Bailout passes, move along, nothing to see here

Well, something had to be done. The very uncertainty caused by Congress over the bill was driving the markets insane, although perhaps all the economic bad news, like the rise in unemployment, and decline in car sales - all mostly due to the recent run-up in energy costs - remain major issues.


(Artist's note - the modified photograph above is taken from the La Times story about the passage of the bailout bill. The range of the facial expressions above inspired the thought bubbles. I would love to know who the people pictured actually are, and what they actually thought. Anyone?)

For me this past week gave me a pair of interesting questions. The first one involves the importance of the LIBOR spread, the second, I can hardly express, yet. I am chasing down the data and formulating the question, but the numbers I want are the total square footage of housing in the US, by year, over the last fifty years. (both new and existing construction)

As for the LIBOR, I found numerous inaccuracies in the coverage of the "credit crisis" - reporters kept calling the rate, not the spread, a "record", when in fact, even at the peak (one day at about 7%), it wasn't even close to historical highs, and far lower than last year, on average. I've been trying to find a source for spread data as well the number of ARMs that would reset to get a grip on the real impact of higher LIBOR rates.



I wonder what has to happen to bail out california?

In other news, Michael Bloomberg is running for dictator for life in NYC.

Labels: bailout, banking

  ¶ 3:42 PM 0 comments

  Cooking the numbers

"I think the focus on the $700B bailout is wrong. It's been portrayed as a bailout of Wall Street, which is a highly unpalatable idea for middle America--and rightly so. But thinking about it as an attempt to keep the credit market liquid is more palatable--and, in my view, a bit more accurate." - Brian Clapper

Over the last two days my thinking has evolved towards this understanding, that the original idea conflated two different concepts - one - that credit was drying up due to incomprehensible derivative debts - and two - that the federal government buying that incomprehensible debt at some yet-to-be-determined-price and making it less incomprehensible over time was a way to fix the problem. The key figure to watch is the interbank lending rate (libor), not the DOW.

That doesn't make the House bailout bill palatable, however. A pig in the poke - even with lipstick - is still a pig in the poke. If the market can't figure out how much that debt is really worth, how can the federal government? Ever?

Update: I'm now at page 92 of the revised, 461 page act, and it is considerably better than the one in the House. I'm told my blood pressure will rise from here on out, however...

Update 2 - 7PM: Now at page 142, and need some medication... bad....

Update 3 - 1AM: Finished reading it all, and some of the associated acts, checking some dates of implementation now, some comments after I get some sleep. It passed the Senate long before I finished, there must be some speed readers on the Hill.....

Update 4 - 10AM: I have written a whole series on the events of the past week, trying to make sense of it, it is tagged banking.

back to this morning's rant:

And more centralization - of HOUSING? - in the hands of the federal government does not sound very good to me. Seeing the housing side of the problem devolve to the states strikes me as saner, and constitutional.

Suspending the Mark to Market accounting rule, as many have suggested, is nothing more than cooking the books until after the election. Real numbers are required to make real decisions.



As for fixing the credit crunch, raising rates would be a sane answer. Normal interest rates are too low. I am scared to calculate what financing the federal debt would be like if interest rates reflected the reality of risk in this market, but that is the market mechanism. Raising rates goes against the conventional wisdom of the proper thing to do in a recession, but with 44% of the federal paper held outside the US, there needs to be some mechanism to spur investment in the face of objectively evaluated risk.

Update 5: By saying the above I was not saying that rates needed to go up, but that rates going up would reflect the perceived risk in the economy. The classically "right" answer is to inflate the currency in times like these. I was pointing out that the size of the overseas holdings is something fairly new in Keynesian finance, and wondering what incentives those investors had to stay in an inflated currency. OK, back to the original post....

Anyone notice that the original - Paulson - proposal - was better than the House's in that it only reimbursed corporations BASED IN THE USA? Somebody had to lose in this shell game and Paulson picked the overseas investors and companies like Halliburton, in Dubai, to take the hit harder than the taxpayers. Congress "fixed" that after some pithy commentary from China - (of all the links I posted thus far today that was the most interesting) - and on the trade deficit.

The game is rigged to favor inflationary policies over taxation. I have a modest counter proposal - why not pay off all 962 billion of the usurious credit card debt under condition that the people holding that debt cut up their credit cards? Eliminating the interest payments on that alone would save at least 100b a year in interest payments, which many would use to make house payments, and the corresponding inflation would prop up asset prices. I realize that this makes about as much sense as the free silver movement, but I judge the benefits to the American people and hit on the banks to be more effective way of sharing the pain and moral hazard than what is currently on the table.

Note: I called this "A modest proposal". Some more out of the box thinking is needed.

Maybe we already are in a stagflation period like 1973.



I still can't help but think, in the wee hours of the morning, this whole hoo-rah is a weapon of mass distraction unleashed by parties unknown for purposes as yet unknown. I keep searching out the corners of the internet for some sign there is something else going on - noting details like the 600+B budget resolution that passed without a whimper, the wimpy web broadcaster bill that also passed, and noting that the NORCOM 1st brigade has gone active in the US.

I can't help but think upon how Rome tried to control its legions, by banishing them to the outer provinces, and what Julius Caesar did....

"Right now, greasing the credit market seems to be the best bet, however that's accomplished. Lowering the central bank lending rates hasn't helped; the banks take the extra cash and hoard it, to shore up their balance sheets. It's time for something else, even an imperfect something else." - Brian Clapper, again being saner than I.

I no longer have any real skin in this game. I took my last lumps last year, threw up my hands and left the country. All I have left is my freshly sharpened pitchfork. It must suck to be a sane, responsible citizen that still has a mortgage and kids. The day that people like Brian are fed up enough to sharpen their pitchforks and take to the streets has not come yet, but it will.

The national debt clock cracked 10 trillion dollars today, even before the vote. It is now at:



One of the things that really, really bothered me about seeing Sweeney Todd turned into a movie last year is that it became a story about two unlovable murderers rather than the scathing social satire of love, betrayal, and revenge on corruption that it was in the original stage version. By showing the corrupt classes Hollywood utterly ruined the song "A little Priest", and eventually, the movie. I highly recommend the stage version.

From "A Little Priest":

TODD:
Mrs. Lovett, how I've lived
Without you all these years, I'll never know!
How delectable!
Also undetectable!
LOVETT:
Think about it!
Lots of other gentlemen'll
Soon be comin' for a shave,
Won't they?
Think of
All them
Pies!

TODD:
How choice!

How
Rare!

TODD:
For what's the sound of the world out there?
LOVETT:
What, Mr. Todd?
What, Mr. Todd?
What is that sound?
TODD:
Those crunching noises pervading the air!
LOVETT:
Yes, Mr. Todd!
Yes, Mr. Todd!
Yes, all around!
TODD:
It's man devouring man, my dear!
BOTH:
And [LOVETT: Then] who are we to deny it in here?

Labels: bailout, banking, sarcasm

  ¶ 7:00 AM 3 comments

  228 members of congress grow some balls

And refuse to pass the Wall Street Enrichment Act, even with the TARP (satirically renamed "TRAP") provisions.

It rather encourages me that some members of Congress are unwilling to spend a year's worth of WWII in a single day. I'm not shocked it was so few, I was downright surprised that a majority refused....

If the Senate can't vote until Wednesday at the earliest, why the rush to vote in the House? Let the representatives of the people - AND THE PEOPLE - read the darn bill before voting on it, for a change. The last rush vote I recall was the Patriot Act, and we know how that turned out.

So far as I can tell from here, capitalism continues to work, overexposed banks are being bought by saner banks at enormous writedowns on assets without it costing the taxpayer a cent.

Regional banks are doing ok. People are still doing their daily lives. There are still help wanted ads. Wall Street isn't Main Street, and NYC is not the center of the world, despite what some think.

Compared with the true cost of handing over financial control of the country to five elite bankers, shortly before a major election, a little delay and thought before fully embracing fascism is in order, don't you think?

Here's some Ron Paul for ya - on Bush's speech and on the House floor this morning, not that you'll see a word of his quoted in the mainstream press.

Paulson said one thing, early on, that really tweaked me. He said: "Credit is the lifeblood of the economy" - and I said, at maximum volume, at 2 in the morning -

And debt is the Albatross hung around all our necks!!

Oh, yea, before I forget, in the middle of all this kerfuffle Congress passed another 600+billion spending bill, with a major increase of military spending for the occupation of Iraq, and also agreed to hand over 25 billion to the automakers.

Where in God's name is the money for any of this going to come from? Can't anybody add?

Bonus link: The Rime of the Ancient Mariner

Update: US savings deposits spiked sharply upward in the 2nd quarter. And people were always bitching about the US having the lowest savings rate in the world.



Hey! We're saving money in banks and not investing in wall street! That sounds prudent. I wonder in what banks those deposits are going?

Labels: bailout, banking, msm

  ¶ 12:27 PM 0 comments

  The shell game

The full text of the Wall Street Enrichment Act has been published. Read the comments... It's no longer a "bailout bill" but a "Emergency Economic Stabilization Act", which I suppose will play better in Peoria.

In the process of being blessed by congress, the 3 page Paulson plan got expanded to 110 pages of legalese...

I'd have had more venom in this blog this past week if the news sites I read didn't have open comments systems, where ordinary people get to say exactly what they think, uncensored, eloquently and in real time.

The online comments are running 99% massively pissed off.

I pity anyone that reads the popular press on old fashioned newsprint. This bill will pass before a single letter to the editor reviewing it will make a physical paper, and undoubtably be balanced by the editors with a contrasting opinion.

Me, I got as far as the 6th page of the bill before I blew a gasket and had to take a nap.

(e) PREVENTING UNJUST ENRICHMENT.—In making purchases under the authority of this Act, the Secretary shall take such steps as may be necessary to prevent un-just enrichment of financial institutions participating in a program established under this section, including by preventing the sale of a troubled asset to the Secretary at a higher price than what the seller paid to purchase the asset. This subsection does not apply to troubled assets acquired in a merger or acquisition, or a purchase of assets from a financial institution in conservatorship or receivership, or that has initiated bankruptcy proceedings under title 11, United States Code.

See the pea in this shell game? You screw up, form a new shell company, do M&A on a fire sale purchase, and the next day get a bailout from your cronies in the government... more or less what just happened with WaMu....

The bill and popular press are conflating the terms "asset" and "debt". While in bank-ese a "debt" may be an "asset", in the real world, debt is debt. What this is all about is issuing more government debt to buy up private debt that is theoretically backed by assets of declining value, in the hope that the government (the people with guns and tanks) can make the debt pay at something closer to its original value.

On to page 7, if my heart can stand it...

update: Some good jokes. I particularly liked the ones about the bell-ringer and balloonist. The parrot in the freezer joke seemed appropriate as well.

Labels: bailout, banking, sarcasm

  ¶ 2:27 AM 0 comments