Posts Tagged ‘Financial Crisis’

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The Crap Sandwich Has a New Flavor

November 13, 2008

It seems that the Troubled Asset Relief Program or TARP has now turned into a TRAP for our tax dollars.  Treasury Secretary Paulson recently acknowledged that the Bailout is no longer going to purchase Troubled Assets with the money in the Troubled Asset Relief Program.  What???!!!???  If we were forced to mortgage our future to bailout lending institutions from variable loans, on homes with inflated prices, and with owners who should not have been able to purchase the house in the first place then why aren’t you doing what you promised?  Where is this money going to go?  Did we even need $700 Billion?  Can I get some of that money?  We should be outraged.  Who will be our voice? Just as MM suggests Paulson has become the Naked Emperor, and no the sky was not falling.

Today, three senators wrote to Secretary Paulson with their concerns.  At least there are 3 out of the 535 who are willing to ask questions.  Here are excerpts from the letter:

November 13, 2008

Dear Secretary Paulson:

We are writing to express our deep concern over your announcement this morning that the Department of the Treasury will halt all plans to purchase trouble mortgage assets through the Troubled Asset Relief Program (TARP). We are concerned that the program has been fundamentally changed from its original intent and worry that continued changes may erode the structures of accountability put in to protect taxpayers.

The primary reason for this course of action, we were told, was to assist the market in discovering the price of these assets and to return liquidity to the financial markets.

This troubled asset relief program has to be properly designed for immediate implementation and be sufficiently large to have maximum impact and restore market confidence. It must also protect the taxpayer to the maximum extent possible, and include provisions that ensure transparency and oversight while also ensuring the program can be implemented quickly and run effectively.

Although the legislation was passed on October 3, the program was never implemented and now has been officially abandoned in favor of alternative plans after little more than a month. Such a rapid reversal raises questions about the TARP’s original design as well as the propriety of future plans.

Sincerely,

U.S. Senator Tom Coburn, M.D., U.S. Senator Richard Burr, U.S. Senator David Vitter

We should all write to these senators and let them know how much we appreciate their intelligence.  We do not need Government spending the money where they see fit.  It is our money they are borrowing, and there needs to be some oversight and transparency in order for the taxpayers to know where are money is going.  Let us hope that Congress can get this together before it is too late, or I want a refund.  Like a huge check in the mail.

-reagan21

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Deregulation Argument is Nonsense

October 6, 2008

Liberals have been arguing that the root of the financial crisis is the repeal of the Glass-Steagall Act of 1933 by the passage of the Gramm-Leach-Bliley Act which they allege led to masssive deregulation which they say caused the mortgage crisis. We, on the other hand track this mess back to the Carter Administration and the Community Reinvestment Act which forced lending institutions to lend “equitably” to those in their communities. The lending standards were lowered during the Clinton administration. Sebastian Mallaby writes in WaPo 

The key financiers in this game were not the mortgage lenders, the ratings agencies or the investment banks that created those now infamous mortgage securities. In different ways, these players were all peddling financial snake oil, but as Columbia University‘s Charles Calomiris observes, there will always be snake-oil salesmen. Rather, the key financiers were the ones who bought the toxic mortgage products. If they hadn’t been willing to buy snake oil, nobody would have been peddling it.

Who were the purchasers? They were by no means unregulated. U.S. investment banks, regulated by the Securities and Exchange Commission, bought piles of toxic waste. U.S. commercial banks, regulated by several agencies, including the Fed, also devoured large quantities. European banks, which faced a different and supposedly more up-to-date supervisory scheme, turn out to have been just as rash. By contrast, lightly regulated hedge funds resisted buying toxic waste for the most part — though they are now vulnerable to the broader credit crunch because they operate with borrowed money.

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Fannie, Freddie, Worldcom, Enron…

October 2, 2008

From Hotair, via Taxpayers for Truth

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Wolf: On the Suspension of Mark to Market

October 2, 2008

Leon H. Wolf of Redstate:

One of the items in the proposed bailout that a number of Republicans seem to be insisting on is either a suspension or outright end to mandatory mark to market accounting rules. It is supposed by many people that this will somehow aid the unfreezing of the credit markets and/or provide liquidity to the market. Count me among those who are not so sanguine about the long-term prospects of suspending MTM; in fact, I suspect that it may make the situation worse.

In the very, very short term, the suspension of MTM may help certain companies who have built in balance sheet triggers in contracts, credit agreements, or corporate charters and/or bylaws to avoid immediate catastrophic consequences. But as a systemic matter, the suspension of MTM would seem to inject more uncertainty into the market, which is frankly the very last thing the market needs right during the middle of a crisis of confidence.

To review, the accounting fiascos of 1999-2002 that brought us mandatory MTM accounting taught us that traditional accounting methods make it easier for a company – through “aggressive” accounting – to appear solvent for much longer than the company actually is solvent. Everyone in the lending world remembers this. To further review, a large part of the genesis of the current crisis is a widespread fear that certain assets are toxic, and that it’s impossible to identify the toxic assets from the good ones. So… I guess we’re supposed to assume that allowing a change of accounting rules which leads the credit markets to believe that companies might be (but no way to tell for sure) faking solvency is a good thing?

If we suspend MTM in the current climate, what exactly is supposed to happen? Will companies hire accountants to come in and hastily rewrite their accounting books? If they do, will any lender actually extend them credit without forcing them to crack open the old MTM books instead? And if they can’t force that, will they lend at all? Like I said, the market will go from widespread uncertainty about certain classes assets to having widespread uncertainty about every company, especially in these uncertain times. I fear that this may make the credit markets freeze even tighter than they are, even if we inject a bunch of liquidity into the system.

 

Interesting take as I have hear mixed things on both sides about mark to market

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Senate Passes Crap Sandwich 75-24

October 2, 2008

Yahoo News reports that the Senate just passed this 700 billion dollar turd with the three senators in the race voting for it. Interestingly though, it is unclear whether or not the House will pass this bill. Jake Tapper reports that neither Steny Hoyer or Roy Blount, in the House, signed off on the bill.  They only need to switch 11 votes.  As you may recall, the failout failed 205–28 on Monday. The bill, which last week was 3 pages, ended up being almost 500 pages and loaded to the gills with “tax extenders and pork barrel projects. There is a chance that 17 democrats may switch their yea votes to nays.

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WSJ: Bill Educates Barack

October 1, 2008

From today’s WSJ:

A running cliché of the political left and the press corps these days is that our current financial problems all flow from Congress’s 1999 decision to repeal the Glass-Steagall Act of 1933 that separated commercial and investment banking. Barack Obama has been selling this line every day. Bill Clinton signed that “deregulation” bill into law, and he knows better.

In BusinessWeek.com, Maria Bartiromo reports that she asked the former President last week whether he regretted signing that legislation. Mr. Clinton’s reply: “No, because it wasn’t a complete deregulation at all. We still have heavy regulations and insurance on bank deposits, requirements on banks for capital and for disclosure. I thought at the time that it might lead to more stable investments and a reduced pressure on Wall Street to produce quarterly profits that were always bigger than the previous quarter.

“But I have really thought about this a lot. I don’t see that signing that bill had anything to do with the current crisis. Indeed, one of the things that has helped stabilize the current situation as much as it has is the purchase of Merrill Lynch by Bank of America, which was much smoother than it would have been if I hadn’t signed that bill.”

One of the writers of that legislation was then-Senator Phil Gramm, who is now advising John McCain, and who Mr. Obama described last week as “the architect in the United States Senate of the deregulatory steps that helped cause this mess.” Ms. Bartiromo asked Mr. Clinton if he felt Mr. Gramm had sold him “a bill of goods”?

Mr. Clinton: “Not on this bill I don’t think he did. You know, Phil Gramm and I disagreed on a lot of things, but he can’t possibly be wrong about everything. On the Glass-Steagall thing, like I said, if you could demonstrate to me that it was a mistake, I’d be glad to look at the evidence.

“But I can’t blame [the Republicans]. This wasn’t something they forced me into. I really believed that given the level of oversight of banks and their ability to have more patient capital, if you made it possible for [commercial banks] to go into the investment banking business as Continental European investment banks could always do, that it might give us a more stable source of long-term investment.”

We agree that Mr. Clinton isn’t wrong about everything. The Gramm-Leach-Bliley Act passed the Senate on a 90-8 vote, including 38 Democrats and such notable Obama supporters as Chuck Schumer, John Kerry, Chris Dodd, John Edwards, Dick Durbin, Tom Daschle — oh, and Joe Biden. Mr. Schumer was especially fulsome in his endorsement.

As for the sins of “deregulation” more broadly, this is a political fairy tale. The least regulated of our financial institutions — hedge funds — have posed the least systemic risks in the current panic. The big investment banks that got into the most trouble could have made the same mortgage investments before 1999 as they did afterwards. One of their problems was that Lehman Brothers and Bear Stearns weren’t diversified enough. They prospered for years through direct lending and high leverage via the likes of asset-backed securities without accepting commercial deposits. But when the panic hit, this meant they lacked an adequate capital cushion to absorb losses.

Meanwhile, commercial banks that had heavier capital requirements were struggling to compete with the Wall Street giants throughout the 1990s. Some of the deposit-taking banks that were allowed to diversify after 1999, such as J.P. Morgan and Bank of America, are now in a stronger position to withstand the current turmoil. They have been able to help stabilize the financial system through acquisitions of Bear Stearns, Washington Mutual, Merrill Lynch and Countrywide Financial.

Mr. Obama’s “deregulation” trope may be good politics, but it’s bad history and is dangerous if he really believes it. The U.S. is going to need a stable, innovative financial system after this panic ends, and we won’t get that if Mr. Obama and his media chorus think the answer is to return to Depression-era rules amid global financial competition. Perhaps the Senator should ask the former President for a briefing.

Liberal friends of mine point to “deregulation” and the GLB as th reason for our financial crisis.  The article makes a great point about the lack of regulation in hedge funds and the success they have had.

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“Week” – Great New McCain Ad

October 1, 2008

Courtesy of HotAir. I like these ads, but I fear that J-Mac may come off as a used car salesman or look like he is doing an infomercial. Senator McCain, I do need a Shamwow!