Tuesday, September 30, 2008

Tuesday, September 30, 2009

Robert Wenzel: The Paulson Plan Is Dissed, What Next? The people have spoken through their representatives. The Paulson Plan has been rejected by the House of Representatives. The system worked the way James Madison and the other designers of the Constitution envisioned it would. The final outcome, however, remains unclear.

Hope for New Plan Rallies Stock Futures Less than two hours before the start of trading, Dow Jones Industrial Average futures were 176 points higher at 10650. The S&P 500 futures advanced 28.5 to 1147.3, and Nasdaq 100 futures rose 21.25 to 1533.25

World Stocks Fall But Calm Returns After Sell Off World stocks fell to near three-year lows on Tuesday but fears of a major meltdown following historic Wall Street losses eased as European losses were muted.

Trading Halted On Russian Exchanges Shares on the MICEX sunk in the opening minutes of trading. Gas monopoly Gazprom plunged 7.8 percent, oil major Lukoil by 7.5 percent and state-controlled lender Sberbank by 7.6 percent. State-backed VTB bank shed 7.1 percent. The exchange's overall index was down by 1.07 percent when trading was suspended.

Trading Resumes In Russia Russian shares fell six percent on Tuesday, chasing Monday's biggest ever one-day fall in the Dow industrials, when trade resumed after a two-hour suspension.

Final Vote Count Who voted for and who voted against the $700 Billion Paulson Plan

Congressman Dennis Kucinich Rallies The Troops, Before Monday's Historic Vote "Is This the United States Congress, or the Board of Directors of Goldman Sachs?" (video)

Congressman Gresham Barret, Monday, on the Paulson Plan “My fear is the government will be forever changing the face of the American free market. Because I believe so strongly in the principles of the free market and the belief in freedom, I will be opposing this bill.”

Treasury Secretary Hank "Fear Monger" Paulson Spreads the fear Sunday on 60 Minutes (video)

The Deal Professor: The ‘Compromises’ in the Bailout Bill Are All Phony Ultimately, this bill grants a terrific amount of authority to Mr. Paulson to implement this bailout on the terms he deems appropriate. There is a lot of talk about oversight and authority, but ultimately none of it is mandatory and the judicial review is a high standard. If the bill is passed in this form, the Democrats will claim a victory through these executive and corporate governance provisions as well as the warrant provisions. But Mr. Paulson can decide how much of these warrants to take, and the executive compensation and corporate governance provisions are unlikely to be implemented for any companies. The bill is not much different than the original proposal — just 107 pages longer.

Goldman Seeks to Buy Up to $50 Billion in Assets Goldman’s rapid push to build up its bank underscores its determination to acquire cheap assets – and potentially ailing banks – even as it reduces its leverage as it transforms itself into a bank holding company.

Lawrence Summers: Paulson's $700 Billion Plan Is Nothing, Let's Really Wreck The Economy Summers wants increased debt and increased spending beyond Paulson's plan. "The idea seems to have taken hold that the nation will have to scale back its aspirations in areas such as health care, energy, education and tax relief. This is more wrong than right," says Summers. He contnues, "in the current circumstances the case for fiscal stimulus -- policy actions that increase short-term deficits -- is stronger than ever before in my professional lifetime."

Robert J. Samuelson: Keynsianism Is Dead What we are witnessing, in the broadest sense, is the bankruptcy of modern economics. Its conceit has been that we had solved the problem of stability. Oh, there would be periodic recessions, but the prospects of a major economic collapse were negligible because we knew how the system worked and could take steps to prevent it. Samuelson doesn't say so, but only Austrian economists have a business cycle theory that can explain the current downturn.

Will Big Time Dirt Break About Barack Obama Before The Election? Chicago PI Paul Huebel thinks it might.


Monday, September 29, 2009

Robert Wenzel: The Paulson Plan And The Rise Of The American Oligarch Class The current $700 billion Paulson bailout plan has brought to the forefront a new class of what must be called American Oligarchs and oligarch wannabes. Some may have originally earned their wealth by supplying consumers with desired goods, but at some point they crossed over to the dark side.

Bailout Bill Sneaks In Legislation Which Will Make It Easier For The Federal Reserve To Inflate The Money Supply Included in the bill aimed at allowing the Treasury to purchase distressed assets is a provision the gives theFederal Reserve the power to set a floor under its target for the federal funds rate by allowing the central bank to pay interest on bank reserves. The move essentially allows the Fed to buy securities or inject liquidity into the market without fear of the fed funds rate falling to zero. It also encourages banks to keep more than the minimal amount of reserves with the Fed.

Highlights Of The Final Version Of The $700 Billion Paulson Plan
The plan includes limitations on executive pay for execs in firms that participate in program, equity stakes will be required from participating firms. Provides up to $700 billion, starting with an initial $250 billion, to allow the Treasury to buy troubled assets.

Gary North: The Bailout Is A Charade This entire charade is really about this issue: contracts. How much will it cost taxpayers to enable people who made binding legal contracts to now escape their obligations? Some of these people are legal fictions: corporations. Others are real people: families. They have made contracts with each other, and now they all seek to escape the terms of these contracts, yet also be allowed to get the benefits. The voters really do not care. The voters do not understand the complexity of these issues. Why should they? The bankers and the largest insurance company did not understand the complexity of these issues, and they put their firms in the hole by at least $800 billion. The economists who created the mathematical models that made possible these preposterous, money-losing contracts clearly did not understand the complexity of these issues. The two Nobel prize-winning economists who created the sophisticated mathematical models that bankrupted Long-Term Capital Management in 1998 did not understand the complexity of these issues.

Peter Boockvar On The Bailout The government is making things worse, says the equity strategist for Miller Tabak. (Video)

Wilbur Ross: Pass The Plan Now Another billionaire who will directly benefit from the bailout pops up to support the bill.

A Tycoon Tweaks Putin In an interview, Mr. Lebedev said he planned to team up with the former Soviet president, Mikhail S. Gorbachev, to form a political party, perhaps called the Independent Democratic Party of Russia...Increasingly, there is a revolving door between government and big business: Alexei L. Kudrin, the finance minister, oversees the state-owned diamond producer Alrosa; the former prime minister, Viktor A. Zubkov, took the chairmanship of Gazprom when Dmitri A. Medvedev left to become president; Igor I. Sechin, a deputy prime minister, is chairman of the state oil company Rosneft.

Massachusetts Proposal Would Repeal Income Tax Question 1 on the November ballot would eliminate the state income tax. It would save the average taxpayer about $3,600 a year. Annual revenue from the tax is about $12.5 billion, roughly 45 percent of the state’s budget of about $28 billion.

Stanley Kurtz: Obama's Connection To Communist Radical Bill Ayers Last April, Sen. Obama dismissed Mr. Ayers as just "a guy who lives in my neighborhood," and "not somebody who I exchange ideas with on a regular basis." Yet documents in the CAC archives make clear that Mr. Ayers and Mr. Obama were partners in the CAC. The CAC was the brainchild of Bill Ayers, a founder of the Weather Underground in the 1960s. Among other feats, Mr. Ayers and his cohorts bombed the Pentagon, and he has never expressed regret for his actions. Barack Obama's first run for the Illinois State Senate was launched at a 1995 gathering at Mr. Ayers's home.


Weekend Edition
September 27-28, 2008


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, BuyMyShitPile.com, 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. And...how 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 s17.sitemeter.com 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 RadioAmerica.org 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.

Does The FDIC Suspect A Run On Banks May Be Near?

The Federal Deposit Insurance Corp. is asking Congress for temporary authority to raise the limit on the amount of money it insures for individual bank accounts. Reading between the lines of the statement put out today by FDIC Chairman Sheila Bair, the FDIC clearly fears a run on banks, if FDIC coverage of bank deposits is not increased immediately.

Bair put out a statement late Tuesday afternoon asking that Congress allow her agency to increase the $100,000 limit per account that has been in place since 1980.

"Unfortunately, there is an increasing crisis of confidence that is feeding unnecessary fear in the marketplace," Bair said. "To address this crisis of confidence, I do believe that it would be helpful for the FDIC to have the temporary ability to raise deposit insurance limits."

Bair did not say what she thought the new limit should be. FDIC spokesman Andrew Gray said simply, "We'll leave that to Congress."

-Robert Wenzel

Monday, September 29, 2008

Monday, September 29, 2009

House Rejects Paulson Plan

Alert: Fed Pumps $630 Billion Into Financial System As I have said, who needs a $700 Billion Liquidity plan? The Fed can do the same any day of the week, and they just did.

Citigroup Buys Banking Operations of Wachovia Citigroup has agreed to buy Wachovia's banking operations for$1 a share, a move that that would concentrate power within the nation's banking industry in the hands of a few giant lenders.

Robert Wenzel: The Paulson Plan And The Rise Of The American Oligarch Class The current $700 billion Paulson bailout plan has brought to the forefront a new class of what must be called American Oligarchs and oligarch wannabes. Some may have originally earned their wealth by supplying consumers with desired goods, but at some point they crossed over to the dark side.

Bailout Bill Sneaks In Legislation Which Will Make It Easier For The Federal Reserve To Inflate The Money Supply Included in the bill aimed at allowing the Treasury to purchase distressed assets is a provision the gives theFederal Reserve the power to set a floor under its target for the federal funds rate by allowing the central bank to pay interest on bank reserves. The move essentially allows the Fed to buy securities or inject liquidity into the market without fear of the fed funds rate falling to zero. It also encourages banks to keep more than the minimal amount of reserves with the Fed.

Highlights Of The Final Version Of The $700 Billion Paulson Plan
The plan includes limitations on executive pay for execs in firms that participate in program, equity stakes will be required from participating firms. Provides up to $700 billion, starting with an initial $250 billion, to allow the Treasury to buy troubled assets.

Gary North: The Bailout Is A Charade This entire charade is really about this issue: contracts. How much will it cost taxpayers to enable people who made binding legal contracts to now escape their obligations? Some of these people are legal fictions: corporations. Others are real people: families. They have made contracts with each other, and now they all seek to escape the terms of these contracts, yet also be allowed to get the benefits. The voters really do not care. The voters do not understand the complexity of these issues. Why should they? The bankers and the largest insurance company did not understand the complexity of these issues, and they put their firms in the hole by at least $800 billion. The economists who created the mathematical models that made possible these preposterous, money-losing contracts clearly did not understand the complexity of these issues. The two Nobel prize-winning economists who created the sophisticated mathematical models that bankrupted Long-Term Capital Management in 1998 did not understand the complexity of these issues.

Peter Boockvar On The Bailout The government is making things worse, says the equity strategist for Miller Tabak. (Video)

Wilbur Ross: Pass The Plan Now Another billionaire who will directly benefit from the bailout pops up to support the bill.

A Tycoon Tweaks Putin In an interview, Mr. Lebedev said he planned to team up with the former Soviet president, Mikhail S. Gorbachev, to form a political party, perhaps called the Independent Democratic Party of Russia...Increasingly, there is a revolving door between government and big business: Alexei L. Kudrin, the finance minister, oversees the state-owned diamond producer Alrosa; the former prime minister, Viktor A. Zubkov, took the chairmanship of Gazprom when Dmitri A. Medvedev left to become president; Igor I. Sechin, a deputy prime minister, is chairman of the state oil company Rosneft.

Massachusetts Proposal Would Repeal Income Tax Question 1 on the November ballot would eliminate the state income tax. It would save the average taxpayer about $3,600 a year. Annual revenue from the tax is about $12.5 billion, roughly 45 percent of the state’s budget of about $28 billion.

Stanley Kurtz: Obama's Connection To Communist Radical Bill Ayers Last April, Sen. Obama dismissed Mr. Ayers as just "a guy who lives in my neighborhood," and "not somebody who I exchange ideas with on a regular basis." Yet documents in the CAC archives make clear that Mr. Ayers and Mr. Obama were partners in the CAC. The CAC was the brainchild of Bill Ayers, a founder of the Weather Underground in the 1960s. Among other feats, Mr. Ayers and his cohorts bombed the Pentagon, and he has never expressed regret for his actions. Barack Obama's first run for the Illinois State Senate was launched at a 1995 gathering at Mr. Ayers's home.


Weekend Edition
September 27-28, 2008



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, BuyMyShitPile.com, 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. And...how 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 s17.sitemeter.com 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 RadioAmerica.org 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.

Treasury Opens Money Market Funds Guarantee Program

September 29, 2008
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Treasury Announces Temporary Guarantee Program for Money Market Funds

Washington

- The U.S. Treasury Department today opened its Temporary Guarantee Program for Money Market Funds. The U.S. Treasury will guarantee the share price of any publicly offered eligible money market mutual fund – both retail and institutional – that applies for and pays a fee to participate in the program.
All money market mutual funds that are regulated under Rule 2a-7 of the Investment Company Act of 1940, maintain a stable share price of $1, and are publicly offered and registered with the Securities and Exchange Commission will be eligible to participate in the program. Treasury first announced this program on Friday, September 19.

The temporary guarantee program provides coverage to shareholders for amounts that they held in participating money market funds as of the close of business on September 19, 2008. The guarantee will be triggered if a participating fund's net asset value falls below $0.995, commonly referred to as breaking the buck.

The program is designed to address temporary dislocations in credit markets. The program will exist for an initial three month term, after which the Secretary of the Treasury will review the need and terms for extending the program. Following the initial three month term, the Secretary has the option to renew the program up to the close of business on September 18, 2009. The program will not automatically extend for the full year without the Secretary's approval, and funds would have to renew their participation at the extension point to maintain coverage. If the Secretary chooses not to renew the program at the end of the initial three month period, the program will terminate.

To participate in the program, the Treasury Department will require money market funds with a net asset value per share greater than or equal to $0.9975 as of the close of business on September 19, 2008, to pay an upfront fee of 0.01 percent, 1 basis point, based on the number of shares outstanding on that date. Funds with net asset value per share of greater than or equal to $0.995 and below $0.9975 as of the close of business on September 19, 2008, will be required to pay an upfront fee of 0.015 percent, 1.5 basis points, based on the number of shares outstanding on that date. These fees will only cover the first three months of participation in the program.

Funds with a net asset value below $0.995 as of the close of business on September 19, 2008, may not participate in the program.

While the program protects the accounts of investors, each money market fund makes the decision to sign-up for the program. Investors cannot sign-up for the program individually. Funds should apply by October 8, 2008 for the program using the forms on the program webpage: http://www.treas.gov/offices/domestic-finance/key-initiatives/money-market-fund.shtml.

Eligible funds include both taxable and tax-exempt money market funds. The Treasury and the IRS issued guidance that confirmed that participation in the temporary guarantee program will not be treated as a federal guarantee that jeopardizes the tax-exempt treatment of payments by tax-exempt money market funds.

President George W. Bush approved the use of existing authorities by Secretary Henry M. Paulson, Jr. to make available as necessary the assets of the Exchange Stabilization Fund to guarantee the payment

The Exchange Stabilization Fund was established by the Gold Reserve Act of 1934, as amended, and has approximately $50 billion in assets. This Act authorizes the Secretary of the Treasury, with the approval of the President, "to deal in gold, foreign exchange, and other instruments of credit and securities" consistent with the obligations of the U.S. government in the International Monetary Fund to promote international financial stability. More information on the Exchange Stabilization Fund can be found at http://www.treas.gov/offices/international-affairs/esf/.

Frequently Asked Questions About Treasury’s Temporary Guarantee Program for Money Market Funds

September 29, 2008
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How does an investor sign up to participate in the Treasury's Temporary Guarantee Program for Money Market Funds?

While the program protects the shares of all money market fund investors as of September 19, 2008, each money market fund makes the decision to sign up for the program. Investors cannot sign up for the program individually.

How will investors know if their money market fund participates in the program?

Investors should contact their money market fund directly to determine if it is participating in the program.

What type of funds does the program cover?

All money market mutual funds that are regulated under Rule 2a-7 of the Investment Company Act of 1940, are publicly offered, are registered with the Securities and Exchange Commission and maintain a stable share price of $1 will be eligible to participate in the program. This includes both taxable and non-taxable funds.

Is an investor in a fund that is managed like a money market fund but that is not registered with the SEC covered?

No, the program only covers money market funds that are regulated under Rule 2a-7 of the Investment Company Act of 1940, are publicly offered, are registered with the Securities and Exchange Commission and maintain a stable share price of $1 will be eligible to participate in the program. This includes both taxable and non-taxable funds.

When will my fund be covered by the program?

Each fund must decide to participate in the program. If your fund participates in the program, your investment as of September 19, 2008 will be covered.

How much of an investor's money market fund is insured? What happens if the number of shares held in an investor's account increase above the level at the close of business on September 19, 2008? What happens if the number of shares held in an investor's account decreases below the level at the close of business on September 19, 2008?

The program provides a guarantee based on the number of shares held at the close of business on September 19, 2008. Any increase in the number of shares held in an account after the close of business on September 19, 2008 will not be guaranteed. If the number of shares held in an account fluctuates over the period, investors will be covered for either the number of shares held as of the close of business on September 19, 2008 or the current amount, whichever is less.

Examples include:

If an investor owned 100 shares in a money market fund as of close of business September 19, 2008, but owns 50 shares on the day the guarantee payment is made, after the fund breaks the buck, then that investor will be guaranteed for 50 shares.

If an investor owned 100 shares in a money market fund as of close of business September 19, 2008, but owns 150 shares on the day the guarantee payment is made, after the fund breaks the buck, then that investor will be guaranteed for 100 shares. The fund, upon liquidation, will distribute proceeds to the shareholder for the additional 50 shares, at net asset value.

If an investor owned 100 shares in a fund as of close of business September 19, 2008, subsequently sold 50 shares and later bought 25 shares, the investor owns 75 shares on the day the guarantee payment is made and will be guaranteed for 75 shares.

If an investor owned no shares in a fund as of close of business September 19, 2008, but owns 100 shares on the day the guarantee payment is made, none of the investor's shares are guaranteed by the program and the investor will receive the net asset value directly from the fund.
What if another fund in an investor's fund family breaks the buck before this program starts? Is the investor covered?

The program provides a guarantee on a fund-by-fund basis up to the amount of shares held as of the close of business on September 19, 2008. The performance of a different fund, even one in the same fund family of the investor's fund, doesn't affect the investor's fund's eligibility. Investors should contact their fund to determine if their fund participates in the program.

When does the program terminate?

The program is designed to address temporary dislocations in credit markets. The program will be in effect for an initial three month term, after which the Secretary of the Treasury will review the need and terms for the program and the costs to provide the coverage. The Secretary has the option to extend the program up to the close of business on September 18, 2009. In order to maintain coverage, funds would have to renew their participation in the program after each extension. If the Secretary chooses not to extend the program at the end of the initial three month period, the program will terminate.

Who provides this guarantee? Are investors able to get all of their money back whenever they want?

The U.S. Treasury Department, through the Exchange Stabilization Fund, is providing this guarantee. In the event that a participating fund breaks the buck and liquidates, a guarantee payment should be made to investors through their fund within approximately 30 days, subject to possible extensions at the discretion of the Treasury.

Is shareholder in a fund that broke the buck before September 19, 2008 covered?

No. This does not meet the program's eligibility criteria noted above.

What should shareholders in a participating fund that breaks the buck do? Who should they call?

If your fund enrolled in the program you will be covered and do not need to take any action. Shareholders should contact their fund directly.

Who should a fund contact if it has further questions about this program?

Please e-mail the Treasury Department at moneymarketfundsguaranteeprogram@do.treas.gov.

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The Paulson Plan Is Dissed, What Next?

By Robert Wenzel

The people have spoken through their representatives. The Paulson Plan has been rejected by the House of Representatives. The system worked the way James Madison and the other designers of the Constitution envisioned it would. The final outcome, however, remains unclear.

The power elite, the Oligarchs, want this bill to pass. It fell only 12 votes short of passage on Monday. There will be enormous pressure put on those the Bush Administration and House Majority Leader Nancy Pelosi identify as likely to change their votes from Noes to Ayes.

Speculation has hit that the Senate may now vote first on the bill, since the Oligarchs have the votes there to insure passage.

Once that is done, it is back to drama in the House. On Monday, Treasury lost by a more than a 2-1 margin among House Republicans. Among the Hispanic and Black caucuses, only about 43 percent of the Democrats supported the Plan. Perhaps the bill will be juiced to improve the Hispanic and Black vote in favor of the bill.

One interesting consideration is that with Rosh Hashanah beginning at sundown Monday, little activity is expected before Wednesday. The House is officially adjourned until Thursday. Some House members may head home where they will surely hear from constituents who are opposed to the bill. The public interest in this bill is intense. The House Web site was so overwhelmed Monday as millions of computer users sought information about the bill that it crashed.Will pressure back home force some Aye voters to flip and vote No? Thus causing even more problems for Pelosi and Bush.

As the political drama continues, the markets have gone into seizure and the Federal Reserve has gone into panic mode, flooding the markets with liquidity. Ironically, the money injections into the system by the Fed on Monday equaled $630 billion, nearly the sum total of the $700 billion Paulson Plan.

I argued last Friday that Paulson's liquidity argument was bogus because the Fed could add such liquidity anytime:

Since this $700 billion in money will not be helping banks in trouble, Paulson had to come up with a new reason for why the money was needed. His justification is that it will unfreeze the credit markets by adding huge amounts of new liquidity to the system. This is an odd justification, since it is the very role of the Fed to add liquidity to the system, when it is needed, that is at the very heart of why Fed was founded and continues to exist.

The House failure to pass the Paulson Plan and the resulting Bernanke $630 billion money pumping actions resulted in my point being proven dramatically in one day!

Now, it is unclear as to whether enough pressure can be exerted to keep House Yea voters in line, while leadership attempts to find 12 more yea voters. However, it does appear that Bernanke will be printing money at any sign of trouble. Given the current market environment it will be impossible for him to withdraw the money anytime soon, thus the money printing should be viewed as highly inflationary--with long-term consequences of eventual record high prices for gold and oil.

For the inflationists, and there are many, including Donald Trump and Jim Cramer, happy days are here again.

Robert Wenzel is an economic consultant and Editor & Publisher of EconomicPolicyJournal.com. He can be reached at rw@economicpolicyjournal.com.