You’re on fire today, Ian!

Also, this bill, if done long, is a Japanification bill. It leads to a long “bright” depression style economy for a good to 20 to 30 years.

“Bright” depression?

I was gonna say that!

How do you figure it’s a japanification bill, Ian?

good to know there is a bill NOT crafted by the very wolves who raided our hen house

ian, i don’t know if you saw this, I’ll get the link, but there is an audio of paulson guaranteeing that the safeguards in place are EASILY circumvented and that they will get ALL the money as soon as they want it

as much as saying out loud, they will have no problem stealing this 700 billion

I’ll get the link

Ian, why are goopers so hot to trot on messing with mark to fantasy accounting? I suspect it has something to do with avoiding taking the pricing hit on toxic assets vs. unloading on govt as a discount clearing houses for vultures waiting on the sidelines.

and tom delay (yes!) saying capital gains tax should go and that would really really really help. hahahahaha.

This means the economy is a zombie for that long. In Japan it was 16 years I believe.

It means you are not getting a raise any time soon.

ok, selise linked to the audio here

http://firedoglake.com/2008/09…..-new-bill/

if that audio is legit, paulson can not be in charge of ANY recovery

Obama-paulson bill? Wouldn’t it be better or more accurately stated as non-progressive as Pelosi/Hoyer/Reid were in on this as well? If your going to finger point, let’s indict all of the leadership

1. “A change from mark to market pricing to mark to some sort of model.”

Isn’t using models to “determine” the value of debt instruments (CDOs) one of the things that got us into this mess?

Question about Naked short sells. You have to own the asset right? How much do you have to own? Is it proportionate to what you short or not? Can you own one share and short a thousand?

I didn’t read the bill, but I watched the press conference and understood a couple of points differently:
– They seemed to criticize the elimination of short sales as adding to recent volatility.
– They insisted that the costs would be covered via a 1/4% security sales tax, which is supposedly half that charged in London.

Eh, I’ll be honest, this bill doesn’t do much for me. I was hoping for much better. Some nice touches here and there, but I don’t see how it quickly addresses the credit squeeze, which the Modified Paulson bill probably did, albeit it a little painfully. But the nice touches here don’t look to me to do enough for the long run and sure as hell don’t seem to remedy the underlying problems that plague our economy. Also will not regenerate new construction which is critical for the jobs outlook. Pretty pale stuff.

A Japanese style recover? Surely we can put together something better.

What’s good for Goldman Sachs is good for the country.

I was thrilled to see the presser today in which these congresscritters explained the thinking behind their no vote and the new proposal. Very refreshing to hear

I support short sellers solely on the basis that they are the ones to call out companies on their annual report bullshit and that Ken Lay hated them for precisely that reason.

IMHO I think we need to have a credit squeeze. Isn’t that the problem? loaning money to folks who cannot pay it back because the banks and crooks are so eager for a transaction fee and/or commission?

This is a crisis we need a Real Plan blind reaction pass a Bailout now is just throwing money at the problem.

Here’s an outlandish idea:

Require all portfolios that meet some set of criteria (over a certain size, managed in a certain way, etc.) to maintain at least 30% of their holdings in short positions.

Nip this stupidity in the bud. All children can’t be above average, and all issues can’t outperform the market. Make people who want to play commit to calling out the duds as well as picking winners, to get us past this “up is always good, down is always bad” mentality.

– MarkusQ, heretic

I don’t see why the taxpayers need to purchase ANYTHING from Wall Street. Let the banks fail and charter new ones with sensible restraint and regulation.

If Wall Street needs cash let the 1% with all the wealth who made money down there pitch in and save it.

It has not been caused by Main street but Main street has been the victim of this; many drawn into their real estate and “ownership” society bs and consumerism and credit and speculation.

Those who have abused the law and ethical behavior need to pay. Those who are innocent should not pay.

I am for NO BAILOUT of any kind.

I think the government should nationlize all the banks and re charter them as small local banks. No mergers of banks… no holding companies, shell corporations, asset management groups. Let’s get back to basics and get some decent jobs and decent pay for workers etc.

It would make a huge difference in what variables were utilized and to what weight that would/could vastly alter what the value is. A lot of places to screw w/ and or FU the results.

In ordinary short sales, you borrow the security for some period of time (more correctly, rent it) from someone who has a long position (owns the security). The terms of the agreement require you to return the security after an agreed period of time. That means that the short-seller has to go long to cover the short position, and return the stock by the due-date.

In naked short sales, you sell, then find someone to lend you the security you sold short. If you can’t find someone to loan you the shares, you have to go long in a hurry.

BC

The GOP needs an issue to win this election opposing a bailout is their only card to play honestly can anyone think of an other game changer?.
Bush tried to get a bill passed. McCain said he would get a bill pass and then killed the bill with the House GOP.
Obama will get the credit now if a bill gets passed. Karl won’t allow that to happen before the election so I think we have time.
The more time we have the more support we get for our position. Bailout passes or the GOP gives up any hope of retaking Congress?

Agreed.

Here’s an interesting concept:

Why The Bailout Bill Will Not Solve the Credit Crunch (And What Could)

I would nail the top 10% with the bill:)

1) I still haven’t heard a clear explanation of where the $700 billion number came from. Sure, it’s a big number, but why not $300B or $1.5T? It isn’t even clear of what the money will be used for except that it will be given to companies with bad balance sheets to make them look like good balance sheets.

2) I still haven’t heard a clear explanation of why CDOs should be marked down to anything above zero. Yes, a lot of signage in lower Manhattan will need to be changed, but fetishizing the form of pre-meltdown Wall Street is just cargo cultism. We need financial institutions, not one particular set preserved from a particular era.

The banks aren’t actually made solvent, they’re just allowed to pretend they are. That leads either to reduced capital availability, or if they go into real lala land it leads to inflation issues.

May CDOs are worth more than zero. It’s just:

a) not clear what they are worth; but,
b) clear they aren’t worth anything near face.

i just watched most of the press conference (thanks wobblybits!) on cspan. one thing i think they are doing is trying to come up with a two part plan. first is the stuff they are working on with the rightwing nuts who are also pissed off and against the bailout, then they have their own more progressive issues where they “wildly diverge” with the republicans.

my impression is that they are attempting to an alternative that can have bipartisan populist support to force on both their leadership. i don’t agree with alot in the proposal, but i really like the approach.

Digg this post

Digg is having some difficulty, the problem is not in your television set. But looks like we got this one to load.

Yes it is. The devil is in the details. This makes me really uneasy, honestly. But mark to market was used to cause fraud too, in the good days. See in an illiquid market sales wouldn’t happen often. Get one person to make an overvalued sale and you could all revalue your swaps and CDOs at that price, then book the profits. Great scam. In illiquid markets you have to do something special to produce prices – you could do regular mini auctions, you could have some very strict valuation rules, we’ll see.

But mark to maturity is insane.

Sort of OT: TPM collected the advice from many prominent economists, and posted it on their site. From Brad DeLong of UC Berkeley (scroll down):

As I said, raze the Republican Party to the ground. Plough it under. Scatter salt in the furrows so it can never grow back.
We need another, very different opposition party to face the Democrats. We need it now.

Yup.

I don’t see how it quickly addresses the credit squeeze, which the Modified Paulson bill probably did,

please tell me how the “modified Paulson” bill addressed the credit squeeze. thanks.

That sounds like maybe an entirely different plan, or maybe it’s changing. I got this summary from SEIU, who are pushing the bill + a 60 billion stimulus.

Bwahahahahaha:

http://www.dailykos.com/storyo…..464/615832

if that audio is legit, paulson can not be in charge of ANY recovery

even if it’s not legit. imo, paulson should be out.

There isn’t a “clear explanation” they just picked it. . .period, that’s it.

Modified Paulson would buy a few months (3 to 4, assuming 700 billion) at too high a cost.

The net worth certificates are what is intended to do that in this bill. They are essentially fantasy money “we’re all just going to pretend this is money and let you use it as a reserve”.

Wall Street doesn’t need the cash. The big problem isn’t Wall Street, it’s the credit contraction. Banks are shrinking lines of credit and raising interest rates and requiring higher credit-worthiness.

This is causing problems with operating capital for lots of small businesses (like law offices, medical practices, locally-owned shops, etc.) No operating capital, no goods to sell or money to meet payrolls. Or both. Banks don’t want to lend because they see a better deal coming down the pike from Congress.

I’m in favor of a proposal I read yesterday. Banks are in business to rent money. (I know, we usually call it lending, but it amounts to renting.) If a bank can’t conduct it’s ordinary business (renting money), that’s prima facie evidence that the bank is insolvent. Like a candy store with no stock on the shelves. If it’s insolvent, then it has be taken over by the FDIC and its assets sold off to cover the losses.

That would work to get the bankers off the sidelines and back into the game where they need to be.

BC

Thanks for the response – didn’t realize that mark to market was also abused – I guess anything can be abused if one gets “creative” enough.

If you get a chance, take a look at the short article I linked to at #25, I’d like your opinion.

press conference from 3pm now available (wow that was fast!) on the cspan archives.

A change from mark to market pricing to mark to some sort of model

I don’t know the details of this but I have been saying for some time the government needs to come up with its own formula about how to value various mortgage backed securities (because it as really the only buyer out there is the market). It can then tell banks and financial companies to evaluate their assets according to this formula, revise their balance sheets, and make a declaration to the government (and the public) so we can all see what kind of financial position these companies really have. From there we can liquidate some, recapitalize others (under knew tighter regulations), instill confidence in the financial system, and unfreeze the system.

Can I ask a stupid question?

Why do incredibly insanely obscenely rich people act terminally allergic to any and all taxes? I mean, the capital gains tax will not hurt them!

Dugg.

Thank you.

aren’t our financial market players addicted to fantasy profits to inflate their stock prices? Isn’t that why everyone is saying the sky is falling because they can’t get their fix?

sorry. those are rhetorical questions in this here rant.

Enron collapse is the most spectacular abuse of mark to market contortions.

There isn’t a “clear explanation” they just picked it. . .period, that’s it.

Yes, that there was no real rationale for it doesn’t give me much confidence that any other aspect of the Paulson plan was any more fact-based.

Thanks LS. I needed a laugh today. I also voted on the poll. too funny.

We need to get the bad asses out of wall street.

Any bill brought forward would be better than beating the US tax payer over the head with a club. However, regardless of one bill or the other, the dollar as a unit of value is flawed. The dollar must mean something again and to do that you have to back it with something of value. otherwise you are building a foundation on nothing other than smoke and mirrors and we’ve seen just how far that has gotten us.

Although they are wealthy, most “wealthy” people in America are relatively newly wealthy. They are just like everyone else…animals with clothes on…and they spend and live at their financial limits..only the very old wealthy families have passed that tendency and many of them live fairly regular lives; which is why they have held onto their wealth for many generations.

No. A credit squeeze means that producers who sell to each other can’t get the credit they normally use to bridge the gap between their purchases and their sales. Right now suppliers all over the world are clamoring for accelerated payment and shortening their terms of supplier credit. That’s what a squeeze does. The squeeze is in the middle of the supply chain, not the end, but it affects everyone in the end.

Yeah, I guess any market is subject to manipulations and their effect on valuation of assets.

They aren’t all that way, dosido.

Warren Buffett isn’t allergic to taxes. Bill Gates Sr, same deal.

I want to see an end to the preferential treatment of capital relative to labor. Flat tax? Sure. Tax all income at the same rate. If your business is investments, then the money you make from buying and selling stocks/bonds is ordinary income. Tax it at the same rate you tax the paycheck of a janitor or a ditch digger. That includes payroll taxes, by the way…

BC

Thanks Ian.

FWIW, I don’t think it looks like a “crisis” to the American people. I think liberals would be well served by asking/demanding a pullout from our twin Middle East occupations. That strengthens the balance sheet of the US government, which is the only one that matters anymore.

I think tax increases on the most wealthy have the same net impact.

OT, after the GOP bailed on them, I am more worried than ever that Wall Street is trying to seduce Democrats. That’s another reason I think it’s critical that liberals get Wall Street to back a pullout from our Middle East occupations.

Ian, thanks for the explanation on the accounting. That’s a really scary one. Aren’t Lehmann, AIG, Wachovia, and many others apoplectic that the SEC waited so long to do this?

Thanks for all your great work.

Much appreciated.

aren’t our financial market players addicted to fantasy profits to inflate their stock prices? Isn’t that why everyone is saying the sky is falling because they can’t get their fix?

Well, that was the essence of the Paulson plan to keep the game going with most of the same players. What is needed is to re-write the problem mortgages and re-regulate the markets. This would change the rules of the game. In fact, it might turn it into a different game and for this reason it is opposed by the current players, of whom Paulson is one.

We are just reinflating the bubble of illusion either way though it would appear. Maybe that is the best we can do. I guess my question is, will “net worth certificates” accomplish that in the beady little minds in the financial world, especially those with their hands on the credit spigots? As an analogy, sometimes “news” moves a stock in the desired direction; sometimes the “news” is seen as too hollow and either does nothing or, worse, reduces confidence and moves the stock down. Will the “net worth certificates” be sufficient confidence builders?

thanks. paulson creeps me out.

I think DeFazio is a joke – sorry. I’m a progressive, and all of these are great ideas, but they also mean holding up the bill. Why can’t all of these be introduced in a few weeks? DeFazio has been in office for many years and yet it’s just now that he’s thinking of all these regulations? The point is, by voting “NO” on the rescue bill, DeFazio went against the leadership of the Democratic party, cost America a huge amount of money, and it was only because he was afraid of how it might be “perceived” not what it might actually do.

http://www.cnn.com/2008/POLITI…..n.bailout/

I think I am responding to years of listening to my reaganite and the recent spate of goopers on my teevee in the past couple of days rail on the capital gains tax. i think this is a button installed a long time ago to have some insecurities to appeal to for reelection purposes. just a theory. : iow, what. is. your. problem?

raze the Republican Party to the ground. Plough it under. Scatter salt in the furrows so it can never grow back.

Also very important to burn sage sticks and offer up prayers to purge and cleanse the evil.

some bills only get passed when the pain is at its greatest. having said that, ordinary americans have been feeling the economic pain for some time now and no one in DC noticed. Only now are wall street types jumping up and down for a money grab.

People here are criticizing Krugman for his tepid support of the Paulson plan. I’m not sure most liberals/progressives were in favor of the Paulson plan.

it will be the same party, different uniforms so they all can get back in the game.

Citizen Pixelmarx:

“…sorry.I’m a progressive…”

And I’m the Tooth Fairy!

Japanese growth since their banks were forced to assess their bad debts have been sluggish for the last two decades. Ian refers to 20-30 years for the US economy to recover in his piece. That’s japanification. There is a difference. The Japanese were net savers which US Americans are not.

The point is, by voting “NO” on the rescue bill, DeFazio went against the leadership of the Democratic party, cost America a huge amount of money, and it was only because he was afraid of how it might be “perceived” not what it might actually do.

i’m confused here. how did refusing to give that crook paulson $700 billion with no accountability cost America a hugh amount of money?

The way I’m seeing the bailout is that Bushco is orchestrating a scenario where the companies that ripped off the people will be able to place their junk temporarily into an “account”, where it will sit until the values increase over time and the profits will once again be reaped by the very people that ripped off the people in the first place.

No bailout.

I agree with SanderO’s link. Bankruptcy is the answer.

When the credit vacuum is strong enough, which won’t take long, others will step in to lend…and they should be regulated.

Hi Ian, I watched the press conference by DeFazio, Kaptur, Edwards, Holt, et al here:
http://cspan.org/Watch/C-SPAN_rm.aspx It’s the 3:00pm entry listed as iberal caucus.”

Ian, is there any chance Congress would require the GAO or someone to tear into these mortgage backed securities and try to put a range on the prices they might fetch? Wouldn’t it make more sense to do that first, and THEN design the legislation?

Citizen Pixelmarx:

“I think Defazio is a joke-sorry. I’m a progressive…”

I’m sorry too…in poker your openin statement is called a “tell”…there isn’t a real progressive out there who is gunna call Defazio a “joke”…no dear, you are decidedly NOT a progressive.

Don’t feed the trolls!!

There are two elements that any real solution to the financial crisis must contain. First, financial companies and banks must declare what their losses are so these can be dealt with and confidence restored. Second, regulations must be put in place to see this doesn’t happen again. You can not do the first and hope to get around to the second later. The two have to be part of a single, unified plan.

statement is up on defazio’s site. no actual language for us to evaluate.

And Krugman said is was a bad plan, but better than doing nothing. His error was to despair of the possibility of concerted action, which of course still may fail. But, damn, we’ve go to support any such attempt.

Sander, this is an interesting piece and the guy makes good points except I did not agree with his point that Freddy and Fannie were pushed into subprime lending. I don’t think this is right?

The comments about tenure were kind of funny too.

I think transparency is my new mantra, for bailouts and government.

i don’t see any of the second on ian’s list.

I think transparency is my new mantra

LOL. welcome to a piece of my world (i don’t limit it to bailouts and goverment).

ABC News is flogging resubmitting the bill. It trots out both Presidential candidates to back this up. There is an Establishment push not to do what is effective, responsible, or right but what is “necessary,” i.e. what Wall Street and the monied classes want. Rather than write a better bill, they are all complaining that they don’t like the Paulson plan enshrined in the “compromise” but it is either this or nothing.

What is my problem?

Trickle down is a polite phrase for pissing on. And I’m tired of it.

BC

It trots out both Presidential candidates to back this up.

swell.

“DeFazio went against the leadership of the Democratic party”

Definitely he’s got street cred now going against that failure Pelosi.

“cost America a huge amount of money,”

You are wrong about this. GoldmanSachs, Carlyle and the rest of those smartest guys in the room get the blame.

“and it was only because he was afraid of how it might be “perceived” not what it might actually do.”

This conclusion requires psychic powers.

This “crisis” that needs to be addressed immediately doesn’t seem to have affected the Wall Street speculators looking for a deal. According to early tallies the DOW gained 485 points today.

Please don’t feed the trolls.

Here is the full text of the No Bailouts Act: http://www.dailykos.com/storyo…..460/615860

The problem is that all bail out proposals to date rely on increasing the budgetary deficit rather than on raising the revenue intake through fiscal policy initiatives. This implies that international lenders, particularly China, need to be reassured to keep on lending. Either way, unemployment is going to rise – it already exceeds 7% when you take into account people who are not registered as such. It is going to be higher if there is no bail out at all. This does mean that the Iraq misadventure is going to be wound down. What are you going to do with all these troops coming back? The contractors are also coming home and I don’t see an international demand for their services, and the US is losing out on the oil contracts. Does Georgia, minus S Osetia, have oil?

You cannot fight wars of choice that you cannot pay for and by that reasoning, Afghanistan-Pakistan involvement is due to be consigned to history, China asserts territorial control over Taiwan, neo-con pipe dreams re Iran are dashed and the world heaves a sigh of relief and gets on with picking up the pieces as best that can be done after the lunacy and mayhem of the last eight years.

Seriously, hold on to liquid/cash assets and get out of everything else and tighten your belts. Forget what Rudd in Australia is spouting. He may be fluent in mandarin but knows zilch about economics. Forget also the idiotic arrogance and hubris of Friedmanite economic theories and go back to the Keynesian economics that FDR’s New Deal embraced. Infrastructure investment and health care are prime public investment portfolios. Give this administration a hundred billion or so – that’s enough until the next administration and a new Congress.

Flat Tax is sheer lunacy. Why do you want to revert to the middle ages in the 21st century?

Another great idea that I’ve seen is a tax on the buying and selling of securities. A 0.25% tax on trading securities is in line with the UK, and encourages people to invest for the long term as opposed to the short term. This keeps speculation in check. For instance, someone could buy a few million shares, watch the share price go up (since “everyone is buying it”), then sell the shares (or even short them!) once they come back down to normal. The 0.25% tax would minimize the incentive to do things like this.

I think this is also another plank to add to Mr. Welsh’s plan, detailed under “Give Paulson 150 Billion and Come Back In January and Do it RIGHT (And here’s how to do it right)”

Oh BC, I didn’t mean you per se. I speak like that sometimes where I say “you” to mean a generalized person.

I’m so sorry I came across like that. I’m really worked up about this. Many apologies.

DeFazio mentioned that in the liberal caucus’s press conference, but it doesn’t appear in the text of the No Bailout Act (link at #88).

Here is the link to a video of the press conference: http://cspan.org/Watch/C-SPAN_rm.aspx

As things in this economy get worse we are going to see companies going out. I have heard of various companies that are on the ropes. Circuit city being bought by a video chain, one of the bathroom boutique places is shrinking, Home Depot is shutting down stores. There are several others that I see as trying to make it through Christmas and then reality will set in. I don’t think that we can shoot our wad now without being able to have something in reserve in anticipation of things getting worse even if what we have in reserve is debt capacity.

I think it’s from the equity in AIG.

I saw an estimate that AIG’s assets were $1 trillion. The AIG deal cost $75 Bn, and got the Feds an 80% stake, nominally $800 bn. Deduct the cost of the stake, and you get a $725 bn asset to borrow against.

The No Bailout Act specifies:

For those entities that qualify, the FDIC should purchase net worth certificates in these institutions. In exchange, these institutions issue promissory notes to repay the FDIC, counting the amount “borrowed” as capital on their balance sheets.”

To which Ian comments:

Don’t see why we don’t get Buffet shares – 10% preferred convertible convertible to bonds. But whatever, if the US is going to give money, give money.

I agree. All of the economists that I’ve read recommend preferred stock, which is what I assume is meant by “Buffet shares.”

wigwam, everybody – Nate Silver of five-thirty-eight about to be interviewed on KO

I knew you didn’t mean me, personally. And I didn’t mean me, personally, when I said my problem was trickle down economics is really pissing on economics. I meant our problem.

BC

I’m not in favor of a flat tax.

But I’d swap our current disaster of tax policy in favor of a flat tax, provided that all income, regardless of source, was taxed at the same rate.

I’d also require a generous exclusion/deduction/whatever you wanna call it before the ‘flat’ tax kicked in.

Basically, I’m more in favor of a flat tax than the (mostly) regressive system that we have in place now. It would be an improvement, which is a really sad commentary.

BC

Get out of U.S. Treasuries too? You make a lot of sense to me. I also think the U.S. will be forced to get out of Iraq and Afghanistan. Like empires before it, the cost of maintaining one seems to be endless war, ending in bankruptcy.

Dave Neiwert has his diary Front-Paged!
Dispatch From Wasilla: The Clouds Descend

Ian upstairs!
Breaking: Senate to Take Up Bailout Bill Tomorrow

1. “A change from mark to market pricing to mark to some sort of model.”

Isn’t using models to “determine” the value of debt instruments (CDOs) one of the things that got us into this mess?

‘mark to fantasy’ was an Enron tactic to make people think they made money.

Using some other model is probably just fancy jargon for ‘fantasy’. Determining the value means such a thing has sold and someone actually thought it was worth that value. Everything else is fantays.

Or so the ‘free market’ people have been saying for decades, if not centuries.

Question about Naked short sells. You have to own the asset right?

IIRC ‘naked’ means you DON’T own it.

I still haven’t heard a clear explanation of where the $700 billion number came from.

Today in a press conference Tony Fratto (asst. press sec of Bush admin) was asked about that and he said, no it wasn’t pulled out of the air (no further explanation). When told people worried about that number he said, “Okay.”

Clearly it’s just a fiction and they really don’t care whether anybody cares.

Flat Tax is sheer lunacy. Why do you want to revert to the middle ages in the 21st century?

Well, there weren’t any Republicans back then! That’s one good thing.

Equal Treatment Under The Law is a Constitutional principle it upholds.

Simplifying the tax code to get rid of so many deductions that 50% of corps didn’t pay tax last year.

Simplifying the tax code so anybody can pretty much do their taxes and not hate their government.

Yeah, there are a few good reasons to do it, if it’s done right.

I have two problems with the No Bailout Act:
– Per the Act: “For those entities that qualify, the FDIC should purchase net worth certificates in these institutions. In exchange, these institutions issue promissory notes to repay the FDIC, counting the amount “borrowed” as capital on their balance sheets.” But the economists I’ve read all recommend “preferred stock” instead.
– Where does the money to purchase those “net-worth certificates” and/or “promisory notes” come from? At the press conference today, DeFazio indicated that they were going to charge a quarter-percent securities transfer fee, which would raise over $100B per year.