Somewhere Noam Chomsky, Howard Zinn and Ralph Nader must be smiling. Isn't this what they wanted (or at least wanted to do to the entire economy) all along?

Yup, Ralph Nader was a real softie for giving billions to investment bankers.

Oren: Giving??? I'm not an expert on this bailout thing so perhaps someone can enlighten me. But isn't govt getting equity shares for all the $$ that they "give"? In that case govt is BUYING or socializing large parts of these firms to "save" them. And THAT'S what Nader et al. want, govt owned means of production where "the people" through their elected represented can "democratically" control it instead of fatcats from the top down.

I love it.

$700 billion of as-yet unacquired equity = tens of billions for U.S. lawyers papering these deals.

I can't *wait* to see my bonus next year.

:-D

This looks interesting:

How to bail out Wall St. without costing income tax taxpayers a dime:

Create a new government agency to manage the bailout. The treasury would then loan it money to bail out Wall St. firms that are in trouble. The government would then institute a Securities Turnover Excise Tax (STET) of 0.25% on stock trades with revenues going to the new agency. For long-term investors who buy stock in companies they believe in and keep it for years adding a quarter of 1% to the cost hardly matters, and even to speculators it is not huge. It is estimated that such a tax would generate at least $150 billion a year, so the $700 billion load would be paid off in 5 years.

The US has had such a tax since the time of the Civil War until 1966. Many other countries have a similar tax. This proposal is clearly a viable alternative to either giving Wall St. $700 billion as a freebie or even getting stock in return for the money. Wall St. managers might even prefer it to a plan that limited their future compensation.

A completely optional (ie. no one is being forced to play the market) tax, that encourages investment over speculation, and is virtually invisible to almost every average American, and it bails out the banking system. Win-win-win. Beats devaluing the dollar, and bankrupting the Treasury.

I'm hearing claims that the govt can make $$ off this deal (which if they have equity shares or even just loaning the $$ which must be repaid makes sense). I've also heard that govt. made $$ off the SNL bailout in the 80s.

What of these claims?

And what about the directors? Sure, CEOs have been pushed out, along with lots of cash. But the board?

There's an election in a few weeks. All the House members and a third of the senators are on the line. Very simple: anybody who voted for the bailout gets turned out.

Maybe in an alternate universe.

That I did. But I still prefer "SNL" to describe the Savings 'N Loan.

I'll ask the Q again, did the govt make $$ off the S 'N L bailout as some claim?

Barney Frank was at the center of the negotiations and smiling as wide as can be in the photo I saw. both of these omens convince me, once again, that there is no shame in Washington and the deal will end up a disaster.

"Barney Frank was at the center of the negotiations and smiling as wide as can be in the photo I saw. both of these omens convince me, once again, that there is no shame in Washington and the deal will end up a disaster."

Amen to that! Obviously there are many factors that caused this, but the single biggest has to be Rep. Frank and now he is in the thick of the "solution"!

Sure there's a press. They're out there right now trying to find the most dire predictions of disaster and collapse if we don't socialize the financial industry by Monday.

And it doesn't only matter who's involved now. Who will be involved next year? Or in five years? J Edgar Hoover with $700B, anyone?

I am just sorry that I lived long enough to see this.

I'm relieved there seems to be a deal. I'd have been happy to have them pass it quickly, last week and avoid all this brinksmanship.

I do find it very depressing that the media reports on the bailout plan have treated the Democrats as altruistic rescuers and the Republicans as greedy villains. (While, of course, leaving out the fact that the Republicans have been warning for years about the subprime problem.) The original Paulson plan fairly straightforward and not too bad provided you agreed with the basic premise of the rescue.

But instead of signing off on the original plan the Democrats reacted by adding all sorts of ridiculous junk. They insisted that the Republican minority support what they'd come up with so as provide them with political cover for an unpopular vote. And then they simply lied by announcing that a deal was imminent, while at the same time refusing to allow the bill's strongest critics among the House Republicans to question any of the stuff they'd added to the original plan.

If Paulson hadn't asked McCain to return to DC and help break this deadlock I think the result would have been regrettable. McCain hasn't spoken about the details yet, probably to avoid scuttling a deal. But in the accounts I've read McCain made it clear that there had to be a deal, and that if the Democrats wanted bipartisan agreement the House Republicans concerns had to be addressed. Unfortunately time was running out, and it seems the best the minority could manage was to roll back some of the worst aspects that had already been added by the Democrats. And for his efforts McCain stands accused of a "stunt" while Pelosi calls the Republicans as "unpatriotic" for, well, existing apparently.

Maybe I'm naive, and it looks like we've all already lost, but why wouldn't this work:

1) The government buys up troubled mortgages. The government evaluates the mortgages and pays an amount at or slightly above fair market value.

2) The government restructures the loan at a fixed interest rate and a total amount equal to the present value of the homes.

3) At this point, the homeowner has a mortgage he can afford, has a chance to accumulate equity in his home, and has no incentive to walk away from his mortgage.

4) The government resells the new mortgages.

Yes, you might not make money doing this. Yes, you can't help every homeowner this way. But isn't this, for the vast majority of innocent victims, a realistic bail out for both Wall Street (get rid of the toxic mortgages) and Main Street (forgive the loss in equity in homes they couldn't afford)?

And aren't a lot of people living in homes they now *can* afford but with *mortgages* they can't afford. And isn't the problem that the mortgages are for more than the present value of the house?

Jon Rowe: did the govt make $$ off the S 'N L bailout as some claim?

The S&L was a bailout. This is different. If Treasury assumes up to $1.3-1.7T in mortgage backed securities for up to $.7T, then that is a sufficient discount that a profit may be able to be made -- and used to pay down the public debt.

The problem is that the risk is opaque -- not that the securities are valueless. Even if Treasury keeps them to maturity, the good ones pay off and will help offset the bad parts.

The mistake was to call this a "bailout" when what it really is is a "market maker." Furthermore, there are a bunch of people on Wall Street who are going to get a haircut. And the people whom it will benefit are the people on "Main Street." Remember, we don't want a "Great" depression... or even a "Good" one.

I suggest naming it the "BAWS" Act ("Beast that Ate Wall Street").

The Republicans were in charge of both branches of Congress and the Presidency for four years. Why didn't they do something other that cry, "DOOOOM!"

Dan Weber: When was this? Just how many were warning?

This might help:
2001—the President's budget warns about large government sponsored enterprises.
2002—the President calls for governance standards.
2003—the Office of Federal Housing Enterprise Oversight warns of systemic risk. Treasury asks Congress for new regulation. SEC investigations expose Fannie Mae earnings manipulations.
2004—the President again advises action because of the Fannie Mae risk. Treasury calls for reform.
2005—Senator John McCain and 3 other Republicans sponsor a bill, defeated by Democrats, to reform the government lending.
2007—Bush advises, "first things first when it comes to [Fannie Mae and Freddie Mac]. Congress needs to get them reformed, get them streamlined, get them focused, and then I will consider other options."
2008—Every month Bush calls on Congress to act.

A concept often used in safety studies and engineering is failure cascades.

A depressing number of catastrophes needed several almost implausible actions / failures occurring in specific sequences to occur. Any change in actions or sequence would have prevented the disaster from occurring.

I think the current financial crisis is an example of a failure cascade and a change in any number of policies / actions / regulations would have terminated the failure chain.

I think additional oversight of fannie and freddie would have terminated the failure chain.


The oversight would have ended / reduced the GSE irresponsible actions. It would have prevented these actions from rippling across the markets and this would have short circuited the financial failure cascade or at least substantially reduced the severity of the crisis.

Unfortunately their political connections allowed them to avoid this oversight and here we are today.

I hope if elected, McCain doesn't get ill. Palin having her finger on the button would be one of the most frightening thoughts...a "hockey mom" ready to launch a nuclear attack? NOT!

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