Sunday, September 28, 2008

Wall St. Bailout Imminent

Congressional leaders and the White House agreed Sunday to a $700 billion rescue of the ailing financial industry after lawmakers insisted on sharing spending controls with the Bush administration. The biggest U.S. bailout in history won the tentative support of both presidential candidates and goes to the House for a vote Monday.

The plan, bollixed up for days by election-year politics, would give the administration broad power to use taxpayers' money to purchase billions upon billions of home mortgage-related assets held by cash-starved financial firms.

President Bush called the vote a difficult one for lawmakers but said he is confident Congress will pass it. "Without this rescue plan, the costs to the American economy could be disastrous," Bush said in a written statement released by the White House.

Flexing its political muscle, Congress insisted on a stronger hand in controlling the money than the White House had wanted. Lawmakers had to navigate between angry voters with little regard for Wall Street and administration officials who warned that inaction would cause the economy to seize up and spiral into recession.

A deal in hand, Capitol Hill leaders scrambled to sell it to colleagues in both parties and acknowledged they were not certain it would pass. "Now we have to get the votes," said Sen. Harry Reid, D-Nev., the majority leader.

The final legislation was released Sunday evening. House Republicans and Democrats met privately to review it and decide how they would vote. "This isn't about a bailout of Wall Street, it's a buy-in, so that we can turn our economy around," said House Speaker Nancy Pelosi, D-Calif.

The largest government intervention in financial markets since the Great Depression casts Washington's long shadow over Wall Street. The government would take over huge amounts of devalued assets from beleaguered financial companies in hopes of unlocking frozen credit.

"I don't know of anyone here who wants the center of the economic universe to be Washington," said a top negotiator, Sen. Chris Dodd, chairman of the Senate Banking, Housing and Urban Affairs Committee. But, he added, "The center of gravity is here temporarily. ... God forbid it's here any longer than it takes to get credit moving again."

The plan would let Congress block half the money and force the president to jump through some hoops before using it all. The government could get at $250 billion immediately, $100 billion more if the president certified it was necessary, and the last $350 billion with a separate certification _ and subject to a congressional resolution of disapproval.

Still, the resolution could be vetoed by the president, meaning it would take extra-large congressional majorities to stop it.

Lawmakers who struck a post-midnight deal on the plan with Treasury Secretary Henry Paulson predicted final congressional action might not come until Wednesday.

The proposal is designed to end a vicious downward spiral that has battered all levels of the economy. Hundreds of billions of dollars in investments based on mortgages have soured and cramped banks' willingness to lend.

"This is the bottom line: If we do not do this, the trauma, the chaos and the disruption to everyday Americans' lives will be overwhelming, and that's a price we can't afford to risk paying," Sen. Judd Gregg, the chief Senate Republican in the talks, told The Associated Press. "I do think we'll be able to pass it, and it will be a bipartisan vote."

A breakthrough came when Democrats agreed to incorporate a GOP demand _ letting the government insure some bad home loans rather than buy them. That would limit the amount of federal money used in the rescue.

Another important bargain, vital to attracting support from centrist Democrats, would require that the government, after five years, submit a plan to Congress on how to recoup any losses from the companies that got help.

"This is something that all of us will swallow hard and go forward with," said Republican presidential nominee John McCain. "The option of doing nothing is simply not an acceptable option."

His Democratic rival Barack Obama sought credit for taxpayer safeguards added to the initial proposal from the Bush administration. "I was pushing very hard and involved in shaping those provisions," he said.

Later, at a rally in Detroit, Obama said, "it looks like we will pass that plan very soon."

House Republicans said they were reviewing the plan.

As late as Sunday afternoon, Republicans regarded the deal as "a proposal that is promising in principle, but that is still not final," said Antonia Ferrier, a spokeswoman for Missouri Rep. Roy Blunt, the top House GOP negotiator.

Executives whose companies benefit from the rescue could not get "golden parachutes" and would see their pay packages limited. Firms that got the most help through the program _ $300 million or more _ would face steep taxes on any compensation for their top people over $500,000.

The government would receive stock warrants in return for the bailout relief, giving taxpayers a chance to share in financial companies' future profits.

To help struggling homeowners, the plan would require the government to try renegotiating the bad mortgages it acquires with the aim of lowering borrowers' monthly payments so they can keep their homes.

But Democrats surrendered other cherished goals: letting judges rewrite bankrupt homeowners' mortgages and steering any profits gained toward an affordable housing fund.

It was Obama who first signaled Democrats were willing to give up some of their favorite proposals. He told reporters Wednesday that the bankruptcy measure was a priority, but that it "probably something that we shouldn't try to do in this piece of legislation."

"It's not a bill that any one of us would have written. It's a much better bill than we got. It's not as good as it should be," said Democratic Rep. Barney Frank of Massachusetts, the House Financial Services Committee chairman. He predicted it would pass, though not by a large majority.

Frank negotiated much of the compromise in a marathon series of up-and-down meetings and phone calls with Paulson, Dodd, D-Conn., and key Republicans including Gregg and Blunt.

Pelosi shepherded the discussions at key points, and cut a central deal Saturday night _ on companies paying back taxpayers for any losses _ that gave momentum to the final accord.

An extraordinary week of talks unfolded after Paulson and Ben Bernanke, the Federal Reserve chairman, went to Congress 10 days ago with ominous warnings about a full-blown economic meltdown if lawmakers did not act quickly to infuse huge amounts of government money into a financial sector buckling under the weight of toxic debt.

The negotiations were shaped by the political pressures of an intense campaign season in which voters' economic concerns figure prominently. They brought McCain and Obama to Washington for a White House meeting that yielded more discord and behind-the-scenes theatrics than progress, but increased the pressure on both sides to strike a bargain.

Lawmakers in both parties who are facing re-election are loath to embrace a costly plan proposed by a deeply unpopular president that would benefit perhaps the most publicly detested of all: companies that got rich off bad bets that have caused economic pain for ordinary people.

But many of them say the plan is vital to ensure their constituents don't pay for Wall Street's mistakes, in the form of unaffordable credit and major hits to investments they count on, like their pensions.

Some proponents even said taxpayers could come out as financial winners.

Gregg, R-N.H., said: "I don't think we're going to lose money, myself. We may _ it's possible _ but I doubt it in the long run."

1 comment:

Chase Morgan said...

BAIL OUT, OR - BARBARIANS AT THE GATE?

In the midst of the unsettled financial markets there's been general agreement about one thing: the outcome of the current crisis will be far-reaching changes to the blobal financial system. For example, Morgan Stanley chief economist Stephen Roach believes the world's central banks are now being forced to look afresh at how financial bubbles should be handled. Up to now their attitude has been that the markets must correct financial bubbles themselves.

However, the massive emergence of various kinds of derivative instruments created such huge inverted pyramids above an underlying asset class (such as prime mortgages) that things get out of hand when bubbles burst. Roach believes that central banks can hardly afford to condone bubbles in the future.

The question to be answered is: How and when they must take steps to avoid meltdowns?
Fin Week

As some of Wall Street's most venerable financial institutions teeter on the brink of self-destruction and are either taken over - in the case of Bear Sterns - or, as in the case of Lehman Brothers, allowed to implode, very few financial sectors appear capable of weathering the storms.

In view of the "bail out" agreement reached this past weekend it seems as if financial markets throughout the world will however react positively to this announcement. An announcement in my opinion not made by choice, however rather by force! Financial Guru - Warren Buffet correctly remarked that if the "bail out" plan was not approved - the American Economy would face certain "meltdown"!

In lieu of this it stands to reason that there weren't much alternatives than to see the bail out plan pass through congress? A certain relief for most - al be it temporary. Both Presidential Candidates voted for the plan as has been seen. Not much of a choice by the looks and sounds of it!

Certainly the pressing question on our minds should be to now take a calm and responsible view back, on what has caused this catastrophy? We should all agree that it is a catastrophy, although suspended perhaps for the moment. One can only call it "suspended" as this has still to play out and we will see how this effects the struggling markets and economy alltogether in the short, medium and long term!

IS THERE ANOTHER 700 BILLION US$ available should this not work?

One cannot help but wonder after pondering on all of this for months on end - who is the biggest terrorist or threat facing America after all? Is it Osama Bin Laden - or worse, is it someone or something, much closer to home? I certainly don't want to be in the shoes of the current President and wonder if anybody in his right mind would like to be in the future President's shoes!

However, fill the shoe we have to, and it is now up to every single one of us to realise that the problems facing America is far greater than we want to believe. Republican, Democrat or Independant all stood together, cried together and worked together when the tragedy of 911 struck!

The tragedy of September 2008 is far worse!

We don't have the liberty of taking on the world at present! No matter how righteous our beliefs are, no matter how convinced we are that terrosism should be fought in every corner, every nook and cranny, and in any place in the world. More Americans have died in this war than in 911 and we are not calling it a tragedy or catastrophy? No, we accept it because we are dying for our country, our beliefs and our ego!

Senator McCain says that he will not see to it that we pull out of this war before victory! He knows how it feels to come home defeated and to live to the consequences of knowing that a lot of people, or so he believes - has died in vain!

Are we staying at war because we don't want to feel bad? Are we loosing our children because of ego's?
Or worse, are we staying at war to loose our country and our very excistence?

WE ARE FACING A POSSIBLE MELTDOWN!

IS THIS A BAIL OUT - OR ARE THE BARBARIANS KNOCKING AT THE GATE?

Undoubtedly the bail out is necessary, could it have been avoided - too late to ask! Can it be avoided in the future - we have no alternative but to believe it can! The question is how?

Now, we can tighten up the budgets on every field of the economy, we can harness in every corporate company to be more dilligent in their dealings. We can increase or decrease taxes, impose new legislation, fire the wrong doers or restructure government to be more lean and mean.

All of this is however in vain, if we are still going to remain a "country at war"!

It's simple economics people! The war is killing America! It costs us a hell of a lot more than it costs Osama Bin Laden and Company to fight this! Perhaps he is a lot more astute than we will give him credit for! Perhaps he has gone into hiding, knowing that sooner or later - the "meltdown" will begin!

Sure we need to keep face in the world! Are we doing this now?

I don' think so!

It is my opinion that if we wan't to weather the greatest economic storm ever to hit our shores, we need to act and act now, before it's to late! Our leader, Republic or Democrat will have to realise that we can't stay at war and build our economy up again - it's childish to even contemplate that.

If the world believes we are doing the right thing fighting terrorism offshore, then the world should climb in and help finance this war much more than they are currently doing! If not - we need to pack up and go home before it is too late!

No other country in the world other than America is facing a "meltdown"? Why should we?

I know there is a lot more to it than a normal citizen like you and me know about this alltogether. However, it is time we harness our strength as ONE NATION and forget about politics for now. We need to think about America - all of us!

The "Barbarians are at our Gate", not in Irak or Pakistan!

Join me in my blog: http://chasemorgan.wordpress.com

GOD BLESS US ALL!

Chase Morgan