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John McCain is now in Washington and will help to redesign the package. So all will be well. No worries! Obama's still campaigning, could this be a big mistake?
OMG OMG!
Even that nincompoop Kaletsky sees the awful truth.... sort of (He's still in La La land):
http://www.timesonline.co.uk/tol/comment/columnists/anatole_kaletsky/article4820549.ece
Save the world? Hank just didn't have a clue
The staggering incompetence of the US Treasury Secretary is now acknowledged - and is a disaster for George Bush
Mr Paulson may be a former chairman of Goldman Sachs, but as US Treasury Secretary he does not know what he is doing. His recent blunders, starting with the “rescue” of Fannie Mae, have triggered unintended consequences around the world, resulting in the death-spiral of financial values. But last Friday Mr Paulson outdid even these Rumsfeldian achievements, when he demanded $700 billion from Congress for a “comprehensive and fundamental” solution to the global financial crisis, without apparently having any idea of what he would actually do.
The good news - before I return to the perils of Mr Paulson - is that his blunders no longer matter very much. There will still be a huge US government bank bailout, which will probably avert a disastrous slump in the US and global economies.
But because Mr Paulson has lost the political initiative, this bailout will now be led by the Democratic leadership in Congress and will be structured around its priorities - relief from mortgage foreclosures, restrictions on bankers' pay and big government shareholdings in US banks. For President Bush it is a disaster, dashing his last faint hope of having a tangible achievement to his name before he leaves office
CHRIS UHLMANN: Now you're a former chairman and managing director of Goldman Sachs. How much blame should merchant banks take for the current financial mess?
MALCOLM TURNBULL: Well as Hank Paulson has said, there's plenty of blame to go around and I agree with those legislators in the US that say that executives of financial institutions should not be rewarded. Indeed, they should get nothing out of this and I'm sure Congress will ensure that happens.
But you know, the world is lucky to have Hank Paulson as US Treasury Secretary right at the moment. I've worked closely with Hank. He was the chairman of Goldman Sachs, the senior partner when I was a partner of the firm.
And he's shown real leadership in the past. I mean when Korea ran out of foreign exchange at the end of '97, it was Hank Paulson who brought Wall Street together, who got together with, brought JP Morgan in and showed real leadership in providing the rescue package that got Korea through that very difficult period.
CHRIS UHLMANN: But you and Hank Paulson would also have dealt in these product derivatives that are the toxic waste that's now flowing around the world. Why should we entrust you, or him, with its salvation? etc
CHRIS UHLMANN:Now how can you trade in that kind of money, how can you trade in that kind of system and tell the world that that was a good way to behave?
MALCOLM TURNBULL: Well I'm not saying, I'm saying it was a bad way to behave. It was clearly very mistaken.
And I mean it's not an area of investment banking that I've ever worked in. My area was always on the corporate advisory side, advising companies on acquisitions and buying assets and selling assets. So this area is not something that I've worked in directly.
Goldman Sachs, as it happens, and this is long after I ceased to be involved with Goldman Sachs actually recognised the anomalies, the weaknesses in the US housing market, and that's one of the reasons Goldman Sachs is one of the only two independent investment banks surviving this turmoil on Wall Street.
But the real issue though is one of political leadership and you need to have people who are prepared to lead, who know what they're doing, who understand financial crises and financial problems and the world is lucky to have Hank there.
I mean, let me tell you Chris, China is an incredibly important player in this. If the Chinese lose confidence in the US dollar, then the consequences will be considerable, very dire indeed. Paulson when he became Treasury Secretary was a man who had personal relationships with the entire Chinese leadership, had been to China more than 80 times in the previous 10 years... etc
I'd also be interested in what you think should happen, Wayne?Wayne,
R
1. who is a credible commentator (in your view) which provides an objective view?
2. what is the real solution?
Again... damned if they do, and damned if the don't. And (sadly?) the the market and the world moves on while they all argue.
Tim
Given that Prof Sachs is considered amongst the 100 most influential people in the world, that may be a little unlikely!Maybe he reads ASF!:
Completely agree, Cuttlefish. I wasn't suggesting this should happen, but rather that I could feel for the resentment of the taxpayer being asked to fund the excesses of Wall Street, especially when the main architects of the disaster have pocketed multiple millions in bonuses.I don't see any reason why the government should be helping people that can't pay their mortgages any more than they should be helping investment bankers. If someone takes out a mortgage and can't pay it - then unfortunately in a free market system they have to bear the consequences.
The reality is that people being irresponsible and taking out mortgages that they had no chance of being able to pay back is what created the mess in the first place - along with the greedy sales people that sold the mortgage to them regardless and pocketed the commissions - but at the end of the day the consumer is responsible for their own decision to take the mortgage out in the first place (or the equity loan or the credit card or the student loan etc. etc. etc.).
Seems a bit like the flying blind option at present.The ideal would be that they wouldn't bail anyone out at all. They may have been better off letting the institutions (fannie, freddy, AIG etc.) and the banks that are in difficulty all go under but they would still have had to capitalise the FDIC to cope with it or face almost certain civil unrest.
The bad subprime paper would still have existed but would have been sold by administrators at real market value to private and foreign investors. End result possibly similar to the outcome of the current bailout - though probably far more difficult to control. It would also have likely created a very big confidence crisis in the USD which would have potentially created a new host of problems.
Though this may all still be there to come and this current bailout may just be postponing the problem. It really does depend on whether they've actually run some figures and quantified the problem to come up with the $700 billion figure or are just flying blind.
I don't see any reason why the government should be helping people that can't pay their mortgages any more than they should be helping investment bankers.
Given that Prof Sachs is considered amongst the 100 most influential people in the world, that may be a little unlikely!
julia said:Seems a bit like the flying blind option at present.
pepperoni said:1. 1,479 U.S. banks and 158 U.S. thrifts are at risk of failure, with total assets of $3.6 trillion, or 36 times the assets of banks on the FDIC’s list of troubled institutions.
2. Among those with $5 billion or more in assets, 61 banks and 25 thrifts are heavily exposed to nonperforming mortgages.
3. The bailouts announced and proposed to date, although expected to cost over $1 trillion, are too small to rescue most institutions at risk, let alone address multiple problems with U.S. interest-bearing debts outstanding of $51 trillion and derivatives held by U.S. banks of $180 trillion.
Sure, I'm with you all the way. To hell with this new American Socialist Republic.
Let's kick eight million struggling Americans out of their homes. And where's Pink when I need him? (pink floyd)
I mean c'mon, I can think of a few people who could really use that 700 billion.
Let's see, there's Richard Fuld, he only made $354 million during his five year tenure with Lehman brothers.
What about ex-Bear Stearns Cos. President Warren Spector, who sold $382 million in stock before resigning in 2007, nice timing Warren
Then there's Merrill Lynch boss John Thain, who had to go three-ways in 200 million.
Peter Kraus, strategy head for Goldman got a groovy $US95 million
Oh yeah, don't forget Merrill Lynch Trading chief Thomas Montag struggling with a measley $76 million!
And I'm sure Mr Paulson wasn't thinking of keeping any of it himself, no sir-ree, he's got mates to look after.
<end sarcastic rant>
There are 2 groups
One that swoons, another that struggles.
I know which group should pay
While more than $US500 billion of writedowns have been taken in the West, Bloomberg data shows the Chinese have incurred losses on mortgage-backed securities in the order of just $US4.3 billion.
According to a Bloomberg article, "It's ironic Paulson has become the manager of many large financial institutions,'' said Wang Jun, a finance specialist at the World Bank in Beijing. "He will have to ask the Chinese leaders about their experience of managing state-owned assets.''
Not that it's a good look for human rights and the evolution of democratic government, nor a model to be pursued, but the Chinese communist dictatorship seems to be doing a lot better than their didactic rivals in the US. There will be many more rich ironies before this crisis is over.
To the likely outcome of a bail-out: markets love certainty and appear comfortable with Hank Paulson's reassurances that the $US700 billion ''trash for cash'' deal will restore confidence. It is no stretch then to assume that once the plan is approved world share markets may bounce sharply.
They cannot however fly in the face of economic fundamentals. Price/earnings multiples on US markets are still not particularly low by historical standards and the trend for earnings revisions, downwards, remains in place. Lower earnings forecasts mean lower share prices so a sustained rally is unlikely until there is a prospect of economic recovery in sight.
Meanwhile two other factors loom. One, accounting chicanery and, two, the prospect of further defaults and their viral effect on counterparties. On the first, the unravelling of Fannie Mae and Freddie Mac demonstrate just how tricky and deceptive the accounting treatments had become in the US. Wall Street banks still have big problems not only with their off-balance sheet SIVs and conduits but with dubious practices the likes of booking profits from marking to market the discount on their debts.
Then there are the nasty surprises yet to come. Another mortgage giant, the thrift Washington Mutual is teetering in the face of serious liquidity problems. And counterparty risks from the likes of Lehman Brothers' collapse are yet to work through the system.
The risks of bailing out Wall Street are precisely those which Hank Paulson in his former life as a free markets exponent railed against, ''moral hazard'' that is, the proposition that intervention will only allow the problems of poor management, leverage and ill-conceived speculation to linger.
mwest@fairfax.com.au
Wednesday, September 24, 2008
Dear Friends,
Whenever a Great Bipartisan Consensus is announced, and a compliant media assures everyone that the wondrous actions of our wise leaders are being taken for our own good, you can know with absolute certainty that disaster is about to strike.
The events of the past week are no exception.
The bailout package that is about to be rammed down Congress' throat is not just economically foolish. It is downright sinister. It makes a mockery of our Constitution, which our leaders should never again bother pretending is still in effect. It promises the American people a never-ending nightmare of ever-greater debt liabilities they will have to shoulder. Two weeks ago, financial analyst Jim Rogers said the bailout of Fannie Mae and Freddie Mac made America more communist than China! "This is welfare for the rich," he said. "This is socialism for the rich. It's bailing out the financiers, the banks, the Wall Streeters."
That describes the current bailout package to a T. And we're being told it's unavoidable.
The claim that the market caused all this is so staggeringly foolish that only politicians and the media could pretend to believe it. But that has become the conventional wisdom, with the desired result that those responsible for the credit bubble and its predictable consequences - predictable, that is, to those who understand sound, Austrian economics - are being let off the hook. The Federal Reserve System is actually positioning itself as the savior, rather than the culprit, in this mess!
• The Treasury Secretary is authorized to purchase up to $700 billion in mortgage-related assets at any one time. That means $700 billion is only the very beginning of what will hit us.
• Financial institutions are "designated as financial agents of the Government." This is the New Deal to end all New Deals.
• Then there's this: "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." Translation: the Secretary can buy up whatever junk debt he wants to, burden the American people with it, and be subject to no one in the process.
There goes your country.
Even some so-called free-market economists are calling all this "sadly necessary." Sad, yes. Necessary? Don't make me laugh.
Our one-party system is complicit in yet another crime against the American people. The two major party candidates for president themselves initially indicated their strong support for bailouts of this kind - another example of the big choice we're supposedly presented with this November: yes or yes. Now, with a backlash brewing, they're not quite sure what their views are. A sad display, really.
Although the present bailout package is almost certainly not the end of the political atrocities we'll witness in connection with the crisis, time is short. Congress may vote as soon as tomorrow. With a Rasmussen poll finding support for the bailout at an anemic seven percent, some members of Congress are afraid to vote for it. Call them! Let them hear from you! Tell them you will never vote for anyone who supports this atrocity.
The issue boils down to this: do we care about freedom? Do we care about responsibility and accountability? Do we care that our government and media have been bought and paid for? Do we care that average Americans are about to be looted in order to subsidize the fattest of cats on Wall Street and in government? Do we care?
When the chips are down, will we stand up and fight, even if it means standing up against every stripe of fashionable opinion in politics and the media?
Times like these have a way of telling us what kind of a people we are, and what kind of country we shall be.
In liberty,
Ron Paul
Wayne,
Rather skeptical on everything that I read.
That is, damned if they do, and damned if the don't. The fact remains is that we are in this position 'serious economic crisis' (not my headline) and that something needs to be done.
I probably don't think that a real plan could be hatched in one week given the length of time that it generally takes governments to create plans - except for emergency measures.
With that in mind...
1. who is a credible commentator (in your view) which provides an objective view?
2. what is the real solution?
Again... damned if they do, and damned if the don't. And (sadly?) the the market and the world moves on while they all argue.
Tim
I'd also be interested in what you think should happen, Wayne?
Yes, of course it is. But the mess now exists so there needs to be a solution found. This is what I was hoping you might be able to suggest in terms of the detail which seems to be lacking in the current ten paragraph bail out proposal effectively giving Mr Paulson carte blanche as you have suggested.wayneL;340765 It's more of a case of what should [U said:have [/U]happened Julia.
OK. But if you were a US Senator and had the opportunity to write in that fine print, perhaps including some regulatory changes for the future, and including also some sort of responsibility being placed at the door of the wealthy CEO's who have engineered this remarkable feat of incompetence, what would you include?What should be done now? Well unfortunately, to avoid the complete meltdown of the whole financial system, a bail-out is imperative. But as with all radical solutions, it is the fine print that matters. The devil is in the detail.
If the world needs to bail out these schmucks, then the prudent deserve their pound of flesh, and the execs deserve to suffer the consequences of their imprudence.
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