Tuesday September 30, 2008, 9:31 pm
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Various readers wrote us, and it was confirmed by a detailed report on the call at DealBreaker, that the Treasury Department held a conference call this evening for analysts on the bailout bill. A memo was evidently sent to SIFMA members; others may have been contacted by other means. But the report I got from one person who was on the call was the the questions came from financial services industry members. In other words, this was most assuredly not intended to be a call open to the public at large. If anyone from the media or other member of the great unwashed was listening in, it was by accident.

This is simply scandalous. To have a group of interested parties get a privileged briefing by government officials on a matter of keen public interest flies in the face of what a democracy is supposed to be about. The proper method would either be a published FAQ on the Treasury website or a briefing with the media included. But why should I be surprised? Favoritism has been a staple of the Bush Administration.

There is a live blogging recap at DealBreaker. Someone who was on the call is going over his notes and other recaps on the Web and sending me his version, which I hope will add some color. Check back for that update.

Update: Here are the notes promised. Calculated Risk had put up the conference call number. so some of this is the listener's notes, some are hoisted from CR. They are admittedly skeletal at points, but track and enhance the live blogging report at DealBreaker. You can download a torrent for the call here, which I intend to do post haste and will amend the post accordingly. I've included the long form notes below, but some items jump out:

1. The tranching is a mere formality, and the Treasury boys as much as said so. They could take the $700 billion max as soon as the bill has passed,

2. However, they do not plan any action immediately, will wait a couple of weeks. They want to focus their efforts on stronger companies but also made noise about protecting the financial system. This, by the way, is the Japanese convoy system all over.

3. There seemed to be a lot of tap dancing about what price they will pay for assets and no straight answer about their policy on warrants. They did say that if the amount sold was greater than $100 million, they would take warrants. FYI, the current draft allows them to pay up to the price at which the assets were initially booked (yikes) . I wonder if this is obfuscation, if they have an idea of what the plan to do but will not admit it in any public forum.

4. As the person who listened to the call stressed, DealBreaker wasn't clear on the bifurcated process. If you come to the Treasury and you are in trouble, you get reamed. Bear/AIG style treatment, execs probably fired. But if you participate on a voluntary basis, the intent is to make it very user friendly. That is consistent with Paulson's position during the negotiations.

5. The exec comp provisions sound like a joke, They DO NOT affect existing contracts, they affect only contracts entered into during the two years of the authority of this program and then affect only golden parachutes. More detail on that point, but I don't need more detail to get the drift of the gist.

Further below are the notes, admittedly somewhat cryptic at points, but hopefully helpful. But if you have time, listen to the download. Be warned I may revise and add to the post once I have done so.

Update 12:30 AM: Have queued up recording of conference call but not yet listened to it. But reader and sometime contributor Lune provides a useful take. Hoisted from comments:

1) If even the Treasury is saying tranching is a formality, then it really is nothing. Not sure why Dems fought so hard for a fig leaf.

2) Waiting a couple of weeks because no one has any idea when or where the next bomb will blow up. In other words, all their doomsday scenarios about Black Monday were B.S. They screamed the check had to be written by Monday, but now they're saying they actually have a few weeks before they need to cash it. Plus, this will allow them to "seek guidance" from GS, JPM, and other selfless public servants about where the money should be funneled.

3. The tap dancing is because they don't want it to get out that they'll be giving a sweetheart deal. The public won't be following each individual transaction to see exactly what price is being paid. So ridiculously overpriced asset sales can be hidden in the details, and by the time some reporter (or blogger :-) combs through and analyzes the transactions, the deed will have been done. But if Paulson makes a statement that assets will be bought at par before the bailout's even begun, that will be reported and might kill the deal.

4. In other words, we need to sweeten the pot to encourage banks to come "voluntarily". Pardon my ignorance, but why the hell should we be begging banks to borrow from us? I thought a bailout should be the absolute last option for a bank. I.e., it should be so unpalatable, so unprofitable for a bank and its executives that they exhaust every private means of survival before coming for their public "reaming". I wonder if foreclosed homeowners would rate their foreclosure process as "user friendly".

5. Of course the exec comp provisions are a joke. Who do you think is going to be hiring all those banking cmte staffers and newly retired congresspeople next year during the inevitable post-election turnover? Do you really think they're going to vote to limit their salaries? Remember that for lots of people on the Hill (including elected reps), govt work is merely time you spend accumulating credentials in preparation for your real life's work in the vastly richer private world.

Taxpayer losses: "golly, let's just pray to Jesus and hope he'll make sure that in a few years our country won't be bankrupt."

Oversight: "let's appoint a committee which will file toothless reports that no one will ever read".

I'm glad to see that while much time was spent in Exec comp. and tranching kabuki theater, the real points of protection of taxpayer losses and implementation of new regulation seem to be afterthoughts.


The notes on the call per our helpful anonymous reader (and former investment banker, it turns out):

"Draft bill is very positive for both markets and our companies"

Much explanation of Executive Comp

Residential and commercial mortgages. But very importantly, it can be any asset.

Excited about ability to guarantee assets in exchange for a guarantee fee.

Sought as much authority and as much flexibility as possible.

Eligibility: as broad participation by institutions as possible. The
more participation, the more effective it will be. Want banks of all
sizes or any financial institution that has a meaningful presence in
the US to be interested and enthusiastic.

Purpose is to help private sector clean up their balance sheets.

Highest priority: make sure it works, will attract companies to
participate. Warrants and exec comp. were very highly negotiated.

still listening ...
some1 | 09.28.08 - 9:14 pm | #


Warrants:

Direct purchases from failing institution e.g. Bear Stearns, AIG, F&F: will do the same thing, take maybe 79.9% equity.

Market mechanism: Congress wanted taxpayer benefit in upside. Sell
warrants for assets over $100M , but the amount of warrants is still
TBD. WE want healthy institutions to participate so it should not be
punitive.
some1 | 09.28.08 - 9:17 pm | #


Exec comp.

Most difficult part of negotiation.

Direct deal: fire the management, like AIG etc.

Market mechanism: if sell over $300M into fund, some exec comp limits
come with it. For 2 years, the firm could not enter into NEW contracts
including golden parachute, for involuntary departure. And lose some
deductibility.

We feel really good that we have encouraged healthy institutions to participate, not just bailouts of sick institutions.
some1 | 09.28.08 - 9:22 pm | #


Clawback of taxpayer losses:
1. it's a long way out, "a lot can happen in that time"
2. it's targeted at all financial institutions, not just participants! (that means it will never happen)
3. would need more congressional and presidential action to implement this.
some1 | 09.28.08 - 9:24 pm | #


Oversight (Bob Hoyt)

1. Financial Stability Oversight Board
2. General Accountability Office and Comptroller General managing purchase auctions
3. Special Inspector General
4. Congressional Oversight Panel
5. Reporting provisions
some1 | 09.28.08 - 9:27 pm | #


Tranching of $700B (I didn't know that was a limit)

Entire 700B is appropriated entirely by the act, no further appropriation necessary.

Tranching: first $250B
Then Secretary determines that more is needed and tells Congress, another $100B
Then Secretary determines that more is needed and Congress has 15 days to refuse, the remaining $350B

No time limits. Can request all the tranches at once, no need for delays.
some1 | 09.28.08 - 9:29 pm | #


More about tranching:

To block the last $350B, Congress has to say no. Then the President can
veto that. To override that veto, Congress needs 2/3 majority.

ALL of that must happen within 15 days, otherwise the money goes out.

Can't the President wait and veto it with one minute left in the 15 days?

RTC had to go back to Congress. Kudos for making this program much EASIER!
some1 | 09.28.08 - 9:32 pm | #

Price: not a fire-sale price, not an outrageous price, a "fair" price. Firms might get a price higher than their current mark.

(Congress will be voting on this, with this aspect totally undetermined.)
some1 | 09.28.08 - 9:35 pm | #

Not trying to maximize return to the taxpayer, but to provide liquidity to the system as a whole.
some1 | 09.28.08 - 9:39 pm | #


They will prefer to help healthy banks become even healthier, as
opposed to rescuing a failing bank, because the healthy bank is more
likely to relend into the system.

They expect that the exec. comp. limits won't constrain the healthy banks, since they are so light.
artichoke | 09.28.08 - 9:43 pm | #

xIt will take several weeks, before any assets can be bought, to hire asset managers and get systems up and running.

(They're going to let the weak banks fail, then help the rest.)
artichoke | 09.28.08 - 9:45 pm | #

No provision to mandate re-lending.

Stuff that is still to be determined, will be issued as "guidelines" therefore exempt from discussion and comment period.

About 800 people on the call.
some1 (oops;) | 09.28.08 - 9:47 pm | #

Tuesday September 30, 2008, 9:35 pm
Call or e-mail Senator Obama. Tell him he does not need to be sitting there trying to help prop up Bush and Cheney and the mess they've made. Tell him we know he has the smarts to slow this thing down and figure out what's the best route to take. Tell him the rich have to pay for whatever help is offered. Use the leverage we have now to insist on a moratorium on home foreclosures, to insist on a move to universal health coverage, and tell him that we the people need to be in charge of the economic decisions that affect our lives, not the barons of Wall Street.

Call your Representative in Congress and your Senators. (click here to find their phone numbers). Tell them what you told Senator Obama.

You have to call them now and say "NO!" If we let them do this, just imagine how hard it will be to get anything good done when President Obama is in the White House. THESE DEMOCRATS ARE ONLY AS STRONG AS THE BACKBONE WE GIVE THEM. CALL CONGRESS NOW.

Tuesday September 30, 2008, 9:44 pm
Call or e-mail Senator Obama. Tell him he does not need to be sitting there trying to help prop up Bush and Cheney and the mess they've made. Tell him we know he has the smarts to slow this thing down and figure out what's the best route to take. Tell him the rich have to pay for whatever help is offered. Use the leverage we have now to insist on a moratorium on home foreclosures, to insist on a move to universal health coverage, and tell him that we the people need to be in charge of the economic decisions that affect our lives, not the barons of Wall Street.

Call your Representative in Congress and your Senators. (click here to find their phone numbers). Tell them what you told Senator Obama.

You have to call them now and say "NO!" If we let them do this, just imagine how hard it will be to get anything good done when President Obama is in the White House. THESE DEMOCRATS ARE ONLY AS STRONG AS THE BACKBONE WE GIVE THEM. CALL CONGRESS NOW.

Wednesday October 1, 2008, 2:33 pm
See, Blue, I was upset and knew there was more behind this. Now, I'm completely off the rails enraged. I'm trying to get the word out on the vote and getting it voted down. Now I have information that many voting don't have. I bet they would vote differently if they did.

So, here is what I have been posting on all the Bailout boards.

I've been writing my reps all day since I stopped being able to get through on the phone about 11 AM ET. Here's what I've been writing them today:

****
I am your constituent. Constituent is defined as, a person who authorizes another to act in his or her behalf, as that person, I say no to this Bailout.

Unconstitutional, as defined as unauthorized by or inconsistent with the Constitution. Unconstitutional, is what this bailout is. I urge you to vote no.
****

Remember, they don't vote until 9PM ET, there is still time to write. I'm also writing and sending the exact same thing to my Reps. in the House. They will get this bill after the Senate this time. Nothing is a done deal.

Wednesday October 1, 2008, 3:43 pm
My eyes are blurred over from reading nonstop. Can someone tell me briefly what was learned from this? Please. Thank you, Blue.

Wednesday October 1, 2008, 3:59 pm
We have been born into a prison, that we can neither see, nor directly experience through our senses, and yet we able to glimpse a sense of it's presence, from time to time. A prison for your mind!

1. Free your mind.
2. Wake-Up.
3. Select a Goal.
4. Research and Learn.
5. Get Involved.
6. Make a difference now, while there is a 'now' to make a difference!!!


Signature:
That which is to follow, comes from that which has gone before: http://tinyurl.com/3fs5m8

Wednesday October 1, 2008, 4:04 pm
Robert...With your permission, I'd like to use this statement in threads.

Excellent call to action!!!

Wednesday October 1, 2008, 4:08 pm
ALL FOR MUTINY ABOARD THIS SHIP SAY "I" !!!

i've contacted everyone i could thus far -maybe some of the phones will lighten up by morning -not counting on that i've been writing -my mailman comes in the afternoon -so if nothing by then -my stamps won't be going to waste.

Wednesday October 1, 2008, 4:25 pm
Blue, I sent this to all of my friends. This is just too important. I just rewrote my reps and told them that this is treason. Voting for this is an impeachable act. So, anyone that votes for this is also treasonous. Don't sit on your hands, write your reps now, you still have 2 1/2 hours to get the message out.

Wednesday October 1, 2008, 4:42 pm
so mailing letters doesn't mean squat then:( almost all of my emails have come back -and the phones are busy -pisses me off to no end!!

Wednesday October 1, 2008, 4:45 pm
Mae...That's not good. Not good at all!! Congress has been FLOODED with emails, letters and calls and have said so to the media. If they are turning away our letters and calls, it could mean they are tuning us out completely. I suspect this is the case.

Wednesday October 1, 2008, 7:16 pm
Marion, we have to assume now that they're tuning us out.
The Senate has voted 74-25 to approve the bailout, even
though consituent response has been 100-1 against the
passage of the bill.
We The People have been raped in Times Square at high noon
by the United States Senate.
It's very fitting that the title of this story references
Il Duce. Anyone who doubts we're now a totally Fascist
police state, go read the story again, after you read the
following:

fas·cism /ˈfæʃɪzəm/ Pronunciation Key - Show Spelled Pronunciation[fash-iz-uhm] Pronunciation Key - Show IPA Pronunciation
noun
(sometimes initial capital letter) a governmental system led by a dictator having complete power, forcibly suppressing opposition and criticism, regimenting all industry, commerce, etc., and emphasizing an aggressive nationalism and often racism.

Sound familiar?
Thanks, Blue.
noted.

Wednesday October 1, 2008, 8:07 pm
Tim...I have no doubt this is a fascist government. Taken from this site, here are the 14 Defining Characteristics of a Fascist Regime:

For the purpose of this perspective, I will consider the following regimes: Nazi Germany, Fascist Italy, Franco’s Spain, Salazar’s Portugal, Papadopoulos’s Greece, Pinochet’s Chile, and Suharto’s Indonesia. To be sure, they constitute a mixed bag of national identities, cultures, developmental levels, and history. But they all followed the fascist or proto-fascist model in obtaining, expanding, and maintaining power. Further, all these regimes have been overthrown, so a more or less complete picture of their basic characteristics and abuses is possible.

Analysis of these seven regimes reveals fourteen common threads that link them in recognizable patterns of national behavior and abuse of power. These basic characteristics are more prevalent and intense in some regimes than in others, but they all share at least some level of similarity.

1. Powerful and continuing expressions of nationalism. From the prominent displays of flags and bunting to the ubiquitous lapel pins, the fervor to show patriotic nationalism, both on the part of the regime itself and of citizens caught up in its frenzy, was always obvious. Catchy slogans, pride in the military, and demands for unity were common themes in expressing this nationalism. It was usually coupled with a suspicion of things foreign that often bordered on xenophobia.

2. Disdain for the importance of human rights. The regimes themselves viewed human rights as of little value and a hindrance to realizing the objectives of the ruling elite. Through clever use of propaganda, the population was brought to accept these human rights abuses by marginalizing, even demonizing, those being targeted. When abuse was egregious, the tactic was to use secrecy, denial, and disinformation.

3. Identification of enemies/scapegoats as a unifying cause. The most significant common thread among these regimes was the use of scapegoating as a means to divert the people’s attention from other problems, to shift blame for failures, and to channel frustration in controlled directions. The methods of choice—relentless propaganda and disinformation—were usually effective. Often the regimes would incite “spontaneous” acts against the target scapegoats, usually communists, socialists, liberals, Jews, ethnic and racial minorities, traditional national enemies, members of other religions, secularists, homosexuals, and “terrorists.” Active opponents of these regimes were inevitably labeled as terrorists and dealt with accordingly.

4. The supremacy of the military/avid militarism. Ruling elites always identified closely with the military and the industrial infrastructure that supported it. A disproportionate share of national resources was allocated to the military, even when domestic needs were acute. The military was seen as an expression of nationalism, and was used whenever possible to assert national goals, intimidate other nations, and increase the power and prestige of the ruling elite.

5. Rampant sexism. Beyond the simple fact that the political elite and the national culture were male-dominated, these regimes inevitably viewed women as second-class citizens. They were adamantly anti-abortion and also homophobic. These attitudes were usually codified in Draconian laws that enjoyed strong support by the orthodox religion of the country, thus lending the regime cover for its abuses.

6. A controlled mass media. Under some of the regimes, the mass media were under strict direct control and could be relied upon never to stray from the party line. Other regimes exercised more subtle power to ensure media orthodoxy. Methods included the control of licensing and access to resources, economic pressure, appeals to patriotism, and implied threats. The leaders of the mass media were often politically compatible with the power elite. The result was usually success in keeping the general public unaware of the regimes’ excesses.

7. Obsession with national security. Inevitably, a national security apparatus was under direct control of the ruling elite. It was usually an instrument of oppression, operating in secret and beyond any constraints. Its actions were justified under the rubric of protecting “national security,” and questioning its activities was portrayed as unpatriotic or even treasonous.

8. Religion and ruling elite tied together. Unlike communist regimes, the fascist and protofascist regimes were never proclaimed as godless by their opponents. In fact, most of the regimes attached themselves to the predominant religion of the country and chose to portray themselves as militant defenders of that religion. The fact that the ruling elite’s behavior was incompatible with the precepts of the religion was generally swept under the rug. Propaganda kept up the illusion that the ruling elites were defenders of the faith and opponents of the “godless.” A perception was manufactured that opposing the power elite was tantamount to an attack on religion.

9. Power of corporations protected. Although the personal life of ordinary citizens was under strict control, the ability of large corporations to operate in relative freedom was not compromised. The ruling elite saw the corporate structure as a way to not only ensure military production (in developed states), but also as an additional means of social control. Members of the economic elite were often pampered by the political elite to ensure a continued mutuality of interests, especially in the repression of “have-not” citizens.

10. Power of labor suppressed or eliminated. Since organized labor was seen as the one power center that could challenge the political hegemony of the ruling elite and its corporate allies, it was inevitably crushed or made powerless. The poor formed an underclass, viewed with suspicion or outright contempt. Under some regimes, being poor was considered akin to a vice.

11. Disdain and suppression of intellectuals and the arts. Intellectuals and the inherent freedom of ideas and expression associated with them were anathema to these regimes. Intellectual and academic freedom were considered subversive to national security and the patriotic ideal. Universities were tightly controlled; politically unreliable faculty harassed or eliminated. Unorthodox ideas or expressions of dissent were strongly attacked, silenced, or crushed. To these regimes, art and literature should serve the national interest or they had no right to exist.

12. Obsession with crime and punishment. Most of these regimes maintained Draconian systems of criminal justice with huge prison populations. The police were often glorified and had almost unchecked power, leading to rampant abuse. “Normal” and political crime were often merged into trumped-up criminal charges and sometimes used against political opponents of the regime. Fear, and hatred, of criminals or “traitors” was often promoted among the population as an excuse for more police power.

13. Rampant cronyism and corruption. Those in business circles and close to the power elite often used their position to enrich themselves. This corruption worked both ways; the power elite would receive financial gifts and property from the economic elite, who in turn would gain the benefit of government favoritism. Members of the power elite were in a position to obtain vast wealth from other sources as well: for example, by stealing national resources. With the national security apparatus under control and the media muzzled, this corruption was largely unconstrained and not well understood by the general population.

14. Fraudulent elections. Elections in the form of plebiscites or public opinion polls were usually bogus. When actual elections with candidates were held, they would usually be perverted by the power elite to get the desired result. Common methods included maintaining control of the election machinery, intimidating and disenfranchising opposition voters, destroying or disallowing legal votes, and, as a last resort, turning to a judiciary beholden to the power elite.

Does any of this ring alarm bells? Of course not. After all, this is America, officially a democracy with the rule of law, a constitution, a free press, honest elections, and a well-informed public constantly being put on guard against evils. Historical comparisons like these are just exercises in verbal gymnastics. Maybe, maybe not.

-----

Actually, America hits on all 14 definitions which qualifies this country as a fascist government.

Thursday October 2, 2008, 4:40 am
The crisis explained

By one RDF:

Joe goes to the track and bets $2 on a horse.

Two guys standing nearby get into a discussion and Fred says to Sam, “I’ll bet you $5 that Joe wins his bet.”

Next to them are Bill and Bob. Bill says: “I’ll bet you $10 that Fred welshes on his bet if he loses.”

Next to them is Sally. Sally says: “For $3 I’ll guarantee to Bill that if Bob fails to pay off, I’ll make good on the bet.”

Sally then goes to Mary and borrows the $7 needed in case she has to ever pay off and promises to pay back $8. She doesn’t expect to every have to pay since she believes Bob will always make good. So she expects to net $2 no matter what happens to Joe.

A quick calculation indicates that there is now 2+5+10+3+7 = $27 riding on the outcome of the horse race.

Question how much has been “invested” in the horse race?

Wait for it:

Answer:

$50,000 by the owner of the horse who is expecting to recoup his investment from the winnings of the horse and other future deals. Everyone else is gambling, not investing.

So, when Hank Paulson and his golfing buddies go to the track and lose the rent money playing the ponies, we should pay up?

http://www.correntewire.com/the_crisis_explained

That's perfect

and it’s not even an analogy - it’s exactly how derivitives and credit default swaps work, including none of the gamblers having any financial relationship to the underlying asset (the horse, or mortgages) in a lot of cases.

Thursday October 2, 2008, 4:40 am
Politics in the Zeros: Spread the meme. Republicans are the party that wrecked America. John McCain’s long history with bank failures and financial scandals makes him uniquely ‘qualified’ to speak to the current crisis.

The next time a Republican friend says McCain is ready to Regulate the financial world... Refer them to ProgressiveAccounting.org
for a really long list of all the DEREGULATION McCain has supported over the past 26 years to get us into this mess.

Then suggest a vote for Obama.

Thursday October 2, 2008, 8:21 pm
Yikes, it's even worse than we imagined. I agree with Tim; those jerks we put in office are now tuning us out. I am going to pop a bottle of champagne when Bush finally gets his rancid butt out of office, and sing a LOUD chorus of the old country song "Thank God and Greyhound He's Gone". And we must keep McCain out or it's going to begin again like an everlasting nightmare.....another sleepless night, Blue.