Political Views: WSJ Says Plan Makes Money for Taxpayers

Hello Bloggers - A contributor sent the following Andy Kessler Wall Street Journal article to us and I agree that it does a very good job of speculating on the upside to the proposed federal bailout proposal. If you're like me and you care about what happens to our economy then I think it's worth a quick study.

Excerpts: The Paulson Plan Will Make Money For Taxpayers

"My analysis suggests that Treasury Secretary Henry Paulson (a former investment banker, no less, not a trader) may pull off the mother of all trades, which could net a trillion dollars and maybe as much as $2.2 trillion -- yes, with a "t" -- for the United States Treasury."

"There is a saying on Wall Street that goes, "The market can stay irrational longer than you can stay solvent." Long Term Capital Management learned this lesson 10 years ago when it got its portfolio picked off by Wall Street as its short-term financing dried up. I had thought the opposite -- hedge funds picking off Wall Street -- would happen today. But in a weird twist, it's the government that is set up to win the prize."

"Here's how: As short-term financing dried up, Fannie Mae and Freddie Mac's deteriorating financials threatened to trigger some $1.4 trillion in credit default swap payments that no one, including giant insurer AIG, had the capital to make good on. So Treasury Secretary Henry Paulson put Fannie and Freddie into conservatorship. This removed any short-term financing hassle. He also put up $85 billion in loan guarantees to AIG in exchange for 80% of the company."

"Taxpayers will get their money back on AIG. My models suggest that Fannie and Freddie, on the other hand, are a gold mine. For $2 billion in cash up front and some $200 billion in loan guarantees so far, the U.S. government now controls $5.4 trillion in mortgages and mortgage guarantees."

"Fannie and Freddie each own around $800 million in mortgage loans, some of them already at discounted values. They also guarantee the credit-worthiness of another $2.2 trillion and $1.6 trillion in mortgage-backed securities. Held to maturity, they may be worth a lot more than Mr. Paulson paid for them. They're called distressed securities for a reason."

"Firms will haggle, but eventually cave -- they need the cash. I am figuring Mr. Paulson could wind up buying more than $2 trillion in notional value loans and home equity and CDOs for his $700 billion. So the U.S. will be stuck with a portfolio in the trillions of dollars in bad loans and last-to-be-paid derivatives. Where is the trade in that? Well, unlike Mr. Buffett or any hedge fund, the Treasury and the Federal Reserve get to cheat. It's not without risk, but the Feds, with lots of levers, can and will pump capital into the U.S. economy to get it moving again. Future heads of Treasury and the Federal Reserve will be growth advocates -- in effect, "talking their book." While normally this creates a threat of inflation and a run on the dollar, and we may see dollar exchange rates turn south near term, don't expect it to last."

"You can slice the numbers a lot of different ways. My calculations, which assume 50% impairment on subprime loans, suggest it is possible, all in, for this portfolio to generate between $1 trillion and $2.2 trillion -- the greatest trade ever. Every hedge-fund manager will be jealous. Perhaps Mr. Buffett is buying a small piece of the trade via his Goldman Sachs investment. Over 10 years this could change the budget scenario in D.C., which can also strengthen the dollar. The next president gets a heck of a windfall. In the spirit of Secretary of State William Seward's purchase of Alaska for $7 million in 1867, this week may be remembered as Paulson's Folly."

(Read the whole Andy Kessler Wall Street Journal article at : http://online.wsj.com/article/SB122230704116773989.html)

So, if he's right, then things might not turn out that bad after all. I think the conservative Republicans who are currently holding back their support should rethink their positions. Of course, this is only one man's opinion. I hope he's right. I do think he's wrong about one very critical thing in the piece though. He gives Paulson too much credit for selling at the right time to benefit the US taxpayer.

If I'm correct, Paulson is a free-marketer who would probably rather see private enterprise take those profits. Paulson's original plan did not guarantee taxpayers ANY benefit from any increases in value. It only gave the Treasury Secretary the right to buy and sell - he could easily sell at break-even, or a loss, and not worry about profits (http://money.cnn.com/2008/09/20/news/economy/treasury_proposal/index.htm?postversion=2008092011). He would probably want to sell them to Wall Street friends who would then make a profit on the US taxpayer - a typical Republican position. It's subsequent Democratic Party congressional proposals and changes that are trying to guarantee an upside for the American people.

How unusual for the WSJ to try and spin it to make the Republicans look good. It is Paulson's Folly, but not for the irony like the original, because Paulson really doesn't want to help us in the end. Your views?

Friday's Political View #1 - Michael

Political Rant: Paulson Literally Begs for Democratic Support

Hello Bloggers - The New York Times is reporting that Hank Paulson actually got on his knees in front of Speaker of the House Nancy Pelosi (D) to beg her to keep the Democrats engaged and supporting the bailout idea.

He supposedly acknowledged that Republican squabbles were torpedoing the bailout's chances, but still knelt in the White House Roosevelt Room after the photo-op session yesterday and pleaded with Nancy Pelosi not to “blow it up” by withdrawing her party’s support for the package over what Ms. Pelosi derided as a Republican betrayal. “I didn’t know you were Catholic,” Ms. Pelosi said, a wry reference to Mr. Paulson’s kneeling, according to someone who observed the exchange. She went on: “It’s not me blowing this up, it’s the Republicans.” Mr. Paulson sighed. “I know. I know.”

The rapid unraveling of an agreement over the Wall Street bailout seemed to coincide with Republican presidential candidate John McCain's ostentatious return to the Capitol. "It was the very outcome the White House had said it intended to avoid," the Times Sheryl Gay Stolberg wrote, "with partisan presidential politics appearing to trample what had been exceedingly delicate Congressional negotiations."

I must say, but as a Democrat observing Republicans as a hobby - this blog - I can't believe the way they act sometimes. The only thing I can assume is they must be panicking, and will do anything to get bailed out - especially if it costs them money. It's disgraceful the way they've governed and they way the act when desperate. I think Pelosi should ask the president to beg -many of us would pay a LOT of money to see that. Republicans should be ashamed. This is all so embarrassing for our nation. If you're not disgusted, then you should be. I'd like to see John McCain take credit for this bailout after a scene like that gets around.

Friday's Political Rant #2 - Michael

Political News: Chris Dodd Bailout Plan Has Merit

Good Morning Bloggers - It's early, but for now I'm supporting Senator Christopher Dodd's (D) plan over the not-so-great track record of Bush and Paulson. Politico posted a decent review earlier, and there have been many critiques online and elsewhere since that really impressed me today. I wish you guys would give your opinion. It's important to the nation.

Dodd bill more aggressive than Treasury plan
"Banking Committee Chairman Christopher Dodd is taking [a] much more aggressive approach to the Treasury bailout plan, demanding foreclosure assistance, limits on executive compensation and profit sharing for taxpayers if the Treasury begins to make money back on the bad debt it plans to purchase."

"Dodd's legislation, obtained this morning by Politico, has just started to circulate among Senate legislative directors. His plan addresses many of the concerns raised by Democrats and Republicans who are concerned about handing over $700 billion blank check to Treasury Secretary Henry Paulson."

"While the Treasury would receive much of the authority that it wants to buy up distressed assets, Dodd's add-ons have many of the populist ideas that will appeal to skeptical Democrats. His plan is also broader than the one unveiled by House Financial Services Chairman Barney Frank (D), so there will be significant negotiations in the days ahead between the House and Senate if Congress is to pass a bill by the end of the week."

"Among the major provisions Dodd is adding:

• Authority for bankruptcy judges to restructure mortgages for homeowners facing foreclosure. This was considered a poison pill in a housing bill that passed Congress earlier this summer, but it has gained much more currency now that Washington wants to bail out Wall Street.
• A provision that would require the Treasury to take a 65 percent portion of 20 percent any profits it makes from the newly purchased assets and put it into the federal government's HOPE program, an affordable housing program.
• An oversight board that not only includes the chairman of the Federal Reserve and the SEC, but congressionally appointed, non-governmental officials.
• Limits on executive compensation. This is a major stumbling point for Paulson in his negotiations with Congress, but cracking down on Wall Street executive salaries will be a major selling point for lawmakers. Dodd and Frank have put in place what's known as a "claw back" provision aimed at revoking compensation that executives received based on fraudulent claims.
• An independent inspector general to investigate the Treasury asset program, appointed by the president."

At first glance I think it sounds more aggressive and sensible than Paulson's plan, which requires us to trust people and institutions that have already proven to be incompetent. The most important consideration is that Goldman Sachs Group - formerly run by Treasury Secretary Henry Paulson - and Morgan Stanley, stand to be among the biggest beneficiaries of his proposed, unregulated $700 billion bailout.

Common sense suggests caution. I hope you share your thoughts. I already wrote my congressman and both Senators requesting caution and oversight. Because it's important to our nation and future generations, I hope you do the same. Simply Google the legislators name and you'll find them. I must admit, I'm extremely worried.

Tuesday's Political News #1 - Michael

Political Rant: Bush's and the Republican's Outrageous Waste!

Good Morning Bloggers - I know I seem pretty negative sometimes pointing out all the horrible waste and injustice, but since the corporate media is not responsible in that area I believe it's a role that bloggers must play.

So, in the area of waste, I would like to point out the wonderful article posted by Think Progress this morning that lists just a few of the large financial screw-ups of the Bush Administration and the Republicans. Do you really want to vote for McCain and risk another eight years of this nightmare?

A Small Snapshot of the Bush Administration's Legacy of WASTE! according to a few Reputable Sources

- $700 billion minimum - Yesterday, President Bush announced his $700 billion plan to buy out troubled financial institutions. As proposed Bush's plan places no restrictions on the administration other than requiring semiannual reports to Congress. Incredibly, Bush and Paulson propose outsourcing much of the work to their Wall Street buddies. It needs to be adjusted to protect against Bush and his gang of thieves.

-$142 million wasted on reconstruction projects that were either terminated or canceled. [Special Inspector General for Iraq, 07-28-08]

-“Significant” amount of U.S. funds for Iraq funneled to Sunni and Shiite militias. [GAO Comptroller, 03-11-08]

-$180 million payed to construction company Bechtel for projects it never finished. [Federal audit, 07-25-07]

-$5.1 billion in expenses for Iraq reconstruction charged without documentation. [Special Inspector General for Iraq Reconstruction report, 03-19-07]

-$10 billion in spending on Iraq reconstruction was wasteful or poorly tracked. [GAO, 02-15-07]

-Halliburton overcharged the government $100 million for one day’s work in 2004. [Project on Government Oversight, 10-08-04]

KATRINA

-Millions wasted on four no-bid contracts, including paying $20 million for an unusable camp for evacuees. [Homeland Security Department Inspector General, 09-10-08]

-$2.4 billion in contracts doled out by FEMA that guaranteed profits for big companies. [Center for Public Integrity investigation, 06-25-07]

-An estimated $2 billion in fraud and waste — nearly 11 percent of the $19 billion spent by FEMA on Hurricanes Katrina and Rita as of mid-June. [New York Times tally, 06-27-06]

-“Widespread” waste and mismanagement on millions for Katrina recovery, including at least $3 million for 4,000 beds that were never used. [GAO, 03-16-06]

DEFENSE CONTRACTS

-A $50 million Air Force contract awarded to a company with close ties to senior Air Force officers, in a process “fraught with improper influence, irregular procedures, glaring conflicts of interest.” [Project on Government Oversight, 04-18-08]

-$1.7 billion in excessive fees and waste paid by the Pentagon to the Interior Department to manage federal lands. [Defense Department and Interior Department Inspectors General audit, 12-25-06]

-$1 trillion unaccounted for by the Pentagon, including 56 airplanes, 32 tanks, and 36 Javelin missile command launch-units. [GAO, 05-18-03]

(To read their article, visit http://thinkprogress.org/2008/09/21/bush-legacy-taxpayer-funds/)

So, for all you Republicans who like to claim that Democrats tax and spend, and mostly spend, then I challenge you to provide a list of government waste that can out do the one provided here. Can you? I doubt it. It is clear that George Bush and his Republican supporters have wasted billions and possibly trillions on projects that in the end hurt the American people.

I can't believe it when I read that list - and to think it's only a small percentage of the waste. If Democrats had done damage even close to this I suspect the Republicans would have found a way to destroy the party or ignited a civil war. It's inexcusable incompetence. It's beyond corruption - it's stupidity and negligence to the point of immorality.

I suggest that you Republicans who are continuing to support your party take a long hard look at the damages, and rethink your absurd loyalty. Just ask yourself, why should you trust your Republican leadership? I wouldn't trust my Democratic ones if they had done the same. You need to see them for who they are: incompetent, immoral, corrupt, deceitful, thieves.

Monday's Political Rant # 1 - Michael