Busted: Bankers and The Global Economy

January 28, 2009

Congress: We are not the Experts (The Real Truth about the U.S. Economy)

kanjorski-banking-economyIn a CSPAN interview, Democrat Representative Paul Kanjorski, the Capitol Markets Subcommittee Chairman, made some revealing confessions about the expertise of the U.S. House and Senate, the facts behind the scenes during the EESA Stimulus plan last year and the real plight of the U.S. economy.

the actions of the Secretary of Treasury and EESA bailout

“Things were done that were misunderstood. We did not give the $700 million for the purpose of lending money. It was never in the program (TARP, EESA) It was misconstrued initially and put together with the suggestion by the Secretary of Treasury that we would be buying what we called dirty assets, defective mortgages and securities in these banks and that the government would find a way to create a market, buy them in, take them off the balance sheets so that the banks could continue to function normally…I supported that. But another part of the bill, we gave jurisdiction and authority to the Secretary of the Treasury to make investments in banks. He had very wide authority because, quite frankly, we (Congress) are not the experts on the Hill as how to solve this problem and the problem is multifaceted, so we gave great flexibility to Secretary of Treasury to act.”

The near collapse of the economy and U.S. government

“I was there when the Secretary and the Chairman of Federal Reserve came those days and talked with members of Congress about what was going on. It was about September 15th. Here’s the facts: we don’t even talk about these things. On Thursday, at about 11 o’clock in the morning, the Federal Reserve noticed a tremendous drawdown of Money Market Accounts in the United States to the tune of $550 billion. It was being drawn within the space of an hour or two. The Treasury opened up it’s window to help. They pumped $105 billion into the system and quickly realized that they could not stem the tide. We were having an electronic run on the banks. The decided to close down the operation, close down the money accounts and announce a guarantee of $250,000 per account so that there wouldn’t be further panic out there. That is what actually happened. What if they had not done that? Their estimation was that by 2 o’clock that afternoon $5.5 trillion would have been drawn out of the money market system of the United States, would have collapsed the entire economy of the United States and would have, in 24 hours, the world economy would have collapsed. We talked about, at that time, what would have happened, if that had happened. It would have been the end of our economic system and our political system as we know it.”

“That’s why, when they made the point, we’ve got to act and do things quickly, we did. Now, Secretary Paulson said, Let’s buy out these subprime mortgages. Give us latitude and large authority to do many things as we decide necessary and give us $700 billion to do that. Shortly after we enacted our bill with those very broad powers, the UK came out and said ‘No, we don’t have enough money to buy toxic assets. Instead, we are going to put our money into banks so that their equity grows and they’re not bankrupt. The UK started that process. That’s true, it was much cheaper to put more money in banks as equity investments than to start buying their bad assets. It was early determined that we would have to spend 3 to 4 billion dollars of taxpayer money to buy these bad assets. We didn’t have it. We only had $700 billion.”

“So Paulson made a complete switch, went in and started putting money in and buying securities and investing in banks in the United States. Why? Because if you don’t have a banking system, you don’t have an economy. Although we did that, we didn’t have enough money and as fast as we did that, the economy has been falling. We are really no better off than we were off today than we were three months ago because we have had an decrease in the equity positions of banks. Other assets are going sour by the moment.”

the real truth of the matter according to Paul Kanjorski

“Now, we’ve got to make some decisions. Do we pour more money in to the extent that the money goes in…I, myself, think that we ought to take the time, analyze where we are, have the people (American public) understand…We need to really inform (the public) as to the facts and get input (from them). Perhaps (the public) has better ideas. We aren’t any geniuses in economics or finance. We are representatives of the people. We ought to take our time, but let the people know that this is a very difficult struggle. Somebody threw us out in the middle of the Atlantic Ocean without a life raft and we are trying to determine the closest shore and whether there is any chance in the world to swim that far. WE…DON’T…KNOW.”

Remember who actually threw the economy into “the middle of the Atlantic Ocean without a life raft.” We can offer that credit to greedy unscrupulous bankers, a corrupt banking community, unattentive government regulators and politicians that gloried in the temporary economic bubble that the moral bankruptcy created. Never forget that America! ~ E. Manning

U.S. stimulus trivia: the latest stimulus provision provides enough spending to give every man, woman, and child in America $2,700.
President Obama has said that his proposed “stimulus legislation” will create or save 3 million jobs. This means that this legislation will spend at least $275,000 per job. The average household income in the U.S. is $42,000 a year. The way that the stimulus is currently written will probably save mostly state and federal government jobs. The current stimulus is not designed principally for economic stimulus for Main Street.
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January 9, 2009

A TARP Bailout Program for Consumers?

furrowed political brows

furrowed political brows

The failed U.S. TARP bailout program legislated by the EESA last year has been ungoing review by the Obama Ascension Team and the likes of Treasury Secretary-elect Timothy Geithner, former Fed member and sycophant. Furrowed brows and eye bags have become a way of life in politics. Managing the program has become an impossible and failed task. President Obama will be responsible for determining what to do with the remaining unspent TARP funds. The Obama Team is examining ways to expand the government program to generate loans to municipalities, small businesses and consumers.

Many in Congress seem to agree that the existing government program should be revamped rather than refunded. Many elected officials agree that the remaining money should be used to stop the national foreclosure crisis instead of a continuation of current policy where Wall Street firms receive continued assistance to pay bonuses to executives and dividends to shareholders as promoted by the Bush administration.

monopoly-moneyAs if the U.S. needs yet more government agencies, Geithner is considering creating a new bureau within Treasury to oversee the existing TARP funds. Adding oversight personnel to government measures has proved to be a failed premise, especially since any provision lags far behind the need. Any potential for work backs up due to lack of staffing, if staffing is ultimately provided over the long haul. Such provisions are more like a governmental agency employment and monetary ponzi scheme than professional organization. So far, overseeing TARP funds has been a disaster, largely made secret because of banking bailouts.

Meanwhile, banks in Britain are laying off staff while bringing malleable interns into the fold as underpaid and temporary junior staff, a move that could catch on in the United States: a cost-saving and control-oriented corporate move that has been all the rage outside of banking. British banks are counting on business picking up after the recession, rationalizing that young blood needs to be on tap for the occasion. Swiss-owned banks are notorious for this practice.

be an intern

be an intern

Corporate America has caused the economic crisis and now that they have been bailed out with taxpayer money, are seeking to continue to take advantage of people with the damage they have caused. Government seems to back up this thinking, which is ultimately destructive rather than constructive. Self-serving behavior continues unabated in government and corporate life. Now that truly is worldly wisdom at its’ worst. Anyone that chose to run personal finances in the same way wouldn’t last long, hence the benefits of corporate/governmental leveraging and power borrowed from the taxpayer.

Whether the American taxpayer can possibly benefit from all the confusion remains to be seen. ~ E. Manning

October 7, 2008

U.S. Federal Reserve Extends Economic Lifeline

Now the Fed is loaning on “commercial paper” for the first time in history and extending credit to nearly one trillion dollars. What is next to expand the economic lifeline?

global bailout crisis

global bailout crisis

Countries scrambled to slow the growing global financial crisis today. The Federal Reserve was close behind the heels of a bad day at the stock market with a few arrows in its quiver early this morning to counter the mess that has evolved from frenzied mortgage lending and trading in unregulated financial derivatives. 

The Financial Services Regulatory Relief Act of 2006 originally authorized the Federal Reserve to begin paying interest on balances held by or on behalf of depository institutions beginning October 1, 2011. The recently enacted Emergency Economic Stabilization Act of 2008 accelerated the effective date to October 1, 2008.

The economic lifeline credit for banking has been extended by the Federal Reserve and will reach nearly $1 trillion dollars by the end of the year.

“The sizes of both 28-day and 84-day Term Auction Facility (TAF) auctions will be boosted to $150 billion each, effective with the 84-day auction to be conducted Monday. These increases will eventually bring the amounts outstanding under the regular TAF program to $600 billion. In addition, the sizes of the two forward TAF auctions to be conducted in November to extend credit over year end have been increased to $150 billion each, so that $900 billion of TAF credit will potentially be outstanding over year end.”

The Federal Reserve Board on Tuesday announced the creation of the Commercial Paper Funding Facility (CPFF), a facility that will complement the Federal Reserve’s existing credit facilities to help provide liquidity to term funding markets. The U.S. Federal Reserve has focused on calming chaotic markets by creating a new commercial paper facility that buys “short-term highly rated debt,” funding corporate borrowing for the first time in history.

 

crisis worsens

crisis worsens

Today Ben Bernanke admitted that institutions including Washington Mutual and Wachovia had experienced banking runs by depositors, creating a crunch on funding. Because of the size of Wachovia and to prevent destabilization, the Federal Reserve is working to have other institutions absorb the assets of that bank without closing it down.

 

Bernanke also admitted that inflation has been elevated, reflected by the steep increases in the price of oil this year as well as other commodities, imports and higher costs of production. Until now, the Fed has been reluctant to publicly admit such a fact. However, more recently, the prices of oil and other commodities, while remaining quite volatile, have fallen from their peaks, and prices of imports show signs of decelerating. The recently falling price is due to inflation in the rest of the world lining up with the United States, although Uncle Ben didn’t specify that reality.

Uncle Ben is ever the public optimist:

“The steps being taken now to restore confidence in our institutions and markets will go far to resolving the current dislocations in the markets. I believe that the bold actions taken by the Congress, the Treasury, the Federal Reserve, and other agencies, together with the natural recuperative powers of the financial markets, will lay the groundwork for financial and economic recovery.”

Meanwhile, the pillars of high finance are giving way. The International Monetary Fund increased an estimate of global losses from the financial crisis, warning that the world’s economic downturn is quickly evolving into a global depression. Iceland, Russia and Australia are high on the list of countries working at a frantic pace to protect their banking and monetary systems.

October 4, 2008

Pork Helps the U.S. Bailout Medicine

The first bailout was largely unpalatable to Congress, largely because of the reaction of taxpayers. Their rejection of the first bailout also makes lawmakers appear responsible, careful and in control. Don’t kid yourself. A healthy chunk of pork-barrel spending makes almost any Washington legislation go down much easier.

Yesterday, the Senate tacked an additional 341 pages onto the original House bill in the form of various renewable fuel and energy tax incentives, a number of additional tax provisions, and the Wellstone-Domenici Mental Health Parity Act.

The 2008 Emergency Economic Stabilization Act contains stronger oversight protections than the three-page bill Treasury Secretary Henry Paulson offered a few days ago. That isn’t saying much though. Checks and balances are truly in question. Section 101of the bailout directs the U.S. Secretary to “prevent unjust enrichment of financial institutions…by preventing the sale of a troubled asset at a higher price than what the seller paid to purchase the asset.” Suspending accounting rules does nothing to change the value of the junk assets, allowing institutions to value their assets based on whatever scenario they like. Hmmm.

Section 104 allows for oversight by the same folks that allowed the regulatory debacle to begin with including the U.S. Treasury Secretary and the Federal Reserve. The oversight is window dressing with no direction to make the reports public or to report corruption or abuse.

The legislation in Section 107 allows the Treasury Secretary to waive “specific provisions” if he determines that “urgent and compelling circumstances make compliance with such provisions contrary to the public interest.” Nice.

What about foreclosure prevention? “…the Secretary may use loan guarantees and credit enhancements to facilitate loan modifications to prevent avoidable foreclosures.” There is very little material to govern this process. There is plenty of wiggle room for problems here and very little action for taxpayers here. Government can continue to rubber stamp the actions they are making now which is pretty much nothing at all. This is not a taxpayer or foreclosure bailout by any stretch.

The Secretary must “make available to the public, in electronic form,” a description of assets including cost. Hopefully, an average person will be able to understand the information. No such provision is made. Other oversight provisions made seem to be to good effect. At least they have been thinking. Legislators have also been thinking about copious amounts of pork. A few examples are below:

Sec. 201. Deduction for state and local sales taxes.
Sec. 201. Inclusion of cellulosic biofuel in bonus depreciation for biomass ethanol plant property.
Sec. 211. Transportation fringe benefit to bicycle commuters.
Sec. 301. Extension and modification of research credit.
Sec. 308. Increase in limit on cover over of rum excise tax to Puerto Rico and the Virgin Islands.
Sec. 309. Extension of economic development credit for American Samoa.
Sec. 317. Seven-year cost recovery period for motorsports racing track facility.
Sec. 323. Enhanced charitable deductions for contributions of food inventory.
Sec. 324. Extension of enhanced charitable deduction for contributions of book inventory.
Sec. 325. Extension and modification of duty suspension on wool products; wool research fund; wool duty refunds.
Sec 502. Provisions related to film and television productions.
Sec. 503. Exemption from excise tax for certain wooden arrows designed for use by children.
Sec. 504. Income averaging for amounts received in connection with the Exxon Valdez litigation.
Sec. 601. Secure rural schools and community self-determination program.
Sec. 602. Transfer interest earned to abandoned mine reclamation fund.
~ E. Manning

September 29, 2008

A Bailout Draft Without Details

government efficiency

government efficiency

Once the new Wall Street bailout legislation was released to the public by Congress, pundits and citizens alike plowed into the house.gov website. Sunday afternoon, presumably because of high traffic, the website was not accessible for many. In the late evening only a summary file was available. The actual legislation file was not viewable, duly noted with the stately notice “the file is damaged and could not be repaired.” So much for getting any real news direct from the source or the media. Other “helpful” media links merely directed John Q. Public to the same official document with the same result. Does anyone have a copy of the draft legislation? Heaven forbid that such a thing was intentional. Perhaps Chinese hackers are to blame.

The summary of the Emergency Economic Stabilization Act of 2008 was short on details, in which unquestionably the devil resides. The old news is that $700 billion will be designated to the Secretary of the U.S. Treasury for buy bad mortgage securities. The recent Republican contribution “allows” companies to insure troubled assets.

The legislation requires the Treasury to modify the troubled loans involved in the failed securities to allow some Americans to keep their homes. This process has been widely discussed for more than six months with little real result or prospect of streamlining the process. How will the U.S. Treasury manage such a large job and save homeowners in foreclosure from losing their homes? “Wherever possible” is the key word of the day, insuring that very little will be done by the Treasury. Instead, homeowners have hope through improving the HOPE for Homeowners program through HUD. The idea, once again, is to help more families to keep their homes. Once again, we are classicly short on details or provisional government motivation.

can of worms?

can of worms?

Part 3 highlights taxpayer protection with idea that taxpayers should not be expected to pay for Wall Street’s mistakes. This statement prevents a tea party. As a bonus for being bailed out, warrants will insure that taxpayers will benefit from future growth enjoyed as a result of participation in the program. Interestingly, the draft legislation intends that the President is responsible to submit legislation to cover losses to taxpayers resulting from the program.

Part 4 covers windfalls or golden parachutes for executives. They won’t walk away with millions in bonuses. Companies are projected to lose “certain tax benefits” and may be required to limit executive pay. Unearned bonuses must be returned. What determines “unearned” and the resulting enforcement is a huge question mark.

Finally, the federal government assures strong oversight in the draft legislation. Financial provisions indicate that the U.S. Treasury will not receive the funds at one time, starting with $250 billion, and followed up by the president as funds are needed. The Treasury is required to issue a report every sixty days. EESA establishes an Oversight Board that cannot act in an arbitrary manner and includes a special Inspector General to secure against fraud, waste and abuse.

Obviously, the legislation has good points and seems to take plenty of precautions. The reality is that the liquidity crisis is an accounting crisis bolstered by destructive decisions and pandering politics. More troubling is that trusting the government to properly handle legislation once it has passed has become a large question mark based on past performance. Trust has to be built and the nation is short on that right now. The morally-bankrupt weak-kneed Congress wants to restore that trust. Just considering that the nation must elect a Senator to be President is enough to give one pause to think. ~ E. Manning

Read First Amendment of rejected Congressional Bailout 

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