SAN FRANCISCO, Oct. 15, 2008
Will U.S. Taxpayers Need A Bailout?
Declan McCullagh Says Plan To Partially Nationalize U.S. Banks Has Many Potential Perils
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Feeling the squeeze? Here's a look at actions and statements from key players in Washington.
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President Bush says the move to partially nationalize large U.S. banks, including Bank of America and Wells Fargo, is necessary to "preserve" the free market.
He may be right. But left unmentioned during this week's flurry of announcements from the Federal Reserve, the White House, and other government agencies are the potential perils.
Not all the details are clear. It appears as though the Treasury will end up owning sizable chunks of U.S. banks for the foreseeable future, whether bank executives choose to participate or not.
The almost-nationalization will happen even if, as the Wall Street Journal
delicately put it it, bank executives and shareholders are "unhappy" and oppose the idea.
This invites micromanaging from Washington, D.C. Members of Congress will have a strong incentive to demand preferential treatment for borrowers in their home districts or among politically-favored constituencies. Politicians who are members of the committees overseeing the Treasury Department's budget will enjoy outsize influence. So will Treasury and other regulators that banks must please to stay in business.
Washington bureaucrats charged with writing billion-dollar checks may be tempted to favor their former banking colleagues, especially if they plan to return to their Wall Street jobs after departing the Bush administration. As the title of this inaugural column on CBSNews.com indicates, they're spending Other People's Money, and nobody is as careful and prudent doing that as they are when their own finances are at risk.
Over time, in other words, decisions made for illegitimate political reasons may end up crowding out ones made for legitimate business reasons.
Perhaps Treasury Secretary Henry Paulson and Neel Kashkari, a 35-year-old former investment banker at Goldman Sachs hired to oversee the bailout, will demonstrate their independence from politics. But in a political culture where influence-peddling has flourished (see Stevens, Ted; Rangel, Charles; Abramoff, Jack; and Jefferson, William), it's unclear if anyone in that position can do what's best for taxpayers instead of what will please influential special interests.
To be sure, Paulson has indicated that Treasury will be buying shares without voting rights, meaning the Feds won't be choosing board members. Bush said on Tuesday that "the government's role will be limited and temporary."
On the other hand, history is littered with "temporary" laws that became permanent fixtures -- a supposedly temporary tax imposed in 1898 to fund the Spanish-American War didn't
end until 2006.
And even coordinated action with other central banks wasn't enough to prop the stock market up; the Dow Jones index closed Tuesday at 9,310, down 0.8 percent for the day, and off 34 percent from last year's highs.
Some of these potential pitfalls might have been avoided if the $700 billion bailout bill that slid through Capitol Hill two weeks ago had been crafted more carefully (or not passed at all). Like the Patriot Act seven years ago, the bailout legislation was written hastily and rushed to a vote before most legislators had a chance to understand the intricacies of a complex 442-page regulatory measure.
One change that could have been made is setting a hard cap on how much this would cost taxpayers. The law says that the Feds can purchase and hold $700 billion of assets "at any one time." That permits the Treasury to buy $700 billion worth of assets in 2008, sell those assets off gradually over the next few months at a (probable) loss, and repeat the same process in 2009. Losses to taxpayers, in a worst-case scenario, could run into the trillions.
Another problem with the law is that it's possible for a bank to buy $100 billion of bad debt--perhaps in the form of subprime mortgages that are becoming quickly worthless--declare bankruptcy, and sell it to the Treasury Department for $200 billion.
Although the Treasury Department is supposed to look out for the best interests of taxpayers, a loophole permits those kinds of unjustified windfalls if the toxic mortgages were "acquired in a merger or acquisition" or purchased as part of a bankruptcy sale. Nowadays, at least, that's a pretty huge exception.
Some of these problems can be solved through careful legislative fixes. Others go hand-in-hand with the idea of nationalizing private companies.
You can't take politics out of Washington: banks may be first in line for a handout, but other politically influential industries are in the queue.
Take the example of how bank stocks jumped on this week's news. Bank of America and Goldman Sachs are each up about 30 percent from last Friday's close, far higher than the overall market. If their shareholders have already benefited so handsomely, does anyone think General Motors, Ford, and innumerable other troubled companies won't ask for the same treatment? (In exchange, taxpayers get stuck with assets of dubious value that nobody else was willing to pay that much to buy.)
The Bush administration's economists have no doubt concluded that the theoretical benefits of partial bank nationalization outweigh the costs.
But in the real world of Washington politics, what may work in theory may not work nearly as well in reality.
Declan McCullagh is the chief political correspondent for CNET. He previously was Wired's Washington bureau chief and a reporter for Time.com and Time magazine in Washington, D.C. He has taught journalism, public policy, and First Amendment law. He is an occasional programmer, avid analog and digital photographer, and lives in the San Francisco Bay area. His e-mail address is declan.mccullagh@cnet.com
By Declan McCullagh
© MMVIII, CBS Interactive Inc. All Rights Reserved.
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See all 89 CommentsBut what congress did was the only possible way even if I didn''t like it.
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Posted by antoniof123 at 09:27 AM : Oct 15, 2008
You only think it had to be done, because you were told it had to be done. I agree that something had to be done. But that is more along the lines of criminal prosecution, not to Wall Street but with Congress. As far as I can see, those on Wall Street perhaps were unethical but they are there to make money. Congress had absolutely no reasoning on passing this bill. They admitted that! To a man they said "We don''t know what effect this bill will have, but we have to do something". So why pass it? And why rush it? And why add pork to it? What is wrong with careful analysis? Oh that%u2019s right, it HAD to be right away. Well that is wrong now isnt it. The market moves by confidence level. All Congress did was to destroy that confidence level - thank goodness that, once again, the American public saw that the markets had gone artificially low and that now was a smart time to buy.
But that argument is the other story - since you have no problem endorsing that bill, I guess you are also ok with its ramifications brought out by this article?
Congress passed it for one reason and one reason only. "Hey guys, we don''t have a clue as to what $850 billion dollars will do in this situation but if we can get to even a percentage of it - we are set"
That cycle never ends, Government needs to be out of Wall Street not deeper into it. Regulations - yes. But lets call them laws instead of regulations. We all have laws to follow, that is not government interferance.
If so then, they should have stood up and said no! Let it melt down so that it readjusts itself back to what it should be instead of this way over inflated thing we call a ''free market''.
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Heck I already do.
Yeah, right...whose backs to you propose we put that one on???
Posted by DaVicar1 at 10:01 AM : Oct 15, 2008
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Illegal working immigrants, they are alkready use to carryinbg the burden:-)
The only thing we can do is term limits. This is ridiculous, Obama has been running for president for two years. Is he collecting his paycheck as a Senator? McCain also, frig that sell-out. They will not impose term limits on themselves so we have to impose it. No matter the party and no matter the candidate - incumbents get voted out.
There is your third party for you - a group of Americans that never ever vote for an incumbent. And if there is no incumbent, then the existing party gets voted out. I''m in.
It is their own doing - they have distorted the process to become a guessing game. They refuse to truthfully discuss issues. Why should we have to deal with this roulette wheel for an extended period of time?
American slave/sheeple -- IOU''S EQUALING $TRILLIONS.
AMERICA STANDS BY AND WATCHES THEIR ENTIRE COUNTRY ROBBED FROM THEM BY A CRIME RING GOVERNMENT!!!!!!!!!!
What do you say when you witness something like that?
Cowards, shame, ignorant?
Canada, France, you''re next.
We do it all the time. Firefighters do no ask you to fill out a form prior to putting your house on a list to be saved. Our servicemen fight our enemies side by side with no asking which party you are. Republican Privates take orders from Democratic Captains - and vice versa. Your boss is a Republican, and he hires you to do a good job even if you are a Democrat. If fact - WE DONT EVEN ASK!
Yet, Congress is unable to do that?
"The 1 Term Party", I like it. So do a lot of Missourians
It''s high time to make the rich give back the money they stole. Maybe that will instill a sense of responsibility. The rich need to learn to live like the rest of us. Cindy McCain can learn to get around in one car, not 13. Or better, she can learn to get by on public transportation, like me. She can figure out her finances on one kitchen table, just like the rest of us.
"The 1 Term Party", I like it. So do a lot of Missourians
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Posted by tomar0317 at 11:09 AM : Oct 15, 2008
Just think about how possible that really is, with the internet being the communication. We have to seed it and grow it. A poster mentioned 8 years of Bush. What if it had only been 4 years?
The argument will be; What if the guy is doing a good job? Well, that''s easy. The new party vote will go to the guy promising to continue those policies. Simple. But face it, how often does that happen? Both of these guys are hitting on "change". Lets give them both a change - one they didnt expect and one they thought we would never wake up and do. BTW, this goes for State Governments also.
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Posted by randijojo at 11:29 AM : Oct 15, 2008
Similar stories from all of us. This government is not set up to help us. It swings left and right and only addresses the center at election time. Our extreme left and right vote as a block - yet those in the center are the Silent Majority and vote issues. We try to discern (as you are) how to improve our lives, and the lives of others in our community. Yet we are being lied to, by both parties. Money is being stolen, by both parties. The center is not really "wanted" by either party, they do not care about us. They know we will try our best to improve our own situation, and with pride try to do that without a handout from the government. We are a non-issue for them. The way to improve your situation is to improve your clout.
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Posted by Hacker11001 at 11:59 AM : Oct 15, 2008
Bingo! Nice post.
Partial nationalization is not the answer, if a bank is in imminent danger, we should nationalize all of it, at fire sale price, replace the old crooks with new young business and finance majors, after reading them the riot act.
The economy will never return to the overvalued size of a few weeks ago, so those who say that we can sell later at a profit are deluded, since we can be sure that Paulson will suspend mark to market in almost every case.
In short there is no "partial nationalization, we either do it all the way, or we don''t do it. Not doing it will result in a rather painful but logical market correction, full nationalization gives us control over what happens to our money, and can soften some of the pain, but "partial" measures are the same as "halfassed" measures.
1. The government creates an ability to increase minority home ownership. They back those loans with Fannie and Freddy.
2. The government ranks banks and places a high emphasis on #1 above.
3. The government corrupts Fannie and Freddy
4. The Banks say "Bail us out"
Do I have that wrong? I know it is overly simple but this is just a thread.
$700,000,000,000 worth of water can keep a lot of naked Emperors afloat!
Oh, but then the politically correct crowd would have kicked into high gear and accused those banks of racism. This is on the government totally, covers both parties, Clinton is in it big time, so is the FBI and Bush as you say. This covers a lot of ground.
Independant criminal investigations are needed - along the lines of Watergate.
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Barack Obama told a tax-burdened plumber over the weekend that his economic philosophy is to "spread the wealth around" -- a comment that may only draw fire from riled-up John McCain supporters who have taken to calling Obama a "socialist" at the Republican''''s rallies.
Obama made the remark, caught on camera, after fielding some tough questions from the plumber Sunday in Ohio, where the Democratic candidate canvassed neighborhoods and encouraged residents to vote early.
"Your new tax plan is going to tax me more, isn''''t it?" the plumber asked, complaining that he was being taxed "more and more for fulfilling the American dream."
"It''''s not that I want to punish your success. I just want to make sure that everybody who is behind you, that they''''ve got a chance for success too," Obama responded. "My attitude is that if the economy''''s good for folks from the bottom up, it''''s gonna be good for everybody ... I think when you spread the wealth around, it''''s good for everybody."
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Posted by cfin5 at 12:44 PM : Oct 15, 2008
And against the obvious will of the American People. The Senate knew that the House was in debate. The Senate hastily passed this monster, and then they left town! The House knew that "something" had to be done and done quickly and to reassemble the Senate would take too much time. So the House HAD to pass it.
What the Senate did was effectively negate the citizens representation via the House. It was planned, that is why they convened and voted. That is a conspiracy...... and is criminal.
The only question that needs to be poised to each and every member of the Senate is; "Who called you to assemble?" - answer; Hillary Clinton, John Kerry.
We can debate till the cows come home party vrs party, but this is a slam-dunk.
We as a country have been mislead,lied to,and drug into supporting so many other countries that our own cash box is empty. Putting either one of these candidates in office will not even begin to start fixing our problems until we STOP trying to support the rest of the world and start fixing problems at home.
Posted by Edward1975
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Trickle-up economics never works. :)
This stinks! We need to get to the bottom of it!
You think the war in Iraq is costing us too much? Read this: Boy, am I confused. I have been hammered with the propaganda that it is the Iraq war and the war on terror that is bankrupting us. I now find that to be RIDICULOUS. Read on...
I hope the following 14 reasons are forwarded over and over again until they are read so many times that the reader gets sick of reading them. I have included the URL''s for verification of all the following facts.
1. $11 Billion to $22 billion is spent on welfare to illegal aliens each year by state governments.
Verify at: http://tinyurl.com/zob77
2. $2.2 Billion dollars a year is spent on food assistance programs such as food stamps, WIC, and free school lunches for illegal aliens.
Verify at: http://www.cis..org/articles/2004/fiscalexec.html
3. $2.5 Billion dollars a year is spent on Medicaid for illegal aliens.
Verify at: http://wwwcis.org/articles/2004/fiscalexec.html
Verify at: http://transcripts.CNN.com/TRANSCRIPTS/0604/01/ldt.0.HTML
5. $17 Billion dollars a year is spent for education for the American-born children of illegal aliens, known as anchor babies.
Verify at: http://transcripts..cnn.com/TRANSCRIPTS/0604/01/ldt.01.html
6. $3 Million Dollars a DAY is spent to incarcerate illegal aliens.
Verify at: http://transcripts.cnn.com/TRANSCRIPTS/0604/01/ld t.01.html
7. 30% percent of all Federal Prison inmates are illegal aliens.
Verify at: http://transcripts.cnn.com/TRANSCRIPTS/0604/01/ldt.01.html
8. $90 Billion Dollars a year is spent on illegal aliens for Welfare & social services by the American taxpayers.
Verify at: http://premium.cnn.com/TRANSCIPTS/0610/29/ldt.01.html
&nb sp;
Verify at: Homeland Security Report: http://tinyurl..com/t9sht
12. The National Policy Institute, ''estimated that the total cost of mass deportation would be between $206 and $230 billion or an average cost of between $41 and $46 billion annually over a five year period.''
&nb sp; Verify at: http://www.nationalpolicyinstitute.org/pdf/deportation.pdf
13. In 2006 illegal aliens sent home $45 BILLION in remittances back to their countries of origin.
Verify at: http://www.rense.com/general75/niht.htm
14. ''The DaRk Side of Illegal Immigration: Nearly One Million *** Crimes Committed by Illegal Immigrants In The United States.''
&nb sp; Verify at: http://www.drdsk.com/articleshtml
The total cost is a whopping $338.3 BILLION DOLLARS A YEAR.
Are we THAT stupid?
If this doesn''t bother you, then just delete the message.
If, on the other hand, it raises the hair on the back of your neck, I hope you continue to forward it to every legal resident in the country including every representative in Washington, DC.
Taxes...Whether Democrat or a Republican you will find these statistics enlightening and amazing.
www.taxfoundation.org/publications/show/151.HTML
Taxes under CLINTON -1999 Taxes under BUSH-2008
Single earning: Single earning:
30K - taxed- $ 8,400 30K - taxed $ 4,500
50K - taxed $ 14,000 50K - taxed $ 12,500
75K - taxed $ 23,250 75K - taxed $ 18,750
Married earning: Married earning:
60K - taxed $ 16,800 60K - taxed $ 9,000
75K - taxed $ 21,000 75K - taxed $ 18,750
125K - taxed $ 38,750 125K - taxed $ 31,250
Barack Obama promises to return to the higher tax rates if elected. It is amazing how many people who fall into the categories above think Bush is *** them and Bill Clinton was the greatest President ever.
Remember the election in 2006? Thought you might like to read the following:
A little over one year ago:
1) Consumer confidence stood at a 2 1/2 year high;
2) Regular gasoline sold for $2.19 a gallon;
3) The unemployment rate was 4.5%.
Since voting in a Democratic Congress in 2006 we have seen:
1) Consumer confidence plummet;
2) The cost of regular gasoline soar to over $4.10 a gallon;
3) Unemployment is up to 5% (a 10% increase);
4) American households have seen $2.3 trillion in equity value evaporate (stock and mutual fund losses);
5) Americans have seen their home equity drop by $1.2 trillion dollars;
6) 1% of American homes are in foreclosure.
7) Food prices skyrocketing over 30% in 1 year.
America voted for change in 2006, and we got it!
Remember, it is Congress that makes the laws and spends our money -not the President.
He has to work with what''s handed to him
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Posted by lwc777 at 01:32 PM : Oct 15, 2008
You see there it is right there. Not the points of the statement - thats different. We do not even know how much it is! Somewhere "between" 11 and 22 Billion. That is the point. We will not know where this 750 Billion ends up.
It''s getting more and more like "1984" every day.
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Posted by lwc777 at 01:34 PM : Oct 15, 2008
People are just duped I guess. But why is that? Obviously we are not stupid. It is because in this example you are of course dead correct. But someone will point out in a post or two something that Bush is slam-dunk guilty of. It is a see-saw. we as a people should not be in the position of determining how is lying and how is telling the truth. We have to discern that prior to deciding the merits of the issue.
A politition that lies, while running for office, should be convicted of a felony. Lying while in office should result in termination. We need a way, other than impeachment, to actually fire these people. Why should I have to live under the likes of Pelosi just because San Francisco loves her? Why should my life be effected by Barney Frank, just because Mass. loves him? And Bush also, why can we not insist on a basic IQ test?
[Posted by LibH8er at 01:48 PM : Oct 15, 2008]
comments like this is what results when your an ignorant moron and you have a connection to the internet.
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