Sept. 24, 2008
PARALLEL UNIVERSE: Cash for Trash Federal Bailout Plan: When Greider Talks, I Listen
Dems and GOP Should, Too; Experts Want Punishment for the Executives Who Got Us Into This Sorry Mess
By David M. Kinchen
Huntingtonnews.net Real Estate Editor
After decades of covering the real estate industry, I've come to the conclusion that much of it is a sucker's game -- especially homeownership. People were told by builders and real estate agents that home prices would always go up, that a house was a sound investment, that it was a way of forced savings, that it would ease your tax burden, etc., etc., ad nauseam.
Blinded by the emotional appeal of homeownership, many shelter seekers were talked into houses way beyond their ability to handle financially, with the resulting current meltdown with massive foreclosures and rapidly declining home values. We're even finding that foreclosures, as measured by a supposedly reliable California (I know that's an oxymoron, "Reliable California" ) based company, RealtyTrac, are seriously undercounted in West Virginia and other "small" states.
With the Cash for Trash $700 billion bailout before an increasingly dubious Congress -- a good sign in view of other rush jobs put before our Senators and Representatives inside the Beltway by the Bush Administration -- maybe it's time to say "whoa, Nellie" and take a look at the major cause of the meltdown.
Surprise! It's real estate, specifically mortgages that were lumped together with little or no consideration of their soundness and used as financial instruments that could only come from Dr. Frankenstein's laboratory.
Searching for experts that I, Mr. Doom, consider relevant to the current situation, I came across an essay in The Nation by William Greider (Link:http://www.thenation.com/doc/20081006/greider). When Greider talks, I listen; he should have been secretary of the treasury instead of that creature of Wall Street, Hank Paulson. The Sept. 19 essay was picked up two days later by AlterNet and is must reading -- I emphasize, MUST READING -- and bears the headline:
Wall Street Is Licking Its Chops at the Bush Team's Multi-Hundred Billion Dollar Giveaway Plan
Here's the first graf, as we say in the news biz:
"Financial-market wise guys, who had been seized with fear, are suddenly drunk with hope. They are rallying explosively because they think they have successfully stampeded Washington into accepting the Wall Street Journal solution to the crisis: Dump it all on the taxpayers. That is the meaning of the massive bailout Treasury Secretary Henry Paulson has shopped around Congress. It would relieve the major banks and investment firms of their mountainous rotten assets and make the public swallow their losses -- many hundreds of billions, maybe much more. What's not to like if you are a financial titan threatened with extinction?"
Read this essay, which includes such gems as calling the two political parties what they are: "Washington's one-party government" and saying that the bailout would represent "an historic swindle of the American public -- all sugar for the villains, lasting pain and damage for the victims."
Greider would probably be considered a liberal, writing for The Nation as he does, but I think he's the ultimate realist, on a par with libertarian Congressman Ron Paul, R-TX, the man Mr. Doom wanted as the GOP Presidential nominee. I would march to the gates of Hell with Ron Paul, a man I voted for in 1988 when he ran as the Libertarian Party presidential candidate.
Greider imposes draconian conditions on any bailout plan:
"The step-by-step rescues that the Federal Reserve and Treasury have executed to date have failed utterly to reverse the flight of investors and banks worldwide from lending or buying in doubtful times. There is no obvious reason to assume this bailout proposal will change their minds, though it will certainly feel good to the financial houses that get to dump their bad paper on the government.
"A serious intervention in which Washington takes charge would, first, require a new central authority to supervise the financial institutions and compel them to support the government's actions to stabilize the system. Government can apply killer leverage to the financial players: Accept our objectives and follow our instructions or you are left on your own -- cut off from government lending spigots and ineligible for any direct assistance. If they decline to cooperate, the money guys are stuck with their own mess. If they resist the government's orders to keep lending to the real economy of producers and consumers, banks and brokers will be effectively isolated, therefore doomed."
I hear the cries: "That's Socialism, not Capitalism." Maybe, but what the heck is the entire Federal Reserve System, instituted in 1913 under the administration of the sainted Woodrow Wilson, another President who dragged us into a war we had no business in, World War I?
Read Greider, most recently the author of "The Soul of Capitalism" (Simon & Schuster), and also take a look at an excellent news analysis in the Sept. 23, 2008 New York Times (Link:http://www.nytimes.com/2008/09/23/business/23skeptics.html?th=&emc=th&pagewanted=all).
Written by Peter S. Goodman, the story bears the headline:
Experts See a Need for Punitive Action in Bailout
Goodman says that economists are increasingly skeptical about the bailout plan, adding that "Some are horrified at the prospect of putting $700 billion in public money on the line. Others are outraged that Wall Street, home of the eight-figure salary, may get rescued from the consequences of its real estate bender, even as working families give up their houses to foreclosure."
He goes on to add that there is "considerable" disagreement -- I can't believe economists disagree about anything! (just kidding; of course I can) -- about how to proceed with the major surgery required of our financial infrastructure.
Goodman continues, in an article that -- again -- I recommend:
“At first it was, ‘thank goodness the cavalry is coming,’ but what exactly is the cavalry going to do?” asked Douglas W. Elmendorf, a former Treasury and Federal Reserve Board economist, and now a fellow at the Brookings Institution in Washington. “What I worry about is that the Treasury has acted very quickly, without having the time to solicit enough opinions.”
One thing the economists agree on is Treasury Secretary Henry Paulson -- himself a product of Wall Street -- and giving this fox guarding the hen house "carte blanche to relieve major financial institutions of bad loans choking their balance sheets, all on the taxpayer’s bill."
Goodman makes an important point about the rushiness (a tip of Mr. Doom's porkpie hat to "Colbert Report" writers) of the bailout: "....an underlying source of doubt about the bailout stems from who is asking for it. The rescue is being sold as a must-have emergency measure by an administration with a controversial record when it comes to asking Congress for special authority in time of duress."
And he goes on to add:
“'This administration is asking for a $700 billion blank check to be put in the hands of Henry Paulson, a guy who totally missed this, and has been wrong about almost everything,' said Dean Baker, co-director of the liberal Center for Economic and Policy Research in Washington. 'It’s almost amazing they can do this with a straight face. There is clearly skepticism and anger at the idea that we’d give this money to these guys, no questions asked.'”
Referring to the 6-year old vote to authorize the invasion of Iraq, many of the experts cited by Goodman are " suspicious of Mr. Paulson’s characterizations, finding in his warnings and demands for extraordinary powers a parallel with the way the Bush administration gained authority for the war in Iraq. Then, the White House suggested that mushroom clouds could accompany Congress’s failure to act. This time, it is financial Armageddon supposedly on the doorstep."
As long as we're buying a pig in a poke, maybe we should use the approach Sweden did in the early 1990s, suggests Goodman in the story: "In Mr. Paulson’s plan, the Treasury would have the right to buy as much as $700 billion worth of troubled investments, with the taxpayer recouping the proceeds when those investments were sold over coming years. But many economists .... argue that taxpayers should get more out of the deal, securing stock in the banks that make use of the bailout. The government could then sell off that stock at a profit when conditions improve. A similar approach was used successfully in Sweden in the early 1990s when its financial system melted down."
Punishment should be more than a symbolic college fraternity pledge paddling, the economists assembled by Goodman say:
"... any bailout must pinch the people who have run the companies now needing rescue, along with their shareholders, addressing the unseemly reality that executives have amassed beach houses and fat bank accounts while taxpayers are now stuck with the bill for their reckless ways."
“It absolutely has to be punitive,” Mr. Baker said. “If they sell us the junk, then we own the company. This isn’t a way to make these companies and their executives rich. This should be about keeping them in business so the financial system doesn’t collapse.”
And finally, agreeing with my assessment at the beginning of this rant, Goodman writes: "The financial system got to its dangerous perch by betting extravagantly on real estate. When housing prices began plummeting and borrowers stopped making payments, financial institutions found themselves with huge inventories of bad loans. Not simple loans, but complex investments created by pooling millions of mortgages together and then slicing them into pieces. These were the investments that Wall Street bought, sold and borrowed against in cooking up the money it poured into housing."
Goodman: "The trouble is that these investments are so intertwined and complex that no one seems able to figure out what they are worth. So no one has been willing to buy them. This is why banks have been in lockdown mode: with mystery enshrouding both the value of their assets and their future losses, banks have held tight to their remaining dollars, depriving the economy of capital. Now, the Treasury aims to clear the fog by buying up these investments. But their value is as mysterious as ever."
Read both Greider and Goodman and have a good cry! If the Cash for Trash bailout plan passes, you'll have to follow the example of the Ned Beatty character in "Deliverance" who was told: "Bend over and squeal like a pig!"
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PARALLEL UNIVERSE: Cash for Trash Federal Bailout Plan: When Greider Talks, I Listen
Dems and GOP Should, Too; Experts Want Punishment for the Executives Who Got Us Into This Sorry Mess
By David M. Kinchen
Huntingtonnews.net Real Estate Editor
After decades of covering the real estate industry, I've come to the conclusion that much of it is a sucker's game -- especially homeownership. People were told by builders and real estate agents that home prices would always go up, that a house was a sound investment, that it was a way of forced savings, that it would ease your tax burden, etc., etc., ad nauseam.
Blinded by the emotional appeal of homeownership, many shelter seekers were talked into houses way beyond their ability to handle financially, with the resulting current meltdown with massive foreclosures and rapidly declining home values. We're even finding that foreclosures, as measured by a supposedly reliable California (I know that's an oxymoron, "Reliable California" ) based company, RealtyTrac, are seriously undercounted in West Virginia and other "small" states.
With the Cash for Trash $700 billion bailout before an increasingly dubious Congress -- a good sign in view of other rush jobs put before our Senators and Representatives inside the Beltway by the Bush Administration -- maybe it's time to say "whoa, Nellie" and take a look at the major cause of the meltdown.
Surprise! It's real estate, specifically mortgages that were lumped together with little or no consideration of their soundness and used as financial instruments that could only come from Dr. Frankenstein's laboratory.
Searching for experts that I, Mr. Doom, consider relevant to the current situation, I came across an essay in The Nation by William Greider (Link:http://www.thenation.com/doc/20081006/greider). When Greider talks, I listen; he should have been secretary of the treasury instead of that creature of Wall Street, Hank Paulson. The Sept. 19 essay was picked up two days later by AlterNet and is must reading -- I emphasize, MUST READING -- and bears the headline:
Wall Street Is Licking Its Chops at the Bush Team's Multi-Hundred Billion Dollar Giveaway Plan
Here's the first graf, as we say in the news biz:
"Financial-market wise guys, who had been seized with fear, are suddenly drunk with hope. They are rallying explosively because they think they have successfully stampeded Washington into accepting the Wall Street Journal solution to the crisis: Dump it all on the taxpayers. That is the meaning of the massive bailout Treasury Secretary Henry Paulson has shopped around Congress. It would relieve the major banks and investment firms of their mountainous rotten assets and make the public swallow their losses -- many hundreds of billions, maybe much more. What's not to like if you are a financial titan threatened with extinction?"
Read this essay, which includes such gems as calling the two political parties what they are: "Washington's one-party government" and saying that the bailout would represent "an historic swindle of the American public -- all sugar for the villains, lasting pain and damage for the victims."
Greider would probably be considered a liberal, writing for The Nation as he does, but I think he's the ultimate realist, on a par with libertarian Congressman Ron Paul, R-TX, the man Mr. Doom wanted as the GOP Presidential nominee. I would march to the gates of Hell with Ron Paul, a man I voted for in 1988 when he ran as the Libertarian Party presidential candidate.
Greider imposes draconian conditions on any bailout plan:
"The step-by-step rescues that the Federal Reserve and Treasury have executed to date have failed utterly to reverse the flight of investors and banks worldwide from lending or buying in doubtful times. There is no obvious reason to assume this bailout proposal will change their minds, though it will certainly feel good to the financial houses that get to dump their bad paper on the government.
"A serious intervention in which Washington takes charge would, first, require a new central authority to supervise the financial institutions and compel them to support the government's actions to stabilize the system. Government can apply killer leverage to the financial players: Accept our objectives and follow our instructions or you are left on your own -- cut off from government lending spigots and ineligible for any direct assistance. If they decline to cooperate, the money guys are stuck with their own mess. If they resist the government's orders to keep lending to the real economy of producers and consumers, banks and brokers will be effectively isolated, therefore doomed."
I hear the cries: "That's Socialism, not Capitalism." Maybe, but what the heck is the entire Federal Reserve System, instituted in 1913 under the administration of the sainted Woodrow Wilson, another President who dragged us into a war we had no business in, World War I?
Read Greider, most recently the author of "The Soul of Capitalism" (Simon & Schuster), and also take a look at an excellent news analysis in the Sept. 23, 2008 New York Times (Link:http://www.nytimes.com/2008/09/23/business/23skeptics.html?th=&emc=th&pagewanted=all).
Written by Peter S. Goodman, the story bears the headline:
Experts See a Need for Punitive Action in Bailout
Goodman says that economists are increasingly skeptical about the bailout plan, adding that "Some are horrified at the prospect of putting $700 billion in public money on the line. Others are outraged that Wall Street, home of the eight-figure salary, may get rescued from the consequences of its real estate bender, even as working families give up their houses to foreclosure."
He goes on to add that there is "considerable" disagreement -- I can't believe economists disagree about anything! (just kidding; of course I can) -- about how to proceed with the major surgery required of our financial infrastructure.
Goodman continues, in an article that -- again -- I recommend:
“At first it was, ‘thank goodness the cavalry is coming,’ but what exactly is the cavalry going to do?” asked Douglas W. Elmendorf, a former Treasury and Federal Reserve Board economist, and now a fellow at the Brookings Institution in Washington. “What I worry about is that the Treasury has acted very quickly, without having the time to solicit enough opinions.”
One thing the economists agree on is Treasury Secretary Henry Paulson -- himself a product of Wall Street -- and giving this fox guarding the hen house "carte blanche to relieve major financial institutions of bad loans choking their balance sheets, all on the taxpayer’s bill."
Goodman makes an important point about the rushiness (a tip of Mr. Doom's porkpie hat to "Colbert Report" writers) of the bailout: "....an underlying source of doubt about the bailout stems from who is asking for it. The rescue is being sold as a must-have emergency measure by an administration with a controversial record when it comes to asking Congress for special authority in time of duress."
And he goes on to add:
“'This administration is asking for a $700 billion blank check to be put in the hands of Henry Paulson, a guy who totally missed this, and has been wrong about almost everything,' said Dean Baker, co-director of the liberal Center for Economic and Policy Research in Washington. 'It’s almost amazing they can do this with a straight face. There is clearly skepticism and anger at the idea that we’d give this money to these guys, no questions asked.'”
Referring to the 6-year old vote to authorize the invasion of Iraq, many of the experts cited by Goodman are " suspicious of Mr. Paulson’s characterizations, finding in his warnings and demands for extraordinary powers a parallel with the way the Bush administration gained authority for the war in Iraq. Then, the White House suggested that mushroom clouds could accompany Congress’s failure to act. This time, it is financial Armageddon supposedly on the doorstep."
As long as we're buying a pig in a poke, maybe we should use the approach Sweden did in the early 1990s, suggests Goodman in the story: "In Mr. Paulson’s plan, the Treasury would have the right to buy as much as $700 billion worth of troubled investments, with the taxpayer recouping the proceeds when those investments were sold over coming years. But many economists .... argue that taxpayers should get more out of the deal, securing stock in the banks that make use of the bailout. The government could then sell off that stock at a profit when conditions improve. A similar approach was used successfully in Sweden in the early 1990s when its financial system melted down."
Punishment should be more than a symbolic college fraternity pledge paddling, the economists assembled by Goodman say:
"... any bailout must pinch the people who have run the companies now needing rescue, along with their shareholders, addressing the unseemly reality that executives have amassed beach houses and fat bank accounts while taxpayers are now stuck with the bill for their reckless ways."
“It absolutely has to be punitive,” Mr. Baker said. “If they sell us the junk, then we own the company. This isn’t a way to make these companies and their executives rich. This should be about keeping them in business so the financial system doesn’t collapse.”
And finally, agreeing with my assessment at the beginning of this rant, Goodman writes: "The financial system got to its dangerous perch by betting extravagantly on real estate. When housing prices began plummeting and borrowers stopped making payments, financial institutions found themselves with huge inventories of bad loans. Not simple loans, but complex investments created by pooling millions of mortgages together and then slicing them into pieces. These were the investments that Wall Street bought, sold and borrowed against in cooking up the money it poured into housing."
Goodman: "The trouble is that these investments are so intertwined and complex that no one seems able to figure out what they are worth. So no one has been willing to buy them. This is why banks have been in lockdown mode: with mystery enshrouding both the value of their assets and their future losses, banks have held tight to their remaining dollars, depriving the economy of capital. Now, the Treasury aims to clear the fog by buying up these investments. But their value is as mysterious as ever."
Read both Greider and Goodman and have a good cry! If the Cash for Trash bailout plan passes, you'll have to follow the example of the Ned Beatty character in "Deliverance" who was told: "Bend over and squeal like a pig!"
Share This Story:
Make HNN Your Homepage (IE Users Only)
