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Wednesday, September 24, 2008

Credit Crisis is an `Economic Pearl Harbor'

Items of Interest:

---Wall Street crisis gets dumped on the backs of the taxpayers---
Buffett Calls Crisis an `Economic Pearl Harbor,' Backs Paulson -- Billionaire investor Warren Buffett, calling the market turmoil ``an economic Pearl Harbor,'' said Treasury Secretary Henry Paulson's $700 billion proposal to prop up the U.S. financial system is ``absolutely necessary.''

``The market could not have taken another week'' like last week, Buffett told CNBC today, a day after saying his Berkshire Hathaway Inc. will buy a $5 billion stake in Goldman Sachs Group Inc. ``I think it was the last thing Hank Paulson wanted to do, but there's no Plan B for this.''

Paulson and Federal Reserve Chairman Ben S. Bernanke are pushing Congress to quickly approve the plan to remove illiquid assets from the banking system. Lawmakers have balked at rubber- stamping the proposal, with Democrats demanding it include support for homeowners and limits on executive pay and Republicans questioning the plan's reach and size.

``I am betting on the Congress doing the right thing for the American public and passing this bill,'' Buffett said. The economy is ``everybody's problem,'' he said, likening it to ``a bathtub -- you can't have cold water in the front and hot water in the back.'' ...
Minyanville: Buffett Pans for Goldman
NY Times / DealBook: Buffett Makes His Move as Bailout Debate Rages
The Johnsville News: Warren Buffett a Liar?

Huffington Post:
The Steamroller -- Today, Buffett is praising Paulson, "talking his book." ...

Barry Ritholtz / The Big Picture:
Buffett to GS: "I Got $5 Billion, but Its Gonna Cost Ya" -- The WSJ subhead read "Move by Famed Investor Amid Crisis Seen as Vote of Confidence in Banking System."

Puh-leeze. Vote of confidence? Hardly...

Jeff Matthews is not making this up:
The “Oracle” Speaks: Listen Up, Hank -- “(H)ow is it that Warren Buffett can cut a better deal with the best-run financial company in America than the U.S. Treasury can ask from the worst-run financial companies in America?” ...

Warren Buffett Reveals Bailout's Dirty Little Secret -- The critical part of the bailout is the price the government pays for the trash assets it buys from banks...

Bernanke and Paulson want to pay a phantom "hold-to-maturity" price that is above the prices at which the banks are currently valuing their trash assets...

Warren Buffett, meanwhile, thinks the appropriate price would be the "market value," which he believes is below the price at which the banks are currently carrying their trash..
Editorial / New York Times:
Paulson & Bernanke Didn't Make Their Case -- Under skeptical questioning in the Senate Banking Committee on Tuesday, Treasury Secretary Henry Paulson and the Federal Reserve chairman, Ben Bernanke, gave no ground in defense of their $700 billion proposal to bail out the financial system.

They also gave little reason to believe that their proposal would protect taxpayers from huge losses...

Brady Willett / Financial Sense:
Let Paulson and Bernanke Buy Some of this Crap -- The $700 billion bailout is a desperate plan that could fail miserably, permanently damage the U.S.’s financial standing, and leave the U.S. taxpayer holding the bag. The way Paulson and Bernanke talk you would think that taxpayers should be lining up to donate more than $700 billion…
James Pethokoukis / Capital Commerce
Newt Gingrich: Kill the Paulson Plan. Hard. -- I just got back from a Newt Gingrich press conference where I had a nice back-and-forth dialogue with the former Speaker of the House about the Paulson Plan, which he totally hates. A few quotes and Gingrichian observations:

1) He called it a "stupid plan" that looks like it had been designed by autocrat Vladimir Putin. He also said it will be a "nightmare" to implement and full of corruption.

2) He said the Paulson Plan would be a "dead loser" on Election Day that will "break against anyone who votes for it." It will hurt even worse with the 2010 election once Americans see what a drag it is on the economy when implemented.

3) He recently chatted with economic historian Alan Meltzer who advocated doing nothing rather than implanting the Paulson Plan. Meltzer apparently joked to Gingrich that this was about the third time he had seen Wall Street scream "the apocalypse was nigh" only to have the economy keep right on chugging along...
Paulson Bailout Plan a Historic SwindleWilliam Greider / The Nation:
Paulson Bailout Plan a Historic Swindle -- Financial-market wise guys, who had been seized with fear, are suddenly drunk with hope. They are rallying explosively because they think they have successfully stampeded Washington into accepting the Wall Street Journal solution to the crisis: dump it all on the taxpayers. That is the meaning of the massive bailout Treasury Secretary Henry Paulson has shopped around Congress....

If Wall Street gets away with this, it will represent an historic swindle of the American public - all sugar for the villains, lasting pain and damage for the victims...

William H. Gross / Washington Post:
How Main Street Will Profit — Capitalism is a delicate balance between production and finance. Today, our seemingly guaranteed living standard is threatened, much like it has been in previous recessions or, some would say, the Depression. Finance has run amok because of oversecuritization …

The Treasury proposal will not be a bailout of Wall Street but a rescue of Main Street...
David Leonhardt / New York Times:
Issue Is Payback, Not Bailout -- So are you for the bailout or against it?

Many people, I’m guessing, don’t have an immediate answer to the question...
Eric Posner / The Volokh Conspiracy:
Wall Street Journal:
The FBI Ramps Up: Mortgage-Fraud Probes Go Bigtime -- Federal investigators have opened probes into whether fraud helped cause some of the troubles at Fannie, Freddie, Lehman and AIG, according to a WSJ report.
CNN Money:
Existing home sales sink again -- Sales of homes by homeowners dropped in August as prices continued to decline.

Sales of existing homes fell in August, according to the latest reading on the battered housing market released Wednesday by an industry trade group.

The National Association of Realtors reported that sales by homeowners sank in August to an annual pace of 4.91 million, down 2.2% from the revised July reading of 5.02 million.

August sales were down 10.7% from a year earlier...
Todd Harrison / Minyanville:
Do you think Alan Greenspan feels any culpability? Anything at all? For the policies that were the genesis of these cumulative imbalances? For the twisting of the ARMS, stretching an already tapped consumer and extending the elasticity of the housing bubble? Anything at all? Even a little? No?

Calculated Risk

MishTalk - Mike Shedlock

Paul Krugman - NY Times

The Big Picture - Barry Ritholtz

naked capitalism - Yves Smith

Pragmatic Capitalism

Washington's Blog

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Paper Economy

The Daily Reckoning - Australia