Posted on 09/27/2008 12:13:20 PM PDT by ReleaseTheHounds
A KEY reason the public hasn't bought the case for the $700 billion bailout plan is that the Bush administration hasn't explained why the financial sector is unique - unlike the auto industry or any economic actors who are hurting and asking for aid. Hence the opposition on the left, from those who want a broader bailout, and on the right, from those who want no bailout for anyone.
The basic problem is that the financial sector faces systemic risk in a way that no other industry does: By its nature, it is a house of cards that can collapse at a moment's notice.
Let me explain...
snip...
Bottom line: We're closer to the precipice than Congress or most of the public understands. Our entire economic system really is at stake - and those treating the bailout plan as just another government spending program are seriously wrong.
Failure of this plan risks another Great Depression. Really.
(Excerpt) Read more at nypost.com ...
I also think the Bush Administration has done a terrible job explaining their propoed bailout plan and the consequences if something major doesn't happen. And they've done a terrible job not bringing GOP congressman into the loop/conversation and negotiations.
This article is an important warning -- this has to be taken seriously. JMHO.
About half the banks in our town have stopped loaning money. I am scrambling right now to keep my business going.
Serious? Wow. That would be newsworthy.
Praying hard today for reason to prevail in DC.
I could be persuaded to go for a bailout if the guilty parties are stripped of their golden parachutes (and where applicable their congressional and senatorial retirements) and get some serious jail time.
Congress needs to decide just how important the economy really is to them.
Is it worth crashing the entire economy to protect their cronies?
I hope they chose wisely, we have no shortage of lampposts and rope.
And we are perilously close to having the will to use them.
I’ve already dusted off my pitchfork!!!!!!!!!!!!!!
So, if you want to pray for reason, then pray that those who caused this mess, all of them, receive their just desserts.
Think about this. Is not this crisis an indication that there is a fundamental dysfunction with an out-of-control speculative credit market and the collusion between “free market” financiers and leftist government manipulation?
How does attempting to reinflate the bubble help, other than by providing the temporary illusion that, for now, things are OK again?
How does more socialism solve a problem that was caused by socialism in the first place?
It’s obscene, criminal, and pornographic that the very same people who CAUSED this fiasco are now demanding that we give THEM additional mountains of our money to “fix” it.
Why the hell is Barny Frank up there pontificating about fixing this crisis that he caused? Why isn’t he in federal prison for fraud and malfeasance right now?
Where is the Maverick, who promised to name names and make them famous?
I’m so frickin pissed right now I don’t wether to defecate or wind my watch.
This whole thing needs to be open to the public. The people need to know everything about this program. I also believe that Paulson threw out his plan, knowing that it most likely wouldn’t fly....they aren’t dummys. But just in case it would, they threw it out there anyway. Acorn and La Raza need to be taken out of consideration. American people need to see a complete list of who is going to get how much and why. Bailing out the big guys isn’t going to cut it. We also need to arrest all those that caused this problem and knew it would happen and did nothing. McCain warned the country about this in 2006 on the Senate floor but democrats blocked his suggestion.
Half the guilty parties are in Congress.
Wamu was going to pay whatever they could to try to avoid bankruptcy.
This new guy wasn't involved with the previous mess Wamu had gotten into. Did you think he was going to take $50,000 for the massive responsibility of turning an almost bankrupt company around?
It was a Hail Mary pass by Wamu to save their ship.
Yeah? No kidding.
The basic problem is that the financial sector faces systemic risk in a way that no other industry does: By its nature, it is a house of cards that can collapse at a moment’s notice.”
I think most of the public understands this very well. The difficulty is rewarding those who profited enormously by securitizing debt and derivatives off that debt should be bailed out for creating the very systemic risk which is threatening to swallow the industry. This securitized debt due to its lack of homogeneity is impossible to value and that problem becomes especially acute when credit begins to unwind. NOBODY WANTS TO TOUCH IT BECAUSE THEY DON’T KNOW HOW TO VALUE IT. The boneheads who generated these investment vehicles and their derivatives have spread this contagion throughout the retail and investment banking worlds and now look to Uncle for a handout stave off reckoning.
So, how ‘bout this instead? Give the guys responsible, the Dems, a choice. They have to EITHER get the bad guys to return their ill-gotten gains OR they can resign from Congress and agree not to take their lifetime of pensions and perks. Simple enough.
My concern is that if someone doesn't pay a really hefty price for this then all we've taught them is that they have to be sure they get the consequences serious enough that the rest of us won't risk not saving their buns AGAIN.
I would really like to see it turn out that only the bad guys have to suffer to pay for their miscreant behavior, but I tell you the truth, I'd be willing to suffer some more myself to make sure it gets the Reid, Pelosi, Dodd, Franks, etc.
I am by no means a rich person, even well-to-do as it would have been described two decades ago. My wife and I struggle to keep it in the road and in the black. Miss a few paychecks and we'd be in big trouble. We got married when we were young, she was 15 and I was 19. We don't have college educations and our entire 46 years of married life has been demanding, and at times stressful, but are so very thankful to God for what we have and the life we've had together. If we live long enough we just might be able to ‘retire’ and enjoy a few years of the good life. But I would gladly risk that opportunity to see the big boys pay for what they've done to our country!
If they are crooks and they can get out with their money and skin; you bet it is and damn be to the public.
This will affect everyone especially those that depend on credit.
More stupid fear mongering and idiots trying to stick there fingers into a bursting damn.
good explanation bump
If he was so good and thought enough of his abilities he would/could have taken on the job for a $1 a year and let his compensation be based upon his performance.
That is the problem that has now been identified in this field. Lots of compensation at the top and damned little actual, measurable, bottom line performance.
I don't have that in my job which, of course, is insignificant by the bloated importance of these guys jobs.
Sheesh!!!!
Maybe all employees everywhere should work under these conditions.
$1 a year unless you perform. If you don't help to make the company turn a profit that year...sorry no more money for you.
In reality (thank God) every employee signs a payment contract, including CEO's.
The company offers what they think the job is worth. It's a contract just like is done for every employee. If WaMu wants to offer top dollar to try to get them out bankruptcy, let them.
As bad as the financial crisis is, it pales in comparison to what would happen if we spend trillions of dollars trying to fix something that really can't be fixed and the US dollar becomes worthless paper. If a lot of banks fail and we have a depression that would be bad enough. But if that happens, it's going to be a lot worse for the rest of the world, especially China & Russia. In that scenario, the US dollar would actually become a safe haven for the rest of the world, and any depression would be short lived for the US as large amounts of money would flow into the US, much of which would be looking for a return greater than the .25% currently yielding on the 3 month treasury note.
On the other hand, I could support a more limited bailout proposal as proposed by the House GOP. No pork and any profits from the bailout ONLY go to reduce the national debt. Since we would be borrowing money at the rate of 3-4%, based on the 10 year note, and hopefully getting the mortgages at a reduced price (60 cents on the dollar or better), there is a good chance that the plan would actually make money for the government. That kind of plan I could support, even though I foresee very hard economic times for the next several years.
Furthermore, there are lots of jobs out there that work is performed by contract, commission or by the piece.
What makes these feckless, corrupt thieve any different. Their pay should be based upon performance.
All that I am illustrating is this. All of these guys received millions to run their respective companies into the ground. Now they want ordinary, working-class taxpayers to bail them out while they still keep their ill-gotten millions.
I say no!
If there is to be a bailout, I want collateral. I want them to put up their homes, buildings, planes, foreign and domestic monetary assets, their mistresses, wives, kids and anything else that has value.
Then we might consider a loan. Period!!
You're painting with a broad brush. Not all these guys ran their companies into the ground. Many of the current execs have been brought on board only recently to fix their various crises.
The WaMu payout is not taxpayer money. And I understand why many companies want to pay top dollar for top talent.
HUH????
Punishment is always after the fact.
My concern is that if someone doesn't pay a really hefty price for this then all we've taught them is that they have to be sure they get the consequences serious enough that the rest of us won't risk not saving their buns AGAIN.
Bingo.
Bears repeating. I'm glad you shouted, too.
Yes, it's worth it to protect the cronies who feed them and keep their campaign skids greased. The ONLY thing that is worth more to them than protecting their cronies is protecting their seats in Congress and so far, there is NO JEOPARDY for Democrats, only for Republicans, so I fully expect them to fiddle while Rome burns. They will be the ones to "pick up the pieces" if the entire economy crashes, so there's no jeopardy for them in that respect either. And please don't think these s.o.b.'s haven't long ago divested of stocks and bonds like all the smart people and inside traders have done.
Sorry, I have to disagree. The public doesn't understand how all this relates to their own lives -- as the first reply on this thread said "I can't get a loan to keep my own small business going because of all this..." And for this, I have to say that I think Bush and Paulson have done a TERRIBLE job in explaining all of the ramifications. Maybe they don't want to cause a panic, but in being so inarticulate and closed-mouthed, they are keeping the public essentially in the dark about the possible outcome.
NOBODY WANTS TO TOUCH IT BECAUSE THEY DON’T KNOW HOW TO VALUE IT. The boneheads who generated these investment vehicles and their derivatives have spread this contagion throughout the retail and investment banking worlds and now look to Uncle for a handout stave off reckoning.
I agree but I also disagree. The regulators need to get rid of or at least modify the "mark to market" rule because that is pulling all asset values to the cellar -- the lowest common denomiator -- and that is probably responsible for 50% of the problems we are facing at the moment. Get rid of mark to market: your house's value shouldn't be assumed to be equivalent to the foreclosed property just around the corner that's being put on the market at a give-away price -- but that's what is happening in the financial world.
I know these are contentious issues, but I do believe a rational rescue can be constructed (and modified as needed). Unfortunately, this is another example when lousy communications skills in this Administration are contributing to the problems this country faces. Where's the Next Ronald Reagan when we need him?
I agree with you — thank goodness the House Republicans stood strong and demanded tax-payer protections and more free market principles be put into this rescue effort. Throw out all the Christmas tree ornaments and let’s get this plan back to reality. But we have to get a decent plan moving and approved otherwise watch-out with Monday’s market opening (maybe it will be the opening in the Far East or maybe it will be in Europe where a major financial institution is going under as we type). We can’t allow this contagion to take everything in our economy down into the dustbin of massive deflation.
“The WaMu payout is not taxpayer money.”
http://en.wikipedia.org/wiki/Washington_Mutual
Basically correct. It appears most of WaMu was taken over by JP Morgan Chase, for $1.9 billion at no taxpayer cost, and some of WaMu was retained by the FDIC in receivership.
So it can’t be clearly concluded if any taxpayer money is involved with the FDIC portion.
To date no taxpayer money has been invested in saving Fannie, or Freddie, either.
All this talk about taxpayer costs is in the future, should the public pay out to buy a mortgage, and then fall short of breaking even on the deal.
For Joe sixpack to understand the technical aspects will require hours if not days and weeks, to learn facts, terminology, etc.
Bank accounting is backwards from other businesses.
Banks have been regulated, deregulated, manipulated, targeted, used for financial trickery for so long, half the congress citters probably barely get most of the terms and concepts.
Obviously Bush and Paulson rushed to be the first to blink.
I truly hope McCain is quietly getting his facts and plan together, to unleash against the opposition is the final weeks.
He didn’t use the facts last night, when he could have.
There will probably be some kind of announcement Sunday night before the Asian markets open that there is a consensus on a bailout package, just as there was on Thursday and Friday. However, the slush fund issue has ticked off so much of the base, that the House GOP is probably feeling very emboldened right now and will not be willing to back down. We probably won’t see a final bill before next Friday, if at all, at this point.
According to FoxNews, there may be a vote as early as tomorrow morning — don’t know whether that will be on a final bill or some interim measure, but I think this is moving quickly. With Fortis Bank (Amsterdam) in trouble and now speculation about Wachovia, the pressure is going to continue.
When will the regulators reverse or pause the “mark to market” rule? This seems to be just insanity being allowed to control our financial markets. JMHO.
I feel for you, Always Right... You are probably a good example of the danger that this country faces -- heaven forbid that our system is going to let a business like yours (or any honest business in America) go down for lack of liquidity to meet our daily commerce needs. Maybe this is the wake-up call we need to get Freepers and Congress to respond.
Good luck to you, Always Right... We'll keep you and your employees in our prayers. I'm afraid you may be the canary being brought into the coal mine.
Would you agree with the following sentence, yes/no?
“The disaster in the wings is so great that I can live with the possibility that an Obama-appointed Sec of the Treasury would have the powers of the Paulson plan, under the oversight of Chris Dodd and Chuck Schumer.”
The first line was meant as sarcasm! That was the slow curve part of the pitch, the fast break was that we should insist on the resignation of some of the pols if they want to save their friends!
That's a well stated challenge and question... Please accept my "yes" as an admission of what I feel is the seriousness of the situation. As much as I HATE Chris Dodd, Chuck Schumer, Barney Frank and [you name it] all the usual suspects, I think we need this kind of plan (without all the crap that the Dems are trying to stuff into it, and hopefully with the market-oriented improvements that the GOP House is holding out for) to be passed ASAP.
If this crisis spins out of control this week, there will be more bank failures around the globe and I don't think anyone knows where the bottom will be.
I hope I'm just at the capitulation stage and my emotions are signalling a bottom -- but I worry where the bottom might actually be.
The bill that Bush is asked to sign could very easily contain giveaways to Democrat constituencies by the $100s of billions, and not one GOP reform whatsoever.
I've already posted elsewhere on FR what I think a bailout would have to have in order to be acceptable. That carries a corollary - that the lack of those things makes it unacceptable.
Is there any provision of a bailout plan which would be so odoriferous that you would reject the plan??
Yes: If the “20% of recovery” (or whatever the term they are using is) goes to organizations like ACORN rather than back to taxpayers — if that kind of crap isn’t corrected in the final bill then yes, I’d argue for the “no” vote and hold my breathe hoping that the financial calamity that I fear doesn’t materialize before a decent rescue plan is brought forward. Because the damage to our economy could be swift. Pray that I’m wrong.
When there is performance, then I will believe it.
How long ago is recently?
By all accounts this has been brewing now for a couple of years, if not more.
Without a doubt these top talents knew exactly what they were getting into. And, if they were top talent they would have known that eventually the 'jig' would be up . They had to know that what they were doing or what was going on was nefarious.
A reasonable answer. Thanks.
Loan boom paid off for Wall Street execs
Executives of the top five firms were paid $3 billion in the last five years as mortgage securities proliferated.
By Tom Randall and Jamie McGee, Bloomberg News
September 27, 2008
Wall Street’s five biggest firms paid more than $3 billion to their top executives in the last five years, while they presided over the packaging and sale of loans that helped bring down the investment banking system.
Merrill Lynch & Co. paid its chief executives the most, with Stanley O’Neal taking in $172 million from 2003 to 2007 and John Thain getting $86 million, including a signing bonus, after beginning work with the firm in December. The company agreed this month to be acquired by Bank of America Corp. for about $50 billion. Bear Stearns Cos.’ James “Jimmy” Cayne made $161 million before the company collapsed and was sold to JPMorgan Chase & Co. in the spring.
Democrats and Republicans in Congress are demanding that limits be placed on executive pay as part of the $700-billion financial rescue plan proposed by Treasury Secretary Henry M. Paulson. The former Goldman Sachs Group Inc. CEO, who received about $111 million between 2003 and 2006, said in testimony to Congress on Wednesday that he would accept such limits as part of the plan, after initially opposing them.
“Shareholders and boards should have done something about this a long time ago,” said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware. “They justified these levels of pay on the idea that they’re all geniuses. I think that balloon has burst.”
Wall Street firms have shared profits liberally with employees. The five biggest — Goldman, Morgan Stanley, Merrill, Lehman Bros. Holdings Inc. and Bear Stearns — paid their 185,687 employees $66 billion in 2007, as problems with subprime mortgages mounted, including about $39 billion in bonuses. That amounts to average pay of $353,089 per employee, including an average bonus of $211,849.
The five firms had combined net income of $93 billion during the five years through 2007.
The $3.1 billion paid to the top five executives at the firms from 2003 to 2007 was about three times what JPMorgan spent to buy Bear Stearns. Goldman Sachs had the highest total, with $859 million, followed by Bear Stearns at $609 million. CEO pay at the five firms increased each year, doubling to $253 million in 2007, company filings show.
Executive-compensation figures include salary, bonuses, stock and stock options, some awarded for past performance. The options were valued at a third of the fair-market price of the stock at the time the options were granted, a method recommended by Graef Crystal, a compensation specialist and author of the Crystal Report on Executive Compensation, an online newsletter. The companies value the options using different methods.
Wall Street firms have paid employees a greater share of revenue than any other industry, about 50%, Crystal said. That tradition at investment banks comes from their history as closely held partnerships of investors who put their own capital at risk, he said.
“In Wall Street and Hollywood, the profits tend to come in great big packets, and everyone wants a piece,” Crystal said. “Whether it’s the movie ‘Dark Knight’ or a huge merger deal, he who can make it rain, he who can bring everyone to the theater, can earn whatever he wants.”
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