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Don<br><br>
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.<br><br>
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.<br><br>
At 11:20 AM 9/26/2008, you wrote:<br>
<blockquote type=cite class=cite cite="">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?<br>
<br>
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?<br><br>
<br>
> From: vision2020-request@moscow.com<br>
> Subject: Vision2020 Digest, Vol 27, Issue 258<br>
> To: vision2020@moscow.com<br>
> Date: Fri, 26 Sep 2008 11:06:46 -0700<br>
> <br>
> Send Vision2020 mailing list submissions to<br>
> vision2020@moscow.com<br>
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> Today's Topics:<br>
> <br>
> 1. Re: [spam] Re: Debate about the bailout (Sunil Ramalingam)<br>
> 2. Re: Debate about the bailout (nickgier@roadrunner.com)<br>
> <br>
> <br>
>
----------------------------------------------------------------------<br>
> <br>
> Message: 1<br>
> Date: Fri, 26 Sep 2008 10:53:45 -0700<br>
> From: Sunil Ramalingam <sunilramalingam@hotmail.com><br>
> Subject: Re: [Vision2020] [spam] Re: Debate about the bailout<br>
> To: <vision2020@moscow.com><br>
> Message-ID: <BAY111-W33CDEFD515CEC05F01AF96BD470@phx.gbl><br>
> Content-Type: text/plain; charset="iso-8859-1"<br>
> <br>
> <br>
> 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.)<br>
> <br>
> Sunil<br>
> <br>
> Date: Fri, 26 Sep 2008 10:19:41 -0700<br>
> To: sunilramalingam@hotmail.com<br>
> From: jeffh@moscow.com<br>
> Subject: Re: [spam] Re: [Vision2020] Debate about the bailout<br>
> <br>
> <br>
> <br>
> The Patriot Act was debated for a year before passage.<br>
> <br>
> <br>
> At 09:35 AM 9/26/2008, you wrote:<br>
> <br>
> Bruce,<br>
> <br>
> <br>
> I won't pretend that I have an understanding of this issue. But
I<br>
> do have a memory, and I recall this administration rushing a major
piece<br>
> of legislation through: The 'Patriot' Act. Without much (if
any)<br>
> review Congress abdicated their responsibility and rubber-stamped
the<br>
> bill. The sky was going to fall if it didn't get passed. <br>
> Butch Otter gets credit for voting 'No' on it.<br>
> <br>
> <br>
> Now again there's a rush to get this through. This time it
doesn't<br>
> affect anything as meaningless as our rights, it's money, so it's
getting<br>
> more scrutiny. Good. <br>
> <br>
> <br>
> I'm not saying that perhaps it isn't necessary. I do want
Congress<br>
> to examine it and debate it before they pass it.<br>
> <br>
> <br>
> Sunil<br>
> <br>
> <br>
> <br>
> Date: Fri, 26 Sep 2008 07:47:44 -0700<br>
> <br>
> From: jeanlivingston@turbonet.com<br>
> <br>
> To: vision2020@moscow.com<br>
> <br>
> Subject: [Vision2020] Debate about the bailout<br>
> <br>
> <br>
> The nation has tried to rush to a bailout solution based on the
seeming<br>
> consensus that the financial markets, credit in particular, will
collapse<br>
> or freeeze to our great and lasting detriment if a "deal"
is<br>
> not obtained this week.<br>
> <br>
> <br>
> Senator McCain "suspended" his campaign and refuses
to<br>
> participate in tonight's scheduled debate unless the deal, or at
least an<br>
> agreed structure of the deal, is reached before it is time to fly
to<br>
> Mississippi for the debate. He, too, seems to accept the
concept,<br>
> touted by bureaucrats and Wall Street economists alike and
reiterated by<br>
> politicians of all stripes, that an immediate agreement upon a deal
is<br>
> absolutely crucial.<br>
> <br>
> <br>
> <br>
> We are trying in one week to structure and agree upon the
largest<br>
> financial deal in our history. George Will aptly termed this<br>
> phenomenon as acting like "lemmings in reverse," as
everyone<br>
> rushes pell mell away from the proverbial cliff, from which
lemmings<br>
> suppose! dly leap as they blindly follow the lemming in front
of<br>
> them. It seems to me that getting a deal of this magnitude done<br>
> well in a considered fashion is more important than getting it done
this<br>
> week. That idea of "getting it right" seems to be
taking<br>
> root. Note the article reprinted below, which talks at length
about<br>
> the split in "expert" opinion on how to structure the<br>
> bailout. <br>
> <br>
> <br>
> All that being said, it appears that a deal may not be reached this
week<br>
> due to the complexity of the situation and well meaning
politicians,<br>
> conservatives and liberals alike, now struggling to "get
it<br>
> right." In my opinion, debate on this issue and
"getting<br>
> it right" is paramount. <br>
> <br>
> <br>
> For me, the importance of "debate" on the issue also
means<br>
> getting the two presidential candidates discussing it openly in
public<br>
> for the nation to hear, tonight. <br>
> <br>
> <br>
> If a deal in Congress is reached today in time for the deb! ate
tonight,<br>
> wonderful. If a deal is not reached, I think Senator McCain
ought<br>
> to hop on that plan and attend the scheduled debate, notwithstanding
his<br>
> offer to "put the nation first" by sitting in Washington.
<br>
> Certainly, getting the deal done right in Congress is important.
<br>
> But skipping an hour and a half presidential debate -- when the
financial<br>
> markets will be closed for the next two days -- makes no sense
to<br>
> me. Skipping the debate does not materially advance getting the<br>
> deal done right in a time frame that matters. We need to hear
what<br>
> Senator McCain has to say, and why his ideas are better or worse
than<br>
> Senator Obama's. As debate grows about the wisdom of the
structured<br>
> bailout deal being proposed, the need for debate by our
presidential<br>
> candidates likewise grows.<br>
> <br>
> <br>
> Bruce Livingston<br>
> <br>
> <br>
> Away from Wall Street, Economists Question Basis of<br>
> Paulson's Plan<br>
> <br>
> <br>
> <br>
> By Neil Irwi! n and Cecilia Kang<br>
> <br>
> Washington Post Staff Writers<br>
> <br>
> Friday, September 26, 2008; A01<br>
> <br>
> <br>
> <br>
> <br>
> The Bush administration's pitch for a sweeping bailout of the
financial<br>
> system has centered on two simple premises: that the economy could
suffer<br>
> a crippling downturn if action is not taken very quickly and that
this<br>
> action should consist of the government buying troubled
mortgage<br>
> securities from banks and other institutions.<br>
> <br>
> But many of the nation's top economists disagree with one or both
of<br>
> those ideas, even as many top political leaders have swung
behind<br>
> them.<br>
> <br>
> <br>
> Wall Street economists have mostly endorsed Treasury Secretary<br>
> <br>
> Henry M. Paulson Jr.'s plan, or a variation thereof.<br>
> <br>
> But almost 200 academic economists -- who aren't paid by the
institutions<br>
> that could directly ! benefit from the plan but who also may not
have<br>
> recent practical experience in the markets -- have signed a
petition<br>
> organized by a<br>
> <br>
> University of Chicago professor objecting to the plan on the
grounds<br>
> that it could create perverse incentives, that it is too vague and
that<br>
> its long-run effects are unclear.<br>
> <br>
> Sen. Richard C. Shelby (Ala.), ranking Republican on the Budget<br>
> Committee, brandished that letter yesterday afternoon as he
explained his<br>
> opposition to the bailout outside a bipartisan summit at the<br>
> <br>
> White House. The petition did not advocate any specific plan,<br>
> including that offered yesterday by House Republicans.<br>
> <br>
> Economists tend to agree that the nation's economy is at serious
risk as<br>
> the flow of credit threatens! to freeze. Just yesterday, the
interest<br>
> rate at which banks lend to each other rose steeply, as it has every
day<br>
> this week, suggesting that lenders are hoarding cash. History shows
that<br>
> when this happens, a broad economic crisis can follow, for instance,
the<br>
> Great Depression and Japan's decade-long recession in the
1990s.<br>
> <br>
> "If nothing is done, the potential for these markets to seize
up in<br>
> a big way is definitely there," said Frederic S. Mishkin,
an<br>
> economist at<br>
> <br>
> Columbia University who was a<br>
> <br>
> Federal Reserve governor until last month. "When you look at
the<br>
> history of these crises, when things spin out of control, the cost
to fix<br>
> it later goes up exponentially."<br>
> <br>
> But many others with a deep theoretical knowledge of finance
and<br>
> experience in government are ske! ptical of the structure of
Paulson's<br>
> plan -- and the speed with which it has been crafted.<br>
> <br>
> The critics can be roughly divided into two camps. One group thinks
money<br>
> should be directly infused into banks, which should allow it to
trickle<br>
> down through the financial system to borrowers. A second group
thinks the<br>
> government should buy individual mortgages, thus helping
ordinary<br>
> Americans more directly, with the benefits trickling up to the<br>
> banks.<br>
> <br>
> The plan promoted by Paulson and<br>
> <br>
> Fed Chairman Ben S. Bernanke is somewhere in between: buying up<br>
> packages of mortgages and hoping that the benefits spread both up
to<br>
> banks and down to households.<br>
> <br>
> "The plan is a trickle-down approach from banks to Main<br>
> Street," said Alan S. Blinder, a professor at<br>
> <br>
> Princeton University. "But if you! reduce the flood of<br>
> foreclosures and defaults" -- which he would have the
government do<br>
> by buying loans directly and then renegotiating the terms --
"it<br>
> will make mortgage-backed securities worth more."<br>
> <br>
> That might help ordinary Americans but would be extremely difficult
to<br>
> administer. The government would have to make decisions on the<br>
> foreclosure and resale of individual houses all over the country.
Still,<br>
> many economists with left-of-center political views favor some
variation<br>
> of this approach to the plan endorsed by Bush.<br>
> <br>
> "There is a kind of suggestion in the Paulson proposal that if
only<br>
> we provide enough money to financial markets, this problem will<br>
> disappear," said Joseph Stiglitz, a Nobel Prize-winning
economist.<br>
> "But that does nothing to address the fundamental problem
of<br>
> bleeding foreclosures and the holes in the balance sheets of<br>
> banks."<br>
> <br>
> Coming from the other direction, more conservative economists worry
that<br>
> by having t! he government buy mortgage securities, the Paulson
plan<br>
> would manipulate prices in that market without getting at the nub of
the<br>
> problem: that banks do not have enough capital and are having
difficulty<br>
> raising any on private markets.<br>
> <br>
> In a sign of how the debate over the economy has shifted in recent
weeks,<br>
> some conservatives, even as they argue for a relatively limited<br>
> government role, are calling on the government to invest public
money in<br>
> private banks.<br>
> <br>
> "The root of the issue is recapitalizing banks," said
Glenn<br>
> Hubbard, dean of<br>
> <br>
> Columbia Business School and a former chairman of<br>
> <br>
> President Bush's Council of Economic Advisers. "That could
be<br>
> done more efficiently through the government injection of
preferred<br>
> equity. Then the market coul! d figure out the prices of the<br>
> assets."<br>
> <br>
> Many of these critics don't care for the assumption behind the<br>
> administration's plan that the market is now pricing these
mortgage<br>
> securities incorrectly, a problem that the government intervention
aims<br>
> to fix.<br>
> <br>
> "The premise appears to be that the market is irrationally<br>
> pessimistic," wrote Greg Mankiw, a<br>
> <br>
> Harvard University economist and another former Bush economic<br>
> adviser, on his blog this week. "That might be so. Nonetheless,
one<br>
> has to be at least a bit skeptical about the idea that
government<br>
> policymakers gambling with other people's money are better at
judging the<br>
> value of complex financial instruments than are private
investors<br>
> gambling with their own."<br>
> <br>
> Some conservatives are now arguing, notably, that the government
should<br>
> be investing in banks.<br>
> <br>
> Many economists fault the Bush administration and C! ongress for
moving<br>
> so quickly on the bailout package without allowing more time for
debate.<br>
> That sentiment was reflected in the petition organized by John
Cochrane<br>
> of the University of Chicago. (None of the economists quoted here
were<br>
> signatories.)<br>
> <br>
> "I totally disagree that this needs to be done this week. It's
more<br>
> important to get it right," Blinder said.<br>
> <br>
> Moreover, some economists said the proposed $700 billion may not
be<br>
> enough to address all the problems stretching across the
financial<br>
> landscape. "You only show up if you can win, and this is not
that<br>
> package," said Simon Johnson, a professor at<br>
> <br>
> Massachusetts Institute of Technology and former chief economist
at<br>
> the<br>
> <br>
> International Monetary Fund. "This cannot be the ultimate,
deci!<br>
> sive solution if you are not addressing the underlying
cause."<br>
> <br>
> The plan is short on details, instead giving the Treasury secretary
wide<br>
> latitude to determine how to execute the purchases of mortgage<br>
> securities.<br>
> <br>
> "I'd like to see how they see the evolution of an end game.
There<br>
> are still many questions," said Myron Scholes, a retired
professor<br>
> at<br>
> <br>
> Stanford University and Nobel Prize winner. He said how long
the<br>
> government holds the assets and how they are later resold would be
the<br>
> keys to determining whether the plan works.<br>
> <br>
> <br>
> <br>
> <br>
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<br>
> <br>
> ------------------------------<br>
> <br>
> Message: 2<br>
> Date: Fri, 26 Sep 2008 14:06:44 -0400<br>
> From: <nickgier@roadrunner.com><br>
> Subject: Re: [Vision2020] Debate about the bailout<br>
> To: Sunil Ramalingam <sunilramalingam@hotmail.com><br>
> Cc: vision2020@moscow.com<br>
> Message-ID:<br>
>
<27430943.620641222452404959.JavaMail.root@cdptpa-web04-z01><br>
> Content-Type: text/plain; charset=utf-8<br>
> <br>
> Good Morning Visionaries:<br>
> <br>
> 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."<br>
> <br>
> 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.<br>
> <br>
> Nick Gier<br>
> <br>
> September 26, 2008<br>
> The New York Times<br>
> Where Are the Grown-Ups?<br>
> By PAUL KRUGMAN<br>
> <br>
> 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.<br>
> <br>
> 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.<br>
> <br>
> 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?<br>
> <br>
> 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.<br>
> <br>
> 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.<br>
> <br>
> 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.<br>
> <br>
> But if Mr. Paulson isn?t the grown-up we need, are Congressional
leaders ready and able to fill the role?<br>
> <br>
> 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.<br>
> <br>
> 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.?<br>
> <br>
> 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.<br>
> <br>
> 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.<br>
> <br>
> 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.<br>
> <br>
> And in any case, it seems that we don?t have a deal.<br>
> <br>
> 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.<br>
> <br>
> 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.<br>
> <br>
> 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.<br>
> <br>
> <br>
> <br>
> ------------------------------<br>
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> *******************************************<br><br>
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