AIG - a cover play?

Is it AIG that's playing us for fools or is it really Goldman Sachs?

From here: The roots of the linkage between Goldman Sachs and AIG go back to the closing months of the Bush administration, as the financial meltdown reached crisis proportions and key decisions were made that are now reaping the whirlwind. Remember who played a key role in deciding to bail out AIG? Henry Paulson, the Goldman CEO-turned George W. Bush Treasury Secretary. Paulson, according to a September 27, 2008 New York Times piece by Gretchen Morgenson, led a team of regulators and bankers in early September to determine what to do with the most severely wounded financial institutions. One of the participants in those meetings was Lloyd C. Blankfein, Paulson's successor at Goldman Sachs. Out of those meetings came the controversial and heavily criticized decision to allow Lehman Brothers, a Goldman competitor, to go belly up, and to bail out AIG. Starting with $85 billion from the Fed, taxpayers have pumped a total of $170 billion into the giant insurance company. The bailout was crucial to Goldman in that it permitted AIG to pay off its $12.6 billion debt to the firm, $8.1 billion of which was to cover AIG-backed credit derivatives. At a hearing of the House Financial Services Committee on February 11, 2009, Goldman Sachs CEO Lloyd Blankfein denied that his firm had a major stake in bailing out AIG. Blankfein told the panel that "with respect to our dealings with AIG, we were always fully collateralized and had de minimis or no credit risk at any given moment because we exchanged collateral....We had transactions with them. And if they had gone the wrong way, they would have owed us money. We assumed they'd pay it, but if they defaulted, they wouldn't pay us. We insured against that default. We didn't win money from it. We wouldn't have made money. But it would have protected our down side."

Throughout the past six months of economic crisis, Goldman has taken full advantage of what the government has to offer. On October 28, 2008, Goldman and eight other banks were the first to receive federal bailout money under the Treasury Department's Troubled Assets Relief Program (TARP). which was initiated by Paulson. On November 25, 2008, Goldman became the first bank in the nation to benefit from the Federal Deposit Insurance Corp.'s Temporary Liquidity Guarantee Program (TLGP), issuing $5 billion in government-secured debt at 3.367%, substantially less than the market rate facing banks which issued unsecured debt. All told, Goldman has issued a total of $20 billion in government-guaranteed debt under TLGP. In their dealings with banks, both Treasury and the Fed have been subject to relatively minimal disclosure, in order to protect the proprietary interests of financial institutions, especially to prevent rumors of illiquidity or excessive debt from threatening a bank's viability.

How one man saved the Indian financial system...

Just ran into this story about an individual who had the courage to think rationally against prevailing trends even when it became extremely unfashionable to do so. There seems to be larger lessons that one could glean from this story...

India had a bank regulator who was the anti-Greenspan. His name was Dr. Y. V. Reddy, and he was the governor of the Reserve Bank of India. Unlike Alan Greenspan, who didn’t believe it was his job to even point out bubbles, much less try to deflate them, Mr. Reddy saw his job as making sure Indian banks did not get too caught up in the bubble mentality. About two years ago, he started sensing that real estate, in particular, had entered bubble territory. One of the first moves he made was to ban the use of bank loans for the purchase of raw land, which was skyrocketing. Only when the developer was about to commence building could the bank get involved — and then only to make construction loans. (Guess who wound up financing the land purchases? United States private equity and hedge funds, of course!)
Then, as securitizations and derivatives gained increasing prominence in the world’s financial system, the Reserve Bank of India sharply curtailed their use in the country. When Mr. Reddy saw American banks setting up off-balance-sheet vehicles to hide debt, he essentially banned them in India. As a result, banks in India wound up holding onto the loans they made to customers. On the one hand, this meant they made fewer loans than their American counterparts because they couldn’t sell off the loans to Wall Street in securitizations. On the other hand, it meant they still had the incentive — as American banks did not — to see those loans paid back. Seeing inflation on the horizon, Mr. Reddy pushed interest rates up to more than 20 percent, which of course dampened the housing frenzy. He increased risk weightings on commercial buildings and shopping mall construction, doubling the amount of capital banks were required to hold in reserve in case things went awry. He made banks put aside extra capital for every loan they made. In effect, Mr. Reddy was creating liquidity even before there was a global liquidity crisis.

Did India’s bankers stand up to applaud Mr. Reddy as he was making these moves? Of course not. They were naturally furious, just as American bankers would have been if Mr. Greenspan had been more active.

A plea (on the auto industry bailout)

The Republican senators in the Senate last night blocked the auto bailout under the following pretext: the demands for steep cuts in pay and benefits for the automobile workers were not met. Yes, following textbook style Republican governing, they have again asked the workers to make sacrifices whilst making no attempt to hold the management responsible. They have managed to turn this into a ‘the result of workers getting undue benefits is killing the US auto industry’.
At this point the auto bailout looks like a non starter in the Senate. The White House should act now and act decisively. The government must use the funds from the TARP bill to bailout the auto companies. No, I do not think the management at Ford, GM and Chrysler deserve the bailout, but I think the workers deserve it. There are a million or more that will be affected if this does not happen. Three months back Sec. Paulson managed to convince a doubting Congress to fork over $700 billion to save companies on Wall Street. Companies that make money off other peoples money. Companies that have no real infrastructure save people sitting at terminals and betting on outcomes that they scarcely understand. Companies that do not produce or manufacture tangible products save for pieces of paper whose values depend on other pieces of paper… ad infinitum. Detroit made decisions, pursued bad choices and was led by bad managers. As part of the bailout, the government should go ahead and change the management, restructure management benefits and legislate the closure of brands that make no sense. The government should not punish workers that have done nothing other than follow the bidding of managers who were short sighted. Moreover, from a pragmatic viewpoint, the fallout from a million people losing their jobs as a result of these companies going under could have severe repercussions not just for the economy, but socially and morally as well.


Another major argument laid out by the Republicans in fighting the bailout is a story claiming that an average autoworker rakes in $73 dollars an hour. That is a pile of garbage. A breakdown of how the $73 is divvied up here: (The representative image above has been ripped from the article).

The calculations show, accurately enough, that for every hour a unionized worker puts in, one of the Big Three really does spend about $73 on compensation. So the number isn’t made up. But it is the combination of three very different categories.

• The first category is simply cash payments, which is what many people imagine when they hear the word “compensation.” It includes wages, overtime and vacation pay, and comes to about $40 an hour.
• The second category is fringe benefits, like health insurance and pensions. These benefits have real value, even if they don’t show up on a weekly paycheck. At the Big Three, the benefits amount to $15 an hour or so

Add the two together, and you get the true hourly compensation of Detroit’s unionized work force: roughly $55 an hour.

• The third category is the cost of benefits for retirees. These are essentially fixed costs that have no relation to how many vehicles the companies make. But they are a real cost, so the companies add them into the mix — dividing those costs by the total hours of the current work force, to get a figure of $15 or so...

Please do not fall for the $73/hr number!! It is actually closer to $50.

Advice to Sec. Paulson (IMHO)

Out the 700 billion dollars authorized by Congress last month to rescue the economy (read: bailout financial institutions), 290 billion dollars has now been spent by Sec Paulson in doling out taxpayer cash to companies of his choice. Rightly or wrongly, Sec. Paulson made a little publicized comment that he is reluctant in approaching Congress for approval on spending the rest knowing full well that it might be an uphill battle with the public suffering from an extended bout of 'fat cat only' bailout fatigue. He has rightly called that the next President-elect have the reins on the money to do what is best fit to get us out of this hole.

Meanwhile, what does the market do - it holds us hostage. Every day we see the DOW slipping by about 400 points. Yesterday evening it closed at 7552. We see prominent banks calling for the rest of the $410 billion to be disbursed as soon as possible. Many are warning of dire forecasts if the stated plan is to wait until the next administration takes office. Yesterday, Citigroup’s stock fell by historic amounts to less than 5 dollars a share. Some people are hinting at a Citigroup based bailout, others are mentioning Citi's merger with another firm. From a macro view of events, large financial institutions know that now might be the best time to wring the rest of the bailout funds - kind of like looting banks as the banks premises are engulfed in flames.

At this point in time, it might be prudent for Sec. Paulson to just sit back - take a deep breath and let the markets settle down. Let the much talked about 'bottoming of the markets' run through its course. It is clear that all of the policies (however loftily planned) introduced by Sec. Paulson have failed miserably - whether it be buying troubled assets or investing in banks directly or shoring up credit card and loan companies - nothing seems to have affected the downward slide. With a lame duck (looks more crippled than lame) administration and a Congress awaiting a change of hands, now might be a good time to relax and tell the market "Just shut the **** up - do what you have to do – we are not moved by your daily swings".

Yes, this is a classic case of the tail wildly wagging the dog. Instead of prudent policies guiding investments and market conditions, we live in an age where fiscal and monetary policies are determined by the direction of the DOW or the spiraling stock values of ‘select’ companies. Yes and remember, it only ‘select’ companies like prominent Wall Street firms that get the preferential treatment. Sec. Paulson: Now, more than ever, is time for a much needed respite, some introspection and enact of policy of 'wait patiently'. People will respect this policy of yours more than the failed policies associated with the TARP bailout. I suspect the moment Sec. Paulson starts to project an image of this nature, the market which has been behaving more like a spoilt brat on painkillers will also settle down. Of course, before the ‘settling down’ can actually happen, the spoilt brat might throw just one more hissy fit taking the DOW to maybe 5000 and swallow a couple of companies with it, but what the hell, we have endured so much so far and used up billions of dollars of taxpayer money and nothing much has happened, let the hissy fit run its course. As soon as the market and (by translation the big financial institutions) understand that they cannot wag the dog any longer, they will also resort to prudent methods of buying and selling.

Irrationally exuberant behavior started this whole thing. Inflated housing prices, unbelievably cheap credit and overleveraged companies all acted in collusion to hype the markets to soaring levels. Rational approaches like the one outlined above will help end it.

Talking about irrational behavior, it is indeed interesting to end with the cover of a book published some years back that predicted a DOW of 36,000. The book said that it will offer the reader “Rock solid investment advice. Long term investors can place it next to the works of Benjamin Graham and Peter Lynch, as well as Warren Buffett’s annual homilies to his Berkshire Hathaway’s investors”.

The $4,284,500,000,000.00 bailout

It is common to hear about the bailout costs and the $700 billion number associated with the exercise. However, there are many elements of the taxpayer sponsored bailout quietly gobbling huge sums of money behind the scenes. Fortunately, I managed to stumble upon a website that is keeping a running tab on the total bailout allocations. CNBC estimates that the total amount allocated so far in this taxpayer financed orgy to be $4,284,500,000,000.00. Yes, that is right - we are putting over 4 trillion dollars into this.

Here is a graphical breakdown.

I see very little money allocated to the tasks involved in the government working with homeowners in helping them change their lending terms or mortgage conditions. Helping hurting homeowners (albeit a difficult and arduous task) will help us identify the quantum of wrongful mortgages, their hidden clauses and their knock on effects on the bundled securities that they back up. Of course, such an effort will involve not just the government, but a concerted attempt by the mortgage industry and banks in sitting down at the table with the aggrieved mortgage holders and working this thing though – but then that is hard work and it benefits only the common folks.

Instead, Sec. Paulson writing in an op-ed piece here tells us that the best way to address housing and mortgages which are at the root of our economic difficulties is "more access to lower-cost mortgage lending to slow the decline in the housing market and reduce the number of foreclosures".

What he is telling us is that as soon as lenders (i.e. institutions like banks and mortgage lenders) are bailed out, the economic situation should stabilize. Again he is brandishing the principles behind the failed, trickle down Reaganomics that have led to naught over the last eight years… His idea seems overtly flawed because the solution completely bypasses the segment that is hurting (homeowners) and rewards the segment that caused the hurt in the first place (banks/mortgage lenders who with obfuscated terms and conditions bilked fledging homeowners)... I see a long hard slog ahead…

Maybe we need some spreading of the wealth - II

Recession or not, Wall Street bonuses for this year tell us the usual story - it is a fixture that remains in spite of the turmoils and the bailouts.

• Goldman Sachs has set aside about $6.85 billion for bonuses, or an average of $210,300 for each employee.
• Morgan Stanley has $6.44 billion for bonuses, or $138,700 per person
• Merrill Lynch has $6.7 billion for bonuses and set aside an average $110,000 for each employee.

What is especially egregious is that these very same banks were given taxpayer money to shore up their finances a couple of weeks back - part of the bailout package put together by Sec. Paulson.

Just as reminder, the mean annual wage for the average U.S. employee is about $40,690. (according to the May 2007 Bureau of Labor Statistics report). Time here has an article today on how the bailout will actually boost Wall Street bonuses.

We could use some distribution of wealth here...

What the repackaged bailout really means...

Yesterday, Mr. Paulson in his infinite wisdom decided that we are going to scrap the original plan to buy distressed, toxic assets from banks and instead decided to invest about 250 billion directly into some select banks and financial institutions. The plan is to take an equity stake in the banks thus guaranteeing the taxpayer that we will see some kind of a return on the investment. In case none of these banks fail, the taxpayer will see a return on the investment. What was conspicuously absent in the plan was any form of regulatory framework, compensation ceilings or change in management teams.

If I were to explain in laymans terms what this kabuki play of a handout from the Treasury's perspective, this is what it might look like:

"Banks, here is an investment of taxpayer money that Secretary Paulson would like to make in your company. You were singled out just because of the fact that I know some of the CEO’s personally, you are a 'leading financial institution' and if I may use euphemistic phrases, ‘you are too big to fail’. You may take this money and do what you like. If you profit from our investment, the taxpayer gets a part of the profits. If you go under, I will just count this as a bad investment gone awry. Either way, you are free to do exactly what you did for the last 10 years leading up to the bubble and you are free to carry on doing the same thing - we really do not care. What this really means to the bottom line is that way you will be able to continue your high risk bets in overleveraged financial instruments that has become your de-facto business model, your stupendous compensation packages that the CEO's and the board have gotten used to and you get to keep your current management board that got us into this mess. Go ahead, let the good times roll!!"

This looks increasingly like a very wealthy investor indulging in high stakes investments in large blue chip companies.

OK, all this sounds very, very interesting, but what about that homeowner who is being foreclosed?

Oh, that individual. Hmm… Well, they need to fend for themselves. Hey, this is the free market.

Flawed on many levels

Below are four news snippets that have hidden issues associated with the $700,000,000,000.00 bailout in the papers today: The first smacks of 'inbred nepotism', the second an instance of 'the fox guarding the henhouse', the third reeks of 'siphoning public cash to the CEOs' whilst the fourth talks about 'a clear conflict of interest'.

• The Treasury Department said that it would soon post help-wanted ads on its Web site for asset managers to run the bailout program and that because of the urgency, the hiring may be “through other than full and open competition.”
• Former Goldman Sachs employee, Neel Kashkari has been appointed the bailout czar and will lead the bailout. By the way, a useful way to pronounce this Indian last name is ‘Cash Carry’ per Michelle. Fitting indeed.
• Under a proposal being discussed with the Treasury Department, the Fed could buy vast amounts of the unsecured short-term debt that companies rely on to finance their day-to-day activities. The move would put more taxpayer dollars at risk. Buying commercial paper could open the Fed to difficult conflicts of interest, because it would be juggling the goals of protecting its investment portfolio with its traditional goals of promoting stable prices and low unemployment.
• Administration officials plan to outsource almost the entire bailout effort, which will largely rely on “reverse auctions” in which the government accepts bids from financial institutions that want to sell their troubled assets. The Treasury is accepting bids only from experienced investment managers, almost all of which are likely to be either sellers or buyers of mortgage-backed securities.

Is it any wonder that the economy is in shambles? Meanwhile, the presidential candidates seem to be busy launching personal attacks at each other. Nero fiddles while... The bailout looks more and more like a big 'up yours' neon sign out of D.C.

Photos of Kwang-Young Chun's mulberry paper on small polystyrene form sculptures at the Robert Miller Gallery (exhibition on from Sept 4 - Oct 11)

Market Reaction

Dow is up by almost 400 (10,738.28 at 3pm today). We need to take time and plan the bailout better. The world has not ended as was predicted by the scholars and pundits at the Fed / Treasury.. Maybe I am missing something or am very very stupid.

From Dealbook:

The Center for Responsive Politics, a Washington nonprofit group that studies money and politics, reports that on average, lawmakers who voted in favor of the bailout bill have received 51 percent more in campaign contributions from sources in the finance, insurance and real estate industries — or FIRE industries, for short — over their congressional careers than those who opposed the emergency legislation..

On Wall Street today: Zeitgeist

Lament

The full draft of the bailout bill here. I still do not think this is the right track. The Congress grants full authority for the first $250,000,000,000.00 of a total approved bailout amount of $700,000,000,000.00 to Mr. Paulson rightaway while giving him the authority to appropriate the remaining $450,000,000,000.00 as soon as he deems fit unless both the Senate and the House decide that further appropriations might not be a good idea. The chances of that happening is next to none... This still seems like a bailout of Wall Street fat cats (sorry, could not resist the useless cliche') - regardless of what Mr. Obama and Mr. McCain tries to say to the contrary...

Joseph E. Stiglitz of the Nation said it better than a lot of us...

There are four fundamental problems with our financial system, and the Paulson proposal addresses only one. The first is that the financial institutions have all these toxic products--which they created--and since no one trusts anyone about their value, no one is willing to lend to anyone else. The Paulson approach solves this by passing the risk to us, the taxpayer--and for no return.

The second problem is that there is a big and increasing hole in bank balance sheets--banks lent money to people beyond their ability to repay--and no financial alchemy will fix that. If, as Paulson claims, banks get paid fairly for their lousy mortgages and the complex products in which they are embedded, the hole in their balance sheet will remain. What is needed is a transparent equity injection, not the non-transparent ruse that the administration is proposing.

The third problem is that our economy has been supercharged by a housing bubble which has now burst. The best experts believe that prices still have a way to fall before the return to normal, and that means there will be more foreclosures. No amount of talking up the market is going to change that. The hidden agenda here may be taking large amounts of real estate off the market--and letting it deteriorate at taxpayers' expense.

The fourth problem is a lack of trust, a credibility gap. Regrettably, the way the entire financial crisis has been handled has only made that gap larger.

Why the bailout just may not work

The more I read and think about the $700,000,000,000.00 bailout, the less it seems to make sense.

• The $700,000,000,000.00 bailout has a low probability of saving Wall Street banks because the size of the problem is much larger than the subject of this bailout : sub-prime mortgages (defaults from Alt-A's, option ARM's and second mortgage's have not even started).
• The bailout will cause the dollar to drop. In fact the slide has already started. The only way we could raise $700,000,000,000.00 will be to issue debt in the form of Treasury bills. The bills will need to demonstrate higher yields to attract the dollars sitting in China and the Emirates. As Washington starts to print more dollars to repay the high yield Treasury payments, the value of the dollar will fall leading to inflation amidst the glut of dollars. At some point foreign investors will stop buying U.S. Treasuries entirely, potentially throwing our country into a debt crisis)
• At home, the falling dollar will fuel inflation resulting in increases in the prices of everything we import (primarily gas and consumer products). In addition, a weak dollar naturally causes interest rates to shoot up, including those adjustable mortgages...

There are two other factors one needs to consider here:

• Total debt: If Congress signs off on the $700-billion rescue plan, the debt ceiling will have to be raised to $11.3 trillion. That is 70% of our GDP.
• Budget deficit: If Treasury spends the entire $700-billion next year, as some economists expect, it would drive next year's budget deficit, now projected to be around $500 billion, to $1 trillion or more.

Complied from here, here and here.

No way, No how, No bailout…

In other interesting news, the Protect Palin Plan is working just fine while the Free Palin! movement got a taste of what might be in store... It really does not taste too good...

How the $700,000,000,000.00 bailout will ensure that Goldman Sachs employees keep getting their bonuses come December this year...

Conjecture

• Wonder why Warren Buffet suddenly started to decide on investing $10.0 billion in Goldman Sachs today?
• Did Secretary Hank Paulson decide on unrolling the $700 billion bailout the moment his alma mater Goldman Sachs started to get into trouble? The bailout was announced the day Goldman shares sank almost $30 last Wednesday...
• Why did Goldman Sachs suddenly change its position from a investment bank to a 'commercial bank' last Sunday? Looks like it was in real trouble...

Of course, now Bloomberg news is now reporting this:
Goldman Sachs Group Inc. and Morgan Stanley may be among the biggest beneficiaries of the $700 billion U.S. plan to buy assets from financial companies while many banks see limited aid, according to Bank of America Corp.

Maybe just an inconsequential conspiracy theory, but the bailout really starts to stink - in investment banks they have a word for this situation: 'conflict of interest'...

Boondoggle dissection

A draft version of the bill authorizing Secretary Paulson to use $700,000,000,000.00 as he pretty much pleases is posted here. A quick, non-economist, layman's readthrough does not seem augur well for the following reasons:

1. How did we arrive at the $700,000,000,000.00 number? Very Unclear.
2. The planned Oversight Board is very very weak and staffed by insiders.
3. To call the section on Executive Compensation 'opaque' would amount to flattery.
4. No clarity on the price that the people would pay to acquire toxic assets.

1. It is customary in planning and budgetary practices to breakdown large dollar numbers into smaller chunks which help demystify and clarify the individual components and constituents which ultimately add upto create the total amount. This is typically done either in the main text or appendices: The only reference to $700 billion I could find was the following sentence:

The authority of the Secretary to purchase troubled assets under this Act shall be limited to $700,000,000,000 outstanding at any one time, by aggregating the purchase prices of all troubled assets held and any expenditures.

No breakup, nothing... Hopefully, a breakup of how the 700 number is clarified in the final version of the bill.

2. Everyone has been clamoring for a strong oversight board - if not to make sure that Secretary Paulson does not go on a trip to Las Vegas with the booty, at least to make sure that the billions are not used in partisan, Street friendly ways. Well, from the looks of it, the oversight board is weak and not independent at all. Judging from the fact that most of the players who indirectly wrote / co-wrote this are on the oversight board - cat guarding the henhouse...

The Emergency Oversight Board shall be comprised of the following:
- Chairman of the Board of Governors of the Federal Reserve System
- The Chairperson of the Board of Directors of the Federal Deposit Insurance Corporation
- Chairperson of the Securities and Exchange Commission
- Two members who are not government employees, having appropriate financial expertise

The first three individuals mentioned were government employees tasked with making sure that we did not fall into this mess in the first place and they failed. Now we put them on an oversight board to bail out companies responsible for bringing the economy to its knees...

Hopefully, we see a little more independent oversight teeth added to the final version.

3. The other item deemed important was the need to put checks and balances on executive compensation such that all entities seeking to sell assets through the bailout under the Act meet some kind of punitive standards. One of the ideas advanced was to limit compensation for the CEOs of such entities to be lower than the United States President... Well, the bill is as vague as it can get in this subject...

The Secretary shall require that all entities seeking to sell assets through a program established under this Act meet appropriate standards for executive compensation and shareholder disclosure in order to be eligible, which standards shall include
- limits on compensation to exclude incentives for executives to take risks that the Secretary deems to be inappropriate or excessive;
- a claw-back provision for incentive compensation paid to a senior executive based on earnings, gains, or other criteria that are later proven to be inaccurate and
- such limitations on the entity paying severance compensation to its senior executives as are determined to be appropriate in the public interest in light of the assistance being given to the entity.

Pretty much means - the CEOs keep on making what they currently get - the bill will couch it in a language so broad and unclear, you CEOs need not have to worry one bit...

Hopefully, we will see clearer punitive measures added to the final version.

4. As far as the prices that they plan on purchasing the assets at – the bill is very, very vague – Are they planning on purchasing the assets at market price (par) or substantially above market price (both of which has its own advantages and disadvantages in a macro economic aspect)…

This definitely needs a lot of work and is not something that the lawmakers should rush and sign…

Lipstick on the bailout, still a bailout

Mr Hank Paulson is performing the job he knows best – peddle snake oil to the unsuspecting masses… Come to think of it, this was what he learned and honed as an investment banker at Goldman Sachs - sell your way into a deal using fancy shmancy words...

Memorable quotes from Secretary Paulson trying to sell the $700,000,000,000.00 bail out plan to lawmakers today.

"this is not an expenditure, it’s an investment”

“if you impose any kind of punitive conditions, this program won’t work and we’ll all lose"

"this is all about the American taxpayer, that's all we care about”

The last statement is hilarious. Maybe the guy thinks the rest of us are complete idiots... The Lede is liveblogging the session...

A discussion draft of the bill here. (via Dealbook)

Wish list

Heard that they are having hearings on bailouts and free handouts over in DC. While the lawmakers are at it, can they throw in a couple of trillions for the following wish list?

• Nationalized healthcare for all residents with options for foreigners to avail of healthcare benefits for a nominal fee.
• Free food and clothing for all US residents with drop box provided at street corners to discard leftover clothing and food.
• Free checking accounts with a guaranteed minimum of $100 at all times for all residents.
• Nationalize the airways with maximum ticket prices not to exceed $100 (with plans for extension of the $100 ceiling to international routes).
• Guaranteed free education, housing, healthcare and any other benefits one can think of for residents under 15 and guaranteed social security benefits for all residents above the age of 15.
• Citizenship for just about anybody who steps foot into the country (even if the individual is in transit). Of course, immediate retroactive citizenships for just about any illegal alien at this point in time is indisputable.
• Authorize and bear costs of building custom designed homes to house just about anybody who feels like they are not satisfied with the one they have already.
• All mortgage down payments capped at 1% of the total value of the house with the remaining payments paid monthly by the home-owners future grandchildren.
• Mandatory one month ‘all expenses paid for’ vacation at a location of the individual’s choice for all US residents above the age of 30.

Some more ideas are in the works, but as soon as they get started with the list above, we could add more…

Olivier Blanckart, 'MoMA Don't Preach', 2008, adhesive tapes, cardboard, kraft paper, trampoline, ink jet print, Life sized. From a recent visit to P.P.O.W Gallery (exhibition runs from Sept 4 to Oct 4, 08')

On that note

Adapted from here: "If you had a stack of $1000 bills in your hand only four inches high you would be a millionaire. 700 billion dollars would be a stack of $1000-dollar bills 44 miles high"

On the $700,000,000,000.00 ‘Honk for Hank’ campaign

I am sure the following is old news:

Hank Paulson, the US treasury secretary on Saturday raised the price tag on its emergency plan to revive the U.S. financial system, asking Congress for authority to spend up to $700 billion to relieve crippled financial institutions of their mortgage-based assets, a sum that would exceed the cost of the Iraq war so far.

What is NOT making the mainstream news rounds is the following plans hatched by Wall Street to benefit from the largesse:

- Blackstone Group, may be interested in pursuing an asset-management assignment from the government.
- Pimco, which manages about $830 billion in assets, would like to be an asset manager for the government.
- BlackRock, a big New York asset management firm, was also involved in negotiations with the government
- Bank of New York Mellon and JPMorgan Chase were also campaigning for a spot.
- While an earlier plan said that only US headquartered firms could sell assets to the government under the program, a later version said sellers could include any financial institution (foreign banks).

So, lets get this right - first these firms use high risk financial instruments to bleed people out of their homes, make their money while the bubble is still strong, then, as the bubble pops, they plan to get the government to take over these risky holdings for pennies on the dollar and as the government guarantees these toxic instruments other Wall Street firms come up and catwalk their way to be money and fund managers for these instruments charging the government additional monies. Reminds me of carrion birds feeding on leftover carcasses after the lions have fed themselves.

At this point, when just about everyone is clear that Wall Street firms and its leaders were overpaid, under scrutinized and overvalued, why would anyone with a sane mind give them even more - especially in the management of these assets that the taxpayer is planning on buying and on top of that - have them charge the taxpayer to manage the assets?

Is this not the time for the government to create a public agency or a corporation that is empowered to drive a hard bargain and acquire these toxic assets for the lowest possible price to protect taxpayers against potential future losses, manage these assets until the taxpayer sees a return on the $700,000,000,000.00 investment and then ultimately sell these assets when they become profitable on the open market thus giving back some of the valuable taxpayer money back where it belongs : TO THE TAXPAYER!? Why should the people who are financing this largesse be NOT allowed to have a share of this ownership?

Any plan is suspect when the leaders of the party who propose the plan itself may not have anything positive to say about it. I am yet to read a single piece of economic analysis that talks about the benefits of this $700,000,000,000.00 socialist rescue effort other than the fact that it will bail out big Wall Street firms (oh, and add to that foreign banks too - after intense lobbying this weekend, they managed to get themselves on the gravy train).

Even William Kristol, a regular commentator on the Fox News Channel and staunch conservative who is normally a champion right wing intellectual mouthpiece cannot muster a single word in support of this plan: He even endorses a novel idea in the realm of executive compensation structures:

It would enable the Treasury, without Congressionally approved guidelines as to pricing or procedure, to purchase hundreds of billions of dollars of financial assets, and hire private firms to manage and sell them, presumably at their discretion There are no provisions for — or even promises of — disclosure, accountability or transparency. Any institution selling securities under this legislation to the Treasury Department shall not be allowed to compensate any officer or employee with a higher salary next year than that paid the president of the United States. - This would punish overpaid Wall Streeters and, more important, limit participation in the bailout to institutions really in trouble.

Michelle Malkin, another right wing conservative blogger had the following to say:

And this is a Republican White House presiding over the Mother of All Bailouts. Every step along the way since stimuluspalooza began last summer, we’ve heard that every bailout step was just a one-off. Each step was supposed to calm the markets. Each new government intervention and allocation of taxpayer dollars was supposed to achieve “stability.” Each new package of goodies rewarding irresponsible behavior and bad financial decisions was supposed to prevent new ones. None did. And now, here we are. This is your Bush legacy — not Pelosi’s, not Reid’s, not Obama’s: A ginormous bailout of every last, failing, panicked financial institution’s illiquid assets that may reach into the trillions — TRILLIONS – when all is said and done.

Paul Krugman, a Princeton economics professor calls it 'cash for trash'. He is right.

If the government is going to provide capital to financial firms, it should get what people who provide capital are entitled to — a share in ownership, so that all the gains if the rescue plan works don’t go to the people who made the mess in the first place. That’s what happened in the savings and loan crisis: the feds took over ownership of the bad banks, not just their bad assets.

It is especially frightening when Mr. Paulson is demanding what amounts to absolute unfettered authority over the overseeing, administration and the means to manage this $700,000,000,000.00 payout: He demands immunity from review “by any court of law or any administrative agency”. When public officers ask for enormous powers of this kind and ask for blanket protection from any screw-up – one should instinctively be cautious.

This was the same man who said the following with respect to the sub-prime mortgage crisis a couple of years back: “I don’t see (subprime mortgage market troubles) imposing a serious problem. I think it’s going to be largely contained”

Nobody is clamoring for killing the bailout – it will fry the financial world at this late juncture, all one asks for is accountability to the people, ownership by the people and regulation for the people.

Aaron Johnson, 'Star Crossed', Acrylic polymer and pigment on polyester flag, 93 x 128 inches. Photo from a recent visit to Aaron Johnson's show at the Stefan Stux Gallery (runs from 4 Sept - 18 Oct, 08). Reverse-painted acrylic polymer peel paintings on polyester American flags.

Using more of our money… Bail Baby, Bail!

On April Fools day of this year, I wrote about a money spigot opened up by the Fed that allowed investment banks on Wall Street to drive by and borrow any amount that they wished from the Feds sans rigorous oversight or regulation. The rate of drawing from the spigot was about $33 billion a day then – I do not have the numbers for now. The ostensible reason for this largesse was to preserve 'financial liquidity' and make sure that the major players on the Street have enough money to perform their complex dalliances and ensuring year end bonuses.

This weekend, we witnessed multiple events that almost looks like an automatic structural re-adjustment of the financial industry. The spectacularly predictable failure of Lehman. Merrill rushing into the waiting hands of its suitor, Bank of America and AIG (the biggest insurance company in the world) gasping for air as it asks the Fed for $40 billion in restructuring costs.

Well, the common sense would dictate the following: Hey, these companies played poker with the money entrusted to them and during the process of carving up mortgages into complex financial instruments that no-one understood, they were setting themselves for failure. Let the structural adjustment happen, let the financially unsound institutions fail, as soon as the bad apples amongst the lot is weeded out and we should see the bottom of this thing - Or so, one might think.

Well, the Fed thinks otherwise. In a sign of continuing largesse and misfired blanks from Paulson’s bazooka, the Fed has opened up newer spigots of money to Wall Street banks.

From here:

In an obscure but highly important announcement late Sunday evening, the Fed said it would let Wall Street firms post as collateral much riskier assets — including equities, junk bonds, subprime mortgage-backed securities and even whole mortgages — in exchange for emergency loans through the Primary Dealer Credit Facility.

But with the new announcement, the Fed will accept stocks and some debt that has junk-bond status and some securities that may have few real buyers.

Well, now they are ready to accept junk bonds from distressed companies on Wall Street. Wonder what is next.

What amazes me is that we have just peeled some preliminary skin off the mortgage mess. We are only witnessing the fallout from a type of mortgage called 'sub-prime'. Mortgages of lesser toxicity sit waiting for their turn to wreck havoc – an example of such a mortgage is called 'Alt-A'.

From here:
Homeowners lured by low introductory rates to Alt-A mortgages, which typically require little or no proof of a borrower's income, may fuel the next wave of foreclosures and further delay a recovery from the worst housing decline since the 1930s. Almost 16 percent of securitized Alt-A loans issued since January 2006 are at least 60 days late, data compiled by Bloomberg show. Defaults will accelerate next year and continue through 2011 as these loans hit their three- and five-year reset periods

About 3 million U.S. borrowers have Alt-A mortgages totaling $1 trillion, compared with $855 billion of subprime loans outstanding, according to Inside Mortgage Finance, a trade publication in Bethesda, Maryland. Of the Alt-A borrowers, 70 percent may have exaggerated their income, said David Olson, president of mortgage research firm Wholesale Access in Columbia, Maryland.

Wonder what the Fed will do when the bottom on the Alt-A mortgage market fall out. I guess we all have a simple enough answer: Use more of our money… Bail Baby, Bail!