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Bush has just tripled the US foreign debt overnight

  • 21-09-2008 1:30am
    #1
    Closed Accounts Posts: 545 ✭✭✭


    Every day over the last week has just become more and more unbelievable, but this beats all.

    The Bush administration on Saturday formally proposed a vast bailout of the United States financial system, requesting unfettered authority for the Treasury Department to buy up to $700 billion in mortgage-related assets from financial institutions based in the United States.

    The proposal, not quite three pages long, was stunning for its stark simplicity. It would raise the national debt ceiling to $11.3 trillion. And it would place no restrictions on the administration other than requiring semiannual reports to Congress, granting the Treasury secretary unprecedented power to buy and resell mortgage debt.


    http://www.nytimes.com/2008/09/21/business/21cong.html?_r=1&hp&oref=slogin


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Comments

  • Closed Accounts Posts: 9,972 ✭✭✭orestes


    I know this doesn't sound good, but could someone please explain it to me in basic English for someone who doesn't understand these things very well?

    Sorry, but with all the madness lately I'm having a bit of trouble keeping track, and I didn't relly understand this kind of thing too well to begin with


  • Closed Accounts Posts: 192 ✭✭SoCal90046


    BenjAii wrote: »
    Every day over the last week has just become more and more unbelievable, but this beats all.

    The Bush administration on Saturday formally proposed a vast bailout of the United States financial system, requesting unfettered authority for the Treasury Department to buy up to $700 billion in mortgage-related assets from financial institutions based in the United States.

    The proposal, not quite three pages long, was stunning for its stark simplicity. It would raise the national debt ceiling to $11.3 trillion. And it would place no restrictions on the administration other than requiring semiannual reports to Congress, granting the Treasury secretary unprecedented power to buy and resell mortgage debt.

    http://www.nytimes.com/2008/09/21/business/21cong.html?_r=1&hp&oref=slogin


    It's an interesting, though not surprising, move. It remains to be seen what the exact ramifications are, including the ultimate bill to tax payers. I don't see how the move triples the national debt, or foreign debt, which I am not sure exactly what that term means.


  • Closed Accounts Posts: 545 ✭✭✭BenjAii


    SoCal90046 wrote: »
    I don't see how the move triples the national debt, or foreign debt, which I am not sure exactly what that term means.

    I may be getting confused over terms here. My reasoning was that as the US foreign debt was in the region of $400 billion last week, acquiring another $ 700 billion ( assuming it doesn't come from taxes) means you have to borrow the money and thus it increases your foreign debt ?


  • Closed Accounts Posts: 192 ✭✭SoCal90046


    BenjAii wrote: »
    I may be getting confused over terms here. My reasoning was that as the US foreign debt was in the region of $400 billion last week, acquiring another $ 700 billion ( assuming it doesn't come from taxes) means you have to borrow the money and thus it increases your foreign debt ?

    Got it; I haven't heard it described as foreign debt before. About one quarter of the debt is held by foreigners, so if you combine the debt ceiling increase of a few weeks ago compared to this request and if most of this new debt is bought by people overseas, it could be a tripling in the recent issue of government paper.

    I guess it ultimately has to be paid back by taxpayers in some way; however, we do have to wait and see exactly what happens. The other route would be inflation, which I can't imagine anyone welcoming.

    If the government decides to purchase the paper from the banks at less than book value, it mightn't hurt the taxpayers as much; I suspect that the housing market will likely have more pricing declines, but that's probably what's needed.


  • Closed Accounts Posts: 495 ✭✭Tony Broke


    In any well run country the Federal Reserve would have been out on its ass a long time ago.

    Money isnt my strong point, but that looks bad, real bad.

    Like here the children and their grandchildren will be paying for that mess.


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  • Closed Accounts Posts: 495 ✭✭Tony Broke


    SoCal90046 wrote: »

    If the government decides to purchase the paper from the banks at less than book value, it mightn't hurt the taxpayers as much; I suspect that the housing market will likely have more pricing declines, but that's probably what's needed.

    Its a mess.

    Its hard to get your head around the fact that the poor tax payers have to foot the bill for the act of greedy bankers.The bankers got millions and millions and at the end all the mistakes will wiped clean using poor tax payers money.But it has to be done.

    The banks are broke and need the money now and if the government don't bail them out then no one will be financing peoples homes and you would have a much bigger deppresion.


  • Closed Accounts Posts: 192 ✭✭SoCal90046


    Tony Broke wrote: »
    Its a mess.

    Its hard to get your head around the fact that the poor tax payers have to foot the bill for the act of greedy bankers.The bankers got millions and millions and at the end all the mistakes will wiped clean using poor tax payers money.But it has to be done.

    The banks are broke and need the money now and if the government don't bail them out then no one will be financing peoples homes and you would have a much bigger deppresion.

    There's more lessons to be learned here than just blaming bankers. Certainly easy credit and the collateralization of debt where drivers in the mess, but ordinary people made a contribution too. In terms of the consumers who signed on for mortgages: some people lied; other people were deceived. There was dishonesty at all levels. In fact, there appears to have been fraud at many levels.


  • Closed Accounts Posts: 1,997 ✭✭✭gally74


    hello,

    im no ecomist or anything, have learnt a bit by watching cnbc and bllomberg over the past 9 years,

    im convinced this is all going to end in tears, espically for the americans, it will hurt the globe aswell and end up in new trends, politics etc.

    America has over spent for 10 years and now its coming home, the idea that interest rate drops etc. can bring an economy back etc, is nuts, all these bailouts now to help the market, the tax payers are going to get loaded next year.

    i think its nut to give people a tax re imburstment cheque in 2008 only to add it to the tax bill for 09


  • Closed Accounts Posts: 192 ✭✭SoCal90046


    gally74 wrote: »
    hello,

    im no ecomist or anything, have learnt a bit by watching cnbc and bllomberg over the past 9 years,

    im convinced this is all going to end in tears, espically for the americans, it will hurt the globe aswell and end up in new trends, politics etc.

    America has over spent for 10 years and now its coming home, the idea that interest rate drops etc. can bring an economy back etc, is nuts, all these bailouts now to help the market, the tax payers are going to get loaded next year.

    i think its nut to give people a tax re imburstment cheque in 2008 only to add it to the tax bill for 09

    The US government has run a deficit for a long time. In fact, the period right after the largest debt ever, World War II, turned out to be one of the greatest periods of growth. Productivity is the issue: I'd be more concerned that, in the US, there isn't sufficient investment into R&D, particularly the "R"; for the long run, I'd be more worried on that point.

    Interest rates definitely have an effect. Just imagine what would happen if rates were 100% versus 0%. Lowering rates can jump start an economy. For the case of the US, there doesn't seem any need to lower interest rates right now, though things are changing quickly. In fact, from a signaling perspective, a very slight increase, or the hint of an increase, might be a good idea.

    The payout in 2008 was done to stimulate the economy. The Q2 GDP number appears to have benefited from this refund. The reimbursement is not being financed by increased taxes in 2009.


  • Closed Accounts Posts: 6,609 ✭✭✭Flamed Diving


    Not what I would have prescribed, but I don't have access to the information that they do. So perhaps the situation is even worse than the public knows about. This scenario is a dream for people who are into banking regulation as an academic discipline, its screams the question:

    What would be the moral hazard implications for the financial market if the regulators guaranteed all mortgages?


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  • Registered Users Posts: 708 ✭✭✭justfortherecor


    Total US Public Debt as at 18/9/08:

    $9,664,631,803,259.07!

    Note: Represents only c. 38% of GDP


  • Banned (with Prison Access) Posts: 1,380 ✭✭✭derry


    Total US Public Debt as at 18/9/08:

    $9,664,631,803,259.07!

    Note: Represents only c. 38% of GDP

    should that read $9,664,631,803,259,071 with .07! typo error

    what is that in trillions (billions)USA trilion and Europen trillions(billions) if they are not the same

    Derry


  • Registered Users Posts: 8,452 ✭✭✭Time Magazine


    A trillion is a million million, 10^12, by most definitions.

    It works out at more than $30,000 per citizen.


  • Registered Users Posts: 4,276 ✭✭✭damnyanks


    So the question is which would be worse

    the government bail out or letting the banks fail.

    What we saw with Lehman Brothers is their good assets being bought up within 48 hours. Obviously ML were bought on and the belief being they would have gone bust next.


  • Closed Accounts Posts: 6,609 ✭✭✭Flamed Diving


    damnyanks wrote: »
    the government bail out or letting the banks fail.

    The available solutions are not dichotomous.


  • Registered Users Posts: 2,774 ✭✭✭Minder


    BenjAii wrote: »
    The Bush administration on Saturday formally proposed a vast bailout of the United States financial system, requesting unfettered authority for the Treasury Department to buy up to $700 billion in mortgage-related assets from financial institutions based in the United States.

    The proposal, not quite three pages long, was stunning for its stark simplicity. It would raise the national debt ceiling to $11.3 trillion. And it would place no restrictions on the administration other than requiring semiannual reports to Congress, granting the Treasury secretary unprecedented power to buy and resell mortgage debt.
    Total US Public Debt as at 18/9/08:

    $9,664,631,803,259.07!
    derry wrote: »
    should that read $9,664,631,803,259,071

    The NY Times must know something we don't? because adding $700b to $9,665b doesn't give an answer of $11.3 trillion.


  • Registered Users Posts: 4,276 ✭✭✭damnyanks


    The available solutions are not dichotomous.

    How do you mean ? They were the only options available. They have bailed the banks out.


  • Closed Accounts Posts: 192 ✭✭SoCal90046


    Minder wrote: »
    The NY Times must know something we don't? because adding $700b to $9,665b doesn't give an answer of $11.3 trillion.

    They're probably talking about the debt ceiling rather than the level of debt itself.


  • Registered Users Posts: 2,809 ✭✭✭edanto


    If anyone is interested enough to listen to about 30 minutes of an economist explaining it, here's a good link.

    http://www.npr.org/templates/story/story.php?storyId=94686428

    One particularly interesting bit at 14 minutes - he explains about the impact of the bailouts. How in essence the US budget deficit has been doubled, since the government has taken on debt guarantees (Fanny and Freddie) worth 5 trillion.

    To me, this is a crazy figure and far more newsworthy than the 85bn figure thrown around.

    When times were good, it was private profit the whole way and no question of the public benfitting in any way - oh no, take your hands off private enterprise. Now, times are bad, and the bankers go crying to the govt and what was a private arrangment all of a sudden becomes a public debt.

    A lot of people are confused, no-one claims to be able to explain or understand it all. If it can't be explained in simple terms - then it's bullsh1t.

    http://truecosteconomics.org


  • Closed Accounts Posts: 6,609 ✭✭✭Flamed Diving


    damnyanks wrote: »
    How do you mean ? They were the only options available. They have bailed the banks out.

    How about aiding the larger, more prudent banks to buy-out the failing banks? There is always more than two, mutually exclusive options.


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  • Registered Users Posts: 2,774 ✭✭✭Minder


    SoCal90046 wrote: »
    They're probably talking about the debt ceiling rather than the level of debt itself.

    Doh! Yes debt ceiling is 10.6t, plus 700b gives 11.3t.

    I'll get me coat.....


  • Registered Users Posts: 1,210 ✭✭✭20goto10


    Would it not be better to force banks to reveal all their dirty little secrets, let them go bust or be taken over, plunge the world into a big recession for 5 years and then get over it and get on with things? We may even be surprised that it is not as widespread as everyone thinks.

    I may just be showing my ignorance here but this sounds like a giant $700bn rug which they're inviting all the banks to sweep all their dirt under.


  • Closed Accounts Posts: 192 ✭✭SoCal90046


    20goto10 wrote: »
    Would it not be better to force banks to reveal all their dirty little secrets, let them go bust or be taken over, plunge the world into a big recession for 5 years and then get over it and get on with things? We may even be surprised that it is not as widespread as everyone thinks.

    I may just be showing my ignorance here but this sounds like a giant $700bn rug which they're inviting all the banks to sweep all their dirt under.


    It's certainly an option: basically, let the market sort the mess out. That process is usually painful and would likely push the economy--in fact many economies--into a possibly deep and prolonged recession. The problem with serious recessions (or an economic depression) is that they can lead to major upheavals in society. Governments and central banks don't like serious economic downturns because the outcome isn't predictable.


  • Registered Users Posts: 4,276 ✭✭✭damnyanks


    How about aiding the larger, more prudent banks to buy-out the failing banks? There is always more than two, mutually exclusive options.

    Guess I'm just looking at it differently then. I'd view that as a government bail out (This is what happened with JP Morgan / Bear Stearns).

    Then you could look at what happened when a large bank was allowed to fail (Lehman Brothers) and how all their good businesses were snapped up pretty quickly.


  • Closed Accounts Posts: 479 ✭✭samb


    Total US Public Debt as at 18/9/08:

    $9,664,631,803,259.07!

    Note: Represents only c. 38% of GDP



    It seems like a rather big number to me. How does the 38% of GDP compare to other counties? and how has this ratio changed under Bush?


  • Registered Users Posts: 68,317 ✭✭✭✭seamus


    SoCal90046 wrote: »
    The problem with serious recessions (or an economic depression) is that they can lead to major upheavals in society.
    Not to mention wars.
    We've seen in recent days the impact that turmoil in the US economy has on everyone else. No other economy is immune to problems in the US one. So if the market were allowed to go to the ****ter and sort itself out naturally, as would be the ideal situation, then we'd see a large number of weaker economies completely collapse. This leads to regime change in those countries (often to dictatorships or despots who claim to have all the answers). These people then blame other countries for their country's crap economy and garner support for the war by focussing the people's frustration elsewhere.

    And then, war.


  • Registered Users Posts: 2,774 ✭✭✭Minder


    Text of Draft Proposal for Bailout Plan

    Published: September 20, 2008
    LEGISLATIVE PROPOSAL FOR TREASURY AUTHORITY

    TO PURCHASE MORTGAGE-RELATED ASSETS

    Section 1. Short Title.

    This Act may be cited as ____________________.

    Sec. 2. Purchases of Mortgage-Related Assets.

    (a) Authority to Purchase.--The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.

    (b) Necessary Actions.--The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation:

    (1) appointing such employees as may be required to carry out the authorities in this Act and defining their duties;

    (2) entering into contracts, including contracts for services authorized by section 3109 of title 5, United States Code, without regard to any other provision of law regarding public contracts;

    (3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;

    (4) establishing vehicles that are authorized, subject to supervision by the Secretary, to purchase mortgage-related assets and issue obligations; and

    (5) issuing such regulations and other guidance as may be necessary or appropriate to define terms or carry out the authorities of this Act.

    Sec. 3. Considerations.

    In exercising the authorities granted in this Act, the Secretary shall take into consideration means for--

    (1) providing stability or preventing disruption to the financial markets or banking system; and

    (2) protecting the taxpayer.

    Sec. 4. Reports to Congress.

    Within three months of the first exercise of the authority granted in section 2(a), and semiannually thereafter, the Secretary shall report to the Committees on the Budget, Financial Services, and Ways and Means of the House of Representatives and the Committees on the Budget, Finance, and Banking, Housing, and Urban Affairs of the Senate with respect to the authorities exercised under this Act and the considerations required by section 3.

    Sec. 5. Rights; Management; Sale of Mortgage-Related Assets.

    (a) Exercise of Rights.--The Secretary may, at any time, exercise any rights received in connection with mortgage-related assets purchased under this Act.

    (b) Management of Mortgage-Related Assets.--The Secretary shall have authority to manage mortgage-related assets purchased under this Act, including revenues and portfolio risks therefrom.

    (c) Sale of Mortgage-Related Assets.--The Secretary may, at any time, upon terms and conditions and at prices determined by the Secretary, sell, or enter into securities loans, repurchase transactions or other financial transactions in regard to, any mortgage-related asset purchased under this Act.

    (d) Application of Sunset to Mortgage-Related Assets.--The authority of the Secretary to hold any mortgage-related asset purchased under this Act before the termination date in section 9, or to purchase or fund the purchase of a mortgage-related asset under a commitment entered into before the termination date in section 9, is not subject to the provisions of section 9.

    Sec. 6. Maximum Amount of Authorized Purchases.

    The Secretary’s authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time

    Sec. 7. Funding.

    For the purpose of the authorities granted in this Act, and for the costs of administering those authorities, the Secretary may use the proceeds of the sale of any securities issued under chapter 31 of title 31, United States Code, and the purposes for which securities may be issued under chapter 31 of title 31, United States Code, are extended to include actions authorized by this Act, including the payment of administrative expenses. Any funds expended for actions authorized by this Act, including the payment of administrative expenses, shall be deemed appropriated at the time of such expenditure.

    Sec. 8. Review.

    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.

    Sec. 9. Termination of Authority.

    The authorities under this Act, with the exception of authorities granted in sections 2(b)(5), 5 and 7, shall terminate two years from the date of enactment of this Act.

    Sec. 10. Increase in Statutory Limit on the Public Debt.

    Subsection (b) of section 3101 of title 31, United States Code, is amended by striking out the dollar limitation contained in such subsection and inserting in lieu thereof $11,315,000,000,000.

    Sec. 11. Credit Reform.

    The costs of purchases of mortgage-related assets made under section 2(a) of this Act shall be determined as provided under the Federal Credit Reform Act of 1990, as applicable.

    Sec. 12. Definitions.

    For purposes of this section, the following definitions shall apply:

    (1) Mortgage-Related Assets.--The term “mortgage-related assets” means residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before September 17, 2008.

    (2) Secretary.--The term “Secretary” means the Secretary of the Treasury.

    (3) United States.--The term “United States” means the States, territories, and possessions of the United States and the District of Columbia.

    A couple of points from the above draft plan,

    $700b relates to the buying of mortgage related assets - the whole Credit Default Swap market is not in consideration here. So allowing the banks to air their dirty secrets is only of benefit if their dirty secrets don't extend beyond those mortgage backed assets. That may be the reason why AIG was rescued but Lehmans was allowed to fail - AIGs exposure to the CDS market is huge.

    Section 4. The Secretary shall report to Congress after three months and then every six months. What for? Keep them in the picture? Not much point since section 8 puts the Secretary above the law.

    Section 6. The Secretary's authority to purchase mortgage related assets is limited to $700b outstanding at any one time. So he can purchase $700b of mortgage related assets next week and another $700b as soon as it is available from the embattled banks, and so on...

    Section 8. The Secretary to the Treasury is above the law.

    Section 10. Increase in Statutory Limit on the Public Debt. I'm not quite sure what this is supposed to mean - the Secretary can increase the debt ceiling without reference to Congress? Surely not, but it does seem to fit with the other provisions.

    What is a mortgage related asset anyway? Does this cover all Mortgage backed securities? What is the size of the market in mortgage related assets now the the Fed effectively own the assets of Fannie & Freddie?


  • Closed Accounts Posts: 192 ✭✭SoCal90046


    seamus wrote: »
    Not to mention wars.
    We've seen in recent days the impact that turmoil in the US economy has on everyone else. No other economy is immune to problems in the US one. So if the market were allowed to go to the ****ter and sort itself out naturally, as would be the ideal situation, then we'd see a large number of weaker economies completely collapse. This leads to regime change in those countries (often to dictatorships or despots who claim to have all the answers). These people then blame other countries for their country's crap economy and garner support for the war by focussing the people's frustration elsewhere.

    And then, war.


    That's the point to which I was referring. You can go back and look at Europe and the US in the 1930s and see major changes in almost all of Europe's largest economies. The US had a major change in the role of government with the New Deal.


  • Registered Users Posts: 2,809 ✭✭✭edanto


    Is there precedent for Section 8?

    Sec. 8. Review.

    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.

    How does a law write itself outside the law?


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  • Closed Accounts Posts: 459 ✭✭eamonnm79


    Re: section 8
    Anyone remember kingpin.
    Finally! Big Hank Poulson (and Ben Bernanky) is above the law.:)

    Not sure if everyone else knew, I didnt, That the reason the fed had to get approval for 700billion bailout is because they have already gone through the 888 billion they were allowed to legally distribute (a 1930's law). It was only when I saw a headline on bloomberg yesterday "total bail out may come to 1.8trillion" that my curiosity was raised.


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