No Runny Eggs

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.

Archive for September 26th, 2008

Instant review – McCain by TKO

by @ 23:23. Filed under Miscellaneous.

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…

[youtube]http://www.youtube.com/watch?v=Ec3aC8ZJZTc[/youtube]

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).

First Presidential debate liveblog

by @ 19:30. Filed under Politics - National.

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.

Ted Kennedy taken to hospital

by @ 17:56. Filed under Politics - National.

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).

Programming note – debate edition

by @ 17:54. Filed under Miscellaneous.

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.

Thoughts on The Bailout

by @ 17:33. Filed under Business, Politics - National.

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.

The House Republican Plan

by @ 16:01. Filed under Politics - National.

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.

Your thoughts?

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

Politiczing the Bailout

by @ 10:05. Filed under Politics - National.

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.

(emphasis mine)
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?

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