Magic numbers: retirement/investment coffers

Hmmm...

Trying to explain to the s.o. that now is "really not a good time" to be looking at buying a house. She's not impressed.

Here is how it is supposed to work.
From the article:

Quote

Lundgren, the former finance minister, recalls a conversation with Peter Wallenberg, at the time chairman of SEB, Sweden's largest bank. Wallenberg, the scion of the country's most famous family and steward of large chunks of its economy, heard from the finance minister that there would be no sacred cows.

The Wallenbergs turned around and arranged a private recapitalization, obviating the need for a bailout at all. SEB turned a profit the next year, 1993.

"For every krona we put into the bank, we wanted the same influence," Lundgren said. "That ensured that we did not have to go into certain banks at all."

By the end of the crisis, the Swedish government had seized vast swaths of the banking sector, and the agency had mostly fulfilled its tough mandate to drain share capital before injecting cash. When markets stabilized, the Swedish state then reaped the benefits by taking the banks public again.

Edited 1 time(s). Last edit at 09/23/2008 04:52PM by Steve Cordova.

Why aren't salary caps being tied to this trillion dollar bailout?

Money quote:

Paulson himself has shares in Goldman whose value was estimated at $US700 million. He is a direct beneficiary of his own bail-out proposal blind trust or no blind trust.

I think the bailout should go ahead but not in the "no strings attached" fashion proposed now. At the very least executive management should forfeit some of the gravy train if only so they can tell taxpayers they "feel their pain".

We need a FDR-style "new deal" here. Pity we've got a GWB at the moment.

Paulson and Bush thinks its better to give the power of the purse to the Executive Branch, after all, it's not like they've ever FUBAR'd anything at all during GWB's tenure in the White House. The hell of it is, this is an administration that cannot and will not compromise, and he will go against his own party rather than back down. Get ready for the gridlock.

We may be boned until January. We may be boned before then, if Dubbya decides this is a national emergency and goes over the heads of Congress and the Supremes to do whatever the hell he wants, anyway. There's a significant chance he might... and three quarters of a trillion will be gone in a blink, never to be seen again.

That article about Sweden tells the story exactly like I envisioned it; the big boys in finance know very well that a total collapse will certainly cost them everything, so they won't do any completely stupid things like freeze everything they've got. This is a matter of using an uncomfortable situation to basically 'rob the government'.

I just don't see why there's even a discussion about it, it's completely insane that the government should pay 700 billion just like that without any form of oversight or anything in return. Nationalisation means just that, in return the taxpayers should become shareholders.

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What, conquering the world's second largest source of proven oil reserves doesn't count?
[/quote

]Haha!

I can continue -- after 9-11 someONE should have stood up and declared a new century of innovation for America. But instead we are stuck bailing out failed car manufacturers?! I mean, What The FUCK people. This industry who commanded 50 of the last 100 years squandered everything, EVERYTHING they had and we are supposed to fucking care?????? Cry me a river you bunch of greedy visionless splunge heads.

Bailing out the auto-industry -- now that's showing clear leadership.
Lazy, slimy, customer hating, innovation ducking, greedy fucks who destroy this country are supposed to be saved?!


I'm moving to Mexico for fucks sake, at least their corruption isn't hidden under a cloak of false christianity and lies.



BTW -- I don't think Gingrich is all that prescient in his little corner.



Edited 1 time(s). Last edit at 09/23/2008 07:41PM by rino.

Dear American:

I need to ask you to support an urgent secret business relationship with a transfer of funds of great magnitude.

I am Ministry of the Treasury of the Republic of America. My country has had crisis that has caused the need for large transfer of funds of 800 billion dollars US. If you would assist me in this transfer, it would be most profitable to you.

I am working with Mr. Phil Gram, lobbyist for UBS, who will be my replacement as Ministry of the Treasury in January. As a Senator, you may know him as the leader of the American banking deregulation movement in the 1990s. This transactin is 100% safe.

This is a matter of great urgency. We need a blank check. We need the funds as quickly as possible. We cannot directly transfer these funds in the names of our close friends because we are constantly under surveillance. My family lawyer advised me that I should look for a reliable and trustworthy person who will act as a next of kin so the funds can be transferred.

Please reply with all of your bank account, IRA and college fund account numbers and those of your children and grandchildren to wallstreetbailout@treasury.gov so that we may transfer your commission for this transaction. After I receive that information, I will respond with detailed information about safeguards that will be used to protect the funds.

Yours Faithfully Minister of Treasury Paulson

Henry Merritt “Hank” Paulson Jr. is the United States Treasury Secretary and member of the International Monetary Fund Board of Governors. He previously served as the Chairman and Chief Executive Officer of Goldman Sachs.

LOL

DPBD

If you connect the dots and look at history (and connect the dots again), one might argue that they have finally come to do away with the New Deal once and for all. The actors are all present, albeit, their descendants.

http://en.wikipedia.org/wiki/Business_Plot

This is a 2002 BBC documentary (RealAudio, can be listened to with VLC) about the Whitehouse coup, in which Prescott Bush is named as an actor as well. Coincidence?

Sounds way too "skull & bones" to be taken seriously...


I am thinking the "public bluster" over this TARP plan is largely due to the elections -- it is not just the Whitehouse that has terrible approval numbers, the Congress is still fighting a "throw the bums out" mindset it nearly every state. The "folks back home" need to know "their guy" is fighting for 'em, even if those folks back home are really part of the problem 'cause they are living in some multiply-refinanced house that they really can't afford...

The Legislative Branch will cooperate behind closed doors as long as they can get a simple "win" to calm the angry voters back home. My fear is that the "executive compensation cap" will really be one of those hideous "tax dodge" issues that starts out aimed at 'soaking the rich' and then gets interpreted by IRS quite differently. By the time the squeals of regular ol' Joes gets loud enough for the Congress to revisit the rule there will be a BIG pile of revenue that it is capturing and it will be damned hard to wean the system off it. Sorts like AMT...

Don't get me wrong -- I have no particular fondness for runaway compensation packages, especially as it is pretty clear that there are more abuses than legitimate cases of it truly being an incentive to make a company run properly. The Congress may very well choose to implement some kind of "stick" in the tax code that will end up be worked around by the truly insanely wealthy but it will shove a knife into a lot of the unlucky bastard that just happen to run a plain jane company that does well...

Yes, way too Skull and Bones indeed.

But back to the issue at hand, it better be an election issue. But really, the compensation discussion is just attention diverting. While the billions that were handed out in the last couple of years were nothing to sneeze at, it's just petty cash compared to the contribution the US taxpayer needs to make.

So, how do you see handing out cash will solve the problems then Stan? And I don't mean saving some big names on Wall Street. I mean fixing the underlaying, fundamental problems the US society is facing.

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tliet
.. I mean fixing the underlaying, fundamental problems ...

Funny that you posted this well in advance of it being asked in today's hearings, but it was asked. And the answer that Chrmn Bernanke and Sec. Paulson offered up seemed OK to me. This TARP is being structured in such a way that participation in the auction portion of the asset sale carries some significant advantages to the the participants. They will be allowed to get the bad assets off their books and hopefully get back to growing the economy as quickly as possible. The returns that investors seek will be tempered by the knowledge that greater scrutiny will be given to all ventures.

There is a legitimate argument to be made the the recklessness of the investment banks was a direct result of them seeking an unrealistic return with seemingly "too good to be true" levels of risk. This was different than the risk/reward ratio of the booming economies in former Soviet Bloc countries and the moribund rates of growth in the mature highly socialized economies of other Euro nations (ahem...) Sunshine has put the problems of BOTH extremes into the open and advantages of the US system should be more obvious than ever...

That said, there are significant issues with regard to the quality of the workforce in the US, the structure of benefits, the legal landscape and a whole host of other things that have not gotten the attention they deserve. It is no surprise that such issues are for more tricky to deal with than "cleaning up the balance sheets" of financial firms, however if those balance were NOT to be cleaned up there is no way to address any of the other issues.

Right now a phased approached is gaining favor, and has much merit.

So, in layman's terms it's just saying that, Yes, Wall Street has gotten a little too greedy for its own good, got a little too far ahead of itself and now that the party is over, the workers in Main Street need to foot the bill otherwise the people and corporations who got rich don't invest anymore, right?

I mean, that's what it comes down to.

In my opinion it does absolutely nothing to structurally start solving fundamental problems, it's just a another stop gap measure that started at the beginning of this millenium. Bubble economics and all this does is pump some air in the bubble again. There's no incentive for anybody to wise up, nobody will learn from this, other than foreign nations who might start rethinking their standard practice of buying up US debt. Which ironically might eventually force the US to change its ways.

DPBD

And why is Paulson so hell bent on making this an absolute power grab? Not only is he socialising Wall Street, he turns Washington in a dictatorship:

http://www.nytimes.com/2008/09/21/business/21draftcnd.html

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.

Please enlighten us Stan, what am I missing here that justifies this?

Playing devil's advocate for a moment, he may believe that the distribution of such large sums of money could easily be disrupted/distorted/misallocated by politicians looking over his shoulder or the threat of judicial proceedings. Of course, he probably believes himself to be above such matters, and uniquely suited to spend Uncle Sam's 700 billion ideally.

Let the market work out the problems you mean; as Paulson is only doing an intern ship in Washington. No, I really have to see the first rationale for this that makes sense.

It makes sense once you dig deeper in this plan, it's plain and simple ridiculous.

So unlike the Resolution Trust Corporation, which took on dodgy assets which had fallen into the FDIC's lap due to the failure of thrifts, and the Home Owners' Loan Corporation, which was established in 1934 after the housing market had bottomed, this program is going to swing into action with the clear but not honestly disclosed intent of buying assets at above market prices when future markets and the analysts with the best track records on forecasting this decline (you can add Robert Shiller, CR at Calculated Risk, and Nouriel Roubini to the list) believe it has considerably further to fall.

As we said earlier, this is a covert, not particularly well designed, inefficient, and unduly costly recapitalization of the banking system. Why?

Losses on the paper acquired are guaranteed. This is not a bug but a feature. The whole point of this exercise is an equity infusion to banks. The failure to be honest about it upfront will lead to a taxpayer backlash (or will lead to the production of phony financial statements for the rescue entity, which will lead to revolt by our friendly foreign funding sources).

Taxpayers have no upside participation.

There is no regulatory reform as part of the package. This would seem to be a minimum requirement for a donation of this magnitude.

There is no admission that deleveraging is inevitable. This plan seems to be a desperate effort to keep bad debt from being written down. Yet the sorry fact is that a lot of these assets simply will not be repaid.

There appears to be no intention to do triage. The financial services industry, on the back of an explosive growth in debt, has reached an unsustainable size. The industry will have to shrink. Yet the Administration does not address this issue; indeed, it appears it intends to forestall the inevitable. Regulators need to decide who will make it, who won't, and figure out what to do with damaged institutions. Instead, the reaction is ad hoc. The stunner was the contemplation of a possible merger between Morgan Stanley and Wachovia. As far as I can tell, the only thing the two firms had in common was coming into crisis on roughly the same timetable. For all I know, their IT systems are not compatible (many an otherwise promising bank merger has been scuttled over IT integration issues).

And then later on in the same post somebody writes something that describes the absolute core of the problem:

Although I agree broadly with Hatzius, I quibble with his idea that the goal is to avoid a sharp contraction in lending. The US needs to wean itself of unsustainable overconsumption, and since consumption has come to depend on growth in indebtedness, a reversal, however painful, is necessary. Our excesses have been so great that there is no way out of this that does not lead to a general fall in living standards (note that the officialdom in the UK is willing to say that, but since perpetual prosperity is a God-given right in America, admitting we will be getting poorer is verboten). Thus, a sharp contraction in lending seems inevitable; the trick is to prevent it from crossing the tipping point into a vicious, accelerating downward spiral.

Thus, a sharp contraction in lending seems inevitable; the trick is to prevent it from crossing the tipping point into a vicious, accelerating downward spiral.

Um, which is what is going to happen if something isn't done. Forget the scenario where your credit card maxes out, imagine you go to the hole-in-the-wall with your debit card and no money comes out.

Yes, impose caps/punishments on Wall St salaries. Hell, send some people to jail please.

Yes, insist that the US taxpayer should get some equity in exchange for this bailout (ala What would Warren Buffett do?). But for godsakes agree on something and implement it quickly.



Edited 1 time(s). Last edit at 09/24/2008 11:08PM by Tony Leggett.

The really funny part of most of the arguments from the complainers is that, at the core, all claim to be about the "principle of the thing" while all supporters of the TARP argue this is "the least bad alternative". I mean it is as if the complainers with an axe grind really believe that there is some way to drag the people that were running the investment houses out of their $10M homes and make 'em live in a hovel. What principle would be at work there, something that the Khmer Rouge would have coined: ""To keep you is no benefit. To destroy you is no loss." http://en.wikipedia.org/wiki/Khmer_Rouge

I got news for 'em -- to keep capital flowing IS in fact a great benefit to everyone. That flow will inevitably lead to some pooling wealth, but not nearly so much as would happen in full blown "suck the whole mess into an abyss" scenario. Remember this guy? Read up on his origins. While you are at it also take a gander at the bio of who he is likely modeled after http://en.wikipedia.org/wiki/J.P._Morgan . A righteous dude that fully understood that rules made the playing field a more profitable arena...

I have to chuckle too about the "cost to households" number being flogged by the press. They are stuck on this $10,000 per household. While that is a sizeable chunk of change I have a different take on this. See, a certain Senator who happens to be running for VP stated earnestly (and I have to admit that at some level I do agree with him...) "paying taxes is patriotic". SO that $10K cost can be thought of as a little 'extra' patriotism... For some households that sum would be crushing, others would not really notice it. That is the nature of diversity of income. I also suspect that an awful lot of the complainers easy have $10K worth of 'stuff' lying around their household that is not helping the economy much at all. From lavish home electronics, to motorcycles and personal watercraft to even 'luxury' clothing/personal accessories we have been consuming ourselves into a rat hole. In many cases those purchases were financed by home equity loans that may have contributed to the current mess. One could make the case that Sec Paulson will be the "grownup" that does the smart thing by putting that money into something that has the potential to grow AND help the economy expand...

I utterely reject the statement that "we are getting poorer". I have seen no evidence of this. My goodness by nearly any measure Americans have continued to increase their standard of living EVEN in the face of stagnant wages. From the trivial (try and find a car with roll-up windows...) to the much more important ( educational attainment continues to grow) and every important data point between suggests that while we do not have great big honking jumps in wages we STILL see more people living in larger homes, driving nicer vehicles, using more technology than any other nation on Earth. While there are areas that DO need to be addressed (health care costs, not access, IS a big concern) I am under no illusion that the way to do so is while trying to slay a monster that any honest observer agrees has many parents/midwives. The Congress is now trying to suggest that they "need more time to deliberate". I say BULLSHIT -- they want time to have $500 lunches with the lobbyists so that no one's ox gets too gored. If they have shown anything it is that their attempts to do ANYTHING slowly invaraibly leads to incomprehensible legislation that is larded with secret give aways. JW is dead-on when he suggests only "tsar-like" authority will treat all comers as the fools they were are give 'em all some price for their assets that only a technician can love. If the tried to either litigate or legislate a mechanism for appealing prices there would the potential for both "mandatory sentencing laws" that serve up justice to the good guy in the wrong place just as they hardened criminals AND/OR the jackpot mindset of the trial lawyers that would have every cup of hot coffee represent a quick path to "deluxe apartment in the sky"...

I have talked before about the very different mindset of the broad mass of Europeans in developed countries. Because they do live with a very different sort of safety net it does change their motivations. Productivity, innovation, and economic mobility are all far different than for Americans. Basically we are a more "brutal" economy. As in most such "blood sport" situations the potential for excess is huge. This program can be thought of as bringing out the "riot truck" and spraying down the crowd. The noisiest in the front row are going to end up on their butts..



Edited 1 time(s). Last edit at 09/25/2008 03:09AM by stan adams.

Quote

Playing devil's advocate for a moment, he may believe that the distribution of such large sums of money could easily be disrupted/distorted/misallocated by politicians looking over his shoulder or the threat of judicial proceedings. Of course, he probably believes himself to be above such matters, and uniquely suited to spend Uncle Sam's 700 billion ideally.

Well, they could try the old Roman model: the dictator gets absolute powers for a pre-ordained period of time, during which he can do what he likes. At the end, he's immediately put on trial for all of his actions.

Well, at least the current situation is complete proof that the 'brutal economy' didn't work, the only difference with Europe is that in the US the safety net seems to only put into place for the ones that don't need it.

Could you still try to answer why Paulson cannot be held accountable by any of the three powers in the US democracy?

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YDD
Well, they could try the old Roman model: the dictator gets absolute powers for a pre-ordained period of time, during which he can do what he likes. At the end, he's immediately put on trial for all of his actions.

And how did that work out for the Republic of Rome?

Ave, Bush Imperator...