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Monday, September 29, 2008

Bailout Roundup — Debating the Emergency Economic Stabilization Act of 2008

Items of Interest:

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NY Times:
House Rejects Bailout Package, 228-205; Stocks Plunge -- In a moment of historic drama in the Capitol and on Wall Street, the House of Representatives voted on Monday to reject a $700 billion rescue of the financial industry.

The vote against the measure was 228 to 205. Supporters vowed to try to bring the rescue package up for consideration again as soon as possible...
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Intrade Bailout contract:
US Congress to approve a government bailout of banks on/before 31 Oct 2008

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Intrade:
US Congress to approve a government bailout of banks on/before 30 Sep 2008 --

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NY Times:
Bailout Plan in Hand, House Braces for Tough Vote -- The House braced for a difficult vote set for Monday on a $700 billion rescue of the financial industry after a weekend of tense negotiations produced a plan that Congressional leaders portrayed as greatly strengthened by new taxpayer safeguards....
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Wall Street Journal:
Crisis Hits Europe's Banks As U.S. Seals Bailout Deal -- The White House and congressional leaders agreed on a deal to authorize the biggest banking rescue in U.S. history.

The $700 billion program would effectively nationalize an array of mortgages and securities backed by them -- instruments whose deteriorating value has clogged the nation's financial system...
Bloomberg:
Asian Stocks Fall on Concern U.S. Rescue Won't Bolster Growth
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Wall Street Journal:
Lehman's Demise Triggered Cash Crunch Around Globe -- Lehman's bankruptcy filing in the early hours of Monday, Sept. 15, sparked a chain reaction that sent credit markets into disarray. It accelerated the downward spiral of giant U.S. insurer American International Group Inc. and precipitated losses for everyone from Norwegian pensioners to investors in the Reserve Primary Fund, a U.S. money-market mutual fund ...
Discussion:
The Big Picture: What Lehman's Collapse Would Have Wrought
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House Financial Services Committee:
Emergency Economic Stabilization Act of 2008

Summary of the “EMERGENCY ECONOMIC STABILIZATION ACT OF 2008” [EESA]

I. Stabilizing the Economy
The Emergency Economic Stabilization Act of 2008 (EESA) provides up to $700 billion to the Secretary of the Treasury to buy mortgages and other assets that are clogging the balance sheets of financial institutions and making it difficult for working families, small businesses, and other companies to access credit, which is vital to a strong and stable economy. EESA also establishes a program that would allow companies to insure their troubled assets.
II. Homeownership Preservation
EESA requires the Treasury to modify troubled loans – many the result of predatory lending practices – wherever possible to help American families keep their homes. It also directs other federal agencies to modify loans that they own or control. Finally, it improves the HOPE for Homeowners program by expanding eligibility and increasing the tools available to the Department of Housing and Urban Development to help more families keep their homes.
III. Taxpayer Protection
Taxpayers should not be expected to pay for Wall Street’s mistakes. The legislation requires companies that sell some of their bad assets to the government to provide warrants so that taxpayers will benefit from any future growth these companies may experience as a result of participation in this program. The legislation also requires the President to submit legislation that would cover any losses to taxpayers resulting from this program from financial institutions.
IV. No Windfalls for Executives
Executives who made bad decisions should not be allowed to dump their bad assets on the government, and then walk away with millions of dollars in bonuses. In order to participate in this program, companies will lose certain tax benefits and, in some cases, must limit executive pay. In addition, the bill limits “golden parachutes” and requires that unearned bonuses be returned.
V. Strong Oversight
Rather than giving the Treasury all the funds at once, the legislation gives the Treasury $250 billion immediately, then requires the President to certify that additional funds are needed ($100 billion, then $350 billion subject to Congressional disapproval). The Treasury must report on the use of the funds and the progress in addressing the crisis. EESA also establishes an Oversight Board so that the Treasury cannot act in an arbitrary manner. It also establishes a special inspector general to protect against waste, fraud and abuse
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Paul Krugman / NY Times:
The world according to TARP -- I don’t, in the end, have much more to say about the plan. It passes my test of no equity, no deal; that, plus the danger of financial panic if it doesn’t go through, makes it worth passing, though celebration is not in order...
RightWingNews:
A Comparison - Paulson, Dodd-Frank and Final Bill
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Patrick O'Connor / The Crypt's Blogs:
Boehner calls bill a “crap sandwich” — but he'll vote for it — In a closed-door session with House Republicans, Minority Leader John A. Boehner just called the financial rescue deal a “crap sandwich” - then said he'll vote for it when it comes to the floor Monday...
Discussion:
Mary Katharine Ham / Weekly Standard: Some of House GOP to Grudgingly Go Along
Robert Stacy McCain / The Other McCain: Republicans: 'Let's pass this lousy bill!'
RELATED:
David Rogers / The Politico:
Bailout bill day of reckoning — Treasury's $700 billion rescue plan for the financial markets goes to the House floor Monday, backed by the two major presidential candidates but facing resistance still on the right and left. — Coming just weeks before the November elections …
The Politico: GOP leaders on board; will others join?
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Michael Moore:
The Rich Are Staging a Coup This Morning ...a message from Michael Moore — Let me cut to the chase. The biggest robbery in the history of this country is taking place as you read this. Though no guns are being used, 300 million hostages are being taken...
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Jeff Jacoby / Boston Globe:
Frank's fingerprints are all over the financial fiasco — 'THE PRIVATE SECTOR got us into this mess. The government has to get us out of it. That's Barney Frank's story, and he's sticking to it. As the Massachusetts Democrat has explained it in recent days, the current financial crisis …
Discussion:
Ed Morrissey / Hot Air: Bailout deal reached; Update: ACORN, other pork removed
Clayton Cramer / Clayton Cramer's BLOG: More Scandal Involving the Housing Disaster
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Blowing billions: Top 5 Reasons to Vote Against Paulson's $700 Billion BailoutDavid Sirota / The Huffington Post:
Top 5 Reasons to Vote Against Paulson's $700 Billion Bailout — There's news this Sunday afternoon of a congressional deal to bailout Wall Street fat cats with $700 billion of taxpayer cash (you can read the draft legislation here). Though the deal negotiated between congressional leaders …
Discussion:
Kathy / Liberty Street: Bail-Out Roundup
David Cay Johnston / TPMCafe: BAILOUT — Part 1, What Crisis?
RELATED:
NoWallStreetBailout.com:
Ten Reasons to Oppose the Wall Street Bailout

Nouriel Roubini /aka Dr. Doom / Global EconoMonitor:
Is Purchasing $700 billion of Toxic Assets the Best Way to Recapitalize the Financial System? No! -- It is Rather a Disgrace and Rip-Off Benefitting only the Shareholders and Unsecured Creditors of Banks

So this rescue plan is a huge and massive bailout of the shareholders and the unsecured creditors of the financial firms (not just banks but also other non bank financial institutions); with $700 billion of taxpayer money the pockets of reckless bankers and investors have been made fatter under the fake argument that bailing out Wall Street was necessary to rescue Main Street from a severe recession...
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Kevin Bogardus / The Hill:
Kucinich says not enough votes for bailout — A prominent liberal Democratic lawmaker said Sunday there are not enough votes to pass the bailout package as it stands now. — “I will tell you right now I don't know if they have votes,” said Rep. Dennis Kucinich (D-Ohio)...
Discussion:
Ian Spiegelman / Gawker: That Bailout Deal? Nevermind.
Tapscott's Copy Desk:
Comparison of original Paulson bailout to compromise proposal
Cernig / Crooks and Liars:
Bailout: Deal Or Trap? -- there’s a possibility that Dems will fall into a trap of the GOP’s making. Republican talking heads are still urging the GOP to walk away from the bailout or various provisions of the deal...
Discussion:

Arnab Datta / ABC News Political Radar:
‘Un-American’ Bailout, Paulson Should Have Quit, Gingrich Says -- Newt Gingrich even expressed concern with Paulson's connections to Wall Street. The treasury secretary served as the chairman of a major global investment banking and securities firm before joining the Bush administration.

"You have the former Chairman of Goldman Sachs asking for 700 billion dollars, and in his initial request, asking for it in such an un-American way that I think he should have resigned," said Gingrich. "I think Paulson has terminally misunderstood the nature of the American system. Not just no review, no judicial review, no congressional accountability. Give me 700 billion dollars, 700 BILLION dollars! 'I'll be glad to spend it for you.' That's a centralization of power that is totally un-American." ...
Discussion:
Truthdig: Gingrich: Bailout Plan ‘Un-American’

Housing Wire:
Will the Bailout Plan Work? Economists Weigh In -- more than 200 academic economists signed a petition to Congress earlier this week; the economists cited the proposal’s lack of fairness to taxpayers, the ambiguity of its terms and potentially disastrous long-term effects...
preview.twincities.com:
Bailout accord reached
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Paul Krugman:
TARP draft — So there's a draft version of the bailout out there. Pretty much as expected. Section 113, MINIMIZATION OF LONG-TERM COSTS AND MAXIMIZATION OF BENEFITS FOR TAXPAYERS, is where the rubber meets the road — it's where the plan says something about how the deals will be done...
Calculated Risk: Draft: Emergency Economic Stabilization Act of 2008
Bess Levin / Dealbreaker: Revised Proposal
Yves Smith / naked capitalism: TARP Draft is Out — See here, sports fans.
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Wachovia Wipeout

NY Times:
Citigroup Buys Banking Operations of Wachovia -- Citigroup will acquire the banking operations of the Wachovia Corporation, the Federal Deposit Insurance Corporation said Monday morning, the latest bank to fall victim to the distressed mortgage market.

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

The F.D.I.C. said that the agency would absorb losses from Wachovia above $42 billion and that it would receive $12 billion in preferred stock and warrants from Citigroup in return for assuming that risk...
Business Week:
Wachovia: Just the Plum Citigroup Needed -- During the mid-1990s, Wachovia's merger-mad CEO, Ed Crutchfield, once famously joked that the key to persuading another bank to sell to him was to simply stack "$1 billion bills" on the table until the target relented. Now, though, it's Wachovia (WB) that is being taken over, and its buyer, Citigroup (C), got Wachovia's core banking franchise for a mere buck a share...

CNNMoney:
Citi buys Wachovia banking assets for $2.2 Billion

NY Times:
Citigroup and Wells Fargo Said to Be Bidding for Wachovia
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NY Times:
Hedge Funds Are Bracing for Investors to Cash Out -- First, the money rushed into hedge funds. Now, some fear, it could rush out.

Even as Washington reached a tentative agreement on Sunday over what may become the largest financial bailout in American history, new worries were building inside the nearly $2 trillion world of hedge funds. After years of explosive growth, losses are mounting — and so are concerns that some investors will head for the exits...
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Paul Krugman / New York Times:
The 3 A.M. Call — It's 3 a.m., a few months into 2009, and the phone in the White House rings. Several big hedge funds are about to fail, says the voice on the line, and there's likely to be chaos when the market opens. Whom do you trust to take that call? — I'm not being melodramatic...
Discussion:
Bill Anderson / LewRockwell.com Blog: Krugman and the Daily Howler — Or Do I Repeat Myself?
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NY Times:
Behind Biggest Insurer’s Crisis, a Blind Eye to a Web of Risk --As the group, led by Treasury Secretary Henry M. Paulson Jr., pondered the collapse of one of America’s oldest investment banks, Lehman Brothers, a more dangerous threat emerged: American International Group, the world’s largest insurer, was teetering. A.I.G. needed billions of dollars to right itself and had suddenly begged for help.

The only Wall Street chief executive participating in the meeting was Lloyd C. Blankfein of Goldman Sachs, Mr. Paulson’s former firm. Mr. Blankfein had particular reason for concern.

Although it was not widely known, Goldman, a Wall Street stalwart that had seemed immune to its rivals’ woes, was A.I.G.’s largest trading partner, according to six people close to the insurer who requested anonymity because of confidentiality agreements. A collapse of the insurer threatened to leave a hole of as much as $20 billion in Goldman’s side, several of these people said...
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Mindy Fetterman / USA Today:
Poll on the economy: Americans gloomier, for now — As people on Wall Street and Main Street hold their breath to see if a federal bailout of the nation's financial institutions will work, Americans are starting to speak — not whisper — the word “depression.” ...
Discussion:
Blake Dvorak / Real Clear Politics: Poll: 1/3 of Americans Think US In Depression
RELATED:
Dean Baker / TPMCafe:
Why Bail? The Banks Have a Gun Pointed at Their Head and Are …
Discussion:
Thomas Schaller / Salon: Bailout expected to pass
Barry Eichengreen / voxeu.org:
And now the Great Depression
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