Were Healthy Banks Forced Forced to Surrender Ownership Stakes to Government?
Were Healthy Banks Forced Forced to Surrender Ownership Stakes to Government? It’s question that needs to be answered… From reading this CNSNews.com piece it would seem at least a few “healthy” banks were forced into surrendering ownership stakes to the government:
Last October, then-Treasury Secretary Henry Paulson ordered nine banks that the Treasury Department described as “healthy” financial institutions to surrender ownership interests to the government or else face regulatory action that would force them to surrender ownership interests to the government, according to an internal Treasury Department document.
Paulson’s extraordinary threat culminated in one of the most sweeping government intrusions into the free-enterprise system in the history of the United States.
Judicial Watch, a nonpartisan watchdog organization, used the Freedom of Information Act to obtain a copy of the internal Treasury Department “talking points” that were prepared for Paulson to use at his Oct. 13, 2008 meeting with the chief executive officers (CEOs) of the nine banks.
At the meeting–to which the bankers were called at short notice–Paulson made a conspicuous display of potential government regulatory power.
Paulson was flanked by Federal Reserve Chairman Ben Bernanke; current Treasury Secretary Timothy Geithner (who was then president of the Federal Reserve Bank of New York); Federal Deposit Insurance Corporation (FDIC) Chairman Sheila Bair and Comptroller of the Currency John C. Dugan.
While none of these regulators have responded to inquiries by CNSNews.com, the talking points mention each by first name.
Putting aside for the problems associated with the Federal Government bailing out failing private enterprises… Government officials should not under any circumstances be forcing healthy institutions to surrender ownership stakes to the government. It wreaks of socialism!
Creeping Socialism: Bush Defends Citigroup Bailout
I’m at a loss for words here… From the AP via Michelle Malkin:
President Bush argued Monday that the government’s dramatic rescue of Citigroup was necessary to “safeguard the financial system” and help the economy recover, and he said there could be more such moves if other institutions need help.
Bush said he approved the action, recommended by Treasury Secretary Henry Paulson, while flying back to Washington on Sunday evening from meetings in Peru with Pacific Rim leaders. He said he also spoke with President-elect Barack Obama on Sunday night, part of what he has promised will be “close cooperation” between his administration and the Obama camp.
Referring to the Citigroup rescue, Bush said, “We have made these kind of decisions in the past. We made one last night. And if need be we will make these kind of decisions to safeguard our financial system in the future.” Read the rest…
They say the definition of insanity is when you keep doing the same thing over and over and expecting different results… We can’t keep printing money and think we can inflate our way out of this crisis.
If you haven’t read Christopher Woods Op Ed “The Fed Is Out of Ammunition” in today’s Wall Street Journal you should. While I disagree with his suggestion that we return to the gold standard – not that it’s a bad idea, I just don’t think we can get that Gennie in back the bottle at this point… Woods does an excellent job of explaining why the current bailout circus is doomed to fail.
Dick Armey: Bush Plan to Buy Bank Stocks Should Face Constitutional Challenge
Via CNSNews.com:
Former House Majority Leader Dick Armey (R-Texas) said that the Bush administration’s plan to buy $250 billion in stock in U.S. banks should be challenged in federal court as unconstitutional.
“I think that it is subject to a serious constitutional challenge,” Armey said in a conference call with reporters on Tuesday. “It is very important that this challenge be made. We had challenges of this nature against Roosevelt. I think it is extremely healthy that we challenge this, and it should be challenged.”
Freedom Works, the organization headed by Armey, is researching the possibility of a challenge to the plan.
President Bush announced Tuesday that the Treasury Department will utilize a little-known provision of the $700 billion bailout package approved last week by Congress to spend $250 billion to buy non-voting shares of stock (equity stakes) in nine of the country’s largest banks.
Never mind President Bush’s plan to buy bank stocks… What about the whole $700 billion Bush/Bernanke/Paulson bailout plan… Is it Constitutional?
One of the things that bothered me about the rush to ram that crap sandwich down taxpayers throats was the lack of debate. We never got answers to the most fundamental question is this plan Constitutional?
Update: from the Washington Post…
Smaller Banks Resist Federal Cash Infusions
By Binyamin Appelbaum
Washington Post Staff Writer
Wednesday, October 15, 2008; Page A01Community banking executives around the country responded with anger yesterday to the Bush administration’s strategy of investing $250 billion in financial firms, saying they don’t need the money, resent the intrusion and feel it’s unfair to rescue companies from their own mistakes.
But regulators said some banks will be pressed to take the taxpayer dollars anyway. Others banks judged too sick to save will be allowed to fail.
The government also said yesterday that it will guarantee up to $1.4 trillion of private investment in banks. The combination of public and private investment is intended to refill coffers emptied by losses on real estate lending. With the additional money, the government expects, banks would be able to start making additional loans, boosting the economy.
H/T: Hot Air.
Ouch… Someone’s Not Happy
Someone’s not happy about the Bush/Paulson/Bernanky bailout plan.
H/T: Kathryn Jean Lopez.
Senate Passes Crap Sandwich 2.0 74-25
From the Wall Street Journal:
Senate Passes Bailout Package
House Passage Remains Less CertainWASHINGTON — The Senate’s revamped bailout package drew support from 74 lawmakers in a roll call vote Wednesday evening, and the measure will now return to the balky House of Representatives for another vote following its unexpected rejection on Monday.
U.S. Senate Majority Leader Harry Reid speaks to the media on Capitol Hill on Wednesday.
The Senate approved a new bill loaded with tax breaks for business and an increase in deposit-insurance limits. It will be taken up in the House Friday.
The Senate bill is the latest twist in a dramatic week for a plan the president has said is vital to ensure the proper functioning of financial markets and, by extension, the broader economy. On Monday, the House delivered a stunning defeat to an earlier version of the bill amid a populist backlash from voters, tanking stock markets.
Stunned by the market reaction, lawmakers regrouped and added new items to the bill to win the extra needed support. One big change is the introduction of a 10-year, $150.5 billion package of tax proposals, including measures to ease the bite of the so-called alternative minimum tax and research-and-development tax credits coveted by high-tech companies and drug makers.
Count me among those who agree with Newt Gingrich… The Bush Administration’s handling of this has been irresponsible.
From CNSNews.com:
Bush’s Handling of Financial Crisis ‘Irresponsible,’ Gingrich Says
Wednesday, October 01, 2008
By Tiffany Gabbay(CNSNews.com) – Former House Speaker Newt Gingrich blasted President George Bush and Treasury Secretary Henry Paulson Tuesday over the proposed financial bailout, saying the president “is being absolutely irresponsible” in his handling of the problem.
“There are steps that the administration could take today that would dramatically improve where we are immediately, without legislation” Gingrich said.
“If the president believes anything he is saying in his speeches about how big this crisis is, he should pick up the phone this morning and call SEC (Securities and Exchange Commission) Chairman Chris Cox and tell him to suspend the ‘mark-to-market’ accounting rules, which are the fundamental problem today and can be suspended.”
The mark-to-market system of accounting requires all assets, mortgages, and holdings to be valued at their current market value, regardless of whether that reflects their true worth.
It is an accounting practice that “literally hundreds of the most revered economists” blame for 70 percent of the current problem in the financial markets, Gingrich said.
“If you calculate 70 percent of $700 billion, that is $490 billion” he said.
Lets hope Republicans in the House can kill this turkey once and for all… Let them know what think: 202-224-3121.
Bailout Deal Reached?
The Wall Street Journal is reporting that lawmakers reached a tentative bailout deal overnight:
Top U.S. policy makers emerged from hours of tense negotiations with a clear message just after midnight Sunday morning: A deal to bailout U.S. financial markets has been agreed on and all that remains to be done is to commit the legislation to paper.
Treasury Secretary Henry Paulson, House Speaker Nancy Pelosi (D., Calif.), and Senate Majority Leader Harry Reid (D.), were flanked by key negotiators in the Capitol as they announced that a $700 billion plan to have Treasury buy up toxic assets had been all but finalized after hours of exhausting negotiations.
“I think we’re there,” an exhausted Mr. Paulson said, a sentiment echoed in the statements of negotiators such as House Financial Services Chairman Barney Frank (D., Mass.) and Senate Banking Committee head Christopher Dodd (D., Conn.).
Those present said the bailout plan still needs to be drafted in its final form, a process staff members were expected to continue throughout the night in what one aide called a “marathon drafting session” in Ms. Pelosi’s office just off the rotunda in the Capitol building. A formal announcement is scheduled for some time Sunday, though an exact time and location were not immediately available.
A summary of the tentative agreement released by Ms. Pelosi’s office said the plan “gives taxpayers an ownership stake and profit-making opportunities with participating companies; puts taxpayers first in line to recover assets if a participating company fails; (and) guarantees taxpayers are repaid in full — if other protections have not actually produced a profit.” (See Ms. Pelosi’s summary.)
Additionally, the summary said 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.”
A House Democratic aide said 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.
I’ll reserve comment until I see a markup of the final bill.
Update: Ed Morrissey has more at Hot Air… It looks like House Republicans were able to get most of the pork removed from the bill.
Update (1:50 p.m. eastern): House Republican Whip Roy Blunt’s office has released a side by side comparison of the new bill versus the Paulson Plan and the Frank-Dodd bill.
The new bill does look more palatable but the devil’s in the details… I what to see the final bill and the conference report before I say yea or nay.
Update (4:10 p.m. eastern): N.Z. Bear @ Porkbusters has the draft bill… (H/T: MM)
Update (6:40 p.m. eastern): Michelle Malkin has an updated draft and a quick and dirty analisys of the bill.
This thing stinks to high heaven… Unfortunately I think this bailout has become a necessary evil – the Bush Administration, Congress and the media have painted us into a corner and if this bill doesn’t pass Secretary Paulson’s dire warnings will ultimately become a self-fulfilling prophecy.
Bailing on the Bailout?
It looks like the bailout deal, if there ever was one, is collapsing… Democrats and Paulson are whining.
ABC News’ George Stephanopoulos Reports: Treasury Secretary Henry Paulson fears the Wall Street bailout deal is falling apart after a chaotic White House meeting, sources say.
Paulson walked into the room where Democrats were caucusing after today’s meeting at the White House and pleaded with them, “Please don’t blow this up.”
Rep. Barney Frank, D-Mass., chair of the House Financial Services Committee was livid saying, “Don’t say that to us after all we’ve been through!”
House Speaker Nancy Pelosi said, “We’re not the ones trying to blow this up; it’s the House Republicans.”
“I know, I know,” Paulson replied.
Chris Dodd’s trying to pin the blame on McCain:
At a press conference earlier yesterday on Capitol Hill, Senator Dodd and his fellow negotiators claimed they had reached a bipartisan consensus on the plan.
But he claimed that Mr McCain’s involvement threw a spanner in the works.
After the hour-long White House meeting, he said: ‘What has happened here is that we have spent seven straight days to find a rescue plan for the economy.
‘What this looked like was a rescue plan for John McCain. To be distracted for two to three hours by political theatre doesn’t help.’
Democrats said the Republicans were on board with the deal until Mr McCain intervened.
There’s just one problem… McCain didn’t bring up those proposals.
Personally, the Paulson plan is a non-starter with me… I much prefer the alternatives offered by House Republicans:
- Rather than providing taxpayer funded purchases of frozen mortgage assets, we should adopt a mortgage insurance approach to solve the problem.
- Currently the federal government insures approximately half of all mortgage backed securities. (MBS) We can insure the rest of current outstanding MBS; however, rather than taxpayers funding insurance, the holders of these assets should pay for it. Treasury Department can design a system to charge premiums to the holders of MBS to fully finance this insurance.
- Have Private Capital Injection to the Financial Markets, Not Tax Dollars. Instead of injecting taxpayer capital into the market to produce liquidity, private capital can be drawn into the market by removing regulatory and tax barriers that are currently blocking private capital formation. Too much private capital is sitting on the sidelines during this crisis.
- Temporary tax relief provisions can help companies free up capital to maintain operations, create jobs, and lend to one another. In addition, we should allow for a temporary suspension of dividend payments by financial institutions and other regulatory measures to address the problems surrounding private capital liquidity.
- Immediate Transparency, Oversight, and Market Reform. Require participating firms to disclose to Treasury the value of their mortgage assets on their books, the value of any private bids within the last year for such assets, and their last audit report.
- Wall Street Executives should not benefit from taxpayer funding. Call on the SEC to review the performance of the Credit Rating Agencies and their ability to accurately reflect the risks of these failed investment securities.
- Create a blue ribbon panel with representatives of Treasury, SEC, and the Fed to make recommendations to Congress for reforms of the financial sector by January 1, 2009.
Unfortunately, I think we’ve reached the point where a bailout is necessary evil, I’m not convinced that tax payers should be the ones footing the bill though.Regardless unless they remove the foolish government regulations that effectively force banks to make risky loans we’re going to be right back here somewhere down the road.
A Failure of Leadership
What I said yesterday about McCain and leadership… Scratch that. My first reaction to John McCain’s announcement that he was suspending his campaign and returning Washington to help craft a financial bailout plan was positive. I though it was bold move that could pay huge dividends down the road.
This morning, after rolling it around in my head all night, I think it’s probably the dumbest thing I’ve ever seen a candidate do… It’s not bold leadership, it’s populist political pandering that may very well end up costing John McCain the election.
The last I checked George W. Bush was still the President, Henry Paulson was still the Secretary of the Treasury, Ben Bernanke was the Chairman of the Federal Reserve, and there are 533 members of congress not running for President. It’s their responsibility to hammer out an acceptable bill.
John McCain and Barack Obama belong out on the campaign trail talking about their respective philosophies for the future of our country not sitting in Washington pretending to be bipartisan.
Tomorrow night’s debate should go on as scheduled as should the the Vice Presidential debate on October 2nd. Barack Obama is right “Presidents are going to have to deal with more than one thing at a time. It’s not necessary for us to think that we can only do one thing and suspend everything else.”
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