Another reason why bailout will FAIL !

[icm63]

From the proposed legislation: LEGISLATIVE PROPOSAL FOR TREASURY AUTHORITY TO PURCHASE MORTGAGE-RELATED ASSETS

"(3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them."


Market Ticker's Karl Denninger summed this up best: "This is the de facto nationalization of the entire banking, insurance and related financial system..That's right - every bank and other financial institution in the United States has just become a de-facto organ of the United States Government, if Hank Paulson thinks they should be, and he may order them to do virtually anything that he claims is in furtherance of this act.....The bill gives Paulson the ability to nationalize unlimited amount of private debt and force you and your children to pay for it."

Denninger again: "The claim is that this is intended to 'promote confidence and stability' in the financial markets.

It will do no such thing. It will instead strike terror into the hearts of investors worldwide who hold any sort of paper, whether it be preferred stock, common stock or debt, in any financial entity that happens to be domiciled in the United States, never mind the potential impact on Treasury yields and the United States sovereign credit rating.

I predict that if this passes it will precipitate the mother and father of all financial panics." (Market Ticker)

http://market-ticker.denninger.net/

This guy can be extreme, but govt and politically influenced financial markets dont work ! Otherwise USSR financial markets under this guy would have worked fantastically well .

Brezhnev.jpg

http://en.wikipedia.org/wiki/Leonid_Brezhnev

[Supercilious]

Re: Another reason why bailout will FAIL !

icm63, the bailout cannot succeed because there is no bailout, and there is no real crisis.

Without the specter of an "imminent global economic" collapse the Fed could have never done what is is doing now.

There is no bailout there is only Fed pumping huge volumes of treasuries into the global financial system and making everybody (from foreign central banks to the Average Joe, Average Li, Average Hassan, Average Ivan etc) to beg for it crying: "Pleeasee Beeennn! Have pity and save us ! We need another flood of treasuries!!!

For every "catastrophic" situation Ben has just one cure: dump more treasuries . With all this panic around us we tend to forget that the mess was generated by the Fed by ... flooding the markets with treasuries.

[VIT]

Re: Another reason why bailout will FAIL !

This guy can be extreme, but govt and politically influenced financial markets dont work ! Otherwise USSR financial markets under this guy would have worked fantastically well .
http://en.wikipedia.org/wiki/Leonid_Brezhnev

I guess it is a good time to make some medals for "saving US economy". This guy (Brezhnev) loved to award medals for himself

[Supercilious]

Re: Another reason why bailout will FAIL !

Paulson is very busy these days:

Dear Nigerian:

I cordially correspond today to request you to support an urgent secret business relationship with a transfer of funds of great magnitude which is most seriously important.



I am Ministry of the Treasury of the Socialist Republic of America. My country has had crisis that has caused urgent need for large transfer of funds of 800 billion USD. If you would assist me in this transfer, it would be most profitable to you.



I am working with Mr. Phil Gramm, lobbyist for UBS, who (God willing) will be my replacement as Ministry of the Treasury in January. As a former U.S. congressional leader and the architect of the Bush / Cheney Financial Doctrine, you may know him as the leader of the American banking deregulation movement in the 1990s. As such, you can be assured that this transaction is 100% safe.



This is a matter of great urgency. We need a blank check. We need the funds as quickly as possible. We cannot directly transfer these funds in the names of our close friends because we are constantly under surveillance. My family lawyer advised me that I should look for a reliable and trustworthy person who will act as a next of kin so the funds can be transferred. For this inconvenience you will be rewarded with grand fees of 1/1,000,000th of 1% of possible profits due to off shore laundering of skim funds due to reprinting of said funds.



Please reply with mother's maiden name, routing and account numbers of all of your bank account, IRA, 401K, pension funds, gold and silver accounts, serial numbers of any weapons you own, and college fund accounts and those of your children and grandchildren to wallstreetbailout@treasury.gov so that we may transfer your commission for this transaction. After I receive that information, I will respond with detailed information about safeguards that will be used to protect the funds.



Please Respond Immediately Forthwith In Confidence.



Yours Faithfully and Sincerely,

Minister of Treasury Paulson

[icm63]

Re: Another reason why bailout will FAIL !

..."This guy (Brezhnev) loved to award medals for himself"...

Priceless !

Micheal Hudson is correct, this is massive wealth grab for the rich !

Rirchard Ney would be saying "I told you so!" - Shame he is not around to be on CNBC to comment on the Wall street 30 thieves ! http://www.hermes-press.com/neyint.htm

[GRG55]

Re: Another reason why bailout will FAIL !

icm63, the bailout cannot succeed because there is no bailout, and there is no real crisis.

Without the specter of an "imminent global economic" collapse the Fed could have never done what is is doing now.

There is no bailout there is only Fed pumping huge volumes of treasuries into the global financial system and making everybody (from foreign central banks to the Average Joe, Average Li, Average Hassan, Average Ivan etc) to beg for it crying: "Pleeasee Beeennn! Have pity and save us ! We need another flood of treasuries!!!

For every "catastrophic" situation Ben has just one cure: dump more treasuries . With all this panic around us we tend to forget that the mess was generated by the Fed by ... flooding the markets with treasuries.

Looks to me that they are calling in some of that earlier flood of Treasuries, now bid up and overvalued, to exchange them for something else Paulson's friends on Wall Street have flooded the markets with...currently in abundance and apparently available at a steep discount if the Trez Secretary is to be believed. It would seem there is no shortage of holders of Treasuries that would love to exchange them for something else. Anything else. ;)

[Supercilious]

Re: Another reason why bailout will FAIL !

Looks to me that they are calling in some of that earlier flood of Treasuries, now bid up and overvalued, to exchange them for something else Paulson's friends on Wall Street have flooded the markets with

GRG55 what they are doing now is to exchange the frozen derivatives with liquid treasuries. If you own a $1mil CDO which experiences 5% defaults on it's high risk tranches it doesn't loose $50k . It becomes illiquid because nobody knows how much it would loose next year and so on. You loose the whole million as long as the CDO remains frozen. Look what happened to auction rates securities.

...currently in abundance and apparently available at a steep discount if the Trez Secretary is to be believed.

Yes. By freezing a large volume of derivatives under the excuse of avoiding a deflationary shock the Fed changes the composition of the liquidity pyramid by expanding the sector of power money/treasuries. And this expansion is actually what they want.

They are buying back frozen derivatives and release more treasuries. They are doing that at cents on dollar and they can reliquify them at will. It's a "win big" -"win big" game for them and "lose your shirt" -"loose your shirt " for the rest of us .

It would seem there is no shortage of holders of Treasuries that would love to exchange them for something else. Anything else. ;)

There is nothing else ... that's the problem.

[Supercilious]

Re: Another reason why bailout will FAIL !

double post error

[icm63]

Re: Another reason why bailout will FAIL !

..."For every "catastrophic" situation Ben has just one cure: dump more treasuries . With all this panic around us we tend to forget that the mess was generated by the Fed by ... flooding the markets with treasuries"..

WHY ARE IDIOTS BUY USA TREASURIES THEN, if they didnt buy the stuff yields would go up, higher interest rates would force the USA housing devaluation adjustment quicker and sort this mess out real quick. Why is the rest of the world fueling USA ability to borrow from the market ???

Why not BUY other AAA countries TREASURIES : Swiss, Japan, Euro etc

Is it just purely to get he world biggest consumer (ie USA citizen) spending again ?

[Supercilious]

Re: Another reason why bailout will FAIL !

WHY ARE IDIOTS BUY USA TREASURIES THEN, if they didnt buy the stuff yields would go up, higher interest rates would force the USA housing devaluation adjustment quicker and sort this mess out real quick. Why is the rest of the world fueling USA ability to borrow from the market ???

That is the point. Tehre is no alternative and USA is the only one ready to play financial hardball. They could buy eurobonds ... but EU doesn't have enough deficit and they cannot have huge deficit in the current configuration of the Eurozone. Let's face it, Ben has them and us by the balls.

The problem is not just with the Fed (although that's the most outrageous case). The real issue is the current global Central Bank system (wiith a few small notable exceptions such as Switzerland, Finland etc.).

Read and laugh.... after they were screwed badly and lost billions in recycling capital, Dubai comes again for more... I know .. it sounds like a cheap porn movie ... but this is the modern financial system :
http://www.reuters.com/article/reute...40469020080922

ABU DHABI (Reuters) - Abu Dhabi Investment Company (ADIC) is considering acquiring U.S. assets that are looking attractive due to financial turmoil and the surging dollar, the state-owned group's chief executive told Reuters.

But ADIC, flush with cash from oil revenues, will be cautious about investing in Europe where regulators are not as active as in the United States in containing the crisis, he said.

"We think U.S. assets are getting very very attractive vis-a-vis other G7 assets," Nazem Al Kudsi said in a telephone interview. ADIC has about $2 billion in assets.
[...]
Abu Dhabi United Group for Development and Investment, headed by a board member of ADIA, is buying English soccer club Manchester City. In November, ADIA, the world's largest sovereign wealth fund, sealed a deal to buy a $7.5 billion stake in U.S. bank giant Citigroup

[D-Mack]

Re: Another reason why bailout will FAIL !

Why is Roubini thinking it could stave off a recession ?

Economists from both sides of the political aisle who had provided a bipartisan sheen of consensus to Paulson and Bernanke’s previous moves have quickly began casting doubts on the wisdom of a policy that would allow the Treasury Department to purchase hundreds of billions of dollars of difficult-to-price assets from financial institutions without oversight or an explicit quid pro quo limiting future risky behavior.

...

Skepticism toward the plan reflected more than the predictable desires of the left to spread the wealth to Main Street or of the right to reject government bailouts, although those sentiments were also expressed.

Paul Krugman, the Princeton economist and liberal columnist for The New York Times who had until now been cautiously supportive of Paulson's and Bernanke’s efforts to prop up the system, wrote that the new plan would be a taxpayer rip-off. “I hate to say this, but looking at the plan as leaked, I have to say no deal,” he wrote on his blog at 4:46 PM on Saturday. “Not unless Treasury explains, very clearly, why this is supposed to work, other than through having taxpayers pay premium prices for lousy assets.”

”[Bush is] asking for a huge amount of power,'' said Nouriel Roubini, an economist at New York University who was among the first prescience to predict the crisis. “He's saying, ‘Trust me, I'm going to do it right if you give me absolute control.' This is not a monarchy.'' (Roubini told the New York Times that despite these concerns, he also thought the plan could help stave off a recession.)

Yves Smith, a longtime banker and contributor to the influential finance blog Naked Capitalism, published an angry post there titled, "Why You Should Hate The Treasury Bailout Proposal":

...

http://news.yahoo.com/s/politico/200...litico/13689_1

[kingcopper]

Re: Another reason why bailout will FAIL !

Why is Roubini thinking it could stave off a recession ?

Roubini is being misquoted in that article; that is all. He has been saying that we are already in a recession for months.

[FRED]

Re: Another reason why bailout will FAIL !

This is Denniger's sour grapes position. He argued with us for a year before this crisis that a massive deflation was the inevitable result, that the government isn't going to "put a gun to its head and pull the trigger" by monetizing debt.

We tried to explain to him that the government has many other ways of maintaining the money supply growth and thus avoiding deflation.

He was wrong, but of course will never admit it.

[D-Mack]

Re: Another reason why bailout will FAIL !

Paulson testimony,

It's all done for the people, while blaming some and not mentioning Goldman....

Paulson Testimony on Turmoil in U.S. Credit Markets

The following is testimony by Secretary Henry M. Paulson before the Senate Banking Committee today:

Recent Actions regarding Government Sponsored Entities, Investment Banks and other Financial Institutions

Chairman Dodd, Senator Shelby, members of the committee, thank you for the opportunity to appear before you today. I appreciate that this is a difficult period for the American people. I also appreciate that Congressional leaders and the Administration are working closely together so that we can help the American people by quickly enacting a program to stabilize our financial system.

We must do so in order to avoid a continuing series of financial institution failures and frozen credit markets that threaten American families’ financial well-being, the viability of businesses both small and large, and the very health of our economy.

The events leading us here began many years ago, starting with bad lending practices by banks and financial institutions, and by borrowers taking out mortgages they couldn’t afford. We’ve seen the results on homeowners – higher foreclosure rates affecting individuals and neighborhoods. And now we are seeing the impact on financial institutions. These bad loans have created a chain reaction and last week our credit markets froze – even some Main Street non-financial companies had trouble financing their normal business operations. If that situation were to persist, it would threaten all parts of our economy.

As we’ve worked through this period of market turmoil, we have acted on a case-by-case basis — addressing problems at Fannie Mae and Freddie Mac, working with market participants to prepare for the failure of Lehman Brothers, and lending to AIG so it can sell some of its assets in an orderly manner. We have also taken a number of powerful tactical steps to increase confidence in the system, including a temporary guaranty program for the U.S. money market mutual fund industry. These steps have been necessary but not sufficient.

More is needed. We saw market turmoil reach a new level last week, and spill over into the rest of the economy. We must now take further, decisive action to fundamentally and comprehensively address the root cause of this turmoil.

And that root cause is the housing correction which has resulted in illiquid mortgage-related assets that are choking off the flow of credit which is so vitally important to our economy. We must address this underlying problem, and restore confidence in our financial markets and financial institutions so they can perform their mission of supporting future prosperity and growth.

...

http://blogs.wsj.com/economics/2008/...redit-markets/

[nathanhulick]

Re: Another reason why bailout will FAIL !

This is Denniger's sour grapes position. He argued with us for a year before this crisis that a massive deflation was the inevitable result, that the government isn't going to "put a gun to its head and pull the trigger" by monetizing debt.

We tried to explain to him that the government has many other ways of maintaining the money supply growth and thus avoiding deflation.

He was wrong, but of course will never admit it.

Exactly. He consistently insulted everyone on his forum that didnt agree with his massive deflation thesis, and now that he is so obviously wrong, he still doesnt admit it. He is very similar to Mish. The main difference being that it seems that nowadays Denninger (presumably) admits that we are seeing inflation, and Mish still insists that we are seeing massive deflation, despite all evidence to the contrary.

He is right, in that this bailout continues the government policy of the last decade+ of screwing savers and rewarding those who engaged in risky behavior. Unfortunately for his portfolio, his theory that the value of the dollar was going to skyrocket has not panned out so far.