A Bill Appears

by: Matt Stoller

Wed Sep 24, 2008 at 18:14


TPM has a copy of a bill that is 98% done.  It does include the ability of judges to write down mortgages in bankruptcy decisions and it has executive pay caps.  I think this rather misses the point.  The problem here is not the bill, which is very bad, it's the atmosphere of fake crisis.  The problem in the financial system is not one of liquidity - the basis of Barney Frank's horrific bill - but of insolvency of major institutions and mistrust in the American political system to deal responsibly with our currency, regulations, banking system, and budgetary priorities.

A deal like this - with Bush in charge and an election five weeks away - is inherently untrustworthy.  It cannot work.  It shouldn't go through.  It's like giving in to blackmail while asking for the people who are being blackmailed to trust in the outcome.  That's not going to happen.

There's an election coming.  Let that be the arbiter of how this crisis is handled.

Matt Stoller :: A Bill Appears

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A Bill Appears | 25 comments
Equity (0.00 / 0)
I don't see anything about equity, which means all the rest is just dressing.
Yes there is (4.00 / 1)
Can't copy language for some reason, but it requires Treasury to take "warrants" or other equity-like stuff from anybody who gets support.  Look about 3/4 the way down.
[ Parent ]
Sorry -- read your post late (0.00 / 0)

[ Parent ]
Under 'Maximizing Taxpayer Interests' (0.00 / 0)
it speaks of obtaining 'warrants or other similar assets'. I took this to mean equity or something like it. Am I wrong?
[ Parent ]
Warrants are options (0.00 / 0)
essentially.  We took them in the Chrysler deal, and it worked out not badly.
[ Parent ]
There is this, though (0.00 / 0)
This is typed, not pasted (we only have a picture of doc)

Maximizing Taxpayer Benefits.  Makes clear that (1)Treasure must obtain warrants (or similar assets) if they engage in a direct purchase from a company; (2) must remit profits back to the general fund; and (3) the Secretary consider the institution's health before making the plan so as not to artificially prop-up companies that will fail anyway.

I'm not sure I understand exactly what 1) and 2) mean, so perhaps equity is hiding in there and I can't see it.  But I don't think so.  That part about profits going back to the general fund is interesting.  This could mean far less money gets dumped overboard than the given price tag; like gambling with $100 but putting all the winnings in another pile -- on average the house only gets a few percent of the $100.

[ Parent ]
Good, I did misunderstand (0.00 / 0)
I see others commented in the time it took me to type up the relevant section.  If you guys are right, I feel much better about this.
[ Parent ]
There's going to be reverse auction, from what I understand... (0.00 / 0)
If the govt sends money directly to a company then we expect some equity in return. In this case warrants. The 700bil will be a fund. So in essence it's the government starting a Pimco or something like that. Bill Gross said he'd even run it for free.

We aren't actually just giving money away. We're 'investing'. Who knows if we'll win or lose. But if we do nothing it won't matter cause we'll have a depression.

[ Parent ]
Money... (0.00 / 0)
Honestly, a bail-out may be needed... I don't know that this bill represents the right move, but what concerns me is the overall cost of the bailout... I just don't see why it's necessary to give $700B all at once... give it out on a monthly basis and REVIEW it monthly.

This is what makes sense..

Maybe? (0.00 / 0)
I think it's to keep a steady stream of "another bailout" news, out of the news, right up to election day. This way it all stays under the radar.

If there were a new failed bank or bailout in the news every day up to election, there wouldn't be a Republican standing Novemner 5th.

[ Parent ]
Well (0.00 / 0)
The idea from the economist perspective is to shore up confidence in the markets. Rather than knowing the funds could be cut off, players know that the taxpayer is in for a big chunk, and that gets the psychology working right.

That's not to say there might still not be "another bailout" though.

Me | My Work | Future Majority

[ Parent ]
I don't agree (4.00 / 1)
I want to see more of the particulars, especially the price tag and whether or not the moneys get paid out in installments or up front, but it looks pretty good.

It has regulation, oversight, transparency; shareholder empowerment; help for renters of foreclosed houses as well as help for homeowners; punitive measures and other restraints leading to a relatively rational incentive structure vis-a-vis participating institutions; and, unless I'm misreading it, guarantees that this will be equity-based and future profits go back to the taxpayers.

how are you measuring good and bad? (0.00 / 0)
it might be great at preventing a serious recession, but in terms of maximizing the political leverage on economic issues in the interests of working families, the poor, consumers, debtors, etc?  Hardly.  That this bill is going through without any tax increase on the rich is a joke.
[ Parent ]
It's not to prevent a recession... (0.00 / 0)
We're guaranteed to have one no matter what. It's to prevent a freakn depression. It's serious.
[ Parent ]
it's to prevent a serious recession (0.00 / 0)
or possibly even a depression.  See here for some estimations of the seriousness of the crisis from people who know more than I.

:)

this is why i think SOMETHING needs to be done and actually should have been done a year ago when they were saying everything was fine- because, on assumption, that will hurt ordinary people because of the ties of finance capital to the rest of the global economy (though again, that's something to be skeptical about and actually interrogate rigorously).  but "something" and "hastily planned bill based on treasury secretary's framework" are two totally different things and there's no question that some amount of scamming is going on here.

[ Parent ]
This is not a "copy of a bill" (4.00 / 1)
by the way.  It's an outline of possible agreement.  Does have equity taking and other good stuff.  I've been convinced something should be done but not the handouts to the rich that have been proposed.  Maybe I'm wrong about the first, but I think this covers the second better than Paulsen's Pathetic Proposal.
and therein lies how we lost (4.00 / 1)
becuase Paulson asked for the sun, and we gave him the moon instead.
[ Parent ]
I think some may be blinded by the admin crying wolf one too many times. (4.00 / 1)
This is a REAL crisis. Granted, it has been a crisis in the making that many should have seen, and some have seen.

If something is not passed, and passed soon, then we are truly fucked. It's not good. But it's the way it is.

Plan may be only $150 bil (4.00 / 2)
Steve Benen on Washington Monthly says he's hearing the "deal" only covers a shorter-term $150 billion bailout.

If that's true, I think this package is fairly good.

TPM says the Treasury has "totally capitulated".

Indeed (4.00 / 2)
if all of the above is correct, and this is a short-term bill, it may be good.

I share Matt's sentiments about the meta situation, but it seems unlikely that this was ever going to be a "no action" situation. From a market standpoint, the whole world is watching what we do here. If we punted for five weeks, there would almost certainly be significant further losses.

As long as they don't fork over the whole $700B now, and get a lot in return, it's ain't so bad. We can revisit it in the new year.

Me | My Work | Future Majority

[ Parent ]
How much? (4.00 / 1)
I wish the leaked document specified the amount. $50/100/150 billion is a whole lot different from $700 billion...

Self-refuting Christine O'Donnell is proof monkeys are still evolving into humans
[ Parent ]
See above (0.00 / 0)
Appears (rumored?) to be $150B.
[ Parent ]
I also disagree with Matt (4.00 / 1)
I understand the concern over the crisis-ness of the situation, but I'm not in a position to evaluate that since I don't have any background in finance.  But what I concluded after reading Dodd's Proposal was that it would be ok even if the crisis was overstated by the administration.  Here's why:

Dodd's plan requires 5 things that are important in my view:

1.  Oversight of any buyout program with frequent reports to Congress.
2.  The public takes a share in any company that accepts public money.
3.  Restrictions on CEO compensation for companies that participate.
4.  Restructuring of mortgages and a preference for keeping people in their homes.
5.  A shorter time period than the Paulson Proposal, such that all authority under the plan is terminated on Dec. 31, 2009.

Now, we hear that Paulson/Bernanke don't like the executive compensationlimitations because they say that it will discourage participation.  Of course, if a CEO is willing to let their company collapse instead of taking a paycut, something is seriously wrong with their thought processes and they shouldn't be in charge of a Dairy Queen. But let's
assume that Disaster Twins are right and it will discourage some participation.

Now, let's say that the equity shares section works as it is supposed to.  Namely, we the taxpayers get a part of the companies that are doing poorly, and when they recover, we benefit from the rising tides.

If these two things are working well, then only those companies in the worst position will participate.  This will mean that even though Congress might authorize $700 billion, our actual outlays will likely be significantly less--that is if the CEO pay aspects actually disincentivize participation.  But on the other side, we will benefit from the participation of poorly performing companies since we will make some money when they recover.  So, these two aspects will work to minimize costs to taxpayers while maximizing return.

Meanwhile, we get to restructure some loans so that people aren't thrown out in the cold, and the authority shuts down in a year.

In short, from what I can tell, there isn't a real downside to this sort of bill.  And it looks like those provisions are being included in the House proposal.  The big question marks are whether the oversight will be effective, how much money is authorized, and how long this extraordinary authority lasts.

In a political sense, this is a win for Democrats on at least two counts.  Namely, this plan is exactly in line with what Obama called for over the weekend, so it's a win for him.  While McCain was losing his head, as George Will put it, Obama was setting the outline for the plan.  Second, this is congressional Democrats doing two important things:  1) standing up in the face of the Bush Administration and rebuking their calls for unchecked authority, and 2) looking like they know how to manage the economy.  

Sure, people are pissed, but I think we hit the upside on the whole.

Funding the bailout (0.00 / 0)
Stop the war. Now. We obviously can't afford it.
It mentions all the buzzwords, (0.00 / 0)
but is it all for show or are there real teeth in it?  Only time will tell.  I just hope we find out before it gets pushed through.
A Bill Appears | 25 comments
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