Congressional leaders and the Bush administration reached a tentative agreement early Sunday on what may become the largest financial bailout in American history, authorizing the Treasury to purchase $700 billion in troubled debt from ailing firms in an extraordinary intervention to prevent widespread economic collapse. There is more detailed information at the WSJ: “Mark to market” is an accounting measure that took effect last year, which forces companies to disclose information about the immediate market value of their assets. Gingrich says it has forced a “spiral” of devaluation; supporters of the practice say that it forces businesses to reveal poor investments, and is a mere scapegoat in the current debate. You can find a detailed explanation of the accounting rule and the problems it has created in a tightening and risk averse market at the Washington Post. Changing this accounting rule might, by itself, radically effect the current subprime crisis.
If you hear any of the above individuals utter the words "affordable housing" or "Democrats bear no responsibility" or "Democrats have cleaned up the mess," should a brick you are carrying mysteriously leave your hand and, guided by mystical forces, become lodged in the mouth of the speaker, pray that I am on your jury. You can be assured that you will not be convicted.
The Rogues Gallery pictured above is from the NYT front page story announcing an agreement on the main points of a bailout plan. While the individuals pictured above, Nancy Pelosi, Barney Frank, Chris Dodd and Harry Reid, appear happy and smug, there is not a single taxpayer who should feel anything but all consuming anger and a desire for 700 billion pounds of flesh.
From the few details of the bailout plan that are leaking out, this deal still appears problematic. Some of the provisions may well have longterm, unintended consequences. Or they may in fact be reasonable, we will have to wait for the final legislation and read it line by line. At least most of the poison pill provisions added by the left to benefit their far left constituency have apparently been removed thanks to House Republicans. Regardless, this is just a first step. There are many things missing from the above plan that are desperately needed in the wake of this crisis.
This from the NYT:
Officials said that Congressional staff members would work through the night to finalize the language of the agreement and draft a bill, and that the bill would be brought to the House floor for a vote on Monday.
The bill includes pay limits for some executives whose firms seek help, aides said. And it requires the government to use its new role as owner of distressed mortgage-backed securities to make more aggressive efforts to prevent home foreclosures.
In some cases, the government would receive an equity stake in companies that seek aid, allowing taxpayers to profit should the rescue plan work and the private firms flourish in the months and years ahead.
The White House also agreed to strict oversight of the program by a Congressional panel and conflict-of-interest rules for firms hired by the Treasury to help run the program. . . .
1. The first $250 billion will be available immediately with other funds being made available as needed based on Congressional authorization.
2. The legislation "will expand the range of firms that can sell troubled assets to the government to include pension plans, local governments and community banks serving 'low- and middle-income families.'"
3. The government "would be able to receive warrants it could hold until maturity from financial firms on assets received either through auctions or through direct purchases."
4. The legislation "would institute new executive compensation requirements for participating companies, including "no multi-million dollar golden parachutes," limits on compensation generally, and the ability to recover "bonuses paid based on promised gains that later turn out to be false or inaccurate."" This could be problematic indeed. Punishing Wall St. seems to me something that could have many undesirable unintended consequences, from keeping firms from participating to driving financial services overseas.
5. The plan provides for "the federal government to recoup money for taxpayers if the asset-purchase program isn't making money after a certain amount of time. A House leadership aide said early Sunday morning that details were not immediately available. But the general concept was to provide Congress with a mechanism that would be triggered perhaps within five years to allow lawmakers to offset some, if not all, of the bailout costs." While I am all for repayment of taxpayer funds, I wonder how much uncertainty this will cause, either now or in five years. Further, I would like to see funds recouped from those who violated laws and regulations at all levels rather than a general plan to target the market as a whole.
6. Democrats have agreed "to drop a proposal to devote 20% of potential profits to an affordable housing fund . . ." This was the far left organization/ACORN full employment plan. It was - and should have been - a deal killer.
7. The legislation includes "requirements that Treasury seek to mitigate and reduce foreclosures where possible. . . [T]he legislation would allow the Treasury to work with cash-strapped homeowners whose mortgages are purchased by the federal government to refinance into a more affordable mortgage." I have real problems with this. This has the potential to be another boondoggle and redistribution program, particularly with Chris Dodd and Barney Frank riding herd on oversight. I want to see how this is written into the legislation.
8. "Other foreclosure-prevention measures include an extension of the tax holiday for homeowners who face foreclosure, as well as a tax break for community banks that held shares of Fannie Mae and Freddie Mac. The rescue plan will allow affected banks to take an immediate tax deduction on losses from investments in the two firms, which were taken over by the federal government earlier this month." This sounds palatable.
9. "It also includes a bipartisan oversight board appointed by members of both parties in Congress, an inspector general to monitor Treasury decisions, and regular audits from the Government Accountability Office. Treasury will also have to post publicly and online transactions made through the troubled asset program." I appreciate the transparency provision. I have real problems with an oversight board that will no doubt be populated by the same Democrats whose economic ignorance and desire to redistribute wealth got us into this mess in the first place. If the board provides for proportional representation rather than equal representation, it should be a non-starter.
10. "[T]he tentative agreement reached Saturday allows for judicial review of Treasury decisions." This sounds like a bone to the plaintiff's bar. This is an invitation to add billions to the costs of this program and to slow down its complete implementation by years.
Hot Air informs us that the far left's attempt to load up the bill with goodies for their constituencies - beyond the ACORN Lifetime Funding provision discussed above - have also been removed from the bill:
- Provision to provide unions and other activist groups with proxy access for corporate boards
- Provision to mandate shareholder votes on compensation issues (union priority)
- A provision to allow trial judges to arbitrarily adjust mortgages, creating bonanza for trial lawyers
- A provision to require the government to sell to state and local governments at a discount homes the government acquires as a result of foreclosure
Perhaps most importantly, Hot Air tells us that the new legislation "also suspends mark-to-market rules and requires a study on their effects on the collapse."
This from the AJC:
All of these are but a single step along a long road. There needs to be much more.
I. We need a true non-partisan, non-Congressional commission to investigate the causes of this meltdown. This crisis begins and ends with the socialist left in Congress. In the middle are mortgage brokers and Wall St. The story needs to be told from beginning to end. It will not happen under Congress, but there is nothing stopping President Bush from appointing such a commission the day after the above legislation is passed.
This is a crisis that, on a fiscal scale, dwarfs 9-11. And it exposes fundamental problems in both our political and financial worlds that we fail to identify at our own peril. How our best financial minds ended up purchasing this toxic debt needs to be thoroughly investigated. The system used by Wall St. to analyze and value the now worthless securities needs to be pulled apart with the detail a post mortem. And our regulatory scheme needs to be overhauled. Treasury Secretary Henry Paulson has been calling for this for some time. Now seems an opportune moment to redo and streamline a regulatory system built for the last century. I have no faith, however, in the current Democratic Congress to carry this out in good faith.
II. The Community Reinvestment Act and all Clinton-era rules relating to subprime borrowing need to be revised to end government mandates for this scourge. There is nothing wrong with a government program to work with low and middle income folks to repair any credit problems. And I would support a program for such people to invest in a tax free fund in order to build up funds for a down payment. That is a market based approach. We know how the socialist approach works.
III. Fannie Mae, Freddie Mac, and indeed, the whole concept of Government Sponsored Enterprises (GSE's) that so distort the marketplace need to be scrapped.
IV. There needs to be criminal investigations of those involved in the Fannie Mae, Freddie Mac fiasco. This has begun - years too late. Nothing is clearer than the individuals who ran these institutions cooked the books. Franklin Raines should still be in jail following his conviction in 2004. His cell mates should be Chris Dodd, Janet Reno and Jamie Goerlock.
V. And lastly, I think that we really should seriously consider Charles Krauthammer's suggestion of public executions as regards this subprime crisis.
Other posts related to Subprime Crisis (from oldest to newest):
1. McCain, The Fannie and Freddie Crisis, and Obamafuscation - Obama and the entire Democratic Party are trying to blame Republicans for the subprime crisis. But this crisis was created by Bill Clinton and protected against Republican efforts to reign it in over a decade – until it failed, nearly pulling out entire economic system into a depression.
2. A Washington Post Front Page Hack Job - The Washington Post does a hit job on McCain, grossly distorting his record on regulatory matters and ignoring his cosponsoring of legislation to establish much stronger regulation of Fannie Mae and Freddie Mac.
3. Dodging a Depression - The NYT and WSJ document just how serious is the subprime crisis. Quite literally it brought us to the point of a complete and catastrophic stoppage of our financial systems. This was not a stock market crash, it was a lending and credit crash. The WSJ describes the events of the week leading up to the crisis point.
4. Obama & The "Family" Of Fannie Mae - Documenting Obama’s relationship to Fannie Mae.
5. The Origins – And Foreseeability – Of the Subprime Crisis - A 1999 article in the NYT describes the Clinton Administration forcing subprime loans onto America and also forecasts that this will create a house of cards that will fall apart in a down market.
6. Covering The Left’s Fannie - The NYT tries to play up old ties of a McCain campaign worker with Fannie Mae while minimizing the fact that McCain himself, in 2005, co-sponsored legislation that may well have prevented the fiscal crisis we are in now.
7. The Left’s Subprime Meltdown - A post by the Anchoress discusses this subprime crisis as a creation of the left and a system that was protected to the end by the left. She adds additional sites, quotes and links to explain the mosaic.
8. Fannie & Freddie, McCain & Obama, Subprime & Wall St.The WSJ discusses both how the subprime loan market came about and how Democrats, including Obama, were both the cause of the problem and the roadblock to a solution that would have averted this catastrophe. Dafydd at Big Lizard's explains how Mortgage Backed Securities worked on Wall Street.
9. A Doddering Fool & Charlatan - Chris Dodd is up to his ears in the subprime crisis. With our economy teetering on an actual depression due to the Fannie/Freddie/subprime loan crisis, it was not merely surreal to watch Senator Chris Dodd chair an emergency hearing of the Senate Banking Committee to evaluate the Treasury's proposed rescue plan, it was obscene.
10. Finally – Oversight - The FBI has finally announced criminal investigations at Fannie and Freddie.
11. When Will They File As A 527 – The NYT continues its wholly biased reporting on the subprime crisis, refusing to report on the genesis of the crisis and instead, reporting on the relationship between Fannie Mae and Rick Davis of McCain’s campaign team.
12. McCain The Chessmaster - Opining on the potential risks and rewards of McCain's decision to cancel campaigning, return to Washington to take part in negotiations over a response to the subprime crisis, and tentatively cancel the Friday debate.
13. The President Addresses The Nation - Bush explains the stakes involved for America with the subprime crisis.
14. McCain The Chessmaster Part II - McCain was responding to a 3 a.m. phone call in returning to Washington. He is given political cover and support by Bill Clinton.
15. A Spotlight On The Left's Subprime Crisis - A video summary of the origins of the subprime crisis with lots of footage of Rep. Barney Frank and others protecting Fannie Mae from regulation by the Bush Administration and McCain.
16. WaMu Swallowed Up In The Left's Subprime Swamp - Washington Mutual goes under because of toxic mortgage debt.
17. Great Moments In Leadership - Obama phones it in on the subprime crisis.
18. The "No Deal" - McCain Responds - The left is blaiming McCain for failure of a deal on the subprime crisis. McCain answers in a memo.
19. Dodd, ACORN, and the Penultimate Screwing of the Taxpayers - The left, the people responsible for the subprime crisis, proposed a deal that would have used the return on rehabilitated investments not for the benefit of taxpayers but to fund progressive advocacy organizations that are fundamentally corrupt.
20. Krauthammer On The Subprime Crisis: Time For A Return To Public Executions - America is livid over this fiscal crisis and wants a pound of flesh to satiate its cravings before beginning the job of putting our financial house back in order. Krauthammer things we should give it to them and suggests a return to the auto de fe, this time as a reality show.
21. The Subprime Crisis, Dems, Obama & McCain - a great video giving the history of the subprime crisis.
22. Subprime Crisis: Spin versus C-Span - a video of 2004 hearings in which the House Democrats heaped scorn on the idea that Fannie Mae and Freddie Mac were a disaster waiting to happen and fighting tooth and nail to preven any further regulation of Fannie and Freddie.
23. Thomas Sowell On The Subprime Crisis & Proposed Bailout - Economist Thomas Sowell weighs in on the need for the proposed bailout to stabilize the market and the politics at the root of this fiscal crisis.
Congressional leaders and the Bush administration reached a tentative agreement early Sunday on what may become the largest financial bailout in American history, authorizing the Treasury to purchase $700 billion in troubled debt from ailing firms in an extraordinary intervention to prevent widespread economic collapse.
There is more detailed information at the WSJ:
“Mark to market” is an accounting measure that took effect last year, which forces companies to disclose information about the immediate market value of their assets. Gingrich says it has forced a “spiral” of devaluation; supporters of the practice say that it forces businesses to reveal poor investments, and is a mere scapegoat in the current debate.
You can find a detailed explanation of the accounting rule and the problems it has created in a tightening and risk averse market at the Washington Post. Changing this accounting rule might, by itself, radically effect the current subprime crisis.