I opine

From My Senator on the Bailout of Wall Street

Posted in economy, politics by jaeminuf on September 27, 2008

Senator Feinstein‘s veeeeeeeery long response to a letter I submitted to her office. Her key points are:

  • Necessity for a bailout
  • Phased funding of bailout
  • Paulson plan thumbs down because too much power in one person. Entrust responsibility not just to one person. More oversight/accountability necessary.
  • Legislative reform of the financial system in the first quarter of 2009
  • Protection for tax payers in the form of warrants/stock/etc. Learn from the Swedes.
  • Cap on executive compensation for firms that participate in bailout. If executives balk, let them sink or swim on their own.
  • Mortgage relief

Dear Ms. XXX:

Thank you for your letter expressing concern about Congress’ consideration of a plan to meet our Nation’s credit crisis with financial help from the Federal Government. This is a difficult situation for which there are no perfect solutions, and I would like to share my thoughts and concerns about this issue with you.

On September 19, 2008, Secretary of the Treasury Henry M. Paulson, Jr. announced a legislative proposal to use $700 billion to purchase illiquid mortgage-related assets from ailing financial institutions. Secretary Paulson’s three-page proposal was a non-starter, and without critical changes it has no chance of approval from Congress.

This proposal would have given a blank check to an economic czar who would have been empowered to spend it without administrative oversight, legal requirements, or legislative review. Decisions made by the Treasury Secretary would be non-reviewable by any court, agency, or Congress. The proposal also lacked a requirement for regular reports to Congress on the status of the program. This was simply untenable.

Since this announcement, my offices have received thousands of comments from Californians like you concerned about how this action will affect them. Yet, I believe prudent action must be taken. The bill should include the following principles: a phase-in of funding; oversight, accountability and transparency; a mechanism allowing the Secretary of the Treasury to modify mortgages to prevent additional foreclosures; and a precise cap on executive compensation.

The current credit crisis affects all Americans. If action is not taken to stem the crisis, Americans risk losing their homes, jobs, personal savings, life insurance and more. Banks will cease to lend to businesses and homeowners, and credit will be increasingly difficult to come by for average Americans. I strongly believe that the consequences of failing to act now would be greater than not acting at all.

Attached please find a statement I recently made on the floor of the Senate expressing my feelings on this issue. Please know that I will keep your thoughts in mind as this situation unfolds.

Once again, thank you for writing. If you have any additional questions or concerns, please do not hesitate to contact my Washington, D.C. office at (202) 224-3841. Best regards.

U.S. Senator Dianne Feinstein (more…)

And They All Fall Down

Posted in economy, ethics by jaeminuf on September 25, 2008
Front Cover of The Predator State by James K. Galbraith

Glad to get confirmation that my years as a financial analyst weren’t for notta. A few days ago, I wondered aloud whether it would be feasible and helpful to create a federal entity with oversight for home loan refinancing, an entity modeled on federal student loans program. Well…

James K. Galbraith, the author of The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too and the son of renowned economist John Kenneth Galbraith, questions whether the bailout is necessary and proposes a new Home Owners Loan Corp., which would rewrite mortgages, manage rental conversions and decide when vacant, degraded properties should be demolished.

All five big investment banks have disappeared or morphed into regular banks. Is this bailout still necessary?

The point of the bailout is to buy assets that are illiquid but not worthless. But regular banks hold assets like that all the time. They’re called “loans.”

With banks, runs occur only when depositors panic, because they fear the loan book is bad. Deposit insurance takes care of that. So why not eliminate the pointless $100,000 cap on federal deposit insurance and go take inventory? If a bank is solvent, money market funds would flow in, eliminating the need to insure those separately. If it isn’t, the FDIC has the bridge bank facility to take care of that.

Next, put half a trillion dollars into the Federal Deposit Insurance Corp. fund — a cosmetic gesture — and as much money into that agency and the FBI as is needed for examiners, auditors and investigators. Keep $200 billion or more in reserve, so the Treasury can recapitalize banks by buying preferred shares if necessary — as Warren Buffett did this week with Goldman Sachs. Review the situation in three months, when Congress comes back. Hedge funds should be left on their own. You can’t save everyone, and those investors aren’t poor.

With this solution, the systemic financial threat should go away. Does that mean the economy would quickly recover? No. Sadly, it does not. Two vast economic problems will confront the next president immediately. First, the underlying housing crisis: There are too many houses out there, too many vacant or unsold, too many homeowners underwater. Credit will not start to flow, as some suggest, simply because the crisis is contained. There have to be borrowers, and there has to be collateral. There won’t be enough.

In Texas, recovery from the 1980s oil bust took seven years and the pull of strong national economic growth. The present slump is national, and it can’t be cured that way. But it could be resolved in three years, rather than 10, by a new Home Owners Loan Corp., which would rewrite mortgages, manage rental conversions and decide when vacant, degraded properties should be demolished. Set it up like a draft board in each community, under federal guidelines, and get to work…

James K. Galbraith – A Bailout We Don’t Needwashingtonpost.com

For a review of Galbraith’s book by The Journal of Economic Issues, go to the Economist’s View, a blog by Mark Thoma, Professor of Economics at the University of Oregon. More information on Galbraith’s book can be found at:

 

Wall Street on the Dole

Posted in economy, ethics, politics by jaeminuf on September 23, 2008

Someone tell me why that $700 billion can’t be put to actually helping out individuals rather than Wall Street.

The Feds will need to create some administrative infrastructure that will handle doling out – yes, I am using the rhetoric of welfare intentionally here – $700 billion to Wall Street. There will be some wrangling over how many cents to each dollar of debt to be acquired. Blah blah blah.

How much more difficult would it be to set aside that money, create the administrative infrastructure by which mortgage owners who are suffering can apply for re-financing from that pot of money? The banks will get their loans back, homeowners would be able to keep their homes (presuming that a majority will be able to afford discounted mortgage rates), and the fed will get its money back over time, and bankruptcy laws wouldn’t need to be changed?

And really, I can’t be the only person who thinks this may be feasible and far preferable than what Paulson, Bernancke, and the Bush administration are demanding, oops, “proposing as necessary to avoid financial meltdown, global economic crisis, a recession, Armageddon (choose your pick).” Other than that this may be impolitic, why can’t this work?

And tell me again, why ought the US Treasury include foreign investors in the bailout? Nevermind why Wall Street can’t pull itself up by its bootstraps.

I’m asking, not being rhetorical. Sarcastic, but not rhetorical.

Socialization of Wall Street

Posted in Uncategorized by jaeminuf on September 16, 2008

For the past decade, much brouhaha has been made of privatizing social security, formally known as the federal Old-Age, Survivors, and Disability Insurance (OASDI) program. That private individuals will better manage their own retirement funds than the federal government can. That it doesn’t perform as well as private pension funds do. That, all in all, it is in the best interest of the individual to invest directly into the financial markets than to turn over that money for the government to safekeep until due time.

The present Bush administration has been a strong proponent of the privatization of social security. In general, they extol the virtues of the free market. That deregulation can only be a good thing.

Fast forward to September 2008

Treasury chief Paulson unveils historic government takeover of twin mortgage buyers. Top executives are out. – U.S. seizes Fannie and FreddieCNN.com

and

A.I.G., The New York Times

Acting to avert a possible financial crisis worldwide, the Federal Reserve reversed course on Tuesday and agreed to an $85 billion bailout that would give the government an ownership stake in troubled insurance giant American International Group. – Fed to Loan A.I.G. $85 Billion in RescueThe New York Times

I’m really confused…
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Well-Intentioned But Manipulated

Posted in ethics, gender, politics by jaeminuf on September 7, 2008

In “The Mirrored Ceiling,” the latest post in her New York Times blog Domestic Disturbances, Judith Warner articulates incisively the gross insult and danger that is Palin’s nomination.

Palin sounded, at times, like she was speaking a foreign language as she gave voice to the beautifully crafted words that had been prepared for her on Wednesday night.

But that wasn’t held against her. Thanks to the level of general esteem that greeted her ascent to the podium, it seems we’ve all got to celebrate the fact that America’s Hottest Governor (Princess of the Fur Rendezvous 1983, Miss Wasilla 1984) could speak at all.

Could there be a more thoroughgoing humiliation for America’s women?

One of the worst poisons of the American political climate right now, the thing that time and again in recent years has led us to disaster, is the need people feel for leaders they can “relate” to. … it brought us after all, two terms of George W. Bush. And it isn’t new; Americans have always needed to feel that their leaders were, on some level, people like them. …But never before George W. Bush did it quite reach the beer-drinking level of familiarity… There’s a fine line between likability and demagoguery. Both thrive upon manipulation and least-common-denominator politics.”

Some of the comments to this Blog post were especially worthwhile. In particular, I appreciated Elizabeth Fuller’s comments (#5 and #387 ), as did so many others who commented, and Bill’s comment #363. They were gems. I just hope that the populace is made up of such thoughtful people who do discern the dissimulation being waged by Steve Schmidt, John McCain, Sarah Palin, and the Republican Party who, in order to put themselves in the White House, would do everything but put the country first and in fact would soil and undermine the very values upon which this nation was founded. I hope they are able to see that Sarah Palin is none other than a lipstick wearing, Alaskan iteration of George W. Bush: just as ill-prepared because they are not curious about the world in which they live, they have not dedicated themselves to challenging themselves, their hubris allows them to believe they possess all the wherewithal that could possibly be necessary to be (V)POTUS, and they lack respect for the Constitution and would violate that foundational belief in the separation of church and state.

 

Palin’s Teen Pregnancy

Posted in ethics, gender, politics, race by jaeminuf on September 3, 2008

Family Members of the Republican Presidential Ticket

I personally don’t care about Bristol Palin’s pregnancy. What I object to is the hypocrisy, not just of the Palin family but of the claim that it is a subject inappropriate for public debate.

On the one hand, of course, it is entirely a private affair; however, it was made a public affair a long time ago by those who insisted on abstinence before marriage, who cast judgment on anyone who had pre-marital sex, who sneered at teen pregnancies and particularly those of black teens, who supported policies that either rendered it impossible to terminate unwanted pregnancies or eroded public forms of support for girls/women and their unplanned offspring who lack the kind of support that Bristol fortunately has, etc.
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