Monday, September 29, 2008

Is the sky falling?

The House version of the Emergency Economic Stabilization (HR3997) bill (BAILOUT!) failed to pass today. The DOW is currently down 683 points.

This version included:

(1) New "Golden Parachute" contracts from firms taking bailout would not be allowed. Existing golden parachute contracts will still be in effect. Betcha most of these execs already have such contracts in place!

(2)Corporations selling bad mortgage debts to the government, who pay their CEOs and other execs more than $500,000, will no longer to be able to deduct the compensation over $500,000 from their taxes. (Does this include stock optins and bonus pay from that calculation?)

(3)Supposedly, though I have only seen this in one report, there is a "clawback" provision. If a bailed out corporation had to restate prior earnings (based on these devalued assets) to a lower number, the executives would have to return (to whom?) the bonuses and incentives that had been based on bloated earnings reports. Indeed, those moneys would have to be ripped out of their hands.

(4) If in five years, the return on these government acquired bailout assets does not equal what the government paid, the President will have to propose to Congress legislation which would require the Financial Industry to make up the difference. Yeah? The whole industry, even the good guys? And if the bad ones no longer exist (for any number of reasons) what then? Believe it when you see it.

How about the cost of administering this bailout program? Valuing the assets, managing the assets (what about foreclosures and deterioration of said property, and selling the assets over time.

Speaking of foreclosures, Rep. Dennis Kucinich (remember him?) said that the Fed cannot change the terms of an assumed mortgage (such as making the interest and/or payoff rate more reasonable)unless it has the majority ownership of the mortgtage backed security (direct loan purchases from a bank is a different case.)

If you are tempted to vote for this legislation because you think it will keep people in their homes, think again: in fact, Treasury will not be able to change the terms of bad mortgages because the Act does not require Treasury to purchase a controlling share in the underlying mortgage backed securities and collateralized debt obligations. The Secretary will be powerless to make any real and substantive change in the terms of mortgage. The Secretary will have NO power to avoid foreclosures and keep families in their homes.

Economists and financial gurus are all over the place on this bailout. Most want the bailout but others say it is not needed. Real helpful. Three days ago, on Friday, Cramer said that the big money folks were already making a run on money markets etc and were moving their money to Treasury Bills. He was very negative about the consequences if the bailout bill was not passed this past weekend. More banks and investment institutions failures. Huge numbers of banks.

And yet. And yet I read about the money made by the folks in the firms that came up with and traded the financial exotics that led to the inflated balloon that has now burst making huge amounts of money, even in 2007.

According to Bloomberg News, the five largest Wall Street firms, including Bear Stearns (bailed out by the government) and Lehman, made $66 billion, which included $39 billion in bonuses. This brought the average4 pay of each employee to $353,089, including $211,849 in bonuses. Great money for screwing the taxpayer.

Politicians and Wall Street keep saying that this is really a bailout for Main Street because with credit currently frozen no one gets lines of creditor loans.


Most businesses don't keep much cash on hand. They rely on banks' lines of credit to cover them until they get paid by their customers

For each business that can't get funding, the impact is felt by many, experts said. The company may curtail credit to its customers, forcing them to pay more cash up front. It won't buy as much from suppliers or invest in upgrading its operations. And it may have to cut its workforce, or at least postpone expanding it.

Other experts, however, say that most companies can get by for the time being. Credit lines, they point out, usually last for at least a year so banks can't start pulling them willy-nilly unless the terms are broken. And business can better survive a credit squeeze than a major downturn in consumer spending, which has yet to materialize.

How about thinking about getting back to running a business or home finances with mostly cash on hand? Okay, initially a business could really use a line of credit, but to end up in a position years down the road where you can not meet your payroll without drawing money from a line of credit .. that is not good.

I'm still not for this bill, despite the dire predictions, unless the bonus money is riped away from the greedy fingers of thise who brought this on. Say two years' woth of bonus money. Since spent money can't be returned. then maybe the future profits of these companies should be be highly taxed. Okay, I know this won't happen.

Bring back the Puritan stockade!

Place a whole line of stocks near the beautiful Bull sculpture. Three days for each CEO, President, COO, and myriad VPs. A new tourist attraction bringing more bucks to the City of New York.

Market ended up down 777 points. Would have been interesting if it had been 666 points.

One politician said that someone who needs a new washing machine now can't get a loan. Who gets loans for an appliance? Most people charge it (building more credit card debt). As for a new washing machine, a laundromat suffices. Now, if it were a refrigerator that stopped working .....

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