Wall Street/White House - main street, boarded house...

A letter from Wall Street to the White House...

by Thom Donlan, published in Barron's:
(excerpt)

To: Washington, D.C.
From: Wall Street
Re: Credit Crisis

Dear D.C.,

WOW, WE'VE MADE QUITE A MESS OF THINGS here on Wall Street: Fannie and Freddie in conservatorship, investment banks in the tank, AIG nationalized. Thanks for sending us your new trillion-dollar bailout.

We on Wall Street feel somewhat compelled to take at least some responsibility. We used excessive leverage, failed to maintain adequate capital, engaged in reckless speculation, created new complex derivatives. We focused on short-term profits at the expense of sustainability. We not only undermined our own firms, we destabilized the financial sector and roiled the global economy, to boot. And we got huge bonuses.

But here's a news flash for you, D.C.: We could not have done it without you. We may be drunks, but you were our enablers: Your legislative, executive, and administrative decisions made possible all that we did. Our recklessness would not have reached its soaring heights but for your governmental incompetence.

***

Feinstein on the floor;

U.S. Senator Dianne Feinstein
Floor Statement on the Economic
Rescue Proposal
September 26, 2008

"Mr. President, to date I have received from Californians more than 50,000 calls and letters, the great bulk of them in opposition to any form of meeting this crisis with financial help from the Federal Government. I wanted to come to the floor to very simply state how I see this and some of the principles that I hope will be forthcoming in this draft. Before I do so, I wish to pay particular commendation to Senator Dodd, Senator Schumer, Senator Bennett, and others who have been working so hard on this issue. I have tried to keep in touch -- I am not a negotiator; I am not on the committee -- but California is the biggest State, the largest economic engine, and people are really concerned.

We face the most significant economic crisis in 75 years right now. Swift and comprehensive action is crucial to the overall health of our economy. None of us wants to be in this position, and there are no good options here. Nobody likes the idea of spending massive sums of Government money to rescue major corporations from their bad financial decisions. But no one also should be fooled into thinking this problem only belongs to the banks and that it is a good idea to let them fail. The pain felt by Wall Street one day is felt there, and then 2,3,4 weeks down the pike, it is felt on Main Street.

The turbulence in our financial sector has already resulted in thousands of layoffs in the banking and finance sectors, and that number will skyrocket if there is a full collapse. The shock waves of failure will extend far beyond the banking and finance sectors. A shrinking pool of credit would affect the home loans, credit card limits, auto loans, and insurance policies of average Americans. I am receiving calls from people who tell me they want to buy a house, but they can't get the credit or the mortgage to do so. Why? Because that market of credit is drying up more rapidly one day after the other. It would have a major impact on State and local governments which would lose tens of millions of dollars, if not hundreds of millions of dollars.

Hurricane Ike shut down refineries on the gulf coast 2 weeks ago, and now, today, people are waiting hours in lines for gasoline in the South. Similarly, the collapse of the financial sector would have severe consequences for Americans all across the economic spectrum: for the person who owns the grocery store, the laundry, the bank, the insurance company. Then, if the worst happens, layoffs. And even more than that, somebody shows up for work and finds their business has closed because the owner of that business can't get credit to buy the goods he hopes to sell that week or that month. Wages and employment rates have already fallen even as the cost of basic necessities has skyrocketed. Our Nation is facing the highest unemployment rate in 5 years, at 6.1 percent. Over 605,000 jobs have been lost nationwide this year. My own State of California, a state of 38 million people, has the third highest unemployment rate in the Nation at 7.7 percent. That is 1.4 million people out of work today. One and a half million people -- that is bigger than some States. We have 1.5 million people out of work, and one-half million have had their unemployment insurance expire and have nothing today.

Congress is faced with a situation where we have to act and we have to do two things. We have to provide some reform in the system of regulation and oversight that is supposed to protect our economy. We also have to find a permanent and effective solution to keep liquidity and credit functioning so that markets can recover and make profit. The situation, I believe, is grave, and timely, prudent action is needed.

Just last night, the sixth largest bank in America -- Washington Mutual-- was seized by government regulators and most of its assets will be sold to JPMorgan Chase. This follows on the heels of bankruptcies and takeovers of Bear Stearns, Lehman Brothers, AIG, Fannie Mae, and Freddie Mac. If nothing is done, the crisis will continue to spread and one by one the dominos will fall.

Now, this isn't just about Wall Street. Because we are this credit society, the financial troubles facing major economic institutions will ricochet throughout this Nation and affect everyone. So I believe the need for action is clear. But that doesn't mean Congress should simply be a rubberstamp for an unprecedented and unbridled program.

My constituents by the thousands have made their views clear. I believe they are responding to the original 3-page proposal by the Secretary of the Treasury. It is clear by now that that 3-page proposal is a nonstarter. It is dead on arrival and that is good. Secretary Paulson's proposal asked Congress to write a $700 billion check to an economic czar who would have been empowered to spend it without any administrative oversight, legal requirements, or legislative review. Decisions made by the Treasury Secretary would be nonreviewable by any court or agency, and the fate of our entire economy would be committed to the sole discretion of one man alone -- the man we know today, and the man whom we don't know after January.

Additionally, the lack of governance or oversight in this plan was matched by the lack of a requirement for regular reports to Congress. This proposal stipulated that the economic czar, newly created, would report to Congress after the first three months with reports once every 6 months after that. This was untenable. Six months is an eternity when you are spending billions a week. The Treasury Secretary asked Congress to approve this massive program without delay or interference. It is hard to think of any other time in our history when Congress has been asked for so much money and so much power to be concentrated in the hands of one person. It is a nonstarter.

Yesterday, shortly before we met for the Democratic Policy Committee lunch, we were told there had been a bipartisan agreement on principles of a possible solution, and many of us rejoiced. We know that our Members, both Republican and Democrat, have been working hard to try to produce something that was positive. Then, all of a sudden, it changed. One Presidential candidate parachuted into town which proved to be enormously destructive to the process. Now, negotiations are back on the table, and as I say, we have just received a draft bill of certain principles.

I would like to outline quickly those principles that I think are important. First is a phase-in. No one wants to put $700 billion immediately at the discretion of one person or even a group of a very few people, no matter how bright, how skilled, how informed they might be on banking or finance principles. The funding should come in phases and Congress should have the opportunity to make its voice heard if the program isn't working or needs to be adjusted.

The second point: Oversight, accountability, and governance. The Treasury Secretary should not and must not have unbridled authority to determine winners and losers, essentially choosing which struggling financial institution will survive and which will not. The original plan placed all authority in the hands of this one man, and this is why I say it was DOA -- dead on arrival -- at the Congress. We must assure that controls are in place to watch taxpayer dollars and make sure they are well-spent fixing the problem, and that oversight by a governance committee and the Banking Committees are strong, and that they give the best opportunity for the American people to recover their investment and, yes, even eventually make a profit from that investment. That can be done and it has been done in the past.

I believe that frequent reporting to Congress is critical. Transparency, sunlight on this, is critical. So Congress should receive regular, timely briefings, perhaps weekly for the first quarter, on a program of this magnitude. A proposal should mandate frequent reporting and the public should be ensured of transparency to the maximum extent possible.

I also believe that within the first quarter -- and this, to me, is key -- a comprehensive legislative proposal for reform must be put forward. We must reform those speculative practices that impact price function of markets. We must deal with the unregulated practices that have furthered this crisis. Look. I represent a State that was cost $40 billion in the Enron episode during 1999 and 2000 by speculation, by manipulation, and by fraud. There still is inadequate regulation of energy commodities sold on the futures market. And that is just one point in all of this. We must prevent these things from happening. The only way to do it is to improve the transparency of all markets. No hidden deals. Swaps, in my view, should be ended. The London loophole should be ended.

We have to outline rules for increasing regulation of the mortgage-backed securities market, along with comprehensive oversight of the mortgage industry and lending practices for both prime and subprime lending.

Senator Martinez of Florida and I had a part in the earlier housing bill, which included our legislation entitled the SAFE Mortgage Licensing Act. We found that the market was rife with fraud. We found there was one company that hired hairdressers and others who sold mortgages in their spare time. We found there were unscrupulous mortgage brokers out there unlicensed, preying upon people, walking off with tens of thousands of dollars of cash. This has to end. It has to be controlled. It has to be regulated.

So I believe the crisis of 2008 stems from the failure of Federal regulators to rein in this Wild West mentality of those Wall Street executives who led those firms and who thought that nothing was out of bounds. Every quick scheme was worth the time, and worth a try. Congress cannot ignore this as the root cause of the crisis. It was inherent in the subprime marketplace, and it has now spread to the prime mortgage marketplace.

It is also critical that accurate assessments of the value of these illiquid mortgage-related assets be performed to limit the taxpayers' exposure to risk and structure purchases to ensure the greatest possible return on investment.

Taxpayer money must be shielded at all costs from risk to the greatest extent possible.

Reciprocity is not a bad concept if you can carry it out. The Government must not simply act as a repository for risky investments that have gone bad. An economic rescue effort that serves taxpayers well must allow them to benefit from the potential profits of rescued entities. So a model -- and it may well be in these new principles -- must be developed to ensure the taxpayers are not only the first paid back but have an opportunity to share in future profits through warrants and/or stocks.

As to executive compensation limits, simply put, Californians are frosted by the absence of controls on executive compensation. Virtually all of the 50,000 phone calls and letters mentioned this one way or another. There must be limits. I am told that the reason the Treasury Secretary does not want limits on executive compensation is because he believes that an executive then will not bring his company in to partake in any program that is set up. Here is my response to that: We can put that executive on his boat, take that boat out in the ocean, and set it on fire. If that is how he feels, that is what should happen, or his company doesn't come in. But to say that the Federal Government is going to be responsible for tens of millions of dollars of executive salaries, golden parachutes, whether they are a matter of contract right or not, is not acceptable to the average person whose taxpayer dollars are used in this bailout. That is just fact.

The one proposal that was made by one of the Presidential candidates that I agree with is that there should be a limit of $400,000 on executive compensation. If they don't like it, too bad, don't participate in the program. As I have talked with people on Wall Street and otherwise, they don't believe it is true that an executive, if his pay is tailored down, will not bring a company in that needs help. I hope that is true. I believe there should be precise limits set on executive pay.

Finally, as to tangible benefits for Main Street in the form of mortgage relief, there have been more than 500,000 foreclosures in my home State of California so far this year. In the second quarter of this year, foreclosures were up 300 percent over the second quarter of 2007. More than 800,000 are predicted before this year is over.

I have a city in California where one out of every 25 homes is in foreclosure. This is new housing in subdivisions. As you look at it, you will see garage doors kicked in. You will see houses vandalized. You will see the grass and grounds dry. You will see the street sprinkled with "For Sale" signs, and nobody buys because the market has become so depressed.

This crisis has roots in the subprime housing boom that went bust, and it would be unconscionable for us to simply bailout Wall Street while leaving these homeowners to fend for themselves.

Everything I have been told, and I have talked to people in this business, here is what they tell me: It is more cost-effective to renegotiate a subprime loan and keep a family in a house than it is to foreclose and run the risks of what happens to that home on a depressed market as credit is drying up, as vandals loot it, as landscaping dries up, as more homes in the area become foreclosed upon; the way to go is to renegotiate these mortgages with the exiting homeowner wherever possible. I feel very strongly that should be the case.

I don't know what I or any of us will do if we authorize this kind of expenditure and we find down the pike in my State that the rest of the year, 800,000 to 1 million Americans are being thrown out of their homes despite this form of rescue effort. Think of what it means, Mr. President, in your State. You vote for this, any other Senator votes for it, and these foreclosures continue to take place and individual families continue to be thrown out of their homes. It is not a tenable situation.

I hope, if anybody is listening at all, that in the negotiating team, they will make a real effort to mandate in some way that subprime foreclosures be renegotiated, that families, wherever possible, who have an ability to pay, have that ability to pay met with a renegotiated loan. I have done this now in cases with families who were taken advantage of. We called the CEO of the bank, and the bank has seen that the loan was renegotiated, in one case in Los Angeles down to 2 percent. That is better than foreclosing and running the uncertainty of the sale of the asset in a very depressed housing market.

These are my thoughts. Again, it is easy to come to the floor and give your thoughts. It is much more difficult to sit at that negotiating table.

I once again thank those Senators on both sides of the aisle who really understand the nature of this crisis -- that it isn't only Wall Street, that it does involve Main Street, and if there is a serious crash, it will hurt tens of millions of Americans, many of them in irreparable ways. So we must do what we must do, and we must do it prudently and carefully.

I yield the floor. I suggest the absence of quorum."

Sincerely yours,

Dianne Feinstein
United States Senator

***

I'm sorry but, my predictions have been correct...

I am sad to say.

This administration, and it's next wannabe team it seems, cares not about what is best for this country. But, we know this, don't we? I certainly hope so come election time or we are royally screwed. They have stalled and paused much too long and created more problems for the public taxpayer. The lack of attention and action previous to this date has now place the need for their decision to bailout out Freddie and Fannie. This has now placed a $5 Trillion negative on the country's balance sheet.

I am all for finding solutions to help the situation and the two firms out, but I am not to sure that this is the correct solution. At this time, it probably is, but what else could have been done that wasn't? Now, it goes to the taxpayers, once again, to fund this problem.

And the rebpugnicants tout "no new taxes!" My question to them is, show us how anyone in their right business mind can balance this out with no new money infusion to the system? It CANNOT be done. Especially with the Bush administration and their fiscally irresponsible clan. And you can kiss this country goodbye if McCant wins the election as he can't even balance his checkbook!! He said so to the public people stating that he is not the best person to be discussing financial issues. Shit?!

The first government bank bailout was the Bear Sterns debacle. People say that this wasn't a government bailout, however, the terms of the agreement state that the government will back any debt incurred to JP Morgan/Chase on this transaction. So, JP Morgan simply takes over the failed Bear Sterns, to which its stock holders (pension funds, retirement 401's, etc.) take the hit, while JP is guaranteed all of its money spent on the transaction. Who wouldn't do an investment like that? And, as I stated previously in this blog, the reasoning behind this rescue was the fact that Bear Sterns was one of Washington's favorite institutions for the Congresspersons, Senators, and others to funnel money through. If the financial institution would have gone bankrupt their entire documentation would have been made public in the courts. Washington couldn't have that happen...

Then IndyMac and Countrywide both go down. Both of these banks were started and run by the same group. What was done with them? Were their SEC licenses taken away? NO! Were their golden parachutes taken? NO! They were slapped a bit, and again, the stockholders (pension funds, retirement 401's) were depleted. It's no wonder that the repugnicants want to privatize social security as they are going to need all of those funds to shore up this whole financial downfall.

Now, Fannie and Freddie have gone down. The government has stated previously that they might step in to help shore up the companies in order to salvage the global mayhem that their bankruptcy's would create. Why did tey wait to do anything? Simply stating that they may step in didn't do anything except create failed institutions more time to scramble and fall farther.

My question is where does all of this bailout money come from?

The government did need to step in, although they should have done something much earlier, in order to create the facade to the global investors of the securities that the government will back their investments. At least to give the global investors the confidence that somehow someone will...

Don't I constantly hear from the repugnicants that they tout less government?

What is taking shape before our very eyes with this is that we all, approx. 70% of all home loans, will now live in government housing. Also, during these past 8 years, I give you a bit of homework to research "Eminent Domain". With the government owning or rather...backing...these institutions they now control 70% of all housing in the US. Let's see, government owned or nationalized housing is more like...communism.?!

With their record of total mismanagement it is only a matter of time when the global investors of these bonds and securities decide to cash in their debts...

Again, Eminent Domain?...

This has gotten to become very sad indeed.

Commnism and consumerism become one...

I chuckled as I saw an article from Reuters, in The New York Times this morning. It was based out of Hong Kong. I thought this was so fitting. In the article, by Kevin Plumberg, the U.S. government is considering taking over Fannie Mae and Freddie Mac. That is if their funding problems worsen. As the shares of these two agencies continue to plunge, who doesn't feel, at this time, that their shares won't worsen? Fannie and Freddie are government-sponsored entities generally viewed as having the implicit backing of Washington, and considered the last bastions of support for a U.S. housing market in its worst downturn since the Great Depression.

The firms are having extreme difficulty raising capital and investors on Wall Street are leaving in droves. The government is considering a plan that would place the companies into conservatorship. This would mean their shares would become worthless and the losses on the near 50% of ALL homes in the United States to which they guarantee would be paid by tax payers.

This was where I thought the Hong Kong connection was a bit funny. Through this current administration we have seen our rights and constitution be stripped away and manipulated to where this country is quietly becoming a government run system with less and less freedoms to its people. This, plainly stated, is communism. Government control for nearly everything. Yet, the Republicants continue to tout "less government"...Like China or North Korea. As our elections are becoming more and more jaded and meaningless we get closer to this every day. When elections reach a point to which our partisan politics keeps voters from casting viable votes through fraud, payouts, jurisdiction manipulations, hanging chads and such, our government gets closer and closer to being selected by its judicial branch to which was selected through the power mongers themselves.

What I found equally funny was how government officials told NYT that no action by the administration is imminent, and that Fannie and Freddie were not considered in crisis. With their stock plummeting over 80% in the past few weeks and the dollar balancing on the edge of nowhere, I wonder what the term crisis means anymore.

Of course the spokesman for Freddie Mac declined to comment and that Fannie Mae and U.S. officials could not be reached for comment.

The fate of Fannie and Freddie has ramifications far beyond the United States. This government rescue would mark the second time that Washington has stepped in to support the financial system since mounting U.S. subprime mortgage defaults swelled into a global credit crisis a year ago. The first, which I spoke about previously, and in more detail at the blog "A Day in the Life", found through this link, in response #1 when I discussed how in March, the Federal Reserve backed a plan for JPMorgan Chase & Co (JPM.N) to buy investment bank Bear Stearns Cos for a cut-rate price. Although, this cut rate pricing is also to be backed by taxpayers. Giving the financial institution no risk on their investment.

How do we little guys get in on some of that action!

The Bush administration has considered calling for legislation to give an explicit government guarantee on the $5 trillion of debt owned or guaranteed by the companies hereby doubling the size of the national debt. Where does Bush seem to think, along with McCain as he continues to tout no new taxes (sounds like Bush #1), where are we going to get the money? I mean between the invasions, I mean wars, and now this...

There has been no movement forward for accountability to the mortgage firms or the financial institutions, but the accountability is certainly being held to the homeowners.

I do believe that homeowners need to be held accountable for some of this. Not all of this! Try calling a bank and discussing your issues to solve a mortgage problem today. They are not responding to solutions at this time. We continually hear in the news, though, that the banks are receiving huge influxes of money and having huge write downs on their debt.

Since were really going to travel down this road, let's have the government simply take over responsibility of the mortgages in the United States. This would then relieve all responsibility to all mortgage holders. Since we are all soon going to be living in government housing let's really go the distance. And since the laws in the past few years on Eminent Domain have made some headway, I say let's forget it all and releive eachothers debt load. This way we will all have more money to spend on other items that help keep the global economy turning instead of just the Wall Street fuck ups. Since after 9-11 Bush told us immediately to "go shopping" it seems his interests lie in consumerism. Since the global economy has tanked, mainly due to the ZERO regulation with mortgage and financial institutions let's complete this "bandaid". We can't seem to come to any point of regulation for the mortgage and financial institutions to really get to the root of this problem so let's simply resolve all debt. This is what could possibly take place anyway if the government steps in to guarantee all of these loans.