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What Message To Obama and The Democrats?

leah's picture

This post is largely an attempted response in the form of a summation to the long comment thread Lambert"s "Roubini" post of yesterday continues to produce. I have used so many tags because this crisis is the sum total of all the Bush/Republican/Rightwing shit we've lived through for the past eight years, and the similar shit stretching back to Nixon and Reagan.

Across the liberal blogisphere a consensus has been building that what Paulson is asking for is unacceptable. How to frame why it is unacceptable has been the on-going question, and how to best bring some kind of pressure on the congressional Democrats, but also on Obama to show leadership, presidential leadership, right now, when it'sneeded, to keep both the tax payers and liberal progressive ideas from becoming implicated in yet another disaster not of their making.

"Peter" seemed to feel, in that comment thread, that Lambert and others were failing to understand that there is a real problem in the economy.

No one doubts that. In fact, all kinds of progressives have been insisting that no one was paying attention to the fundamental instability which the housing bubble was creating, appeals to sanity which were ignored. In fact, even after the initial bailouts, this administration and Paulson had done nothing to stave off the freezing up of liquidity which happened last week. I believe it took them by surprise. But I also agree with Lambert that their instinctive reaction is precisely the one that Naomi Klein has been pointing out - to use the crisis to continue to advance the same policies that created the crisis.


What Paulson is asking for is a two year blank check that the taxpayers of this nation are being asked to guarantee, with no strings attached, with no transparency, no oversight, i.e., an unregulated unconstitutional transfer of the power of the purse from the legislative to the executive branch. PLEASE NOTE: they are not asking for it only until the end of the Bush term, they are asking for an authorization that will run on into the first two years of the next presidency and the next congress.

All this in the name of bringing confidence to the marketplace. Well, what about the confidence of ordinary citizens, both in their government, and in the financial sector of the economy? There are going to be further failures. What happens if there start to be real runs on regular banks? In January and February? What if we find ourselves plunged into a deep recession, with a mountain of debt in the form of these bailouts, piled on top of the mountain of debt incurred already because of Bush policies, i.e., the Iraq war, which isn't even on the budget, and the debt incurred by ordinary Americans as they attempt to protect their middle class and working class standards of living in the face of falling wages, rising prices, and the failure of our health care system?

What do we want Democrats to do? Lambert is focused on the HOLC. I agreed with his post yesterday that something like an HOLC is a vital part of any long-term answer to the economic challenges we face. But thinking it over, I don't think there is time, in the crisis atmosphere that is being generated by Paulson, with the help of our noddle-headed SCLM, to do anything but to enunciate the kind of long-range principles that are contained in both Hillary's and Barnie Sander's statements. HOLC is too complicated to explain, and doesn't speak directly to the liquidity problem to make it some kind of lodestone for fighting the Paulson/Bush bill, which essentially gets around the unconstitutionality issue by pressuring congress to give up their constitutional mandate by handing it over, no questions asked, to the executive. And for two years, yet. And don't think that if Obama wins he can just ask a Democratic congress to overturn what is agreed to this month. There are still going to be congressional Republicans, and we know they won't hesitate to use a filibuster, if necessary.

From the reading I've been doing, seems to me that Paulson is trying to use the liquidity problem to also address the solvency problem, or perhaps we should call it the capitalization problem, at terms that are entirely favorable to the people who caused this crisis, and entirely unfavorable to the taxpayers.

Krugman has a new post up this morning, which helps those of us who still wonder why we can't print as much money as we want to (count me among this cohort) to sort through what's happening by clarifying it's four stages. Go over and read it and then come back.

The key passage for me is this one:

Even without panic asset selling, the financial system would be seriously undercapitalized, causing a credit crunch — and this plan does nothing to address that.

Or I should say, the plan does nothing to address the lack of capital unless the Treasury overpays for assets. And if that’s the real plan, Congress has every right to balk.

Of course it's the real plan; that's why there can't be any oversight, that's why they are insisting on no questions asked. Look, no one knows what this bundles of securitized highly leveraged mortgages are worth. How will the price be established? I'm guessing by letting the holders state what they think it's worth.

And yes there is a plan that would make more sense:

So what should be done? Well, let’s think about how, until Paulson hit the panic button, the private sector was supposed to work this out: financial firms were supposed to recapitalize, bringing in outside investors to bulk up their capital base. That is, the private sector was supposed to cut off the problem at stage 2.

It now appears that isn’t happening, and public intervention is needed. But in that case, shouldn’t the public intervention also be at stage 2 — that is, shouldn’t it take the form of public injections of capital, in return for a stake in the upside?

This is also the suggestion coming from the not-really-that-liberal Brookings Institute. Yglesias's pithy formulation of this talking point strikes me as especially useful:

Under the Paulson Plan, in exchange for public money the taxpayers will get distressed assets. In a better plan, in exchange for public money the taxpayers will get equity in the bailed out firms:

Note also that Paulson's plan assumes that there is some economic recovery on the horizon, and that housing prices will stabilize, and possibly even regain some value. Huh? Here, from a NY Times analysis is the rationalization of "the plan" if it works as advertised:

If the plan works, it will attack the central cause of American economic distress: the continued plunge in housing prices. If banks resumed lending more liberally, mortgages would become more readily available. That would give more people the wherewithal to buy homes, lifting housing prices or at least preventing them from falling further. This would prevent more mortgage-linked investments from going bad, further easing the strain on banks. As a result, the current downward spiral would end and start heading up.

But as Dave Johnson points out at Seeing The Forest:

Sorry, if houses are overpriced because of the bubble, then they are overpriced. This idea that people are not buying houses that cost $300, $400, $500, $600,000 because banks can't lend them the money is just preposterous! Even if a bank can lend the money, they can't lend the money because TOO FEW PEOPLE MAKE ENOUGH TO QUALIFY. The other day I showed that you have to have an income of $12,000 a month to buy a low-end house in the San Francisco Bay Area.

The idea that you can stop housing prices from falling back to where they should be is like the idea that you could have stopped the stock of from falling after the dot com bubble.

One final point before I get to suggestions about what and how to communicate to Obama and the Democrats: Paulson's plan depends on the notion that the worst has struck, and that his plan will mend what is wrong. But what if this isn't the bottom? Or what if the worst has indeed struck, but what the bottom of that "worst" is isn't yet clear?

Here's how the dilemma is summarized in a remarkable "Open Letter To Congress" that was first published as a comment in a comment thread at The Agonist, by one "Numerian," who appears to speak from deep experience working in finance and with derivates and gives permission to anyone to republish it or send it to congress, a letter that has also been reproduced by Cernig at Newshoggers, and which I think should be published at every blog in the liberal blogisphere:

It is also very likely that acutely dangerous systemic risk already exists, not merely from direct lines of credit among the banks, but especially from credit default swaps, which if activated by more than one large bank default would probably bring down many others. Remember, though, that this systemic risk is highly concentrated in the top 25 or so banks in the world, and does not jeopardize the 6,000 other community banks in the U.S.

Third, it is also highly probable that as this recession worsens, and as housing values continue to sink, forcing more foreclosures, the large banks will be even closer to collapse.

Having worked for many years in the banking industry and been closely involved with risk management and derivatives, I can tell you that it looks like catastrophe is already here.

What Sec. Paulson wants you to believe is that catastrophe is approaching, but it can be averted if only Congress acts urgently to give him the extraordinary authority he is requesting. The implication is if you don't give him $700 billion in borrowing authority within a week, markets will collapse and it will be all your fault.

We've seen this drill before, with the Patriot Act and with the Iraq War authorization. The scare tactics, the urgency, the implied threat of blame for any failure - this is what the Bush administration does. Some of you in the Senate were able to stand up to this pressure, and that type of strength is desperately needed now.

If insolvency is here now for the big banks, the last thing you want to do is throw $700 billion of money that is not yours at bailing out the banks who created this disaster. You'll need every bit of that money to protect the taxpayers and their deposits in these banks when these financial companies are thrown into the bankruptcy courts. You'll need that money to make sure consumer deposits are protected with insurance, and you'll need it to keep the healthy parts of these banks that deal with consumers and businesses functioning until they come out of bankruptcy.

And forget about comparing Paulson's plan to the RTC. These L3 assets aren't homes, condos, or commercial real estate that can be easily sold at the right price. They are bits of paper giving the bond holder the right to some small portion of thousands of mortgages, a right that is shared with all the other investors, who are required to agree on what is done with foreclosed properties in the pool. This is one of the reasons no one wants to buy this stuff, and no one will for many years until it is crystal clear what the final losses will be.

Once you give Paulson the authority he seeks, he will buy these securities at 65 cents/dollar, then quietly auction them off at a nickel each. It will be "unfortunate but necessary" to revitalize the banking industry, even though you will discover the banks won't be lending after this is all over to any but the finest credits. You will have rewarded the banks for their calamitous decisions, stuffed the taxpayers with huge losses, squandered your remaining ability to shore up the FDIC, not prevented the big banks from collapsing anyway, done nothing to help the community banks that will constitute the new banking system in this country when these problems are solved, and in the end made the situation much worse.

I know that is a long quote in an even longer post, but, as I say, if any of you have the time I'd love it if someone would post the entirety in a separate post, or in the sidebar. It formulates the dangers attached to giving into Bush/Paulson as nothing else I've read.

Numerian also has a suggestion:

If you want to do something practical, require the SEC to go into these banks, open up their L3 holdings to public scrutiny, auction off a sampling of these securities, and apply those prices to the L3 portfolios of all the banks. In this way we will know which banks are insolvent. You won't need to go through this charade of having the Treasury take ownership of these assets, because the core of the problem is not that these assets are clogging up bank balance sheets, as Paulson says (which is tantamount to saying, by the way, that no one will buy them). The core of the problem is that there is no transparency about these portfolios and their real worth. Congress doesn't need $700 billion of our money to create that transparency, and if it shows as I suspect that many of these banks are insolvent, that's why we have bankruptcy courts. You can certainly protect the banks from bank runs while they are in bankruptcy.

So we are back where we started: how to pressure Democrats.

On Monday, and all day long every congressional office needs to hear from ordinary citizens that we are highly skeptical of Paulson's plan. But we need bullet points, too, repeatable talking points.

What I've been hearing from the best of the Democrats strikes me a problematic, because they are talking about longer-range solutions, and getting to the structural problem, but the fact is, the only real emergency that has to be addressed is the liquidity problem. In fact, I've heard that Pelosi is trying to include a second stimulus package as part of the deal - i.e., extension of unemployment benefits, help of mortgage holders, etc. I think it could be dangerous to approach this as a regular package.

Might not it be better to use the sense of an emergency being created to focus on reshaping the Paulson plan until it isn't that anymore.

There is a place for government intervention in the liquidity problem, but the answer is not a blank check given to those who created this crisis, with no strings attached. The administration and the Republicans are calling that a "clean" bill. Yeah, just like everything else, the names the Bush administration gives to all its initiatives have to be turned inside out to understand them. The clean Paulson plan is about as dirty a political ploy as anything I've ever seen.

The Democrats can offer a genuinely clean bill - one that deals with the immediate problem, just not the plan that gives a blank check to the Bush administration. Does anyone think that position would be unpopular with the great majority of Americans? I don't.

I think Democrats would do better to concentrate on the immediate demand and tie the kinds of strings to it that will protect the Federal Treasury, and protect the political viability of the Democratic Party. Bringiton rightly points to the pressures of an election year. But in this case, good policy and good politics overlap.

And yes, the AUMF is the perfect analogy. As much as Democrats tried to add nuance in their speeches to indicate their "yes" votes were not meant to be a vote for war, only a vote to pressure Saddam, they need to remember how fruitless it has been to try and point that out after the fact. This mess happened on Bush's watch; he and the Republicans are responsible for it. There are alternatives to writing a blank check to Bush et al, all failures of which will be blamed on Democrats.

As to the pressure Bush/Paulson and the press is bringing to bear on Democrats to be bipartisan, does anyone in the congress actually think that "any limit on executive compensation is a poison pill" is a good talking point for Republicans? And if it is a poison pill, then it isn't the kind of emergency Paulson keeps claiming it is.

We need to slow down the process by which this is happening. I don't think we can slow it down enough to get at the fundamental problems, i.e., restructuring the financial sector, creating an HOLC, but we can force Democrats to ask the right questions and make the right demands, IF THEY HEAR FROM US - THE AMERICAN PEOPLE, THE AMERICAN VOTERS.

As I've said, phones in congressional offices need to ring off the hook. Piles of emails have to sent to those same offices.

My own talking points would be something like:

1. No blank checks without oversight, close intense oversight.

2. Absolute limits on executive compensation.

3. Absolute transparency, in particular in regards what is being purchased and at what price and who and how the price has been determined.

4. A quick hearing inviting Economists to testify about other options, like buying shares of banking entities.

5. Any authorization must be time-limited to the next four months, by which time there will no a new administration and a new congress who will have to reauthorize based on what has happened during those four months. If the markets scream that they want a longer window to feel more confident, make it six months, but that's all.

As to Obama, Lambert mentioned that he'd created a page at Obama's website. He didn't offer a link, but I'd like to see Correntian go over and urge Obama to lead. I'd love to see Ian Welsh's "Obama's FDR Moment" at the top of the page, kept there as a kind of friendly challenge.

The rest of the page would be comments from bloggers and readers urging Obama to lead the Democratic opposition to the kind of plan we now see that Paulson had in mind - yet another example of their way or the highway.

The Dean Baker links I left in my comments to CD's post yesterday might also be useful.

God knows there are plenty of links all over posts here at Corrente and across the blogisphere to be left for Obama and staff to look at.

Maybe Numerian's letter should also have a place of pride that stays on the page.

I won't be able to do much more myself because of the looming deadline for other work the completion of which other people are depending on me.

I know this is a damnably long post, but I thought it might be helpful to pull all this information together.

Go to it my friends. I'll check back later.

No votes yet


Andre's picture
Submitted by Andre on

for thinking that the people who brought about the crisis are the best ones to fix the crisis has to be recognized. If they didn't see this coming, is it not a fool's errand to expect them to get us out of it?????

herb the verb's picture
Submitted by herb the verb on

Joe and Jane Sixpack "know" that the current banking crisis is because of bad home loans. It is impossible to think about a number like 700-800 BILLION and not think "how many bad home loans would that buy?"
Even At $200,000 per loan it would be 4 million loans. At $100,000/loan that is 8 million

According to this source approximately 3 million homes have been effected and another 3 million are at risk.

800 billion would cover nearly all foreclosured
mortgages and that is valuing the property itself at zero.

So What the FUCK, over?


Around these parts we call cucumber slices circle bites

Bruce F's picture
Submitted by Bruce F on

Yves Smith:

As we have noted, there is simply huge amounts of cash ready to bottom fish in housing-related assets (we saw an estimate of $400 billion a couple of months ago). The issue is not lack of willing buyers; it's that the prospective sellers are not willing to accept prices that reflect the weak and deteriorating prospects for housing.

"Solution: Declare All Credit Default Swaps Null And Void"

The Paulson plan is useless as it only tries to address the degraded value of Asset Backed Securities.

These are neither the source nor the reason for the very real threat of a total financial crash.

Credit Default Swaps of a nominal value of $65+ trillion are in real danger to implode any minute in a chain reaction that will take down half of the worlds financial infrastructure and impair the real economy for a long, long time.

There is only one possible way to avert this event:

International legislative action that immediately declares all Credit Default Swaps null and void.

Here is why:

At the bottom of the inverted financial pyramid are overvalued land, wood structures, dry walls and granite countertops - i.e. cheaply over-build houses.

These were sold to people who could only afford them with mortgages that had unrealistic starting conditions and on the premise that housing prices would continue to rise forever.

These mortgages were bundled, sliced and diced into Mortgage Backed Securities and sold to investors. Home equity loans, car-loans and credit card debt were converted to Asset Backed Securities and sold off.

On top of these MBS/ABS papers some geniuses constructed an additional financial layer.

These were insurance contracts that covered against the default of ABS, MBS and various types of bonds. These insurance contracts, Credit Default Swaps, are totally unregulated private agreements. They were widely created and dealt with when the risk of default of the underlying papers was assumed to be low.

Some of the insurers who issued these CDS never had the capital to back all the policies they wrote. In a competitive environment they offered too low premiums to insure against default risks.......

Submitted by lambert on

That's what reviled and racist former President Bill Clinton said he noticed when campaigning back in 2006 (I remember noticing Clinton saying that in passing back in 2006, but it's nice to have a time and place; see the link. Of course, the Ds totally blew the opportunity, as is their wont.) I think the Obama people should take that to heart. We all know the country is in a fix; and if he wants to lead, the people will listen. * That means the usual calculations about complexity and what is politically feasible are not valid right now. Opportunity!

UPDATE (here) And I think that is the message Obama needs to hear. The bullet points are fine, it's all good, but I'm betting the idea that people are ready to listen simply hasn't penetrated Obama's inner circle. And how could it? They're professional campaign people! (And the teleprompter has to get in the way of Obama noticing it!)

At this point, since Schumer et al are already selling us out, leadership from Obama is probably our best, indeed only option.... We can call our Senators and Representatives all we want, and we should, but at the end of the day, it's the legislation that emerges from Congress that matters, and not Obama's speeches. Obama's six points are good, but they're still fucking meta. They're guidelines for policy, not policy. Where's the policy proposal? And if it turns out to be a horse trade where Bush gets $700 billion immediately and the rest of us get something a lot smaller somewhere down the line, then I think a lot of people are going to go postal, and I'm going to be one of them.

NOTE * Except for outliers like me, who will look at the detail.

[ ] Very tepidly voting for Obama [ ] ?????. [ ] Any mullah-sucking billionaire-teabagging torture-loving pus-encrusted spawn of Cthulhu, bless his (R) heart.

pie's picture
Submitted by pie on

this is Schumer today:

Sept. 21 (Bloomberg) -- U.S. Senator Charles Schumer said the administration's $700 billion financial rescue plan ``needs changes'' to add mortgage aid for struggling homeowners and oversight of the government's intervention.

The legislation Congress will consider this week must include provisions to help homeowners avoid foreclosure and it ``needs accountability,'' Schumer, a New York Democrat, said on ``Fox News Sunday.''

Explain the selling out part. I don't trust any of them, but I also don't think they want us to be a banana republic.

What I do think is that it won't be a newbie who gets this fixed. But too late for that now, isn't it.

Submitted by lambert on

So that's moderately encouraging.

As for not being a banana Republic, who passed FISA "reform" for pity's sake?

[ ] Very tepidly voting for Obama [ ] ?????. [ ] Any mullah-sucking billionaire-teabagging torture-loving pus-encrusted spawn of Cthulhu, bless his (R) heart.

semidi's picture
Submitted by semidi on

Mine would be, "Don't even fucking THINK about it, assholes."

Short. To the point.

If I were feeling more loquacious, I'd add,"Re-regulate the fucking industries, prosecute the executives involved for their breaches of fiduciary duty, cap executive compensation, and be thankful I'm not leading a brigade of angry protesters with pitchforks and torches to your fucking offices. Yet."

Submitted by lambert on

Not everything that is broken can be repaired, or at least not easily. Trust, for example.

[ ] Very tepidly voting for Obama [ ] ?????. [ ] Any mullah-sucking billionaire-teabagging torture-loving pus-encrusted spawn of Cthulhu, bless his (R) heart.

Submitted by jawbone on

All the dead? No undoing that. Lost limbs? PTSD? Can't be undone, but can be "managed."

Lost credibility in the world's markets to match our lost credibility in foreign affairs? Hell, just our credit rating may well be lost for quite awhile, altho' that can be repaired over time and with higher interst rates on our massive debt.

Enough money gone into the Wall St/crazy investment instruments/credit default swaps Black Hole, and we will be told we cannot afford SocSec and Medicare, much less adding Universal Healthcare. Rahm Emmanuel has already told Dems there's no money for UHC. It'll be an end to any free expressways--everything will be tolls. Parks? Luxuries.

Lots can be "undone," some painfully, some not so bad. Some not at all.

basement angel's picture
Submitted by basement angel on

his constituency whatever sounds good to them and then he will do what he wants. He'll yammer on about transparency and blah, blah, blah and then he'll move to the right, reward the bankers and fuck the taxpayers.

This is Obama we're talking about. He doesn't have an FDR bone in his body.

amberglow's picture
Submitted by amberglow on

he's rehearsing for the debate all week -- -- Democratic presidential nominee Barack Obama undergoes three days of preparation this week for a crucial foreign policy clash with John McCain in the first debate of the general election campaign....
Obama will head to Florida to prepare for Friday's event at the University of Mississippi.
While Obama is cloistered in Tampa, Fla., ..."

pie's picture
Submitted by pie on

I listened to him and another military guy on NewsHour adding a breath of fresh air to the nasty smell of the Iraq War.

That was when I watched NewsHour.

Wow. How things have changed.

Submitted by lambert on


Feh. $700 billion: Not an obscenity. A normalized intensifier: Bring me a hanky, so I can clutch it!

[ ] Very tepidly voting for Obama [ ] ?????. [ ] Any mullah-sucking billionaire-teabagging torture-loving pus-encrusted spawn of Cthulhu, bless his (R) heart.

leah's picture
Submitted by leah on

From a recommended diary at Daily Kos:

In a rally today in Charlotte, Barack Obama laid out his thoughts on the bailout. His support for the bailout was not unconditional. This, of course, is a great thing. It'd be much harder to get enthusiastic about a candidate who was just in favor of handing over so much unadulterated authority to the Secretary of the Treasury.

Instead, he laid out a number of very specific points as to what a bailout must entail.

The seven points do appear to contradict the fundamental basis of the Paulson plan; here's the version that's on Obama's website:

First, there must be no blank check when American taxpayers are on the hook for this much money.

Second, taxpayers shouldn’t be spending a dime to reward CEOs on Wall Street.

Third, taxpayers should be protected and should be able to recoup this investment.

Fourth, this plan has to help homeowners stay in their homes.

Fifth, this is a global crisis, and the United States must insist that other nations join us in helping secure the financial markets.

Sixth, we need to start putting in place the rules of the road I’ve been calling for for years to prevent this from ever happening again.

And finally, this plan can’t just be a plan for Wall Street, it has to be a plan for Main Street. We have to come together, as Democrats and Republicans, to pass a stimulus plan that will put money in the pockets of working families, save jobs, and prevent painful budget cuts and tax hikes in our states.

Ian at Firedoglake seems to think these are fairly solid. Here's his Title: Obama Draws Line In The Sand: No Paulson Deal

I'll be convinced that Obama understands the peril that his own campaign, and beyond that, his potential presidency is in when we get some indication that he is lobbying his own fucking congressional party.

Matt Stoller has two emails from anon members of congress and they are not encouraging. The second one in particular lays out how this idiocy happens; it's quite informative. If you check it out, check out the first one. Actually, they have a lot of good stuff up there; Chris Bowers asking why we need to even negotiate with Bush.

Ian recommends that if Obama is looking for a different plan that he check out Stirling's or Ian's own

I thought Newberry's was brilliant, but too involved to make clear to most voters, including me, to some extent. But I was impressed at the prime place he gave to HOLC.

What did any of you think of that "Numerian" letter to Congress: I think it's something that could put the fear into them.

How can we exploit it?

What if every blog put it on their front page come Monday morning?

I'm just looking for ways to bring the spotlight on the fact that there is no real consensus that Paulson's plan makes any sense at all - that it's even a plan. It's not. As Stirling was pointing out, it's a naked grab for autocratic power by means of blackmail; what else is not new here!

Here's the link to the page at Obama's site that had his speech - maybe comments to the post?

amberglow's picture
Submitted by amberglow on

if this really is so very vital RIGHT NOW to happen, then they need to put good things in it, like Universal Health Care.

they need to dare Bush to veto it. let him be responsible for the economy collapsing (which is not true to begin with) because he wouldn't sign it.

pie's picture
Submitted by pie on

We've had eight years of the worst administration ever. Media feeding frenzy in favor of this administration.

Hillary has taken a stand. Some others also have (anonymously!).

Just sitting here waiting for some brave man to save us.


nihil obstet's picture
Submitted by nihil obstet on

"Clean" here means completely hosing down the average American. I was about to write that the Republicans would throw in the waxing and plucking for free, but they don't even rob you without charging you a fee.

pie's picture
Submitted by pie on

who support Obama realize that Hillary would be out there giving McCain a run for his money. She wouldn't be sequestered practicing for a debate.

leah's picture
Submitted by leah on

He's out on the stump today, giving the speech which I referenced in the comment above.

I would suggest that lots of people send emails to Hillary's Washington office, her Senate website will have that capacity, thanking her for being on this, and urging her to lead the Democrats away from the precipice they are being herded toward. She still has a leadership role which goes beyond producing press releases, however excellent they are.

Submitted by lambert on

And I think we can all imagine the reaction if Hillary tried to play such a leadership role. If Obama asks her to lead, then fine. Apparently, he hasn't.

I think she's doing the exact right thing -- for now -- in focusing on her New York constituents -- and among their vital interests, let us remember, and she says explicitly in her speech, is keeping Manhattan as a financial center (which Paulson's plan will surely destroy; see London Banker.

Of course, if Obama fails us on this, I hope Hillary goes into "by whatever means necessary" mode, I truly do. But that has not happened yet.

[ ] Very tepidly voting for Obama [ ] ?????. [ ] Any mullah-sucking billionaire-teabagging torture-loving pus-encrusted spawn of Cthulhu, bless his (R) heart.

pie's picture
Submitted by pie on

Thanking Hillary for being on this?

She always was.

Obama wears a pinstriped suit. Don't kid yourself.

gqmartinez's picture
Submitted by gqmartinez on

We'll see what effect people pressure has on the Dems/Obama. We let them steal an election and spew some of the vilest BS imaginable with little noise, why would they expect us to care what they do now? I'll believe it when I see it.

Also, Obama has the media so far up his tail he can sneeze and the media (and supporters) will give him boisterous applause. Sorry, but a little speech at a rally doesn't cut it in the leadership category. What good is it to have a media that laps up you excrement as if it were the sweetest thing ever and you can't get them to do your bidding to promote policy? The bar for Obama is sol damn low its disgusting. He can win folks over by doing something leadershipy on this. Instaed people are called racists.

hobson's picture
Submitted by hobson on

Bernie Sanders was quoted on the radio this afternoon as proposing that the Comptroller General of the United States oversee this plan. He is head of the GAO. I think that's a good start but why, in heaven's name, should the authority to give away money be vested in the executive branch which has proved itself completely unable to protect our country either from terrorist attack, natural disasters or economic ones? Ought to be a no brainer for the public.

What Leah is talking about, I think, is now we apply pressure now, immediately so Congress does not get into one of these compromise things that will end up selling us out. Even on right wing radio, while they are blaming the dems for all this, they are still against giving Paulson a blank check. That language seems to work with a lot of people.

The GAO seems to be one government agency that has maintained some semblance of integrity and independence. I think it's a great idea to have them monitoring and auditing a bailout, but keep it out of the hands of the administration.

Submitted by lambert on

IIRC. Makes sense to me, for same reason as the GAO -- independent agency, regulatory tradition.

Still, how many of the Ds are thinking -- in two months, we can start giving the billions to our cronies? Many, I would think.

[ ] Very tepidly voting for Obama [ ] ?????. [ ] Any mullah-sucking billionaire-teabagging torture-loving pus-encrusted spawn of Cthulhu, bless his (R) heart.

kelley b's picture
Submitted by kelley b on

Bu$h brought down the Towers and the Market.

Nice post Leah. I just had to interject the obvious. These guys are going to walk off with the entire Treasury if they can.

Just when you think they've reached a limit, you realize they have no rational limits.

Your talking points will be in my email to Congress. Count on it.

No Hell below us
Above us, only sky

pie's picture
Submitted by pie on

I'm talking about legislation being undone here.

Nothing else.

I'm talking about reality.

pie's picture
Submitted by pie on

I just talked to a former neighbor who said she isn't at all worried about what's going on in the financial market.

She said, "We're so diversified that we'll be okay."

kelley b's picture
Submitted by kelley b on

Ruh-roh. I wonder if Lou Dobbs will say anything about this:

...Foreign banks, which were initially excluded from the plan, lobbied successfully over the weekend to be able to sell the toxic American mortgage debt owned by their American units to the Treasury, getting the same treatment as United States banks.

On Sunday, the Treasury secretary, Henry M. Paulson Jr., indicated in a series of appearances on morning talk shows that an original proposal introduced on Saturday had been widened. “It’s a distinction without a difference whether it’s a foreign or a U.S. one,” he said in an interview with Fox News...

Do you suppose Halliburton- or some other Carlyle subsidiary- with its new worldwide corporate headquarters in the United Arab Emirates suddenly will acquire massive mortgage debt with a National Security reason to keep its bailout Paulson-eyes-only?

Just askin'.

No Hell below us
Above us, only sky

Submitted by lambert on


As I read what’s happening now, John McCain is denouncing the Paulson plan, while Barack Obama — out of a sense of responsibility for the financial system — is only offering cautious criticism.

The Obama people — and the Congressional Democrats — do know that the Republicans will run a populist campaign against them on the basis that they voted for a horrible big-government program, don’t they?

Meanwhile, in the Times, there's an article about Congressional Democrats setting terms with no quotes from Obama at all. Interesting.

[ ] Very tepidly voting for Obama [ ] ?????. [ ] Any mullah-sucking billionaire-teabagging torture-loving pus-encrusted spawn of Cthulhu, bless his (R) heart.

Submitted by lambert on


Even as policy makers worked on details of a $700 billion bailout of the financial industry, Wall Street began looking for ways to profit from it.

Financial firms were lobbying to have all manner of troubled investments covered, not just those related to mortgages.

At the same time, investment firms were jockeying to oversee all the assets that Treasury plans to take off the books of financial institutions, a role that could earn them hundreds of millions of dollars a year in fees.

Nobody wants to be left out of Treasury’s proposal to buy up bad assets of financial institutions.

Nobody except the American people, that is.

[ ] Very tepidly voting for Obama [ ] ?????. [ ] Any mullah-sucking billionaire-teabagging torture-loving pus-encrusted spawn of Cthulhu, bless his (R) heart.

foxx's picture
Submitted by foxx on

won't do anything. These are the people who bought him.

Better to ask McCain.

peter's picture
Submitted by peter on

Leah, thanks for the mention.

"The market was 500 trades away from Armageddon on Thursday, traders inside two large custodial banks tell The Post.

Had the Treasury and Fed not quickly stepped into the fray that morning with a quick $105 billion injection of liquidity, the Dow could have collapsed to the 8,300-level - a 22 percent decline! - while the clang of the opening bell was still echoing around the cavernous exchange floor.

According to traders, who spoke on the condition of anonymity, money market funds were inundated with $500 billion in sell orders prior to the opening. The total money-market capitalization was roughly $4 trillion that morning.

The panicked selling was directly linked to the seizing up of the credit markets - including a $52 billion constriction in commercial paper - and the rumors of additional money market funds "breaking the buck," or dropping below $1 net asset value.

The Fed's dramatic $105 billion liquidity injection on Thursday (pre-market) was just enough to keep key institutional accounts from following through on the sell orders and starting a stampede of cash that could have brought large tracts of the US economy to a halt.

While many depositors treat money market accounts as fancy savings accounts, they are different. Banks buy a variety of short-term debt, including commercial paper, with the assets. It is an important distinction because banks use the $1.7 trillion commercial-paper market to fund their credit card operations and car finance companies use it to move autos.

Without commercial paper, "factories would have to shut down, people would lose their jobs and there would be an effect on the real economy," Paul Schott Stevens, of the Investment Company Institute, told the Wall Street Journal.

Cracks started to show in money market accounts late Tuesday when shares in one fund, the Reserve Primary Fund - which touted itself as super safe - fell below the golden $1 a share level. It had purchased what it thought was safe Lehman bonds, never dreaming they could default - which they did 24 hours earlier when the 158-year-old investment bank filed Chapter 11.

By Wednesday, banks sensed a run on their accounts. They started stockpiling cash in anticipation of withdrawals.

Banks, which usually keep an average of $2 billion in excess reserves earmarked for withdrawals, pumped that up to an astounding $90 billion by Wednesday, Lou Crandall, chief economist at Wrighton ICAP, told The Journal.

And for good reason. By the close of business on Wednesday, $144.5 billion - a record - had been withdrawn. How much money was taken out of money market funds the prior week? Roughly $7.1 billion, according to AMG Data Services.

By Thursday, that level, fed by the incredible volume of sell orders pouring in from institutional investors like pension funds and sovereign funds, had grown to $100 billion. It was still not enough to stem the tidal wave.

The banks knew something drastic had to be done. So did Paulson.

The injection of capital into the market was followed up by calls from Treasury Secretary Hank Paulson to major money market players like Bank of New York Mellon and State Street in Boston informing them that federal money was in the market and they should tell their clients the Feds would be back with a plan to stem the constriction in the credit market.

Paulson knew the $105 billion injection was not a real solution. A broader, more radical answer was needed.

Hours after Paulson made his round of calls to calm the industry, word leaked out that an added $1 trillion bailout of banks was being readied. Investors cheered. At about 3 p.m., news of the plans was filtering up and down Wall Street, fueling a 700-point advance in the Dow Jones industrial average through 4 p.m. Friday.

By that time, Paulson had announced the plan. It included insurance on money market accounts, a move that started in quiet Thursday morning, when the former Goldman Sachs executive saved the country from a paralyzing meltdown." By MICHAEL GRAY at the NYPost

There's a reason to do something this week and it has to be good, very good. If this HOLC is part of it is fine by me. And limiting the term to spend to four months is ridiculous. That calls for a lot of wasted spending. I have no problem with any reporting or transparency here. We just need to get something done...this is a very hot time for our credit environments. I'd say Paulson and Bernacke are up to the job. They are two of the best.

My apologies Lambert for the length of this post. I thought it important for the argument. Thanks for your time tonight, thanks for the reading. Good night folks!

Ian Welsh's picture
Submitted by Ian Welsh on

proposal is

a) FDIC (FDIC takes over funds in addition to banks)
b) HOLC (home ownership loan corporation)
c) declare a state of emergency so you can do oversight and release reserves from the oil reserve, because bailouts will increase liquidity, and that liquidity will go into oil/gas prices
d) give aid to ordinary Americans - food stamps, ei extension, welfare, etc...

I have summarized it in simple form, here, since Stirling wrote it very long form.

Stirling's plan is essentially a synthesis of a number of people's plans, including Reich, myself, Larry Summers and so on.

Submitted by lambert on

The above is even shorter than your post! Let me try to shorten it further:

1. FDIC takes over the troubled funds

2. HOLC takes over the troubled mortgages

3. State of Emergency gives a legal framework with accountability

4. Help for the people on food, shelter, fuel, unemployment

[ ] Very tepidly voting for Obama [ ] ?????. [ ] Any mullah-sucking billionaire-teabagging torture-loving pus-encrusted spawn of Cthulhu, bless his (R) heart.

Ian Welsh's picture
Submitted by Ian Welsh on

it remains to be seen if he acts on his words. We shall see. But I don't think Pelosi will hold without him backing her, and Reid right now is tending towards caving. (Pelosi, to her credit, is not. But the blue dogs will probably force her hand. She does not have the votes without them and they will blackmail her unless she has big guns in her corner.)

kelley b's picture
Submitted by kelley b on

This was recorded on his website at 2:39 pm by Amanda Scott:

... thus far, the Administration has only offered a concept with a staggering price tag, not a plan.

Even if the Treasury recovers some or most of its investment over time, this initial outlay of up to $700 billion is sobering. And in return for their support, the American people must be assured that the deal reflects some basic principles.

• No blank check. If we grant the Treasury broad authority to address the immediate crisis, we must insist on independent accountability and oversight. Given the breach of trust we have seen and the magnitude of the taxpayer money involved, there can be no blank check.

• Rescue requires mutual responsibility. As taxpayers are asked to take extraordinary steps to protect our financial system, it is only appropriate to expect those institutions that benefit to help protect American homeowners and the American economy. We cannot underwrite continued irresponsibility, where CEOs cash in and our regulators look the other way. We cannot abet and reward the unconscionable practices that triggered this crisis. We have to end them.

• Taxpayers should be protected. This should not be a handout to Wall Street. It should be structured in a way that maximizes the ability of taxpayers to recoup their investment. Going forward, we need to make sure that the institutions that benefit from financial insurance also bear the cost of that insurance.

• Help homeowners stay in their homes. This crisis started with homeowners and they bear the brunt of the nearly unprecedented collapse in housing prices. We cannot have a plan for Wall Street banks that does not help homeowners stay in their homes and help distressed communities.

• A global response. As I said on Friday, this is a global financial crisis and it requires a global solution. The United States must lead, but we must also insist that other nations, who have a huge stake in the outcome, join us in helping to secure the financial markets.

• Main Street, not just Wall Street. The American people need to know that we feel as great a sense of urgency about the emergency on Main Street as we do the emergency on Wall Street. That is why I call on Senator McCain, President Bush, Republicans and Democrats to join me in supporting an emergency economic plan for working families – a plan that would help folks cope with rising gas and food prices, save one million jobs through rebuilding our schools and roads, help states and cities avoid painful budget cuts and tax increases, help homeowners stay in their homes, and provide retooling assistance to help ensure that the fuel-efficient cars of the future are built in America.

• Build a regulatory structure for the 21st Century. While there is not time in a week to remake our regulatory structure to prevent abuses in the future, we should commit ourselves to the kind of reforms I have been advocating for several years. We need new rules of the road for the 21st Century economy, together with the means and willingness to enforce them.

The bottom line is that we must change the economic policies that led us down this dangerous path in the first place...

Obama may be bought, but McCain did not beat him in criticizing this. Even the Unversity of Chicago economics department has come out against this proposal.

It's a swindle.

We should all be raising hell with Congress about this, as early as possible.

No Hell below us
Above us, only sky

Submitted by lambert on

I can perfectly well see how a D cave, with a little populist tinkering around the edges, could plausibly be said to fit them.

Ian Welsh summarizes Stirling's plain, and I think it's great -- especially the state of emergency, since that takes care of the "do something immediately" requirement.

[ ] Very tepidly voting for Obama [ ] ?????. [ ] Any mullah-sucking billionaire-teabagging torture-loving pus-encrusted spawn of Cthulhu, bless his (R) heart.

peter's picture
Submitted by peter on

Just last week our two money guys spent $330 bil trying to get through the week! The week before they spent whatever Freddie and Fannie cost. We can do more of this the next three months, each week spending 50 to 100 bil propping up this or that sector or insert another 100 to 200 bil to losen the money flow a little more. Or, we can approve some sort of relief as Paulson is looking for. This isn't the AUMF folks. What Paulson did on Thursday morning is just a patch, nothing more. It delayed the problem for another day/week/month. Do nothing, go ahead and we'll all sink back to a place like that country where Mugabi rules. He recently printed a denomination of 100 bil paper money.

$85 bil for AIG on Monday/Tuesday
$140 bil for Tuesday/Wed
$105 bil for Thursday morning

Pelosi already has just a 14% approval! Reid's isn't any better. Continued washing of hands denying this problem exist, or just denying Bush the ability to fix it until 'your' guy takes the oath, will not do for the American people. Cross the line where employment is affected even more and the people will hold those responsible. A president McCain and Republican majorities in Congress might be the price to pay for that. The press will have little they can do to save Democrats skins.

I've kept politics out of this up until the last paragraph. Congress needs to do something before going home and campaigning.

Submitted by lambert on

$700 billion and no oversight whatever. Have you read clause 8 of the bill? Wall Street is already salivating at the fees (Times quote upthread). And it won't work -- though I do wonder if making the last two investment banks into savings banks is so that part of our $700 billion can be deposited in them -- so they can piss that away too (although, I grant, past performance is no guarantee of future results, except with the Bush administration).

And, Peter, the quote of the day:

... denying Bush the ability to fix it ...

[hysterical laughter]

But "fix" in what sense?

[ ] Very tepidly voting for Obama [ ] ?????. [ ] Any mullah-sucking billionaire-teabagging torture-loving pus-encrusted spawn of Cthulhu, bless his (R) heart.

MJS's picture
Submitted by MJS on

I blame the collapse on not enough fucking and too much screwing.