[Vision2020] Vision2020 Digest, Vol 27, Issue 258

[Jeff Harkins]

Don

It is a common misconception that only the billionaires are going to 
lose here.  401 K and mutual fund holdings account for the bulk of 
the assets at risk here.

That's why the loan and/or loan guarantee is a more appropriate 
strategy.  A feature usually included in the loan/loan guarantee 
strategy is to secure the loan (in part) with security warrants - 
that can be exercised by the Feds to provide an equity stake in the 
organization.  This is in addition to the underlying collateral that 
is part of the loan or loan guarantee.

At 11:20 AM 9/26/2008, you wrote:
>Shouldn't we let those that have the most invested in wall street; 
>thus, the most to lose bail themselves out.  Why not let 700 of the 
>world's billionaires each contribute a paultry billion to the cause 
>and if it's a good investment they'll get the return, right?
>
>If they're unwilling to buy these securities then why should 
>we?  The rich are the one's buying up the discounted shares right 
>now anyway.  Who benefitted the most from the collapse of the 
>30's?  Those that panic'd and sold out or those that swooped in and 
>bought up the discounted shares?
>
>
> > From: vision2020-request at moscow.com
> > Subject: Vision2020 Digest, Vol 27, Issue 258
> > To: vision2020 at moscow.com
> > Date: Fri, 26 Sep 2008 11:06:46 -0700
> >
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> > When replying, please edit your Subject line so it is more specific
> > than "Re: Contents of Vision2020 digest..."
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> >
> > Today's Topics:
> >
> > 1. Re: [spam] Re: Debate about the bailout (Sunil Ramalingam)
> > 2. Re: Debate about the bailout (nickgier at roadrunner.com)
> >
> >
> > ----------------------------------------------------------------------
> >
> > Message: 1
> > Date: Fri, 26 Sep 2008 10:53:45 -0700
> > From: Sunil Ramalingam <sunilramalingam at hotmail.com>
> > Subject: Re: [Vision2020] [spam] Re: Debate about the bailout
> > To: <vision2020 at moscow.com>
> > Message-ID: <BAY111-W33CDEFD515CEC05F01AF96BD470 at phx.gbl>
> > Content-Type: text/plain; charset="iso-8859-1"
> >
> >
> > As I understand the facts, the Patriot Act was introduced after 
> 9/11, and passed just a few weeks later. I don't believe it was 
> introduced while Bill Clinton was still in office (though I would 
> not have been surprised if he signed it.)
> >
> > Sunil
> >
> > Date: Fri, 26 Sep 2008 10:19:41 -0700
> > To: sunilramalingam at hotmail.com
> > From: jeffh at moscow.com
> > Subject: Re: [spam] Re: [Vision2020] Debate about the bailout
> >
> >
> >
> > The Patriot Act was debated for a year before passage.
> >
> >
> > At 09:35 AM 9/26/2008, you wrote:
> >
> > Bruce,
> >
> >
> > I won't pretend that I have an understanding of this issue. But I
> > do have a memory, and I recall this administration rushing a major piece
> > of legislation through: The 'Patriot' Act. Without much (if any)
> > review Congress abdicated their responsibility and rubber-stamped the
> > bill. The sky was going to fall if it didn't get passed.
> > Butch Otter gets credit for voting 'No' on it.
> >
> >
> > Now again there's a rush to get this through. This time it doesn't
> > affect anything as meaningless as our rights, it's money, so it's getting
> > more scrutiny. Good.
> >
> >
> > I'm not saying that perhaps it isn't necessary. I do want Congress
> > to examine it and debate it before they pass it.
> >
> >
> > Sunil
> >
> >
> >
> > Date: Fri, 26 Sep 2008 07:47:44 -0700
> >
> > From: jeanlivingston at turbonet.com
> >
> > To: vision2020 at moscow.com
> >
> > Subject: [Vision2020] Debate about the bailout
> >
> >
> > The nation has tried to rush to a bailout solution based on the seeming
> > consensus that the financial markets, credit in particular, will collapse
> > or freeeze to our great and lasting detriment if a "deal" is
> > not obtained this week.
> >
> >
> > Senator McCain "suspended" his campaign and refuses to
> > participate in tonight's scheduled debate unless the deal, or at least an
> > agreed structure of the deal, is reached before it is time to fly to
> > Mississippi for the debate. He, too, seems to accept the concept,
> > touted by bureaucrats and Wall Street economists alike and reiterated by
> > politicians of all stripes, that an immediate agreement upon a deal is
> > absolutely crucial.
> >
> >
> >
> > We are trying in one week to structure and agree upon the largest
> > financial deal in our history. George Will aptly termed this
> > phenomenon as acting like "lemmings in reverse," as everyone
> > rushes pell mell away from the proverbial cliff, from which lemmings
> > suppose! dly leap as they blindly follow the lemming in front of
> > them. It seems to me that getting a deal of this magnitude done
> > well in a considered fashion is more important than getting it done this
> > week. That idea of "getting it right" seems to be taking
> > root. Note the article reprinted below, which talks at length about
> > the split in "expert" opinion on how to structure the
> > bailout.
> >
> >
> > All that being said, it appears that a deal may not be reached this week
> > due to the complexity of the situation and well meaning politicians,
> > conservatives and liberals alike, now struggling to "get it
> > right." In my opinion, debate on this issue and "getting
> > it right" is paramount.
> >
> >
> > For me, the importance of "debate" on the issue also means
> > getting the two presidential candidates discussing it openly in public
> > for the nation to hear, tonight.
> >
> >
> > If a deal in Congress is reached today in time for the deb! ate tonight,
> > wonderful. If a deal is not reached, I think Senator McCain ought
> > to hop on that plan and attend the scheduled debate, notwithstanding his
> > offer to "put the nation first" by sitting in Washington.
> > Certainly, getting the deal done right in Congress is important.
> > But skipping an hour and a half presidential debate -- when the financial
> > markets will be closed for the next two days -- makes no sense to
> > me. Skipping the debate does not materially advance getting the
> > deal done right in a time frame that matters. We need to hear what
> > Senator McCain has to say, and why his ideas are better or worse than
> > Senator Obama's. As debate grows about the wisdom of the structured
> > bailout deal being proposed, the need for debate by our presidential
> > candidates likewise grows.
> >
> >
> > Bruce Livingston
> >
> >
> > Away from Wall Street, Economists Question Basis of
> > Paulson's Plan
> >
> >
> >
> > By Neil Irwi! n and Cecilia Kang
> >
> > Washington Post Staff Writers
> >
> > Friday, September 26, 2008; A01
> >
> >
> >
> >
> > The Bush administration's pitch for a sweeping bailout of the financial
> > system has centered on two simple premises: that the economy could suffer
> > a crippling downturn if action is not taken very quickly and that this
> > action should consist of the government buying troubled mortgage
> > securities from banks and other institutions.
> >
> > But many of the nation's top economists disagree with one or both of
> > those ideas, even as many top political leaders have swung behind
> > them.
> >
> >
> > Wall Street economists have mostly endorsed Treasury Secretary
> >
> > Henry M. Paulson Jr.'s plan, or a variation thereof.
> >
> > But almost 200 academic economists -- who aren't paid by the institutions
> > that could directly ! benefit from the plan but who also may not have
> > recent practical experience in the markets -- have signed a petition
> > organized by a
> >
> > University of Chicago professor objecting to the plan on the grounds
> > that it could create perverse incentives, that it is too vague and that
> > its long-run effects are unclear.
> >
> > Sen. Richard C. Shelby (Ala.), ranking Republican on the Budget
> > Committee, brandished that letter yesterday afternoon as he explained his
> > opposition to the bailout outside a bipartisan summit at the
> >
> > White House. The petition did not advocate any specific plan,
> > including that offered yesterday by House Republicans.
> >
> > Economists tend to agree that the nation's economy is at serious risk as
> > the flow of credit threatens! to freeze. Just yesterday, the interest
> > rate at which banks lend to each other rose steeply, as it has every day
> > this week, suggesting that lenders are hoarding cash. History shows that
> > when this happens, a broad economic crisis can follow, for instance, the
> > Great Depression and Japan's decade-long recession in the 1990s.
> >
> > "If nothing is done, the potential for these markets to seize up in
> > a big way is definitely there," said Frederic S. Mishkin, an
> > economist at
> >
> > Columbia University who was a
> >
> > Federal Reserve governor until last month. "When you look at the
> > history of these crises, when things spin out of control, the cost to fix
> > it later goes up exponentially."
> >
> > But many others with a deep theoretical knowledge of finance and
> > experience in government are ske! ptical of the structure of Paulson's
> > plan -- and the speed with which it has been crafted.
> >
> > The critics can be roughly divided into two camps. One group thinks money
> > should be directly infused into banks, which should allow it to trickle
> > down through the financial system to borrowers. A second group thinks the
> > government should buy individual mortgages, thus helping ordinary
> > Americans more directly, with the benefits trickling up to the
> > banks.
> >
> > The plan promoted by Paulson and
> >
> > Fed Chairman Ben S. Bernanke is somewhere in between: buying up
> > packages of mortgages and hoping that the benefits spread both up to
> > banks and down to households.
> >
> > "The plan is a trickle-down approach from banks to Main
> > Street," said Alan S. Blinder, a professor at
> >
> > Princeton University. "But if you! reduce the flood of
> > foreclosures and defaults" -- which he would have the government do
> > by buying loans directly and then renegotiating the terms -- "it
> > will make mortgage-backed securities worth more."
> >
> > That might help ordinary Americans but would be extremely difficult to
> > administer. The government would have to make decisions on the
> > foreclosure and resale of individual houses all over the country. Still,
> > many economists with left-of-center political views favor some variation
> > of this approach to the plan endorsed by Bush.
> >
> > "There is a kind of suggestion in the Paulson proposal that if only
> > we provide enough money to financial markets, this problem will
> > disappear," said Joseph Stiglitz, a Nobel Prize-winning economist.
> > "But that does nothing to address the fundamental problem of
> > bleeding foreclosures and the holes in the balance sheets of
> > banks."
> >
> > Coming from the other direction, more conservative economists worry that
> > by having t! he government buy mortgage securities, the Paulson plan
> > would manipulate prices in that market without getting at the nub of the
> > problem: that banks do not have enough capital and are having difficulty
> > raising any on private markets.
> >
> > In a sign of how the debate over the economy has shifted in recent weeks,
> > some conservatives, even as they argue for a relatively limited
> > government role, are calling on the government to invest public money in
> > private banks.
> >
> > "The root of the issue is recapitalizing banks," said Glenn
> > Hubbard, dean of
> >
> > Columbia Business School and a former chairman of
> >
> > President Bush's Council of Economic Advisers. "That could be
> > done more efficiently through the government injection of preferred
> > equity. Then the market coul! d figure out the prices of the
> > assets."
> >
> > Many of these critics don't care for the assumption behind the
> > administration's plan that the market is now pricing these mortgage
> > securities incorrectly, a problem that the government intervention aims
> > to fix.
> >
> > "The premise appears to be that the market is irrationally
> > pessimistic," wrote Greg Mankiw, a
> >
> > Harvard University economist and another former Bush economic
> > adviser, on his blog this week. "That might be so. Nonetheless, one
> > has to be at least a bit skeptical about the idea that government
> > policymakers gambling with other people's money are better at judging the
> > value of complex financial instruments than are private investors
> > gambling with their own."
> >
> > Some conservatives are now arguing, notably, that the government should
> > be investing in banks.
> >
> > Many economists fault the Bush administration and C! ongress for moving
> > so quickly on the bailout package without allowing more time for debate.
> > That sentiment was reflected in the petition organized by John Cochrane
> > of the University of Chicago. (None of the economists quoted here were
> > signatories.)
> >
> > "I totally disagree that this needs to be done this week. It's more
> > important to get it right," Blinder said.
> >
> > Moreover, some economists said the proposed $700 billion may not be
> > enough to address all the problems stretching across the financial
> > landscape. "You only show up if you can win, and this is not that
> > package," said Simon Johnson, a professor at
> >
> > Massachusetts Institute of Technology and former chief economist at
> > the
> >
> > International Monetary Fund. "This cannot be the ultimate, deci!
> > sive solution if you are not addressing the underlying cause."
> >
> > The plan is short on details, instead giving the Treasury secretary wide
> > latitude to determine how to execute the purchases of mortgage
> > securities.
> >
> > "I'd like to see how they see the evolution of an end game. There
> > are still many questions," said Myron Scholes, a retired professor
> > at
> >
> > Stanford University and Nobel Prize winner. He said how long the
> > government holds the assets and how they are later resold would be the
> > keys to determining whether the plan works.
> >
> >
> >
> >
> > =======================================================
> >
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> >
> > serving the communities of the Palouse since 1994.
> >
> >
> >
> >
> > http://www.fsr.net
> >
> >
> >
> >
> > mailto:Vision2020 at moscow.com
> >
> > =======================================================
> >
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> >
> > ------------------------------
> >
> > Message: 2
> > Date: Fri, 26 Sep 2008 14:06:44 -0400
> > From: <nickgier at roadrunner.com>
> > Subject: Re: [Vision2020] Debate about the bailout
> > To: Sunil Ramalingam <sunilramalingam at hotmail.com>
> > Cc: vision2020 at moscow.com
> > Message-ID:
> > <27430943.620641222452404959.JavaMail.root at cdptpa-web04-z01>
> > Content-Type: text/plain; charset=utf-8
> >
> > Good Morning Visionaries:
> >
> > This column by Paul Krugman is the best I've seen on the bail 
> out. The best parts about the current plan is limiting the first 
> installment to $250 billion and the all important "equity sharing."
> >
> > People are rightly critical of the $700 billion price tag, but 
> nobody, except me, has pointing out that giving every American 
> family or individual $5,000 or $2,500 for their health care would 
> cost $810 billion. McCain would get $360 billion from new taxes on 
> employee health premiums (which would knock at 20 million people 
> off these secure and comprehensive plans), but there would still be 
> a $450 billion deficit for very little health coverage in return.
> >
> > Nick Gier
> >
> > September 26, 2008
> > The New York Times
> > Where Are the Grown-Ups?
> > By PAUL KRUGMAN
> >
> > Many people on both the right and the left are outraged at the 
> idea of using taxpayer money to bail out America?s financial 
> system. They?re right to be outraged, but doing nothing isn?t a 
> serious option. Right now, players throughout the system are 
> refusing to lend and hoarding cash ? and this collapse of credit 
> reminds many economists of the run on the banks that brought on the 
> Great Depression.
> >
> > It?s true that we don?t know for sure that the parallel is a fair 
> one. Maybe we can let Wall Street implode and Main Street would 
> escape largely unscathed. But that?s not a chance we want to take.
> >
> > So the grown-up thing is to do something to rescue the financial 
> system. The big question is, are there any grown-ups around ? and 
> will they be able to take charge?
> >
> > Earlier this week, Henry Paulson, the Treasury secretary, tried 
> to convince Congress that he was the grown-up in the room, come to 
> protect us from danger. And he demanded total authority over the 
> rescue: $700 billion to be used at his discretion, with immunity 
> for future review.
> >
> > Congress balked. No government official should be entrusted with 
> that kind of monarchical privilege, least of all an official 
> belonging to the administration that misled America into war. 
> Furthermore, Mr. Paulson?s track record is anything but reassuring: 
> he was way behind the curve in appreciating the depth of the 
> nation?s financial woes, and it?s partly his fault that we?ve 
> reached the current moment of meltdown.
> >
> > Besides, Mr. Paulson never offered a convincing explanation of 
> how his plan was supposed to work ? and the judgment of many 
> economists was, in fact, that it wouldn?t work unless it amounted 
> to a huge welfare program for the financial industry.
> >
> > But if Mr. Paulson isn?t the grown-up we need, are Congressional 
> leaders ready and able to fill the role?
> >
> > Well, the bipartisan ?agreement on principles? released on 
> Thursday looks a lot better than the original Paulson plan. In 
> fact, it puts Mr. Paulson himself under much-needed adult 
> supervision, calling for an oversight board ?with cease and desist 
> authority.? It also limits Mr. Paulson?s allowance: he only (only!) 
> gets to use $250 billion right away.
> >
> > Meanwhile, the agreement calls for limits on executive pay at 
> firms that get federal money. Most important, it ?requires that any 
> transaction include equity sharing.?
> >
> > Why is that so important? The fundamental problem with our 
> financial system is that the fallout from the housing bust has left 
> financial institutions with too little capital. When he finally 
> deigned to offer an explanation of his plan, Mr. Paulson argued 
> that he could solve this problem through ?price discovery? ? that 
> once taxpayer funds had created a market for mortgage-related toxic 
> waste, everyone would realize that the toxic waste is actually 
> worth much more than it currently sells for, solving the capital 
> problem. Never say never, I guess ? but you don?t want to bet $700 
> billion on wishful thinking.
> >
> > The odds are, instead, that the U.S. government will end up 
> having to do what governments always do in financial crises: use 
> taxpayers? money to pump capital into the financial system. Under 
> the original Paulson plan, the Treasury would probably have done 
> this by buying toxic waste for much more than it was worth ? and 
> gotten nothing in return. What taxpayers should get is what people 
> who provide capital are entitled to: a share in ownership. And 
> that?s what the equity sharing is about.
> >
> > The Congressional plan, then, looks a lot better ? a lot more 
> adult ? than the Paulson plan did. That said, it?s very short on 
> detail, and the details are crucial. What prices will taxpayers pay 
> to take over some of that toxic waste? How much equity will they 
> get in return? Those numbers will make all the difference.
> >
> > And in any case, it seems that we don?t have a deal.
> >
> > This has to be a bipartisan plan, and not just at the leadership 
> level. Democrats won?t pass the plan without votes from 
> rank-and-file Republicans ? and as of Thursday night, those 
> rank-and-file Republicans were balking.
> >
> > Furthermore, one non-rank-and-file Republican, Senator John 
> McCain, is apparently playing spoiler. Earlier this week, while 
> refusing to say whether he supported the Paulson plan, he claimed 
> not to have had a chance to read it; the plan is all of three pages 
> long. Then he inserted himself into the delicate negotiations over 
> the Congressional plan, insisting on a White House meeting at which 
> he reportedly said little ? but during which consensus collapsed.
> >
> > The bottom line, then, is that there do seem to be some adults in 
> Congress, ready to do something to help us get through this crisis. 
> But the adults are not yet in charge.
> >
> >
> >
> > ------------------------------
> >
> > =======================================================
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> >
> > End of Vision2020 Digest, Vol 27, Issue 258
> > *******************************************
>
>
>
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