The Splurge

You thought The Surge was costly? You haven’t seen anything yet.[1]

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Notes and References

[1]: "Bush wants OK to spend $700B", by Jeanne Sahadi, CNN Money, September 21, 2008.

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10 Comments for this entry

  1. wcvarones says:
    September 21, 2008 at 7:30 AM

    This is horrifying. At least they could put in a few common sense clauses instead of unlimited, unchecked power for Paulson:

    1) Treasury gets extremely dilutive warrants from any bank that touches this facility. This is what happened at AIG: the taxpayers may lose a lot of money, but at least Wall Street’s profit from the scheme is minimized and the taxpayers get something back in a best-case scenario.

    2) Executive compensation is capped at any bank that touches this facility. Nobody makes more than 10x or 20x the median employee, and no more stock options. Maybe even a clawback for ill-gotten gains during the bubble. Executives don’t go along? Push them out.

    3) A huge new program for the Justice Department to prosecute mortgage fraud and securities fraud for everyone that caused this problem, from Angelo Mozilo and investment bankers all the way down to speculators who committed fraud on their loan applications.

  2. Yossarian says:
    September 21, 2008 at 7:41 AM

    I don’t know…. I was thinking this reminds me a bit of the Reichstag Fire.

    http://en.wikipedia.org/wiki/Reichstag_fire

    But in a way, it’s more like when Soviet Russia collapsed, and the old Communist party apparatchicks suddenly became the ‘owners’ of all of Russia’s industry.

    Time magazine cover this week: “HOW WALL STREET SOLD OUT AMERICA – They had a party, now you’re going to pay”

    http://www.time.com/time/covers/0,16641,20080929,00.html

    Call Senators, Congressmen…. even Mish has this up on his website.

    http://globaleconomicanalysis.blogspot.com/

  3. twist says:
    September 21, 2008 at 8:12 AM

    John-

    It gets worse.  It isn’t just American toxic waste the Treasury is going to buy:

    Treasury Secretary Henry Paulson said Sunday that foreign banks will be able to unload bad financial assets under a $700 billion U.S. proposal aimed at restoring order during a devastating financial crisis.

    "Yes, and they should. Because … if a financial institution has business operations in the United States, hires people in the United States, if they are clogged with illiquid assets, they have the same impact on the American people as any other institution," Paulson said on ABC TV.

    Paulson also acknowledged that the rescue plan will cost taxpayers money, but argued that costs will not be as high the $700 billion limit of the package.

    Sure it won’t cost $700B.  I seem to remember hearing the same argument about Freddie and Fannie. "Oh no, we don’t anticipate having to take them over.  We just asked for the power just in case”.  I’ll bet they asked for $700B because they figure they needed $700B.

     

  4. twist says:
    September 21, 2008 at 8:26 AM

    Here’s the other really scary part: [O.K., actually there is a lot that's scary about this.]

    Here’s what S&P said about the AIG bailout:

    NEW YORK (Reuters) – Pressure is building on the pristine "AAA" rating of the United States after a federal bailout of American International Group Inc, the chairman of Standard & Poor’s sovereign ratings committee said on Wednesday.

     

    The $85 billion bailout of AIG on Tuesday by the U.S. Federal Reserve "has weakened the fiscal profile of the United States," S&P’s John Chambers told Reuters in an interview.

     

    "Lack of a pro-active stance could have resulted in further financial stress and put pressure on the U.S. triple-A rating," Chambers said. "There’s no God-given gift of a ‘AAA’ rating, and the U.S. has to earn it like everyone else."

    If an $85 billion dollar bailout risks our AAA rating- what is a $700B bailout going to do to it?

  5. twist says:
    September 21, 2008 at 12:14 PM

     

    Here’s a few more reasons not to let Paulson have the unlimited power he asks for.  This is from Karl Denninger:

     

  6. surak says:
    September 21, 2008 at 12:14 PM

    Twist, I was at church today and spoke to a women at coffee hour. I made the comment that I feel this administration is worse than the mafia. She said she disagreed. All I could thing about was her poor daughter (about 3) and all the other youth that is going to inherit this mess.

    Sorry for the rant! Igors word “allgone”

  7. John M. says:
    September 21, 2008 at 12:30 PM

    surak -

    I wasn’t in church today (had to wait on the phone guy). Maybe God wanted me here ;)

  8. twist says:
    September 21, 2008 at 12:45 PM

    Surak-

    I remember reading a few years ago about the spiraling national debt and how someday our grandkids would have to pay for it.

    One commentator said, “Oh that we could pass this debt off to the little tykes. We’ll have to deal with it before we get the chance.”

    John started warning us about Fannie and Freddie in 2006. I remember thinking that he was right, and ten years from now, this could be a big problem. The commentator was right, we will not be able to live in plenty, spend what we want and hand our grandkids the bill.

    Paulson’s about to find out that even when you throw billions at it, it won’t slay the beast. Falling home prices are the culprit and they HAVE TO FALL. Money for all his Wall Street buddies won’t get at the root of the problem.

    I keep reading how they need to stabilize home prices so people will be confident and start buying again. It’s a dumb idea.

    It was foolish for us to take so much of our GDP and put it into housing. Unlike investing in research or business, a house doesn’t return much. We can’t have a housing dependent economy. We are going to have to retool this country and do something else. I’m not opposed to the housing industry, but let’s face it, it can’t support us all.

    It would be nice if we didn’t lose our constitutional freedoms and sell our souls in a lost cause. Personally, I’d rather let the banks fail and maintain my freedom- even if I had to barter or trade wampum to do it. Paulson’s plan is too expensive- and I’m not just talking about dollars.

  9. twist says:
    September 21, 2008 at 5:31 PM

    John-

    You need to see this find by Jan-Martin.  John Stewart is discussing the economy:

     

     

  10. surak says:
    September 21, 2008 at 7:51 PM

    Twist,

    Thanks for the info

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