Half a trillion? Whoa! That’s more than I make in a YEAR

OK, I realize that’s an old joke, but I just basically wanted to give y’all a post on which to react to the Bush administration’s proposal for dealing with the crisis on Wall Street:

WASHINGTON — Struggling to stave off financial catastrophe, the Bush administration on Friday laid out a radical bailout plan with a jaw-dropping price tag — a takeover of a half-trillion dollars or more in worthless mortgages and other bad debt held by tottering institutions.

Relieved investors sent stocks soaring on Wall Street and around the globe. The Dow-Jones industrials average rose 368 points after surging 410 points the day before on rumors the federal action was afoot.

A grim-faced President Bush acknowledged risks to taxpayers in what would be the most sweeping government intervention to rescue failing financial institutions since the Great Depression. But he declared, "The risk of not acting would be far higher."

Here are several versions of the story:

I’m still scrambling here to get the weekend editorial and op-ed pages out, but in the meantime, what do y’all think? The market seems to like it, but those folks are easily excited…

8 thoughts on “Half a trillion? Whoa! That’s more than I make in a YEAR

  1. Karen McLeod

    As much as I understand a need for a bail-out, how are we trying to recoup money from the major stockholders who encouraged the risky behavior, and the upper management who should have known better but did not. Why are they not helping bail the compan(ies) out? I’m not suggesting we beggar them; I’m merely suggesting that if they waxed fat for 7 years, let them go on a diet for 7 (and yes, I said ‘diet’, not ‘endure famine’). I don’t expect them to completely bail out their companies; I simply think they should help. And if lending companies have engaged in illicit or merely immoral practices, then yes, they need to truly feel the pain. After all, the people they suckered are feeling plenty of it.

  2. Lee Muller

    And Jesse Jackson, ACORN, and all the other race hustlers who extorted money and demanded junk loans from Fannie Mae, Freddie Mac, AIG, Lehman Brothers, and every other lending institution, should refund it to the stockholders.

  3. martin

    Amen, Karen.
    re: the stock market reaction. It may not always be exuberant, but it certainly seems to be so irrational that you can’t put a whole lot of faith that it’s reactions will be good news for the average guy. I think that disconnect has been a major problem.

  4. p.m.

    Here’s what happened:
    Neighbors were talking over the picket fence one day.
    “You know,” one said. “I think everybody ought to be able to have a house.”
    “Well,” said the other, “if anybody could get a loan, everybody could have a house.”
    A Democrat overheard that conversation, and that concept eventually became public policy, because that kind of philosophy buys votes cheap, if you call destroying the financial system of the world’s wealthiest nation by financing pipedreams with money you don’t actually have “cheap.”
    Over the years, Republicans jumped on the wagon with the Democrats, because they couldn’t let the New Socialists have all the votes, and the weight of all those partisans and all that hot air caused a wagon wheel to crack, running Wall Street, Fannie Mae, Freddie Mac and the lot of us into the ditch.
    And now, the people who started the problem in the first place want to blame the people they fooled into playing the game their way.
    A lot of innocent people the Democrats suckered are feeling the pain, too, Karen.

  5. Mike Cakora

    Karen –
    While this article focuses on the antics of Senator Chris Dodd, it does tell the story of folks who saw this problem coming, tried to take action, but were thwarted by the US Congress. Not the whole Congress, but enough members who were either too stupid or too corrupt to realize what happens when incentives are distorted.

    Taxpayers face a tab of as much as $200 billion for a government takeover of Fannie Mae and Freddie Mac, the formerly semi-autonomous mortgage finance clearinghouses. And Sen. Christopher Dodd, the Democratic chairman of the Senate banking committee, has the gall to say in a Bloomberg Television interview: “I have a lot of questions about where was the administration over the last eight years.”
    We will save the senator some trouble. Here is what we saw firsthand at the White House from late 2002 through 2007: Starting in 2002, White House and Treasury Department economic policy staffers, with support from then-Chief of Staff Andy Card, began to press for meaningful reforms of Fannie, Freddie and other government-sponsored enterprises, known GSEs.
    The crux of their concern was this: Investors believed that the GSEs were government-backed, so shouldn’t the GSEs also be subject to meaningful government supervision?
    This was not the first time a White House had tried to confront this issue. During the Clinton years, Treasury Secretary Larry Summers and Treasury official Gary Gensler both spoke out on the issue of Fannie and Freddie’s investment portfolios, which had already begun to resemble hedge funds with risky holdings. Nor were others silent: As chairman of the Federal Reserve, Alan Greenspan regularly warned about the risks posed by Fannie and Freddie’s holdings.
    President Bush was receptive to reform. He withheld nominees for Fannie and Freddie’s boards — a presidential privilege. While it would have been valuable politically to use such positions to reward supporters, the president put good policy above good politics.

    You ought to read the rest.
    In 2004 we learned that executives at Fannie Mae were cooking the books — boosting profits — in a manner not unlike Enron’s. Franklin Raines, Fannie’s Chairman and CEO at the time, never faced criminal prosecution and ended up giving up not one cent of the $90M he’d “earned” in his role over the years: his fines were paid by Fannie’s insurance, the stock options he gave up were worthless, and about $5.3M of his fine was future compensation.
    Other Fannie board members involved in the scam were paid over $75M in bonuses yet got to keep every cent. Meanwhile, Fannie itself paid $400M in fines, an amount really paid out of its portfolio and by its shareholders.
    Were I a cruel, heartless partisan, I would point out that the guilty parties were Democrats and that Freddie and Fannie seemed to operate as fundraisers for that party.
    But I’m not, so I won’t…

  6. Lee Muller

    Fannie Mae and Freddie Mac were run by Clinton cronies with no knowledge of the financial business – Jamie Gorelick, for example, the one who wouldn’t let the FBI receive information from Army Intelligence about 9/11 hijacker cells.
    The head of Lehman Brothers is one of Obama’s advisors and fundraisers.

  7. Ralph Hightower

    The RSITC, Resolution of Stupid Idiots Trust Corporation, modeled after the RTC (Resolution Trust Corporation) for the S&L debacle, should impose requirements on the “toxic loans” that it buys from financial entities (banks, insurers, investment firms, etc.:

    • Hedge funds should be excluded;
    • Buyouts should be limited to those that are reeling from the “toxic loans”
    • If a healthy firm, such as Bank Of America, seeks the RSITC to buy their “toxic loans”, in order to improve their massive profit margin, thumbscrews should be applied to lower interest rates elsewhere in loans and credit cards.

    Countrywide was the “Poster Child of the Subprime Lending” spree and Bank of America bought a boatload of “toxic loans” when it bought Countrywide.
    Countrywide had a lot of questionable business practices. In the NY Times article published August 26, 2007, Inside the Countrywide Lending Spree:

    Countrywide’s entire operation, from its computer system to its incentive pay structure and financing arrangements, is intended to wring maximum profits out of the mortgage lending boom no matter what it costs borrowers, according to interviews with former employees and brokers who worked in different units of the company and internal documents they provided. One document, for instance, shows that until last September the computer system in the company’s subprime unit excluded borrowers’ cash reserves, which had the effect of steering them away from lower-cost loans to those that were more expensive to homeowners and more profitable to Countrywide.

    That questionable business practice of excluding cash reserves to determine credit worthiness was programmed into their computer system!
    The telemarketers manning the phone banks were programmed not to accept a “No” from the cold call. Another excerpt from the article:

    WORKDAYS at Countrywide’s mortgage lending units centered on an intense telemarketing effort, former employees said. It involved chasing down sales leads and hewing to carefully prepared scripts during telephone calls with prospects.
    One marketing manual used in Countrywide’s subprime unit during 2005, for example, walks sales representatives through the steps of a successful call. “Step 3, Borrower Information, is where the Account Executive gets on the Oasis of Rapport,” the manual states. “The Oasis of Rapport is the time spent with the client building rapport and gathering information. At this point in the sales cycle, rates, points, and fees are not discussed. The immediate objective is for the Account Executive to get to know the client and look for points of common interest. Use first names with clients as it facilitates a friendly, helpful tone.”
    If clients proved to be uninterested, the script provided ways for sales representatives to be more persuasive. Account executives encountering prospective customers who said their mortgage had been paid off, for instance, were advised to ask about a home equity loan. “Don’t you want the equity in your home to work for you?” the script said. “You can use your equity for your advantage and pay bills or get cash out. How does that sound?”

  8. Lee Muller

    Clinton cronies at the heart of mortage scandal:
    Janet Reno and Jamie Gorelick went public with threats to prosecute banks who did make enough loans to racial minorities, regardless of income, credit history, or employement.
    The Clinton administration’s White House Budget Director Franklin Raines ran Fannie and collected $50 million. Jamie Gorelick — Clinton Justice Department official — worked for Fannie and took home $26 million. Big Democrat Jim Johnson, recently on Obama’s VP search committee, has hauled in millions from his Fannie Mae CEO job.


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