Bailout incites 'grassroots rage'
Commentary: A mismatch of politics and economics
By Lou Barnes, Friday, September 26, 2008.
Mortgage rates are unchanged, about 6.125 percent, just one aspect of completely frozen credit markets, hostage to a political moment without parallel.
The real economy is tipping over: New claims for unemployment insurance last week jumped to 493,000 from the 450,000 range. Orders for durable goods in August plunged 4.5 percent, double the forecast decline, and sales of new homes free-fell 11 percent.
When financial events move into politics, this column is relentlessly anti-partisan -- not "non-", but anti. Nothing below is intended to favor either party or candidate.
Any large-scale federal financial rescue was certain to face political chaos. However, within hours of rollout last Thursday this rescue collided with two linked and disastrous forces that may yet defeat immediate rescue.
When Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke went to the political authorities last week, Bernanke's "Tales From The Crypt" risks to the economy produced immediate bipartisan support for a rescue. Then and since, as all Fed chairpersons should, Bernanke has left legislative details to the Treasury Secretary. In disaster number one, not clear until hearings on Tuesday, Paulson was not prepared.
Most grown-ups know that it's a mistake to ask a group to vote on an important proposal without prior discussion. You wouldn't spring something big on your PTA, your HOA or your book club and demand an immediate approval. You wouldn't ask a Cub Scout troop to vote on a field trip without some testing of the water.
Hank Paulson would. Hank has had 13 months to prepare a contingency plan in case market solutions to this crisis failed, and quietly to explore alternatives with Congress. Instead, he dumped on Congress a three-page sketch of a highly technical and questionable proposal. Tuesday's hearings in the first minutes revealed bipartisan, confused, angry and incredulous Senators, and an ill-prepared Paulson.
This man, Paulson, has not only failed to advise us in the Senate, to develop his plans with us, to find out what we can sell to a wounded nation, he is not prepared to defend his idea! I watched part of the testimony beside an experienced trial lawyer, who after 15 minutes burst out laughing. I asked what was so damned funny; he said, "You can always tell when a witness has lost it -- they just babble." Reports today are unanimous that one of last night's negotiating sessions blew up when Paulson again bungled a description of his plan's benefits and execution.
Over last weekend another force erupted all over the country: native, grassroots rage at a bailout that would leave all the big institutions in place -- officers, directors, stockholders, all -- and offer to taxpayers the absurd promise of payback from hundreds of billions of trash that the institutions couldn't unload on anyone else.
You tell me your precious markets will melt down without this? Why do I care? Your stock market can go to goddamn zero on Monday, and then you can come down here with me to find out how it feels not to be able pay the bills. More than half of Americans have no stake in these markets, no savings at all; and there is a political price to be paid for extreme inequality of income.
This bailout, incomprehensible to civilians and many experts and senators, should have taken ownership in the institutions involved. Proper vetting to Congress months ago would have gotten that done. Instead, the same ancient American forces that ignited the Palin phenomenon, Jefferson-Jackson-Bryan-LaFollette populism, have mobilized an anti-bank, anti-smarty-pants, street-level riot not seen in modern times.
Completing the scene: President Bush's nasty little speech on Wednesday, assigning blame and taking no responsibility; Senator McCain's grandstand play on economic issues he's said for decades he's not any good at; and Senator Obama's silent tip-toeing along.
Not pretty, but only-in-America: This flawed plan will probably pass by Sunday night, might work (50-50), might work in time (25-75), and we can always go to direct capital injection and ownership if Paulson's Pratfall does just that.
Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@boulderwest.com.
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Submitted by Joe Hildebrand on September 26, 2008 - 1:35pm.
Here is the best nuts and bolts for ANY proposed BAIL OUT!
LAUGH ALL YOU WANT BUT I AM PRETTY SERIOUS.
AS PROPOSED THE BAIL OUT PLAN IS A STATED INCOME AND STATED ASSETS LOAN (why should they get that now that they are banned?), If we dont do as I propose we are in effect stating there are different rules for different people and different sized companies!
D-I-S-C-R-I-M-I-N-A-T-I-O-N!
So here is how you do it! http://therightbailoutplan.wordpress.com/
Let me know your thoughts!
Joe Hildebrand
303-437-1239
Submitted by Larry Whited Sr. on September 26, 2008 - 1:47pm.
Right on Lou! Have they gone totally stupid in DC or do they just think we have? Anyone who likes what we have now under comrade Bush should vote for “The Fundamentals of our Economy are Sound” McCain and his “I can see Russia from my house” VP.
In this case the empress and the emperor have no cloths.
Larry Whited, Broker WebMLS, Realtors.
Submitted by Missy Caulk on September 26, 2008 - 1:57pm.
Well written, Lou. Good point on the HOA and PTA's, you name it.
Missy Caulk
Ann Arbor, MI
Missy@MissyCaulk.com
www.AnnArborRealEstateTalk.com
www.SearchAnnArborHouses.com
Submitted by Mark Cramer on September 26, 2008 - 2:23pm.
Why would you expect Bush to take responsibility? He predicted this mess and tried to reform Freddie and Fannie Mae in 2003. The Democrats in Congress killed it.
You can read about it in the NY Times here:
http://query.nytimes.com/gst/fullpage.html?res=9E06E3D6123BF932A2575AC0A...
McCain sponsored a Freddie and Fannie reform bill in 2005. Dems killed that one two.
Submitted by chis eliopoulos on September 26, 2008 - 3:19pm.
There is NO reason for a bail out PERIOD.
The politicians are playing on peoples fears,but every day that passes and more bank acquisitions are taking place, more it looks that is a political self serving motion with our money.
Submitted by ed tseng on September 26, 2008 - 5:20pm.
What's so funny to laugh?
Henry Paulson has 13 months on the job and he produced a 3 pages proposal to our Congress? Is it so funny?
Well, it is NOT so great to have him paid us one page every 4 monthsin return of his salary. But we can't judge a book by its cover or pages. See how many minutes President Lincoln used in his famous Gettysburgspeech, as opposed to those of Stephen Douglas. Maybe Paulson made his sketch of gold or tons of wisdom.
When we hear a high-ranking official demand his Congress to give him the authority "non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency." We will assume he or she is in a communist or remote developing country in the third world. Only over there people in his all life has no knowledge or experience of what a democracy is.
It is unbelievable he was born in Florida, USA. May I ask if there is any time Mr. Paulson read a textbook teaching "democracy"? What is the quality Mr. Paulson has in his plan sketch? I don't believe he doesn't know what a democracy is. Your explanation is so good that he was just "not prepared."
Or so smart to be lazy, if not stupid?
Please see my position on this matter at:Wow! Joe Can't Spend Money? Only the Big Cats Can. http://activerain.com/blogsview/708940/Wow-Joe-Can-t
Submitted by Michael LittleBig on September 27, 2008 - 4:58am.
The wealthy and powerful supported by the Congress have financially raped the American public. When it started to unravel they blamed the home owners for taking out loans they could not afford, buying SUVs and living high on the hog.
Congress has consistently increased their compensation and benefits to support their royal lifestyle. The wealthy and powerful made billions and billions of dollars on the backs of each and every American. We have a President and his staff that can't tell the difference between a turkey and an elephant.
This crisis will continue to get worse. The proof is based on the present rescue plans being discussed in the Congress. These plans are not to help the average American but rather to preserve the monetary treasures of the wealthy and the powerful.
We as a people need to change the type of politician that we elect to any office. 99 percent of the US Senators are millionaires. The 435 Representatives with their power and financial benefits which are obscene. There is no accountability. These politicians gather to preserve their power and wealth like a group of vultures looking for road kill.
Nothing will change until the American anger reaches the boiling point of enough is enough.
The present personality contest of McCain and OBama who spent millions and millions
represent the same old songs of past presidential elections.
The Congress continues to reward those who have created this holocaust through their greed for money and their lust for power. Until we change the peoples representatives who serve their self interest in any form of national, state or local governments ,then this brutal financial
cancer will continue. We need to change how people are elected since we can only elect those who can attract money from those with financial agendas. We need to limit one term in office.
Most of these political charlatans have lifetime employment with benefits that the average American can only dream about. Make no mistake about it, the only surprise about this crisis is that the American people will pay dearly for it and these politicians won’t even get a financial scratch.
Submitted by John March on September 27, 2008 - 9:41am.
You do not know the facts.
Bush Called For Reform of Fannie Mae & Freddie Mac 17 Times in 2008 Alone... Warnings Ignored by democrats!
The White House released this list of attempts by President Bush to reform Freddie Mae and Freddie Mac since he took office in 2001.
2001
April:The Administration's FY02 budget declares that the size of Fannie Mae and Freddie Mac is "a potential problem," because "financial trouble of a large GSE could cause strong repercussions in financial markets, affecting Federally insured entities and economic activity."
2002
May:The President calls for the disclosure and corporate governance principles contained in his 10-point plan for corporate responsibility to apply to Fannie Mae and Freddie Mac. (OMB Prompt Letter to OFHEO, 5/29/02)
2003
January: Freddie Mac announces it has to restate financial results for the previous three years.
February:The Office of Federal Housing Enterprise Oversight (OFHEO) releases a report explaining that "although investors perceive an implicit Federal guarantee of [GSE] obligations," "the government has provided no explicit legal backing for them." As a consequence, unexpected problems at a GSE could immediately spread into financial sectors beyond the housing market. ("Systemic Risk: Fannie Mae, Freddie Mac and the Role of OFHEO," OFHEO Report, 2/4/03)
September:Fannie Mae discloses SEC investigation and acknowledges OFHEO's review found earnings manipulations.
September: Treasury Secretary John Snow testifies before the House Financial Services Committee to recommend that Congress enact "legislation to create a new Federal agency to regulate and supervise the financial activities of our housing-related government sponsored enterprises" and set prudent and appropriate minimum capital adequacy requirements.
October: Fannie Mae discloses $1.2 billion accounting error.
November:Council of the Economic Advisers (CEA) Chairman Greg Mankiw explains that any "legislation to reform GSE regulation should empower the new regulator with sufficient strength and credibility to reduce systemic risk." To reduce the potential for systemic instability, the regulator would have "broad authority to set both risk-based and minimum capital standards" and "receivership powers necessary to wind down the affairs of a troubled GSE." (N. Gregory Mankiw, Remarks At The Conference Of State Bank Supervisors State Banking Summit And Leadership, 11/6/03)
2004
February:The President's FY05 Budget again highlights the risk posed by the explosive growth of the GSEs and their low levels of required capital, and called for creation of a new, world-class regulator: "The Administration has determined that the safety and soundness regulators of the housing GSEs lack sufficient power and stature to meet their responsibilities, and therefore...should be replaced with a new strengthened regulator." (2005 Budget Analytic Perspectives, pg. 83)
February:CEA Chairman Mankiw cautions Congress to "not take [the financial market's] strength for granted." Again, the call from the Administration was to reduce this risk by "ensuring that the housing GSEs are overseen by an effective regulator." (N. Gregory Mankiw, Op-Ed, "Keeping Fannie And Freddie's House In Order," Financial Times, 2/24/04)
June:Deputy Secretary of Treasury Samuel Bodman spotlights the risk posed by the GSEs and called for reform, saying "We do not have a world-class system of supervision of the housing government sponsored enterprises (GSEs), even though the importance of the housing financial system that the GSEs serve demands the best in supervision to ensure the long-term vitality of that system. Therefore, the Administration has called for a new, first class, regulatory supervisor for the three housing GSEs: Fannie Mae, Freddie Mac, and the Federal Home Loan Banking System." (Samuel Bodman, House Financial Services Subcommittee on Oversight and Investigations Testimony, 6/16/04)
2005
April:Treasury Secretary John Snow repeats his call for GSE reform, saying "Events that have transpired since I testified before this Committee in 2003 reinforce concerns over the systemic risks posed by the GSEs and further highlight the need for real GSE reform to ensure that our housing finance system remains a strong and vibrant source of funding for expanding homeownership opportunities in America... Half-measures will only exacerbate the risks to our financial system." (Secretary John W. Snow, "Testimony Before The U.S. House Financial Services Committee," 4/13/05)
2007
July:Two Bear Stearns hedge funds invested in mortgage securities collapse.
August: President Bush emphatically calls on Congress to pass a reform package for Fannie Mae and Freddie Mac, saying "first things first when it comes to those two institutions. Congress needs to get them reformed, get them streamlined, get them focused, and then I will consider other options." (President George W. Bush, Press Conference, The White House, 8/9/07)
September:RealtyTrac announces foreclosure filings up 243,000 in August - up 115 percent from the year before.
September: Single-family existing home sales decreases 7.5 percent from the previous month - the lowest level in nine years. Median sale price of existing homes fell six percent from the year before.
December:President Bush again warns Congress of the need to pass legislation reforming GSEs, saying "These institutions provide liquidity in the mortgage market that benefits millions of homeowners, and it is vital they operate safely and operate soundly. So I've called on Congress to pass legislation that strengthens independent regulation of the GSEs - and ensures they focus on their important housing mission. The GSE reform bill passed by the House earlier this year is a good start. But the Senate has not acted. And the United States Senate needs to pass this legislation soon." (President George W. Bush, Discusses Housing, The White House, 12/6/07)
2008
January: Bank of America announces it will buy Countrywide.
January:Citigroup announces mortgage portfolio lost $18.1 billion in value.
February:Assistant Secretary David Nason reiterates the urgency of reforms, says "A new regulatory structure for the housing GSEs is essential if these entities are to continue to perform their public mission successfully." (David Nason, Testimony On Reforming GSE Regulation, Senate Committee On Banking, Housing And Urban Affairs, 2/7/08)
March:Bear Stearns announces it will sell itself to JPMorgan Chase.
March: President Bush calls on Congress to take action and "move forward with reforms on Fannie Mae and Freddie Mac. They need to continue to modernize the FHA, as well as allow State housing agencies to issue tax-free bonds to homeowners to refinance their mortgages." (President George W. Bush, Remarks To The Economic Club Of New York, New York, NY, 3/14/08)
April: President Bush urges Congress to pass the much needed legislation and "modernize Fannie Mae and Freddie Mac. [There are] constructive things Congress can do that will encourage the housing market to correct quickly by ... helping people stay in their homes." (President George W. Bush, Meeting With Cabinet, the White House, 4/14/08)
May: President Bush issues several pleas to Congress to pass legislation reforming Fannie Mae and Freddie Mac before the situation deteriorates further.
"Americans are concerned about making their mortgage payments and keeping their homes. Yet Congress has failed to pass legislation I have repeatedly requested to modernize the Federal Housing Administration that will help more families stay in their homes, reform Fannie Mae and Freddie Mac to ensure they focus on their housing mission, and allow State housing agencies to issue tax-free bonds to refinance sub-prime loans." (President George W. Bush, Radio Address, 5/3/08)
"[T]he government ought to be helping creditworthy people stay in their homes. And one way we can do that - and Congress is making progress on this - is the reform of Fannie Mae and Freddie Mac. That reform will come with a strong, independent regulator." (President George W. Bush, Meeting With The Secretary Of The Treasury, the White House, 5/19/08)
"Congress needs to pass legislation to modernize the Federal Housing Administration, reform Fannie Mae and Freddie Mac to ensure they focus on their housing mission, and allow State housing agencies to issue tax-free bonds to refinance sub prime loans." (President George W. Bush, Radio Address, 5/31/08)
June: As foreclosure rates continued to rise in the first quarter, the President once again asks Congress to take the necessary measures to address this challenge, saying "we need to pass legislation to reform Fannie Mae and Freddie Mac." (President George W. Bush, Remarks At Swearing In Ceremony For Secretary Of Housing And Urban Development, Washington, D.C., 6/6/08)
July: Congress heeds the President's call for action and passes reform of Fannie Mae and Freddie Mac as it becomes clear that the institutions are failing.
Submitted by D. Sullivan on September 27, 2008 - 6:16pm.
Um...Fannie didn't invent credit default swaps and doesn't have regulatory authority.
Paulson has tried his hand at both.
Submitted by Katerina Gasset on September 27, 2008 - 9:12pm.
John Marsh- Thank you so much for the facts set forth. It amazes me how everyone rushes to judge a President when we are a republic not a dictatorship. We are all supposed to learn in high school how our government works. The Congress is the powerhouse in our country. Look to Congress when you want someone to blame.
Submitted by Susan Krancer on September 28, 2008 - 1:57pm.
Presidents are like quarterbacks... they get to much blame when times are bad and too much credit when times and good.
Susan Krancer
REALTOR®
Liz Moore & Associates
Williamsburg, VA 23188
www.WilliamsburgGolfProperties.com
Submitted by Jeri Creson on September 29, 2008 - 10:36am.
I cannot help but wonder...is this a false alarm - "The sky is falling...the sky is falling"? People are hurting. They have lost their financial security, and that is terrible. I resist the urge to pull out my tiny violins at the plight of mega-business as I watch it crumble to the ground, exposing it's thefts and secret deals that made it a mega-business at my expense. But I know that I have been on top in my life, and also have hit the bottom. And I still am here to talk about it. Regardless of my own rise and fall, nobody has yet figured out how to kick me off the planet. I'm guessing it's the same for others.
Markets will recover. And we do no favors to ourselves and our future to run around like chicken little, making big plans conceived in fifteen minutes, whose effects will be felt for decades.
Let us reason...let us think these things through, rather than give in to the pressure to produce a perfect solution in 3 days. What generally happens when sales people sweat you for 3 hours, with a "once in a lifetime" deal - and you walk away? They call you back the next day, and miraculously, against all odds...they are ready to do "one better" than the deal they offered you yesterday. Let's not get fooled again.