(Formerly titled My bailout letter to my Representative. This is too time-sensitive to wait another day for a new diary. All new material is in the update sections below.)
I just finished writing this and thought some of you might enjoy it. And if anyone is up late and has not pestered your Congress Critter yet, PLEASE DO! Feel free to use this as a template. (Full text after the fold.)
I am also faxing them some recent blog posts I felt were insightful and relevant:
http://market-ticker.denninger.net/...
http://benbittrolff.blogspot.com/...
http://www.financialsense.com/...
(Update: Section 132 is the one thing that actually addresses the "crisis" and you could delete the whole rest of the bill. More explanation way below the fold.)
Dear Representative,
I have long since stopped believing anything the Bush Administration says about the economy. First they told us the crisis was "contained to sub-prime." Then they told us that the economy was resilient and would weather this "rough patch." Now they suddenly say that it’s Armageddon and if we don’t give them unprecedented powers, they "might" be able to prevent a horrible recession. Why do I feel like I’m being robbed yet again?
If you watch the GDP figure revisions as I do, you know that 2007Q4 GDP was actually negative, and the 2008 numbers keep falling with every revision. When the next GDP report comes out after the election, I fully expect 2008Q1 GDP to become negative and the talking heads will finally admit that we are in a recession after all. How convenient! Bill Fleckenstein, in his book "Greenspan’s Bubbles," makes the case that without Home Equity Lines of Credit, we would never have left the last recession. A "recovery" funded entirely by new debt is not sustainable and all the "stimulus" efforts are doomed to fail.
We are headed into a severe recession no matter what, and to pretend that we can avoid it is wishful thinking. At this point we are simply arguing about how much the rich and well-connected can rob the taxpayer and small investor on the way down. I would be far more hopeful if I saw meaningful discussion about:
1. Creating high-paying jobs here instead of overseas, so people could afford these otherwise still-overpriced houses without an inflationary wage spiral
2. Letting housing prices simply CRASH to the traditional 3-4 times income so people will qualify for traditional mortgages again and start buying houses
3. Forcing Wall Street to come clean about how much junk sits on their books and figuring out who is really dead and who is really viable
First the Bush Administration responded like it was Katrina. Now they’re responding as if it’s Iraq. And the man they want to give dictatorial power to in order to clean up the mess is the Dick Cheney of Wall Street, Henry Paulson. Secretary Paulson was the head of Goldman Sachs during the boom time, and now they want us to let him remake Wall Street however he likes. This is like asking Dick Cheney to implement our Alternative Energy policy. If this bailout bill passes, Goldman Sachs will be the next Halliburton.
This bill is also an amazingly cynical attempt to hang an incredibly unpopular piece of legislation around Congress’ neck just in time for your challengers to use it against you between now and the elections. Please do not fall for it. Voting for this bill is one of the few things that could inspire me to support your challengers instead of you.
Thank you for your time.
--
UPDATE:
I have been reading analyses of the bill and skimming it myself. This section is key:
SEC. 132. AUTHORITY TO SUSPEND MARK-TO-MARKET ACCOUNTING.
(a) AUTHORITY.—The Securities and Exchange Commission shall have the authority under the securities laws (as such term is defined in section 3(a)(47) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47)) to suspend, by rule, regulation, or order, the application of Statement Number 157 of the Financial Accounting Standards Board for any issuer (as such term is defined in section 3(a)(8) of such Act) or with respect to any class or category of transaction if the Commission determines that is necessary or appropriate in the public interest and is consistent with the protection of investors.
(b) SAVINGS PROVISION.—Nothing in subsection (a) shall be construed to restrict or limit any authority of the Securities and Exchange Commission under securities laws as in effect on the date of enactment of this Act.
As I wrote in my diary What a Crock! Mark-to-Market versus Hold-to-Maturity earlier this week:
Given the outrageous interventions we have already seen, emergency changes to accounting rules are not out of the question either. If "hold to maturity" is good enough for Treasury and the taxpayer, then why isn't it good enough for the accounting rules?
Well here you go! Section 132 is an emergency change to the accounting rules of exactly the kind I was proposing.
I've been following the financials all year. They have been avoiding Mark-to-Market accounting on all this bad paper by hiding it in their "Level 3 Assets" section in every quarterly report. But apparently some accounting rule change that takes effect in December (can't find link just now, sorry) removes this option and forces them to come clean with all their losses.
So it's no wonder that they have been desperately raising capital and hoarding cash to get ready for the full disclosure in Q4.
But if the SEC can exempt them from this rule, which they could in theory before but Section 132 clearly states that they can, then the need to hoard cash and raise capital goes back to what it was much earlier this year when all they were facing was bad writedown surprises each quarter. But only for those whom the SEC favors with an exemption.
Do you realize how blatant this highway robbery is now? Paulson gets to pump even more money from the Treasury to Wall Street than Cheney did to Halliburton (et al.) with Iraq. And if the SEC exempts enough banks from Mark-to-Market accounting, then the crisis WILL go away and the bailout will appear to have worked!
Worse, with Treasury buying all this crap at above market prices, Wall Street will be able to get away with much smaller writedowns and their profitability will soar! Everyone who bet against them will get massively screwed FOR BEING RIGHT!
If this bailout bill passes, then we have no democracy any more. He who prints the money will have made the rules.