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Sure, he runs the Democratic Party, funds every liberal blog in the universe, and has the power to single-handedly make wingnut heads explode. But is his plan any good?

Specifically, the liberal philanthropist has proposed that government funds should be used to recapitalize the American banking system by purchasing equity in banks and investment firms.
Democratic Rep. Jim Moran (Va.) scheduled a meeting Tuesday afternoon with Robert Johnson, a former manager of the Soros Fund Management, to discuss the proposal.

Moran compared the proposal to Warren Buffet’s $5 billion investment in the investment firm Goldman Sachs Group in return for preferred stock and warrants to buy common stock at a discount [...]

“Instead of purchasing troubled assets, the bulk of the funds ought to be used to recapitalize the banking system,” Soros wrote.

“The Treasury secretary would rely on bank examiners rather than delegate implementation of [the Troubled Asset Relief Program] to Wall Street firms,” he wrote in reference to the plan first crafted by Treasury Secretary Henry Paulson. “The bank examiners would establish how much additional equity capital each bank needs in order to be properly capitalized according to existing capital requirements.”

“The recapitalized banks would be allowed to increase their leverage, so they would resume lending,” he wrote.

Soros also wants the government to help out homeowners in danger of losing their homes, which means that 1) any such plan would certainly have to be Democrat-only, and 2) more proof that he is evil.

Originally posted to Daily Kos on Wed Oct 01, 2008 at 07:50 AM PDT.

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Comment Preferences

  •  seeing that he is my boss and all (27+ / 0-)

    i'll have to say that his plan is geeeenius. i mean, he does pay my bills...

    "after the Rapture, we get all their shit"

    It's time: the albany project.

    by lipris on Wed Oct 01, 2008 at 07:51:52 AM PDT

    •  How about Examiner oversight? (11+ / 0-)

      A problem of the past eight years has been that examiners were not allowed to do their jobs.  How can there be effective oversight if nobody gets the time to look.

      This is what they did to S&L's.  They deregulated and also desupervised.  A federal exam every two years gave too much time for mischief.

      There should be a separate congressional oversight for the examination operations of the Fed and FDIC.

      I am here to represent the democratic wing of the Democratic Party.

      by Josiah Bartlett on Wed Oct 01, 2008 at 08:00:13 AM PDT

      [ Parent ]

    •  Or you help pay his. (0+ / 0-)

      "The military industrial complex not only controls our government, lock, stock and barrel, but they control our culture." - Mike Gravel

      by Wilberforce on Wed Oct 01, 2008 at 08:10:02 AM PDT

      [ Parent ]

    •  This sounds very close to Krugman's (6+ / 0-)

      suggestion and all the other economists who point to what Sweden did.  This is what should be done IMO, and it would likely be mostly Dems supporting it.  But some Reps might surprise you if this was the only thing that was going to reach the floor and considering it relative to the modified Paulson plan that went down in flames Monday.  It's still government intervention, but it eliminates many of the awful distortions, conflicts of interest, and grants of power to Paulson that Republicans as well as Dems objected to.  But it should NEVER be presented as coming from Soros.  Stick with economists as the source of the idea.  

      McCain/Palin = Unstable/Unable

      by DrFitz on Wed Oct 01, 2008 at 08:41:03 AM PDT

      [ Parent ]

      •  some links to krugman (2+ / 0-)
        Recommended by:
        mataliandy, HiBob


        To this day [Paulson et al]'ve never been able to explain clearly why buying up bad mortgage assets at market prices will solve the credit crunch.

        ...and here's a krugman-recommended piece that explains why.

        More from Krugman:

        Paulson grabbed hold of the wrong end of the stick — he should have been seeking to expand bank capital, taking an ownership share in compensation, rather than trying to push up the value of toxic paper. In the end, that’s what we’ll probably do.

        If he's right, and that's what we end up doing, it will be a huge improvement on the original plan. Maybe Congress does work after all....

    •  This is pretty much what Krugman (2+ / 0-)
      Recommended by:
      Minerva, HiBob

      says was done in Iceland -- and he seems to think it makes sense.
      Then we're not just buying bad assets, but owning a big chunk of firms that include good assets.
      I still like Trapper John's idea of starting smaller and letting Obama (hopefully) reconfigure the plan when he comes to office.  

      If, in our efforts to win, we become as dishonest as our opponents on the right, we don't deserve to triumph.

      by Tamar on Wed Oct 01, 2008 at 08:57:28 AM PDT

      [ Parent ]

  •  GOP think (36+ / 0-)

    People who lose their homes are bad.. rich people that lose their banks are good...Why? because silly rich people are good and poor/middle class people are bad.

    "It's better to die on your feet then live on your knees" E. Zapata

    by Blutodog on Wed Oct 01, 2008 at 07:51:53 AM PDT

  •  Sounds a darn sight better (8+ / 0-)

    than the DeFazio "Progressive" Plan do it for free!

    What would make the Soros proposal complete is a plan to help homeowners in foreclosure and people hurt by the economy.

    Celebrate women but hate choice? Revere MLK but despise community organizers? Pretend we've won the war but can't withdraw? Republican much?

    by Bronxist on Wed Oct 01, 2008 at 07:51:57 AM PDT

    •  Not increasing leverage though (2+ / 0-)
      Recommended by:
      mataliandy, Bronxist

      most banks are too highly leveraged already, part of teh problem is that when you are so highly leveraged you have reduced capacity for bad debt, and even in a booming market there will always be bad debt.

      The otehr issue is that we dont know how much equity would be needed.  

      Of course GOp heads would explode, this is nationalization by any other description.

      Sarah Palin Proud Socialist

      by Bloke on Wed Oct 01, 2008 at 07:59:51 AM PDT

      [ Parent ]

  •  In a just country (34+ / 0-)

    George Soros would be rich and Donald Trump would be a clown.

    Oh, wait.

    My friends, What Senator Obama doesn't understand is the flurgle flurgle flum flum floooeey!

    by nightsweat on Wed Oct 01, 2008 at 07:52:07 AM PDT

  •  In light of the Senate bill coming up today, (19+ / 0-)

    this is like the heavens opening up and raining down sanity.  What's happening in the Senate today (tax breaks + $750 billion giveway) is insane.  I'll take anything other than what George Bush or the Congress proposes.  

    "Lawyers, I suppose, were children once." To Kill A Mockingbird

    by DC Scott on Wed Oct 01, 2008 at 07:52:52 AM PDT

  •  This makes so much sense... (18+ / 0-)

    They'll never do it..

    Pelosi? Reid? Make sense?  Actually develop a bacbone?  We need to know who we're dealing with...

    What else is off the table Nancy?

    •  Sure does. We the People would actually own an (8+ / 0-)

      asset  of value rather than paper that is purely junk. If the banks do not want to be owned by the government than let them bail themselves out.

      No matter how cynical I get, it's impossible to keep up.

      by Flippant on Wed Oct 01, 2008 at 07:56:14 AM PDT

      [ Parent ]

      •  A 'friggin' MEN, brother (0+ / 0-)

        Is it too friggin simple, fair, normal friggin business practice? ? ?
        If any of those bastages were to buy, with their own millions/billions,  an extremely risky (being overly generous with 'that' term) dodad (not asset), they would expect one hell of a lot of first in line ownership.

        But hell, their propsing to buy it with OP (other people's) money.  Unfortunately for us peon taxpayers...
        It's our friggin' money... That we don't even have!

        These guys have brass balls the size of the sun!  How do they walk.   ARGHHH

        Barack Obama can inspire Americans to get involved!

        by davekro on Wed Oct 01, 2008 at 08:38:27 AM PDT

        [ Parent ]

  •  If you listen to O'Reilly, you know... (11+ / 0-)

    ... that the real George Soros is made of titanium, is 5 stories tall, and shoots lightning from his knees.

    No, Madame Vice President, "Godzilla vs. Megalon" is not a Supreme Court case

    by Shelbyville Manhattan on Wed Oct 01, 2008 at 07:53:18 AM PDT

  •  If it doesn't include a tax cut (8+ / 0-)

    I'm all for it.

    Republicans, the "borrow and spend" party, need to learn to pay as they go.

    "In a time of universal deceit, telling the truth is a revolutionary act." George Orwell

    by zic on Wed Oct 01, 2008 at 07:53:20 AM PDT

  •  Sucking less is still sucking (5+ / 0-)

    an important point to remember in many contexts.

    While this might make some people puke, I would prefer system-wife default to socialism for these billionaires.

    •  that was a typo,yes?wife-default for wide-(n/t) (1+ / 0-)
      Recommended by:
    •  I'd say it sucks more (0+ / 0-)

      The gov't is just going to give out money to banks? At least, the current proposal bears a closer relationship to dealing with the root cause of the credit crunch -- and may result in a return on investment to the gov't. I love Soros, but on first blush, this plan seems even harder to swallow.

      Coming Soon -- to an Internet connection near you:

      by FischFry on Wed Oct 01, 2008 at 08:04:29 AM PDT

      [ Parent ]

      •  Did you miss the "purchasing equity" part? (nt) (2+ / 0-)
        Recommended by:
        hester, nicta
        •  Didn't miss it (0+ / 0-)

          But, this makes the gov't a stock investor. First off, that influences -- or should influence -- the capital investment decisions. Second, it means the gov't has a continuing stake in the banks. There are a few problems with that, including that selling the stocks might bring down the stock value.

          With the toxic asset purchase, it's pretty straightforward. If and when they're sold off, the gov't will get some money, and that will be the end of the gov't involvement with the institutions.

          Coming Soon -- to an Internet connection near you:

          by FischFry on Wed Oct 01, 2008 at 08:25:29 AM PDT

          [ Parent ]

          •  What's bad about that influence? (0+ / 0-)

            So the investor class is allowed to influence the government through campaign contributions, but the government cannot influence them? Hm?

            A "centrist" is someone who's neither on the left, nor on the left.

            by nicta on Wed Oct 01, 2008 at 08:31:38 AM PDT

            [ Parent ]

      •  The gov't would OWN shares of banks (2+ / 0-)
        Recommended by:
        mataliandy, nicta

        Under the Soros plan, the government would not just "give" money to banks, but the taxpayers would receive equity in return.  As Jim Moran (my Congresscritter) said, this is sort of like Warren Buffet buying a big chunk of Goldman Sachs. My (limited) understanding is that this would help solve the immediate liquidity problem, and guarantee that taxpayers benefit if the banks recover.  It seems like a better idea to me than just buying all of the bank's worthless shit.  

        •  Why that bothers me more... (1+ / 0-)
          Recommended by:

          This makes the gov't a stock investor. First off, that influences -- or should influence -- the capital investment decisions. Second, it means the gov't has a continuing stake in the banks. There are a few problems with that, including that selling the stocks might bring down the stock value.

          With the toxic asset purchase, it's pretty straightforward. If and when they're sold off, the gov't will get some money, and that will be the end of the gov't involvement with the institutions.

          Coming Soon -- to an Internet connection near you:

          by FischFry on Wed Oct 01, 2008 at 08:26:10 AM PDT

          [ Parent ]

          •  Those investments would be managed privately (0+ / 0-)

            though so there would not be a conflict of interest. As we take these "long term investments" (gee sounds an awful lot like TSP investments.. duh!) through till we start to see a recovery in their value then we can divest of them back to the parent company through a scheduled arrangement. No impact as the company simply buys back its shares from Uncle Sam.

            The Govt already does this in its Thrift Savings Plans. It ain't something new.


            "Anyone who is capable of getting themselves made President should on no account be allowed to do the job." - Hitchhiker's Guide

            by Wynter on Wed Oct 01, 2008 at 09:13:28 AM PDT

            [ Parent ]

        •  Well the whole world that has money now has (0+ / 0-)

          Sovereign Wealth Funds.

  •  The Swedish Plan (24+ / 0-)

    the cheapest and probably the most effect plan.

    Recapitalize those banks and firms that are still solvent and those with too much toxic debt, will sink, with the valuable nuggets left to be taken by the market.

    This is a quasi nationalization, where the government owns for a short but, until the banks are safe and then the government begins to sell off its shares and makes a profit.

    Honestly it lets losers be losers and protects.  Added with some bankruptcy reform and we have a good bill.

    We all went to heaven in a little rowboat, and there was nothing to fear and nothing to doubt. --Radiohead

    by Tzimisce on Wed Oct 01, 2008 at 07:53:47 AM PDT

    •  Hello! (0+ / 0-)

      The "bad" ones owe the "good" ones a whole lot of trillions via derivative contracts.  When the "good" ones don't get paid, then they turn into "bad" ones.  It is all interrelated, my friends.  You cannot pick and choose, like so many on this site advocate doing.  The Soros plan guarantees more hideousness going forward by increasing leverage and leaving Wall Street in charge of the assets...exactly what we do not need.  

      The question one should ask is exactly who will get the upside from the current firesale price of assets at 20 cents on the dollar (per the Merrill Lynch transaction) to the long term value that many experts expect is around 60 cents which will be achieved over time via cash flow.  

      I prefer that the taxpayer, not the banks, and certainly not rapacious hedge funds like Soros get this upside in exchange for fresh capital, specifically earmarked to make fresh loans to real economy clients.  Depending on the price negotiated on the assets...and the devil is in those details...the revised Paulson Plan offers the possibility of getting out whole or ahead. Others do not, as far as I can tell.  

      "Those dunes are to the Midwest what the Grand Canyon is to Arizona and the Yosemite is to California." - Carl Sandburg

      by Critical Dune on Wed Oct 01, 2008 at 08:48:55 AM PDT

      [ Parent ]

  •  And don't forget to oppose the AMT Patch (2+ / 0-)
    Recommended by:
    Boston to Salem, dave3172

    and the tax cuts for victims of hurricane relief, renewable energy usage, research and development, and other expiring tax credits like the child care tax credit!

  •  Any way you slice it (1+ / 0-)
    Recommended by:

    it still ends up providing value for worthless paper (default credit swaps).

    •  Not worthless; (3+ / 0-)
      Recommended by:
      mrblifil, notquitedelilah, Oldengrey

      no-one knows how much they're going to be worth, which is a major problem, but they're not worthless; by setting a price that issue is resolved.

      Furthermore, CDS are not the primary issue. They're mainly used to spread the risk and banks are still using them. The real problem are the mortgage-backed securities and bonds.

      Omne malum nascens facile opprimitur, inveteratum fit plerumque robustius. - Cicero

      by Dauphin on Wed Oct 01, 2008 at 07:59:40 AM PDT

      [ Parent ]

  •  I like the plans that go from bottom to top not (3+ / 0-)
    Recommended by:
    Cartoon Peril, 4Freedom, Oldengrey

    top to bottom.  Therefore, I don't care for this plan at all.

    Sarah Palin is just another Karl Rove in lipstick and stilettos.

    by uc booker on Wed Oct 01, 2008 at 07:54:41 AM PDT

    •  You can do both (5+ / 0-)

      There is a two fold problem, a lack of liquidity at the top, preventing main street from meeting monthly budgets and numerous debts from many citizens living beyond their means.

      The market does need to be kept liquid, but the best way is not to buy worthless paper, we might as well just GIVE them money without strings for all the good that does, but the better choice is to give them money for shares, and then sell the shares once the banks are better off and worth more, thus getting a return on our investment

      But there could also be a nice stimulus plan to give money to the "bottom" and also bankruptcy reform to keep people in houses and the bills paid.

      We all went to heaven in a little rowboat, and there was nothing to fear and nothing to doubt. --Radiohead

      by Tzimisce on Wed Oct 01, 2008 at 08:00:17 AM PDT

      [ Parent ]

  •  I was just starting to write a diary about this (1+ / 0-)
    Recommended by:

    good thing I refreshed

    John McCain - Like W. Only Older.

    Funny McCain Pics archive last updated 8/29

    by InsultComicDog on Wed Oct 01, 2008 at 07:54:52 AM PDT

  •  Rec stock transfer tax to build up bailout fund (8+ / 0-)

    you gotta pay to play.

    You have exactly 10 seconds to change that look of disgusting pity into one of enormous respect!

    by Cartoon Peril on Wed Oct 01, 2008 at 07:54:58 AM PDT

  •  Listen to Nouriel Roubini. Eom. (3+ / 0-)
    Recommended by:
    hubcap, Hillbilly Dem, DrFitz


    "It's getting late early" - Yogi Berra

    by buckshot face on Wed Oct 01, 2008 at 07:55:25 AM PDT

  •  Need New New Deal-think big (3+ / 0-)
    Recommended by:
    Bogleg, 88kathy, Canyon Lefty
    Still thinking too small.
    The progressive response needs to cover the whole progressive agenda, not just immediate bail-out. Shock Doctrine Jujitsu. No bail-out without also changing all the underlying causes.


    Rick Pearlstein back in August:

    ...and little ol' me in diary:
    $700 Billion Not Nearly Enough - Shock Doctrine Jujitsu

    And Digby yesterday:

    •  This is NOT a progressive congress. (0+ / 0-)

      It is extremely regressive, and held in further check by Pelosi/Reid.

      I don't like or trust the way congress is handling this. We can keep up the calls and pressure and hope that congress listens, but unless voters unite across party lines in their objections, our voices aren't loud enough to be heard.

      McCain = Bush on steroids. -Pat Buchanan

      by 4Freedom on Wed Oct 01, 2008 at 08:00:51 AM PDT

      [ Parent ]

  •  Let the market do its thing... (1+ / 0-)
    Recommended by:

    ...with respect to the failing banks.  

    Let's get ourselves out of debt (please take my poll before we slide into a deep, deep recession.

    I think the government should begin its own public bank, and compete with commercial lenders.

  •  Need New New Deal-think big (0+ / 0-)
    Still thinking too small.
    The progressive response needs to cover the whole progressive agenda, not just immediate bail-out. Shock Doctrine Jujitsu. No bail-out without also changing all the underlying causes.


    Rick Pearlstein back in August:

    ...and little ol' me in diary:
    $700 Billion Not Nearly Enough - Shock Doctrine Jujitsu

    And Digby yesterday:

  •  Part one, is only superior in one respect: (3+ / 0-)
    Recommended by:
    alkalinesky, allie123, DrFitz

    New equity gives the ability of the USG to get an equity share or preferred stock or an option means that taxpayers feel more comfortable in what seems to be an openended commitment.  

    Part two is the HOLC, which I've diaried, HRC has suggested, and was again brought up in the Washington Post today.

    "Immature, erratic, impulsive and subject to peer pressure"--J. Alter "Lost, erratic, out-of-touch, flailing, impulsive gambler"--E. Schmeltzer

    by Inland on Wed Oct 01, 2008 at 07:56:06 AM PDT

  •  Sounds good, but there's no way... (4+ / 0-)
    Recommended by:
    mcurry, Hillbilly Dem, lisastar, Oldengrey

    This socialist plot passes both houses and Dubya's desk.  It's tax cuts and free money folks, golden parachutes for everybody (making over $5 million/yr, that is)...

    Times like these leave one no swear words to spare!

    by masondav2004 on Wed Oct 01, 2008 at 07:56:16 AM PDT

  •  But WWRD? (2+ / 0-)
    Recommended by:
    abraxas, Oldengrey

    What Would Reagan Do?

    I actually saw an SUV with that bumper sticker.  

  •  finally, a financier who gets to the heart (6+ / 0-)

    of the matter.

    Buying up the crappy assets with our good cash sucks, no matter what bows are put on it.

    This sounds like a much more intelligent plan.

  •  And when we have President Obama, (6+ / 0-)

    we can bring this plan up for a vote.

    Right here, right now what's going to pass is a bill that is either marginally worse than the one defeated on Monday or significantly worse than the one on Monday.

    ANY bill that gets passed is going to have significant numbers, if not a majority, of Congressional Republicans supporting it.  The Democrats are NOT going to repeat the 1993 Budget vote.

    "[R]ather high-minded, if not a bit self-referential"--The Washington Post.

    by Geekesque on Wed Oct 01, 2008 at 07:57:15 AM PDT

  •  Doesn't matter if it's any good, (7+ / 0-)

    since our pathetic leadership is only interested in getting more votes from House Republicans, since, you know, they're the really smart, responsible ones here. Goddamn this makes me ill.  

    "Live as if you were to die tomorrow. Learn as if you were to live forever." -- Gandhi

    by akasha on Wed Oct 01, 2008 at 07:57:15 AM PDT

  •  It's the only kind of plan I could get behind. (5+ / 0-)

    And isn't this what corporations normally do when they need capital? Sounds like the free market to me. And if they sold it that each taxpayer is an investor, it might work.

    "It does not require many words to speak the truth." -- Chief Joseph, native American leader (1840-1904)

    by highfive on Wed Oct 01, 2008 at 07:57:19 AM PDT

  •  Thats not Soros' plan, its Krugman..... (4+ / 0-)
    Recommended by:
    LynneK, alkalinesky, abraxas, DrFitz

    and any other economist that isn't a shill for the big investment houses or the guv.

    "I would like to see less people go to church on Sunday and more people volunteering among the poor and hopeless"

    by comeinpbrstreetgang on Wed Oct 01, 2008 at 07:57:19 AM PDT

  •  About time (0+ / 0-)

    There are good alternatives out there that actually address the real problem. Its about time someone is listening.

    I can live with doubt and uncertainty and not knowing. I think it is much more interesting to live not knowing than to have answers that might be wrong- Feynman

    by taonow on Wed Oct 01, 2008 at 07:57:22 AM PDT

  •  No way that would work. (2+ / 0-)
    Recommended by:
    88kathy, Oldengrey

    It's all like, you know, sane and sober and I don't see anything about more tax cuts for people and businesses who need them the least.

    Now, if we do the Republican Plan:

    1. More Capital Gains tax cuts.


    3.  Everybody gets a pony and a unicorn!

    . . . then, well, I think we'd have something "workable".


    "We in the gloam, old buddy," he said, "We definitely right in the middle of it." -Larry Brown

    by BenGoshi on Wed Oct 01, 2008 at 07:57:34 AM PDT

  •  I have not been able to understand why (7+ / 0-)

    Warren Buffett was in a position to negotiate a pretty sweetheart deal with Goldman Sachs - and yet our government, with up to $700 billion, finds itself in a lesser negotiating position. Buffett gets preferred stock and warrants to buy future stock at discounted prices, and we the people are offering to buy worthless paper?

    I was drawn to the flame because of the light, but got lost in the smoke.

    by maizenblue on Wed Oct 01, 2008 at 07:58:07 AM PDT

  •  It's Close, But No Sweden (7+ / 0-)

    The Swedish plan (the Plan Paul Krugman's been advocating) is still the best and probably the most viable against the Paulson Plan. I don't see why any Democrat has picked it up and run with it yet. If you are going to go all in, go all in and propose a a real alternative.

    Sent from a Blackberry, a miracle made possible and invented by John McCain

    by Larry Madill on Wed Oct 01, 2008 at 07:58:21 AM PDT

    •  You'll never get it through Congress (1+ / 0-)
      Recommended by:

      Putting aside whether it will work or not, the GOP in the Senate will never let a bank nationalization bill come to the floor. That's a non-starter.

      •  Well it is a temporary nationalization (1+ / 0-)
        Recommended by:

        I think it could pass IF there were mechanism that force the banks out of the nest once certain conditions are met, so the nationalization is temporary.

        We all went to heaven in a little rowboat, and there was nothing to fear and nothing to doubt. --Radiohead

        by Tzimisce on Wed Oct 01, 2008 at 08:09:23 AM PDT

        [ Parent ]

      •  Again, then let them blatantly filibuster! n/t (1+ / 0-)
        Recommended by:

        "He who fights against monsters must see to it that he does not become a monster in the process."

        by Obama Amabo on Wed Oct 01, 2008 at 08:16:46 AM PDT

        [ Parent ]

      •  It's not all that different from what we did with (2+ / 0-)
        Recommended by:
        awnm, Oldengrey

        AIG, Bear Stearns, or Fannie / Freddie. Besides, if the bailout bill doesn't pass this week, the Democrats might as well just say, we tried, but this bill is fatally flawed, here is this proposal. And if the Republican Senators want to engage in suicide like their House counter-parts did then fine.

        I think ultimately it is academic. The Stock Market is already "pricing in" a bailout  and I'd be surprised if it doesn't pass this time around.

        Sent from a Blackberry, a miracle made possible and invented by John McCain

        by Larry Madill on Wed Oct 01, 2008 at 08:17:33 AM PDT

        [ Parent ]

      •  That's Just One Point (1+ / 0-)
        Recommended by:

        the why behind the Swedish Plan possibly being a non-starter is because congressional democrats are wayyyyyy too lazy and too pro-corporate to propose this to the American people as a just and fair way to deal with the crisis.

        "Cigna cannot decide who is going to live and who is going to die." -- Nataline's mother

        by Superpole on Wed Oct 01, 2008 at 08:19:41 AM PDT

        [ Parent ]

    •  Democrats =? The Swedish Plan (2+ / 0-)
      Recommended by:
      Oldengrey, DrFitz

      Sweden did not just bail out its financial institutions by having the government take over the bad debts. It extracted pounds of flesh from bank shareholders before writing checks. Banks had to write down losses and issue warrants to the government.

      That strategy held banks responsible and turned the government into an owner. When distressed assets were sold, the profits flowed to taxpayers, and the government was able to recoup more money later by selling its shares in the companies as well.

      "If I go into a bank," said Bo Lundgren, who was Sweden’s deputy minister of finance at the time, "I’d rather get equity so that there is some upside for the taxpayer."

      OPERATIVE SENTENCE/PHILOSOPHY: "It extracted pounds of flesh from bank shareholders before writing checks".

      Bush's/Paulson's demand the distribution of the proposed $700 Billion not be transparent is reason ENOUGH to ridicule and reject the plan. it simply proves they are up to no good as usual.

      as others (Bonddad) here and elsewhere more knowledgeable than me have pointed out, simply throwing money at banks, etc. which are doomed to fail anyway is a waste of OUR money.

      The fact congressional democrats are ignoring the Swedish plan points to their true allegiance: to the wealthy and NOT we the people. congressional democrats have NOT held the bush administration accountable for anything the past eight years-- what on earth makes you think democrats will now hold corrupt/wreckless financial institutions accountable?

      That sad fact in the end will finally be crystal clear to those of you who labor under the false notion the democratic party is significantly better/different than the repuglican party.

      Democratic advocacy of a blank check for Wall St. (on the heels of a blank check for the Iraq/Afganistan "war") proves when it comes to major policy issues there is no significant difference between the so called "two" parties.

      they are one and the same.

      "Cigna cannot decide who is going to live and who is going to die." -- Nataline's mother

      by Superpole on Wed Oct 01, 2008 at 08:15:11 AM PDT

      [ Parent ]

  •  I'm annoyed (9+ / 0-)

    that DeFazio, Kaptur, et al. didn't get behind something real like this, with the actual backing of economists and sensible financiers.  Of course, no one could pretend it was a free lunch then, like they were trying to, but it would have been better (it's more like what Sweden did and the Icelanders and Europeans are doing now).  

    Smarter, better progressives please.  

  •  Similar to Krugman's preference? (2+ / 0-)
    Recommended by:
    devadatta, Cyber Kat

    Isn't this similar to what Krugman and many other economists would prefer instead of Paulson's plan of buying the toxic assets outright?  

    •  It seems close (3+ / 0-)
      Recommended by:
      MrSandman, Oldengrey, DrFitz

      But I think the Krugman plan just uses the simple mechanism of buying preferred stock and providing equity shares to taxpayers. Also they would have provisions for temporarily nationalizing companies and either turning them healthy or unwinding them properly, which I don't see in the Soros plan.

      Sent from a Blackberry, a miracle made possible and invented by John McCain

      by Larry Madill on Wed Oct 01, 2008 at 08:03:14 AM PDT

      [ Parent ]

  •  Grrrrrrrrr is anyone else having a problem (0+ / 0-)

    getting through to their senator today?  MY Senator is Chuck Schumer and no matter how often I call his offices, both the DC office and the local NYC one...  I cannot get through.  

    when I call the senate switchboard I get a message that 'all circuits are busy and I should try again later"

    when I call his DC office directly THERE IS NO ANSWER, not even a message machine....

    when I call his Local NYC office I get a recorded message but NO way to leave a message.

    anyone else having these kinds of problems reaching their Senators today?

    McCain's MILLIONAIRE MENTALITY cannot help average hard working Americans!!

    by KnotIookin on Wed Oct 01, 2008 at 07:59:25 AM PDT

    •  I got through to ... (0+ / 0-)

      Thad Cochran and Roger Wicker early this morning ... ew ... I still feel unclean.  I think I convinced them I am a wingnut pissed about the bailout.  But my cover is blown, BLOWN I tell you if I call back and support the Soros Plan.  What now?

      "Any single man must judge for himself whether circumstances warrant obedience or resistance to the commands of the civil magistrate" John Locke

      by TheGryphon on Wed Oct 01, 2008 at 08:08:58 AM PDT

      [ Parent ]

  •  Robert Johnson was on DemNow yesterday and short (1+ / 0-)
    Recommended by:

    followup this morning.  William Greider was on,too this morning. I have a lot of trouble with Greider willing to give Treasury Secretary so much power(s),but he has some good points otherwise.

    If the Dems do this bad bill in House & Senate, the folks at home are going to be really angry.  I am.  I want to see the  95 resisters in the House find a way to get a good bill.

  •  An equity share gives the government (4+ / 0-)
    Recommended by:
    mcurry, Cyber Kat, Oldengrey, DrFitz

    a seat on the board. Someone needs to be watching these clowns for at least another decade or two until the corporate culture in the USA grows up and realizes that they have some obligation to someone besides themselves. Babysitters, basically.

    We have only just begun and none too soon.

    by global citizen on Wed Oct 01, 2008 at 07:59:50 AM PDT

  •  I am just encouraged (6+ / 0-)

    that there is a vibrant discussion of alternatives.  I have not the expertise to evaluate them, but at least they are coming out.

    I was sure we were going down the same path as the Iraqi invasion.  Progress!

    It is difficult to get a man to understand something when his salary depends upon his not understanding it - Upton Sinclair.

    by Seymour Glass on Wed Oct 01, 2008 at 08:00:05 AM PDT

  •  Can't pass this Congress or this president (2+ / 0-)
    Recommended by:
    sapper, dave3172

    The Rs in the Senate would filibuster and W would veto. But maybe in January...

  •  Certainly better than the latest nonsense version (2+ / 0-)
    Recommended by:
    sapper, leolabeth

    ...of the bailout.

  •  Lower+Cap interest rates on variable home loans (0+ / 0-)

    Cracker Jack McCain A crisp sailor on the outside A cheap prize inside that's useless after 1 go.

    by JerichoJ8 on Wed Oct 01, 2008 at 08:01:32 AM PDT

  •  I called Harry Rieds office (2+ / 0-)
    Recommended by:
    wry twinger, uc booker

    and asked what he is smoking
    that i heard it was legal in NV but washington?

    IS IT JAN. 20th 2009? Yet?

    by surfdog on Wed Oct 01, 2008 at 08:01:36 AM PDT

  •  Bank examiners, hmmm Are they civil service, or (1+ / 0-)
    Recommended by:

    have they been replaced by Bush chronies?  Sounds better to me than trusting teh guys who brung us to dis bad dance.

    How about the idea of working this all through the SBA with loans to those companies need them, and through FHA with loans for the homeowners in trouble?

  •  it leaves the same people in charge of banks (2+ / 0-)
    Recommended by:
    88kathy, uc booker

    throwing good money (ours) after bad. why would taxpayers invest in such banks?

    take the homes. they'll be worth something someday

    TheRamFiles: The only thing McCain changes these days is his mind.

    by ron ray on Wed Oct 01, 2008 at 08:02:54 AM PDT

  •  DON'T GO THERE WITH SOROS (3+ / 0-)
    Recommended by:
    lisastar, Oldengrey, DrFitz

    What distinguishes Soros from the people who bet on our banking system failing?

    Economic systems are by their very nature vulnerable.

    Soros argues that it's a good thing for people to poke and prod these systems to keep the actors in them honest.

    But, Soros did manipulate the Asian Tiger economies a decade ago.

    He is essentially akin to the people holding trillions of credit default swaps. Essentially, if you can exploit the system, then exploit it, and force the system to close that hole.

    Citing Soros on anything to do with this fiasco is an absolute loser of a position.

    I'd go to Warren Buffet instead: Credit default swaps are "weapons of market destruction."

    Look at these people! They suck each other! They eat each other's saliva and dirt! -- Tsonga people of southern Africa on Europeans kissing.

    by upstate NY on Wed Oct 01, 2008 at 08:02:56 AM PDT

    •  credit swaps + no liquidity = bad credit rating. (0+ / 0-)

      What is the foundation of *your* client relationship to Planet Earth?

      by LRLine on Wed Oct 01, 2008 at 08:16:39 AM PDT

      [ Parent ]

    •  I trust Buffett over Soros any day (2+ / 0-)
      Recommended by:
      Hillbilly Dem, Oldengrey

      If we cannot elect this man, we don't deserve him.

      by lisastar on Wed Oct 01, 2008 at 08:22:46 AM PDT

      [ Parent ]

    •  I am one of Soros' victims (1+ / 0-)
      Recommended by:

      Seriously, I worked in a small currency trading advisory firm and know first-hand how Soros was able to manipulate markets as his pronouncements became self-fulfilling prophecies.  Lost my job, mostly because he helped blow up the European Monetary System in the early 1990s.  No big deal though, I moved to the big city and did better.

      That being said I very much admire his funding of progressive and philanthropic causes.   And his proposal looks way better than the garbage bill Congress is going to pass.  

      His proposal and the Swedish Model are a big improvement, but you can't credit either of them with the ideas.  We can't afford to have the average Joe think the banking system is being taken over by foreign influences.  Americans prefer to be be robbed blind by our own countrymen.

      Given that, and based on his past history it would be great if we adopt his and/or Sweden's ideas -- but just do so discreetly.

      "when i cruise the information superhighway, i CTRL-BREAK for hallucinations."

      by emobile on Wed Oct 01, 2008 at 08:32:43 AM PDT

      [ Parent ]

      •  They should publicly just sight (0+ / 0-)

        leading American economists.  Like Rep Sen Shelby did that early letter of objection to the original Paulson plan when he first starting expressing doubts.  

        McCain/Palin = Unstable/Unable

        by DrFitz on Wed Oct 01, 2008 at 09:06:12 AM PDT

        [ Parent ]

  •  Have you noticed that the $700,000,000,000 (6+ / 0-)

    is being discussed as though it really exists instead of as the fantasy that it is?  It all has to be borrowed or "created" out of thin air but now everyone is discussing it as alternative ways to apply it.  I'm confused.

    If we want peace, why do we give weapons and call it "aid"?

    by gdwtch52 on Wed Oct 01, 2008 at 08:04:16 AM PDT

  •  Fund the FHA and SBA to do the work PLEASE (6+ / 0-)

    The FHA and SBA already have offices on every town's main street across the country.

    They already know the businesses, the banks, the homeowners and the main street markets they're working in.  

    They already have oversight and control mechanisms in place to keep the corruption at a minimum.  

    They work with local banks and credit unions as well as the biggies.  

    The SBA can create an 'emergency operating expense loan' program to keep businesses going, and to help out the local banks in the bargain.

    The FHA can help get mortgages on HOMESTEADS renegotiated to 30 year fixed rate, as suggested in this morning's Washington Post.  

    PLEASE consider this.  Please send letters to your congresscritters suggesting this.  

  •  Listen to Soros - he's typically right (2+ / 0-)
    Recommended by:
    sapper, LRLine

    Kossacks would do well to familiarize themselves with his philosophy of open society (actually Karl Popper's, as laid out in The Open Society and Its Enemies) and his political platform. With any luck, his emphasis on understanding and accounting for our own fallibility will become the reigning approach to policy in the 21st century.

  •  Blodget had a similar proposal a while back (3+ / 0-)
    Recommended by:
    hester, hubcap, relentless

    "On the latter, note that Warren Buffett didn't buy trash assets from Goldman at a huge premium to market value. On the contrary, he let Goldman keep its assets and invested in a senior preferred stock paying a 10% dividend, with a huge bonus warrant kicker on the back end. The government should drive a similarly hard bargain.

    The economy is not going to recover immediately regardless. If this means waiting until banks realize that they're screwed to bail them out--and, in the process getting as good a deal for taxpayers as the government got on AIG, et al--then so be it. Whatever happens, the government cannot reward banks for their idiocy by buying $700 billion-worth of trash assets at a premium."

    Trying to make the libertarian Democrat a reality

    by Don the swing voter on Wed Oct 01, 2008 at 08:08:00 AM PDT

  •  I really think most of the plans I've seen (1+ / 0-)
    Recommended by:

    all show ways to work, better or worse, in one form or another - including Paulson's, if you simply limit him to NOT merely throwing the money at the toxic derivatives, but simply to straightforward bundles of mortgages, even bad ones.

    I just don't want to see the money simply handed over for worthless crap.

    Got a problem with my posts? Quit reading them. They're usually opinions, and I don't come here to get in arguments.

    by drbloodaxe on Wed Oct 01, 2008 at 08:08:11 AM PDT

  •  Looks good at first sight (2+ / 0-)
    Recommended by:
    hester, sapper

    Any bill will be owned by the Democrats so it might as well be a good bill.

  •  About anything sounds better than Bush-Paulson. (3+ / 0-)
    Recommended by:
    drbloodaxe, Oldengrey, uc booker

    Ideas, sound, fundamental, back-to-basics ideas abound. I'm no economist, but I smell a bad bill that has to be loaded down with tax-cuts with no budget cuts and all.

    Economists, what about DeFazio's plan, part of which puts a what, .025 percent tax on capital gains in order to help fund Wall Street initiatives to keep liquidity? Attacking the bad mortgages themselves, setting them straight with a medium-sized fixed rate, and so on?

    It's still technically a bailout, and would still cost, but if I were a congressman I would feel 100 percent less guilty about voting for that initiative. I would feel suicidal if I voted for the bill that's being proposed.

    I'm sorry media, but it's not the fault of congress if they can't pass a bad bailout bill.

    "Half of the American people never read a newspaper. Half never vote for President. One hopes it is the same half." - Gore Vidal

    by sapper on Wed Oct 01, 2008 at 08:09:51 AM PDT

  •  It's a good short term plan (1+ / 0-)
    Recommended by:

    but the government should not RUN the banking industry.  It should REGULATE it.

    An equity position - fine.   A voting position - no way.

    The reason is that this is the surest path to corrupt the government imaginable. Controlling who is nominated to the boards of all the major financial institutions, being able to change their collective policy at will.  Good Lord, save us from an executive branch that can do that.

    I've lost my faith in nihilism

    by grumpynerd on Wed Oct 01, 2008 at 08:10:07 AM PDT

  •  First mistake was to call this a bailout (3+ / 0-)
    Recommended by:
    Superpole, LynneK, Oldengrey

    next mistake, talking points not understood by many people (This will happen if we pass this vs. this will happen if we don't). How can homeowners who really can't afford the prices of their homes be helped? Will the "flippers" also be helped?

  •  preferred stock is fine (2+ / 0-)
    Recommended by:
    DrFitz, LRLine

    It's what Krugman has recommended on his blog.

    by bhagamu on Wed Oct 01, 2008 at 08:10:45 AM PDT

  •  It is my understanding that the FED can (0+ / 0-)

    already do this -- by providing liquidity to banks. How would this plan do anything different?

    The FED has been trying to inject liquidity but it's like trying to force a liquid through a blocked path. Banks won't take it an loan to each other, so we're told, UNTIL the bad debt is taken off their books, and the "toxic asset" is assumed by US, the public.

    Gee, I've got some debt I'd like the gov't. to take off my books as well.

    •  But that could be because they're (0+ / 0-)

      expecting word that the scary stuff will be gone soon.  If that possibility is gone, but sufficient capital is on offer, lending may free up again.

      McCain/Palin = Unstable/Unable

      by DrFitz on Wed Oct 01, 2008 at 09:11:01 AM PDT

      [ Parent ]

  •  OT topics: SEC change and David Gregory (5+ / 0-)
    Recommended by:
    hester, lisastar, Oldengrey, DrFitz, uc booker
    1. SEC changes mark to market reg. BIG deal. Link is to Floyd Norris's column.
    1. David Gregory's wifewas general counsel to Fannie Mae until it was seized! Might she be investigated by the FBI? Talk about conflict of interest for Gregory...
  •  He's on the right track, but the US is bankrupt.. (1+ / 0-)
    Recommended by:

    and we have to hold an asset sale:  The Fed should take over the entire banking system. Buy up all foreclosed mortgages now and 3 years into the future. That will make CDS, MBS and other perverse derivatives (that are nothing more than short sales) worthless and stop trading in securities that drive down RE prices.

    We could sell off a State to pay our bills.

    "The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants." -Thomas Jefferson

    by ezdidit on Wed Oct 01, 2008 at 08:13:21 AM PDT

  •  I'm A Trader (2+ / 0-)
    Recommended by:
    Phoenix Woman, ebbinflo

    I would like to think I am closer to these issues than a lot of people.

    I have to say that this plan is ridiculously stupid. This is like turning the Treasury into a hedge fund, and directly linking the risks of the financial sector in risky corporations directly to the welfare of the government. The Government's impeccable credit rating could actually go down because of this which would cause unimaginable problems in the market, because T-bills are generally considered the benchmark riskfree assets when modeling interest rates.

    There is also no way republicans would join this, especially since they axed the original $700B bill.

    •  Paulson's plan is not stupid? (2+ / 0-)
      Recommended by:
      nicta, Oldengrey

      Come on.  We need to limit the taxpayer's exposure.  The best approach I heard to date was from the House Progressive Caucus.  Ordinary loans with promissory notes attached to banks that we think need to propped up.  This means a case by case analysis must be made of the bank's fiscal state.  If the bank is in really bad shape, we can't save it.  No sense throwing good money after bad.

      "Is this the United States Congress or the board of directors of Goldman Sachs?" -- Dennis Kucinich

      by noofsh on Wed Oct 01, 2008 at 08:23:54 AM PDT

      [ Parent ]

  •  Makes good sense. (0+ / 0-)

    We've sen how the stock market reacts to bailout plans.
    Now, the market is notoriously manic. Still, somebody thinks the plans spell high values for the stocks.

    "We'll make you solvent in return for equity" makes a lot more sense than "We'll buy whatever mistakes you've made so you can go on running the financial world."

    "I'm not opposed to all wars; I'm opposed to dumb wars." -- Obama in 2002

    by Frank Palmer on Wed Oct 01, 2008 at 08:13:56 AM PDT

  •  Constitutional Bank of USA (2+ / 0-)
    Recommended by:
    hubcap, lisastar

    I said it a week ago, I reprint this from Monday..
    Save the banks, nuke WS...
    and insure they are capitalized. It is up to Congress to make sure we get a monetary return for our investment.

    The investment banks can go by the wayside, which is the same stance I took last week. They are borrowers, which make money on money, yet provide no goods.

    Give, yes give the homeowners who were caught up in the sub prime feeding a low interest rate of say 5%. The ARM's were like car leases, few should touch them, there was little economic sense and too much downside risk, but the lure of increased interest rates down the road allowed these to be bundled and sold.

    Hedge fund derivative managers..send them to jail for counterfeiting...they exceeded the world's money supply.
    Make room for our congrssional leaders and Bushcos, Limbaugh, Ferguson, Hannity....OR..

    Middle America withdrws all liquid assets, and have the Our Constitutional Bank of America. As long as we are always bailing their asses out, we may as well control the money.

  •  Plan would benefit Soros more than (5+ / 0-)

    anyone. Just like Buffett's plan would favor Buffett. I prefer Roubini's 10 step plan for two reasons.

    1. Roubini has been on the money predicting this whole crisis.
    1. Unlike Buffett or Soros, he doesn't stand to gain monetarily from his plan. He would only gain in reputation and prestige (which I suppose would indirectly benefit him monetarily).

    Just my 2 cents off the top of my head.

    Recommended by:
    Rich in PA

    Irresponsible homeowners should get the same treatment as irresponsible bankers.  No help at all.

    The people who have rented and lived within their means are the ones being asked to shoulder the burden for a credit crisis they had no hand in.  Being denied the American dream and then being asked to pay for those who exploited it will not fly.

    Foreclosure and bank failure will bring the market back down to reality.  It may hurt, but it needs to be done.

    To stem the pain, we need job creation infrastructure programs, not tax cuts.

    Tough love, maybe, but for bad mortgagees, families or no, tough shit.

    The privileged man, whether he be privileged politically or economically, is a man depraved in intellect and heart. -- Mikhail Bakunin

    by angry liberaltarian on Wed Oct 01, 2008 at 08:14:37 AM PDT

    •  Get lost...many of these loans were sold on (2+ / 0-)
      Recommended by:
      DorothyT, Oldengrey

      deceit and outright fraud. People were told they could refinance or borrow against the rising equity when the rates adjusted.

      Have some sympathy, will you. Forcing banks to refinance the loans on reasonable terms (perhaps with public money help) is the ONLY way to stem this tide. The loans underlying the deriv. become performing loans, freeing up the credit markets.

      What is so hard to see about this practical solution that keeps families in their homes, stops foreclosures and also, BTW, limits the freefall in housing prices which impact all homeowners.

      •  This is simply not true. (3+ / 0-)
        Recommended by:
        Prince Nekhlyudov, DrFitz, daveindc

        It's the liberal mirror image of the conservative idea that the CRA is the problem.  Genuinely deceitful loans are surely in the tens of billions, but as a percentage of foreclosure cases they are a tiny minority, just like CRA-inspired loans.  Even the scenario you describe isn't deceitful: it was a gamble on the housing market, and people gambled and lost, as often happens with gambles.  To say that was deceit is to say that every time a broker advises a client to buy a stock that later loses value, there is deceit involved.  Nope, that's called investing.

        I have plenty of sympathy, but not all sympathy translates into hugely expensive public policy.  Even for progressives.

        -5.38/-3.74 I've suffered for my country. Now it's your turn! --John McCain with apologies to Monty Python's "Protest Song"

        by Rich in PA on Wed Oct 01, 2008 at 08:26:01 AM PDT

        [ Parent ]

    •  This is very, very true. (2+ / 0-)
      Recommended by:
      DrFitz, daveindc

      People who lived within their means and resisted the call to overextend themselves are now the patsies, three times over:

      1. They didn't get to enjoy "more house" (or any house at all) while others did, and would continue to do so
      1. They would pay higher taxes and get fewer services, to bail out the irresponsible lenders and borrowers
      1. They would be denied the opportunity to (finally) get "more house" in a favorable market, since the government is using their tax dollars to keep properties off the market.

      -5.38/-3.74 I've suffered for my country. Now it's your turn! --John McCain with apologies to Monty Python's "Protest Song"

      by Rich in PA on Wed Oct 01, 2008 at 08:23:08 AM PDT

      [ Parent ]

    •  Tough love is for sadomasochists (2+ / 0-)
      Recommended by:
      LynneK, Oldengrey

      Most people will try to pay off their mortgages if they have a job and if they don't get screwed to death by ARMs.

      Punish the golden parachuters, punish the corporate boards, but help the people.

      Libertarians are Reaganites

    •  You know what? (3+ / 0-)
      Recommended by:
      dkosdan, Oldengrey, ydice

      I'm getting pretty damn sick of hearing about how we should let those "irresponsible homeowners" drown. The majority of people who are now facing foreclosure did not buy houses they couldn't the time they purchased the home, they were able to afford the mortgage payments, they had good credit and were financially stable, but, through no fault of their own, their company downsized and they were out of work, had to take a job at less pay, etc. How the HELL is it "irresponsible" to be living within your means and then something happens and your means are decreased? Renters face these types of things, as the 11 years that we have rented the house we currently live in, our rent has been raised 3 times, we are now paying almost twice what we were 11 years ago, yet our income is pretty much the same (and we rent our house from my husband's aunt! I shudder to think what renters who don't rent from family are dealing with.)

      "Truth never damages a cause that is just."~~~Mohandas K. Gandhi -9.38/-6.26

      by LynneK on Wed Oct 01, 2008 at 08:30:16 AM PDT

      [ Parent ]

      •  wrong (0+ / 0-)

        both sides are at fault and until both parties own up to that, we won't get anywhere.

        the rethugs deregulated the crap out of everything and the dems thought it was a good idea to let every poor person move into a house they couldn't pay for.

        most of these foreclosees were not acting responsibly.  if we are going to let them restructure mortgages, it better be a just system where the onus is on the homeowner to prove the contract was deceitful.

        •  Right - because we shouldn't put any onus on the (1+ / 0-)
          Recommended by:

          lenders.  Let's make the assumption that the poor schmuck who's about to lose his house was irresponsible and assume that mortgage originators were all honest and above board until proven otherwise.

          Makes me wanna puke.  Sure some people over-reached and I'm not necessarily advocating helping out people who were speculating, flipping or whatever you wanna call it.  But I'd far prefer to give the benefit of the doubt to someone with a problem mortgage on an owner-occupied property, than give that benefit to the lenders who clearly were taking no responsibility for the loans they were originating, or the upstream folks packaging crap they knew nothing about.

          "I used to be disgusted, but now I try to be amused." - Elvis Costello

          by Oldengrey on Wed Oct 01, 2008 at 09:04:30 AM PDT

          [ Parent ]

      •  i didnt buy a house cause i knew i couldnt afford (0+ / 0-)

        though i would have enjoyed several years of additional square footage at others expense...

        The privileged man, whether he be privileged politically or economically, is a man depraved in intellect and heart. -- Mikhail Bakunin

        by angry liberaltarian on Wed Oct 01, 2008 at 09:38:51 AM PDT

        [ Parent ]

  •  Way better (3+ / 0-)
    Recommended by:
    audiored, Oldengrey, LRLine

    He is talking about buying preferred stock.  That stock is protected from a bankruptcy.

    I would prefer ordinary zero percent interest loans as was proposed by the Progressive caucus.

    "Is this the United States Congress or the board of directors of Goldman Sachs?" -- Dennis Kucinich

    by noofsh on Wed Oct 01, 2008 at 08:14:55 AM PDT

  •  yes, this is exactly what we need. n/t (0+ / 0-)

    Main Street before Wall Street! NO DEAL is better than a bad deal.

    by Subversive on Wed Oct 01, 2008 at 08:16:17 AM PDT

  •  He's the man who broke the Bank of England (2+ / 0-)
    Recommended by:
    dkosdan, DrFitz

    by shorting the pound and crashing the UK out of Europe's Exchange Rate Mechanism.

    I like Soros generally, but the Soros name makes any bailout plan DOA.

    As God is my witness, I thought turkeys could fly.

    by ticket punch on Wed Oct 01, 2008 at 08:18:36 AM PDT

  •  Is there enough money in the world (0+ / 0-)

    to do this?

    "The bank examiners would establish how much additional equity capital each bank needs in order to be properly capitalized according to existing capital requirements."

    I'm Ron Shepston and I'm not done yet. There's much left to accomplish.

    by CanYouBeAngryAndStillDream on Wed Oct 01, 2008 at 08:18:37 AM PDT

  •  TomP wrote about similar plan (1+ / 0-)
    Recommended by:

    offered by  Senator Dodd.  It makes sense that increasing the equity of these institutions improves their liquidity, creates new borrowing capacity on their balance sheets and gives the taxpayer a role for their money.  I'd at least like to see something like this discussed.

    Alternatively, I wish Congress could figure out what they need to do to get the economy through February 2009 so it doesn't crater before Obama takes over.  

  •  Bank bailout plan (2+ / 0-)
    Recommended by:
    dkosdan, Oldengrey

    It bails out the Wall Street banks who have shown they don't know how to value assets but love to make unsound loans. I like Soros a lot but this sounds very dumb.

    Keep people in their homes, allow businesses to make payroll.

    No more speculation!

  •  and give a drunk more alcohol (0+ / 0-)

    Loose credit is what CAUSED this problem, it's not the cure.  This is a SOCIALIST solution to the problem and must be resisted.

    Why is McCain afraid of Rachel Maddow?

    by hotei on Wed Oct 01, 2008 at 08:20:50 AM PDT

    •  huzzah (0+ / 0-)

      Loose credit IS the problem.
      Loans should not be that easy to get and we have way too many credit cards.

      As a society, we encourage people to live their whole live in debt and to live beyond your means.  I remember when I first started college how easy it was to get credit cards with NO job and NO equity.  As long as I kept paying the minimum, they kept raising my debt ceiling.

      Luckily, I was never too greedy as some friends were and I only owed a few thousand by my mid-twenties.  But that is not the way to live.

      We need to have a major mentality change in America that living on credit is a bad thing.

      Stagflation, here we come

      by smoosh21 on Wed Oct 01, 2008 at 09:03:51 AM PDT

      [ Parent ]

  •  please take a look at this, from a banker (2+ / 0-)
    Recommended by:
    hubcap, petrodictator

    Here is a link to a well written 3 page pdf from the CEO of BBT bank. John Allison, the CEO of BBT, sent this letter to Virginia Fox from the House of Representatives.  Well worth reading:

    Additionally, I want to point out that I would like to see a compromise to the bailout bill which basically states no funds will be released until after the election, and that the President Elect will have the ability to appoint three members to the supervisory board, as soon as the election is finished. Wall Street will be able to handle an additional six week wait if the money is coming later.

  •  The Brookings Institute this morning (5+ / 0-)
    Recommended by:
    hubcap, leolabeth, devadatta, dkosdan, DrFitz

    basically also says that the funds should be used to re-capitalize the banking system. They also say that it is not only Wall Street and Washington that are to blame but that the entire country, (see world) also bought into this instant wealth no regulation espoused by the last eight years of republican laissez faire economics.

    The simplistic meme that the 'evildoers' (give me a break) are only greedy Wall Street traders, these traders are mostly our sons and daughters who prefer to get an MBA and go into finance than become engineers or physicists, plus of course the ubiquitous real estate brokers, and evil mortgage brokers (also our neighbours, at least where i live they are!).

    If what is now being referred to as `Main Street' is going to be able to borrow the money to buy back or buy into all these empty foreclosed homes someone has to loan them the money.

    If we the people are to invest in renewable energy, buy fuel efficient cars, the manufacturing of which will bring re-training in new jobs, someone has to pay for the re-training, build the factries, loan us the money or give us tax breaks and loans to buy the products.  Someone has to help finance our sons and daughters education, and this time hopefully they will flock into so-called green jobs and then, only then maybe we can all help save the planet and leave poor old John McCain to retire to one of his condos and live happily ever after.

    I am beginning to think this is the best thing that could have happened. Maybe it will focus all our minds.

  •  Bloomberg Second Term: (0+ / 0-)

    A person who has been briefed on the matter told The Associated Press that Bloomberg will announce Thursday that he will seek to overturn the term-limit law and run for another four years. The person spoke on condition of anonymity because the announcement hasn't been made.

    Bloomberg, a former chief executive officer who started his career on Wall Street, will cite the nation's precarious economic situation as the reason that New York needs a tested financial manager to stay on and guide the city, the person said.

    McCain/Palin: Lie Traffickers

    by ccmask on Wed Oct 01, 2008 at 08:24:29 AM PDT

  •  The Senate isn't going to do anything to upset (0+ / 0-)

    Wall Street. The House might, if enough people hold their feet to the fire.

    "When the powerful say that the price was worth the blood and treasure, you can bet your ass it wasn't their blood, nor their treasure."

    by sceptical observer on Wed Oct 01, 2008 at 08:25:01 AM PDT

  •  Sounds like Jerome a Paris' plan (0+ / 0-)

    Great minds think alike!

    A "centrist" is someone who's neither on the left, nor on the left.

    by nicta on Wed Oct 01, 2008 at 08:29:59 AM PDT

  •  I'm searching for useful comments (1+ / 0-)
    Recommended by:

    but gave up hitting the Page Down button after seeing precious few.

    I worked in banking, know some history, and see the problem for the economy as a failure of trust.

    Using bank examiners would help restore trust........

    I see criticism in headlines on Daily Kos of the Progressive alternative, but I'm going to go look elsewhere for quicker, more useful comments/explanations because I don't have all day.

    Media Reform Action Link

    by LNK on Wed Oct 01, 2008 at 08:30:07 AM PDT

  •  When this doesn't work (it won't), and we're (0+ / 0-)

    $700 billion in the hole (actually double that because of earlier bailouts), maybe we'll get around to really addressing the problem.

  •  So, why is it that the Bush plan -- backed (0+ / 0-)
    by the panic of some in congress, amounts to little more than throwing a TARP over the whole mess and leaving it limping along until the next Administration gets in?

    A corrupted government. Patriots branded as renegades. This is how we roll.

    by GreyHawk on Wed Oct 01, 2008 at 08:35:34 AM PDT

  •  How about restoring mainstreet? (0+ / 0-)
    by repealing those parts of the Tax Reform Act of 1986 that took away dedeductions for consumer loans?  THAT is what has killed the middle class.  Since then the super rich on wall street has been gifted with an avalanche on tax loopholes while the middle class ONLY was left with home mortgage interest as a deduction.

    It was President Reagan who signed the Tax Reform Act on October 22, 1986 that phased out the deductibility of credit card interest, car loans and all other "consumer loans".


    Why not ask Congress to actually give something MEANINGFUL to mainstreet instead of the worthless crumbs in the bailout bills now?

  •  The Charlie Rose program last night (2+ / 0-)
    Recommended by:
    Oldengrey, DrFitz

    was great.

    His guests were Mort Zuckerman (billionaire who took his money out of the market over a year ago), Martin Feldstein, and Andrew Sorkin. The conversation was worth watching.

    Mort Zuckerman who also knows a little about money making, said this current plan was due to fail. As soon as the video is up I will post it.

    And part of the bailout will end up going to reward the management that got us into this meltdown. They have stocks options, and current contracts that will be honored. And in the long run, this plan will not help the contracting economy. Homes were over priced and will continue to come down. People have already lost jobs. And people living on credit will not go away till there are higher paying jobs and more of them. And there is the added big danger foreign investment firms will slow down buying our debt no matter what we do.

  •  Make it so, Sen. Reid. (0+ / 0-)
    Not a bad read on the surface. I am sure on the right side of the aisle it will sound like the "William Tell Overture" at about 140dBs. But who cares if it means we get things fixed right for the first time ever.


    "Anyone who is capable of getting themselves made President should on no account be allowed to do the job." - Hitchhiker's Guide

    by Wynter on Wed Oct 01, 2008 at 08:40:12 AM PDT

  •  I trust Soros a lot more than Paulson (0+ / 0-)

    But why has he waited so long?

    I need to read more before I can say one way or another if I agree with him

    In the meantime, I have been calling Congress everyday with my opposition to the bailout.

    Today's message:

    You and the rest of congress have let this criminal in the White House run wild for the last eight years.

    He has trashed out Constitution, taken away our civil liberties, lied us into a trillion dollar war we can't get out of, and stolen trillions from the US treasury.

    Now you want to give him 700 billion dollars to make sure his criminal friends on wall street get one last payoff before American's economy collapses along with unprecedented power that leaves not doubt that America is now a Fascist country.

    You are insane. You are insane to think that once you do this Congress is even needed anymore. Bush has used you to consolidate power into the executive branch and every step of the way you helped him do it.

    I don't need to threaten you with not voting for you in the next election because the Congress will be dissolved by then.

    God help us all.

  •  Nouriel Roubini's plan. (1+ / 0-)
    Recommended by:

    HOME (Home Owners’ Mortgage Enterprise): A 10 Step Plan to Resolve the Financial Crisis

    Even if the Treasury TARP plan is implemented fairly and efficiently the US will not avoid a severe U-shaped18-month recession and a severe financial and banking crisis: the recession train has already left the station in Q1 and the financial/banking crisis will be severe regardless of what the Treasury and the Fed do from now on. What a proper rescue plan can do is to avoid having the US experience a multi-year L-shaped recession and extreme financial crisis like the one that led to a decade long stagnation in Japan in the 1990s after the bursting of their real estate and equity bubbles.

    I have also argued that, in order to resolve this financial crisis it is not enough to take the bad/toxic assets off the balance sheet of the financial institutions (a new RTC); it is also necessary and fundamental to reduce the debt overhang of millions of insolvent households via a significant debt reduction on their mortgages (an HOLC program like the one that was implement during the Great Depression); and also recapitalize undercapitalized banks with public capital in the form of preferred shares (as the RFC did with 4000 banks during the Great Depression). An RTC scheme without an HOLC and RFC component would not resolve two fundamental problems: millions of households are insolvent and unable to service their mortgages; the financial system is vastly undercapitalized and needs capital to avoid an ugly credit crunch and to foster new credit creation that is needed for future growth.

    That is why I proposed the creation of a HOME (Home Owners’ Mortgage Enterprise) that would be a combination of an RTC, a HOLC and a RFC. Let me flesh out this proposal and its key elements and compare it to the Treasury TARP proposal that in its current form has many flaws.

    There are 10 steps in this HOME proposal to resolve this most severe financial crisis. Here they are:

    John McCain defends Bush's Iraq strategy.

    by recusancy on Wed Oct 01, 2008 at 08:43:27 AM PDT

  •  So, this plan is good because Soros said so? (0+ / 0-)

    No way.  Why is it the majority of post i see here basically do not understand how a business is run?

    Why are so many against tax cuts to the very businesses who pay your salary?

    Why do so many see this financial issue as solely Republican?

    Please people,  OPEN your eyes.  This is a problem from both parties.  Face the facts - the subprime problem - the ROOT CAUSE - was forced upon our lending institutions by our Congressional Members!

    The laws that allowed lenders to re-sell the loans they initially underwrote, and have then guaranteed by AIG, was again caused by both parties.  

    And, be adult enough to admit that Chris Dodd and Barney Frank carry the burden of the current crisis.  They LIED to us.  They LIED to the people sitting on the banking committees.  They LIED and now all of America suffers.  

    We have a do nothing congress because they hope Obama will sit in the Oval Office and that they will be in complete charge of Congress.  However, their latest actions are angering the voters......  

    The plans being put forth are socialism.  If we look closely, we see socialism has been slowly destroying western Europe.  

    They have double digit unemployment.  They have mediocre health coverage.  Their numbers in population are diminishing.  They do not have enough people in the younger generations to support the older citizens.  They do not have a strong enough military to protect themselves from an aggressor.  

    So, I say no to a big bailout.  I say go the 'insurance' route.  Give tax breaks all across the board.  Give businesses the incentive to stay in the USA and grow.  This growth will provide more jobs.  More benefits.  Better health care.  And, most importantly, More money in the government coffers to afford the necessary social programs.

    •  Missing the bi-partisan problem (0+ / 0-)

      nottoworry, You start by saying this is a bipartisan problem, and that the democrats are as much responsible as any one else.  You then go on to commit some of the same problems that have led to this crisis.  On the one hand, the anti-redlining laws may have had a large hand in the mortgage crisis.  However, the deregulation laws were what made it too opaque to monitor.  Franny and Freddy had their problems, but the other banks were problematic because they were not being properly regulated.  Cutting taxes would not help, the fact is a large chuck of the business community do not pay taxes at all anyway.  So no, hard core capitalism would not help our system right now.  I agree that socialism is not the answer either.  

      And don't kid yourself that the democrats are the only ones lying to us about this crisis.  

      •  What Bipartisan problem... (0+ / 0-)

        If the public opinion is with you on a more liberal plan you feed it to the republicans and make it an election issue. The republicans can't help but agree and vote along with it if it will keep them in office.


        "Anyone who is capable of getting themselves made President should on no account be allowed to do the job." - Hitchhiker's Guide

        by Wynter on Wed Oct 01, 2008 at 09:20:11 AM PDT

        [ Parent ]

  •  Why does Soros hate America, and love... (0+ / 0-)

    the American people?!

    We true patriots know that loving America means giving all of our money to big businesses.

    "The goal of an argument should not be victory, but progress." - my fortune cookie

    by Black Leather Rain on Wed Oct 01, 2008 at 08:46:03 AM PDT

  •  Guarantee the capital stays in America. n/t (0+ / 0-)
  •  With my $700 billion I prefer Treasury's plan (0+ / 0-)

    The Soros plan deals more directly with the problem, but will be much more expensive.

    Quite simply there are fewer variables in the Treasury plan. When you buy the bonds, you know what exactly you are getting, you just don't know future economic conditions.

    These "unpriced securities" are actually easy to price.  You make assumptions about housing price declines, foreclosure rates and required yields and you come up with a range of cash flows and prices. If your assumptions are wrong, your yield goes up or down, but the entire structure of the investment is already in place.  The problem is there are no buyers at any yield right now, all financial institutions are net sellers right now.  That's why there is no price. That's what Paulson is trying to address.

    Three problems with the Soros plan.  Firstly, the return on our $700 billion requires competent management of the banks.  We won't be able to set management strategies, etc.  In fact, we'll probably have to invest in companies that compete with each other.  

    Seondly, the terms of the investments will have to be negotiated. I think the government always gets screwed when it negotiates with private enterprise (oil leases?).  It just doesn't have the incentive to get the best deals.

    Finally, we will have serious adverse selection.  Our largest investments will be in the most troubled institutions and the companies will continue to be managed by the folks that messed them up.

    What did you do with the cash Joe?

    by roguetrader2000 on Wed Oct 01, 2008 at 08:55:41 AM PDT

    •  Securities Are Impossible To Price Now (0+ / 0-)
      1. Why do you think there are no buyers?  Did it ever occur to you there are no buyers BECAUSE it's impossible to accurately price the securities?  No one wants to buy because no one knows what to pay.  The cocky breeziness of your post reminds me of people who think the way to deal with a constrained credit market is to print more money.  
      1. If you're so concerned about the difficulty of negotiation, then you should be concerned with how difficult it's going to be to price illiquid securities that the Treasury is going to buy.  What price is Treasury going to pay?  Market price?  Above market price?  Fair value?  None of these things can be determined now because the market has locked up.  You think the consultants Treasury is going to hire are going to price illiquid securities accurately and fairly when the market as a whole can't?  Seriously, do some reading on the Financial Times economists blog, where almost all the economists think the Treasury plan think the Paulson plan is a terrible idea precisely because it has no mechanism for pricing these illiquid securities.
      1. Again, if you're concerned about poor management at the firms being bailed out, why do you support the Paulson plan, which doesn't require any management changes?  The Paulson plan is the one that turns over $700 billion to the people who created this mess.  Under the Soros plan, the government would become an owner in the firm and would have the influence and authority to change management.
      1. The Soros plan is nothing more than the AIG rescue writ large.  It is ALREADY being implemented for AIG.  His proposal is how the government rescued AIG; by taking preferred shares in the company.  And once you control the company, you can fire anyone you want and put in competent management and put a stop to risky investment strategy.
      1. You understand this is a rescue plan, right?  That you're supposed to help "the most troubled institutions"?  And you understand that when you have ownership, you can FIRE "the folks that messed them up"?  But you can't do that under the Paulson plan, where the government doesn't take a control stake?
      1. Every concern you cite is in FAVOR of the Soros plan and AGAINST the Paulson plan.
  •  Whatever George says, I do it, pronto. (0+ / 0-)

    Isn't it interesting that we have Democratic rich  people taking an active role in solving the problems?

  •  Some people deserve to lose their homes (0+ / 0-)

    Sorry, but it is true.   Many Americans in danger of losing their homes deserve it.
    Why?  Because they were stupid and greedy.  Just like these businessmen who deserve to lose their shirts.

    Anyone who used the equity in their home to finance a lifestyle above their means with a risky adjustable rate mortgage was stupid.   I am tired of bailing out stupid people whether it is an average homeowner or a business.

    I know that my home is not a cash cow that I am going to use to buy myself new clothes and new bling and fancy cars.   I know that my home is my equity towards a safe (hopefully) retirement.

    There are way too many people who are trying to live the high life on home equity loans and credit cards and it is now time to pay the piper.

    I wish more Americans would take the view that you do not live above your means.  Easy credit has been too easy since the 90s and now I am afraid that those of us who have been sensible and practical are going to get screwed over.

    Stagflation, here we come

    by smoosh21 on Wed Oct 01, 2008 at 08:57:58 AM PDT

  •  I Have Enormous Respect For Soros, But (0+ / 0-)

    I disagree with him here.  He is looking at this from the perspective of an investor like himself, viewing the government's role as that of an investor.  He is sort of saying, what would I do if I were the government and I had $700 billion to spend.  From that perspective, his proposal makes sense.  If you buy troubled assets, you have no idea if you are getting value for your money, whereas if you buy equity, you can at least assign an actual value to what you are acquiring.  However, I think that is the wrong analysis.  The government's role should not be to act like a smart investor like Soros, the government's role should be to take the action that is most likely to free-up the largest amount of credit as quickly as possible.  IMO, the modified Paulson plan does that much more effectively than Soros's proposal does.  And in addition, the long-term ramifications of the government owning equity stakes in borderline-failing financial institutions are troubling.  Indeed, it makes little sense from a policy perspective for the government to inject capital solely into the institutions that are most troubled since they are the ones that are most poorly managed and many of them probably ought to fail, and probably will.

    •  Government Takes Over Firms All the Time (0+ / 0-)

      What happens when a bank fails?  For the last 70 years, the answer is: the government takes it over.  The FDIC goes in, takes the name off the doors, and opens the next day as a new bank.  We have had a mechanism for 70 years for rescuing failed or failing banks.  Why does everyone think government taking control of firms is so weird or unusual when it happens all the time right under our noses?

      The Soros plan is exactly what Treasury did with AIG.  Treasury is taking control of AIG by getting preferred shares.  This is a far more efficient and FASTER way to pump capital into the market than buying securities that are impossible to price.  It's going to take forever to set prices for all the toxic securities Treasury (and even then, the prices are going to complete guesses, which is the principal failure of the Paulson plan; it has no answer to how to accurate price toxic securities that by their very nature are imposible to price). The Soros plan, on the other hand, can be priced RIGHT NOW; you look at the stock exchange.  If speed is your concern, then Soros plan is infinitely faster.

      And it's precisely the failing firms that you want to inject money into.  Why would you want to support firms that aren't failing?  That's backwards.  Just as importantly, by taking an ownership interest in the failing firm, you can change management.  You can't change management under the Paulson plan since all Treasury is buying are the toxic securities.  It's Paulson's plan the awards the fox that guarded the hen house, not Soros.  Under Soros, we can clean up the management mess because the government would be the boss.

      •  Private Capital (0+ / 0-)

        My assumption would be, and I think it is correct, that there is a great deal of private capital that is currently being withheld from the credit markets because of the uncertainty caused by the amount of illiquid assets that many firms are holding.  The Paulson approach therefore deals with the credit crisis not simply by injecting government money into the system by giving it to distressed financial institutions, but by freeing up private capital by removing the illiquid assets.  If I were a private investor, I wouldn't do what Paulson is proposing to do but like I said originally, the government's interest is different.  The goal of this should not be for the government to make money; the goal should be to open up credit to prevent further damage to the economy as a whole.
        I don't agree that the goal should be to prop up failing firms - what's the point?  If they are failing, so be it, so long as you are taking other steps to minimize the damage to the economy, which you do by buying toxic assets and opening up the flow of credit.  Let the failing firms disappear, rather than changing their management, which at the present time, the government certainly is not competent to do, and probably never would be.  If you want to approach this in a punitive way (which I don't think is the best way to look at it) then probably the best thing to happen is for the failing institutions to go out of business, since they are probably the ones most responsible for the mismanagement that produced this crisis in the first place (like Lehman Brothers, which is already gone).
        The Soros plan is not analogous to what the FDIC does.  The FDIC does not become an equity owner in failed financial institutions, it simply sells off their assets and makes sure that no insured deposits are lost.  The Soros plan is analogous to what happened with AIG, but I am not sure that was a good idea.  What does the government know about running an insurance company?
        I see this whole issue in very short-run terms.  Nothing meaningful to deal with the underlying problems is going to happen until Obama is elected.  In the meantime, I'm in favor of avoiding a credit crisis in the quickest and simplest way, which it seems to me is the plan currently before Congress (and is also probably the least expensive).

        •  Government = Private Interest (0+ / 0-)

          OK, a lot to respond to:

          1. I'm not sure why you believe a direct injection of government capital would be a slower at unfreezing the credit markets than buying illiquid securities.  It's not, it's faster.  As I said before, it's going to nigh-impossible to properly price the illiquid securities.  That will slow the process down whereas shares of firms can be priced right now.  And let me be clear: simply buying the illiquid securities doesn't by itself free the flow of credit; the money given to the firms for their toxic securities won't by itself recapitalize the firms.  The firms will still have to raise capital by, you guessed it, selling shares!  The Soros plan skips this intermediate step, which is fraught with so much pricing problems, and goes simply to home base: recapitalization of the firms.

          Please please please read this economist blog entry on the Financial Times that explains very well why buying toxic securities doesn't address the credit market freeze-up.  It is NOT a free market ideologue rant, it is a well-written explanation of the limitations of the Paulson plan:

          1. there's two strands of the problem here: the frozen credit market and the unmanageably high ratio between capital and debt, i.e. too little capital backing too much debt.  It will be a subject of economic papers for decades to come which is the chicken or egg but everyone can agree now that the two are interrelated.  But one thing the buyout of securities does NOT fix the problem of over-leverage.  Why?  Because the toxic securities are assets, e.g. capital.  Buying them removes the ssets from a firm's balance sheet, which ends up reducing a firm's capital balance, which ends up WORSENING the capital-to-debt ratio.  How will firms shrink the ratio between capital and debt?  By selling shares!  Again, a direct injection of capital goes to home directly and skips all the messy intermediate steps.
          1. The dichotomy you set up between government versus private interest is a false one.  The goal of a direct government injection of capital is not "to make money."  In fact, it's precisely to "open up credit to prevent further damage to the economy as a whole" that the governmental infusion of capital is superior.  Why?  Because as I wrote before, because it is faster, more efficient, more precise and costs less.  I can't emphasize that enough.
          1. ownership does not equal management.  We have a long standing practice in the U.S. that owners of a public company don't run a company; management does.  The Treasury will have broad supervision to protect taxpayer's interest if it owns preferred shares but it won't micromanage or run the day-to-day business.  The fear of government control is overblown.
          1. what are you talking about, government isn't competent to pick management?  If you honestly believed government doesn't have the expertise to pick management, why do you think government has the expertise to price the toxic securities it's going to buy?  You can't say government is incompetent on one hand yet at the same time, argue that government is competent on the other.  You can't have your cake and eat it too.
          1. many of the firms that are in trouble are not in trouble because they were run poorly; they're in trouble because they got caught up in this financial mess.  You're leaping to the conclusion that because a firm is in trouble, it means they made reckless decisions and deserves to die.  Not so.  In a panic, even well-run firms get caught up.  That's why now is not the time to let firms fail; they may not deserve to die.  Furthermore, even if they are "bad" firms, they should STILL be saved because a firm's collapse undermines confidence in the market.  Again, you can't have it both ways: you can't say your paramount concern is restoring stability to the market yet shrug your shoulders and say, let those "bad" firms fail, they deserve it, when the result of their failure is to cause panic.  You cite Lehman's collapse with approval; I don't.  Lehman's collapse played a large part in setting off this credit bomb.  The failure of those "bad" firms undercuts confidence in the financial markets.
          1. Does that mean "bad" firms should just benefit and walk away scott-free?  No, of course not.  But that's what will happen under the Paulson plan.  Are you operating under the belief that Paulson will only buy securities from "good" firms?  Because if you are, you're mistaken.  Under Paulson, the firms that deliberately got themselves into this mess will unload their toxic securities onto the government and walk away with a clean balance sheet, leaving the taxpayer to deal with the mess.  So how to extract a moral hazard for bad investment decisions?  By taking control of the firms!  That way, you liquidate all the current shareholders who, through their ownership of the firm, supported, benefited and encouraged the reckless investment behavior because it pumped up profits and share price.  But you do this without undermining confidence in the market, which is what happens when a firm dies.  The shareholders take a hit for their bad investments, which maintain the moral hazard, but it doesn't undermine the market because the firm survives.
          •  Sorry (0+ / 0-)

            I wrote a long response and somehow deleted it, and I'm too tired to rewrite it.  Suffice to say, I don't think the Soros plan will be enacted, I do think that it would be much, much more expensive, and ultimately, it would be even more politically unpopular than the current modified-Paulson plan - the Soros plan (like the one suggested in the FT piece you cite) is a true "bailout" since it gives government money to failing firms in order to keep them afloat.  The current plan tries to avoid such a bailout by just getting rid of bad assets that are impeding the flow of private capital.  I think Paulson and Bernanke realize they made a mistake by getting involved in a bailout of Bear Stearns, because the failure of Lehman and Merrill made it clear that it would be pretty hard to stop the floodgates of future bailouts of similarly-situated firms.

            •  Agree to Disagree (0+ / 0-)

              Well, I'd have like to read your counter-points so it's unfortunate it's gone.  I will also say that I see it precisely opposite: a direct capital injection is far cheaper because shares are much cheaper to buy than assets that are going to be hell to price.  And faster, as I can't emphasize enough.  I worked as corporate attorney at one of the big New York firms that drafted many of these mortgage-backed securities.  They are fiendishly complex, with literally hundreds of different tranches combined to back one security product.  Every one of those tranches will have to be priced individually.  It is mind-boggling how difficult this is going to be when the tool one would normally rely on to set price - the market - has frozen up.  And meanwhile, the credit markets will continue to be frozen.

              The direct capital plan is not a "true bailout" because the government gets shares in return.  It is not something for nothing.  It's the Paulson plan that is the epitomizes the socialization of risk, the privatization of gain.  Many of those assets will never return to their previous valuation; they were inflated to begin with so the government is almost guaranteed to take a loss on much of the assets it buys at whatever price it ultimately attaches to them.

              The most powerful argument against the direct capitalization plan is whether it is politically viable.  I'm not as pessimistic as you but of course, that's just my opinion.  But economically, the direct capitalization will achieve the goal of restoring capital flow far faster, more efficiently, and at less cost while protecting taxpayer interest AND ensuring firms change their investment behavior. Purely from the standard of what will be faster and cheaper at restoring the flow of credit, I'm simply not aware of any economist, no matter their philosophy, who thinks the purchase of assets is faster or cheaper or more efficient.

              •  Enjoyed The Exchange (0+ / 0-)

                Unfortunately, too much of the discussion has been polluted with pseudo-populist nonsense about "Wall Street vs. Main Street."  There was a good NY Times letter to the editor suggesting that New York City change the name of Wall Street to Main Street.  It seems to me that what is important, and what is in keeping with the tradition of FDR, is that there be aggressive government action to address the problem, rather than sanctimonious pontification about punishing Wall Street fat cats.  There may be people who ought to be punished, but that doesn't prevent the economy from crashing.  If we are debating in good faith about what proposal works best, then that's what we should be doing.

                •  Getting More Attention (0+ / 0-)

                  Yup, definitely agree, it's been good to talk about this.  For the moment, all this seems academic because the Paulson approach seems like it's going to win.  I'm just have a bad feeling that it's not going to work.  Curiously, just as the Paulson approach gathers steam, the mainstream media is finally starting to take notice that a lot of finance guys think there's a better approach:

                  MSNBC front page headline: economists not sure plan will work

                  Henry Blodget looks at history of bailouts and notices Paulson approach wasn't very successful

                  Blodget's demolishes arguments of right wingers who blame Fannie Mae, Community Reinvestment Act and Democrats for crisis

                  If the Paulson approach doesn't work, hopefully people will remember this.

                  •  Krugman (0+ / 0-)

                    Last night he said something along the lines of expecting this to be effective in the short term, but not ultimately successful and come January he would expect Congress to address some other approach.  I have never viewed the Paulson plan as anything other than a quick fix.

                    •  Unfortunately, Krugman said it, not Paulson (0+ / 0-)

                      Unfortunately, the view you, Krugman and I share isn't shared by Paulson, at least not publicly.  Presumably, Paulson thinks it's political suicide say that this plan is only Part 1 of the bailout but if it turns out that further action is needed, it will tie the hands of whomever is in power at the time.  One of the biggest problem Paulson has faced is a credibility gap; after months of assuring everyone that this latest bailout will restore confidence - remember the bazooka comment? -a lot of people don't trust him (not that he's lying but he just doesn't know).  What's going to happen if come next year, the Treasury Secretary has to say, well, turns out that $700 billion purchase of assets wassn't enough?  I'm gonna head for the hills.  That's why I wish Congress would have taken longer to do the right thing.  A quick fix that doesn't work may be worse because of the mistrust it will breed than a better fix that took longer to implement.  Of course, as usual, the mainstream press never asked the hard questions when it mattered.  Having beat the drums about how the Paulson plan MUST pass or the sky will fall, now, on the cusp of its passage, it finally begins to ask, hey, is this gonna work?  Idiots.  We'll see how it plays out.

  •  Soros Has Predicted This Crisis For 20 Years (0+ / 0-)

    So he's probably had time to give this some thought.

  •  Previously in Liberal Thinking (1+ / 0-)
    Recommended by:
    James Kresnik

    I suggested that the Democrats hire Soros, Trump or Buffett to negotiate for them. Why would a bunch of politicians think they could outsmart a bunch of Wall Street financiers on how to fix this problem? They're just babes in the jungle.

    Fortunately, they screwed up so badly they couldn't get anything passed. Now they have the opportunity to take some advice from people who have a history of getting it right.

    They ought to put up three billion dollars to pay their fees and hire the three of them at a billion apiece to represent the taxpayers in this. Any one of them alone could get a better deal for the taxpayers than all the Democrats in Congress combined.

  •  A = A. We owe Iraq 709 Billion. Let's sacrifice (1+ / 0-)
    Recommended by:

    Main Street USA for Main Street Baghdad.

    Way to go, BushCo.

    more details here. This diarist did a hell of a job.

    What is the foundation of *your* client relationship to Planet Earth?

    by LRLine on Wed Oct 01, 2008 at 09:23:17 AM PDT

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