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Bailout Battle: Consensus Shifts Against White House

Business  (tags: Bailout, Bailout Battle, Barack Obama Bailout, Barney Frank, Chris Dodd, Democrats Bailout, Financial Bail Out, Financial Crisis, Hank Paulson, John Mccain Bailout, Paulson Proposal, White House Bailout, Politics News )

- 3797 days ago -
"I trust Hank Paulson. But I don't trust anybody to have the amount of power he asked for in the bill he sent us."--Brney Frank; This bill "turn $700 billion over virtually to one individual."-- Chris Dodd


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Blue B (855)
Monday September 22, 2008, 2:44 pm
Days after Treasury Secretary Hank Paulson rolled out a huge financial market bailout proposal to positive reviews, the battle lines across the political landscape have shifted. The prevailing sense, among tuned in observers, is that Paulson and the White House are now face a steep climb in Congress.

On Monday, several high ranking Democrats stepped up their opposition to Paulson's plan, which called for spending at least $700 billion over a period of time, with scant additional oversight added to the financial markets or, for that matter, to Paulson's actions themselves.

Barney Frank, the chair of the House Financial Services Committee, was one of the first out of the gates, telling ABC's Good Morning America: "I trust Hank Paulson. But I don't trust anybody to have the amount of power he asked for in the bill he sent us." Chris Dodd, chairman of the Senate Banking Committee, followed suit: this bill, he warned, will "turn $700 billion over virtually to one individual."

And while the rest of the caucus was initially vague about where it stood, their positions have became more sharply defined. A counter proposal was released through Dodd's office, calling for government intervention in the market, and adding elements that the Bush team initially resisted: limiting corporate compensation, assisting homeowners, inserting measures to prevent foreclosures, and demanding additional oversight of Treasury's actions. It is a pill Paulson may have to swallow.

"I think the White House and the Treasury are in a position where they have to take what Congress offers them. I don't see how they have any bargaining power," said James Galbraith, a professor of economics at the University of Texas. "If Congress crafts a bill that serves and protects the public interest while providing some measures that protect the financial market, the White House will have to take it."

One of the sticking points that could impede a possible resolution between the Dodd and Paulson plans, those familiar with the proceedings say, is the issue of executive compensation. This past weekend, word circulatied that Wall Street executives may not play ball (refusing, gently, to help unload the bad investments versus the somewhat promising ones) if Congress tried to cap the funds they earn. In essence, they would rather take their chances with failures and buyouts. And on Monday, President Bush put a voice to this position, declaring in a statement:

"We certainly understand and are sympathetic to the sentiment regarding the pay of CEOs and senior management of these firms, but we have to focus on the problem, and the problem is that we need these firms to participate in the program and sell us this debt. Having punitive measures would provide a disincentive for firms to participate, and that would make the program much less likely to succeed."

Democratic officials, in public, have said caps on executive compensation are a prerequisite to any arrangement. "Something on executive compensation should indeed be part of the package," said Sen. Chuck Schumer on MSNBC. "It is wrong to have executives who create all kinds of problems... then walk away with golden parachutes."

In private, the issue is more complicated.

"Obviously from the congressional point of view this is an important question," said Galbraith. "It is obvious that the Congress has to get something on compensation or they will be under severe attack. The risk is that they will help out an institution and then the top management will take a golden parachute and leave. On the other hand, it is tough to legislate. These are rich people. They don't need their jobs. If they choose to stay home and golf - and we might be better off if they do that - their companies could very well collapse."

The White House appears to have a weak hand on several other contentious fronts. A virtual consensus has emerged (save in the Bush administration) that an oversight board is needed to determine how the $700 billion is spent. And Congress will almost certainly mandate Treasury to issue reports on its actions more often than Paulson's proposal of twice a year.

John McCain's skeptical proclamations on the plan ensure that a good portion of the Republican Party, driven as much by politics as ideology, is willing to buck the president. Even Sen. Jim DeMint, no centrist flower, has come out in opposition to Paulson's proposal.

"We can't have taxpayers," said McCain in a town hall meeting in Pennsylvania, "footing the bill for bloated golden parachutes like we see in the Lehman Brothers bankruptcy, with the top executives asking for 2 ˝ billion dollars in bonuses after they ran the company into the ground."

Moreover, the timing of the crisis has removed, in some respects, an incentive for quick action, providing legislators the window to do what they do best: debate and add wrinkles.

"I think, if the events of Thursday had happened last Monday and they didn't have a weekend to intervene they might have something done by Friday," said Steve Hayward of the conservative American Enterprise Institute. "Instead we had a weekend to think about it, to have people calm down."

Perhaps most importantly, Democrats are being aided by the deep distrust that voters feel toward this administration. There is simply very little incentive to play by Bush's rules.

"The Treasury is not in a take-it-or-leave-it position with Congress," said Robert Shapiro, president of Sonecon and the undersecretary of commerce during the Clinton White House. "The Treasury and Fed's mismanagement over the last two years helped bring up this brink, and they and a president with 30 percent approval are not in a position to dictate terms."

Because of this, observers and aides on the Hill predict that the final bailout is likely to be much closer to what Dodd has proposed then what Paulson initially offered. Though, to be sure, Republicans and Democrats will have to hash out many disagreements that deal with wide-ranging changes to banking industry oversight. And while many GOP officials will likely bemoan the final product, they lack the numbers or political unity to form an effective opposition. McCain, too, seems likely to jump on board, though with reservations about certain points. As will, observers say, Barack Obama. Neither wants to be seen as opposing the financial package being billed as the savior of the economy.

"My sense is," said James Kvaal, a domestic policy adviser for the liberal Center for American Progress, "that no one is going to want to stand in front of this train and risk being blamed for a financial collapse."

Blue B (855)
Monday September 22, 2008, 2:56 pm

"I wonder how many times you have to be hit on the head before you find out who's hitting you? It's about time that the people of America realized what the Republicans have been doing to them," - Harry Truman.

Blue B (855)
Monday September 22, 2008, 3:39 pm
Scarecrow says: "The most important condition to put on any bailout proposal is to impose a tax surcharge on the incomes of the wealthiest Americans to pay the bailout's cost." (via) Some of you may remember that I told you a while back that the rich use more of your tax money than you do, which is another reason they should pay more taxes than you do. But Scarecrow is right that taxing their own screw-ups is a great way to encourage them to learn not to screw up so much.

Blue B (855)
Monday September 22, 2008, 3:51 pm
Has anyone seen any mention of the infamous Section 8 of the Paulson Bailout Plan mentioned in any major media outlet?

Here's the textjust as a reminder:

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.

It is critical that this gain traction this week. Write every outlet you can think of to cover this massive power grab. And if you see any mention of it, please note it in the comment thread.

Well, at least Jack Balkin is paying attention. It's a must read.

Write you your House Representative, here. Write to your Senator here.

Update: Ian notes that Obama seems to have drawn a line in the sand: NO DEAL! Although I must note, after reading Obama's remarks, I don't see anything about Section 8 or legal oversight in them AT ALL. And that is disturbing. Here are the key points:

First, there must be no blank check when American taxpayers are on the hook for this much money.

Second, taxpayers shouldn't be spending a dime to reward CEOs on Wall Street.

Third, taxpayers should be protected and should be able to recoup this investment.

Fourth, this plan has to help homeowners stay in their homes.

Notice anything missing?

Update 2: Lambert points out that McClatchy is on the case.

Blue B (855)
Tuesday September 23, 2008, 4:03 am
The facts show that the problem was caused by allowing the market to operate without regulation. So logically, Paulson's solution is to allow him to make thing right by not regulating his actions. Only in Alice's Wonderland would anyone suggest such an idea.

Make certain that oversight is accomplished by a majority of non politicians. Let's include 1 Republican, 1 Democrat and 3 others. The other three will have to be agreed upon by both parties. Guys like Buffett would do nicely.

Finally, and most importantly, drop the word bailout. Change it to loan. All of us know that when we go to the market for money, it's always expected we will repay the loan. Whether that is in the shape of ownership or preferred stock, we must insist on being made even. Make certain that bankruptcy won't avoid repayment. Insist that executives pledge their company stock and pension guarantees to insure the debt is repaid. Bottom line. This isn't a bailout. It's a loan. Limit executive compensation until the loan is repaid. We'll be told that's unfair by some. Tell them to go somewhere else for a loan then.

This is a defining period for America. We must adhere to the American principals that business understands. There is no free ride. Take it or leave it.

LucyKaleido ScopeEyes (82)
Tuesday September 23, 2008, 6:12 am

I just found this on the Angry Bear site - I like the invention of a new expression for the bailout, the "Banking Patriot Act" ! It's perfect, since we're getting the same kind of 'knife at the throat' urgency pitch to get it done fast. The author takes the analogy to wonderful lengths :

The Cactus Bail-Out Plan: Cheaper, Better, Faster

One of the goals of Paulson's Bad Joke seems to be to deal with "counterparty risk." That is, if Bank A can't find a greater fool to buy its garbage, it will have trouble paying back Bank B. It would be cheaper to simply tell Bank B to collect what it can from Bank A's bankruptcy proceedings, and cut them a check for what's left to eliminate the counterparty risk. Whether helping Bank B makes any sense or not, at least this plan would cost the taxpayer much less, as it wouldn't include the expense of keeping Bank A afloat.

So if we're going to have a costly bail-out, let's at least focus only on bailing out the "good banks" and let the "bad banks" die.

The problem with the approach I laid out is that the process can drag on. But fortunately, if we've learned anything from the Bush administration, its that rushing along at breakneck speed isn't a problem if you claim there's some sort of national emergency. So... pass the "Banking Patriot Act."

Any bank that is in trouble must liquidate its assets immediately and pay back its creditors to the best of its ability. The government would use its $700 billion to compensate the good banks for their counterparty losses. Voila - no counterparty risk, no uncertainty in the banking system, no rewarding the bad banks, and the system operates as it should.

But... what makes the bad banks go along with this plan? Well, its simple, really. A provision of the "Banking Patriot Act" allows the government to view any communications by anyone at the bank to see if they're in trouble.

And if any bank turns out to be in trouble but did not go along with the "liquidate immediately" order - well, its executives would all be declared enemy bankers, and would be interned at Gitmo. And there would be waterboarding to find out if those enemy bankers know of other enemy bankers.


LucyKaleido ScopeEyes (82)
Tuesday September 23, 2008, 7:03 am
Sorry, something strange is going on.

The second comment was posted on "Arianna Huffington- The Bailout Plan: Welcome to Economic Shock and Awe," so I don't know how it ended up here. Maybe it will go back to where it belongs !

Past Member (0)
Tuesday September 23, 2008, 7:37 am
Paulson is accountable! Don't let him use fear to get himself out of his own failure to monitor financial activities. No Blank Check.
Louise B.

Blue B (855)
Tuesday September 23, 2008, 11:58 pm
Insofar as the economic crisis is concerned let us all be reminded that the fundamental flaw in all the "solutions" offered is that those solutions are offered to "fix" a problem that cannot be fixed. To understand this basic point, you require only three sentences from Mike Whitney's analysis. Here they are:

This cycle [in the market] will persist until the bad debts are accounted for and written off or until the exhausted dollar-system collapses altogether.


In truth, there is no fix for a deleveraging market any more than there is a fix for gravity. The belief that massive debts and insolvency can be erased by increasing liquidity just shows a fundamental misunderstanding of economics.

This is the truth that almost no one will accept.

Will Dmeocrats NEVER recognize when they're being "set up" by the RepubliCON crook$ AND LIAR$?

"I wonder how many times you have to be hit on the head before you find out who's hitting you? It's about time that the people of America realized what the Republicans have been doing to them," - Harry Truman.

Blue B (855)
Wednesday September 24, 2008, 3:15 pm

McCain Wants A Time Out -- But Why?Bush was able to debate Kerry while he was president.
For all of his sudden urgency, McCain acknowledged just yesterday that
he had not even read the administration's three-page bailout proposal.


Blue B (855)
Wednesday September 24, 2008, 6:25 pm
Why did Paul$on'$ firm: Goldman $ach$ survive???

The Long and Short of It at Goldman Sachs

Goldman Sachs sold hundreds of Billions in subprime/CDO's and shorted them at the same time.

A new analysis by Goldman Sachs Group, Inc. finds that “Wall Street banks, brokerages and hedge funds may report $460 billion in credit losses from the collapse of the subprime mortgage market, or almost four times the amount already disclosed.”

The degradation of accounting The folly of fair value accounting, which helped to drive up executive bonuses based on illusory values, is increasingly exposed by the US financial crisis. Goldman Sachs now has "assets" for which no market exists valued at twice the firm's capital. That route leads to insolvency.


Blue B (855)
Wednesday September 24, 2008, 7:00 pm
There is no doubt in my mind, where Paulson´s loyalties lie. He is
pushing for the plan as Bush was pushing for the Iraq war. By using
politics of fear the ultimate scare tactics they always use. And in my mind there is no doubt about his loyalties either. He needs a job come January and where would that be for a banker?
The price tag for his plans? Much, much more than $700 Billion.

Blue B (855)
Wednesday September 24, 2008, 10:54 pm
Timing ...

naked capitalism: On the dishonest sale of the bailout plan

Yes ... the Bu$hie$ were sitting on this plan; waiting for the right opportunity ... 41 days before ELECTION DAY.
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