Removing the TARP

Here is part of Treasury Secretary Paulson's prepared remarks this morning. It looks like they are moving in the right direction, but all the statements about "we are designing," "we are carefully evaluating," "we are looking at," "we are examining strategies," etc. leave the impression that they are still behind the curve. For example, he says "we are examining strategies to mitigate mortgage foreclosures," but why are they still trying to figure out how to design the program? This program shouldn't be in the design phase, it should already be in place:

Priorities for Remaining TARP Funds

We have evaluated options for most effectively deploying the remaining TARP funds, and have identified three critical priorities. First, we must continue to reinforce the stability of the financial system, so that banks and other institutions critical to the provision of credit are able to support economic recovery and growth. Although the financial system has stabilized, both banks and non-banks may well need more capital given their troubled asset holdings, projections for continued high rates of foreclosures and stagnant U.S. and world economic conditions. Second, the important markets for securitizing credit outside of the banking system also need support. Approximately 40 percent of U.S. consumer credit is provided through securitization of credit card receivables, auto loans and student loans and similar products. This market, which is vital for lending and growth, has for all practical purposes ground to a halt. Addressing these two priorities will have powerful impacts on the overall financial system, the strength of our financial institutions and the availability of consumer credit. Third, we continue to explore ways to reduce the risk of foreclosure.

Over these past weeks we have continued to examine the relative benefits of purchasing illiquid mortgage-related assets. Our assessment at this time is that this is not the most effective way to use TARP funds, but we will continue to examine whether targeted forms of asset purchase can play a useful role, relative to other potential uses of TARP resources, in helping to strengthen our financial system and support lending.

Further Strategies

First, we are designing further strategies for building capital in financial institutions. ... Any future program should maintain our principle of encouraging participation of healthy institutions while protecting taxpayers. We are carefully evaluating programs which would further leverage the impact of a TARP investment by attracting private capital, potentially through matching investments. In developing a potential matching program, we will also consider capital needs of non-bank financial institutions not eligible for the current capital program.... Also before embarking on a second capital purchase program, the first one must be completed, and we have to assess its impact and use this information to evaluate the size and focus of an additional program in light of existing economic and market conditions.

Second, we are examining strategies to support consumer access to credit outside the banking system. To date, Fed, FDIC and Treasury programs have been targeted at our banking system, and the non-bank consumer finance sector continues to face difficult funding issues. ... Today, the illiquidity in this sector is raising the cost and reducing the availability of car loans, student loans and credit cards. This is creating a heavy burden on the American people and reducing the number of jobs in our economy. With the Federal Reserve we are exploring the development of a potential liquidity facility for highly-rated AAA asset-backed securities. We are looking at ways to possibly use the TARP to encourage private investors to come back to this troubled market, by providing them access to federal financing while protecting the taxpayers' investment. ... While this securitization effort is targeted at consumer financing, the program we are evaluating may also be used to support new commercial and residential mortgage-backed securities lending.

Third, we are examining strategies to mitigate mortgage foreclosures. In crafting the financial rescue package, we and the Congress agreed that Treasury would use its leverage as a major purchaser of troubled mortgages to work with servicers and achieve more aggressive mortgage modification standards. Now that we are not planning to purchase illiquid mortgage assets, we must find another way to meet that commitment.

FDIC Chairman Bair has given us a model... Through the end of October, the FDIC has completed loan modifications for 3,500 borrowers, with several thousand more modifications currently being processed. ... We have worked with the FHFA, the GSEs, HUD and the Hope Now alliance who yesterday announced a streamlined industry-wide modification program that for the first time adopts an explicit affordability target similar to the model pioneered at IndyMac. With this commitment, the GSEs and large portfolio investors are setting a new industry standard for foreclosure mitigation. Potentially hundreds of thousands more struggling borrowers will be enabled to stay in their homes at an affordable monthly mortgage payment.

Beyond these efforts, there has been significant work to design and evaluate a number of proposals to induce further modifications. Each of these would, however, require substantial government subsidies. The FDIC, for example, has developed a proposal that Treasury and others in the Administration continue to discuss. I believe it is an important idea. As we evaluate the merits of any new proposal, we also will have to identify and justify the means to finance it. ...

We will continue to pursue the three strategies I have just outlined: how best to strengthen the capital base of our financial system; how best to support the asset-backed securitization market that is critical to consumer finance, and how to increase foreclosure mitigation efforts. All of these strategies are important, but ensuring the financial system has sufficient capital is essential to getting credit flowing to consumers and businesses and that is where the bulk of the remaining TARP funds should be deployed...

Comments

[Card]

"Approximately 40 percent of U.S. consumer credit is provided through securitization of credit card receivables, auto loans and student loans and similar products. This market, which is vital for lending and growth, has for all practical purposes ground to a halt."

This new strategy is expected. With no significant domestic savings, the ultimate source of domestic loans is foreign savers. Foreign savers have lost confidence in domestic citizens' willingness to repay, so foreign savers won't loan any more to them (buy securitized loans). Foreign savers will only loan to the public sector, so the public sector is essentially co-signing for all domestic private loans. Fannie and Freddie are co-signing for mortgages, and now Treasury is planning to co-sign for credit cards et al.

The original plan to remove troubled assets from the books would not have restored foreign loans to domestic citizens, as no co-signing for future private loans was involved.

[kharris]

When asked what to do about "too big to fail" firms, George Schultz said "make them smaller". Paulson says, regarding mortgage rescue notions, "there are no easy options." So pick a hard option. It turns out, a lot of this stuff isn't as complicated in reality as it is in politics.

[Bruce Wilder]

Watching Andrea Mitchell on MSNBC, the general line seems to be surprise, even shock, at this departure from plan. Clearly, Andrea doesn't read Economist's View.

[calmo]

Thanks for joining us Card.
You make it sound like the "foreign saver" is just another middle class guy just trying to create wealth and raise his family...only he wears a turban or uses chop sticks.
But the US wealth creation depended on monumental support from the CBs of export led economies...the BoJ and China's equivalent, yes?
And dang if China didn't just announce serious plans (> $1/2T to spend...at home).
Now, do you have any thoughts on currency?

[hari]

Paulson is surely concerned about his own legacy...how TARP will influence it (or not). Recall he started (I think) as a low level bureaucrat in Nixon Admin. The election result also puts him on notice - going forward under TARP.

Incredible as it may sound, the Lehman closure was a watershed for Paulson and his gang. This ain't easy anymore from his language above. And if time is of essence in thwarting further turmoil in financial markets, this development may set TARP back further.

Could be some staff have been reading this weeks threat on Paulson's Legacy!

[shocked disbelief]

They seem to be pulling the tarp out of their descending colon.

[Path]

"...why are they still trying to figure out how to design the program?"

I suspect it is because they are reluctant to face the awful truth. The economy was based upon consuming more than it could produce, which required making ever more subsidized loans to people who could/would not pay them back. The only way to keep loans flowing to people who will not pay them back is to guarantee them. However, this puts the public sector on a path to eventual loss of confidence by foreign savers. Policy did not want to start down this path, but now it must choose between present growth (short term) and future credibility (long term).

The short term almost always wins out in policy meetings. There is little long term planning, so the long term results will essentially be in other people's hands.

[Richard]

So is Paulson going to pay off my credit card?

-just wondering.

says...

calmo, theres a post there on pain theme for you...
...on currency thing.

[Card]

"Now, do you have any thoughts on currency?"

Its a race to the bottom. The various CB are frantically extracting forced savings from their citizens to fund the bailouts.

"And dang if China didn't just announce serious plans (> $1/2T to spend...at home)."

If China policy decides that its vast accumulation of forced savings is better spent on internal infrastructure, rather than loaning it to the US, this reduces the loans available to fund US bailouts.

[david]

Sorry Bruce, I cannot resist pointing out that A. Mitchell is married to A. Greenspan.

[calmo]

My goodness that was good 'shocked'...I believe it is a cleansing tradition in some cultures...to swallow the equivalent of a bed sheet...perhaps only for the Holy. (Don't try this at home children...even if you are out of potatoes.)

hari, I need to ask you...a sorta personal question: are you guided in any way whatsoeva by Legacy thoughts?

What daffodils will be pushing their lil noses around my tombstone? (Oh, cremation of course!: what lil worms will be sampling my ashes once they break into the rusting tomato can?) [Oh spiritual? How could I, near Spiritual Master of Universe forget that?..what will the nubile nymphomanics scribes be writing on my sweet ass behalf?

Me neither.

So, it musbe an affliction that attacks only the stinkin rich...
Thank you for that note connecting Nixon (a Bush protege ) to Henry Paulson...no one it appears was appointed in this administration who wasn't connected to the family...Ok, 'cept O'Neill.

[save_the_rustbelt]

Apparently the stock market was not so impressed by the Hankster. Neither was I.

The patient is bleeding to death and we are giving the patient a manicure.

[hari]

It seems moral hazard is emerging as the central focus of Paulson's TARP policy and its application.

[anne]

The value or volatility of the stock market currently is far less important than understanding the bond market which is confirming what Secretary Paulsen is alluding to that we are in a liquidity trap and increasing the asset bases of banks is no solution however necessary. Banks are not going to be lending freely, borrowers will cut back all the borrowing possible, until consumption at all levels become demand driven again.

While Paul Krugman early on wanted the Japanese central bank to flood banks with liquidity, the possibility of the strategy being effective was lost as banks found little reason to lend and borrowers to borrow more than to continue established critical credit lines. Domestic credit expansion was years slow in re-developing after general deflation had begun.

[anne]

"Approximately 40 percent of U.S. consumer credit is provided through securitization of credit card receivables, auto loans and student loans and similar products. This market, which is vital for lending and growth, has for all practical purposes ground to a halt."

This is the stuff a liquidity trap is made of.

[hari]

Calmo - as a granda for three lovely children - I'm of course concerned about my own legacy - how to get them across the holy water and whatnot. Compared to your youth, calmo, I've little time to accomplish a lot. And I still think they shld start with renaissance....languages...and get used to my wine cellar.

[Bruce Wilder]

"Approximately 40 percent of U.S. consumer credit is provided through securitization of credit card receivables, auto loans and student loans and similar products. This market, which is vital for lending and growth, has for all practical purposes ground to a halt."

anne: "This is the stuff a liquidity trap is made of."

True enough, but as kharris observes, "a lot of this stuff isn't as complicated in reality as it is in politics"

In line with the Bush Administration's policy of looting the middle class to line the pockets of crony capitalists like, oh say, . . . Hank Paulson, the interest rates and terms of a lot of credit card receivables and student loans are unrealistic, not to say, unconscionable and predicated on vicious bankruptcy and default law. Revision is, thus, politically "complicated". A realistic (aka fair and equitable) write-down makes the position of the banks even worse. It becomes a kind of double-hostage situation: torture the improvident working class, or kill the financial system. Talk about your policy dilemmas.

My own view, which no one in power is likely to adopt, is that we need aggressive clawback of executive compensation. Where it is possible, we should pursue civil forfeiture from crooks, like Angelo Mozilo of Countrywide, whose hands are blood-red. But, as a blanket policy, executive pension and deferred compensation should be seized -- at all the banks, and all the corporations, like GM, which have their hands out. What cannot be taken by fiat, should be taken by punitive and confiscatory taxation.

Aside from satisfying the well-justified moral outrage of all fair-minded and sentient observers of the rape and pillage of the U.S. economy, such a policy would remove the constraints on U.S. government fiscal policy. The national debt could be paid down by a couple of trillion, at least.

Even more important, we would be establishing an instructive precedent for corporate governance, going forward, and removing an important source of finance for the cretinous Republican Party.

[Bruce Wilder]

The Japanese case had its parallels, as politics was never able to overcome the barriers to making the economy fairer. Obvious outlets for consumer spending were kept blocked: buying a house, for example, is structured in Japan to cheat the consumer, and nothing about that can be changed, due to the corrupt politics; consequently, a whole structural avenue to higher consumption and lower financial savings is walled off, ensuring that the Japanese continue to save too much, and live less prosperous lives. This is an aspect of the Japanese case that receives too little attention.

[Bubble]

Japan had unsustainable bubbles. The land under the Imperial Palace had a valuation greater than all of California at one point. This was ridiculous. After 18 years of falling prices, the Japanese stock market still has a dividend yield of little over 1%. Compare this to European dividend of 6% after just one year of falling prices. The valuations in 1990 were ridiculous, and could not be sustained no matter how much credit was pumped into the system.

[calmo]

Thanks for the youth shot hari...I am propelled to get dressed on that note.
And again to Card who may have a view of the Swiss as I chew over Felix's worries about a country whose GDP is precariously small in relation to CS and UBS highly leveraged positions. Rumor has it that owing to the transnational character of itall, that quaint slogan 'The buck stops here' ain't so quaint afterall.
So wazat the real kharris or the political kharris? I can complicate it up, I must!

[Patricia Shannon]

One especially heinous practice of credit card companies is raising interest rates on the credit card of someone who has been making their credit card payments, but whose credit score has decreased for some other reason, like being late on their utility payment, or losing their job.

[hari]

Paul Samuelson - SPIEGEL interview (w/five other Laureates).

*Libertarians are not just bad emotional cripples. They are also bad advise givers...M Friedman and F Hayek. The "Serfdom" they warned against is not that (of) Genghis Khan or Lenin - Stalin - Mao or Hitler - Mussolini. Rather they warn against the centrist states of the modern world. Think only of Switzerland, Britain, the US, the Sacandinavian countries, and the Pacific Rim. Why do citizeneries there report high indexes of "happiness" and enjoy broad freedoms of speech and belief?*

[hari]

Latest financial news from London - former Chancellor Clark says UK is in meltdown (recession) - Telegraph.

There is serious commentary on UK financial meltdown in Lon Press this evening (Guardian/Tlegarph).

[im1dc]

Why has no one as yet mentioned that SoT Paulsen is doing exactly what he wants with the $700B (or at least the first installment of $250B).

This was his intention all along, remember his initial 3 page plan to Congress?

He intended to spend the money as he saw fit in aid of the economy. Now he is.

Since he got control of the $700B bailout funds SoT Paulsen has been feeding the press and public BS and handing out US Taxpayer money to his friends in trouble.

He doesn't have another plan. He is not that smart. He's a salesman running a con job just like he did as the head of GoldmanSachs.

SoT Paulsen's 'Plan' is nothing more than to "fool some of the people all of the time and all of the people some of the time" and then leave in January.

The REAL problem has always been the MASSIVE FRAUD of bad RE loans that were bundled into CDO's, rated and sold, and then further re-bundled, re-rated and sold in increasing amounts of Derivatives.

Wall Street lived off these Derivatives since 2005.

Bad RE Loans are about $2.1 out of $3 Trillion made in the period. Bad CDO's + Derivatives adds another $33 Trillion est/.

Therefore, nothing is backing well over $35 Trillion of assets that are still held by banks.

Run for the hills.

The Fed cannot fix this, the US Treasury cannot fix this and neither Bush or Obama can fix this.

The only SOLUTION is to grow our way out of this mess. It took Japan something like 20 years. It will take the USA fewer years but it will take many years.

Of course and as always the above represents only my opinion.

[im1dc]

Read this, if you haven't already:

Michael Lewis: Wall Street's End Is Finally Here
http://www.businesssheet.com/2008/11/michael-lewis-wall-street-s-end-is-finally-here

[Don the libertarian Democrat]

There is an unusual amount of ambiguity in this presentation.
1) It will now support financial markets ( Meaning what? )
2) did not clearly delineate what the requirements would be for a firm to become a bank holding company ( Not good )

I'm sorry, this has trial balloon written all over it. We need Air Traffic Control to keep up with T(A)(E)RP's trial balloons.

1 is a good idea, but it's so murky, I can't find a clear description of it. I'll keep looking. Foolishly, of course.

[ECONOMISTA NON GRATA]

Hank Paulson has lost all cred. The President needs to remove him from office immediately and replace him with Paul Volker as a transition Sec. of the Treasury. The situation is deteriorating in an exponential fashion and we do not have the time to dilly dally. Talk is cheap and getting cheaper by the minute....

Forget about Summers, he's nothing more than a pampered yuppie, we need Paul Volker.

Best regards,

Econolicious

[Benign Brodwicz]

Actually, this is a good thing, because it holds the banks more accountable.

How deep will the recession be? The link is to a model with a great track record that is pretty hard to believe in the current no-confidence environment.

[don]

im1dc
good post

[Dirk van Dijk]

my take on it is sort of long, so I will not cut and paste it here, but if interested:

http://www.zacks.com/stock/news/15862/Paulson+Pulls+Back+the+TARP

Please read it with your sarcasism glasses ON

[ken melvin]

According to a certain Alan Greenspan fore the Waxman those illiquid assets are worthless.

[Larry]

@Mark - "It looks like they are moving in the right direction, but all the statements about "we are designing," "we are carefully evaluating," "we are looking at," "we are examining strategies," etc. leave the impression that they are still behind the curve."

Is that the curve where we actually do know what to do to fix our busted bycicle? Who exactly is ahead of that curve?

"For example, he says "we are examining strategies to mitigate mortgage foreclosures," but why are they still trying to figure out how to design the program? This program shouldn't be in the design phase, it should already be in place:"

Given the floundering so far, I would find it reassuring that they're trying to figure it out before they launch another misbegotten mess.

@Card - "Approximately 40 percent of U.S. consumer credit is provided through securitization of credit card receivables, auto loans and student loans and similar products. This market, which is vital for lending and growth, has for all practical purposes ground to a halt."

Except that credit card debt is still increasing. To wit:

"Household credit lines across all cards edged up to an average of $27,626 per household (YTD 3Q 2008) from $26,902 in 2007" - Andrew Davidson, Synovate FSG

@Card - "The original plan to remove troubled assets from the books would not have restored foreign loans to domestic citizens, as no co-signing for future private loans was involved."

The only way to get citizens borrowing again is for them to pay their lines down for awhile, probably quite awhile.

@calmo - "dang if China didn't just announce serious plans (> $1/2T to spend...at home)."

Except that it was <600B, and a lot of that is a repackaging of stuff they had already announced. It is indeed time for China to "go shopping", but this isn't that announcement.

@hari - "Paulson is surely concerned about his own legacy"

He's got bigger prolems than his legacy.

@Richard - "So is Paulson going to pay off my credit card?"

Yes but you have to become a bank. Me first!

@rusty - "The patient is bleeding to death and we are giving the patient a manicure."

Pick your poison...

@anne - "The value or volatility of the stock market currently is far less important than understanding the bond market which is confirming what Secretary Paulsen is alluding to that we are in a liquidity trap and increasing the asset bases of banks is no solution however necessary. Banks are not going to be lending freely, borrowers will cut back all the borrowing possible, until consumption at all levels become demand driven again."

Happy to agree, and that will require significant debt reduction, as far as I can tell. Are we really going to fix our problems by replacing big chunks of individual debt with taxpayer/government debt? I hope it's that easy.

@Brucie - "My own view, which no one in power is likely to adopt, is that we need aggressive clawback of executive compensation. Where it is possible, we should pursue civil forfeiture from crooks, like Angelo Mozilo of Countrywide"

Do we get FOA, too, including Senator Dodd? In any event, there ain't enough money in those alot-shallower-now pockets to do anything other than feed the rage.

@im1dc - "He intended to spend the money as he saw fit in aid of the economy. Now he is."

I see a big difference between a flounder and a secret plan. This is the former.

@im1dc - "Michael Lewis: Wall Street's End Is Finally Here"

Great work by Lewis. Pretty horrifying account.

@ECONOMISTA NON GRATA - "Paul Volker as a transition Sec. of the Treasury."

Do you really think Volker knows the secret formula? If he does, is he talking about it?

[calmo]

Econo figures that the appointment of Volker (dragged kicking and screaming from Obama's office) would re-establish some civility to the markets...and not real excitement as even plumbers might be distracted by this screaming.
But in the event that Volker's grip on Obama's coat tails cannot be released, what of ...the non dily-dallying
Ron Paul?

[calmo]

Greetings (from all of us...as you enumerated) Larry and that lesson for even one more of us, yes? (@calmo - "dang if China didn't just announce serious plans (> $1/2T to spend...at home)."

Except that it was
But I am not proud of my competence with those complex "" mathematical operators...not my somewhat uncanny ability with "except".

What do you make of Hank's view of "the facts have changed"? Is this profundity or, as MT suggests, (take it from me, I Channel the host...have for years), profanity?
Could your (future) reply be obsolete by the time it gets back here?
Ok God speed.

[Larry]

@calmo - Yes, this thing is moving faster than I am. I'm still struggling to figure AIG bailout 2.0. Buying MBS @ 50% off helps them how? Helps us how?

I think Paulson is improvising as fast as he can, but that he (like everybody else I've found, so far) is making it up as he goes along. I'm really hoping Sister Mary Economicus is out there somewhere...I really need somebody to explain it all for me...

[Patricia Shannon]

Does anybody understand it well enough to explain it?

[calmo]

My god you are fast Larry...now, for us less fleet of foot (for us flat of foot) [...for us flops...padding along in flob city] about the nature of facts which Henry I think really wants us to consider...(as he is too busy making other impressions...the Marx Bro canoe sight gag has a grip on me at the moment)...and not when and where an apology is appropriate ( a red herring, yes?) This is the current somewhat philosophical gem/jewel/specimen/spectacle: What is a fact? Don't expect any of us to entertain cutanpastes from Wiki where the contributors are even less qualified, dealing with even more transitory conditions than Hank complains about.

[Robinia]

One thing FDR knew, that Paulson sure enough does not, is that the first step in making a plan work is to give the public an appearance that you have thought the situation through, and have a plan...

The second step is asking their involvement and assistance. Hank missed that step, too.

[calmo]

Re step 1, Robinia
I own up to the fact that I may not B the youngest blogger here...(pause for meds) but I do recall this inordinate respect from that generation's (FDR's) adults for anyone who had even a high school education.
Now the audience is less in awe.
And more in shock.
at the shenanigans and general skepticism at what the hell they (educated people...university graduates) do know.

Times a thousand since GWB...serious impediment to any inspiration whatsoeva, yes?
Re step 2, Paulson comes from an environment that tells us what your lying eyes are seeing.
Not the best choice for Sec Treas, but O'Neill was too good for this admin.

[Patricia Shannon]

I'm thinking about finding a nice cave.

[Bruce Wilder]

Hank Paulson is a terrorist and illegal enemy non-combatant. Can we just arrest him now?

[hari]

Paulson is trying to avoid falling into the *trap* created by (our) Swedish experience in bank natioalization c.1992.
Recall Carl Bildt was a leader/PM of Conservative Party who approved the nationalization and adjustment process....

Ideology, I susspect, is central to GWB/Paulson decison-making. Fed/BB have chosen to show their *teeth* - meaning replicating BOs perpective of a more gentler and kinder public intervention in the money/credit market.

[Larry]

@Robinia - "One thing FDR knew, that Paulson sure enough does not, is that the first step in making a plan work is to give the public an appearance that you have thought the situation through, and have a plan..."

FDR was a politician. Paulson is a techie. No surprise he didn't handle the politics right. That's Bush's job.

[rufus]

calmo says...
"Not the best choice for Sec Treas, but O'Neill was too good for this admin."...too honest youthinks?

Patricia Shannon is quite the humorist, and I'm Thankful for that.

[im1dc]

Larry says: "@im1dc - "He intended to spend the money as he saw fit in aid of the economy. Now he is."

"I see a big difference between a flounder and a secret plan. This is the former."

Wait a second, SoT Paulsen was given a Plan hundreds of pages long from Congress along with the $700B. He never carried out the Plan, i.e., buy up toxic mortgage paper.

So why call what SoT Paulsen has done a "flounder" when it fact he never did as Congress and the Electorate envisioned with the bailout money?

Larry, SoT Paulsen sold the bailout to Congress as a plan to buy 'toxic mortgage paper' but once the bailout passed he immediately infused Wall Street Money Center banks and a few others with $290B in cash (by buying Preferred Stock) in what he said was an attempt to get them to make loans.

They haven't and today it was announced that Foreclosures were up 25% over last year.

I'm willing to entertain the notion that SoT Paulsen is doing exactly what he believes is best for the nation. But grant me that people do what they know and SoT Paulsen only knows Wall Street, not Main Street or Joe and Jane Sixpack.

That said, I believe that he is 100% wrong. He was an ACTIVE part of the Derviative shell game while at GoldmanSachs and as CEO of GoldmanSachs. He is still playing that game when he should and could have used FedGovt authority to call a halt to it.

It is now clear to me anyway he is part of the problem and doesn't have a clue how to fix what he helped break, i.e., our over leveraged financial system.

Note closely that SoT Paulsen has and is avoiding any and all oversight of his activities. He's gone rogue, i.e., reverted to his CEO persona. Even the Treasury's Inspector General is now pushing back (more on that below).

I just heard Live from a Hedge Fund Manager on CNBC testifying before the Waxman Committee that he estimates the Credit Swap Derivatives outstanding to be $55 Trillion. That's $12 Trillion higher than the previous estimate of some 3 weeks ago at $33 Trillion.

This problem is growing not shrinking. And we do not know what bad loans the banks are carrying b/c they don't want to tell us.

I cite today's Washington Post article in support of my assertions:

Bailout Lacks Oversight Despite Billions Pledged

"While money has been pouring out of program, no formal action has been taken to fill independent watchdog posts established by Congress."

SoT Paulsen simply bailed out his friends, people he knew and had done business with but has not fixed anything except Money Center Bank Balance Sheets.

And, he did it so fast, without adequate safeguards or checks and balances, we don't have a clue how the $290 Billion disbursed so far is being used. We know the where and to who but not the how, what or why.

Sounds like a scam with a built-in coverup made to order for the Wall Street crowd to me.

Unless you truly believe only the rich deserve bailouts you ought to be calling your Congressperson and Senators to put a stop to this immediately before Congress authorizes the next tranche of $250 Billion of the bailout.

Stop the madness.

I believe giving SoT Paulsen a pass is misplaced.

[ECONOMISTA NON GRATA]

"Do you really think Volker knows the secret formula? If he does, is he talking about it?"

Absolutely and it's no secret... I'll be happy to let you know...

Bankruptcy Court as a clearing house for insolvency. Of course he's not talking about it, the fact is that we need to put this bailout nonsense behind us and move on. The mechanism for insolvency, Federal Bankruptcy Court, is the only realistic solution to this problem that we are facing.

Paulson's audible change of plan is a huge mistake and a betrayal of the good will of the American People. He must be fired immediately. Summers and Rubin are not suited for the job at hand with their refined economic tastes and their canine courtesies.

Volker is the one the "Alpha Dog" and THAT'S THAT....!

Best regards,

Econolicious

[im1dc]

Patricia Shannon says..."I'm thinking about finding a nice cave."

Pay cash for it or better yet Homestead it.

Just kidding.

[im1dc]

ECONOMISTA NON GRATA, I agree with you that former FedRes Chairman Volcker is the right man for the current job and not Paulsen or Bernanke.

Note that president george w bush is speaking live right at the Manhattan Institute (a right wing libertarian think tank) LIVE on CNBC right now.

According to him just let 'free markets work' and all will work out. Of course that is absurd on its face since the markets are not working and at his direction the FedGovt has infused Wall Street with Bailout Billions and given nothing to Main Street.

I cannot wait for this incompetent to be out of office.

[Lafayette]

Didn't somebody ask the question, "Why ever did they put a pyromaniac in charge of the Fire Brigade?"

Yes, I remember now ... it was me.

And this guy was worth a bonus of 250 megabucks? When pigs sprout wings ...

[Lafayette]

hari: Incredible as it may sound, the Lehman closure was a watershed for Paulson and his gang.

Oh, I dunno. The street says that he and Fuld "had a thing going on". Meaning a pissing contest. Boys will be boys. (I wouldn't put it past Paulson to wash Fuld down the drain out of pure spite. When Lehman went bankrupt, so did its stock valuation go up in smoke.)

The tragedy of it all is that one might hope we have learned something. But, like the Roman Empire, I am not sure that is the case. Rome wasn't built in a day and didn't fall in a day.

But it inevitably fell. Because it did not learn from its mistakes. Strangely, one of those mistakes is somewhat analogous to today's situation. Rome kept pumping gold and silver out of its mines in Spain to pay for the armies to protect the frontiers and put on the wildly popular games as well as the handout of free bread. They assumed probably that the gold/silver would never end, but there were continuously serious coinage problems in Rome. Finally the Spanish mines exhausted themselves. When the Empire split, the West withered on the vine, whereas the East actually continued another hundred years or so.

We have today an unshakable faith in democracy and "Free Markets" and our ability to save them both, don't we? The former will always be led by competent politicians and the latter will always be there to do the right thing ... bring about dynamic market equilibrium at the optimal price. Right?

What supreme hubris. We have met the enemy and he is us. (Pogo by Walt Kelly)

[BJ Feng]

No, the delusion is that we live in a world without risk or potential for large losses. The free market does not protect us from large and painful losses, SUCH LOSSES ARE NECESSARY TO PUNISH THE FOOLISH SPECULATORS AND IMPOSE DISCIPLINE!

It is like saying hurricanes are the result of a failure in Earth's climate. No hurricanes are a part of Earth's natural climate patterns.

If losses were not possible, then there would be no risk. People would lend to everyone and anyone, only the fear of losses stops lenders from loaning their money to marginal borrowers. Thanks to the easy money policies of the past, lenders forgot what could happen, they forgot their fear, and the only way to teach them and put fear back into them is for them to experience large losses.

This process is what happens under a market system, the markets do not guarantee a riskless environment! What is our hubris? The ultimate hubris is to think that a few people can wisely guide the economy to prevent these natural events from occurring. That a group of regulators can step on to the shores of The Gulf of Mexico and through their sheer will and intelligence, stop a hurricane from hitting our coasts. No, when the hurricane hits, the regulators will be blown away along with everything else. Hurricanes and financial crises routinely hit our shores and cannot be prevented. The damage can be mitigated, but they cannot be stopped. To think that they can is fantasy.

[Lafayette]

BJF: The free market does not protect us from large and painful losses, SUCH LOSSES ARE NECESSARY TO PUNISH THE FOOLISH SPECULATORS AND IMPOSE DISCIPLINE!

Right, so we should ask Paulson to give back his $250M golden parachute of leaving Goldman Sachs.

Just what are you saying? Who got punished? I got punished when the bubble burst and my stock valuations headed south.

Did Paulson get hurt? Did Rubin get hurt? Did Greenberg get hurt? Did Fuld get hurt? None of these Golden Boys got "hurt". If you've got a hundred million, whats losing 40%? You "hurt" because you've ONLY got $60M left?

We have different systems of values, BJ. Very different. None of the people on Wall Street who got rich on the run-up are going to go to jail for having having broken the rules (and speculated with money that was not theirs).

Not a one.

It is like saying hurricanes are the result of a failure in Earth's climate. No hurricanes are a part of Earth's natural climate patterns.

Pifle. What happened on Wall Street was not due to Mother Nature. Look for another allegory.

It was cupidity. (The definition is in a dictionary.)

[wjd123]

Note that president george w bush is speaking live right at the Manhattan Institute (a right wing libertarian think tank) LIVE on CNBC right now.

According to him just let 'free markets work' and all will work out. Of course that is absurd on its face since the markets are not working and at his direction the FedGovt has infused Wall Street with Bailout Billions and given nothing to Main Street.--im1dc

im1dc,

Every time Bush tries explain how a free marketer like himself approved a $750 billion bailout he starts talking about how the economy was facing the abyss or a depression greater then the Great Depression.

I know Bush's political stock and trade if fear mongering, but for the life of me I can't figure out what he thinks he is doing. It's almost as if he can't stop fear mongering, but he is so disengaged, he forgets and fear mongers after the fact.

BTW, I wanted to ask you a question about something you mentioned many years ago, a supermarket in Europe that only sells a few brands of every product they stock. They decide for the consumer what the best brand is, buy it in scale to give consumers a good product at a good price. I believe the supermarket began with a "A". Any idea?

[wjd123]

I heard this earlier in week while watching a CNBC financial show called "Squawk Box. This was Mark's description of the information coming out of Washington on the financial crisis.

Mark: "I don't like being treated like a mushroom."

(Looks at Erin his co-anchor who stares back at him with a puzzled look)

"Do you know how they treat mushrooms?"

(Erin, still staring at him)

"They're kept in the dark and fed the fecal matter of cows.

[Lafayette]

wjd: They decide for the consumer what the best brand is, buy it in scale to give consumers a good product at a good price. I believe the supermarket began with a "A". Any idea?

You may be thinking of a German discount chain, called Aldi.

It is, actually, one of many such discount chains that that have inserted themselves on the supermarket landscape throughout Europe over the past decade.

What they do is simple. Consider Brand Name "Coca-Cola". They will purchase from Coca-Cola a "Cola" branded under the supermarkets name, such as "Aldi Cola". Coca-coal will sell them this unbranded version of their soft-drink in volume contracts at less than the price of branded Coca-Cola.

Now, I'm not sure that Coca-Cola actually does this. But, it would not surprise me if its competitor Pepsi-cola would not, or any other national soft-drink manufacturer. After all, a cola soft-drink is not rocket science.

This means, for people who have not that much affinity for brand name products, they have a much cheaper alternative in the Discount Outlets. Are the products identical. In my experience they are. However, there are also some unfortunate surprises as well.

Besides, when a new food or home product is innovated and is marketed under its brand name, it takes just a year or so for it to be seen on the shelves of a Discount Outlet.

These markets do not have a full panoply of items on sale. Yes, they have one item of each product for which they think the average consumer will be shopping. This contraction of total products shelved allows them to enter into more dense large-city markets where downtown stores are hard to find because of limited space. And, importantly, when employees are not working the cash register, they are shelving products. The cost savings are thus significant.

And, inevitably, some of these discounters will try to achieve "differentiation". This means setting them apart from the other discounters. A German discounter (called Lidl) therefore sells a small set of home appliances that it stocks to attract customers on certain days in the week. And it constantly changes the items that are sold, so there are always new items on sale. This is where most of the Chinese gadgetry has been sold, and where I have learned to avoid poor-quality Chinese electronic goods.

En passant

BTW, the discounter mentioned above, Lidl, is owned by a family that is the third largest wealth in Europe. However, you will never hear of them, because here, wealth, when you've got it, you don't bump it with a trumpet. So, unlike the Walton Family, you will never hear about them.

Unless of course, your are a member of the Quandt family, and you are an inheritor of an enormous fortune based upon the BMW car works. The lady in question,
Susanne Klatten is listed as #55 on Forbes.com billionaire list. Married, she was blackmailed for 7M euros by a gigolo who threatened to put on the Internet their videoed love-making in a series of German hotels. The poor woman paid the money, but then signed a criminal complaint against the individual, who will appear in court for swindling.

[wjd123]

Lafayette,

Aldi rings a bell; thanks Lafayette. Since they are still around all these years, I take it their business model is working.

Thanks, for all the information about Aldi, not to mention German culture and sensationalism.

[wjd123]

Perhaps the reason Bush is throwing around words like "abyss" and "depression" is that he wants to take credit for saving us from them with his willingness to sign off on the $750 billion package Paulson asked for. And since he saved us he can put up a "mission accomplished" banner and sign off on nothing more.

We'll see in the months ahead.

[Lafayette]

I suspect, regardless of what he says, his role in history has been written indelibly in granite.

If I were him, I'd be none to proud of it. I have no doubt, however, that as a "favorite son", he will have a tranquil life to live out in the Lone Star State amongst his fellow plutocrats.

Good riddance.