One of the few times I've agreed with Newt Gingrich

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**Frazzled**

http://www.usnews.com/blogs/capital-commerce/2008/9/23/newt-gingrich-kill-the-paulson-plan-hard.html

Newt Gingrich: Kill the Paulson Plan. Hard.
September 23, 2008 01:56 PM ET | James Pethokoukis | Permanent Link

I just got back from a Newt Gingrich press conference where I had a nice back-and-forth dialogue with the former Speaker of the House about the Paulson Plan, which he totally hates. A few quotes and Gingrichian observations:

1) He called it a "stupid plan" that looks like it had been designed by autocrat Vladimir Putin. He also said it will be a "nightmare" to implement and full of corruption.

2) He said the Paulson Plan would be a "dead loser" on Election Day that will "break against anyone who votes for it." It will hurt even worse with the 2010 election once Americans see what a drag it is on the economy when implemented.

3) He recently chatted with economic historian Alan Meltzer who advocated doing nothing rather than implanting the Paulson Plan. Meltzer apparently joked to Gingrich that this was about the third time he had seen Wall Street scream "the apocalypse was nigh" only to have the economy keep right on chugging along.

4) Gingrich thinks that if the Paulson Plan isn't passed by this weekend, it is dead and the White House better have a Plan B, economic-growth package ready. Right now, he still thinks it has an 80 percent chance of passage, partly because of Paulson's apocalyptic tone that if a bill isn't passed, "the whole world will end on Tuesday."

5) He advises McCain to play the maverick and come out against the Paulson Plan. Then it will be the Obama-Bush plan.

**Mannahnin**

My liberal mailing list organizations are dead-set against this sucker too.

**dienekes96**

Everyone is. What a frigging mess we're in.

Gingrich is a smart bloke, whether you like his politics or not.

**Mannahnin**

Here’s a take on it from former Labor secretary Robert Reich.

http://tpmcafe.talkingpointsmemo.com/2008/09/21/what_wall_street_should_do_to/index.php

What Wall Street Should Do To Get Its Blank Check
By Robert Reich - September 21, 2008, 1:48PM
The frame has been set, the die cast. Treasury Secretary Hank Paulson, presumably representing the Bush administration but indirectly representing Wall Street, and Fed Chief Ben Bernanke, want a blank check from Congress for $700 billion or possibly a trillion dollars or more to take bad debt off Wall Street's balance sheets. Never before in the history of American capitalism has so much been asked of so many for (at least in the first instance) so few.

Put yourself in the shoes of a member of Congress, including our two presidential candidates. The Treasury Secretary and Fed Chair have told you this is necessary to save the economy. If you don't agree, you risk a meltdown of the entire global financial system. Your own constituents' savings could go down with it. An election is six weeks away. Besides, in the last two days of trading, since rumors spread that the Treasury and the Fed were planning something of this sort, stock prices revived.

Now - quick -- what do you do? You have no choice but to say yes.

But you might also set some conditions on Wall Street.
The public doesn't like a blank check. They think this whole bailout idea is nuts. They see fat cats on Wall Street who have raked in zillions for years, now extorting in effect $2,000 to $5,000 from every American family to make up for their own nonfeasance, malfeasance, greed, and just plain stupidity. Wall Street's request for a blank check comes at the same time most of the public is worried about their jobs and declining wages, and having enough money to pay for gas and food and health insurance, meet their car payments and mortgage payments, and save for their retirement and childrens' college education. And so the public is asking: Why should Wall Street get bailed out by me when I'm getting screwed?

So if you are a member of Congress, you just might be in a position to demand from Wall Street certain conditions in return for the blank check.

My five nominees:

1. The government (i.e. taxpayers) gets an equity stake in every Wall Street financial company proportional to the amount of bad debt that company shoves onto the public. So when and if Wall Street shares rise, taxpayers are rewarded for accepting so much risk.

2. Wall Street executives and directors of Wall Street firms relinquish their current stock options and this year's other forms of compensation, and agree to future compensation linked to a rolling five-year average of firm profitability. Why should taxpayers feather their already amply-feathered nests?

3. All Wall Street executives immediately cease making campaign contributions to any candidate for public office in this election cycle or next, all Wall Street PACs be closed, and Wall Street lobbyists curtail their activities unless specifically asked for information by policymakers. Why should taxpayers finance Wall Street's outsized political power - especially when that power is being exercised to get favorable terms from taxpayers?

4. Wall Street firms agree to comply with new regulations over disclosure, capital requirements, conflicts of interest, and market manipulation. The regulations will emerge in ninety days from a bi-partisan working group, to be convened immediately. After all, inadequate regulation and lack of oversight got us into this mess.

5. Wall Street agrees to give bankruptcy judges the authority to modify the terms of primary mortgages, so homeowners have a fighting chance to keep their homes. Why should distressed homeowners lose their homes when Wall Streeters receive taxpayer money that helps them keep their fancy ones?

Wall Streeters may not like these conditions. Well, you should tell them that the public doesn't like the idea of bailing out Wall Street. So if Wall Street doesn't accept these conditions, it doesn't get the blank check.

**Frazzled**

Oh my I agree with the reichmeister

**dogma**

About the only thing I don't like about Paulson's proposal is its lack of accountability. It reeks of a free-market idealogue trying desperately to avoid long term regulation.

**dienekes96**

jfrazell wrote:Oh my I agree with the reichmeister

So do I. Then the bailout becomes an investment that helps our debt situation. It's, in effect, betting on ourselves.

If Wall Street says no, the IRS can come calling as well. Enjoy your little cell with the new roomie Ben Dover while your trophy wife gets the golden parachute and the gardener.

And in this, Obama is out in front of McCain. I'd rather he was even farther out, but it is something.

http://www.msnbc.msn.com/id/26856877/

**Frazzled**

They didn't do anything illegal-just bad management. Its a perfect nexus of badness.

greedy lawmakers directed and motivated banks to make bad loans.

them

greedy banks started to like the idea and pushed the bad loan criteria to everyone

them

greedy/stupid people received mortgages they ahd no ability to repay, on the theory they could dump the house in a year at a profit.

them

This is what bankruptcy law/courts/protections are for. Absent a Reich style (we may help but we get a piece of the action like we did with Chrysler) let them fall.

**dogma**

The thing is we really can't let them fail. If they do there is a good chance that the credit market will lock up and cause a serious down turn in financial activity. Something which will just as surely stick it to taxpayers as any buyout plan.

**Frazzled**

Its a good line isn't it. Lets say 3/4 of the financials fail? So what? The 1/4 will still be left. More lenders than Europe.

Why do I have to pay for their mistakes? Its not going to help the economy It doesn't help the little guy-he still owes the money. Its el scammo without strings.

**Da Boss**

I think it's sickening that these guys might get away with this sort of thing.
If I was a voter in america I'd make this my main voting issue.

**JohnHwangDD**

Bankruptcy is a sign that Capitalism is working.

I say, let them fail.

But yes, let any capital come with strings. Capital infusions should be tied to proportional control, and super-voting rights tied to executive compensation.

That is - any executive compensation plans become immediately null and void.

**dogma**

jfrazell wrote:Its a good line isn't it. Lets say 3/4 of the financials fail? So what? The 1/4 will still be left. More lenders than Europe.

Why do I have to pay for their mistakes? Its not going to help the economy It doesn't help the little guy-he still owes the money. Its el scammo without strings.

See, here's the thing. You're assuming that there are in fact good banks to buy the failed ones; there aren't. You're also assuming that a good bank (if it existed) would want to buy the failed bank; they don't (its what happened to Lehman). And, if either of these conditionals were in fact true; you are further assuming that the good banks which buy the bad ones can affectively cover the debt which their new subsidiary had incurred.

The truth is that without a government buyout most of the nation's financial institution would lapse into bankruptcy. What happens when you go bankrupt? You're liquid assest are sold at auction to the highest bidder in order to cover as much of your debt as possible. This would include large tracts of mortgaged realestate. Tracts which are horribly under-valued by virtue of the current low value of homes. So what happens? Either someone buys the realestate and the creditors suffer a loss that may or may not push them into bankruptcy, or (more likely, due to the lack of available capital caused by the failure of so many finciers) no one buys it and the full measure of debt is passed onto creditors continuing the crisis chain.

Why do we have to pay for their mistakes? Because the officials we elected were ineffective in the regulation of Wall Street. Politicians, and by extension those who elected them, bear as much responsibility in this as any investment banker. Because a collapse of the finance industry causes a massive drop in available capital; stagnating the market and driving the value of the dollar even further down. And because it spares the little guy the financial pain of shouldering a debt he didn't directly create (where do you think creditors will turn when the sale of realestate fails to cover their loss).

A better description of the reason such a buyout is necessary can be found here.

**Miguelsan**

A bailout is necessary but the blank check Paulson is demanding from Congress is not. Any ammount of money that Wall st receives must come with enough strings attached that the surviving firms realice that they won´t be allowed to live "la vida loca" twice.

Ironic that part of this crisis is due to the tightening of some accounting rules that showed everybody what a bunch of not-quite-ilegal-but... practices most Wall st firms where up to.

M.

**sebster**

jfrazell wrote:Its a good line isn't it. Lets say 3/4 of the financials fail? So what? The 1/4 will still be left. More lenders than Europe.

Why do I have to pay for their mistakes? Its not going to help the economy It doesn't help the little guy-he still owes the money. Its el scammo without strings.

Except the quantity of banks has nothing do with anything. What matters is the supply of financing and the stability of the whole system. Losing ¾ of your banks will cripple both.

And whether its in the form of government funds or in the collapse of the financing sector you’ll still be paying for it. The latter won’t be in government debt but in near zero investment in future years, leading to unemployment and no productivity growth, resulting in a decline in real wages.

**sebster**

jfrazell wrote:They didn't do anything illegal-just bad management. Its a perfect nexus of badness.

greedy lawmakers directed and motivated banks to make bad loans. them

greedy banks started to like the idea and pushed the bad loan criteria to everyone them

greedy/stupid people received mortgages they ahd no ability to repay, on the theory they could dump the house in a year at a profit. them

This is what bankruptcy law/courts/protections are for. Absent a Reich style (we may help but we get a piece of the action like we did with Chrysler) let them fall.

The ‘greedy’ lawmakers passed the laws on subprime loans in the 70s or 80s. They were last revised in like ‘95 or thereabouts. The splurge on sub-prime loans began in 2002, despite the absence of any legislative change in that time. It developed because banking institutions began using the rising house prices to justify any loan, counting on constantly rising house prices to allow for refinancing. The lawmakers only fault was in failing to maintain regulations to stop this kind of silliness from continuing.

The ‘greedy/stupid’ people receiving mortgages were being told by people in positions of authority, mortgage brokers and banking agents, that their loan would all but pay for itself due to the rising house prices. They weren’t hoping on profiting on the house in a year’s time, but on staying in the house and refinancing. They saw their friends in their $500,000 homes doing it… Trusting an expert in a position of authority doesn’t make us stupid.

**Frazzled**

dogma wrote:
jfrazell wrote:Its a good line isn't it. Lets say 3/4 of the financials fail? So what? The 1/4 will still be left. More lenders than Europe.

Why do I have to pay for their mistakes? Its not going to help the economy It doesn't help the little guy-he still owes the money. Its el scammo without strings.

See, here's the thing. You're assuming that there are in fact good banks to buy the failed ones; there aren't. You're also assuming that a good bank (if it existed) would want to buy the failed bank; they don't (its what happened to Lehman). And, if either of these conditionals were in fact true; you are further assuming that the good banks which buy the bad ones can affectively cover the debt which their new subsidiary had incurred.
here.

Incorrect
JPM bought Bear
BofA bought Countrywide
BofA bought Merrill
Buffett just invested $5Bn into Goldman
WAMU is being shopped by no less than five potential suitors now.

in the 80s the US lost over a thousand banks that filed. They were acquired by other banks. Thats how it works.

**Frazzled**

sebster wrote:

The ‘greedy/stupid’ people receiving mortgages were being told by people in positions of authority, mortgage brokers and banking agents, that their loan would all but pay for itself due to the rising house prices. They weren’t hoping on profiting on the house in a year’s time, but on staying in the house and refinancing. They saw their friends in their $500,000 homes doing it… Trusting an expert in a position of authority doesn’t make us stupid.

Your ability to absolve the speculators is breathtaking.
They weren't relying on experts. they were relying on real estate agents and their own greed. They were stupid. Screw 'em they should file just like any body who was that stupid.

**Mad Doc Grotsnik**

I believe Britsh bank Barclay's are sniffing around the Corpse of Lehman's, and have had a purchase of certain bits and bobs of it's body approved by the US Supreme Court...

But yeah,

the Banks.

them right in the ear. The Prodigal Son is the daftest story in the Bible, and this is exactly what we are seeing now.

Here is a very quick, not terribly accurate synopsis of the Prodigal Son.

Man has two sons. He gives each some money. Son A stays at home, carefully husbands his cash, and works the land etc. Son B takes his money and spends it on hookers, gambling and generally pisses it up the wall. Son B returns home, skint, but having had a great time. The Father then orders Son A to kill a Lamb for dinner to celebrate his brothers return, and then gives Son B half of Son A's money.

The moral of the story? Do what you want, someone else will pick up the tab.

Same thing is going on here. Now, the way I look at it, from the perspective of a victim (i.e. non-Banker) of the world Credit Crunch.....

Whether the Government bails the banks out or not, I'm going to be strapped for Cash for a while. Bills must be paid, which means luxuries must wait. Now, if the Government does bail them out, the

that caused it all will get a whopping great big bonus and a self assigned pat on the back. The upside is that my hardtimes are likely to last slightly less. If the Government doesn't, those fat

at the top of the tree might just come crashing down to earth with a bang....

I say let them hang. They made their bed, time to lie in it. You reap what you sow. You don't put all your eggs in one basket, plus various other such words of scathing wisdom.

**Ahtman**

While the prodigal son story may have some use, you are missing some important details. The brother wasn't gone one day, he was gone for several years. It was also his inheritance, not just some pocket money. Where he had moved to he had to work with pigs after running out of money, and pigs and Jews didn't get along well and would have been considered a terrible job. He goes back home to beg to be a servant, thinking it better to be a servant of his father then the humiliation of big a pig feeder. It's about redemption of a lost soul. I'm not sure how humble Wall Street really is, or whether or not it is redeemed. Without some nudging I think it would probably screw people (thinking of predatory lending) again and again.

**Miguelsan**

Ahtman wrote:I'm not sure how humble Wall Street really is, or whether or not it is redeemed.

Not at all it seems. You yanks are fond of the "beggars can´t be choosers"thing, but for a bunch of beggars they are picky as hell

M.

**AgeOfEgos**

Ahtman wrote:While the prodigal son story may have some use, you are missing some important details. The brother wasn't gone one day, he was gone for several years. It was also his inheritance, not just some pocket money. Where he had moved to he had to work with pigs after running out of money, and pigs and Jews didn't get along well and would have been considered a terrible job. He goes back home to beg to be a servant, thinking it better to be a servant of his father then the humiliation of big a pig feeder. It's about redemption of a lost soul. I'm not sure how humble Wall Street really is, or whether or not it is redeemed. Without some nudging I think it would probably screw people (thinking of predatory lending) again and again.

The current bailout proposals have no regulation in their wording. Short term, this matters little, as interest rates between banks is currently high (If they even loan right now)....but why throw more money at it without fixing the root of the problem? I understand that regulations are not something one should come up with over a weekend but they should have something in the bill stating regulation WILL be next on the menu once the bill passes.

Honestly, not to look for a silver lining in everything, but right now T bonds are being gobbled up. Considering how the rest of the world is sufffering this same 'nonofficial' recession, this could actually improve our dollar (which needs all it can get).

**sebster**

jfrazell wrote:Your ability to absolve the speculators is breathtaking.
They weren't relying on experts. they were relying on real estate agents and their own greed. They were stupid. Screw 'em they should file just like any body who was that stupid.

Unfortunately I'm not the Pope, I don't get to absolve anyone (lost the vote by that much).

Advice from mortgage lenders is regularly found to an expert relationship by courts, and banks have lost plenty of court cases because of this very thing.

I don't really have a problem with 20 and 30 year old yuppies and the like losing their homes, as there's plenty of time to turn it around. Most of them probably had enough technical knowledge to understand the risks. I have a big problem with the same acceptance being applied to folk who didn't have that level of knowledge, and are that much older and in a lower paying job. It's a lot harder to recover, especially when there's now a chance of poor economic activity and them losing their jobs. To think that they might now be in position where they'll find it impossible to ever own their own home because they weren't properly informed of the risks... it ain't cool.

**Mad Doc Grotsnik**

Older people are no different from the Yuppies. You take out a loan you cannot afford, regardless of the reasons, and it's your own fault if you cannot keep up repayments.

Yes, the Banks were Predatory, but the goons who bought into the Housing Markets had it coming. I've said it time and time again. We, in Britain at least, new for a few years how overinflated the Market was. And yet still they bought. All it would have taken is for a big enough slice of the market, 5 years ago to have said 'Knob off, I'm not paying that' and this whole mess could have been avoided. But no. They got ££ in their eyes, and off they went, screwing themselves over.

**Frazzled**

MDG is right in this instance.

Again I have empathy for those who've actually fallen on hard times, not those who thought they would effectively play housing like a roulette wheel. No market has ever "just gone up."

**Mad Doc Grotsnik**

Roulette is a good analogy.

Would you feel sorry for these people if they had gambled their money in a Casino, instead of on Property? Both are risky, both have the inevitable losers. Yet every single person in both instances have willingly risked their money. They all saw a quick buck, and refused, point blank, to accept that there was every chance of the market going tits up. And now it has. So who is to blame? The Banks for making it possible? Yup. The people for taking a loan then surely must have known they could only just afford? Yup. What about me? Sitting at the bottom of the property ladder, wandering what

has twocked* the first few rungs, and having to resign themselves to a life time of renting until the family start dying? Hell no. Nothing to do with me mate. But then, I had the sense to sit tight and not pay stupid prices.....

*Twoc.....acronym 'Taken Without Owners Consent'

**dogma**

jfrazell wrote:
Incorrect
JPM bought Bear

The Fed insured the transfer, that's the only reason JPM made it. Read here.

jfrazell wrote:
BofA bought Countrywide
BofA bought Merrill

It remains to be seen whether BofA can account for the bad assets of both of those corporations. This is essentially just more in-house debt shuffling. Read [url=http://www.baltimoresun.com/business/bal-te.bz.boa16sep16,0,4162055.story]here

**dogma**

Mad Doc Grotsnik wrote:Roulette is a good analogy.

Would you feel sorry for these people if they had gambled their money in a Casino, instead of on Property? Both are risky, both have the inevitable losers. Yet every single person in both instances have willingly risked their money. They all saw a quick buck, and refused, point blank, to accept that there was every chance of the market going tits up. And now it has. So who is to blame? The Banks for making it possible? Yup. The people for taking a loan then surely must have known they could only just afford? Yup. What about me? Sitting at the bottom of the property ladder, wandering what has twocked* the first few rungs, and having to resign themselves to a life time of renting until the family start dying? Hell no. Nothing to do with me mate. But then, I had the sense to sit tight and not pay stupid prices.....

*Twoc.....acronym 'Taken Without Owners Consent'

People are not forced to play roulette. People are forced into the housing market by virtue of a need for shelter. This is especially true of those with lower income who cannot afford to rent within any reasonable distance of their place of business. Could they have gotten a cheaper mortgage? Maybe, but that depends on the market in which they were looking to buy. The desire to doll out oblique punishment for what is, essentially, no fault of the borrower is simple sadistic detachment. Not to mention indicative of a poor grasp of the interconnection present within the financial system. Do some research on the sale and payment of derivatives if you want to understand the crux of the entire matter.

But whatever, "It's not m fault, I voted for Kodos!" right? :S

**Frazzled**

dogma wrote:
Mad Doc Grotsnik wrote:Roulette is a good analogy.

Would you feel sorry for these people if they had gambled their money in a Casino, instead of on Property? Both are risky, both have the inevitable losers. Yet every single person in both instances have willingly risked their money. They all saw a quick buck, and refused, point blank, to accept that there was every chance of the market going tits up. And now it has. So who is to blame? The Banks for making it possible? Yup. The people for taking a loan then surely must have known they could only just afford? Yup. What about me? Sitting at the bottom of the property ladder, wandering what has twocked* the first few rungs, and having to resign themselves to a life time of renting until the family start dying? Hell no. Nothing to do with me mate. But then, I had the sense to sit tight and not pay stupid prices.....

*Twoc.....acronym 'Taken Without Owners Consent'

People are not forced to play roulette. People are forced into the housing market by virtue of a need for shelter. This is especially true of those with lower income who cannot afford to rent within any reasonable distance of their place of business. Could they have gotten a cheaper mortgage? Maybe, but that depends on the market in which they were looking to buy. The desire to doll out oblique punishment for what is, essentially, no fault of the borrower is simple sadistic detachment. Not to mention indicative of a poor grasp of the interconnection present within the financial system. Do some research on the sale and payment of derivatives if you want to understand the crux of the entire matter.

But whatever, "It's not m fault, I voted for Kodos!" right? :S

Thats compelte and utter

. they were not forced to buy million or half million dollar homes, forced to overstate their income and not provide proof of income. They could have bought a cheaper house or heaven forbid, rented.

Thats the joyous silver lining that Wall Street and everyone is glossing over. Housing prices are falling, making it possible for middle/lower middle class families to realistically afford their own home. Buying a house thats three to ten times your income is rocket fuel to bankruptcy, which is what occurred-especially in areas like Cali, New York, and Nevada. Those places are now the hardest hit as the real estate bubble was the largest there.

A friend with a combined income of $100M bought a $700M house in cali-no money down, no proof of income. Thats gross 7x income, not even excluding other expenses. Its insane and unheard of before 1992 (when I was in RE in early 90's we would have been laughed out of the office for bringing in something like that).

**Mad Doc Grotsnik**

Again, I'm with Jfraz on this one.

Nobody was forced to buy. Nobody. Me, I live in one of the most prosperous (on paper) areas of the UK, Kent, in Royal Tunbridge Wells. Prices around here are fankly insane, hence my comment of having to wait for inheritance before I can even consider owning.

One option I am currently, and actively, investigating, is that of renting a room in a Private house. Consider a Bedsit (Studio is your equivlent I belive) is something like £500 a month here, *without* bills, and that I can rent a room, including bills for tops £450, and suddenly, I am not forced to take part in the circus of home ownership. In continental Europe, renting is the norm, with only a small percentage actually owning, hence they are fairly well protected from the bubble bursting globally, as far, far fewer people are affected.

The Banks sold a dream. Fools bought into that dream. And now both sides have had their fingers burnt....