Tag Archives: Paulson

Bush signs bailout after House votes yes

Lack Of Confidence, Not Capital, Is Issue

By INVESTOR’S BUSINESS DAILY | Posted Monday, September 29, 2008 4:20 PM PT

Rescue: As the financial turbulence in the U.S. spreads, we’ve heard talk, especially from overseas pundits, of a “crisis of capitalism.” But what we really have is a crisis of confidence, and the sooner it’s solved, the better.


Read More: Economy | Business & Regulation


 

The $700 billion rescue for the troubled global financial system foundered on a 228-205 vote Monday as both sides in the political debate feared being blamed for passing an unpopular bill.

Polls show more than 50% of Americans oppose what the pollsters call a “bailout” (but what we prefer to call a rescue). Meanwhile, a USA Today poll found that nearly a third of Americans think we’re in a depression.

Concern about the financial system is fully justified. But excessive gloom is not. In the most recent quarter, GDP rose 2.1% year over year, 3.1% excluding housing. Hardly a depression. So let’s not talk ourselves into one.

We, too, have qualms about the rescue effort. Washington under Democrat-led Congresses wrote the rules that made this mess possible, and we have little confidence in their ability to get us out of it.

We have even less confidence after watching Democrats try to insert things in the plan — from money for the radical community group ACORN to new taxes on Wall Street — that made no sense at all. We’re glad Republicans opposed these and made the bill better.

But now it’s time for all to hold their noses and vote as soon as possible on a compromise. Both the public and the investment community need to be reassured their leaders aren’t dropping the ball.

Failure won’t just cost billions; it will cost trillions — in lost output, a shrunken job market, smaller retirements and lost productivity. Is this the future we’ll choose for ourselves? We hope not.

Republicans who voted against the bill did so for legitimate reasons. They don’t like government getting too involved in the economy, and this package permits just that. But they also don’t want to be blamed, as the minority party, if the deal turns sour.

That’s already happening. Yes, more than 60% of Republicans voted against the rescue bill, but so did 40% of Democrats. That said, it’s time for Republicans to take a deep breath, pull up their pants and help pass a bill. The nation’s confidence is riding on it.

Americans must be made to realize it’s not Wall Street that’s being “bailed out,” as the media keep putting it. It’s Main Street.

The reason President Bush and Treasury Secretary Paulson moved so quickly and boldly is they fear a “seizing up” of financial markets. That means banks will stop lending to one another. It means companies that finance in the money markets — as many medium- and large-size businesses do — will be frozen out.

No lending, no business. Here’s where Main Street comes in. Thousands and maybe millions will be laid off as commerce grinds to a halt. That’s a real threat. Republicans will never get a perfect bill out of this Congress; compromises must be made by both sides.

We hope the $700 billion requested of Congress is enough to cover the problem. But we also note that on Monday, without Congress’ interference, the Fed made $630 billion available to world financial markets. That brings this rescue to $1.4 trillion.

The ability of the nation’s and the world’s financial markets to finance this shouldn’t be questioned. As the nonpartisan Congressional Budget Office noted Monday, the cost of any eventual rescue plan would likely be “substantially smaller” than $700 billion because of asset resales. And, around the world, there’s some $70 trillion or so in investment capital, according to estimates.

We’re not short on capital, as we said, but on confidence. Passing a bill, even if flawed, would go a long way to restoring the latter.

 

Leaders Without Followers – The Paulson Plan and the week that was.

  by Lawrence B. Lindsey
10/06/2008, Volume 014, Issue 04

The Weekly Standard

Just over a week ago the collapse in credit markets forced the secretary of the Treasury to assemble a bipartisan group from both houses of Congress to sell a record-setting government-bailout plan of the financial industry. Trouble was no such plan existed at the time of the meeting. He set off a mad scramble to come up with the barest outlines of a plan on Saturday followed by two Democratic outlines, one for the House and one for the Senate, on Sunday.

By Monday the 22nd, it was obvious to markets and most other observers that, when it came to the plans, there was not a lot of “there” there. Unintended consequences multiplied. So, when Henry Paulson and Federal Reserve chairman Ben Bernanke began their gauntlet of testimonies on Tuesday, the mood was intensely skeptical, even bordering on hostile. Equity markets crashed. Credit markets seized up again on Wednesday, even though stocks stabilized.

By Thursday stocks had rallied on expectations that Congress would pass a bill by the end of the weekend. Democrats announced they had an agreement amongst themselves, but their rank and file were decidedly not on board. Nonetheless, the president arranged a seal-the-deal ceremony for Thursday afternoon at the White House with the congressional leadership and both McCain and Obama present. It was to be followed by a photo opportunity with the current president and the two men who might succeed him collectively blessing a bailout package.

It was not to be.

Senator Richard Shelby, deeply suspicious of the Paulson plan, left the meeting early and declared there was no deal. Obama headed for the Mayflower Hotel to hold his own press conference. The Democratic leadership focused on mocking McCain, blaming him for the failure, a narrative that the media parroted, ignoring the fact that if what the Democrats claimed was true, they had the votes to pass the law.

Still, as of this writing on Friday night, a bill was almost certain to get passed. The Democratic congressional leadership and the White House have had a “Continuing Resolution” strategy in their back pocket all along. The plan was to roll goodies for the auto industry and other special interests, a “safety net” package, and the latest version of the Paulson plan in with authority for the government to spend money after midnight on Tuesday. The alternative would be a government shut down.

Thus stands the state of governance of the greatest economic power in the history of the world. And on this basis politicians claim that what is needed is more regulation by government.

The central problem of the deal was that it takes a commanding heights approach. The key beneficiaries are to be the very largest New York-based financial institutions and a few billionaires like Warren Buffett and Bill Gross. Buffet even said as much. He plunked down a cool $5 billion to buy preferred stock yielding 10 percent in Paulson’s old firm, Goldman Sachs, saying he was confident that Congress would pass the Paulson bailout bill.

The plan had a commanding heights problem in the Congress as well. The Democratic leadership, including committee chairmen Barney Frank, Chris Dodd, and Chuck Schumer, were enthusiastic. But it was hard to find an ordinary member who exuded confidence. The president gave a prime-time speech to push the bill on Wednesday night. It was a good performance, but on Thursday morning it wasn’t any easier to find Republican congressmen who supported the plan.

 But the greatest commanding heights problem was that the plan had virtually no public support. Congressmen reported record-breaking email and phone calls from constituents, running as much as 300 to 1 against. The public saw it as a bailout of Wall Street. What had not been explained was how bailing out Wall Street would also help them. There is a good case that could be made on that score, but it hasn’t been.

 

Ultimately the bill will be a missed opportunity. No one with experience in these matters believes the Treasury purchase plan is workable. It will take weeks, maybe months, to set up-not something that makes sense when the country is allegedly teetering on a precipice. The plan, moreover, should have been accompanied with measures that would stabilize the banking sector and prevent any possiblity of a bank run. On Thursday night the FDIC did a forced sale of Washington Mutual to J.P. Morgan just to avoid the potential disaster of the bank runs that would follow if uninsured depositors were not protected. Eighteen billion had left WaMu in the days leading up to the purchase. On Friday a similar run began on Wachovia. In this environment, not removing the deposit insurance cap could be a recipe for disaster, more than undoing any possible benefits from the legislation.

When the people atop the commanding heights of the economy think that they know best, and their followers’ concerns are ignored, problems inevitably follow. We can only hope that America will be spared relearning this lesson of history, too painfully, this time around.

–Lawrence B. Lindsey, for the Editors

 

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