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Tuesday, July 23, 2024

‘Quick action’ promised on bank bailout

Congress promised quick action on a plan to buy up toxic assets, such as bad mortgages, held by troubled banks and other institutions, hoping to lift the nation out of its worst financial crisis in decades.


Congress promised quick action on a plan to buy up toxic assets, such as bad mortgages, held by troubled banks and other institutions, hoping to lift the nation out of its worst financial crisis in decades.

Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke are crafting a plan, which they plan to soon deliver to lawmakers, after concluding they need broader powers to combat fallout from a housing and credit market meltdown that has sent shock waves through Wall Street and around the globe. Congressional leaders said they expected to get the plan Friday and act on it before Congress recesses for the election.

"We hope to move very quickly. Time is of the essence," House Speaker Nancy Pelosi, D-Calif., said after Paulson and Bernanke briefed congressional leaders Thursday night.

Stocks on Wall Street shot up more than 400 points late Thursday on word that a plan was in the works. Fallout from the housing and credit debacles have badly bruised the economy and pushed unemployment to a five-year high.

"I don’t say any prudent money manager would say we’re out of the woods, but right in this moment it all seems positive and leading toward an upward move for the market going into Friday session," said Scott Fullman, director of derivative investment strategy for New York-based institutional broker WJB Capital Group.

Fullman said the biggest bonus of any potential government plan is that it is being put together to help the banking industry as a whole. Until now, the Treasury and Fed have selectively bailed out institutions that were the most vulnerable.

"This staves off Judgment Day," said Anthony Sabino, professor of law and business at St. John’s University. "This is a detox for banks, and will help cleanse themselves of the bad mortgage securities, loans and everything else that has hurt them."

The roots of the current crisis can be traced to lax lending for home mortgages — especially subprime loans given to borrowers with tarnished credit — during the housing boom. Lenders and borrowers were counting on home prices to keep zooming upward. But when the housing market went bust, home prices plummeted. Foreclosures spiked as people were left owing more on their mortgage than their home was worth. Rising mortgage rates also clobbered some homeowners.

As financial companies racked up multibillion-dollar losses on soured mortgage investments, and credit problems spread globally, firms hoarded cash and clamped down on lending. That crimped consumer and business spending, dragging down the national economy — a vicious cycle policymakers have been trying to break.

"The root cause of the stress in the capital markets is the real estate correction," Paulson said, adding he hopes to have a solution "aimed right at the heart of this problem."

Bernanke said a resolution would help "get our economy moving again."

Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, discounted the idea of setting up a new agency — similar to the Resolution Trust Corp. — established in 1989 to help resolve a savings and loan crisis at a cost to taxpayers of $125 billion.

"It will be the power — it may not be a new entity. It will be the power to buy up illiquid assets," Frank said. "There is this concern that if you had to wait to set up an entity, it could take too long."

The federal government already has pledged more than $600 billion in the past year to bail out, or help bail out, some of the biggest names in American finance. There was no immediate word on how much the new rescue plan might cost.

Paulson, Fed Chairman Ben Bernanke and other officials planned to work through the weekend on a solution.

Christopher Cox, chairman of the Securities and Exchange Commission, told lawmakers the SEC may put in a temporary emergency ban on all short-selling, not just the aggressive forms it already has targeted, according to a person familiar with the matter, speaking on condition of anonymity because no final decision had been made.

The ban might apply to stocks of selected financial companies, to all financial companies or even possibly to all public companies. Short-selling, which has been practiced on Wall Street for decades, is not illegal per se.

For more than a year, investors around the world have watched with growing alarm as the U.S. economy, the world’s largest, has struggled to right itself amid massive home foreclosures, many of them from mortgages issued to homeowners with bad credit.

The turmoil has swallowed some of the most storied names on Wall Street. Three of its five major investment banks — Bear Stearns, Lehman Brothers and Merrill Lynch — have either gone out of business or been driven into the arms of another bank.


Associated Press writers Andrew Taylor and Marcy Gordon in Washington and Joe Bel Bruno in New York contributed to this report.

21 thoughts on “‘Quick action’ promised on bank bailout”

  1. That’s pretty far-fetched. Far-fetched enough that I’ll make a wager with you at very reasonable odds. I’ll bet $100 against your $10.

    For starters, even if we were in such poor shape, this is an election year, so no one’s gonna do anything until November. And after that it’s a lame duck Congress and none of them want to end up on a makeshift gallows. Heck, I’ll give you 25 to one odds.

  2. Social Security is dead. It will be terminated by the end of this year. We just can’t afford to fund it anymore. Same with medicare. Will people hit the streets en masse when this is announced? What do you think? The new TV season has started and all 90% of the country gives a shit about is that and televised sports.

    — Kent Shaw

  3. To be sure, God is dead. Accordingly, there is no invisible hand from on high that regulates economies and the financial market. They are purely human creations. Had we maintained the laws enacted after the crash of 1929 we would not be in this mess (we would not have had the savings and loan crises of the 80s and 90s or the subprime crisis). But deregulation took possession of small minds and those who refuse to learn from history. Then SEC Commissioner Cox permitted naked short selling and got rid of the uptick rule giving a nod to the hedge funds to launch bear raids on major financial institutions. Incidentally, be thankful we didn’t privatize Social Security Insurance (yes, it is an insurance program in which we all share the risk).

  4. When will America decide to come together and show that they have had enough?
    A one year cycle in which the majority of Americans refuse to BUY ANYTHING, PAY TAXES or WORK will shoot this turkey dead forever.

    Yes it IS class warfare, and MY CLASS, the working class, is bigger than THEIR class by a long shot.

    All MY CLASS needs to do is grow a pair and be willing to take on a year of extreme sacrifice.

    But I guess it has to hurt a WHOLE LOT MORE before MY CLASS realizes who is shooting at them.

  5. Quick action. I guess the bill for this was written up a year ago and locked away in Cheney’s vault. Another 10,000 pages not read and rubber stamped, so’s we can open up our already empty wallets again.

    Let’s hear it for a hundred and fifty or so years of attempted and succeeded public education, the last hundred or so compulsory.


  6. Gazelle1929 asks..Who is at fault? Don’t make me laugh! As always, it starts at the top and filters down.
    However,nobody should hold their breath waiting for anything like punishment of the guilty to take place. Damned few if any of those guilty will ever be investigated, let alone charged and prosecuted.

  7. Way back in the day-1930s-Congress and the president-FDR-put into place certain rules and regulations to keep the big money people from getting the country into a financial meltdown again. Fast forward to the end of the 20th century where the repigs had taken over congress and one Tx sen-Phil Gramm-(R.Tx. Head of the senate banking cmte)slipped a 262 page bill into a massive must pass measure just before the vote. Gramms bill, written mostly by lobbyists,removed newfangled financial products called “swaps”-pay attention, there will be a test later-from any regulation, the unregulated market for “swaps” is at the heart of the current sub prime mortgage mess. Like the other bills that the repigs pushed in the 90s that deregulated banks and removed all the barriers that had been in place since the great depression-they(BIG MONEY) said at the time, trust us, what happened back in 1929 could never happen again-with the banks deregulated and the “swaps” unregulated by law, the big push to bundle and sell as securities(the rating service went along with this scam) sub prime and prime mortgages was on. The word was out about this brand new fantastic money maker-surprisingly CEO’s of banks and insurance companies are easily distracted by bright shiny objects-so these “swaps”, securities that were essentially backed by nothing more than the fast talk of those who issued them went to market in a really big way. Current thinking(I don’t believe that those who were allowing people to buy houses without jobs and without the wherewithall to pay when the adjustable mortgages were “readjusted” were innocent as they now claim)is that some enities are just to big to fail so we must “save them from their own folly”.
    Meanwhile, with an average of about 7,000 foreclosures being done a day, the formerly hot “swaps” not only became worthless, but with the complicated bundling and rebundling(the part where they split the individual mortgages into smaller parts in order-they said-to spread the risk so that no one entity owns one entire mortgage is the part I really like) of the individual mortgages it has become almost impossible to discover who is the actual owner of each property.
    The banks that originated the various ideas and schemes, at least some of them, are currently screaming for a govt bailout.
    Phil Gramm(ex Repig sen from Texas)who was behind the entire bank deregulation scheme as the chairman of the senate banking committee in the 90s is now(by now I mean right now, currently) a vice chairman of the bank UBS(swiss headquartered) and the head lobbyist of that bank.He is also the current head of the McCain economic team and will likely be named Treasury Secretary unless McCain makes him the Fed Chairman.
    John McCain, the former head of the commerce committee and after 2006 the its ranking member, currently has at least 79 lobbyists working on his campaign. Charlie Black, the head of his campaign is the worst offender.
    I don’t really understand economics, but I do somewhat, understand how groups of people can, by co-opting the individuals who have the power to make the rules they operate under, tilt the field in their favor-very broad here, but this is all that I can say about that. 28.5 years working for the fedgov has taught me many things, the main one being that;Them who has the gold, makes the rules. Truly cynical, but true nonetheless. We have now found(well most everybody did, I already knew it) that the mega corp CEOs are just as weak and greedy as the next guy. That in fact some companies are run worse than a self service gas station or a criminal organization(which is what some of them are) and that the major players in these corps are far more worried about their “golden parachutes” than they are about the stockholders of the corp. I guess that ENRON was not a big enough lesson for the US. As the saying goes”Those who don’t know history are condemned to repeat it. The second time as Farce” We ignored the lessons learned in the 1929 crash and the depression that followed, we allowed(Clinton did sign the various bills that deregulated the banking industry)those same industries to write the very bills that deregulated them. We forgot the main lesson of the depression which is first and always GREED. Greed for more money, for power. We have managed, thru the 10 years that the repigs ran the govt, to finally put ourselves into a position where our creditors are finally calling in our loans. We have gone past the limit on our credit card-courtesy of gw bush and the repig party who decided that we can fight 2 wars and have a massive tax cut at the same time- We have totally failed to curtail spending-both parties are at fault here-over the last 50 years. Our tax system has become so complex that not even the IRS understands it. We have created welfare for megacorps. The oil industry gets billions in subsidies and yet pays the US very little in royalties because of the incompetent people that bush put into positions of power. Our children, our grandchildren, and our great graqndchildren will be paying for what we have done and failed to do over the last 50 years. The greed and shortsightedness of both our businessmen and politicians have gotten us into this mess. If the sheeple elect palin/mccain, then we will become a fascist oligarchy within 10 years. and all the current programs like Social Security and medicare along with any hope of health insurance reform, in fact any and all social programs, any and every thing outside the military will be gone. Taxes, except on those same oligarchs will become very high-I believe over 50%-and the looting of the natural resources will be right out in the open. Wages will go down where Big Business has wanted them for years. Below $5 an hour.(big business has always been shortsighted, if the workers can not afford the products, then who will buy them?)Of course with the current program of nationalizing big businesses and if the repigs manage to fake out the sheeple-aided and abetted by the MSM-and win not only the WH but manage to keep enough seats in congress to thwart the dems, then it might just happen sooner. Damn, I kind of feel like I am a character in either a “Twilight Zone” or “Outer Limits” waiting for the fourth act and the grand finale that we can all see coming. Just like a crash in slow motion.

  8. Yeah, right. Bail out the big guys and let the CEO’s keep their multi-million dollar bonuses while the little guys get stuck with the bill and sink deeper into a hole. Wouldn’t we be better off sinking Wall Street and getting back to Main Street USA?

    There is such a thing as fudiciary responsibility. The Bush Administration should be liable for the damages. Send the bill to the Bush family and friends. They own the banks, the construction companies, the communication campanies and the military industrial complex.

  9. “. . . very few of these bastards, if any, will ever be charged with crimes . . ..”

    But what crime? I’m certainly not an expert on the law, but I do spend a bit of time wandering around reading things, and I have yet to see anything that points to a specific crime. Nor have I seen anyone say anything other than, “Those (insert your favorite derogatory term here) should all go to jail.”

    I have heard this attributed to both El Monte Slim and Ben Franklin: “It is a sin not to separate a fool from his money.”

    I sold my house in a midwestern state a few years ago for about 150,000 smackers more than I paid for it. The woman who bought it put exactly zero down and used a variety of mortgage instruments to finance the transaction. At a time when I got a new loan at around 6 percent she paid around 13% on her first and 18% on a second! I knew as soon as I saw the whole deal (I got a copy of the buyer’s side of the settlement sheet by accident) that the house was going to end up in foreclosure. I made a huge profit, having sold the house for what I thought was a hundred K more than it was worth in a real market.

    Who is at fault? I, because I was brought an idiot who would offer such a deal and because I was so venal as to take it when offered? The buyer, who bit off far more than she could afford and was hoping against hope to roll the place over in a year while renting it out? The lender, who knew exactly what was going on, hence the high mortgage rates charged the woman? The real estate broker, who made a darned handsome commission on the sale? The stockholders in the mortgage company for allowing such a crappy deal to go through?

  10. I wonder if Sarah Palin being the Republican pick and McCain doing well in the election polls has something to due with the world community being scared of investing in the US. Maybe foreign investors not wanting to invest in US housing lone debt is part of a bigger fear of US investing.


  11. My guess is the powers that be themselves were faced with losing their individual personal wealth…unless they could shore up Wall St. Until they were looking at financial ruin in their own personal lives, they were able go about their merry ways, secure in the thought “I have mine…let them eat cake”. It was all right for “we the people” to go belly up, but by god, they had to make sure they wouldn’t have to face the same consequences.

    I don’t know if there was any other answer than for the feds to bail out the massive financial mess, but I know I am sickened over it. The very thought that a small percentage of Wall St. Wizards (ie:crooks & thieves) were allowed to make ba$illion$ in filthy lucre off of the common working man/woman and get away with it, is beyond comprehension.

    The combination of Bush’s unnecessary, deadly, and unaffordable war and this Wall St. fiasco will go down in history as a man made disaster from which many of us will not live long enough to see the final costs.

  12. Yeah buddy, ain’t capitalism great?

    All the big boys in development, realty, building, insurance, mortgage, finance and government, to name just a few, were able dangle their respective carrots and entice the little guys into buying a piece of the American dream they couldn’t actually afford.

    All of these charletons conspired to manipulate their respective markets, inflate prices, create deceitful financial instruments and then market them back to investors as legitimate securities. Billions of dollars of these securities are now worthless with the rapid deflation of housing prices, and wa la, the financial crisis.

    As a result, the bubble these greedy bastards created has finally collapsed under its own weight; and, now the Bush boys are stepping in to save the day — Bull Shit! Our nation is now littered with the ten’s of thousands of homes that have been abandoned, foreclosed on or repossessed. And guess who is going to get to pick the pieces? I’ll give you a clue. It ain’t the big boys that started this fiasco. Nope, they’ll come out smelling like a rose, and what’s left of the middle class will foot the bill for many generations to come!

    The Federal government, the FED and the SEC were all aware of this mess and chose to turn a blind eye to it as long as the big boys were making money. What do you want to bet that very few of these bastards, if any, will ever be charged with crimes much less have to make financial restitution. Nope, they’ll walk away rich and untouched. Most important, they will be free to scheme and to dream up their next scam. Yeah buddy, ain’t capitalism great?

    Charlie Couser

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