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$700 Billion Bailout Signed Into Law
Many readers reminded us of what no-one can have failed to hear: that the Congress passed and the President signed a $700B bailout bill in an attempt to avert the meltdown of the US economy. The bill allocates $700 billion to the Treasury Department for the purchase of so-called "toxic assets" that have been weighing down Wall Street balance sheets. This isn't particularly a tech story, though tech will be affected as will virtually all parts of the economy, and not just in the US. Among the $110B in so-called pork added to the bill to sway reluctant legislators are extensions of popular tax benefits for business R&D and alternative energy, relief for the growing pool of people subject to the alternative minimum tax, and a provision raising the FDIC's ceiling of guaranteed deposits to $250,000. Some limits were also imposed on executive compensation, though it's unclear whether they will be effective.
Why is it that really bad legislation always seems to pass on a Friday?
Go green: turn off your refrigerator.
Henry Paulson, the CEO of Goldman Sachs until 2006 and current U.S. Treasury Secretary succeeded in scaring the public and Congress into giving him a $700B blank check to bail out his friends. If you think that money will "trickle down" to you or small business owners, or anyone other than the people it's directly going to, you are mistaken.
...and our Congresspeople fell for it.
The DOW plummeted to 10,365 on Monday September 29th when the bailout bill failed to pass. Every proponent of the bailout screamed, "I told you so!" Then on Tuesday September 30th, even without the bailout bill the DOW rocketed up to 10,850. Then on Friday October 3rd when the bailout bill passed and was signed into law, the DOW dropped yet again to 10,325 (even lower than Monday when the bailout bill failed).
This bill will not help the credit markets, the debt markets, the equity markets or anyone reading this comment. It will help Goldman Sachs, Morgan Stanley and the rest of the former investment banks de-leverage from 60:1 leverage down to traditional 12:1 leverage on your dime while the economy goes down the tubes.
They pulled out all the steps - even threatening martial law:
http://www.youtube.com/watch?v=HaG9d_4zij8
I'm a big tall mofo.
How big of a check should I expect to get?
--
Blackshot
The major effect of this bill is that it is causing fiscal conservatives to blow gaskets. They can't accept the fact that the free market is what caused this mess.
It is funny to hear them complain about how people on Wall Street became "greedy." I'm not a financial expert but I think that is part of the design. Everyone on Wall Street works for their own self interest. That is how the invisible hand is supposed to work. But conservatives complaining about the essential 'feature' of the free market is sort of twisted.
I seem to remember reading the BBC and noting that countries overseas wanted this bill as much as some in the US.
Shai Schticks:"You don't make peace with friends, you make peace with enemies"
First, let's understand what caused this crisis. Then you'll understand why the bailout won't work.
Economist: Why Bankruptcy is better than bailout
The Trillion-Dollar Bank Shakedown That Bodes Ill for Cities ( written EIGHT YEARS before this crisis, predicting everything down to the dollar amount)
Now, check out the $150 Billion in pork-barrel projects that were added by the Senate to the original 100-page bailout that failed in the House, turning it into a 450-page bailout:
- "Wooden arrows designed for use by children" (Sec 503)
- Wool Research (Sec. 325)
- Film and Television Productions (Sec. 502)
- Litigants in the 1989 Exxon-Valdez oil spill (Sec. 504)
- Virgin Island and Puerto Rican Rum (Section 308)
- American Samoa (Sec. 309)
- Mine Rescue Teams (Sec. 310)
- Mine Safety Equipment (Sec. 311)
- Domestic Production Activities in Puerto Rico (Sec. 312)
- Indian Tribes (Sec. 314, 315)
- Railroads (Sec. 316)
- Auto Racing Tracks (317)
- District of Columbia (Sec. 322)
This is the bill that senators are screaming about, saying "IT MUST BE PASSED OR DOOMSDAY!" Who believes them? And yet the bill easily breezed through Congress.
Carping right now, when the boat is sinking, is just plain stupid
You know it's an amazing coincidence. You're saying the exact same thing that Henry Paulson and his cronies say. I'm sure that it is just that - a coincidence - and that you independently came up with the identical position completely on your own.
I also suppose that if Henry Paulson said you needed to come to his house and blow him or the economy would go under you'd think, "No time to think!" and head right over to do it. If that's not the case, then why did you fall for his, "Sure, I'll give you a life preserver - throw me your wallet first!" scheme? There is time to think. Henry Paulson has said he has no plans to spend any of the $700B for FOUR WEEKS. Why the rush to pass it into within days?
I'm a big tall mofo.
Between 1 and 1.3 trillion dollars has been spent on military projects and war for the last few years, depending on how you look at old debt. The money is not clearly accounted for, against constitutional principles, and it only goes to serve large corporations.
Where is the public outcry? Where are the Republican talking heads when the budget is being discussed?
The bailout plan may be awful, but it's by no means the biggest con ever. The biggest con ever has been going on since the end of WWII, and it has cost American money and lives, and in no small number. Any of these transparently partisan personalities are just squawking for advertising dollars and votes, same as always.
I have had the chance to speak with other business owners and some executives of, let's just say, large, corporations. The general feeling is that while action was necessary there was a much better approach:
- ~500 billion USD given to the Fed
- Allow the Fed to disperse the money through the discount window with loans at 1% fixed for 18 months then reset to Prime-0.5%
- All mortgages that are currently in MBS tranches have their rates reset to Prime+1 for 24 months.
- Have the US AG seek felony charges for lenders that committed fraud.
The current bill is like trying to get fuel into a car through the tailpipe instead of filling up the gas tank.
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What I find MOST incredible about this whole bailout, is the fact that nationwide polls of the general populace indicated between 70% and 75% were AGAINST the legislation, yet the Senate passed it through with FLYING COLORS, and House of "Representatives" were swayed to voting for it in a matter of only a few days. All it really took was throwing in a few key financial incentives and bonuses to the appropriate special interests, and some empty promises by potential presidents to be.
The whole time, these "Representatives" were being flooded with demands from the American people NOT to vote for the bailout - but they turned a deaf ear to everyone, and made bold claims like "I may not be re-elected because of this, but I'm confident I did the right thing for America's future anyway." One moron said he changed his vote from NO to YES, simply because "I talked with potential president to be, Obama, and he personally assured me he would enact legislation after his election that's in alignment with what I want to see." (WHAT?!? You were VERBALLY promised some B.S. by a guy who MAY or MAY NOT become president, so that's more important to you than listening to the people who elected you and trusted you to represent their wishes?!)
When HUGE taxpayer expenditures like this are voted through and signed into law in less than a week, despite 3 out of 4 Americans being strongly against them - it's clear we no longer live in a Democracy at all! This seems like as good a reason for an overthrow of our government as what we dealt with back around 1776! Yet people will not only sit back and accept it, but probably not even vote in protest for a 3rd. party like the Libertarians. (Incidentally, Bob Barr has been speaking out against this bailout the whole time, unlike our Democratic or Republican contenders. The man gets MY vote for that reason alone. At least he's in support of the will of the PEOPLE still!)
Yep
I read it too.
If you're in banking, you must have noticed the fact that the increased cap of FDIC insurance from $100k to $250k will only apply until December of 2009, after which it reverts back to the limit of $100k per named account holder per financial institution.
How many people might get suckered into longer term CD's (Certificates of Deposits, not the ISO-9660 type) that might go over the boundary of the TEMPORARILY raised FDIC insurance caps and end up either inadequately covered or stuck with early-withdrawal fees?
Either way, NONE of the articles I have read make any statement about the fact that the so-called increase in the FDIC insurance from $100-thousand to $250-thousand is only going to last the length of calendar year 2009. That's a sham and a disgrace.
Kris
Bush and collegues came into office promising to implement Grover Norquists ideas for contracting govenrment. The graphic phrase most often used was they would have to "strangle it in the bathtub" which was Norquist's shorthand for meaning that to reduce spending they had to basically remove govenement agencies and kill off revenue.
Fast forward we have years of the biggest govenement expansion ever. Some bandy the word "socialist" over the bailout. But actually that misses the big picture.
Suppose your goal was to move the governement more towards a corporatist outlook and to really strangle spending how could you do this.
You do it with debt. This 700 billion will be paralytic both in crippling elective goverment spending as well as it's ability to raise future debt. Oddly It does not actually go on the books as debt even but it is a liability.
And even if some day the loans and options they are buying pay off, it's accomplished the tow key goals.
1) strangling it in the bathtub. There cannot be any socialist expansion during Obama because there simply is no way to finance it either with direct revenue or borrowing.
2) a movement towards corporatism. The Government will rise and fall with the value of the companies it holds options in. What's good for the US really is what's good for AIG and JPmorgan, and the rest. Even the people admisistering the hen house in both the SEC and Treasury came from Goldmann Sachs.
The 1930's was when Corporatism was invented and the country practicing it, italy, was consider a miracle. the rest of the world was reeling in the depression. Senators and congressmen hailed the Moussilini miracle and went on fact finding missions to figure out how to import this here. Adolf Hitler was swept into power in part by nationalism that awoke in the aftermath of WWI but also because he too offered the fascist miracle for germany.
THe trains did run on time. THe auobahns emerged. It was spring time for hitler and germany too.
SO we now have an odd time in the US. We are backing our way into fascism. We have all the ingredient. Cheney and his patriot acts have created police powers that are unprecendented in our history of civil liberties. Even our allies like britain have gone to a surveliance society and now ponder 2 days detenciton with charges.
THe second fork of facism is corporatism where the state manages for the good of the corporations and vica versa. (the reason corproatism was such a miracle was precisely because of the vica versa. The people were really better off in the rising economy of italy).
So while hitler managed to once and for all kill the term "facism" at one time, it's potential for being an ecomomic engine was admired.
I note I'm not triggering Godwins law here because I'm not comparing my oponent to Hitler. Instead I'm saying that we are indeed backing into something that is facism in everything but name only, both the good and the bad.
Some drink at the fountain of knowledge. Others just gargle.
There is plenty of blame to go around. Yes, the CEOs, but everyone else too.
First, all the people that thought houses were investments whose price could never go down. Wrong.
Second, all those people bought houses they couldn't afford at ludicrous interest rates, based on the idea that a bank would never give them a loan they couldn't afford. Wrong.
Third, the banks that gave these ludicrous loans in the first place. Stupid.
Fourth, the unscrupulous assholes who raced to find people to give these loans so they could sell the loans as investments.
Fifth, the federal reserve for keeping the interest rates so low that the global pool of money had to find themselves an investment other than government bonds.
Sixth, the global pool of money for investing in these loans without carefully looking at what they were buying.
Seventh, all the wall street banks that also invested in all these things heavily and not seeing that they weren't worth their price, and their CEOs.
Eighth, the government for not seeing this happening earlier and stopping it before it was too late.
Ninth, the previous government (Clinton, sorry) for trying to let every American own a home. Heart was in the right place, should have asked an economist first though.
How many times did you hear in the last ten years that property was a great investment that couldn't fail and that everyone should buy some as soon as possible? That was bad advice, every one of those people were wrong.
Basically we all did this for not looking more skeptically at what we were investing in, and living beyond our means. But the economy is not the financial industry, the financial industry is just the fiendishly complicated mechanism that loans the rest of the economy money so it can function. Letting the entire economy fail to teach Wall Street a lesson sounds stupid to me.
I lived within my means, I don't have any debt, and I'm pissed at everyone for screwing this all up so badly. But I want the economy keep going so that the means which I am capable of living within can continue coming, and here we are. Put me down for my share of the bailout, and do me a favor, keep wall street on a tighter leash. I lost a lot of faith in the free market over the last year, it was the market's mindless lemming me-too-ism that completely screwed the pooch here.
Everything seemed to be going so nice
'till the end of all beings punched right through the ice
You realize, of course, that you've left a lot out?
You realize, of course, that the CRA did not force banks to make loans to individuals who couldn't afford them? What it did do was say that you could not refuse credit based on location or area (redlining) and instead had to base your loan evaluation on the INDIVIDUAL, and upon the individual's ability to pay. (Try reading the bill and not the Wiki.)
You realize, of course, that the vast majority of the subprime loans that are going belly-up were made by financial institutions like CountryWide... which are not banks, and as such, WERE NOT COVERED BY THE CRA IN THE FIRST PLACE.
You realize, of course, that in early 2005, the Office of Thrift Supervision (under GW Bush) implemented new rules that substantially weakened the CRA, and as such, its impact on credit markets?
You realize, of course, that a good portion of our current crisis is caused by the Gramm-Leach-Bliley Act, introduced by Senator Phil Gramm (R-TX), which in 1999 repealed part of the Glass-Steagall Act, opening up "competition" among banks, securities companies and insurance companies. Which in turn lead to our current set of mega-institutions that are so large and intertwined they can't be allowed to fail?
The same Phil Gramm, BTW, that was John McCain's presidential campaign co-chair and his most senior economic adviser. The same Gramm that in July explained the nation was not in a recession, stating, "We have sort of become a nation of whiners."
I could continue, but suffice to say that there's a lot of information that your oh-so-insightful post left out.
Do you work for the Republican campaign? I only ask because such blatant cherry-picking of the facts to suit your own position is a party trademark.
Any sect, cult, or religion will legislate its creed into law if it acquires the political power to do so.