Que Passa, Or, What Will The Senate Pass?

The Senate appears poised to pass "Paulson Plus", their own rescue plan which includes some tax cuts:

WASHINGTON (AP) - In a surprise move to resurrect President Bush's $700 billion Wall Street rescue plan, Senate leaders slated a vote on the measure for Wednesday - but added a tax cut plan already rejected by the House. Majority Leader Harry Reid, D-Nev., and GOP Leader Mitch McConnell of Kentucky unveiled the plan Tuesday.

The move to add a tax legislation - including a set of popular business tax breaks - risked a backlash from House Democrats insisting they be paid for with tax increases elsewhere.

But by also adding legislation to prevent more than 20 million middle-class taxpayers from feeling the bite of the alternative minimum tax, the step could build momentum for the Wall Street bailout from House Republicans. The presidential candidates Sens. John McCain, R-Ariz., and Barack Obama, D-Ill., intend to fly to Washington for the votes, as does Sen. Joe Biden of Delaware, the Democratic vice presidential candidate.

...

The tax plan passed the Senate last week, on a 93-2 vote. It included AMT relief, $8 billion in tax relief for those hit by natural disasters in the Midwest, Texas and Louisiana, and some $78 billion in renewable energy incentives and extensions of expiring tax breaks. In a compromise worked out with Republicans, the bill does not pay for the AMT and disaster provisions but does have revenue offsets for part of the energy and extension measures.

That wasn't enough for the House, which insisted that there be complete offsets for the energy and extension part of the package.

Some Green tax credits for things like solar panels?  Cool.  The House and Senate have been at loggerheads on this.

Raising the FDIC insurance cap (discussed here) looks like the most popular revision of the package.

HURRY, SUNDOWN:  CNN answers your Constitutional question:

Because the bill must originate in the House, the Senate is attaching the rescue plan to a bill that deals with renewable energy tax incentives. This would allow the Senate to vote before the House.

And the timing:

The vote is scheduled for after sundown, in observance of Rosh Hashanah.

VISIONARIES:  House Republicans are preparing their alternative:

The failure of Monday's vote on the $700 billion bailout package—which these Republicans doubt is likely to cause an economic "doomsday" scenario—emboldened the group to press forward with its own plan, sources said.

The group pressing the alternative plan is doing so for largely ideological reasons: They're opposed to the federal government taking a large role in financial markets, sources say.

They don't want a large federal government role in the financial markets?  They're about a century too late.  Geez, it must gall them to see bonds quoted as a spread to Treasuries.

The first Republican proposal cited is  inconsistent with the notion of a limited Federal role:

Require the Treasury Department to guarantee, at up to 100 percent, bank losses resulting from failed mortgage-backed securities originated prior to the plan's enactment. Such insurance, supporters say, would provide immediate value to the securities and a foundation for which they could then be sold. The Treasury Department would finance that insurance by assessing a premium on outstanding mortgage-backed securities.

 "[A]ssessing a premium on outstanding mortgage-backed securities"?  Read my lips - that is a new tax.  And not all mortgage backed securities are created equal - if I, as a prudent investor, carefully bought a high-quality senior tranche of a mortgage backed security and the value has held up nicely, why in the world should I be subject to an ex post tax intended to bail out speculators and yield hogs?

Well, part of the answer is that if the House Republicans only tax the busted bonds there won't be anything to fund the insurance.  But that is essentially the Willie Sutton argument for robbing banks.  They are taxing the good bonds because that is where the money is, not because there is any economic logic or justice to it.

My previous denunciation of this scheme is here.

Comments

[vinman]

this will be the all-of-the-above bailout bill

[sbw]

Gawd! Isn't the election over yet?

[Antimedia]

I think they should pass nothing. Let the greedy declare bankruptcy and let the market sort it out. It's high time the geniuses in Congress sat one out.

It was Congress that created this so-called crisis in the first place. Only an idiot would believe Congress can make the crisis better by passing more legislation and spending more of our tax dollars.

[M. Simon]

I just instructed my Cong. Critter to fix the CRA or vote no.

[WW]

Sundown provision?

http://www.nytimes.com/2008/10/01/nyregion/01support.html

[RichatUF]

sbw-

Gawd! Isn't the election over yet?

It'll never be over. I noticed the WaPo poll flagged up at a couple of blogs, but noticed that it only polled adults. I've been noticing that a lot recently with Obama's polling surge.

On the "bailout", Steve over at Skeptical Optimist has two informative posts that explain the situation pretty well.

After the Senate votes, when is the House supposed to? Before or after the VP debates...that could be interesting-Gov. Palin goes both barrels on Fannie, Freddie, and ACORN while carving up Sen. Biden, then, because "Sarah was mean to us" the D's all vote No.

[polifrog]

Can someone explain this 630bil that the fed is pumping into the econ?

http://www.bloomberg.com/apps/news?pid=20601087&sid=a9MTZEgukPLY

If this is real-- why the bailout? I can find little or no news on this.

[bgates]

why in the world should I be subject to an ex post tax intended to bail out speculators and yield hogs?
You don't want an unfair tax? You're about 10,000 years too late.

So long as we're taking defeat in any single instance to mandate abandonment of the general principle.

[M. Simon]

Larry is still mad about Plame:

I still want to see Karl Rove frog-marched over the Valerie Plame, but the dude nails it in the following. The Democrats are talking one game but doing another. Check this out:

Karl Rove Speaks

[M. Simon]

Sundown provision?

Sundown provision?

[RichatUF]

polifrog-

It is a symptom of the problem, not the cure. Banks are borrowing from the Fed, not one another, using whatever collateral the banks have that can be shoved through the door. They haven't gotten to pigs and chickens yet, but if it keeps going they might.

The Treasury will buy the mortgages, disentangle what they can (a spit shine) then resell them (hopefully for more than they were bought). Instead of the crappy, volatile mortgage bonds on the banks' books, the banks now have Treasury bonds on their balance sheet and they can start lending to one another again-unless the price Treasury pays for the mortgage bonds shoves the bank into insolvency.

[Rick Ballard]

"if I, as a prudent investor, carefully bought a high-quality senior tranche of a mortgage backed security and the value has held up nicely, why in the world should I be subject to an ex post tax intended to bail out speculators and yield hogs?"

Because you made a bet in the CDS Whorehouse & Casino. Uncle Warren from Nebraska warned you about associating with those Ivy League tramps on Wall Street and their Canary Wharf pimps in London. Now you have CDSpox and you have to pay for penicillin to be readmitted to the company of investors who were truly prudent.

If you don't like fleas be more careful about who you're in bed with.

[Rick Ballard]

Another Bad Bet At The CDS Whorehouse & Casino

The article is worth a close read to get an understanding of just how "prudent" people at the CDS crap table have been. A sewer bond issue going into default based on having entered into poor swap agreements would be amusing if one were not left wondering how many more of these infected deals had been peddled by Wall Street wizards.

[M. Simon]

Milk and Meat Must Be Rationed to prevent global warming.

[hrtshpdbox]

OT, but isn't it astounding that Gwen Ifill, who's set to release a book about the "Obama era" on inauguration day, who speaks glowingly of Michelle Obama but dismisses Palin's convention speech with a clear look of disgust on her face, is moderating the only VP debate? Think a journalist with a pro-McCain book set for release could ever get that slot without a huge uproar of indignation? Palin should mention Ifill's bias in her first statement (and maybe also ask if tonight she'll be debating Joe Biden or Neil Kinnock).

[M. Simon]

Debate Moderator Author Of Pro Obama Book

You can call or e-mail the debate folks with phone#s and e-mail addy provided.

[bgates]

Maybe Gwen Ifill and David Freddoso could alternate questions.

[Extraneus]

I wonder why Drudge chose to go with Gwen Ifill today vs. tomorrow.

[M. Simon]

Advance Warning?

[Extraneus]

That's what I was thinking, but to whom?

[M. Simon]

BTW The House is not in session the rest of this week.

[bad]

via Powerline: LUN

In a letter dated June 25, 2008, the FEC asked the Obama campaign to verify a series of $25 donations from a contributor identified as “Will, Good” from Austin, Texas.

Mr. Good Will listed his employer as “Loving” and his profession as “You.”

A Newsmax analysis of the 1.4 million individual contributions in the latest master file for the Obama campaign discovered 1,000 separate entries for Mr. Good Will, most of them for $25.

In total, Mr. Good Will gave $17,375.

Following this and subsequent FEC requests, campaign records show that 330 contributions from Mr. Good Will were credited back to a credit card. But the most recent report, filed on Sept. 20, showed a net cumulative balance of $8,950 — still well over the $4,600 limit.

Obama's grassroots fundraising is generating vast amounts of good will. Oops, I mean FROM good will.

Linked Under Name

[DebinNC]

More: "The FEC has compiled a separate database of potentially questionable overseas donations that contains more than 11,500 contributions totaling $33.8 million. ...Until recently, the Obama Web site allowed a contributor to select the country where he resided from the entire membership of the United Nations, including such friendly places as North Korea and the Islamic Republic of Iran.

Unlike McCain’s or Sen. Hillary Clinton’s online donation pages, the Obama site did not ask for proof of citizenship until just recently. Clinton’s presidential campaign required U.S. citizens living abroad to actually fax a copy of their passport before a donation would be accepted."

Win at any cost, rules be damned.

[Pagar]

Bad, I'm wondering how the info that Mr. Good Will slipped out. Wouldn't one think that the Obama camp would have better security than that? I would think the Obama truth squad would be seriously worried about that. That Pro Doodad sounds like a real pro at using a credit card too. Inquiring minds would really like to know-How much of the under $200 contributions to the Obama camp is dirty? My guess is a whole, whole lot more than we are hearing about.

[bad]

Credit card transactions are easy to trace. Were there credit cards issued in the name of Good Will and Pro Doodad? Who is receiving the refunds?

[Jane]

Seems to me there is a movement rising to get rid of Pelosi.

The LUN story with the infamous Melanie Sloan coming down against the Speaker is informative.

[Pagar]

That's what I wonder about a lot of this stuff
Bad. Can anyone imagine sending $30,000 or whatever back to some one supposedly living in a refugee camp in Gaza. What about all of the campaign donations that are supposedly given to Charity, when they are found to be from Questionable donors?

[bad]

Jane

There must be someone even more odious than Pelosi ready to take over for Sloan to be dissing her.

pagar

Maybe brother George will get a slice of that pie.

[Charlie (Colorado)]

Because you made a bet in the CDS Whorehouse & Casino.

Buying a chunk of an MBS doesn't necessarily imply you have a CDS.

[Charlie (Colorado)]

BTW The House is not in session the rest of this week.

I guess all those Congress members talking about reconvening on Thursday are going to be horribly disappointed. Nancy there, arguing with the janitors about opening the building, Barney Frank and all the others milling about looking annoyed and a little lost, someone holding the text of the bill from the Senate that has been endor ed by McCain and --- in an unusual display to courge --- Obama, one a vast majority now appears to agree has got to be passed.

And dammit, the House just isn't in session.

[Ranger]

Seems to me there is a movement rising to get rid of Pelosi.

The LUN story with the infamous Melanie Sloan coming down against the Speaker is informative.

Posted by: Jane | October 01, 2008 at 09:29 AM

Jane,

I just posted that story in another thread. I wonder if this is part of an October strategy by the RNC to start hammering the Dems for corruption just as the public is starting to pay attention.

[sbw]

When Melanie Sloan surfaces in the swamp, remember she was a former Conyers/Schumer/Biden Staffer.

[Pofarmer]

Win at any cost, rules be damned.

Rules are for the other guys, unless they favor the left, of course.

Somebody should have been looking into Barrack Husseins funding months ago.

[Syl]

Well, I think we've fiddled long enough and it's time to pass this thing.

I don't know why everyone is looking at the stock market, that's not where the bad news is. CNN is complaining that neither Bush nor Paulsen properly explained this to the public at the same time that CNN calls it a 'bailout' and follows every minute movement in the stock market.

I don't think there's a conspiracy on this at CNN, I think it's simple stupidity.

[Rick Ballard]

"Buying a chunk of an MBS doesn't necessarily imply you have a CDS."

True. You could have bought a tranche from a big prudent, reputable firm like Lehman. I was very shocked to read that they stole $8.5 billion from the Brits on their way out the door. I was also surprised that they didn't find the time to complete some of the transactions there at the end that might have left clients with more than a bankruptcy claim.

Who could ever believe that a straight laced, Ivy League firm with such a fine reputation would ever behave like a den of common thieves? Or perhaps "the drunken crew of a sinking ship" is more descriptive?

One might wonder if the lockup in the credit markets might be due to this:

Hans Hufschmid, chief executive officer of GlobeOp Financial Services SA, a London-based administrator to funds managing $104 billion, said he's now running reports for clients detailing their bank counterparties.

``A lot of our big clients are spending all their time right now making sure they have their assets in a safe place,'' said Hufschmid. ``The whole Lehman experience is lessons learned in many ways.''

It's almost as if a certain lack of trust has developed due to a realization of the type of people involved in the business. I don't really understand that attitude. It doesn't seem to me as if anything has changed at all since the moneychangers were driven from the Temple two thousand years ago. What's new?

[Pofarmer]

I don't know why everyone is looking at the stock market, that's not where the bad news is.

So, point out the bad news?

[Syl]

There's quite a few links towards the end of tom's post on Tracking the Economic Bailout...

[clarice]

Rick, we were astonished ourselves about the way our banks had been sweeping our money market accounts and placing the money in uninsured stuff..and when we got our money back into insured stuff it was without much help from the bankers or brokers who seemed not to know what the heck they were stuffing our $$ into. PHEH
It's like do it yourself surgery.

[Rick Ballard]

Largest Chevrolet dealership in the US files bankruptcy.

``The difficult financing conditions the automobile industry as a whole has faced because of the subprime lending industry collapse'' contributed to the closing, the company said on its Web site.

I'm sure glad it only contributed rather than caused - otherwise folks might think this deal could touch Main Street in Littletown.

[Pofarmer]

So, is that what got this Chevrolet dealership two months ago???

LUN
Baugher Chevrolet-Buick filed for protection after it received notice from General Motors that if it didn't reach a purchase agreement immediately, GM would terminate its dealership. BB&T also said it would start foreclosure proceedings, court papers show.

The dealership's board of directors adopted a resolution for the bankruptcy filing on July 29.

[Pofarmer]

Damn, it's an epidemic!!!

Century Chevrolet dealership to be sold
Posted: Friday, Aug 29th, 2008
BY: TODD GUILD and ADRIANA VALADEZ

About 18 vehicles were on the lot of Century Chevrolet on Auto Center Drive Thursday, with plenty of empty space between them.



Century Chevrolet, which for years has been a fixture at 490 Auto Center Drive in Watsonville, is facing financial woes, and is in the process of being sold, owner Harry Marx confirmed Thursday.

[Pofarmer]

The largest CaseIH combine dealer in the U.S. went bankrupt two years ago. Can we blame that on this too?

[Rick Ballard]

Mortgage refinance applications dropped 34.7 per cent last week (against falling rates). It's OK though, none of the refis would have been used for remodeling homes on Main Street in Littletown anyway. So no remodeling contractors or building supply houses in Littletown were affected one bit by this. Everything is just peachy keen and rosy in Littledown.

[DebinNC]

I don't understand why a cash-strapped car buyer would buy from a dealership instead of a private owner. We've bought two one-owner, low mileage used cars [Civic/Corolla] in the last year from private sellers - one ad found in local paper and one on Craigslist. Plus, Autotrader and Cars.com both include private sellers on their online lists. Buyers can now look beyond car dealers with their exhorbitant added fees + sales tax.

[Rick Ballard]

Ford's September U.S. Auto Sales Fell 35 Percent

Ford's decline ``is an indicator of the state of the industry, with the credit problem hitting all segments, all types of vehicles,'' said Dennis Virag, president of Automotive Consulting Group in Ann Arbor, Michigan. ``People of all economic backgrounds are going to be impacted.''

Not in Littletown though. Littletown is insulated from all this - the drop in truck sales was totally in Bigcity. It's gotta be true because I saw a new F-250 just last week.

[Pofarmer]

The main news all last week (and so far this week) is that the housing market is in a shambles and the economy is gonna crash, crash it tell you, and refi applications dropped???????

I'm shocked, shocked I tell you. Next folks are gonna start talking about the cost of the baby boom in 9 months due to this. ;0)

[Pofarmer]

Oh, now c'mon Rick. Truck sales have been trending down for a year or better due to high fuel prices. Chrysler was taking 12,000 off the price of a new pickup back in July. Hell, one local dealer finally had a "Buy a new pickup get a new car(Chevy Aveo) free" deal.

[Rick Ballard]

I'm just glad this all is confined to Bigcity. Otherwise I'd have to worry that this minor problem with an Ohio Bank was serious.

National City is better-capitalized than Wachovia Corp., which sold banking operations to Citigroup Inc. Sept. 29, with an 11.1 percent Tier 1 ratio, spokeswoman Kristen Baird Adams said Sept. 29. The Tier 1 ratio is a measure of a bank's ability to absorb loan losses. Banks with ratios greater than 6 percent are considered ``well-capitalized.''

Baird Adams said National City's primary source of funding was customer deposits and that its residential mortgage portfolio is ``significantly smaller'' than Wachovia's.

"significantly smaller" means "better", right?

[M. Simon]

Forty years of bad management by US auto companies is taking them down.

A tight credit market is just the last straw.

a few home repairs no longer qualifies you for a 30% larger mortgage.

An Home Depot? My local Ace hardware is significantly cheaper on most items.

So there will be a correction. TS.

[M. Simon]

Rick,

Given the state of the cycle house prices will need to go down 50% from their peak and the stock market is going down to 5,000 (P/E of 10 or so).

How much government money would be required to prop it up?

There isn't enough.

And yes. In times like these credit will be hard to get and only banks that have "flight to security" money coming in will do well.

As long as the unwinding is done over 3 months or so I don't worry.

Wh ever remains will be MUCH stronger. esp at P/Es of 10 vs 30.

[M. Simon]

Buy tulips. Everyone wants them.

[clarice]

Well, the auto industry is a very bad example. Keep bailing them out and they'll keep paying so much under union contracts that they can never be competitive. Bailing them out might help some pol in the upcoming election but it really is pouring money down a rathole.

[kim]

It's the models with custom racing stripes that are most in demand, Simon.
=====================================

[M. Simon]

Kim,

Have you noticed that there were a couple of sunspots yesterday? No telling if it is a false start or a real one yet. Have to wait 6 months for that.

[BOATBUILDER]

TM: "...why in the world should I be subject to an ex-post tax intended to bail out speculators and yield hogs?"

Maybe because, between taxing players in the mortgage-backed securities market to bail out the mortgage-backed securities market, and taxing everybody else to bail out the mortgage backed securities market, the former seems to be more equitable?

When you're trying to explain to us nobodies why we should stop complaining and pony up $700B to save the economy, quibbling that some big players might get treated less fairly than other big players doesn't really help.

[Pagar]

One of the best places to buy your used car IMO, is the US govt.

Their GSA auctions are not the Highway Patrol type high mileage vehicles. The ones they sell are the bureaucrat driver type cars. The season is about over for this year but one can see what's available at the GSA website.

LUN ---- look at the top of the site for
online sales--Calendar, Locations etc.

My present car is a previously GSA owned 2000 Dodge Stratus, purchased with 22300 miles on it in Aug 2003 for $5400.00. It has 57000 miles on it today and will sell for 2500/2800 dollars.

The GSA auctions are normally at one of the big Auto Auction sales facilities. The general public as well as the auto dealers are allowed to bid, Meaning you have bought a car that the dealer would have had to put his markup on if he was going to make money selling it. Since the early 1990s, I have bought 8 or more of these vehicles and have never been dissatisfied. When I was working, I used to buy them, drive them a year and resell them for about the same as I paid for them and purchase another. I have seen the GSA sell vehicles with 6000-8000 miles on them. The biggest problem I have had with GSA cars is convincing the state licensing dept that the low mileage is accurate.
One of the clerks even asked me one time if I believed the mileage was correct.

[DrJ]

Since the early 1990s, I have bought 8 or more of these vehicles...

I must be a dinosaur. I have only owned two cars since the late 1980s. My spouse has had the same number. All but one were used, in great condition, and with the care that I give them, they last a long, long time.

[JM Hanes]

DrJ:

Welcome to prehistory. I've had my "new" car for 11 years. Had my old one for 18. They start out costing more, but they last a whole lot longer than the plastic tonka toy alternatives. The only substantive improvement between the two was the all wheel drive.

[Elliott]

Where in the world is Cape Ossa? It sounds like somewhere to avoid.

[Charlie (Colorado)]

So, point out the bad news?

Bloomberg:

``There's a complete breakdown now of credit markets, and there is now a lack of trust in any counterparty, even the safest ones,'' said Nouriel Roubini, chairman of Roubini Global Economics and an economics professor at New York University's Stern School of Business. ``No one is lending to anyone else. It's a complete breakdown of the interbank system. It's really scary.''

[Charlie (Colorado)]

Well, the auto industry is a very bad example.

So use the McDonalds example. Car dealers are just the one that came up at that moment on TV.

[DrJ]

JMH,

Welcome to prehistory. I've had my "new" car for 11 years. Had my old one for 18.

People just don't know what to say when I tell them that I have only owned three cars in my entire life (and I have a granddaughter!). The current one I've had for only 8 years, but it is now 21 years old (160K miles), immaculate, and will last another decade or so. It does help that it is a Mercedes, I suppose.

As far as I can tell, the only improvements are in passive safety devices, like air bags all around and perhaps improved crumple zones, and better fuel efficiency. My current one is good enough.

[Pofarmer]

No one is lending to anyone else. It's a complete breakdown of the interbank system. It's really scary.''

Nobody trusts anybody else??? Imagine that.

Look folks. I'm not arguing there's not going to be an economic downturn. We've been flirting with that for years. When savings rates go negative, you can only sustain that so long. A year or two ago, GM had "employee pricing" for everybody. I looked at a truck that had over $7,500 off the sticker. You can only do that deep discounting bit for so long and hope to "make it up on volume".

O.K. Back to the point.

I'm not arguing that there won't probably be an economic contractions. What I AM arguing is that these dificulties with the Wall St. banks is going to cause runs on smaller banks and a total collapse of the banking system. This isn't 1929. There is way more information available. There is way more MONEY avialable.

[Pofarmer]

So use the McDonalds example.

Are you seriously arguing that nobody is going to float McDonalds?

[BOATBUILDER]

Pofarmer: I get what you mean, but I think there's a "not" missing from you last paragraph.

[srp]

At the UCLA Anderson School of Management, we had a "town meeting" today on the financial system. The three panelists were Richard Roll, Ed Leamer, and Francis Longstaff. Roll and Longstaff are pretty plugged into the institutional facts of finance as well as being high-powered academics (and inventors of certain types of derivatives). Leamer is a big-time econometrician (sort of a conscience of the profession, in a way) as well as a macro-forecaster.

All three agreed that the bailout plan is not a good idea. All three (especially Leamer) felt that the panic-mongering from our national leadership was not helpful in that it might stimulate unnecessary bank runs or corporate layoffs. All three thought we were in for a substantial period of retrenchment or very slow growth, but none thought a Depression-type outcome was remotely likely.

There was some grudging support for the idea of modifying mark-to-market rules, but none were really comfortable with the idea. Roll argued that such modification would be necessary for the Paulson plan to have any effect; otherwise, nobody would sell off some of their distressed assets at a low price lest the firm be declared insolvent when their remaining assets are marked to market.

Roll claimed that the biggest financial crisis problem was that banks own a lot of whole loans (that they do not have to mark to market) that may be underwater, with total losses exceeding their loan-loss reserves. He and Longstaff both thought that the MBS problems in the US had already been recognized and had largely worked through the system. The Europeans are just waking up to their problems now with significantly less transparency.

There was lots of other interesting stuff, but this is long enough. Sorry about that.

[Patrick R. Sullivan]

Are you seriously arguing that nobody is going to float McDonalds?

Duh! Have an F*****n' clue!

[Pofarmer]

Are you seriously arguing that nobody is going to float McDonalds?
Duh! Have an F*****n' clue!

Come again?

[超声波清洗设备]

Roll claimed that the biggest financial crisis problem was that banks own a lot of whole loans (that they do not have to mark to market) that may be underwater, with total losses exceeding their loan-loss reserves. He and Longstaff both thought that the MBS problems in the US had already been recognized and had largely worked through the system. The Europeans are just waking up to their problems now with significantly less transparency.
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[sophy]

I do not know how to use the knight online gold ; my friend tells me how to use.