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Ya-ta Boy
Joined: 16 Jan 2003
Location: Established in 1994
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 Posted: Thu Sep 25, 2008 9:46 pm Post subject: Paulson on his knees |
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WASHINGTON - A Republican rebellion stalled government efforts Thursday to avoid economic meltdown, a chaotic turnaround that disrupted the choreography of an extraordinary White House meeting meant to show joint resolve from the president, the political parties and the presidential candidates. Instead, the summit broke up so bitterly that Treasury Secretary Henry Paulson got on one knee before Democratic leaders in a theatrical attempt to salvage talks.
http://news.yahoo.com/s/ap/20080926/ap_on_bi_ge/financial_meltdown
I'm hoping they are just playing brinksmanship/chicken and not really having as much difficulty finding a settlement as it sounds.
Barney Frank said this came too late in the day: Meanwhile a group of House GOP lawmakers circulated an alternative that would put much less focus on a government takeover of failing institutions' sour assets. This proposal would have the government provide insurance to companies that agree to hold frozen assets, rather than have the U.S. purchase the assets.
This raises questions about why the campaign got suspended: McCain, who dramatically announced Wednesday that he was suspending his campaign to deal with the economic crisis, stayed silent for most of the session and spoke only briefly to voice general principles for a rescue plan.
One of my co-workers said the debate will be at 9am Saturday morning here--if it takes place (but he doesn't often know what he's talking about). |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Thu Sep 25, 2008 10:23 pm Post subject: |
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Paulson should be ignored:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aNKGD.bJwmRA&refer=home
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Hundreds of Economists Urge Congress Not to Rush on Rescue Plan
By Matthew Benjamin
Sept. 25 (Bloomberg) -- More than 150 prominent U.S. economists, including three Nobel Prize winners, urged Congress to hold off on passing a $700 billion financial market rescue plan until it can be studied more closely.
In a letter yesterday to congressional leaders, 166 academic economists said they oppose Treasury Secretary Henry Paulson's plan because it's a ``subsidy'' for business, it's ambiguous and it may have adverse market consequences in the long term. They also expressed alarm at the haste of lawmakers and the Bush administration to pass legislation. |
Getting economists to agree is like herding cats. This is a very strong suggestion that the bailout is very dangerous.
What of Paulson himself?
http://www.ft.com/cms/s/0/21a55432-8a62-11dd-a76a-0000779fd18c.html?nclick_check=1
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Whatever is good for Goldman ...
A lot of people used to think that Goldman Sachs ran the US economy. Now we know it does.
On Tuesday morning, Hank Paulson, the US Treasury secretary and former chairman and chief executive of Goldman, testified to Congress about his plan to buy $700bn of mortgage securities. He wants to scoop up these assets as rapidly, and with as little interference, as possible in a manner yet to be fixed.
On Tuesday evening, Goldman declared that Warren Buffett, the legendary investor, was handing it $5bn of new capital in the form of preference shares and the bank would follow up with a $5bn equity sale. For investment banking rivals that have fallen by the wayside, or had to hunt overseas for funds, it showed who is top of the heap.
Mr Paulson�s stewardship of the crisis-hit economy � despite the role that investment banks have played in bringing it down � and Goldman�s bravura capital-raising are typical. Goldman partners are not only smarter than the average Wall Street bear, but often turn up in �public service�, running finance ministries and central banks.
They have been very adept at first making money for themselves and then trading the financier�s life for that of the power broker. Even in a Wall Street-induced crisis, it feels safer to have Mr Paulson at the US Treasury than Paul O�Neill, or John Snow, his Main Street predecessors. His bald pate and manner are scary but he is no ingenue.
This Wall Street crash, however, has made the latent conflict of interest between Goldman�s public and private faces uncomfortably real. Mr Paulson insists that, in his current job, he cares only about �the American taxpayer�, yet Goldman has been one of the prime beneficiaries of recent interventions by the Treasury and the Federal Reserve. Even if you accept, as I do, that Mr Paulson is a man of principle who tries his best to put his country first, this is troubling.
It places him in a more awkward spot than Robert Rubin or Steve Friedman, who ran Goldman and went on to become Treasury secretary and director of the White House Economic Council respectively; or Jon Corzine, the former Goldman head who is New Jersey governor, or Mario Draghi, a former Goldman partner who runs the Bank of Italy.
It might not be so awkward if Goldman had suffered just a little more from the credit crisis. But it has instead emerged, along with Morgan Stanley, in the last pair of large investment banks standing. The Securities and Exchange Commission has protected them and other institutions from short-selling and the Fed has allowed them to become fully fledged banks.
Wall Street is widely reviled at the moment, but even Wall Street is bitter about Goldman. Former employees of Lehman Brothers, which was left to fail by the Fed, complain that Mr Paulson and Ben Bernanke, the chairman of the Fed, saved their $700bn (�474bn, �377bn) shot until last week. They pulled out the big gun when it looked as though Goldman and Morgan Stanley were in trouble.
Now, to compound matters, Goldman could make a bundle if Mr Paulson�s $700bn fund clears Congress. Unlike rivals such as Lehman and Bear Stearns, Goldman marked down its exposures to subprime mortgages and real estate so aggressively that it has only $28bn of illiquid assets, of which a mere $1.7bn related to subprime mortgages, on a $1,000bn balance sheet.
It would be a bit rich for Goldman to turn round and make a profit by selling this stuff at a higher price to its old boss. But it need not be quite so blatant: even if Mr Paulson�s fund buys comparable assets, Goldman will be able to mark up its own book. Furthermore, it is already thinking of using Mr Buffett�s largesse to buy more distressed securities.
Goldman can hardly be blamed, of course, for navigating the Wall Street crisis better than others. It did not expose itself so disastrously to one highly leveraged play on the US mortgage market. It hedged against the credit turmoil and cut its losses swiftly rather than crossing its fingers that the market would turn.
Yet Goldman got a helping hand from the authorities and stands to get another one while Lehman was � rightly, in my view � allowed to fail and Bear Stearns� shareholders were nearly wiped out. Would the Treasury and the Fed ever have allowed Goldman to follow and its partners to lose their wealth? I doubt it.
The fact is that Goldman, having started out as a humble commercial paper house in 1869, has worked its way to the heart of the financial and political establishment. It has become the modern-day General Motors by convincing politicians and regulators that what is good for Goldman Sachs is good for the US economy.
It does not hurt that so many Goldman executives become public officials. They no doubt go to the capital with the best of intentions, but they bring with them Goldman�s view of the world. Bear Stearns was �too inter-connected� with markets to be allowed to fail, but Goldman has embedded itself far more deeply in Wall Street and Washington.
Most of the time, this intermingling is not pernicious. Goldman partners tend to be clever, hard-working people. I also share Goldman�s views on the benefit of free markets and globalisation, and the belief that wealthy institutions and individuals should use their clout and money both for philanthropy and to improve standards of government.
But, at the moment, Wall Street is embroiled in a crisis of liquidity and credibility. Mr Paulson is due to step down by January as Goldman Sachs� latest Treasury secretary. The next president should recruit his successor from elsewhere. |
This is all too convenient. |
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Ya-ta Boy
Joined: 16 Jan 2003
Location: Established in 1994
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| Posted: Thu Sep 25, 2008 10:42 pm Post subject: |
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urged Congress to hold off on passing a $700 billion financial market rescue plan until it can be studied more closely.
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They must not be buying the 'economic collapse by Monday' scenario if the thing is not passed.
I have nothing to back up this assertion, but I really believe it wouldn't take more than 10 minutes and a few phone calls to round up 150 'prominent' economists who argue exactly the opposite of the OP economists.
I'm all for caution but I'm all for not waiting until the sky completely falls to start doing something about the mess, too. I really don't believe this is a fake crisis just to give the gov't an excuse to take on more debt. Most people are saying its extremely urgent and I'm taking their word for it. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Thu Sep 25, 2008 10:48 pm Post subject: |
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There were 3 Nobel Laureates in that pack.
Check out Glen Greewald's interview with a Notre Dame finance prof:
http://www.salon.com/opinion/greenwald/radio/2008/09/23/sheehan/
This may be a financial crises for the speculators, and them alone. The 'shadow banking system', as Robuni calls it. |
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blade
Joined: 30 Jun 2007
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| Posted: Thu Sep 25, 2008 11:06 pm Post subject: |
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Has anybody else read this?
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Stopping a Financial Crisis, the Swedish Way
By CARTER DOUGHERTY
A banking system in crisis after the collapse of a housing bubble. An economy hemorrhaging jobs. A market-oriented government struggling to stem the panic. Sound familiar?
It does to Sweden. The country was so far in the hole in 1992 � after years of imprudent regulation, short-sighted economic policy and the end of its property boom � that its banking system was, for all practical purposes, insolvent.
But Sweden took a different course than the one now being proposed by the United States Treasury. And Swedish officials say there are lessons from their own nightmare that Washington may be missing.
Sweden did not just bail out its financial institutions by having the government take over the bad debts. It extracted pounds of flesh from bank shareholders before writing checks. Banks had to write down losses and issue warrants to the government.
That strategy held banks responsible and turned the government into an owner. When distressed assets were sold, the profits flowed to taxpayers, and the government was able to recoup more money later by selling its shares in the companies as well.
�If I go into a bank,� said Bo Lundgren, who was Sweden�s finance minister at the time, �I�d rather get equity so that there is some upside for the taxpayer.�
Sweden spent 4 percent of its gross domestic product, or 65 billion kronor, the equivalent of $11.7 billion at the time, or $18.3 billion in today�s dollars, to rescue ailing banks. That is slightly less, proportionate to the national economy, than the $700 billion, or roughly 5 percent of gross domestic product, that the Bush administration estimates its own move will cost in the United States.
But the final cost to Sweden ended up being less than 2 percent of its G.D.P. Some officials say they believe it was closer to zero, depending on how certain rates of return are calculated.
The tumultuous events of the last few weeks have produced a lot of tight-lipped nods in Stockholm. Mr. Lundgren even made the rounds in New York in early September, explaining what the country did in the early 1990s.
A few American commentators have proposed that the United States government extract equity from banks as a price for their rescue. But it does not seem to be under serious consideration yet in the Bush administration or Congress.
The reason is not quite clear. The government has already swapped its sovereign guarantee for equity in Fannie Mae and Freddie Mac, the mortgage finance institutions, and the American International Group, the global insurance giant.
Putting taxpayers on the hook without anything in return could be a mistake, said Urban Backstrom, a senior Swedish finance ministry official at the time. �The public will not support a plan if you leave the former shareholders with anything,� he said.
The Swedish crisis had strikingly similar origins to the American one, and its neighbors, Norway and Finland, were hobbled to the point of needing a government bailout to escape the morass as well.
Financial deregulation in the 1980s fed a frenzy of real estate lending by Sweden�s banks, which did not worry enough about whether the value of their collateral might evaporate in tougher times.
Property prices imploded. The bubble deflated fast in 1991 and 1992. A vain effort to defend Sweden�s currency, the krona, caused overnight interest rates to spike at one point to 500 percent. The Swedish economy contracted for two consecutive years after a long expansion, and unemployment, at 3 percent in 1990, quadrupled in three years.
After a series of bank failures and ad hoc solutions, the moment of truth arrived in September 1992, when the government of Prime Minister Carl Bildt decided it was time to clear the decks.
Standing shoulder-to-shoulder with the opposition center-left, Mr. Bildt�s conservative government announced that the Swedish state would guarantee all bank deposits and creditors of the nation�s 114 banks. Sweden formed a new agency to supervise institutions that needed recapitalization, and another that sold off the assets, mainly real estate, that the banks held as collateral.
Sweden told its banks to write down their losses promptly before coming to the state for recapitalization. Facing its own problem later in the decade, Japan made the mistake of dragging this process out, delaying a solution for years.
Then came the imperative to bleed shareholders first. Mr. Lundgren recalls a conversation with Peter Wallenberg, at the time chairman of SEB, Sweden�s largest bank. Mr. Wallenberg, the scion of the country�s most famous family and steward of large chunks of its economy, heard that there would be no sacred cows.
The Wallenbergs turned around and arranged a recapitalization on their own, obviating the need for a bailout. SEB turned a profit the following year, 1993.
�For every krona we put into the bank, we wanted the same influence,� Mr. Lundgren said. �That ensured that we did not have to go into certain banks at all.�
By the end of the crisis, the Swedish government had seized a vast portion of the banking sector, and the agency had mostly fulfilled its hard-nosed mandate to drain share capital before injecting cash. When markets stabilized, the Swedish state then reaped the benefits by taking the banks public again.
More money may yet come into official coffers. The government still owns 19.9 percent of Nordea, a Stockholm bank that was fully nationalized and is now a highly regarded giant in Scandinavia and the Baltic Sea region.
The politics of Sweden�s crisis management were similarly tough-minded, though much quieter.
Soon after the plan was announced, the Swedish government found that international confidence returned more quickly than expected, easing pressure on its currency and bringing money back into the country. The center-left opposition, while wary that the government might yet let the banks off the hook, made its points about penalizing shareholders privately.
�The only thing that held back an avalanche was the hope that the system was holding,� said Leif Pagrotzky, a senior member of the opposition at the time. �In public we stuck together 100 percent, but we fought behind the scenes.�
http://www.nytimes.com/2008/09/23/business/worldbusiness/23krona.html?em=&adxnnl=1&adxnnlx=1222412504-hR4uLPEzFrny+hdO1Kk7YQ
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Ya-ta Boy
Joined: 16 Jan 2003
Location: Established in 1994
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| Posted: Thu Sep 25, 2008 11:14 pm Post subject: |
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| There were 3 Nobel Laureates in that pack. |
I'm impressed with a Nobel in science, often inspired by a Nobel in Peace, but Literature and Economics, not so much. There's a definite falling off in quality of choices made by the committees in those fields. If you don't believe me, try reading Jelinek. She should have to pay for all the trees they cut down to print her book. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Thu Sep 25, 2008 11:17 pm Post subject: |
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| I'm as impressed as you by modern economics. Maybe a tad more. But remember Paulson and Bernake are also economists, and this is their plan. They also caused the crises, but I'm sure have better foresight now. |
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Milwaukiedave
Joined: 02 Oct 2004
Location: Goseong
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| Posted: Thu Sep 25, 2008 11:23 pm Post subject: |
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| Ya-ta Boy wrote: |
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urged Congress to hold off on passing a $700 billion financial market rescue plan until it can be studied more closely.
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They must not be buying the 'economic collapse by Monday' scenario if the thing is not passed.
I have nothing to back up this assertion, but I really believe it wouldn't take more than 10 minutes and a few phone calls to round up 150 'prominent' economists who argue exactly the opposite of the OP economists.
I'm all for caution but I'm all for not waiting until the sky completely falls to start doing something about the mess, too. I really don't believe this is a fake crisis just to give the gov't an excuse to take on more debt. Most people are saying its extremely urgent and I'm taking their word for it. |
I agree that it is important to get a plan passed and in place, but there have to be some provisions to hold these companies accountable as well as a plan to pay back the government. My fear is because the crisis has come to a head so quickly that everyone is just going to lie down on the ground and hand over the $700 billion. People seem to forget we have to pay interest on the heavy amount of debt our nation carries. The larger the interest payments, the more it eats into and causes cuts (large ones) to programs.
Blade's article on the Swedish bailout of their banks is interesting, though I am not sure the government can demand a stake in the banks like the Swedes did. |
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ontheway
Joined: 24 Aug 2005
Location: Somewhere under the rainbow...
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| Posted: Fri Sep 26, 2008 6:28 am Post subject: |
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Posted: Thu Sep 25, 2008 10:23 pm Post subject:
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Paulson should be ignored:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aNKGD.bJwmRA&refer=home
Quote:
Hundreds of Economists Urge Congress Not to Rush on Rescue Plan
By Matthew Benjamin
Sept. 25 (Bloomberg) -- More than 150 prominent U.S. economists, including three Nobel Prize winners, urged Congress to hold off on passing a $700 billion financial market rescue plan until it can be studied more closely.
In a letter yesterday to congressional leaders, 166 academic economists said they oppose Treasury Secretary Henry Paulson's plan because it's a ``subsidy'' for business, it's ambiguous and it may have adverse market consequences in the long term. They also expressed alarm at the haste of lawmakers and the Bush administration to pass legislation.
Getting economists to agree is like herding cats. This is a very strong suggestion that the bailout is very dangerous. |
"Now, take during the Depression, for instance. You and I were the only ones who kept our heads. You saved the Building and Loan, and I saved all the rest."
The congress is filled with people who know nothing about economics. That is why so many of them keep pushing more socialism when socialism is the cause of the problems.
People who have taken only one or two college econ classes, and worse, those who have taken none, are all too ignorant, for the most part, to even have an opinion. Yet they do - uninformed, obviously wrong, but they will argue until they are blue for more government and more regulation .
So, the ignorant and the news media (ignorant, and bad news sells) are in panic.
Congress is rushing blindly to "do something, anything" but they haven't got a clue what to do, except grab more power, make more rules, spend more money. Which if they had a clue, they would understand will make the problem a thousand times worse in the long run.
McCain is so clueless about economics that ... (he has admitted it before, and he was baffled by a simple Ron Paul question during a Republican primary debate and made a fool out of himself) ... he had to cancel the 1st debate. He knows nothing, he is so dumb ... (always bottom of his class, would have washed out except for his family connections) ... that he cannot possibly learn enough to even prepare for the debate. |
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Gatsby
Joined: 09 Feb 2007
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Fri Sep 26, 2008 6:50 am Post subject: |
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| The Republicans are demanding a long-term holiday from capital gains taxes for their support. |
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mises
Joined: 05 Nov 2007
Location: retired
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mises
Joined: 05 Nov 2007
Location: retired
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Ya-ta Boy
Joined: 16 Jan 2003
Location: Established in 1994
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| Posted: Fri Sep 26, 2008 8:08 am Post subject: |
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"Now, take during the Depression, for instance. You and I were the only ones who kept our heads. You saved the Building and Loan, and I saved all the rest."
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I love 'It's a Wonderful Life'. I watch it every Christmas morning. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Fri Sep 26, 2008 12:24 pm Post subject: |
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| Ya-ta Boy wrote: |
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"Now, take during the Depression, for instance. You and I were the only ones who kept our heads. You saved the Building and Loan, and I saved all the rest."
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I love 'It's a Wonderful Life'. I watch it every Christmas morning. |
Maybe time for a sequel. |
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