Bailout Rejected, Stocks Crushed; What Can You Do With $700 Billion?

Congress will be voting on the bailout bill again tomorrow and I hope it doesn’t pass. I can’t condone such an enormous sum of money in the form of what is essentially a blank check, to save these financial institutions who have run themselves into the ground. When a business fails, it fails; our government shouldn’t be handing out lifelines that we cannot even afford.

—-
“Even before the opening bell, Monday looked ugly. But by the time that bell sounded again on the New York Stock Exchange, seven and a half frantic hours later, $1.2 trillion had vanished from the United States stock market. What had started 24 hours earlier, with a modest sell-off in stock markets in Asia, had turned into Wall Street’s blackest day since the 1987 crash. The broad market, as measured by the Standard & Poor’s 500-stock index, plunged almost 9 percent, its third-biggest decline since World War II. The Dow Jones industrial average fell nearly 778 points…Across Wall Street, no one could quite believe what was happening on the floor — the floor of the House of Representatives, not the New York Exchange.”
[For Stocks, Worst Single-Day Drop in Two Decades via the NYT]

“Stocks had fallen from the get-go Monday morning. In addition to expectations for the bailout, there was also news that troubled Wachovia had to sell its banking assets to Citigroup. A number of European banks also collapsed.” [Stocks crushed via CNN]

—-
The effect of the U.S. financial crisis on the global economy:

• Bailout plan rejected – supporters scramble via CNN
• Global markets rocked by US bailout rejection via ABC
• Global banks expect to fall under U.S. bailout umbrella via IHT
• Bank bailouts sweep Europe via CNN

“Global central banks scrambled to relieve a severe squeeze in money markets by more than doubling the amount of dollar funding to $620 billion as banks hoarded cash, bracing for more trouble ahead in the worsening credit crisis.”  
[U.S. bailout blow triggers stampede to safety via IHT]

—-
According to the latest issue of TIME magazine, this is what you could do with $700,000,000,000:

• Give each person in the U.S. $2,300
• Pay the income tax of every American making less than $500,000
• Fully fund the Defense, Treasury, Education, State, Veterans Affairs, and Interior Departments – as well as NASA
• Buy gasoline for every car in the U.S. for 16 months
• Buy every NFL, NBA, and MLB team, build each a new stadium, and then pay the players $191 million a year
• Or, you could pay off 7% of the $9.8 trillion national debt

—-
Also, these 7 Questions About the $700 Billion Bailout are answered via TIME:

1. Will it really cost $700 billion?
2. How long will the money last?
3. Is this kind of bailout unprecedented?
4. How will the Federal Government know what price to pay for the mortgages it buys?
5. What happens if the cost tops $700 billion?
6. Will all of the federal wheeling and dealing come with transparency and oversight?
7. Do the Wall Street executives get to keep their bonuses?

—-
A recap of the last two weeks (the ones that broke Wall Street): The crisis: A timeline via CNN

Deal or No Deal? Political Limbo for Bailout

“The day began with an agreement that Washington hoped would end the financial crisis that has gripped the nation. It dissolved into a verbal brawl in the Cabinet Room of the White House, urgent warnings from the president and pleas from a Treasury secretary who knelt before the House speaker and appealed for her support…By 10:30 p.m., after another round of talks, Congressional negotiators gave up for the night and said they would try again on Friday.” 
[Talks Implode During Day of Chaos; Fate of Bailout Plan Remains Unresolved via NYT]

The economy is in shambles, mirroring and eclipsing a wrecked Galveston, TX. McCain supposedly is placing priorities over politics: suspending his campaign, rushing to work on the $700B bailout plan, and declaring (early this week) that he will not attend Friday’s presidential debate until a deal is made. In the midst of an economic crisis, this is a poorly disguised political stunt. I am confident that the debate will go on – there’s no reason for it not to.

—-
“It’s my belief that this is exactly the time when the American people need to hear from the person who, in approximately 40 days, will be responsible for dealing with this mess,” Obama told reporters at a news conference in Florida. “It’s going to be part of the president’s job to deal with more than one thing at once.”

The prospect of postponing Friday’s debate rankled network executives, who have invested substantial resources in the infrastructure needed to carry the event live. Finding another block of TV time would be difficult. The coming month is crowded with fall television premiers, National Football League games and Major League Baseball playoffs. “Every network in America has that time laid out,” Fox News anchor Shepard Smith said on the air Wednesday. “There are thousands of people en route to Oxford, Miss., at this point. For seven months they’ve been working on this.” [John McCain seeks to postpone debate via LA Times]

—-
Paul Begala, a Democratic strategist, said the debate is the most important thing the candidates could do right now. “It’s preposterous that we can’t have a presidential debate in the middle of this economic crisis. We had a presidential campaign in 1864, when Sherman was marching on Atlanta. We had a presidential election in 1944, when D-Day was going on in Normandy,” he said. “We can have a debate on Friday. In fact, it’s probably the most important thing McCain and them could be doing, would be to debate the issues.”…

Democratic candidate Barack Obama’s running mate, Sen. Joe Biden on Thursday accused the Republicans of looking for a “distraction.” …Democrats have also implied that McCain is trying to buy more time for vice presidential candidate Sarah Palin. McCain suggested having the presidential debate take the place of next Thursday’s vice presidential debate, and moving that one to a later date. [McCain's move: Putting priorities or politics first? via CNN]

—-
“I have never seen a presidential or vice presidential nominee, in my lifetime, be so inaccessible to the national media,” said Howard Kurtz, a Washington Post and CNN media critic. This week, Palin met with international leaders on the sidelines of the United Nations’ General Assembly meetings in New York, but once again, she was largely shielded from reporters.”
[Palin mingles with media in rare Q&A via CNN]

Palin is being babied and shielded from the media. On her little tour to meet and greet with world leaders, reporters and photographers were allowed in for all of five minutes, before being ushered out. I tire of seeing her on the news (coverage of Palin generally lacks substance). Her unscripted sit-down interview with Katie Couric was a complete embarrassment. I pity her.

When asked for an example of McCain (in his 26 years of being in Congress) leading the chargemore regulation on Wall St, she replied, “I’ll try to find you some and I’ll bring them to you.” See below for interview transcript excerpts:

• Katie Couric Interviews Alaska’s Governor On The Ailing Economy
• Katie Couric Interviews The Candidate About Watching Russia, Her New Passport, And Her Opinion Of Obama 

—-
See also:

• President Bush’s Speech to the Nation on the Economic Crisis via NYT
• WaMu is largest U.S. bank failure via Yahoo News

 

The $700 Billion Bailout

“Every day brings another financial horror show, as if Stephen King were channeling Alan Greenspan to produce scary stories full of negative numbers. One weekend, the Federal Government swallows two gigantic mortgage companies and dumps more than $5 trillion — yes, with a t — of the firms’ debt onto taxpayers, nearly doubling the amount Uncle Sam owes to his lenders. While we’re trying to get our heads around what amounts to the biggest debt transfer since money was created, Lehman Brothers goes broke, and Merrill Lynch feels compelled to shack up with Bank of America to avoid a similar fate. Then, having sworn off bailouts by letting Lehman fail and wiping out its shareholders, the Treasury and the Fed reverse course for an $85 billion rescue of creditors and policyholders of American International Group (AIG), a $1 trillion insurance company. Other once impregnable institutions may disappear or be gobbled up…”

“…How did we get here? How do we get out of it? And what does all this mean for the average joe? So take a deep breath and bear with us as we try to explain how financial madness overtook not only Wall Street but also Main Street. And why, in the end, almost all of us, collectively, are going to pay for the consequences.”
[How Financial Madness Overtook Wall Street via TIME]

—-
“Unveiling its plan to rescue the nation’s financial system from near-paralysis, the Bush administration is asking Congress for the authority to spend $700 billion and for powers to intervene in the economy so sweeping that they have virtually no precedent in U.S. history. The proposal , set out in a spare 2 1/2 -page document sent to congressional leaders Saturday, would in effect allow the Treasury secretary to set up a government investment bank to buy up the billions of dollars of the mortgage-backed securities now clogging the arteries of the global financial system.

The dollar figure alone is remarkable, amounting to 5% of the nation’s gross domestic product. But the most distinctive – and potentially most controversial – element of the plan is the extent to which it would allow Treasury to act unilaterally: Its decisions could not be reviewed by any court or administrative body and, once the emergency legislation was approved, the administration could raise the $700 billion through government borrowing and would not be subject to Congress’ traditional power of the purse.”

[Tab for financial bailout: $700 billion via LA Times]

Washington is racing to pass a historic intervention – and there are still more questions than answers. [$700B bailout: The latest via CNN]

—-
“Let’s assume for now that Paulson finds a mechanism to extract the poison from the banks, without enfeebling them in the process. Can we all then breathe a sigh of relief and assume our economic prospects will improve markedly? Sadly, I don’t think so. Banks, money managers, controllers of trillions of dollars on behalf of the cash-rich states of Asia and the Middle East have all had a painful lesson in the meaning of risk over the past fortnight. They will for an extended period – possibly years – be less willing to fund our banks without demanding a significant increment in what the banks pay them. That’ll increase the cost of money for all of us, which will make most of us feel quite a lot poorer for some time. Also, you can kiss goodbye to the kind of financial creativity, innovation and competition that accelerated the growth of the UK and US economies over the past few years.” [Preston's Picks via BBC News]

The UK prime minister said on Sunday that one of the lessons from the global financial crisis is the need for international regulation to be brought up to date. Gordon Brown told the BBC: “We’re in a new economy, a global financial economy, the world is changing very fast, but the governance of the global financial system has not caught up with it and that’s what’s got to change.” [Paulson wants a speedy debt deal via BBC]

—-

• Winners and Losers in the Wall Street Mess via TIME 
• The downturn in facts and figures via BBC News

—-
Latest Breaking News Alerts from the The New York Times:

Saturday, September 20, 2008
Rescue Plan Seeks $700 Billion to Buy Bad Mortgages
The Bush administration is asking Congress to let the government buy $700 billion in troubled mortgages, according to a draft of the plan. The proposal would raise the statutory limit on the national debt to $11.3 trillion from $10.6 trillion.

Friday, September 19, 2008
Week of Tumult Ends With Stock Surge
Responding to moves by the Federal Reserve, the S.E.C. and the Treasury to stabilize money markets, investors bid stocks up sharply on Friday. The Dow Industrials closed with a gain of about 370 points.

Friday, September 19, 2008
S.E.C. Issues Temporary Ban on Short-Selling
The Securities and Exchange Commission issued a temporary ban Friday morning on short sales of 799 financial stocks, following a similar action in Britain the day before. Short selling — a bet that a stock price will decline — has often been blamed for forcing prices down in times of market stress.

Thursday, September 18, 2008
Dow Swings Back, Closing Up About 400 Points
Investors jumped back into the stock market Thursday afternoon after the world’s central banks embarked on a coordinated effort to ease the fear coursing through the global financial system, sending the Dow industrials up more than 400 points. Still, there was little relief from the paralysis that has gripped the credit markets.

September Wall Street Woes

Failing investment, insurance, and financial giants are selling themselves like no tomorrow. As if our housing crisis (so many foreclosures) wasn’t enough – there goes our national economy. The next president has a lot of work to do.

On the up side, Bank of America, now has largest brokerage in the world after the acquisition of Merrill Lynch. I’m glad that my bank is doing well, unlike WaMu), for example. Anyway, here is the month of September, as presented by a selection of Breaking News Alerts from the The New York Times.

—–
Wednesday, September 17, 2008
Stocks Plunge; Dow Off Nearly 450 Points
Stocks fell sharply as the Federal Reserve’s rescue of the giant insurer A.I.G. failed to calm jittery financial markets; prices for Treasury bills, gold and oil rose sharply.

—–
Tuesday, September 16, 2008
Fed to Give A.I.G. $85 Billion Loan and Take 80% Stake
In an extraordinary turn, the Federal Reserve agreed Tuesday to take a nearly 80 percent stake in the troubled giant insurance company, the American International Group, in exchange for an $85 billion loan.

—–
Tuesday, September 16, 2008
Fed Leaves Key Interest Rate Unchanged
The Federal Reserve said the strains on the financial markets have increased significantly, but it kept its key short-term interest rate unchanged at 2 percent.

—–
Monday, September 15, 2008
News Alert: Dow Closes Down More Than 500 Points
The Dow Jones industrial average fell more than 500 points on Monday in the first day of investor reaction to some of the most dramatic developments in the history of high finance.

—–
Monday, September 15, 2008
Crude Oil Declines, Trading Below $100
After more than six months in triple-digit territory, oil prices dropped sharply, falling under the symbolic $100-a-barrel threshold as financial woes raised concerns about slowing oil demand.

—–
Monday, September 15, 2008
Dow Falls 300 Points Within Minutes of Opening
The Dow Jones industrials fell more than 300 points shortly after the open as the markets reacted to turmoil at major Wall Street investment banks.

—–
Monday, September 15, 2008
Lehman Brothers Announces It Will File Chapter 11 Bankruptcy
Lehman Brothers, the storied Wall Street securities firm, announced on its Web site early Monday that it will file for Chapter 11 bankruptcy protection.

—–
Sunday, September 14, 2008
A.I.G. Seeks $40 Billion in Fed Aid to Survive
The American International Group is seeking a bridge loan from the Federal Reserve as it faces a potential downgrade from credit ratings agencies.

—–
Sunday, September 14, 2008
Bank of America in Talks to Buy Merrill Lynch
Bank of America is in advanced talks to buy Merrill Lynch for $25 to $30 a share, people briefed on the negotiations said on Sunday.

—–
Wednesday, September 10, 2008
Lehman Sees $3.9 Billion Loss and Plans to Shed Assets
The struggling investment bank Lehman Brothers said that it would report a $3.9 billion loss for the third quarter and would sell a majority stake in its investment management unit as it struggles to stay afloat.

—–
Monday, September 8, 2008
U.S. Takeover of Mortgage Giants Lifts Markets
Following rallies in Asia and Europe, the Dow Jones industrial average jumped more than 340 points, or about 3 percent, within two minutes of opening.

—–
Friday, September 5, 2008
Government Preparing Plan to Seize Fannie Mae and Freddie Mac, Officials Say
Senior officials from the Bush administration and the Federal Reserve informed top executives of Fannie Mae and Freddie Mac, the mortgage-finance giants, that the government is preparing a plan to seize the two companies and place them in a conservatorship, officials and company executives briefed on the discussions said.

—–
Friday, September 5, 2008
Economy Shed 84,000 Jobs in August; Unemployment Rate Jumped to 6.1%
The government said Friday that the American economy lost 84,000 private nonfarm jobs in August, the eighth straightmonth of job losses. The unemployment rate jumped to 6.1 percent in August, the highest in nearly five years. Both figures were worse than economists had forecast.