Bush: No Gov't Takeovers Via Bailout

Reassures Business Leaders That Feds Will Not Control Private Companies Through Purchase Of Stock With Public Money

(CBS/AP)  President George W. Bush says the United States' "serious financial crisis" has moved beyond Wall Street. But he says Americans can be confident government actions will set things right over time.

Mr. Bush, offering his reassurances in a speech to the U.S. Chamber of Commerce Friday, said the rescue moves are "big enough and bold enough to work."

But he also spoke to critics who believe the infusion of $700 billion of public money into private businesses, such as through the purchase of stock in struggling financial institutions, represents a nationalization of banks and other private companies. "This is simply not the case," Mr. Bush said.

He said the program was designed to ensure that the government's participation was limited in size and duration, and it will invest only in those companies that choose to accept the government's investment.

As further assurance that the federal government will not intrude on business, he said, "The government will not exercise control over any private firm. Federal officers will not have a seat around your local bank's boardroom table. Shares owned by the government will have voting rights that can be used only to protect the taxpayers' investment, not to direct the firm's operations.

"The government intervention is not a government takeover," Mr. Bush said. "Its purpose is not to weaken the free market; it is to preserve the free market."

As further reassurance, he declared, "We must not blur the line between the government and the private sector."

He said the costly measures being implemented by the federal government were taken as a last resort, and that if the government had not acted, "the hole in our financial system would have grown larger. Families and firms would have had an even tougher time getting loans and ultimately the government would have been forced to respond with even more drastic and costly measures later on."

He said that companies would have incentives to replace the taxpayers' investment with private capital once markets stabilize.

The president alluded to past examples where the government took partial ownership of private companies and banks, such as during the savings & loan collapse. "In every case, the government relinquished its ownership stake after the crisis ended, and they will do so again.

He also spoke of how the U.S. is working with European nations to resolve what has become a global crisis. He said, "We're determined to overcome this challenge together."

In conclusion, Mr. Bush said the next president must ensure that new laws and regulations aimed at protecting investors do not limit the ability of American firms to raise capital or put U.S. companies and workers at a competitive disadvantage. He also warned that the financial crisis - and the huge cost of the federal government's investment, only some of which might be paid back through dividends and stock sell-offs - might serve as an excuse to raise taxes, "which would only make the problem worse."

Battling Worst Financial Crisis In Decades

Earlier this week, the Treasury Department announced it would inject up to $250 billion in U.S. banks in return for partial ownership stakes, something that hasn't been done since the Great Depression of the 1930s. The government hopes banks will use the capital infusions to rebuild their reserves and bolster lending to customers.

Mr. Bush and his top economic aides have repeatedly asked Americans to be patient and give the government's relief efforts time to work.

The president cautioned that it will take time to thaw out the frozen credit system so that people and businesses can get the loans they need to get the economy moving.

"The actions will take more time to have their full impact," he said this morning. "It took to a while for the credit system to freeze up, and it will take a time to thaw."

Democrats on Capitol Hill, though, insist another round of economic stimulus is needed.

So far this year, 15 banks have failed, compared with three last year. And Wall Street's five biggest investment firms were swallowed by other companies, filed bankruptcy or converted themselves into commercial banks to weather the financial storm.

At the same time of the Treasury announcement, the Federal Deposit Insurance Corp. said it would temporarily guarantee new issues of bank debt - fully protecting the money even if the institution fails.

The FDIC also said it would provide unlimited deposit insurance for non-interest bearing accounts, which are mainly used by small businesses to cover payrolls and other expenses. Frequently, these accounts exceed the current $250,000 insurance limit, so the expanded insurance should discourage nervous companies from pulling their money out.

Last week, the Fed and the world's other major central banks joined forces to slice interest rates, the first coordinated action of that kind in the Fed's history. The United States and other top economic powers adopted a five-point action plan last week and pledged to do all they can to stem the crisis.

Even with so many unprecedented steps taken, Wall Street has convulsed. On Thursday, the Dow Jones industrials finished up 401.35 points, after falling 380 points early in the session. A day earlier, the Dow fell a staggering 733 points. The index started the week with a record-shattering 936-point gain.

Fed Chairman Ben Bernanke warned this week that even if financial markets were to stabilize, the economy would not quickly snap back to good health.

Unemployment - now at 6.1 percent - could hit 7.5 percent or higher by next year. Many analysts predict the economy will shrink later this year and early next year, meeting the classic definition of a recession. Some believe the economy already jolted into reverse during the July-to-September quarter.

Americans are feeling strained as their paychecks shrink and their savings shrivel. That's causing shoppers to cut back, one of the reasons the economy is losing traction. Economic slowdowns overseas, meanwhile, are expected to crimp demand for U.S. exports, which has been a main force keeping the economy afloat.

[slim1h2o]

Posted by starleo14672 at 01:27 PM : Oct 18, 2008

Yup, harsh penalties should be paid, yet I shudder to think that these people will get off scot free, and the taxpayers will be left to fend for ourselves.


Typical!!

[starleo146]

This is a article I read and wanted to share with this forum title:How Wall Street''s Scam Artists Turned Home Mortgages Into Economic WMDs

By Joshua Holland, Posted October 18, 2008.

[starleo146]

During the 1990s, when interest rates were low around the world, the demand for more exotic "structured" investments -- including various derivatives and swaps -- skyrocketed. And the investment bankers who were structuring these fancy new bets had little to lose in giving investors what they wanted, as long as the housing market -- the hard assets underpinning all this theoretical wealth -- held up.

In order to meet the demand, those financial gurus also put enormous pressure on the lending industry to lower its standards and pump out more and more loans for everything from houses to small businesses to consumers'' spending -- the raw materials for the new investment vehicles they were creating out of the ether.

By doing so, speculators in the "unreal" financial economy had an enormous amount of influence over events in the real economy.

Think about that last point. It''s the equivalent of people who are gambling on that football game paying off the ref, or bribing a player to fumble the ball on the five-yard line.

[starleo146]

In theory, there''s nothing inherently wrong with any of this -- these are tools that allow sophisticated investors to control the amount of risk they''re taking on when they plunk down their money to buy into some sort of security. But in practice, these exotic financial instruments have the potential to devastate the world economy. And you don''t need an MBA and an intimate understanding of how "obligation acceleration derivatives" work to understand how.

You only need to understand a few central aspects of the huge market in debt-based securities that''s grown up over the past three decades. In large part, they exist in a shadowy world free of regulation or oversight, they allow investment bankers to repackage risky investments into something that appears to be relatively safe (or at least safer than they really are), and they allow investors to "leverage" their investments -- essentially buying securities that they don''t have the money to purchase -- to a far greater degree than traditional investments allow.

[starleo146]

Now, we''ve also heard a lot about "credit default swaps," "collateralized debt obligations," "structured finance products" and a lot of other finance-speak in recent weeks. Collateralized debt obligations are collections of debt -- any kind of debt, but in this case bundles of mortgages -- that are sliced and diced and sold off to investors. Credit default swaps are like a form of insurance that allows those investors to hedge their bets, in case their guts prove wrong and the debt that they''re betting will be repaid turns bad on them.

All these exotic financial vehicles are essentially contracts between two parties -- like bets between two fans -- that lay largely outside of the regulatory system that governs most of the banking sector.

[starleo146]

Writing in Salon, Andrew Leonard offered a useful metaphor. He suggested that we think of the real economy like a football game, with real flesh-and-blood players running around on a real field, hitting each other and moving a real ball toward a real goal post. All those guys, the field, the equipment -- they''re tangible, the same way that an asset like your house is tangible.

There are some people who have a direct stake in the game -- like the teams'' owners and the players'' families, agents, etc. But there are also millions of people who might bet on the outcome of the game but are in no way directly involved in the play. It''s these bets that parallel the trillions of dollars in debt-based derivatives that have become so "toxic" -- they were making some people rich when the housing market was flying, but now that it''s tanked, they''ve turned out to be bad bets, and the amount of money at stake is enormous -- far, far larger than the entire value of the U.S. housing market.

[starleo146]

There are all sorts of derivatives. They are essentially bets -- you can bet that a market will go up, or down, or that a particular company will do well or poorly. You can bet on interest rates going up or down, or the value of a country''s currency, or you can make more exotic bets about just about anything in the world -- even what the weather will be like at some point in the future.

But the current meltdown was caused by debt-backed securities tied, at some point, to the U.S. housing market. When you buy a home, that''s an asset. Presuming you make your monthly payments, the mortgage held by the bank is an asset as well. When a number of mortgages are cut up and bundled together and then sold off as a security, that''s a derivative.

[starleo146]

But the focus on home mortgages misses a crucial point: Through mid-July, banks had written off about $435 billion in bad American mortgages, a drop in the bucket relative to the size of the global economy. There''s simply no way that even a major drop in the value of the U.S. housing market could possibly threaten the economic health of most of the planet.

That''s where "derivatives" come in. These instruments, which Warren Buffet called "the real Weapons of Mass Destruction," are "worth" about $500 trillion, or roughly 10 times the output of the global economy.

So just what is a derivative? A derivative is a piece of paper that can be bought and sold for real money but isn''t attached to a real asset. Its value is simply derived from something tangible -- hence the name. You hear a lot of talk these days about the "real" nuts-and-bolts economy, and derivatives are in essence the exact opposite: They represent an unreal economy, created by financiers in mahogany-paneled office suites in New York and London, and it''s this shadow economy that teeters on the edge of collapse today, threatening to bring down much of the real economy with it.

[starleo146]

Those charges don''t even rise to the level of an argument, but that only becomes clear when you have a grasp of what all these "toxic" securities that everyone''s talking about really are.

It''s certainly true that people got in over their heads during a frenzy of home-buying and refinancing, and it''s also true that lawmakers from across the political spectrum have long tried to increase American home ownership -- it''s a politically attractive antidote to inequality.

In 2002, George Bush announced an ambitious goal to increase "the number of minority homeowners by at least 5.5 million before the end of the decade," and in 2005, before the house of cards came tumbling down, he said, "I like the idea of home ownership. %u2026 What I want is more and more people from all walks of life, including our African-Americans, opening up the door where they live and saying, welcome to my home; welcome to my piece property.

[starleo146]

But despite the dense jargon, it''s important to get a handle on this stuff. The global economy is at risk of a crash that would cause intense pain among millions of ordinary people, and not because of a few million homeowners overextending themselves, but rather as a result of a small number of savvy wheeler-dealers rigging an unregulated investment market in such a way that they''d always win no matter who else lost.

This is a story that''s easily lost in the mumbo-jumbo of market-speak, and the investment banking community -- and its political allies -- have been working feverishly to shift the blame for the mess onto the poor and people of color, Fannie Mae and Freddie Mac -- the large government-backed lenders -- community groups.

[starleo146]

The alphabet soup of exotic investments that represent the immediate cause of the banking mess is so complex that many of those "innovative" financiers responsible for bringing the global economy to the brink of collapse are now making a fortune in consulting fees explaining just what the hell it is that they created. According to the Financial Times, Robert Reoch, the London banker who may be responsible for creating the first of the now-infamous debt-based securities, is now "swamped by investors who want to extricate themselves from derivatives-linked messes, or simply to understand the products that came out of the past few years of intense financial innovation." The Washington Post reported that Joe Cassano, the financial products manager "whose complex investments led to (AIG''s) near collapse," is raking in $1 million per month in consulting fees from the ailing financial giant to help sort out the toxic sludge on (and off) the bank''s books.

[tryhonesty]

The RepubliCONs Bush, McSAME and airhead Palin have contributed to the Socialist Monarchy. Talk about the redistribution of America''s wealth to the richest top few percentile is the sole aim of the Greedy OLD Party (GOP), always has been. The RepubliCON RED banner is missing only the sickle and the hammer!!!!

[txgrouch2007]

We need someone HONEST, EXPERIENCED and KNOWEDGLEABLE who stands with and for America, and it''''s people, who will join WITH the people to regain America''''s strength, Constitutionally. The only way that will work!

Ron Paul...

Posted by Stand4Justus at 01:44 AM : Oct 18, 2008

Oh, I thought you were talking about me.

Or Ross Perot. Or my father. Or ANY SENSIBLE ADULT who has an ounce of common sense and decency.

BUT COMMON SENSE AND DECENCY ARE TABOO in our government. That''s why my Dad was never the President.

[stand4justus]

Neither candidate is capable, at this critical point, to take over this mess for 4 years. The fact that they both voted yes on this bailout and ADDED ridiculous articles of pork are proof!

We need someone HONEST, EXPERIENCED and KNOWEDGLEABLE who stands with and for America, and it''s people, who will join WITH the people to regain America''s strength, Constitutionally. The only way that will work!

Those who''s agenda to spend money or send money to other countries, large corporations, etc...are not qualified to get U.S. through this disaster which will take all of 4 years, probably more!

Ron Paul, has stood FOR THE PEOPLE consistently for 30 years...as an American, enlighten yourself to our rights, which RP stands strong for: Lots of excellent info DailyPaul.com

[brianbwb-2009]

Why Bush''s plan must fail, by Brian.

The length of time a worker remains with the same employer increases with the age at which the worker began the job. Of the jobs that workers began when they were ages 18 to 22, 72 percent of those jobs ended in less than a year and 94 percent ended in fewer than 5 years. Among jobs started by workers when they were ages 38 to 42, 31 percent ended in less than a year and 65 percent ended in fewer than 5 years.

This is why a 30-year mortgage of any kind is impossible to sustain in these modern times, any attempt to address the mortgage problem, and the economic problem as a whole, without adapting prices and mortgages to suit this condition are doomed to fail, and will actually worsen the problem.

Bush''s bailout is akin to paying off the loan shark, but leaving them to continue their criminal activities. This will only encourage more sharks, and, along with the costs of his madness in Iraq, deprive the nation of resources that can be better used to create the employment needed to restore the middle class.

It will also further devalue the dollar, putting housing even further out of reach for the general public.

[starleo146]

But one cannot overstate this: Section 8 is a singularly transformative sentence of economic policy. It transfers a significant amount of power to the Executive Branch, while walling off any avenue for oversight, and offering no guarantees in return. And if the Democrats end up content with winning a few slight concessions, they risk not putting a stop-payment on the real "blank check" - the one in which they allow the erosion of their own powers.

Over in the Senate, Christopher Dodd has proposed a bailout legislation of his own, which critically calls for "an oversight board that not only includes the chairman of the Federal Reserve and the SEC, but congressionally appointed, non-governmental officials" and would require the President to appoint an "independent inspector general to investigate the Treasury asset program." In Dodd''s legislation, Section 8 is effectively stripped from the bill.

Nevertheless, the fact that Section 8 of the Paulson plan seems to strike few as a de facto dealbreaker can and should astound. The failure of Congress to hold the line on this point would be truly embarrassing. But if we make it through this week with nobody in the press specifically informing the public about the implications of this single sentence - in the middle of a complicated bill, in the middle of a complicated time - then right there, you have the single largest media failure of this year.

[starleo146]

Section 8 is not cited by name or by content. McClatchy Newspapers also alludes to Section 8 with concern, citing the "unfettered authority" that Paulson would be granted, and noting that the "law also would preclude court review of steps Paulson might take, something Joshua Rosner, managing director of economic researcher Graham Fisher & Co. in New York, said could be used to mask previous illegal activity." Jack Balkin also gives the matter the sort of attention it deserves on his blog,

[starleo146]

The differences between this proposed bailout and the three closest historical equivalents are immense. When the Reconstruction Finance Corporation of the 1930s pumped a total of $35 billion into U.S. corporations and financial institutions, there was close government supervision and quid pro quos at every step of the way. Much of the time, the RFC became a preferred shareholder, and often appointed board members. The Home Owners Loan Corporation, which eventually refinanced one in five mortgage loans, did not operate to bail out banks but to save homeowners. And the Resolution Trust Corporation of the 1980s, created to mop up the damage of the first speculative mortgage meltdown, the S&L collapse, did not pump in money to rescue bad investments; it sorted out good assets from bad after the fact, and made sure to purge bad executives as well as bad loans. And all three of these historic cases of public recapitalization were done without suspending judicial review.

[starleo146]

The deal proposed by Paulson is nothing short of outrageous. It includes no oversight of his own closed-door operations. It merely gives congressional blessing and funding to what he has already been doing, ad hoc. He plans to retain Wall Street firms as advisors to decide just how to cut deals to value and mop up Wall Street''s dubious paper. There are to be no limits on executive compensation for the firms that get relief, and no equity share for the government in exchange for this massive infusion of capital. Both Obama and McCain have opposed the provision denying any judicial review of decisions made by Paulson -- a provision that evokes the Bush administration''s suspension of normal constitutional safeguards in its conduct of foreign policy and national security.

[toolmangler-2009]

I have been busting FromTexwLoves chops all day. You have two good posts