A sneaking suspicion

Did I hear this right, that our “value watchdogs” have “put their foot down” by insisting on taking warrants? Is anyone else out there crying over this?

Warrants are the right to become a common stockholder, exercisable for a fixed or formula price. In other words they are stock options that carry no right to participate in dividends, no right to block them, and no say in anything the issuer does until exercised.

Tell me I didn’t hear Jack Reid, in a single speech, demand that We The People come out ahead of the common stockholders of any bailed out company, then insist on getting warrants. Anyone who knew the first thing about warrants would have stumbled over these words. They don’t hang together.

If I were Hank Paulson, I’d have broken out in laughter. But then investment bankers get as far as they do by suppressing their laughter in a roomful of rubes. (That’s what the executive washroom is for.) Paulson looks to have found the mother of all rubes: us, through our representatives in Congress.

I’d have held out for preferred stock and opened with a bid for governance provisions atop a dividend preference. Then we’d have not only a preference but control over the sick institutions pending recoupment. And if they said no dice we’d know they are just malingering — not really sick but just out for another societal heist.

The RFC got preferred stock with board seats and more. We’re being hosed, folks, and we don’t even know it.

Is it any wonder at all that people don’t trust anyone in government??

Frighteningly plausible. A spokesman for the Treasury Dept. has admitted the figure – $700,000,000,000.00 results from a decision simply to ask for “a really big sum of money”. In other words, as much as they thought they could get with 7 chosen for luck.

Speaking of sneaking suspicions:

Is this monster gift to banks and Wall St. the last giveaway of Bush to his “base”?

What a gift! They made plenty causing the loss, now in correcting it they get even more. (to the extent they actually can fix it).

$700b is six full years of Iraq war funding. Its a HUGE amount of money and may not be enough.

With this Administration, no fraud is too big to attempt. Is this their crowning theft from America?
BG

If there is something akin to “price discovery,” the competence to discern it has an existing seat: in the servicing function.

Every securitization appoints a servicer charged with seeing to the securitized assets, keeping them productive and distributing their earnings among the tranches. In mortgage securitizations, the servicer is supposed to keep the bundled mortgages productive (the function local banks used to perform).

Prospectuses and disclosure statements typically identify a “servicing risk,” the chance that the servicer won’t be up to snuff. The risk of a collapsed housing bubble remained effectively off-the-charts, out of the rating agencies’ (and investors’) ken. But if Congress did things to help fix the environment in which the underlying asset has worth, the problem of price would reduce to a servicing task, and rather than “discovery,” price would emerge from real activity on the servicer’s part that rehabilitated the asset.

Fix the bankruptcy laws to allow restructuring of mortgages on primary homes; declare a moratorium on foreclosures. In short, make workouts feasible. In Wall Street terms, this would set the task for servicers. In Main Street terms, it would put people back into their homes. The fix would have external effects as other homes rose in value. Ideally, from Wall Street’s standpoint, the improvements would meet on a curve that boosted the prices of their paper.

If the servicers needed a stick alongside these carrots, laws could be enacted imposing additional duties on them. They could meet these obligations by hiring workout specialists with local know-how as needed, letting the bondholders eat the costs, which is only fair since it was always in the basic bargain.

Unfortunately, a bottom-up solution goes against the Reaganesque mindset that “trickle up” economics is un-American. It can also be termed Marxist, promoting a radical doctrine, the homeowner theory of bundled mortgage value, against the fetishism that paper has intrinsic worth. But, more broadly speaking, it is antiphilosophical if you start from Russell’s quip that philosophy holds out the advantages of theft over honest toil.

Who ever thought Richard Shelby R-Alabama would be my hero?

This should be paid for by
1. Shareholders 80% haircut minimum
2. Bond holders 20% haircut minimum
3. Taxpayers recapitalize and take ownership stake to be sold off in 10 years maximum.

Democrats should be calling their Reps and Senators and say, “Don’t sell me out. If you do, I’m voting for Ralph Nader.”

Republicans should do the same, but substitute “Ron Paul”

Otherwise prepare yourself for runaway inflation. Also try not to act surprised when they come back for more money.

I could see Henry Paulson come up with a plan like this, but could Ben Bernanke be so desperate as to approve and defend such a plan that, until Congress demanded sensible changes, was so foolishly irrational?

You mean the “facts were being fixed around the policy?”

The toxic mortgage loans should remain with the banks that allowed and actually encouraged this to happen, then the Feds should loan the banks up to the requested amounts at 8% interest, a better deal than what Buffet offered to Goldman Sachs. This gives the taxpayers a break. Next, tell the banks to knock off all leverage, and no more mortgage bundling or passing off mortgages to other institutions/buyers. The leadership at the Treasury and the SEC have totally failed to be proactive on the bailout – they want less regulation and no oversight, just throw $700 Billion at the problem. This is a national disgrace! Treasury Secretary Paulson, and SEC Chairman Chris Cox should be fired for having regulators that have not regulated. They have known about this since 2004 and choose to do nothing about it. If you follow their logic on the bailout… REWARD THE GUILTY AND PUNNISH THE INNOCENT [Taxpayers].

Enlightening reporting. Shouldn’t Naomi Klein get some due for researching and publicizing the template radical conservative reform tactic currently being employed by P&B?

On the con, er…the prospect of commandeering more of citizens’ money and reallocating it to the speculative..er, financial industry (The conservative theory says this will benefit us all, because an unaccountable financial industry is the font of all human functioning. This time, it will really trickle down. Surely. *cough* This. Time.):

Paulson & Bernake’s ad-hoc pseudo-theory of “price discovery” in the case of housing is pure bunk, though it doubtlessly strokes the fantasies of the millions of owners who gambled on infinitely-soaring housing prices in a country in which 4/5 of the population has not seen a real income increase in 30 years.

If home prices were to fall to be commensurate with people’s incomes or history they would have to fall double what they have fallen so far. Let us recall that vast piles of money were not made on increasing home values in the real estate rush. Money was made on speculation. Bubbles pop. Why shouldn’t a good chunk of the monetary gains from imaginary value be lost once the collective fantasizing is over? Shouldn’t we be discouraging speculation?

I guess, given there is nowhere really productive and private to put all the money that the superrich have amassed, turning our backs on speculation might make us face the prospect of reducing growth in affluent countries, which we ideologically cannot do.

OK. I know the story: Speculation that enriches elites at massive cost to everyone else is socially beneficial. And double plus good. And while huge profits are privatized, any costs incurred must be socialized.

This is an oppressive, unimpressive, and unsustainable old political-economic program. And it is going really terribly.

We’re destroying ourselves, under the hoof of a blindly self-serving ideology, conservatism, implemented in a country with too many institutionalized as well as cultural safeguards against non-elites participating in governance. Has this terrible convergence now completely corrupted all leadership in the US? Can Dems resist where they’ve failed to resist or innovate before? Who will they listen to? Economists from Chicago? Doomed. We are doomed.

The supposed “graft” and “corruption” of the 19th century–which more or less consisted of pensions paid to soldiers and their wives, and working class immigrants with “too much” municipal power–has absolutely nothing on this new, fresh hell our Glorious Leaders are burying us in.

When one starts with the premise that Bush and Cheney (and their gang of right-wing thieves) entered the White House almost eight years ago to cement in place a “permanent Republican majority,” then every criminal act, every skirting of the rules, every subversion of our Constitution and every no-bid, no-oversight, no-accountability contract awarded crony Republican companies and individuals makes sense, in a warped and twisted, un-American and anti-democracy kind of way.

This $700 Billion++ no-bid, no-oversight, no-accountability Wall Street bail-out is just the latest example of this nefarious neo-con scheme.

Wall Street executives, who more than likely vote Republican, have backed and bankrolled much of this neo-con scheme, this neo-fascist takeover of our government, so Bush and Cheney seek to reward them, and only them, for their unswerving loyalty to “the cause.” Thus, corporate executive salary caps are not part of their nefarious “rob the poor, reward the rich” neo-con equation or game plan.

Indeed, the Paulson plan has a thrown-together air about it. The original three-page plan was merely “Give me $700 billion and ask no questions.” As times goes by, it becomes clear that Paulson and Bernanke did not give any details because they didn’t have any. They had made the proposal without thinking through (except in very general terms) what they were actually going to do with the money.

Since then, all of their explanations have been designed to justify overpaying for toxic assets and making sure the institutions and those who own them and run them do not suffer, thus their opposition to restrictions on executive pay, to requiring equity options, and especially to paying something resembling market value for the questionable assets.

It would appear that they want to overpay so that the institutions will not have to take big write-downs and possibly go under for lack of capital. I infer that they think that the values of the assets carried on the books of the banks are still grossly overstated, an inference supported by the immediate write-down of $30 billion of WaMU assets when JP Morgan Chase took over.

Their intent is not just to bail out the financial system, it is to bail out the people who created the problem. Phrases like “price discovery”, “value if held to maturity”, etc., are no more than rationalizations for covert subsidies to the institutions. As you point out, the phrases have an ad hoc ring about them because Paulson and Bernanke never thought they would actually have to provide and justify any detail.