Damn, I hate anonymous sources. But in this case, the quote is simply too staggering and damning of the entire Paulson bailout plan to ignore. Forbes.com asked a Treasury Department spokeswoman on Tuesday about the origin of the (seemingly random) $700 billion figure. The answer:
It’s not based on any particular data point. We just wanted to choose a really large number.Unnamed U.S. Treasury Department Spokeswoman
I wrote a post about common sense last night and it is proving increasingly true. The minute I saw Paulson testifying in front of the Banking committee, I felt like I was back in the financing office when I bought my first car! “Just sign the contract and we’ll figure out the interest rate later,” said the nice man pushing the contract into my face. “I promise to get you the best rate I can.”
If you haven’t registered to vote, do so here or here or here.
I didn’t fall for it then and I’m not going to fall for it now. Neither should you!
If you haven’t actually taken a look at the proposed plan, it is worth seeing even though it is now (fingers crossed) totally impossible to pass. The only purpose for the Paulson plan is now clear: it was a smash and grab job where the loot was the U.S. treasury and the unitary power to control it. It was just like what happened following 9/11 when the PATRIOT act was crammed down the throat of each and every one of us. Look how well that worked out. In fact, just so we are all on the same page, Section 8, anyone?
Sec. 8. Review.
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.Henry Paulson
U.S. Secretary of the Treasury
The irony is not lost on me that the term “section 8” was/is used to refer to insanity in military parlance. The reports I’ve seen in the msm indicate that the public’s response to Congress has been 200:1 against the bailout. This speaks highly of the public’s ability to smell an obvious, appalling rat, but does not mean you, too, don’t have to write to your representative. Stop the insanity! Do us all a favor and write your congressional representatives!
#1 by Mike on September 26, 2008 - 11:39 am
To be fair, the $700 billion figure is an estimate based on how much it will take to purchase the diseased mortgage assets from these banks. The mortgages are packaged together by the thousands, and with the wild swings in property values, it’s near impossible to pinpoint a value on them. Once the assets are purchased, unbundled, and re-sold, the home values will become apparent. It could turn out one of three ways: (1) the Treasury purchases these diseased mortgages for $700 billion when in fact the assets are actually worth more (resulting in a profit for the taxpayer); (2) the Treasury purchases these diseased mortgages for $700 billion and the assets turn out to be worth $700 billion (resulting in a break-even point for the taxpayer); or (3) the Treasury purchases these diseased mortgages for $700 billion and the assets turn out to be worth less than $700 billion (resulting in a loss for the taxpayer). For what it’s worth, several highly intelligent, non-partisan financial experts anticipate the value to be in the neighborhood of “plus or minus $200 billion” of the $700 billion purchase price; i.e. between $500 and $900 billion.
I agree the plan sucks because taxpayers are out-laying an obscene amount of money for the incompetence of gov’t, lenders, and borrowers, but the home values simply cannot be computed at this point. We’ll have to find out later.
#2 by Patrick T. Lafferty on September 26, 2008 - 4:15 pm
Mike,
I understand the math that you laid out above, but that doesn’t change the fact that the treasury, according to their own spokeswoman, did not tie the number to any metric and for whatever reason (stupidity, duplicity, I really don’t know) just picked a big number that they hoped would be enough. Because of that, there is no way to know how much this will actually cost. It might turn out that the US-based banks are holding 1.5 trillion worth of bad paper and who knows what the foreign banks are holding. Because there is no algebraic basis to any of this, we can’t get any guarantees that “King” Paulson won’t just keep dipping into the treasury at this whim.
A point I left out of my original post: why in the hell should the US taxpayer bail out a foreign bank? Because they participate in our economy? Bullshit.
Another issue: this entire deal seems to me and my one semester of legal education to be unconstitutional. Not a big deal in this administration, but it still gets my hackles up.
Bottom line, as you and I have both pointed out, the whole deal stinks! It is a non-starter and I’m happy to see the fiscal conservative republicans in congress trying desperately to stop this deal. I just don’t think they have the power to outlast the Corporate Socialists (neo-cons) and the Democrats (morons), who see this as a chance to spend a lot of money and then be able to say, “Look, Republicans spend too much too!”
#3 by Mike on September 26, 2008 - 4:30 pm
I dunno, man, some pretty smart financial guys are really freaked out about this crisis. I guess the question you have to ask is this — if you were in Congress and had a vote on this plan, would you have the balls to play chicken with something that could resemble the Great Depression? Not trying to sound hyperbolic, either. The plan is not supported by the masses (not trying to lump you in with the masses, either) because the people simply do not comprehend the finance aspect of it. It’s on a different level. The same goes for the Congressmen — they are (and should be) relying on people who’ve forgotten more about finance than all of us will ever know.
Put it this way — if a doctor comes in and tells you your arteries are clogged and you are going to suffer a heart attack unless you do something, would you go ask a lawyer what you should do?
#4 by Patrick T. Laferty on September 26, 2008 - 5:44 pm
I don’t “want” a great depression, Mike. But as I said in my post on Common Sense, you have fallen victim to the cult of expertise and I am not convinced (and neither are most economists) that we are at all close to a great depression. And yes, to your larger point, I am willing to “bet the country” on that fact to avoid the calamity that anything resembling the Paulson Plan surely would be.
You seem to be saying, “well, better safe than sorry. Let’s just trust the Bush Administration and the Federal Reserve system,” to which I respond by pulling my beard out in exasperation. Your point on “clogged arteries” is quite apropos: in that case, I would be doing a great deal of research on my own and strongly considering the opinions of the hundreds of other “doctors” who were telling me that I wasn’t about to have a heart attack.
Remember the PATRIOT Act. This is exactly what happened then, too, and we can never forget it!
#5 by Patrick T. Lafferty on September 26, 2008 - 5:59 pm
Also, to clarify, I’m not saying that the government doesn’t need to act in some way to shore up the finance and banking systems. I absolutely think reforms and oversight (and perhaps even a stimulus package) are good ideas.
But those ideas have nothing to do with the Paulson Plan, which must be stopped. Period.
In the face of all this going on, it was grossly under-reported that the (now former) CEO of Washington Mutual, upon the complete failure of his company and seizure by the FDIC, walked away with a $20 million golden parachute after 17 days (!) with the company. WaMu. You know, the guys that keep the “big, bad” bankers in a holding pen? You see, that bank failed and the already-existing mechanisms of the federal government stepped in and worked like a charm, successfully securing the sale of WaMu to JP Morgan Chase.
We don’t need the Paulson Plan. I cannot stress that any more than I have.
#6 by Mike on September 26, 2008 - 6:21 pm
I hear you man. For the record, I was against the Iraq war from the getgo because I knew it was bullshit. I was against the Patriot Act from the getgo because it was bullshit. I was against the Military Commissions Act from the getgo because it was both bullshit and illegal. And I’m not siding with Bush. I’m siding with non-political financial geniuses who say these banks need help or the flow of credit in this country will grind to a halt (for the vast majority of us).
You’re seeing it already — small business owners, franchisees, and farmers cannot get money to buy equipment/supplies or pay employees. If these people don’t have money, how are they going to pay me when they pick up that fifth DUI?!?!
#7 by Patrick T. Lafferty on September 27, 2008 - 2:31 am
Ahh, but you see, if you give the Wall St. banks the money, there is nothing to imply they will use it wisely to help small businesses and farmers, particularly if we implement the Paulson Plan. Evidently your heart is in the right place. Now we just need to make sure our tax dollars end up there, too!
#8 by Joel on September 26, 2008 - 11:35 pm
Why should the number be based on anything, when our currency isn’t based on anything either?
#9 by Patrick T. Lafferty on September 27, 2008 - 2:39 am
Joel, that is why this seems so false to me and why it actually is false. The country (including Wall St. and John Q. Public) would be better served to simply fix the regulatory problems that are causing these false valuations that are putting these banks in such jeopardy. If you don’t know already, you should check out the issues with the “mark to market” regulations. Those, coupled with the “faith” that is required to use a U.S. dollar get right to the heart of our problems.
You should write up some thoughts on the Fed and the floating dollar. I’d be happy to publish such a piece for you.
#10 by Shelly Walston on September 27, 2008 - 5:31 pm
Oof. That’s all I have to say.
While I honestly believe that neither candidate actually spoke to the problem last night, I’m absolutely remiss to put my hopes in the hands of the American public (especially as represented by Congress). The fact that none of the key issues here are transparent (I’m sure some aren’t even totally figured out yet) is troubling beyond belief.
I’m just curious about how regulation of the financial markets now can actually be put into practice when it’s been so defunct & deregulated for the last eight years.
And now’s my chance to give a plug for sosolimited.com — a performance group who tangles with the text of the presidential debates. It’s worth looking into.
That’s all, my fellow citizens.