September 29, 2008
In this MegaVote for Texas' 24th Congressional District:
Recent Congressional Votes -
Senate: Renewable Energy and Job Creation Act of 2008
Senate: Consolidated Security, Disaster Assistance, and Continuing Appropriations Act, 2009
House: Credit Cardholders’ Bill of Rights Act of 2008
House: Consolidated Security, Disaster Assistance, and Continuing Appropriations Act, 2009
House: Alternative Minimum Tax Relief Act of 2008
House: Renewable Energy and Job Creation Tax Act of 2008
House: Job Creation and Unemployment Relief Act of 2008
Upcoming Congressional Bills -
Senate: Job Creation and Unemployment Relief Act of 2008
Senate: Emergency Economic Stabilization Act of 2008
House: Emergency Economic Stabilization Act of 2008
--------------------------------------------------------------------------------
Recent Senate Votes
Renewable Energy and Job Creation Act of 2008 - Vote Passed (93-2, 5 Not Voting)
The Senate passed this bill to extend tax incentives for “green” energy and exempt 21 million people from paying the Alternative Minimum Tax for 2008.
Sen. Kay Bailey Hutchison voted YES......send e-mail or see bio
Sen. John Cornyn voted YES......send e-mail or see bio
--------------------------------------------------------------------------------
Consolidated Security, Disaster Assistance, and Continuing Appropriations Act, 2009 - Vote Agreed to (78-12, 1 Present, 9 Not Voting)
The Senate passed this $600 billion bill over the weekend to fund the federal government through March 6, 2009.
Sen. Kay Bailey Hutchison voted YES......send e-mail or see bio
Sen. John Cornyn voted YES......send e-mail or see bio
--------------------------------------------------------------------------------
Recent House Votes
Credit Cardholders’ Bill of Rights Act of 2008 - Vote Passed (312-112, 9 Not Voting)
The House passed this bill to reform credit card industry practices.
Rep. Kenny Marchant voted NO......send e-mail or see bio
--------------------------------------------------------------------------------
Consolidated Security, Disaster Assistance, and Continuing Appropriations Act, 2009 - Vote Passed (370-58, 1 Present, 4 Not Voting)
The House approved this $600 billion bill to fund the federal government through March 6, 2009.
Rep. Kenny Marchant voted YES......send e-mail or see bio
--------------------------------------------------------------------------------
Alternative Minimum Tax Relief Act of 2008 - Vote Passed (393-30, 10 Not Voting)
The House passed this $64.6 billion bill to protect 25 million taxpayers from unintended tax liabilities.
Rep. Kenny Marchant voted YES......send e-mail or see bio
--------------------------------------------------------------------------------
Renewable Energy and Job Creation Tax Act of 2008 - Vote Passed (257-166, 10 Not Voting)
This bill, costing almost $62 billion, would extend and expand tax breaks and incentives for individuals using and developing renewable energy.
Rep. Kenny Marchant voted NO......send e-mail or see bio
--------------------------------------------------------------------------------
Job Creation and Unemployment Relief Act of 2008 - Vote Passed (264-158, 12 Not Voting)
The House passed this $60.7 billion economic stimulus bill on Friday evening that would extend unemployment benefits.
Rep. Kenny Marchant voted NO......send e-mail or see bio
--------------------------------------------------------------------------------
Upcoming Votes
Job Creation and Unemployment Relief Act of 2008 - H.R.7110
The Senate will likely vote on this bill to extend unemployment benefits and stimulate the economy.
--------------------------------------------------------------------------------
Emergency Economic Stabilization Act of 2008 - H.R.3997
The Senate is expected to vote on this bill or their own version of the bill intended to stabilize the nation’s credit markets.
--------------------------------------------------------------------------------
Emergency Economic Stabilization Act of 2008 - H.R.3997
The House is expected to vote on this bill intended to stabilize the nation’s credit markets.
Tuesday, September 30, 2008
Could bailout's pay caps launch Wall Street trend?
By Ron SchererTue Sep 30, 4:00 AM ET
Lloyd Blankfein, chairman of Goldman Sachs, made $73.7 million last year. James "Jamie" Dimon, chairman of J.P. Morgan Chase, had to make do with $57.2 million, reported Forbes magazine.
But if either company takes part in the federal government's $700 billion rescue plan for financial firms, Mr. Blankfein and Mr. Diamon may have to be content with $500,000 a year, or their company will have to pay higher taxes.
While it's not likely this will cause either man to skimp on meals, the proposed mandate shows the depth of animosity toward highly paid executives on Wall Street. Some compensation consultants wonder, in fact, if the clampdown may be the leading edge of a shift away from the enormous pay packages of the past decade.
"Executive pay rates and Wall Street in particular have reached extraordinary heights," says John Challenger of Challenger Gray & Christmas, a Chicago-based executive outplacement firm. "We may be at the point where the pendulum is beginning to shift."
No doubt about it, financial executives have made a bundle – sometimes pocketing multimillion-dollar packages while their companies were taking losses that had been run up on their watch. Among them: Charles Prince, former head of Citigroup, ended up with "accumulated benefits" of $29 million; Stanley O'Neal, who ran Merrill Lynch & Co., got $161 million in accumulated benefits, and Martin Sullivan of AIG received a severance package of $47 million.
These packages have irked many in Congress. "We want to make sure that executives aren't given 'golden parachutes,' aren't given extraordinarily high salaries from the federal government stepping in," said Rep. Chris Shays (R) of Connecticut on "NBC Nightly News" on Sept. 22.
The bailout legislation racing through Congress this week aims to limit some of these practices, at least as far they concern CEOs and chief financial officers. Under the proposed new rules, when the Treasury buys more than $300 million in troubled assets, the selling institution must limit payments made if an executive leaves for a reason other than retirement (sometimes called golden parachutes) and must hold executive compensation to no more than $500,000 per year. Otherwise, the company will face additional corporate taxes, including a 20 percent excise tax on any golden parachutes.Some critics say the effort is too weak.
"Congress missed a golden opportunity to use the leverage of the bailout to put tough controls on an out-of-control executive pay system," said Sarah Anderson, project director of the Global Economy Project at the Institute for Policy Studies (IPS), a progressive think tank in Washington. "Without clear limits on pay, the public is being asked to put their trust in Secretary [of the Treasury Henry] Paulson, a man who made hundreds of millions of dollars as a Wall Street CEO, to decide what's 'excessive,' " she said in a statement Monday.
IPS favors a lid on CEO pay set at 25 times the pay of a bailed-out company's lowest-paid worker. The current top federal paycheck – the president's $400,000 annual compensation – represents about 25 times the pay of the US government's lowest-paid employee.
Financial executives, for their part, say most of their compensation is at risk because it is tied to the firm's performance in the stock market. In testimony this May before a congressional committee, Merrill Lynch's Mr. O'Neal defended his payout. "When the business does well, all shareholders do well. But if the business does not do well, the value of the compensation can plummet."
Indeed, O'Neal's net worth in Merrill Lynch stock has plunged from $127.7 million in January 2007 to $40.2 million, according to a Sept. 21 New York Times report.
Are financial executives being singled out for pay limits because of the strong anti-Wall Street sentiment on Main Street? Some suggest that bias plays a role.
"If we put caps on compensation to anyone benefiting from government subsidies or funds, that could affect almost anyone in the private sector," says James Barth, a senior finance fellow at the Milken Institute in Santa Monica, Calif.
Compensation watcher Graef Crystal wonders where the government draws the line. "Everyone is on the dole," he says. "Take the solar industry, for example. The whole industry is subsidized."
The same is true for farmers, aerospace companies, and, soon perhaps, the automobile industry, which is looking for $25 billion in government funding, Mr. Crystal says. "It's hard to see any industry that has not been affected" by reason of receiving government help.
Yes, Wall Street is among the highest-paid industries – whether those companies have had good years or bad ones, says Crystal. He recounts a conversation he had back in the 1990s with John Gutfreund, who at the time was CEO of Salomon Brothers, an investment bank that has since been absorbed into Citigroup. "We are having a profit problem," Crystal remembers Mr. Gutfreund telling him. "We need to put together a $100 million [compensation] fund so our good people don't defect to other firms."
"Gutfreund told me, 'In good times we pay high. In bad times we switch and say we have to keep our good people.' "
And when does pay drop on Wall Street? asked Crystal. "He answered, 'We never pay low, and we get a severance package if we really screw up.' "
Gutfreund, through a spokesman, said Monday that such a conversation never happened.
Doubts abound as to whether any pay curb will be effective, because executives are likely to find a way around it.
"These are the most clever people when it comes to writing financial contracts," says Doug Elmendorf, a senior fellow at the Brookings Institution in Washington. "They will hire people to figure out how to get around it."
Mayra Rodriguez Valladares, who runs training sessions on complex financial products on Wall Street, says a lot of anger can be found inside Wall Street firms themselves. "There are a lot of people who work for these firms who don't even make $50,000 or $60,000 a year, and they are angry, too," says Ms. Valladares, a principal in MRV Associates.
Some executives who don't want to take pay cuts may opt to go to private equity firms or hedge funds that are not involved in the rescue plan.
"The most knowledgeable executives will go to where the best jobs are. They might not go to these troubled companies anyway," says Mr. Challenger.
If the CEOs at troubled banks have a choice of participating in the government's plan or watching their company go out of business, he says, the decision is easy. "You save the company and all the people," he says.
Copyright © 2008 The Christian Science Monitor
http://news.yahoo.com/s/csm/20080930/ts_csm/apaycut
Lloyd Blankfein, chairman of Goldman Sachs, made $73.7 million last year. James "Jamie" Dimon, chairman of J.P. Morgan Chase, had to make do with $57.2 million, reported Forbes magazine.
But if either company takes part in the federal government's $700 billion rescue plan for financial firms, Mr. Blankfein and Mr. Diamon may have to be content with $500,000 a year, or their company will have to pay higher taxes.
While it's not likely this will cause either man to skimp on meals, the proposed mandate shows the depth of animosity toward highly paid executives on Wall Street. Some compensation consultants wonder, in fact, if the clampdown may be the leading edge of a shift away from the enormous pay packages of the past decade.
"Executive pay rates and Wall Street in particular have reached extraordinary heights," says John Challenger of Challenger Gray & Christmas, a Chicago-based executive outplacement firm. "We may be at the point where the pendulum is beginning to shift."
No doubt about it, financial executives have made a bundle – sometimes pocketing multimillion-dollar packages while their companies were taking losses that had been run up on their watch. Among them: Charles Prince, former head of Citigroup, ended up with "accumulated benefits" of $29 million; Stanley O'Neal, who ran Merrill Lynch & Co., got $161 million in accumulated benefits, and Martin Sullivan of AIG received a severance package of $47 million.
These packages have irked many in Congress. "We want to make sure that executives aren't given 'golden parachutes,' aren't given extraordinarily high salaries from the federal government stepping in," said Rep. Chris Shays (R) of Connecticut on "NBC Nightly News" on Sept. 22.
The bailout legislation racing through Congress this week aims to limit some of these practices, at least as far they concern CEOs and chief financial officers. Under the proposed new rules, when the Treasury buys more than $300 million in troubled assets, the selling institution must limit payments made if an executive leaves for a reason other than retirement (sometimes called golden parachutes) and must hold executive compensation to no more than $500,000 per year. Otherwise, the company will face additional corporate taxes, including a 20 percent excise tax on any golden parachutes.Some critics say the effort is too weak.
"Congress missed a golden opportunity to use the leverage of the bailout to put tough controls on an out-of-control executive pay system," said Sarah Anderson, project director of the Global Economy Project at the Institute for Policy Studies (IPS), a progressive think tank in Washington. "Without clear limits on pay, the public is being asked to put their trust in Secretary [of the Treasury Henry] Paulson, a man who made hundreds of millions of dollars as a Wall Street CEO, to decide what's 'excessive,' " she said in a statement Monday.
IPS favors a lid on CEO pay set at 25 times the pay of a bailed-out company's lowest-paid worker. The current top federal paycheck – the president's $400,000 annual compensation – represents about 25 times the pay of the US government's lowest-paid employee.
Financial executives, for their part, say most of their compensation is at risk because it is tied to the firm's performance in the stock market. In testimony this May before a congressional committee, Merrill Lynch's Mr. O'Neal defended his payout. "When the business does well, all shareholders do well. But if the business does not do well, the value of the compensation can plummet."
Indeed, O'Neal's net worth in Merrill Lynch stock has plunged from $127.7 million in January 2007 to $40.2 million, according to a Sept. 21 New York Times report.
Are financial executives being singled out for pay limits because of the strong anti-Wall Street sentiment on Main Street? Some suggest that bias plays a role.
"If we put caps on compensation to anyone benefiting from government subsidies or funds, that could affect almost anyone in the private sector," says James Barth, a senior finance fellow at the Milken Institute in Santa Monica, Calif.
Compensation watcher Graef Crystal wonders where the government draws the line. "Everyone is on the dole," he says. "Take the solar industry, for example. The whole industry is subsidized."
The same is true for farmers, aerospace companies, and, soon perhaps, the automobile industry, which is looking for $25 billion in government funding, Mr. Crystal says. "It's hard to see any industry that has not been affected" by reason of receiving government help.
Yes, Wall Street is among the highest-paid industries – whether those companies have had good years or bad ones, says Crystal. He recounts a conversation he had back in the 1990s with John Gutfreund, who at the time was CEO of Salomon Brothers, an investment bank that has since been absorbed into Citigroup. "We are having a profit problem," Crystal remembers Mr. Gutfreund telling him. "We need to put together a $100 million [compensation] fund so our good people don't defect to other firms."
"Gutfreund told me, 'In good times we pay high. In bad times we switch and say we have to keep our good people.' "
And when does pay drop on Wall Street? asked Crystal. "He answered, 'We never pay low, and we get a severance package if we really screw up.' "
Gutfreund, through a spokesman, said Monday that such a conversation never happened.
Doubts abound as to whether any pay curb will be effective, because executives are likely to find a way around it.
"These are the most clever people when it comes to writing financial contracts," says Doug Elmendorf, a senior fellow at the Brookings Institution in Washington. "They will hire people to figure out how to get around it."
Mayra Rodriguez Valladares, who runs training sessions on complex financial products on Wall Street, says a lot of anger can be found inside Wall Street firms themselves. "There are a lot of people who work for these firms who don't even make $50,000 or $60,000 a year, and they are angry, too," says Ms. Valladares, a principal in MRV Associates.
Some executives who don't want to take pay cuts may opt to go to private equity firms or hedge funds that are not involved in the rescue plan.
"The most knowledgeable executives will go to where the best jobs are. They might not go to these troubled companies anyway," says Mr. Challenger.
If the CEOs at troubled banks have a choice of participating in the government's plan or watching their company go out of business, he says, the decision is easy. "You save the company and all the people," he says.
Copyright © 2008 The Christian Science Monitor
http://news.yahoo.com/s/csm/20080930/ts_csm/apaycut
Monday, September 29, 2008
The 3 A.M. Call By PAUL KRUGMAN
It’s 3 a.m., a few months into 2009, and the phone in the White House rings. Several big hedge funds are about to fail, says the voice on the line, and there’s likely to be chaos when the market opens. Whom do you trust to take that call?
I’m not being melodramatic. The bailout plan released yesterday is a lot better than the proposal Henry Paulson first put out — sufficiently so to be worth passing. But it’s not what you’d actually call a good plan, and it won’t end the crisis. The odds are that the next president will have to deal with some major financial emergencies.
So what do we know about the readiness of the two men most likely to end up taking that call? Well, Barack Obama seems well informed and sensible about matters economic and financial. John McCain, on the other hand, scares me.
About Mr. Obama: it’s a shame that he didn’t show more leadership in the debate over the bailout bill, choosing instead to leave the issue in the hands of Congressional Democrats, especially Chris Dodd and Barney Frank. But both Mr. Obama and the Congressional Democrats are surrounded by very knowledgeable, clear-headed advisers, with experienced crisis managers like Paul Volcker and Robert Rubin always close at hand.
Then there’s the frightening Mr. McCain — more frightening now than he was a few weeks ago.
We’ve known for a long time, of course, that Mr. McCain doesn’t know much about economics — he’s said so himself, although he’s also denied having said it. That wouldn’t matter too much if he had good taste in advisers — but he doesn’t.
Remember, his chief mentor on economics is Phil Gramm, the arch-deregulator, who took special care in his Senate days to prevent oversight of financial derivatives — the very instruments that sank Lehman and A.I.G., and brought the credit markets to the edge of collapse. Mr. Gramm hasn’t had an official role in the McCain campaign since he pronounced America a “nation of whiners,” but he’s still considered a likely choice as Treasury secretary.
And last year, when the McCain campaign announced that the candidate had assembled “an impressive collection of economists, professors, and prominent conservative policy leaders” to advise him on economic policy, who was prominently featured? Kevin Hassett, the co-author of “Dow 36,000.” Enough said.
Now, to a large extent the poor quality of Mr. McCain’s advisers reflects the tattered intellectual state of his party. Has there ever been a more pathetic economic proposal than the suggestion of House Republicans that we try to solve the financial crisis by eliminating capital gains taxes? (Troubled financial institutions, by definition, don’t have capital gains to tax.)
But even President Bush has, in the twilight of his administration, turned to relatively sensible people to make economic decisions: I’m not a fan of Mr. Paulson, but he’s a vast improvement over his predecessor. At this point, one has the suspicion that a McCain administration would have us longing for Bush-era competence.
The real revelation of the last few weeks, however, has been just how erratic Mr. McCain’s views on economics are. At any given moment, he seems to have very strong opinions — but a few days later, he goes off in a completely different direction.
Thus on Sept. 15 he declared — for at least the 18th time this year — that “the fundamentals of our economy are strong.” This was the day after Lehman failed and Merrill Lynch was taken over, and the financial crisis entered a new, even more dangerous stage.
But three days later he declared that America’s financial markets have become a “casino,” and said that he’d fire the head of the Securities and Exchange Commission — which, by the way, isn’t in the president’s power.
And then he found a new set of villains — Fannie Mae and Freddie Mac, the government-sponsored lenders. (Despite some real scandals at Fannie and Freddie, they played little role in causing the crisis: most of the really bad lending came from private loan originators.) And he moralistically accused other politicians, including Mr. Obama, of being under Fannie’s and Freddie’s financial influence; it turns out that a firm owned by his own campaign manager was being paid by Freddie until just last month.
Then Mr. Paulson released his plan, and Mr. McCain weighed vehemently into the debate. But he admitted, several days after the Paulson plan was released, that he hadn’t actually read the plan, which was only three pages long.
O.K., I think you get the picture.
The modern economy, it turns out, is a dangerous place — and it’s not the kind of danger you can deal with by talking tough and denouncing evildoers. Does Mr. McCain have the judgment and temperament to deal with that part of the job he seeks?
http://www.nytimes.com/2008/09/29/opinion/29krugman.html?em
Copyright 2008 The New York Times Company
I’m not being melodramatic. The bailout plan released yesterday is a lot better than the proposal Henry Paulson first put out — sufficiently so to be worth passing. But it’s not what you’d actually call a good plan, and it won’t end the crisis. The odds are that the next president will have to deal with some major financial emergencies.
So what do we know about the readiness of the two men most likely to end up taking that call? Well, Barack Obama seems well informed and sensible about matters economic and financial. John McCain, on the other hand, scares me.
About Mr. Obama: it’s a shame that he didn’t show more leadership in the debate over the bailout bill, choosing instead to leave the issue in the hands of Congressional Democrats, especially Chris Dodd and Barney Frank. But both Mr. Obama and the Congressional Democrats are surrounded by very knowledgeable, clear-headed advisers, with experienced crisis managers like Paul Volcker and Robert Rubin always close at hand.
Then there’s the frightening Mr. McCain — more frightening now than he was a few weeks ago.
We’ve known for a long time, of course, that Mr. McCain doesn’t know much about economics — he’s said so himself, although he’s also denied having said it. That wouldn’t matter too much if he had good taste in advisers — but he doesn’t.
Remember, his chief mentor on economics is Phil Gramm, the arch-deregulator, who took special care in his Senate days to prevent oversight of financial derivatives — the very instruments that sank Lehman and A.I.G., and brought the credit markets to the edge of collapse. Mr. Gramm hasn’t had an official role in the McCain campaign since he pronounced America a “nation of whiners,” but he’s still considered a likely choice as Treasury secretary.
And last year, when the McCain campaign announced that the candidate had assembled “an impressive collection of economists, professors, and prominent conservative policy leaders” to advise him on economic policy, who was prominently featured? Kevin Hassett, the co-author of “Dow 36,000.” Enough said.
Now, to a large extent the poor quality of Mr. McCain’s advisers reflects the tattered intellectual state of his party. Has there ever been a more pathetic economic proposal than the suggestion of House Republicans that we try to solve the financial crisis by eliminating capital gains taxes? (Troubled financial institutions, by definition, don’t have capital gains to tax.)
But even President Bush has, in the twilight of his administration, turned to relatively sensible people to make economic decisions: I’m not a fan of Mr. Paulson, but he’s a vast improvement over his predecessor. At this point, one has the suspicion that a McCain administration would have us longing for Bush-era competence.
The real revelation of the last few weeks, however, has been just how erratic Mr. McCain’s views on economics are. At any given moment, he seems to have very strong opinions — but a few days later, he goes off in a completely different direction.
Thus on Sept. 15 he declared — for at least the 18th time this year — that “the fundamentals of our economy are strong.” This was the day after Lehman failed and Merrill Lynch was taken over, and the financial crisis entered a new, even more dangerous stage.
But three days later he declared that America’s financial markets have become a “casino,” and said that he’d fire the head of the Securities and Exchange Commission — which, by the way, isn’t in the president’s power.
And then he found a new set of villains — Fannie Mae and Freddie Mac, the government-sponsored lenders. (Despite some real scandals at Fannie and Freddie, they played little role in causing the crisis: most of the really bad lending came from private loan originators.) And he moralistically accused other politicians, including Mr. Obama, of being under Fannie’s and Freddie’s financial influence; it turns out that a firm owned by his own campaign manager was being paid by Freddie until just last month.
Then Mr. Paulson released his plan, and Mr. McCain weighed vehemently into the debate. But he admitted, several days after the Paulson plan was released, that he hadn’t actually read the plan, which was only three pages long.
O.K., I think you get the picture.
The modern economy, it turns out, is a dangerous place — and it’s not the kind of danger you can deal with by talking tough and denouncing evildoers. Does Mr. McCain have the judgment and temperament to deal with that part of the job he seeks?
http://www.nytimes.com/2008/09/29/opinion/29krugman.html?em
Copyright 2008 The New York Times Company
Saturday, September 27, 2008
The 1st Debate:Beyond Ideology, a Generational Clash
By ALESSANDRA STANLEY
One candidate cited Churchill and Eisenhower, and described George Shultz, who served in Ronald Reagan’s cabinet, as a “great secretary of state.” The other promised anxious voters a federal budget that could be examined on a “Google for government” and accused his opponent of having a “20th-century mindset.”
The first presidential debate was more than a clash of ideology or temperaments. Barack Obama and John McCain did not even wrestle over the $700 billion economic bailout. Theirs was a generational collision, and at times it looked almost like a dramatic rendition of Freudian family tension: an older patriarch frustrated and even cranky when challenged by a would-be successor to the family business who thinks he can run it better.
Neither of the candidates took full advantage of the debate rules that allowed them to confront each other directly, and that reticence suggested the stiff politesse of two relatives determined not to ruin Thanksgiving dinner.
Mr. McCain, 72, repeatedly argued that Mr. Obama, who is 47, was not ready for the job: “I’m afraid Senator Obama doesn’t understand” and “What Senator Obama doesn’t seem to understand” and “Senator Obama still doesn’t understand.”
He deplored his opponent’s “naïveté,” though he stumbled slightly on the pronunciation of the Iranian president’s name, and twice repeated that he had not been elected Miss Congeniality of the Senate — some viewers might have wondered if he had forgotten that he had already used that metaphor. When Mr. Obama was speaking, Mr. McCain was at times fidgety, grinning awkwardly and shifting from foot to foot.
Mr. Obama was calm, still, poised and more businesslike than personable. He was trying to be like John F. Kennedy talking about the space race, but he often sounded like a technocrat.
He wore a dark suit and a flag lapel pin, and chose to focus on appearing steady and serious-minded and so ready to be president that he at one point sounded as if he already were: “I reserve the right as president of the United States to — to meet with anybody at a time and place of my choosing if I think it’s going to keep America safe.”
Mr. McCain felt secure enough not to wear a flag pin on his lapel, and comfortable enough to make jokes. “I’m not going to set the White House visitors’ schedule before I’m president of the United States,” he said. “I don’t even have a seal yet.”
Over all, Mr. McCain was more charming and more colloquial, but his speaking style was at times choppy. He described North Korea as the most “repressive and brutal regime probably on earth,” adding: “The average South Korean is three inches taller than the average North Korean. A huge gulag.”
Denouncing government spending, he tossed in an example. “You know, we spent $3 million to study the DNA of bears in Montana,” he said. “I don’t know if that was a criminal issue or a paternal issue,” he joked, but so rapidly that some viewers might have been confused, or wondered if the candidate was.
His references to past cabinet members like Mr. Shultz and his 35-year friendship with Henry A. Kissinger reminded audiences of his experience, but also of his many, many years in Washington at a time when the nation’s lawmakers are held in the lowest of esteem.
And when he disagreed with Mr. Obama, he had a scolding tone. He seemed almost piqued that he had to share the stage with a man who had been in the Senate only four years.
“There are some advantages to experience, and I honestly don’t believe Senator Obama has the knowledge or experience, and has made the wrong judgment in a number of areas,” Mr. McCain said.
At least once, Mr. Obama shook off his detachment and threw Mr. McCain’s experience back at him.
“At the time when the war started,” he said, “you said it was going to be quick and easy. You said we knew where the weapons of mass destruction were. You were wrong. You said that we were going to be greeted as liberators. You were wrong. You said that there was no history of violence between Shia and Sunni, and you were wrong.”
Particularly after so fractured and fractious a week, with two candidates in separate worlds, catapulting poison-tipped sound bites at each other across a vast, clamorous media no man’s land, it was almost startling to see them in the same room, on the same stage, behind matching lecterns, talking to each other, and past each other, for 90 minutes.
Mr. Obama was not particularly warm or amusing; at times he was stiff and almost pedantic. But all he had to do was look presidential, and that was not such a stretch. Mr. McCain had the harder task of persuading leery voters that he can lead the future because he is so much part of the past.
He tried to remind viewers of his greater experience and heroic combat career, while also casting himself as a maverick outsider ready to storm the barricades. Mr. McCain wanted to be the true revolutionary in the room, but his is the Reagan revolution, and for a lot of people right now, it doesn’t look like morning in America.
Copyright 2008 The New York Times Company
http://www.nytimes.com/2008/09/27/us/politics/27watch.html?_r=1&adxnnl=1&exprod=myyahoo&adxnnlx=1222531793-5Yk/dYDOSoR+JtXwo6KyEw&oref=slogin
One candidate cited Churchill and Eisenhower, and described George Shultz, who served in Ronald Reagan’s cabinet, as a “great secretary of state.” The other promised anxious voters a federal budget that could be examined on a “Google for government” and accused his opponent of having a “20th-century mindset.”
The first presidential debate was more than a clash of ideology or temperaments. Barack Obama and John McCain did not even wrestle over the $700 billion economic bailout. Theirs was a generational collision, and at times it looked almost like a dramatic rendition of Freudian family tension: an older patriarch frustrated and even cranky when challenged by a would-be successor to the family business who thinks he can run it better.
Neither of the candidates took full advantage of the debate rules that allowed them to confront each other directly, and that reticence suggested the stiff politesse of two relatives determined not to ruin Thanksgiving dinner.
Mr. McCain, 72, repeatedly argued that Mr. Obama, who is 47, was not ready for the job: “I’m afraid Senator Obama doesn’t understand” and “What Senator Obama doesn’t seem to understand” and “Senator Obama still doesn’t understand.”
He deplored his opponent’s “naïveté,” though he stumbled slightly on the pronunciation of the Iranian president’s name, and twice repeated that he had not been elected Miss Congeniality of the Senate — some viewers might have wondered if he had forgotten that he had already used that metaphor. When Mr. Obama was speaking, Mr. McCain was at times fidgety, grinning awkwardly and shifting from foot to foot.
Mr. Obama was calm, still, poised and more businesslike than personable. He was trying to be like John F. Kennedy talking about the space race, but he often sounded like a technocrat.
He wore a dark suit and a flag lapel pin, and chose to focus on appearing steady and serious-minded and so ready to be president that he at one point sounded as if he already were: “I reserve the right as president of the United States to — to meet with anybody at a time and place of my choosing if I think it’s going to keep America safe.”
Mr. McCain felt secure enough not to wear a flag pin on his lapel, and comfortable enough to make jokes. “I’m not going to set the White House visitors’ schedule before I’m president of the United States,” he said. “I don’t even have a seal yet.”
Over all, Mr. McCain was more charming and more colloquial, but his speaking style was at times choppy. He described North Korea as the most “repressive and brutal regime probably on earth,” adding: “The average South Korean is three inches taller than the average North Korean. A huge gulag.”
Denouncing government spending, he tossed in an example. “You know, we spent $3 million to study the DNA of bears in Montana,” he said. “I don’t know if that was a criminal issue or a paternal issue,” he joked, but so rapidly that some viewers might have been confused, or wondered if the candidate was.
His references to past cabinet members like Mr. Shultz and his 35-year friendship with Henry A. Kissinger reminded audiences of his experience, but also of his many, many years in Washington at a time when the nation’s lawmakers are held in the lowest of esteem.
And when he disagreed with Mr. Obama, he had a scolding tone. He seemed almost piqued that he had to share the stage with a man who had been in the Senate only four years.
“There are some advantages to experience, and I honestly don’t believe Senator Obama has the knowledge or experience, and has made the wrong judgment in a number of areas,” Mr. McCain said.
At least once, Mr. Obama shook off his detachment and threw Mr. McCain’s experience back at him.
“At the time when the war started,” he said, “you said it was going to be quick and easy. You said we knew where the weapons of mass destruction were. You were wrong. You said that we were going to be greeted as liberators. You were wrong. You said that there was no history of violence between Shia and Sunni, and you were wrong.”
Particularly after so fractured and fractious a week, with two candidates in separate worlds, catapulting poison-tipped sound bites at each other across a vast, clamorous media no man’s land, it was almost startling to see them in the same room, on the same stage, behind matching lecterns, talking to each other, and past each other, for 90 minutes.
Mr. Obama was not particularly warm or amusing; at times he was stiff and almost pedantic. But all he had to do was look presidential, and that was not such a stretch. Mr. McCain had the harder task of persuading leery voters that he can lead the future because he is so much part of the past.
He tried to remind viewers of his greater experience and heroic combat career, while also casting himself as a maverick outsider ready to storm the barricades. Mr. McCain wanted to be the true revolutionary in the room, but his is the Reagan revolution, and for a lot of people right now, it doesn’t look like morning in America.
Copyright 2008 The New York Times Company
http://www.nytimes.com/2008/09/27/us/politics/27watch.html?_r=1&adxnnl=1&exprod=myyahoo&adxnnlx=1222531793-5Yk/dYDOSoR+JtXwo6KyEw&oref=slogin
CEO of failed WaMu could get millions
By Marcy Gordon, AP Business Writer
CEO of failed Washington Mutual entitled to millions after few weeks on job
WASHINGTON (AP) -- The CEO of failed Washington Mutual Inc., on the job only a few weeks before the nation's largest thrift was seized by the government and sold to JPMorgan Chase & Co., is entitled to more than $13 million in severance and bonus pay.
Alan H. Fishman signed an agreement that provides around $6 million in cash severance and retention of his signing bonus of $7.5 million if he were to leave his job, according to a company filing with the Securities and Exchange Commission.
The board of WaMu reached out to Fishman to replace Kerry Killinger as CEO as the Seattle-based bank was in a downward financial spiral, struggling with cascading losses from soured mortgages. On Sept. 8, the same day WaMu announced Fishman's appointment as chief executive, the bank signed an agreement with federal regulators to provide an updated business plan and forecast for its financial performance.
As with most bank takeovers, WaMu senior executives could be expected to be replaced by new owners at investment bank JPMorgan Chase & Co., which paid $1.9 billion for Washington Mutual's banking assets in a deal brokered by federal regulators who shut down the thrift.
Fishman retains his position as CEO of Washington Mutual's holding company, a JPMorgan Chase spokeswoman in New York said Friday.
It's too early to say whether Fishman and other top executives would be replaced, the spokeswoman said.
Spokesmen for the Office of Thrift Supervision, the federal agency that oversaw WaMu and closed it, and the Federal Deposit Insurance Corp., which brokered the sale to JPMorgan Chase, said Friday those agencies no longer have jurisdiction over WaMu.
When Fishman was appointed CEO, WaMu already had lost nearly 70 percent of its market value since the start of the year. It had reported a $3 billion second-quarter loss -- the biggest in its history -- as it boosted its reserves to more than $8 billion to cover loan losses.
Killinger had headed WaMu since 1990 and built it into one of the country's largest banks. But with a heavy focus on subprime and option adjustable-rate mortgages -- the types of loans at the heart of the housing bust -- WaMu's losses began to mount and its shares plummeted, sparking an outcry from shareholders.
"The board has great confidence in Alan's ability to lead WaMu and to return the company to profitability as quickly as possible," Chairman Stephen E. Frank said in a conference call with analysts on Sept. 8.
Fishman stressed his belief in the value of the thrift's franchise. "I share the board's confidence in WaMu's underlying strength," he said during the conference call. "I know that we can and will manage the issues we face today."
Fishman previously was president and chief operating officer of Sovereign Bank, and president and CEO of Independence Community Bank.
http://biz.yahoo.com/ap/080926/wamu_ceo_pay.html?.&.pf=banking-budgeting&printer=1
CEO of failed Washington Mutual entitled to millions after few weeks on job
WASHINGTON (AP) -- The CEO of failed Washington Mutual Inc., on the job only a few weeks before the nation's largest thrift was seized by the government and sold to JPMorgan Chase & Co., is entitled to more than $13 million in severance and bonus pay.
Alan H. Fishman signed an agreement that provides around $6 million in cash severance and retention of his signing bonus of $7.5 million if he were to leave his job, according to a company filing with the Securities and Exchange Commission.
The board of WaMu reached out to Fishman to replace Kerry Killinger as CEO as the Seattle-based bank was in a downward financial spiral, struggling with cascading losses from soured mortgages. On Sept. 8, the same day WaMu announced Fishman's appointment as chief executive, the bank signed an agreement with federal regulators to provide an updated business plan and forecast for its financial performance.
As with most bank takeovers, WaMu senior executives could be expected to be replaced by new owners at investment bank JPMorgan Chase & Co., which paid $1.9 billion for Washington Mutual's banking assets in a deal brokered by federal regulators who shut down the thrift.
Fishman retains his position as CEO of Washington Mutual's holding company, a JPMorgan Chase spokeswoman in New York said Friday.
It's too early to say whether Fishman and other top executives would be replaced, the spokeswoman said.
Spokesmen for the Office of Thrift Supervision, the federal agency that oversaw WaMu and closed it, and the Federal Deposit Insurance Corp., which brokered the sale to JPMorgan Chase, said Friday those agencies no longer have jurisdiction over WaMu.
When Fishman was appointed CEO, WaMu already had lost nearly 70 percent of its market value since the start of the year. It had reported a $3 billion second-quarter loss -- the biggest in its history -- as it boosted its reserves to more than $8 billion to cover loan losses.
Killinger had headed WaMu since 1990 and built it into one of the country's largest banks. But with a heavy focus on subprime and option adjustable-rate mortgages -- the types of loans at the heart of the housing bust -- WaMu's losses began to mount and its shares plummeted, sparking an outcry from shareholders.
"The board has great confidence in Alan's ability to lead WaMu and to return the company to profitability as quickly as possible," Chairman Stephen E. Frank said in a conference call with analysts on Sept. 8.
Fishman stressed his belief in the value of the thrift's franchise. "I share the board's confidence in WaMu's underlying strength," he said during the conference call. "I know that we can and will manage the issues we face today."
Fishman previously was president and chief operating officer of Sovereign Bank, and president and CEO of Independence Community Bank.
http://biz.yahoo.com/ap/080926/wamu_ceo_pay.html?.&.pf=banking-budgeting&printer=1
Friday, September 26, 2008
WAMU:Gross Mismanagement by Former CEO
WAMU:Gross Mismanagement by Former CEO Killinger
Posted Sep 26, 2008 12:52pm EDT by Aaron Task Related: WM, JPM, BAC, C, XLF, WFC, WB
Washington Mutual paid former CEO Kerry Killinger $14.4 million in 2007 and over $54 million from 2002-07, Forbes reports. In return, the nearly 120-year-old firm was led into the biggest bank failure in U.S. history.
Under Killinger's watch, WaMu rushed headlong into toxic mortgage-backed products like option-ARMs, which contributed mightily to the company's epic failure. Thursday evening, the Federal Deposit Insurance Co. seized Washington Mutual's assets and then quickly sold most of the firm to JPMorgan, effectively wiping out the thrift's shareholders and debt holders in the process.
Also vaporized: The $7 billion investment TPG made in WaMu last spring -- after Killinger declined an $8 per share offer from JPMorgan, which might have looked low then but sure as heck beats zero.
"Gross mismanagement" is how Henry Blodget describes Killinger's oversight of the company. I'm sure many of WaMu's investors, employees and depositors would prefer terms unsuitable for publication, especially when they learn current WaMu CEO Alan Fishman is entitled to $11.6 million in cash severance and to keep his $7.5 million signing bonus, The New York Times reports. (Not bad for about three weeks of work.)
Meanwhile, the fact JPMorgan took an immediate $31 billion write-down of WaMu's loan portfolio -- and raised $10 billion via an equity offering -- has major implications for how other banks are valuing their assets (and liabilities), as Henry and I discuss in the accompanying video.
http://finance.yahoo.com/tech-ticker/article/73916/WaMu-Wipeout-'Gross-Mismanagement'-by-Former-CEO-Killinger?tickers=WM,JPM,BAC,C,XLF,WFC,WB
Posted Sep 26, 2008 12:52pm EDT by Aaron Task Related: WM, JPM, BAC, C, XLF, WFC, WB
Washington Mutual paid former CEO Kerry Killinger $14.4 million in 2007 and over $54 million from 2002-07, Forbes reports. In return, the nearly 120-year-old firm was led into the biggest bank failure in U.S. history.
Under Killinger's watch, WaMu rushed headlong into toxic mortgage-backed products like option-ARMs, which contributed mightily to the company's epic failure. Thursday evening, the Federal Deposit Insurance Co. seized Washington Mutual's assets and then quickly sold most of the firm to JPMorgan, effectively wiping out the thrift's shareholders and debt holders in the process.
Also vaporized: The $7 billion investment TPG made in WaMu last spring -- after Killinger declined an $8 per share offer from JPMorgan, which might have looked low then but sure as heck beats zero.
"Gross mismanagement" is how Henry Blodget describes Killinger's oversight of the company. I'm sure many of WaMu's investors, employees and depositors would prefer terms unsuitable for publication, especially when they learn current WaMu CEO Alan Fishman is entitled to $11.6 million in cash severance and to keep his $7.5 million signing bonus, The New York Times reports. (Not bad for about three weeks of work.)
Meanwhile, the fact JPMorgan took an immediate $31 billion write-down of WaMu's loan portfolio -- and raised $10 billion via an equity offering -- has major implications for how other banks are valuing their assets (and liabilities), as Henry and I discuss in the accompanying video.
http://finance.yahoo.com/tech-ticker/article/73916/WaMu-Wipeout-'Gross-Mismanagement'-by-Former-CEO-Killinger?tickers=WM,JPM,BAC,C,XLF,WFC,WB
Buffett: 'Heaven help us' if bailout fails
Andy Barr
Fri Sep 26, 2008
As the proposed $700 billion bailout plan met resistance Wednesday on Capitol Hill, billionaire investor Warren Buffett sounded the alarm on the peril of a failed rescue attempt of the financial markets.
“We are looking over a precipice in terms of the economic condition of the country for the next few years,” Buffett said during an interview on the Fox Business Channel. “If Congress doesn't help us on this, heaven help us.”
Congress will likely scale back the massive bailout plan.
Lawmakers have expressed concerns about oversight, as well as over the rushed nature of the bill. Party leaders and the president have shown support for the bailout since it was crafted over the weekend, but an increasing number of both Republican and Democratic members are expressing doubts over the plan.
President Bush is scheduled to speak to the nation on the economy tonight, and John McCain announced that he is suspending his campaign and hoping to postpone Friday night’s debate, to focus on the economy.
But no matter what Bush or the presidential candidates do, Buffett said the fate of the financial system is in the hands of Congress.
“The only thing that counts in the economic world today is the U.S. Congress,” Buffett said. “They hold the fate of the U.S. economy for the next few years in their hands. And I think they'll do the right thing. I have great confidence — I mean, when they recognize what the problem is, they will do the right thing. They won't do the perfect thing. Nobody can do the perfect thing.
“Later on we'll let the historians decide who to blame. I could go around saying I told you so on this or that. But it doesn't make a difference.”
Wachovia Slumps After WaMu's Seizure, Impasse on Bank Bailout
By David Mildenberg and Linda Shen
Sept. 26 (Bloomberg) -- Wachovia Corp. slumped, leading other banks stocks lower, after negotiations on the government's financial bailout stalled and Washington Mutual Inc. was seized by regulators and sold to JPMorgan Chase & Co.
Wachovia, which the New York Times said today is in early merger talks with Citigroup Inc., dropped $3.70, or 27 percent, to $10 at 4 p.m. in New York Stock Exchange composite trading. Cleveland-based National City Corp. fell 27 percent and Downey Financial Corp. slipped 48 percent. All three lenders plunged more than 80 percent in the past 12 months.
``Washington Mutual showed that one of the big ones can go down, and if you are looking at who else in the top 10 is facing the most pressure, Wachovia is right there,'' said Stan Smith, a banking professor at the University of Central Florida in Orlando.
WaMu was taken over by regulators yesterday in the biggest U.S. bank failure after customers of the Seattle-based lender withdrew $16.7 billion from accounts since Sept. 16. The savings and loan was ``unsound,'' the Office of Thrift Supervision said. The collapse came as lawmakers planned to meet again after talks on Treasury Secretary Henry Paulson's bailout reached an impasse.
The Times said there's no guarantee the talks between Citigroup and Wachovia will result in a deal, citing people briefed on the matter. Citigroup spokeswoman Christina Pretto declined to comment on the Times report.
Steel's E-Mail
Fears of mounting losses on Wachovia's $122 billion in option adjustable-rate mortgages helped push the Charlotte, North Carolina-based company's shares down by 64 percent this year before today's trading. Chief Executive Officer Robert Steel is treating the loans as distressed debt and named a senior bank official, David Carroll, to lead an effort to minimize losses on option ARMs that the bank expects to total about $14 billion.
Steel sent an e-mail to employees today saying he's ``optimistic'' about the government rescue package.
``The Treasury plan under consideration by Congress and the fact that the WaMu situation was smoothly resolved for its customers are two constructive and important steps toward restoring confidence in the financial system,'' Steel wrote in the e-mail, which was confirmed by the bank. ``We are aggressively addressing our challenges and are working to strategically strengthen and manage capital and liquidity in this challenging environment.''
`Silent' Run
Still, customers may not be assuaged. Louise Pitt, a credit analyst at Goldman Sachs Group Inc., wrote in a report today that Wachovia may face the possibility of a ``silent'' run on desposits similar to that confronted by WaMu.
Outflows could come because of ``negative industry headlines and fear among retail customers,'' Pitt wrote in a report today. The bank has about $391 billion in core deposits out of a total of $436 billion, said Pitt, who cut her rating on Wachovia to ``trading sell'' from ``outperform.''
Christy Phillips-Brown, a spokeswoman for the bank, said the company doesn't comment on analyst reports. She noted that the bank has opened 745,000 retail deposit accounts since June, a 6 percent increase from the average daily sales rate in the first half of the year. Customers have also reinvested their certificates of deposits with Wachovia at a faster clip than during the first half of the year, she said.
CD Rates
The lender is paying among the highest CD rates among U.S. banks, which is typically seen as a signal that is struggling to win investor confidence, analyst Sean Ryan of Sterne Agee & Leach Inc. said today in an interview.
National City is well capitalized, has strong deposit inflows and has a fundamentally different business model than WaMu, said spokeswoman Kristen Baird Adams in an interview today.
``National City is a diversified commercial bank'' with no option ARMs, Adams said. ``WaMu was a thrift whose primary business was mortgage related.''
Wachovia had a total of $167 billion in mortgages as of June 30, ranking second among U.S. lenders behind Bank of America Corp.'s $239 billion, and followed by Citigroup Inc.'s $145 billion, according to an Oppenheimer & Co. report.
``All eyes are now on Wachovia,'' said Anton Schutz, president of Mendon Capital Advisors Corp. in Rochester, New York.
Option-ARM Mortgages
Wachovia became the largest option-ARM seller through its $24 billion acquisition in 2006 of Golden West Financial Corp., the Oakland, California-based lender that popularized the product over the previous 30 years. Wachovia expects cumulative losses of about 11 percent to 12 percent on its option-ARM loans.
``We feel it is likely that Wachovia will need to issue equity to provide greater reassurance about its liquidity and solvency,'' Mike Mayo, an analyst at Deutsche Bank AG, wrote in a note today. He reduced his target price to $11 from $16 a share.
Mayo expects the firm will need an additional $11 billion in capital, assuming a 20 percent discount on its ARM portfolio, he wrote. If common shares were issued at yesterday's closing price, it would dilute current shareholders by about one third.
California Slump
Merrill Lynch & Co. analyst Edward Najarian expects the losses to be in the 15 percent to 17 percent range, according to a Sept. 9 report. Housing prices in California declined by a record 41 percent in August from a year earlier, the California Association of Realtors said yesterday. Almost half of Wachovia's option ARMs are in California.
Option ARMs allow borrowers to skip part of their payment and add that sum to their principal. Monthly costs eventually increase after introductory interest rates as low as 1 percent.
Because typical option ARM borrowers make less than the full payment each month, according to Fitch Ratings, they don't build equity in their homes. When house prices fall, borrowers often owe more than their homes are worth. That leaves lenders facing losses if the borrower defaults.
Downey, based in Newport Beach, California, ranked fourth among option ARM lenders behind Wachovia, WaMu and Bank of America's Countrywide Financial Corp. Downey said it held $6.9 billion in option ARMs at the end of the second quarter.
Downey Financial
Downey now has less than a month to submit a long-term business plan to its chief regulator, the Office of Thrift supervision. The agency ordered the bank on Sept. 5 to raise cash by the end of the year and halt dividend payments.
Downey spokeswoman Elizabeth Stover declined to comment.
``A bailout plan needs to be approved as credit markets have frozen, credit spreads have widened and it's getting more difficult for businesses and consumers to get access to credit,'' said BMO Capital Markets analyst Peter Winter in a note to investors today.
Wachovia's shares advanced last week on speculation it would be a beneficiary of the Treasury's rescue plan. The company's option ARMs may be simpler to sell to the government than securitized pools of loans, said Kevin Stein, associate director of the California Reinvestment Coalition, a San Francisco-based nonprofit.
Wachovia holds the loans on its balance sheet, while WaMu and other big option-ARM lenders pooled the loans into securities that were sold to investors, he said.
`A Major Hit'
``If Wachovia could unload a third or a half of its option-ARM portfolio without taking a major hit to earnings, that would be a very positive development,'' said Gerard Cassidy, an analyst at RBC Capital Management in Portland, Maine. ``Whole loans are a lot easier for the government to buy than CDOs or CDO squared,'' he said, referring to collateralized debt obligations.
At the time of its failure, WaMu had $28.4 billion in outstanding bonds, with Capital Research and Management the largest debt-holder, Bloomberg data show. All three major credit agencies rate WaMu junk, the only company in the 24-member KBW Bank Index that's below investment grade.
Wachovia, which has $125.9 billion of outstanding bonds, has investment-grade ratings from Moody's Investors Service, Standard & Poor's Corp. and Fitch. Moody's and Fitch have a negative outlook on the lender, indicating a possible downgrade.
The cost to protect against a default by Wachovia soared to distressed levels today. Credit-default swap sellers demanded 25 percentage points upfront and 5 percentage points a year to protect Wachovia bonds from default for five years, according to broker Phoenix Partners Group. That means it would cost $2.5 million initially and $500,000 a year to protect $10 million in Wachovia bonds, compared with $670,000 a year and no upfront payment yesterday.
During the past three quarters, WaMu lost $6.3 billion. It kept skidding even after joining a list of financial companies the U.S. Securities and Exchange Commission protected from short selling in an effort to stabilize stock markets.
To contact the reporters on this story: Linda Shen in New York at lshen21@bloomberg.net; David Mildenberg in Charlotte at dmildenberg@bloomberg.net
Last Updated: September 26, 2008 17:10 EDT
http://www.bloomberg.com/apps/news?pid=20601087&sid=aoYZQp4yUn.w&refer=home
Wall Street Executives Made $3 Billion Before Crisis (Update1)
By Tom Randall and Jamie McGee
Sept. 26 (Bloomberg) -- Wall Street's five biggest firms paid more than $3 billion in the last five years to their top executives, while they presided over the packaging and sale of loans that helped bring down the investment-banking system.
Merrill Lynch & Co. paid its chief executives the most, with Stanley O'Neal taking in $172 million from 2003 to 2007 and John Thain getting $86 million, including a signing bonus, after beginning work in December. The company agreed to be acquired by Bank of America Corp. for about $50 billion on Sept. 15. Bear Stearns Cos.'s James ``Jimmy'' Cayne made $161 million before the company collapsed and was sold to JPMorgan Chase & Co. in June.
Democrats and Republicans in Congress are demanding that limits be placed on executive pay as part of the $700 billion financial rescue plan proposed by U.S. Treasury Secretary Henry Paulson. The former Goldman Sachs Group Inc. CEO, who received about $111 million between 2003 and 2006, said in testimony to Congress on Sept. 24 that he would accept such limits as part of the plan, after initially opposing them.
``Shareholders and boards should have done something about this a long time ago,'' said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware in Newark. ``They justified these levels of pay on the idea that they're all geniuses. I think that balloon has burst.''
Wall Street firms have shared profits liberally with employees. The five biggest -- Goldman, Morgan Stanley, Merrill, Lehman Brothers Holdings Inc. and Bear Stearns -- paid their 185,687 employees $66 billion in 2007, as problems with subprime mortgages mounted, including about $39 billion in bonuses. That amounts to average pay of $353,089 per employee, including an average bonus of $211,849. The five firms had combined net income of $93 billion during the five years through 2007.
CEO Pay Doubled
The $3.1 billion paid to the top five executives at the firms between 2003 and 2007 was about three times what JPMorgan spent to buy Bear Stearns. Goldman Sachs had the highest total, with $859 million, followed by Bear Stearns at $609 million. CEO pay at the five firms increased each year, doubling to $253 million in 2007, according to data compiled from company filings.
Executive-compensation figures include salary, bonuses, stock and stock options, some awarded for past performance. The options were valued at a third of the fair-market price of the stock at the time the options were granted, a method recommended by Graef Crystal, a compensation specialist and author of the Crystal Report on Executive Compensation, an online newsletter. The companies value the options using different methods.
`Make It Rain'
Wall Street firms have paid employees a greater share of revenue than any other industry, about 50 percent, Crystal said. That tradition at investment banks comes from their history as closely held partnerships of investors who put their own capital at risk, he said.
``In Wall Street and Hollywood, the profits tend to come in great big packets, and everyone wants a piece,'' said Crystal, a former Bloomberg columnist. ``Whether it's the movie `Dark Knight' or a huge merger deal, he who can make it rain, he who can bring everyone to the theater, can earn whatever he wants.''
Until the rain stops.
Lehman Brothers filed for the biggest bankruptcy in history on Sept. 15, with more than $613 billion in debt. The same day, Merrill Lynch was sold to Bank of America for $29 a share, about 70 percent below the stock's high of $97.53 on Jan. 24, 2007.
Goldman and Morgan Stanley, the two biggest independent U.S. investment banks, were forced to convert to bank holding companies, giving them more access to Federal Reserve funds and buying time to acquire deposits. Goldman Chief Executive Officer Lloyd Blankfein made $57.6 million in 2007 in salary and bonus, which includes stock and options granted at the beginning of the fiscal year to reward performance the previous year. Co- presidents Gary Cohn and Jon Winkelried each got $56 million.
`Tied to Performance'
Morgan Stanley's current and former chief executives, John Mack and Philip Purcell, were paid about $194 million over the last five years.
Mark Lake, a spokesman for Morgan Stanley, pointed to Mack's decision not to take a bonus for 2007 and said the $1.6 million in salary and other compensation he was awarded last year isn't ``a lot'' compared with other Wall Street CEOs.
``He has taken everything he had since rejoining the firm in equity, other than salary,'' Lake said. ``There's a difference in taking stock in the firm as a bonus and taking cash. Stock in the firm, obviously you are tied to performance of the firm.''
Goldman Sachs spokesman Michael Duvally declined to comment. Merrill Lynch spokeswoman Jessica Oppenheim, JPMorgan spokesman Brian Marchiony and Lehman spokeswoman Monique Wise didn't return calls for comment.
Paulson, Bush
``The American people are angry about executive compensation, and rightfully so,'' Paulson told a House panel on Sept. 24, departing from his prepared remarks. ``We must find a way to address this in the legislation, but without undermining the effectiveness of this program.''
President George W. Bush said that night in a televised address to the nation that the plan would provide ``urgently needed money so banks and other financial institutions can avoid collapse'' and ``should make certain that failed executives do not receive a windfall from your tax dollars.''
Congressional Republicans splintered late yesterday over the proposed $700 billion rescue plan. Senate Majority Leader Harry Reid said this morning at a news conference that Democrats are circulating a draft of legislation that contains limits on executive compensation and ensures that Congress has oversight over the bailout. Lawmakers from both parties are meeting again today in Washington.
Weak Record
The U.S. government has a weak record when it comes to regulating compensation, said Kevin Murphy, a professor of finance at the Marshall School of Business at the University of Southern California in Los Angeles.
``Every government attempt that has existed to limit or regulate CEO pay has backfired,'' Murphy said. ``I'm fairly confident this one will backfire too. There are always loopholes.''
Regulation of golden parachutes, or protection for executives in the case of an acquisition, were circumvented in the 1980s with severance agreements, and Nixon's wage-and-price- control experiment in the 1970s ultimately failed, Murphy said.
``It's either the compensation committee or the general counsel or the head of human resources who are trying to negotiate a pay package with someone who will be their boss in a week,'' he said. ``These are things that can be done a lot better.''
Corporate Governance
Rather than government regulation, the solution is in better corporate governance, Elson said. Companies should negotiate more aggressively with executives and should establish rules that encourage shareholders to protest excessive pay. The rescue package is not the place to have that debate, he said.
``This will get in the way'' of passing the $700 billion financial rescue legislation, Elson said. ``We are in a crisis. The patient is dying. Let's work on the details as soon as we get the patient out of the emergency room when we can do it in a thoughtful or deliberate manner.''
Not all Wall Street CEOs have escaped unscathed. Cayne sold a Bear Stearns holding once worth $1 billion for $61 million in March. Lehman's Chief Executive Officer Richard Fuld, who made $165 million between 2003 and 2007, sold 2.88 million of his firm's shares for 16 cents to 30 cents apiece, or less than $500,000, according to a regulatory filing.
Fuld owned 10.9 million shares and restricted stock units as of Jan. 31, valued at $931 million at their peak. He also had in- the-money options and other stock worth almost $300 million, according to Crystal.
To contact the reporter on this story: Tom Randall in New York at trandall6@bloomberg.net; Jamie McGee in New York at jmcgee8@bloomberg.net.
Fri Sep 26, 2008
As the proposed $700 billion bailout plan met resistance Wednesday on Capitol Hill, billionaire investor Warren Buffett sounded the alarm on the peril of a failed rescue attempt of the financial markets.
“We are looking over a precipice in terms of the economic condition of the country for the next few years,” Buffett said during an interview on the Fox Business Channel. “If Congress doesn't help us on this, heaven help us.”
Congress will likely scale back the massive bailout plan.
Lawmakers have expressed concerns about oversight, as well as over the rushed nature of the bill. Party leaders and the president have shown support for the bailout since it was crafted over the weekend, but an increasing number of both Republican and Democratic members are expressing doubts over the plan.
President Bush is scheduled to speak to the nation on the economy tonight, and John McCain announced that he is suspending his campaign and hoping to postpone Friday night’s debate, to focus on the economy.
But no matter what Bush or the presidential candidates do, Buffett said the fate of the financial system is in the hands of Congress.
“The only thing that counts in the economic world today is the U.S. Congress,” Buffett said. “They hold the fate of the U.S. economy for the next few years in their hands. And I think they'll do the right thing. I have great confidence — I mean, when they recognize what the problem is, they will do the right thing. They won't do the perfect thing. Nobody can do the perfect thing.
“Later on we'll let the historians decide who to blame. I could go around saying I told you so on this or that. But it doesn't make a difference.”
Wachovia Slumps After WaMu's Seizure, Impasse on Bank Bailout
By David Mildenberg and Linda Shen
Sept. 26 (Bloomberg) -- Wachovia Corp. slumped, leading other banks stocks lower, after negotiations on the government's financial bailout stalled and Washington Mutual Inc. was seized by regulators and sold to JPMorgan Chase & Co.
Wachovia, which the New York Times said today is in early merger talks with Citigroup Inc., dropped $3.70, or 27 percent, to $10 at 4 p.m. in New York Stock Exchange composite trading. Cleveland-based National City Corp. fell 27 percent and Downey Financial Corp. slipped 48 percent. All three lenders plunged more than 80 percent in the past 12 months.
``Washington Mutual showed that one of the big ones can go down, and if you are looking at who else in the top 10 is facing the most pressure, Wachovia is right there,'' said Stan Smith, a banking professor at the University of Central Florida in Orlando.
WaMu was taken over by regulators yesterday in the biggest U.S. bank failure after customers of the Seattle-based lender withdrew $16.7 billion from accounts since Sept. 16. The savings and loan was ``unsound,'' the Office of Thrift Supervision said. The collapse came as lawmakers planned to meet again after talks on Treasury Secretary Henry Paulson's bailout reached an impasse.
The Times said there's no guarantee the talks between Citigroup and Wachovia will result in a deal, citing people briefed on the matter. Citigroup spokeswoman Christina Pretto declined to comment on the Times report.
Steel's E-Mail
Fears of mounting losses on Wachovia's $122 billion in option adjustable-rate mortgages helped push the Charlotte, North Carolina-based company's shares down by 64 percent this year before today's trading. Chief Executive Officer Robert Steel is treating the loans as distressed debt and named a senior bank official, David Carroll, to lead an effort to minimize losses on option ARMs that the bank expects to total about $14 billion.
Steel sent an e-mail to employees today saying he's ``optimistic'' about the government rescue package.
``The Treasury plan under consideration by Congress and the fact that the WaMu situation was smoothly resolved for its customers are two constructive and important steps toward restoring confidence in the financial system,'' Steel wrote in the e-mail, which was confirmed by the bank. ``We are aggressively addressing our challenges and are working to strategically strengthen and manage capital and liquidity in this challenging environment.''
`Silent' Run
Still, customers may not be assuaged. Louise Pitt, a credit analyst at Goldman Sachs Group Inc., wrote in a report today that Wachovia may face the possibility of a ``silent'' run on desposits similar to that confronted by WaMu.
Outflows could come because of ``negative industry headlines and fear among retail customers,'' Pitt wrote in a report today. The bank has about $391 billion in core deposits out of a total of $436 billion, said Pitt, who cut her rating on Wachovia to ``trading sell'' from ``outperform.''
Christy Phillips-Brown, a spokeswoman for the bank, said the company doesn't comment on analyst reports. She noted that the bank has opened 745,000 retail deposit accounts since June, a 6 percent increase from the average daily sales rate in the first half of the year. Customers have also reinvested their certificates of deposits with Wachovia at a faster clip than during the first half of the year, she said.
CD Rates
The lender is paying among the highest CD rates among U.S. banks, which is typically seen as a signal that is struggling to win investor confidence, analyst Sean Ryan of Sterne Agee & Leach Inc. said today in an interview.
National City is well capitalized, has strong deposit inflows and has a fundamentally different business model than WaMu, said spokeswoman Kristen Baird Adams in an interview today.
``National City is a diversified commercial bank'' with no option ARMs, Adams said. ``WaMu was a thrift whose primary business was mortgage related.''
Wachovia had a total of $167 billion in mortgages as of June 30, ranking second among U.S. lenders behind Bank of America Corp.'s $239 billion, and followed by Citigroup Inc.'s $145 billion, according to an Oppenheimer & Co. report.
``All eyes are now on Wachovia,'' said Anton Schutz, president of Mendon Capital Advisors Corp. in Rochester, New York.
Option-ARM Mortgages
Wachovia became the largest option-ARM seller through its $24 billion acquisition in 2006 of Golden West Financial Corp., the Oakland, California-based lender that popularized the product over the previous 30 years. Wachovia expects cumulative losses of about 11 percent to 12 percent on its option-ARM loans.
``We feel it is likely that Wachovia will need to issue equity to provide greater reassurance about its liquidity and solvency,'' Mike Mayo, an analyst at Deutsche Bank AG, wrote in a note today. He reduced his target price to $11 from $16 a share.
Mayo expects the firm will need an additional $11 billion in capital, assuming a 20 percent discount on its ARM portfolio, he wrote. If common shares were issued at yesterday's closing price, it would dilute current shareholders by about one third.
California Slump
Merrill Lynch & Co. analyst Edward Najarian expects the losses to be in the 15 percent to 17 percent range, according to a Sept. 9 report. Housing prices in California declined by a record 41 percent in August from a year earlier, the California Association of Realtors said yesterday. Almost half of Wachovia's option ARMs are in California.
Option ARMs allow borrowers to skip part of their payment and add that sum to their principal. Monthly costs eventually increase after introductory interest rates as low as 1 percent.
Because typical option ARM borrowers make less than the full payment each month, according to Fitch Ratings, they don't build equity in their homes. When house prices fall, borrowers often owe more than their homes are worth. That leaves lenders facing losses if the borrower defaults.
Downey, based in Newport Beach, California, ranked fourth among option ARM lenders behind Wachovia, WaMu and Bank of America's Countrywide Financial Corp. Downey said it held $6.9 billion in option ARMs at the end of the second quarter.
Downey Financial
Downey now has less than a month to submit a long-term business plan to its chief regulator, the Office of Thrift supervision. The agency ordered the bank on Sept. 5 to raise cash by the end of the year and halt dividend payments.
Downey spokeswoman Elizabeth Stover declined to comment.
``A bailout plan needs to be approved as credit markets have frozen, credit spreads have widened and it's getting more difficult for businesses and consumers to get access to credit,'' said BMO Capital Markets analyst Peter Winter in a note to investors today.
Wachovia's shares advanced last week on speculation it would be a beneficiary of the Treasury's rescue plan. The company's option ARMs may be simpler to sell to the government than securitized pools of loans, said Kevin Stein, associate director of the California Reinvestment Coalition, a San Francisco-based nonprofit.
Wachovia holds the loans on its balance sheet, while WaMu and other big option-ARM lenders pooled the loans into securities that were sold to investors, he said.
`A Major Hit'
``If Wachovia could unload a third or a half of its option-ARM portfolio without taking a major hit to earnings, that would be a very positive development,'' said Gerard Cassidy, an analyst at RBC Capital Management in Portland, Maine. ``Whole loans are a lot easier for the government to buy than CDOs or CDO squared,'' he said, referring to collateralized debt obligations.
At the time of its failure, WaMu had $28.4 billion in outstanding bonds, with Capital Research and Management the largest debt-holder, Bloomberg data show. All three major credit agencies rate WaMu junk, the only company in the 24-member KBW Bank Index that's below investment grade.
Wachovia, which has $125.9 billion of outstanding bonds, has investment-grade ratings from Moody's Investors Service, Standard & Poor's Corp. and Fitch. Moody's and Fitch have a negative outlook on the lender, indicating a possible downgrade.
The cost to protect against a default by Wachovia soared to distressed levels today. Credit-default swap sellers demanded 25 percentage points upfront and 5 percentage points a year to protect Wachovia bonds from default for five years, according to broker Phoenix Partners Group. That means it would cost $2.5 million initially and $500,000 a year to protect $10 million in Wachovia bonds, compared with $670,000 a year and no upfront payment yesterday.
During the past three quarters, WaMu lost $6.3 billion. It kept skidding even after joining a list of financial companies the U.S. Securities and Exchange Commission protected from short selling in an effort to stabilize stock markets.
To contact the reporters on this story: Linda Shen in New York at lshen21@bloomberg.net; David Mildenberg in Charlotte at dmildenberg@bloomberg.net
Last Updated: September 26, 2008 17:10 EDT
http://www.bloomberg.com/apps/news?pid=20601087&sid=aoYZQp4yUn.w&refer=home
Wall Street Executives Made $3 Billion Before Crisis (Update1)
By Tom Randall and Jamie McGee
Sept. 26 (Bloomberg) -- Wall Street's five biggest firms paid more than $3 billion in the last five years to their top executives, while they presided over the packaging and sale of loans that helped bring down the investment-banking system.
Merrill Lynch & Co. paid its chief executives the most, with Stanley O'Neal taking in $172 million from 2003 to 2007 and John Thain getting $86 million, including a signing bonus, after beginning work in December. The company agreed to be acquired by Bank of America Corp. for about $50 billion on Sept. 15. Bear Stearns Cos.'s James ``Jimmy'' Cayne made $161 million before the company collapsed and was sold to JPMorgan Chase & Co. in June.
Democrats and Republicans in Congress are demanding that limits be placed on executive pay as part of the $700 billion financial rescue plan proposed by U.S. Treasury Secretary Henry Paulson. The former Goldman Sachs Group Inc. CEO, who received about $111 million between 2003 and 2006, said in testimony to Congress on Sept. 24 that he would accept such limits as part of the plan, after initially opposing them.
``Shareholders and boards should have done something about this a long time ago,'' said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware in Newark. ``They justified these levels of pay on the idea that they're all geniuses. I think that balloon has burst.''
Wall Street firms have shared profits liberally with employees. The five biggest -- Goldman, Morgan Stanley, Merrill, Lehman Brothers Holdings Inc. and Bear Stearns -- paid their 185,687 employees $66 billion in 2007, as problems with subprime mortgages mounted, including about $39 billion in bonuses. That amounts to average pay of $353,089 per employee, including an average bonus of $211,849. The five firms had combined net income of $93 billion during the five years through 2007.
CEO Pay Doubled
The $3.1 billion paid to the top five executives at the firms between 2003 and 2007 was about three times what JPMorgan spent to buy Bear Stearns. Goldman Sachs had the highest total, with $859 million, followed by Bear Stearns at $609 million. CEO pay at the five firms increased each year, doubling to $253 million in 2007, according to data compiled from company filings.
Executive-compensation figures include salary, bonuses, stock and stock options, some awarded for past performance. The options were valued at a third of the fair-market price of the stock at the time the options were granted, a method recommended by Graef Crystal, a compensation specialist and author of the Crystal Report on Executive Compensation, an online newsletter. The companies value the options using different methods.
`Make It Rain'
Wall Street firms have paid employees a greater share of revenue than any other industry, about 50 percent, Crystal said. That tradition at investment banks comes from their history as closely held partnerships of investors who put their own capital at risk, he said.
``In Wall Street and Hollywood, the profits tend to come in great big packets, and everyone wants a piece,'' said Crystal, a former Bloomberg columnist. ``Whether it's the movie `Dark Knight' or a huge merger deal, he who can make it rain, he who can bring everyone to the theater, can earn whatever he wants.''
Until the rain stops.
Lehman Brothers filed for the biggest bankruptcy in history on Sept. 15, with more than $613 billion in debt. The same day, Merrill Lynch was sold to Bank of America for $29 a share, about 70 percent below the stock's high of $97.53 on Jan. 24, 2007.
Goldman and Morgan Stanley, the two biggest independent U.S. investment banks, were forced to convert to bank holding companies, giving them more access to Federal Reserve funds and buying time to acquire deposits. Goldman Chief Executive Officer Lloyd Blankfein made $57.6 million in 2007 in salary and bonus, which includes stock and options granted at the beginning of the fiscal year to reward performance the previous year. Co- presidents Gary Cohn and Jon Winkelried each got $56 million.
`Tied to Performance'
Morgan Stanley's current and former chief executives, John Mack and Philip Purcell, were paid about $194 million over the last five years.
Mark Lake, a spokesman for Morgan Stanley, pointed to Mack's decision not to take a bonus for 2007 and said the $1.6 million in salary and other compensation he was awarded last year isn't ``a lot'' compared with other Wall Street CEOs.
``He has taken everything he had since rejoining the firm in equity, other than salary,'' Lake said. ``There's a difference in taking stock in the firm as a bonus and taking cash. Stock in the firm, obviously you are tied to performance of the firm.''
Goldman Sachs spokesman Michael Duvally declined to comment. Merrill Lynch spokeswoman Jessica Oppenheim, JPMorgan spokesman Brian Marchiony and Lehman spokeswoman Monique Wise didn't return calls for comment.
Paulson, Bush
``The American people are angry about executive compensation, and rightfully so,'' Paulson told a House panel on Sept. 24, departing from his prepared remarks. ``We must find a way to address this in the legislation, but without undermining the effectiveness of this program.''
President George W. Bush said that night in a televised address to the nation that the plan would provide ``urgently needed money so banks and other financial institutions can avoid collapse'' and ``should make certain that failed executives do not receive a windfall from your tax dollars.''
Congressional Republicans splintered late yesterday over the proposed $700 billion rescue plan. Senate Majority Leader Harry Reid said this morning at a news conference that Democrats are circulating a draft of legislation that contains limits on executive compensation and ensures that Congress has oversight over the bailout. Lawmakers from both parties are meeting again today in Washington.
Weak Record
The U.S. government has a weak record when it comes to regulating compensation, said Kevin Murphy, a professor of finance at the Marshall School of Business at the University of Southern California in Los Angeles.
``Every government attempt that has existed to limit or regulate CEO pay has backfired,'' Murphy said. ``I'm fairly confident this one will backfire too. There are always loopholes.''
Regulation of golden parachutes, or protection for executives in the case of an acquisition, were circumvented in the 1980s with severance agreements, and Nixon's wage-and-price- control experiment in the 1970s ultimately failed, Murphy said.
``It's either the compensation committee or the general counsel or the head of human resources who are trying to negotiate a pay package with someone who will be their boss in a week,'' he said. ``These are things that can be done a lot better.''
Corporate Governance
Rather than government regulation, the solution is in better corporate governance, Elson said. Companies should negotiate more aggressively with executives and should establish rules that encourage shareholders to protest excessive pay. The rescue package is not the place to have that debate, he said.
``This will get in the way'' of passing the $700 billion financial rescue legislation, Elson said. ``We are in a crisis. The patient is dying. Let's work on the details as soon as we get the patient out of the emergency room when we can do it in a thoughtful or deliberate manner.''
Not all Wall Street CEOs have escaped unscathed. Cayne sold a Bear Stearns holding once worth $1 billion for $61 million in March. Lehman's Chief Executive Officer Richard Fuld, who made $165 million between 2003 and 2007, sold 2.88 million of his firm's shares for 16 cents to 30 cents apiece, or less than $500,000, according to a regulatory filing.
Fuld owned 10.9 million shares and restricted stock units as of Jan. 31, valued at $931 million at their peak. He also had in- the-money options and other stock worth almost $300 million, according to Crystal.
To contact the reporter on this story: Tom Randall in New York at trandall6@bloomberg.net; Jamie McGee in New York at jmcgee8@bloomberg.net.
Thursday, September 25, 2008
Bailout Plan's Basic Mystery: What's All This Stuff Worth?
Issue Is Payback, Not Bailout
by Vikas Bajaj
Thursday, September 25, 2008
What would you pay, sight unseen, for a house that nobody wants, on a hard-luck street where no houses are selling?
That question is easy compared to the one confronting the Treasury Department as Washington works toward a vast bailout of financial institutions. Treasury Secretary Henry M. Paulson Jr. is proposing to spend up to $700 billion to buy troubled investments that even Wall Street is struggling to put a price on.
A big concern in Washington — and among many ordinary Americans — is that the difficulty in valuing these assets could result in the government's buying them for more than they will ever be worth, a step that would benefit financial institutions at taxpayers' expense.
Anyone who has tried to buy or sell a house when the market is falling, as it is now, knows how difficult it can be to agree on a price. But valuing the securities that the Treasury aims to buy will be far more difficult. Each one of these investments is tied to thousands of individual mortgages, and many of those loans are going bad as the housing market worsens.
"The reality is that we are not going to know what the right price is for years," said Andrew Feltus, a bond portfolio manager at Pioneer Investments, a mutual fund firm based in Boston. "It might be 20 cents on the dollar or 60 cents on the dollar, but we won't know for years."
While prices of most stocks are no mystery — they flicker across PCs and televisions all day — the troubled investments are not traded on any exchange. The market for them is opaque: traders do business over the telephone, and days can go by without a single trade.
Not only that, many of these instruments are extremely complex. Consider the Bear Stearns Alt-A Trust 2006-7, a $1.3 billion drop in the sea of risky loans. Here's how it worked:
As the credit bubble grew in 2006, Bear Stearns, then one of the leading mortgage traders on Wall Street, bought 2,871 mortgages from lenders like the Countrywide Financial Corporation.
The mortgages, with an average size of about $450,000, were Alt-A loans — the kind often referred to as liar loans, because lenders made them without the usual documentation to verify borrowers' incomes or savings. Nearly 60 percent of the loans were made in California, Florida and Arizona, where home prices rose — and subsequently fell — faster than almost anywhere else in the country.
Bear Stearns bundled the loans into 37 different kinds of bonds, ranked by varying levels of risk, for sale to investment banks, hedge funds and insurance companies.
If any of the mortgages went bad — and, it turned out, many did — the bonds at the bottom of the pecking order would suffer losses first, followed by the next lowest, and so on up the chain. By one measure, the Bear Stearns Alt-A Trust 2006-7 has performed well: It has suffered losses of about 1.6 percent. Of those loans, 778 have been paid off or moved through the foreclosure process.
But by many other measures, it's a toxic portfolio. Of the 2,093 loans that remain, 23 percent are delinquent or in foreclosure, according to Bloomberg News data. Initially rated triple-A, the most senior of the securities were downgraded to near junk bond status last week. Valuing mortgage bonds, even the safest variety, requires guesstimates: How many homeowners will fall behind on their mortgages? If the bank forecloses, what will the homes sell for? Investments like the Bear Stearns securities are almost certain to lose value as long as home prices keep falling.
"Under the current circumstances it's likely that you are going to take a loss on these loans," said Chandrajit Bhattacharya, a mortgage strategist at Credit Suisse, the investment bank.
The Bear Stearns bonds are just one example of the kind of assets the government could buy, and they are by no means the most complicated of the lot. Wall Street took bonds like those of Bear Stearns and bundled and rebundled them into even trickier investments known as collateralized debt obligations, or C.D.O.'s
"No two pieces of paper are the same,"said Mr. Feltus of Pioneer Investments.
On Wall Street, many of these C.D.O.'s have been selling for pennies on the dollar, if they are selling at all. In July, Merrill Lynch, struggling to bolster its finances, sold $31 billion of tricky mortgage-linked investments for 22 cents on the dollar. Last November, Citadel, a large hedge fund in Chicago, bought $3 billion of mortgage securities and other investments for 27 cents on the dollar.
But Citigroup, the financial giant, values similar investments on its books at 61 cents on the dollar. Citigroup says its C.D.O.'s are relatively high quality because they were created before lending standards weakened in 2006.
A big challenge for Treasury officials will be deciding whether to buy the troubled investments near the values at which the banks hold them on their books. That would help minimize losses for financial institutions. Driving a hard bargain, however, would protect taxpayers.
"Many are tempted by a strategy of trying to do both things at once," said Lawrence H. Summers, a former Treasury secretary in the Clinton administration. As a hypothetical example, Mr. Summers suggested that an institution could have securities on its books at $60, but the current market price might only be $30. In that case, the government might be tempted to come in at about $55.
Many financial institutions are so weak that they must sell their troubled assets at prices near the value on their books, Carlos Mendez, a senior managing director at ICP Capital, an investment firm that specializes in credit markets. Anything less would eat into their capital.
"Depending on your perspective on the economy, foreclosure rates and home prices, the market may eventually reflect that price. But most buyers are not willing to make that bet right now," he said. "And that's why we have these low prices."
Ben S. Bernanke, the chairman of the Federal Reserve, told Congress on Tuesday that the government should avoid paying a fire-sale price, and pay what he called the "hold-to-maturity price," or the price that investors would bid if they expected to keep the bond till it was paid off.
The government would buy the troubled investments with the intention of eventually selling them back to the market when prices recover.
The Treasury has suggested it might conduct reverse auctions to determine the price for securities that are not trading in the market.
Unlike in a traditional auction in which would-be buyers submit bids to the seller, in a reverse auction the buyer solicits bids from would-be sellers. Often, the buyer agrees to pay the second-highest bid submitted to encourage sellers to compete by lowering their bids for all the assets submitted. The buyer often also sets a reserve price and refuses to pay any more than that price.
Visit the Banking & Budgeting Center
But Mr. Paulson told Congress on Tuesday that the government would use many other means in addition to auctions, suggesting that it would exercise wide discretion over the final prices to be paid.
Financial institutions will have an incentive to sell their worst assets to the government, a risk that the Treasury will have to guard against, said Robert G. Hansen, senior associate dean at the Tuck School of Business at Dartmouth College.
"I am worried that the people who are going to offer the securities to the government will be the ones that have the absolute worst toxic waste," Professor Hansen said. Even so, he added, the government could actually make a profit on its purchases — provided the Treasury buys at the right prices. Richard C. Breeden, a former chairman of the Securities and Exchange Commission, said the auctions could thaw parts of the markets that have been frozen since late last year.
"One of the problems that many institutions are having is finding any bid for some of these assets, even though they are not without value," said Mr. Breeden, who is chairman and chief executive of Breeden Capital Management, an investment firm in Greenwich, Conn.
"What are these assets worth?" asked Mr. Breeden. "Sometimes, because of fear or extreme uncertainty in the markets, you get in a situation in which there are no bids at all, or at least no realistic bids."
Edmund L. Andrews contributed reporting.
http://finance.yahoo.com/banking-budgeting/article/105838/Plan%27s-Basic-Mystery-What-Is-All-This-Stuff-Worth
by Vikas Bajaj
Thursday, September 25, 2008
What would you pay, sight unseen, for a house that nobody wants, on a hard-luck street where no houses are selling?
That question is easy compared to the one confronting the Treasury Department as Washington works toward a vast bailout of financial institutions. Treasury Secretary Henry M. Paulson Jr. is proposing to spend up to $700 billion to buy troubled investments that even Wall Street is struggling to put a price on.
A big concern in Washington — and among many ordinary Americans — is that the difficulty in valuing these assets could result in the government's buying them for more than they will ever be worth, a step that would benefit financial institutions at taxpayers' expense.
Anyone who has tried to buy or sell a house when the market is falling, as it is now, knows how difficult it can be to agree on a price. But valuing the securities that the Treasury aims to buy will be far more difficult. Each one of these investments is tied to thousands of individual mortgages, and many of those loans are going bad as the housing market worsens.
"The reality is that we are not going to know what the right price is for years," said Andrew Feltus, a bond portfolio manager at Pioneer Investments, a mutual fund firm based in Boston. "It might be 20 cents on the dollar or 60 cents on the dollar, but we won't know for years."
While prices of most stocks are no mystery — they flicker across PCs and televisions all day — the troubled investments are not traded on any exchange. The market for them is opaque: traders do business over the telephone, and days can go by without a single trade.
Not only that, many of these instruments are extremely complex. Consider the Bear Stearns Alt-A Trust 2006-7, a $1.3 billion drop in the sea of risky loans. Here's how it worked:
As the credit bubble grew in 2006, Bear Stearns, then one of the leading mortgage traders on Wall Street, bought 2,871 mortgages from lenders like the Countrywide Financial Corporation.
The mortgages, with an average size of about $450,000, were Alt-A loans — the kind often referred to as liar loans, because lenders made them without the usual documentation to verify borrowers' incomes or savings. Nearly 60 percent of the loans were made in California, Florida and Arizona, where home prices rose — and subsequently fell — faster than almost anywhere else in the country.
Bear Stearns bundled the loans into 37 different kinds of bonds, ranked by varying levels of risk, for sale to investment banks, hedge funds and insurance companies.
If any of the mortgages went bad — and, it turned out, many did — the bonds at the bottom of the pecking order would suffer losses first, followed by the next lowest, and so on up the chain. By one measure, the Bear Stearns Alt-A Trust 2006-7 has performed well: It has suffered losses of about 1.6 percent. Of those loans, 778 have been paid off or moved through the foreclosure process.
But by many other measures, it's a toxic portfolio. Of the 2,093 loans that remain, 23 percent are delinquent or in foreclosure, according to Bloomberg News data. Initially rated triple-A, the most senior of the securities were downgraded to near junk bond status last week. Valuing mortgage bonds, even the safest variety, requires guesstimates: How many homeowners will fall behind on their mortgages? If the bank forecloses, what will the homes sell for? Investments like the Bear Stearns securities are almost certain to lose value as long as home prices keep falling.
"Under the current circumstances it's likely that you are going to take a loss on these loans," said Chandrajit Bhattacharya, a mortgage strategist at Credit Suisse, the investment bank.
The Bear Stearns bonds are just one example of the kind of assets the government could buy, and they are by no means the most complicated of the lot. Wall Street took bonds like those of Bear Stearns and bundled and rebundled them into even trickier investments known as collateralized debt obligations, or C.D.O.'s
"No two pieces of paper are the same,"said Mr. Feltus of Pioneer Investments.
On Wall Street, many of these C.D.O.'s have been selling for pennies on the dollar, if they are selling at all. In July, Merrill Lynch, struggling to bolster its finances, sold $31 billion of tricky mortgage-linked investments for 22 cents on the dollar. Last November, Citadel, a large hedge fund in Chicago, bought $3 billion of mortgage securities and other investments for 27 cents on the dollar.
But Citigroup, the financial giant, values similar investments on its books at 61 cents on the dollar. Citigroup says its C.D.O.'s are relatively high quality because they were created before lending standards weakened in 2006.
A big challenge for Treasury officials will be deciding whether to buy the troubled investments near the values at which the banks hold them on their books. That would help minimize losses for financial institutions. Driving a hard bargain, however, would protect taxpayers.
"Many are tempted by a strategy of trying to do both things at once," said Lawrence H. Summers, a former Treasury secretary in the Clinton administration. As a hypothetical example, Mr. Summers suggested that an institution could have securities on its books at $60, but the current market price might only be $30. In that case, the government might be tempted to come in at about $55.
Many financial institutions are so weak that they must sell their troubled assets at prices near the value on their books, Carlos Mendez, a senior managing director at ICP Capital, an investment firm that specializes in credit markets. Anything less would eat into their capital.
"Depending on your perspective on the economy, foreclosure rates and home prices, the market may eventually reflect that price. But most buyers are not willing to make that bet right now," he said. "And that's why we have these low prices."
Ben S. Bernanke, the chairman of the Federal Reserve, told Congress on Tuesday that the government should avoid paying a fire-sale price, and pay what he called the "hold-to-maturity price," or the price that investors would bid if they expected to keep the bond till it was paid off.
The government would buy the troubled investments with the intention of eventually selling them back to the market when prices recover.
The Treasury has suggested it might conduct reverse auctions to determine the price for securities that are not trading in the market.
Unlike in a traditional auction in which would-be buyers submit bids to the seller, in a reverse auction the buyer solicits bids from would-be sellers. Often, the buyer agrees to pay the second-highest bid submitted to encourage sellers to compete by lowering their bids for all the assets submitted. The buyer often also sets a reserve price and refuses to pay any more than that price.
Visit the Banking & Budgeting Center
But Mr. Paulson told Congress on Tuesday that the government would use many other means in addition to auctions, suggesting that it would exercise wide discretion over the final prices to be paid.
Financial institutions will have an incentive to sell their worst assets to the government, a risk that the Treasury will have to guard against, said Robert G. Hansen, senior associate dean at the Tuck School of Business at Dartmouth College.
"I am worried that the people who are going to offer the securities to the government will be the ones that have the absolute worst toxic waste," Professor Hansen said. Even so, he added, the government could actually make a profit on its purchases — provided the Treasury buys at the right prices. Richard C. Breeden, a former chairman of the Securities and Exchange Commission, said the auctions could thaw parts of the markets that have been frozen since late last year.
"One of the problems that many institutions are having is finding any bid for some of these assets, even though they are not without value," said Mr. Breeden, who is chairman and chief executive of Breeden Capital Management, an investment firm in Greenwich, Conn.
"What are these assets worth?" asked Mr. Breeden. "Sometimes, because of fear or extreme uncertainty in the markets, you get in a situation in which there are no bids at all, or at least no realistic bids."
Edmund L. Andrews contributed reporting.
http://finance.yahoo.com/banking-budgeting/article/105838/Plan%27s-Basic-Mystery-What-Is-All-This-Stuff-Worth
Wednesday, September 24, 2008
The $700 Billion Bailout Plan's Fine Print
by: Nomi Prins, Mother Jones
Treasury Secretary Henry Paulson's $700 billion bailout plan includes a section that puts taxpayers on the hook for future bailouts.
Treasury Sec. Hank Paulson's $700 billion bailout plan now has a name: the Troubled Asset Relief Program, or TARP. But even as Capitol Hill debates TARP, few seem to have noticed the proposal item that puts taxpayers on the hook for future bailouts. It's in Section 6, and the key phrase is this: "The Secretary's authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time."
What does "at any one time" actually mean to economists? It means that if everything we American taxpayers buy re-evaluates down to zero, we get to buy more. That's hardly taxpayer "protection." With several hundred billion dollars of write-downs already announced this year by the part of the industry compelled to post their losses, it's a safe bet that $700 billion worth of the junkiest assets in existence will be heading to zero the second they are purchased.
But that's not all the bad news. With Sunday's announcement that Goldman Sachs and Morgan Stanley have decided to become bank holding companies, the last pretense of respect for the Glass-Steagall was dropped.
The Bank Holding Company Act of 1956 prevented bank holding companies from engaging in non-consumer oriented banking activities, like investment banking. It also prohibited such entities headquartered in one state from acquiring banks in another state. The interstate restrictions were gutted in 1994, and the 1999 Gramm-Leach-Bliley Act took care of the rest.
At first this meant that commercial banks could buy investment banks and insurance companies, hence Citigroup (which is a combination of Citibank, Travelers Insurance and Salomon Brothers investment bank), and the latest incarnation waiting to post lots of losses, Bank of America-Merrill Lynch. But even with a new name, Goldman Sachs is still an investment bank, in the same way that a horse by another color is still a horse. Changing its status to bank holding company will mean access to the bailout fund, and give it the ability to buy any commercial bank out there. Which it likely will.
Nonetheless, that looming problem wasn't addressed by Congress Tuesday. Instead, Sen. Chuck Schumer (D-NY) responded to TARP with THOR (Taxpayer Protection, Housing, Oversight and Regulation) and warned, "the financial system is clogged, and if we don't react the patient will suffer a heart attack. So we must act and must act soon…"
Somewhere, Former Treasury Secretary Carter Glass, the co-author of the Glass-Steagall Act of 1933 that separated speculative investment banks from consumer-oriented commercial ones, is turning in his grave.
As much press as the TARP vs. THOR discussion is getting, one voice of reason deserves more attention: Sen. Byron Dorgan's. As he has said, "this proposal looks to me like a stampede in the wrong direction…to reward the very people on Wall Street who created this mess, and who pocketed more than $100 billion over the last several years making it."
In 1999, Dorgan had the foresight to vote against the Gramm-Leach-Bliley Act that repealed the financial protections put in place following the Great Depression. He warned then that a 'financial swamp' would result from "the casino-like prospect of merging banking with the speculative activity of real estate and securities, and that the bill will raise the likelihood of future massive taxpayer bailouts."
Dorgan was spot on. Not only are we trapped in the complex deregulated financial system that resulted, but the bailouts are just beginning.
In advocating new protections similar to the Glass-Steagall Act and the need to address this crisis not just quickly, but correctly, he's likely spot on again. If only the rest of Congress felt the same way.
http://www.truthout.org/092308A?print
Nomi Prins is an economist and Mother Jones writer.
Treasury Secretary Henry Paulson's $700 billion bailout plan includes a section that puts taxpayers on the hook for future bailouts.
Treasury Sec. Hank Paulson's $700 billion bailout plan now has a name: the Troubled Asset Relief Program, or TARP. But even as Capitol Hill debates TARP, few seem to have noticed the proposal item that puts taxpayers on the hook for future bailouts. It's in Section 6, and the key phrase is this: "The Secretary's authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time."
What does "at any one time" actually mean to economists? It means that if everything we American taxpayers buy re-evaluates down to zero, we get to buy more. That's hardly taxpayer "protection." With several hundred billion dollars of write-downs already announced this year by the part of the industry compelled to post their losses, it's a safe bet that $700 billion worth of the junkiest assets in existence will be heading to zero the second they are purchased.
But that's not all the bad news. With Sunday's announcement that Goldman Sachs and Morgan Stanley have decided to become bank holding companies, the last pretense of respect for the Glass-Steagall was dropped.
The Bank Holding Company Act of 1956 prevented bank holding companies from engaging in non-consumer oriented banking activities, like investment banking. It also prohibited such entities headquartered in one state from acquiring banks in another state. The interstate restrictions were gutted in 1994, and the 1999 Gramm-Leach-Bliley Act took care of the rest.
At first this meant that commercial banks could buy investment banks and insurance companies, hence Citigroup (which is a combination of Citibank, Travelers Insurance and Salomon Brothers investment bank), and the latest incarnation waiting to post lots of losses, Bank of America-Merrill Lynch. But even with a new name, Goldman Sachs is still an investment bank, in the same way that a horse by another color is still a horse. Changing its status to bank holding company will mean access to the bailout fund, and give it the ability to buy any commercial bank out there. Which it likely will.
Nonetheless, that looming problem wasn't addressed by Congress Tuesday. Instead, Sen. Chuck Schumer (D-NY) responded to TARP with THOR (Taxpayer Protection, Housing, Oversight and Regulation) and warned, "the financial system is clogged, and if we don't react the patient will suffer a heart attack. So we must act and must act soon…"
Somewhere, Former Treasury Secretary Carter Glass, the co-author of the Glass-Steagall Act of 1933 that separated speculative investment banks from consumer-oriented commercial ones, is turning in his grave.
As much press as the TARP vs. THOR discussion is getting, one voice of reason deserves more attention: Sen. Byron Dorgan's. As he has said, "this proposal looks to me like a stampede in the wrong direction…to reward the very people on Wall Street who created this mess, and who pocketed more than $100 billion over the last several years making it."
In 1999, Dorgan had the foresight to vote against the Gramm-Leach-Bliley Act that repealed the financial protections put in place following the Great Depression. He warned then that a 'financial swamp' would result from "the casino-like prospect of merging banking with the speculative activity of real estate and securities, and that the bill will raise the likelihood of future massive taxpayer bailouts."
Dorgan was spot on. Not only are we trapped in the complex deregulated financial system that resulted, but the bailouts are just beginning.
In advocating new protections similar to the Glass-Steagall Act and the need to address this crisis not just quickly, but correctly, he's likely spot on again. If only the rest of Congress felt the same way.
http://www.truthout.org/092308A?print
Nomi Prins is an economist and Mother Jones writer.
Responsible and Moral Capitalism.
My name is Tom Love and I am running for the US Congressional District 24 in the Dallas-Fort Worth Metroplex.
I care deeply about what the future holds for both my family and my home state.
As a working man, I understand about paying bills and living within a balanced budget. However, our country's economy has not been managed responsibly. Our national debt is approaching $10 trillion dollars or more. Our import and export imbalance is out of control, and our international relations have plunged.
We have been witnessing the wholesale give-away of our children's future.
Congress could and should have halted this progression toward economic insolvency by performing its Constitutional obligations of responsible oversight. Instead, they surrendered these obligations behind a cloak of slogans, and false promises.
As a small business owner, I learned a great deal about supply and demand economy, and how capitalism can be a tool for the well being of everyone. Formerly, profits were sowed back into the company. Workers made living wages, and spent their earnings in the community, creating other jobs.
That was an era of responsible and moral capitalism.
Our national economy had always relied upon this principle. But when corporations' main concerns became gigantic bonuses for CEO s and ballooning dividends for shareholders, without regard to the economic health of the company or communities, failure always follows.
When I pay more at the gas pump, or more every month on my electric bill, or more at the grocery store, I see the hurt that an irresponsible lack of regulations cause.
Someday I would like to retire. But with Medicare spiraling into debt from hyper-inflated prescription costs and insurance companies dictating what medical procedures will be allowed and which will not, frankly I am afraid to lose what health insurance I still have.
Then there is also Social Security verging upon insolvency in the foreseeable future.
We need change. We need responsible oversight over our future.
I want to be a part of that Congress that returns our country back to our former system of responsible capitalism. I want to help restore responsible regulations and oversight over our most fundamental needs.
For example, the Savings and Loan Catastrophe should have taught Congress a lesson. Among other problems in the late 1980s were Home Loans. The cost was $160 billion dollars. Now we have another Crisis for many of the same reasons. The cost will be $700 billion dollars this time around.
The economy, though, is not the only area in which Congress has shirked its responsibilities.
We need a responsible Energy policy. We need to think long range for solutions outside of the fossil fuel box.
Energy independence is national security. By not demanding Detroit keep pace with fuel consumption levels in other countries for new vehicles, Detroit is tottering on the brink of asking for a bailout, and we are more dependent on foreign oil than ever before.
We need to use what we have more efficiently. We need functional mass transit systems, not more toll roads.
We need to develop alternative energies while exploiting our own natural resources as well. Texas has been blessed with abundant sun and wind, but these presently constitute only a fraction of our production and consumption.
Responsible investing in research and development should have commenced a long time ago. Instead, Congress sat and looked away from the problems.
A nation increases its security when it is independent of the need to import necessary items, such as oil, from potentially hostile countries and cartels, like OPEC.
A nation increases its national security when it succeeds in achieving import and export balances, thus strengthening its own money.
Congress has not responsibly fulfilled its obligations to hold the national purse strings. The money has always been there for our national needs of maintaining our infra-structure of highways and bridges, our schools and universities; yet those funds have been squandered for the sake of a few special interests.
Our Constitution begins with the words, “We the People.” Our Congress owes the People responsible oversight over our money and our future. Elected official have a moral obligation to those People who elected them.
Make no mistake, though, Our Government is all too human made.
But a vigilant People coupled with responsible representatives for those People, can turn our country back into the direction in which it should have been traveling.
I want to help return our ship of state back to its rightful course of responsible and moral capitalism.
I am Tom Love, the Democratic candidate for the US Congress in Texas District 24.
I am asking for your vote and Thank You for listening.
I care deeply about what the future holds for both my family and my home state.
As a working man, I understand about paying bills and living within a balanced budget. However, our country's economy has not been managed responsibly. Our national debt is approaching $10 trillion dollars or more. Our import and export imbalance is out of control, and our international relations have plunged.
We have been witnessing the wholesale give-away of our children's future.
Congress could and should have halted this progression toward economic insolvency by performing its Constitutional obligations of responsible oversight. Instead, they surrendered these obligations behind a cloak of slogans, and false promises.
As a small business owner, I learned a great deal about supply and demand economy, and how capitalism can be a tool for the well being of everyone. Formerly, profits were sowed back into the company. Workers made living wages, and spent their earnings in the community, creating other jobs.
That was an era of responsible and moral capitalism.
Our national economy had always relied upon this principle. But when corporations' main concerns became gigantic bonuses for CEO s and ballooning dividends for shareholders, without regard to the economic health of the company or communities, failure always follows.
When I pay more at the gas pump, or more every month on my electric bill, or more at the grocery store, I see the hurt that an irresponsible lack of regulations cause.
Someday I would like to retire. But with Medicare spiraling into debt from hyper-inflated prescription costs and insurance companies dictating what medical procedures will be allowed and which will not, frankly I am afraid to lose what health insurance I still have.
Then there is also Social Security verging upon insolvency in the foreseeable future.
We need change. We need responsible oversight over our future.
I want to be a part of that Congress that returns our country back to our former system of responsible capitalism. I want to help restore responsible regulations and oversight over our most fundamental needs.
For example, the Savings and Loan Catastrophe should have taught Congress a lesson. Among other problems in the late 1980s were Home Loans. The cost was $160 billion dollars. Now we have another Crisis for many of the same reasons. The cost will be $700 billion dollars this time around.
The economy, though, is not the only area in which Congress has shirked its responsibilities.
We need a responsible Energy policy. We need to think long range for solutions outside of the fossil fuel box.
Energy independence is national security. By not demanding Detroit keep pace with fuel consumption levels in other countries for new vehicles, Detroit is tottering on the brink of asking for a bailout, and we are more dependent on foreign oil than ever before.
We need to use what we have more efficiently. We need functional mass transit systems, not more toll roads.
We need to develop alternative energies while exploiting our own natural resources as well. Texas has been blessed with abundant sun and wind, but these presently constitute only a fraction of our production and consumption.
Responsible investing in research and development should have commenced a long time ago. Instead, Congress sat and looked away from the problems.
A nation increases its security when it is independent of the need to import necessary items, such as oil, from potentially hostile countries and cartels, like OPEC.
A nation increases its national security when it succeeds in achieving import and export balances, thus strengthening its own money.
Congress has not responsibly fulfilled its obligations to hold the national purse strings. The money has always been there for our national needs of maintaining our infra-structure of highways and bridges, our schools and universities; yet those funds have been squandered for the sake of a few special interests.
Our Constitution begins with the words, “We the People.” Our Congress owes the People responsible oversight over our money and our future. Elected official have a moral obligation to those People who elected them.
Make no mistake, though, Our Government is all too human made.
But a vigilant People coupled with responsible representatives for those People, can turn our country back into the direction in which it should have been traveling.
I want to help return our ship of state back to its rightful course of responsible and moral capitalism.
I am Tom Love, the Democratic candidate for the US Congress in Texas District 24.
I am asking for your vote and Thank You for listening.
Monday, September 22, 2008
For Immediate Press Release
Saturday, September 20, 2008
TOM LOVE forTEXAS Campaign
PO Box 7231, Arlington, TX 76005-7231 PH #972-263-=5630
E-mail: TomLoveforTexas@att.net
132 E Main St, Ste 110, Grand Prairie, TX 75050
Tom Love Candidate for US Congress District 24 stated he believes the current Republican plan of financial bailouts out this weekend are highly suspect and display a highly callus welfare for the wealthy approach toward the financial sector. Just a few short three years ago under a Republican Congress & Republican Administration, the US Bankruptcy Codes were modified that denied such financial relief to working Americans who were rarely guilty of fraud or financial misconduct. For the most part, they only had incurred death or incapacity of a loved one, or divorce as their main reason for seeking financial relief. Republicans denied this relief to them, in that new bankruptcy bill, but now do not even require insolvency as an excuse for a bailout for financial institutions.
Love further states Democrats should carefully inspect the new proposal and avoid the lack of oversight that has prevailed over the last 8 years. Love believes we must deny wholesale bailouts and golden parachutes to those who would have enriched themselves at public expense.
The root cause of this financial mess has been bad home loans and predatory lending practices. We need to rework the bad loans to make the portfolios preforming, stabilize home values, and ban home loans with ARM rates that would automatically send the borrower into default when the payment would exceed their ability to pay the mortgage. Love stated he thinks there is a true definition of real organized criminal conspiracy to commit fraud involved.
The sad thing is that the people involved don't see that they have done anything wrong and have no problem denying bankruptcy protection to ordinary Americans then ask the government extend them bankruptcy bailouts without even going bankrupt and with golden parachutes attached. Unless we reform this mess, we will be right back here with a bigger mess later. We have two choices: either rework the problem or force the market to fail. If we force the market to fail we have another great depression that is unacceptable. We must fix the problem not work on the symptoms.
Sincerely,
Tom Love
Democratic Candidate for US House Texas District 24
Dallas-Fort Worth Metroplex
The Middle Class Must Not Be Forced to Bail Out Wall Street
By Sen. Bernie Sanders, AlterNet. Posted September 21, 2008.
If the economy is on the edge of collapse we need to act. But we can't just give away $700 billion of taxpayer money to the banks.
For years, as a member of the House Banking Committee and now as a member of the Senate Budget Committee, I have heard the Bush Administration tell us how "robust" our economy was and how strong the "fundamentals" were. That was until a few days ago. Now, we are being told that if Congress does not act immediately and approve the $700 billion Wall Street bailout proposal these "free marketers" have just written up, there will be an unprecedented economic meltdown in the United States and an unraveling of the global economy.
This proposal as presented is an unacceptable attempt to force middle income families (and our children) to pick up the cost of fixing the horrendous economic mess that is the product of the Bush Administration's deregulatory fever and Wall Street's insatiable greed. If the potential danger to our economy was not so dire, this blatant effort to essentially transfer $700 billion up the income ladder to those at the top would be laughable.
Let us be clear. If the economy is on the edge of collapse we need to act. But rescuing the economy does not mean we have to just give away $700 billion of taxpayer money to the banks. (In truth, it could be much more than $700 billion. The bill only says the government is limited to having $700 billion outstanding at any time. By selling the mortgage-backed assets it acquires -- even at staggering losses -- the government will be able to buy even more, resulting is a virtually limitless financial exposure on the part of taxpayers.) Any proposal must protect middle income and working families from bearing the burden of this bailout.
I have proposed a four part plan to accomplish that goal which includes a five-year, 10% surtax on the income of individuals above $500,000 a year, and $1 million a year for couples; a requirement that the price the government pays for any mortgage assets are discounted appropriately so that government can recover the amount it paid for them; and, finally, the government should receive equity in the companies it bails out so that when the stock of these companies rises after the bailout, taxpayers also have the opportunity to share in the resulting windfall. Taken together, these measures would provide the best guarantee that at the end of five years, the government will have gotten back the money it put out.
Second, in addition to protecting the average American from being saddled with the cost, any serious proposal has to include reforms so that we end the type of behavior that led to this crisis in the first place. Much of this activity can be traced to specific legislation that broke down regulatory safety walls in the financial sector and allowed banks and others to engage in new types of risky transactions that are at the heart of this crisis. That deregulation needs to be repealed. Wall Street has shown it cannot be trusted to police itself. We need to reinstate a strong regulatory system that protects our economy.
Third, we need to address the needs of working families in this country who are today facing very difficult times. If we can bail out Wall Street, we need to respond with equal vigor to their plight. That means, for example, creating millions of jobs through major investments in rebuilding our crumbling infrastructure and creating a new renewable energy system. We must also make certain that the most vulnerable Americans don't freeze in the winter or die because they lack access to primary health care.
Finally, we need to protect ourselves from being at the mercy of giant companies that are "too big to fail," that is, companies who are so large that their failure would cause systemic harm to the economy. We need to assess which companies fall into this category and insist they are broken up. Otherwise, the American taxpayer will continue to be on the financial hook for the risky behavior, the mismanagement, and even the illegal conduct of these companies' executives.
These are the last days of the Bush Administration, the most dishonest and incompetent in modern American history. It is imperative that, at this important moment, Congress stand up for the middle class and for fiscal integrity. The future of our country is at stake.
http://www.alternet.org/workplace/99690/
Sen. Bernie Sanders was elected to the U.S. Senate in 2006 after serving 16 years in the House of Representatives. He is the longest serving independent member of Congress in American history
If the economy is on the edge of collapse we need to act. But we can't just give away $700 billion of taxpayer money to the banks.
For years, as a member of the House Banking Committee and now as a member of the Senate Budget Committee, I have heard the Bush Administration tell us how "robust" our economy was and how strong the "fundamentals" were. That was until a few days ago. Now, we are being told that if Congress does not act immediately and approve the $700 billion Wall Street bailout proposal these "free marketers" have just written up, there will be an unprecedented economic meltdown in the United States and an unraveling of the global economy.
This proposal as presented is an unacceptable attempt to force middle income families (and our children) to pick up the cost of fixing the horrendous economic mess that is the product of the Bush Administration's deregulatory fever and Wall Street's insatiable greed. If the potential danger to our economy was not so dire, this blatant effort to essentially transfer $700 billion up the income ladder to those at the top would be laughable.
Let us be clear. If the economy is on the edge of collapse we need to act. But rescuing the economy does not mean we have to just give away $700 billion of taxpayer money to the banks. (In truth, it could be much more than $700 billion. The bill only says the government is limited to having $700 billion outstanding at any time. By selling the mortgage-backed assets it acquires -- even at staggering losses -- the government will be able to buy even more, resulting is a virtually limitless financial exposure on the part of taxpayers.) Any proposal must protect middle income and working families from bearing the burden of this bailout.
I have proposed a four part plan to accomplish that goal which includes a five-year, 10% surtax on the income of individuals above $500,000 a year, and $1 million a year for couples; a requirement that the price the government pays for any mortgage assets are discounted appropriately so that government can recover the amount it paid for them; and, finally, the government should receive equity in the companies it bails out so that when the stock of these companies rises after the bailout, taxpayers also have the opportunity to share in the resulting windfall. Taken together, these measures would provide the best guarantee that at the end of five years, the government will have gotten back the money it put out.
Second, in addition to protecting the average American from being saddled with the cost, any serious proposal has to include reforms so that we end the type of behavior that led to this crisis in the first place. Much of this activity can be traced to specific legislation that broke down regulatory safety walls in the financial sector and allowed banks and others to engage in new types of risky transactions that are at the heart of this crisis. That deregulation needs to be repealed. Wall Street has shown it cannot be trusted to police itself. We need to reinstate a strong regulatory system that protects our economy.
Third, we need to address the needs of working families in this country who are today facing very difficult times. If we can bail out Wall Street, we need to respond with equal vigor to their plight. That means, for example, creating millions of jobs through major investments in rebuilding our crumbling infrastructure and creating a new renewable energy system. We must also make certain that the most vulnerable Americans don't freeze in the winter or die because they lack access to primary health care.
Finally, we need to protect ourselves from being at the mercy of giant companies that are "too big to fail," that is, companies who are so large that their failure would cause systemic harm to the economy. We need to assess which companies fall into this category and insist they are broken up. Otherwise, the American taxpayer will continue to be on the financial hook for the risky behavior, the mismanagement, and even the illegal conduct of these companies' executives.
These are the last days of the Bush Administration, the most dishonest and incompetent in modern American history. It is imperative that, at this important moment, Congress stand up for the middle class and for fiscal integrity. The future of our country is at stake.
http://www.alternet.org/workplace/99690/
Sen. Bernie Sanders was elected to the U.S. Senate in 2006 after serving 16 years in the House of Representatives. He is the longest serving independent member of Congress in American history
Sunday, September 21, 2008
Truthiness Stages a Comeback By FRANK RICH
Looking for Reality
NOT until 2004 could the 9/11 commission at last reveal the title of the intelligence briefing President Bush ignored on Aug. 6, 2001, in Crawford: “Bin Laden Determined to Strike in U.S.” No wonder John McCain called for a new “9/11 commission” to “get to the bottom” of 9/14, when the collapse of Lehman Brothers set off another kind of blood bath in Lower Manhattan. Put a slo-mo Beltway panel in charge, and Election Day will be ancient history before we get to the bottom of just how little he and the president did to defend America against a devastating new threat on their watch.
For better or worse, the candidacy of Barack Obama, a senator-come-lately, must be evaluated on his judgment, ideas and potential to lead. McCain, by contrast, has been chairman of the Senate Commerce Committee, where he claims to have overseen “every part of our economy.” He didn’t, thank heavens, but he does have a long and relevant economic record that begins with the Keating Five scandal of 1989 and extends to this campaign, where his fiscal policies bear the fingerprints of Phil Gramm and Carly Fiorina. It’s not the résumé that a presidential candidate wants to advertise as America faces its worst financial crisis since the Great Depression. That’s why the main thrust of the McCain campaign has been to cover up his history of economic malpractice.
McCain has largely pulled it off so far, under the guidance of Steve Schmidt, a Karl Rove protégé. A Rovian political strategy by definition means all slime, all the time. But the more crucial Rove game plan is to envelop the entire presidential race in a thick fog of truthiness. All campaigns, Obama’s included, engage in false attacks. But McCain, Sarah Palin and their surrogates keep repeating the same lies over and over not just to smear their opponents and not just to mask their own record. Their larger aim is to construct a bogus alternative reality so relentless it can overwhelm any haphazard journalistic stabs at puncturing it.
When a McCain spokesman told Politico a week ago that “we’re not too concerned about what the media filter tries to say” about the campaign’s incessant fictions, he was channeling a famous Bush dictum of 2003: “Somehow you just got to go over the heads of the filter.” In Bush’s case, the lies lobbed over the heads of the press were to sell the war in Iraq. That propaganda blitz, devised by a secret White House Iraq Group that included Rove, was a triumph. In mere months, Americans came to believe that Saddam Hussein had aided the 9/11 attacks and even that Iraqis were among the hijackers. A largely cowed press failed to set the record straight.
Just as the Bushies once flogged uranium from Africa, so Palin ceaselessly repeats her discredited claim that she said “no thanks” to the Bridge to Nowhere. Nothing is too small or sacred for the McCain campaign to lie about. It was even caught (by The Christian Science Monitor) peddling an imaginary encounter between Cindy McCain and Mother Teresa when McCain was adopting her daughter in Bangladesh.
If you doubt that the big lies are sticking, look at the latest Washington Post/ABC News poll. Half of voters now believe in the daily McCain refrain that Obama will raise their taxes. In fact, Obama proposes raising taxes only on the 1.9 percent of households that make more than $250,000 a year and cutting them for nearly everyone else.
You know the press is impotent at unmasking this truthiness when the hardest-hitting interrogation McCain has yet faced on television came on “The View.” Barbara Walters and Joy Behar called him on several falsehoods, including his endlessly repeated fantasy that Palin opposed earmarks for Alaska. Behar used the word “lies” to his face. The McCains are so used to deference from “the filter” that Cindy McCain later complained that “The View” picked “our bones clean.” In our news culture, Behar, a stand-up comic by profession, looms as the new Edward R. Murrow.
Network news, with its dwindling handful of investigative reporters, has barely mentioned, let alone advanced, major new print revelations about Cindy McCain’s drug-addiction history (in The Washington Post) and the rampant cronyism and secrecy in Palin’s governance of Alaska (in last Sunday’s New York Times). At least the networks repeatedly fact-check the low-hanging fruit among the countless Palin lies, but John McCain’s past usually remains off limits.
That’s strange since the indisputable historical antecedent for our current crisis is the Lincoln Savings and Loan scandal of the go-go 1980s. When Charles Keating’s bank went belly up because of risky, unregulated investments, it wiped out its depositors’ savings and cost taxpayers more than $3 billion. More than 1,000 other S.&L. institutions capsized nationwide.
It was ugly for the McCains. He had received more than $100,000 in Keating campaign contributions, and both McCains had repeatedly hopped on Keating’s corporate jet. Cindy McCain and her beer-magnate father had invested nearly $360,000 in a Keating shopping center a year before her husband joined four senators in inappropriate meetings with regulators charged with S.&L. oversight.
After Congressional hearings, McCain was reprimanded for “poor judgment.” He had committed no crime and had not intervened to protect Keating from ruin. Yet he, like many deregulators in his party, was guilty of bankrupt policy-making before disaster struck. He was among the sponsors of a House resolution calling for the delay of regulations intended to deter risky investments just like those that brought down Lincoln and its ilk.
Ever since, McCain has publicly thrashed himself for his mistakes back then — and boasted of the lessons he learned. He embraced campaign finance reform to rebrand himself as a “maverick.” But whatever lessons he learned are now forgotten.
For all his fiery calls last week for a Wall Street crackdown, McCain opposed the very regulations that might have helped avert the current catastrophe. In 1999, he supported a law co-authored by Gramm (and ultimately signed by Bill Clinton) that revoked the New Deal reforms intended to prevent commercial banks, insurance companies and investment banks from mingling their businesses. Equally laughable is the McCain-Palin ticket’s born-again outrage over the greed of Wall Street C.E.O.’s. When McCain’s chief financial surrogate, Fiorina, was fired as Hewlett-Packard’s chief executive after a 50 percent drop in shareholders’ value and 20,000 pink slips, she took home a package worth $42 million.
The McCain campaign canceled Fiorina’s television appearances last week after she inadvertently admitted that Palin was unqualified to run a corporation. But that doesn’t mean Fiorina is gone. Gramm, too, was ostentatiously exiled after he blamed the economic meltdown on our “nation of whiners” and “mental recession,” but he remains in the McCain loop.
The corporate jets, lobbyists and sleazes that gravitated around McCain in the Keating era have also reappeared in new incarnations. The Nation’s Web site recently unearthed a photo of the resolutely anticelebrity McCain being greeted by the con man Raffaello Follieri and his then girlfriend, the Hollywood actress Anne Hathaway, as McCain celebrated his 70th birthday on Follieri’s rented yacht in Montenegro in August 2006. It’s the perfect bookend to the old pictures of McCain in a funny hat partying with Keating in the Bahamas.
Whatever blanks are yet to be filled in on Obama, we at least know his economic plans and the known quantities who are shaping them (Lawrence Summers, Robert Rubin, Paul Volcker). McCain has reversed himself on every single economic issue this year, often within a 24-hour period, whether he’s judging the strength of the economy’s fundamentals or the wisdom of the government bailout of A.I.G. He once promised that he’d run every decision past Alan Greenspan — and even have him write a new tax code — but Greenspan has jumped ship rather than support McCain’s biggest flip-flop, his expansion of the Bush tax cuts. McCain’s official chief economic adviser is now Douglas Holtz-Eakin, who last week declared that McCain had “helped create” the BlackBerry.
But Holtz-Eakin’s most telling statement was about McCain’s economic plans — namely, that the details are irrelevant. “I don’t think it’s imperative at this moment to write down what the plan should be,” he said. “The real issue here is a leadership issue.” This, too, is a Rove-Bush replay. We want a tough guy who will “fix” things with his own two hands — let’s take out the S.E.C. chairman! — instead of wimpy Frenchified Democrats who just “talk.” The fine print of policy is superfluous if there’s a quick-draw decider in the White House.
The twin-pronged strategy of truculence and propaganda that sold Bush and his war could yet work for McCain. Even now his campaign has kept the “filter” from learning the very basics about his fitness to serve as president — his finances and his health. The McCain multihousehold’s multimillion-dollar mother lode is buried in Cindy McCain’s still-unreleased complete tax returns. John McCain’s full medical records, our sole index to the odds of an imminent Palin presidency, also remain locked away. The McCain campaign instead invited 20 chosen reporters to speed-read through 1,173 pages of medical history for a mere three hours on the Friday before Memorial Day weekend. No photocopying was permitted.
This is the same tactic of selective document release that the Bush White House used to bamboozle Congress and the press about Saddam’s nonexistent W.M.D. As truthiness repeats itself, so may history, and not as farce.
http://www.nytimes.com/2008/09/21/opinion/21rich.html?em&exprod=myyahoo
Copyright 2008 The New York Times Company
NOT until 2004 could the 9/11 commission at last reveal the title of the intelligence briefing President Bush ignored on Aug. 6, 2001, in Crawford: “Bin Laden Determined to Strike in U.S.” No wonder John McCain called for a new “9/11 commission” to “get to the bottom” of 9/14, when the collapse of Lehman Brothers set off another kind of blood bath in Lower Manhattan. Put a slo-mo Beltway panel in charge, and Election Day will be ancient history before we get to the bottom of just how little he and the president did to defend America against a devastating new threat on their watch.
For better or worse, the candidacy of Barack Obama, a senator-come-lately, must be evaluated on his judgment, ideas and potential to lead. McCain, by contrast, has been chairman of the Senate Commerce Committee, where he claims to have overseen “every part of our economy.” He didn’t, thank heavens, but he does have a long and relevant economic record that begins with the Keating Five scandal of 1989 and extends to this campaign, where his fiscal policies bear the fingerprints of Phil Gramm and Carly Fiorina. It’s not the résumé that a presidential candidate wants to advertise as America faces its worst financial crisis since the Great Depression. That’s why the main thrust of the McCain campaign has been to cover up his history of economic malpractice.
McCain has largely pulled it off so far, under the guidance of Steve Schmidt, a Karl Rove protégé. A Rovian political strategy by definition means all slime, all the time. But the more crucial Rove game plan is to envelop the entire presidential race in a thick fog of truthiness. All campaigns, Obama’s included, engage in false attacks. But McCain, Sarah Palin and their surrogates keep repeating the same lies over and over not just to smear their opponents and not just to mask their own record. Their larger aim is to construct a bogus alternative reality so relentless it can overwhelm any haphazard journalistic stabs at puncturing it.
When a McCain spokesman told Politico a week ago that “we’re not too concerned about what the media filter tries to say” about the campaign’s incessant fictions, he was channeling a famous Bush dictum of 2003: “Somehow you just got to go over the heads of the filter.” In Bush’s case, the lies lobbed over the heads of the press were to sell the war in Iraq. That propaganda blitz, devised by a secret White House Iraq Group that included Rove, was a triumph. In mere months, Americans came to believe that Saddam Hussein had aided the 9/11 attacks and even that Iraqis were among the hijackers. A largely cowed press failed to set the record straight.
Just as the Bushies once flogged uranium from Africa, so Palin ceaselessly repeats her discredited claim that she said “no thanks” to the Bridge to Nowhere. Nothing is too small or sacred for the McCain campaign to lie about. It was even caught (by The Christian Science Monitor) peddling an imaginary encounter between Cindy McCain and Mother Teresa when McCain was adopting her daughter in Bangladesh.
If you doubt that the big lies are sticking, look at the latest Washington Post/ABC News poll. Half of voters now believe in the daily McCain refrain that Obama will raise their taxes. In fact, Obama proposes raising taxes only on the 1.9 percent of households that make more than $250,000 a year and cutting them for nearly everyone else.
You know the press is impotent at unmasking this truthiness when the hardest-hitting interrogation McCain has yet faced on television came on “The View.” Barbara Walters and Joy Behar called him on several falsehoods, including his endlessly repeated fantasy that Palin opposed earmarks for Alaska. Behar used the word “lies” to his face. The McCains are so used to deference from “the filter” that Cindy McCain later complained that “The View” picked “our bones clean.” In our news culture, Behar, a stand-up comic by profession, looms as the new Edward R. Murrow.
Network news, with its dwindling handful of investigative reporters, has barely mentioned, let alone advanced, major new print revelations about Cindy McCain’s drug-addiction history (in The Washington Post) and the rampant cronyism and secrecy in Palin’s governance of Alaska (in last Sunday’s New York Times). At least the networks repeatedly fact-check the low-hanging fruit among the countless Palin lies, but John McCain’s past usually remains off limits.
That’s strange since the indisputable historical antecedent for our current crisis is the Lincoln Savings and Loan scandal of the go-go 1980s. When Charles Keating’s bank went belly up because of risky, unregulated investments, it wiped out its depositors’ savings and cost taxpayers more than $3 billion. More than 1,000 other S.&L. institutions capsized nationwide.
It was ugly for the McCains. He had received more than $100,000 in Keating campaign contributions, and both McCains had repeatedly hopped on Keating’s corporate jet. Cindy McCain and her beer-magnate father had invested nearly $360,000 in a Keating shopping center a year before her husband joined four senators in inappropriate meetings with regulators charged with S.&L. oversight.
After Congressional hearings, McCain was reprimanded for “poor judgment.” He had committed no crime and had not intervened to protect Keating from ruin. Yet he, like many deregulators in his party, was guilty of bankrupt policy-making before disaster struck. He was among the sponsors of a House resolution calling for the delay of regulations intended to deter risky investments just like those that brought down Lincoln and its ilk.
Ever since, McCain has publicly thrashed himself for his mistakes back then — and boasted of the lessons he learned. He embraced campaign finance reform to rebrand himself as a “maverick.” But whatever lessons he learned are now forgotten.
For all his fiery calls last week for a Wall Street crackdown, McCain opposed the very regulations that might have helped avert the current catastrophe. In 1999, he supported a law co-authored by Gramm (and ultimately signed by Bill Clinton) that revoked the New Deal reforms intended to prevent commercial banks, insurance companies and investment banks from mingling their businesses. Equally laughable is the McCain-Palin ticket’s born-again outrage over the greed of Wall Street C.E.O.’s. When McCain’s chief financial surrogate, Fiorina, was fired as Hewlett-Packard’s chief executive after a 50 percent drop in shareholders’ value and 20,000 pink slips, she took home a package worth $42 million.
The McCain campaign canceled Fiorina’s television appearances last week after she inadvertently admitted that Palin was unqualified to run a corporation. But that doesn’t mean Fiorina is gone. Gramm, too, was ostentatiously exiled after he blamed the economic meltdown on our “nation of whiners” and “mental recession,” but he remains in the McCain loop.
The corporate jets, lobbyists and sleazes that gravitated around McCain in the Keating era have also reappeared in new incarnations. The Nation’s Web site recently unearthed a photo of the resolutely anticelebrity McCain being greeted by the con man Raffaello Follieri and his then girlfriend, the Hollywood actress Anne Hathaway, as McCain celebrated his 70th birthday on Follieri’s rented yacht in Montenegro in August 2006. It’s the perfect bookend to the old pictures of McCain in a funny hat partying with Keating in the Bahamas.
Whatever blanks are yet to be filled in on Obama, we at least know his economic plans and the known quantities who are shaping them (Lawrence Summers, Robert Rubin, Paul Volcker). McCain has reversed himself on every single economic issue this year, often within a 24-hour period, whether he’s judging the strength of the economy’s fundamentals or the wisdom of the government bailout of A.I.G. He once promised that he’d run every decision past Alan Greenspan — and even have him write a new tax code — but Greenspan has jumped ship rather than support McCain’s biggest flip-flop, his expansion of the Bush tax cuts. McCain’s official chief economic adviser is now Douglas Holtz-Eakin, who last week declared that McCain had “helped create” the BlackBerry.
But Holtz-Eakin’s most telling statement was about McCain’s economic plans — namely, that the details are irrelevant. “I don’t think it’s imperative at this moment to write down what the plan should be,” he said. “The real issue here is a leadership issue.” This, too, is a Rove-Bush replay. We want a tough guy who will “fix” things with his own two hands — let’s take out the S.E.C. chairman! — instead of wimpy Frenchified Democrats who just “talk.” The fine print of policy is superfluous if there’s a quick-draw decider in the White House.
The twin-pronged strategy of truculence and propaganda that sold Bush and his war could yet work for McCain. Even now his campaign has kept the “filter” from learning the very basics about his fitness to serve as president — his finances and his health. The McCain multihousehold’s multimillion-dollar mother lode is buried in Cindy McCain’s still-unreleased complete tax returns. John McCain’s full medical records, our sole index to the odds of an imminent Palin presidency, also remain locked away. The McCain campaign instead invited 20 chosen reporters to speed-read through 1,173 pages of medical history for a mere three hours on the Friday before Memorial Day weekend. No photocopying was permitted.
This is the same tactic of selective document release that the Bush White House used to bamboozle Congress and the press about Saddam’s nonexistent W.M.D. As truthiness repeats itself, so may history, and not as farce.
http://www.nytimes.com/2008/09/21/opinion/21rich.html?em&exprod=myyahoo
Copyright 2008 The New York Times Company
Friday, September 19, 2008
Obama backs recovery plan, says McCain "in a panic"
By John Whitesides, Political Correspondent
2 hours, 8 minutes ago
Barack Obama huddled with his economic advisers on Friday and backed government efforts to prop up a teetering financial system, but he said he would wait to release his own detailed plan to stem the turmoil on Wall Street.
The Democratic presidential candidate praised efforts by Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke to rescue endangered financial firms and keep credit markets solvent and said "even bolder and more decisive action" was necessary.
But the Illinois senator said he would not unveil his own specific proposals until government officials and Congress had concluded their work on a broad rescue plan that could cost hundreds of billions of dollars.
"You don't do it in a day. We've got to do it in an intelligent, systematic, thoughtful fashion," he told reporters after meeting his advisers outside Miami.
The tumult on Wall Street has dominated the campaign for the November 4 presidential election this week as Obama and Republican rival John McCain compete to prove their economic leadership and judgment.
Obama said the government must be given broad authority to stabilize the markets, but any rescue plan must also include new oversight and regulations of financial institutions while ensuring public money is replaced as quickly as possible with private assets.
He did not say what he thought the ultimate cost of a bailout would be, but said he did not think it would short-circuit his plans for a middle-class tax cut or other proposals aimed at easing the burden for workers.
ALL-STAR ECONOMIC TEAM
As he talked to reporters he was flanked by Robert Rubin and Larry Summers, former treasury secretaries under President Bill Clinton. Obama also met with former Federal Reserve Chairman Paul Volcker and Laura Tyson, former chairwoman of Clinton's Council of Economic Advisers.
Obama has been scathing in his criticism of his rival's response to the crisis, including McCain's statement earlier in the week that the fundamentals of the economy were strong and his call for a commission to investigate the financial collapse.
McCain said on Friday he would require the Treasury Department to have a specific blueprint for guaranteeing loans, although he did not specify the criteria, and he called for a Treasury group to work to strengthen weak financial institutions before they became insolvent.
Obama said McCain's proposal skimped on the details but he was glad to see they agreed that "at some point we are going to need some institutionalized structure to deal with the underlying problems of bad mortgages and the bad assets that some of these markets have."
"There's going to be a lot of time for us to be in a big argument about how some of these future plans should be structured," he said.
Obama told a cheering crowd in Florida, a key battleground in the November election campaign, that McCain was "in a panic" as he tried to deal with the growing economic crisis.
"At this point he seems to be willing to say anything or do anything," he said.
(Editing by Ross Colvin and Jackie Frank)
http://news.yahoo.com/s/nm/20080919/pl_nm/usa_politics_obama_dc
Copyright © 2008 Reuters Limited
2 hours, 8 minutes ago
Barack Obama huddled with his economic advisers on Friday and backed government efforts to prop up a teetering financial system, but he said he would wait to release his own detailed plan to stem the turmoil on Wall Street.
The Democratic presidential candidate praised efforts by Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke to rescue endangered financial firms and keep credit markets solvent and said "even bolder and more decisive action" was necessary.
But the Illinois senator said he would not unveil his own specific proposals until government officials and Congress had concluded their work on a broad rescue plan that could cost hundreds of billions of dollars.
"You don't do it in a day. We've got to do it in an intelligent, systematic, thoughtful fashion," he told reporters after meeting his advisers outside Miami.
The tumult on Wall Street has dominated the campaign for the November 4 presidential election this week as Obama and Republican rival John McCain compete to prove their economic leadership and judgment.
Obama said the government must be given broad authority to stabilize the markets, but any rescue plan must also include new oversight and regulations of financial institutions while ensuring public money is replaced as quickly as possible with private assets.
He did not say what he thought the ultimate cost of a bailout would be, but said he did not think it would short-circuit his plans for a middle-class tax cut or other proposals aimed at easing the burden for workers.
ALL-STAR ECONOMIC TEAM
As he talked to reporters he was flanked by Robert Rubin and Larry Summers, former treasury secretaries under President Bill Clinton. Obama also met with former Federal Reserve Chairman Paul Volcker and Laura Tyson, former chairwoman of Clinton's Council of Economic Advisers.
Obama has been scathing in his criticism of his rival's response to the crisis, including McCain's statement earlier in the week that the fundamentals of the economy were strong and his call for a commission to investigate the financial collapse.
McCain said on Friday he would require the Treasury Department to have a specific blueprint for guaranteeing loans, although he did not specify the criteria, and he called for a Treasury group to work to strengthen weak financial institutions before they became insolvent.
Obama said McCain's proposal skimped on the details but he was glad to see they agreed that "at some point we are going to need some institutionalized structure to deal with the underlying problems of bad mortgages and the bad assets that some of these markets have."
"There's going to be a lot of time for us to be in a big argument about how some of these future plans should be structured," he said.
Obama told a cheering crowd in Florida, a key battleground in the November election campaign, that McCain was "in a panic" as he tried to deal with the growing economic crisis.
"At this point he seems to be willing to say anything or do anything," he said.
(Editing by Ross Colvin and Jackie Frank)
http://news.yahoo.com/s/nm/20080919/pl_nm/usa_politics_obama_dc
Copyright © 2008 Reuters Limited
Biggest Bailout Ever: Did the Government Go Too Far?
Posted Sep 19, 2008 10:39am EDT by Henry Blodget in Newsmakers, Recession, Banking
After a few weeks of trying to stand tough in the face of demands for a wholesale rescue, Hank Paulson apparently couldn't take it anymore. So now we'll have the biggest bailout in history, including:
A huge RTC-like government garbage can that banks can throw all their toxic balance-sheet waste into. (This time, the transfer will be made before they go bankrupt, unlike the case with the first RTC -a.k.a. the Resolution Trust Corp., a government agency created in the late 1980s to liquidate the assets of failed Savings & Loans)
A temporary ban on shortselling. (With the unfortunate implication that shorts are the cause of all this)
A federal guarantee on money-market accounts. (Including non-recourse loans to banks to buy high-quality commercial paper and meet money-market obligations.)
Not surprisingly, the market's up huge on this news. The moves should head off a run on money-market funds, restore liquidity to the financial system, and, as bank analyst Tom Brown puts it in the accompanying video, create a general "time out" for the panic to recede.
So what are the costs? Almost certainly:
Higher taxes
Higher interest rates on government debt
Bigger government deficits
When the alternative is the entire financial system going bankrupt, we guess these costs are acceptable. But we're not convinced that that was the alternative. Also, numerous questions remain. The most pressing is "What price will the government buy the toxic waste for?" (This price will determine how much additional capital the banks have to raise to offset any losses.) Merrill Lynch shareholders are probably also wondering whether they can cancel the Bank of America deal. And Lehman would probably like to un-declare bankruptcy.
We also doubt that this move will prove the final bottom in the stock market. Unless the government makes a similar move on housing (which certainly seems more plausible, given this news), the housing problem won't up and go away. And until the housing problem works itself through the system, the consumer will still be under pressure. But the future certainly looks brighter than it did yesterday.
http://finance.yahoo.com/tech-ticker/article/63460/Biggest-Bailout-Ever-Did-the-Government-Go-Too-Far?tickers=mer,bac,fre,fnm,leh,aig
After a few weeks of trying to stand tough in the face of demands for a wholesale rescue, Hank Paulson apparently couldn't take it anymore. So now we'll have the biggest bailout in history, including:
A huge RTC-like government garbage can that banks can throw all their toxic balance-sheet waste into. (This time, the transfer will be made before they go bankrupt, unlike the case with the first RTC -a.k.a. the Resolution Trust Corp., a government agency created in the late 1980s to liquidate the assets of failed Savings & Loans)
A temporary ban on shortselling. (With the unfortunate implication that shorts are the cause of all this)
A federal guarantee on money-market accounts. (Including non-recourse loans to banks to buy high-quality commercial paper and meet money-market obligations.)
Not surprisingly, the market's up huge on this news. The moves should head off a run on money-market funds, restore liquidity to the financial system, and, as bank analyst Tom Brown puts it in the accompanying video, create a general "time out" for the panic to recede.
So what are the costs? Almost certainly:
Higher taxes
Higher interest rates on government debt
Bigger government deficits
When the alternative is the entire financial system going bankrupt, we guess these costs are acceptable. But we're not convinced that that was the alternative. Also, numerous questions remain. The most pressing is "What price will the government buy the toxic waste for?" (This price will determine how much additional capital the banks have to raise to offset any losses.) Merrill Lynch shareholders are probably also wondering whether they can cancel the Bank of America deal. And Lehman would probably like to un-declare bankruptcy.
We also doubt that this move will prove the final bottom in the stock market. Unless the government makes a similar move on housing (which certainly seems more plausible, given this news), the housing problem won't up and go away. And until the housing problem works itself through the system, the consumer will still be under pressure. But the future certainly looks brighter than it did yesterday.
http://finance.yahoo.com/tech-ticker/article/63460/Biggest-Bailout-Ever-Did-the-Government-Go-Too-Far?tickers=mer,bac,fre,fnm,leh,aig
Paulson urges Congress action on mortgage debt plan
By Mark Felsenthal and David Lawder
U.S. Treasury Secretary Henry Paulson, leading a push for a taxpayer-funded plan to contain the credit market crisis, said on Friday he would ask Congress to take action on this next week and that the Treasury was taking immediate steps in the meantime.
"We must now take further, decisive action to fundamentally and comprehensively address the root cause of our financial system's stresses," Paulson told a news conference.
His remarks followed U.S. officials' rush to shore up ailing money markets after signs that this long-safe corner of financial markets, home to some $3.5 trillion of deposits, was at risk of falling victim to the year-old credit crunch and bring the crisis to Main Street.
The Treasury said it would use $50 billion to back money market mutual funds whose asset values fall below $1 a share. Separately, the U.S. Federal Reserve said it would lend even more money directly to financial institutions so they could purchase certain assets from money market funds.
On Thursday, Paulson told lawmakers in Congress that the Treasury was crafting a plan to mop up assets made illiquid by the mortgage debt crisis.
Saying Treasury will work with lawmakers through the weekend on a plan, Paulson said it needed to be in the hundreds of billions of dollars.
The latest government efforts come after the credit crisis, which had largely been seen as a problem for Wall Street risk takers, threatened to spill over into Main Street after some super-safe money market funds buckled.
"They are absolutely petrified of just a run on financial assets and they came very close to that on Thursday," said Boris Schlossberg, director of currency research at GFT Forex in New York.
"At this point they have just decided that fiscal responsibility goes out the door and anything and everything that needs to be shored up financially will be done so in order to alleviate the panic."
The surprise move comes as the Treasury and the Federal Reserve consider broad government intervention to prevent the collapse of the financial system, shaken in recent days by a crisis at insurer American International Group that required a $85 billion government rescue and the bankruptcy of investment bank Lehman Brothers Holdings Inc.
President George W. Bush said on Friday it was essential for officials to take action to prevent more damage to the economy, which he described as being at a "pivotal moment."
INSTANT IMPACT
The new initiatives show authorities are trying to get out in front of problems before another institution is pushed to the brink of failure, an analyst said.
"It is probably a testament to how bad things really are when you look beneath the hood," said Weston Boone, vice president of listed trade, Stifel Nicolaus Capital Markets, in Baltimore.
News of the backstop for money market funds had instant impact in financial markets.
U.S. stocks soared on the array of measures authorities are taking to contain the spiraling credit crisis. Major indexes were up more than two percent, adding to gains after their best day in six years on Thursday.
Rates on U.S. Treasury bills shot higher, too. They had fallen to near zero earlier in the week as investors panicked and rushed for the safety of government securities after the oldest U.S. money market fund "broke the buck," or fell below $1 net asset value.
The dollar, meanwhile, rose to a one-week high against the Japanese yen as investors regained an appetite for risk amid all the steps being taken to address the credit crunch.
The Treasury said concerns about the net asset value of money market funds falling below $1 have exacerbated global financial market turmoil and caused severe liquidity strains in world markets.
"Maintaining confidence in the money market fund industry is critical to protecting the integrity and stability of the global financial system," the Treasury Department said in a statement.
The panic in money markets began Tuesday, when the Reserve Primary Fund, a money-market mutual fund whose assets have tumbled 65 percent in recent weeks, fell below $1 a share in net asset value, because of its losses on debt issued by Lehman Brothers Holdings Inc.
In the industry, money funds whose net assets drop below $1 a share are said to have "broken the buck."
(Reporting by Mark Felsenthal and David Lawder; Additional reporting by Alister Bull and Emily Kaiser in Washington; Lucia Mutikani in New York; writing by Dan Burns and Burton Frierson, Editing by Chizu Nomiyama)
http://news.yahoo.com/s/nm/20080919/bs_nm/financial_bailout_dc&printer=1;_ylt=ApBklSRyjt5gT7r55Amf7Vub.HQA
Copyright © 2008 Reuters Limited
----------------------------------------------------------
Christopher Dodd: Key senator says rescue will be "costly"
By JULIE HIRSCHFELD DAVIS, Associated Press Writer
Fri Sep 19, 11:38 AM ET
The Senate Banking Committee chairman says the government's financial rescue plan will be costly, and is demanding more details about the program to confront the worst financial crisis in decades.
Sen. Chris Dodd told reporters, "We're anxious to hear the specifics. None of us have any idea what the details are. We understand the gravity of the moment."
Republicans and Democrats on Dodd's panel met at the Capitol and emerged vowing to put politics aside and develop a solution to the financial crisis. Dodd is a Democrat from Connecticut.
http://news.yahoo.com/s/ap/20080919/ap_on_bi_ge/financial_rescue_congress
Copyright © 2008 The Associated Press
U.S. Treasury Secretary Henry Paulson, leading a push for a taxpayer-funded plan to contain the credit market crisis, said on Friday he would ask Congress to take action on this next week and that the Treasury was taking immediate steps in the meantime.
"We must now take further, decisive action to fundamentally and comprehensively address the root cause of our financial system's stresses," Paulson told a news conference.
His remarks followed U.S. officials' rush to shore up ailing money markets after signs that this long-safe corner of financial markets, home to some $3.5 trillion of deposits, was at risk of falling victim to the year-old credit crunch and bring the crisis to Main Street.
The Treasury said it would use $50 billion to back money market mutual funds whose asset values fall below $1 a share. Separately, the U.S. Federal Reserve said it would lend even more money directly to financial institutions so they could purchase certain assets from money market funds.
On Thursday, Paulson told lawmakers in Congress that the Treasury was crafting a plan to mop up assets made illiquid by the mortgage debt crisis.
Saying Treasury will work with lawmakers through the weekend on a plan, Paulson said it needed to be in the hundreds of billions of dollars.
The latest government efforts come after the credit crisis, which had largely been seen as a problem for Wall Street risk takers, threatened to spill over into Main Street after some super-safe money market funds buckled.
"They are absolutely petrified of just a run on financial assets and they came very close to that on Thursday," said Boris Schlossberg, director of currency research at GFT Forex in New York.
"At this point they have just decided that fiscal responsibility goes out the door and anything and everything that needs to be shored up financially will be done so in order to alleviate the panic."
The surprise move comes as the Treasury and the Federal Reserve consider broad government intervention to prevent the collapse of the financial system, shaken in recent days by a crisis at insurer American International Group that required a $85 billion government rescue and the bankruptcy of investment bank Lehman Brothers Holdings Inc.
President George W. Bush said on Friday it was essential for officials to take action to prevent more damage to the economy, which he described as being at a "pivotal moment."
INSTANT IMPACT
The new initiatives show authorities are trying to get out in front of problems before another institution is pushed to the brink of failure, an analyst said.
"It is probably a testament to how bad things really are when you look beneath the hood," said Weston Boone, vice president of listed trade, Stifel Nicolaus Capital Markets, in Baltimore.
News of the backstop for money market funds had instant impact in financial markets.
U.S. stocks soared on the array of measures authorities are taking to contain the spiraling credit crisis. Major indexes were up more than two percent, adding to gains after their best day in six years on Thursday.
Rates on U.S. Treasury bills shot higher, too. They had fallen to near zero earlier in the week as investors panicked and rushed for the safety of government securities after the oldest U.S. money market fund "broke the buck," or fell below $1 net asset value.
The dollar, meanwhile, rose to a one-week high against the Japanese yen as investors regained an appetite for risk amid all the steps being taken to address the credit crunch.
The Treasury said concerns about the net asset value of money market funds falling below $1 have exacerbated global financial market turmoil and caused severe liquidity strains in world markets.
"Maintaining confidence in the money market fund industry is critical to protecting the integrity and stability of the global financial system," the Treasury Department said in a statement.
The panic in money markets began Tuesday, when the Reserve Primary Fund, a money-market mutual fund whose assets have tumbled 65 percent in recent weeks, fell below $1 a share in net asset value, because of its losses on debt issued by Lehman Brothers Holdings Inc.
In the industry, money funds whose net assets drop below $1 a share are said to have "broken the buck."
(Reporting by Mark Felsenthal and David Lawder; Additional reporting by Alister Bull and Emily Kaiser in Washington; Lucia Mutikani in New York; writing by Dan Burns and Burton Frierson, Editing by Chizu Nomiyama)
http://news.yahoo.com/s/nm/20080919/bs_nm/financial_bailout_dc&printer=1;_ylt=ApBklSRyjt5gT7r55Amf7Vub.HQA
Copyright © 2008 Reuters Limited
----------------------------------------------------------
Christopher Dodd: Key senator says rescue will be "costly"
By JULIE HIRSCHFELD DAVIS, Associated Press Writer
Fri Sep 19, 11:38 AM ET
The Senate Banking Committee chairman says the government's financial rescue plan will be costly, and is demanding more details about the program to confront the worst financial crisis in decades.
Sen. Chris Dodd told reporters, "We're anxious to hear the specifics. None of us have any idea what the details are. We understand the gravity of the moment."
Republicans and Democrats on Dodd's panel met at the Capitol and emerged vowing to put politics aside and develop a solution to the financial crisis. Dodd is a Democrat from Connecticut.
http://news.yahoo.com/s/ap/20080919/ap_on_bi_ge/financial_rescue_congress
Copyright © 2008 The Associated Press
Stocks soar as investors look to gov't rescue plan
By TIM PARADIS, AP Business Writer
Wall Street extended a huge rally Friday as investors stormed back into the market, relieved that the government plans to rescue banks from billions of dollars in bad debt. The Dow Jones industrials rose more than 375 points, giving them a massive gain of more than 785 points over two days, and Treasurys fell as money flowed into equities.
A new ban on short selling, or placing bets that a stock will fall, was likely adding to the market's gains.
"A big chunk of this is scaring all the shorts to cover their bets," said Joe Battipaglia, market strategist at Stifel, Nicolaus & Co.
Treasury Secretary Henry Paulson, speaking about the rescue plan said a bold approach is needed to remove troubled assets from the books of financial firms. He offered few details, but said he would work on it through the weekend with congressional leaders.
A plan to help the banking industry could help alleviate the uncertainty that has been sending the markets into tumult over the past week. Lending has grinded to a virtual standstill in the wake of this week's bankruptcy of Lehman Brothers Holdings Inc. and the bailout of teetering insurer American International Group Inc.
The government took other steps Friday to restore stability to the financial system. The Federal Reserve said it will expand its emergency lending and let commercial banks finance purchases of asset-backed paper from money market funds. The Fed injected another $20 billion in temporary reserves into the U.S. financial system. The central bank also will buy short-term debt obligations issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks.
And to help calm investors' anxieties, the Treasury Department has decided to use a Depression-era fund to provide guarantees for U.S. money market mutual funds. Money market mutual funds are typically considered safe, but many investors have been fleeing them due to worries about the funds' exposure to souring corporate debt.
To help limit the freefall in financial stocks, the Securities and Exchange Commission on Friday enacted a temporary ban on the short-selling of nearly 800 financial stocks. Short-selling is the common practice of betting against a stock by borrowing shares and then selling them in the open market. A short-seller's hope is the stock will fall; if it does, the stock can be bought back at the lower price. Those cheaper shares can be returned to the lender, allowing the investor to pocket the profits. Traders can lose, however, if the stock rises.
Wall Street observers have disagreed over the extent to which pressure from all those bets that a stock will fall shaped investor sentiment and strangled some financial stocks, like those of Lehman Brothers last week. Some say the fundamental problems with the financial stocks warranted the pessimism while others say the short selling was a death knell for some financial names.
"The federal government has been petitioned by Wall Street to take evasive action in the money markets, the stock and bond markets, to avoid a complete meltdown of the credit system," said Battipaglia. "Once the credit system melts down, the economy falls. We can hand-ring about if this is the proper thing for the government to do, or if Wall Street pulled the panic button too soon, but that's something for the historians to sort out."
It's difficult to quantify how much of the market's gains reflect short sellers who are forced to step in and cover their bets by buying now rising stocks that had predicted would fall. While that played some role in the advances Thursday and Friday, the Nasdaq composite index — dominated by big technology stocks, not financials — showed big gains along with the Dow and the Standard & Poor's 500 index.
In early afternoon trading, the Dow rose 372.17, or 3.38 percent, to 11,391.86 after having been up as much as 463.36. Even with Friday's big gains, stocks are essentially flat for the week after whipsaw sessions. Wall Street saw a massive loss Monday, a rebound on Tuesday, another drop Wednesday, and the rally on Thursday. The Dow has logged moves of more than 400 points every day except Tuesday.
Broader stock indicators also surged. The S&P 500 index rose 44.78, or 3.71 percent, to 1,251.29, and the Nasdaq composite index rose 61.66, or 2.80 percent, to 2,260.76.
Treasury prices dropped as investors poured money back into stocks. The yield on the 3-month Treasury bill — a safe investment to which investors have rushed this week — rose to 1.04 percent from 0.07 percent late Thursday. Yields move opposite from price. The yield on the benchmark 10-year Treasury note shot up to 3.76 percent from 3.53 percent late Thursday.
"Everything they had done had been a Band-Aid approach, at the margins," said Jay Mueller, economist at Strong Capital Management. "Now we're dealing with the root problem."
The stock market's enormous moves for the week reveal how jittery investors have been about the tightness in the credit markets the possibility that other financial companies might succumb to the difficulties in the markets. Moves Thursday by the Fed and other major central banks to inject billion into global money markets perhaps helped forestall steeper selloffs but didn't diffuse the Sturm und Drang and overall loss of confidence hammering the markets.
The only lasting move in a week of intense volatility came late in Thursday's session when reports emerged that the government was considering a massive bailout. Wobbly stocks rocketed higher, giving the Dow a 402-point gain Thursday that continued into Friday.
"If a solid plan is put in place, it's definitely going to be a positive in easing the pain," said Stephen Carl, principal and head of equity trading at The Williams Capital Group. He added, though, that "it depends on how it's structured."
The dollar rose against most other major currencies in Friday trading. Gold prices fell. Light, sweet crude rose $1.44 to $99.32 a barrel on the New York Mercantile Exchange.
While stocks rose broadly, the financial sector was one of the strongest gainers as investors expressed their relief over the prospect of a government rescue. The two remaining independent investment banks logged big gains as fears dissipated that they would be felled by the same tight cash shortages that squeezed Bear Stearns Cos., Lehman Brothers, AIG and others.
Goldman Sachs Group Inc., jumped $22.30, or 21 percent, to $130.30, while Morgan Stanley jumped $5.89, or 26 percent, to $28.44.
Advancing issues outnumbered decliners by about 8 to 1 on the New York Stock Exchange, where volume came to an enormous 1.8 billion shares. Friday was a quarterly "quadruple witching" day, which marks the simultaneous expiration of options contracts, an event that often adds to volatility and heavy volume in early trading.
The Russell 2000 index of smaller companies rose 23.87, or 3.30 percent, to 747.56.
Overseas stock markets soared. Japan's Nikkei stock average jumped 3.8 percent, and Hong Kong's Hang Seng index surged 9.61 percent. In Europe, Britain's FTSE 100 jumped 8.84 percent, Germany's DAX index advanced 5.56 percent, and France's CAC-40 rose 9.27 percent.
On the Net:
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
http://news.yahoo.com/s/ap/20080919/ap_on_bi_st_ma_re/wall_street
Copyright © 2008 The Associated Press
Wall Street extended a huge rally Friday as investors stormed back into the market, relieved that the government plans to rescue banks from billions of dollars in bad debt. The Dow Jones industrials rose more than 375 points, giving them a massive gain of more than 785 points over two days, and Treasurys fell as money flowed into equities.
A new ban on short selling, or placing bets that a stock will fall, was likely adding to the market's gains.
"A big chunk of this is scaring all the shorts to cover their bets," said Joe Battipaglia, market strategist at Stifel, Nicolaus & Co.
Treasury Secretary Henry Paulson, speaking about the rescue plan said a bold approach is needed to remove troubled assets from the books of financial firms. He offered few details, but said he would work on it through the weekend with congressional leaders.
A plan to help the banking industry could help alleviate the uncertainty that has been sending the markets into tumult over the past week. Lending has grinded to a virtual standstill in the wake of this week's bankruptcy of Lehman Brothers Holdings Inc. and the bailout of teetering insurer American International Group Inc.
The government took other steps Friday to restore stability to the financial system. The Federal Reserve said it will expand its emergency lending and let commercial banks finance purchases of asset-backed paper from money market funds. The Fed injected another $20 billion in temporary reserves into the U.S. financial system. The central bank also will buy short-term debt obligations issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks.
And to help calm investors' anxieties, the Treasury Department has decided to use a Depression-era fund to provide guarantees for U.S. money market mutual funds. Money market mutual funds are typically considered safe, but many investors have been fleeing them due to worries about the funds' exposure to souring corporate debt.
To help limit the freefall in financial stocks, the Securities and Exchange Commission on Friday enacted a temporary ban on the short-selling of nearly 800 financial stocks. Short-selling is the common practice of betting against a stock by borrowing shares and then selling them in the open market. A short-seller's hope is the stock will fall; if it does, the stock can be bought back at the lower price. Those cheaper shares can be returned to the lender, allowing the investor to pocket the profits. Traders can lose, however, if the stock rises.
Wall Street observers have disagreed over the extent to which pressure from all those bets that a stock will fall shaped investor sentiment and strangled some financial stocks, like those of Lehman Brothers last week. Some say the fundamental problems with the financial stocks warranted the pessimism while others say the short selling was a death knell for some financial names.
"The federal government has been petitioned by Wall Street to take evasive action in the money markets, the stock and bond markets, to avoid a complete meltdown of the credit system," said Battipaglia. "Once the credit system melts down, the economy falls. We can hand-ring about if this is the proper thing for the government to do, or if Wall Street pulled the panic button too soon, but that's something for the historians to sort out."
It's difficult to quantify how much of the market's gains reflect short sellers who are forced to step in and cover their bets by buying now rising stocks that had predicted would fall. While that played some role in the advances Thursday and Friday, the Nasdaq composite index — dominated by big technology stocks, not financials — showed big gains along with the Dow and the Standard & Poor's 500 index.
In early afternoon trading, the Dow rose 372.17, or 3.38 percent, to 11,391.86 after having been up as much as 463.36. Even with Friday's big gains, stocks are essentially flat for the week after whipsaw sessions. Wall Street saw a massive loss Monday, a rebound on Tuesday, another drop Wednesday, and the rally on Thursday. The Dow has logged moves of more than 400 points every day except Tuesday.
Broader stock indicators also surged. The S&P 500 index rose 44.78, or 3.71 percent, to 1,251.29, and the Nasdaq composite index rose 61.66, or 2.80 percent, to 2,260.76.
Treasury prices dropped as investors poured money back into stocks. The yield on the 3-month Treasury bill — a safe investment to which investors have rushed this week — rose to 1.04 percent from 0.07 percent late Thursday. Yields move opposite from price. The yield on the benchmark 10-year Treasury note shot up to 3.76 percent from 3.53 percent late Thursday.
"Everything they had done had been a Band-Aid approach, at the margins," said Jay Mueller, economist at Strong Capital Management. "Now we're dealing with the root problem."
The stock market's enormous moves for the week reveal how jittery investors have been about the tightness in the credit markets the possibility that other financial companies might succumb to the difficulties in the markets. Moves Thursday by the Fed and other major central banks to inject billion into global money markets perhaps helped forestall steeper selloffs but didn't diffuse the Sturm und Drang and overall loss of confidence hammering the markets.
The only lasting move in a week of intense volatility came late in Thursday's session when reports emerged that the government was considering a massive bailout. Wobbly stocks rocketed higher, giving the Dow a 402-point gain Thursday that continued into Friday.
"If a solid plan is put in place, it's definitely going to be a positive in easing the pain," said Stephen Carl, principal and head of equity trading at The Williams Capital Group. He added, though, that "it depends on how it's structured."
The dollar rose against most other major currencies in Friday trading. Gold prices fell. Light, sweet crude rose $1.44 to $99.32 a barrel on the New York Mercantile Exchange.
While stocks rose broadly, the financial sector was one of the strongest gainers as investors expressed their relief over the prospect of a government rescue. The two remaining independent investment banks logged big gains as fears dissipated that they would be felled by the same tight cash shortages that squeezed Bear Stearns Cos., Lehman Brothers, AIG and others.
Goldman Sachs Group Inc., jumped $22.30, or 21 percent, to $130.30, while Morgan Stanley jumped $5.89, or 26 percent, to $28.44.
Advancing issues outnumbered decliners by about 8 to 1 on the New York Stock Exchange, where volume came to an enormous 1.8 billion shares. Friday was a quarterly "quadruple witching" day, which marks the simultaneous expiration of options contracts, an event that often adds to volatility and heavy volume in early trading.
The Russell 2000 index of smaller companies rose 23.87, or 3.30 percent, to 747.56.
Overseas stock markets soared. Japan's Nikkei stock average jumped 3.8 percent, and Hong Kong's Hang Seng index surged 9.61 percent. In Europe, Britain's FTSE 100 jumped 8.84 percent, Germany's DAX index advanced 5.56 percent, and France's CAC-40 rose 9.27 percent.
On the Net:
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
http://news.yahoo.com/s/ap/20080919/ap_on_bi_st_ma_re/wall_street
Copyright © 2008 The Associated Press
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