Friday, October 3, 2008

Of Crashes, Failures and Bailouts - Round III

Should the Senate pass its revised version of the $700 billion bailout bill?

Yes - No
35% - 65%


Representative Sherman's remarks on the House floor at 8:07 PM EST, Thursday, Oct. 2nd:

The only way they can pass this bill is by creating and maintaining a panic atmosphere. That atmosphere is not justified. Many of us were told in private conversations that if we voted against this bill on Monday... the markets would fall 2 or 3,000 points the first day, another couple thousand the second day, and a few members were even told that there would be Martial Law in America if we voted no.
This is what is driving the debate, the vote: Fear. It is what we have seen for the last 7+ years. Are you not tired of the lies?

UPDATE: Rep. Sherman also spoke again at 8:23 AM Friday morning. He points out again the pork and the fact the "oversight" is B.S.: the Congress has no power to enforce. He says again: let's stay here a week and develop a GOOD bill.

Let's review:

Claim by Paulson, Bernanke, Bush, McCain, et a.: The economy is fundamentally strong. Paulson: It's contained.

Reality: Obviously false.


Claim: Paulson, Bernanke, Bush, et al.: We must act now. We don't have weeks. There will be financial disaster and Martial Law.

Reality: Obviously false.
  1. It's been more than a week.
  2. Secret conference call assures Wall Street first funds won't be used for a couple weeks while they decide who lives and who dies. Also, provisions have no teeth; all 700 billion will be available immediately.
Here's some more on that secret conference call. (Hat tip to Leanan at The Oil Drum.):

Financial Eugenics: The Paulson Plan for Survivor Bias

As I write this... I suspect that Congress will force the passage of the bill in some form because the media and political narrative on the necessity of the measure is unremitting and so horribly biased.

No alternatives will be considered.

No constraints on the unilateral executive authority of Hank Paulson will be considered.

No assurances that funds will be used to unlock credit markets or promote lending to the real economy (as opposed to the financial robber barons) will be considered.

...Having listened to all 42 minutes of the late night Treasury briefing of investment banks on Sunday, there is no doubt in my mind that this legislation represents the sort of federal largesse for Goldman Sachs, Morgan Stanley, Citibank and JPMorgan Chase that the Iraq war provided for Halliburton and Blackwater.

The most cynical moment in the call is when the Treasury official confirms, ”our preference would be to help the healthy banks become even healthier” rather than helping troubled banks or illiquid banks.

America is now a centrally planned economy where the Treasury will determine which firms survive and prosper...

Clearly what is going on here has nothing to do with kick starting the credit markets or stabilising the equity markets or restoring depositor confidence in banks. (Treasury official: “No provision in the legislation that mandates re-lending.”) What is going on here is a blatant attempt to provide government funds to a select cadre of firms (not all banks) which are chosen to be the survivors feasting off the carcasses of their less fortunate and less well-connected brethren as the downturn intensifies in the years to come.

The crash in equities will still happen. The debt deflation of the economy leading to mass commercial and consumer credit defaults will still happen. The collapse of many national, regional and local financial institutions will still happen. The bankruptcy of many municipalities and shortfalls in state budgets will still happen.

This bill is about engineering survivor bias to friends of the Bush administration... and unconditional authority of the Secretary of the Treasury.

...The SEC will support the plan and survivor bias by relaxing FASB 157 on mark to market accounting...

The Federal Reserve will support the plan by relaxing the definition of “control stake” in US banks and bank holding companies to allow secretive cabals to hold through private equity and offshore hedge funds... Many foreign creditors are irate at the losses... and this plan provides a secret way to buy them off and keep them lending and investing...

I would like to believe Americans expressed the courage to change over last weekend when they 25 to 1 rejected an unconstrained and unconditional bailout of Wall Street in favour of cold turkey deleveraging of the economy. I wish I could believe that it mattered in the political calculus, but the result of the House vote on the bill will tell us that.

Fight the survivor bias. It’s not your survival they’re engineering.

Claim: $700 billion will save us.

Reality: The Fed, a.k.a. Helicopter Ben, put over 60o billion in play and it did... nothing.


Claim: This will save Main Street.

Reality: Obviously false. There are mortgage resets coming for the next two or three years. That means this problem will just grind on and on... and this bill does NOTHING about that.

In fact, foreign investors get relief. I stated earlier this is inappropriate. It is likely unconstitutional. And why threaten veto if the provision is taken out? How can it possibly be of urgent interest to Americans? Sure, the world economy is important,but the ENTIRE WORLD is going to implode if this isn't passed this week? I've got a bridge to sell ya...

And who's buying banks and insurance companies? B of A, Goldman Sachs, JP Morgan... etc.... all buying, not selling. Buying assets and leaving liabilities... to YOU:

AIG to sell as many assets as needed to pay bailout

As Big Banks Converge...
Citigroup Inc.'s decision this week to gobble up most of ailing Wachovia Corp. is the latest in a string of blockbuster acquisitions that have transformed the banking landscape. A huge chunk of consumer deposits are now consolidated in three banking behemoths -- Citigroup, Bank of America Corp. and J.P. Morgan Chase & Co. -- not known for wooing consumers with high interest rates and low fees.

Wells Fargo to acquire Wachovia for $15.1 billion in all-stock deal, ends Citigroup talks


Claim: Not acting will cause a recession.

Reality: We have been in recession since the last quarter 2007 according to some, and virtually never got past the recession of 2001 according to others. The people saying we are not in a recession are in the government or neo-con pundits.

Chart of Growth in U.S.Gross Domestic Product (GDP)

Chart of U.S. Consumer Inflation (CPI)

Chart of U.S. Unemployment

And guess when the money supply started drying up. Last week? No.... Check out M3, which Bush stopped reporting in 2006 because it was "too expensive" to report and not important:

Chart of U.S. Money Supply Growth


Ex-Treasury secretary O'Neill says Bailout Plan 'crazy,' 'lunacy'
Former U.S. Treasury Secretary Paul O'Neill said the $700 billion bank-rescue proposal under negotiation in Washington is "crazy," with potentially "awful" consequences for the world's largest economy.

"Doesn't this seem like lunacy to you?" said O'Neill, who was President George W. Bush's first Treasury chief, from 2001 to 2002, in a telephone interview Wednesday. "The consequences of it are unbelievably bad in terms of public intrusion into the private sector."

O'Neill's objections mirror those of Republicans in the House of Representatives who rejected the plan in a Sept. 29 vote. The former Treasury chief said he lobbied for an alternative solution that would offer guarantees for troubled assets, stopping short of purchasing the debt.

"Is anybody thinking there?" asked O'Neill, who also served as deputy budget director in the Ford administration. "It's too late, it's not going to make any difference and it's aggravating as hell when there's a better idea and you can't even get it in play," he said.

O'Neill, 72, was fired after an almost two-year tenure marked by strains with White House officials and comments that roiled markets.
Peter Schiff and Bob O'Brien on Glenn Beck: Causes and What the Future Holds

Great comments at:
3:10: GDP top drop 10% ~ 15% over next 12 ~ 15 months (Beck)
7:40: Govt' made it easy to borrow instead of work hard (Schiff)
8:09: - Gov't atfault - For years gov't kept things artificially supported... money supply... stopped working a few months ago... now engineering price of't actions pernicious, untested (O'Brien)

This is from an e-mail I got from

The Senate's 74-25 vote for Paulson's Plunder came as no surprise, since the Senate is run by and for millionaires. So now it's back to the House of Representatives, where we shocked those millionaires on Monday by defeating their bailout bill by 228-205.

A terrified army of corporate lobbyists is working around the clock to switch 13 votes, but only 7 have switched so far - Jim Ramstad (R-MN), John Shadegg (R-AZ), Zach Wamp (R-TN), Ileana Ros-Lehtinen (R-FL), Shelley Berkley (D-NV), Emanuel Cleaver (D-MO) and John Lewis (D- GA). Other possible switches include Pat Tiberi (R-OH), Pete Hoekstra (R-MI), John Yarmouth (D-KY), Brian Bilbray (R-CA), Steve Rothman (D-NJ), Lee Terry (R-NE), Jim Gerlach (R-PA), Tim Murphy (R-PA), Jason Altmire (D-PA), and Gabrielle Giffords (D-AZ). But others may switch from Yes to No, including Ed Markey (D-MA), Charlie Melancon (D-LA), and Spencer Bachus (R-AL).

Bush's first Treasury Secretary, Paul O'Neill, called Paulson's plan "crazy" and "lunacy" with potentially "awful" consequences for the world's largest economy. Many of the best economists agree with O'Neill. Paulson's strongest supporters - including panicked CNBC hosts - now admit it will not raise stock prices or boost the economy as it falls into recession. Then why on earth should we give $700 $850 billion of our tax dollars to Wall Street??? Joe Lieberman gave away the real game when he told FOX " it will be good for John McCain."

With so much at stake, Congress should stay in session for another week (or two) to pass a much better (and cheaper!) plan proposed by Pete DeFazio (D-OR). But Congress desperately wants to go home so Friday may be our last chance to stop this $850 billion disaster .

(1) Call your Representative today!
First check how your Representative voted on Monday (and note switches above):
If (s)he voted NO, say "Thank you for helping stop the Bailout on Monday. Don't betray us now by voting YES on Friday, or I will vote NO against you on Election Day."
If (s)he voted YES, say "I'm outraged that you supported the Bailout on Monday, and I will remember on Election Day. If you want my vote on Election Day, you must vote NO on Friday."

(2) Join or organize a street protest against the bailout:


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