September 21, 2008
$700 Billion Is Sought for Wall Street in Vast Bailout
By DAVID M. HERSZENHORN
WASHINGTON — The Bush administration on Saturday formally proposed a vast bailout of financial institutions in the United States, requesting unfettered authority for the Treasury Department to buy up to $700 billion in distressed mortgage-related assets from the private firms.
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.
"Over time," our president assures us, "we're going to get a lot of the money back."
Try taking a statement like that to your personal bank and see how pleased he is to know that he'll one day get a lot of his money back. But that's the program.
The problem seems to be the continuing existence of these bad (mostly sub-prime) loans on the books of various institutions.
They are the dog-shit on the shoe of Wall Street and no one knows how to value them. The holders say they're worth 60% and the recent sales say 30%, but they still smell like dog-shit in a board meeting.
My solution for a government intervention, would be to buy them all at 25%, renegotiate the mortgages (reflecting that discount) before the properties themselves deteriorate and then work them out over 20 or 30 years. But then my only horse in this race is as a taxpayer and horse-shit (as we all know) is not dog-shit.
Instead of that, the government has the appearance of bailing out bad investment without much punishment to the bad investors.
Wall Street doesn't know what to do with that. Neither do international lenders or the various entities that make up world markets. Investors can deal with rules, even bad rules, but they don't much like ambivalent interventions--and they've got one to chew.
The move, in spite of its brevity (three pages in total) will not be vast enough for some and too vast for others. Greg Zehner, a former partner over at Paulson's old digs (Goldman Sachs) thinks it is exactly the wrong message (link to article) to send and will be a half-vast disaster.
Henry Paulson is a very smart man and (in my view) not likely to allow himself to go down in the financial history books as a damaged Bush follower. Hank is perfectly willing to let Sir Alan Greenspan dig in the increasingly murky depths of that hole.
Three trillion given to tax breaks for the rich, a trillion or two to two needless wars, a trillion a year to the Pentagon and its manufacturers? Certainly $700 billion is not an outrageous number, depending upon the depth and breadth of your outrage.
Wall Street and the president are stunned by events. Events do not stun me, events are the everyday processing of the frailties and achievements of man. I am stunned by priorities.
It is a priority of government to put war above social care, a priority to spend on military hardware above American infrastructure, a priority to trample the working classes in the squeezing of profit, a priority to value consumerism above production, a priority to bail out investors and fail to give children and families medical care, a priority to protect the snake-oil salesman and evict his mark.
We claim these priorities in the most false terms; military for safety, minimum wage for competitiveness, selling each other worthless trash in order to provide worthless jobs, flushing health care to avoid socialism, then socializing snake-oil when it turns unprofitable.
Naomi Klein tells us in Shock Doctrine how this gamed system works, but we have to read to understand it--it's not an e-mailed segment on you-tube.
We already are in shock--the doctrine is coming.