop Congress from taking steps to help average Americans hit by this market crash. Until we break the link between money and politics, the public interest will take a back seat to private interests like those of the lending industry."

"Ask Yourself Why They Didn't See This Coming," the new Common Cause report, will be available on its website, and through both the New York and Washington D.C. offices (www.commoncause.org/ny).

###



http://readme.readmedia.com/news/show/Congress-Must-Get-it-Right-on-Bailout-Plan/291527


Lillian D. (41) 		Wednesday October 1, 2008, 7:24 am
The Fed needs to show reserve on bailouts


By GRANT BOSSE For the Monitor

--------------------------------------------------------------------------------

April 07, 2008 - 6:53 am



Treasury Secretary Hank Paulsen has released a sweeping proposal to reform the nation's banking system, promising that these changes will prevent a repeat of the mortgage meltdown that has wreaked such havoc on our national economy.

Paulsen's proposal to overhaul our antiquated financial bureaucracy is long overdue. But the sweeping increase in power planned for the Federal Reserve is absolutely going in the wrong direction. This 218-page proposal would hand power over our financial lives to the un-elected and unaccountable. It would massively expand federal interference in the private sector, limit consumer choice and nationalize the mortgage industry.

This plan does include some good ideas. Our federal financial bureaucracy creates an overlapping and confusing maze of regulations. This Byzantine system confounds transparency and limits innovation and competition in the financial sector.

Sen. Judd Gregg has praised the plan's focus on streamlining financial regulations and clarifying the jurisdictions of conflicting federal agencies. Sen. John Sununu rightly applauds the plan's inclusion of his efforts to make Fannie Mae and Freddie Mac more open and accountable. But the harm done to competition and privacy by an ever-expanding Federal Reserve more than outweighs these benefits.

Most Democrats reacted by saying these far-reaching changes didn't go far enough. Sens. Hillary Clinton and Barack Obama are outbidding each other on the size of a taxpayer-funded mortgage bailout.

Such a bailout would be disastrous over the long term. Just as the savings and loan bailout taught investors that Uncle Sam would reward them for making bad financial decisions, a similar mortgage bailout would leave lenders and borrowers unaccountable for their own decisions, teaching the next generation of lenders and borrowers to make the same bad choices. Capitalism relies on both success and failure to create prosperity. We shield ourselves from those failures at the cost of our own prosperity in the future.

When it was first created in 1913, the Federal Reserve system served as a lender of last resort to commercial banks, providing stability and security to a financial system prone to panics and runs on the bank. By holding large capital reserves, the Fed could provide instant liquidity to troubled banks, which only hold a fraction of their assets at any one time. Fractional reserves allow banks to lend money and are a key to America's spectacular economic growth over the last century.

While the Fed chairman and board of governors are appointed by the president, the Fed is a private institution. Once confirmed, its members are accountable only to themselves. Giving such an institution more power over our financial lives is ill-conceived. What we need is a more reserved approach.

Over the decades, the Fed has become increasingly ambitious in its intervention in the economy. By setting the prime rate at which it lends money, the Fed has the power to raise and lower interest rates nationally. These periodic decisions are the most anticipated financial news in the nation and influence investment decisions globally. By attempting to continually fine-tune interest rates to modulate inflation and unemployment, the Fed often overcorrects and causes the swings in the business cycle that it is trying to avoid. We need less intervention from the Federal Reserve. Attempts to control the most powerful and dynamic economic engine in history are bound to have unintended consequences, such as our current economic plight.

We need more capitalism and freer markets, not less. We need banks and businesses to face the consequences of their decisions, not be shielded from failure by politicians and bureaucrats. This proposal would stifle innovation and competition in banking, insurance and other financial services and would threaten the financial privacy of all Americans. We don't need socialized banking any more than socialized medicine.

(Grant Bosse of Hillsboro is seeking the Republican nomination in New Hampshire's 2nd Congressional District.)

http://www.concordmonitor.com/apps/pbcs.dll/article?AID=/20080407/OPINION/804070314/1037/NEWS04

Lillian D. (41) 		Wednesday October 1, 2008, 7:53 am
Associated Press
Governors, business up pressure for bailout bill
By PETE YOST and ALAN FRAM 10.01.08, 10:19 AM ET





WASHINGTON - Governors and business lobbyists pressured lawmakers Wednesday to pass a $700 billion financial industry bailout as top lawmakers prepared for another face-off on the issue - this time in the Senate.

"There is a time for partisanship and there is a time for getting things done," Texas Gov. Ricky Perry and West Virginia Gov. Joe Manchin wrote in a letter to members of Congress.

"Americans across the country and in every demographic are feeling the pinch. If Congress does not act soon, the situation will grow appreciably worse. It's time for leadership. Congress needs to act now," they wrote.

Perry heads the Republican Governors Association while Manchin leads the Democratic governors group. Their letter was aimed at signaling there are home-state political reasons for approving the massive bailout.

Adding its voice, the U.S. Chamber of Commerce launched 30-second radio ads in the Washington D.C. area aimed directly at lawmakers.

"Inaction, without a doubt, would cause our economy to collapse," R. Bruce Josten, the chamber's executive vice president, says in the ad. "Congress, do not delay."

The new lobbying initiative came as the Senate prepared for an evening vote an a version of the bill overhauled to attract additional votes. They include an increase in the size of bank deposts insured by the Federal Deposit from $100,000 to $250,000.

Congressional leaders said those additions, plus complaints from constituents furious over Monday's stock market plunge, have improved the propects for the measure's approval. After the Senate's expected passage, a House vote could come later this week.

In a letter to members of Congress Tuesday, more than 50 business trade groups said legislators had to quickly act "to prevent a meltdown" of the country's capital markets and disappearance of credit, making loans for businesses and individuals harder to come by.

Groups signing the letter included the National Association of Manufacturers, the American Banking Association and the National Association of Realtors.

The White House also stepped in by urging outside groups to press lawmakers to vote "yes" when Congress takes up the rescue legislation anew, according to a senior administration official who spoke on condition of anonymity to discuss internal strategy.

President Bush has made a nationally televised speech and met with congressional leaders and the two main presidential candidates at the White House in a futile effort to round up votes for the legislation.

Monday's House rejection of the package has left business groups fuming.

Scott Talbott, senior vice president of government affairs at the Financial Services Roundtable, complained that lawmakers are hearing two different arguments.

"In one they have constituents asking: 'Why are we helping industry with this self-inflicted wound? This bill doesn't affect me,'" said Talbott, whose group represents 100 of the country's largest financial services companies. "In the other ear, they were hearing doom and gloom" from the administration and Federal Reserve Chairman Ben Bernanke, said Talbott.

The U.S. Chamber of Commerce said its annual tally of how individual lawmakers vote on business issues would include the votes on the rescue plan - in effect daring lawmakers to oppose the legislation.

Such warnings, though, fell short Monday against complaints from angry constituents. Public reaction to the House vote - and the Dow Jones industrial average's 778-point plunge - could again carry the day when lawmakers revisit the legislation.

"I'm sure the lobbyists are trying, but I don't think even an army of lobbyists can overcome the public response, which is huge," said Rep. John Campbell, R-Calif., who cast a "yes" vote.

Campbell said while calls to his office against the bill outnumbered those in favor by 8-to-1, most constituents voiced support for the measure on Tuesday.

"The calls now are saying, 'I lost 10 percent of my retirement yesterday,'" Campbell said. "The calls I'm getting are thanking me now."

Aides to lawmakers who opposed the legislation said that while the number of constituents calling or e-mailing on Tuesday who supported the bill increased, majorities were still against the bailout.

The Center for Responsive Politics, a private group that tracks money in politics, noted that House members who supported the bailout have received 51 percent more in campaign contributions from the finance, insurance and real estate sectors than those who opposed the legislation.


Copyright 2008 Associated Press. All rights reserved. This material may not be published broadcast, rewritten, or redistributed

http://www.forbes.com/feeds/ap/2008/10/01/ap5494702.html?partner=alerts

Lillian D. (41) 		Wednesday October 1, 2008, 7:54 am
Main Street bearish on bailout of Wall Street
September 26, 2008


EDITOR'S NOTE: Thursday was a busy day in Washington, with President Bush summoning the two men battling to succeed him to the White House for an economic huddle and key lawmakers on Capitol Hill agreeing to a multibillion-dollar bailout plan for Wall Street.

The goal: to stave off a national economic catastrophe.

As Bush welcomed Republican John McCain and Democrat Barack Obama, leaders in Congress reached a tentative accord that would give the president a fraction of the $700 billion he requested up front, with more to come if and when it was needed.

A vote on the tentative accord may come this weekend.

Wall Street showed its approval of the agreement in Washington, with the Dow Jones industrials closing 196 points higher.

But many Asbury Park Press readers opposed the bailout strategies. Join readers who are still debating their views in a thread at Hot Topics on our online Forums at www.app.com.

pawsoff: Wall Street has been such a big part of the volatility over the past several years, manipulating the markets to fatten those six-figure (and more) bonus checks the brokers get at the end of the year, all at the expense of the average worker's 401(k) retirement savings that have been whittled down to a steaming pile. Wall Street needs to be overhauled. The "greed-is-good" philosophy needs to be put to rest now.

heybros: Someone should tell Federal Reserve Chairman Ben Bernanke it would cost far less to bail out the credit of the Americans who pay the income taxes to fund the Treasury. That would spur the economy and stabilize the auto, housing, retail and credit card industries for less than bailing out Wall Street. Something to think about.

Stepman: Abolish the Federal Reserve and return to sound money. Time to bankrupt the Ole USA and start anew without the Fed to drag us down. A 100 percent decline since the federal government got control of the money. Print U.S. notes and move on. It sounds dire, but dire times call for dire action.

navwriter: Is a bailout necessary to protect peoples' money and jobs? I suppose it is, and I hope it does. Someone without a job is no good to any of us. And all of us need to protect our life savings.

I hope next time we all start ranting about having too many public sector jobs and public officials wasting money, we should remember the $2 trillion adding up to bail out the private financial industry. This is caused, in part, by the money made selling risky mortgages and investments that supported the banking, insurance, real estate, construction, travel and retail industries, to name a few. I mean no disrespect to anyone, and I hope all of us work together to make things better.

OrdinaryAverageGuy: Without the bailout, your pensions would be wiped out, all insurance rates would go up, the state would lose a ton in revenue from the tax losses, competition would dry up, and landlords, supermarkets, gas stations and utility companies all would raise rates to cover their costs.

I understand the thinking behind a bailout because doing nothing would be far worse, but it doesn't mean I like it. I am sickened at the thought that we're buying $700 billion in impaired assets and cling to hope great minds outside the rotunda will come up with a better solution than what's now on the table.

If the companies, one of which is an insurer, write off the bad loans, they will not have assets to manage their liabilities held by paying Americans. Whole life policies? Gone. Pensions? Devastated. The money is going to underwrite the solvency of businesses deemed essential to our economic future. This directly affects you, even if you don't know it yet.

jac48: I am sure the financial sector will receive an enormous amount of money to keep it afloat. Poor decisions and bad loans will be taken over by the federal government. This is what happened when the savings and loan banks failed in the 1980s. That failure was blamed on the deregulation of the savings and loans a few years before. Afterward, there was more regulation and no more problems.

Now other banking institutions that were not strictly regulated are in trouble. Again, we will foot the bill. I only hope our government leaders will realize more regulation is required and not, as President Bush has claimed, let the "market" regulate itself. That will only lead to more financial problems.

rpigs: It takes gall for politicians to even suggest this bailout after recently making it much harder for ordinary Americans in financial crisis to file for bankruptcy. The message is obvious: Wall Street (the rich) is more important than Main Street (the working class).

Being a voter means nothing compared to being connected.

Did everyone notice how happy Wall Street was after the announcement of this bailout? Trading was up 300 points after that. No one on Wall Street was embarrassed. Wall Street goes on welfare and no one seemed to notice or mind. The only thing stranger than this phantom capitalism would be a CEO driving to a Women-Infants-Children office to pick up his monthly card in a Rolls Royce.

The regulators have been deaf, dumb and blind to the greed and corruption of Wall Street. I have no confidence that will change, bailout or not. By the time the politicians take their cuts and the CEOs take their eight-figure salaries, bonuses and golden parachutes, I doubt there will be enough left to rescue their companies for the long haul. You can bet only the worst of the worst loans will get unloaded on Uncle Sam. Wall Street will keep the ones they still can collect something on. After all, we are talking about capitalism.

devnull: No problem. Our state government has this all under control. Officials will create a few new taxes and increase tolls on the Parkway and Turnpike to increase revenues. Everyone will make it right through the recession as if it never happened. The state won't need to cut back or reduce expenses. Everyone relax.

stuckinnj: Our New Jersey politicians will use this crisis as a way to create more taxpayer-funded patronage jobs. I'm sure you will see the governor appointing study committees to report on the problem. It makes you feel all warm and fuzzy, doesn't it?

freenj: The good times are over folks. The worst is yet to come.

localboomer: Big business people got greedy and figured they'd make a bundle while the getting was good.

The "Daily Show" on Comedy Central cable television got it right when it mocked "small-government" Republicans arguing hard against increasing government intervention to provide health insurance for all children, all the while not minding bailing out their fat-cat friends for $1 trillion or so. Why didn't they do something in all those years everyone else could see the bubble growing out of control? So much for Bush fading out without inflicting further harm. Our kids will pay for this mess for eons.

leslaw1: In God we trust. All others pay cash.

Woodbyrne: Let the entire system crash. Seeing Big Business get what it deserves is poetic justice. How much of our money will the CEOs and their cronies steal if this $700 billion plan goes through?

It's funny how so many cry "socialism" and "I don't want to pay for their kids health care" and "get a job," but are OK with the government bailing out firms that acted like a bunch of dopes.

I, for one, do not want one cent of my money going to these crooks. I'd rather it go toward something meaningful, such as a nationalized health care program.

fuufuu: The $700 billion buys assets that, over time, may make money for the government. Warren Buffett said he'd put up $700 billion himself if he had it. He put $5 billion into Goldman Sachs this week.

I don't trust anything the government runs, but the fact is the federal government is the only one able to pay $700 billion for these assets and hold on to them.

realitybaby: Buffett is a highly intelligent money manager — something lacking in our government and private money firms today. If the same losers stay in place and this $700 billion goes the way of the housing market and the job market, it will be lost as it's shuffled around by managers with no concern other than their salary increases. If Buffett said he'd do it, I'd vote for him to run the Treasury.

pferd: Congress was told in 2005 this was going to happen. The only thought was selling mortgages to the people who could least afford them. God forbid we get national health care and it becomes another government fiasco we can't afford.

bsinnj: I work in the building industry. While our clients were building the $800,000, $900,000 and $1 million homes, I always wondered who was buying them, because all of our professionals could not afford the homes the buyers were being approved to buy with mortgages.

It always bothered me that I made a good salary but couldn't afford these types of homes. I wondered, and I wondered. Well, I don't wonder anymore. Shame on the companies that wooed people with all those dangerous mortgage products. But then, what did they care? They made their commissions. And shame on the companies who bundled the mortgages and sold them as securities when they knew people probably would default. And I do feel sorry for the people who would have been conservative under most scenarios but were swayed by the prospect of a larger, "dream home." What a mess, and it is not over yet.

Lossdaddy: Let's look in the mirror and see who really is responsible. Why don't people try living within their means? Instead of keeping up with the Joneses, try keeping up with your paycheck. This nonsense goes on all the time. People buy cars they can't afford on credit. Just because Billy Bob has a Porsche does not mean you need one.

hillsider: It's hard to have sympathy for someone whining they will be "a little above breaking even" after selling their house. What makes a homeowner think he is entitled to make a profit in just a few years? If a home-seller really wants to go, especially in this economy, he would be lucky not to lose money. It is not going to get better anytime soon.

Chipper13: I don't know what world you live in, but us folks living in McMansions driving our Mercedes are doing just fine. It's the people in the lower-income brackets who can't sell their homes and are losing them because they can't make their payments after their ARM loans skyrocketed.

Clinton's legislation allowed for the creation of the NINJA loan program: No Income, No Job and No Assets. That's not the type of loan the upper-middle class tends to sign.

ffrapper: I'm already bailing out the rich folks in Deal. Do I have to do it for Rumson, too?

retguy: Banking officials and CEOs have allowed questionable business practices without any governmental oversight. They made big bucks giving out bad mortgages. It shouldn't be legal for investment companies to do what they did. The public will be suffering for years to come because of their greed.

waddles: The greedy CEOs of these companies walk away with big bucks while their employees will be lucky to keep the shirts on their backs, let alone feed their families.

ritarig: How can anyone even think of re-electing a Republican? We were in better shape when Bush took over from Clinton, but look at us now. It doesn't matter whether you have stocks. We all will feel the effects of this mess. The expression "trickle down" takes on new meaning. It is frightening.

deemo444: Before everyone starts blaming President Bush, just remember we have had more Democrats in Congress for the past two years. They have failed by not overseeing what has been going on in the country and passing laws that could have prevented a lot of this mess that the country is in.

brickmama: For president, let's elect Sen. John McCain, who admits he doesn't understand the economy and who was a member of the Keating 5. Brilliant.

OrdinaryAverageGuy: If you think the person who is elected president of the U.S. has that much effect on global markets and each intertwined business, you don't understand global economics. There are things one can do to nudge it one way or the other, but it is myopic to think the president of one country has much to do with millions of business decisions made worldwide.

fuufuu: I blame peoples' greed and the love of a buy-it-now-pay-for-it-later attitude. This meltdown was in motion way before Bush and Clinton.

ForWhat: We are in this situation because banks had to increase lending volume because interest rates are so low. They would lend to all comers without checking to see if they could afford the loan. Americans borrowed over their heads and here we are in a crisis. What is government ownership of this bad debt going to change? The people in troubled mortgages are not getting raises and still are not going to make the payments. Now the taxpayers are the owners of the bad debt. The rich are bailed out again.

Free markets need to exist. We should let the foreclosures happen and allow the prices of homes to come down. As supply increases and demand is stagnant, home prices will fall. Eligible homeowners will come forward to buy with legitimate credentials. Government intervention is doing nothing.

http://www.app.com/apps/pbcs.dll/article?AID=/20080926/OPINION/809260316/1030/OPINION



Lillian D. (41) 		Wednesday October 1, 2008, 8:15 am
The politics of market bailout
25 Sep, 2008, 1309 hrs IST, IANS






Global icons crash
Anatomy of credit crisis
WASHINGTON: As US Treasury Secretary Henry Paulson proposed a $700 billion market bailout plan to Congress, politicians have begun discussing what is missing in it, who would benefit from the plan and who has been left out.

Opinions split into two major groups. One group says the bailout package gives too much power to regulators, while the other argues it protects the wrong victims.

Republican presidential candidate John McCain has been accused of supporting the interests of Wall Street, especially their top managers whose tremendous compensation packages need to be investigated.

His opponents hint that his wife's net worth is over $100 million, so it is no wonder that the wealthy would naturally protect their own, forgetting those who have a mountain of bad mortgage debt to shoulder, small investors, and average Americans in general.

That criticism has come despite McCain's earlier statements about top managers' salaries and the need to monitor the distribution and spending of the bailout money.


Also Read
→ Bush warns of long recession without rescue plan
→ Credit crisis: A bailout plan too big to fail
→ China denies telling banks not to lend to US banks
→ Credit Crisis: Bush's address to the nation


Liberal economists and part of investment companies, in turn, are criticizing Democrats for trying to centralize all regulatory functions with the government, undermining the basic American idea of a strong free market and competition.

Incidentally, Democrats, too, has taken the rap for worrying about Wall Street executives and not about "Main Street," even though their candidate, Barack Obama, said taxpayers should not give 10 cents to bail out Wall Street managers.

The government's package to help the private sector has generated heated debates over several pressing social and economic issues.

First is the issue of whether the government should be handing out cash so generously at a time when the country's budget deficit has reached a 25-year high.

Economists have estimated that the US budget may run a deficit of 3.6 percent of GDP next year, after fluctuating at about the 2.4 percent mark for the past 40 years. It reached a high of six percent in 1983, which prodded the government to start economic reforms.

Despite the alarming statistics, both presidential hopefuls view the proposal to cut taxes as quite realistic.

McCain cited a possible reduction of the corporate income tax, which would in fact be a second reduction, the first one was introduced by the Bush administration several years ago.

Obama said taxes for low and middle income households should be reduced. Importantly, both pledge the government will recoup the shortfall of treasury revenues without elaborating any further.

The second issue topping this week's political discussion is directly linked to the first one: whether the world will be willing to further "finance" US financial might?

Sebastian Mallaby, director of the Maurice R. Greenberg Center for Geoeconomic Studies, said during the recent debates on US foreign policy that the Russians had vetoed the Iraq resolution but were buying American assets.

He said that large numbers of American stocks are held by Russian, Chinese and other foreign investors. Will they agree to continue financing the US budget deficit?

Mallaby said he could not be sure of that, especially in the near term, when the current crisis subsides. However, if investors begin shunning dollar-denominated securities, it will lead to even more disastrous consequences for America's economy.

Other issues are highlighted alongside the future of crisis-ridden investment banks, Wall Street top managers and American taxpayers. One issue is what the average American really wants now. This question is not easy to answer.

When the two front runners only reached the final straight in the current presidential race, even opponents of the Democratic Party praised Obama for his slogan about America needing changes.

Still, observers took to counting the number of times he would say the word "change" in his speeches about anything, including relations with Iraq, Iran, and other regions where the United States has done harm by its blunt policy lately, plus the country's budget deficit and the dramatic economic changes of the past eight years.

One analyst commented sadly that he was now living in a different country, and not only because of the 9/11 tragedy.

He implied that during George W. Bush's presidency America has gone a long way from a model economy and democracy to a turbulent country which annoys the world rather than attracts it, and creates more problems for everyone including its own citizens than it is able to solve.

The past few days' turmoil in financial markets has altered the dominating sentiment. Doubts are being voiced about needing any more changes. People probably need more stability, more of a good old America for a change.

Okay, anything "good and old" is unlikely to come back amid the global capital flow and unbreakable economic interdependence. But it does not mean people cannot dream of it. ? There is still a large group of Americans who say they will make their final choice between the two candidates at the last moment.

The current situation in American finance can still play an important role in the November vote, which is only six weeks away. Experts do not believe the financial situation can be stabilized before yearend, and the next US administration will have to face its consequences, whoever heads the government.

Even the Iraq war, the Guantanamo bases, and Georgia have been pushed to the margins.



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http://economictimes.indiatimes.com/News/International_Business/The_politics_of_market_bailout/articleshow/3526181.cms

Lillian D. (41) 		Wednesday October 1, 2008, 8:28 am


Associated Press
Congress leaders optimistic on revived bailout
By ANDREW TAYLOR 10.01.08, 11:01 AM ET

WASHINGTON - Congressional leaders from both parties said they are hopeful that a $700 billion financial industry bailout that derailed in the House is back on track for quick passage, thanks partly to a provision increasing insurance for people's deposits. President Bush planned to call lawmakers asking for their support ahead of a crucial Senate vote Wednesday night.

"I think the Senate thinks it has the votes and I think it probably will pass," House Majority Leader Steny Hoyer, D-Md., said. House Republican Whip Roy Blunt of Missouri agreed that prospects for passage have improved, and he said he was particularly heartened by indications the legislation has become more appealing to constituents back home.

The plan for Wednesday night's vote was set after leaders there agreed to add tax breaks for businesses and the middle class and increase deposit insurance in an attempt to revive the legislation rejected by the House.

"No one is glad we have reached this critical point. ... Now is our time to work not as Democrats, not as Republicans, but as guardians of the public trust," said Sen. Harry Reid, D-Nev. He said he was hopeful the measure could clear Congress within days "so that by this weekend rolling around, we will have done what we need to do for the American people."

Republican Sen. Mitch McConnell of Kentucky, the minority leader, said, "We believe that we have crafted a way to go forward and to get us back on track."

The White House tried to build support by warning of the consequences of failure.

"This morning we're seeing increased evidence of the credit squeeze on small businesses and municipalities all across the country, so it's critically important that we approve legislation this week and limit further damage to our economy," White House spokesman Tony Fratto said.

Democratic presidential nominee Barack Obama and his GOP rival, John McCain, planned to fly to Washington for the Senate vote, as did Democratic vice presidential nominee Joe Biden.

Reid and McConnell appeared likely to win a big vote in the Senate that would put pressure on the House to go along and send the measure to the White House.

Scrambling to revive a package that met with bitter derision among constituents who viewed it as a giveaway to Wall Street, the Senate added a number of sweeteners designed to please rural lawmakers, including disaster aid for hurricane-battered states and money for rural schools. The package was hitching a ride on a popular measure to require health plans for 51 or more employees to give equal treatment to mental health or addiction if they cover such illnesses.

Hoyer, though, said on NBC's "Today" show he was concerned that the tax additions could complicate the chances of final congressional passage when the legislation comes back to the House floor for a vote.

"There's no doubt the tax package is very controversial," he said, adding that "there's no doubt in my mind that the Senate added this because they thought that's the only way they could get it passed." He said he wasn't pleased the tax provisions were attached to the bill.

There are concerns that moderate House Democrats known as "Blue Dogs" will be repulsed by the tax breaks, and could vote no because they have been saying they don't want to see the deficit run up even further.

Stocks headed for a lower open Wednesday, indicating more of this week's gyrations as investors prepare for next big vote in Washington.

Blunt said one of the reasons he is more optimistic is that lawmakers are hearing less vocal opposition from their districts. He said that calls and e-mails to congressional offices that were running about 90 percent against the measure earlier now are at about "50-50."

"It should be before the House as quickly as it can," Blunt said on NBC. "But we should not set any artificial time limit here." He said that is one of the factors that doomed the bill, which was defeated 228-205 Monday, sending Wall Street into a nosedive with the biggest sell-off since the post-9-11 trading period.

Both Blunt and Hoyer said they thought the atmosphere on the Hill was more conducive to passage now, saying they believe an emerging consensus on raising the federal deposit insurance to $250,000 has helped significantly and that a House vote could come later this week.

Blunt also said he believes there's a better chance of getting the legislation enacted in the wake of a move to ease Security and Exchange Commission accounting rules in a way that would give businesses more leeway in how they value their assets.

Senate Banking Committee Chairman Christopher Dodd, D-Conn., emerged from a meeting Tuesday to tell told reporters, "I'm told a number of people who voted 'no' yesterday are having serious second thoughts about it."

Adding a set of popular business tax breaks and legislation to prevent more than 20 million middle-class taxpayers from feeling the bite of the alternative minimum tax promised to win House GOP votes for the plan even as it angered moderate Democrats.

House Speaker Nancy Pelosi, D-Calif., issued a statement that suggested she does not like the move but did not reveal her plans. "The Senate will vote tomorrow night and the Congress will work its will," Pelosi said Tuesday. The expected support of both Obama and McCain, however, makes it difficult for Pelosi to ship the measure back to the Senate with a different set of vote-getting add-ons.

The Senate legislation will contain the increase in the government's $100,000 cap on insured bank deposits, part of a move by lawmakers, Bush and the two presidential candidates to try to reassure markets that the plan will pass this week.

The House vote was a stinging setback to leaders of both parties. The administration's proposal, still the heart of the legislation under consideration, would allow the government to buy bad mortgages and other deficient assets held by troubled financial institutions. If successful, advocates of the plan believe, that would help lift a major weight off the already sputtering national economy.

The tax plan passed the Senate last week on a 93-2 vote. It included AMT relief, $8 billion in tax relief for those hit by natural disasters in the Midwest, Texas and Louisiana, and some $78 billion in renewable energy incentives and extensions of expiring tax breaks. All told, it would cost about $112 billion over five years.

In a compromise worked out with Republicans, the bill does not pay for the AMT and disaster provisions, but does have revenue offsets for part of the energy

http://www.forbes.com/feeds/ap/2008/10/01/ap5494986.html?partner=alerts

Lillian D. (41) 		Wednesday November 4, 2009, 7:54 am
September 24, 2008
Bush Admin Faces Congressional Skeptics on $700B Wall St. Bailout
Both Democratic and Republican members of the Senate Banking Committee lambasted the Bush administration’s proposed $700 billion bailout plan Tuesday. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke repeatedly clashed with almost every senator on the committee, all of whom focused on Wall Street’s culpability for the crisis. Many also brought up executive pay and emphasized the need for oversight of the Treasury. [includes rush transcript]

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AMY GOODMAN: Both Democratic and Republican members of the Senate Banking Committee lambasted the Bush administration’s proposed $700 billion bailout on Tuesday. Treasury Secretary Henry Paulson, Federal Reserve Chair Ben Bernanke repeatedly clashed with almost every senator on the committee, all of whom focused on Wall Street’s culpability for the crisis. Many also brought up executive pay and emphasized the need for oversight of the Treasury.

Section 8 of Secretary Paulson’s bailout proposal explicitly denies any check on his powers. It says, “Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.”

Paulson was defensive about this point in his opening statement to the committee. He said he did not want to be presumptuous and include an oversight mechanism in the bailout plan.

HENRY PAULSON: We gave you a simple three-page legislative outline, and I thought it would have been presumptuous for us on that outline to come up with an oversight mechanism. That’s the role of Congress. That’s something we’re going to work on together. So if any of you felt that I didn’t believe that we needed oversight, I believe we need oversight. We need oversight. We need protection. We need transparency. I want it. We all want it. And we need to do that in a way that lets this system—lets this program work effectively, quickly, because it needs to work effectively and quickly, and it needs to—and it needs to get the job done.

Now, the market turmoil we are experiencing today poses great risk to US taxpayers. When the financial system doesn’t work as it should, Americans’ personal savings and the abilities of consumers and businesses to finance spending, investment and job creation are threatened. The ultimate taxpayer protection will be the market’s stability, provided as we remove the troubled assets from our financial system. Don’t forget that. If this system has to work, it has to work right, and that will be the ultimate market protection.

I am convinced that this bold approach will cost American families far less than the alternative, a continuing series of financial institution failures and frozen credit markets unable to fund everyday needs and economic expansion. Again, I’m frustrated. The taxpayer is on the hook. The taxpayer is already on the hook. The taxpayer already is going to suffer the consequences if things don’t work the way they should work. And so, the best protection for the taxpayer and the first protection for the taxpayer is to have this work.



AMY GOODMAN: Treasury Secretary Paulson, speaking before the Senate Banking Committee. Federal Reserve Chair Ben Bernanke also tried to sell the bailout to skeptical committee members. He warned of a definite recession in the absence of a bailout.

BEN BERNANKE: The financial markets are in quite fragile condition, and I think, absent a plan, they will certainly get worse. But even at the current state, they are not serving the necessary function to support the economy. Credit is not being provided. Secretary Paulson mentioned non-financial companies are not able to finance themselves overnight. Credit is just not going to be available. It’s going to also affect savers, because the value of their assets that they have. So, even in the current condition, even if things don’t get severely worse—but I think they would get worse without some kind of an action—this will be a major drag on the US economy and will greatly impede the ability of the economy to recover in a healthy way.



AMY GOODMAN: But Congress did not appear to be easily swayed. Senate Banking Committee Chair Chris Dodd of Connecticut said he found Paulson’s proposal “unacceptable.”

SEN. CHRIS DODD: Barely seventy-two hours ago, Secretary Paulson presented a proposal that he believes, and others do as well, is urgently needed to protect our economy. This proposal is stunning and unprecedented in its scope and lack of detail, I might add. It would allow the Secretary of the Treasury to intervene in our economy by purchasing at least $700 billion of toxic assets. It would allow the Secretary to hold onto those assets for years and to pay millions of dollars to handpicked firms to manage those assets.

It would do nothing, in my view, to help a single family save a home, at least not upfront. It would do nothing to stop even a single CEO from dumping billions of dollars of toxic assets on the backs of American taxpayers, while at the same time do nothing to stop the very authors of this calamity to walk away with bonuses and golden parachutes worth millions of dollars. And it would allow the Secretary and his successors to act with utter and absolute impunity, without review by any agency or a court of law. After reading this proposal, I can only conclude that it is not just our economy that is at risk, but our Constitution, as well.



AMY GOODMAN: The committee’s leading Republican, Senator Richard Shelby of Alabama, also did not mince words in his criticism of Paulson’s, quote, “ad hoc” plan.

SEN. RICHARD SHELBY: We’re now facing the most serious economic crisis, as Chairman Dodd said, in a generation. So far, the Treasury Department’s and the Fed’s response to the crisis has been a series of ad hoc measures. First came the bailout of Bear Stearns, which we were told was unavoidable. Then came Lehman Brothers, which was allowed to fail. And then, just last week, the Fed and Treasury organized a bailout of AIG. I believe the absence of a clear and comprehensive plan for addressing this crisis has injected additional uncertainty into our markets, and it has undetermined the ability of our markets to tackle this crisis on their own.

Unfortunately, the Treasury Department’s latest proposal continues, I believe, its ad hoc approach, but on a much grander scale. The Treasury’s plan has little for those outside of the financial industry. It is aimed at rescuing the same financial institutions that created this crisis, with the sloppy underwriting and reckless disregard for the risks they were creating, taking or passing on to others. Wall Street bet that the government would rescue them if they got into trouble. It appears that bet may be the one that pays off.

Once again, what troubles me most is that we have been given no credible assurances that this plan will work. We could very well spend $700 billion or a trillion and not resolve the crisis.



AMY GOODMAN: Kentucky Republican Senator Jim Bunning said the Treasury’s bailout plan is tantamount to, quote, “financial socialism.”

SEN. JIM BUNNING: We cannot make bad mortgages go away. We cannot make the losses that our financial institutions are facing go away. Someone must take those losses. We can either let the people who made the bad decisions bear the consequences of their actions, or we can spread that pain to others. And that is exactly what the Secretary’s proposal is to do: take Wall Street’s pain and spread it to the taxpayers. The Paulson plan will not help struggling homeowners pay their mortgages. The Paulson plan will not bring—the Paulson plan will spend $700 billion worth of taxpayers’ money to prop up and clean up the balance sheets of Wall Street. This massive bailout is not a solution. It is a financial socialism, and it’s un-American.



AMY GOODMAN: Ohio Democratic Senator Sherrod Brown grilled Paulson and Bernanke about how those who lost their homes in the mortgage crisis feel about the bailout.

SEN. SHERROD BROWN: I don’t think a single call to my office on this proposal has been positive. I don’t believe I’ve gotten one yet of the literally thousands of emails and calls we’re getting. Part of this reflects outrage by taxpayers making $30,000, $40,000, $50,000, $75,000, $100,000 a year bailing out people whose country club memberships cost many times that. Part of it is, I think, an attitude. Wall Street, to most people in my state, I think, certainly to many of them, Wall Street didn’t care one bit what it was doing to neighborhoods in Cleveland and Dayton and Toledo. It didn’t see the devastation. It didn’t feel the pain. And my question for each of you is, do you think that—do you think Wall Street owes the American people an apology?

BEN BERNANKE: Wall Street made a lot of mistakes. Regulators made a lot of mistakes. We’re going to have to go through all that. But let me just say this: people on Main Street who think that Wall Street is somewhere far away and has—whatever happens there has no implications to their lives are just misinformed, because if Wall Street and credit markets freeze up—

SEN. SHERROD BROWN: I No, Mr. Chairman, people know that what happens on Wall Street has an effect on their lives. That’s not the question. The question is, does Wall Street owe the American people an apology?

BEN BERNANKE: Wall Street itself is an abstraction. There are many people who made big mistakes and many regulators who made mistakes, and we need to figure out what those were and make sure they don’t happen again.

SEN. SHERROD BROWN: Secretary Paulson?

HENRY PAULSON: Yeah, you know, I share the outrage that people have. It’s embarrassing to look at this, and I think it’s embarrassing for the United States of America. There’s a lot of blame to go around, a lot of blame, and a lot of blame with the big financial institutions that engaged in—that’s where I’ve started, with this irresponsible lending; the overly complicated complex securities that no one understood as well as they should and, it turns out, they didn’t understand them themselves; the rating agencies that rated those securities; blame to the people that made loans they shouldn’t have made; to some people that took out loans they shouldn’t have taken out; there’s—to regulators. So, there is no doubt about that.

But what we’re focused on now is, and what I think your constituents want to hear is, let’s fix the problem in the way that is going to have the least negative impact on them, and then let’s go out and deal with all these problems and figure out how to make sure that we minimize the likelihood they will happen again.

SEN. SHERROD BROWN: No disrespect, Mr. Secretary, but they understand much of that. They do want a solution, but they don’t want the same people that have helped to inflict this pain on the American people to get the opportunity, because of our reluctance on executive compensation and our reluctance to do accountability, to inflict more pain.



AMY GOODMAN: Ohio Democratic Senator Sherrod Brown reminding Treasury Secretary Henry Paulson and Federal Reserve Chair Ben Bernanke of the price Main Street is paying for both Wall Street’s excesses and now the bailout.

When we come back from break, we will turn to Naomi Klein, author of The Shock Doctrine: The Rise of Disaster Capitalism, and then we’ll be joined by leading children’s rights advocate in this country, Marian Wright Edelman. Stay with us.

http://i2.democracynow.org/2008/9/24/bush_admin_faces_congressional_skeptics_on


Lillian D. (41) 		Wednesday November 4, 2009, 7:55 am
AIG bailout raises bar for action on mortgages
By Mary Kane 9/19/08 8:31 AM
When the government bailed out Bear Stearns in March, plenty of people on Main Street complained it wasn’t fair to save an investment bank and do nothing to help homeowners.Imagine how they feel now.

Each new step the government takes in the private markets — from seizing Fannie Mae and Freddie Mac to providing an $85-billion taxpayer loan to the insurance company AIG — raises the bar for acting on the foreclosure end of the mortgage crisis, in neighborhoods hit hard by falling house prices and failing loans.

It’s not just about fairness anymore. The intervention on Wall Street creates a huge opening, in the view of housing and community activists, to push for the government to take the lead in the housing crisis on Main Street as well — something it’s avoided so far.

Since March, the government has taken control of three major lending institutions. It could restructure mortgage loans on a large scale and send a signal to the private sector to do the same. It could freeze foreclosures until there’s some sort of plan to help homeowners. It could rescue devastated neighborhoods just like it shored up failing investment banks. It could do far more than the little it has been doing. After all, shouldn’t millions of families facing foreclosure also be considered too big to fail?

“There is a frustration for people outside Washington, who see the Feds moving quickly on saving these big institutions and propping them up, but don’t see much effective intervention in helping people stay in their homes,” said Geoff Smith, vice president of the Woodstock Institute in Chicago, a non-profit research group that focuses on community economic development. “Seizing Fannie Mae and Freddie Mac was an intervention that needed to take place. But what’s also important is stabilizing the homeowners.

“From our perspective,” said Smith, “a strong economy is based on strong communities, from the ground up. We need to keep people in their homes. They make up the foundation of the economy and the mortgage market.”

But they aren’t the ones getting government bailouts. Compare AIG’s $85-billion loan to the amount cities and local governments got in the recent mortgage rescue bill to fix up foreclosed properties — just $4 billion. A study of foreclosure auctions by Smith’s group concluded that amount would barely approach the scale of the problem, even in the Chicago area alone.

“By itself, this money is not going to be enough to make a substantial difference,” Smith said. “There also needs to be an emphasis on developing coordinated strategies for dealing with the impacts of foreclosed and vacant properties, because without them certain neighborhoods have the potential to be lost.”

The government’s biggest attempt to stop foreclosures begins next month. As part of the mortgage rescue bill, the government will begin backing cheaper mortgages for troubled borrowers, with $300 billion in guarantees.

But it’s a voluntary program. Lenders and services have to agree to take a loss on the loans. Yes, the new mortgages will be insured by the Federal Housing Administration. But some lenders might already be on the road to foreclosing on loans and might choose to keep doing so. And there’s nothing the government can do about that.

Even if lenders do take part, there are practical concerns about the FHA’s ability to get the program off the ground, said Patricia McCoy, a banking and securities regulation professor at the University of Connecticut law school. In recent years, the government has downgraded the FHA’s role and shrunk its staff.

“There’s always been a question of how ready the FHA will really be,” McCoy said. “We’re all just hoping for the best.”

For now, the most realistic chance for the government to stop foreclosures may come from its takeover of mortgage giants Fannie Mae and Freddie Mac. The agencies together account for more than half the nation’s mortgages.

In a move to stabilize the housing market, the government seized the two firms earlier this month and placed them under a conservatorship, a rescue that could cost taxpayers millions of dollars. Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, and other Democrats contend the two companies owe taxpayers something in return, and should freeze foreclosures on some of their loans for 90 days.

But with the government now in charge, it could prod them to do even more, McCoy said. It could force the two to redo millions of mortgage loans, refinancing high-rate mortgages into lower-rate, 30-year-fixed loans. That could make a big difference in keeping people in their homes — though it most likely would be opposed by the lending industry, which would take big losses.

The Federal Deposit Insurance Corp., which took over failed subprime lender IndyMac, is trying to restructure 25,000 of its loans, a move closely watched by the mortgage industry. Lenders and servicers are taking heat for doing too few loan modifications; the industry contends it’s not set up to modify loans on a major scale.

“The federal government is in the driver’s seat right now,” McCoy said. “This is the perfect opportunity for the federal conservator of Fannie Mae and Freddie Mac to say, ‘We’re going to have a serious loan modification plan here. You need to come up with it and implement it.’ If the government can show that it can do intelligent loan modifications, then it can say to other lenders and servicers, ‘You’re wasting money by going to foreclosure. It’s more cost-effective to do loan mods instead.”

But even if the two agencies undertook a massive loan restructuring program, it wouldn’t completely fix the problem. Fannie and Freddie are taking big losses on Alt-A loans, or high-risk loans made to people with decent credit. The two didn’t buy a lot of subprime loans. Lenders and servicers who hold those loans have been reluctant to do loan modifications.

As we reported last week, Hope Now, a private industry-led coalition of housing counselors and servicers organized by the government, hasn’t made much progress in getting those loans restructured into lower-rate mortgages.

In theory, Congress could pass a law requiring servicers and lenders to sell their loans to the government at a loss, McCoy noted. But the chances of that kind of intervention happening are close to nonexistent. The legislation either would never get approved or would end up in litigation for years, she said.

The government may make some bold moves on Wall Street, but it’s not going to go that far in telling the private sector what to do, she said. “Servicers are very, very stubborn,” McCoy explained. “Unless the government owns a company in receivership, all it can do is hold out a carrot.”

That carrot could include freezing all existing foreclosure actions for nine months, to allow industry and the government to redo loans or come up with other solutions to the mess, according to the Center for Responsible Lending, a research group that follows the lending industry. It could encompass allowing bankruptcy judges to modify loans to their fair-market value, to keep people in their homes. Regulators could ban unfair and predatory lending practices. The center, like other groups, is urging Paulson to modify the Fannie and Freddie loans.

Whether the government will do any of this unclear. There are complications to bailing out Main Street, said Adam Levitin, a Georgetown University law professor and credit expert. The first is Main Street’s moral hazard problem — the homeowner who makes his monthly payment resents bailing out the one who didn’t. No one wants to be seen as rewarding the people who bought houses they couldn’t afford in the first place.

That leaves tighter regulation on Wall Street as the trade-off for Main Street paying the costs of the mortgage industry’s excesses, Levitin said. But despite all the tough talk on this, it’s not a given that Wall Street will be reined in once the crisis ends. “Wall Street will start saying, ‘You’re just going to create more risk. You don’t understand the industry,’ just like they always do,” Levitin said.

That same argument worked all through the last decade, as housing advocates repeatedly pressed the Federal Reserve and regulators to curb predatory loans, to no avail. Some have had enough of waiting for the government to do something.

Bruce Marks, chief executive officer of the Neighborhood Assistance Corp. of America, thinks advocates have to get back to old-fashioned, in-your-face tactics to pressure the government and lenders to act. The government’s continuing help this week for Wall Street should be motivation enough, he said.

“We’ve gotten lazy,” he said, of the advocates. “You’re only going to get from government what you’re strong enough to get them to do.”

His group has already begun trying to take on massive loan restructurings in 40 cities. But because of the AIG loan, it’s planning to do more.

In the next two months, Marks said, his group wants to “make life hell” for politicians and the CEOs of lending and servicing companies that don’t do loan workouts. The plan is to “personalize” the battle, he said.

Along with having borrowers show up at every political event held by congressional representatives to question why lawmakers aren’t doing more to stop foreclosures, they will picket the neighborhoods where CEOs live and at their children’s schools. These are tactics the group has used in the past.

Marks, who has referred to himself as a “banking terrorist,” struck agreements with Citigroup, Bank of America, Countrywide and other lenders for his group to modify their loans, after years of similar grass-roots protests. “You have to rewrite the mortgages,” he said. “It’s the only answer.”

Not everyone is taking the same approach. But they acknowledge the frustration that’s out there — especially as the government repeatedly swoops in on Wall Street.

To Smith of Woodstock, the biggest problem is that the government has come up with a patchwork of solutions for foreclosures but no overall plan — and no clear blueprint for using its clout to keep people in their homes and to help neighborhoods.

Unlike the bailouts on Wall Street, a solution could be less about money than it is about ideas, Smith said. It could be about making the difficulties facing homeowners as important as the tumult in the financial markets.http://coloradoindependent.com/8738/aig-bailout-raises-bar-for-action-on-mortgages


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   Homeowners facing foreclosure demand county assistance Paul Takahashi/MEDILL Marsha Godard, treasurer of Action Now, confronts a Cook County official at a sit-in Thursday morning.  by Paul TakahashiNov 05, 2009 ...


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