Capital Commerce
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Is Hank Paulson the New Harriet Miers?
Continue reading… 0 CommentsThe head counters on Capitol Hill that I talk to keep telling me that the Paulson Plan will get passed, certainly by midweek next week. But I sense another dynamic going on, much like what we saw with the doomed 2005 nomination of Harriet Miers for the Supreme Court. With both the Miers Plan and the Paulson Plan, we saw a surprise announcement from the White House, followed by a furious negative reaction from the blogosphere that eventually spread to Congress. (Just ask Cheney how that meeting with GOP House members yesterday went. Ouch!) Of course, Miers didn't have the Treasury secretary, Federal Reserve chairman, and the global financial market watching her back. But to quote Newt Gingich, "If the bill doesn't pass by Friday, it never will," as people learn more about it. And if John McCain comes out against the bill, all bets are off. By the way, the Intrade betting market currently gives the bailout an 80 percent chance of passage. But if GOP support collapses, so will the Paulson Plan.
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Wall Street May Be Bailing on the Bailout
Continue reading… 7 CommentsConsidering that the Paulson-Bernanke bailout plan is supposed to be helping Wall Street, some on Wall Street suddenly seem less enthusiastic. Check out what market strategist Ed Yardeni, a guy who has been pushing for the Mother of All Bailouts for months, is telling clients this morning (bold is mine):
I'm getting a queasy feeling in the pit of my stomach about the Treasury's proposed Troubled Assets Relief Program, or TARP...Frankly, I'm not convinced that TARP is even necessary...It would be an extraordinary and unprecedented intervention by the government in the economy.... Is Paulson really in charge even now? His recent hyperactivity smacks of sleep deprivation and too much Diet Pepsi.... On Friday, September 19, the Treasury promptly and appropriately responded by insuring all money market fund shares. That was enough to stem the latest calamity, in my opinion. I think introducing TARP was an overreaction to last week's crisis. Besides, TARP seems to be almost as complex as some of the complex assets that it is aiming to purchase.... I think a simpler solution would be for the SEC to immediately and temporarily suspend mark-to-market accounting rules for mortgage-backed assets. Firms could hold them to maturity (or until the market settles) without having to take crippling write-downs in the process. Ben Bernanke...said he opposes the American Bankers Association request to remove mark-to-market pricing in bank portfolios. A suspension of such accounting would hurt investor confidence, he said. Is he kidding? Hasn't he noticed that investors have lost all confidence in bank stocks already? Then again, he is an academic. He may also be suffering from sleep deprivation and too much Diet Dr. Pepper.
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Are Paulson-Bernanke Overhyping the Danger?
Continue reading… 12 CommentsBased on the doom-and-gloom scenario that Paulson and Bernanke peddled to Congress, the bailout plan seemed worth the cost to me. (And I note that credit markets are today as bad as they have been since this crisis started.) But some Wall Street economists don't seem nearly as negative as our guys in Washington. Here is what the folks at Global Insight were saying on September 15:
The economy is very weak, the recession wolves are pounding down the door and the financial system faces new deflationary threats from the bankruptcy of Lehman Brothers. This is an emergency situation and an aggressive response from the Fed is needed. Without such a response, pressure on Congress to take further action to stem the crisis would be unstoppable.
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Newt Gingrich: Kill the Paulson Plan. Hard.
Continue reading… 258 CommentsI just got back from a Newt Gingrich press conference where I had a nice back-and-forth dialogue with the former Speaker of the House about the Paulson Plan, which he totally hates. A few quotes and Gingrichian observations:
1) He called it a "stupid plan" that looks like it had been designed by autocrat Vladimir Putin. He also said it will be a "nightmare" to implement and full of corruption.
2) He said the Paulson Plan would be a "dead loser" on Election Day that will "break against anyone who votes for it." It will hurt even worse with the 2010 election once Americans see what a drag it is on the economy when implemented.
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Why the Antibailout Right Is Wrong
Continue reading… 10 CommentsPlenty of economic conservatives have beaucoup problems with MOAB (the mother of all bailouts). Among the critics of the Paulson plan on the right: Michelle Malkin (a "naked power grab"), Bill Kristol ("a nightmare"), Michelle Malkin (a "disaster"), the Club for Growth ("cause more harm than good"), Michelle Malkin ("both parties...are about to screw us over"), Newt Gingrich ("slow down"), Michelle Malkin ("kill the bailout"), Rep. Mike Pence ("delay consideration"), Michelle Malkin (it's "time for ideological purity"), and Amity Shlaes ("recovery is possible without a bailout").
Also toss in about half of the folks posting over at the National Review's group blog, the Corner. And I am pretty sure Michelle Malkin has some reservations. In short, conservatives are standing athwart this trillion-dollar speeding locomotive and yelling, "Stop!" Or at least, "Slow down!" A few thoughts:
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Bailout Prevents Great Depression 2.0
Continue reading… 175 CommentsWhat would be the dollar cost of not bailing out Wall Street? Try a number north of $30 trillion. (The awful math is detailed below.) That's why Hank Paulson and Ben Bernanke were so scared last week. And, yes, I think "scared" isn't too strong a word. You don't think they convened an emergency nighttime meeting of congressional leaders and then walked out with something close to a blank check for a trillion bucks because they thought we were headed for an outright recession, even a fairly nasty one?
Nope, I think they believed, and got Congress to believe, that the economy was on the verge of something far worse than the worst downturn in a generation. And that is why they went with the so-called nuclear option: the biggest financial bailout in history. In the words of JPMorgan Chase economist James Glassman, "Thankfully, we and our friends around the world who are watching the economic lights come on will never know where events would have led, if the clock had not stopped [last] Thursday afternoon.... Last week's events made the 1987 stock market crash look like child's play."
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Video: Uncle Sam's Massive Bailout
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The Colossal Bailout of 2009
Continue reading… 10 Comments"We've planned for various contingencies" is how one economic adviser to Barack Obama recently described to U.S. News—while declining to go into the messy details—how a future Obama administration would respond to a worsening of Wall Street's credit crisis.
This cautiously cryptic statement was made pre-Lehman bankruptcy and before insurer AIG went into its death spiral, forcing the Federal Reserve to extend an $85 billion loan and take an 80 percent ownership stake. Yet now the candidate may be hinting at just what the Wall Street endgame might look like. Obama was asked about an idea gaining momentum in Congress whereby Uncle Sam—aka the American taxpayer—would cowboy up and actually buy distressed debt and mortgages. (It would be sort of an updated version of the Resolution Trust Corp. from the savings and loan crisis of the 1980s.) After first begging off, Obama later seemed to indicate that it was a 2009 possibility.
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Welcome to "Bailie Mae"
Continue reading… 1 CommentThe always insightful Arnold Kling wonders just how badly Washington will get taken in the Mother of All Bailouts:
Let's see if I get this straight. There are a whole bunch of mortgage-backed securities, the value of which is not known, because nobody knows what the default rates on the underlying mortgages are likely to be. A government agency, Bailie Mae, is going to put up, say, a billion dollars. Companies will make offers. It might go like this:
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Analysis: Washington's Trillion Dollar Wall Street Bailout
Continue reading… 66 CommentsSo after the Mother of All Bubbles comes the Mother of All Bailouts. Main Street saves Wall Street. It now looks like Uncle Sam will create a new entity to take hundreds of billions of bad debt off the books of America's major financial companies. (Look for this to get done before Election Day, if not early next month.) "This is a gigantic step forward, the only way to fix the crisis," writes Ian Shepherdson, economist at High Frequency Economics. "Economy still a mess, but systematic risk way down."
Details are still forthcoming, but one possibility would be an $800 billion fund to purchase toxic bank assets. But whatever forms it takes, Congress will provide something close to a blank check to solve the American banking crisis. Already the Treasury Department has come up with a one-year, $50 billion guarantee of money market funds. You have questions. Here are some answers.
