Tag: Paulson

An “Orderly” Bankruptcy

JUst what in hell is an “orderly” bankruptcy?

The Bush administration is looking at “orderly” bankruptcy as a possible way to deal with the desperately ailing U.S. auto industry, Treasury Secretary Henry Paulson said Thursday as carmakers readied more plant closings and a half million new jobless claims underscored the deteriorating national economy.

With General Motors, Chrysler and the rest of Detroit anxiously awaiting a White House decision on billions of dollars in emergency federal loans, Paulson said bankruptcy for Detroit automakers should be avoided if possible but that an orderly reorganization may be the best option to keep them from collapsing.

Bush, like Paulson, spoke of the idea of bankruptcies orchestrated by the federal government as a possible way to go — without committing to it.

“Under normal circumstances, no question bankruptcy court is the best way to work through credit and debt and restructuring,” he said during a speech and question-and-answer session at the American Enterprise Institute, a conservative Washington think tank. “These aren’t normal circumstances. That’s the problem.”

All along the Repubs in Congress have wanted the Big 3 to file for bankruptcy, but Bush and Paulson decided that the government may have to step in to protect millions of American jobs.  But now it seems that all they will do is to make sure that the bankruptcies are not “disorderly”.  Good plan guys!

What Happened To The Toxic Loan Plan?

Treasury Secretary Henry M. Paulson’s decision to abandon plans to buy troubled bank assets shows that he has come to two conclusions about what was once the chief focus of the government’s $700-billion bailout:

The first is that it wouldn’t work. The second is that the economists and financial experts who agitated to have capital injected directly into the banking system now appear to have been right all along.

Paulson announced Wednesday that the federal government would formally abandon plans to buy troubled mortgage-backed securities from banks and other big investors to instead focus its efforts on thawing credit markets.

The shift, however, had been in place since last month. A week after the package was passed by Congress on Oct. 3, Paulson began signaling that the thrust had changed and that much of the $700 billion instead would go toward providing capital to banks by investing in their preferred shares.

That action might be compared to replacing a gravely ill patient’s slow intravenous drip with a shot of adrenaline into the heart. The stock market rallied, and over the next few weeks the capital injections intensified and talk of the asset purchases ebbed.

Although Treasury’s change of course has aligned the U.S. more closely with Britain and continental Europe, where direct recapitalization of banks has become the standard response to the financial crisis, it has raised new doubts about the U.S. bailout.

These include concerns about Paulson’s inconsistent direction. The Treasury secretary originally presented the plan to buy toxic mortgage-based investments under the Troubled Asset Relief Program as the only conceivable solution to bank failures, then vehemently resisted congressional attempts at modification.

“This was a major piece of legislation,” observed Campbell R. Harvey, professor of international business at Duke University. “TARP was what people were voting on, and now he announces that TARP is not going to be TARP.”

Another concern is that Paulson and Congress are failing to specifically define the purpose of TARP. Originally the program was aimed at troubled banks, particularly those whose failure might undermine the domestic or global financial systems.

On Wednesday, however, Paulson said the remaining TARP funds would be directed at “both banks and non-banks” with troubled holdings; at non-bank credit markets that have stagnated, such as those for credit card receivables, auto loans and student loans; and at the housing market to stem the risk of foreclosure. These categories represent a dramatic expansion, and arguably a dilution, of the program.

Well, how nice this change seems to be a weekly thing…the money will go where the corporations want it to go.  What of oversight?  There is NO oversight!  Paulson does what Paulson wants and NO ONE is questioning his decisions.  Where were the critics in the run to the bill.  The bill that just had to be passed was to stop the economy from tanking….and the economy tanked….someone ask these people why we should trust them to get it right this time.

Where Is The Love?

Yesterday Paulson spoke for 45 minutes explaining the progress of the bailout and the markets bombed for a third straight session.

An increasingly despondent Wall Street fell for the third straight session Wednesday as investors absorbed another series of dismal corporate reports and news that the government won’t buy banks’ soured mortgage assets after all. The Dow Jones industrials dropped more than 410 points, and all the major indexes lost more than 4 percent.

The stock market has lost about $1 trillion over the past three days, according to the Dow Jones Wilshire 5000 index, which reflects the value of nearly all U.S. stocks.

The market started the day falling on more signs that companies are being hurt by a severe pullback in consumer spending. Macy’s Inc. said it lost $44 million in the third quarter as sales at the department store retailer fell more than 7 percent. And consumer electronics retailer Best Buy Co. slashed its fiscal 2009 guidance on fears that consumer spending will erode even further.

Paulson also announced a new goal for the program to support financial markets that supply consumer credit in such areas as credit card debt, auto loans and student loans. He said, “with a stronger capital base, our banks will be more confident” to support economic activity.

Still nothing Paulson said would lead me to believe that there is anything being done for the people.  But wait!  All involved keep saying that the possiblity of a profit being made is good and that would mean that the taxpayer made money…….thinking…….does that mean we all will get checks?  Or is that just a way to keep the taxpayer at bay and smiling?

Paulson is getting little or no love for his plans…..he rushed the bailout through Congress with the prediction of a failing economy…..they passed the bill…and the economy failed…..is it not about time to regroup and fins a way to make Main Street the most important thing?

Where Has All The Money Gone?

Where has all the money gone?

Long time passing,

When will we ever learn?………..is that Bob Dylan I hear in the background?

In an unusually frank article published in Saturday’s New York Times, the newspaper’s economic columnist, Joe Nocera, reveals what he calls “the dirty little secret of the banking industry”–namely, that “it has no intention of using the [government bailout] money to make new loans.”

As Nocera explains, the plan announced October 13 by Treasury Secretary Henry Paulson to hand over $250 billion in taxpayer money to the biggest banks, in exchange for non-voting stock, was never really intended to get them to resume lending to businesses and consumers–the ostensible purpose of the bailout. Its essential aim was to engineer a rapid consolidation of the American banking system by subsidizing a wave of takeovers of smaller financial firms by the most powerful banks.

Nocera cites an employee-only conference call held October 17 by a top executive of JPMorgan Chase, the beneficiary of $25 billion in public funds. Nocera explains that he obtained the call-in number and was able to listen to a recording of the proceedings, unbeknownst to the executive, whom he declines to name.

“It is starting to appear,” the Times columnist writes, “as if one of the Treasury’s key rationales for the recapitalization program–namely, that it will cause banks to start lending again–is a fig leaf…. In fact, Treasury wants banks to acquire each other and is using its power to inject capital to force a new and wrenching round of bank consolidation.”

Early this month, he explains, “in a nearly unnoticed move,” Paulson, the former CEO of Goldman Sachs, put in place a new tax break worth billions of dollars that is designed to encourage bank mergers. It allows the acquiring bank to immediately deduct any losses on the books of the acquired bank.

In a nationally televised speech delivered September 24, in advance of the congressional vote on the bailout plan, Bush said it would “help American consumers and businessmen get credit to meet their daily needs and create jobs.” If the bailout was not passed, he warned, “More banks could fail, including some in your community. The stock market would drop even more, which would reduce the value of your retirement account…. More businesses would close their doors, and millions of Americans could lose their jobs … ultimately, our country could experience a long and painful recession.”

One month later, the bailout has been enacted, and all of the dire developments–banks and businesses disappearing, the stock market plunging, unemployment skyrocketing–which the American people were told it would prevent are unfolding with accelerating speed.

While no serious measures are being proposed, either by the Bush administration, the Republican presidential candidate or his Democratic opponent, to prevent a social catastrophe from overtaking working people, the government is organizing a restructuring of the financial system that will enable a handful of mega-banks to increase their power over society.

Once again I ask, When will we ever learn?

The Rats Stick Together

The Treasury Department on Monday named a former Goldman Sachs executive to oversee spending for the $700 billion financial rescue plan.

The administration announced it had tapped Neel Kashkari, 35 — an assistant Treasury secretary for international affairs — to head the Treasury’s new Office of Financial Stability on an interim basis.

Kashkari helped draft the bailout legislation as one of Treasury Secretary Henry M. Paulson Jr.’s close advisers on the crisis. Kashkari joined the government after working at Goldman Sachs, the firm Paulson headed before joining the Bush administration in 2006.

I still have a problem with the guysthat made all the profits off the situation are the leaders of the bailout.  Think about it people, if you went to the doctor to have a mole removed and he amputated your penis, would you turn to him for further surgical advice?

Who Is Henry Paulson?

Soon to be King Henry!

Does anyone really know who he is?

I know that you have heard the name and you mat possibly know who he is, the Sec. of Treasury, but what else do you know about the guy that will have unlimited control of almost a trillion dollars?  I will bet not much.  That is about to change and you may thank the Professor for his diligence.

The plan to rescue the US financial industry arrogates virtually unlimited money and power over the financial affairs of the state to the office of Treasury Secretary Henry Paulson. Paulson is a figure with a long history of intimate connections to the political and financial elite.

In 1970, fresh from the Masters program of the Harvard Business School, Paulson entered the Nixon administration, working first as staff assistant to the assistant secretary of defense. In 1972-73, Paulson worked as office assistant to John Erlichman, assistant to the president for domestic affairs. Erlichman was one of the key figures involved in organizing President Richard Nixon’s notorious “plumbers” unit that carried out illegal covert operations against the president’s political opponents, including espionage, blackmail, and revenge. Ehlichman resigned in 1973, and in 1975 he was convicted of obstruction of justice, perjury, and conspiracy, and was imprisoned for 18 months.

Utilizing his connections, Paulson went to work for Goldman Sachs in 1974. In a 2007 feature, the British newspaper the Guardian wrote, “Not only was he well connected enough to get the job [in the Nixon White House], but well connected enough to resign in the thick of the Watergate scandal without ever getting caught up in the fallout. He went straight to Goldman back home in Illinois.”

Paulson rose through the ranks of Goldman Sachs, becoming a partner in 1982, co-head of investment banking in 1990, chief operating officer in 1994. In 1998 he forced out his co-chairman Jon Corzine “in what amounted to a coup,” according to New York Times economics correspondent Floyd Norris, and took over the post of CEO.

Since taking office, Paulson has overseen the destruction of three of Goldman Sachs’ rivals. In March, Paulson helped arrange the fire sale of Bear Stearns to JPMorgan Chase. Then, a little more than a week ago, he allowed Lehman Brothers to collapse, while simultaneously organizing the absorption of Merrill Lynch by Bank of America. This left only Goldman Sachs and Morgan Stanley as major investment banks, both of which were converted on Sunday into bank holding companies, a move that effectively ended the existence of the investment bank as a distinct economic form.

In the months leading up to his proposed $700 billion bailout of the financial industry, Paulson had already used his office to dole out hundreds of billions of dollars. After his July 2008 proposal for $70 billion to resolve the insolvency of Fannie Mae and Freddie Mac failed, Paulson organized the government takeover of the two mortgage-lending giants for an immediate $200 billion price tag, while making the government potentially liable for hundreds of billions more in bad debt. He then organized a federal purchase of an 80 percent stake in the giant insurer American International Group (AIG) at a cost of $85 billion.

There you are sports fans, I am sure that there is something I missed, but this is as much as I could find on short notice.  Now you decide if a trillion dollars should be controlled by one person, in essence.

Bailout Offers Many Powers

If the plan is pushed through Congress, there will be some massive new powers for the boyz in control.

• Buying Power: This is the cornerstone of the proposal — allowing Treasury to buy up to $700 billion of privately held assets in the market. The original proposal called for buying power to be limited to “mortgage-related” assets, but a later draft expanded that to allow the government to purchase any “troubled assets.” There’s a staggering difference in authority between the two phrases, and it is a moving target as of press time. The banking industry generally favors the second version, but that potentially exposes taxpayers to much higher costs.

• Managing Power: Under the Bush administration’s plan, Treasury would hire private managers to handle the hundreds of billions of dollars’ worth of assets it will soon own. But Treasury was silent on whether those managers would be able to actually negotiate directly with homeowners who hold the troubled mortgages. Democrats would go further and demand that bankruptcy judges be given the ability to renegotiate those failing mortgages on behalf of homeowners. This will be one of the more contentious sideshow fights of the negotiations.

• Global Power: Under one version of Treasury’s proposal, the government would have the power to buy assets from any institution in the world that it deemed worthy of a bailout.

• Pay Power: Democrats on Capitol Hill say they want the final plan to include restrictions on payouts to the executives of the financial institutions that take the taxpayer lifeline. Paulson says he doesn’t like this idea, but it may be tough for elected officials to oppose this populist carve-out in an election year.

• Equity Power: Democrats would like the government to get shares in the financial institutions that take federal help — effectively giving taxpayers ownership stakes in the nation’s largest banks and providing them with a huge windfall if those institutions prosper in future years.

• Oversight Power: Treasury’s initial proposal included very little room for congressional oversight of the new effort, calling for reports to be sent to the Hill just twice per year. That isn’t flying with Democrats or many Republicans on the Hill; if a bill makes it through Congress, it will almost certainly have much stronger oversight provisions.

Is It Socialistic?

During the past several months along the road to the White House, I have heard programs offered by Clinton and Obama as socialistic or as socialism, but are they really? The quick answer is NO. But I know all want to know why I say this. The term is used for the Boomer generation, for it has some residual fear reaction left to it. But as far as the younger generations, they would not know socialism if it walked up and bit them in the ass. Basically calling something ‘socialistic’ is a tired old tactic which needs to be retired and politicians and surrogates need to address the real problems faced by the people, most of all, problems of the working class.

But wait! The interventions by the Federal Reserve, and the US treasury department have been dramatic and unprecedented in many ways. Against hysterical and ignorant criticism from the free-marketers in their own party, Ben Bernanke and Henry Paulson appear to have drawn the correct conclusions, albeit some years after the they were due – that a measure of socialism is the only, repeat only, course that can avert catastrophe. The only question is: will it be enough socialism to stay the dragon of world-wide depression and the fires of war that would surely follow in its wake?

Bernake and Paulson have clearly been reading Hyman Minsky and and Charles Kindleberger – latter day closet Marxians and “long wavers” – and they GET IT: When markets fail, the chaos that follows is NOT self-correcting, and governments MUST act. This is a profound fact that neo-classical economic training – which pays virtually no attention to history – tends to ignore; thus many, but fortunately not all, economists simply cannot believe the scale of the dangers at hand, nor do they have the intellectual or scientific tools to evaluate them. I do not argue that mathematical models are not important, even mandatory in developing economic and social policy. But seeing the big picture requires careful attention to economic history, which gives abundant evidence that raw capitalism is NOT a stable system.

Recent history gives solid examples of how smart socialization is the only corrective. Sweden, for example, confronted financial collapse in the 1990’s by nationalizing its banks and absorbing the toxic bubble before selling the institutions back in a more carefully regulated environment, and sustained growth was the result. Japan, on the other hand, allowed its real estate market to collapse without intervention 20 years ago, and they have not recovered growth rates since.

Call it what you want, but when the government takes over the running of a company or industry, it is SOCIALISM! Sorry, critics but you cannot blame the Left for this…….it is a situation of your own making.

Paulson And Bernanke To The Rescue

They come riding in on their white horse to rescue the damsel in distress, the economy.

The U.S. government moved to cleanse banks of troubled assets and halt an exodus of investors from money markets in the biggest expansion of federal power over the financial system since the Great Depression.

“We’re talking hundreds of billions,” Treasury Secretary Henry Paulson said in a press conference. “This needs to be big enough to make a real difference and get to the heart of the problem.”

The Treasury is likely to run the program, which would involve auctions where the government buys devalued assets, said House Financial Services Committee Chairman Barney Frank. The plan, which will apply to U.S.-based financial institutions seeking to sell mortgage assets, is designed as a comprehensive approach after a series of individual rescues failed to stem the crisis.

Paulson and Fed Chairman Ben S. Bernanke‘s plans, which include the removal of illiquid mortgage securities from companies’ balance sheets, sent stocks from the U.K. to China soaring. The dollar gained, while two-year Treasury notes tumbled, sending the yield up the most in 23 years.

The Treasury tapped all $50 billion in the country’s Exchange Stabilization Fund to insure money-market mutual fund holdings, and the Federal Reserve expanded lending to commercial banks. The measures were aimed at credit markets teetering on the edge of collapse, as investors pulled a record $89.2 billion from money-market funds Sept. 17.

Fannie And Freddie

Treasury Secretary Henry Paulson said in an interview with U.S. radio broadast on Monday that a plan to take control of Freddie Mac and Fannie Mae had been structured in a way to protect U.S. taxpayers.

He also said the move had been taken after the Treasury had found “major structural flaws” in the two agencies.

“We structured this very carefully to protect the taxpayers,” he told WAMU radio, monitored via internet in London. “And to the extent that taxpayers are going to put preferred stock into this entity it will be structured so that the first losses will be borne by the existing shareholders.”

Now ask yourself …who does this takeover really help?  They expect a 200 pt rise in the Dow….does that really help homeowners or speculators?  And at what cost to the taxpayer?  But did not Bush say that he would not bailout speculators?  Are not heavy investors in the markets, speculators, in a sense?