We should toss him a couple of bucks...
The Congressional Bailout attitude:
Yeah, I know its repeat -- but its so good, I had no choice . . .
Thursday, September 25, 2008 | 03:00 PM | Permalink
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Is anyone watching spreads? You would expect them to start coming in soon or there is going to be serious trouble.
If this doesn't work, we might be treated to the ridiculous spectacle of Bush-Paulson going on TV again next week for another one....
The installment plan comments on the previous thread were priceless. There is every chance that with this plan, we can all buy a bank on layaway. I am sure that is Buffett's aim.
Posted by: leftback | Sep 25, 2008 3:11:16 PM
rising rates anyone?
http://www.reuters.com/article/Restructuring08/idUSTRE48MAGG20080923?sp=true
Posted by: karen | Sep 25, 2008 3:12:37 PM
I was just thinking Govt could park the 700B in stock market, ban short selling on all stocks, lower Fed funds rate to zero, then cash out.
caught tale end of BR phone interview on Bloomberg this morning. Good stuff.
Posted by: cloudy | Sep 25, 2008 3:12:47 PM
Toss him a few bucks?!?
More like the guy wants to tap the carotid artery in a fashion similar to Dracula!
Posted by: Chief Tomahawk | Sep 25, 2008 3:15:46 PM
leftback, you are on point about watching the spreads. That cartoon says it all. This bailout is as much about reflating the False Prophet Index called the Dow Jones Industrial Average as it is about mitigating the risk of credit market failure. In the end, no bailout will save the Dow, but we can only hope the real calamity is prevented and not exacerbated by a Congressional rush to judgment that has not properly vetted Hank and Ben!
Posted by: CNBC Sucks | Sep 25, 2008 3:19:02 PM
TED spread down from 3.3 to just below 3.0... long way to go.
Rates are surprisingly sticky. The Chinese have decided that we are not all going to meltdown together in a single day. Cue the "water torture" for US Treasuries.
Posted by: leftback | Sep 25, 2008 3:19:34 PM
STOP THE HASTY BAILOUT BILL!
(1) This hasty bailout WILL NOT SOLVE THE GLOBAL CREDIT CRISIS. All the intelligent economic folks agree on this - Congress needs to hear them, not Paulson.
(2) This hasty bailout COULD EASILY MAKE THINGS WORSE. Giving even more money to the SAME STUPID PEOPLE who have just LOST TRILLIONS is asking for trouble.
(3) Congress must take the time to talk with REAL EXPERTS - those who have foreseen this and been RIGHT about this mess. They have to stop listening to those who have been wrong time after time - and GET A BETTER PLAN.
Posted by: Wisdom Seeker | Sep 25, 2008 3:20:52 PM
Should be renamed to the 'Goldman Sachs Asset Relief act"
Paulson Plan Aimed at Helping `Poorly Run' Banks, Allison Says
"the primary beneficiaries would be Goldman Sachs Group Inc. and Morgan Stanley, said BB&T Corp. Chief Executive Officer John Allison in a critique of the plan."
Posted by: BlackSwan2008 | Sep 25, 2008 3:24:45 PM
This is interesting. Who would you trust - Bloomberg News or Sheila Bair? FDIC seems to think it can just expand infinitely to cover all losses.
http://calculatedrisk.blogspot.com/2008/09/fdic-responds-to-bloomberg-story-on.html
I am starting to worry more and more, after this afternoon's BoTox injection into the banking system (250 billion per injection in Dr Paulson's surgery) that this "thing is going to blow" (was that Fleckenstein?). TED spread is not coming in yet guys.
Pretty soon I will have to rejoin the TBP collective and go "all-in" on QID....
Posted by: leftback | Sep 25, 2008 3:34:07 PM
No doubt, members of Congress are already figuring out how they’re going to spend the $700B - - if and when the treasury is able to sell all that toxic mortgage-backed paper.
After cashing out, the money won’t be used ultimately to pay down debt; the existence of the debt will just be an excuse to raise taxes at some point down the road.
(And no, the wealthiest 2% can’t possibly pay for all this).
Posted by: DL | Sep 25, 2008 3:40:03 PM
i'm with you on qid! gotta wait till we see the whites of their eyes though...in the meantime, i want the market to go up, up and awaaaay!
the name of this plan is "Economic Patriot Act" see:
http://www.nakedcapitalism.com/2008/09/goal-of-paulson-plan-restore-mark-to.html
http://www.creditwritedowns.com/2008/09/paulsons-economic-patriot-act-is-about.html
Posted by: karen | Sep 25, 2008 3:41:03 PM
What we have here is cognitive dissonance on steroids.
Stay strong, friends. In my life I have seen much mendacity from the government but never with such sanctimony and conviction. No wonder such despicable people rise to the top in our system. The formula (No virgins allowed; you either make you bones or we pick your bones) leaves no room for integrity.
Posted by: AGG | Sep 25, 2008 3:41:45 PM
Does anyone know if Paulson still owns shares in Goldman Sach's??? Is there any chance there may be some conflict of interest going on here (self-preservation) with his mental processes?
Posted by: coler | Sep 25, 2008 3:48:20 PM
now I feel the need to apologize for being so glib. these are serious times. thus far, we still have freedom of speech; and I am grateful for that.
Posted by: karen | Sep 25, 2008 3:52:01 PM
the bull should be wrapped in blanket with his butt in the air... no?
Posted by: Bob A | Sep 25, 2008 3:52:41 PM
I think I see one possible scenario from here:
They sign the bill, spreads gradually come in over a few days, somehow the banks stumble through the refunding. Index shorts cover and stocks rise as we see rotation from Treasuries into stocks and the last shorts are slowly squeezed out of the market. Cramer urges everyone to buy, buy, buy.
The market rises until a critical resistance level (1300, 1350..?), at which time profit taking triggers a pull-back in low volume trading, the market falls .... no short sellers to cover, express elevator. 1929, deja vu all over again. All aboard the D-train™. The Hunt for Red October.
The installment plan bailout has convinced me that our leaders have no idea what they are doing. I have morphed into Steve Barry.
Posted by: leftback | Sep 25, 2008 3:54:19 PM
This is a cut 'n paste from a thread on the Bailout from Mish's blog (http://globaleconomicanalysis.blogspot.com/) which was continued over at the Ticker Forum...
I believe the real reasons for the Bailout are contained within as well as the curious provision about accepting toxic waste of certain FOREIGN banks....
"Nobody can come out and say that. Period."
As far as the US Treasury and Federal Reserve is concerned, there are 16 VERY good reasons why this "bailout" MUST go through ASAP. They are:
BNP Paribas Securities Corp.
Bank of America Securities LLC
Barclays Capital Inc.
Cantor Fitzgerald & Co.
Citigroup Global Markets Inc.
Credit Suisse Securities (USA) LLC
Daiwa Securities America Inc.
Deutsche Bank Securities Inc.
Goldman, Sachs & Co.
RBS Greenwich Capital
HSBC Securities (USA) Inc.
J. P. Morgan Securities Inc.
Merrill Lynch Government Securities Inc.
Mizuho Securities USA Inc.
Morgan Stanley & Co. Incorporated
UBS Securities LLC.
These are the primary dealers in US Treasury securities. Between them, THEY PURCHASE THE VAST MAJORITY OF US GOVERNMENT SECURITIES SOLD AT AUCTION and then re-sell them to their foreign and domestic customers.
When they have a problem (like hopelessly impaired balance sheets), the US Treasury has a problem. The impaired balance sheets of many of the primary dealers is starting to hinder their ability to participate in Treasury auctions.
This could lead to FAILED Treasury auctions in the very near future.
The reason the real truth cannot be stated by anyone is obvious. They would have to state flat out:
"The economy is going to hell in a handbasket and the deficit next year is going to go through the roof. To get ready to finance this whopper of a deficit, we are going to have to help out our primary dealers by giving them $700 Billion in balance sheet relief. The Treasury will do this by buying distressed assets from them at above market prices."
Even at today's ridiculous artificially low Treasury yields, the interest on the Federal Debt is over $400 billion per year.
This year's budget deficit was around $400 Billion. With next year's budget deficit expected to approach or maybe exceed $1 TRILLION, they will need to have the primary dealers be able to absorb an ADDITIONAL $600-$700 Billion.
Do you think they plucked that $700 Billion figure out of thin air?
Paulson's plan is to give the primary dealers $700 billion of balance sheet relief with the understanding that they replace DOLLAR FOR DOLLAR the toxic mortgage securities they offload to the Taxpayer with newly issued US Treasuries.
Makes getting through next year's "challenging Treasury calendar" a heck of a lot easier.
No Tin Foil required here. It is simply a matter of financing the Gubbermint.
This whole thing is about lining up financing for next year's HUMUNGOUS Federal Budget Deficit in advance.
The $700 Billion "gift" allows the primary dealers to handle $600-$700 Billlion more in expected 2009 Treasury issuance than they were able to do this year. They were able to handle $400+ Billion this year, so with $700 Billion of "help", they should be able to absorb the $1 Trillion next year.
Can you imagine Paulson and Bernanke telling a Congressional Committee that we expect the economy to completely tank next year and that the budget deficit is going to approach or exceed $1 Trillion? And by the way we need you to help the Primary Dealers out with $700 Billion in balance sheet relief at taxpayer expense so that they can help us finance it.
No. They can't do that. So this is what we get. Vague references to "financial meltdown". It's not like they are out-and-out lying. Failed Treasury auctions will not produce pleasant consequences for anyone in the US.
I have said before that I am sure that the Chinese have already made "the phone call". The one where they say "You start printing and we start selling." This approach keeps them in the game.
The taxpayer gets benefits from this as well. Assuming the primary dealers get the $700 Billion in balance sheet relief and are able to absorb the $1 Trillion in new issuance next year, the taxpayer avoids a tax increase and interest rates stay low.
--This is a ****ing death spiral, using debt to wedge open channels to acquire more debt to pay for existing debt.
we shouldn't have let even the feddie/fannie bailout happen, or even the stimulus. Those obviously did nothing to improve our deficit.
US debt is going to ****ing explode.
They underestimated this year's borrowings. We will have borrowed $792B in money from US Treasuries for this fiscal year. Hmmmmmm...next year's red ink is going to be much worse.
Interesting. Primary dealers must meet certain liquidity and quality requirements. So, if all of the existing primary dealers withdrew from the list of primary dealers (since they are pretty much insolvent), then funding of US dept will skyrocket.
As Doug Noland would say, Ponzi Finance Dynamics. No matter how much money you throw at the problem the next round is exponentially bigger because it's a freakin' Ponzi scheme.
Then what's gonna happen if they only get 150 billion?
BOOM!
Posted by: brion | Sep 25, 2008 4:00:54 PM
>> I have morphed into Steve Barry.
LOL!! Me, too.
Leftback, I like your analysis and bailout plan (on the other thread). But, we're tilting at windmills...
Posted by: wunsacon | Sep 25, 2008 4:05:55 PM
one more bit of it...
"This also could explain why they are so reluctant to ask for equities...they can't nationalize foreign banks..."
"I think you hit _one_ of the nails right on the head with this preceptive comment."
Posted by: brion | Sep 25, 2008 4:06:47 PM
Very plausible, brion.
Posted by: wunsacon | Sep 25, 2008 4:11:23 PM
@ Brion:
Compliments on a thoughtful post and a very sound argument. As always there are two sides to every trade, and the Chinese and Japanese holders of Treasuries were obligatory participants in the US easy money orgy. Your arguments on the $700B figure do seem quite plausible. Now perhaps we know what Hank and Ben told the congressional leaders behind closed doors.
Posted by: leftback | Sep 25, 2008 4:40:50 PM
All empires end in big piles of debt.
I for one welcome our new Chinese overlords. BTW, they are launching a spacewalk rocket today. ;^)
Posted by: donna | Sep 25, 2008 5:14:50 PM
if any of y'all haven't been reading Doug Noland, please start. He's been on top of this 'Debt Dynamic' for many moon.
Look, we gotta start looking through the curve. I don['t think many have fully contemplated what John Edwards was driving at, with his phrase of "Two Americas".
LSS, if we don't stop this train of abuse, we're going to have a socio-economic pyramid, 5-10-85, that would be the envy of any 3rd-World Tinhorn.
past that, brion's take is spot-on, but, problem is, there's no way, that I see(I'd love to learn of one) to, effectively, trade it, from a Financial Markets POV.
As I was saying in a previous thread, next up is HP's 'Financial Modernization' programme--that's gonna shoot this Economy so full of Plasticizer that it'll be ready for Madame Tussaud's place. After that, we'll really understand how the DoD guides JDAMs, and how that's going to apply to our 'Free-Market'.
Posted by: Mark E Hoffer | Sep 25, 2008 5:35:39 PM
I've been reading Doug Noland since 2002 in the prudent bear web site. He has been tracking all the bubbles quite effectively. He is now concerned that an all out effort is underway to FURTHER inflate the bubble(s) so the destruction is postponed again.
brion is right on with his scenario.
I'm concentrating on living the rest of my life in a way that rejects all credit. If we all did this, the financial parasites would wither on the vine along with their bribes and threats to congress. Human nature isn't going to change but you don't have to feed the greed.
And as to the meeting between the two presidential candidates and the former candidate who stole the presidency, let me speculate:
Here's the deal guys. You vote for the plan and I'll "take care" of the elections for you. One of you plays the loser and the other the winner. You reject this and you have no future. I'll take the heat and rail at the "winner" while the "winner" bad mouths me day and night. Your approval rating goes through the roof and you can trash any program you want and spend as much on war or whatever as you want. Hey, look at me. I got away with it. You can too, heh, heh.
Posted by: AGG | Sep 25, 2008 6:02:11 PM
For what it's worth:
A close family friend is a member of the House of Rep's. In an e-mail from her this evening:
"we are already considering all the market ideas we can and there are not the votes up here to pass anything like is suggested. We may have 30 people max on Rep side who wd vote for it and Dems may have 100 – but that is the outside. We are willing to stay here as long as it takes to do it right and have told them that."
Perhaps calmer heads will prevail, and we will come up with a market-drivin solution and not a knee-jerk reaction with holes throughout. Keep calling, be heard.
Posted by: CPJ | Sep 25, 2008 7:09:50 PM
