The Emergency Economic Stabilization Act of 2008

As of Sunday afternoon, the draft Emergency Economic Stabilization Act of 2008 is 110 pages long. The full text (at this time) is [here]. A summary and Section-by Section description may be found [here].

The bill will be introduced in the House of Representatives Monday morning and then head to the Senate. An analysis by Market Watch [here] concludes:

Under the proposed bill, the Treasury Department can use a combination of tactics to buy bad loans, focusing on mortgages and mortgage-backed securities but also including other types of loans under certain conditions. Treasury could purchase the bad debt through an auction process as well as by buying loans directly…

The proposed legislation also allows companies to participate in an insurance program, whereby Treasury would guarantee troubled assets, charging companies a premium “sufficient to cover anticipated claims,” according to the bill.

The government would get a stake in companies receiving bailout funds so that taxpayer money could be recovered if those companies grow in the future, according to the bill. …

In some cases, the bill requires companies limit executive pay, but those limits vary depending on the method by which Treasury purchases a firm’s troubled assets, and how much Treasury antes up.

“When Treasury buys assets at auction, an institution that has sold more than $300 million in assets is subject to additional taxes, including a 20% excise tax on golden parachute payments triggered by events other than retirement, and tax deduction limits for compensation limits above $500,000,” according to a synopsis of the text of the bill.

While the proposed bill prevents companies from signing new golden-parachute deals with top executives after Treasury gets involved, it does not change the terms of already-existing contracts, apparently in an effort to encourage companies to participate in the bailout program. …

The bill puts oversight provisions in place, including creating the position of an inspector general as well as a congressional oversight panel to monitor the program, plus a requirement that the Treasury secretary regularly report to Congress the details of all loan purchases. …

The bill also contains some provisions to help families in financial distress avoid foreclosures, in part by creating a plan to “encourage services of mortgages to modify loans” and allowing the Treasury to use loan guarantees to avoid foreclosures. …

There are at the time of this posting 2,327 comments regarding this analysis at the Market Watch site. Needless to say, I did not read them all. I did read the bill, however. It is quite complicated and heavy with legalese. Some of my conclusions:

The Secretary of the Treasury will value the securities to be purchased. This non-market approach is fraught with inequities and subjectivity, as well as the appearance if not the actuality of conflict of interest and collusion/corruption.

The provisions for protecting mortgagees (homeowners) are vague and unenforceable. The financial institutions will receive massive amounts of capital; homeowners get lip service, as far as I can tell.

The oversight of the Secretary of the Treasury and the Federal Reserve will not be done by independent third parties. Instead the foxes will be guarding the hen house.

There is no provision for investigating the defective practices of the financial institutions that led to this crisis. Indeed, those institutions are to be rescued from the consequences of their past practices without penalty or reform.

Much of the blame for this financial crisis is being placed on home buyers who have mortgages, but that is not completely fair.

The aggregate value of those mortgages has declined based on the recent market drops in home prices, not necessarily on mortgage defaults. On paper, the equity values securing the mortgages have fallen. Hence the aggregate value of the bundled mortgages has also fallen, on paper. That equity value was used as leverage for stock purchase and as hedges against stock trading losses. The margins employed by the investment banks were so precarious that a leveraged equity decline of a few percentage points caused the banks to fail.

That is the same systemic flaw that caused the Savings and Loan collapse of the late 1980’s. Marginal declines in equity values, on paper, tumbled their house of cards.

And there lies the real problem. Home values will rebound. They always do. But in the meantime, financial institutions skirting the edge of the margin cliff are tripping and falling to their doom.

Does the Emergency Economic Stabilization Act of 2008 correct that flaw in Wall Street investment practices? Not as far as I can tell.

I think Congress would be wiser to protect homeowners, not dice-rolling, tightrope walking investment banks. Congress should strive to protect, maintain, and perpetuate the essential equity, also known as real estate. It’s called “real” for a reason. Land and improvements on land are real wealth, true wealth, in contrast to transitory objects like stock certificates.

Unfortunately, Congress and indeed all three branches of the federal government have shown a propensity to squander real wealth, especially in regard to America’s forests, which the federal government has incinerated to the tune of 90 million acres over the last 15 years.

Let’s do some big number math. Ninety million acres in exponential notation is 9 x 10^7 (read nine times ten to the seventh power). We can safely (conservatively) assume that the average timber value on each of those acres was at least $5,000. Heck, some of the acres burned up held more than $25,000 worth of timber. I should know, my business includes timber appraisal. So $5,000 per acre is very conservative. In exponential notation 5,000 is 5 x 10^3 (read five times ten to the third power). Multiplying those numbers together yields 45 x 10^10, or $450,000,000,000. That’s $445 billion. And that’s just the timber value. Other values lost, such as water yield, habitat (terrestrial and aquatic), air, recreation, scenery , etc., were worth at least that much or even more. Hence we can conservatively estimate that Congress has incinerated a trillion dollars worth of forest values over the last 15 years.

When it comes to squandering equity, Congress is no piker. The federal government rivals the investment bankers in that regard. That’s what I meant when I said the foxes were guarding the hen house. In fact, the most carnivorous of metaphorical foxes are joining hands in the bailout bill.

The hens, meaning the rest of us, have good reason to be nervous.

29 Sep 2008, 8:48am
by bear bait

We all have to remember that as lenders, and guarantors of lenders, the bankrupt banks were required to make loans to people who could not pay. Under govt oversight, Fannie and Freddie were allowed to cook the books to keep the affirmative action home selling lie alive. This problem is only that the whole of the loans made to people who could never pay, would never pay, who fraudulently gained loans from banks that fraudulently offered them, became the waterbed of financial jello we are being asked to push to the top of the hill, and it was all about social engineering. This was the banking equivalent of putting crippled caribou in mobility scooters so the wolf would not eat them. The wolf was not deterred, nor was the market.

The run on the banks was to buy increasingly expensive food with savings, to raid the 401K, the Roth IRA, to fill the gas tank. People needed cash, and the super leveraged banks had no cash as it was needed to service their junk loan packages in foreclosure. The greenhouse gas fright gave us corn diverted to ethanol to pay more to drive fewer miles and helped to bring down the banks. The whole of environmental kneejerk sky-is-falling rhetoric brought down the banks. The next deal will be the wind turbines and solar panel fields that are no longer profitable when the subsidies end.

The banking subsidies ended when no one could be found to buy increasingly expensive housing driven by inflationary bad loans, and the banks failed. No more banks to buy the bad loans mandated by Congress, and there will no one to buy the energy at cost when Congress’ energy subsidies go away.

This, and failed forest policy from social engineering goals being the focus of Federal land management, are the results that were sure and known and expected. You get what you get because that is what you want when you elect people to raise the lot of people who did not go to school when offered and did not work when available. We didn’t get 40 million immigrants because everyone here wanted to work. We got them because we have coddled 40 million who won’t work, don’t have the skills or the commitment, to work.

I watched a grocery clerk speaking English try to help a Hispanic mother speaking Spanish show her 10 year old daughter how to use the Oregon Trail Debit Card last week. How touching. Mom teaching the kid how to access free food. The great new learning experience in the US. How to tap Uncle Sam for money.

When we got two of the ousted Fannie and Freddie execs becoming economic counselors to Obama, you know where this is headed. They were not booted because they were good managers or because they had not cooked the books. This is the advice left-leaning candidates get in America. Jim Johnson picked Biden for Obama. Johnson got $200 million from Fannie, golden parachute. This is all about the Community Reinvestment Act from Jimmy Carter, and expanded by Clinton in 1995. And people like Senator Chris Dodd who got sweetheart loans, and Obama blames McCain for the failures of loans to bad credit holders. It was Obama Democrats who MADE banks make bad loans. His community organizer job was to get loans for people who would never be able to pay for them.

BUT (and nothing counts from before BUT), no one can figure how our economy can survive without the bailout. So, like voting for President, you hold your nose and do it.

As an aside, I see today that they are dedicating a trail to former Congressman Jim Weaver, who claimed bankruptcy while in office. The trail is at Waldo Lake. A loop trail. How fitting!!!! Weaver was as loopy as they get. And DeFazio is his spawn. How fitting. If they ever put in a USFS maze trail, they could name that after DeFazio. One dead end after another. And endless attempts to find escape which never appear.

He is the fart on the congressional skillet that keeps popping off but accomplishes nothing.

29 Sep 2008, 10:42am
by Rooster Teaser

“Fannie Mae and Freddie Mac, where Democrats go for lunch money”

What a tragic mess the Democrats have caused us all. And now the idiots want to elect more of them to solve this mess… pathetic…

29 Sep 2008, 11:42am
by Mike

The latest: the House of Representatives voted down the $700 Billion Bailout by a vote of 228 to 205, despite howls of protest from Nancy Repulsive and other in-the-bag Congressional thugs and fixers.

How about that? It appears democracy works. Except…

Under one new step, the Federal Reserve will boost the amount of 84-day cash loans available to U.S. banks. The Fed is increasing the amount to $75 billion, up from the current $25 billion starting on Oct. 6. Banks bid on a slice of the loans at an auction.

That move will triple the supply of 84-day loans to $225 billion, from $75 billion, the Fed said.

Meanwhile, the Fed will continue to make $75 billion worth of shorter, 28-day loans available to banks.

All told, the total amount of cash loans — 84-day and 28-day — available to banks will double to $300 billion from $150 billion, the Fed said.

Moreover, the Fed will make a total of $620 billion available to other central banks, expanding ongoing currency “swap” arrangements with them where dollars are traded for their currencies. That’s up from $290 billion previously in such arrangements.

In other words, the Federal Reserve is printing money and lending it to banks in short-term notes at less than 1 percent. That will cause inflation, sure as shooting.

And Sec Treas. Hank Paulson already bailed out AIG, even though he was told not to, and it was not the wish of Congress. So Paulson’s buds stole a windfall from the taxpayers regardless.

Paulson should be stripped of his assets and thrown in prison. He could bunk with the Enron boys. Meanwhile, the great orator Obamamama has developed a stutter, in order to appear “professorial.” He also died his hair gray, didja notice? And Barney Frank picks his nose, ears, and scabs and then puts his fingers in his mouth, while being interviewed on TV!!! What a weirdo!!! Thugs, fixers, and clowns.

30 Sep 2008, 1:44pm
by Clarice R.

I strongly suspect that folks in Washington DC became aware of the Paulson conservation easement strategies after Range magazine exposed them and they were picked up by the Washington Post. Soon after there began a Congressional investigation of how a non-profit organization could acquire $2 1/2 billion in just a few years through land dealings. It was not long after that Hank Paulson was appointed Secretary of the Treasury.

Somehow I feel that the key people in Washington DC took a liking to him, his sly strategies so successful in TNC, and his aptitudes for land acquisition basically at a steal, etc. to say nothing of his global banking experience. He has the perfect qualifications to operate our questionable banking and savings and loan system in conjunction with the Federal Reserve.

As you know the federal government is doing all they can to take over private property, as exemplified by the Wildlands Project and the US Forest Service Ranch and Farmland Program. I recently saw an article about Paulson earlier activity in Shanghai, China setting up an insurance program for financial institutions there. I don’t recall the exact details or when this was… but I was appalled when he was appointed to be head of the finances and treasury for the entire United States. I don’t think they could have found a more unscrupulous candidate.

Does he want to take over our land rights and nationalize our property? (Absolutely!) Does he care about the environment. (Of course not… only if he can have power and control over it.) Or does he really want to take over our assets? (I fully believe so.)

The Nature Conservancy is a prime sponsor of Y2Y which is being propelled through the Wildlands Project. The liberal Dems are for implementing Y2Y into the whole NE quarter of our state, and throughout the entire Northwest down to Jackson, WY and now going way on beyond. They operate a close working relationship with the U.S. Forest Service which is on the move throughout all the United States now going after farm and ranchlands.



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