In a telephone press conference with reporters late Tuesday afternoon, Congressman Charlie Dent called on Congress to stay in session next week to decide on the best course of action to solving the nation's Wall Street crisis. He's wary about issuing a $700 billion "blank check" to the very financial markets who caused the Wall Street meltdown in the first place. He's unhappy that only one package is on the table. "Let's look at some other options.""There's going to be some painful solutions," he told Express Times reporter Jessica Coomes. "The question is, who's going to feel that pain?"
Dent stated resignations should be sought from those responsible, as well as limits on executive compensation packages. "There should absolutely be no golden parachutes, but there should probably also be some terminations."
Noting that Congress is scheduled to adjourn on Friday, Dent believes "it is absolutely imperative that we remain in session until we have reviewed all of the options and crafted the most effective plan to stabilize our economy. We must not let the upcoming election dictate our response and supersede our responsibility to the American people to enact a systemic response to the challenges facing our economy."
Dent noted this bailout, if approved, will increase the federal debt limit to $11.3 trillion.In July, he voted to reject a similar bailout for Freddie Mac and Fannie May, which ended up in a federal conservatorship.
Dent told Morning Call reporter Josh Drobnyk there is a philosophical discussion about capitalism on the way up and socialism on the way down. He said there's only one option on the table right now and we need a few others. "I want to make sure that whatever is done is done deliberately."
While Dent was meeting with reporters and speaking to colleagues in the House, as well as the Vice President, Sam Bennett's camp issued a press release noting that Dent has previously accepted $643,009 from the financial sector "and has been silent on this issue." That's about one-third the amount of money the financial sector donated to Speaker Pelosi. It's significantly less than the $2. 8 million the financial sector donated to Democratic Congressman Paul Kanjorski.
Candidate Sam Bennett stated, “We need reasonable reforms to make sure this never happens again. But no more blank checks for the Bush Administration. No more multimillion-dollar parting gifts for top executives."
That's pretty much what Congressman Dent was saying, too.
Mea culpa: As one of my readers points out, this bailout is $700 billion, not $700 million. Once again, I have demonstrated my finance prowess.
Why isn't Congress investigating the crooks at Fannie and Freddie? Why are there no hearings? This vindictive bunch of Democrat do-nothings hold hearings on every damn thing Keith Olberman orders them to. The reason? Simple. Freddie and Fannie were virtual, golden-lined retirement homes for former Clintonites and several serving on Barry's presidential campaign.
ReplyDeleteThis is Dollar Bill's bill coming due. All that "hope, growth, and opportunity," came at a very high price for future generations who'll have to pay to fix it. His cronies, however, are flush and laughing at the likes of Charlie Dent and the rest of us.
Anon 6:38am, they are. Congress and the FBI are investigating.
ReplyDeleteAnd this issue is way bigger than Clinton. While it started in the Clinton years, it continued it the Bush years, made worse by the Greenspan Fed, etc. More than enough blame to go around.
The Banker
What Dent is saying, in short, is we need to get the 700,000,000,000 through no matter what. I'm not sure I agree.
ReplyDeleteBasically he is willing to except some limitations and government oversight due to public outrage. Big deal.
Let them sink, the rest of us have been here for some time now. I was a dent supporter but I will not support anyone in the future who advocated for this bailout!
For $700 billion we could probably offer every qualifying American for the next 20 years a two year college education.
ReplyDeleteI think that would be a much better investment in our economy.
Banker
ReplyDeleteI agree with you on enough blame go go around but I also agree with Glenn Beck who stated that we need a "fireline" to stop the burning. I like Dent's idea of looking closely at this but the question is do we have the time to do that at this moment. I don't think so and I believe we will have to revist all of this because 1. we are already over a trillion if you include what we gave to Fannie and Freddie and 2. we will probably be looking at 2 trillion.
I think we really need to get rid of the Community Reinvestment Act particularly since information is now showing that more and more qualified minorities are getting good homes and redlining seems to be fading into the sunset. Also, I think we must exam the "mark to market" accounting tactic which appears to be used at Fannie.
The other thing I think a lot of people need to know is that a tremendous amount of blame for this is right at the doorstep of Barney Frank, Christopher Dodd and others involved in the banking committee. A bunch of these pols worked against Phil Gramm request to force the extortionist groups like ACORN to report their ties with the banks in their neigborhoods.
Yesterday Charlie Rangel asked the Fed what he would say is the taxpayers offered Wall $150 billion today with the option for the get the rest in January after they show us what they have done with th $150 billion.
ReplyDeleteHis answer was a prompt, no thanks without any elaboration. What the heck is going on???
Beats me.
ReplyDeleteThis is a big mess and I don't think Congres should be expected to hand $700 billion to the idiots who made this mess with 2 days notice.
I really would rather see Congress thumb its nose, but that may hurt innocent people.
Chris, I agree w/ you/Glenn Beck on the "fireline" issue, but I believe the current proposal is too risky to the taxpayers.
ReplyDeleteAs an example, I think auctions for the problem securities should be an open market auction (the WSJ editorial page talked about this today). The fact that Warren Buffet is picking now go make his investment in Goldman Sachs leades me to believe that there are other players out there as well who see opportunity and would be buyers. We can provide the backstop that is needed while not necessarily taking on all the risk.
I believe that these securities have value, and smart investors are going to make money buying them at steep discounts.
I believe the original intent of CRA was fine, but it has morphed into a travesty and needs to be revisited.
Mark/Market I could go on for hours. In the name of "transparency" our accounting regulations as it pertains to banking are not workable.
No argument on your Barney Frank Chris Dodd comment, they had a huge role in this, but I don't blame just them.
The Banker
This is a great thread. I'm certainly out of my league here to comment on all this, but I am learning a lot. I did find it interesting when I read that Warren Buffett was investing in Goldman Sachs right now.
ReplyDeleteDid anyone see the PCN piece with Specter and Casey last night? The reporter interviewed them in D.C. but took calls from all over PA. Amazingly, PCN let people vent their anger on the two senators, telling them they should be ashamed for not exercising better oversight over the financial industry. Several talked about their personal situations, including one guy who's already working 2 jobs to afford food, gas, heat, clothes, etc for his kids. Get this - he said the bailout would cost each family between $10,000 and $14,000!!! And Specter and Casey didn't challenge him on that figure. I like those two guys, but it was great watching them get an earful from real people.
ReplyDeleteBanker
ReplyDeleteHave not gotten to WSJ as yet today.
My question on the auction procedure is can it happen quickly and if it can't will the market stay stable if a plan involving the auctions is announced? I think it might.
I agree with you that the securities have value but it needs to be set. Will that be done prior to the bidding at auction?
When I heard Dodd on the radio today I wanted to reach through it and just strangle him.
There is an excellent article at City Journal Winter of 2000 by Husock and covers the beginning of the CRA mess and who is involved with it. www.cityjournal.com and then search of winter 2000.
Have you read BearTrap by Bill Bamber and Andrew Spencer? It deals with the fall of Bear Stearns. Available at Barnes and Noble.
Chris, I think it can happen quickly as right now it has everyone's attention. Competition will also provide justification for what's being paid by Treasury for the securities they purchase. I just totally believe that we're talking too much money here to be trusting.
ReplyDeleteI agree, it has to go quickly and
the only way this will work quickly is to rent out an arena in Washington, put everyone in there with all appropriate information, and then don't let them out until all is done. Withhold food, only allow tap water to drink, etc.
Dodd is an idiot, he well and truly scares me. If what he's proposing regarding mortgage cram-downs in bankruptcy is enacted, that will be the final torpedo into that end of the economy, mortgage rates would go through the roof.
Just found the Husock article and I'll look for the book.
Gene, I would have loved to see that PCN piece! Do you know if they're going to rebroadcast it?
The Banker
Banker, I have to admit I'm with Pete on this. This is a complicated area and somewhat beyond me. When I listened in on Dent's press conference yesrterday, I did not even feel qualified enough to ask a question. Fortunately, the two reporters were way ahead of me.
ReplyDeleteI really appreciate the insight you bring to this conversation.
Bernie
ReplyDeleteI have been writing about this issue on my blog. It might help you understand what is going on as it would help others.
I am covering it in a bit of a series because of the facets of the problem. I need to look at Sarbanes-Oxley, a law that came about as a result of Enron. It is an accounting practice.
You can get to my Blog by clicking on Committee of Correspondence at Bernie's blog. Please feel free to make a comments particularly if I am not clear on an issue. Banker, you can and tell me of any errors.
I emailed my Senators this morning. I see it as a necessary action to avoid the meltdown of our banking system. If the later happened, the average joe would really scream. Consumer credit, commercial credit, retirement accounts, all and more would disappear. I also think its OK to have these CEOs give back their wild salaries but I also question the Government, with its regulations that encouraged lending/home-ownership to those who could not afford it, i.e. the community reinvestment act. The mess is water under the bridge and must be cleaned up now. Hence this needed action. Its not exactly a bailout because the government will hold the underlying asset, purchased at a fraction of cost, and will recoup some of that money. In fact, the government is already in the real estate business, See, e.g. USDA property resales. As to Buffet, he got a wonder deal. 10% return on the faith and credit of GS with preferred stock (i.e. first in line after the creditors) . You'd only wish for a fixed 10% return with preferred stock. With those terms, think of the cost of a privately funded "bailout" and what it would do to the banking systems. No, I think the Gov. must step in. Hold their nose and vote. They're there to make the hard choices. Now is the time
ReplyDeleteWe're paying for the Community Reinvestment Act by federalizing almost a trillion dollars of our economy. Where are the politicians who were so hell bent on home ownership for the tragically unprepared? No documentation? $20K in income? No problem. Here's a $300K mortgage!
ReplyDeleteThis bailout is an insurance policy against that which is already known to be bad. I say enough already. People are going to be hurt for making stupid decisions. I've had to pay for a few of my own over the years. 95% of the rest of us who pay our obligations as promised should stop the madness.
This bailout socializes the losses of a bunch of gangsters.
While I don't like the idea of adding another $700 billion (or more) to our ever increasing debt, I believe this needs to be done to provide the "fire line". Without some specific action the stock market will continue to decline and the money flight from stocks to money market funds to treasuries will accelerate. Both of these have profound negative implications not only for Wall Street but for Main Street as well.
ReplyDeleteJust to go through a few examples for those that think what's happening now doesn't effect them. Take the decline in the stock market. This directly impacts those companies and government entities that have a defined benefit pension plan. As these plans have to be maintained at a level to provide the promised benefits any decrease in value increases the annual funding requirement. To be specific for government this means more money going towards the pension plan and less towards other services (such as police or human services) and/or a tax increase to cover the shortfall.
Another example is the money flight in 401K plans. There is over $1 trillion dollars invested in 401K plans in the US. Last week plan holders were looking at and reading about a stock market ready to drop and drop significantly. The reaction to this was to move money from stock funds to money market funds (which had the effect of accelerating the decline in the market). But many did not stop there and moved their money in to treasuries (if provided in their plan). This trend also accelerated as there were some money market funds that did or looked like they were going to "break the buck". This means they no longer had a stable asset value of $1.00 per share and were in distress. As money market funds invest (among other things) in banker's acceptances, CD's and commercial paper any significant demand for cash (to transfer to treasuries) means that those assets have to be dumped which negatively impacts the market for those very instruments. For those that say - So what?
Reduced Banker's Acceptances = reduced trade.
Reduced CD's = reduced money that banks have to loan for people to buy cars, appliances or to use their credit cards.
Reduced commercial paper = reduced working capital to buy inventory or pay bills.
None of these are good for the economy and have the potential to turn an economic slowdown into a severe recession. Simply put, some sort of "fire line" is required to restore a level of confidence and stop the flow of massive amounts of money being made by people looking to protect their savings.
Dean N Browning
Bernie, thanks for the kind words, I'm happy to contribute and I learn a lot on here, from you, Chris and many others.
ReplyDeleteBy no means do I have all the answers, and I enjoy going back/forth on topics to learn more.
Chris, I'll read your blog, more than happy to contribute if I can. Have fun reviewing Sarbanes-Oxley. I come at that reg from the community bank perspective, and it was a travesty - all it did was layer $300-$500,000/year in operating expenses on a small bank with no material increase in investor safety. As an example, you may remember that American Bank in Allentown deregistered its stock last year to avoide SOX compliance costs.
NLVLogic, watch out for what the purchase prices will be under the Treasury program. Both Bernanke and Paulson have been quoted as wanting to pay "maturity value" for these instruments, which means no fire sale. All the more reason for my view that we need a public auction, there's too much opportunity here for stuff to happen.
The Banker
NLVLogic, watch out for what the purchase prices will be under the Treasury program
ReplyDeleteAgreed. And I understand maturity value is much worse than cost or book value. I'd think the purchase price would be somewhere between book and market value. Maturity value, which included the risk component, is nothing other than bailout.
NLV, it's going to be interesting. In my opinion trying to pay anything like that that would be a real problem - Given the uncertainty of the underlying mortgage assets, the only way to ascribe that kind of value would be through the WAG method (wild ass guess).
ReplyDeleteThe Banker
No. This is the US Government. They will use SWAG (silly wild ass guess).
ReplyDeleteDean, I stand corrected! I do most of my work at the state and local levels, forgive me.
ReplyDeleteThe Banker
Dean/Banker
ReplyDeleteThats FSWAG, for reasons you well kno!
NLV
I wish I could contribute to this discussion, but I'm a Democrat.
ReplyDelete"I wish I could contribute to this discussion, but I'm a Democrat."
ReplyDeletePoint well taken. Democrats have contributed quite enough to this already.
Hope, growth, and opportunity y'all!
Sincerely,
Your friendly Obama advisors at Fannie Mae,
Franklin Raines, former Clinton administration budget director ($90M)
James Johnson, former aide to Democratic Vice President Walter Mondale ($21M)
Jamie Gorelick, former Clinton administration deputy attorney general ($26M)
Banker,
ReplyDelete"I believe the original intent of CRA was fine, but it has morphed into a travesty and needs to be revisited."
This is the WHOLE PROBLEM. It is not the government's job to engage in noble goals. That violates our Founding Principles of limited government.
All these noble goals have created far worse problems, and solved none of the original problems that such programs were created to solve.
Until Americans reject the idea that government should be in the business of doing 'good things' we will continue on the road to bankruptcy.
Sorry, but it really is that simple.
Government needs to focus on its most basic functions and do those well. Yet, they even fail at that! So why expand its role?
Dean,
ReplyDeleteEveryone keeps arguing that this "needs to be done".
Yet, no one, except a few "whackjob conservatives" like me want to discuss the CAUSE of this problem.
The government caused this problem.
The government needs to get out of the mortgage business.
The government needs to get out of the business of 'helping people' or engaging in 'noble goals'.
The government shoule be out of private enterprise. (Except for enforcing the law, and even the laws should not have some 'good goal'.)
Yes, we must do something. But doesn't that 'something' include getting the government out of the mortgage business? Or are there serious people who will argue that there will be no mortgages without the government?
Government needs to focus on doing its priority functions well - which it tends to fail at. Why expand it into other areas?
Yeah Bo according to these 'experts' you contributed by voting for Democrats.
ReplyDeleteThank God the Republican Congress and President took care of this after Clinton left or we would be in a real ...oh never mind.
Yeah and Carter and Jackson really screwed up our future.
You folks are great entertainment. Push privatizing Social Security now, the American public at large is real confident in your expertise.
Remember the Savings and Loan bailout, that involved another Bush, brother Neil. Glad to see competence runs in the family.
Damn, Dem's!
More, Please...Mr. Hannity.
My statement was meant as a joke, and I'm sorry to have interjected political parties into a complicated problem that cuts across party lines.
ReplyDeleteJoe, I agree to a point - but when you have a business that, like banking, is directly supported by a gov't program (FDIC Insurance) then it is within the purview of the government to enact regulations that are more onerous than would otherwise be the case.
ReplyDeleteThe original intent of CRA was to require banks to make loans in all the communities from which it took deposits. Practically speaking, this means that if a bank is accepting deposits in downtown Allentown (a low / moderate income area) then it must also make loans in that area. There is nothing wrong with this regulation.
What happened next is congressmen and regulators twisted the regulation to require banks to make poor loans on those communities.
It wasn't a bad regulation, it was very poor interpretation (to be kind) and twisting (to not be kind).
I wish I could hold your view that things should be so simple, but in a regulated industry (which banking HAS to be), it is not simple.
The Banker
Joe, government played a large role in this problem, but it was by no means just the govt's fault. There is so much blame to go around on this one it's disgusting.
ReplyDeleteI will say this - if Chris Dodd's idea to give bankruptcy judges the ability to cram down mortgage balances passes, we'll need the government to be in the mortgage business because private industry will price mortgages the same as other consumer credit - a hell of a lot higher than now.
As I said in my prior post, there are some industries that simply have to be governed, and banking is one of them so that banking services are provided to all communities on a fair basis.
I will say that I don't feel this way about many industries, and for most I'd agree w/ you. But not this one.
The Banker
Bernie, you're right - R's have a better sense of humor.
ReplyDeleteThe Banker
Joe:
ReplyDeleteIn your previous comment I think you give yourself too much credit. There are many folks who are discussing the causes of the current problem (and there a number of contributors besides just government expanding into areas it shouldn't). But that wasn't the purpose of my original post. My purpose was to give my view on why some government intervention was necessary at this point.
As an analogy, we have a raging fire and your approach seems to be that we should let it burn while focusing on determining who piled up the kindling, who lit the match, who unplugged the smoke detector, etc. My approach was to say that right now we need to concentrate on putting the fire out as quickly as possible and on who is best equipped to do that job.
Anyone who thinks that nothing should be done and that market forces should be left to work this out is simply not thinking things through. This has the potential to take our whole economy down.
Dean
Annon 9:07
ReplyDeleteYour humor is just fine. Since this Blog became a subsidiary of Faux News, the one liners are as transparent as Rush L.'s drug use.
Oh snap, thats not funny either. I better go cook some books, its what I'm good at.
The Baker
Bernie,
ReplyDeleteYour headline in incorrect,. It is $700 billion, not million, big difference.
God, am I an idiot! I'll do a correction. Thanks for pointing it out.
ReplyDeleteBanker
ReplyDeleteWhy such high costs for Sarbanes Oxley?
I did get a look at it and it is the legislation that caused the institutions to operate under "mark to market". One of the things I caught about it is that it can cause a domino effect if one lender falls. Apparently all the other financials have to re marked to market price of the fallen lender. That, from my view point, has to be a complete kick in the posterior and I would think unnecessary.