Bush has just tripled the US foreign debt overnight

BenjAii

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

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

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.

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 ?

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.

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.

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.

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.

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

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.

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?

justfortherecor

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

$9,664,631,803,259.07!

Note: Represents only c. 38% of GDP

derry

justfortherecor wrote: »

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

Time Magazine

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

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

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.

Flamed Diving

damnyanks wrote: »

the government bail out or letting the banks fail.

The available solutions are not dichotomous.

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.

justfortherecor wrote: »

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.

damnyanks

Flamed Diving wrote: »

The available solutions are not dichotomous.

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

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.

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

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.

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.....

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.

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.

damnyanks

Flamed Diving wrote: »

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.

samb

justfortherecor wrote: »

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?

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.

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?

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.

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?

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.

Minder

eamonnm79 wrote: »

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).

Have you got a source for that $888b limit?

Minder

Buffett see opportunity in the Paulson Plan...

Sept. 24 (Bloomberg) -- Billionaire Warren Buffett, calling turmoil in the markets an ``economic Pearl Harbor,'' said his $5 billion investment in Goldman Sachs Group Inc. is an endorsement of the Treasury's $700 billion bank rescue plan.

"I am betting on the Congress doing the right thing for the American public and passing this bill,'' Buffett said on cable channel CNBC today. ``I certainly have a vote of confidence in Goldman and vote of confidence in Congress.''

Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke are pushing Congress to quickly approve the proposal to remove illiquid assets from the banking system. Buffett is buying a stake in New York-based Goldman after three of the investment bank's biggest competitors collapsed or were forced into emergency sales.

"I think the Treasury will pay back the $700 billion and make a considerable amount of money,'' Buffett said, adding that if he had $700 billion on the government's terms to buy distressed assets, he would. "Unfortunately, I'm tapped out.''

Goldman rose $4.95, or 4 percent, to $130 at 4 p.m. in New York Stock Exchange composite trading after Buffett's Berkshire Hathaway Inc. agreed yesterday to the investment. It will pay 10 percent interest and give Buffett the right to buy $5 billion in common stock in the next five years at $115 a share.

Scold

Buffett, 78, has frequently scolded Wall Street for shoddy accounting and risky investments. He's investing in the most profitable U.S. investment bank a week after Lehman Brothers Holdings Inc. went bankrupt and Merrill Lynch & Co. sold itself to Bank of America Corp. Bears Stearns Cos. in March was absorbed by JPMorgan Chase & Co.

"It's not like Pearl Harbor where you could look at what happened with your own eyes and decide you had to do something that day,'' Buffett said on the cable channel. "This is sort of an economic Pearl Harbor we're going through.''

Michael Yoshikami, president and chief investment strategist for YCMNet Advisors in Walnut Creek, California, which manages $1 billion, including Berkshire shares, said Buffett's investment will pay off.

"It's a deal that will be quite lucrative for Berkshire Hathaway shareholders,'' Yoshikami said. For financial firms, "this suggests the world is not coming to an end.''

Goldman's stock skidded about 40 percent this year. Berkshire rose $4,500, or 3.5 percent, to $133,300 at 4 p.m. in New York Stock Exchange composite trading, trimming its decline to 5.9 percent this year.

Buffett's Focus

Buffett chooses where to put Berkshire's money by focusing on companies with what he considers strong managers and a market- leading franchise. He invested more Berkshire cash in the past nine months, after complaining last year that he couldn't find anything big enough to buy. He has agreed to spend at least $25 billion this year to acquire companies, finance buyouts and purchase securities for Omaha, Nebraska-based Berkshire.

"It's nice to have a lot of money, but you know, you don't want to keep it around forever,'' Buffett said. "I prefer buying things. Otherwise, it's a little like saving sex for your old age.''

"When the price gets right, you have to get in,'' said Gerald Martin, a finance professor at American University in Washington who has studied Buffett's investment history. "The pendulum may finally have swung too far the other way.''

Berkshire has announced nine acquisitions since October, compared with six in the prior 12 months, when his largest deal was $350 million to buy VF Corp., an underwear and pajama maker.

2008 Deals

This year, the deals include the $4.5 billion purchase of Marmon Holdings Inc., the Pritzker family's collection of 125 companies, in March, and a $4.7 billion bid this month for Constellation Energy Group Inc., the largest U.S. power seller.

Buffett provided $6.5 billion in April to help Mars Inc. buy Wm. Wrigley Jr. Co., giving him a stake in the chewing gum maker. He pledged $3 billion in July to Dow Chemical Co.'s $15.4 billion takeover of Rohm & Haas Co. By midyear, his cash holdings had declined to $31.2 billion from $44.3 billion at the end of 2007.

Berkshire has bought $6.5 billion in auction-rate securities since December after the market froze. Yields for the debt rose as investors found themselves unable to redeem the securities. Dealers that ran the periodic bidding to determine interest costs stopped supporting the auctions.

The Goldman investment puts Berkshire back in an industry Buffett has mostly shunned since 1997, when Salomon Brothers was sold to Travelers Group. Buffett helped the firm fend off an unwanted takeover in 1987, only to see the New York securities firm trail every U.S. stock index for the next decade.

`Better' Deal

"Buffett has struck an extremely attractive deal,'' Guy Moszkowski, an analyst at Merrill Lynch & Co., wrote in a note to investors today. ``He is, we believe, getting a better deal than he did in 1987 when he bought a Salomon Bros. convertible with a 9 percent yield, for a company that is considerably more attractive than the '87 Salomon.''

Buffett has credited Byron Trott, a Goldman banker, with helping Berkshire complete at least four acquisitions, including the Marmon deal. Trott "understands Berkshire far better than any investment banker with whom we have talked and - it hurts me to say this - earns his fee,'' Buffett wrote to shareholders in Berkshire's 2003 annual report.

Buffett has sometimes criticized Wall Street, saying at a news conference in May that the industry is "going to go where the money is and not worry about consequences.''

Financial Stakes

The Salomon experience hasn't damped his enthusiasm for financial companies. Wells Fargo & Co., American Express and U.S. Bancorp are among Berkshire's 10 biggest holdings. His company is the No. 1 stakeholder in all three.

Buffett's investment decisions are often imitated by mutual funds and individual investors in an attempt to duplicate his success. A 2007 study by Martin, the American University professor, found that using this strategy for 31 years would have delivered annualized returns of about 25 percent, double the return of the S&P 500.

Berkshire spokeswoman Jackie Wilson didn't return messages seeking comment.

SoCal90046

eamonnm79 wrote: »

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.

I too don't know where this information originates. It doesn't seem likely that a 1930's era law placed a restriction as described. The $888 billion might come from media reports about the assets held by the Reserve on its balance sheet; the last time I looked, it's close to that figure.

However, the main problem here is that the Fed isn't seeking approval for the bailout and isn't looking for $700 billion; the Department of the Treasury made the request.

egan007

It's nuckin futs.

700 Billion, surely they should buy shares of the banks assets with that and make the American people a profit.....The bottom line is it's an opportunity for the ultra rich to become ultra richer.

Never mind the billions and trillions.

If I have seven euro of debt and you bail me out by paying my debts I'm indebted to you. You could do this 'to be nice' but it would make more sence if you got something in return.

eamonnm79

Minder wrote: »

Have you got a source for that $888b limit?

http://www.cnbc.com/id/26808715
This is from CNBC, its a 1.8 trillion Dollar bail out, the 700 billion as you can see in the article is only part of the bail out( the part they have to ask for cos they have already given away the rest).
Its the part they have to ask for they have already given out the rest. I deffo read that 888 billion figure yesterday ill try find it now.
However from the article above you can clearly see that the bailout is 1.8 trillion, not a 700 billion bail out that all the media are reporting.

Found it.
http://www.iht.com/articles/2008/07/30/business/30housing.php

Its all to do with the National Debt Ceiling. This National Debt ceiling law came in in the 1930's after the wall street crash.
On July 30th last they rose the National debt ceiling by over 800 billion.
I.e had an 800 billion dollar bailout. They used this for fanny and freddy, JP morgan chase, AIG etc. see cnbc article above.

This larger amount was passed by congress without political questioning just 1 and 1/2 months ago. So whats the difference this time! Its the Public awareness and disquiet that the politicians are feeling from their constituants.
When the media talk about the 700billion dollar bail out without mentioning that only a couple of months back they already got 800 billion, which they have obviously run out of.

SoCal90046

eamonnm79 wrote: »

http://www.cnbc.com/id/26808715
This is from CNBC, its a 1.8 trillion Dollar bail out, the 700 billion as you can see in the article is only part of the bail out( the part they have to ask for cos they have already given away the rest).
Its the part they have to ask for they have already given out the rest. I deffo read that 888 billion figure yesterday ill try find it now.
However from the article above you can clearly see that the bailout is 1.8 trillion, not a 700 billion bail out that all the media are reporting.

Just a couple of points here: the media are reporting that the current request from the Secretary of the Treasury is $700 million. The other figures that are mentioned in the cited CNBC report--and many, many other reports--are separate issues. The commitment to banks, AIG, Fannie & Freddie have also been extensively reported; I haven't read anywhere that those commitments are part of the $700 billion: they're separate and distinct. I haven't seen mainstream media outlet misrepresent the potential total commitment in the current financial crisis. In fact, the $1.8 trillion isn't even a firm figure; it could be more, it could also be less.

SoCal90046

egan007 wrote: »

It's nuckin futs.

700 Billion, surely they should buy shares of the banks assets with that and make the American people a profit.....The bottom line is it's an opportunity for the ultra rich to become ultra richer.

Never mind the billions and trillions.

If I have seven euro of debt and you bail me out by paying my debts I'm indebted to you. You could do this 'to be nice' but it would make more sence if you got something in return.

When the plan is implemented we'll know exactly what the Treasury wants to do, but the media and the Secretary indicate what you're saying. The plan appears to be the acquisition of non-performing assets from distressed banks. The purchase would be made from a bank and not a person. The Treasury would then own those loans and, potentially, the property if a default occurred. Right now, the plan is being debated; no one truly knows what will happen until Congress passes a bill that is signed into law by the president.

eamonnm79

SoCal90046 wrote: »

I too don't know where this information originates. It doesn't seem likely that a 1930's era law placed a restriction as described. The $888 billion might come from media reports about the assets held by the Reserve on its balance sheet; the last time I looked, it's close to that figure.

However, the main problem here is that the Fed isn't seeking approval for the bailout and isn't looking for $700 billion; the Department of the Treasury made the request.

You dont think americans would have a law to put a limit on how much currency the fed could create?
Although you are technicly correct I think that is just symantics.
If it isnt the Fed looking for the money then what is Ben bernanke (head of the fed) doing sitting beside Hank poulson (head of the treasury) at the "please give us 700 billion dollars" hearings.
The Fed tell the treasury how much paper they need to create in order to exchange with international banks for bonds. Then the treasury pass on the request to congress to approve.

SoCal90046

eamonnm79 wrote: »

You dont think americans would have a law to put a limit on how much currency the fed could create?
Although you are technicly correct I think that is just symantics.
If it isnt the Fed looking for the money then what is Ben bernanke (head of the fed) doing sitting beside Hank poulson (head of the treasury) at the "please give us 700 billion dollars" hearings.
The Fed tell the treasury how much paper they need to create in order to exchange with international banks for bonds. Then the treasury pass on the request to congress to approve.

That's not what I wrote. You wrote that there was a 1930s era law; I don't know of that law.

There was no issue of semantics in what I wrote: the Fed handles monetary policy; the executive and legislative branches handle fiscal policy. It's not an issue of semantics.

You're question about Ben Bernanke participating in the current hearings isn't serious, is it? When you read the original proposal issued by the Department of the Treasury that will clear up what these hearings are all about.

eamonnm79

SoCal90046 wrote: »

Just a couple of points here: the media are reporting that the current request from the Secretary of the Treasury is $700 million. The other figures that are mentioned in the cited CNBC report--and many, many other reports--are separate issues. The commitment to banks, AIG, Fannie & Freddie have also been extensively reported; I haven't read anywhere that those commitments are part of the $700 billion: they're separate and distinct. I haven't seen mainstream media outlet misrepresent the potential total commitment in the current financial crisis. In fact, the $1.8 trillion isn't even a firm figure; it could be more, it could also be less.

Every headline I see is calling this a 700billion bail out!

Its not calling it the current 700billion bail out which is on top of a 800billion bail out of july 30th, which you probobly never even heard about unless you read the business broadsheets.

If the general public were aware of the 800 billion bail out of 30 july then the media would be forced to ask a fairly obvious question.
So how long till you guys come back for another 700 billion from the american tax payer.
It would also lead people to ask why their congressmen didnt hold hearings for the first 800 billion.

Minder

SoCal90046 wrote: »

The plan appears to be the acquisition of non-performing assets from distressed banks. The purchase would be made from a bank and not a person.

I wonder if there will be anything in the Plan that will limit the banks from passing illiquid MBS from other organisations - hedge funds for example.

Ponster

For info :


http://www.forbes.com/home/2008/09/23/bailout-paulson-congress-biz-beltway-cx_jz_bw_0923bailout.html

"The secretary and the administration need to know that what they have sent to us is not acceptable," says Committee Chairman Chris Dodd, D-Conn. The committee's top Republican, Alabama Sen. Richard Shelby, says he's concerned about its cost and whether it will even work.

In fact, some of the most basic details, including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy.

"It's not based on any particular data point," a Treasury spokeswoman told Forbes.com Tuesday. "We just wanted to choose a really large number."

Bolding mine.

andrew

Sorry if this has been mentioned already in this thread, or discussed at length before, but I was just wondering something. Instead of incresing national debt bailing out banks (at the expense of the taxpayer), why doesn't the us Government just pay off all the bad loans people have defaulted on? That way the banks are happy because they've been paid, and taxpayers are happy because they'll actually see their tax dollars, and the economy is happy (probably wrong on that last one). Or am I completely missing something important here?

edanto

Dunno what would happen really.

People would own more of their home, they'd be happy.

The banks would be able to balance their books a little bit - obviously in the circumstances they would have to hand over the property deeds whilst receiving only a negotiable percentage of the outstanding debt - and well can a corporation be 'happy'?!

Psychologically, they're probably sociopathic, but it's really about the people that own the banks.

They probably cashed out long ago (sold many of their shares to your pension funds) and in a way caused this crisis by accepting dubious valuations and accounts - and if the govt pay off the debt and only get stocks in these companies they probably won't be worth much anyways.... so how would the 'financial elite' of the world feel about the plan to use govt money to reduce mortgage bills?

Anyone know any of them?

edanto

I haven't seen mainstream media outlet misrepresent the potential total commitment in the current financial crisis. In fact, the $1.8 trillion isn't even a firm figure; it could be more, it could also be less.

eamonnm79 wrote: »

Every headline I see is calling this a 700billion bail out!

Ah headlines. Not worth the paper they're printed on. Like dollars these days.

Anyways - on top of the unlimited bailout with 'big numbers', there is also the Fannie and Freddie fiasco - total value of 'assets' 5 trillion

The U.S. government has taken control of struggling Fannie Mae and Freddie Mac, companies that combined control $5 trillion in assets. Michael Greenberger, JD, a professor at the School of Law and a former director at the Commodity Futures Trading Commission, said, "Every time this happens, it’s a little known publicized fact that it’s the U.S. taxpayer that’s now really standing behind these institutions."

I don't know if F&F were involved in Credit Default Swaps or just traditional mortages, but the NYT yesterday was discussing a 30 cent in the dollar value on CDSs. Actually it was pushing for a value in that range whilst there is downward pressure.

What kind of stocks are going up at the moment?!

jimmycrackcorm

people need to get a little bit of perspective. After world was 2. Europe was in so much poverty that the us bailout is minor in comparison.

SoCal90046

eamonnm79 wrote: »

Every headline I see is calling this a 700billion bail out!

Its not calling it the current 700billion bail out which is on top of a 800billion bail out of july 30th, which you probobly never even heard about unless you read the business broadsheets.

If the general public were aware of the 800 billion bail out of 30 july then the media would be forced to ask a fairly obvious question.
So how long till you guys come back for another 700 billion from the american tax payer.
It would also lead people to ask why their congressmen didnt hold hearings for the first 800 billion.

That's what the current appeal appears to be: a $700 billion dollar bail out. I haven't read any media outlet ignoring what's happened. You're inferring something some from headlines that, IMHO, isn't reasonable.

Anyone can read the other actions by both the Treasury and the Fed; these actions are separate and distinct from what Paulson is requesting from the Congress.

I don't represent the general public and can't comment on what people may or may not know. My assertion is that the general conclusion you're drawing from media reports isn't accurate.

As an FYI, there was never a request from Congress for $800 billion. Your comment misrepresents what occurred during the past few weeks.

SoCal90046

Minder wrote: »

I wonder if there will be anything in the Plan that will limit the banks from passing illiquid MBS from other organisations - hedge funds for example.

Good point; I am looking forward to reading the plan if and when it is available!

SoCal90046

andrew wrote: »

Sorry if this has been mentioned already in this thread, or discussed at length before, but I was just wondering something. Instead of incresing national debt bailing out banks (at the expense of the taxpayer), why doesn't the us Government just pay off all the bad loans people have defaulted on? That way the banks are happy because they've been paid, and taxpayers are happy because they'll actually see their tax dollars, and the economy is happy (probably wrong on that last one). Or am I completely missing something important here?

There's actually a moral hazard there in the sense that you're rewarding behavior you don't want to encourage.

I think that there is a way to buy bad loans--at a mildly punitive rate--and sell them. I would also like to see a certain amount of suffering in the earnings of the banks that participate in any program.

andrew

SoCal90046 wrote: »

There's actually a moral hazard there in the sense that you're rewarding behavior you don't want to encourage.

I think that there is a way to buy bad loans--at a mildly punitive rate--and sell them. I would also like to see a certain amount of suffering in the earnings of the banks that participate in any program.

True there is a moral hazard, but it seems like the best of two evils, ie. Either you're rewarding the banks or the people.