Ed Brayton alerts us to the treasury’s idea of transparency:
On October 13th, the Interim Assistant Secretary for Financial Stability at the Treasury Department, gave a talk to the Institute of International Bankers. Among the many things he said about the new $700 billion bailout plan was this:
Consistent with Congress’ intent, we are committed to transparency and oversight in all aspects of the program and have already taken several important steps in this area…
We quickly found out how empty that promise was. The very next day, the treasury department posted a copy of the contract they’ve signed with New York Mellon Bank to act as the primary financial agent in the transactions made under the bailout bill — and blacked out all the details of how much was being paid for this service. Balko has this screen grab of the contract:
…looting on the way out the door. This “bailout” makes Senator Wilkerson look like a philanthropist.
Wasn’t it Congress bragging about how they took the Administration’s proposal and added all the necessary safeguards, oversight and transparency, thereby making it legislation they were able to vote for?
… did make it through. It remains to be seen if this redaction is, in fact, within or against the rules as enacted. That being said, it wouldn’t surprise me in the least if it were within the rules and that a lack of detailed work to prevent ‘workarounds’ is just symptomatic of what happens when you rush through legislation.
I think overall the bailout stinks.
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p>A number of progressive economists, though, agreed that the best way to do the bailout was by issuing preferred equity to banks, preferably to the “good” banks rather than the “failed” banks, in order to improve their balance sheets.
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p>Banks have to keep a certain amount of capital and from there can leverage many times that amount of capital in loans. Thus if you improve their capital position – as preferred equity does – if they were previously frozen by approaching or exceeding their capitalization requirements, they are then able to make loans again, and able to do so at a multiple of the new capital amount.
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p>So, when Paulson chose to issue preferred capital, that was more or less a capitulation to the progressive economists’ concensus, which was roughly that the problem was capitalization as well as that the govt could not do a good job of purchasing troubled assets and certainly couldn’t do it quickly or in a way that protected taxpayer equity.
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p>Paulson issued the capital on not particularly taxpayer-favorable terms – 5% interest rate per year, can be redeemed I think at a 10% premium ahead of time, if held to maturity, fed govt gets a few common stock warrants. Whereas Warren Buffet got 10% interest rate and a lot of common stock warrants. Again, there is a case to make that the govt, which is borrowing at a very low rate and making the equity injections for the common good, doesn’t want to press for the highest possible return. But 5% isn’t much.
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p>If the banks use this capital to make acquisitions, they’re probably buying weaker institutions along with their weaker assets. At least some of those banks would have otherwise been a potential drain on TARP resources; having better capitalized institutions take them over probably will help stabilize the financial system, and quite likely, that will be done at no real cost to taxpayers (since they get the 5% interest on money borrowed around 2% by the federal govt). Maybe not enough of a risk premium, certainly not as good as a deep pocketed private investor could have done, but the whole idea was to stem a spiraling collapse of financial institutions, and this might help.
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p>Still seems to me like an awful lot of money being fronted to Wall Street to cover what should have been pretty ordinary cyclical risks if Wall Street had been conforming to normal credit standards, rather than using massive leverage to skim off the gains available through globalization of finances.
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p>If the federal government can put up that kind of money to prop up Wall Street. Well, I don’t know what, but it sure renders a lot of conservative arguments of the past few decades as inoperative.
… the massive leverage that transformed this from a cyclical downturn to massive crisis of a generation is the leveraging allowance for Credit Default Swaps. They basically function as insurance and should have been regulated as such… complete with maximum leveraging ratios.
More to come.
… the Treasury is an executive office, don’t you?
you should always assume that he or she didn’t pay attention in history or civics classes in high school. I have never met one who can distinguish between the executive and legislative branches.
Why is it that no one listens to a god damn thing anymore? Everything is just peachy keen and coming up roses.What are we up to now—1.78 trillion? Rep Frank and Dodd assure us everything is on the level. Rep Pelosi and Sen Reid are right on top of this. What does someone have to do to warrant your jaundice eye other than be a republican? Only republicans are bad guys right? You realize of course the naivete, ignorance, or prejudice of the left will doom us all sooner rather than later.
I suppose we should get used to it. “Doomed! We’re all doomed!” is what we are going to hear non-stop from the right-wing for the next 4 years.