The Bush administration on Saturday formally proposed to Congress what could become the largest financial bailout in United States history, requesting unfettered authority for the Treasury Department to buy up to $700 billion in mortgage-related assets.
The proposal, not quite three pages long, was stunning for its stark simplicity. It would raise the national debt ceiling to $11.3 trillion. And it would place no restrictions on the administration other than requiring semiannual reports to Congress, granting the Treasury secretary unprecedented power to buy and resell mortgage debt.
Joe Nocera - Hoping a Hail Mary Pass Connects:
Maybe the removal of these bad assets would allow the firms to raise the capital. But maybe not — meaning one or more could conceivably have to file for bankruptcy, creating yet another spasm of financial turmoil. It’s a huge roll of the dice by the government.
Finally, there is the question of how much it will ultimately cost. “Institutions so far have written down $550 billion globally of bad debt,” said Daniel Alpert, managing director of Westwood Capital. “We think that when you add up all the problems in the residential housing market still to come — further erosion of housing prices, mortgage foreclosures and so on — we are going to need another $1 trillion of write-downs.”
In other words, for all the toxic securities that Wall Street has acknowledged holding, there will be yet more mortgage-backed paper that will go bad as the housing market continues to fall. As much as we all hope the worst is over, it’s probably not.
And as much as we might hope that the government finally has the answer, it probably doesn’t.
The administration is requesting “unfettered authority” to buy whatever with the $700 billion worth of bailout money they’re asking for. And of course that’s what they want. If you were to give me authority to do something, I’d prefer to get the unfettered kind. But you almost certainly wouldn’t give it to me. And you especially wouldn’t give it to me if the problem the authority was meant to resolve had occurred under my watch. If this scale of funds is going to be spent. Here’s Ed Paisley for CAP on what a reasonable package could look like:
Thanks to the leadership of Federal Deposit Insurance Corporation Chair Sheila Bair, Congress has a model to work with. The FDIC is doing just this at failed California-based IndyMac Bank. By engaging in systematic loan restructuring, rather than foreclosing on the failed bank’s mortgages, the FDIC will likely end up preserving more value and reducing taxpayer exposure. Whatever agency Congress assigns to this broader task should do the same, restructuring troubled loans in the portfolio of mortgages they purchase in a systematic manner, rather than through piecemeal modifications. The result of refinancing more loans than private holders have been able or willing to do will be fewer defaults and foreclosures.
The financial markets are but one of the economic problems we face. The last eight years brought stagnant wages and weak job creation—with the situation getting even worse over the course of this year. Restoring our economy requires a plan to address the financial crisis and the underlying weakness in our economy. We need to make job-creating, growth-producing investments in our infrastructure and transform to a low-carbon economy. The legislative package that moves rapidly through Congress to implement Paulson’s new plan should also include expanded unemployment benefits and heating assistance for low-income families, increased food stamps, and assistance for states in providing health coverage to families in need during these difficult times. The folly of Wall Street and the negligence of the Bush administration has produced today’s pain on main street. It would not be right if the rescue only rescues firms and not families.
To give the regulatory authorities who failed to prevent this crisis carte blanche to hand out money to the financial institutions who caused the crisis while doing nothing for ordinary people would be outrageous.
One of the reasons why this is really important:
David Light at McClatchy - Federal billions for Wall Street will handcuff the next President:
WASHINGTON — The next president will take office in January with little hope of getting his pet programs enacted quickly, if at all, because of already-massive budget deficits likely to balloon even further from the hundreds of billions expected to be used to bail out Wall Street.
"The next president is just not going to have the money to meet his promises," said Maya MacGuineas, the president of the Committee for a Responsible Federal Budget, a nonpartisan budget-research group.
Bonus (in a depressing kind of way) :
Stephenie Mencimer - Mother Jones: Civil Rights Groups Defending Predatory Lenders: Priceless:
In August 2007, the SCLC formed a partnership with CompuCredit, a subprime credit card issuer and payday lending company. (The Post later updated its story to reflect this.) The deal included plans for an affinity card that would put the famous civil rights group's name on CompuCredit Visa cards and joint "economic empowerment" workshops around the country to help educate minorities about credit. When Steele announced the deal last year, he said, "Consistent with SCLC's historic commitment to civil rights and economic justice, this partnership represents a critical part of our campaign for economic empowerment."
While the civil rights group has been lauding its corporate partner, the federal government has taken a slightly different view of CompuCredit's contributions to economic empowerment. Last month, the Federal Trade Commission sued the company for unfair and deceptive trade practices, as well as violating the Fair Debt Collection Practices Act. The FTC alleged that CompuCredit bilked consumers out of at least $217 million through a scheme in which consumers paid so much in fees that they rarely had any credit available on the company's Visa cards. The CompuCredit cards are better known as "fee harvesting" cards—that is, credit cards sold to people in dire financial straits that have high interest rates, low credit balances, and lots and lots of fees for people who generally can't afford them. The practice is enormously lucrative. The National Consumer Law Center reports that in 2006, CompuCredit made $400 million in fees on such cards, simultaneously saddling consumers with more than $1 billion in debt.
The FTC also alleged that CompuCredit was working in tandem with its debt-collection arm, Jefferson Capital, in a complex scheme that used the credit cards as a way of duping consumers into paying off old debts that had been discharged by other lenders. Far from lifting consumers upward, CompuCredit was leaving its customers mired in debt, from which they would have a tough time escaping.
(h/t Ta-Nehisi Coates)