Maybe a Deal, Maybe Not (Update: Deal Appears On)

Apparently there has been a pretty weird announcement. Progress is being made to sound like resolution. Since the House Republicans weren’t part of the photo op, it isn’t at all clear whether this is real.

First sighting from Clusterstock, will add updates as they come in:

Update (12:35 a.m.): Nancy Pelosi speaks first. She says we have a deal. Harry Reid is up next. He credits Pelosi with coming up with a new idea in the final hour but doesn’t even hint at what that is! Hank Paulson sounds less reassuring, mentioning that there is lots of work left to be done and concluding “so far, so good.”

Gregg just sounds glad to be able to go to bed. Roy Blunt admits he hasn’t talked to the House Republicans but seems confident. Blather from Dodd about how “unpleasant” having to “go through all this” has been.

Clusterstock again:

Update (12:37 a.m.): It’s a secret deal! Until they get it down on paper overnight, we won’t know what they agreed to.

Except, except. We imagine that that the staff members and lawmakers will quickly be leaking details to reporters.

The part that has me perplexed is the confidence versus the apparent non-inclusion of the rebels. Or was someone dispatched to kneecap them?

Update 12:55 AM: Media reports are taking the announcement that a deal is on at face value. Given the reversal of last week, one hopes they have done a better job of getting everyone in line before making this pronouncement. From the Washington Post:

Congressional leaders and the Bush administration last night struck a historic accord to insert the government deeply into the nation’s financial markets, agreeing to spend up to $700 billion to relieve Wall Street of troubled assets backed by faltering home mortgages.

Negotiators emerged from a marathon session in the Capitol about 12:30 a.m. to announce that they had reached agreement on a proposal to give Treasury Secretary Henry M. Paulson Jr. broad authority to organize one of the biggest government interventions in the private sector since the Great Depression.

Full details of the plan were not immediately available. Lawmakers said their staffs would continue working through the night to commit them to paper….

Sen. Richard C. Shelby (R-Ala.), the senior Republican on the Senate Banking Committee, who has refused to participate in the talks, said a “critical mass” was forming behind the measure because lawmakers fear that their failure to act would cripple financial markets. The House is expected to vote on the plan as soon as today, with the Senate following as soon as Monday.

As with Iraq, the fear card worked.

Update 1:20 AM: More detail from Politico, which calls the deal tentative:

House and Senate negotiators have reached tentative agreement on a financial rescue plan after a marathon Capitol negotiating session that started Saturday afternoon and stretched into early Sunday morning.

House Speaker Nancy Pelosi (D-Calif.) and Sen. Majority Leader Harry Reid (D-Nev.) said their “breakthrough” still had to be “committed to paper,” a process that was expected to continue through the night.

“We have something verbal,” said Rep. Rahm Emanuel (D-Ill.).

Republican Whip Roy Blunt, the chief negotiator for House Republicans, said he was “looking forward to what we’re going to see on paper” and was optimistic that it would be something House Republicans could support….

The plan would likely give Paulson a relatively free hand accessing the first $350 billion of the $700 billion he sought. It was not clear when the remaining $350 billion would become available, but Treasury apparently agreed that a future Congress could block its release though a joint resolution signed by the president.

The agreement would also include much greater oversight than the Bush administration had initially proposed; an opportunity for the government to take an equity share in the companies it helps, either through warrants or options to buy stock; and a provision limiting the compensation paid to executives of those companies.

To help win the support of House Republicans, the agreement also would likely include an option under which Paulson and future Treasury secretaries could choose to sell companies government-backed insurance to cover securities – thereby improving their value – rather than buy the assets as initially proposed.

A vote in the House could come as early as Monday, Emanuel said.

House GOP leaders had warned Saturday evening that they would need to take any deal to their rank-and-file members before committing to the deal.

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  1. Anonymous

    Sen. Richard C. Shelby (R-Ala.), the senior Republican on the Senate Banking Committee, who has refused to participate in the talks, said a “critical mass” was forming behind the measure because lawmakers fear that their failure to act would cripple financial markets. The House is expected to vote on the plan as soon as today, with the Senate following as soon as Monday.

    Well I would say he had better start participating, pronto! Or, does he suddenly approve of this? Is Shelby caving?

  2. Yves Smith

    Shelby is apparently caving, I omitted the sentence from WaPo immediately before that quote:

    Even staunch opponents of the emerging plan said they expected it to pass.

  3. DaddieMac

    A bill this controversial will be released in the dead of night a voted on in morning before anyone has a chance to read the 1000+ page document. Shelby was against the stimulus checks too. True fiscal conservatism is dead. If this bill passes this will be the Democrats Patriot Act. I really think that the Democrats think they are doing the right thing.

  4. DaddieMac

    Paulson has proposed buying $700 billion of underwater mortgage securities, but the banks won’t sell at a big discount as the losses will bankrupt them. They will sell the assets they already marked down, but getting rid of those doesn’t help their equity base at all, and preserving this is why they aren’t doing anything.

    Won’t Work.

  5. Anonymous


    Buy a little time till after the elections? Wait till 10’s of millions of Americans come to the full realization that their home value is worth 60 % of their unamortized mortgage balance.

    Now what was it the scorpion said to the frog after he stung him?

    –Avg Joe

  6. Anonymous

    Who is going to bailout the democrats and republican in the next congress election? I am foreigner but how you american voted for these lunatics in the last election?

  7. Richard Kline

    They don’t have a deal: they have a microphone and a camera. But these mooks have already decided that they _will_, goddammit, pass a cash float. The goal, then, is to baby-talk the bond markets for the nonce, hour by nour, that they not tantrum at us fur their bailout, while finding what kind of _payoff_ they have to lard into the thing to get Congressfolks for sale to pitch in their invididual aye aye. The idea of producing a functioning financial intervention has been thrown over for a ‘do something like you care’ Garbage Scow Act of 2008.

    Every Congressperson who votes for this used toilet paper agenda is a failure to their country. We are watching the crapola of our entire political system of the last thirty years pressed into one slick, shiny pellet to be crammed down the public’s throat. In a way, it’s fitting: we allowed these schlubs to occupy office, and now we see what our slovenliness has brought us to.

  8. Anonymous

    If they don’t pass the bill, will the following happen:
    1. Credit continue to get squeeze and squeezier?
    2. Banks start to fail like dominoes?
    3. Other businesses will collapse since can’t borrow money?
    4. More and more people(Americans and worldwide) start to lose jobs?
    5. All of you will go insane as no more stock to short?

    Even if the Bill is pass, American will still lose their Jobs and homes. Recession will still last 18 months at least. Maybe the american are so forgiving when the economy will be still suffering hard landing. The congress will then say no bailout economy will be in worser condition then now. Ha ha, these are the guys that allow those bubbles happening in Wall street.

  9. Trader M.D.

    And how exactly is this deal different than the one that failed on Thursday? Seems awfully similar to me.

  10. djap113

    ‘Who is going to bailout the democrats and republican in the next congress election? I am foreigner but how you american voted for these lunatics in the last election?’

    sadly, most americans are still thinking somehow McBama is going to save them. pushing this bailout is the worst thing to happen to our financial system in my lifetime.

    it doesn’t seem that people are still ignoring the obvious:

    * An estimated 2.3 million foreclosures will occur in the next two years.
    * One-third (2 million out of 6 million) of borrowers with outstanding subprime loans are delinquent or in foreclosure.
    * 40 million will see their home values decline due to projected foreclosures.
    * 20,000 families lose their home each week.
    * 70% of troubled borrowers are on track to receive no help from loan servicing companies.

    sad isn’t the word. pathetic seems much more appropriate.

  11. doc holiday

    IMHO, which is highly suspect, people and banks that are connected to real property, real assets will be fine, but those who are over leveraged will pay a price for being linked to to the thin air that connects the infrastructures that make up the illusions of stability associated with houses of cards.

    The main thing I sense here, is that no one involved in this Bailout Plan had a clue as to how this happened, no clue as to what they are talking about and obviously no clue as to how to solve this problem. The one thing they all understand, is that wall street wants more money ASAP and by God, if this house of cards was built on illusions, we need to keep it standing as long as possible! The main thrust is to NOT understand the core problems related to accounting fraud!

  12. Abe Lincoln

    Ok Kids, if you still like this deal, stay quiet, if you don’t like it, call your representatives!!!

    The next step will involve selling the deal to rank-and-file lawmakers, who have been unhappy over signing on to a giant bailout package just weeks before the November elections. House Minority Whip Roy Blunt (R., Mo.) said that he planned to talk to colleagues and get reactions

    The plan would allow the government to buy up bad loans from troubled firms in an effort to give sluggish credit markets a boost. But many lawmakers, including all the members of Wisconsin’s congressional delegation, were not prepared to endorse the idea.

    Rep. Paul Ryan of Janesville joined House Republicans who unveiled an alternative to the plan being crafted by congressional leaders and the Bush administration.….aspx? id=799386

    The Los Angeles Times on Thursday called the proposal “wildly unpopular.” The New York Times reported that the “delicate” negotiations between Paulson and congressional leaders were “complicated” by pressure on rank-and-file legislators “who were fielding torrents of complaints from constituents furious that their own money was going to be spent to clear up a mess created by high-paid financial executives.”

    The newspaper gave several examples of lawmakers who have been inundated with hostile emails and phone calls over the past week. “Senator Barbara Boxer, Democrat of California,” it noted, “has received nearly 17,000 email messages, nearly all opposed to the bailout, her office said. More than 2,000 constituents called Ms. Boxer’s California office on Tuesday alone; just 40 favored the bailout. Her Washington office received 918 calls. Just one supported the rescue plan.

    “Senator Sherrod Brown, Democrat of Ohio, said he had been getting 2,000 email messages and telephone calls a day, roughly 85 percent opposed.”

  13. Anonymous

    The big picture is increasingly clear. Wall Street holds the United States hostage: give us $700 billion or else we’ll bring down the entire economy and destroy this country.

    This is financial terrorism.

    This is what Osama bin Laden must have dreamed of doing.

    The worst terrorists in the world, it seems, live in New York, and brazenly wield their power in broad daylight.

    I’m shocked beyond belief. Is this still America?

  14. Anonymous

    I feel like the asset insurance proposal to appease the Republicans is a Trojan Horse. If the government sells insurance on the assets, won’t that still have the same effect as buying the bad assets outright. If the assets default, government will have to make the holder of the insurance policy (Wall Street) whole, meaning we the taxpayes still end up bailing out Wall Street with our own money, or since we actually don’t have any, through inflation, more specifically. I feel like an insurance salesman who just sold a car insurance policy to Evil Knieval.

  15. doc holiday

    IMHO, this is not a done deal; Keep looking for: “Economic Recovery and Corporate Accountability Act of 2008”

    This is from yesterday: Troubled Assets Relief Program Highlights of the Discussion Draft Bill Currently being considered by Congress on
    Friday, September 26, 2008…ocs/ dp_2307.pdf

    This is from the 25th: public…YO08B68_xml.pdf

  16. nude

    This will become the classic example of the notion that “something must be done”. You had fear forcing a demand of action that brought out every special interest hoping to hitch their wagon to a plan, that was born of panic, hoping that they would get to take advantange of the overwhelming rush to get something passed.

    Not only is our economy in trouble, our representatives are morally bankrupt.

  17. Anonymous

    It hasn’t been mentioned, but one wonders about the role of blackmail in this type of event. I don’t mean the type of general blackmail eloquently described in one blog as “put $700 billion in the bag and nobody gets hurt”, but at a more personal level. Many of these elected representatives must have things to hide, and Eliot Spitzer was provided as an example to remember.

  18. Cash Mundy

    Apparently the break through came when Nancy Pelosi came up with some idea no one had ever heard of…..All we know is that Nancy Pelosi said that the “package” would stabilize the markets, protect the US taxpayers, provide for “equity in the upside,” include oversight, forebearance in terms of mortgage foreclosures and limits on executive compensation. Also, sources say the initial amount available under the bailout will be $350 billion. The additional $350 would become available later, perhaps after further Congressional action.

  19. Douglas

    is 700 billion a hard cap? I saw language earlier that this was just the amount that could be outstanding at one time.

    However, I read that the money woul d be allocated in two tranches. So there is a hard limit, yes? This is not, a blank check?

    Anyone know how this will work in practice?


  20. Anonymous

    According to The Hill:

    “An oversight board would be established, with seats for the Treasury Department secretary, Securities and Exchange Commission chairman, Commerce Department secretary and Federal Reserve chairman.”

    Can you believe this? This is all a fig leaf. The provision to allow congress to override the last $350 requires a presidential signature, which means 2/3 required to override. Fat chance. So basically Paulson gets to blow the whole $700B (or more) if he want to.

    I can’t really explain why, but this still amazes me. Probably wishful thinking on my part.

    Glenn Greenwald had a great post at Salon (I think it was last weekend) where he predicted how this would unfold. He had the FISA experience to go by, among others. This is even more political theater to arrive at the same pre-ordained result. This is really depressing. Bush is going to go down in history, as he takes us with him with the faithful support of a Democratic congress.

  21. Anonymous

    Why bother to ask Congress for a bailout bill in the first place? Couldn’t another “facility” have been set up to buy distressed mortgages and put them on the balance sheet of the Fed??


  22. Anonymous

    “We, the unknowing, are throwing you, the unwilling, under the bus, to save the unconscionable. We have messed up so much, for so long, at such great cost, we are now qualified to do nothing with everything.” (NakedShorts: Parsing the President, via FT Alphaville link)

  23. Anonymous

    Could it be that “once by land…” and “hanging chad” represent major turning points for the USA?

  24. Anonymous

    Kinda late, but just great comments on a Yahoo thread from someone going over The Plan; worth your time!!

    This is under Williams Companies, Inc 26-Sep-08 03:41

    E.G: Did it say anything about Acorn or was that attached as a rider? I prefer the program that the conservatives are advancing about buying insurance from the Fed but my inclination is to just let the bad notes crash and burn. I was speechless at a local leftie who wanted to centralize the bank and give Congress total authority to print money. I thought I was going to wreck the car

  25. Anonymous

    What is this?

    The Housing and Economic Recovery Act of 2008 establishes a permanent trust fund called the Capital
    Magnet Fund within the Treasury’s Community Development Financial Institutions (CDFI) Fund. It
    will be financed by contributions based on Fannie Mae and Freddie Mac’s annual new business
    purchases from the previous year. The CDFI Fund will use these resources to provide competitively
    awarded grants to CDFIs and qualified nonprofit housing organizations to finance affordable housing
    and community development projects.

  26. Anonymous

    Here’s a back to basics solution and ya boo sucks to anyone who believes that giving drugs to an addict for a year is a great idea!
    1. Propping up a failed model is stupid, so start a new one. Take all banks assets onto the Government balance sheet, while a better model is constructed.
    2. Make the production of all goods sold in the USA subject to the same workplace standard applied to US goods, with a Federal body (quarterly inspections by different staff members) obligatory.
    Ok that fixes the drug and the drug dealer. Next comes rehab.
    3. Make individual and company borrowing restrictions the same. There is no reason why a vehicle should have laxer standards than are applied to an indidividual.
    4. Cut defence spending by 75%, particualrly on hardware that is of dubious use. So eliminate all spending that doesnt have a purpose. It may not have escaped everyones attention, but before we all forget, the pentagon spends as much as this bail out EVERY YEAR.
    5. Set the maximum borrowing amount to the combination of three times income for any individual or company.
    6. Stop ratign agencies being paid by the borrowers they rate and make the BIS or IMF insure against downgrades.
    7. To fix the MBS problem, break up all the pools into individual mortgages and then re-bundle them.
    8. Do no not offer any refinance to mortgage defaulters unless those NOT in default have the same terms applied to their mortgages OR other households are offered thechance to give their existing homes in exchange for the over specified and expensive homes (why should a defaulter have a better home than a non defaulter). This would migrate and give main street the chance for a property upgrade to clear modern houses and put defaulters in worse quality homes.
    9. Re-start a mass immigration policy to target 3-5 million migrants entering the economy.
    10. Spend 700 billion on broad economy employment programs in infrastructure to rival the standardsbeing put in place in China and Qatar right now.

  27. Carrick

    Harry Reid, who admittedly 'doesn't get this whole thing, but..', is praising Pelosi, starry-eyed drummer boy groupie for the Dalai Lama, for a brilliant finance "eureka!" moment? Am I shedding youthful naivete, or is this moment in history really dumber than usual?

    I'm a outsider to finance, but why aren't the industry big wigs at the pow wow? He said/she said congressional hearings might thrust the public into confused/scared gridlock, but are the legit Wall Street watchdogs (non-regulators, NGOs) sitting in on this somewhere, or feeding Congress at least?

    Did the Hussman letter to Congress elicit any response, or finance-insider debate & concensus?

    I'm a democrat, basically(?), but I've never thought of Pelosi as much more than an enthusiastic well-meaning airhead. This Pelosi revelation is too much to swallow.

  28. Anonymous

    “a marathon Capitol negotiating session that started Saturday afternoon and stretched into early Sunday morning”

    Whilst staunchly opposed to the bailout as it stands, my views aligned with Yves, I do stand back in astonishment – that is not a marathon effort. No wonder the investment bankers get paid the big bucks – they regularly and frequently endure all night, or almost, sessions to get a deal done!!

    Half of Congress doesnt know the full facts and implications of this so how can a “meaningful” solution eventuate????

    This propsoal and current disaster hold America’s future (and no, I am not American) and the future of the New Order (aka world post this disaster) in their palms.

    As has been quoted previously on this site before, this is only providing the “illusion of spectacular corrective action” and “we are just buying time”…

    ps That time should have been bought a year ago – it would have saved a lot of interest!

    pps to all those that have stated “American ingenuity will get us through this” – lets talk again in 2 years…

  29. Anonymous

    “Nancy Pelosi speaks first. She says we have a deal. Harry Reid is up next. He credits Pelosi with coming up with a new idea in the final hour but doesn’t even hint at what that is!”

    One of her aides just whispered it to me:

    “A plan to buy distressed securities of great advantage, but no one to know what they are.”


    Meanwhile, Bush’s valet, John “Bonesman” Kerry, jacks the hyperbole to an apocalyptic level. From Bloomberg:

    Voters `”don’t want a bailout of Wall Street and neither do we,” Democratic Senator John Kerry of Massachusetts told reporters yesterday. “What we are talking about is not losing 3 million jobs in a matter of weeks” and helping “small banks and small businesses literally keeping their doors open.”

    Three million jobs in a matter of weeks! OMG, it would be tragic for that many lobbyists, financial engineers and bureaucrats to be unemployed. Buy FREEDUMB bonds today, comrades!


    — Juan Falcone

  30. Anonymous

    Who didn’t see this coming when Nancy Pelosi assumed her new position and proclaimed ’empeachment (of Bush/Cheney) is off the table’?

    America elected the Democrats to end the train wreck of Iraq/Afganistan and instead we see the Dems stabbing their enablers, the citizens, in the back at every opportunity.

    All of the current crop of bums need to be voted out of office. Of course, we will simply get a new crop of bums with a herd of lobbyists buzzing around them like no-see-ums.

    This model is broken.


  31. Anonymous

    WAIT — here’s some even bigger and better apocalyptic hyperbole, courtesy of one of the Brit fishwrappers:

    “The US stock market could suffer a devastating crash with shares losing a third of their value this week if Hank Paulson’s financial bailout plan fails, US Treasury officials have warned. The financial system could face a meltdown of 1929 proportions unless US politicians succeed in their efforts for a $700bn rescue scheme, experts added.”

    This ink-stained wretch has got it exactly and precisely backwards. Here, let me rewrite that story:

    “The US stock market could suffer a devastating crash with shares losing a third of their value this week when Hank Paulson’s financial bailout plan succeeds.”

    Sell the sucker to Kingdom Come! Don’t stop selling till the lights go out and the sky splits open. Liquidate stocks, liquidate bonds, liquidate CDSs, liquidate Wall Street … BURN, BABY, BURN!

  32. Anonymous

    The chances of this plan working longer-term (more than propping the markets up a couple of months, if that) is zero. Everyone involved in this plan has repeatedly assured the public that everything will be o.k. It will be different this time because? And when we’re tottering again in a couple of months (if not sooner), then what?

  33. Mel

    Is there any measure besides TED that indicate how serious this freeze has become? Is is so bad that even a bad bill has to be passed this quickly? Is this more than the mythical mushroom cloud we were threatened with in Iraq? Is this another code red terror alert. We’ve been down this dead end road before–and I’m thinking it’s pure bs.

  34. Moopheus

    Will they try to keep secret information about who is selling to the government? Will the market see this as a sign of desperation, like borrowing at the discount window? Or are they all so desperate now that they won’t care?

    I mean, potentially citizens could use this information to decide where to put their money–take deposits from banks selling to the government, and put it in banks that aren’t. Hold more of it out of the system as cash. Bad actors must be removed from the market, and if Congress won’t do it, then we have to do it.

  35. Anonymous

    To the Anon person who is not a citizen asking how we voted for these lunatics. Because we Americans are lazy, fat, dumb and previously happy. Now we soon to be very poor, a third world nation and The New World Order is headed our way (…HELL…)

  36. Thingumbobesquire

    Well now, do you really think that printing up billions of dollars in bailouts will do anything other than cause a hyperinflation like the prewar Weimar mefo bill or current Zimbabwe cases? You illiterate bloggers have lost your marbles (if you ever had any.) How moronic is the true rallying cry of the Fed and Treasury: “Save the bubble, blow it up bigger than ever, that’s the ticket!” There are none so blind..

  37. Anonymous

    When a people repeatedly and persistently applaud the firing of 10s of thousands from their jobs and persist in motivating them with unimaginable fortunes, $30,000,000 houses in once pristine areas of the country (like my Aspen), staffs of poor illegal aliens with no civil rights, they aren’t stupid although their life styles may be stupid, they are simply the scum of the earth and anything that holds up their ill gotten goods is fueling the fires to come for all of us.

    I’m your little old lady and having thought it through, its worth being condemned to stand in line at a soup kitchen to see the sons-of-bitches eat it. Certainly not out of revenge, but to live to see this materialistic stop. It has no heart and it has no soul.

    But of course their dough is 1/3 in oil, 1/3 in gold, and 1/3 in US treasuries held in off shore banks.

  38. Anonymous

    …that is, to see this insane materialism stop.

    I am a capitalist in favor of a safety net and government regulation -back to Roosevelt and Eisenhower.

    There is no common sense to basing the rules for this entire economy on a mandate to corporations to enhance share price.

    Corporations exist to produce goods and services and employ people. Shareholders are the beneficiaries if they succeed.

    Does anyone know when (its within the last 30 years) it was legally mandated that the Treasurer of a corporation is bound legally to enhance shareholder value?

    Huge blunder!!

  39. Anonymous

    Oversight by the same people who allowed this fiasco to happen in the first place (SEC, Federal Reserve, Treasury, GAO, etc). Option to buy insurance… Paulson did not want this and will not allow it to see the light of day. Interesting to see how England natonalizing B&B, and the Fortis situation in Belgium affects the vote on this. 85 Billion dollar AIG bailout done because Goldman Sachs had a 20 billion dollar exposure. Nouriel Roubini is on the mark again, this will not work and Hedge funds meltdown is next leg of crisis….Who will be left standing ?

  40. John Law

    If this $700 Billion Bailout Bill Pass. America will face the mother of All crashes somewhere around middle of Dec 2008.

  41. Anonymous

    Appears so far to me that the Pelosi breakthrough is purely marketing. Not really a surprise if there’s less to it than meets the ear now is there? What it does not say actually speaks louder – the unspoken confirmation of the absolute corruption of the gov’t by Wall St.

    I’m sure i’d be happier if I just drank some beer and watched NFL and NASCAR (at the same time). Matbe that’s why all this stuff happens on Sunday now.

    John M

  42. Anonymous

    me too -taking a break from this addiction. its riveting, the best web site for financial commentary.

    Love you -will check back tomorrow to see whatja all are thinking.

  43. Anonymous

    You bomb throwers better pray there is something passed – even if you want to reserve the right to piss on it.

    Another week of frozen credit markets, or another run on credit default spreads and we could/will see the disaster seep far into main street.

    Wachovia, without its options arms, is still a solid, valuable bank, with thousands of employees, with families etc, all of whom are seriously at risk if and when the institution BKs. (At some point, the ability of Chase to pick up the pieces cedes to foreign ownership… but how deep are those balance sheets, considering this catastrophe knows no national boundaries?) What do you think the collateral cost/damage will be to the taxpayer if the 4th largest bank in the nation goes under? This ain’t “theory” anymore. And all the moralizing about our precious capitalist system won’t stem the tide of fiscal red ink if Wachovia goes, if Morgan Stanley goes, if 200-300 local/regional banks go, if small businesses are completely shut out of borrowing. What happens when working capital is denied, when local govt’s start making announcements like NYC (immediate cuts with 15% cuts in the next fiscal year)? What happens when the “unemployment extension” is renewed and enlarged? What happens when the economy twists underground, as more and more cash and off the books transactions (well correlated in survival scenarios) necessarily take place?

    Man, $700B is small change compared to the possible costs of social unrest.

    Yes, a private solution would be preferable, but if you think it seems difficult to get congressional leaders to stand on the same side, imagine how hard (and how protracted) the negotiations would be if it were private capital, each jockeying for financial advantage, jawing around a table where they’re trying to assemble $700 very large.

    Smugness won’t help. Sure, excesses occurred, and shortsightedness got us here, but we’re here.

    Clock is ticking. I, for one, don’t want to have to buy a firearm for personal protection and the protection of my family because my elected official preferred to “stand on principle”.

  44. Anonymous

    you should have been worrying about buying a firearm for personal protection every time massive firings occurred to applause from the Wall Street community and their followers.

  45. djap113

    anonymous above: (advocating the bailout), I, and few people are going to buy what you’re selling, because of the horrendous track record as of late, so your fearmongering is sadly lost on me.

    My credit union is doing FINE. why? because it’s non-profit and it’s NOT hyper-leveraged. I’m not an economist and I don’t pretend to be one, but the fact of the matter is, I’ve worked hard my whole life to keep afloat, never owned a home, never had to worry about my 100k being FDIC insured. I have had to support my immediate family these last couple years because everyone is having a hard time making ends meet.

    And now this is dropped in our lap?!

    One picture sums this whole debacle up for me:

    That chicken little routine is played out at best.

  46. J Thomas

    Another week of frozen credit markets, or another run on credit default spreads and we could/will see the disaster seep far into main street.

    Ah, another one spreading FUD.

    What would seven hundred billion dollars do for our alternate energy problem?

    Would that be close to enough to bail out Social Security?

    How about the healthcare crisis?

    You may not have noticed, but our big crisis is the trade deficit. Foreigners generally are getting tired of lending us more money so we can outbid them on oil contracts and buy more plastic junk from china. They aren’t sure they can get their loans back, and they’re hesitant about giving us more. And $700,000,000,000 in deficit spending is not going to reassure them.

    This is not a solution. This is only a way to prevent a solution.

    But you want us to worry about your fantasies about what might happen if we don’t give away the money, that would be so much worse than what we can expect if we do.

    Please stop posting for awhile. Go away and think about it for about 4 months. Your FUD is not useful.

  47. Anonymous

    “What happens when the economy twists underground, as more and more cash and off the books transactions (well correlated in survival scenarios) necessarily take place?” — Anon 12:25 PM

    Then we can STARVE THE STATE.

    And hear our kids squeal with joy,


  48. David

    Again, I feel it was Democrats more than Republicans who caved in more on this deal. With people like Larry Summers advising Obama et al it’s no wonder.

    The sad thing is this doesn’t even address the probable leverages unsustainable in ‘hedge funds’ etc. An earlier post about an expert claiming that 5 Trillion would be needed to balance the unregulated, overleveraged markets would barely cover it.

    No matter what, they’re will be at least a recession (and for the lower middle class that’s been the case for some time). And then a possible Obama/Democratic Congress regime will get the blame. Probably a good move on Republicans to have passed this thing with Democrats getting so little.

    Senator Bernie Sanders ( I-VT ) had the best idea.. surcharge on incomes of over a million a year to pay for Wall Street’s misbehavior…but Nancy and Harry just were sucking up to the big money guys as usual …with major political losses to Democrats coming as a result. The limitation of executive salaries…just piddling dressing on a rotting fish.

  49. David

    Then we can STARVE THE STATE.

    And hear our kids squeal with joy,


    yeah, yeah, read James Howard Kuntsler’s “World Made by Hand” for comic relief. I loved it as it was over-the-top unreal with easily vanquished villains and an economy more like the middle ages coming about after the “melt down”. But really he missed the fact that there will much more ammunition and guns avail. for the kids to play with.

    I am wondering what guns and ammo I should buy??

  50. Anonymous

    martial law is all ready for that, the end of posse comitatus with corporations as ‘persons’ given the ‘right’ to own arms, outsourced private military, etc. available for enforcement.

    its taken long term planning to get us to this point.

    they’re prepared.

  51. Anonymous

    “I am wondering what guns and ammo I should buy??”

    “Boston’s Gun Bible” ( is a very down-to-earth guide which starts with the basics.

    Ammo can be an effective weak-dollar hedge, even if you aren’t much interested in guns.

  52. Glory's List

    Dear Mr. Smith,
    I run my own little small blog and I’ve been using your posts to help make the case that the “crisis” is overblown. I’m doing my best, but I’m not an expert. See:

    Could you create a simple post about why exactly you think this isn’t the crisis the government is making it out to be. I think I and others would find that very helpful. Thanks Mr. Smith.

  53. Howard Thompson

    This financial bubble has been obvious for years as credit to unqualified home buyers was made too easy and hedge funds leveraged their mortgaged backed securities at 30 to 1. Our government let the country down by not taking action to stop the bubble from expanding either because they lacked the foresight to see what the consequences would be or they wanted to keep the economy expanding no matter what the cost.

    This bailout of the financial institutions is being formulated without sufficient consideration of the alternatives by legislators who are dead tired and feel they need to act before the sky falls. That is the worst time to make such an important decision. I believe that we have a capitalistic free market economy that is in the process of getting rid of those companies whose managers made bad decisions and who will be replaced by those institutions who have managed themselves wisely. There is plenty of financing world-wide to do what JP Morgan Chase and Barclays have done in buying these failed companies. The credit markets would free up if Washington just made the decision not to bail out anyone. The uncertainty is why financial institutions are not lending among themselves. The inflated housing prices will fall as people who have good credit are able to get mortgages and bargain down the asking prices. Whatever ass istance is provided should be in the form of bonds that require payment of principal/interest as in any free market transaction. I hope the House conservatives stays firm in their opposition to the bailout.

  54. Glory's List

    Dear Mr. Smith,
    I run my own little small blog and I’ve been using your posts to help make the case that the “crisis” is overblown. I’m doing my best, but I’m not an expert. See:

    Could you create a simple post about why exactly you think this isn’t the crisis the government is making it out to be. I think I and others would find that very helpful. Thanks Mr. Smith.

  55. Cash Mundy

    Whatever is in the bill itself, the spectacle of the US scrambling to enact massively unpopular emergency legislation predicated on a massive increase in foreign-creditor-funded deficit spending can’t be expected to inspire much long-term confidence. And contrasting that with the Chinese merrily wandering about in space and just generally being at the top of their game like the US was in the sixties… Now, how do you say Marshall Plan in Chinese?

    A two-to-six-week bounce (perhaps they can jigger things to get past the election) is possible, and then?…

    And then, since you ask, a shotgun is considered the best all-around choice for the non-gun-enthusiast for basic survival purposes. I believe a 12-gauge pump shotgun is just the thing. I’ve never had a shotgun, so I can’t advise about chokes or single-vs-double barrel. You’d want double-aught buckshot for big game and two-legged quarry, and smaller shot or birdshot for smaller game such as rat, pigeon, cat and dog, all of which will become important parts of your diet if you are in an urban area.

    Just remember, the cockroaches always win in the end. That said, let the games begin, and bon apetit!

  56. DailyVus

    Glory’s List –

    The crisis is probably real but its being worsened by Paulson, et al. making too big to fail bigger and covering up massive fraud.

    In a game without rules the winner is the last man standing or still breathing. This one, the US economy is still breathing, but the doctors are drunks and drug addicts looking for another fix to continue life as usual.

  57. Anonymous

    This terrible bailout of Wall Street shows the American people that the bankers always get the money first, regardless of their crimes. Like Enron, these banking malefactors of great wealth should be bankrupt and in jail. Instead, the Democrats, including Sen. Christopher Dodd, Sen. Chuck Schumer and Rep. Barney Frank, kowtow to the banking industry and to the wrong-headed President Bush. The only government representatives standing up for the American people are the Republicans in Congress, time to reconsider my vote.

  58. Juan

    anon 12;25

    Man, $700B is small change compared to the possible costs of social unrest.

    Social unrest also rises from delegitimization:
    ‘Delegitimization of the adversary, among all the psychological themes, is one of the major detrimental forces that turns a conflict to..vicious and violent, feeds it and prevents its peaceful resolution (Bandura, 1999; Kelman, 1973; Staub, 1999).’

    The from behind closed doors order to perpetuate a failing ponzi scheme which is opposed by a vast majority, a majority which for decades has been suffering the burden of the Long Slowing. It should not be imagined that there are not moments in history when ‘the crowd’ places faith in itself and rebels. Exploitation, whatever the form(s), has always had limits.

  59. Anonymous

    sorry, should read ”scheme is opposed by’

    a process in which each side delegitimizes the other increases polarization and not necessarily along predictable lines but very much tends to drive into social unrest.

  60. joe

    excellent comments!

    thanks, doc!

    and several of y’all anonymii.


    Gives you a few more days, maybe even weeks, to get your money out, cause when the hedge funds go, well someone is not going to be able to pay their bills.

    But, hang on.
    Everybody has a home, most everybody has a job, and everybody can keep on doing what they’re doing.

    Except those very few at the top.

    Trust and confidence.
    The trust and confidence of the American people.
    In themselves.
    Look out for that.
    Encourage that.

    And tell the bankers that the game is over.

    That $700 Billion Revolving Loan Fund can be capitalized by the American people’s confidence and trust in themselves.

    Rather than going to the Euro-Sino-Saudi Trust Fund.

    What is needed today is the injection of liquidity into the American financial system.

    Not by giving it to the bankers, who will swoop it up for their shareholders, but directly to the American people. Because it is the American people who would stand behind the full faith and credit of the money being created.
    And they will.

    The struggle for monetary reform has been alive in this country since before we were a country. And today’s painful and tragic debacle demonstrates the need for a monetary revolution, and also provides its opportunity.

    Government(Treasury) issue of legal-tender, debt-free credits through payments for government services and projects, in the exact same quantity and quality as would be provided through the legalized crime of fractional reserve banking.

    Trust and Confidence.
    Faith and Credit.
    The American People.

    Keep on working.
    Keep your jobs.
    Keep your houses.

    And tell the bankers it’s over.

  61. Anonymous

    Here is some more looting in the small print. From Bloomberg:


    Sept. 28 (Bloomberg) — Congress's $700 billion legislative compromise to revive credit markets would also expand the Federal Reserve's power to manage short-term interest rates.

    The draft bill gives Fed authority as of Oct. 1 to pay interest on reserves held at the central bank by financial institutions, according to a copy obtained by Bloomberg News. That would encourage banks to deposit excess funds with the Fed rather than dumping them into the money markets and distorting its overnight federal funds rate.


    The Fed, in other words, wants to prevent the remnants of a free market from interfering with its central planning efforts to peg short-term rates at an artificially low level.

    This is essential to manufacture the phony impression that "credit markets have seized up" — when in fact, the private sector might be willing to lend, but not when the government-sponsored Fed is undercutting their lending prices. It's no different from the way Main Street merchants close their doors when WalMart moves in outside town and undercuts their prices.

    Even in the midst of crisis, banksters want to amp up the income from their already miniscule reserves. In this, they resemble tuxedo-clad Titanic survivors, stuffing silverware into their pockets before shoving panic-stricken women and children into the coal bin and commandeering the lifeboats.

    Just another squalid chapter in the sordid history of the Federal Reserve, a/k/a "Crashmaker."

    Sauve qui peut, mes amis!

    — Juan Falcone

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