Tag: Treasury Dept

Economists In Doubt

The bailout post has gotten so much play I thought I would pass on what economist think of the deal.

Many of the same economists and opinion-makers who’d provided a bipartisan sheen of consensus to Treasury Secretary Henry Paulson‘s  previous moves have quickly begun casting doubts on the wisdom of a policy that would allow Treasury to purchase without oversight hundreds of billions of dollars of difficult-to-price assets from financial institutions.

Under the proposal, Paulson would not have to report to Congress until December, and the only safeguard for taxpayers was a provision that the “Secretary shall take into consideration means for — (1) providing stability or preventing disruption to the financial markets or banking system; and (2) protecting the taxpayer.”

Skepticism toward the plan reflected more than the predictable desires of the left to spread the wealth to Main Street or of the right to reject government bailouts, although those sentiments were also expressed.

Former Clinton Secretary of Labor and informal Obama advisor Robert Reich, writing in Politico’s Arena forum, added that “[I]f you are a member of Congress, you just might be in a position to demand from Wall Street certain conditions in return for the blank check,” and suggested that the government take an equity stake in financial institutions, provide homeowner relief, and instill the outlines of a new regulatory regime.

“Wall Streeters may not like these conditions,” Reich went on. “Well, you should tell them that the public doesn’t like the idea of bailing out Wall Street.”

700 Billion And Counting

The Bush administration has asked Congress for the power to buy $700 billion in toxic assets clogging the U.S. financial system and threatening the economy as negotiations began on the largest bailout since the Great Depression.

The rescue plan would give Washington broad authority to purchase bad mortgage-related assets from U.S. financial institutions for the next two years. It does not specify which institutions qualify or what, if anything, the government would get in return for the unprecedented infusion.

In a fact sheet released Saturday night, Treasury said it was seeking latitude for the secretary and the Federal Reserve chairman to expand the bailout to non-U.S. companies if they determined it was necessary to stabilize markets, but the original request sent to Congress is limited to firms headquartered in the United States, according to a copy obtained by The Associated Press.

Democrats are pressing to require that the plan help more strapped borrowers stay in their homes and to condition the bailout on new limits on executive compensation.

I am sorry guys but this country only has so much money and that is quickly being used up by all these bailouts.  Somewhere if we only want this spiraling situation to slow or stop; we must let someone fail, I mean one of the biggies not some small struggling mom and pop operation.

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.

Dodd Feels Misled On Fannie/Freddie

AS written on The Crypt on Politico

For more than a year, Senate Banking Chairman Christopher Dodd has been at the epicenter of everything having to do with the Fannie Mae and Freddie Mac meltdown.

But when the Bush administration gave him a heads up on Friday that it was about to seize control of the mortgage giants, he was caught off guard.

“I was led to believe that this was something that started over the weekend, but now I believe this was started weeks ago,” Dodd said in a conference call with reporters Monday afternoon. “… I’d be hard pressed to find out this all happened Friday afternoon.”

Dodd and other leading Democrats were surprised that Treasury Secretary Henry Paulson exercised his takeover authority so quickly after Congress gave him that power in the housing bill passed this summer. Now, Dodd is demanding that Paulson appear before the Banking Committee for a hearing to investigate how the decision was made, because clearly Congress was left in the dark.

Paulson had been getting along famously with congressional Democrats this year, engineering a major economic stimulus bill in January while helping negotiate the housing bill earlier this year. But now the relationship seems shaky.

“I’m not opposed to this [the federal seizure] but I want to know more,” Dodd said. “I’m going to be much more cautious this time around … fool me once, shame on you. Fool me twice, shame on me.”

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?

A Bailout By Any Other Name

For the second time in four months, the US government has intervened to rescue major financial firms and prevent an imminent collapse of the American and global banking system.

The government bailout of the mortgage giants Fannie Mae and Freddie Mac announced Sunday goes well beyond the $29 billion injection of Federal Reserve funds used to subsidize the takeover of Bear Stearns last March by JPMorgan Chase.

The plan outlined by Treasury Secretary Henry Paulson would give him virtually unlimited and unilateral authority to pump tens of billions of dollars of public funds into the mortgage finance companies. At the same time, the Federal Reserve Board announced that it would allow the companies to directly borrow Fed funds.

It is generally conceded that a failure of the two government-chartered mortgage finance companies would have consequences even more cataclysmic than those which would have likely followed a collapse of Bear Stearns. Between them, Fannie Mae and Freddie Mac, which purchase mortgage loans from banks and other lenders, bundle them into securities and sell them to financial institutions and big investors around the world, hold or guarantee more than $5 trillion in mortgage debt. They currently account for some 80 percent of all new mortgages in the US. Were they to lose the ability to borrow at a discount, the US housing market would come to a grinding halt.

The bailout with public funds of Fannie Mae and Freddie Mac will set a precedent for a far broader use of taxpayer money to rescue major financial companies. Last week Paulson and Bernanke went before the House Financial Services Committee to demand legislation institutionalizing federal intervention to bail out failing Wall Street firms. The response of key Democrats such as Frank was to urge the regulators to call for such measures now, rather than after the new Congress takes office next year.

Will you allow your tax dollars to be used to bailout these speculators, which btw, your president said he was not going to bailout speculators–so much for that promise.