The BailOut Question That Must Be Asked Before Passage

Sec Paulson has asked for authority to spend what he needs to save our financial, and possibly the world’s financial system. There is only one problem. Sec Paulson may not be in charge of the Treasury for that much longer. So in essence we are giving  carte blance spending authority to some unidentified person.

If the Sen Obama wins, then the Democrats will have the Presidency and the Congress under their control. Which will give them the right to appoint just about anyone they want to run the Treasury.

Let me say that again.  A Democratic win could give them the right to appoint the King of the Financial World and let that person spend whatever they want, up to 700 Billion dollars. Have you heard anything scarier in your adult life ?

Now our politicians would reference the Oversight Boards that were appointed as part of this bill. Well let me be the first to write and say it outloud. The OVERSIGHT BOARD IS A JOKE.

Its not to say that the people that have initially been appointed aren’t smart people. They are. Thats not the problem. The first problem is that 2 of the seats, the Secretary of Treasury and the head of the SEC will probably change in the next 6 months. So we have no idea where that will go beyond them probably being Democrats. Thats not the worse of it.

The worse of it is that for Oversight of the biggest Bailout and privatization of assets in the history of this country, the appointees are not full time. They aren’t even part time. They all have other full time jobs. Important full time jobs . There is no way they can assure that the Fund is managed correctly and there is transparency and no corruption meeting 1x a month.

How in the world can you have people who only meet 1x a month overseeing the spending of 700B dollars ?

This legislation needs to be modified with a requirement that Sen Paulson is asked and agrees to stay on the job for at least 1 more year

The legislation needs to be modified so that the primary Oversight committe  is made up of full time business people who report publicly on a DAILY basis what is happening with our money and how the fund is performing.

Let me put it this way. Who in their right mind would invest money in a company where there is a darn good chance that the CEO will leave in a few months, and there is no known replacement ?

And one more importantly critical issue. The companies making all the banking acquisitions, JP Morgan and CItibank and Bank of America, they are basing the quality of these acquisitions on their ability to project failure rates and home prices.  Literally, how well they predict the future of these markets has more impact on the future of our financial systems than anything happening in the Bill.

The FDIC is  trying to use private money to minimize the public exposure to bank failures. That could be a very good thing, but they are making JP Morgan, CIti and B of A SO BIG, that after the BailOut if any of the 3 are wrong in their projections, we could create a far greater problem than the FDIC is trying to solve.

THe FDIC, as part of the brokering process, in addition to getting warrants/debt as they did in the Wachovia deal, needs to get the acquirer to agree to real time transparency standards . We have to be proactive in managing these mega banks. All surprises regarding the liquidity of these banks are bad surprises and we need to have in place dramatic means of monitoring them.

In addition, the banks need to agree to a date when  the short selling limits are lifted.  Short sellers are needed to show us any red flags in these new massive banks. We are placing a great responsibility on these mega banks. We cant just trust, we need to verify

56 thoughts on “The BailOut Question That Must Be Asked Before Passage

  1. Today’s market plunge is exactly what happens when you let fear set in. Our elected officials are not supposed to understand everything that we face as constituents. They are supposed to defer to people who know more about the situation than they do. This is not the same thing as being ignorant of the subject matter. Hank Paulson/Ben Bernanke are not geniuses, but they do know more about the financial industry and its inner workings than all the members of both sides Congress combined. The plan they initially presented was not perfect, but Congress should have set some spending limits and a real oversight board then passed it. Instead they allowed fear get into the world economy and now the train has come off the rails. As a person, Congressman, President, CEO; you should always be on the lookout for people who are not just “smarter” than you, but smarter than you are in other subjects. Michael Jordan was an expert at playing the game of basketball; that did not mean that he would be an expert as a GM, owner or coach.

    The problem with this is that the media/employees/American public/etc, look down on people in power who don’t have a good grasp of all situations. So what you get is many people pretending to be knowledgeable of things in which they are not. This is a very dangerous foundation on which to build a society. I respect a man more if he tells me, “I don’t know, but I’ll find out who does;” than if he makes something up because it sounds good.

    We are not going to get out of this financial mess until honest people (public and private) stand up and tell the truth about their strengths and what they can do to help rebuild the country. As long as Candidates continue to pose for photo ops in the White House and trade partisan barbs at each other during campaign speeches, there will be no real change. This goes for Democrats and Republicans.

    I am not exposed to the risk of a falling Dow, so it does not matter to me(financially) if it drops to 5000. What I am exposed to is the disparaged emotional conscience of the people I talk to and how many stay on the verge of tears(or a ledge) whenever the subject of the economy comes up. All I can say is that I still believe in this country and its people so I think we have enough in us to pull out of this nightmare. Just don’t give up!

    {Side note: For all of you that do not have at least $1mm in expendable cash to burn, DO NOT buy stocks at this time. Although it might look attractive, it is still too soon to gauge the impact of: 1)$700B BailOut, 2)Election, and 3)Impact of short sellers entering back into the market(today was the first day for some stocks) If you are like most people, you 401k has gone to shit and it does not make sense to gamble with your life savings just because Jim Cramer or some other talking head likes a particular stock.}

    Comment by TomH -

  2. Pingback: The Economy, The Election, and Entrepreneurship - Adam McFarland

  3. Mark, for a guy that sees through so much of the bullshit that defines the public (and financial community) perception of how the market works, you seem to still accept that “$1.2 trillion loss” at face value. What was *actually* lost? A pittance from people who bought at a higher price than they sold, and a paper value. Most of that paper value in institutional portfolios. What’s more disturbing is that a decline in the stock market triggered a decline in bonds and commodities. That’s a classic sign of a deflationary spiral from deleveraging, ala the 1930’s. Every time there’s a decline, everyone goes over their debt limits, forcing them to sell to raise capital to cover the shortfall, and that drives down the rest of the markets. Normally they go up as the money is diverted to them, but with everything dropping, cash in the mattress is effectively the highest return available, it will buy more later than it will now.

    Of course, with everyone sitting on their cash, there’s less money to buy these distress sales, and therefore the whole process feeds on itself. We’re repeating 1929-1933 at digital speeds.

    The root of the problem isn’t that there was a housing bubble, or a credit bubble, or any particular bubble, it’s that it’s all a hyper-leveraged bubble built up over 30 years of loose credit and delusional investing principles, and housing is just where the imaginary money first contacted the real world and burst. Last time it was crop failures, but exactly what set off the chain reaction of deleveraging is irrelevant, the conditions were ripe and if it hadn’t been housing it would have been something else.

    In the 70’s there was a surplus of idle capital and under-performing companies, but in creating the conditions to rectify that (cheap credit to fuel the leveraged takeovers of the 80’s), Reagan and Greenspan created a monster that is about to swallow the entire financial structure whole, and has stripped nearly every bit of real capital from the system and scattered the remainder randomly.

    Nobody knows what the real value of anything is anymore. Companies are hollow shells wrapped around a brand and a tangle of interlocking holding companies and service contracts. Bonds are rubber-stamped scraps of paper that signify ownership of debt, but so far removed from both lender and debtor that nobody knows if either is a trustworthy risk, the audit firms that were supposed to assess that were useless shills and the underwriters that were supposed to guarantee it hopelessly overexposed. Derivatives are a nightmarish muddle of computer-generated side-bets that Nobel Prize winners look at and throw up their hands in despair.

    Kicking the can down the road by injecting ever more fiat money (based on yet more debt) to maintain liquidity in a system that *needs* to reset just increases the pain.

    To simplify: It’s not just that everyone is way too deep in debt. It’s that deflation as the leveraging unwinds is effectively increasing that debt, at the same time that inflation at the consumer level puts the squeeze on the earned income that represents the foundation of the whole system. Paulson and Bernanke are trying to use a Monetarist liquidity injection to defy gravity and keep the bubbles inflating. Even if it restores stability temporarily, it worsens the base conditions and the magnitude of the next crisis, putting us in a constantly narrowing passage between deflationary depression as we pay for the prosperity for Wall Street we’ve been borrowing (because it’s certainly not trickling into actual earned income, which has remained stagnant at best), and hyperinflation that erases the debts and capital simulataneously.

    –Dave

    Comment by Dave Rickey -

  4. For those of you making the following assertion: “All of this
    happened under the watchful eye of Republicans, so I would say the
    only thing scarier is Republicans staying in control.” Why don’t you
    do us all a favor and look up when Fannie Mae and Freddie Mac went
    private? Gee… when did the provisions in the Glass-Steagall Act
    prohibiting a bank holding company from owning other financial
    companies get repealed? Ohh that’s right 1999! As a matter of fact
    why don’t you do all of us a favor and read this!
    “..in fact, there was a number of deregulatory acts that happened
    in the Clinton Administration. There was deregulation of the
    industries, energy and telecom, which produced Enron and Worldcomm.
    And there was the deregulation of the financial markets, which was
    a bipartisan deregulation, which happened under the Clinton
    administration.”
    I am a registered independent, but you Democrats sure have made
    yourselves look like idiots in these last couple of weeks! You
    deregulated the freakin’ markets! Quit blaming everyone else!

    Comment by Deregulated Democrat -

  5. I just noticed another person mentioning the trillions we lost in
    the market because the government didn’t act! Have you considered
    that maybe… just maybe, we’re in for a loss?!? Do an exponential
    regression of the Dow Jones since it opened (I have personally done
    this!), and you’ll notice that even for an exponential regression
    (which has an R^2 of .926210249277159) the Dow should be somewhere
    around… ohh lets just say 9,376.083 points. Go ahead… do the
    regression, you’ll get the following formula if you go by days
    instead of dates:
    y=72.9562843374901*(e)^(.000241740600681561*x)

    Input the 20,088 day of the Dow, and you’ll see what I mean. Don’t
    take my word for it. You can get all of the historical data from
    Yahoo Finance for free, and do it yourself! By the by… housing
    prices are still about 29% over-priced according to historical trends
    but that’s a different story, because the rules have changed. Bigger
    houses cost more basically… We need the bail-out to preserve
    infrastructure. In other words, we shouldn’t let GOOD businesses fail.
    However, we need to let those who made poor choices fail. In other
    words we should be forcing write downs, and injecting $700 billion in
    liquidity to the market. Those that are over-exposed will fail, and
    shareholders will get hosed, but the credit markets will keep on
    churning, because the government will still be lending. What we don’t
    need is an artificially inflated stock exchange. This accomplishes
    the exact same thing as the proposed bail-out, but costs tax payers
    less, because it screws shareholders of BAD companies only. If your
    401(k) keeps falling after that bailout, you just bought shares of
    the wrong freakin’ company, and don’t lay your poor choices on MY
    tax bill. I don’t spend 4+ hours a day in excel to pay for your
    mistakes.

    Comment by Loss or Correction? -

  6. For those of you making the following assertion: “All of this
    happened under the watchful eye of Republicans, so I would say the
    only thing scarier is Republicans staying in control.” Why don’t you
    do us all a favor and look up when Fannie Mae and Freddie Mac went
    private? Gee… when did the provisions in the Glass-Steagall Act
    prohibiting a bank holding company from owning other financial
    companies get repealed? Ohh that’s right 1999! As a matter of fact
    why don’t you do all of us a favor and read this!

    “..in fact, there was a number of deregulatory acts that happened
    in the Clinton Administration. There was deregulation of the
    industries, energy and telecom, which produced Enron and Worldcomm.
    And there was the deregulation of the financial markets, which was
    a bipartisan deregulation, which happened under the Clinton
    administration.”

    I am a registered independent, but you Democrats sure have made
    yourselves look like idiots in these last couple of weeks! You
    deregulated the freakin’ markets! Quit blaming everyone else!

    Comment by Deregulated Democrat -

  7. good luck on your wacovia stock purchase i lost every at ten bucks on fridays close and i to wanted a

    Comment by paul scholar -

  8. Mark,
    You’re quite a bright man. I honestly disliked you based on the team you work for. I changed my opinion as of reading your blog. I am a die- hard Phoenix Suns fan, but you have shown thawanted to say i am sorry I misjudged you. You’re an incredibly talented and msart man.
    Nate

    Comment by Nate Zimmerman -

  9. I do not believe the bailout is a good idea no matter what they call it! This morning we have no plan, it was rejected yesterday by the house. I have heard that the market is recovering/ rebounding and that the dollar is actually up. It seems in college I remember learning that the economy has cycles, that it is almost a living thing, it self corrects, adjusts, etc… If we try to manipulate the market with this 700 billion dollar crap shoot are we just deceiving ourselves and possibly making things worse? I have investments, am a small business owner, and am suffering along with everyone, but this plan worries me. There are no guarantees and in fact it may make matters worse.

    Comment by Chuck -

  10. Pingback: The Bailout « Politically Speaking

  11. So we should be okay with a government that comes out and tells us this bill needs to b passed right NOW without any checks and balances in place? Paulson who is an ex Chairman and Chief Executive Officer of Goldman Sachs with ties to AIG and other recently taken over companies is the man pulling the strings. It seems that the hurry to get this bill approved is more about not finding out certain details about Paulson’s past than it is about helping our country. This administration has never been up front with the American people so why would they start now. Americans should be in an UPROAR over what is going on right now!

    Comment by Mojoe -

  12. Hey Ryan,

    He is talking about controlling the House, the Senate AND the President… It’s already been proven what will happen if Obama gets in.

    Illinois is under a full Democrat control and have the largest deficit ever! Obama has been a huge contributor to it! Do you not think that will happen in the White House?

    That’s not about Paulson…it’s about Reid, Pelosi and Obama!

    Comment by Max T -

  13. Conventional Banks are holding off on selling bad paper to private investors because they want to see what kind of bailout the government is giving to banks. They will be holding out their hands too! This will not end.

    Comment by Max T -

  14. You do understand Paulson has publicly stated he has no intention of staying on when this administration is over??

    “A Democratic win could give them the right to appoint the King of the Financial World and let that person spend whatever they want, up to 700 Billion dollars. Have you heard anything scarier in your adult life ?”

    you must be joking is RIGHT!! Usually you put things out in a non-partisan fashion, this is just blatantly ridiculous considering whose deregulation got us here in the first place.

    From MC>
    You re right, I try to be non partisan, but the idea of Nancy Pelosi getting access to this money scares the hell out of me. Take her out of the equation, and I have a different perspective

    Comment by Ryan gardiner -

  15. This bailout is a joke! These foreclosures they are talking about don’t even scratch the surface of the problem. It’s only about 10% of the 5% of all houses in foreclosure! That’s nothing. All the banks are waiting for this bailout so they can put their hand out too! It’s crazy!

    ACORN forced loans for poor people. AND the Democrats want to give more money to then!!!

    I say NO EARMARKS! I don’t want ANY pet projects in this Bailout!!! That is a seperate issue… get them out! Write another bill for them.. but, don’t expect to slip it through.

    I am calling my Senator AND Representative AND Bush today to tell them I want a Work-Out not a Bail-out AND they need a oversight committee who will publish publically (good idea Mark) AND with NO EARMARKS! Not one! I ALSO want to know which Democrats put ACORN in the Bill!

    The banks are being bullies! They want the stock market to crash because they think that will help them get bailouts! BS… Why aren’t we bailing out the schools.. they need it!

    I’m sick of banks taking advantage of people. This needs to be stopped!

    Comment by Max T -

  16. YES MARK!!! You are right about if Obama gets in office!!! It’s been proven in Illinois!!! The Democrats controlled the Govnernorship, the House AND the Senate!

    Obama on State Deficit – What will happen if Democrats control the Senate, House and the Presidency – This is a clear precursor of what will happen if Obama is elected.
    According to a study published in the Journal of Black Studies, Obama devoted his time incredibly high in social welfare and a little in crime-related bills with regulation and tax bills. For all other policy areas Obama spent very little time. In other words, if it didn’t affect the minorities or welfare Obama wasn’t interested, including sexual abuse. Obama is supposed to be the candidate that people see as favored to handle the economy and yet Obama is heavily a part of the Illinois fiscal crisis! This started in 2001 and in April 2007 a report said the state was head toward fiscal implosion. Obama refused to cut back on social welfare spending. The Republican governor did force a number of cuts. A year later, April 2008, Democrats were able to control the governorship, the state senate AND the house. They revealed that the state deficit has reached $5 billion which was far larger than most had feared and the deficit continues to tumble out of control. The Democrats continue to spend. This is what will happen in the White House. Obama was able to get so many social welfare bills passed because his tactic was to find Republican liked bills and get them passed only then to later get more funds funneled to them.

    If you think Obama made “Change” in the poverty stricken neighborhoods that he did Community Organizing for, tell that to the broken parks overran by criminals. Or to save yourself a plane ticket. Watch this Chicago news piece:

    Obama for change… sad really.

    Comment by Max T -

  17. More slight of hand from Hank, Ben and the Boys. Similar to their “Look at the BailOut,” then save FDIC; the Fed just pushed $630B more cash into foreign economies and into the hands of… (wait for it)…BANKS! Please read the following article from Bloomberg. They committed this act while again telling the American people, “Look at the BailOut,” then proceeded to swap $300B more dollars with foreign central banks and offered $330B more dollars in loans to its member banks at ‘sweetheart’ discount rates. Here is the kicker, they did it BEFORE the BailOut bill failed to pass The House of Reps. So, if The Fed has the power to lend over half a trillion dollars in one morning then why is the BailOut bill needed? Technically, its not. The difference is Paulson is asking for $700B of tax payer money. Bernanke and The Fed make their money from the sale of savings bonds, t-bills/notes/bonds.

    If President/Paulson/Bernanke told you that they have the ability to avoid the crises themselves, then the bill would never pass and they would have to use their ‘own’ money to buy these semi-worthless assets. To them (smart bankers) that would be throwing their good money after bad. So they devised a plan to throw YOUR good money after THEIR bad money. Brilliant! Unethical, immoral, borderline criminal, but brilliant.

    Here is the fly in the ointment: the markets crashed yesterday. Foreign markets did not decline as much because The Fed already assured them that an extra $300B would be available regardless of what happened in The House. Conflict of interest? Of course!

    They funny thing is that they have been doing this (Term Auction Facility) since Dec07. The TAF was specially created to offer these loans to banks in Dec07 because The Fed knew that these banks were holding bad loans/assets/debts and that they were all going to fail without help. Since Dec07, Paulson/Ben have been trying to develop a way to get tax payers to foot the bill and waiting for the right time to announce it. When the BIG banks started failing faster than they anticipated, they launched the 3-page, $700B BailOut bill. They then sent The President out to sell it by scaring the American people which built the damn thing up to monstrous proportions. The games played by McCain/Obama/GOP/Democrats further intensified the vote on Monday and when it didn’t pass…DOW drops 777 points and companies lose $1.2T in market value. The Govt has more tentacles than most people realize, so when you choose to vote in November, you had better choose the MOST capable person.

    http://www.bloomberg.com/apps/news?pid=20601087&sid=ahwz_k5JvuB8&refer=worldwide

    Comment by Tom -

  18. RE: Emergency Economic Stabilization Act of 2008 (the “Act”). Instead, Convert the Debt to Equity

    Dear Mark,

    I am writing you to ask that you proffer an idea of mine.

    Assumptions:

    1. No one in Congress understands the mortgage market, mortgage-backed securities, MBS derivatives, collateralized debt obligations (“CDO”), CDO2, Collateralized Loan Obligations (“CLO”), etc.

    2. Neither the Federal Reserve nor the Treasury have any infrastructure to analyze, purchase, and trade mortgages, mortgage-backed securities or implement the Act.

    3. Congress does understand how to change taxpayers’ behaviors with the tax code.

    Proposal:

    Instead of the government trying and failing to rescue the financial industry with the Troubled Asset Relief Program, socializing America with the largest nationalization of private sector assets, let’s have the government motivate the private sector investors and money managers to rescue the financial markets. May I suggest the following?

    The government should request proposals from well known fixed-income managers (i.e. PIMCO) to create new mutual funds to buy distressed debt and mortgage-backed securities from financial institutions. Congress should pass new tax legislation that would exclude the income, interest, capital gains and dividends received by investors from these funds from taxation. Investors’ returns would be free from federal and state income taxes, capital gains tax, federal (and state) estate and gift taxes. Any losses incurred would not be tax deductible (This should keep the prices paid reasonable). Suggested fund titles/mandates: U.S. Tax-Free Single-Family Mortgage Opportunity Fund, U.S. Tax-Free Multi-Family Mortgage Opportunity Fund, U.S. Tax-Free Commercial Mortgage Opportunity Fund, U.S. Tax-Free Industrial Mortgage Opportunity Fund, U.S. Tax-Free Retail Mortgage Opportunity Fund, U.S. Tax-Free Special Purpose Mortgage Opportunity Fund. Since it will take some months for the new funds to be funded, in the short run, The Federal Reserve Bank would provide bridge financing in the form of full recourse 30 year term financing in the amount of $250 Billion at the prevailing 30 Year Treasury Bond interest rate with no pre-payment penalty. Congress should allow tax-free and penalty-free withdrawal of funds from tax-deferred savings accounts to purchase these mutual funds. This plan would allow every American of almost any financial means to participate and benefit from the current financial crisis instead of a few very wealthy individuals, private equity funds, hedge funds and institutional vulture funds, etc.

    Thanks for your consideration.

    Comment by Wade Browne -

  19. Hi Mark,

    I enjoyed your insight on this. One person in charge of 700B is just
    insane. It’s so much responsibility for just one individual to handle.
    Unless that person has nothing better to do and has reinforcement
    and people looking over that persons shoulder. The economic situation
    is very scary.

    Comment by Turbo Parts -

  20. Oh, and PS…How is it alright for an “Oversite Committee member” to receive campain contributions from the companies they are providing oversite of?

    Comment by John R -

  21. It seams the “old way of doing things” isn’t there any more. We have turned a page and a new design is required for America. I don’t think anyone in congress has figured it
    out, nor are they capable of designing a modern “Wall Street”.
    Please check out this story;
    http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2008/09/29/haste-makes-waste.aspx

    Comment by John R -

  22. Bankruptcy is the only good option !

    Of course, because bush brought all this up. and all this has been discussed. and it has brought all this ‘uncertainity’ into the market.. my stocks are now crap.. thanks again guys.

    but the true and right answer is to let those who made bad choices fail.

    Comment by Note Taker -

  23. Mark-
    I have thoroughly enjoyed your thoughtful insight and cavalier ideas of how to fix the troubled financial world we live in today. While I totally agree with your point that the suspension of short selling has effectively rendered the market inefficient, I would like to point out that short sellers had a large hand in bringing down a number of financial institutions this year. While you make a valid point about short sellers being true sleuths, and obviously putting most of hte blame of these failures squarely on the shoulders of the leaders of said institutions who had such a great portion of their liquidity tied up in ill-advised assets, they tend to have a great deal more capitol than most investors being of their institutional nature. This causes the market to be inefficient in a serious manner. You yourself have realized the interconnectedness of the global financial landscape and the failure of these banks causes our future to now rest in the hands of B of A, JP and Citigroup. This is a wholly scary thought for an American nation that is in deep debt and running a large deficit. Clearly more oversight is needed, but who should be in charge of monitoring such a system? It is clear Congress has no idea what the hell a credit derivative even is, let alone allowing them to be the watchdogs. So I pose this question to you, if it took Long Term Capitol Management, a collection of the greatest financial minds of all time, 7 years to go completely broke, how long will it take three over leveraged banks to be fiscally irresponsible and thrust us into widespread global crisis?

    -Jim

    Comment by Jim -

  24. man, my brain hurts from all this bailout talk….errr asset recovery program.

    I say let everyone suffer except the homeowner, write the check to the actual homeowner. Enough of this theoretical BS – Help the banks and in theory it will trickle down to the homeowner. I believe that’s the same logic for the Iraq war, we invade and use the iraqi oil to pay for the war – how is that going?

    Write the check to the actual homeowner – make them whole and maybe they will spend.

    Comment by Manish Jain -

  25. And here is how this country will be bailed out:

    All U.S. Billionaires under $2 Billion net worth are required to pay
    a one-time “Economic Solidarity Fee” of $500 Million (taking away 25%
    of their net worth). They are allowed to pay it off over 48 month.
    That will gives them enough time to cash in some of their assets.

    Billionaires above $2B pay 50% in rates over 8 years.

    Economic crisis solved. Case closed. The proceeds are being used
    to buy out those toxic mortgages and other exotic financial
    investments. Once the treasury sold much later on those investments
    the proceeds go back to those billionaires (but without interest!)

    Comment by Just a Joe -

  26. It’s time for the Billionaires to become Millionaires and for
    the “normal people” to get some of that money of the rich bastards!

    We to “Robin Hoodinize” our society! Screw Capitalism.. it only
    helps the rich.

    Comment by Just a Joe -

  27. 1) To the average American, the word “bailout” connotes charity—a one-way benevolent transaction. To the average American, it makes no sense to bail out companies run by multi-millionaires. It therefore makes no sense to politicians to be perceived as supporting the bailout of multi-millionaires. Hence, no passage. ETFs are investments– two-way vehicles. As long as you keep calling your plan a bailout, many people are not going to pay any attention to it. Marketing 101.

    2) Even the Republicans blame Paulson and Cox for this financial mess. To even hint you want to keep either of them in office is downright loony. It undermines your credibility.

    3) On the one hand, you ostensibly have enough faith in both candidates as financial experts that you urge them to set aside their campaigns to go to DC and work out a solution, yet on the other you have zero faith in either of them to pick someone to enact it. Or is it just the Democrats you have a problem with? If so, then why pretend you are trying to be bi-partisan on this when you only have faith in one party? Does this mean if the Democrats want to implement your idea you will say “do it without me because I don’t trust you?”

    Solution: Call your idea a Financial Covenant. It’s biblical. Democrats and Republicans alike will relate to it, as will their constituency. It also connotes a two-way relationship with, most importantly, trust. Shop your idea to your influential Democratic and Republican friends. Hopefully your newfound political clout will allow you to also suggest someone to implement the plan. You read it here first!

    Comment by Jeff Mitchell -

  28. You say “Sec Paulson has asked for authority to spend what he needs
    to save our financial, and possibly the world’s financial system. ”

    How do they know what it going on is bad? It might be good.
    We need a pruning.

    I say lets let the market work. Small government and free market.

    Who will manage all this? I see government growing much larger
    to manage all these loans.

    Let the market work!

    Comment by PHP Developer -

  29. Mark,

    Great appearance on Fox with Cavuto!

    You made some great points that resonated with Cavuto’s panel — Cavuto has been singing your praises today — hope see you on tv and TechCrunch again soon.

    -Michael

    Comment by Michael -

  30. The market lost 1.2 trillion dollars in value today.

    They should have passed that bill…

    Comment by Aman Makkar -

  31. 700 billion vs the 1.4 trillion in capital depreciation in the markets today
    even congress can do the math……….
    well maybe not

    Comment by dan -

  32. I wonder if the time has come in our history that people are beginning to listen to Mises, Rothbard, Hayek, Rockwell and Paul. Who are they? I’d recommend http://www.lewrockwell.com/orig9/recession-reader.html to start and see what those that saw this coming have said for decades.

    Comment by Patrick Keith -

  33. 1) It’s not a blank check; the person will in time be identified, obviously, and obviously the ability to handle this situation will go into who’s chosen.
    2) Yes, they can appoint just about anyone—BUT THEY’RE DEMOCRATS, CUBAN! What, you think DEMOCRATS are going to appoint some Wall Street broker? That’s a REPUBLICAN TACTIC! Are you confusing your parties, Cuban? C’mon—BUSH is the guy who gives favors to corporate friends…what makes you think McCain wouldn’t do the same thing? AND, AS YOU MENTIONED, PAULSON HIMSELF IS A WALL STREET MAN! So NO, it’s NOT SCARY—however, if McCain wins, then THAT would be scary!
    3) The Oversight Board is not a joke—they might only meet monthly (which IS significant), but they still can do work on their time outside those meetings.
    4) What’s bad about Democrats being on the board? If anything, YOU SHOULD LIKE THAT, SINCE DEMOCRATS ACTUALLY CARE ABOUT REGULATION! Cuban, again, is your head OK?
    5) “How in the world can you have people who only meet 1x a month overseeing the spending of 700B dollars?” You’re acting like they’re the only ones overseeing the balance sheets; there are other parties involved, too, like the SEC, Congress, the institutions themselves, and so on.
    6) “This legislation needs to be modified with a requirement that Sen Paulson is asked and agrees to stay on the job for at least 1 more year.” Cuban, the problem is, that raises WAY too many administrative law and jurisdiction issues—I doubt Congress has the authority to do such a thing.
    7) You want full-time business people running the oversight committee? Dude, that goes against your hopes! That’s REALLY CORRUPT! Also, if you want them report daily (even on weekends, Cuban?), then imagine how much stress and negative speculation that could cause—gain, things that YOU’RE AGAINST!
    8) “Let me put it this way. Who in their right mind would invest money in a company where there is a darn good chance that the CEO will leave in a few months, and there is no known replacement ?” ALL THE TIME, when companies get rid of CEOs who are performing badly, their stock GOES UP, for people are HAPPY when poorly performing members of a company leave. So, gee, Cuban, let me think—MOST PEOPLE WOULD INVEST IN SUCH A COMPANY!
    9) “And one more importantly critical issue. The companies making all the banking acquisitions, JP Morgan and CItibank and Bank of America, they are basing the quality of these acquisitions on their ability to project failure rates and home prices. Literally, how well they predict the future of these markets has more impact on the future of our financial systems than anything happening in the Bill.” Finally, you’re making sense. Yes, that’s a good point. But still, things are more complicated than how these three banks do in these futures, especially since we’ll have more safeguards and be more uptight about the situation.
    10) I might also have to agree with you on the short-selling bit.

    Comment by the-cuban-responder -

  34. Not sure which is worse, a potential candidate that can’t muster a majority of his party’s support or a “change” candidate that can’t muster passing support from the majority party!

    Both of these candidates need to show considerable more leadership by far than they have.

    This is pathetic and an embarrassing sign of the leadership in Washington right now and obviously things will not change with either candidate in office.

    Comment by Jacob McNutt -

  35. WOW! Check out the DOW! …Down nearly 780 points in the largest one-day point drop ever! U 2 will remember this day – Monday, September 29, 2008 – Bloody Monday.
    Black Tuesday (October 29, 1929) … Stock market crash and start of the Great Depression
    Bloody Monday (September 29, 2008) … Stock market crash and start of …?

    Comment by Jim Parham -

  36. jacob jones said “700 billion is just silly, if youre going to spend that much, just
    disperse it in the population. people would pay off their mortgages,
    and we’d spend our way out of a recession.” If I could pay off my mortgage with roughly $9300 (my 4-person family’s share) I’d pay it off myself tomorrow. Of course, I’d probably be considered too right so I’d get nothing anyway.

    Comment by Brad -

  37. Decentralize the capital markets for small businesses through consolidation of private micro-capital. Mark, leverage your technology smarts to create a decentralized but organized market for small businesses, who represent the majority of jobs in the US, to access capital.

    Screw the morons in government. It’s time for us to stop whining. Let’s get to work and figure out a way to solve this.

    Comment by Mike Moreland -

  38. Now that the DOW closed down 777 pts(7%)(lucky huh?) and Nasdaq down 199 pts(9%) maybe Congress will realize that this is not a game and there is no room for politics during this situation. Democrats and Republicans will all be losers if they muck this one up. We can’t wait until November and hope for the best.

    I will reiterate that Paulson needs to purchase the WORST assets first for the following reasons: 1)He would set the price that he is willing to pay. If he pays 50 cents/dollar then the next company will have a hard time trying to get 65 cents/dollar; 2)By taking the biggest rick out of the market, breaking it up and then re-selling it, the other banks will breathe a sigh of relief and ease up on lending restrictions; 3)The President can go on national television and boast about the major risk has been extinguished and how he expects the markets to return to normal levels(pre-BailOut). It is impossible to tell right now what the markets will do but a BailOut and endorsement by President/Congress/Both Candidates will ease the psyche of the American people and thus the world.

    Comment by Tom -

  39. The reality is that through deceptive loan practices and poor individual choices of many we have landed in a bit of a global financial pickle.

    Lost jobs are a whole different matter that I do not consider a part of this problem or discussion. I have been there, laid off and jobless for extended time. That is a reality that is there of course, and there are already programs to help with (not fix) that scenario. Of course if someone racked up rediculous debt then just quits their job, that is a whole different matter yet!

    I see a potential for more deception and abuse… I do not expect anyone to bail me out of my poor choices in life, so I have a bias… I admit that. I strive to teach my kids that you must take responsibility for your actions and take the consequences for your choices… To me this applies at the corporate level as well as personal.

    The reality is there has to be a bailout, no doubt… but how do we do this without punishing those who are doing everything right?

    I like the scenario regarding someone kicking a hole in the boat… do you help the person who kicked the hole in the boat? The first step is to shore up the hole to keep everyone in the boat from drowning! Then the question is what do you do with the fool who kicked the hole in the boat in the first place?🙂 And to me the fool may be the irresponsible consumer… or the irresponsible lender… actually I consider both equally responsible!

    And no doubt, the US economy is not just interconnected with itself… it is interconnected globally… The Darwinian comment I made in a different blog was intended to reflect that very thing… If the US economy collapses, so does most if not all of the world’s economy… for better or worse, EVERYONE is dependant on everyone, and that is why we ALL must take responsibility and assure we are doing the right things… This is not a RED vs. BLUE thing, or a USA vs. ???… it never was, and it should never be approached that way… This issue is more critical than politics at this point…

    I will say this… I think ARMs and instant credit should be illegal and considered fraud. JMHO…

    Also any corporation that taps into the bailout funding should be required to cap salaries to 100k/yr per employee, including the executives, CFOs,CEOs, etc. until they can repay thier corporate debt to the taxpayer. Maybe the company should turn over a percentage of it’s retained stock to the Fed as collateral. This way, the executives do not get fatter wallets at the taxpayers expense…

    Thanks to everyone for the dialog… healthy debate and communication is always positive!

    Comment by Mark -

  40. Mark-

    It would be great if one of your posts addressed the 60-70 trillion dollar derivatives market and how in the world only 700 billion will do anything about that. I feel like the vote today helped us choose depression over hyperinflation. Id take that trade considering history. Thoughts?

    Comment by staypuftman -

  41. What a mess this afternoon turned into! What the heck is going on in Washington This does nothing but make the American people panic more! Last week they came out and announced that this bill was going to get passed twice! Neither instance passed. Then this weekend comes around and everyone and their mother is quite confident that this bill is going to get off the ground and into business after it easily will pass the House! Bam! Denied. Market is in turmoil and this cycle of the stocks plummetting and then gaining a little ground in the ensuing days will keep occuring until an agreement is made in Washington.

    Lets go Phils!!!!!

    Comment by doctor S -

  42. Hank Paulson would be the worst possible person to lead this and the
    damaged that he could cause in his last four months are reason alone
    to vote this down. Henry’s original proposal was for congress to give
    him $700B with no over-sight, so that he could essentially inject it
    directly into the balance sheets of large banks including his former
    company without those banks giving up anything, no equity, no comp
    changes. Essentially it would have been a rolling $700B slush fund
    where he could increase the net worth of these banks by overpaying
    for crappy assets, he could then turn around and sell the crappy
    assets and do it all over again, spending trillions, while management
    and shareholders see their shares and comp plans greatly increase
    in value from Hank’s subsidies.

    Why I don’t think Hank is unethical in any way, I think he’s blind
    to the real effects of his plan and how the world perceived it. He
    actually believes that his former employees who helped cause this
    mess are the “best and brightest” and we “need” them. He was worried
    they might quit if comp limits were put in place during the bailout,
    instead of demanding they be fired for their gross negligence.

    Hank will go down in history as the worst Treasury Secretary ever. I
    am so tempted to vote for Obama just to ensure we get a wrath of god
    type Treasury Secretary who will be certain to take a pound of flesh
    from any firm anting up for a bailout. The way the bailout measure is
    written is so loose Hank can decide to take a single share of common
    stock from Goldman in return for a $10B handout, and he’d meet the
    letter of the law. The bailout even as amended has far too much
    discretion to be left to someone with such poor judgment as Hank
    Paulson and such a skewed world view.
    pay cuts

    Comment by Randy Hill -

  43. I just found your blog, Mark, and am impressed with your ideas. I am going to forward a link to my Washington State Senators and ask that they read your blog and consider your advice when considering this issue.

    Keep up the good work and thank you for being a true Patriot.

    Comment by Ben -

  44. Here is the bad thing about hemming and hawing; the DOW was down 650 points when I last checked. That’s just for starters. Overseas financial markets have no qualms about dropping 10-20% per session if they are spooked. Thinking that the US Govt is not going to back up the US financial companies should do it. They need to place provisions to replace FSOB and the Sec of Treasury’s oversight of the BailOut Fund as necessary, drop the intial installment to $100B, then pass the damn thing. Paulson or anybody that McCain or Obama appoints, is going to be sailing in unchartered waters regardless. They are going to make mistakes, but making the problem bigger(i.e. delaying) will definitely make this situation worse. I mean worrying about who actively manages a $700B fund is pointless when you consider that Bush is running the entire $15 Trillion(GDP) government!

    Comment by Tom -

  45. ehhh let me put it this way. Your republican friends just fucked it up,
    so there is $0 to spend. And as far as I am concerned the U.S. banking
    sector is already nationalized. There is only BAC, JPM, C and Wells
    Fargo left and after this mess is over, they will be regulated as close
    as nuclear energy industry, because if they fail, we are all fucked.
    1929 will look like a picnic. About this 50 mil you were talking about,
    buy some food you can store long term, we might need it, might be a hell
    of investment.

    Comment by Tim -

  46. yea, i dont get that. all of this has happened under the wandering
    eye of a republican controlled government. hell, democrats just
    got majority less than 2 years ago. this shit has been brewing for
    some time now. to say, “oh god, you think its bad now, wait until
    those crazy DEMOCRATS get in office!” is just..well, dumb.
    i still dont understand the entire top-down strategy. gambling with
    700 billion is just silly, if youre going to spend that much, just
    disperse it in the population. people would pay off their mortgages,
    and we’d spend our way out of a recession. seems like a much more
    reasonable suggestion that rolling the dice on companies that have
    already proven they dont really know how what in the hell theyre
    doing.

    Comment by jacob jones -

  47. Will the Republicans do any better of a job?

    Comment by Pramod Patel -

  48. What a mess… these guys need to get something together pretty darn quick! Seems like a reasonable approach to have part of it available right away and debate the remaining monies after the elections if possible.

    How’s your feeling on the time frame before “critical mass”?

    BTW good luck on movement with the Cubs…. this fellow Texan would love to see these Chicago boy’s owned by someone who seems to actually care about the team!

    Comment by Jacob McNutt -

  49. The only thing scarier than Democrats being able to appoint the King of the Financial World is the Republicans being able to appoint the King of the Financial World or how about the Republicans being able to appoint whoever the want to the Supreme Court? Now that’s scary.

    Comment by Big Tex -

  50. House votes it down! They did the right thing. The thing I haven’t liked about this whole bailout proposal has been that it is based on fear of total collapse. I think a recession will span on it, but I don’t think it will be as bad as everyone fears; and that we, the USA, will recover from it. In the long run of things, we will rebound.

    Comment by Nate -

  51. No bailout this go ’round. My faith in American democracy has just been resotrd — for now.

    Time to earn your keep the old fashioned way, dear Americans.

    (Or however that old commercial used to go. =)

    Comment by Charles -

  52. Hey Mark,

    Careful should be the operative word while our “leaders” bail
    us out this week. I’m not sure on your suggestion of having Mr.
    Paulson stay on for another year is well thought out. Goldman Sach’s
    will be a huge benefactor from the the Paulson Plan as distressed assets
    would be removed from their balance sheet. Also, his close ties with China
    are another (pardon the pun)red flag. Finally, Mr.Paulson is aready worth 700M
    and that alone should be reason for concern. Just read section 8 of his plan…the
    verbiage should concern us. We need to get this fixed with some fresh, non partisan
    eyes and minds leading the way. Shooting from the hip with the same good “ol” boys
    leading the way will not get the U.S economy going forward again. Oil prices are
    still volatile and this “bailout” will do nothing to supress it’s continuing surge.

    We are the strongest people on Earth…we will figure this out but we need to do it together
    with people leading who have ALL the American citizens best interest in mind.

    Jerry

    Comment by Jerry -

  53. So… it’s your assumption is that a McCain win means Paulson stays at Treasury? Given McCain bff Phil Gramm has been angling for that job for more than a year, I’d say that assumption is poor. Paulson is out no matter what and I’m not sure I’d hold my breath on Bernanke when his term expires in 2010 either. You’re right, though, Oversight on this is a disaster.

    Comment by jamesn -

  54. Wow!! Looks like it will not pass the house. Here we go.

    Comment by Grant -

  55. Pingback: The World Will Keep On Spinning « Rush Babies

  56. “A Democratic win could give them the right to appoint the King of the Financial World and let that person spend whatever they want, up to 700 Billion dollars. Have you heard anything scarier in your adult life ?”

    you must be joking.

    Comment by Mike Amundsen -

Comments are closed.