White House Caught Napping on Financial Crisis

I am gaining a new respect for Campbell Brown who seems to be growing a set and willing to be more that a mere parrot for sound bites issued by others. Now she's going after the Chimperator for being asleep at the wheel on the financial debacle that has occurred on his watch and mostly under a Republican economic model. Would that more in the media would remind the public that the ground work for the crisis and lack of regulation occurred under a GOP White House and GOP controlled Congress. Despite his stunts and theatrics, McCain is part and parcel with the group that allowed this mess to occur. Many of the problems in this country can be traced to a failure of the media to do its job and ask hard questions, expose lies and demand accountability. Here are highlights from Brown's recent commentary on CNN:

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NEW YORK (CNN) --

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"I have great, great confidence in our capital markets and in our financial institutions. Our financial institutions, banks and investment banks, are strong. Our capital markets are resilient. They're efficient. They're flexible."

Treasury Secretary Henry Paulson, March 16, 2008

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"Our policy in this administration -- laws shouldn't bail out lenders, laws shouldn't help speculators."
President Bush, May 19, 2008

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"Our economy has continued growing, consumers are spending, business are investing, exports continue increasing and American productivity remains strong. We can have confidence in the long-term foundation of our economy...I think the system basically is sound. I truly do."

President Bush, July 15, 2008

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Those were the words of Treasury Secretary Henry Paulson and President George W. Bush just a few months ago. Today, of course, they have been proven completely wrong. They are now telling us we are in a dire crisis, and that we must hand over hundreds of billions of dollars so they can lead us out of this mess.

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What's amazing to me is that the administration seems a little surprised that Congress and the American people are not marching in lockstep with them on this and not fully appreciating the urgency. Well here's why, in one word: accountability.

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This administration missed the boat on this crisis. They didn't see it coming. That's why when Bush goes on TV in a few minutes, he will face a very wary audience. And Secretary Paulson, frankly, you didn't help the situation with your initial, imperious request to Congress that you be handed this money and that your decisions "may not be reviewed by any court of law or administrative agency." Seriously, what were you thinking?

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We need serious scrutiny and debate, and that should happen whether we are talking about a giant piece of legislation that is going to affect us all, or whether we are talking about presidential and vice presidential candidates.

An Inadequate Case for the Bailout

For over a year I have discussed the collapse of the U.S. real estate market and the havoc that I believed it would cause to the larger economy. Sadly, most in Washington paid little or no attention to the problem until it became a catastrophe. Now the Chimperator's crew have proposed a huge bailout which has as its main features (1) no accountability on the part of the Secretary of the Treasury, (2) no punishment for those in the investment banking and mortgage industries who recklessly caused the mess, and (3) no help for the average homeowner or business owner who has been swept up into the maelstrom. Moreover, the $2.5 billion in the bonus pool for Lehman Brothers, now in bankruptcy, and golden parchutes of CEO's of failed firms, are nothing short of obscene. The New York Times has a good editorial that lays out why the current administration proposal does not fit the bill for what is needed. Here are some highlights:

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Under skeptical questioning in the Senate Banking Committee on Tuesday, Treasury Secretary Henry Paulson and the Federal Reserve chairman, Ben Bernanke, gave no ground in defense of their $700 billion proposal to bail out the financial system. They also gave little reason to believe that their proposal would protect taxpayers from huge losses.

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Rather than rushing to approve the $700 billion bailout, lawmakers need to examine alternatives. They should look for one that ideally would let taxpayers share in the gains from any postbailout revival, along with the bankers and private investors who will make money if the bailout succeeds. Several ideas have been advanced that Congress should examine.

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Prominent among them is a plan to make a direct investment of taxpayer dollars into financial firms, rather than buying up their bad assets. With that money, the firms could absorb the losses that they are bound to take as their investments go sour and avert failure and panic. Once the firms begin to recover, taxpayers would earn a return.

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Another proposal, advanced by Senator Christopher Dodd, would buy up bad assets, as proposed by the administration, but would give the government the option to acquire stock in the firms receiving help. The danger is that private investors, fearful of seeing their ownership stakes diluted if the government becomes a shareholder, might be reluctant to invest money. That would deprive the firms of investments they need to recover.

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One thing is certain. If taxpayers do not share in the potential profits from a bailout, someone else will. On Tuesday, the Federal Reserve announced that it was relaxing rules that require investors who take large stakes in banks to submit to longstanding regulations on transparency and managerial control. Private equity firms have pushed for the changes because they would like to become big investors in beaten-down banks but do not want to be regulated.

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Relaxing the rules invites more of the same type of opacity and risk-taking into banking that caused many of today’s financial problems. Politically, the Fed’s timing could not have been worse. Taxpayers are being asked to buy up banks’ junky assets, with little expectation of return. At the same time, private equity firms are being invited to make what are likely to be highly profitable investments in the same banks. That’s not a plan that lawmakers and voters can support. Congress has more work to do.

Henry Paulson’s (and the Chimperator's) Misplaced Priorities

Paul Krugman has a great column in today's New York Times (http://www.nytimes.com/2007/12/10/opinion/10krugman.html?_r=2&hp&oref=slogin&oref=slogin) that looks at George W. Bush's mortgage bailout proposal and finds it sadly lacking in many ways, not the least of which is that lenders are the main beneficiaries. Are you surprised? I am not - it is typical of Bush to not give a damn for the average citizen while floating a smoke screen to give the appearance that he is dong something. Here are highlights form the column:

By Bush administration standards, Henry Paulson, the Treasury secretary, is a good guy. He isn’t conspicuously incompetent; and he isn’t trying to mislead us into war, justify torture or protect corrupt contractors. But Mr. Paulson’s actions reflect the priorities of the administration he serves. And that, ultimately, is what’s wrong with the mortgage relief plan he unveiled last week.

The plan is, as a Times editorial put it yesterday, “too little, too late and too voluntary.” But from the administration’s point of view these failings aren’t bugs, they’re features. In fact, there’s a growing consensus among financial observers that the Paulson plan isn’t mainly intended to achieve real results. The point is, instead, to create the appearance of action, thereby undercutting political support for actual attempts to help families in trouble.

In particular, the Paulson plan is probably an attempt to take the wind out of Barney Frank’s sails. Mr. Frank, the Democratic chairman of the House Financial Services Committee, has sponsored legislation that would give judges in bankruptcy cases the ability to rewrite mortgage loan terms. But “Bankers Hope Bush Subprime Plan Will Scuttle House Bill,” as a headline in CongressDaily put it. As Elizabeth Warren, the Harvard bankruptcy expert, puts it, “The administration’s subprime mortgage plan is the bank lobby’s dream.” Given the Bush record, that should come as no surprise.

There are, in fact, three distinct concerns associated with the rising tide of foreclosures in America. One is financial stability: as banks and other institutions take huge losses on their mortgage-related investments, the financial system as a whole is getting wobbly. Another is human suffering: hundreds of thousands, and probably millions, of American families will lose their homes. Finally, there’s injustice: the subprime boom involved predatory lending — high-interest loans foisted on borrowers who qualified for lower rates — on an epic scale. The Wall Street Journal found that more than 55 percent of subprime loans made at the height of the housing bubble “went to people with credit scores high enough to often qualify for conventional loans with far better terms.” And in a declining housing market, these victims are stuck, unable to refinance.

But Mr. Paulson’s plan is entirely focused on reducing investor losses. Any minor relief it might provide to troubled borrowers is clearly incidental. And it is does nothing for the victims of predatory lending. Relief is restricted to borrowers whose mortgage debt is at least 97 percent of the house’s value — which means that in many, perhaps most, cases those who get debt relief will be borrowers who owe more than their house is worth. These people would be nearly as well off in financial terms if they simply walked away. And what about people with good credit who were misled into bad mortgage deals, who should have been steered to loans with better terms? They get nothing: the Paulson plan specifically excludes borrowers with good credit scores.

Still, you might say that the Paulson plan is better than nothing. But the relevant alternative isn’t nothing; it’s a plan that — like Barney Frank’s proposal — would actually help working families. And that’s what the administration is trying to avoid.