Flat out, and he uses the “L” word, he quotes David Davies, and notes that “Good ideas do not need lots of lies told about them in order to gain public acceptance.”:
So, this morning Hank Paulson told a whopper:
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.
What the proposal actually did, of course, was explicitly rule out any oversight, plus grant immunity from future review:
Sec. 8. Review.
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.
He’s right too. Paulson wants no oversight as he bails out his buddies.
J.P. Morgan Chase bought the assets for $1.9 billion.
To clarify, the “purchase” is not a purchase accounts, those still belong to the account holders. The purchase is of the banking operations, J.P. Morgan now manages the accounts, the banks, etc.
It appears that the Wall Street bankers, writing the SEC as the American Bankers Association, are objecting to an accounting rule that requires that assets be priced on their balance sheets at a realistic market value.
They find it inconvenient that assets that they won’t even try to sell, because they might get 15¢ on the dollar, which would make them technically insolvent.
Dudes, you are broke. You are not broke because of an accounting rule, you are broke because your so called assets on your so called balance sheets are about as popular as the idea of giving Dick Cheney a rim job.
The American Bankers Association, today’s wankers of the day.
Well it appears that the state of New York is moving toward regulating some credit default swaps as insurance.
This is actually important, since it has been known for 300 years that insurance is not just any sort of financial instrument.
Basically, when insurance policies are traded as securities, you get fraud. This was learned in bubbles in the British markets in the 1700s, and so insurance is allowed only for those who have the actual loss.
About a decade ago, New York State said that CDS were not insurance, and so they were not subject to insurance regulation, leading to the current orgy of fraud, speculation, and abuse.
That being said, this is too late, and we know this because SEC Chari Christopher Cox is calling for regulation too, and Cox is a Randroid free-marketeer, and as such, never calls for regulation until it is too late.
I think that it’s clear that Paulson’s plan will be subject to sagnificant modifications in the legislative process with the Democrats seeing a need for new and stronger regulations, an equity stake in exchange for the bailout, and seeing serious questions raised by the portions of the proposed law that prohibit judicial review.
Of course, if I were them, I’d also be flipping out over the idea of Treasury hiring the Wall Street firms who f%$#ed up in the first place to manage the assets once they are purchased.
I would also note that some Congressmen want some sort of mortgage aid to distressed homeowners to be a part of the plan. (IMNSHO, allowing bankruptcy judges to handle this is the best, cheapest, and most efficient way to handle this).
I should note that the the Wall Street boys hate the idea of restrictions or equity stakes, but they have always wanted, to quote Dire Straits, their , “Money for Nothing”.
It does appear, however that the White House and the Congress are narrowing their differences.
First, let’s note that under his proposed plan, Paulson can buy non-American, non-mortgage assets, which sounds an awful lot like some of this money will go to benefit UBS, where Phil “Mr. Congeniality” Gramm, sits on the board of directors……Funny that, huh?
Furthermore, the $700 billion quoted is low. The real reckoning of the cost of the plan is $1.8 Trillion:
Someone is getting a haircut, and it ain’t Wall Street executives.
Deep Thought
Any member of Congress who looks at the plan to give Hank unchecked power to transfer $700 billion from the Treasury to his friends’ companies and has any reaction other than ‘You’ve got to be f%#@ing kidding me’ does not deserve to hold office.
Krugman opposes the plan, at least in the form presented by Henry Paulson, though he is more receptive to Chris Dodd’s version, which requires equity from the firms rescued for buying their part of the big sh$#pile.
Sebastian Mallaby, who normally favors economics for the benefit of rich folk, hates the Paulson plan too.
Brad DeLong is of a similar mind to Krugman.
In The Nation, William Greider calls the Paulson plan a, “historic swindle.”
Dean Baker, as is his wont, gets into some fairly specific proposals in some depth, which which I agree.
Robert Reich is less specific, but he does add one specific proposal: allowing primary mortgages to be modified by a bankruptcy judge, with which I also agree.
As for me, I will merely note that Henry Paulson holds hundreds of millions of dollars worth of shares on Goldman Sachs, and the idea that he get a blank check to work this is therefore nuts.
Once again, the big story is the bailout, which I will not cover here, it gets its own posts, though I will be dealing with some of the market effects of the proposal, which can be viewed as positive, if you are an optimist, or negative, if you are me.
First, the US dollar took it’s biggest hit vs. the Euro in 7 years, because of concerns that this bailout will end up being so expensive that it will debase the currency, and as a result, crude oil climbed the most ever, more than $25/bbl before settling at the end of the day at $120.92/bbl, up $16.37.
You can view the price in oil as a belief among traders that the economy, and hence demand, will be recovering, or you can believe that traders think that this plan will push the dollar over the edge. I think that the contemporaneous fall of the dollar indicates the latter.
The increase in prices appears to be a part of a more general rebound in commodities, though retail gasoline continued its downward path, but gasoline tends to lag oil by a few weeks, as it is actually a manufactured final product, as opposed to a raw material.
In either case, it appears that The Commodity Futures Trading Commission is not taking a close look at oil trading as a result of the volatility today.
The Chicago Fed sees more signs of a recession, reporting a drop in economic activity.
Finally, it there are indications that investors are just beginning to see US treasuries the same way that they did during the Japanese meltdown…You know…the one that lasted fifteen years.
Honestly, if that happens to the US, it will be much worse, because we lack the safety net of Japan.
From the article The Real Reason for the Global Financial Crisis:
Go read the rest of the article too.
OK, the full throated condemnation of McCain’s call to fire Cox from the SEC, which calls him “Un-Presidential”, is not something I would have expected from the wingnuttiest OP/ED page in the nation.
Barney Frank is saying that Congress will look at limiting executive pay as a part of any bailout package.
I’m Matthew Saroff, and I unreservedly approve this idea.
As to the limit: The salary of the President of the United States, with the possibility of an equal bonus.
That’s around 800 grand a year, which is fine by me, and a real haircut for these contemptible greedy f%$#s
Ameribank, Inc., of Northfork, West Virginia.
That makes 12 for the year, and 5 of those were in the past 2 months.
meIt turns out that if surgical residents work less than 80 hours a week, then there are fewer complications from the surguries that they perform.
Hoocoodanoed??
Felix Salmon of Condé Nast notes:
It’s not just hedge funds, either, which could end up being the vector by which crisis is spread. It could be a big insurance company, or it could be a series of failures of small and medium-sized banks. Or it could come out of left field entirely: the “shadow banking system” is now so big and so global that for all we know a series of bad decisions by a mid-level technocrat in Kazakhstan could precipitate cataclysm across America and the world.
(emphasis mine)
I would note that Borat Sagdiyev hails from, “Glorious Nation of Kazakhstan”.
It does raise the point that when markets are deregulated to the degree they are, people will stomp all over the line in an attempt to maximize short term gain, and this raises the possibility that minor actions will have major effects on the economy.
That’s why we need regulation in the first place. Enlightened self interest absent common sense regulation, gives way to unenlightened, and uninformed self interest, which invariably becomes bubbles and fraud.
H/T Kevin Drum for the catch.
The FRB: Press Release:
The Federal Reserve Board on Tuesday, with the full support of the Treasury Department, authorized the Federal Reserve Bank of New York to lend up to $85 billion to the American International Group (AIG) under section 13(3) of the Federal Reserve Act. The secured loan has terms and conditions designed to protect the interests of the U.S. government and taxpayers.
The Board determined that, in current circumstances, a disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth, and materially weaker economic performance.
Fragility, huh? If this economy had any more of a glass jaw, it could shave with Windex®.
BTW, the following is a lie:
The interests of taxpayers are protected by key terms of the loan. The loan is collateralized by all the assets of AIG, and of its primary non-regulated subsidiaries. These assets include the stock of substantially all of the regulated subsidiaries. The loan is expected to be repaid from the proceeds of the sale of the firm’s assets. The U.S. government will receive a 79.9 percent equity interest in AIG and has the right to veto the payment of dividends to common and preferred shareholders.
The Fed is treating this as a liquidity problem but in fact, it’s an insolvency problem. There is not enough assets to pay back the Fed.
It appears that they are shuttering their carbon trading desk.
Anything that kicks carbon trading in the teeth is a good thing. It is bad, incredibly bad, policy.
The stated idea is, “Let’s let Wall Street apply the same practices ant techniques to a world threatening problem, the innovation unleashed will solve that problem.“
The real goal is, “If we create a market mechanism for this sh#@, then I can pull down major fees as an expert in this sh#@, my Ivy League classmates can get commissions whenever someone sells this sh#@, we can get more commissions whenever we repackage these things as sh#@ backed obligations, and I can get a Porsche.“
Market based solutions: Because baby needs a Porsche.
We now have a report that the SEC will be taking actions to restrict naked short selling. (primer on the practice here)
Of course, they are a bigger problem with small stocks, where someone can naked short shares in a micro cap, and drive the price down, because the stocks that they are selling dwarf the total volume of trading, but the SEC only noticed it when it affected the big guys.
And considering the fact that American International Group is the largest insurer in the world, this is a big deal.
I’m not sure how bad it is, but they just cut a deal with New York State to recapitalize from their subsidiaries, which sounds a lot like eating seed corn, and is normally against regulations, and the Federal Reserve is twisting arms in an attempt to get private firms to help out.
Buried in a very good post by the Angry Bear is this little gem:
But the effect of LEH going out of business would not be so severe as the effect of BS going out of business for one reason that Roubini, for some reason, appears not to have mentioned.
Lehmann has no clearing business.
Had Bear gone out of business, about 30% of the hedge funds in the country would not have been able to execute virtually any transaction for the following thirty days. Not a payment. Not a redemption. Not a trade on a listed exchange. Not a receipt. Not a de-leveraging. Not a swap payment, not a CDS payment, not fulfilling an option exercised against them.
There’s not just a “maybe” about financial collapse in such a scenario; P probably well in excess of 0.9944. $30 billion is a “bargain” in such a situation.
(emphasis mine)
Bear Stearns was a surprise. Lehman was not. This has been bubbling up for months, and the firms have been able to create contingencies to allow for trading in the departure of the firm from the market.