The $700B bailout and what happened in the back office on WallSt.

[Historically Fiscal]

Good background on how this Credit problem started. 10yrs ago a new swap was invented called the Credit Default Swap=CDS by JPMorgan. "They made it possible for banks to get their credit risk off their books and into nonfinancial institutions like insurance companies and pension funds," says Duhon, who now heads her own derivatives consulting business in London." Read on in this link to get a very good back office history of this crisis.

http://www.newsweek.com/id/161199/page/1

Some observations from the article

that 10yrs ago when this was first traded by JPM these swaps (the CDS) should have been reviewed. President Clinton's administration had the obligation to review this new mortgage backed instrument and create regulations for two years when it first started. I think its stupid the blame game between the Democrats and Republicans about regulations since they all had opportunity to fix it, neither did. And it wasnt de-regulation, it was bad regulations that were a big part of this.

The biggest two CDS abusers AIG and JPM are making out the most from this bailout. Both were saved by our taxdollars, and JPM now the biggest US Bank by consuming some of the larger failed ones like WaMu, Bear Sterns,etc.

Bloomberg in NYC already had regulations going into effect on these risky swaps (CDS) this January and was way ahead of the federal reserve and Paulson/Bernanke in addressing this proactively.

Your Pension Funds are at risk becuase of these CDS's

[Assoc Press]

WASHINGTON - Sold to American taxpayers for up to $700 billion: an unprecedented plan to buy distressed banks’ least desirable mortgage assets.

What started as a fairly simple three-page proposal giving the Treasury Secretary unchecked power to orchestrate a bailout of the country’s financial system ended up as a complex rescue package, with enhanced congressional oversight, some added protections for taxpayers and a slap on the wrist to highly paid, underperforming executives.

The ultimate goal of the plan remains the same: buy bad mortgage-related bets from weakened financial companies so they can raise fresh capital and resume normal lending operations to businesses, municipalities and consumers.
Story continues below ↓advertisement

Under the Emergency Economic Stabilization Act of 2008, which is expected to come to a vote in the House on Monday, the Treasury Department gets $250 billion immediately to start buying up banks’ and other financial institutions’ least valuable mortgages and complex financial instruments backed by those mortgages.

If needed, an additional $100 billion is available at the discretion of the president, and a final $350 billion is on the table, unless Congress resolves to take it back. The president has the authority to veto such a resolution.

The measure also proposes limited caps on the pay and benefit packages of companies who receive the government rescue, strengthens government oversight of the program and adds an insurance program for financial companies’ bad assets.

While Democratic negotiators made significant changes to the plan Paulson sent Congress a week ago, they did not get everything they had sought, particularly more help for troubled homeowners.

House Republicans, meanwhile, fought hard for — and won — a provision that would establish a program whereby banks could buy government insurance to back the principal and interest on certain troubled assets, rather than selling them outright. They argued this was a better deal for taxpayers, and would reduce the overall cost of the rescue package.

At a glance

Following are the major details of the $700 billion rescue package that congressional negotiators approved on Sunday:
— Provides up to $700 billion, starting with an initial $250 billion, to allow the Treasury Department to purchase troubled assets, mainly in the area of mortgages, that are weighing down the U.S. financial system.
— Gives the Treasury Department, working with experts chosen by the government, the authority to fashion the asset purchase program. Treasury officials have suggested that a key approach will be the use of "reverse auctions" in which financial firms who succeed in selling their assets to the government will be the ones willing to take a lower price than other bidders.
— Restrictions will be imposed on the pay and benefits received by executives whose companies are selling some of their bad assets through the government's purchase program.
— The Treasury would be required to provide details of its purchases within two days of the transactions and various oversight boards would be created to monitor the operation of the program.
— Taxpayers would be given ownership stakes in companies whose bad assets are purchased. After five years, if the government is facing a loss in the program, the president will be required to submit a plan recommending how the money can be recouped from financial companies.
— Establishes a program whereby banks could buy government insurance that would cover the principal and interest on certain troubled assets, rather than selling them outright. Premiums will vary depending on the assets' risk profile.
Associated Press
Domocrats got many concessions in bailout but Republicans also didnt tie bailout to foreclosure relief


Treasury Secretary Henry Paulson told negotiators that he believed the insurance plan would have only limited benefits.

While the plan broadly aims to prevent banks from profiting on the sale of troubled assets to the government, there is an exception made for assets acquired in a merger or buyout, or from companies that have filed for bankruptcy.

This detail could allow JPMorgan Chase & Co. to sell toxic mortgages and other assets it gained control of last week when it purchased Washington Mutual Inc. for a higher price than the failed thrift paid for them.

The government will only buy mortgage investments originated on or before March 14, 2008.

http://www.msnbc.msn.com/id/26932944/

[Guest]

WASHINGTON - Sold to American taxpayers for up to $700 billion: an unprecedented plan to buy distressed banks’ least desirable mortgage assets.

What started as a fairly simple three-page proposal giving the Treasury Secretary unchecked power to orchestrate a bailout of the country’s financial system ended up as a complex rescue package, with enhanced congressional oversight, some added protections for taxpayers and a slap on the wrist to highly paid, underperforming executives.

The ultimate goal of the plan remains the same: buy bad mortgage-related bets from weakened financial companies so they can raise fresh capital and resume normal lending operations to businesses, municipalities and consumers.
Story continues below ↓advertisement

Under the Emergency Economic Stabilization Act of 2008, which is expected to come to a vote in the House on Monday, the Treasury Department gets $250 billion immediately to start buying up banks’ and other financial institutions’ least valuable mortgages and complex financial instruments backed by those mortgages.

If needed, an additional $100 billion is available at the discretion of the president, and a final $350 billion is on the table, unless Congress resolves to take it back. The president has the authority to veto such a resolution.

The measure also proposes limited caps on the pay and benefit packages of companies who receive the government rescue, strengthens government oversight of the program and adds an insurance program for financial companies’ bad assets.

While Democratic negotiators made significant changes to the plan Paulson sent Congress a week ago, they did not get everything they had sought, particularly more help for troubled homeowners.

House Republicans, meanwhile, fought hard for — and won — a provision that would establish a program whereby banks could buy government insurance to back the principal and interest on certain troubled assets, rather than selling them outright. They argued this was a better deal for taxpayers, and would reduce the overall cost of the rescue package.

At a glance

Following are the major details of the $700 billion rescue package that congressional negotiators approved on Sunday:
— Provides up to $700 billion, starting with an initial $250 billion, to allow the Treasury Department to purchase troubled assets, mainly in the area of mortgages, that are weighing down the U.S. financial system.
— Gives the Treasury Department, working with experts chosen by the government, the authority to fashion the asset purchase program. Treasury officials have suggested that a key approach will be the use of "reverse auctions" in which financial firms who succeed in selling their assets to the government will be the ones willing to take a lower price than other bidders.
— Restrictions will be imposed on the pay and benefits received by executives whose companies are selling some of their bad assets through the government's purchase program.
— The Treasury would be required to provide details of its purchases within two days of the transactions and various oversight boards would be created to monitor the operation of the program.
— Taxpayers would be given ownership stakes in companies whose bad assets are purchased. After five years, if the government is facing a loss in the program, the president will be required to submit a plan recommending how the money can be recouped from financial companies.
— Establishes a program whereby banks could buy government insurance that would cover the principal and interest on certain troubled assets, rather than selling them outright. Premiums will vary depending on the assets' risk profile.
Associated Press

Treasury Secretary Henry Paulson told negotiators that he believed the insurance plan would have only limited benefits.

While the plan broadly aims to prevent banks from profiting on the sale of troubled assets to the government, there is an exception made for assets acquired in a merger or buyout, or from companies that have filed for bankruptcy.

This detail could allow JPMorgan Chase & Co. to sell toxic mortgages and other assets it gained control of last week when it purchased Washington Mutual Inc. for a higher price than the failed thrift paid for them.

The government will only buy mortgage investments originated on or before March 14, 2008.

[Guest]

It seems the market is already betting that the $700B bailout will not help much in the end.

[cranbury liberal]

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I took money out today to move money into a hopeful "too big to fail" bank. Now bank tellers are suppose to ask why money is being taken out. This is really serious. Not sure where my money will be safe since my paycheck is a direct deposit and mortgage is an automatic payment. Will my checking account still be open and not frozen - not sure - but really worried.

[Guest]

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[Guest]

I am a moderate and politically independent. I'm not a fan of Obama and have some issues with McCain. I was still undecided in the election, though I may not be after today.

I don’t think either Obama or McCain contributed anything productive to the bail-out negotiations. They both gave tepid support publically, make a few calls and directionally said they thought a deal could be worked out.

But I have to say, while both parties are scrambling to lay blame for the failure of the bill to pass and neither is blameless, I take particular offense at McCain and the Republicans finger pointing in this case. At the end of the day, the majority of the Democratic Party voted for the bill. It failed because 2/3rds of the Republicans didn’t vote for it. Now if the Republican Party was out there defending that the no vote was the right course of action that would be one thing. Agree or disagree, at least there is integrity in voting your conscious and standing behind your decision.

But that’s not what’s happening. McCain’s campaign has already gone on record as directly blaming Obama for the lack of passage, specifically saying he “phoned it in” and didn’t do enough to rally his party behind it. First off, that is ironic because neither McCain or Obama stayed in Washington and both reached out by phone. So if Obama phoned it in, so too did McCain and its very hypocritical to suggest otherwise. Second, if your basing it on results, Obama’s party voted 60% in favor, McCain couldn’t even msuter 35%. So how is the lack of passage an Obama failure but not a McCain failure? Again, I don’t think either did much, but for McCain to be saying it failed specifically because Obama didn’t do more so lacks integrity and is so outrageous, that it has pushed me into a probable vote for Obama.

Further alienating me from the Republicans on this, many of them are blaming a “partisan” speech by House Speaker Pelosi. Give me a break. Let’s assume her speech was incredibly partisan and inflammatory. I’ve never liked her so I will presume it was… So what? These are members of Congress for god’s sake. Are they really claiming that they determined their vote on what may be the most impactful bill in their legislative careers on what a member of the opposing party said? Not on the language of the bill itself or on whether they thought it was right for the country, but because they were offended? So the logic is: “I believe in this bill and I think it is critical for the future of our country but that Pelosi really got my gall so screw the country!” If anyone really did change their vote, or even allow it to sway them out of undecided on the basis of what anyone said about anything that doesn’t affect the bill itself, shame on them and they aren’t qualified for the office they hold. But I don’t believe it for a second. I think it is just another very feeble attempt to deflect responsibility. They didn’t really vote one way or another because of Pelosi (and by the way, how many times has the President and other Republicans said incredibly inflammatory things about the Democrats – its not like Pelosi was doing anything unique, no matter how dumb). They voted based on their read of their constituents. But recognizing that the result makes it look like the Republicans as a whole defeated the bill, defying their own President, Congressional leaders and Presidential candidate, they wanted an excuse why it wasn’t on them. Pathetic.

Honestly, I think it is a new low point in the history of the Party. I hope they can actually rise from this new low and develop some integrity again.

[Guest]

I can't blame either candidate. In fact this shows just how much the President is not in control, but subject to the House and Senate.

What surprised and disappointed me.

1) Republicans not ignoring Pelosi.

2) Pelosi making a Partisan speach when it was not appropriate.

3) The fact that neither party aligned behind the candidate to pass the bill.

4) The market reaction. It was clear the market would react negatively to this so both parties should have gone ahead and passed the bill.

This really is a statement to me about how far gone our political system is that party politics on both sides are damaging our country.

[Guest]

I don't think its fair to lay equal blame on both parties for this. Republicans make partisan attacts all the time, from the House Floor, the Oval Office, the campaign trail. And it has been done in similar times, right when bi-partisan support is needed. It was nothing new. It doesn't matter what she said or how appropriate it was, it shouldn't be an excuse for how they voted. A majority of the Dems voted yes and a huge majority of the Reps voted no. It wasn't even close among the Reps. So its crazy to lay equal blame.

I agree with the above poster about McCain. He actually made a speech just minutes before the vote starting taking credit for personally converting the unhappy Reps and implying that the bill was about to pass because of him. Then he actually had a press conference later today where he directly, not through any aide or spinster, blamed Obama for the bill not passing. There is no comparable direct blame coming from Obama directly at McCain. That was really classless. He went from saying it was a success because of what he did to having that turn out to not be true (not only did it not pass but he failed miserably at converting Reps despite his claim) to saying it was all the other guys fault because 40 percent of that party also voted no.

[Guest]

I very much disagree. There is equal blame on both parties.
When supporters from both sides are blaming the other it's clear that there is equal blame.

About 67% of Republicans and 40% of Democrats opposed the bill.

65 Republicans joined 140 Democrats in voting "yes," while 133 Republicans and 95 Democrats voted "no."

This was not a party line vote when you have these numbers crossing lines. You have ideals about whether it's right or not for the government to play this role. For example, the Rep. from Newark voted no as he found it unfair to his voters.

When the bill fails people look to place blame. Pelosi rails and then Republicans say it was her fault. Truth is that this an opportunistic comment, the speach while not proper had no effect on the passage of the bill. Too many from both sides opposed it.

Our own representatives voted 7-6 against the bailout plan with a good split of both party representatives on each side of the vote.