The Paulson plan is not an unreviewable dicatorial power grab, that is and always has been a baseless fearmongering smear, and beneath the seriousness of this crisis.
Buying securities is a more arms-length transaction than extending loans. Being a creditor among other creditors would be closer to nationalization. Who'd be senior in a default, for instance? We all know who.
The private resolutions series leaves out the little fact that each one caused the next is an accelerating cascade, which only slowed on the bailout plan itself, and massive Fed intervention.
Also, every single one of those moves had to be coordinated by the Fed. Without Fed prodding and Fed financing, this entire thing would have comprehensively crashed and burned months ago.
The Fed *is* the successor of JP Morgan, and it is doing his job.
If the Fed were a for profit institution, it would be arbitraging the huge spread between corporates and treasuries, in banks it decided to keep from failing.
The money market run rate hit $160 billion per day before the Paulson proposal and money fund guaranteed halted it. Without massive Fed intervention, that would have destroyed the entire commercial paper market, and dropped the money supply by a third. The Fed had to and did intervene.
The Washington Mutual failure was such a great big success because a $25 billion hit was put on the bondholders, and JP Morgan was able to raise $10 billion in stock to cover the remainder, on the strength of those bondholders having been stood against the wall. Only that gave the part JP Morgan bought, actual value.
But that loss to bondholders instantly sent every bond of beseiged banks into free-fall. Wachovia debt was offered today at 130% - with no buyers. Its longer term paper as low as 30 cents on the dollar. Crushed stock prices have closed the equity market for new capital for these banks. The Washington Mutual failure closed the bond market as well.
Washington Mutual itself was a zombie that financed at $16 billion depositor run only by running up borrowings from the Home Loan Banks. It had no non-public capital sources.
Banks need to raise hundreds of billions by year end just to roll over existing bonds, without it recapitalizing them at all. They aren't going to do so at 130% rates and survive.
It isn't just Wachovia. National City today, 60% yield. Morgan Stanley, despite a large recent capital infusion from Asia for stock, 40% yield. Bank bonds are simply now traded as junk for any institution with default risk, as being essentially uncovered, because the depositors are senior and the FDIC has shown the bondholders will get nothing, if it is necessary to protect the FDIC.
There are only two ways out of this mess, and private markets healing themselves is not one of them. Either the Treasury buys the toxic paper, or the Fed monetizes corporate debts of financial companies. Or half the paper in the commercial paper market, if it doesn't want to play favorites. In both cases for new high powered cash, ballooning the money supply to saturate people's risk aversion and liquidity demands.
Otherwise the Treasury still gets the bill, via the FDIC. And half the banking system disappears. Which will mean violent deflation and further economic losses, public and private.
It is simply not possible to allocate the remaining loss to the existing banks. They will go down.
>> The Paulson plan is not an unreviewable dicatorial power grab, that is and always has been a baseless fearmongering smear, and beneath the seriousness of this crisis.
You’re a liar. Here is the actual text of the draft proposal.
“Sec. 8. Review.
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.”
Calling it an unreviewable dictatorial power grab is perfectly correct. Not a smear at all.
>> But that loss to bondholders instantly sent every bond of beseiged banks into free-fall.
So what? What you term “beseiged” — a euphemism for “banks that got greedy and f_____ up” — deserve to go into free fall.
Solid banks are fine.
BAC was up a couple bucks today. JPM was in good enough shape to buy WaMu (another of your buttboy banks).
Well run banks will do great. Crap banks run by greedy fools will die. I don’t see the problem.
Give it up. You are not profiting from this crisis. The TAXPAYERS ARE. If we have to take our economy down so you get the HINT, so be it. Go ahead and make our day. We hold ALL the cards.
“It isn’t just Wachovia. National City today, 60% yield. Morgan Stanley, despite a large recent capital infusion from Asia for stock, 40% yield. Bank bonds are simply now traded as junk for any institution with default risk, as being essentially uncovered, because the depositors are senior and the FDIC has shown the bondholders will get nothing, if it is necessary to protect the FDIC.”
How much of this do you think is encouraged/caused by run-ups in cdswap prices? As I understand it, an increase in swap prices (by traders who often (or usually) do not even own the contra instrument they are hedging) does have an impact on this.
“It isn’t just Wachovia. National City today, 60% yield. Morgan Stanley, despite a large recent capital infusion from Asia for stock, 40% yield. Bank bonds are simply now traded as junk for any institution with default risk, as being essentially uncovered, because the depositors are senior and the FDIC has shown the bondholders will get nothing, if it is necessary to protect the FDIC.”
actually sorry my question was more in general on credit default swaps, obviously today’s action was a direct result of wm being seized.
I see the REpublibots have shown up.