A Bailout to Bail Out the Bailout?

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Will it Take a Bailout to Bail Out the Bailout? What's Next?
by Danny Schechter
The crisis is deepening. The Senate tacked on $150 BILLION in tax cuts and a rise in FDIC insurance–something banks have NOT been paying for, by the way– and passed the bailout 74 to 25 with Obama, Biden and McCain voting yes.
Senator Kennedy was not there. 9 Dems said no along with Vermont independent Bernie Sanders.
The NY Times notes the bill does “little to avert foreclosures or defaults.” The Times introduces a new figure saying now that SIX MILLION homeowners are expected to default. The House votes Thursday or Friday.
The Wall Street Journal reports the Fed is considering another rate cut. “as recession fears mount.”


Michael Moore offerered two proposals I liked but seemed to be coming from another planet for a legislative body that likes a no blame game, in part because they are all complicit for reasons of omission and commission.

1. APPOINT A SPECIAL PROSECUTOR TO CRIMINALLY INDICT ANYONE ON WALL STREET WHO KNOWINGLY CONTRIBUTED TO THIS COLLAPSE. Before any new money is expended, Congress must commit, by resolution, to criminally prosecute anyone who had anything to do with the attempted sacking of our economy. This means that anyone who committed insider trading, securities fraud or any action that helped bring about this collapse must go to jail. This Congress must call for a Special Prosecutor who will vigorously go after everyone who created the mess, and anyone else who attempts to scam the public in the future.

2. THE RICH MUST PAY FOR THEIR OWN BAILOUT. They may have to live in 5 houses instead of 7. They may have to drive 9 cars instead of 13. The chef for their mini-terriers may have to be reassigned. But there is no way in hell, after forcing family incomes to go down more than $2,000 dollars during the Bush years, that working people and the middle class are going to fork over one dime to underwrite the next yacht purchase.

Fat chance with this crowd who rarely consider a bailout they don’t like, except if it is for middle class and working class Americans. “The Decider,” President Bush cheered the bill’s passage.


Activist David Swanson argues:

The Constitution requires that the House vote first on spending bills, but the Senate just voted first, and did so by trashing the memory of the late Senator Wellstone, using his bill on mental health coverage.
The Senate has voted to spend money it does not have to give the executive branch powers it cannot safely be given — all in order to dump OUR money on a bunch of billionaire bankers, all motivated by a bunch of fear-mongering lies and the legalized bribery of campaign contributions.

Strong stuff. True?

As you will read, the language of the response is now being characterized as a Rescue, not a nasty old BAILOUT, to sell it better. Congress is now projecting itself as benevolent, not in collusion with Wall Street greedsters, The recent market shocks and the spread of the crisis to Europe are cited for why action must be taken to save the system from itself.

I am doing my best to keep up with it all, in this blog, with articles, public appearances and media interviews. I am still getting on the air more overseas than here. The media companies I worked for seem disinterested in other voices. Yesterday, I was on Swedish National Radio and the day before, on with Dutch Radio NOS. Last night I spoke with Russian State Television as musicians and fans attended a show at Brooklyn’s Public Assembly Club in “Billyburg” to condemn foreclosures with reworks of the Kozo Dozo “Home Sweet Home Project.” I raved while others rapped.

Happily I was also recently on Grit TV with the engaging Laura Flanders—see video on Mediachannel home page—and, yesterday afternoon on Wisconsin Public Radio,

Most of the media attention still focuses on Washington. We hear mostly from politicians, not from ordinary people. There is one strong exception in the reporting of Jim Dwyer in the NY Times who went up to the Bronx, a half hour from Wall Street to tallk with residents of one of America’s poorest Congressional districts. He has an ear for voices we rarely hear:


There has also been little attention paid to how the contagion is spreading worldwide or how the Treasury is already wheeling and dealing with Wall Street on conference calls

Dealmaker, A wall St Tabloid live blogged some of the calls that the Treasury has been making to Wall St firms to get them on board.

Live-Blogging The Treasury Call

8:54: Okay, someone please please dial in because the hold music sounds so damn familiar but I can’t figure out what it is and it is killing me.

9:00: I’m still on hold

9:02: Yes, Stairway to Heaven! And still holding

9:04 Michael Peace (?) takes the mic “this is very positive…we’ve worked hard with congress…it’ll be good…Neil from the treasury will go over how the warrants works and exec comp”

9:05 Broad discretion for the treasury

9:06 Neil takes the mic
You might’ve heard the headline number: seeking 700 bn. for residential and commercial assets. (yes, we’re aware). “we sought broad authority and flexibility”

- They might use the authority for “other instruments”

- Let us be clear: “targeted at financial system NOT failing institutions, though there are some institutions in that system that are, you know, failing.”

9:08: Any institution that has a “meaningful presence in the US” should be allowed to participate. Congress said they wanted: oversight, tax payer protection. OUR highest priority: “making sure it works”…it needs to attract companies to participate…warrants, exec comp were highly negotiated…we think we have enough flexibility to have a system that works.

- On warrants: tax payers should benefit
- Differentiates between “Market purchases” and “Direct purchases”
- Direct purchases: failing institutions that the treasury needs to help. “think bear stearns. think AIG”…we’ll be very aggressive…In future cases, we’d do the same thing…nothing new here. We’ll take as many or as few warrants as the treasury wants.
- Market purchases: institutions sell assets voluntarily. For companies that sell more than 100 mm into this fund, they must give them warrants. Treasury had “broad discretion” to determine amount…For companies that sell more than 100 mm into this fund, they must then give warrants. Ex: if a company sells 200 mm, the first 100 will not have warrants associated, the second would.

- Unclear if bill gives them different powers in each situation or if they are just saying they will use “broad discretion” differently…Notes: “We don’t want just failing institutions to participate, we want healthy institutions!”

- Executive Comp: people were “very emotional” both dems and republicans…we don’t want to reward failure…in a direct deal, regarding exec comp, like aig, we’d prob fire management, get rid of golden parachutes. We feel this is appropriate.


Not according to economist Nouriel Roubini who fears a market meltdown The RGE Monitor explains.

In his latest writing, Nouriel Roubini states the reasons for why the U.S. and global financial crisis is becoming much more severe in spite of the Treasury rescue plan. The risk of a total systemic meltdown is now as high as ever since the credit crunch is gripping European banks as well. In the past four days, the governments of no less than seven European countries were required to nationalize banks or guarantee the deposits of large cross-border banking institutions. The exposure of European banks is threefold: first, as direct buyers of ABS based on U.S. originated assets; second, there is substantial credit enhancement for EU banks provided by AIG and U.S. based monolines; third, because of the bursting of domestic housing bubbles in UK, Ireland, Spain, France, emerging Europe with a 2-year lag with respect to the U.S.


Asks Peter Boockvar of Millar Tabak:

…the Paulson bailout plan is a government bailout of the previously failed government bailout which was a bailout of the previously failed government bailout etc… Each bailout had its own unintended consequences which the next bailout tried to address. Greenspan bailed out the economy after the stock market bubble popped with 1% interest rates which sowed the seeds for the credit bubble. In order to bail us out, Bernanke slashed interest rates to 2% and a dramatic rise in commodity prices ensued. When that bailout didn’t work, he instituted a bailout of the investment banks with the initiation of the TSLF and PDCF credit facilities for investment banks. That slowed down the de-leveraging process as it gave the investment banks a false sense of security.

I highlight Dick Fuld’s comments soon after it began where he said it takes the liquidity issue off the table. The lack of dramatic de-leveraging brought us to last week’s panic in GS and MS, a failed LEH and a shotgun wedding for MER which led us to the Paulson bailout. The unintended consequence of this bailout will be a much lower US$ and sell-off in the US bond market which will leave us with higher interest rates and higher mortgage rates throws the intentions of the Paulson plan out the window. Who will bailout this bailout”?


The current bailout proposal—including the one the Senate will vote on—will not stop the decline in home prices that drags down the entire economy. This bill is a boon to Wall Street, but does virtually nothing to help millions of middle-class families facing foreclosure. We need a truly comprehensive solution to the economic crisis.

Any real solution must include a specific, workable plan for stopping foreclosures.

The current proposal includes a vague provision that calls for the government to buy mortgages and securities and then try to modify them. However, this would have very limited impact, since Wall Street splintered home loans into complex securities, making it very difficult for the government to take any effective action on the resulting scattered pieces of mortgages.


AND NOW THIS: “Credit cards to implode:’ analyst”

GLOBE AND MAIL: Bad card debt expected to begin in the first quarter of next year, even as mortgage crisis continues to unfold, New York research firm warns

Commentary By: Richard Blair

Early yesterday, most news organizations were still framing the $700,000,000,000 Wall Street and banking bailout as just that - a bailout. But the jargon creep had started.

While the news anchors were still using the term “bailout”, those they were interviewing (congressional leaders and financial experts) were starting to use “rescue”. By the end of the day, even the news anchors were reading the word “rescue” off of their teleprompters.

The bailout was dead.

Long live the bailout.

This morning, as word of the Senate bill filtered into the mainstream consciousness, the transition is complete. The bill is no longer Paulson’s three page coup-by-fiat, but a 450 page, economic land mine laden financial rescue of the American way of life.

It might seem like I’m splitting hairs, but I don’t think so. As I noticed this clear shift in framing with Pelosi’s words on Monday, and the media transition afterwards, I asked myself, “why?”. Did Pelosi engage Frank Luntz to hold a 2AM focus group on Sunday night before the vote in the House? Someone did. And right after Pelosi’s remarks on Monday afternoon, even before she removed the shiv that Boehner and Blunt had shoved into her back, there’s little question in my mind that the talking points faxes had started humming


Eric Janszen of iTulip.com

Anti-interventionist utopianism has no place in a financial crisis that is rapidly developing into a self-reinforcing debt deflation. The credit markets and this economy will not self-correct any more than a damaged ship that is taking on water will right itself.

Righting a ship that is listing is expensive, but trying to raise one that has been allowed to capsize is vastly more so. ,,,My friends and readers know me as a Libertarian. My experience is as an entrepreneur first and investor second. Rest assured I am not I am not a socialist third: you will not find among entrepreneurs and capitalists anyone who promotes the idea that government is the driving force behind a dynamic and growing economy.

That said, my libertarianism is practical not ideological. Markets determine prices and allocate economic resources better than governments can most of the time. But markets can fail, and when they do sometimes only government can provide a floor to stop their self-destructive, self-reinforcing collapse and get them moving again. A constructive, rational debate is over how to stop the collapse - and fast - not whether we should try to do so at all.

WP: Crisis Felt Unevenly on Main Street; Some Firms Can Still Tap Credit; Others Strain


This is more of the big LIE as Sara Robinson writes on Tom Paine.com Conservative pundits and politicians have piled onto the excuse like shipwreck victims clinging to a passing log: The real blame for the current economic crisis lies not with anything they did, but rather with the 1977 Community Reinvestment Act—a successful Carter-era program designed to get banks to stop covert discrimination, and encourage them to invest their money in low-income neighborhoods.

It’s always easy to tell when the cons are completely lost at sea. The lies get more absurdly preposterous—and also more transparently self-serving. But when they go so far as to openly and unapologetically latch onto race and class as an excuse for their woes (which this is, at its heart), you know they’re taking on water fast—and scared of going under entirely.

DVALENTINE: THE BIG FEAR: Has the Long-Awaited National Emergency Finally Arrived?

In an 11 August 2003 article for CounterPunch, titled “Homeland Security for Whom?”, I suggested that Bush’s homeland security apparatus “might even bankrupt the country and, perhaps intentionally, throw it into a Depression.”

Why, four years ago, did I believe that Bush would intentionally throw the country into a depression?

Because, having already shot his terror load on 9/11, it was obvious that he would need another pretext to impose the de facto military dictatorship he and his oil company coterie so cravenly desire.

The pretext presented itself yesterday, when the Republicans (of all people!) voted down Bush’s 750 billion dollar bailout package for the rich. I watched on TV while a newscaster quoted White House spokespeople as saying that Bush was upset, but not especially concerned, because he did not need Congressional approval to get his way. They said he could use special executive powers.

Is that true?

Yes, indeedy.

In May 2007, Bush issued NATIONAL SECURITY PRESIDENTIAL DIRECTIVE/NSPD 51 and HOMELAND SECURITY PRESIDENTIAL DIRECTIVE/HSPD-20. These directives gave Bush the authority to assure the Continuity of the Federal Government in the event of a Catastrophic Emergency that resulted in, among other things, some extraordinary disruption of the economy.

Under Presidential Directive/HSPD-20, a single National Continuity Coordinator is responsible for coordinating the development and implementation of Bush’s Federal continuity policies. Currently, the Assistant to the President for Homeland Security and Counterterrorism (APHS/CT) is the National Continuity Coordinator.

That was Ms. Frances Fragos Townsend a former Assistant Commandant for Intelligence at the Coast Guard, until November 2007. I believe the job is currently vacant.

The National Continuity Coordinator works in coordination with the Assistant to the President for National Security Affairs (APNSA), Stephen John Hadley, a Bush political hack of the umpteenth degree.

There is also a Continuity Policy Coordination Committee (CPCC), chaired by a Senior Director from the Homeland Security Council staff. The members of this committee will be designated by the National Continuity Coordinator, and act as “the main day-to-day forum for such policy coordination.”

HSPD-20 makes no reference to Congress. Only Bush need determine that a national emergency exists.

Would Bush dare use the current economic crisis as a pretext to declare a national emergency and invoke his continuity powers?

Yes, indeedy! In fact, he’s been waiting for this moment for a long time; all along. And now, with McCain in a tailspin and about to crash like he did 41 years ago, and with the Afrrican-born Muslim and black anti-Christ Barack Obama about to ascend, with the help of dirty Democrat majorities in both houses in Congress, the moment for direct political action has never been riper.


Walden Bello writes:

For many, the Wall Street crisis is a replay, though on a much larger scale, of the 1997 Asian financial crisis, which brought down the red-hot “tiger economies” of the East. The shocking absence of Wall Street regulation brings back awful memories of the elimination of capital controls by East Asian governments, which were under pressure from the International Monetary Fund and the US Treasury Department. That move triggered a tsunami of speculative capital onto Asian markets that sharply receded after sky-high land and stock prices came tumbling down.

Treasury Secretary Paulson’s proposed massive bailout of Wall Street’s tarnished titans reminds people here of the billions the IMF hustled up after ‘97 in the name of assisting them–money that was used instead to rescue foreign investors.

So Asian governments and financial players are skeptical about Washington’s talk of re-regulating the financial sector, and, although their central banks and sovereign wealth funds are flush with cash, they’re wary about being drawn into the Wall Street maelstrom. Among East Asian official funds, only Singapore’s Temasek and the China Investment Corporation have stepped up to the plate. Temasek pumped over $4 billion into Merrill Lynch a few months ago, but only after driving a hard bargain. CIC invested $5 billion in Morgan Stanley last December but refused the troubled investment bank’s recent desperate plea to increase its share of the firm. Initially seen as a potential savior, the Korean Development Bank turned down the overtures of Lehman Brothers a week before the latter’s historic collapse into bankruptcy.

Trillions of dollars of Asian public and private money are invested in US firms and property, with the five biggest Asian holders accounting for over half of all foreign investment in US government debt instruments. Funds from Asia have become a key prop of US government spending and the middle-class consumption that have become the drivers of the American economy. With so much of Asia’s wealth relying on the stability of the US economy, there is not likely to be any precipitate move to abandon Wall Street securities and US Treasury bills.


LONDON millionaire Kirk Stephenson died after he jumped in front of a 160kmh train as the financial storm barred its fangs.

Neither Mr Stephenson nor his company had financial problems that would have led him to take his own life, some who knew him said.

But sources told the Daily Mail that the financier had ’succumbed’ to the stress and responsibilities of his taxing role as a top banker.

They added that Mr Stephenson had over-reacted to the continuing financial turmoil.


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