From My Senator on the Bailout of Wall Street

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

And They All Fall Down

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 Need – washingtonpost.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:

• Global Investment Watch
• Mefeedia Podcast – The Predator State: How Conservatives Abandoned The Free Market And Why Liberals Should Too – Posted using ShareThis

 

Nigerian Scam?

Forwarded to me today.

>Dear American:
> I need to ask you to support an urgent secret business relationship
> with a transfer of funds of great magnitude.
>
> I am Ministry of the Treasury of the Republic of America. My
> country has had crisis that has caused the need for large transfer
> of funds of 800 billion dollars US. If you would assist me in this
> transfer, it would be most profitable to you.
>
> I am working with Mr. Phil Gramm, lobbyist for UBS, who will be my
> replacement as Ministry of the Treasury in January. As a Senator,
> you may know him as the leader of the American banking deregulation
> movement in the 1990s. This transactin is 100% safe.
>
> This is a matter of great urgency. We need a blank check. We need
> the funds as quickly as possible. We cannot directly transfer these
> funds in the names of our close friends because we are constantly
> under surveillance. My family lawyer advised me that I should look
> for a reliable and trustworthy person who will act as a next of kin
> so the funds can be transferred.
>
> Please reply with all of your bank account, IRA and college fund
> account numbers and those of your children and grandchildren to
> wallstreetbailout@treasury.gov so that we may transfer your
> commission for this transaction. After I receive that information,
> I will respond with detailed information about safeguards that will
> be used to protect the funds.
>
> Yours Faithfully Minister of Treasury Paulson

Wall Street on the Dole

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.

Dr. Pan for POTUS!

Yes. Obviously I’m being hyperbolic. Besides, yes, I know. He’s ineligible since he’s neither an American citizen nor a natural born one. But find out why I would feel impelled to nominate him for POTUS.

Need a break from trying to decide whether or not the boy who cried wolf is crying for real this time? From trying to decide whether to laugh or cry at the sheer embarrassment that is the American federal government, primarily the White House but the other two hallowed halls aren’t so sacrosanct themselves?

Our leaders can learn a thing or two from Dr. Pan Wenshi, one man who is singlehandedly saving a species from extinction, a village from the poverty that had driven them to cannibalize their natural resources, and humanity’s tenuous faith in its own perfectibility which Mencius propounded.

Read on and enjoy the warm fuzzies! You’ll need it to get back to watching the tragicomedy that is becoming an epic by the day.

A breakthrough in protecting the species came in 1997 when he helped local villagers build a pipeline to secure clean drinking water. Shortly thereafter, a farmer from the village freed a trapped langur and brought it to Dr. Pan.

“When you help the villagers, they would like to help you back,” he said.

As self-appointed local advocate, Dr. Pan raised money for a new school in another village, oversaw the construction of health clinics in two neighboring towns and organized physicals for women throughout the area.

“Now, when outsiders try to trap langurs,” Dr. Pan said, “the locals stop them from coming in.”

– It Takes Just One Village to Save a Species:
By helping a Chinese village out of poverty, Pan Wenshi protects the endangered langur
– The New York Times

Words of Advice from President Bartlet

What if Barack Obama turned to former President Jed Bartlet of the “West Wing” for some fatherly wisdom?

OBAMA What would you do?

BARTLET GET ANGRIER! Call them liars, because that’s what they are. Sarah Palin didn’t say “thanks but no thanks” to the Bridge to Nowhere. She just said “Thanks.” You were raised by a single mother on food stamps — where does a guy with eight houses who was legacied into Annapolis get off calling you an elitist? And by the way, if you do nothing else, take that word back. Elite is a good word, it means well above average. I’d ask them what their problem is with excellence. While you’re at it, I want the word “patriot” back. McCain can say that the transcendent issue of our time is the spread of Islamic fanaticism or he can choose a running mate who doesn’t know the Bush doctrine from the Monroe Doctrine, but he can’t do both at the same time and call it patriotic. They have to lie — the truth isn’t their friend right now. Get angry. Mock them mercilessly; they’ve earned it. McCain decried agents of intolerance, then chose a running mate who had to ask if she was allowed to ban books from a public library. It’s not bad enough she thinks the planet Earth was created in six days 6,000 years ago complete with a man, a woman and a talking snake, she wants schools to teach the rest of our kids to deny geology, anthropology, archaeology and common sense too? It’s not bad enough she’s forcing her own daughter into a loveless marriage to a teenage hood, she wants the rest of us to guide our daughters in that direction too? It’s not enough that a woman shouldn’t have the right to choose, it should be the law of the land that she has to carry and deliver her rapist’s baby too? I don’t know whether or not Governor Palin has the tenacity of a pit bull, but I know for sure she’s got the qualifications of one. And you’re worried about seeming angry? You could eat their lunch, make them cry and tell their mamas about it and God himself would call it restrained. There are times when you are simply required to be impolite. There are times when condescension is called for!

Aaron Sorkin Conjures a Meeting of Obama and Bartlet
– Maureen Dowd – The New York Times

Oh my god, my god (note, I used “god” in lower caps) is Aaron Sorkin! I love Aaron Sorkin. I LLLUUUUUUUUUV Aaron Sorkin. And I love President Bartlet. And oh my god, let righteous anger speak!

I loved that Biden said it would be patriotic for the wealthy to do their part at this time. Thank you, Biden, for having balls

Sisters Are Doing It For Themselves!

I chanced upon this firsthand account of the Alaskan women’s rally against Palin’s nomination. It was heartening.

Never, have I seen anything like it in my 17 and a half years living in Anchorage.  The organizers had someone walk the rally with a counter, and they clicked off well over 1400 people (not including the 90 counter-demonstrators).  This was the biggest political rally ever, in the history of the state.  I was absolutely stunned.  The second most amazing thing is how many people honked and gave the thumbs up as they drove by.  And even those that didn’t honk looked wide-eyed and awe-struck at the huge crowd that was growing by the minute.  This just doesn’t happen here. – ‘Alaska Women Reject Palin’ Rally is HUGE!

Alaska Women Say She Be Failin’

A couple of hours after Gov. Sarah Palin returned to the Outside, as Alaskans call the Lower 48, her local critics swarmed an Anchorage intersection to correct the widespread impression that the whole of the Last Frontier endorses her candidacy.
…
“The whole thing grew out of frustration,” said Charla Sterne, one of the organizers, who like several people at the rally declined to say where they worked (several said they were state employees and feared retribution). – In Anchorage, an Anti-Palin Protest – Washington Post

I couldn’t resist including a sample of the signs:

• Bush In A Skirt
• Palin: She Be Failin’
• Jesus Was a Community Organizer
• Palin: Thanks But No Thanks
• Smearing Alaska’s Good Name One Scandal @ a Time
• Candidate To Nowhere
• Rape Kits Should Be Free
• Voted For Her Once: Never Again!
• Community Organizers are the Real Patriots
• Barbies for War
• I Shall Not Be Pandered To
• Give Palin Your Vote AND Your Draft Age Child
• Sarah Palin: So Far Right She’s Wrong
• Coat Hangers for McCain
• Sarah Palin, Undoing 150 Years of American Feminism
• Hockey Mama for Obama (on a hockey stick)

 

Socialization of Wall Street

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 Freddie – CNN.com

and

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 Rescue – The New York Times

I’m really confused…

Fear and Loathing – Let Us Not Indulge

I hadn’t realized until yesterday that some Obama supporters have been regarding HRC to be conspicuously absent from the campaign because, in large part, my political radar had been tuned to pick up Obama‘s presence. Although now I can’t find the specific Salon.com article through which I became aware of this acrimony, the eagerness and vehemence with which some Salon.com‘s readers thrashed HRC with charges of being a selfish saboteur and traitor were alarming. Especially in light of the fact that HRC has been out there campaigning on Obama‘s behalf:

• Hillary Clinton: Sarah Palin Exciting But Not Vote Worthy, ABC News, September 16, 2008
• Clinton Stumps for Obama, but With Little Fire at Palin, The New York Times, September 8, 2008
• Obama Camp Turns to Clinton to Counter Palin, The New York Times, September 4, 2008

While I too share the anxieties resulting from the past two weeks’ surreality, it does no good to to cast unfounded aspersions on HRC, insisting she isn’t doing enough to win it for Obama. Besides the fact that winning this election is the responsibility of Obama, his campaign, and his supporters (by which I mean me and you, that is if you want to see Obama in the office), we can do better. We can start by stepping back so that we can get a better view of what actually is happening and what needs to happen.