Lots going on in bailout news today:
U.S. banks getting more than $163 billion from the Treasury Department for new lending are on pace to pay more than half of that sum to their shareholders, with government permission, over the next three years.
The government said it was giving banks more money so they could make more loans. Dollars paid to shareholders don’t serve that purpose, but Treasury officials say that suspending quarterly dividend payments would have deterred banks from participating in the voluntary program.
Critics, including economists and members of Congress, question why banks should get government money if they already have enough money to pay dividends — or conversely, why banks that need government money are still spending so much on dividends.
Meanwhile, where the hell did all the money go at AIG:
The American International Group is rapidly running through $123 billion in emergency lending provided by the Federal Reserve, raising questions about how a company claiming to be solvent in September could have developed such a big hole by October. Some analysts say at least part of the shortfall must have been there all along, hidden by irregular accounting.
“You don’t just suddenly lose $120 billion overnight,” said Donn Vickrey of Gradient Analytics, an independent securities research firm in Scottsdale, Ariz.
Mr. Vickrey says he believes A.I.G. must have already accumulated tens of billions of dollars worth of losses by mid-September, when it came close to collapse and received an $85 billion emergency line of credit by the Fed. That loan was later supplemented by a $38 billion lending facility.
How long before AIG is back for more money, and how much will they need. And will they get it?
Shygetz
Bullshit! This pisses me off to no end.
David Hunt
Not much time at all. Maybe the Dog Ate It. Today’s 4:41 am posting
robertdsc
What a goddamned waste.
Tim H.
Pretty soon.
A shitpile.
The plundering will continue until morale improves.
JGabriel
And in similiar news, Mark Leibovich at The New York Times:
Why is a tax break considered a "handout" if the recipient earns less than $250K per year, but considered the "rewards of productivity" if the recipient earns more than that?
It just seems like a rather strange worldview.
.
greynoldsct00
And I heard yesterday that Morgan Stanley, etc are hording cash so that they can pay BONUSES this year at an average of $102,000 per employee. Sorry don’t have a link, saw the story on the Today Show. Bonuses. We’re bailing them out, and they give out bonuses.
Person of choler
Nobody plundered here
greynoldsct00
Strictly an attempt at good PR for rewarding their buddies…I can’t believe more people don’t see that
JGabriel
Sounds like AIG engineered the $125 billion just to keep the party going.
I think we, as in "We the People", got played and AIG will just spend whatever we give them on junkets, etc., until they crash.
.
r€nato
Maybe next time the government is asked to hand out over $100 billion to a company that needs a lifeline, they’ll demand to take a look at their books – including their off-book ‘assets’ – and see how deep in the hole they really are.
The Pentagon
“You don’t just suddenly lose $120 billion overnight,”
I beg to differ.
Xecklothxayyquou Gilchrist
This is why the collapse has been such a double-edged sword. On the one hand, I’m glad it happened now rather than in, say, February, so the Republicans can’t tar the Democrats with it as easily. On the other, you know nothing that has a hope of actually doing anything other than lining pockets can be done about it before Bush leaves office.
Dennis - SGMM
Meanwhile, GM has its hand out for some billions and, oh yes, the insurance companies would like some money too.
Why don’t they just leave the doors of the Treasury unlocked and let these guys back up the trucks?
JGabriel
r€nato:
Only if it’s a Democratic administration.
.
Rick Taylor
One of the earliest suggestions I heard an economist give to treat the crises as an alternative to the Paulson plan was to (among other things) require the banks to cease paying dividends. The rational was that no bank could do that on their own as it would be signaling weakness, even if it would help the industry as a whole.
The problem is that so many of the people running things are ideologically driven, the free market is always the answer, you never want to interfere with the private sector, etc. The upshot is that even when they’re forced by circumstances to implement government directed solutions, their heart isn’t in it and they don’t follow through, which means we get the worst of both worlds.
Genine
Yes, it is. The worldview is the wealthy are, somehow, better than others. That’s why they’re wealthy. I know a lot of poor and lower-middle class who think that way.
This whole thing is bullshit. They should not be paying out dividends. If they wouldn’t take the bailout without being able to give money to their friends, then I guess the situation isn’t that bad, is it?
Is this blackmail? Is that the whole crux of the matter? They know that Bush and his boys are on the way out. It appears as though McCain isn’t getting in, so this is the last shot for the Old Boys Club to get more from the Government. First, the Iraq war lined their pockets and now this.
I’m glad that P2P lending networks are on the rise. Its not big yet, but its a way for people tp help each other and bypass banks. There are some other financial alternatives out there as well. I need to start reading up on them more. It gives me hope and optimism for the future.
The Grand Panjandrum
I can’t remember if you linked to this Joe Nocera piece in the NY Times but it has a real gem in it:
My problem with the bailout is not the amount of money involved so much as it is that they didn’t attached enough strings. Jesus, they have more strings attached to a $300 welfare check to some poor fucker in Missouri, don’t they? In their haste to pass this bill I think it was poorly crafted for political expediency so everyone could get back to campaigning. The Democrats better fix this quickly or they will have a revolution on their hands. Even by government standards $700 billion isn’t chump change.
JGabriel
WaPo (as quoted by John Cole at top):
This is really infuriating. Who gives a flying fuck whether the banks participate if they DON’T USE THE MONEY FOR ITS INTENDED PURPOSE?
Fucking assholes. This is the continuing result of the oxymoronic "self-regulation" fantasy – let the banks decide how to spend their bailout money, no strings attached! They wouldn’t possibly decide to make the same decisions to go for short-term profits that got them into this mess.
.
Punchy
2 weeks, $200 billion more, of course. SATSQ.
BTW, you missed this. LSS, the gov’t is going to reward those fuckers who bought $500K homes on an elementary school teacher’s budget by reworking their mortgage, while everyone who used common sense and made their payments and didnt buy 3 SUVs and a boat get nothing.
Peeps at CR were HOT over this, and I cannot blame them.
Sour Kraut
Why don’t they just leave the doors of the Treasury unlocked and let these guys back up the trucks?
Because then they’ll find out the only thing left in the treasury is a giant Post-it that reads:
"Dear U.S.A.–
I.O.U. $10 Trillion
Love,
D. Cheney & Friends"
Oh, and "irregular accounting"? I remember the good old days, when they just called it "fraud."
Dennis - SGMM
We get the bill. Speaking as someone who didn’t re-fi, whose cars are 9 and 16 years old, and who has kept up with my payments I am furious.
I heard someone on NPR this morning say, "Well, if their payments were lower these people would be able to stay in their homes." If the payments were lower I’d have a fucking Maserati and a ski boat.
D. Mason
I’m sorry that’s simply not true. That’s the ideology they espouse but I haven’t seen a single example of them actually putting these policies in place. They practice crony capitalism, privilege for their friends. De-regulation when it makes it easier to horde money, benefit from a monopoly and rip off the tax-payers but not for the sake of a free market. They toil diligently to keep the market working on behalf of a few super-wealthy elite constituents. That’s basically the opposite of a free market.
NonyNony
It was painlfully clear to me (and a lot of other people) that Paulson’s whole plan amounted to:
1) Make it look like the government was doing something
2) Don’t actually do anything
(1) was there to "restore confidence in the credit market". The government jumping into the fray was supposed to project an image that everything was going to be okay because the US government was going to step in to make sure that things didn’t fail.
(2) is ideologically driven. They still refused to admit that sometimes government does things better than the market. They still refused to admit that the market can fail.
Congress pushed some things into the plan to make (2) less bad than what Paulson wanted, but with the current administration basically responsible for running the show, and with the Republicans and Blue Dogs in Congress being who they are, there wasn’t going to be a whole lot they could do to force the issue. They put the hooks in, but it still requires an active partner in the administration to make the hooks work.
I think Paulson is finally realizing that the market has failed. Greenspan going on the teevee and having his public "there is no Libertarian Jesus" moment should have forced that realization if nothing else has. But that hasn’t translated to him actually doing anything about (2) – probably mostly because his entire model of how the world works has crumbled right before his eyes and he has no idea how to rebuild it from scratch.
J.
I hope you have access to or are a near a toilet people, because what I am about to tell you will make you throw up.
Earlier this week I had lunch with "a friend," whose spouse works at AIG on the investment side. She was hired, I believe, this summer or else late spring. I asked my friend if she was still employed. Without waiting a second he stated, "She has a guaranteed contract!" I asked him, "What does that mean?" He said, it meant she had a guaranteed salary AND a guaranteed (are you sitting down?) $400,000 BONUS, to be paid March 2009, in full.
I care about this person and his family (they have three young kids) deeply, but I couldn’t keep my outrage hidden. We had a "spirited" discussion, with him saying, "hey, we still have to pay our bills" and "she wouldn’t have gone to work there unless they offered her X, Y, and Z" (i.e., the big bucks).
Now multiply this story/contract by, oh, 1,000, probably more, and you can see where our tax dollars/the government’s money will be going.
Makes me ill.
Btw, don’t forget to cast your vote for the scariest candidate/politician!
Mr Furious
Yup. Most of the sensible economist-based alternative plans I recall reading about had a dividend-freeze included.
The SHOULD BE a dis-incentive to participate in the plan. If the comany is healthy enough to pay dividends then it doesn’t need a bailout.
If it DOES participate in the bailout, the taxpayers should get paid back FIRST.
Dennis - SGMM
It gets better. I heard a conservative commentator on one of the talk shows say that the danger is that we’ll over-regulate the financial sector and prevent them from coming up with "creative new financial instruments."
That would be almost as bad as forbidding holdup men the use of bazookas and Claymore mines.
Sour Kraut
Why don’t they just leave the doors of the Treasury unlocked and let these guys back up the trucks?
Because then they’ll find out the only thing left in the treasury is a giant Post-it that reads:
"Dear U.S.A.–
I.O.U. $10 Trillion
Love,
D. Cheney & Friends"
Oh, and "irregular accounting"? I remember the good old days, when they just called it "fraud."
jeff
The rich have established a welfare system for themselves where they come first. Everyone else gets good old fashion capitalism.
Dennis - SGMM
They get the capital, we get the myth of Horatio Alger.
Sour Kraut
Why don’t they just leave the doors of the Treasury unlocked and let these guys back up the trucks?
Because then they’ll find out the only thing left in the treasury is a giant Post-it that reads:
"Dear USA–
I.O.U. $10 Trillion
Love,
D. Cheney & Friends"
Oh, and "irregular accounting"? I remember the good old days, when they just called it "fraud."
Brian J
Even if the bailout was necessary in done cases wasn’t there more that could be done to prevent people from abusing it?
The Grand Panjandrum
I guess ol’ Jerry Reed was right in one sense: the corporate criminals got our money and we got the shaft. Any chance we can get them to issue a tube of lube for each taxpayer in the next Big Corporate Fix?
The Grand Panjandrum
Looks like Sour Kraut didn’t read this post, eh?
JGabriel
Dennis – SGMM:
Understandable, but don’t get distracted by the wrong target. At least some of the people who took those loans were simply taking an opportunity to improve their lives, while they could.
They aren’t the proper target for your anger. The Bush administration, and the Republican Congress that wrote the deregulation laws that enabled this activity, and the costs of it that we all now bear, are the guys who deserve your wrath.
.
Mr Furious
JGabriel,
Only true to a degree…
Even last night while watching the Obama infomercial, I was struck by the fact that the first family featured was gassing up a brand-new (or late model) Ford Explorer.
Sell. Your. Fucking. $30K. SUV.
Jason
The people who knowingly borrowed too much, and counted on "price appreciation" to pay for it can burn in hell.
The people who were told, "Hey, this sub-prime ARM is a GREAT deal for you", THOSE people I can sympathize with.
But, however much I want to give a flying "fuck you" to the morons, I also have to look at other consequences (foreclosures lowering neighborhood value, and thus property tax revenue)…sadly, it looks like its a better deal to bail them out. (Although I’m not a fan of a "no-consequences" bailout, there should be some way to help them keep their house without losing too much money)
Woodrow "asim" Jarvis Hill
Who’s going to buy it, with gas prices the way they are?
Rick Taylor
Not surprising. I’ve heard conservative commentators opine the real tragedy of Iraq is it’s going to make it harder to convince Americans to be aggressive with Iran.
tavella
That’s precisely it, and why I wanted my senators and congresswoman to vote against it. The bill was a whole lot of "I wish you would do that and I wish you would do this", and simply hoping that a _Bush administration appointee_ would do the right thing is lunatic.
Kevin Drum was simply unreadable on the subject — all his blabbering about how Paulson was a right hard man and would obviously drive a hard deal. Paulson’s main concern is that his dear friends on Wall Street not suffer any inconvenience; he could give a shit about the taxpayer.
DecidedFenceSitter
And as the NPR article this morning noted – there’s a difference between what is fair and what is needed. The problem is that the people who bought responsibly aren’t the problem, the problem is the people who didn’t. So the question is, do we fix the problem or not?
The not would be doing nothing, or lowering payments of people who can already afford their lifestyle, and not fix the problem. This actually may fix the problem, as non-palatable I find it with my nice conservative and easy to pay mortgage.
And that is the joys of moral hazard. Except I don’t see a solution at this stage that will work.
Mr Furious
@Woodrow “asim” Jarvis Hill: Who’s going to buy it, with gas prices the way they are?
Not my problem. I also understand it is probably only worth half that, but still…
Keeping someone from losing their house is one thing. Keeping people in new cars is another.
If they sell for $15K, they can buy a decent car with better mileage and still put $5-7K towards everything else.
If they are leasing the car, they are probably paying $400 or more a month.
Comrade Stuck
Soon.Lots.Affirmative.
The nations Golden Parachute Factories must remain productive or else your all gonna die!
Dennis - SGMM
@Jason:
I know. Something has to be done. It’s probably too much to ask that the something is structured in a way that gets the Treasury some of the money back as things improve and those bailed out homes appreciate.
Marshall
Tell you what – give me $ 120 billion, and I promise not to lose it. I feel certain I could keep my hands on it for at least a couple of months, which clearly makes me more deserving than AIG.
JR
This is class war by attrition, just beginning. The wealthy just guaranteed their own survival with money stolen from the working class’ future. And this is a very long-term plan.
The important thing right now for Wealth is to keep the "little people" fighting with each other. It is important that the lower classes spend their dying energies on hating each other, not NOT uniting and saving themselves.
It is important to make sure commoners are angry with their neighboring sheep, focused on their paltry SUV’s and silly countertops, while the seditious wolves finish sharpening their knives.
The Upper has now tied the Lower to the train tracks, and will work to make sure they bite and kick each other as the train comes. Divide, and conquer.
Michael D.
Soon.
Lots.
Yes.
Respectively.
liberal
@Punchy:
Damn, I’m pissed about this, too.(*)
While there are a few folks who I would genuinely consider victims—some older black guy featured in the Washington Post about a year ago, who refi-ed into a risky mortgage only because some prick broker badgered the shit out of him—most of them are not.
Unfortunately, a lot of Dems seem to think we need to bail out these folks, "do something about home prices," etc. While extremely liberal in general, this just seems crazy to me. Bottom line—people who bought homes are not the truly poor, by and large. Moreover, chances are they put nothing down, so how are they losing much if they get foreclosed?
Dean Baker, who has a blog over at Prospect, and who predicted both the tech bubble and the housing bubble years in advance, is extremely liberal (especially on economics issues), but doesn’t think we should be bailing out homeowners either. He does advocate a plan that basically keeps people in their homes as renters, which is fine with me.
((*) Usual proviso: no, I don’t feel sorry for the idiots at the banks, or their shareholders and bondholders, either.)
comrade rawshark
To. Whom? Try trading in a SUV and see how that goes.
Brian J
I’m not going to pretend to know why they had this sort of car, but selling the car isn’t always the answer, if it’s even possible. We also don’t know how it’s affecting their financial situation.
Brian J
I think a lot of Democrats are concerned that there may have been some predatory lending and/or see any sort of bailout as a way to prevent a bad situation from getting worse. I don’t know if it makes sense economically to think that helping people who need a breather on the mortgages in some way–a reduced interest rate, for instance–would help the situation at all, but if it does, I’m open to the idea of some help for homeowners. I can understand the sort of frustration that people who did a better job of managing their expenses might feel at the thought of others getting a bailout, but perhaps there’s a way to throw them a bone and/or punish those who were risky or stupid in some way.