Posted on 09/25/2008 4:33:56 AM PDT by Kaslin
Honestly. A clean bill as requested by Treasury man Henry Paulson, along with John McCain's oversight board, can help fix the credit-crunch problem. It needn't be this hard.
According to the Paulson plan, distressed assets will be sold by banks through a reverse auction (the low bid wins) to various investment funds, hedgies, private-equity boys and other banks. And taxpayers will have a strong ownership position in these asset sales. When the assets are worked out over time -- as they will be once housing and the economy recover -- taxpayers will actually make money on the deal.
This is similar to the Resolution Trust Corp. story 20 years ago, when Bill Seidman presided over similar asset sales from bankrupt S&Ls and wound up making money for Uncle Sam and his taxpayers. A long prosperity wave followed.
In fact, industry insiders tell me the Federal Reserve and the SEC may be moving toward a five-to-seven year amortization plan for the scoring of bank losses from the sale of this distressed paper. This is very constructive. Fed head Ben Bernanke also is talking about getting rid of mark-to-market accounting and moving toward "hold to maturity." This is good.
But the credit arteries are now clogged with a terrible virus that can be removed by the Paulson rescue plan. And as the problem is solved, credit and loans will be made more available to Main Street homeowners, small businesses and consumers of every type. Credit markets will gradually unfreeze. It can be done. A deep recession can be avoided.
And maybe along the way we can get a strong King Dollar to fight inflation and attract international investment. And perhaps, just perhaps, we can get more drilling to reduce gas prices at the pump -- a big recovery tonic. And, dare I hope, maybe we even can get corporate tax reform with lower tax rates, which along with energy deregulation will spur jobs and wage growth.
But after Tuesday's Senate hearing, I'm very concerned. The bells and whistles that would be attached to Paulson's plan by our Democratic friends are anti-capitalist and anti-opportunity.
Capping compensation for both the selling and purchasing institutions? What? Salaries and bonuses are no business of the government. People go to work for profits. For opportunities. It's at the heart of our free-market capitalist system.
Now, I can understand companies like AIG, Fannie and Freddie, which effectively have been nationalized. That's different. I don't care if they all make $75,000 a year, just like the regulators. But to stretch this to the banks that are selling or buying the assets goes beyond the pale. It's France. But it's France heading toward the old Soviet Union, or at least Tsar Putin's Russia.
And then there's the ownership question. Some Democrats want Uncle Sam to take an ownership position in all the selling and purchasing banks. This is nuts. In America, this is nothing but property confiscation. It also will sharply curb buyers of the distressed assets.
You think Henry Kravis and Steve Schwarzman are going to take a salary cap and lose an ownership share of the private-equity funds they themselves created and built? They shouldn't, and they won't. And these funds are crucial to the new process. The only banks that will sell in this over-regulatory environment are the absolute, near-bankruptcy turkeys.
Meanwhile, McCain apparently has proposed that the buying and selling banks have comp-levels no higher than the top paycheck in the U.S. government, which I guess is the president's at around $400,000 a year. Hey, I've got an idea. Let's raise the chief executive's pay to $50 million. He probably earns it, anyway.
It's these congressional bells and whistles that really trouble me. And they also trouble the stock market. Stocks absolutely roared last Thursday and Friday when they got wind of Paulson's program. But Monday and Tuesday, as the new details leaked out and various Democratic senators put their ideas on the table, shares plunged big-time. What does that tell you?
I can understand legitimate concerns about a big-government intervention and a giant $700 billion number. There's a shock effect here. But once in a while the financial center of capitalism goes into panic mode, and something has to be done.
Actually, it's a marvel that we permit government to infrequently come to the rescue of our credit system. It doesn't happen everyday. But it has been necessary going all the way back to Alexander Hamilton's original rescue of our failing debt system in the 1790s.
Understanding this history, conservatives should not panic or walk away from the Paulson assistance plan. It would be great to avoid either a deep credit-driven recession or a global banking meltdown -- or both. Paulson has always viewed his rescue plan as an economic-growth tool. I think he's right.
This will never happen, they will never evict the poor from their homes, they will just give them the house and we will pay for it.
I think Mr. Kudlow is correct on all of the essential points.
---Ludwig Von Mises
Paulson and Bernanke are choosing option #2.
If he was correct we wouldn't need a bailout.
All that would be needed are some bridge loans to get working capital into the system - much as was done with Chrysler in 1980.
Then as Kudlow says, "When the assets are worked out over time -- as they will be once housing and the economy recover -- taxpayers will actually make money on the deal."
Except it won't be the taxpayer making all these juicy profits, it will be the people who made these bad investments and own them now.
So why don't they like this idea?
They would get the profits and stll own the investments that they tell us have so much value "when held to maturity".
Isn't that even better than just getting back the money they have invested? They get their capial and profits too!
The reason they don't like that alternative (or any other) is because they are lying through their teeth abut the value of the garbage they are dumping on taxpayers.
We will be left holding a bag full of bad investments, worth much less than we paid and they will be left with a bag full of money extorted from taxpayers by their pals in the federal governmenmt.
But it's a good deal for them - they get money they put into their bad investments and make a profit too.
Think about this: Bernanke, who is their #2 water boy on Capitol Hill, is adamant that the government should not buy these bad securities for what they may be worth but that we should pay what they might be worth someday if the borrowers make all their payments and/or if the market price of the actual foreclosed real estate increases substantially.
"Fed head Ben Bernanke also is talking about getting rid of mark-to-market accounting and moving toward "hold to maturity." This is good.
Good for whom? Not the taxpayer. He is saying we should pay a premiunm price for securities but they can' even tell us what they are worth - they just know we will make a profit. Who believes that BS besides George Bush and Lawrence Kundlow?
Bernanke told congress we shouldn't concentrate on paying what these garbage investments are worth - we should concentrate on finding a way to say they are worth more so we can get more money into the hands of the greedheads we are bailling out.
Read this for a more realistic insight into this scam:
Bernanke: US should pay higher prices for assets
"Federal Reserve Chairman Ben Bernanke told Congress Tuesday the government should pay more than "fire-sale" prices for the toxic assets it would acquire under a proposed $700 billion bailout plan. That could mean both higher initial costs for taxpayers and reduced returns when the assets are later resold. Bernanke's comment was the first indication of how he and Treasury Secretary Henry Paulson are thinking about formulating the rescue plan's medicine in a way that doesn't kill the patients. Requiring banks and other financial institutions to sell troubled loans and other assets anywhere close to recent sales prices of only a few cents on the dollar could wipe out the net worth of many and lead to a new wave of bank failures."
And read this if you still don't think it is a scam:
Price tag for risky securities draws fire
Government proposing above-market valuations
"In testimony before the Senate Banking Committee on Tuesday, Bernanke strayed off script to draw the vague outlines of a plan to pay significantly more for troubled mortgage-related assets than they are likely worth in today's markets. And he insisted the government could pay higher prices without creating "an unreasonable fiscal burden on taxpayers."
Deborah Lucas, a finance professor at Northwestern University's Kellogg School of Management, agreed. "What Bernanke is really saying is that the government will buy [assets] at a price that ignores that investors are really worried if these mortgages will ever be paid off," she said."
hold to maturity is not that good an idea. Moreover, enough will complain to later come back to use what should have been used from the beginning, mark to market.
The way I see it, you now have a buyer and a seller. The government and the current mortgage holders. The buyer should be getting the assets for the lowest possible price, and the seller is holding out for the highest possible price.
However, in the bizarro world of federal finance, you have people scratching pencils and heads to find a way to pay the highest price for the asset. For this, sellers patiently wait.
No, they, including Larry, are still far from a solution.
Where’s the barf alert ?
This man is a Wall Street whore on crack.
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