Thursday, October 2, 2008

Big Money Turns Votes in House

Money Talks and 850B is BIG Money. The Senate swallowed the 700B Bailout Plan and Raised the House another 150B. The House now risks the anger of the Administration, the Senate and “some” of the American People if it fails to pass this – largest of all spending bills.

A lawyer friend of mine forwarded me his opinion of the 850B Senate Bailout. He asserts US Money will quickly find its way offshore. Interesting. I had not thought of that angle on this waste of taxpayer money.

He wrote:

The more I review the economics of the bill, the more dangerous it looks. Markets are Markets and they are operated by traders who are expert at finding deals. Also, and most importantly, markets are international.

It looks like most of the money in the bailout bill will be exported quickly out of the country.
The securities traders will be importing as much junk into the U.S. as they can. Then they will
swap it at above market prices to the Treasury and export the money internationally.

Money is like oil, it moves all around the world. If we just pump money into the system, the money will just be dilluted into the world market and make very little difference to Americans. This "Rescue" package fails for the same reason that the claims of North Slope drilling will bring oil prices down. The money is such a small sum when diluted into the
world market.

In the near term, we do not have to wait for the long term, the solution will fail dramatically
because it does not address the defaults here in the US.

The American people are going to be hopping mad when they wake up and see that their funding of the 700B leaves them broke, not fixed. The realization will probably be swift in coming. Certainly, before Christmas, if not by the end of this month.

Those who supported this bill will be very unpopular.

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David M. Herszenhorn of the New York Times published such a cogent review of the “No,” votes on the Senate vote, it is republished in its entirety below. It certainly reveals that this bill was a rush to judgment.

WASHINGTON - Senators who voted against the $700 billion financial rescue plan make up one of the most curious coalitions of lawmakers ever to share common ground.

It included arch-conservative Republicans like Jim DeMint of South Carolina, liberal Democrats like Russ Feingold of Wisconsin and Bernard Sanders, independent of Vermont, who is regarded as the Senate's resident socialist.
Taken together, the speeches of the 25 senators who voted against the plan on Wednesday amount to the Congressional equivalent of a dissenting opinion by the Supreme Court - impassioned, well reasoned, carefully articulated views on a landmark question of public policy that ultimately reflected the position of a minority of their fellow arbiters. If the bailout plan flops, they are the lawmakers who will be positioned to engage in a chorus of "I told you sos."
Their concerns spanned a panorama of issues: frustration over the lack of long-term regulatory changes in the legislation; alarm that $700 billion in taxpayer money would be at risk; anger that the Treasury secretary would not be subject to more stringent oversight; skepticism that executives of firms that seek help would face limits on their pay; and dismay that such an important bill was being rushed through Congress.

And, perhaps most pointedly, they expressed skepticism that the bailout proposal would be able to restore liquidity to the credit markets, prevent the collapse of additional banks and safeguard the economy from a long recession. "This package is just a very costly Band-Aid for big banks that will do very little to help patients who need major surgery," Senator Michael B. Enzi, Republican of Wyoming, said in his speech on the Senate floor. "Had Congress been able to use the regular committee process to craft a bipartisan and comprehensive legislation, the resulting bill may have gained my support," Mr. Enzi said. "Unfortunately, Congress has been pressured into passing this bill in two weeks by Treasury and Wall Street. A rescue plan of this scale requires a clear plan of action with a substantial chance of success. This plan has neither."

Some of the harshest criticism was leveled by Senator Richard C. Shelby of Alabama, the senior Republican on the Senate banking committee, who normally would have been his party's lead negotiator on the bailout bill but removed himself because he opposed the administration's proposal at its very core. "The choice we faced was between pursuing an informed response or panic," Mr. Shelby said. "Unfortunately, we chose panic and are now about to spend $700 billion on something we have not examined closely. Yes, in the end, we will have 'done something.' At the same time, however, we will have done nothing to determine whether it will accomplish anything at all."

Mr. Shelby, in his speech, laid out a modern history of the American housing, mortgage and securitization markets, explaining how a bubble in home values was fueled by loose lending standards, exotic mortgage products and complex financial instruments, pushed by financial firms that were leveraged heavily to maximize profits.

And in many ways, he was already dishing out "I told you sos." "We did not get to where we are today by accident, it was a path we chose," he said. "My warnings about the risk of basing credit decisions on well-intended social mandates rather than sound, fact-based underwriting were dismissed. My concerns about the inadequacy of the regulatory structure put in place in the financial modernization legislation went unacknowledged. My efforts to ensure that bank capital standards were designed to ensure safety and soundness, rather than industry concerns, were conducted largely alone."

Mr. Sanders, the Vermont independent, complained that the bill did not put any limits on the types of distressed debt the Treasury could buy, that it did not provide enough oversight, that it did not include adequate provisions to limit home foreclosures, that it did not really limit executive pay at firms that seek help.

"Under this bill, the C.E.O.'s and the Wall Street insiders will still, with a little bit of imagination, continue to make out like bandits," Mr. Sanders said. He said the bill also did not do anything to prevent financial institutions from becoming "too big to fail," effectively leaving open the potential need for future bailouts.

Mr. Sanders also said he could not fathom giving Treasury Secretary Henry M. Paulson Jr. such broad authority over so much money. "Maybe I am the only person in America who thinks so, but I have a hard time understanding why we are giving $700 billion to the secretary of the Treasury, who is the former C.E.O. of Goldman Sachs, which, along with other financial institutions, actually got us into this problem," he said. "Maybe I am the only person in America who thinks that is a little bit weird, but that is what I think."

He added: "This bill does not address the major economic crises we face - growing unemployment, low wages and the need to create decent-paying jobs, rebuilding our infrastructure and moving us to energy efficiency and sustainable energy."

In one of the more remarkable colloquies of the day's discourse, Senator Jeff Sessions, Republican of Alabama, and one of the most conservative members of Congress, took to the floor to express solidarity with Mr. Sanders. "I would like to say to Senator Sanders a couple things," Mr. Sessions said. "First, I think it is indeed breathtaking that this Senate would authorize basically one person with very little real oversight, a Wall Street maven himself, and allocate $700 billion in America's wealth, which I would have to say would be the largest single authorization of expenditure in the history of the Republic."

Mr. Sessions added: "So I have to say, fundamentally, I think we have not done a good enough job in creating an oversight mechanism that will work, so I am not going to vote for the bill; I am not."

Senator Bill Nelson, Democrat of Florida, said he opposed the bill because it did not do enough to help average Americans. "This bill sends a message to Wall Street that if they play fast and loose in the name of short-term profits, the government will actually make up for their losses," Mr. Nelson said. "And the bill does very little to help individual homeowners. Until we stabilize the housing market, which is the underlying ability to restructure the economy from this crisis - until we stabilize the housing market, and until we stem the record number of foreclosures, our market simply is not going to improve."

Mr. Nelson continued: "The bottom line is, ultimately, this bill forces taxpayers to bail out investment banks that caused the crisis in the first place, and it does nothing to address the real problem, which is home foreclosures." © The New York Times, October 2, 2008.

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Hugh Wood, Atlanta, Georgia

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