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The Future of Liberalism

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Report

Congress Sings the Bailout Blues

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Posted on Jan 18, 2009
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(Page 2)

(2) Transparency and Asset Evaluation. The need for transparency is closely related to the issue of accountability. The confidence that Treasury seeks can be restored only when information is completely transparent and reliable. Currently, Treasury’s strategy appears to involve allocating the majority of the $700 billion to “healthy banks,” banks that have been assessed by their regulators as viable without federal assistance. Of course, whether a bank is “healthy” depends critically on the valuation of the bank’s assets. If the banks have not yet recognized losses associated with over-valued assets, then their balance sheets – and Treasury’s assessment of their health – may be suspect.

Many understood the purpose of EESA to be providing assistance to financial institutions that were “unhealthy” and at risk of failing. Such institutions were at risk, the public was told, due to so-called toxic assets that were impairing their balance sheets. EESA was designed to provide a mechanism to remove or otherwise provide clear value to those assets. The case of Citigroup illustrates this problem. Treasury provided Citigroup with a $25 billion cash infusion as part of the “healthy banks” program whereby Treasury made nine initial investments in major banks. About two months later, Treasury provided Citigroup with $20 billion in additional equity financing, apparently to avoid systemic failure, but it did not classify that investment as part of the Systemically Significant Failing Institution program (SSFI program). These events suggest that the marketplace assesses the assets of some banks well below Treasury’s assessment. To date no such mechanism to provide more transparent asset valuation has been developed, meaning that the danger posed by those toxic assets remains unaddressed. The bubble that caused the economic crisis has its foundations in toxic mortgage assets. Until asset valuation is more transparent and until the market is confident that the banks have written down bad loans and accurately priced their assets, efforts to restore stability and confidence in the financial system may fail.

(3) Foreclosures. The crisis in the housing sector continues to affect any efforts at recovery. In enacting EESA, Congress called upon Treasury to

“implement a plan that seeks to maximize assistance for homeowners and use the authority of the Secretary to encourage the servicers of the underlying mortgages, considering net present value to the taxpayer, to take advantage of the HOPE for Homeowners Program under section 257 of the National Housing Act or other available programs to minimize foreclosures. In addition, the Secretary may use loan guarantees and credit enhancements to facilitate loan modifications to prevent avoidable foreclosures.”

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When Congress authorized the Panel, it specifically requested that the Panel evaluate “the effectiveness of foreclosure mitigation efforts.”  4 While the statute contemplates that foreclosure mitigation would be accomplished through the purchase of mortgage-related assets, many believe that Treasury has clear authority to use a portion of the $700 billion to address mortgage foreclosures in other ways. For Treasury to take no steps to use any of this money to alleviate the foreclosure crisis raises questions about whether Treasury has complied with Congress’s intent that Treasury develop a “plan that seeks to maximize assistance for homeowners.” 

(4) Strategy. The Panel’s initial concerns about the TARP have only grown, exacerbated by the shifting explanations of its purposes and the tools used by Treasury. It is not enough to say that the goal is the stabilization of the financial markets and the broader economy. That goal is widely accepted. The question is how the infusion of billions of dollars to an insurance conglomerate or a credit card company advances both the goal of financial stability and the well-being of taxpayers, including homeowners threatened by foreclosure, people losing their jobs, and families unable to pay their credit cards. It would be constructive for Treasury to clearly identify the types of institutions it believes fall under the purview of EESA and which do not and the appropriate uses of TARP funds. The need for Treasury to address these fundamental issues of strategy has only intensified since our last report.

The issues related to strategy have wider implications as well. It appears that Treasury in its post-American International Group, Inc. (AIG) actions is using public dollars to support the value of equity in financial institutions. What strategy lies behind that decision? What about other alternatives? Would it be better and more cost effective to encourage private capital investors to assume control of such banks? Should those banks be required to maintain higher capital or liquidity positions or to pay higher Federal Deposit Insurance Corporation (FDIC) insurance premiums? Should we focus on ensuring that systemically significant institutions meet their fixed obligations and let the equity in such institutions be fully at risk, as we did in AIG? Should we simply let market forces work – letting sick banks fail and the healthy banks take the business? The Panel does not embrace any of these suggestions. Instead, it asks whether Treasury is involved in that re-thinking process.

The Panel recognizes that Treasury has many pressing obligations, and the Panel appreciates Treasury’s efforts to give timely responses. Ultimately, the Panel hopes that by posing these questions and offering these comments that it can be helpful to Treasury as it attempts to find more effective tools to deal with the current financial crisis.

Click here to continue reading the report.


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By KDelphi, January 20, 2009 at 7:51 pm Link to this comment

ominadeu—well, lets get some balls, and elect someone who has some.

I am not an economist, as I said. But, surely other countries have done it.

One problem is, that, if people try to do something about it, the duopoly screams bloody murder.

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By omniadeo, January 20, 2009 at 6:35 pm Link to this comment

This country was in fact founded, federalized anyway, on the ability of the Federal Gov to control money supply. The states were prohibited from coinage. When the Fed was instituted, the supply mechanism was linked to a peculiar public/private corporation. But the link bewtween finance and power in Washington goes way back.

http://www.federalreserve.gov/generalinfo/faq/faqfrs.htm

My point is that it will takae a lot more than griping on the internet to sever these ties.

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By KDelphi, January 20, 2009 at 12:51 pm Link to this comment

Well, separate them, I dont buy the “chicken or egg” analogy. There was no big federal banking system when this country was founded.

I thought everyone wanted “change”—or did you just want a prettier guy?

If we stopped eating so much dairy, we would be more “efficient”.

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By omniadeo, January 20, 2009 at 11:14 am Link to this comment

“...the government must seize control of the entire banking system and freeze stock trading…”

Only one problem here, Frank. The government is alrady inseparable from Wall Street and the Banks. It is like saying, the government must seize control of the Pentagon, overlooking that the Pentagon is alraedy inseparable from the rest of the government and more powerful generally than any other part of the government that would take it over.

It is true, but not very helpful, until you get a different government, which requiresa different banking sytem and Pentagon, which brings up a unique case of the chicken and egg problem.

It is tempting to say, “get rid of both,” but afterwe have eaten both chicken and the egg, there will not be much to live on without a whole new dairy farm.

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By RdV, January 20, 2009 at 7:37 am Link to this comment

At the same time—after pressuring reluctant Congressional Democrats to back the second give-away—-even after the first half disappeared into the bank black hole, Obama floats the idea of adressing “entitlements” like Social Security and medicare, with the mantra that we all most make sacrifices.
BTW, guess who is throwing his big inaugural bash today?
    The Banks.

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By KDelphi, January 19, 2009 at 10:55 pm Link to this comment

Frank Cajon—run for president.

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By Frank Cajon, January 19, 2009 at 7:55 pm Link to this comment

At the risk of sounding like a broken record, I once again posit: the government must seize control of the entire banking system and freeze stock trading. After indicting the boards of the banks that have fleeced the workers for bailout robbery money without helping them, and dismissing the boards of the other banks, a centrally managed, planned banking strategy is needed with workers in positions of management.

Wall St is the succubus of the culture of capitalist greed and has, through the last raid on the pockets of the Proletariat by the fascists and their suited accountant priests, stolen the birthright of future generations of American workers. Every worker in America needs a guarantee of income and employment and not one more penny must be given to the vultures who are picking at the carcass of Capitalism’s corpse for last morsels. Even as a million descend on DC to witness a historic inauguration, this new face is not nearly enough-he has bought into the old paradigm and will take four long years to learn the hard way that a Socialist New Deal, a real Labor Party and nothing short of that will light the way to a new order in the grim years ahead of the Bush/Cheney Depression. Contact your union organizers, write your Congressman, and write letters to your state legislators. Check bulletin boards about meetings and organized protests. Volunteer. Make yourself heard.

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By KDelphi, January 19, 2009 at 1:17 pm Link to this comment

Here is a “bailout game”—its funny and sad…

http://www.thebailoutgame.us/

Go play it! Then, go back to bailout link and weep..

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By KDelphi, January 19, 2009 at 1:10 pm Link to this comment

Allan and others—here is SOME of the “bailout”(there is more listed at the link) . Not positive that this is a reliable source, but, I have no reason to believe that it is not, either.

http://bailoutsleuth.com/

Two more bank failures
By Chris Carey on January 17, 2009 12:44 PM | 1
Regulators shut down two banks Friday, turning over the deposits of one of the failed institutions to a rival that had received taxpayer capital under the Treasury Department’s Troubled Asset Relief Program

The Bank of Clark County, in Vancouver, Wash., was closed by regulators in that state after loan losses, tied primarily to real estate, left it with perilously low levels of capital. Its $366.5 million in deposits were assumed by Umpqua Holdings Corp.

Umpqua, which is based in Roseburg, Ore, got $214.2 million from the Treasury Department in November as part of its program to inject capital into U.S. financial institutions through the purchase of preferred stock.

Umpqua is much larger than the bank it took over, with roughly $6.5 billion in deposits. It has 148 branches stretching along the Pacific Coast, from northern California to northern Washington.

The federal Comptroller of the Currency also shut down National Bank of Commerce in Berkeley, Ill., on Friday. Its deposits were purchased by Republic Bank of Chicago, which had headquarters in Oak Brook, Ill.

National Bank of Commerce’s two branches reopened today as Republic Bank branches. The failed bank had $402.1 million in deposits. Republic Bank has not received any federal money through the TARP initiative.

The bank closings were the first this year. They followed 25 failures last year, most of which occurred between June and December, after the economic crisis intensified. The FDIC said the two new regulatory actions would cost its deposit insurance fund between $217.1 million and $242.1 million.

Here is more, if I can get this right…

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By Big B, January 19, 2009 at 12:56 pm Link to this comment

The gutting of the federal treasury by the Bushies is the final cash grab and, by the way, fuck you, on his way out the door. But much like a monkey finding a gun and shooting someone with it, W can no longer be blamed for any last second transgressions he perpetrates, for if impeachment had not been “off the table”, this scummbag might have minded his P’s and Q’s more in the last two fateful years.

If a gallows is eventually built for the Bushies on the capitol steps, it should include two more spots for Pelosi and Reed, and any other gutless, copitulating dimmocrate who stood idley bye the last two years and permitted an absolutely corrupt adm. to run amoke and perhaps damage america beyond repair.

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By joe, January 19, 2009 at 10:56 am Link to this comment
(Unregistered commenter)

most of congress is just as criminal as those dirtbags down wall st.with the exception of some like ron paul or dennis kicinich,god bless those two heroes.

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By Allan Gurfinkle, January 19, 2009 at 10:13 am Link to this comment
(Unregistered commenter)

Has the Treasury supplied the congress with a basic accounting of how the money has been spent, i.e., who got how much?  It’s not clear from the Executive Summary or what I read of the report.

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Allan Krueger's avatar

By Allan Krueger, January 19, 2009 at 5:36 am Link to this comment

We have funded mergers, buyouts and takeovers - more profiteering, at taxpayers expense. Wells Fargo and Wacovia - anyone see the commercials running during the football games? Personally, I like a little kissing (some call it foreplay) before I get screwed!

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By jackpine savage, January 19, 2009 at 4:11 am Link to this comment

This is similar to the old adage about how much easier it is to pass good legislation than it is to fix bad legislation, or maybe it’s the same.

The horses are long gone, the cows have meandered off, and even the chickens are two fields over…and someone just realized that the barn doors are open.

Hurray, Congress sets itself the task of fixing a problem that it created after it cannot be fixed anymore.

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By AmericanDream, January 19, 2009 at 2:47 am Link to this comment

http://bailoutsleuth.com/

It wasn’t too long after Mark Cuban set up this site that he got in trouble with the SEC.  Perhaps he ticked off the wrong people.  Regardless, it is the best source I’ve seen to track the bailout frenzy.

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Outraged's avatar

By Outraged, January 19, 2009 at 2:01 am Link to this comment

The Congressional Oversight Panel (COP or the Panel) seems to have “sugar-coated” the factual matter by stating:

“The need for transparency is closely related to the issue of accountability.”

While I feel confident that the Congressional Oversight Panel is well aware of the down-playing of their verbiage, it remains to be said that: It is not “closely related” but inherent.  Without transparency, accountability is a ruse!

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By samosamo, January 19, 2009 at 12:04 am Link to this comment

By jr., January 18 at 8:02 pm

Well, I hope at least the department of justice does. And guess who really needs interogation of criminal actions? Marvin Bush, w’s younger brother, the president of the security company of the world trade center for several years leading up to the attack on 9/11. I bet he would sing like a bird if he was strapped down to a water board or given a prison sentence in say a souther back woods prison.

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By Shift, January 18, 2009 at 11:19 pm Link to this comment

What is the flip side of common sense?  Uncommon stupidity!

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By KDelphi, January 18, 2009 at 10:58 pm Link to this comment

Yes, justice. Not revenge, as some way—but that couldnt hurt..lol

If the US govt doesnt believe in “revenge”, why did it (yes the US govt—dont try to tell me he had a “trial”), hang Saddsam Hussein on intl television (shameful).

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By jr., January 18, 2009 at 9:02 pm Link to this comment

Unfortunately, it’s not very likely congress will do anything more to bring the bush-crime-family to Justice.  The majority of them are at least as guilty as he for they had equal access to the same security information as the white house and, as much as they like blaming georgey for misleading the congress, we all know, ignorance is no excuse.

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By jr., January 18, 2009 at 8:39 pm Link to this comment

In step with george, now is the time for congress to play stupid.

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By samosamo, January 18, 2009 at 8:34 pm Link to this comment

Face it, this is w & dick’s last parting present/reward for a job well done from the past 8 years. No better reward than pelosi & reid and congress turning our money over to those that are responsible for the disaster the we paid admission to suffer for many years ahead while the the recipients lounge around on pristine beaches, sucking down pina colatas and beer. It is a dream world to create as big disaster as these criminals have and have the people that the citizens elected to turn over $700,000,000,000.00 to the real terrorists of this country and then not have to worry about accountability. Sadder still when w & dick and the crew speaking loudly claimed that it would be their job through the ‘war on terror’ to protect our economic security. Damn pelosi and reid and 98% of congress. Sure a lot of criminal investigation to be done here that will most likely not get done but a sure fire way to see where our newly elected president’s prioities lie. He still has not been sworn in and I am patiently waiting to see what happens when he is sworn into office. DON’T MUCK IT UP, because to not go after these people will cause more harm, vastly more harm, than doing the right thing by bringing them to justice.

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