C.R.E.A.M. - Bailout is Failing

After falling nearly 700 points within the first 30 minutes of trading, the Dow Jones industrial average regained some ground, but continued to bounce between positive and negative territory. It is down about 5.8 percent, or 498 points around the noon hour. It fell below 8,000 briefly today for the first time since March 2003 after falling below 9,000 for the first time since June 2003 yesterday.

The broader Standard & Poor's 500 fell 6 percent and the tech-heavy Nasdaq fell 5 percent.

Wall Street is facing deepening fears about the financial crisis and its spillover to other parts of the economy. Traders have shrugged off drastic government efforts to address the problem, from a global rate cut to plans to buy bank's toxic mortgage debt. The Bush administration is now hammering out the final details of a plan that would allow the government to inject cash into banks in exchange for ownership stakes.  Read Article Here.

Bailout - Passed in the Senate

In stark contrast to the House rejection of the plan on Monday, a bipartisan coalition of senators — including both presidential candidates — showed no hesitation in backing a proposal that had drawn public scorn, though the outpouring eased somewhat after a market plunge followed the House defeat. The Senate margin was 74 to 25 in favor of the White House initiative to buy troubled securities in an effort to avoid an economic catastrophe.

Only Senator Edward M. Kennedy, who is being treated for brain cancer, did not vote.

The presence in the Senate of both presidential candidates in the final weeks of the campaign gave weight to the moment. The political tension was clear as Senator Barack Obama walked to the Republican side of the aisle to greet John McCain, who offered a chilly look and a brief return handshake.

Mr. McCain did not make remarks on the legislation. Mr. Obama, in his speech, said the bailout plan was regrettable but necessary and he referred to the stock market drop after the House vote. “While that decline was devastating, the consequences of the credit crisis that caused it will be even worse if we do not act now,” he said.  Read Article Here.

This should help the market tomorrow.  It would surprise me if the House did not pass it.

Bailout Redux - More Info

To calm voters fearful of bank failures, the $100,000 cap on federal insurance for deposits would also be raised to $250,000—a concession backed by both parties but also aimed at community banks who can be helpful in building small town support for the larger bill.

With each permutation, the bill has steadily grown in size. Treasury’s initial plan was about three pages long. The House version, which failed, stretched to 110. The Senate substitute now runs over 450 pages. And tucked away in the tax provisions is a landmark health care provision demanding that insurance companies provide coverage for mental health treatment—such as hospitalization—on parity with physical illnesses.

Really a bill onto itself, the mental health parity measure has been a bipartisan priority for top lawmakers in both chambers but has stalled because of disagreements again over how to pay for its estimated $3.8 billion five-year cost. In the current climate, that seems to be no longer a stumbling block, and if the Treasury plan becomes law, it will also.  Read Article Here.

I like the idea of adding to the bill to help Americans.  The new bill has provisions for mental health and education.  I do not like the fact that it will add several Billion dollars to the deficit. I am not sure this bill will pass the House.  It sounds like it will certainly pass the Senate, but there is a lot in this new bill that both Democrats and Republicans will dislike.

Bailout Redux

In what is shaping up to be yet another historic vote, presidential candidates Barack Obama and John McCain will return to Washington for a late Wednesday night vote. 

But unlike the tumultuous House vote, the Senate roll call is expected to go more smoothly. While nothing is a slam dunk at this point, there is an expectation on both sides of the aisle that the bailout could receive 60 votes in the Senate, enough to overcome any potential filibuster. 

The decision to hold this vote Wednesday in the Senate comes after Minority Leader Mitch McConnell (R-Ky.) spent much of the day pressuring the Senate Democrats to put the bill on the schedule. Late Tuesday, Majority Leader Harry Reid (D-Nev.) relented and agreed to schedule the vote after sundown on Wednesday, when Rosh Hashana ends. 

“The voters sent us here to respond to crises, not to ignore them," McConnell said. "And if you fail the first time, you get back up, and you work with each other.”  Read Article Here.

Not sure if I support this new legislation.  It added tax breaks for businesses and does not pay for revenue increases.  I think that we should stop giving business so many tax breaks, especially the ones that we have to bailout.

Bush Wants Decisive Action...Again

Appearing drawn and frustrated, Bush said in remarks at the White House that this is a "critical moment" for the U.S. economy. He noted that yesterday's single-day loss on the stock market, estimated at more than $1 trillion, was greater than the highest estimated cost of his administration's bailout plan.

"The consequences will grow worse each day if you do not act," Bush said, addressing dissident lawmakers. He added a moment later: "Our economy is depending on decisive action from the government...This is what elected leaders owe the American people."

"Our country is not facing a choice between action and the smooth functioning of the free market. We are facing a choice between action and the real prospect of financial hardship" that will be felt across the board, Bush said.  Read Article Here.

I am glad that Congress stood up to Pres. Bush and his cronies.  The last thing that the nation needs is decisive action without fully understanding the long term consequences.  Isn't decisive action what got the US in Iraq? Afghanistan? Illegal Wiretaps? The Patriot Act? This mess in the first place?  To quote Mr. President, "fool me once, shame on—shame on you. Fool me—you can't get fooled again".

Bailout: A Day Later

Slate on Republican Candidates Chances with Election:

For in the meantime, the chaos they've created by coming to the table and then throwing a fit works to their disadvantage. Each time a deal is close to done and then gets scuppered, the market (and its many participants) freaks out. Huge quantities of wealth are destroyed. The markets fell about 8 percent after today's stunt, likely wiping out close to $1 trillion in wealth. In so doing, they're turning off whatever base the party had left on Wall Street and likely closing off a huge source of campaign cash. Asked for his evaluation of what took place today, Lawrence Fink, the CEO of asset management giant Blackrock, said, "Major disappointment came from the Republican side." A Republican congressman who shows up for a fundraiser in Manhattan this week is likely to get tarred and feathered. In some congressional races, I suppose financial dislocation and bank failures could plausibly be good news for Republican challengers—but only if the challengers can pin them on the incumbent Democrats.

BU Today interviewing Professor Simon Gilchrist:

If you were in Congress, would you have voted for this plan?

Yes. Last weekend’s bailouts of European banks highlight the fragility of the global financial system and how far and how rapidly this problem can spread. A financial meltdown would severely impair the ability of households and firms to obtain the credit necessary to continue funding ongoing operations and spending plans.

Based on the “financial accelerator” economic model I developed in conjunction with Ben Bernanke [chairman of the Federal Reserve Board of Governors] and [NYU economist] Mark Gertler in the 1980s, my recent research suggests that even prior to this September’s events, the financial crisis was creating a drag of about 2 percent on GDP growth. Since then, things have gotten worse, and I anticipate that even with the bailout, we will see a mild recession in the coming year. However, without a bailout, it would likely be a severe global contraction. While people can argue over the details of the plan, it does put in place a mechanism by which the government can intervene to alleviate the systemic risk associated with this financial crisis.

In the short run, the bailout will unfreeze the interbank lending market, the commercial paper market, and other key financial markets required to finance short-term lending. This will reduce the cost of credit to consumers and firms and allow them to obtain financing that would otherwise be unavailable. This, in turn, will alleviate pressure on the economy and reduce unemployment and increase growth. In the long run, however, taxes will be raised or spending cut to pay for this. Also, lending standards will be tighter, which ultimately is probably a good thing. 

Politico ponders the future for Rep. Boehner:

The leader lost the support of some of his closest allies in the House — including Iowa Rep. Tom Latham and California Rep. Devin Nunes, two drinking buddies who helped lay the foundation for Boehner’s political comeback in 2006.

Another Boehner ally, Rep. Thaddeus G. McCotter of Michigan, physically turned his back on the leader during a tense closed-door GOP conference meeting Sunday night.

People who were in the room said McCotter left abruptly after Boehner told members not to attack one another. Boehner tried to reach out to McCotter as he left. McCotter kept walking.

Good Day for Barr

Didn’t see that one coming, did you?

Today’s bailout vote in the House embarrassed President Bush, the congressional leaders of both parties – and, to some extent, both major-party presidential candidates. Obama and McCain both endorsed the bailout proposal, and its failure to pass the House puts the two men in an awkward position as negotiations start all over again.

There was, however, one presidential “contender” who got on the right side of this issue: former Georgia Congressman Bob Barr. Barr called today’s bill “the bailout from hell” and warned it would make Henry Paulson “an economic dictator, empowered to reengineer the economy as he sees fit.” As Obama and McCain carefully parse their language in response to developments on the Hill, Barr has no such burden: he got what he wanted.

Of the two major-party candidates, McCain finds himself in a somewhat more uncomfortable position going forward, having watched congressional Republicans desert the bailout bill after one of his campaign aides bragged about McCain’s role in corralling GOP support. But after this afternoon’s surprise revolt against the bailout, it’s hard to say either he or Obama had a really good day. Barr, on the other hand, had an unexpected moment in the sun.  

Read Article Here.

Proposal For the Future

Initially I thought that the house not passing the bailout bill was an unbelievable and terrible thing for the economy. Then I read the bill itself, available here.  I obviously know that not passing the bill hurt the economy today, but I am not sure the bill would help the economy in the long term.  It gives too much power to the Treasury Secretary and President, and does not do enough to help the average person.

The Paulson plan, as originally presented on Sept. 20, would have bailed out the institutions holding mortgage derivatives without doing anything about the underlying homes or adequately protecting the taxpayer, who would have been taking the risk without potential for reward. Congressional negotiators addressed those glaring omissions in 'round-the-clock weekend negotiations and announced yesterday they had reached an agreement. Both the House and Senate plan to vote on the proposal this week.

We will never know what would have happened without the largest government bailout in history. And it's far from clear this new New Deal will be the end. Surely there is a better way to dispose of bad assets.   Read Article Here.

I think that a New New Deal is absolutely what is needed.  A new WPA is what the country needs.  It will provide employment for the average person, no matter their education level.  Unemployment is at a dangerous high, even higher among blue collar workers.  And the country desperately needs to be updated.  The harbors, highways and rail system all need to be modernized.  We need to build new factories to produce green technology and products.  It seems to me, that it is high time that the government starts to regulate energy policy and promote public works and green projects.  If it worked to get us out of the Great Depression, it will work to get us out of this Depression.

Another Day, Another Bank

Citigroup reached an agreement early Monday morning to acquire the banking operations of the Wachovia Corporation after making a daring bid that pulled the deeply troubled company from the brink of collapse.

Citigroup will pay $1 a share, or about $2.2 billion, according to people briefed on the deal.

Federal regulators worked around the clock this weekend to orchestrate the sale, finally reaching an agreement at 4 a.m. on Monday morning. In the end, the government agreed to provide Citigroup with a financial guarantee on Wachovia’s most risky assets. It is similar to the deal that the Federal Reserve established with JPMorgan Chase’s emergency takeover of Bear Stearns.  Read Article Here.

C.R.E.A.M. - Failed Bailout

Treasury’s $700 billion Wall Street rescue plan collapsed in the House on Monday, sending a shock through financial markets and leaving the Bush administration scrambling to find some new path to deal with the credit crunch facing the American economy.

Republican defections proved fatal to the massive government intervention, which was rejected 228-205. Despite bipartisan appeals from the leadership, anti-Wall Street sentiment and the huge scale of the proposed government intervention proved too much for Treasury to prevail.

Democrats more than delivered a majority of their caucus, and Speaker Nancy Pelosi (D-Calif.) held the vote open to bring her numbers up to 140 votes for the package. But Republicans never topped 70, and the final GOP split was 133 against the bill and only 65 for the measure.

After the vote, Republicans claimed that the Democratic leadership had been warned that fewer than 60 Republicans would vote for the bill. Democrats denied the claim, saying they never would have brought the bill to the floor if they had been told there was so little Republican support.  Read Article Here.

Clearly McCain's attempt to moderate discussions and deliver the Republicans failed.  I have a feeling that this is not going to help the financial situation.

Pelosi: McCain's involvement, meeting at White House "disruptive"

“I think Sen. McCain's involvement is sort of a blip.”

Pelosi called Thursday's meeting with the president, congressional leaders and the presidential candidates “disruptive” to the negotiations “because we had to begin writing the bill.”

“We can't take the bill to the floor until the bill is written, and we were on a path to that. It took a whole afternoon. And that time is important to us,” Pelosi said.  Read Article Here.

On a side note, if Pres. Clinton and Sen. Liberman could just switch their party affiliation to Republican, it would save us a lot of time.  The two of them are practically campaigning for McCain.  If they like him that much why not switch teams?

The Stunt Failed

Sen. John McCain (R-Ariz.) ended three days of suspense on Friday morning and announced that he will leave bailout negotiations in Washington and fly to Oxford, Miss., for tonight's opening presidential debate.

McCain had previously said that he would suspend his campaign—and so would not attend the debate—until an agreement was reached on the administration's $700 billion mortgage proposal.

No such agreement has been reached, but Republicans said the standoff was hurting McCain's campaign and that he would look terrible if he didn't attend the nationally televised, eagerly anticipated debate, while Sen. Barack Obama (D-Ill.) was ready to go on stage.  Read Article Here.

McCain's Chief of Staff

One of the giant mortgage companies at the heart of the credit crisis paid $15,000 a month from the end of 2005 through last month to a firm owned by Senator John McCain’s campaign manager, according to two people with direct knowledge of the arrangement.

The disclosure undercuts a remark by Mr. McCain on Sunday night that the campaign manager, Rick Davis, had had no involvement with the company for the last several years.  

Freddie Mac’s payments of roughly $500,000 to Davis Manafort, the people familiar with the arrangement said, began in late 2005, immediately after Freddie Mac and Fannie Mae disbanded an advocacy coalition that they had set up and hired Mr. Davis to run.

From 2000 to the end of 2005, Mr. Davis received nearly $2 million as president of the coalition, the Homeownership Alliance, which the companies created to help them oppose new regulations and protect their status as federally chartered companies with implicit government backing. That status let them borrow cheaply, helping to fuel rapid growth but also their increased purchases of the risky mortgage securities that proved to be their downfall.  Read Article Here.

If Obama can not capitalize on this then I give up.

George F. Will on McCain

Channeling his inner Queen of Hearts, John McCain furiously, and apparently without even looking around at facts, said Chris Cox, chairman of the Securities and Exchange Commission, should be decapitated. This childish reflex provoked the Wall Street Journal to editorialize that "McCain untethered" -- disconnected from knowledge and principle -- had made a "false and deeply unfair" attack on Cox that was "unpresidential" and demonstrated that McCain "doesn't understand what's happening on Wall Street any better than Barack Obama does."

To read the Journal's details about the depths of McCain's shallowness on the subject of Cox's chairmanship, see "McCain's Scapegoat" (Sept. 19, Page A22). Then consider McCain's characteristic accusation that Cox "has betrayed the public's trust."  Read Article Here.

C.R.E.A.M. - Vegas Style

Let’s understand what happened here. Wall Street — the financial industry — became a bubble in recent years thanks to an excess of liquidity and the oldest bubble maker in history: greed. Some of the smartest people forgot one of the oldest rules of investing: There is no such thing as a risk-free return. When you reach too far for yield, sooner or later you get burned.

In the ’90s, the no-lose, risk-free, high-yield return was supposed to be dot-com stocks. This decade’s version are subprime mortgages and financial stocks. Just like the dot-comers in the 1990s, the financial stocks got inflated to ridiculous levels and salaries for Wall Street executives reached ridiculous heights. You are now watching live and in color that bubble burst: “Thank you for playing, Lehman Brothers.” That’s really sad for a 158-year-old company.  Read Article Here.

Last Post on this Subject

All in all, it adds up to a huge win for Obama, right? Not exactly. (At this point in the campaign, the only huge wins are in contests of height or age.) For Obama to take advantage of this moment, he has to convince voters he's going to change their lives. He can't use it as merely another opportunity to paint McCain as out of touch.  Read Article Here.

I am done with this subject.  At this point we all get it, McCain is bad on the economy.  And as the article points out, Obama has to be careful with the subject. If he continually points out the economy sucks, then he will become the candidate of gloom and not the candidate for change.  I am sure Obama's people are thinking of ways to make the campaign about the economy and how Obama will change the economy and the American people's lives for the better.

C.R.E.A.M. - Lehman Brothers and Merrill Lynch

Republican John McCain said today the fundamentals of the U.S. economy are still strong despite the collapse of some of Wall Street's top financial institutions and the tumbling of the stock exchange.

Democrat Barack Obama called the turmoil in the financial markets "a major threat to our economy and its ability to create good-paying jobs and help working Americans pay their bills, save for their future and make their mortgage payments."  Read Article Here.

As if we need anymore proof, John McCain does not understand anything having to do with the economy.  As I write this the DOW is down over THREE Hundred Points due to Merrill Lynch acquisition and the Lehman Brothers bankruptcy.  When the market is down this much, how can you really say that it is still strong?

I was one of those half-million

Mr. Obama is not taking public financing — the $84 million cash infusion from a government presidential-election fund that Mr. McCain will receive — so his fund-raising burden is considerably higher than his Republican rival’s.

But almost more important than Mr. Obama’s August total may be the fact that it came partly from a half-million first-time donors, most of them far from having contributed the full $2,300 per person allowed in any general election.  Read Article Here.

While not taking public financing is a dicey idea, it certainly has created a greater base for Obama.  Over half a million people have decided to donate, I would bet most of whom are young and a $20 donation is not a small amount of money.

Another One Bites the Dust

Fearing that a failure of Lehman Bros. could topple other financial firms, senior officials of the Federal Reserve and Treasury Department were talking with the struggling company and potential buyers Thursday to try to smooth the way for a sale of the venerable investment bank, people familiar with the situation said.

The 158-year-old Wall Street institution has seen its shares fall 70% in the last three days. A sale of Lehman Bros. Holdings Inc. -- at what would be a bargain price -- would make it the second major Wall Street firm to succumb to the nearly 2-year-old mortgage crisis.  Read Article Here.

This is a bad sign.  Not sure who would want to invest in Lehman Bros. though.

C.R.E.A.M. - Fannie May/Freddie Mac debacle

The Republican nominee, Mr. McCain of Arizona, has numerous close relationships with and contributions from current and former company lobbyists.

Mr. Obama, his Democratic rival from Illinois, is second among members of Congress in donations from the firms’ employees and political action committees.

Beyond the antilobbyist message, Mr. Obama also indicts the Bush administration and the Republicans who controlled Congress for a dozen years until 2007, including Mr. McCain.

Read Article Here

This is bad for both men.  Neither really did enough to stop the housing crisis.  McCain seems to be in a worse position simply because he has close ties to lobbyists, including his inner circle.  Then again Obama has taken a lot of money from both of these companies.