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

***

Alexander Hamilton speaks about finance...

From the man who formed the capitalist system of government that we now use today tells us like it is...

"I do know a little something about banking and investment financing. So I would like to weigh in on this matter about the federal government rushing in to save the American people’s way of living as they have come to know it.

What your government and the pundits are telling you about how dire this situation is, is all lies.

It is a ploy by the rich to cover their bad financial judgments at the taxpayers expense. The only way they can pull it off is to scare the average American into thinking that if the government doesn’t bail out the multimillionaires and billionaires that the whole system will collapse. THAT IS NOT TRUE!

The true financial situation of the country is this. The super wealthy financiers have extended themselves too far by betting more money on a pot than they have to cover the bet. A modern analogy may be:

If you kept charging against a credit card because you could continue to make the minimum payments, you could continue to charge until you;
1. reached your credit limit
2. arranged to get the credit card company to increase your credit limit.

But, it the company raised the minimum or checked your financial behavior and subsequently lowered or stopped your credit limit, then you would have to start paying or go bankrupt.

That is what happened to the those rich company owners. They over reached their financial capability to meet the minimum payments on their debt. If this happened to you, the government would not step in and rescue you. So why are they doing it for these super rich people and how are they justifying it to you to get you to go along with the scam?

The why they are bailing out the super rich is simple. The super rich are them or their bosses. How are they justifying bailing them out now that’s the easy part for them. They scare the masses.

How? By telling them:
A the financial system will collapse if these companies are not bailed out; and
B. convince the average person he was also complicit in the cause of this debacle because he tried to purchase a mortgage that he knew that he couldn’t afford.

A. The first lie:
Lets examine what the average person has to risk losing:
1. His bank account.
2. His mutual fund or money market account;
3. His 401K or other retirement investment;
4. His ability to borrow money;
5.His employment because his employer can’t borrow money. That’s it folks. That’s all the risk the average person has in this pot.

At first glance it seems like it is what the scare propaganda is saying is correct the system will collapse if the government doesn’t bail out the super rich. But wait! There is another simpler solution to solving the average person’s loss in those five areas which were caused by the greed and unsound financial risks of the super rich. Later I will explain how they got away with doing it in the first place.

A. The truth:
1. The average person with a $100,000 on deposit has no risk of losing a penny. His money is insured by FDIC. If he has more, then he should have been more careful.
2. Mutual funds or money market accounts. - The federal government can step in and guarantee the protection of a reasonable amount of the average person’s investment in those areas up to $100,000. If he has more, he should have been more careful. He can always sue the Funds for mismanagement.
3. 401K’s and other individual retirement options. - They can be protected up to a certain amount without giving anything to the super rich who risked these people’s money recklessly.
4. Availability of money for borrowing. - The scare tactic that banks won’t lend money is just that. Banks will lend money, that’s their business. If they don’t, remember how these same crooks remind you that this is a capitalist system not a socialist one, then rest assured that a capitalist venture will arise whereby some new business will start lending money to fill the void. There is no need to rescue the fat cat who risked too much because of greed and now his band has to fold, that socialism. The same socialism that he cries when some politician proposes to give you universal health care. He is trying to convince you that socialism by government to help him is okay but not to help you.
5.Employment - Employment is always in danger. If the owner doesn’t manage his business properly, the employees will lose their jobs. Jobs will not be lost because the company can not get a loan. See 4. above.

B. The second lie:
The “experts” are dispatched to convince the average person that people who tried to buy a home that they couldn’t afford was a contributing cause to this debacle. Common sense should tell you that that is not true.

B. The truth:
It is the lending institution that determines whether the person they lend money is capable of repaying that loan. No one can just take out a loan or mortgage. He must qualify according to the rules set up and administered by the lender. If the lender is irresponsible when it comes to making loans, it is not the borrower’s fault. It does not matter how easy the government makes it for the lender to lend you money, if the lender lends money to a person or business that his do diligence should tell him that the borrower can not pay back, it is the LENDER's fault.

This absolves the average person from any responsibility for this debacle. It is the sole responsibility of the rich trying to get richer. If they had succeeded they would be arguing that the government shouldn’t be penalizing them for taking risks and being successful.
So having taken those risk and FAILED, why should the government suddenly turn socialist and pay off their losses.

I promised to tell you how they got away with all their risky investments using the public’s money.

First let me say that one of the chief purposes of government is to protect the people from foreign threat and domestic threat.

Under protection from domestic threat comes the requirement of government to protect the public for company, institution, and corporate abuses. This is done by the government setting common sense regulations in the form of laws that protect the public from actions that would recklessly endanger the public’s money when it is being managed by private businesses for profit.

I see you have talked about some of the characters that participated in the dismantling the common sense regulations that were originally set up to protect the public. Unfortunately America is bet by a bunch of savvy crooks who are adept at convincing the average greedy person that he too can become rich if government DEREGULATES businesses and allow them to deal with the public competition will protect the public. This disingenuous piece of logic is proposed on the bases that the people are sophisticated or knowledgeable enough about finances to protect themselves and their investments from the crooks.

The second thing these republicans have done is to go behind the public’s back and restrict the enforcement of even the minimal laws set forth by the government to regulate these industries. Like I have heard before. If there is no police the crooks will run amok. Some businesses were caught short because they believed that the government was policing the regulations that were in place.

The crooks knew that the government was not policing any regulations because they are the super rich who got the government to prevent the police from enforcing the regulations. Now the government is being used to reward those crooks with taxpayers money.

AH


...and this link to a great relative article:
by Raymond J Learsy for The Huffington Post

Sometimes a little regulation can go a long way...

Is this a chance for "The Man" or the powers that be to get a little farther in the global quest of big government. The most recent proposed overhaul of the financial industry since the Great Depression was announced recently by Secretary Paulson. If outlines the expansion of the Fed's ability to examine any financial institution posing risk to economic stability. Although with all of this it doesn't yet even come close to deal with the unregulated investments that most 'experts' don't fully understand. There has been much call for needed additional oversight in the fast growing deregulated financial business in which the new products these financial institutions have developed are more and more difficult to understand as to their true risk balance in relation to the economy.

I'm all for finding a way in to the system to help out all of the mortgage holders, but it seems all of the solutions coming to the table are not associated with the little guy. In the meantime, the average Joe and Joann, are teetering on the brink of bankruptcy and with the new bankruptcy laws this makes things even harder for the Joneses to find their own solutions as they wait for the government to make decisions.

Oh, right, some people will receive their $600-$1,200 refund check. This isn't really a refund, but an advance from taxes to be paid by the children and grand children's generation. This could get tacked up there with defense spending on the war.

History...will teach us nothing

If one were to look at what happened in Sweden in the early 1990's one might find a mirror up against what America is dealing with right now. Both followed through periods of financial crisis and deregulation. Both then experienced the deregulation to find new financial institutions who rely on bookkeeping and other financial manipulation techniques which help drive the real estate market soaring. Thus allowing the banking institutions and its borrowers to take on huge amounts of debt soon to become unsustainable. One a good note though, despite economic conditions that were far worse then than what the US is currently experiencing, Sweden pulled through and recovered quickly.

How did they do it? They taxed the people heavily. This wouldn't go over well in the US as people tend to not want taxes, however, they wish to have a country with all of the perks and running well. In essence, the Swedish government ended up recapitalizing the system. Similar to the Bear-Sterns takeover. But, not for the average guy...

All in all the clean up in Sweden cost the public the equivalent of 6% of annual economic output. In real dollar terms that would be approx. $850 Billion today for our debacle.

The Bear-Sterns move mimics what Sweden did for their fix. The Fed's come in and rescue big corporation, although there is only a meager handout coming to the public thus far.

It we were to move some war money to this problem we could get things solved. With more breakdowns in the negotiations for a fix, and more neighborhoods going vacant we will find the problem running away from us soon.