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October 10, 2008

Comments

kim

I hope he's capable of royal decisions.
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bgates

Presumably they have the authority some place
Not a bad title for a history of the administration.

Or if you don't want book length, leave it as a witty epigram. (Epithet? Epitaph? Epiphenomenon? Somebody get Joe Biden.)

Charlie (Colorado)

Epidural?

kim

Epic bailout.
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Pal of the Janes

When all else fails, chart it.

matt

I am now offering the matt plan.....give me a portion of the $700 Billion and I will invest it wisely, I promise...

There was this guy on the way to the village and I traded my cow for a bag of magic beans and it all worked out...really....

JM Hanes

TM:

Has it begun to feel like you're live blogging the decline and fall of the Roman Empire?

Antimedia

"I hope he's capable of royal decisions."

I hope he's capable of Solomonic decisions.

Pal of the Janes

Perhaps the best suggestion would be declaring a Jubilee year. Wipe the books clean and start fresh.

rrsafety

Any details on the Lehman auction and what it means?

Patrick R. Sullivan

Vernon Smith writes better--and has a Nobel Prize--than Brad DeLong:

Auction designers should immediately note that we are talking about a market with one buyer and many sellers of a hodge-podge of items. The mechanism that will be used is a "reverse auction" -- with sellers competitively submitting asking prices to sell Treasury a heterogeneous mix of good, some sour, apples and oranges whose content is better known to sellers than the Treasury.

Treasury expertise is in auctioning Treasury securities of a given maturity to multiple competing buyers: say $10 billion worth of six-month bills, or two-year notes. In either case every bill (or note) is identical to every other one. The only uncertainty is the final clearing price and Treasury is assured that it will get the best price.

Treasury has no expertise in this ridiculous new venture. (Auction houses such as Christie's and Sotheby's have no problem with heterogeneous items. They auction them singly or in small assemblies to multiple buyers, who assess the items and make bids that reflect best estimates of true value.)

Treasury action should focus on providing capital to individual banks and mortgage companies in return for debt, convertible bonds and equity and warrants to be negotiated. This is dangerous enough for the taxpayer, but here Mr. Paulson has previous experience. (The model was demonstrated recently when Treasury and the FDIC assisted J.P. Morgan's takeover of Washington Mutual.) Then let companies do any necessary piecemeal paper asset auctions, while Treasury holds managers accountable. This is feasible at least, if hardly risk-free for taxpayers.

This procedure will confront financial systemic risk, and allow prices to emerge competitively that will encourage the all important return of bargain hunting buyers.

Would the procedure work? I don't know. But it does focus on the knowledge that markets are capable of bringing to the table. The bailout does not.

clarice

The insurers have to come up with over 91 cents for every dollar of Lehman bonds they insured.

ben

Hey Charlie, your comment on GE which I seconded was on the money...GE went up 13%!

MNB

The equity from a loan? Biden rights off 100s of millions in foreign aid loans every year. Treasury does what they are told and if Biden wants it written off, they'll write it off. This isn't the foreign aid programs that were doubled and tripled by Congress over a new five year budget(debt)that agencies are switching over to because the aid budgets are passed before the Federal budget.

Foreign aid writes these things off all the time and it's 100s of billions. We can write most of the market off over time; say five year emergency sustainable loans(grants). In five years all this will be old and forgotten and we'll lose less when we write off the loans and programs.

Rick Ballard

"The government will buy an ownership stakein a broad array of American banks for the first time since the Great Depression, Treasury Secretary Henry Paulson said late Friday"

He's using authority granted to the Treasury back in the '30's. It still does not erase the fear of cascading losses due to CDS triggers being pulled. This won't be over until that issue is resolved and additional capital does not seem to be an effective solution. Worldwide abrogation, regulation and reissue (to security holders only - no more buying fire insurance on your neighbors house with a can of gas in your hand) would seem the correct response.

Pofarmer

Details, details.

Man I hate this.

Pofarmer

Worldwide abrogation, regulation and reissue (to security holders only - no more buying fire insurance on your neighbors house with a can of gas in your hand) would seem the correct response.

I think I was saying that a couple weeks ago before they passed this carp. Also suggested that a better solution might be the Fed buying short term paper directly. But, the govt taking an equity position in banks? To what ends? Do you really want the feds to sign off on your new home construction loan?? I can just see the requirements on that bad boy.

Charlie (Colorado)

Do you really want the feds to sign off on your new home construction loan??

Po, do you really think that major stockholders are consulted before, say, Bank of America signs off on a retail loan?

Hell, on ANY loan?

Tom Maguire

Has it begun to feel like you're live blogging the decline and fall of the Roman Empire?

We will be riding tall in the saddle of the Comeback Stallion down the long and dusty Comeback Trail any day now. OK, any week. Month. Eventually. Like before the Yankees win the Series.

Pofarmer

Po, do you really think that major stockholders are consulted before, say, Bank of America signs off on a retail loan?

Hell, on ANY loan?

Dude, I deal with the USDA all the Frickin time. You folks don't have a clue what you're asking for here.

Pofarmer

They don't have to sign off on the loan, all they have to do is set the qualifications. Wanna build a house??? It better be environmentally friendly, use the right insulation, right roofing, right doorhandles, right windows, right grass in the yard.

Wanna buy a truck?? Now hold on there. You don't really require that F-150, this nice two seater hybrid will suit you just fine.

Don't laugh.

Socialism sucks.

torabora

Make no mistake, America got raped by Wall Street, your Congress, your President, and both political parties.

The point made earlier about foreign aid spending is most telling. Hundreds of billions are written off there.

I think this bail out was a solution in search of a problem, for it doesn't address the real issue. It provides cover for the real problems...with the plural!

The CRA is the genesis of this mess and needs repealed. Accounting has been cooked (at Fannie and Freddy especially) and people need imprisoned for their criminal behavior. Liars who took out loans and their agents need burned in court. The GSE model needs to end. Politicians who supported the liars need tried as co-defendants. Let firms who failed to maintain adequate leverage fail. Regulate the survivors minimum leverage as the new standard. Repeal the Glass-Seagall (sic) repeal. And vote the bums out. Sheesh.

The good things to come out of this is that many responsible people can now afford a home and stocks became cheaper for a buy opportunity. It's not the end of the world.

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Wilson/Plame