It's The Economy, STUPID!.....

[FOTD]

Why Congress Objects To The Bailout Plan
by Maria Godoy

http://www.npr.org/templates/story/story.php?storyId=94950330

NPR.org, September 23, 2008 · The outrage was palpable Tuesday as the Senate Banking Committee grilled Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke on the details of their $700 billion plan to bail out Wall Street with taxpayer funds. But lawmakers are hardly the only ones questioning whether the plan will work. Here's a look at some of the objections being raised on and off Capitol Hill.
It's A Huge Amount Of Power To Invest In The Treasury: The Bush administration's plan would grant the Treasury secretary nearly absolute control of the $700 billion authorized by the bailout measure. The language in the measure sent to Congress would make the Treasury secretary's decisions "non-reviewable" — including by "any court of law or any administrative agency." That would give the Treasury secretary powers that are not only extraordinary but, some would say, also unconstitutional because of the lack of accountability.

Jon Macey, a professor and deputy dean of Yale Law School, says the bill contains the largest transfer of power from Congress to the administration that he has ever seen. Macey says Congress is handing over more power than it did in granting the executive branch leeway in the Patriot Act, and more powers than when authorizing combat through the war powers clause. He says the move amounts to a sidelining of Congress.

Senate Banking Committee Chairman Christopher Dodd, a Democrat from Connecticut, on Tuesday called the language in the plan "so troubling" and said it "cannot last" as part of the legislation.

It Represents A Fundamental Shift In The Way The U.S. Economy Works: The Bush administration's plan to bail out the nation's financial institutions represents an unprecedented intervention in free markets. If the Wall Street bailout is adopted, Republican Sen. Jim Bunning of Kentucky said last week, "the free market for all intents and purposes is dead in America."

A fundamental principle of free-market capitalism is that investors take on big risks to reap big rewards — but they also assume any losses that occur. The government's plan would radically alter that model, leaving profits private while making losses public.
It's Not The Only Viable Option For Fixing This Mess: In a nutshell, the Bush administration's plan would authorize up to $700 billion to let Treasury buy up bad mortgages from financial institutions. With these toxic assets off the books for firms, lenders would once again be willing to lend and the money would start flowing freely through the markets, the theory goes. Objections to the plan have come from both sides of the aisle — and from academics and economists who say it amounts to a huge handout to Wall Street without necessarily fixing the problem.

Many economists have proposed alternatives and alterations to the administration's proposal, some of which have been taken up by lawmakers. Details of the plan are still being negotiated, but here are some of the key points of contention:

Equity stakes: Rather than simply buying up bad loans and letting taxpayers assume all the risk, why not take shares in the financial firms in exchange, so that taxpayers could also participate in any potential profits? Banking Committee Chairman Dodd has proposed "contingency shares" that would only be issued if losses are realized on the assets bought up from a firm. In Tuesday's hearing, Paulson rejected the idea of equity shares, saying it would make the bailout program "ineffective" — though he didn't offer details on why that would be the case.

Valuing assets: There are already buyers for these toxic assets out there — they just aren't willing to buy them at prices that financial institutions find palatable. (In some cases, selling at those prices would make firms insolvent.) Many critics argue that the fundamental problem is that the financial markets lack capital, so the only way the government's plan will work is if the Treasury overpays for the assets; otherwise, why not just let investors buy them up?

So, how to price these assets? Technically, assets are only worth what a buyer is willing to pay for them. If no one wants to buy mortgage-backed securities, then right now they are worthless — but that doesn't mean they will always be worthless. Paulson has suggested that one way to set prices would be through what's known as a reverse auction, the goal of which is to drive prices down, rather than up.

But some economists note that reverse auctions work best when the assets being auctioned off are essentially identical. That's not the case with mortgage-backed securities: Some of them may have plenty of healthy, payment-producing mortgages in them, while others may be full of defaulted loans. If the government simply buys the securities with the lowest price, it may end up with $700 billion worth of the worst loans, critics say.

Executive-pay limits: Some lawmakers want any company that participates in the bailout to agree to slash the pay of its executives. After all, they say, those who created the mortgage mess shouldn't be allowed to profit from the bailout. But Paulson has resisted this idea. He argues that pay cuts would discourage firms from using the program and would force thousands of firms to review their executive compensation before participating, a time-consuming process.

Lawmakers Are Being Urged To Act While Staring At The Barrel Of A Gun: Congress is being asked to enact a fundamental restructuring of the U.S. economy — in one week. That's not a lot of time for lawmakers to weigh their options and the repercussions of their actions. In private meetings on the Hill, Paulson and Bernanke have warned lawmakers about the dire consequences of not acting — but these economic Doomsday scenarios have not been spelled out to the public.

Democratic Sen. Jon Tester of Montana told Paulson as much on Tuesday: "I fully feel the urgency ... But the truth is that we have to be given the time to do this right, or it's not going to work and we'll be back here next year or in two years asking for another $700 billion or more."

With additional reporting by Laura Conaway and Adam Davidson

[waterboy]

Way over my head. But it feels like a trap. A lot like the "Iraq has WMD's" trap that was so successful. We should take some time and analyze the details. Shumer seems to have a grasp. Buffet does too.

Republican's are being counseled to attack and defeat this proposal in an effort to show they can rebell against the president they've cowardly, blindly followed for 8 years. They are then advised to attack any Democrat who votes for any part of the bailout as "big spenders" who don't understand capitalism. McCain has already expressed dismay at the bailout and has proved he can go either way as needs be. All this in an effort to win elections back home this fall. (source was a blogger who raised a lot of funds for McCain and was quoted from his blog on MSNBC last nite).

Whatever happened to country first? Is that now, "right after we win the election"? Stuff like this creates distrust in the whole election.

[FOTD]

No, distrust in the election process came when SCOTUS implanted Bushco after Florida in 2000. You know, what got us from Democrat rule to Repiglican folly.



"We didn't start the fire
It was always burning
Since the world's been turning
We didn't start the fire
No we didn't light it
But we tried to fight it
We didn't start the fire
But when we are gone
Will it still burn on, and on, and on, and on..."

Billy Joel

Yes, the country needs to pull together ....
and it will AFTER the election. The Bush Administration should have no hand in trying to solve this problem.
Meanwhile...until new leadership is elected fairly....

"Every normal man must be tempted at times to spit upon his hands, hoist the black flag, and begin slitting throats."
-- Henry Louis Mencken

[FOTD]

U.S. to lose financial superpower status: Germany

http://www.reuters.com/article/reutersEdge/idUSTRE48O3BC20080925?sp=true


AND!

It's the war economy, stupids

http://www.bethink.org/showDiary.do?diaryId=1019

Anyone can cut taxes. The challenge is holding deficits constant while you're cutting taxes. Reagan and Bush Jr (aka Cheney's beyatch) failed at holding deficits constant. That is a fact. Don't even argue with that point. If you argue it just means that you are too ideological or ignorant. On the other hand, Clinton balanced the budget while keeping a growing economy. He demonstrated that he was serious about fiscal responsibility and businesses liked that and invested which kept the economy growing. We need to increase taxes whether we like it or not to pay for Republican wars which far exceed welfare payments (that is a fact - again don't argue with the facts), so lets stick it to the very rich.  We have to pay for Iraq - how do you want to pay for it besides sticking it to the next generation via huge deficits? If you don't like taxes, keep spending down by opposing unnecessary wars. Vote libertatrian if you don't like the democrats, but republicans are just plain stupid. Yes, you are right that the national debt continued to rise during Clinton, but at a much slower rate. Clinton's administration did an outstanding job cutting deficits over his tenure. Clinton inherited huge deficits from Reagan and Bush.

Deficits = Government Revenues - Government Spending

National Debt = Sum of all previous deficits plus the interest

Republican Presidents have been pathetic at fiscal responsibility over the past 27 years. That is a fact! Deficits rose under Reagan then Bush Senior then Little Bush. If you care about fiscal responsibility then you must punish the party that has increased our National Debt. Accept the facts!

[FOTD]

Yechhh.....they wanted the bailout in a hurry because they see a number of other catrastophies coming our way!

Duck and cover....

Ford U.S. sales fall 34.6 percent
http://news.yahoo.com/s/nm/20081001/bs_nm/us_usa_autosales_6

[FOTD]

http://www.nytimes.com/2009/07/03/opinion/03krugman.html?_r=1&ref=opinion

OP-ED COLUMNIST
That '30s Show
By PAUL KRUGMAN
Published: July 2, 2009

O.K., Thursday's jobs report settles it. We're going to need a bigger stimulus. But does the president know that?

Let's do the math.

Since the recession began, the U.S. economy has lost 6 ½ million jobs — and as that grim employment report confirmed, it's continuing to lose jobs at a rapid pace. Once you take into account the 100,000-plus new jobs that we need each month just to keep up with a growing population, we're about 8 ½ million jobs in the hole.

And the deeper the hole gets, the harder it will be to dig ourselves out. The job figures weren't the only bad news in Thursday's report, which also showed wages stalling and possibly on the verge of outright decline. That's a recipe for a descent into Japanese-style deflation, which is very difficult to reverse. Lost decade, anyone?

Wait — there's more bad news: the fiscal crisis of the states. Unlike the federal government, states are required to run balanced budgets. And faced with a sharp drop in revenue, most states are preparing savage budget cuts, many of them at the expense of the most vulnerable. Aside from directly creating a great deal of misery, these cuts will depress the economy even further.

So what do we have to counter this scary prospect? We have the Obama stimulus plan, which aims to create 3 ½ million jobs by late next year. That's much better than nothing, but it's not remotely enough. And there doesn't seem to be much else going on. Do you remember the administration's plan to sharply reduce the rate of foreclosures, or its plan to get the banks lending again by taking toxic assets off their balance sheets? Neither do I.

All of this is depressingly familiar to anyone who has studied economic policy in the 1930s. Once again a Democratic president has pushed through job-creation policies that will mitigate the slump but aren't aggressive enough to produce a full recovery. Once again much of the stimulus at the federal level is being undone by budget retrenchment at the state and local level.

So have we failed to learn from history, and are we, therefore, doomed to repeat it? Not necessarily — but it's up to the president and his economic team to ensure that things are different this time. President Obama and his officials need to ramp up their efforts, starting with a plan to make the stimulus bigger.

Just to be clear, I'm well aware of how difficult it will be to get such a plan enacted.

There won't be any cooperation from Republican leaders, who have settled on a strategy of total opposition, unconstrained by facts or logic. Indeed, these leaders responded to the latest job numbers by proclaiming the failure of the Obama economic plan. That's ludicrous, of course. The administration warned from the beginning that it would be several quarters before the plan had any major positive effects. But that didn't stop the chairman of the Republican Study Committee from issuing a statement demanding: "Where are the jobs?"

It's also not clear whether the administration will get much help from Senate "centrists," who partially eviscerated the original stimulus plan by demanding cuts in aid to state and local governments — aid that, as we're now seeing, was desperately needed. I'd like to think that some of these centrists are feeling remorse, but if they are, I haven't seen any evidence to that effect.

And as an economist, I'd add that many members of my profession are playing a distinctly unhelpful role.

It has been a rude shock to see so many economists with good reputations recycling old fallacies — like the claim that any rise in government spending automatically displaces an equal amount of private spending, even when there is mass unemployment — and lending their names to grossly exaggerated claims about the evils of short-run budget deficits. (Right now the risks associated with additional debt are much less than the risks associated with failing to give the economy adequate support.)

Also, as in the 1930s, the opponents of action are peddling scare stories about inflation even as deflation looms.

So getting another round of stimulus will be difficult. But it's essential.

Obama administration economists understand the stakes. Indeed, just a few weeks ago, Christina Romer, the chairwoman of the Council of Economic Advisers, published an article on the "lessons of 1937" — the year that F.D.R. gave in to the deficit and inflation hawks, with disastrous consequences both for the economy and for his political agenda.

What I don't know is whether the administration has faced up to the inadequacy of what it has done so far.

So here's my message to the president: You need to get both your economic team and your political people working on additional stimulus, now. Because if you don't, you'll soon be facing your own personal 1937.

[Teatownclown]

The DOW hit 14,000 today despite 4 years of no help Tea Heads and Grand Obstinate Party leaders.

PRINT MORE MONEY!

SHEBANG!

[Gaspar]

The DOW hit 14,000 today despite 4 years of no help Tea Heads and Grand Obstinate Party leaders.

PRINT MORE MONEY!

SHEBANG!

4 Quarter economic contraction.
Unemployment ticking back up to 7.9%
Dow rising fast.

Sound familiar?

Keep printing money. 

[Red Arrow]

The DOW hit 14,000 today despite 4 years of no help Tea Heads and Grand Obstinate Party leaders.

What's that worth when adjusted for inflation?

Now add in what it should be worth considering the time value of money.  Pick a reasonable interest rate, say 5%.

I saw a spot on the TV news (Ch 8, not FOX) proudly proclaiming that a 401K worth $125,000 before the crash dipped to a bit over $61,000 but should now be worth $131,000 (approx) and shows that the economy has recovered. 
At 5% return, an investment worth $125,000 in late 2008 should be worth $125,000 x (1.05^4) = (approx)$152,000. We ain't back yet.

[AquaMan]

You don't seek recovery as much as you seek restitution. Different path. There are no guarantees for investments or gambling of any sort.  You might as well include your opportunity loss as well with your reasoning. You know, "If the market hadn't tanked I could have taken my gains and developed a new business with hundreds of new employees." Politics aside, the economy tanked, the economy is rebounding.

Sometimes you eat the bear, sometimes it eats you.

[Red Arrow]

You don't seek recovery as much as you seek restitution. Different path. There are no guarantees for investments or gambling of any sort.  You might as well include your opportunity loss as well with your reasoning. You know, "If the market hadn't tanked I could have taken my gains and developed a new business with hundreds of new employees." Politics aside, the economy tanked, the economy is rebounding.

Sometimes you eat the bear, sometimes it eats you.

Do you not understand the difference between recovering and recovered?

[AquaMan]

Tenses of verbs. A recovering alcoholic and a recovered sofa for instance.

What's your point?

[Red Arrow]

Tenses of verbs. A recovering alcoholic and a recovered sofa for instance.

What's your point?

You have to compare beans and semi trucks to prove you can play ignorant?

How about recovering a sofa but not being done yet vs. a recovered sofa in your living room with people sitting on it.

Recovering from a fever of 104 degrees but still have a temperature of 101 degrees.  Improving but not completely well yet. Recovered would be 98.6, no headache...

You know the difference and my point.

Listening to the network news the other night you would thing everything was back to normal as if nothing ever happened with the DOW closing at 14,000.

[guido911]

The DOW hit 14,000 today despite 4 years of no help Tea Heads and Grand Obstinate Party leaders.

Yeah, because we all know the market is driven by the pee partiers, lesser income, and non-tax payers that make up the Tea Party and the GOP.

[nathanm]

Yeah, because we all know the market is driven by the pee partiers, lesser income, and non-tax payers that make up the Tea Party and the GOP.

Interestingly, it doesn't seem to be driven by the loudmouth right wingers, either. They are, after all, the ones who have been calling for hyperinflation and imminent doom for five years now. Thus far, their predictions have failed to prove correct.