“This site is dedicated to preying on peoples vanity, ignorance, or loneliness, gaining their trust and betraying them without remorse.”

Tuesday, September 23, 2008

Resolute Untrust


"While there is no doubt a growing crisis in our financial markets, we must not rush to act in a manner that worsens or creates an additional crisis for American families and taxpayers," said Jeb Hensarling, chairman of the House Republican Study Committee.

Republican Senator Chuck Shelby went further, urging the pursuit of alternatives and warning against a rush to pass the package.

"I am concerned that Treasury's proposal is neither workable nor comprehensive, despite its enormous price tag. In my judgment, it would be foolish to waste massive sums of taxpayer funds testing an idea that has been hastily crafted," he said.

"I believe Congress must immediately undertake a comprehensive, public examination of the problem and alternative solutions rather than swiftly pass the current plan with minimal changes or discussion."


I agree. Let's slow this freight train down. Take a deep breath. Secretary Paulson has warned about "dangers to the economy" but so far, we've heard nothing specific except that the taxpayers could be on the hook for at least $700 billion. I'm quite sure that we will owe that and more if we're bailing out the so-called Investment Banks which until recently were also commonly referred to as Wall Street. I'm afraid that what the US taxpayer will be stuck with is not real estate with real value but worthless paper...During this election season, I don't trust either party; Democrat or Republican, and the thought of the US Government owning large stakes of any company reminds me of the way we "owned" Fannie Mae and Freddie Mac.

A pox on all of them.

121 comments:

  1. What a metaphor, and what happened to the preemptive theory we honed as a national policy in Iraq?

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  2. George Will ...

    Are we talking about baseball???

    Oh, we're speaking of Ford.

    For his entire life, my dear dad has hated the Japanese, with pride and vengence. I learned of Nanking on his knee.

    The last two vehicles he has bought, Toyotas, were assembled in the USA. First a Land Cruiser and then a big Tundra truck. At least I think it's called a Tundra, their biggest model available.

    Loves those Toyotas, now.

    My brother he's a Fixes Or Repairs Daily fan. But says they are losing the qualitative edge to the cheap Chevys I drive.

    The windshield wipers on the Chevys, always fail, in truck after truck.

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  3. Maybe this is what trish wanted you all the read, from Mr Will

    ... McCain, reacting viscerally, sees everything as a moral melodrama; his economic thinking, which really is nothing of the sort, owes more to Moses than to Adam Smith. In McCainism -- the politics of "honor" -- there are no mere mistakes; they must also be dishonorable, because corrupt.


    But enough about baseball

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  4. As to who has recieved the largess of Fannie and Fraudie

    In a conference call with reporters, Steve Schmidt, Senator John McCain’s senior campaign adviser, was asked about an article in The Times on Monday reporting that Mr. McCain’s campaign manager, Rick Davis, had been paid nearly $2 million by Fannie Mae and Freddy Mac to head a group devoted to defend the mortgage giants against the imposition of stricter regulations.

    Asked about the article, Mr. Davis, who was on the call, said the group’s sole function was to promote home ownership. But Mr. Schmidt criticized The Times for its coverage.


    All is fair and good, while promoting an "Ownership Sociery"

    Team Maverick then attacking the NYTimes for being biased, which we all know is true, but not denying the payments were made.

    Attacking the messenger, but validating the message, none the less.

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  5. RCP reports

    EC Update: Michigan Moves
    Posted by TOM BEVAN

    A new FOX News/Rasmussen poll released last night showing Obama with a seven-point lead helped push the Wolverine State from a toss up back into the leaning Obama column. With the addition of the Quinnipiac/WP/WSJ poll this morning, Obama's lead in Michigan is now 5.0%, up from 2.0% just six days ago.

    The addition of Michigan's 17 electoral votes gives Obama a 30-vote lead in the RCP Electoral Count, 219 to 189, with 130 Toss Ups.

    That's a reversal from last week, when McCain led in the RCP Electoral Count 216-202. Late in the week, however, Florida slipped back into the Toss Up category, giving Obama a 202-189 lead.

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  6. Hey, I thought I'd just read it was Obama's guys that had gotten most from Fran and Fred.

    This is getting like that scene in "I, Claudius" where it turns out all the Senators had screwed the emporer's daughter.

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  7. We need campaign finance reform!

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  8. DR: My brother he's a Fixes Or Repairs Daily fan. But says they are losing the qualitative edge to the cheap Chevys I drive.

    Can Hear Every Valve Rap On Long Extended Trips

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  9. We need more than campaign reform. McCain wins this debate or he loses. Thanks George.

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  10. Me are entering the mother of all clusterfucks.

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  11. The US Government Model does not work. Our Rulers and Masters have it so gamed that it is unfixable. The Masters of the Universe have led us into a black hole. They have no idea what to do. The patrons of the EB would have as good as shot at calling this right as they do. The consequences ahead of us are beyond speculation.

    They simply have no fucking clue.

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  12. Alas, that head on train wreck image can apply to more than finances.

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  13. Bob is their any sign of a clusterfuck galaxy?

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  14. Candidates To Skip--Bailout of--Bailout Vote

    meanwhile==

    A stopgap bill must pass to avoid a government shutdown, so Democrats are viewing it as a locomotive to pull past a skeptical White House measures such as the automaker loan and a doubling of home heating subsidies for the poor.

    Here

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  15. Two Giant Galaxy Clusters Collide

    I call this a galaxy clusterfuck, shakin' out all the dark matter.

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  16. ...and amongst all this, that AIG stock purchase looks like my best buy ever!

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  17. Got to take advantage of chaos, deuce. You're doing well.

    Check Out This Scenario

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  18. It took 36 ballots in the House to select Thomas Jefferson as the third president after the 1800 election ended in a 73-73 tie. There was so much animosity after that election that Aaron Burr, elected vice president, faced off in a duel with Alexander Hamilton, who had thrown his support behind Jefferson. Burr shot Hamilton dead in a duel.


    USA USA CHAOS MONSTER

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  19. FOX Rasmussen Swing State Polling

    Polling this week in Florida and Ohio shows little net change from the previous week with McCain holding a very modest advantage in each state. McCain and Obama both increased their level of support slightly in each as the number of undecided/third party voters declined by three points in each.

    Daily Presidential Tracking Poll

    The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows the race for the White House is tied once again-Barack Obama attracts 48% of the vote and so does John McCain.



    Florida: McCain Still Ahead by Five


    Ohio: McCain 50%, Obama 46%

    In Michigan, Obama 51% McCain 44%

    Pennsylvania: Obama Holds Three-Point Advantage Over McCain

    McCain Ahead Again in Virginia, 50% to 48%

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  20. Well, ain't this a fine mess.

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  21. Do they still have that 11-12$K pickup advertised on the reader board at Parr Motors, T?

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  22. Fairfax County fact of the day
    Tyler Cowen

    In Fairfax County, about half of the homes for sale are bank-owned properties...

    Fairfax County, of course, is one of the wealthiest (and stable) counties in the United States. Here is the story, which shows Fairfax is one of the few places with a rebounding housing market.

    September 23, 2008 at 06:28 AM


    Wooohooo!

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  23. We might be a more honorable nation, and better for it too, if we just had McCain and Obama face off in a duel, like Hamilton and Burr.

    At least we'd be done with one of them.

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  24. And, The Reasons Why Early Voting Sucks

    This election will set the record for voting fraud across the entire country, in our once great nation.

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  25. Ben Stein:

    [...]

    How did it happen?

    Here s one big part of the answer. First, the alert reader will notice that Ben Stein said many times that the amount of money at risk in the subprime meltdown was just not enough to sink an economy of this size. And I was right...to a point. The amount of subprime that defaulted was at most - after recovery in liquidation - about $250 billion. A huge sum but not enough to torpedo the US economy.

    The crisis occurred (to greatly oversimplify) because the financial system allowed entities to place bets on whether or not those mortgages would ever be paid. You didn't have to own a mortgage to make the bets. These bets, called Credit Default Swaps, are complex. But in a nutshell, they allow someone to profit immensely - staggeringly - if large numbers of subprime mortgages are not paid off and go into default.

    The profit can be wildly out of proportion to the real amount of defaults, because speculators can push down the price of instruments tied to the subprime mortgages far beyond what the real rates of loss have been. As I said, the profits here can be beyond imagining. (In fact, they can be so large that one might well wonder if the whole subprime fiasco was not set up just to allow speculators to profit wildly on its collapse...)

    These Credit Default Swaps have been written (as insurance is written) as private contracts. There is nil government regulation of them. Who writes these policies? Banks. Investment banks. Insurance companies. They now owe the buyers of these Credit Default Swaps on junk mortgage debt trillions of dollars. It is this liability that is the bottomless pit of liability for the financial institutions of America.

    Because these giant financial companies never dreamed that the subprime mortgage securities could fall as far as they did, they did not enter a potential liability for these CDS policies anywhere near their true liability - which again, is virtually bottomless. They do not have a countervailing asset to pay off the liability.

    This is what your humble servant, moi, missed. This is what all of the big investment banks and banks and insurance companies missed. This is what the federal government totally and utterly missed. This is what the truly brilliant speculators in these instruments did not miss. They could insure a liability they could also create and control. It is as if they could insure a Cadillac for its value upon theft - but they could control what the value the insurer had to pay off was. The insurer thought it might be fifty thousand dollars - but it was manipulated into being two million.

    This is the whirlpool sucking down finance.

    Now, we are about to have a similar phenomenon happen with commercial mortgage debt, debt from mergers and acquisitions, credit card debt, and car loan debt. Many trillions of dollars in Credit Default Swaps have been sold on all of this, and the prices of all of them have fallen and can be made to fall more.

    As I said, the pit of loss is bottomless. Warren Buffett, the smartest man of all time in the world of finance, has called financial derivatives - of which Credit Default Swaps are a prime example - "weapons of financial mass destruction." And so they are. As with the hydrogen bomb, no one thought they would ever be used to end the world. But unless someone figures a way out - and maybe the new RTC is and maybe it isn't - we are in real peril. This should never have happened. Now that it did happen, should the taxpayer pay to make the billionaire speculators whole on their bets? What the heck is to be done?

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  26. I keep thinking about those hundreds of strong "Regional" banks out there that have NO exposure to CDOs, CDSs, subprime schlock, etc.

    Big story this morning: Bank of America isn't going to loan money to local McDonalds franchisees to buy new coffee machines, or what not. Why don't they go to their local banker?

    This reminds me of the old ploy whereas every time the budget came up the National Park Service would shut down the Washington Monument.

    We've been saying for awhile. It's the CDSs, CDOs, etc. They get drunk and stay up all night, gambling; and, we get to bail'em out, just like they said we would.

    They're probably right. But, I'd like to see a few more of the big, arrogant motherfuckers bite the dust, first; and, the rest of them beat about the head and shoulders until they come within an inch of their life of "bleeding out."

    I'm irritated.

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  27. I'd like to see some people in prison, and I don't much care who it is, just somebody.

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  28. We could start with Hank Paulson.

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  29. trish, remember awhile back when you wrote something to the effect that the folks were just looking for a semblance of crisis for the sake of gnashing their teeth. As you can see the crisis is real. I'm glad you are sharing some of your readings.

    Two nuggets:

    Blogger trish said...

    nakedcapitalism.com:

    "As we said earlier, this is a covert, not particularly well designed, inefficient, and unduly costly recapitalization of the banking system."


    It sure is. Ole Hank Paulson who was a very active participant on the creation of the problem now is frantically trying to solve the problem he was so instrumental in creating. and...


    Blogger trish said...

    Ben Stein:

    "As I said, the pit of loss is bottomless. Warren Buffett, the smartest man of all time in the world of finance, has called financial derivatives - of which Credit Default Swaps are a prime example - "weapons of financial mass destruction." And so they are. As with the hydrogen bomb, no one thought they would ever be used to end the world. But unless someone figures a way out - and maybe the new RTC is and maybe it isn't - we are in real peril. This should never have happened. Now that it did happen, should the taxpayer pay to make the billionaire speculators whole on their bets? What the heck is to be done?"



    It isn't just a few billionaire speculators but rather a whole system flush with derivatives. If one counter-party to a derivative contract ceases to exist there goes the contract and the dominoes they just keep flipping. That's why they keep trying to keep all the players in existence and why this bailout fund is supposed to pay for 'distressed assets' as opposed to just mortgage security assets.

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  30. What you basically have, I believe, is a bunch of thieves trying to keep their rent-seeking vehicles, afloat.

    We're "supposed" to let'em sink.

    They're telling us, "We Can't."

    I'm about ready to throw the BS flag.

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  31. Sometimes you have to take a serious Recession, in order to avoid a Depression.

    I still want to see more blood. Fuck the bastards.

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  32. Credit default swap fact of the day
    Tyler Cowen

    ...the CDS [credit default swap] positions of large US banks during 2001–06 grew at an average compounding annual rate of over 80%.

    That's from a very good paper by Darrell Duffie. There is more:

    Of all 5,700 banks reporting to the US Federal Reserve System, however, only about 40 showed CDS trading activity and three banks – JP Morgan Chase, Citigroup and Bank of America – accounted for most of that activity.

    The net transfer of credit risk away from banks is estimated to account for 30 percent of the market. Furthermore a bank may go short on the credit risk of a company it is lending to. A CDS is then a substitute for selling or securitizing the loan. If you think securitization is overdone, CDS has this benefit namely that it is a potential substitute.

    A bank also can short the credit risk of a company by dealing in its bonds and other securities. But these other security markets are regulated and replete with restrictions on short sales and the like. The CDS markets don't have comparable restrictions. You can think of the CDS market as, in part, an attempt to circumvent regulations and trading costs in other securities markets.

    Here is the single best paper on CDS that I know. Enjoy.

    September 23, 2008 at 05:08 AM

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  33. I feel your anger Rufus. Bernake has studied the Depression era hard. The general consensus seems to be that letting the suckers fail and tightening monetary policy made the collapse worse. They are frantically trying to stave off a depression. It lasted about 10 years that time. Ready for that again?

    Mind you, I have little confidence that what they are trying will work but, you know, this is primarily a made in America problem requiring a made in America solution and it looks as if all Americans, the taxpayers, will have to help pay to solve this problem. Time to belly up.

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  34. I'm about ready to throw the BS flag.
    ==

    It's really a well orchestrated game of musical chairs. Ashley would have us believe there is no choice in how the game is played and that we're constrained by "reality", I say, time to send the band packing.

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  35. Ash:Warren Buffett, the smartest man of all time in the world of finance, has called financial derivatives - of which Credit Default Swaps are a prime example - "weapons of financial mass destruction." And so they are. As with the hydrogen bomb, no one thought they would ever be used to end the world.

    When I quote the Constitutional ban on cruel and unusual punishment to object to torture, I'm told "The Constitution is not a suicide pact." So the Constitution goes by the wayside when survival is at stake. When I quote the bible "turn the other cheek" I'm told the bible is not a suicide pact and the bible falls by the wayside. Now we have financial derivatives turning into a real suicide pact, but somehow we can't nullify all these private deals in a War on Insolvency because they have greater gravitas than the bible and the constitution put together.

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  36. Ash, tightening monetary policy helped get the Recession started; but it took Smoot-Hawley, and a host of other things to turn it into a "Great Depressin."

    The fact that FDR, and his advisors, hated business, and did everything they could to keep businesses from "expanding to scale" didn't help.

    I'm getting extremely suspicious of "the dog that isn't barking." Has Citi-Bank fallen off the face of the earth?

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  37. In all things financial it seems it really is a betting thing, a risk/reward gamble. Are you prepared to let the 'system' seize up? It's pretty well there already what with no market for the mortgage securities (i.e. nobody is willing to bid at the moment) and the banks won't lend to each other (why risk what little capital they have for so little upside?) The consequence of this continuing are no more loans for just about anybody. Add to that continuing deflation in stock values and you risk having that market seize up. Your left with the cash you've got stuck in your mattress and FDIC (CDIC in Canada) guaranteed loans. Can you imagine all 117 banks failing on that danger list which would then take out more because they wouldn't be honoring their contracts) Or how about the beautiful health system in the States if all those health insurance companies fail? Paid all those premiums and now the f#ckers fail and don't honor the contracts?

    I'd imagine that's the scary scenario members of congress are being presented with by ole Hank. How would you place the bet? What's the downside vs. the upside and, heck, its just the ole American taxpayers dollar anyway. Ugly downside vs. decent upside. Stick that finger in the dyke. Here in Canada, and the rest of the world, we can hope the Americans bail with cans we sell 'em.

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  38. I agree w/Will re: Cox.

    ...but why couldn't batboy George exert his influence directly on Big Mac, instead of promoting the Marxist America-Hater?

    Putz!

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  39. If McCain had brains, he'd fight Hank.

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  40. There are other solutions, Ash, than making Hank the most powerful man on Earth, money wise.

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  41. Never has this much been given to one (unelected, unchallengable) ex-Goldman Democrat.

    Jim Bunning:
    Un-American Socialism.

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  42. yeppers doug, though Paulson will be out in a few months and the money will spurt for a long time to come.

    here's a solution, McCain's solution:

    http://www.theonion.com/content/node/86952

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  43. OT: I like Ben Stein's take on money. He gives a more cogent explanation of the financial instruments that are driving the current meltdown on Wall St.

    http://finance.yahoo.com/expert/article/yourlife/109609

    The answer to Ben Stein's closing comment I think may be found in the comment section at freerepublic on the article.

    "Whenever one takes out an insurance policy, there must be an insurable interest. Since the speculators in CDS, did not own the underlying securities, the CDS should be declared invalid, for lack of an insurable interest. If I tried to collect on an insurance policy I took out on a home I did not own, I would not be paid, and might face criminal charges.

    Those who bought CDS on securities they do not own, should eat their losses and be thankful they are not prosecuted for insurance fraud. "
    http://www.freerepublic.com/focus/f-news/2088420/posts

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  44. I cain't hep it; I'm getting the damnedest feeling that we're Still getting Scammed.

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  45. The New York Times does its expectations-setting story for the debates, and it lowers the bar a bit for Obama.

    "Some of his chief strengths — his facility with words, his wry detachment, his reasoning skills, his youthful cool — have not always served him well and may pose significant vulnerabilities in the series of presidential debates that begins Friday, according to political analysts and a review of his earlier debate performances.”
    ---
    TRANSLATION:

    "...his facility with the Teleprompter, his detachment from reality, his Jive-Ass Bullshit, his New-Left Marxist Hip."

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  46. well rufus, that's how a good scam works out - the mark realizes it too late and still has to belly up.

    Charles, I don't know this to be true but I'd guess there are large proportion of Credit Default Swaps entered into by the parties involved. It makes sense - you buy a bond and pay an insurance premium and the sucker is guaranteed AAA. It's the insurance companies who need belly up an meet their obligations...oh they can't hmmmmmmm....

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  47. I'd take Newt over Stein, Charles.
    The Real Crooks are in DC.
    Beltway Establisment "Elite."

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  48. Drudge NewsFlash:

    Sonia Marries Beer Hairless.

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  49. The only one of this bunch I trust at all is Bernanke. He started his job, I thought, very weakly. He seems much stronger, now. His logic appears (to me) sound, and I don't perceive him as having a Big Dog in this hunt.

    Paulson, I wouldn't trust to run a popsickle stand. I know that, somehow, he'd find a way to screw me. Cox is just one a' the guys; and, doesn't really have the power, anyway.

    You're right, Ash. The King is Citi; and, those miserable motherfuckers do have to be protected. We could still dump Goldman, and JP Morgan, though. Or, Bank of America. Pick two.

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  50. Smaller and local is better: radio stations, banks, television, book stores and fresh produce stands, schools...name it.

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  51. Obama Economic Plan:

    Pull yourself out of Poverty by letting a Domestic Terrorist write two "Autobiographical Books" and giving a Speech @ the Democrat Convention.

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  52. A Homeschool for three, was me.

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  53. "Those who bought CDS on securities they do not own, should eat their losses and be thankful they are not prosecuted for insurance fraud. ""
    ---
    The politicians that created Bogus Asset "Wealth" on which the CDS were based, should be sent to Jail.

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  54. Loads of anger out 'there' at the big big bailout but will it manage to stop it?

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  55. Us against the machine, Ash?

    I bet on The Machine.

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  56. I'm watching these monkeys on DVR. Paulson's about to talk me out of it.

    I Never agree with Reed. But, he just pinned Bernanke's ears back with his argument for "Warrants."

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  57. Now, he's skinning Paulson.

    THIS IS A FUCKING SCAM!

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  58. Feb. 23, 2007

    "Real (not perceived) problems in select mortgage pools and in the subprime mortgage lending industry do not make for an ideal fundamental opportunity at this time."

    "It's hard to imagine that we've seen the last of the negative headlines," he added.
    "

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  59. especially when you are backstopping the machine with a trillion bucks plus or minus a few hundred billion.






    "Credit Default Swaps

    Credit default swaps, which were invented by Wall Street in the late 1990's, are financial instruments that are intended to cover losses to banks and bondholders when companies pay their debts -- much like homeowner insurance is intended to cover the losses from a fire.

    Here is how they work, as explained by Michael Lewitt, a Florida money manager, in a New York Times Op-Ed piece on Sept. 16, 2008:

    "Credit default swaps are a type of credit insurance contract in which one party pays another party to protect it from the risk of default on a particular debt instrument. If that debt instrument (a bond, a bank loan, a mortgage) defaults, the insurer compensates the insured for his loss.

    Read More...

    "The insurer (which could be a bank, an investment bank or a hedge fund) is required to post collateral to support its payment obligation, but in the insane credit environment that preceded the credit crisis, this collateral deposit was generally too small.

    "As a result, the credit default market is best described as an insurance market where many of the individual trades are undercapitalized."

    The market for the credit default swaps has been enormous. Since 2000, it has ballooned from $900 billion to more than $45.5 trillion — roughly twice the size of the entire United States stock market.

    The securities were put to their first real test in 2008 with the turmoil on Wall Street and economic downturn. But it was hard to know how troubled the credit swaps market was, because, like the now-distressed market for subprime mortgage securities, it is unregulated. But because swaps have proliferated so rapidly, experts say that a hiccup in this market could set off a chain reaction of losses at financial institutions, making it even harder for borrowers to get loans that grease economic activity."

    http://topics.nytimes.com/top/reference/timestopics/subjects/c/credit_default_swaps/index.html?inline=nyt-classifier



    We don't need no stinkin' regulation! Free Market for ever!

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  60. What they're asking for is "absolutely NO PAIN for Wall Street. They'll bust every taxpayer in the country if Paulson gets what he wants. But, WALL STREET WILL FEEL NO PAIN.

    COCKSUCKERS!

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  61. This comment has been removed by the author.

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  62. Hey,
    Hank stands by his friends, Ruf!
    ...like W.

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  63. "The market for the credit default swaps has been enormous. Since 2000, it has ballooned from $900 billion to more than $45.5 trillion — roughly twice the size of the entire United States stock market."

    45 Trillion?
    Start countin, mates.

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  64. Boy, he does that. Fer sure.

    I don't believe one single word of what Paulson says. Not ONE.

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  65. But, what is the Dollar Amount of CDS directly connected to the SubPrime Mortgages?

    Basically, Paulson wants us to bail out every drunken gambler that learned how to dial up Wall Street.

    I have no interest, whatsoever, in bailing out every gambler that ever placed a bet on some obscure facet of the financial market.

    So far, about a hundred times Paulson has told us that this is all "too complicated" to explain. Boys, I don't think we can afford what this asshole has in mind.

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  66. From Paulson's prepared text:

    "And that root cause is the housing correction which has resulted in illiquid mortgage-related assets that are choking off the flow of credit which is so vitally important to our economy"

    http://www.nytimes.com/2008/09/24/business/24txtpaulson.html?_r=1&oref=slogin


    "mortgage related assets" hmmmm that's one helluva BIG category. Welp, there is the mortgage, the security that was made of the mortgage and the leverage piled on top of the security (30:1) used to buy other 'stuff' (all this chain involved 'fees' and 'profits' and 'bonuses') all served with a generous helping of 'insurance - Credit Default Swaps'.

    tasty pudding!

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  67. Paulson at the hearing:

    “You ask me about taxpayers being on the hook? Guess what, they are already on the hook.”

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  68. "So far, about a hundred times Paulson has told us that this is all "too complicated" to explain. Boys, I don't think we can afford what this asshole has in mind."
    ---
    W says Hank worked real hard all weekend for our benefit, and we should be appreciative of his effort.

    So I am.

    Go Hank!

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  69. Paulson, and his buddies are responsible for this tub of shit. He should be testifying in front of a Grand Jury, not a Senate Committee.

    In a Free Market system we'd let these pricks go under, and then do our banking with the ones that were smart enough to be on the "Winning" end of these bets.

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  70. Limbaugh begins Operation Chaos Two:

    Keep Biden on the Ticket!

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  71. Gorelick/Bergler on 9-11 Commish.

    Paulson in front of a Senate Committee.

    Makes sense to me.

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  72. September 23, 2008, 10:00 am
    What Are the Other Bailout Options? An Explainer
    By Catherine Rampell

    Treasury Secretary Henry M. Paulson Jr. has emphasized the urgency of his bailout plan by warning that inaction would be disastrous. But are there other options besides total inaction on the one hand, and Mr. Paulson’s $700 billion bailout on the other hand?

    Let’s start with the fundamental problem that the bailout is trying to solve. To function, Wall Street firms cannot have too much debt relative to their underlying assets. If they do, other banks won’t do business with them – much as your local bank won’t give you a $100,000 loan unless you have some collateral behind it. In recent years, banks went deeper and deeper into debt, in an effort to turbo-charge their returns. Now they are discovering that their assets are not worth what they thought. The combination of high debt levels and falling asset values has paralyzed the financial markets. In econ-speak, the firms have too much debt relative to their assets.

    The government could reduce that debt-to-assets ratio either by decreasing the numerator (debt) or increasing the denominator (assets). The first option would involve reducing the debt obligations of these institutions. The Treasury Department’s $700 billion plan to buy mortgage-backed securities and other contracts from the banks falls into this category. Proponents argue that this plan can be executed quickly and that the government will end up making back a significant chunk of the $700 billion, if not all of it, when it sells the assets down the road.

    The second option would be to increase the firm’s assets. Several economists, as well as a number of Democratic lawmakers, are advocating the second approach (or at least some combination of the two strategies).

    One way to do this would be to have the government invest in the firms. In other words, the government would give Wall Street institutions more capital, presumably also from taxpayer funds, in exchange for a cut of the firms’ profits down the road. Douglas W. Elmendorf, Paul Krugman and various others have advocated this. Luigi Zingales has put forth a proposal for the banks to raise capital without taxpayer money by having creditors forgive some of the banks’ debt in exchange for partial ownership of the same banks. These and other critics say it is not fair to make taxpayers spend hundreds of billions of dollars rescuing these companies without also giving them a stake in the upside.

    Other ideas – including conditions on oversight authority and executive pay, which could theoretically be combined with either approach – have also been pitched.

    For example, Robert Reich, the former labor secretary, recommended that the bailout be replaced with a regular ol’ bankruptcy, organized by the government.

    A number of critics say the bailout plan pays too little attention to homeowners and to “Main Street.” Dean Baker recommended that the bailout should give priority to keeping people in their homes — i.e., reducing the amount of money people owe on their mortgages — instead of maximizing the returns the government can get from mortgage payments. Nouriel Roubini suggested creating a government body in charge of helping Americans find debt relief, modeled on the Home Owners’ Loan Corporation established during the Great Depression. Mark Thoma proposed the creation of a “worker bailout fund” for those afflicted by layoffs nationwide.

    It’s not totally clear to me that helping people keep their homes will resolve the larger liquidity problems that are afflicting the financial system and, in the process, putting the economy at risk of falling into a deep recession. My colleague David Leonhardt will discuss this later in a separate post."

    http://economix.blogs.nytimes.com/2008/09/23/what-are-the-other-bailout-options-an-explainer/

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  73. This comment has been removed by the author.

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  74. We came to realize that Gramm- Leach - Billingly(?) was not the cause, doug.

    But the Gramm Amendment to the 2000 Budget Act was.
    Besides Rubin lobbied for Gramm - Leach - Whomever Act, or Clinton would not have signed it.

    So, of course, it was not responsible.
    So much for Rubin not being a BSer, too.

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  75. Funny!
    I was deleting as you were posting!

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  76. Rush at about 10:40 PDT:


    Rubin threw Obama under the bus.


    Said '99 Gramm law had nothing to do with present crisis

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  77. Great minds and all that. doug.

    Rubin is just trying to save his own reputation, it would seem.

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  78. What our country needs is a Jorge and Maria to loan funds for housing to our 20 million illegal aliens, living in huts Americans won't live in.

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  79. rufus, I'm increasingly being convinced that you are right and that this plan stinks. What we need is one or both of the two wannabe leaders to propose an alternative.

    I'm leaning towards a Resolution Trust kind of deal where when an institution fails the Trust assumes ownership and works out what it can. The shareholders and executives fall on their own sword, as they should, the taxpayer takes a hit but hey, as Paulson said “You ask me about taxpayers being on the hook? Guess what, they are already on the hook.” .

    As a person living outside the US I'm all for it. Send us more of the American's money please.

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  80. Student Loans? Credit Card Debt?

    Now Bunning's slapping him around. Paulson won't/can't answer.

    How long were you the CEO of Goldman Sachs?

    Paulson might have a fucking stroke.

    Yeah, "Grand Jury," that's the ticket.

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  81. "it" being the bailout as proposed.

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  82. Ash, this "Plan" is horseshit.

    You've got it right. Let'em fail; and we'll pick up the pieces that need picking up.

    There'll be Pain. But, Bubba, we got "Pain" coming, anyhoo. Loads and loads of fucking pain. Courtesy of Paulson, and "Buds."

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  83. Paulson's say that if we insist on some "participation," or "warrants" that might be so odious to the banks that they won't participate. They might find it "objectionable."

    News Flash for motherfucking Paulson. I'm being "objectionabled" to the tune of about $600 BILLION!, Motherfucker. Any reasonable person can see that if That is a "showstopper" these people don't really need my Six Hundred Extremely Large, anyway.

    Maybe they should come back when they really do need some help.

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  84. Waterboard all the Senators and finance men, get the truth! Start with that verbose asshole Dodd.

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  85. Biden says his own campaign's ad ad knocking McCain for being too old to grok email is "terrible". No wonder Rush wants to keep Biden on, he's practically a Republican mole.

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  86. "The market for the credit default swaps has been enormous. Since 2000, it has ballooned from $900 billion to more than $45.5 trillion — roughly twice the size of the entire United States stock market."

    Down the rabbit hole.

    'If you got nothin' you got nothin' to lose'

    Neither a borrower nor a lender be;
    For loan oft loses both itself and friend,
    And borrowing dulls the edge of husbandry.
    This above all: to thine own self be true,
    And it must follow, as the night the day,
    Thou canst not then be false to any man.
    William Shakespeare, "Hamlet"

    -------

    Maybe Poor Richard can help us--


    Poor Richard’s quaint sayings on money--

    1. Early to bed and early to rise, makes a man healthy, wealthy and wise.

    2. Creditors have better memories than debtors.

    3. Women and wine, game and deceit, make the wealth small and the wants great.

    4. The borrower is slave to the lender and the debtor to the creditor.

    5. He that lives on hope will die fasting.

    6. Creditors are a superstitious sect, great observers of set days and times.

    7. He that goes a-borrowing goes a-sorrowing.

    8. Always taking out of the meal-tub, and never putting in, soon comes to the bottom.

    9. Industry pays debts, while despair increases them.

    10. A fat kitchen makes a lean will.

    11. Beware of little expenses; a small leak will sink a great ship.

    12. Buy what thou hast no need of, and ere long thou shalt sell thy necessaries.

    13. At the workingman’s house hunger looks in, but dares not enter.

    14. For age and want, save while you may; No morning sun lasts a whole day.

    15. Gain may be temporary and uncertain; but ever while you live expense is constant and certain.

    16. ‘Tis easier to build two chimneys than to keep one in fuel.

    17. Rather go to bed supperless than rise in debt.

    18. Get what you can, and what you get hold; ‘Tis the stone that will turn all your lead into gold.

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  87. My favorite--

    ‘Tis easier to build two chimneys than to keep one in fuel.

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  88. Credit Swaps Must Be Regulated Now, SEC's Cox Says (Update2)

    By Jesse Westbrook and David Scheer

    Sept. 23 (Bloomberg) -- U.S. Securities and Exchange Commission Chairman Christopher Cox said Congress should grant authority to regulate the credit-default swaps market amid concern the bets are helping fuel the global financial crisis.

    Lawmakers should ``provide in statute the authority to regulate these products to enhance investor protection and ensure the operation of fair and orderly markets,'' Cox told the Senate Banking Committee today at a hearing in Washington.

    ``Neither the SEC nor any regulator has authority over the CDS market, even to require minimal disclosure,'' and that should be addressed ``immediately,'' Cox said in prepared testimony at a hearing to consider the federal government's $700 billion financial rescue plan.





    Smells like...

    ...desperation.

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  89. Hunger stalks the new car buyer, while he who buys used eats at McDonalds.

    Fat Richard

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  90. What we obviously need is a new financial instrument---DDS--Debit Default Swaps.

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  91. Put all the hardworking illegals, doing jobs Americans don't care to do, in all those foreclosed homes, and swap the defaulters to Mexico, a simple trade.

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  92. Call in Homeland Security, screen Congress and all the money men for Bad Intentions

    If the country would ever take even two or three of my suggestions we wouldn't be in this pickle.

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  93. pickle? That's it Bobal, we can sell pickles!

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  94. DR, I salute your 1:43 and 1:55 posts! And apologize for negative remarks I made in the past.

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  95. Ash, answer simply, without elaborating-=-what was the title of the last thread?

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  96. Lads, and Ladies, take advantage of the chaos, spend a few free nights in Vegas

    Ash, This came in my e-mail, but it was obviously meant for you.

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  97. Joe Biden says that when the Depression hit in the thirties, Franklin Roosevelt got on television.

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  98. "The American Bankers Association joined in the criticism of the so-called "cram-down" provision.

    "Authorizing write-downs of mortgages by bankruptcy judges will increase the risks of mortgage lending at a time when the market is already struggling" the ABA said in a letter it sent to Capitol Hill on Monday."

    If a dumb banker made a dumb loan, a bankruptcy judge should be able to cram it down the bank's throat. It is OK to cram down the US taxpayer but not a bank>

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  99. deuce, the banker doesn't hold the mortgage anymore...

    Bobal, that place in South Florida looks nice but I think I'll run down to Hilton Head in Nov. instead (barring any hurricanes heading that way)

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  100. Better yet ash, allow me the privilege to revise and resubmit:

    Let's call it a cram up. the dumb bastard that bought the loan should have it crammed up his ass.

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  101. If a banker makes a home loan, with the home as security, the loan goes bad, and the security isn't sufficient, and the guy has 4000 acres free and clear a mile away, should the bank be able to go outside the original security agreement to collect the debt?


    Don't Ask If Obama Is Good Enough To Be President, Ask Whether The Presidency Is Good Enough For Obama

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  102. There is a logistical problem - the loan was packed in with a whole bunch of other loans and sold as a tranche to a whole bunch of buyers. Sorting out who owns what is a real feat in itself. I agree with you on the sentiment but the securitization of it has made it all very opaque.

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  103. as to your question bobal, no, I don't believe you can go after that land or any other asset. The way the US mortgages are written, I believe, is the house is the sole security for the mortgage.

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  104. Bob, that would depend. If it was a secured loan, the security (home) is the limit. If the borrower gave a personal guarantee they could go after the farm for the deficiency.

    A cram-down has a rational purpose. Here is an example:

    A secured lender makes a loan of $1,000, 000 for a business man to purchase machinery and files against the machinery as security. Later the factory goes bankrupt. The secured lender puts a priority claim into the court for $1,000,000, however an appraisal shows the machinery is only worth $500,000.

    The judge could rule that the lender has security and priority on only the value of the equipment, $500,000 and is an unsecured lender for the other $500,000. He got crammed down to the actual market value of the equipment. Hard noogies.

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  105. I thought this was a fitting end to the NYTimes blogging of the hearing today:

    "Paulson’s Polite Reminder | 2:21 p.m. After the hearing stretched about two hours past the chairman’s initial estimate, the Treasury Secretary blurts out, “We do have to go.” After some concluding remarks in which he thanked the witnesses, Mr. Dodd adjourned the hearing. Amid the sounds of chairs moving and shoes shuffling along the hearing room floor, screams about the “fox guarding the hen house” from a protester provided a bit of chaos to an absolutely sober marathon of economic debate."

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  106. I'm in Obama's postion re when life begins on this stuff--it's beyond my pay grade--but I think practically everyone back in D.C. is at fault, and I think things should be let to fall where they will, unless it can be really shown that not doing anything will lead to a real meltdown.

    Which is what those that want intervention are arguing, of course. I just don't know if it is so.

    So, I mostly keep quiet, and try to crack jokes.

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  107. Phil Gramm Is Not To Blame

    Bill was passed in the Senate with 90 votes in favor, among many other reasons.

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  108. Bush should do what FDR did, LaBob, what's wrong with THAT?

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  109. Those Florida Pics look like Manhatten.
    I'll have to dig some out of Paradise.

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  110. "I'm leaning towards a Resolution Trust kind of deal where when an institution fails the Trust assumes ownership and works out what it can.

    The shareholders and executives fall on their own sword, as they should, the taxpayer takes a hit but hey, as Paulson said “You ask me about taxpayers being on the hook? Guess what, they are already on the hook.” .
    "
    ---
    Odd concept, that:
    You don't "treat" someone that's not bankrupt as tho they are.

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