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Tuesday, September 23, 2008

Bailout Logic: If Wall Street falls apart Main Street will get killed

Items of Interest:

"If Wall Street falls apart Main Street will get killed." — former Fed Governor (2006-2008) Frederic Mishkin on CNBC September 23, 2008
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Wall Street Journal:
Treasury Relents on Key Points -- The Bush administration and the Democratic Congress inched closer to agreement on a $700 billion plan to rescue troubled financial firms, with the Treasury making most of the concessions amid an increasing backlash from a range of economists and lawmakers.

The administration agreed to allow tougher oversight over the cleanup and provide fresh assistance to homeowners facing foreclosure, two Democratic priorities. In addition, negotiators neared agreement on allowing the government to take equity stakes in certain companies that participate in the rescue...

New York Times:
The $700 Billion Question — HENRY PAULSON, the Treasury secretary, has opened the government checkbook and is poised to spend $700 billion to end the financial crisis. What comes next depends on the precise mission and operating powers he and Congress assign the new Treasury agency that will oversee the bailout....

RELATED:
Politico:
House GOP rises up against Cheney -- There was a time when Dick Cheney could turn back a Republican revolt on Capitol Hill.

That time is gone.

The vice president traveled to Capitol Hill on Tuesday to silence a chorus of GOP complaints about Treasury Secretary Henry Paulson’s $700 billion plan. But House Republicans who walked into a closed-door meeting with Cheney steaming over the plan walked out just as angry, and they described what happened in between as both “a bloodbath” and “an unmitigated disaster.” ...
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Barry Ritholtz / The Big Picture:
14 Questions for Paulson & Bernanke --You two gentlemen have been wrong about the Housing crisis, missed the leverage problem, and understated the derivative issue. Recall the overuse of the word "Contained." Indeed, you two have been wrong about nearly everything financially related since this crisis began years ago.

Question: Why should we trust your judgment on the largest bailout in American history? ...
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Stop the Housing Bailout.com:
This site is dedicated to stopping the government's planned bailout of the housing market. A bailout requires responsible Americans to pay for the acts of greedy bankers, mortgage brokers, flippers, and over-extended home-borrowers. In other words, the government wants you to pay for the blunders of others who knew, or should have known, better....
Discussion:
BusinessWeek: Debating the Mortgage Bailout
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Bob Herbert / New York Times:
A Second Opinion? -- Does anyone think it’s just a little weird to be stampeded into a $700 billion solution to the worst financial crisis since the Great Depression by the very people who brought us the worst financial crisis since the Great Depression?...
Megan McArdle:
How close was the financial system to melting down? — I do not work for the Treasury, the Fed, or an investment house, so take this for what it's worth. But my understanding is really, frighteningly close. Remember the monster that lived under your bed when you were five? Actually, mine lived in the closet...
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The Paulson Plan v. The Dodd Plan

Paul Krugman:
Daddy doesn't know best — I've had more time to read the Dodd proposal — and it is a big improvement over the Paulson plan. The key feature, I believe, is the equity participation: if Treasury buys assets, it gets warrants that can be converted into equity if the price of the purchased assets falls.
Discussion:
RELATED:
Ian Welsh / Firedoglake
Chris Dodd Stares Down Paulson — So there was “Goldman” Hank, holding a gun on the economy and staring Congress down. “Give me the 700 billion, or the economy gets it!” he threatened. For two days it looked like he was going to get away with it, 700 billion dollars to spend on the Wall Street gang …
Discussion:
Jesse Wendel / Group News Blog: Please Respond Immediately Forthwith In Confidence
Athenae / First Draft: Happy Dodd Photo
Paul Krugman:
Dodd — Very preliminary, no details — but this sounds like a big step in the right direction. — One of the problems with this blog is that I ruffled a few feathers back when Bush had an 80 percent approval rating, and somehow I wasn't impressed. People remember, and as a result …
Martin Kady II / The Crypt's Blogs:
Dodd bill more aggressive than Treasury plan
Ian Welsh / Firedoglake: What the Dodd Bill Needs To Be Complete
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Ron Paul: Bailouts will lead to rough economic ridevia Digg / CNN:
Ron Paul: Bailouts will lead to rough economic ride — "...governmental measures, combined with the Federal Reserve's loose monetary policy, led to an unsustainable housing boom. The key measure by which the Fed caused this boom was through the manipulation of interest rates, and the open market operations that accompany this lowering."
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Bill Fleckenstein / MSN Money:
Whatever We Do, It Will Be Wrong -- A house of cards is reduced to shards

As I have said so many times, the housing bubble was the economy...

While I'm sure most of us find these bailouts repugnant, it's important to understand that the problems we are facing -- which the current crew is trying to fix -- built up over the 20-year reign of Alan Greenspan at the Federal Reserve...
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Mark Cuban / Blog Maverick:
700Billion bailout ? Ebay it ! -- Lack of transparency got us in to this mess, lets not let lack of transparency keep it messy. The government needs to immediately setup an exchange, it could be ebay.gov with more in depth description fields, for all I care. However they do it, EVERY asset the government will buy or sell as part of this buyout needs to be shown and described with the price the government is willing to pay or sell the asset for.

Why ? . . . . To keep government honest...
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Kevin Depew / Minyanville:
New Financial Order --

5 largest Investment Banks by Market Capitalization - from Jan 2008 to Sept 2008----
Jim Cramer / New York Magazine:
Good-Bye, Masters of the Universe -- Frank Capra would have loved the ongoing demise of Wall Street as we know it. How could he not? He correctly presaged it 62 years ago in It’s a Wonderful Life. Except in the 2008 sequel, not only does the Bailey Bros. Building & Loan survive, but it vanquishes Potter’s sorry, bloated operation, and the evil banker’s empire gets dismantled and sent to the eponymous field! This time around, George Bailey gets played not by Jimmy Stewart but by another quiet, unassuming individual, Ron Hermance. He’s the CEO of the homegrown Hudson City Bancorp, a modern-day replica of the Bailey Bros. Building & Loan. Never heard of Hermance or Hudson City? Under the avuncular and down-to-earth Hermance, this once-tiny Paramus, New Jersey, savings bank is now the largest savings and loan in the country.

Who gets cast as the vicious, scheming Mr. Potter? We’ve got tons of candidates vying for that role these days, but only Richard Fuld, of the bankrupt Lehman Brothers, can truly fill Lionel Barrymore’s wingtips, given his arrogance and greed. How fitting is it that the day Lehman Brothers ceased to trade, because of Fuld’s inability to grasp how truly rotten Lehman had become, Hudson City hit its 52-week high?....
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CNN Money:
Lennar sales tumble 53% -- Homebuilder reports greater loss than analysts expected, but not as steep as this time last year...
Lennar: More government help needed
"While we expected the housing market to remain constrained throughout the third quarter, the weakness in the market actually accelerated as a result of increased foreclosures, weakened consumer confidence and tightened mortgage lending standards," Chief Executive Stuart Miller said in a statement...
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Michael Panzner / Financial Armageddon:
The 'Main Street Journal'? -- Because so much of the world is engrossed with the machinations of the Wall Street-Washington nexus, designed to ensure the eventual transformation of the United States into the world's leading banana republic, it seems like some have lost sight of the meltdown occurring in the real economy.

In today's Wall Street Journal -- which I've temporarily renamed the Main Street Journal because of the plethora of reports about the problems infecting that part of the economy that the man on the street really understands...
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Who really cares about the bailout plan?

InstaPundit Poll:

Which will make a bigger difference to America over the next four years?
Selection
Votes
Who wins the White House in November 57%2,185
What happens with the bailout plan 36%1,398
I'm voting "present" on this one 7%269
3,852 votes total
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A full page advertisement that ran in the NY Times today. It cost about $130,000 and was paid for by investor Bill Perkins of Houston. It shows Paulson, Bernanke, and Bush as the new communists.

The New Communists: Paulson, Bernanke, Bush----

zero hedge

Calculated Risk

Mish's Global Economic Trend Analysis

Paul Krugman - NY Times

The Big Picture - Barry Ritholtz

naked capitalism - Yves Smith

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Washington's Blog

Safe Haven

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The Daily Reckoning - Australia

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