http://krugman.blogs.nytimes.com/2008/10...

http://www.moderateindependent.com/v6iOC...

enrich those already rich--companies and stockholders alike.

They're going to sit on the money because it'll raise their stock prices and give them a cushion (that regular people don't have now, and will lose via govt services and programs due to the fact that they're purposely bankrupting the budget)

Plus, the government (us) is also taking bad assets off their hands, which will help them too--we take all the burden in every single way and get nothing in return.

You're not going to like the answer but apparently they can give the money to their shareholders in the form of dividends. And this will reward the shareholders for not bailing on the bank and everything will be hunky dory and things will return to normal, ie, all effed up.
See, wasn't that fun?
Come together at The Confluence

for voting against this abomination -- the first time it came around.

Here's the email I got in response:
Thank you for contacting me regarding the Emergency Economic Stabilization Act, H.R. 1424, which Congress recently passed and President Bush signed into law on October 3, 2008. I appreciate knowing your thoughts on this important issue.

We are facing financial difficulties that have not been experienced in a long time. There is no shortage of blame to go around - from those who purchased homes they could not afford, to lenders who made bad loans, to investors who bought securities backed by these loans or sold those troubled securities on to others and also to the government for not slowing lax lending practices sooner. Financial institutions are holding large amounts of assets backed by mortgages and others loans that there is now essentially no market for, making it difficult for them to lend, borrow and raise new capital. There is no market for these complex assets because their value and integrity are difficult to determine in this uncertain market.

Our markets are not functioning normally, and problems within the credit markets now threaten to impact those who did not create them. Money that would normally be flowing through our financial system to allow people to get mortgages, small businesses to get loans, or families to buy a car is drying up or has become more costly to borrow. It is extremely frustrating that we find ourselves in a position to have to consider continuous extraordinary government interventions that will cost all taxpayers, not just those responsible for these problems.

I voted against this legislation because I do not believe purchasing these risky assets is the best way to solve the problems in our economy and because alternatives should have been more fully vetted. This legislation grants extensive authority to the Treasury Department with a large amount of money, adding significantly to the national debt. It also sets a precedent that those who made poor decisions can rely on the taxpayers to step in and cover their mistakes.

As this legislation was put together, I talked with numerous people with first-hand experience working in the financial markets, economists and the Treasury Department. My conversations led me to believe there is no consensus this is the right, best or only solution to the problems the markets are experiencing. When Congress is making this large of a commitment of American tax dollars, we should have had a better idea of how this plan would be implemented and whether other interventions would work better.

Although I voted against this bill, I am committed ensuring the Treasury Department implements this plan in a responsible manner. Now is the time to roll up our sleeves and ensure this plan maximizes benefits to our economy and taxpayer protections.

On October 14, Treasury outlined plans to use $250 billion of its authority under this legislation to purchase preferred stock shares in financial institutions in order to increase their capital and lending ability. An additional $100 billion is available for purchases of troubled assets from financial institutions, such as those backed by mortgages, after Treasury reports to Congress. Congress retains the authority vote to withhold the final $350 billion of the $700 billion authorized. The legislation also requires the establishment of an insurance guarantee program that, instead of purchasing assets with taxpayer funds, insures assets at no cost to the taxpayer through premiums paid by the holders of the assets.

After purchase of stock shares, Treasury will receive dividends on the stock, and financial institutions may repurchase the stock from the government after raising private capital or after three years. With regard to any assets purchased, Treasury has authority to hold, reprocess or sell them, with any proceeds from the sale or income from the assets going to reduce the national debt. Financial institutions that participate in the programs must agree to limits on executive pay and severance, and the legislation specifies a reporting and oversight process. The authority to purchase shares or assets expires at the end of 2009.

In addition, the legislation increases the amount of bank deposits insured by the Federal Deposit Insurance Corporation from $100,000 to $250,000 through 2009; the FDIC has taken separate action to provide full coverage for non-interest bearing deposit accounts. While the Securities and Exchange Commission has taken initial steps to relax "mark-to-market" accounting rules for assets that currently do not have a market, H.R. 1424 requires them to consider further changes.

Even during this time of uncertainty, I am confident our economy can regain its strength. Families, Main Street and Wall Street all need to take another look at how they use debt and credit and use it more responsibly. I hope we will see some fundamental changes and go back to the basics of lending and borrowing in which decisions are made based on the ability of the borrower to repay. I also pledge to work tirelessly with my colleagues in Congress and the current and next Administration to help put America's financial system back on track and to ensure those who created the problems take more responsibility for paying to fix them.

Sincerely,
Randy Neugebauer
Member of Congress

We can admit that we’re killers … but we’re not going to kill today. That’s all it takes! Knowing that we’re not going to kill today! ~ Captain James T. Kirk, Stardate 3193.0
1 John 4:18

He says his name is Mr. Margin.

Banks are holding on to the cash to prop up the stock price for investors (sure, sure) and especially the top execs whose lifestyles are dependent on borrowing money agains the stock options in the companies they run.

In the last week, as the value of stock portfolios has plunged, executives and fund managers who had bought shares on margin — that is, using borrowed money — have been forced to sell millions of dollars worth of stock to settle those loans with banks."

That is only partially true. The part about "bought shares on margin" should be "were awarded shares as compensation and borrow money against it".

"Margin calls affect more than those with outsize portfolios. By flooding the markets with sell orders, they can send prices broadly lower, ensnaring ordinary investors as well. Because margin calls force investors to sell their shares at times when stock prices are already falling, they can push stocks down quickly and mercilessly."

That is also true, but more importantly look at examples like these:

"On Friday, Aubrey K. McClendon, the chief executive of Chesapeake Energy, issued a statement saying he had been forced to sell all of his 33.5 million shares in Chesapeake because of a margin call.

Sumner M. Redstone, the chairman of Viacom and CBS, disclosed that he would sell $400 million in shares in those companies to pay down a loan. For shareholders, margin calls can be painful, forcing them to liquidate portfolios at exactly the worst moment, as stocks are near panic lows.

For example, in July, with Chesapeake trading above $60 a share, Mr. McClendon’s stake in the company was worth more than $2 billion — the vast majority of his net worth, which was reported at $2.1 billion in last year’s Forbes 400. But to meet last week’s margin call, Mr. McClendon sold his entire stake, at prices ranging from $15 to $22."

Info to know:

"Because margin loans are private transactions between banks and borrowers, it is difficult to know exactly how many executives or hedge funds may face margin calls as a result of the stock market’s plunge. Corporate executives must report stock sales within two days of making them. But hedge funds do not have to disclose margin calls — and in some cases the first sign that they face calls may be their abrupt collapse."

Ho ho!

That suggests that there may be other cases where chief executives who are controlling shareholders or the company’s major shareholder with the same problem,” Mr. Vogel said. “These people present themselves as financially savvy and not subject to great risk associated with debt. But in fact it seems that that is not always the case.”

Har.

Here is how it works (though their math is a little off).

Suppose, for example, that the investor owns stock worth $1 million and borrows another $1 million from a bank or brokerage to buy even more shares. The portfolio is now worth $2 million.

If the value of the portfolio falls by 40 percent, it will now be worth $1.2 million. But the equity in the account will have fallen much further, to only $200,000.

The brokerage may then tell the investor to add another $400,000 in cash to the account as additional protection. If the investor does not have the money available, the bank will seize the portfolio and sell $1 million of shares to pay back the loan.

And the "money" quote:

Wall Street bankers have been particularly hard hit. Many were given large amounts of their company’s stock in annual bonuses, only to see it disappear. Making matters worse, the wealth management executive said, many of those bankers borrowed against those shares to buy stocks of other financial companies that they thought might rebound more quickly. Those shares have since plummeted.

That would be in the "Oops, I buried the lede" Department.

-----------------------------

Around these parts we call cucumber slices circle bites

One need look no further than Obama's largest investors contributors to see why he is this year's favorite flavor.

The name of the game is always "who controls the U.S. Treasury?". They hated Clinton because he took his job as being building equity for the country and adding to the Treasury, not drawing it down as fast as possible and directing the flow to the elite few. Hilary would have done the same, and thus had to be cut down at any cost. Obama is their boy. McCain is a wild card, one with an occasional conscience, no less.

They will not (willingly) let anyone win who does not guarantee their unfettered control of the treasury. And with their consolidation of the media and now - in a brilliant strategic maneuver - ownership control of the Democrats, they have guaranteed their uninterrupted hold on the country's purse strings.

Till now the most efficient way to effect the flow of funds to their pockets was war. Just where do you think the great majority of the trillion dollars for the two wars has gone? And the financial crisis is yet one more opportunity to loot the taxpayer's piggy bank. It always happens right in front of our eyes, way too big to be a conspiracy. Tin foil? Fuck that. If it smells like shit, don't eat it, ok? Just read the Bloomberg piece...we're being robbed with our eyes wide open. And who is leading the charge? Bush and Obama (who said Bush is a lame duck? Not for the money guys, he ain't. He's still busy as a beaver.)

The same people who control Bush and controlled the Republicans lo these many years, have now literally purchased the Democrats and are the people to whom Obama answers. With the Republicans falling into disfavor and already fat beyond imagining, the flip-flop to the other side, hungry and willing to do their bidding, was a shear master stroke.

We could accomplish energy independance too.