FUN: THE DAILY BEAST’S MAP OF THE WHITE HOUSE

PAULSON VOWS TO GIVE BANKS MORE $
OFF WITH THEIR HEADS?
NOTHING EDUCATIONAL ABOUT KIDS TV

Are we living in an insane asylum? When the bailout bill was passed by Congress in just seven days, the Treasury Department was authorized to spend up to trillion dollars buying up distressed mortgages. That was the plan. Not no more. The Treasury department dropped that plan and instead started INJECTING money into banks with few conditions or requirements and on Wednesday Secretary of the Treasury Paulson Said they will keep doing it. There is also a new and overdue focus on consumer finance, including credit cards. The Bush Adminstration is still rejecting aid for the auto industry.

DEAN BAKER ON THIS GREAT REVERSAL

Treasury Secretary Henry Paulson announced that he had abandoned plan for his Troubled Asset Relief Program (TARP), his plan to buy bad assets from banks and other financial institutions. This was the bailout that Mr. Paulson said was absolutely essential for the economy’s survival back in September. The opponents of the TARP were widely derided in the media as ignorant economic know nothings.

Now that Mr. Paulson has himself decided that the TARP is not a good idea (for which he deserves credit), why isn’t the media doing some examination of this recent history? Obviously his claims about the necessity of the TARP were not accurate, and those who repeated them were mistaken.

There were many members of Congress who stuck their necks out to oppose the TARP at the cost of derision from the media and political elites. Even Secretary Paulson now acknowledges that the rescue plan that he presented to Congress was the wrong course of action. The media has an obligation to present these facts clearly to the public.

WHAT ABOUT THE “OVERSIGHT”

A: Non-existent. Or so reports the Washington Post Thursday.

The reaction on Wall Steet:

NEW YORK – AP: A disheartened Wall Street fell for the third straight session Wednesday as investors absorbed another series of dismal corporate reports and news that the government won’t buy banks’ soured mortgage assets after all. The Dow Jones industrials dropped more than 410 points, and all the major indexes lost more than 4 percent.

The stock market has lost about $1 trillion over the past three days, according to the Dow Jones Wilshire 5000 index, which reflects the value of nearly all U.S. stocks.”

Those number again ONE TRILLION IN THREE DAYS!

WHAT THE MARKET RESPONSE SAYS (NAKED CAPITALISM)

The markets in the US did not take at all well to Henry Paulson’s announcement that he wanted to get his hands on the rest of the TARP allotment (a remaining $350 billion) and spend it so as to help consumers go to the mall again. As one correspondend, Andrew, noted:

1) Is the dog-chasing-its-tail nature of using taxpayer money to buy securities backed by taxpayer (consumer) debt not immediately and effortlessly obvious? It took almost no imagination for me to realize how absurd and self-defeating that is.

2) Do you think that Paulson and his cadre are completely aware of how absurd it is, and laughed and slapped each other five when they came up with it? Or are they incredibly dense?

Needless to say, the nasty selloff in Asia overnight says they are not very impressed with this move either.

As we have noted before, intervening in a tightly-coupled system like a nuclear reactor or our financial system, as Richard Bookstaber said, often makes matters worse (the system is so tightly integrated that any move will create diffcult to predict and often destabilizing knock-on effects.

THREATS TO BANKS FROM REGULATORS (NOT REGULATIONS)

FT: US financial regulators on Wednesday threatened action against banks that paid high dividends and warned them not to dole out large bonuses, in a stark reminder to Wall Street that government aid should be used to help the economy.

OFF WITH THEIR BONUSES, ARGUES LIONEL TIGER ON FORBES.COM

Astonishing losses of wealth, major institutions becoming history, capitalist governments leaping to public investment in frail private businesses, moguls in disgrace, fear in the financial streets – this would seem to be a kind of revolutionary moment in which the existing rulers are deposed. Some already have. It’s quite clear that what can be roughly called the financial ruling class has failed in unprecedented degree to do its work prudently and safely even if what triggered its plunge remains unclear to many.

But don’t reopen the Bastille quite yet. Keep the guillotine in the museum. There’s analysis to do. The glee of blame has too many calories. And we have to start somewhere to undo a process long in the making.

When Toyota established its business and factories in America its senior executives lunched in the employee cafeteria. At the same time the Ford Motor Company had five grades of executive dining room. This was called corporate culture. The difference between executive lives and salaries and the rest widened into a grand canyon as a result of heady escalation of bosses’ salaries. A cavalcade of lucrative privileges and entitlements ranged from free tax preparation to country club fees to complex schemes for tax deferral. Little seemed too generous. A travelling circus of “compensation consultants” often hired by the CEO compared his or her salary with those of comparable enterprises and lo and behold a bold increase was justified lest, conjecturally, the recipient flee to one of those comparable enterprises. More corporate culture….

NEW CAMPAIGN BY LIBERTARIANS: END THE FED

ACORN blasts Paulson for his bait and switch tactics:

“A month ago, Treasury Secretary Paulson told Congress and the American people that being able to purchase distressed assets from Wall Street was of such a high priority that the bailout had to be passed immediately and without major amendments. Just like Bush moved from WMD to spreading democracy as the rationale for invading Iraq, now Paulson declares he doesn’t need to use the bailout to buy distressed assets at all. This shows without a doubt that the tantrum thrown by the Bush Administration to pass a Wall Street bailout without amendment or much debate was a theatrical and political act not borne of economic necessity whatsoever.

“Even more galling, while Members of Congress and their constituents were distracted by the bailout machinations, Paulson grabbed another $140 billion from taxpayers to hand over to Wall Street by repealing Section 382 of the tax code. $25 billion alone will be headed to Wells Fargo as a tax write-off for their acquisition of Wachovia Bank. According to the Washington Post, many regulators and Members of Congress believe that this $140 billion giveaway was illegal, and was certainly done without the knowledge and consent of Congress or the people. ACORN calls on Paulson to reverse this outrageous giveaway and return that money to the public to be used to fight foreclosures.

“Now that the bailout money won’t be wasted on a ‘Cash for Trash’ program for Wall Street, that money must go directly into stopping the foreclosure crisis that continues to drag down our whole economy and the global credit market. FDIC Chairman Sheila Bair has proposed using the authority granted in the $700 billion bailout to facilitate 3 million mortgage modifications to avoid foreclosure, which is a great starting template pending critical details. While ACORN was pleased to see Secretary Paulson acknowledge this proposal in his remarks today, it should be explored and debated immediately and implemented in as broad and rapid a way possible. Only when we start stanching the record flow of foreclosures will we begin to stabilize housing prices and start to turn our economy around.”

CREDIT CARD DEBT IS FINALLY OUT IN PUBLIC

Investment News: “In a striking turnaround, the Department of the Treasury has shelved its plan to use a portion of the $700 billion Troubled Asset Relief Program to repurchase troubled mortgage assets and has shifted the focus of the plan to funding non-banks and consumer finance, Treasury Secretary Henry Paulson Jr. said today.

Instead, that money will be used to bolster the market for credit card receivables, auto loans and student loans.”

THINKING FOR THE FIRST TIME?
Joe Rotger writes on the financial blog Seeking Alpha:

I guess everybody is as shocked at Paulson’s change of heart…

Instead of the 3 pager proposal to request $700 billion, 1 page for the title, 1 for the thank you and goodbye, and 1 single page with the gravy of the plan, now, he doles out an “I’m not afraid to make changes if the facts change”.

So, it’s with mixed feelings that we move on. On the one hand, there are still all those derivatives left behind littering the landscape like a mine field, and, on the other hand, the new consumer oriented lending is sure to give some needed traction to the economy.

And you already know that the markets reacted bitterly to the waivering Paulson attitude. If you stop for a minute to think about it, trillions are at stake, and Paulson reads like he’s thinking it out for the first time…

Why did they abandon the plan to buy up mortgages. Perhaps because they don’t know who owns what and how it should be priced.

WHO HAS THE MORTGAGES?

One of the problems with those mortgages is that they were securitized, sliced and diced into CDOS and Structured Investment Vehicles and no one really knows who holds them or whats worth what. Crazy.

Economist Michael Hudson told me:

It is very complicated. It’s so complicated that when the mortgage debtor at the bottom of the chain stops paying the mortgage and declares bankruptcy, some creditors will go into court and try to foreclose. And the debtor, the homeowner who can pay says “show me the mortgage”. And the banks say “well I’m sorry we don’t have the mortgage anymore. We don’t know were the mortgage is”. The judges have said “if you don’t have the mortgage to show that this debtor owns this money you can’t executed and evict him from the house”.

NO PLAN TO STOP FORECLOSURES, HELP HOMEOWNERS

So far, the government has still not agreed on a major plan to stop foreclosures or help homeowners in distress. Some banks like CitiGroup has announced a mortatorium but other banks have not joined in.

There’s the question of the companies that SERVICE these loans—the so-called servicers—who still are not cooperating probably because they don’t get a fee for working out an affordable solution.

Investment News reports:

Congress should act to restructure the servicing of home mortgages, as the servicers are not doing enough on their own, House Financial Services Committee chairman Barney Frank, D-Mass., said today.

Entities that service mortgages are not participating in helping homeowners avoid foreclosure because they believe they do not have the authority to do so, he said at a hearing this morning on how the private sector is cooperating with efforts to help distressed homeowners.

“We have not seen servicers participating in any significant way” in the government’s bailout program, Mr. Frank said.

He stressed that he is talking about “voluntary inducements” to get private entities to help protect homeowners from foreclosure.

But officials who represent hedge funds and the mortgage-backed-securities industry told the committee that fears of liability are inhibiting their ability to work with homeowners.”

There you go again-terms like “VOLUNTARY INDUCEMENTS” as we have to bribe them. Why Not a law to ORDER them to do it?

INDICTED

At least one top banker has been indicted for criminal violations of the tax laws.

Raoul Weil, chairman and chief executive of the global wealth management division of UBS AG of Zurich, Switzerland, has been indicted by a U.S. grand jury on a single charge of conspiring to help 20,000 wealthy Americans hide assets from the Internal Revenue Service, UBS confirmed today.”

Michael Husdon, an economic historian, reminds us that at the heart of the crisis itself is criminality and massive fraud:

Every financial crisis in the last three hundreds years is been triggered by a fraud or a scam. There is always a break in the chain of payments…. in practice fraud is what has brought down almost every single expansion, every bank take over, the saving and loan crisis in the 1980’s, the stock market crisis in the 1920’s…

BBC: THE IRONIES IN OUR CRISIS

So how much of the US economy, the home of free enterprise, will end up being nationalised or bailed out by the state during the current economic crisis?

So far we’ve seen banks, mortgage companies, and a mighty insurer all being propped up and bossed around by the federal government.

And now it’s the real economy, manufacturing, that US taxpayers are set to rescue.

Last night, for example, the Democrat Speaker of the House of Representatives, Nancy Pelosi, urged Congress to provide emergency financial help for the crippled US automotive industry.

What’s being requested by General Motors, Ford and Chrysler is $50bn in loans, on top of the $25bn in low-interest borrowing approved by Congress in September for retooling plants.

As cash-strapped US consumers continue to feel this is not the best time to buy a car, and are purchasing fewer vehicles than at any time since the early 1990s, most at risk of collapse is General Motors, the largest US carmaker.

Pelosi made clear that she felt the big automakers had to be kept out of bankruptcy at all costs, because of the danger that its failure would lead to massive damage to suppliers and connected businesses, with the possible loss of millions of jobs. A recent study by the Center for Automotive Research concluded that the failure of just one carmaker would lead to 2.5m job losses.

The scale of what’s at stake was captured chillingly in a quote from a bankruptcy lawyer at White & Case, Alan Gover, who is quoted on Bloomberg: “Trying to reorganise the auto industry in bankruptcy would be as close to reorganising the whole US economy as you could get,” he said. “The vast supply chain involves thousands of businesses, millions of existing jobs and just as many retirees, as well as whole communities and states”.

US May Lose Its ‘AAA’ Rating

By CNBC

“The U.S. might really have to look at a default on the bankruptcy reorganization of the present financial system” and the bankruptcy of the government is not out of the realm of possibility, Hennecke said.

Too Poor for Bankruptcy

By David Glenn Cox

Most all of our problems seem to evolve from a falling standard of living in America’s working class, and yet when we call for help for America’s working poor we are told that it can’t be helped. Here in Atlanta a local food pantry advertises that 40% of all its recipients are employed.

Senate Finance Chief Calls for Making Health Coverage Mandatory

By Aliza Marcus

Senator Max Baucus, presenting the first Democratic health plan since President-elect Barack Obama’s victory, said all Americans should be required to have insurance once coverage is made affordable.

CHINA’S STIMULUS PACKAGE QUESTIONED

FT: China’s new fiscal stimulus package on Monday animated financial markets desperate for any signs of good economic news around a world confronting a significant slowdown. Yet the package’s announcement has also left many questions unanswered.
The authorities had been expected to unveil new fiscal measures later in the month after a summit of economic policymakers in Beijing. However, the announcement appears to have been hastily pushed forward.

Anecdotal evidence from a range of different companies in China suggests that the economy slowed sharply in October and some economists had downgraded next year’s growth estimate to 5-6 per cent in the absence of strong fiscal action. Economists say the government wanted to deliver a strong signal about its spending plans before the official October data were released.

Qing Wang, an economist at Morgan Stanley, said Sunday’s “unusually strong statements suggest the authorities are very eager to boost private sector confidence through making a very strong commitment to maintaining strong growth”.

The new fiscal package also comes ahead of Hu Jintao, the president, visiting Washington for Saturday’s G20 summit on global financial reform. The package allows Mr Hu to demonstrate China is taking decisive action to stimulate its own economy at a time when it could face demands to provide substantial assistance to other countries.

CAN LARRY SUMMERS FIX THIS?

Mark Ames, Nation - From the start, [Lawrence] Summers has been on the wrong side of Obama’s supporters. In 1982, while still a graduate student at Harvard, Summers was brought to Washington by his dissertation advisor Martin Feldstein, the supply-side economist, to serve on Ronald Reagan’s Council of Economic Advisors. Those first years in the Reagan administration were crucial in the right-wing war against New Deal regulation of the banking system and financial markets — a war that Reagan’s team won, and that we’re all paying for today. Although Summers eventually identified himself with the Democratic Party — albeit the right wing of that party — nevertheless, as the New York Times’s Peter T. Kilborn wrote in 1988:

He worked for 10 months as a top analyst in President Reagan’s Council of Economic Advisers when his mentor, Martin S. Feldstein, was running it, and his colleagues don’t recall him venting anti-Reagan heresies then. “One of the ironies of this business is that Summers’s economics are quite close to Feldstein’s,” said William A. Niskanen, who was a member of the Feldstein council. . .

Some fifteen years after Summers’s stint in the Reaganomics war room, he reappears as one of the key villains fighting to suppress the regulatory efforts of a top official, Brooksley Born, who was trying to call attention to the dangers of the unregulated derivatives, such as credit swap defaults, which today are considered the key to the current economic crisis. . .

???: Barack Obama Appoints Clintonista Madeline Albright as His observer at The Global Economic Summit.

TOM ENGELHARDT: IS THIS THE TIME TO CRITICIZE/PUSH OBAMA?

ENGLAND’S JOHN PILGER: “No serious scrutiny…. is permitted within the histrionics of Obamamania, just as no serious scrutiny of the betrayal of the majority of black South Africans was permitted within the “Mandela moment”. This is especially marked in Britain, where America’s divine right to “lead” is important to elite British interests. The once respected Observer newspaper, which supported Bush’s war in Iraq, echoing his fabricated evidence, now announces, without evidence, that “America has restored the world’s faith in its ideals”. These “ideals”, which Obama will swear to uphold, have overseen, since 1945, the destruction of 50 governments, including democracies, and 30 popular liberation movements, causing the deaths of countless men, women and children.

See Johnpilger.com