living on both ends - an exploration of best and worst

for those interested

Best blog and article I have found so far.

I think it is important to start with reading about how Sweden dealt with their banking crisis.

I also think it is important to note that our country is very dependent on the purchase of debt. Especially our government. 

Marginal Revolution on the Swedish Plan

Obsidian Wings on the bailout

A Breakdown of the Final Bailout Plan

The Economist

Obama's statement on the bailout

Obama: "If elected President, I will order a thorough review of this plan"

Below is a statement by Senator Barack Obama in response to the breakthrough in negotiations on the financial bailout plan:

“The breakthrough between Congress and the Administration is the culmination of a sorry period in our history, in which reckless speculation and greed on Wall Street and lax oversight from Washington led to a meltdown of our financial markets. But regardless of how we got here, a failure to deal with the current crisis would have devastating consequences for our economy,costing millions of Americans their jobs and retirement security.

 

“To understand how this tentative deal was reached, it's important to remember how this all began. The Bush Administration initially asked for a blank check to respond to this problem, which I strongly opposed.It would have been unconscionable to expect the American people to hand this Administration or any Administration a $700 billion check with no conditions and no oversight when a lack of oversight in Washington and on Wall Street is exactly what got us into this mess.  If the American people are being asked to pay for the solution to this crisis, their tax dollars must be protected.

 

“That is why over the past ten days, in conversations with the President, Secretary of Treasury and leaders of Congress, I laid out the four core principles I believed had to guide any solution: oversight by an independent board; protections for taxpayers to ensure that they are treated like investors and that they receive any profits - and recoup any losses - from this plan; measures to help homeowners stay in their homes; and rules to make sure CEOs are not being rewarded at taxpayers' expense. While I look forward to reviewing the language of the legislation, it appears that the tentative deal embraces these principles.

 

“When taxpayers are asked to take such an extraordinary step because of the irresponsibility of a relative few, it is not a cause for celebration. But this step is necessary. Now Washington has to show the same sense of urgency in dealing with the crisis facing Main Street and the middle class by passing an emergency economic stimulus plan that would create jobs by rebuilding our crumbing roads; shore up flagging state budgets to prevent drastic cuts in education and health care; and extend expiring unemployment insurance benefits for those who've lost their jobs in this downturn and cannot find new ones.

 

“One final point. If elected President, I will order a thorough review of this plan to make sure that it fully lives up to the principles I've laid out. And I will also move quickly to upgrade our financial regulations for the 21st century, establishing new rules of the road andtougher oversight to ensure that the American taxpayers are never again forced to put their money and their futures at risk because of bad decisions inWashington and on Wall Street."

From the sidebar at pollster.com

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Craig Ferguson

There is nothing like the passion of a new (January 2008) citizen.

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no games

I've been reading Elie Wiesel...

Maybe we don't have to re-invent the wheel?

A banking system in crisis after the collapse of a housing bubble. An economy hemorrhaging jobs. A market-oriented government struggling to stem the panic. Sound familiar?

  It does to Sweden. The country was so far in the hole in 1992 — after years of imprudent regulation, short-sighted economic policy and the end of its property boom — that its banking system was, for all practical purposes, insolvent.

But Sweden took a different course than the one now being proposed by the United States Treasury. And Swedish officials say there are lessons from their own nightmare that Washington may be missing.

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.

Finish the story here New York Times Business

Let's play Wall Street Bailout

more information

More links to explanations of the financial markets, and why there should be no blank check given.

The American Scene

Obama, not McCain, Shows Steady Hand in Crisis

A defense of the Paulson Plan

no blank check

Obama Statement of Principles for the Treasury Proposal

Below is a Statement of Principles for the Treasury Proposal from Senator Barack Obama
 
“The era of greed and irresponsibility on Wall Street and in Washington has led to a financial crisis as profound as any we have faced since the Great Depression.
 
“But regardless of how we got here, the circumstances we face require decisive action because the jobs, savings, and economic security of millions of Americans are now at risk.
 
“We must work quickly in a bipartisan fashion to resolve this crisis and restore our financial sector so capital is flowing again and we can avert an even broader economic catastrophe.  We also should recognize that economic recovery requires that we act, not just to address the crisis on Wall Street, but also the crisis on Main Street and around kitchen tables across America.
 
“But thus far, the Administration has only offered a concept with a staggering price tag, not a plan.
 
“Even if the Treasury recovers some or most of its investment over time, this initial outlay of up to $700 billion is sobering.  And in return for their support, the American people must be assured that the deal reflects some basic principles.
 
No blank check. If we grant the Treasury broad authority to address the immediate crisis, we must insist on independent accountability and oversight. Given the breach of trust we have seen and the magnitude of the taxpayer money involved, there can be no blank check.
 
Rescue requires mutual responsibility. As taxpayers are asked to take extraordinary steps to protect our financial system, it is only appropriate to expect those institutions that benefit to help protect American homeowners and the American economy. We cannot underwrite continued irresponsibility, where CEOs cash in and our regulators look the other way.  We cannot abet and reward the unconscionable practices that triggered this crisis. We have to end them.
 
Taxpayers should be protected. This should not be a handout to Wall Street. It should be structured in a way that maximizes the ability of taxpayers to recoup their investment.  Going forward, we need to make sure that the institutions that benefit from financial insurance also bear the cost of that insurance.
 
Help homeowners stay in their homes. This crisis started with homeowners and they bear the brunt of the nearly unprecedented collapse in housing prices. We cannot have a plan for Wall Street banks that does not help homeowners stay in their homes and help distressed communities.
 
A global response. As I said on Friday, this is a global financial crisis and it requires a global solution. The United States must lead, but we must also insist that other nations, who have a huge stake in the outcome, join us in helping to secure the financial markets.
 
Main Street, not just Wall Street. The American people need to know that we feel as great a sense of urgency about the emergency on Main Street as we do the emergency on Wall Street. That is why I call on Senator McCain, President Bush, Republicans and Democrats to join me in supporting an emergency economic plan for working families – a plan that would help folks cope with rising gas and food prices, save one million jobs through rebuilding our schools and roads, help states and cities avoid painful budget cuts and tax increases, help homeowners stay in their homes, and provide retooling assistance to help ensure that the fuel-efficient cars of the future are built in America. 
 
Build a regulatory structure for the 21st Century. While there is not time in a week to remake our regulatory structure to prevent abuses in the future, we should commit ourselves to the kind of reforms I have been advocating for several years. We need new rules of the road for the 21st Century economy, together with the means and willingness to enforce them.
 
“The bottom line is that we must change the economic policies that led us down this dangerous path in the first place. For the last eight years, we've had an “on your own-anything goes” philosophy in Washington and on Wall Street that lavished tax cuts on the wealthy and big corporations; that viewed even common-sense regulation and oversight as unwise and unnecessary; and that shredded consumer protections and loosened the rules of the road.  Ordinary Americans are now paying the price. The events of this week have rendered a final verdict on that failed philosophy, and it is a philosophy I will end as President of the United States,” said Senator Barack Obama.

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It's a weird week, I've had on the financial hat that I thought I had left behind. (For sixteen years I worked in industry and public accounting in tax; that is how L and I met, at a mutual client.)

Reading policies, trying to understand reviews, and what is happening in the financial markets, who might have a feel for it and who is just reacting. The plain proposed by Paulsen, frankly, scares me.  There are no rules, a blank check, and immunity from any legal accountability. I am glad Senator Obama issued the above statement. It may be necessary to do a tax-payer funded bailout, but it is the height of irresponsibility to give this administration a blank check, trusting in their common sense, good will, financial acumem, and reasonableness. There needs to be some safeguards for the American citizen, and some accountability for this administration and the financial industry built into this legislation. A refusal for this administration to agree to that is simply political games, and holding the American taxpayer hostage. Of course, first Congress actually has to stand firm and not just roll over. Readers could contact their Representatives and Senators oh and even the President and let them know how you feel. I plan to .

Some links to good reading about this situation:

http://www.nakedcapitalism.com/2008/09/why-you-should-hate-treasury-bailout.html
http://delong.typepad.com/sdj/2008/09/note-to-self-po.html
http://krugman.blogs.nytimes.com/2008/09/20/no-deal/
http://econ4obama.blogspot.com/2008/09/on-bailout-plan.html

The proposal to Congress

http://blogs.wsj.com/economics/2008/09/20/treasurys-financial-bailout-proposal-to-congress/

compare and contrast

Obama's statement this morning:

The events of the last few days have made it clear that we must take further bold and decisive action to shore up confidence in our financial markets and avoid a deepening economic crisis that could jeopardize the life savings and well-being of millions of Americans. I support the effort of Secretary Paulson and Federal Reserve Chairman Bernanke to work in a bipartisan spirit with the Congressional leadership to find a systemic solution to our deepening crisis, and I will closely examine the specifics of their effort and the opportunities for swift action. As I review the emerging details of Fed-Treasury proposal with my top economic advisors this morning I will be guided by four basic principles:

First, we cannot lose sight that we are in the midst of a broad economic crisis that also requires immediate action to create jobs and help support distressed homeowners and communities. For too long, this Administration has been willing to hit the fast forward button in helping distressed Wall Street firms while pressing pause when it comes to saving jobs or keeping families in their homes. Swift and unprecedented action to shore up Wall Street must come alongside equally swift and serious efforts to help struggling families on Main Street, create new jobs, and grow our middle-class once more.

Second, any taxpayer-funded support must have as its focus protecting our nation's long-term interest in a stable financial market and a growing economy rather than rewarding particular companies or the imprudent decisions of borrowers or lenders. These extraordinary steps must be designed with only the public good in mind, not to enhance the personal gain of CEOs and management at taxpayers’ expense.
“Third, this plan must be temporary and coupled with tough new oversight and regulations of our financial institutions. There must be a clear process to wind down this plan and restore private sector assets into private sector hands after restoring stability to the system. Taxpayers must share in any upside benefit that such stability brings.

Finally, this plan should be part of a globally coordinated effort with our partners in the G-20. We are facing a global financial crisis and the United States can take a leadership role in coordinating a global response to the present crisis, as well as greater regulatory cooperation and alignment to prevent future crises.

As we move beyond immediate actions to stabilize financial markets, it is important that we build upon the ideas I have laid out over the last several years about how to modernize our financial regulation. Eliminating consumer protections and lax oversight contributed to the crisis we are in today, and establishing commonsense rules of the road for our financial system can help restore confidence in our financial system.

Given the gravity of this situation, and based on conversations I have had with both Secretary Paulson and Chairman Bernanke, I have asked my economic team to refrain from presenting a more detailed blue-print of how an immediate plan might be structured until the Treasury and the Federal Reserve have had an opportunity to present their proposal. It is critical at this point that the markets and the public have confidence that their work will be unimpeded by partisan wrangling, and that leaders in both parties work in concert to solve the problem at hand.

UPDATE: The rest of Senator Obama's statement:

I know these are difficult days. And I know there are a lot of families out there right now who are feeling anxiety - about their jobs, about their homes, about their retirement savings. But here's what I also know. This isn't a time for fear or panic. This is a time for resolve and for leadership. I know we can steer ourselves out of this crisis. That's who we are. That's what we've always done as Americans. Our nation has faced difficult times before. And at each of those moments, we've risen to meet the challenges as one people, and one nation. That is the America we need to be and can be today.

McCain's statement this morning:

As Senator Obama's leader in Congress memorably put it the other day -- and I quote -- "no one knows what to do." Perhaps given that reaction, it shouldn't surprise us that the Congressional leaders of this do-nothing Congress also said that they weren't going to take action until after the election, claiming that it wasn't their fault. I am hopeful that last night's discussions are a sign they have changed their mind and will take action soon. But any action should be designed to keep people in their homes and safe guard the life savings of all Americans by protecting our financial system.

There are certainly plenty of places to point fingers, and it may be hard to pinpoint the original event that set it all in motion. But let me give you an educated guess. The financial crisis we're living through today started with the corruption and manipulation of our home mortgage system. At the center of the problem were the lobbyists, politicians, and bureaucrats who succeeded in persuading Congress and the administration to ignore the festering problems at Fannie Mae and Freddie Mac.

These quasi-public corporations lead our housing system down a path where quick profit was placed before sound finance. They institutionalized a system that rewarded forcing mortgages on people who couldn't afford them, while turning around and selling those bad mortgages to the banks that are now going bankrupt. Using money and influence, they prevented reforms that would have curbed their power and limited their ability to damage our economy. And now, as ever, the American taxpayers are left to pay the price for Washington's failure.

Two years ago, I called for reform of this corruption at Fannie Mae and Freddie Mac. Congress did nothing. The Administration did nothing. Senator Obama did nothing, and actually profited from this system of abuse and scandal. While Fannie and Freddie were working to keep Congress away from their house of cards, Senator Obama was taking their money. He got more, in fact, than any other member of Congress, except for the Democratic chairmen of the committee that oversees them. And while Fannie Mae was betraying the public trust, somehow its former CEO had managed to gain my opponent's trust to the point that Senator Obama actually put him in charge of his vice presidential search.

This CEO, Mr. Johnson, walked off with tens of millions of dollars in salary and bonuses for services rendered to Fannie Mae, even after authorities discovered accounting improprieties that padded his compensation. Another CEO for Fannie Mae, Mr. Raines, has been advising Senator Obama on housing policy. This even after Fannie Mae was found to have committed quote "extensive financial fraud" under his leadership. Like Mr. Johnson, Mr. Raines walked away with tens of millions of dollars.

Senator Obama may be taking their advice and he may be taking their money, but in a McCain-Palin administration, there will be no seat for these people at the policy-making table. They won't even get past the front gate at the White House.

My friends, this is the problem with Washington. People like Senator Obama have been too busy gaming the system and haven't ever done a thing to actually challenge the system.

We've heard a lot of words from Senator Obama over the course of this campaign. But maybe just this once he could spare us the lectures, and admit to his own poor judgment in contributing to these problems. The crisis on Wall Street started in the Washington culture of lobbying and influence peddling, and he was square in the middle of it.

UPDATE: The rest of Senator McCain's speech. 

The financial services industry -- and there are many honest and honorable people who work in it -- plays a vital role in our economy. Mutual fund companies help Americans save for retirement. Banks and lending companies provide the mortgages that help us buy our homes. Investment firms supply the seed money that helps entrepreneurs create tomorrow's jobs. Insurance companies protect us against unknown risks.

Yet as the financial crisis continues and bailouts and bankruptcies mount, it's clear financial firms have lost the trust of the American people. That trust cannot be regained unless we adopt some fundamental reforms. Government has a clear responsibility to act and to defend the public interest. That is exactly what I intend to do.

First, to deal with the immediate crisis, I will lead in the creation of the Mortgage and Financial Institutions trust -- the MFI. The underlying principle of the MFI or any approach considered by Congress should be to keep people in their homes and safe guard the life savings of all Americans by protecting our financial system and capital markets. This trust will work with the private sector and regulators to identify institutions that are weak and fix them before they become insolvent. The MFI is an early intervention program to help financial institutions avoid bankruptcy, expensive bailouts and damage to their customers. This will get the Treasury and other financial regulatory authorities in a proactive position instead of reacting in a crisis mode to one situation after another.

The MFI will restore investor and market confidence, build sound financial institutions, assist troubled institutions and protect our financial system while minimizing taxpayer exposure. This is an important step, but it is not enough. I will also take the additional actions needed to make sure a crisis like this is never allowed to build and break over the American people again.

Second, I will propose and sign into law reforms to prevent financial firms from concealing their bad practices. An inexcusable lack of financial transparency allowed Wall Street firms to engage in reckless behavior that padded their profits and fattened executive bonuses when times were good, but now imperil the financial security of millions of Americans when their bets turned sour.

So much of the damage to our economy could have been avoided if these practices had been exposed to the light of day. Americans have a right to know when their jobs, pensions, IRAs, investments, and our whole economy are being put at risk by the recklessness of Wall Street. And under my reforms for the financial sector, that fundamental right will be protected.

Third, we need regulatory clarity. The lack of transparency in our financial markets went unnoticed by the regulatory agencies scattered throughout Washington charged with protecting the common good. We've got the SEC, the FDIC, the CFTC, the SIPC, the OCC, the Fed. At best, this confusing assortment of regulators and institutions was egregiously lax in carrying out their responsibilities. At worst, they engaged in the old Washington game of guarding their bureaucratic turf, instead of safeguarding the public interest and protecting investors.

Many in the financial services industry also either forgot or neglected their duty to act ethically and honorably. This shortcoming was aided and abetted by the creation of financial instruments that allowed lenders to escape any responsibility for the risk of their loans. In the past, lenders had to pay a price if they made a bad loan. Today, Fannie Mae and Freddie Mac worked with Wall Street to bundle together all these dicey subprime loans and then pushed them off on investors who didn't have the tools of transparency needed to assess or even understand the risk.

The current system promotes confusion, encourages bureaucratic infighting and creates incentives for financial firms to cut corners. We need to enhance regulatory clarity by holding the same financial activity to one regulatory standard. We don't need a dozen federal agencies doing the job badly -- we need the best federal agencies to do the job right.

Fourth, we must ensure that consumers and investors are protected. Our regulatory system must protect consumers and investors by punishing individuals who engage in fraud, break contracts, or lie to customers -- like the predatory lenders who know you can't afford an adjustable rate mortgage, but mislead you into signing one. These actions are criminal and the people who commit them should be behind bars. And corporate governance rules will be reformed so that shareholders have a clear say in determining the pay of CEOs and other senior executives. On my watch, the consequences for corporate abuse will not be more enrichment, but more likely an indictment.

Fifth, in cases where failing companies seek taxpayer bailouts, the Treasury Department will follow consistent policies in deciding whether to guarantee loans. It must have well developed remedies for a financial crisis. With billions of dollars in public money at stake, it will not do to keep making it up as we go along.

Finally, the Federal Reserve should get back to its core business of responsibly managing our money supply and inflation. It needs to get out of the business of bailouts. The Fed needs to return to protecting the purchasing power of the dollar. A strong dollar will reduce energy and food prices. It will stimulate sustainable economic growth and get this economy moving again.

All of these measures will calm and help us to avoid future panics and disasters in the financial markets. But to get through this tough time for America, and to come out stronger, we need a strategy of economic growth. And the massive new tax burden that my opponent plans for the American economy is exactly the wrong answer. His tax increase -- along with the enormous new federal programs he proposes -- are the surest way to turn a recession into a depression. In every respect, the Obama tax hikes would make things even worse for the working people of this country.

I have proposed, and will sign into law, an economic recovery plan for working Americans that is directed to the middle class. It will grow this economy, create millions of jobs and bring opportunity back to Americans. You will get a tax policy that creates family prosperity and allows you to save for the future. I will not raise your taxes on income or investments. And we will simplify the tax code so people can understand it and do their tax returns themselves.

I will give every family a $5,000 credit to buy their own health insurance policy and let them chose their own doctor. This will make insurance affordable to every American.

I will double the child exemption from $3,500 to $7,000 to help families pay for the rising cost of living.

Under my plan, a married couple with two children making $35,000 will get $5,000 to pay for health insurance and additional medical expenses. This family would get another $1,050 from my child exemption. That adds up to over $6,000. That is a lot more than what any hardworking middle class family, gets under the Obama plan.

Business taxes will be cut from the second highest in the world at 35 percent to 25 percent. Tax incentives will spur investment in new plants and equipment. Research and development incentives will keep companies on the cutting edge of their industries. Healthcare costs will diminish. Companies will stop sending jobs overseas to low-cost, low-tax countries and start creating jobs here in America.

I will expand markets for our goods and services. A one in five of all jobs in this country are linked to world trade. In five states alone Pennsylvania, Ohio, Michigan, Wisconsin and Colorado over 5 million jobs depend on trade. My economic recovery plan will create millions of jobs in America instead of driving them overseas.

I will adopt an "all of the above" energy policy which expands our use of oil, natural gas, clean coal and nuclear facilities. We will embark on a national mission to build an alternative energy base, creating millions of new jobs. We will create the most diversified energy economy in the world. And, I will return to the American economy the $700 billion dollars we send overseas every year to buy oil.

My opponent offers a very different economic future. He has continuously shifted his position on taxes. At the beginning of this campaign he promised to raise taxes on your savings and investments. He said he won't raise taxes for most people but he has voted 94 times in his short Senate career for tax increases and against tax cuts. He said he would only tax the rich, but he voted this year to raise taxes on those making just $42,000. Senator Obama has simply not given Americans good reason to trust him with your tax dollars.

My opponent is against lowering taxes on businesses which are the second highest in the world. He will impose mandated health insurance on businesses that would cost up to $12,000 per employee. He opposes free trade. He also wants to take away the fundamental right of workers to have a secret ballot when voting to be part of a union.

Now is not the time for these destructive policies that will cripple business growth, destroy jobs and hurt the middle class. Now is the time to take action to address this crisis and take action to put our economy back on a path of growth.

Even though Democratic leaders say they don't know what to do, I believe the deep problems afflicting our financial system won't be solved by one political party. There is only one candidate in this race who has a record of reaching across the aisle to work out the bipartisan solutions needed to move our country forward in times of crisis -- and I will bring that same spirit of bipartisan cooperation to the White House. It took members of both parties to get America into this mess, and it will take all of us, working together, to lead the way out.

Thank you.

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Come on Americans -- which party has been in power of the executive for 8 of the last eight years? Which party has been in power in the legislative for 6 of the last eight years? Yes, that is right Republicans. Which Senator has been strongly for deregulation his 26 years in Congress? Senator McCain.  Just once, I would like to hear a Republican, any Republican, take some responsibility for this debacle.