Bernanke and Paulson: Here's Why We're Screwing You
At today's Wall Street Bailout Hearings, we finally learned what Hank Paulson and Ben Bernanke are thinking. Specifically, we learned what prices they plan to pay for the crap assets they're buying (more than they're worth). And we learned why they picked this plan instead of one more like Sweden's in the early 1990s, which included the government taking ownership stakes in the banks it saved.
The main justification for the plan is that taxpayers are already screwed because banks have stopped lending money. The big difference between this bailout and the ones that have come before, meanwhile, is that the banks aren't yet on death's door. Thus, in Paulson and Bernanke's opinion, these banks must be persuaded to participate in the bailout--by making it a boon to them and a liability for taxpayers.
What Paulson and Bernanke are trying to do, in other words, is fast-forward the economic-crisis movie a couple of months: Instead of waiting until the banks realize that they are hosed and come begging for help, we'll just solve all their problems now. The trouble with this plan is twofold:
* First, until the banks are on death's door, they'll use any government largesse for their own gain: Specifically, they'll only sell assets they think the government is overpaying for (otherwise, why would they sell them)? And the banks know far better than the government will what their own assets are worth.
* Just cleaning up the banks' mistakes will not make them start aggressively lending again. Yes, it's the first part of the process, but contrary to Paulson's assertions this morning, cleaning up bank balance sheets will not quickly fix the housing market. The trouble in the housing market, remember, is that millions of houses were bought by people who couldn't afford them. These folks still can't afford the houses, with or without loans (and especially now that the economy is cratering). So merely making the banks able to lend again won't suddenly soak up all the excess housing inventory.
It may be that what Paulson and Bernanke are trying to do is essentially impossible: Save companies before they know they are screwed. This doesn't mean it's not worth trying. But it does mean it's unlikely to succeed without the taxpayers getting burned.
The government has already headed off the immediate crisis by announcing that it intends to help. Now, it should use that assurance to play more of a backstop-of-last-resort sort of a role, where it only helps companies that are truly in trouble and gets a significant equity stake for doing so. Anything less will bail out idiot banks and their shareholders at the expense of taxpayers.
See Also: Wall Street Bailout Hearings: Government Admits It Will Pay Too Much For Trash Assets
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People played with the little money they had to try to secure decent housing. What sane person would act to cause self-misery if they understood their steps lead to not so distant peril? What kind of person invites ruin? There were those who were trying to live beyond their means and were extravagant in their willingness to take on unsustainable debt. I assume close analysis would reveal that most foreclosed upon were trying to make it versus trying to keep up with the Joneses. Who would not want their own piece of land and home on top of it? Who would not want a decent place to stay and attempt to capitalize on a fleeting opportunity? Now some want to add insult to injury in analysis of this crisis by raising the ugly and divisive question of race as an indicator of propensity to fail -- You bastards! Goose gander, buyer seller, there is blame to spread. The result is the same. The monied interests continue to rate governmental assistance and the little person continues to be assisted to ruin by an unforgiving system -- tort reform, repeal of bankruptcy law, an unforgiving system of credit where individual no longer matters, only individual credit score void of any real understanding of the person. Assessment of worthiness not by looking people in the eye but by looking at their electronic record; all of this is our society and more. A cold heart is costly to people as well as nations.
Threatening lawsuits, Clinton’s Federal Reserve demanded that banks treat welfare payments and unemployment benefits as valid income sources to qualify for a mortgage. That isn’t a joke—it’s a fact. ...
So what, the banks were not even validating any form of income or even the credit reports and were just throwing the money at these people...
Unemployment no -- Welfare, it depends on the situation. A family with six kids would be benefited by an opportunity to buy a property at a low rate of interest (regardless of credit history but with stipulated enforced financial guidance). The unemployed person needs a job that pays a living (not a just surviving) wage first, and then after the standard two years of employment and time to save some money they should be offered a mortgage opportunity consistent with their observable ability to pay. This crap ain't rocket science. What made it rocket science is the desire to pass on risk through complicated security instruments that were bought and sold to transfer large sums of money around the world. On the welfare case, I would also add that there should be support services for insuring the kids are educated and helping the parents become employed. I know poor people and they are not looking for a handout and would love a job. We have to be more caring. We are losing major contributors to Americas' greatness due to neglect based on contrivances like demographic group membership. I have seen Olympians who were gifted gymnast who never got the chance to go to the Olympics but they could produce a floor routine on concrete that rivaled well-trained athletes. Two of the people I am thinking about died in a crack house. They could have been saved. We have plenty of excuses, how about some solutions?
We may have to bail out the financial institutions to avoid a world-wide collapse in financial markets.
However, any bailout should include stiff jail terms and personal asset forfeiture for every CEO, CFO, and board member of a bailed bank.
The only thing these pigs understand is personal risk. As long as the corporate veil in America's laws of incorporation protects executives from liability for their greed and irresponsibility, this will never change.
At present, you can only sue the corporation for civil damages resulting from executive decisions. It's very difficult to hold executives criminally liable for their misbehavior.
Try swindling $65 billion yourself, using 'innovative financial instruments', and see how long you remain free.
GREAT article.
We need to ELIMINATE THE FEDERAL RESERVE. It's a private collection of banks.
If lending is a problem, set up a NEW bank, owned ENTIRELY by the people, and seed-fund it with some several hundred billion. Then, let it COMPETE with the private banks. If lending drys up at the other banks, let it....
Another "reform" we need: Let's get BACK ON THE GOLD STANDARD.
Bottom line: NO BAILOUT!
.
Yes, $150 Billion Stage! Stage this Bailout and Review quality of progress before any added funds.
EQUITY for Cash from China and others
Moratorium on Bonuses and Severance Pay
TURN OFF THE FAUCET on Bad Mortgage Walkaways
PLEASE sign Sen. Bernie Sanders' petition to Sec. Paulson.
http://sanders.senate.gov/petitions/?petition=Financial_Crisis_1
I'm not an economist.. but..
We now "own" Fannie and Freddie, right? We now "own" 80% of AIG, right?
Why don't we fund Freddie and Fannie with say 5 or 6 hundred of the 800 billion. Then fund AIG with the rest.
We let Fannie and Freddie buy investment vehicles that are backed by mortgages on "American" property, from the troubled banks. Fannie and Freddie negotiate a price that is reasonable and minimizes the downside risk to the taxpayer. They then negotiate the terms of the individual mortgages to allow people to stay in their homes. Perhaps they extend the terms, or adjust the finance rate or principle. for flippers or whatever that do not want to negotiate, forclose on the properties. Those properties can then be sold at a profit to the tax payers, or rented to generate a flow of money flowing back into Freddie and Fannie.
AIG insures these mortgages, or at least the most problematic ones.
Banks can sell their "bad" paper to Freddie and Fannie getting it off the books. Fannie and Freddie could continue to write new mortgages at better terms, and AIG can generate income by insuring those properties and mortgages.
There's not enough room to go into all the details, but perhaps this synopsis explains the gist of what I'm thinking.
How to Get Unscrewed --- Spending money at the Main Street level is a much cheaper fix because the debt is leveraged as it goes up the food chain.
Each $1 in mortgage debt can cause up to $30 in loss at the derivative level. By helping Main Street borrowers, with conditions, we could guarantee the loans and still keep the pressure on them.
The cheapest way out would be to pay the mortgage note each month. There are other ways too, such as taking over debt and reducing payments, etc.
I believe that they do not want the facts of the case to get into the publics hands..
They did not verify/validate, wrote a mortgage for over a reasonable amount for the house, (but the income stream was reasonable because the reduced interest offset the high price of the house,) and the current interest rates now are way out of line, because the price was overinflated and the interest rates were bumped up extraordinarily (except that the Bushies have been killing the dollar).... I think 90% of the mortgage deduction is going to the wealthy, and for good social engineering and stability, it really should be going to the bottom instead.
I do so agree with you about funding the person at the bottom... the idea of the taxpayers actually buying bad debts at 'some reasonable' or dirt low price is just looking for more problems and actually REINFORCES the bankers' NEGLIGENCE...
So here's the "64-dollar question": since most of us do not have our part of this bailout (if it goes through as Paulson proposed), where do we get it? They say it'll cost every citizen $2300. Will the banks loan us the money to bail them out? How's that for irony!
Our national debt is almost $10 TRILLION! $32,000 per capita.It increases $2.16 billion per day.
On a larger scale if the USG is the overextended homeowner and Japan, China and the UK are investment houses that hold the bad debt, who is going to bail THEM out? The world is in for an awakening.
"The budget should be balanced; the treasury should be refilled; public debt should be reduced; and the arrogance of public officials should be controlled." -Cicero. 106-43 B.C.
No.
When you add in all of the entitlements that the government is obligated for through 2025 you get a national debt of 100 Trillion dollars, according to many economists.
Is there that much money in the world?
May I jump in here, with no criticism, between smig and resist.
The national PUBLIC debt is around $10 TRILLION, payable to the holders of those notes WITH INTEREST at around $22 TRILLION.
The nation's private(consumer) debt is of an exactly similar magnitude, a little higher total because of interest rates.
They total about $50 TRILLION.
Resist is right that we have entitlement obligations that we are committed to that, when added to the debt, total in the order of magnitude being described.
But, it is not necessary, nor planned, to fund those entitlements through debts.
But, this is not the problem.
Look up the FED publication on MODERN MONEY MECHANICS.
The problem is that ALL money created in this country is created as DEBT.
It comes into existence as DEBT.
ALL of it.
So, if today we owe $50 TRILLION to the holders of those notes, AND
if ALL new money is created and comes into existence as debt,
then HOW can we ever begin to pay off the $50 TRILLION we already owe?
We are screwed by two things.
One is mathematics.
The other is the Federal Reserve Act that allows private bankers to create all new money as debt.
And, THAT is the part we CAN change.
See this:
http://www.monetary.org/amacolorpamphlet.pdf
Monetary transformation NOW.
I do think the American people are being held hostage... and if we don't give into Wall St.'s demands and pay their ransom... we could be in big trouble. I'm just not sure if we should pay the ransom and move on w/ our lives (but be ever fearful of them doing it again)... or don't pay and watch America crumble. Neither is a choice I want to make.
Wall Street and this administration love people like you. Seriously. And so does your Congress. Love and kisses....
We subsidize many of the third world countries, Agriculture and the Airline Industries get their chunk of our tax dollars, now the Banks get bailed out. Whose next? Certainly the Big Three Auto Industries and maybe Pharmaceuticals and HMO’s will be placed on the Taxpayers back. And we thought slavery was a thing of the past!.....Sure makes you want to vote for Republicans and Dumocrates in the Fall.
Sounds essentially like institutionalized "trickle down", but done pre-emptively. Pre-emptive trickle down? I'd be disappointed if we got anything else from this administration.
Let it all collapse. That will be sharp, but of short duration. The nation will be better off with no
bailout. Paulson and Bernanke are only interested in having the taxpayers provide money to their buddies on Wall ST.
I agree. It will all go down whether they give them money or not. Better to get it over with.
Isn't that nice that they are so concerned about helping out right crooks get rid of the mistakes of their own greed.
I'd like to know WHO is going to be buying these houses since so many American's credit is ruined, not by reckless spending, but by watching themselves drown month by month and week by week, as prices for the basic cost of living sky rocket, or from having, not even a catastrophic medical emergency, but even a simple visit to the emergency room. Parents are having to foot more and more of the bill for simple school supplies (have you checked out an average public school supply list lately?) While food packages are shrinking and prices rising, the cost to feed our families has gotten into the steak and lobster category, yet small businesses are unable to maintain salaries and forget benefits!
Where is a plan to help Americans??? We can manage to find money for any other country's assistance, now BIG time corporate welfare, yet once again, the money that is forced from our paychecks is not going to help the people who paid it. "Disgusting"!!!
Utter contempt for the American people, plain and simple. They are sure that we are all dumber than a bag of hammers.
We really need FDR's regulations be brought back. They protected America from this sort of greedy debacle from FDR until the day that Reagan arrived on the scene, eager to undo all of it, little by little. Eventually Phil Gramm was instrumental, along with his best friend, John McCain, in removing the Glass-Steagall Act in 1999 after years of working to deregulate everything in sight. Glass-Steagall stipulated that if financiers wanted wanted to speculate as an investment bank, OK. But commercial banks were designated as part of the banking system. Since they created credit, they were regulated & supervised, mainly had FDIC insurance, and had access to advances from the Fed in emergencies. These banks were to make their money on deposits and lending. Commercial banks and investment banks were two different entities entirely.
Once the GOP's free market worshippers undid FDR, the 1920's began again. This is the result.
good, clear explanation chrisincal, post it all over the place!
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