Getting Corps Out Of Politics – Solving a Root Problem

Everything Ian says.
And: any new bailout package must address the ROOTS of this problem. It is time to prohibit corporations from using money for anything except operating the company. Or more correctly, prohibit the executives from using corporate resources for anything except operating the company. This includes all forms of political influence including influencing public debate — no lobbying “philanthropy,” charities, etc. This means trade associations will have to be constituted differently.

Bailout Failed – Now What?

OK, the problem is that there is “toxic debt” out there and no one knows who will be affected by it. The toxic debt consists of “packages” of mortgages or other debt bundled up together. So imagine buying a package of 500 mortgages. What you now own is this obligation on the part of the mortgage holders to pay you a certain amount each month for the next 30 years (or until the mortgage is paid off.) If ALL the mortgage holders continue to make their payments, it is easy to know what your monthly revenue is going to be. But when you just don’t know how many people are going to stop paying, it is nearly impossible to know what this package is worth.
And that is what is causing the problem. No one knows what the revenue from these things will be, so no one knows if they themselves can make their own payments and certainly doesn’t know if others can pay them. And since everyone owes everyone else so much money from so many loans, no one knows who will be paying and who won’t and therefore who will go out of business or not.
And that means that you can’t trust ANYone to make their payments, because the people who pay the people who pay the people who pay them… might not be able to pay. Figuring out all those relationships is called “unwinding” it. THAT is what the bailout was about — buying that “toxic debt” so companies could say that they are free of it and still in business (or not) and therefore get or give loans (or not). That lets the situation unwind.
The root of it is the housing bubble. And the root of that was a credit bubble — too much credit. And that CAN’T be solved. Because NO ONE should ever have bought a house for so much money, or taken out second mortgages to buy cars and stuff. And it is done so it is too late really to do anything there. Like the answer to Iraq: don’t invade Iraq. Now it’s too late to solve it.
The problem though is what happens to businesses that ARE doing OK, but can’t get the money they need, because the whole banking system has f’ed itself up? (Why would a sound company need money? Well, when you sell something you don’t usually get paid for a while. And if you are owed ten million next Tuesday and have a payroll to make tomorrow, you have to borrow a bit.)
Even sound banks can’t lend because they need to keep a certain amount in reserve and have loaned out the limit of what they can loan. The Fed has been propping that up.
The Bush plan was basically to just give money to the firms that might loan them money, so they could make the loan, by buying toxic debt from them without really caring what it turned out to be worth. It is an OK idea, IF the public is protected and the process is transparent. But the Republicans would have none of that.
This bailout can be salvaged IF they really do stop executives from being paid ridiculous amounts across the board, really do get real equity in the firms so that the public gains if those firms gain from this, really do get (fair) deals in bankruptcy court for some of the holders of those mortgages so they can pay, and really do tax Wall Street firms and transaction enough to recover the money involved. That is a start and should be done right away, even though it doesn’t address root causes.
But like I said, Republicans are not going to go for that and we have to wait until Bush is gone.
One solution might be to set up new banks, from scratch. But that takes a bit of time. Another might be to set up what I call a Red Flag/Green Flag system so companies that do not hold toxic debt themselves get a green flag, and then you can visualize the networks of debt that do NOT have toxic debt in the chain…

Bailout Misinformation

In my morning paper,

Q How will the plan affect the housing market?
A If it works as intended (a caveat with all these answers) the $700 billion should help level off home prices. The huge infusion of money into the financial sector, designed to buy up the most toxic mortgage-related assets held by banks and others, should loosen up the mortgage market, making it easier for potential home buyers to secure a loan and get into the market.
That, in turn, should stabilize prices, as more buyers make bids for homes.

This is just wrong. If you qualify for a mortgage you can get a mortgage. If you do not qualify you can’t and this bailout makes no difference.
The problem happened because people who did not qualify were getting mortgages. They were offered low “teaser” or “qualifying” rates. This enabled people to pay much more for houses than they should have and could afford. So in the bubble frenzy this allowed houses to go way, way up in price. Later the mortgages “adjusted” to the real rate, dramatically increasing the monthly payments.
Now the old rules are back, requiring people to prove they could afford to make the payments. Those rules are not being changed by this bailout bill. So people will not be able to “bid the price up” way beyond what a house ought to sell for.
Prices are not going back up. Give that idea up.
Instead, ask yourself why this bailout is being sold to you with lies?

We Must Stop This Bailout Sold With Fear

This bailout bill hands over the rest of our money to a few Wall Street firms. It does not address the causes of the financial problems. In fact it likely makes them worse yet leaves us nothing to fix the actual problems.
It is being rammed through before the people get a chance to weigh in. It is being rammed through using fear and confusion. We, the People are not being allowed to understand and debate this massive, massive transfer of our money. That by itself should be sufficient warning that a scam is underway.
Stirling Newberry: The Fate of the Union,

We must say no. And we must tell the people who work for us. This bill is not nothing else than the meaning of America itself. We have a choice of two Americas, one where enabling acts are rammed through under the cover of darkness and obscurity, with and in the shadow of fear, the other where there is, yet, some slim hope for our Democracy. The waves of the people’s revolution must overwhelm the dike and dams of privilege on this day, or there will be no tomorrow.
[. . .] Paulson’s plan was not conceived in a few hours, but planned and prepared for months, and only launched upon the public at a moment of perceived panic. The executive hid it in its dark recesses, waiting for a moment to launch it upon us. This alone should be enough for a legislature with any scrap of republican spirit, or democratic pride, or American honor, to reject it out of hand and demand that it be worked a new, from wholly different principles.
[. . .] Who has spoken for the people? With all the cameras and conferences, we have not had a voice. Locked out from a Byzantine process, we have been told to wait while others decide our fate. A curtain of night and fog surrounded the negotiations, with repeated declarations that deal was reached, taking for granted in the absolute the people’s assent.

The Final Bailout Bill Is A Farce

Earlier I wrote that Exec Pay IS NOT In This Bailout Bill.
I want to hilite the update. Go here to read about what else is not in the bill. This is a right-wing perspective celebrating that most of what we had been led to understand was good in the bill for the people of this country has been removed from the final bill, including sufficient oversight. And the supposed three-step funding is a trick because it requires a 2/3 vote to stop it all from being handed over to the Wall Street firms.
This bill must not pass.

Exec Pay IS NOT In This Bailout Bill

OK, so the bailout bill is out. We have been talk all along that executive pay limits would be in a bailout bill. But it is NOT in the bill.
One of the ways this bailout was made somewhat palatable was that executives of firms bailed out would have their massive paychecks reduced. To me this meant:
1) They wouldn’t be going for bailout money unless they really meant it
2) Bailout money wold be used to help pay their massive paychecks.
Instead there is a provision that limits tax deductions on executive pay for the top five executives. As if this means anything.
So with executive pay limits NOT in the bill, when we were told it would be, we need to find out why it this not in the bill, where it went, and why we are being told lies intended to sell us on the bill.
This is the kind of thing that sets us alarm bells for me.
Update - Here is what has happened to the bill, from a right-wing perspective. Interesting. Everything good appears to be out now.
Call your representative and DEMAND that they vote against the bill! It is JUST a handout of all the rest of our money, to rich Wall Street firms.

What Caused the Financial Crisis?

There are several letters-to-the-editor and TWO op-eds in my morning paper saying that the cause of the financial crisis was Democrats forcing Fannie and Freddie to give mortgages to minorities.
It’s everywhere. All over the radio, right-wing blogs, etc. This is how they do it.
P.S. And while we are on the subject of how they do it, an e-mail I just received from the “Republican Majority Campaign” titled, “Truth is Spreading about Obama’s Ties to Terrorist!”