Loading...
Symbols:
Authors:

Oppose the Treasury's Bailout Plan

by: David Merkel September 21, 2008    
David Merkel

David Merkel

About this author:
Become a Contributor Submit an Article
  • Font Size:
  • Print

Mine is not a political blog.  I have political views, but I try to keep them out of my writing here, because they aren’t relevant to my readers.  This is a rare point where the two worlds collide, and I have to take a political stand.

Let me state this plainly at the beginning of my piece, so that you know where I am going: I am asking all of my readers, and all of the financial bloggers that read me to call their Congressmen, and ask them to oppose the Bailout Plan as currently structured.  I am also asking the financial bloggers to ask their readers to do the same thing.

I don’t do things like this often, so understand that I think that this bailout plan is very ill-conceived.  I also think that opposing the bailout should appeal to all, regardless of party affiliation.

Okay, now let me explain why, and propose an alternative.  Some links to begin:

As I stated in my last blog post:

The possibility of a new RTC could be a good or a bad idea.  The main criterion is whether it is proactive or reactive.  My answer my surprise many: reactive is good, proactive is bad.

What we don’t want to do is provide a place for companies to dump lousy assets at inflated prices.  Instead, a new RTC should be a last resort place that the assets of failed companies go to until they are disposed of.  Common and preferred equity should be wiped out, and bondholders should take haircuts.  New loans should be senior to all old loans, similar to the situation with AIG.

Anyone going to the new RTC should feel pain, and a lot of it.  It should be the last resort for companies that are failing.  It should not try to keep companies alive, but merely conserve the value of assets, and prevent contagion.  Remember, if the risk is not systemic, the government should not try to bail it out.

The current proposal is proactive.  Proactive solutions are expensive, and do not fairly distribute the losses to those who caused them through their shoddy lending practices.  The owners of bad assets should risk their equity before taxpayers put up one red cent.  The government should not try to prevent financial failure, but prevent financial failure from spreading as a contagion.  Common and preferred stockholders of failed institutions should be wiped out.  Subordinated debtholders should take a haircut.  But depositors and senior debtholders should be guaranteed, in order to protect other financial institutions that invest in those instruments, thus avoiding contagion effects.

Second, the proposed bill is vague, and offers the Treasury a “blank check” to do pretty much what it wants.  Section 8 states: “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.” Who are we kidding here?  I don’t care how great the emergency may be, the other branches of government should be able to act as needed.

Third, there is nothing to assure that fair market value will be paid for assets.  If an investment manager is hired, who could tell if he plays favorites or not?  Clever investment firms will take advantage of the government and its agents, and only sell overpriced assets to the government.

Fourth, there is no easily identifiable upside for taxpayers here.  If we bail out a firm, it should be painful, as it was for the GSEs and AIG, where most of the equity gets handed over to the government in exchange for a senior loan guarantee.

Fifth, though the name of the Resolution Trust Corporation has been invoked here, this is nothing like the RTC.  The RTC only dealt with insolvent S&Ls.  It did not try to keep existing S&Ls afloat.

This proposal is an expensive boondoggle and should be opposed by all.  As one bit of evidence here, how many noticed that mortgage rates went up on the day the deal was announced?  Here is a graph for Fannie 30-year fixed-rate mortgages (click to enlarge):

The announcement of a bailout may have caused mortgage credit spreads to shrink, but it caused Treasury yields to rise even more. The announcement was not a positive for the mortgage market, and my guess is that it will get worse from here.

My Solution

Bring back the Resolution Trust Corporation, for real.  Don’t do deals with solvent institutions.  Let them figure out how to best maximize their financial positions on their own; after all, it was their great decisionmaking skills that got them into this.

But do do deals with insolvent companies.  Take in their illiquid assets, reposition them, and auction them off once they are more saleable.  To the extent that we bail out whole firms, make it so costly to the firms that it is clearly a last resort, as with Fannie, Freddie, and AIG.

I am willing to testify before Congress on this issue, not that I think that will happen.  If anyone from Congress happens to read this and wants me to testify, please contact me here.

Finally, to any readers or financial bloggers that take me up on my request, I offer you a hearty thanks.

Related Articles

This article has 34 comments:

  •  
    Sep 21 10:22 AM
    Baleouts are a dirty business. Given the present state of the financials and all of the fear factors factored in to the equation by the Fed, there is no way to prevent assets that should not be funded funded. IN FACT I AGREE THAT ASSETS MIGHT BE NEWLY CREATED just to be sold to duped taxpayer. Part of the rescue plan could be a inadvertant creation of addition debt that turns up in the pocket of the manipulators. There seems to be no safeguards against this type of theft.
    Reply
  •  
    Sep 21 10:39 AM
    The final good buy gift of this Administration to the public....besides all of the other problems created by the White House Guru, this will go down in the history books as a final kiss-off. This administration created the biggest ripoff in history to the American People.
    Reply
  •  
    Sep 21 10:43 AM
    As with the S&L's in the 1980's, bail outs of the mortgage industry and the bond underwriters who financed the fraud, is just wrong! All of the academic debate aside, the fact is that once again the down trodden American taxpayer is going to be stuck holding the bag while a cartel of international gangsters sails off into the sunset with their BILLIONS tucked safely away in some offshore location.

    Same goes for the AIG bail out and all the rest. If the federal government wants to do the right thing then go out and find the BASTARDS who stole all this money and take it back! The money that has been misappropriated, because money doesn't just DISAPPEAR; especially in quantities like we are talking about with the AIG and the mortgage industry. It's still out there somewhere and if the Fed's had any balls at all or any sense of right and wrong they would go find it and take it back; simple as that! If half of Wall St. ends up bankrupt or half of America ends up kicked out of their home due to foreclosure, so be it! Business is business and all markets have to correct when they are over-inflated. Housing is no different and the casualties are what they are.

    I have no sympathy for anyone involved. Borrower and lender alike!
    Reply
  •  
    Sep 21 10:48 AM
    Cheney and Bush and pals need to be hauled off to jail and .... for the treasonous actions on American society they've committed over the last 8 yrs.

    I put together a letter you can send to your congressman based on this whole interest rate argument. Have a look. You can copy paste, put your name on it and hope the best happens, that being the Paulson does not get permission to buy foreign bank assets without any accountability or public discretion (yes, this is really in the proposal! I couldn't believe my eyes).

    scriabinop23.blogspot....

    Click there and copy paste my letter...
    Reply
  •  
    Sep 21 11:31 AM
    I find it curious that in a two party universe some are trying to score political points when it is crystal clear that there has been a lack of leadership from both parties that goes back at least ten years. As the saying goes "people in glass houses..."
    Reply
  •  
    Sep 21 11:54 AM
    Thank you for your thoughtful response. My hat is taken off to you sir for the boldness and clarity of your intention and process. This bail out proposal must make those who either directly caused the pain or were asleep at the wheel when the pain came into focus - to feel the most pain.

    If ML sold such MBS assets for $0.22 on the dollar then THAT price represents the best arms length transaction that the market could make available to a seller at that time. If the US government steps in then the purchase price of such securities or those related should be lower as the taxpayers should demand and be paid a premium for serving as the buyer of last resort.

    The era of privatizing profits and socializing losses must end. It is time that the taxpayer win and shareholders, board members and investors too asleep to have any foresight as to what they were doing MUST loose.
    Reply
  •  
    Sep 21 12:29 PM
    Dear David,

    Your take on this bailout is the most lucid one I have seen yet and it is very accurate to say that all other previous bank rescues have indeed been related to minimise forced liquidations of assets after that a misrun bank has failed. I am totally and utterly certain that the current bailout plan is a total disaster in the making which will go down in history but for all the wrong reasons.
    Reply
  •  
    Sep 21 12:35 PM
    Agree. This step addresses issues of liquidity and confidence by creating a market for securities for solvent entities. It does not address solvency, which is a very major issue. My more complete views on below links.

    maxkapital.wordpress.c.../
    maxkapital.wordpress.c.../
    maxkapital.wordpress.c.../
    Reply
  •  
    Sep 21 12:51 PM
    This is the best article I have seen on this. I was wondering where the language of the act was....and here it is. This is really not much more than another "blank check" for Hank Paulson (or the next person) to do what he will with. I am sure his intentions are good but the history of giving this administration a lot of lead way or "standby authority" is not a happy one.

    I agree that in theory the RTC II should not do deals with other wise "healthy" financial service companies. Reasonable restrictions along the line suggested here are critical. I have one more.. in the event any company sells assets to RTC II they should contractually agree that neither that company or anyone of their behalf make can make campaign contributions to those that control or regulate RTC II,

    This is a critical element. One of the issues on RTC was that it assumed assets when they were dirt...and then they were lobbied to unload the assets before they really achieved their full value for the taxpayers.

    We also need a constitutional amendment to stop the unlimited campaign spending that has turned the Congress into supplicants to the bankers and finance industry among others.
    Reply
  •  
    Sep 21 01:08 PM
    There are two ways to make an insolvent institution solvent: you can buy its assets at above-market prices, or you can walk up its capital structure converting debt to equity (at a haircut). The first results in nominally bigger books and higher leverage and puts the profits into the hands of the institutions' shareholders. The second results in nominally smaller and less leveraged books and losses borne by the more junior positions in the capital structure (i.e., those who took the most risk).

    Which is more fair? And which does more to get us where we need to be? Note also that the second of these costs taxpayers nothing and leaves noteholders with dramatic upside potential if the above-market prices that would have been paid in the first strategy turn out to be justified as the assets are held to maturity.
    Reply
  •  
    Sep 21 01:11 PM
    Amen
    Reply
  •  
    Sep 21 01:46 PM
    The underlying cause of the blow-up of the investment banks is poor corporate governance. This problem is pervasive across industries. The CEO is also chairman of the board and is paid gigantic salary or bonus in the form of stock options. All this is done in the name of aligning the behavior of the CEO with the interests of the corporation but has instead aligned the behavior of the corporation with the interests of the CEO.
    Reply
  •  
    Sep 21 02:34 PM
    David, you have inspired me. I sent the following to my senators, local congressperson, and all members of the House Finance Committee:
    ================

    Take Care before granting the Treasury Department new powers!!!

    The proposed bill to give the Treasury Secretary power to buy distressed assets from banks has some virtues, and some serious dangers which Congress must address.

    In the past few weeks Secretary Paulson has done a commendable job of managing emergencies, giving balanced consideration to both the need for stability in the financial markets, and the need to limit taxpayer exposure to risks created by private capital. But "past performance is no guarantee of future results," and we must not assume that Mr. Paulson, or any Treasury Secretary in the future, would maintain such a balance.

    The proposal would give the Treasury Secretary absolute power to expose our national credit to the risks of private assets. We all know where absolute power leads. The Secretary has friends on Wall Street, who would naturally come to him seeking to offload the most tainted assets on their books, to make their firms more profitable. Certainly, taxpayers should not allow this. Why create a situation where it cannot be prevented--or, for that matter, where the temptation even exists?

    The GSE, Lehman and AIG crises were resolved reasonably--protection for innocent lenders and counterparties (or policyholders), but not for reckless executives or the negligent stockholders who are their theoretical bosses. Congress should use these as models to craft a fair and systematic approach to credit-market protection, including mechanisms to hold administrators accountable for decisions that unduly favor private over public interests.
    Reply
  •  
    Sep 21 02:35 PM
    Does your Congress really have the power to endorse this 'rescue plan' ?

    I am not an American but since this poison pill would have to be swallowed by each and every US taxpayer, I would assume that they ALL want to have a say in this mattter.
    (rather then depend on a bunch of bias-ed congressmen).

    I am not sure whether your consitution allows for it, but this 'situation' - in my view - calles for a nationwide REFERENDUM.

    Let every taxpayer have their say !

    What a mess, the US.
    Reply
  •  
    Sep 21 02:48 PM
    I largely agree with the editorial, especially with regard to opposing the unchecked expansion of powers, opposing the insufficient haircuts for the sinners, and skepticism about the govts. ability to avoid getting fleeced. But as an alternative to insisting that the govt. could only buy assets from firms in liquidation, I think it would be worth exploring whether the govt. could use its powers to establish whether the assets in question are really being incorrectly priced by the trading markets, with the idea of buying them at some haircut to the "objective fair price". But how to do that? One idea is that the objective fair price is what a buyer would pay in a private sale if they had enough capital and enough information. So perhaps the govt. could create some kind of a huge private bazaar where adequate info on each security was available and private buyers could bid to establish what they would pay for fractions of the securities. With those prices established, the govt. could then set a final price so that they buy 95% at a haircut to the private buyers price and the private buyer gets their 5%.
    Reply
  •  
    Sep 21 03:50 PM
    Never in all my years have I met a person who can consistently beat the market. All markets, when considered over long time frames, are immensely efficient at allocating capital resources. The proposal being sent to Congress--effectively a blank check--arrogantly asserts that a small group of humans possess skills that, collectively, are smarter and more efficient than the market itself.

    Despite his uncle-that-never-seems... appearances, Ben Bernanke is brilliant. Really. I got fantastically liquored up once and elected to read:

    "Long-Term Commitments, Dynamic Optimization, and the Business Cycle by Beb Shalom Bernanke, MIT 1979"

    This is Ben's doctoral thesis. I kid you not--he's a smart, smart lad. But alas, Mighty Ben of the Academic Jungle, there are grander rules at play at all times--rules that, in time, will make a violent mockery of your bailout efforts. Long term stochastic processes get very, very angry if they are tampered with.

    I'm not American...I'm Canadian. I beg of you, for your sake, for my sake, for the sake of the world: do not, under any circumstances, allow this bill to pass in Congress. You're about to distribute into public coffers the assets that the private sector itself was unwilling to buy.

    This should frighten you to your core.
    Reply
  •  
    Sep 21 05:29 PM
    Thank you David Merkel... I just sent letters to each of my Congressional representatives asking them to oppose this horrible idea -- and I urge every reader of Seeking Alpha to do the same
    Reply
  •  
    Sep 21 05:37 PM
    User 118015 wants to blame this all on the administration. I'd suggest go look at Senate Bill S.190 of 2005 pushed by the White House and co-sponsored by John McCain that would have reined in Fannie and Freddie. The bill died in committee after Frank Raines and Jim Johnson spread enough money around to ensure defeat. Frank and Jim have now booked their act with one of the presidential candidates (I'd bet it isn't the one who tried to stop F&F). Said prez candidate was also recipient of more Fannie/Freddie $$ than any other pol except Chris Dodd (who was ranking minority on the committee that killed S.190 and also got a "friends of Angelo" home loan).
    Reply
  •  
    Sep 21 07:20 PM
    Fully agree with the article. See sensible alternative proposal here:
    hussmanfunds.com/wmc/w...
    Reply
  •  
    Sep 21 08:42 PM
    Old_Rick makes my point. It is essential that any company that "sells" assets to RTC II be restricted (via contract) from directly or indirectly making campaign contributions to those who are over site of the the buying or selling. If we do not insist on this this deal with make Fannie and Freddie look like a small time Congressional earmark for your local airport.
    Reply
  •  
    Sep 21 08:56 PM
    taojaxx, why is it that the "counter parties" escape without a scratch in the hussman plan?

    It seems to me that if you want to take out insurance policies when you do not really have an insurable interest...(like me taking out a life insurance policy on you for example) you should get a haircut as well.
    Reply
  •  
    Sep 21 09:05 PM
    Now Paulson is talking about adding foreign financial institutions to the bailout because it's of "no real distinction to the American taxpayer" where they might be headquartered as long as they do significant business in the U.S. Reasoning that it's a global market problem with global institutions affecting American taxpayers.

    I'm not a xenophobe but I do have some problems with this:

    (1) According to Section 2, Paragraph 3 of the proposed 'blank check' Bill, those financial institutions (now both U.S. and Foreign) accepting purchase of their toxic debt and cleaning up their balance sheets will become agents of the U.S. Government. The Bill says, "designating financial institutions as financial agents of the [U.S.] Government, and they shall perform all such reasonable duties related to this Act as financial agents of the [U.S.] Government as may be required of them". What are "ALL such reasonable duties" to be defined in the future? That's mighty vague and opens any recipient up to huge liability. How will that be enforced on foreign entities? What are the implications to international law? Why would a foreign financial institution accept those nebulous and potentially onerous terms and conditions? AIG is just now realizing the onerous T&C's attached to the $85B loan they just received.

    (2) Where do you draw the line in offering up American taxpayers' hard earned dollars? Why can't Paulson ask foreign financial institutions to get their foreign/sovereign Government's tax dollars to buy their debt ala the proposed U.S. Bill? Or ask the foreign Government's to do the same on their taxpayer's nickel? Since we're not all that decoupled are we...?

    (3) Now Paulson is proposing selecting five to ten Wall Street executives to manage the $700B bad debt on behalf of the Treasury and U.S. Government. Why is the Secretary proposing that the same folks who grossly mismanaged risk over the last 15 years can now serve as managers of the largest global credit crisis and as the responsible fiduciaries of the American taxpayer's unvoluntary $700B ABS/CDO investment fund? That sounds like giving the keys back to the habitual drunk driver...And if you were a foreign financial institution would you want an American Wall Street executive managing your T&C's...or determining your "reasonable duties"...or overseeing you as "a Financial Agent of the U.S. Government?" How would you BOD or shareholders feel about that?
    Reply
  •  
    Sep 21 09:16 PM
    I don't agree with everything David says in this article, but items 2 & 4 are absolutely correct.

    Item 2: Blank check for Treasury, "Decisions by the Secretary pursuant to the authority of this Act are non-reviewable" This is ridiculous. I can see why Paulson wants it, but if Congress goes along they are fools.

    Item 4: "If we bail out a firm, it should be painful" Absolutely! In fact I would go farther. A precondition to any government bailouts should be the retroactive forfeiture by top management of their contractual employment benefits. There are legal issues as to how that is done but I believe they can be sorted out.
    Reply
  •  
    Sep 21 10:19 PM
    David, thanks for this outstanding public service. I agree and wish to add the following.

    We already have mechanisms in place to deal with failed banks and Savings and Loans. There was no calamity when Indy Bank failed.

    Taking over only failed institutions will be much less expensive than buying assets for more than they are worth, then reselling them for less than they are worth.

    The Paulson plan purports to be necessary to bail out failing banks, but also makes a gift to banks and other financial institutions in good financial conditions.

    It's like putting 300 million americans in the hospital because some people need to be hospitalized.

    If this plan leads to a 5% depreciation of the dollar, it might lead to @ 5% increase in the cost of imports.

    The government is living well beyond its means. It is covering this deficit by borrowing and printing money. The value of the Dollar has declined about 60% in the last eight years.

    We should not continue on this course, accelerated by the Paulson bailout, until our credit is cut off.

    Making a gift of $700 billion to those institutions who gambled excessively with other peoples money does not assure that they will suddenly become responsible.

    If we make these gifts,the financial institutions,they will be back for more.

    Paulson is a big time gambler with other people's money. Under his leadership, he led creation of the CDO market and leveraged Goldman excessively.

    Why should we ask one of the people most responsible for creating the problem to solve it.

    Why should we give anybody a blank check to spend $700 billion of taxpayers money.

    The Bill authorizes Paulson to purchase mortgage related assets from any financial institution. What is a financial Institution. Does it include stockbrokers, insurance companes, credit unions, bond guarantors, etc?

    The monolines might be able to use $700 billion.

    Do you go to the head of the line if Paulson likes you. What is the total value of mortgage related securities that would be elgible for purchase.

    Why is there little discussion of the facts that Paulson has a conflict of interest, Goldman might receive Billions, there are better, simpler, cheaper solutions, the bailout is likely to cause more problems than it solves.

    The bailout rewards fraud and incompetence and will invite more fraud and incompetence.

    The bailout constitutes going for broke and will make it more difficult to
    borrow more money when we need it.

    We should keep our powder dry.

    While we're at it, Paulson wants the government to guarantee $2 trillion of money market funds and set aside $50 billion for the purpose.

    This implies that no more will be needed.

    However the guarantee will encourage money market funds to lower their credit quality, in order to increase yield, thereby increasing the ultimate government cost.

    In fact, money market fund managers will be required to do so to compete.

    Part of the problem is caused by corporations issuing commercial paper, thus financing long term assets with short term liabilities, and becoming dependent on this market.

    The Paulson plan will also encourage people to transfer money from banks to money market funds.

    This will cause more banks to fail.

    All insured institutions should be prohibited from paying dividends until they show that they meet all capital requirements with all assets marked to marked, and marked to zero if there is no liquid market.

    The Paulson "cure" is much worse than the disease.

    Congress is being stampeeded into giving Paulson a blank check without time to understand the problem, understand the Paulson "solution", or consider alternatives.

    Congress is distracted by considering modifications of lesser importance, such as executive pay, adding money for homeowners, etc.

    Less attention is being given to the spending of $700 billion.

    Congress is not discussing the question of cost effectiveness.

    How much will interest on U. S. debt increase. What will this cost? How much additional indirect costs?

    The attack on short sellers is a diversion from the main problems of irresponsible financial institutions over leveredging and making investments they don't understand.

    It was exacerbated by Fannie and Freddie buying low quality mortgages without recourse and guaranteeing these mortgages.

    Congress should require F & F to buy mortgages only if they have recourse from the seller and only if the seller is financially sound.

    Under the current system, mortgage originators have an incentive to make any loan they can sell regardless of loan quality.

    Part of the problem is that home prices are too high for the average person to afford. The Paulson plan is an attempt to manipulate home prices in order to defeat the law of supply and demand.

    The sudden change of short sale rules created a government short squeeze of enormous proportions. The resulting short squeeze led to a steep decline. The resulting volatility led to panic.

    The panic led to the Paulson bailout plan.

    The panic appears to have caused congress to play "follow the leader" with Paulson as leader.

    Paulson, more than anyone, has caused the panic.

    Chris Cox has political experience, but no financial experience.

    He was chosen to be the head regulator of the securities industry because he was opposed to regulation.

    He was a leader in the repeal of Glass Steagall. This repeal led banks to speculate in risky investments.

    Chris Cox claims to be a free market advocate. However, his short squeeze manipulations constitute some of the largest interferences with free markets of all time.

    Some believe that we need the Paulson plan to prevent a recession. Instead, the plan could be the tipping point to cause a depression.

    We need Glass Steagall, not the Paulson plan.

    We need more divestitures and less mergers in order to have more competition which is necessary for a free market.

    We need to avoid allowing corporations to become too large to fail,
    which means that the taxpayers will have to bail them out if they fail.
    Reply
  •  
    Sep 21 10:21 PM
    Excerpted from: www.politico.com/news/...

    ~~~~~~~~~~~~~~~~~~~~~~...

    Treasury Secretary Henry Paulson confirmed the change on ABC's "This Week," telling George Stephanopoulos that coverage of foreign-based banks is "a distinction without a difference to the American people."

    "If a financial institution has business operations in the United States, hires people in the United States, if they are clogged with illiquid assets, they have the same impact on the American people as any other institution," Paulson said.

    "That's a distinction without a difference to the American people. The key here is protecting the system. ... We have a global financial system, and we are talking very aggressively with other countries around the world and encouraging them to do similar things, and I believe a number of them will. But, remember, this is about protecting the American people and protecting the taxpayers. and the American people don't care who owns the financial institution. If the financial institution in this country has problems, it'll have the same impact whether it's the U.S. or foreign."

    The legislative outline that went to Capitol Hill at 1:30 a.m. Saturday had said that an eligible financial institution had to have “its headquarters in the United States.” That would exclude foreign-based institutions with big U.S. operations, such as Barclays, Credit Suisse, Deutsche Bank, HSBC, Royal Bank of Scotland and UBS.

    But a Treasury “Fact Sheet” released at 7:15 Saturday night sought to give the administration more flexibility, with an expanded definition that could include all of those banks: “Participating financial institutions must have significant operations in the U.S., unless the Secretary makes a determination, in consultation with the Chairman of the Federal Reserve, that broader eligibility is necessary to effectively stabilize financial markets.”

    ~~~~~~~~~~~~~~~~~~~~~~...

    Editorial comment on the last paragraph...now Paulson wants unfettered ability to buy toxic debt of foreign financial institutions that "must have significant operations in the U.S." UNLESS he and the Chairman of the Fed deems it necessary to lower the bar additionally. This whole proposed Bill as written smells like unmitigated gall to bail out whomever the Secretary desires (e.g. Goldman Sachs). Call me a cynic but the newly included, and bar lowered, provision for foreign entities stinks too. If this is really to protect the American taxpayer then where are the upside protections? This is a bad Bill and poor idea...I understand the urgency and downside to the markets and industry, but we can do better for the taxpayer. If we need a Bill we need a Bill that advocates well for the taxpayer; the whole proposed reason for the bailout intervention.
    Reply
  •  
    Sep 22 12:07 AM
    Example email to congressman. go to https://forms.house.go... or www.senate.gov/general...

    The Honorable Dave Weldon,

    Please oppose further intervention by the unelected Fed & Treasury during this financial crisis. Please oppose efforts that fix the symptoms of this crisis and not the causes. Please exhibit leadership to shift the debate to fix the causes of the crisis rather than addressing the symptoms making your decision around what happens decades from now rather than next week.

    I believe the symptoms to be exorbitant social security & medicare/medicaid liabilities, any budget deficit, failure to invest public funds in ventures which have even a hope of yielding a public & appreciable, & and a palatable lack of moral courage to accept facts. The facts of the situation are the rich made loans to unqualified poor and the Treasury's current plan will have the moral middle class pay for those decisions. The US gov't must acknowledge the wealth destruction that has already occurred and let those directly responsible live with the consequences of their decisions to include the foreign investors, otherwise we will follow Rome and Britain in the destruction of their middle class & subsequent collapse in financial ruin. Acknowledging this wealth destruction will indeed cause credit market to seize up as is necessary. Debt needs to become harder to obtain in the US because that is the most effective way to transform this nation into once again being a producing rather than consuming nation which is a root cause of this crisis.

    As an Iraq War veteran, I find it sad that while the Iraq war has cost us under $700B over the past 6 years, the FED/TREASURY has already spent $900B in the past 3 months. On that scale, this is civil war and I thought only congress could declare war.

    The unintended consequences of further government intervention are private individuals withdrawing wholesale from the now seemingly state-run markets, wholesale buying foreign currency and international stocks along with gold/silver, & ultimately moving to another country as citizens will choose to not subject their children to this national debt.
    Reply
  •  
    Sep 22 12:26 AM
    The Honorable Mel Martinez,

    Now that we U.S. citizens are part owners of such illusory enterprises as AIG and Fannie/Freddie, I would like you to initiate a lawsuit on behalf of your FL shareholders/constitue... to obtain compensation for breach of contract by CEOs and CFOs who drew bonuses based on earnings that had to be restated.

    The link below provides more detail.

    www.bloomberg.com/apps...
    Reply
  •  
    Sep 22 02:43 AM
    I would also suggest that Congress require a haircut on any CDS counterparty protected by a bailout. This would certainly diminish the enthusiasm of Paulsons former investment banking cronies who are the big beneficiaries of this bailout.
    Reply
  •  
    Sep 22 04:25 AM
    The Treasury's stabillization plan is effective and appears to address all and any market concerns. As proposed no failure of financial institution should be allowed.Financial assets at this time should not be allowed to be manipulated by the market forces.
    The risks from any failure are global and systemic as psychological reaction to the "failure" can not be quantified.
    Time ,will alllow for objective and rational solution to the issues .As the economy recovers, the financial issues will be resolved.The value of the "seized "collateral will appreciate possibly to the the original face value.Ultimately there are assets underlying the collateral.As the value of the "collateral" increases so will the value of the securities
    guaranteed by this collateral.Let the authors and commentators stick to writing and let the bankers like Mr.Paulsen stabilze the threat which if allowed to persist could derail global markets and economies.
    We need to pass the legislature and start rectifying the issues .
    The time for concern was several years ago when systemic risks had surfaced but were ignored.
    For myself ,I had expressed my concerns in an interview
    with Mark Gilbert (Bloomberg- London) in June of 2005.
    The warnings were mostly ignored by the market and the rating agencies.
    I have reiterated my concerns again on September18,2007 in a TV interview(Brian Sullivan -Bloomberg). It had taken weeks for the first logical response.
    Now, there is no more time for irrelevant discussions .There is a need to legislate and enforce the Treasury's very logical and effective solution.
    Commentators should not attempt to even question the necessity of the solution of the threat of systemic failure.
    Let the Treasury began the "healing" process .Where was the author two years ago?
    Reply
  •  
    Sep 22 10:18 AM
    If this plan should pass, I hope congress ads a few provisos:
    1) Any institution seeking help shall reduce the senior executives salaries to 50% of what the treasury secretary is being paid and they shall forfeit all present and future equity interests in the companies the run until the assets they convey to treasury are sold off by treasury.
    2) Impeachment proceedings be immediately taken against the President of the US because of gross malfeasance.
    3) The current treasury secretary should be removed. Put Warren Buffet in charge!
    4) The ban on short selling be removed and never be allowed again. Restore the uptick rule.
    5) Eliminate all hedge funds.
    6) No member current or future of the SEC, Treasury, CFTC,et al. be allowed to work for any company over which they had oversight(they probably wouldn't want to because of #1 above).
    5)The federal government be given the right to future equity in any institution that participates in the bailout equivalent to the loss the government takes ion any paper they buy and subsequently resell.

    That's just a few off of the top of my head.Give me a day, I can think of more.But bottom line this 'rescue' is atrocious on so many fronts, one could write a book(already has been,its called Atlas Shrugged). Unfortunately if this is enacted we'll see that " The operation was successful, the patient unfortunately died"
    Reply
  •  
    Sep 22 11:45 AM
    This plan should come with a constitutional amendment for consideration by the states (which I dub the Permanent Strength Amendment):

    1. Congress shall make no law, regulating the value of money, nor of foreign coin.

    2. Congress shall coin money, only in the form of metal coins and bars, whose content shall include one one-thousandth troy ounce pure gold and one one-hundredth troy ounce pure silver for every dollar of value. Congress shall cause to be made, no such coin or bar, but that is stamped with its value as defined herein.

    3. Within this article, the troy ounce shall be equal in mass to 1560912686214199606635... atoms of Carbon-12.

    4. Neither the United States, nor any State, shall accept as payment, nor issue in payment of debts, any thing other than such money as has been coined by Congress in accordance with this article, or demand draft for same, drawn upon a United States bank known to have in its possession at all times sufficient such money to satisfy all demand obligations to its depositors.

    5. Neither the President, nor Congress, nor the Supreme Court, nor any State, nor any person, shall alter, or suspend, this article, or any clause thereof. Any person, who attempts such alteration or suspension, shall commit an act of Treason against the United States.

    6. The United States shall accept, at face value, any demand note or bill, or its equivalent, issued not later than 21st September 2008 by the Federal Reserve Bank, and issue to its bearer, in exchange, money coined in accordance with this article; but no such notes or bills shall be accepted one year after this article has been ratified.

    8. No provision of this article may be altered, by any subsequent amendment, but with the direct consent of all persons, who at that time shall have attained to twenty years of age; and who shall be United States citizens, or should have been entitled to United States citizenship, had all United States laws in effect on 21st September 2008 remained in effect to that time.
    Reply