The repository of one hard-boiled egg from the south suburbs of Milwaukee, Wisconsin (and the occassional guest-blogger). The ramblings within may or may not offend, shock and awe you, but they are what I (or my guest-bloggers) think.
This idea was started by Jessi at Wake Up America. It will appear here every Tuesday (whether I’m here or not; the only difference is I won’t be able to update the current gas price while on vacation) until Congress wakes up and allows a lot more domestic drilling (I’m not talking about just ANWR, or just off the Florida coast where Cuba, Red China and Brazil are preparing to drink our milkshake, or just the shale fields in the Rockies).
My Gas Price (south suburban Milwaukee County, Wisconsin): $3.539/gallon
This one is going up a bit late today, but we are within a few hours of seeing the Congressional ban on offshore drilling expire. I’ll be blunt; I want next week’s update to include news that offshore drilling leases are being negotiated and signed.
Offshore drilling is now in the hands of the oil companies and the Bush administration. I don’t want excuses; I want action, especially since this window of opportunity may be very short.
This, however, is only the beginning. There’s the matter of ANWR and oil shale out West that’s been locked up. While it’s not specifically oil-related, there’s also a lot of clean coal that’s been locked up. That needs to be opened up as well. The clock is ticking, and this has to happen.
I firmly believe that the Democrats do want the market to crater itself for their political benefit. Unlike Shoebox, I think they’ll be successful in conning the public into believing that they are not at fault, and that one-party Socialism (formerly known as Communism) is the “answer”. After all, where else but this end of the blogosphere and talk radio (and portions of Fox News) are you going to hear about the massive role the hyper-enforcement of the Community Reinvestment Act, ordered by Bill Clinton and the Democrats, had in creating the supersized-and-crashed subprime market? Where else are you going to hear that a sufficient number of Democrats on Barney Frank’s committee voted against it to kill it?
That is not to say that the financial sector didn’t have their own hand in this. They took that mandate and ran very hard with it, with ridiculously-easy-to-get very-low-to-no-interest loans on items such as cars and credit cards. They also joined the “don’t blame me” generation, demanding that others cover their losses or else VERY BAD THINGS WILL HAPPEN! Unfortunately for us, they are virtually unique in the private sector in their ability to cause those bad things to happen, and yesterday’s historic market crash and the complete lockup of institutional credit outlined by Shoebox are but a taste of what they can cause to happen if they don’t get their way.
Still, I am glad the “grand compromise” was killed yesterday. It combined both Socialist approaches of buying up the “distressed” paper and seizing effective control of the financial sector (i.e. the Fannie/Freddie/AIG approach that failed spectacularily with those 3 entities) with almost no actual upside for those few of us that still believe in the free market. Indeed, almost everything that was sold as an “upside” merely stripped out the further overreach from the Dems’ counterproposal.
There was no addressing the government’s role in creating the subprime bubble. There was no assurance that the assets bought/seized by the government would ever be turned back over to the private sector. Indeed, if the government refused to turn a sufficient number of assets back to the private sector to pay back the $700 billion (or whatever they ultimately would have spent), they would act to make it a non-paid seizure.
So, what now? If I thought this had a snowball’s chance in Hell of flying, I’d go back to the Paulson proposal, get the decision on which securities to buy up out of the Treasury (Shoebox mentioned Mitt Romney, Asian Badger mentioned Michael Bloomberg, T. Boone Pickens mentioned the FDIC this morning on CNBC), and make it very clear that “RTC 2.0″ was a temporary, one-time solution that is focused on reintegrating those securities into the private sector ASAP. Further, I would repeal the Community Reinvestment Act. Beyond the modified Paulson plan and the elimination of the CRA, nothing, and I mean NOTHING, would be a part of this. No death to golden parachutes, no tax cuts, no giveaways to ACORN, no earmarks, NOTHING!
Of course, the Democrats won’t like that; they want Communis…er, one-party Socialis,…er, screw it, Communism. Unless there is something even worse, from a free market point of view, that comes up, I don’t see any action until the next Congress. I honestly don’t know if the markets can or will hold on for another quarter, and if that crash happens in the next month, 2008 will make 2006 look like a major win.
I’m still working up my answer to, “What now?”, but since President Bush will be speaking inside of 15 minutes, I may not have it up before then. Since I’m up, I may as well push out an snap live thread.
In a close vote, 205 – 228, the “bailout” bill was defeated. Bush, Paulson, Pelosi and everyone else who was interviewed after the vote, still say we are in a crisis. I guess the natural question is: Now What?
First, let’s take a quick look at how the bill was defeated.
The defeat began with Nancy Pelosi giving one of the more partisan speeches I can remember hearing given by a Speaker in a situation where the Speaker knew the vote was close and really wanted the bill to pass. Rather than fight for a common purpose, Nancy took her 2 minutes to point fingers at every Republican ever elected. You really need to see it to believe just how insultingly partisan her comments were:
After experiencing Pelosi’s petulance and seeing that the Dem’s were only able to get 60% of their caucus to support the bill, I’m inclined to agree with Soren Dayton over at RedState.com. I too believe that Pelosi intended this bill to fail so that she could continue to scream Buuuuuuuuush for at least another week of the election season. Pelosi believes, incorrectly, that doing nothing will provide her Presidential candidate, plausible deniability and the same ability to cry Buuuuuuush/McCaaaaaaain up until the next debate.
Perhaps the first question is: Do we need to do anything? I think the answer to that, sadly, is yes. Here are just three stories of commercial financing ending or having terms attached that are a dramatic change:
In my perfect world, I would like to see the original Paulson bill come back. Strip out the pension support the mortgage term renegotiation and a few other ornaments from TARP and I would support it. That said, I don’t think that’s going to happen.
If Pelosi is at all interested in getting a bill done, an assumption we have to work with or the remainder of the discussion is moot, I’d be willing to bet that right now she has all kinds of piglets lined up waiting to be inserted in any bill she may bring back. As has been pointed out before, she has enough Democrat members that she doesn’t need any Republicans to pass a bill.
In order for Nancy to get her caucus to fully support the bill she would likely need to be even more draconian on the pay issues. She would also likely add the provision that sends earnings from the asset sales to ACORN and La Raza back in. Finally, I would expect to see some provision that would have direct help for homeowners who are facing foreclosure. While this may be Nancy’s druthers, I don’t see that a bill with those provisions would get through the Senate unless Wall-street had a dramatic, sustained meltdown. If a true panic sets in, all bets are off.
Another possibility is that nothing is done. I don’t think that’s going to happen because Nancy is not going to let the meltdown be hung around her neck even if she really believes it’s Buuuuuuush’s fault. No, she’s likely to do something.
The final option (assuming the Republicans can’t just rewrite the bill from scratch, and I don’t think there’s any possiblity of that) is to rebring essentially the same bill to the floor. There are two problems with this approach: First, there’s no chance that Pelosi would risk another shoot down unless she was absolutely sure the votes were there. Second, if the bill is the same, how do you get Republicans to change their vote when the public appears to be behind them and elections are getting even closer?
Here’s my plan:
First, we need to get someone to talk to the American people and communicate clearly the challenge we face. No more finger pointing, politicking or use of nebulous terms like “crisis!” If this is truly a crisis than explain it to us. We’re smarter than you think and we tend to band together across ideologies when we see a true National crisis in front of us (think 9/11). If you can’t put it into terms that the majority of Americans can understand, regardless of whether we agree with them, than you haven’t done your job as a National leader!
Second, the current group has lost all credibility! President Bush, Paulson, Pelosi, Reid, Frank, Dodd etc. all have personal skins to lose in this. Of them, the only one that I believe has personal integrity, but won’t allow himself to get into the gutter far enough to fight this out, is President Bush.
We’ve been told every couple of months for the past year that we have a “Crisis!” Housing, Bear Sterns, AIG, Lehman Brothers. We’re worn out from crisis’! Worse yet, each one that comes up is supposed to be “the act” that gets us past any further crisis. To date, that hasn’t happened.
As I said, the current crop has lost all credibility. I believe that is a big reason why the bailout bill failed. The public says “fool me once shame on you, fool me twice, shame on me!” They want to know that the money that they are about to put up will actually be used for the purpose it is intended for and that the folks running it are not just mouthing “American Taxpayer” but actually working in the best interest of the American taxpayer!
To that end, I propose that we need a new leader for this effort! I propose that if Paulson really believes this to be the crisis he has been telling everyone it is, he should work with President Bush and Congress and get Mitt Romney to run the effort.
Putting Mitt in would serve two purposes. First, while he did run for President, Mitt is outside of the Washington establishment. You won’t find anyone who has no political affiliation to handle the job but Mitt should be close and seen by most folks as a strong problem solver with an excellent financial mind. If you ask most people, they would say he is known for saving the horribly mismanaged Utah Olympics and that would go a long way towards credibility. Second, if Paulson handles the program, he will be replaced when the next President is elected. This is a role that needs continuity and needs to stay apolitical if it is to be successful. Putting Mitt in now would satisfy both of those needs.
Perhaps the most important reason for Mitt to be involved is that it would give a reason for Republicans to change their vote. While they may still not like all aspects of the bill, if a cogent explanation for the need was provided (something Mitt could do better than anyone in Washington) so that the public understood the need for the plan, adding Mitt’s name would allow Representatives to tip toe down the middle with a line that sound like: “I don’t like this. However, the case has been made and it’s important that we try this. If anyone can return all the money and perhaps a profit to the American taxpayer it is Mitt Romney.”
There is no easy answer here. I believe the bill that was voted down today is now the best possible hope we have. If we can get it back and get a trusted and capable overseer, we could yet find a silver lining in this mess.
Revisions/extensions (6:54 am 9/30/2008, steveegg) - Cleaned up the formatting slightly.
I wish I had one of those flashy light thingys that Drudge has….maybe I can get Steve to get me one for Christmas!
Speaking of Christmas….
It was closing in on midnight as I was tearing into the sausage last night. I tried to give a bit of editorial but honestly had though through it well enough. Today is another day and I have now had a chance to drink some coffee and think through this mishmash of legislation.
One line from last night’s post popped out at me this morning:
Treasury is also to focus on purchases assets held by retirement plans
Huh? I thought the purpose of this bill was to reflate capital in companies that are at the core of our lending. What have retirements funds got to do with that?
Sure, large pension funds invest in assets. Sure, they invest in debt backed securities. Some of them even do a small amount of direct lending. While there could be some, I’m not aware of any pension fund that lends directly to homeowners.
This provision, this single paragraph in the bill, is there to provide political cover for Democrats. They have inserted this provision to reflate numerous union pension funds. Merry Christmas pension funds! This is a horrible provision!
If the purpose of this bill is to restart our lending and pension funds do little if any direct lending, why are we allowing any of these funds to be allocated to them? This will siphon some amount of funds and move them away from their primary target. Which brings me to my other concern with this bill.
This bill gives far too much latitude without even so much as guidelines to the folks who brought this disaster to us. They didn’t make good decisions in the past, why should we expect them to now?
I remain conflicted on this bill. I feel a little like the first person who received chemo for cancer felt:
Doctor: “You have cancer. We believe that the best way to cure it is to give you poison! We think we can poison you to the fine point where your body throws out. If we miss by just a little bit, well, you die.”
I’ve read the bill…all 110 pages. You can to, it’s here!
While most of this has been reported, there are a few clarifications that are worth noting:
Trouble Assets Relief Bill – TARP
Gives the Secretary of the Treasury the ability to Purchase or Insure these assets. The combination of the amount purchased and the net amount, after premiums paid, can not exceed $700B
Several times in the bill there are notations that TARP should act to maximize the taxpayer’s dollars…nice sentiment, we’ll see what happens.
While generally saying they are to be non discriminatory, there are areas where the bill says Treasury should consider uniquely:
Treasury is instructed to consider the financial health of the institution they buy assets from. If the asset purchase will not help the financial viability of the entity, Treasury is “instructed” to put that institution at the bottom of their purchase list.
On the other hand, the Treasury is to look favorably on institutions that have less than $1B, were adequately capitalized as of 6/30/08 and served low or moderate income populations…..isn’t that part of what go us into this problem?
Treasury is also to focus on purchases assets held by retirement plans
The Board of TARP includes: Chair of the FED, the Secretary of the FED, Director of the Federal Home Finance Agency, Chairman of the SEC, Secretary of HUD…none of these people seemed to have forseen this problem. Are they the best folks to have giving oversight to this? I’ve heard Mitt Romney’s name proffered to handle this thing. Wouldn’t it be best to have some folks that are outside of those who created or allowed the problem to direct the resolution?
All revenues recouped go to the General Fund for reduction of Debt – This is a big issue! How do you suppose the Dems will glom onto this and play games like have been done with Social Security?
The “Golden Parachute prohibition” does not apply to existing contracts and only applies as long as TARP owns securities or debt of the particular institution as a part of the asset purchase
As has been reported, TARP gets $250B now, $100B after the President sends a report to Congress and the remaining $350 after a second Presidential certification. The final amount does not need Congress’ consent but Congress may vote to block it.
The bill does require TARP to receive warrants for non voting shares or Senior Debt of each company it buys assets from. The bill leaves up to the Secretary for the Treasury to determine what price the warrants will be or what amount of debt. The bill does not have a provision for how or when the warrants or debt would be extinguished. There ought to be a provision that requires sale or forfeiture of the warrants within a certain period after the debt is cleared. We don’t want the Federal Government being stockholders of any publicly traded stocks for an extended time.
Any gain (Ha!) or loss from the sale of preferred stock of Freddie Mac or Fannie Mae will be allowed to be recognized as an ordinary loss (no gains here) for financial institutions as long as they were purchased prior to 9/6 2008. Typically, if they were held over a year, these loses would be capital and limited to certain limitations. This is a nicety, I don’t know that it means much to these institutions.
The institutions that have assets purchased from them will not be able to deduct more than $500K of executive compensation. This only applies to institutions that have at least $300M purchased from them and applies until TARP terminates which would be 2011 at the latest.
A few thoughts:
This program should not cost the taxpayers anywhere near $700B. If Paulson and company do their job properly, this should cost no more than administrative costs and may return positive money to the treasury.
I can’t seem to find a provision that says TARP needs to do something with the warrants by a certain date. Typically, warrants have an expiration date so perhaps that is part of the negotiating. I’m nervous that the Secretary of the Treasury gets to negotiate all of the warrants or debt received. When you get to negotiate not only the amount you will pay for the debt but the amount someone will pay you to take it, well, that sounds a whole lot like loan sharking to me!
I like the continued references to focusing on managing for the taxpayer. Unfortunately, this is a governmental agency that they are asking to do it. Can anyone name me one governmental agency that is careful with taxpayer money?
I wrote last week that McCain’s gambit of suspending his campaign made the events of this weekend something like the gunfight at the campaign corral. It was going to be a high stakes gamble that would put the possibility of McCain’s election in the balance. It’s 7:30 PM and the House leaders have just had a brief news conference. Based on what it appears now will be passed, I’d say that as the smoke clears, McCain wins.
Remember that when McCain suspended his campaing last week, many people believed he did it as a political stunt. Blame John McCain for that as not doing a good job of communicating what he walked into. According to Bloomberg.com Lindsey Graham is quoted as saying:
“The fact is the House Republicans were not in the mix at all” until McCain arrived at the talks, said Graham, a South Carolina Republican. McCain “was decisive in regards to the House being involved.”
Tonight during the press conference, John Boehner, House Minority leader said:
OK, so McCain was involved. Now the question is whether his attendance made any difference? To that, I’d have to say yes.
The latest bill has had the following positive changes:
Funds that were to be siphoned to ACORN and La Raza have been stripped from the bill.
The provision that allowed judges to reset mortgage terms has been stripped
If the “work out” (no longer called a bail out) costs taxpayers money after 5 years, Congress has an affirmative responsibility to present a plan to recoup the cost.
There will be an insurance program available as part of the program.
In comparison to what was inkled to us on Thursday, as Barney Frank and Chris Dodd frantically tried to head off McCain’s appearance in Washington, this bill has more accountability and doesn’t throw all vestiges of free market economics into the abyss.
While I’m far from happy about having to do this at all, I’ve concluded over the weekend that something needs to be done and the pure insurance option that the House Republicans were offering had too many shortcomings to effectively change the trajectory in any short order.
Had John McCain not arrived when he did, we would have had a 100% socialist, Big Government “solution” provided. Admittedly, this may only be 92% socialist, Big Government. Under the circumstances, I’d say that was an important 8%.
With the American public as anti “bail out” as the poles have suggested, the House Republicans have a good story to tell about how they, and only they, fought at all for the Taxpayer. If the Republicans point out McCain’s intervention and the changes made, I think the American public will see once again, who was a Leader and who merely tried to manage through a situation.
Let’s hope the byes improve the situation of 22-23-2 ATS and 3-3 O/U.
Green Bay (+1) @ Tampa Bay – Stat of the week; Brian Griese is 3-0 against the Pack.
Minnesota @ Tennessee (-3) – Did I mention I love defenses lately?
Philadelphia (-3) @ Chicago – The Bears are DONE!
Denver @ Kansas City (+10) – Given the lack of defense the Broncos have, it’s too many points.
Cleveland @ Cincinnati (-3.5) – The Game of the Weak.
Houston @ Jacksonville (-7) – The nightmare continues.
Arizona @ NY Jets (-1) – Favre is still indestructible.
San Francisco @ New Orleans (-4.5) – Take Dirty Rice over Rice-A-Roni and take the over-48.
Atlanta (+7) @ Carolina – Once again, too many points to give considering the road team has won the last 5.
Buffalo (-8) @ St. Louis – I didn’t know Trent Green was still in the league.
San Diego (-8) @ Oakland – It’s the same old story, same old song and dance.
Washington @ Dallas (-10.5) – The Injury Discount has been applied.
Baltimore (+6) @ Pittsburgh – I’d be surprised if there were more than 6 points scored. Take the under-34.
Dallas 27 (-3) @ Green Bay 16 – Everybody else was leaving the game with injuries. Tampa Bay 27 (+3) @ Chicago 24 – Grease beats alcohol.
Carolina 10 (+3.5) @ Minnesota 20 – Defense still wins games.
Detroit 13 @ San Francisco 31 (-5) – Let’s review the smashing – San Fran beating the Lion Cubs by over 15 – check. Under 47 total points – check. Bad news – Matt Millen is no more.
Kansas City 14 @ Atlanta 38 (-6.5) – 186 yards rushing; yep, the irresistable force ran over the movable object.
Oakland 23 @ Buffalo 24 (-10-LOSS) – OH SO CLOSE!
Houston 12 @ Tennessee 31 (-5.5) – What rude hosts. I sure hope you took advantage
Cincinnati 23 @ NY Giants 26 (-13-LOSS) – At least the over/unders are back to last year’s form.
Arizona 17 (+3) @ Washington 24 – Some days you’re the dog, some days your the milk bone. Miami 38 @ New England 13 (-13) – While that may not be the real Dolphins, I believe that’s the real Pats sans Brady.
St. Louis 13 (+10) @ Seattle 37 – Real nice for the Seahawks to show up just as I gave up on them </sarcasm>.
New Orleans 32 @ Denver 34 (-6-LOSS) – Inept playcalling from the Saints was, however, required.
Pittsburgh 6 (+3.5) @ Philadelphia 15 – Unfortunately, I took the wrong D. Jacksonville 23 (+4.5) @ Indianapolis 21 – Tony Dungy is wondering whether the RCA Dome is still open.
Cleveland 10 @ Baltimore 28 (-3) – NewBrowns fans are chanting, “We Want Quinn!”
NY Jets 29 (+8.5) @ San Diego 48 – I should’ve gave the points.
7-9 ATS and 2-0 O/U puts me at a suckitude 22-23-2 ATS and 3-3 O/U. No wonder why I didn’t post much this past week.
The drunkblog below may not be the best record of the debate (I do recommend the gang at The Weekly Standard; they weren’t drinking heavily), but once the debate got onto the stated topic of foreign policy, the schooling of one Barack Obama by John McCain began in earnest. It was so much of a schooling that the refrain of the night from Obama, “I agree with John,” became an instant McCain commercial…
I must note that this was also a common theme in the Republican debates, and we know how the Republican primaries turned out.
The Lie of the Night also belonged to Obama, who mischaracterized former Secretary of State Henry Kissinger’s words into support for unconditional meetings with Iran’s leaders. That also earned an instant smackdown from Kissinger (via Stephen F. Hayes and TWS).
You know I wouldn’t miss this fun. John McCain and Barack Obama will be focusing on foreign policy and national security tonight from Ole’ Miss. Jim Lehrer will provide the “moderation”, and Shoebox and I will provide the libation.
For those new to the NRE liveblog experience, I do paraphrase a lot, questions will be italicized, answers will be in plain text, and my commentary in-line with either a question or an answer will be in parentheses. Commentary outside of a question or answer will also be in plain text. Let the drinking begin.
Fox News is reporting that Sen. Ted Kennedy (D-MA) has been taken to a Cape Cod hospital, and that his condition is not immediately known.
May the Lord extend His healing hand on the Senator.
Revisions/extensions (11:00 pm 9/26/2008) - Sen. Kennedy suffered a “mild seizure”, and should already be back home (the update in the linked Fox News story said that he had been cleared to return home sometime before the debate started).
While the liveblog promo said I would be kicking things off at 6:45 pm, I had assumed that the debate would start at 7 pm CDT. I forgot that Mississippi is in the Central Time Zone, so that will kick off at 7:45 pm, with the thread containing the Cover It Live widget going up at 7:30 pm. Both could be earlier if I decide so, but since I won’t be home before 7 pm, it’s not likely.
I’ll state up front that while I can toss numbers like nobody’s business, I’m not an expert on Wall Street economics. Like Shoebox, I don’t know which way, if any, is the right way out.
First, we have to remember why we are where we are, with an effectively-frozen credit market and the largest of the financial institutions teetering on the brink of collapse. It is because of an insistence by the federal government that the financial institutions lend to the credit-unworthy, combined with the gusto with which the financial institutions did lend to the credit-unworthy with the beliefs that housing prices would perpetually increase and that the federal government would step in if they got into trouble, that we got to a point where a correction in the housing market would threaten to bring the entire system down.
Compounding that is the Red Chinese factor. They hold a lot of debt, and the word is they’re calling it in right now.
There are essentially three things that can be done. The first is to essentially do “nothing”. The reason why I put that in scare quotes is that there are mechanisms in place to bail out individual financial institutions that fail, like Washingon Mutual. Indeed, I have to point out that the FDIC didn’t have to use any of its funds to complete that transaction. However, the fact that there is somewhere between $1.7 trillion and $7 trillion in “distressed” loans out there (or if one prefers, between 11% and 46% of the total value of the real estate) makes it improbable that, if a significant portion of those loans were to default, the current mechanisms can deal with that. True, not all of that is truly bad, but if even half of that is bad, it will make the S&L crisis look like a blip. It also does not address the immediate lack of liquidity in the markets in general and in the credit market specifically.
The second is the Paulson Socialism plan (the government buying that 11%-46% in value of the real estate) or the current Democratic Takeover of the Financial Sector alternative (the feds buying controlling stakes in the form of preferred stock in certain companies holding mortgage-backed securities). The model for the former is the successful Resolution Trust Corporation’s disposition of the assets of failed savings and loans at the end of the 1980s and the beginning of the 1990s. The main reason that worked in the long term is that the RTC actually sought to get rid of those assets when the private market was able to reabsorb them. That is something I am not at all confident the government will be able to do so this time around for two reasons.
First, we’re talking trillions of dollars now instead of a few hundred billion dollars then. The RTC took 6 years to get rid of just over $300 billion of assets. While inflation makes a straight ten-fold increase in the time for the market to recover sufficiently to reabsorb this not quite accurate, it is fair to say it would take far longer than 6 years to reintegrate the “distressed” mortgages into the private sector.
Second, we’re within 120 days of potentially having both the executive and legislative branches of government in the hands of the Democrats. The fact that the RTC existed for several years before the election of Bill Clinton, and then the Democrats only had total control of government for 2 years, had something to do with the ability and indeed the willingness of the RTC to actually return the assets to the private sector.
I will stipulate to the likelyhood that injecting that money will have the effect of at least temporarily restarting the credit market. However, what happens when that money is burned through, especially with more social economic engineering likely in the bill and almost certainly no fundamental fix of the governmental demands that caused this? The lack of long-term positive effect the similarily-sized economic stimulus return of welfare package earlier this year had ought to provide a clue.
There is even less of a guarantee that government will get rid of any stake in financial companies. Given that government policy played a very large part in this mess, and given that this approach is being pushed by those that are at their core anti-business, I do not want the government in complete control of those companies.
Finally, there is the House Republican plan, which Shoebox and I briefly touched on. It would make it easier for Wall Street to heal itself without the takeover of either real estate or corporations by the government, but there wouldn’t be a lot of immediate relief to the credit market. Whatever direct savings in tax and regulatory breaks the financial sector would see would flow back to the federal government in the form of insurance for the half of the MBS that aren’t already backed by the feds. Depending on the range of tax and regulatory breaks, there would be a lessening of the pressure on the credit market from businesses who, with additional cash in their pockets, wouldn’t be as dependent on the credit market to operate.
It also isn’t what Wall Street is looking for; they have their own immediate self-interest at heart. They like “free” cash like anybody else, and they like not having to take responsibility for their role like anybody else.
Here is the plan being offered by the House Republicans. From Politico.com:
* Rather than providing taxpayer funded purchases of frozen mortgage assets, we should adopt a mortgage insurance approach to solve the problem.
* Currently the federal government insures approximately half of all mortgage backed securities. (MBS) We can insure the rest of current outstanding MBS; however, rather than taxpayers funding insurance, the holders of these assets should pay for it. Treasury Department can design a system to charge premiums to the holders of MBS to fully finance this insurance.
* Have Private Capital Injection to the Financial Markets, Not Tax Dollars. Instead of injecting taxpayer capital into the market to produce liquidity, private capital can be drawn into the market by removing regulatory and tax barriers that are currently blocking private capital formation. Too much private capital is sitting on the sidelines during this crisis.
* Temporary tax relief provisions can help companies free up capital to maintain operations, create jobs, and lend to one another. In addition, we should allow for a temporary suspension of dividend payments by financial institutions and other regulatory measures to address the problems surrounding private capital liquidity.
*Immediate Transparency, Oversight, and Market Reform. Require participating firms to disclose to Treasury the value of their mortgage assets on their books, the value of any private bids within the last year for such assets, and their last audit report.
* Wall Street Executives should not benefit from taxpayer funding. Call on the SEC to review the performance of the Credit Rating Agencies and their ability to accurately reflect the risks of these failed investment securities.
*Create a blue ribbon panel with representatives of Treasury, SEC, and the Fed to make recommendations to Congress for reforms of the financial sector by January 1, 2009.
My gut reaction:
Insurance – OK but what are the rates and do the companies have the cash to pay for the insurance? Liquidity has been a huge issue so how does making them pay more $ help that problem?
Private Capital – Yeah, motherhood, apple pie, “God bless America!” Capital isn’t coming into these markets until they see opportunity. You can’t just say “do it” and expect seriously spooked investors to hop back in.
Tax relief – I don’t get this one at all. These companies are writing off these loans and creating significant tax losses. I can’t imagine that many of them will have much net income that this even matters.
Transparency – Amen
Executives not benefiting – Amen
Blue Ribbon Panel – haven’t seen one yet that really helped but OK
My gut is that while this probably protects the taxpayer more, I don’t know that it would provide the enema that these markets seem to need.
Revisions/extensions (4:15 pm 9/26/2008, steveegg) - There’s a couple of bullet points not mentioned by Politico in the release from Paul Ryan, my Congresscritter and main sponsor of the House Republican plan:
- Limit Federal Exposure for High Risk Loans: Mandate that the GSEs no longer
securitize any unsound mortgages
- Call on the SEC to audit reports of failed companies to ensure that the financial
standing of these troubled companies was accurately portrayed.
I haven’t seen the specifics of the tax and regulatory relief, but I strongly suspect that relief will extend beyond the financial sector. Additional cash would allow companies to rely less on the non-existent credit market to function.
Revisions/extensions (4:15 pm 9/26/2008, shoebox) - One thing I haven’t seen in any of the information being debated is an elimination or a set aside of the requirement to “mark to market.” As I understand the issue, the “liquidity crunch” is being largely caused by two issues 1. banks are afraid that lending to another institution could leave them exposed as the perception is that any institution could file bankruptcy at any time, therefore, no inter institution loans. 2. the bankruptcy scenario is being created because the institutions have insufficient capital as they continue to write down loans each time someone else has a fire sale. The point being that much of this problem is not a liquidity issue in the sense of their not being enough money floating around but liquidity in the sense that they cannot lend anymore because the the capital they have remaining is already “pledged” for their existing loans
As more and more information becomes available about the meeting yesterday at the White House and the Republican revolt against the bailout plan, it is more and more obvious that political gamesmanship is what has occurred during his week and not any kind of “successful negotiations!”
It first appeared that John McCain’s announcement to come to Washington had caused the Democrats and Republicans to find a compromise. I thought that’s what had happened when Chris Dodd announced about noon yesterday that an agreement in principle had been reached.
It appeared then, that the White House meeting would be nothing more than a bunch of handshaking and self congratulations amongst the Washington political leadership from both sides.
Instead, according to various articles, Republicans announced that they were not supportive of the amended proposal and argued for a different plan.
How do I know that the entire negotiation was just a political manuevering? This quote from an article by the “News Agency Who Shall Not be Named:”
The Massachusetts Democrat said leading Democrats on Capitol Hill were shocked by the level of divisiveness that surfaced at Thursday’s extraordinary White House meeting, leaving six days of intensive efforts to agree on a bailout plan in tatters only hours after key congressional players of both parties had declared they were in accord on the outlines of a $700 billion bill.
How do you negotiate one of the largest, market impacting deals ever, announce you have a “deal in principle” and then get “shocked by the level of divisiveness?”
Simple, the “negotiated” plan was never negotiated. As the Dems have done time after time, they decided what they wanted to do, found a couple of invertebrate Republicans to pick off to perform ventriloquist acts with and announced “an agreement in principle” that never, ever was agreed to.
The Dems are now grousing that without Republican support, they won’t pass the bailout bill! Why not? If they’re so sure that what they’re doing is the right thing, do it! They have the votes in both chambers and the support of the President. Nothing prevents them from passing their bill immediately!
Nothing that is except for a complete lack of leadership and spine. The Democrats are great at sniping and Monday morning quarterbacking but don’t have the courage of their own convictions when real leadership is required!
We haven’t dragged this out for a while but it seems appropriate. This is a video that describes what the Dems believe leadership to be:
It’s time for some leadership. The public has not been convinced that a bailout needs to occur. Someone needs to chart a course of action and convince both Congress and the American People that it is the right thing to do. If John McCain and Barack Obama want to be the next President, now is the time for them to show their ability to lead. I’m still convinced that this is the gunfight at the OK campaign.
Americans are hungry for leadership on this issue. Will we find any leaders, anywhere, in Washington?
All parents of multiple children have to deal with sibling relationships from time to time. When I was growing up, because I was the oldest, sibling relationship management for my Dad usually amounted to,
“You’re older and should know better so leave your sister alone!”
While you could technically use that solution with twins (Thing 1 is 10 minutes older than Thing 2) it really only works when you have a sibling who is/should be more physically, mentally or emotionally developed.
When working with our twins, Mrs. Shoe and I use a different sibling management technique. When Thing 1 and Thing 2 get into one of their bickering contests and we get to a point where an end doesn’t seem imminent, Mrs. Shoe or I will intercede with,
“Listen, you have a choice. You can solve this issue yourselves or I can step in. If I step in, I will guarantee you that neither of you will be happy with the solution.”
That is the threat that John McCain brought to Washington today!
As I surmised yesterday, McCain was in fact, asked to come and help with the bail out bill. According to an interview with Bob Schieffer, McCain was invited by Paulson to help wrangle a solution because Republicans were balking at the Democrat’s proposal.
As an aside, but to make sure the nattering nabobs didn’t miss this; McCain went to Washington NOT as a POLTICAL STUNT but because he believed it was important for him to be there and that he could make a difference!
What’s this got to do with sibling relational management? Well first, after McCain essentially said,
“Don’t make me come in there!”
The first thing that happened was that Harry Reid denied that McCain needed to be involved! Then, about noon today, Chris Dodd dashed out and announced that they had an agreement in principle! Wow! that’s amazing when just yesterday morning only 4 Senate Republicans were willing to vote for the bill!
So what happened? It seems there’s only two choices. Either the Republicans caved or Democrats backed off of some of their more egregious demands. We’ll know which, more likely how much of both, happened later. My guess is that neither would have happened had John McCain not announced that he was suspending his campaign to work on the issue.
With McCain’s reputation for find bipartisan solutions coupled with the intense scrutiny that the negotiations were going to get because McCain had suspended his campaign to join, there was a message sent to both the Democrats and the Republicans. The message was:
“Listen, you have a choice. You can solve this issue yourselves or I can step in. If I step in, I will guarantee you that neither of you will be happy with the solution.”
Sometimes you need an adult to manage childlike petulance.
Milwaukee Brewers pitcher Eric Gagne bought 5,000 tickets to tonight’s game against the Pittsburgh Pirates and plans to give them away.
“Tonight we’ll be playing one of the most important games in franchise history, and I can think of no better way to thank the fans than giving families an opportunity to pack Miller Park,” Gagne said in a statement released by the team. “No matter what happens over these next four games, I want everyone to know that I think the world of Brewers fans. Three million times they have walked through the gates this year and none of us on the field takes their support for granted. We’re going to have some fun out here, and I know that the atmosphere will be electric.”
Beginning at 3:30 p.m., fans can go to Brewers.com to request up to four tickets. Click on the “Gagne Giveaway” graphic to go to the ticket request page and enter Gagne as the password when prompted.
Fans requesting the complimentary tickets will be subject to a one-time $2 fee for printing their ticket order at home, or a $4 per order fee for picking at Miller Park will call.
Jim Geraghty has been wondering how John McCain could be gaining among independents and still be losing to Barack Obama overall in various national polls. The popular conventional wisdom is that the current crop of polls are oversampling Democrats. Because he specifically asked for the oddly-missing party-identity numbers from the most-recent Los Angeles Times/Bloomberg poll, which has Obama up 46%-44% among registered voters now compared to him up 45%-43% among registered voters in August (conducted before either running mate was made known), despite a swing from a 46%-35% Obama lead among “independents” in August to a 49%-34% McCain lead among “independents” in September, I’ll focus on that. I will ignore the “likely voter” component, where Obama leads 49%-45%, for now partly because I need to compare apples to apples (the August poll did not include “likely voters”), and partly because there is not a partisan breakdown among “likely voters”.
Before I get to the party identification explanation, I must note that Obama’s support among Democrats jumped from 78% to 87%. While some of this came from “McCain-ocrats” (McCain’s support among Democrats dipped from 9% to 5%), most of the gain came from the undecideds, as that dropped from 11% to 5%. In any case, I guess the PUMAs are coming home to roost.
Similarily, McCain has also strengthened his support among Republicans, albeit slightly. That went from 90% to 91%, and appears to have come at the expense of Bob Barr. More-pointedly, the percentage of “Obama-cans” remained unchanged at 6%.
Now, to the math. In order to do a comparison between the August and September polls, one has to know the party-identity internals from the August poll. Fortunately, those numbers are part of the August release, and were 34% Democratic, 29% Republican, 29% Independent, 4% Other Party, and an unmentioned 4% “refused to answer”. Since the remainder of the internals grouped the Independents, Other Party’ers, and “refused to answer”‘s together under the “independent” label, that becomes 37%.
I must point out that the 5-point advantage the Democrats had in the August poll is greater than the biggest of recent election-day splits (4 points in favor of the Democrats in 1996 and 2000, which actually beat the 3-point advantage they had in their historic 2006 election).
This is borne out, within rounding errors, by putting the results of a given early-in-the-poll question with three (or more) distinct answers into equation form (specifically, 3 equations) and solving for the three variables of the Democratic, Republican, and “independent” portions of support for each answer.
Since there are several questions in the September poll that meet those requirements, one can average the rounding errors out. I specifically solved the equations for questions 2, 9 (and the composite “ticket splitter” table), 13, and 15, and came up with an average of 34% Democrats, 43% “independents” and 23% Republicans in the September poll.
While there isn’t a massive increase in the percentage of Democrats included, there are a couple of things of note:
- The split between Democrats and Republicans (+11 D) matches the inflated numbers in other recent polls.
- The 21% decrease in the percentage of Republicans belies the conventional conservative wisdom that the selection of Sarah Palin energized the Republican base, at least on a statistical level. I can cite piece of circumstantial evidence (an incredible number of conservative bloggers jumping on the Straight Talk Express) after piece of circumstantial evidence (60,000 for Palin in Florida) after piece of circumstantial evidence (McCain/Palin outdrawing Obama in Green Bay) why this decrease is a bunch of macaca, but regular readers of this place already know why the decrease is a bunch of macaca.
For grins, let’s apply the August partisan split to the September poll, and the September poll to the August split. Had the August partisan split been applied to the September poll, McCain would be up 46%-44%. Had the September partisan split been applied to August, Obama would have been up 48%-39%.
I’ll briefly discuss the other oddity from the Times poll; the 4-point Obama lead among “likely” voters. There is one question that is somewhat relevant; number 3, or the “are you sure?” question. Again, there is not a specific breakdown of “likely” voters, but neither the partisan split among registered voters (91% of Democrats are sure of their choice, 88% of Republicans are sure of theirs) nor the split between the tickets (85% of Obama/Biden supporters are sure, 84% of McCain/Palin supporters are sure) fully-explains why Obama has that increased difference among “likely” voters.