Saturday, September 27, 2008

Weekend Edition
September 27-28, 2008

BREAKING NEWS: Congress, White House Reach Financial Bailout Deal

Sarah Palin On The Economy Interview with Katie Couric (Video)

John Gapper: Whatever is good for Goldman ... A lot of people used to think that Goldman Sachs ran the US economy. Now we know it does.They have been very adept at first making money for themselves and then trading the financier’s life for that of the power broker.This Wall Street crash, however, has made the latent conflict of interest between Goldman’s public and private faces uncomfortably real. Mr Paulson insists that, in his current job, he cares only about “the American taxpayer”, yet Goldman has been one of the prime beneficiaries of recent interventions by the Treasury and the Federal Reserve.

Robert P. Murphy: Wall Street Plan Won't Aid Recovery Whatever the intention, last week's historic interventions in the financial market may end up costing taxpayers hundreds of billions. In exchange for this immense price tag, the measures will paradoxically reduce transparency and make it harder for cash-strapped financial institutions to raise private money. (Includes excellent discussion of Credit Default Swaps and short-sales)

Wachovia Shares Fall After WaMu Failure Shares of North Carolina-based Wachovia Corp. fell more than 35% Friday following the failure of Washington Mutual. Wachovia is the largest originator of mortgages called "option ARMs," with Washington Mutual Inc. ranking second behind it.

Bloomberg News Doctor's Fed President's Warning About Bailout The service is used by most traders on Wall Street to get quotes and financial news. Further, it employs more than 10,000 people, so it is a big deal when Bloomberg's starts to doctor the news.

Central Banks Add Liquidity On Bailout Delay The Bank of England moved on Friday to inject longer term cash into money markets as part of a co-ordinated effort with the US Federal Reserve, the European Central Bank and the Swiss National Bank.The intervention came after White House talks over a $700bn bailout for the US financial system broke up late on Thursday without agreement.

U.S. Mint Suspends Sale of 24-Karat Gold Coins The U.S. Mint is temporarily halting sales of its popular American Buffalo 24-karat gold coins because it can't keep up with soaring demand as investors seek the safety of gold amid economic turbulence.

Rudy Giuliani Forms "Task Force" To Get His Advisory Piece Of Paulson's $700 Billion "Bracewell & Giuliani LLP today announced that it has formed a multi-disciplinary Task Force to guide financial institutions, private investment funds, institutional investors and other market participants through the legislative, regulatory and enforcement challenges posed by the Troubled Asset Relief Act and other impending actions by Congress, the Treasury Department, the Federal Reserve and the SEC."

Robert P. Murphy Promises To Stop Reading Jim Cramer, Cold Turkey "OK, I confess that I have been reading Jim Cramer's analyses on CNBC, and I read his column in my wife's New York magazine whenever I see them. But that all stops NOW," says Murphy.

Leonard Liggio: U.S. Financial Crisis And Its Impact On Foreign Policy The collectivization of the sub-prime mortgage debt proposed by the US Treasury and the Federal Reserve will further expand the national debt beyond the high increases during the current Administration. It has been noted that this year the ‘Baby Boom’ generation has begun to retire, meaning a much larger deficit from the Social Security pension and medical plans. This will increase the debt during the foreseeable future. Any new Administration will be forced to make choices and cuts in the spending. Fearfully, it will seek increases in the tax burdens on productive Americans, further impeding economic recovery. The printing of dollars by the Federal Reserve and the deficit spending of the past decade as well as in the future will mean a reduced ability of the US foreign policy to influence decisions.

Lawrence H. White on Bailout Capitalism: Capitalism in which AIG never closes down is like American Idol in which Sanjaya never goes home.

How Clueless Is The SEC? They Actually Think They Are Responsible For The Financial Crisis NYT writes SEC concedes oversight flaws fueled collapse.

Friday, September 26, 2008

Robert Wenzel: THE BIG LIE: The Supposed Paulson 'Bailout' Plan Treasury Secretary Paulson's "bailout" plan has little to do with bailing out banks in trouble. In fact, if his plan is approved by Congress, it is likely the number of banks that will be in trouble will hardly decrease. Billions more in real bailout money will be needed to bail these banks out.

Pierre Lemieux: A Crisis of Global Statism When Treasury Secretary Hank Paulson says, "I don't believe in raw capitalism without regulation," he is not revealing a scoop. He is reiterating what has been official American policy for the last century. Whether the result is financial socialism with a human capitalist face, or state capitalism with a strong socialist flavor, it is a matter of choosing between a half-empty and a half-full glass.The partial exportation of American regulation to other countries has led to a sort of global financial statism

Andrew Ross Sorkin: A Bailout Above the Law Given the rush to push the bill through, even if Congress cobbles together some oversight language, it will almost surely be inadequate. Joshua Rosner, a managing director at Graham Fisher & Company, says TARP should stand for “Total Abdication of Responsibility to the Public.” He says it is “a clear abdication of all Congressional oversight and fiscal authorities to a secretary of Treasury that has bungled this crisis from the beginning.”He argues that the bill grants “greater powers to the secretary of the Treasury than even the president enjoys.”

Dodd Says White House Meeting Was a Disaster Dodd described a meeting in which Democrats were blindsided by a new core mortgage proposal from House Republicans, with the tacit backing of Republican presidential candidate John McCain. "I am not going to sign on to something I just saw this afternoon," he said. Dodd said Republicans and Treasury Secretary Henry Paulson had to decide what they wanted to support. The whole meeting "looked like a rescue plan for John McCain," Dodd said. He said he was simply going to pretend that the meeting had never happened.

Paulson: "Please Don't Blow This Up" 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

What's All This Stuff Worth? Treasury Secretary Henry M. Paulson Jr. has proposed buying troubled investments that even Wall Street is struggling to put a price on. Some worry that financial institutions will have an incentive to sell their worst assets to the government. Others point out the unique nature of these highly complex mortgage-backed securities.

Citizens Dumping Personal Junk on Wall Street to Protest Bailout An e-mail that began as a rallying cry from a lone journalist to an influential circle of friends to protest the U.S. government bailout of Wall Street has ignited a national day of street protests. Some demonstrators plan to dump their rubbish in front of the bronze bull sculpture near Wall Street in downtown Manhattan Thursday...Boyd is just one of thousands of Americans from all over the political spectrum who the Bush Administration has angered with its vague proposal to hand $700 billion over to Treasury Secretary Henry Paulson to restore U.S. financial markets' health. That anger has manifested itself online through e-mail, web sites and other online chatter, with one site,, going rapidly viral this week.

Letter to The Editor of The Washngton Post:

While witnessing, but not participating in, the home real estate frenzy in 2005 and 2006, I kept asking: Who is the idiot buying up all these mortgages issued on inflated home prices to all these people who have neither the capacity nor the intention to repay the loans?

Now I learn it was me.

TED THACKER Ann Arbor, Mich.

WaMu Is Largest U.S. Bank Failure Ever Washington Mutual Inc was closed by the U.S. government in by far the largest failure of a U.S. bank, and its banking assets were sold to JPMorgan Chase & Co for $1.9 billion.

Robert P. Murphy: Tyler Cowen Endorses (?!) Blowing Up Homes "You might think he's kidding, especially with the Swift allusion, but in context I don't think he is. can I put this?...Tyler has said crazier things in his day," says Murphy.

Rosetta Stone Looks like the IPO market is functioning. Rosetta, a maker of language learning software, has filed to raise up to $115 million in an initial public offering.

Thursday, September 25, 2008

Paul Krugman: Even If the Bailout Works, the System Will Remain Badly Undercapitalized Paulson and Bernanke are proposing to buy bad paper from everyone, not just institutions in trouble, while taking no ownership. In fact, they’ve said that they don’t want equity warrants precisely because they would lead financial institutions that aren’t in trouble to stay away. So we’re talking about a bailout specifically designed to funnel money to those who don’t need it.

Robert Higgs: The Bogus Financial Crisis The bailout is a great train robbery.(podcast)

Michael S. Rozeff: Bernanke's Premeditated Rape Bernanke had the unbelievable impudence to recommend that the government buy the bank's devalued assets at their maturity values (par) of 100, when they currently are thought to be in the range of 35 down to 0.

George Soros: Paulson Cannot Be Allowed A Blank Cheque As per usual Soros gets it about half right. He understands the problems in the Paulson Bailout proposal, but his own solution leaves a lot to be desired.

Carlyle Group May Become Mortgage Buyer The Carlyle Group is interested in buying some of what the government takes over in a planned $700 billion rescue of the financial markets. Speaking on CNBC, Carlyle Group co-founder David Rubenstein said the D.C-based private equity firm may be interested in acquiring some mortgage-backed securities and other assets. "Private equity can help by buying these assets," he said. "Private equity can be among the most significant buyers of assets." Rubenstein said he hopes Congress will move quickly to approve the rescue of the U.S. financial system.

Hans-Joachim Voth: The Value to Firms of Being Politically Connected-An Examination of the Nazi Case Around the globe, politically connected firms are more valuable. Nazi Germany was no different, though historians have lacked convincing evidence to prove that claim. This column shows that Nazi-linked firms reaped astoundingly large returns when Adolf Hitler came to power.

Washington Mutual On The Block Federal regulators are moving quickly to broker a deal for Washington Mutual as the savings-and-loan comes under mounting financial pressure, according to people briefed on the talks.

Bank Run In Hong Kong Throngs of depositors lined up outside the headquarters and branches of the Bank of East Asia here on Wednesday to withdraw their money. The Bank of East Asia, Hong Kong’s third-largest with $51 billion in assets, said that malicious rumors that the bank was in distress had begun spreading through cellphone text messages late Tuesday, and the Hong Kong police said they would investigate.

House Clears $25 Billion for Auto Industry Separate from the proposed $700bn bail-out for the banking sector,the House of Representatives on Wednesday approved a $25billion package of low-cost loans to carmakers and their suppliers to finance plant modernisation.

Paulson Testimony Before House Committee on Financial Services We have proposed a program to remove troubled assets from the system – a program we analyzed internally for months, and had hoped would never be necessary. Under our proposal, we would use market mechanisms available to small banks, credit unions, and thrifts, across the country – not just big banks. These mechanisms will help set values of complex, illiquid mortgage and mortgage-related securities to unclog our credit and capital markets, and make it easier for private investors to purchase these securities and for financial institutions to raise more capital.

Remarks By President Bush On The Financial Crisis I'm a strong believer in free enterprise, so my natural instinct is to oppose government intervention. I believe companies that make bad decisions should be allowed to go out of business. Under normal circumstances, I would have followed this course. But these are not normal circumstances. The market is not functioning properly. There has been a widespread loss of confidence, and major sectors of America's financial system are at risk of shutting down.

Wednesday, September 24, 2008

Robert Wenzel: The Bad News Bailout There is nothing good to say about the Paulson Bailout Plan. Nothing. From a short-term technical perspective, from a government oversight perspective, from a conflict of interest perspective, from a political perspective, and from a long-term perspective, serious problems exist each step of the way.

History of U.S. Government Bailouts From 1970 to the Present Great graphic. HT2HECPVEC

Henry Blodget: Bernanke Confirms Government Will Pay Too Much For Junk Assets Bernanke wants government to pay significant premium over current "firesale" price for troubled assets. Specifically, he wants to pay close to the "hold-to-maturity" price, which he argues is much higher than the mark-to-market firesale price. Bernanke and Paulson believes this is necessary to get banks to participate. This is a huge boon to banks and will likely hose taxpayers. Why? Because the government will not have time to figure out what the true "hold to maturity" value of these assets is. Instead, it will have to take the word of banks who have every incentive to dump their crap on taxpayers.

Paul Kedrosky: Illiquidity versus Insolvency We're trying to deal with illiquidity and insolvency, and intelligent people should be able to tell the difference, and act accordingly. We are going to have to deal with both issues repeatedly, so let's get on with it.

Ron Paul On The Crisis and Bailout The government's preferred solution to the crisis is the very thing that got us into this mess in the first place: government intervention.

Felix Salmon: Another Knee-Jerk Proposal From Christopher Cox Quite aside from the unsavory power-grab aspects of all this, it's pretty much impossible to think of a worse time for Cox to be calling for such regulatory legislation. We're in the middle of putting together a $700 billion bailout package here -- the last thing we need is the distraction of a debate about derivatives regulation which has been going on at a pretty high level for some years now

Diamond Hill and JMP Group To SEC: Take Your Short Seller Ban and Shove It Two companies that were added to the SEC's list of stocks that can not be shorted, JMP Group, the parent of JMP Securities, and Diamond Hill Investments, have contacted the SEC and requested to be removed from the list.

Buffett Decides To Play With The Insiders Warren Buffett's Berkshire Hathaway will invest $5 billion in the investment bank Goldman Sachs. He obviously gets the power play that Goldman is putting into place.

The Virtues of Venture Capital - Video

David Friedman: Blogs vs Books According to the report, in the history of this blog there have been a total of 389,670 visits, with an average length 1:48 each. That adds up to about ten thousand hours.

Walt Mossberg: Google’s G1: First Impressions Google’s new G1 phone announced today is the first real competitor to the iPhone. Like Apple’s product, it’s a serious handheld computer with a powerful new operating system (called Android) and a clever touch-based user interface. Like the iPhone, it’s likely to be a major new platform for third-party software. But it’s also very different, and may appeal to different buyers.

Tuesday, September 23, 2008

SPECIAL NOTICE: I have been booked to discuss the current economy and the government bailout, today, Tuesday September 23, on the G. Gordon Liddy Show. I will be interviewed live at 10:35 AM Eastern Time. I understand there will also be live Internet streaming from and a podcast recording will also be available.

BANKS ARE IN PLAY: Randal Quarles Gets His Change In Fed Rules Goldman gets bank holding status, Quarles gets the increase in the size of a position the Fed considers a minority stake, it can't be any clearer that the boys are ready to start buying bank stocks at fire sale prices and that bank stocks are in play.

PEU: Welcome To Disaster Capitalism Carlyle grew from $5.8 billion to some $90 billion during the George W. years. It looks like that trend will continue....

Cliff Asness Is Mad as Hell Wall Street’s greed and short sightedness, and the consumers’ real-estate bacchanalia, was certainly a big part of recent events, but the biggest drivers in creating the current crisis were (IMHO) not the fault of private enterprise but, as usual, of the government.

Eric Margolis: U.S. Orgy of Debt When great empires run onto the financial rocks, their power quickly ebbs. France’s Sun King, Louis XIV, ended his once glorious rein in near bankruptcy caused by his long, ruinous wars with the British and Dutch. Louis XVI’s runaway borrowing to finance the American Revolution helped ignite the French Revolution. The Soviet Union’s collapse was caused by spending half its national income on arms, and failure to modernize industry.

Morgan Stanley, Goldman Search for Deposits; Banks Are `Lunch' Regional banks probably will become ``lunch'' for larger institutions, JPMorgan Chase & Co. analyst Steven Alexopoulos told clients yesterday. We are seeing deals that are highly opportunistic and speedily arranged, where targets are distressed,'' said Marco Boschetti, co-head of global mergers and acquisitions at the Towers Perrin consulting firm in London.

Gary North: The Truth About Gasoline Shortages This is rationing by lining up. It is the alternative to rationing by price. Rationing by lining up creates no financial incentive for suppliers of the item in short supply to allocate new supplies to the region of the country which is experiencing a shortage. Instead, delivery schedules remain the same as they did prior to the shortage. This continues the shortage.

Biggest Drop In Dollar In Seven Years Concern about the price the U.S. could pay to rescue the financial system is crushing the dollar.

Important Public Appearances This Week--Paulson Twice

Monday, September 22, 2008

Robert Wenzel: Henry Paulson, American Oligarch We are in the midst of one of the greatest power and money grabs in the history of the world. I am stunned by the Russian style oligarch aggressiveness and boldness of the moves made this weekend, led by Treasury Secretary Henry Paulson.

Christopher Espinal: Prices and Information The critique of the underlying assumption of perfect information has become the center of a movement to a new form economics called New Information Economics, as named by economists Joseph Stiglitz and George Ackerloff

Puttng Power In The Hands of Hank Paulson Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency...

Ian Welsh: Hank Paulson’s Raid on the Treasury The more I look at the Paulson "plan" the more I come to the conclusion it's just an old fashioned stickup, says Welsh.

Ian Welsh: More and More Surreal: Paulson Can Buy Non-American, Non-Mortgage Assets It's not clear to me why Hank hasn't insisted on being made Emperor of the New American Empire in name as well as power, he's asked for everything else.

Paulson Says Foreign Banks Can Use U.S. Rescue Plan "Yes, and they should. Because ... if a financial institution has business operations in the United States, hires people in the United States, if they are clogged with illiquid assets, they have the same impact on the American people as any other institution," Paulson said.

U.S. Money Market Fund Plan Won't Help Investors of Reserve Primary Fund On Sunday, the Treasury said that it will "provide coverage to shareholders for amounts held by them in such funds as of the close of business on Sept. 19, 2008." The Reserve Primary Fund officially broke the buck Tuesday, Sept. 16, thus it won't be covered.

Democrats Begin to Set Own Bailout Terms Congressional Democrats began to set their own terms on Sunday for a plan to rescue the nation’s financial institutions, including greater legislative oversight of the Treasury Department, more direct assistance for homeowners and limits on the pay of top executives whose firms seek help. Hank will run circles around the Democrats.

Big Financiers Start Lobbying for Wider Aid Financial firms were lobbying to have all manner of troubled investments covered, not just those related to mortgages. At the same time, investment firms were jockeying to oversee all the assets that Treasury plans to take off the books of financial institutions, a role that could earn them hundreds of millions of dollars a year in fees.Nobody wants to be left out of Treasury’s proposal to buy up bad assets of financial institutions.“The definition of Financial Institution should be as broad as possible,” the Financial Services Roundtable, which represents big financial services companies, wrote in an e-mail message to members on Sunday...The lobbying became particularly intense because Congress plans to approve a package within just two weeks, without the traditional hearings and committee process.“Of course there will be fierce lobbying,” said Bert Ely, a financial services industry consultant in Alexandria, Va. “The real question is, Who wouldn’t want to be included in the package?”Mr. Ely said the open-ended nature of the Treasury’s plan could be interpreted to mean that the government was open to acquiring “any asset, anywhere in the world.”“The question that I am raising — is there any limit?” Mr. Ely said...William H. Gross, chief investment officer of Pimco, which manages about $830 billion in assets, would like to be an asset manager for the government, he said.

Doug French At The Las Vegas Hard Asset Conference The Hard Asset conference, held in between the Fannie-Freddie and AIG bailouts, is having a hard time attracting attendees to the Mandalay Bay Hotel and Casino, with this year continuing a trend of shrinking attendance.

Official FACT SHEET: Proposed Treasury Authority to Purchase Troubled Assets "The timing and scale of any purchases will be at the discretion of Treasury and its agents."

Brad DeLong: Perhaps the Skimpiest Proposal for the Most Extensive Grant of Authority I Have Ever Seen The only thing that comes close is the Marshall Plan--and the Marshall Plan was run by an independent agency, the ECA; the ECA had to get its funding appropriated every year.

Money Markets Faced $500 Billion In Redemption Requests Last Thursday Morning Had the redemption requests remained on the books, it would have resulted in a crash of the commercial paper market and would have forced a near industry-wide halt in money market fund redemptions.

Official Treasury Update On Money Market Funds Guaranty Program The temporary guaranty program will be designed to provide coverage to shareholders for amounts held by them in such funds as of the close of business on September 19, 2008

The Witch Hunts Begin: The U.S. Securities and Exchange Commission, seeking to jump start a hunt for suspected manipulation of financial stocks, will require hedge fund managers, brokerages and institutional investors to describe under oath their bets on the firms.

No comments:

Post a Comment