Devil's In The Details

And the details of Uberbailout are coming at some...point...in the future. Kinda. Maybe. We'll see.

Here's what we know so far:

The plan: The federal government would buy up "hundreds of billions of dollars" of illiquid mortgage assets at a deep discount from banks. The Treasury Department is likely to run the program directly, unlike the savings and loan crisis of the 1990s that led to the creation of the Resolution Trust Company.

"The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy," said Paulson.

What remains to be seen is how the Treasury Department will structure the purchases and what price they'll pay.

The cost: While the proposal calls for the purchase of "hundreds of billions of dollars" of bad loans, it's unknown what taxpayers will ultimately pay for the bailout.

The government will likely buy the assets at below-market rates and hold onto them until the market recovers. Ideally, the loans could then be sold at a gain.

"The government could make a profit, a substantial profit," said Jaret Seiberg, a financial services analyst at the Stanford Group, a policy research firm. "The pricing mechanism is going to be central."

Will it work: The jury is still out, although experts are cautiously optimistic the plan will help the housing crisis.

The plan will help banks shore up their balance sheets by removing hard-to-value assets. This would address the seemingly endless rounds of writedowns and capital raising that have been rocking the financial sector.

Without these bad loans weighing on their books, banks may be more willing to lend. Or at least that's the goal.

The problem is that the bailout will not automatically make banks profitable, nor will it stop the slide in home values that is wreaking havoc on the economy.

Will it help homeowners: It's unclear at this point. If the government buys an entire securitized loan, it could opt to help struggling homeowners by modifying the terms. This could include reducing a loan's interest rate or principal balance.

But it could prove difficult to snap up all the securities sold on a mortgage, experts said. And as long as investors still hold a piece, they could block any changes to the loan.

If the plan doesn't stem the tide of foreclosures, home prices will not stabilize and the economy will not recover, experts said.

The more I hear about this plan, the less I like it. It seems like nothing more than the mother of all corporate welfare programs and sets a horrendous precedent. Surely the airlines and auto industry will want a piece of this action too.

Taxpaying homeowners won't see a dime. Worse yet, the millions of Americans who don't have a mortgage and rent aren't going to see a dime either, but will be expected to pay their taxes towards this.

And even better, Republicans are going to say that helping out ordinary Americans will be too expensive and not fiscally responsible. It's 54 days before a Presidential election. There's no way this is going to get passed without a disatrous amount of pork, riders, and perks for fat cats. Both sides will threaten to block the bill.

You thought this week was bad? Try next.

How Bad Was It?

Seriously, how bad was the financial situation yesterday about noon or so when the Fed let it slip that UberBailout(tm) was coming and it goosed the markets by 400?

You notice that not a single Beltway type is saying "This is a bad idea." How bad is the situation that the most fractured and partisan Congress in the history of the country is united in an election year?

How bad, indeed? This bad.

It was a room full of people who rarely hold their tongues. But as the Fed chairman, Ben S. Bernanke, laid out the potentially devastating ramifications of the financial crisis before congressional leaders on Thursday night, there was a stunned silence at first.

Mr. Bernanke and Treasury Secretary Henry M. Paulson Jr. had made an urgent and unusual evening visit to Capitol Hill, and they were gathered around a conference table in the offices of House Speaker Nancy Pelosi.

“When you listened to him describe it you gulped," said Senator Charles E. Schumer, Democrat of New York.

As Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the Banking, Housing and Urban Affairs Committee, put it Friday morning on the ABC program “Good Morning America,” the congressional leaders were told “that we’re literally maybe days away from a complete meltdown of our financial system, with all the implications here at home and globally.”

Mr. Schumer added, “History was sort of hanging over it, like this was a moment.”

When Mr. Schumer described the meeting as “somber,” Mr. Dodd cut in. “Somber doesn’t begin to justify the words,” he said. “We have never heard language like this.”

“What you heard last evening,” he added, “is one of those rare moments, certainly rare in my experience here, is Democrats and Republicans deciding we need to work together quickly.”

Scared shitless. Scared to the point where they unanimously have decided it is a good idea to spend upwards of a trillion dollars in the latest attempt to fix this problem.

That should terrify you, because up until now everything they've tried has failed. It has failed so miserably that this is now the only option remaining.

If this fails, we lose.

The same people responsible for this mess are telling us they now need trillions of your money to fix this and that they have no choice or the economy implodes.

Do you believe this is over?

The ride is just beginning.

In Which Barry O Kicks McSame's Ass

This right here? This is Barry winning this election. (h/t AmericaBlog)



Transcript:

This morning Senator McCain gave a speech in which his big solution to this worldwide economic crisis was to blame me for it.

This is a guy who's spent nearly three decades in Washington, and after spending the entire campaign saying I haven't been in Washington long enough, he apparently now is willing to assign me responsibility for all of Washington's failures.

Now, I think it's a pretty clear that Senator McCain is a little panicked right now. At this point he seems to be willing to say anything or do anything or change any position or violate any principal to try and win this election, and I've got to say it's kind of sad to see. That's not the politics we need.

It's also been disappointing to see my opponent's reaction to this economic crisis. His first reaction on Monday was to stand up and repeat the line he's said over and over again throughout this campaign -- 'the fundamentals of the economy are strong' -- the comment was so out of touch that even George Bush's White House couldn't agree with it.

I'll take Charles Nelson Reilly in the middle for the MY TANK IS FIGHT!

Zandar's Thought Of The Day

To reiterate the GOP position:

Taxpayer money for the UberBailout, what, 2 trillion? No problem. We're protecting America.
Taxpayer money for the Iraq War, 3 trillion? No problem. We're protecting America.
Taxpayer money for rebuilding hurricane ravaged homes? Fiscally irresponsible, those people need to live with the consequences of their own choices.

Compassionate conservatism for all. Vote Republican for more.

More On The UberFix

Hank Paulson gave more details this morning on this gubment superagency that will magically make everything better.

Treasury Secretary Henry Paulson on Friday called for the U.S. government to spend hundreds of billions of dollars to take toxic mortgage assets off the books of financial firms to restore financial stability.

"We must now take further, decisive action to fundamentally and comprehensively address the root cause of our financial system's stresses," Paulson told a news conference.

"The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy," he said.

There are only two things you need to know.

1. The people who got us into this mess have failed at every single opportunity they have been given in the last several years to fix this mess so far.
   
2. The people who got us into this mess have now fucked up so badly that these same people now say they need trillions of taxpayer dollars to fix it this time.
   

Feel better? I know I do.

[UPDATE] When US Senators are throwing around numbers like a trillion dollars as "back of the napkin" calculations, then we're truly fucked.

Ironically Enough

I am reminded by sharp readers that while America is being plundered of trillions, that today (Spetember 19th) is International Talk Like A Pirate Day.

The irony, she is thick like grog today.

In Which Zandar Loses His Temper Completely And Fails To Be Dispassionate

The meltdown on Wall Street?

It's not Wall Street's greed. It's not lack of regulation. It's not arcane and byzantine debt packaging. It's

It's all those goddamn poor black people that those evil liberal Democrats forced Wall Street to give loans to in the name of affirmative action and that of course has ruined our patriotic American banking system.

No, seriously.

OK .. so we all know that a lot of really bad real estate loans were made. The political class would sure love for us to believe that the blame here rests squarely on “greedy” (try to define that word) mortgage brokers and lenders. The truth is that most of the blame rests on political meddling in the credit decisions of these mortgage lenders.

Twenty years ago the buzz-word in the media was “redlining.” Newspapers across the country were filled with hard-hitting investigative reports about evil and racist mortgage lenders refusing to make real estate loans to various minorities and to applicants who lived in lower-income neighborhoods. There I was closing these loans in the afternoons, and in the mornings offering a counter-argument on the radio to these absurd “redlining” claims. Frankly, the claims that evil mortgage lenders were systematically denying loans to blacks and other minorities were a lot sexier on the radio than my claims that when credit histories, job stability, loan-to-value ratios and income levels were considered there was no evident racial discrimination.

Political correctness won the day. Washington made it clear to banks and other lending institutions that if they did not do something .. and fast .. to bring more minorities and low-income Americans into the world of home ownership there would be a heavy price to pay. Congress set up processes (Research the Community Redevelopment Act) whereby community activist groups and organizers could effectively stop a bank’s efforts to grow if that bank didn’t make loans to unqualified borrowers. Enter, stage left, the “subprime” mortgage. These lenders knew that a very high percentage of these loans would turn to garbage – but it was a price that had to be paid if the bank was to expand and grow. We should note that among the community groups browbeating banks into making these bad loans was an outfit called ACORN. There is one certain presidential candidate that did a lot of community organizing for ACORN. I won’t mention his name so as to avoid politicizing this column.

These garbage loans to unqualified borrowers were then bundled up and sold. The expectation was that the loans would be eventually paid off when rising home values led some borrowers to access their equity through re-financing and others to sell and move on up the ladder. Oops.

Right now this crisis is being sold to the American public by the left as evidence the failure of the free market and capitalism. Not so. What we’re seeing is the inevitable result of political interference in free market economics. Acme bank didn’t want to loan money to Joe Homebuyer because Joe had a spotty job history, owed too much money on his credit cards, and wasn’t all that good at making payments on time. The politicians told Acme Bank to figure out a way to make that loan, because, after all, Joe is a bona-fide minority-American, or forget about opening that new branch office on the Southside. The loan was made under politicial pressure; the loan, with millions like it, failed – and now we are left to enjoy today’s headlines.

So … why aren’t you reading the whole story in the mainstream media? Come on, are you kidding me? Do you really expect the media to blame this mess on deadbeat borrowers and political interference in the free market when it is so easy to put the blame on greedy lenders and evil capitalists? Remember … there’s an election going on. One candidate is decidedly anti-capitalist. Do the math.

I'm doing the math, Neal. I'm seeing an economy in the red. I'm seeing mortgage brokers selling loans to anybody and everybody with NINJA loan crap for years because there was no regulation and wall street looked the other way. And yes, as long as housing prices went up these companies made hundreds of billions.

But if you actually think that Wall Street was forced to make loans to people who couldn't pay by Democrats, you really are a complete moron.

No offense.

But it sure is a great excuse to blame anytbody but the GOP, the Wall Street titans getting golden parachutes and the companies that frittered away trillions of YOUR mortgage dollars in bad investments and then are taking that money BACK in turn from the American taxpayers all over again. It sure is a great excuse to blame black America for Wall Street's shitty investments. It's not like those mortgage brokers preyed on people by hiding the fine print and taking advantage of them. They got paid to do so. It was institutionalized fraud against millions of poor Americans of ALL races.

And you're telling me Lehman Brothers is the victim here?

Fuck you, Neal Boortz. Fuck you and your entire racist bullshit.

You do the math.

Global No Confidence Vote: Deal Or No Deal Pt 5

The Ultimate Deal is about to be made.

Sick and tired of making individual Deals with individual companies, Helicopter Ben, Hammerin' Hank, and the whole Deal or No Deal crew has decided to fundamentally change America's economy from capitalism to kleptocracy.

IT'S A DEAL FOR EVERYBODY ON WALL STREET!

Everybody on Main Street will pay for it.

The motherfugger of all bailouts is about to be upon us. .

Not the PROFITS mind you...no, that's still privatized. But all the junk mortgage debt...millions...BILLIONS...TRILLIONS...even reaching into the stratosphere of OVER A QUADRILLION DOLLARS of toxic, mutant derivative funny paper is about to be dumped on our backs.

We just became a socialist country.

The federal government, in what will be its most far-reaching attempt yet to contain the financial crisis, is poised to establish a program to let banks get rid of mortgage-related assets that have been hard to value and harder to trade.

Leaders from the House and the Senate were briefed on Thursday evening by Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke.

"The root cause of distress in capital markets is the real estate correction and what's going on in terms of the price declines in real estate," Paulson said at a press briefing after the meeting. "So we're coming together to work for an expeditious solution aimed right at the heart of this problem, which is illiquid assets on financial institutions' balance sheets."

Many details of the plan remained unclear, but it is likely the government would take on tens of billions of dollars in mortgage assets - if not more.

House Speaker Nancy Pelosi, D-Calif., said late Thursday night that lawmakers expected to get the proposal from Treasury in a matter of hours.

"We hope to move very quickly - time is of the essence," Pelosi said.

Paulson, Bernanke and other officials expect to work through the weekend with congressional leaders to finalize a plan, said Brookly McLaughlin, a Treasury spokeswoman.

Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, said he believes legislation could be acted on next week.

Let's get this out of the way: Obama will not save us on this. The Democrats are behind this plan 100% as much as the Republicans are. This could be signed into law before the end of the month, a behemoth government agency who will simply take all the nasty results of risk away. Risk is for poor people. Change we can believe in!

The questions are staggering. With American taxpayers already on the hook for trillions in bad mortgage paper for Freddie and Fannie, we're now going to be proud owners of trillions more of it. How will we possibly pay for it? Easy...we make the money up.

The road to hyper-inflation is now clear as day. We're simply going to pretend this debt doesn't exist and replace it with money we believe does exist...money backed up by a dream and faith.

Faith-based economy. When you're asking yourself why you lost your health insurance, why you can't afford to send your kids to college, why you can't afford a place to live anymore, why you can't afford transportation costs, why you can't afford gas and food and water in a few years, go back to this week.

We just sold our country to save the financial industry. Only the creation of massive amounts of fiat money -- trillions and trillions -- will be able to retire this debt.

The dollar is on the verge of becoming a third world currency. It'll start small, of course.

Options that U.S. officials are considering include establishing an $800 billion fund to purchase so-called failed assets and a separate $400 billion pool at the Federal Deposit Insurance Corp. to insure investors in money-market funds, said two people briefed by congressional staff. They spoke on condition of anonymity because the plans may change.

Another possibility is using Fannie and Freddie, the federally chartered mortgage-finance companies seized by the government last week, to buy assets, one of the people said.

``We will try to put a bill together and do it fairly quickly,'' House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, said after the meeting. ``We are not in a position to give you any specifics right now'' on the proposals, he said when asked about the potential cost.

The likelihood of the government taking on yet more devalued assets, after the seizures of Fannie, Freddie and AIG and the earlier assumption by the Fed of $29 billion of Bear Stearns Cos. investments, may spur concern about its own balance sheet.

Debt Concern

The Treasury has pledged to buy up to $200 billion of Fannie and Freddie stock to keep them solvent, while the Fed agreed Sept. 16 to an $85 billion bridge loan to AIG. The Treasury also plans to buy $5 billion of mortgage-backed debt this month under an emergency program.

``It sounds like there's going to be a giant dumpster for illiquid assets,'' said Mirko Mikelic, senior portfolio manager at Fifth Third Asset Management in Grand Rapids, Michigan, which oversees $22 billion in assets. ``It brings up the more troubling question of whether the U.S. government is big enough to take on this whole problem, relative'' to the size of the American economy, he said.

I've got news for you, Mr. Mikelic. It's not. The derivatives attached to these nightmares are a thirteen-digit number...more than orders of magnitude of the entire global economy.

So what does it matter then if we say "Let's just toss another $1.2 trillion dollars into the pile!" Where is it coming from? Who knows? Who cares? We're the government, we'll just make it up!

Our entire economy is about to be turned into a giant dumpster, surely. We're the dumpster. All the plans you're expecting Obama to do for us, universal health care, new jobs in the green energy sector, getting off foreign oil, all that just died this week along with any hope we had.

Whoever is President in January is the new Herbert Hoover. We'll all be living in the giant dumpster when the debt the government takes on in your name detonates and wipes out the global system.

The US government is on the verge of committing economic suicide.

You think things are bad now?

You have no idea. None. Well, if you've been reading Global No Confidence Vote you have some idea. But this is scaring even me beyond the capacity for rational thought. This is endgame stuff, folks. This is going to end America as we know it.

The good intentions that will pave the road to the Second Great Depression goes right through The Motherfugger Of All Deals here.

And it will pave right over each and every one of us.

Forget wheelbarrows of cash. Start thinking about self-reliance. Start thinking about what you'll need to have on hand to survive this. Start thinking about the skills you'll need to have in the new barter economy that will replace this. What's coming down the pike is going to be worse than you ever imagined.

And more than ever...

BE PREPARED.

Cross-posted over at the Frog Pond.

StupidiNews!

• 250,000 people in the Cincy area still don't have power, but I finally do.
• Rebuilding Galveston after Ike may not happen thanks to Texas law.
• A press "no-fly zone" over hardest hit areas from Ike is irking journalists.
• First Dude Todd Palin will not testify in Troopergate.
• Microsoft has dumped Jerry and Bill's ads.

The Mother Of All Bailouts

The Dow is up huge at this hour. It was down 150, now up almost 400. Why?

The entire financial sector is about to get a bailout.

U.S. Treasury and Federal Reserve officials are considering a ``permanent'' plan to address the financial crisis, said Senator Charles Schumer, who proposed a new agency to pump capital into troubled financial companies.

``The Federal Reserve and the Treasury are realizing that we need a more comprehensive solution,'' Schumer, a Democrat who chairs the congressional Joint Economic Committee, told reporters in Washington today. ``I've been talking to them about it.''

Schumer proposed an agency to inject funds into financial companies in exchange for equity stakes and pledges to rewrite mortgages to make them more affordable. His remarks indicate momentum is building for some wider plan after the Fed and Treasury's takeovers of Fannie Mae, Freddie Mac and American International Group Inc. this month.

Discussions with the Treasury and Fed focus on ``trying to do something more permanent'' after the series of government interventions, the New York senator said. For the Fed, ``it's hard for them to do monetary policy, which is their primary task, and then run all these businesses,'' he said.

It's nothing short of the nationalization of the whole financial sector.

It will take trillions and trillions of dollars to do this. This is the endgame, folks. If this goes through we'll be on the hook for millions of dollars for every single American. It will wipe the country out.

This is downright terrifying...and it's being proposed by a Democrat.

[UPDATE] Bonddad takes this idea out back and shoots it.

Why is this a dumb idea? Let me count the ways.

1.) Where is the money for this going to come from? I've detailed the proposed spending plans we've seen so far. They total $900 billion. Now we're going to pump more money into the system from some as yet unknown source.

2.) Just what will the government do with these interests? They're going to wind up the majority shareholder in some of these institutions -- and a minor big holder in others. Who will decide the government's policy?

3.) What is the criteria for investing in a company? If ever there was going to be a highly politicized process this is it. I can see it now ... "Senator from big important district gets huge cash infusion not because it's a good investment but because the Senator is in a close reelection bid and needs votes.

4.) Will the government ever get out of these companies? Will there be a time limit?

5.) Will there be a time limit for this entity's duration? Will it go on forever?

6.) Will the government become intimately involved with the company's internal deliberations and policy? Will Congressmen sit on various boards?

I could go on, but you get the idea. This is a disaster waiting to happen.

Agreed wholeheartedly.

The problem is the Dems will jump on this and pass the thing. They now have to. There's a reason the stock market shot up 400 points. Wall Street is posititively giddy about the prospect of being able to unload trillions of debt onto the American taxpayer. You thought moral hazard and Too Big To Fail consolidation was bad before?

Republicans will be crowing. The party of "fiscal conservatism" and "small government" will immediately fall in line behind this program because now they can say the Democrats are preventing this vital solution from reaching Preznitman's desk, and they will lay every second that this Uberagency doesn't exist at the feet of Barack Obama, Nancy Pelosi, and Harry Reid. You'd better believe the marching orders are being put out right now, and that this is how the GOP plans to take control of the "it's the economy, stupid!" argument.

Absolutely bet on it. Wall Street has spoken. Everybody will want their piece of this multi-trillion dollar bailout, and they want it NOW. The lobbyists are already working the halls of power.

You will hear McSame call for this legislation to be passed as early as tomorrow. You will hear Obama call for this legislation to be passed as early as tomorrow. You will hear Preznitman call for this legislation to be passed as early as tonight.

More McSpain

The Washington Post has McSame's response to McSpain:

So, was McCain purposely trying to diss the Spanish leader? Questions about whether McCain forgot which country Zapatero leads, got confused about Spain's geographic relationship to Latin America, or confused Zapatero with the Zapatista rebels from Mexico have exploded on blogs since reports of the interview first surfaced.

McCain foreign policy adviser Randy Sheunemann said McCain's answer was intentional.

"The questioner asked several times about Senator McCain's willingness to meet Zapatero (and id'd him in the question so there is no doubt Senator McCain knew exactly to whom the question referred). Senator McCain refused to commit to a White House meeting with President Zapatero in this interview," he said in an e-mail.

Bullshit. Absolute bullshit. Spain is a NATO ally and one of the few countries that doesn't publicly hate us in a part of the world where we badly need help. You're telling me McSame won't commit to meeting with a NATO ally leader as President?

Doesn't that disqualify him from the job?

It's a lie to cover his growing senility. He's losing it. These are legitimate questions and they involve McSame being able to discharge his duties as President. If he can't, Sister Sarah is one heartbeat away from being leader of the free world.

Of course, there's the Obama option, America. Consider looking into it.

[UPDATE] Viva McSpain!

Muy bueno!

Who Could Have Possibly Predicted The Russia/Georgia Problem?

Well, turns out of all people it was a friggin Republican Senator. Steve Clemons lays it out.

Of particular note in Chuck Hagel's letter relating vaguely to autonomous provinces in Georgia:

. . .Across the board, officials are clearly concerned about the consequences -- including unintended and uncontrollable consequences -- of a Kosovar declaration of independence. This includes a former senior Russian official known for his pro-Western views, who told me that, "there is no way that one cannot view a Kosovar declaration of independence as anything but a precedent" for other similar conflicts.

Hagel also writes:

At a time when our relations with Russia are badly frayed, our military is overly engaged, we're dealing with serious fissures in NATO over Afghanistan, and European willingness to respond militarily to an outbreak of violence in Kosovo and the Balkans is uncertain, I urge you to proceed with caution, weighing carefully the potential implications of a diplomatic event that could stretch well beyond the Balkans.

We need to weigh our current policy against our strategic interests -- in the Balkans, in Europe, with Russia, and in a shared, international understanding of national sovereignty under international law. It is not at all clear to me that a unilateral settlement of Kosovo can provide a lasting, stable solution for this region. We must think through all of the complexities ofthe Kosovo issue, the grave risk of violence against Serb minorities in Kosovo, and how to avoid isolating and alienating Serbia.

This letter warns the administration that its actions in the Balkans ran the risk of triggering blowback from Russia -- and yet there is no evidence that the administration worried that Russia would exploit the model of Kosovo in other ways -- particularly as we saw Russia assert the independence of South Ossetia and Abkhazia.

While many US Senators write to the President and other cabinet officers on requests for consideration of this project or that, Chuck Hagel was regularly provoking the administration with sensible, realistic assessments about America's geostrategic choices and their consequences.

Many of these letters -- if not all -- seem to have been ignored. I have not been able as of yet to find a letter from Rice back to Senator Hagel -- but Hagel's letter is enough to show that the administration had more than adequate warning from Senate Foreign Relations Committee members that a Russia storm could be on the way.

Once again, Preznitman listens to...nobody.

Bushenomics 101

Preznit Chucklepants took a break from fundraising to reassure the American people six days after the problem started.

Bush said recent actions by the government to take over the huge insurance company AIG on Tuesday as well as mortgage giants Fannie Mae and Freddie Mac were necessary to prevent a "severe disruption" in financial markets.

"These actions are necessary and important, and the markets are adjusting to them," Bush said.

Sure it is, pretzelboy. Even congressional Republicans are pissed.

Key Republicans on Capitol Hill blasted the Treasury Department and the Federal Reserve on Wednesday for orchestrating an $85 billion bailout of insurance giant American International Group, and the White House for not informing them of the plan.

Meanwhile, Democrats blamed the Bush administration for the financial crisis, while the White House pointed a finger at Congress.

The criticism came a day after lawmakers were surprised by the news that taxpayers would again be called on to shore up a member of the struggling financial sector.

"Once again the Fed has put the taxpayers on the hook for billions of dollars to bail out an institution that put greed ahead of responsibility and used their good name to take risky bets that did not pay off," said Sen. Jim Bunning, R-Kentucky, a member of the Senate Banking Committee.

A spokesman for Sen. Richard Shelby of Alabama, the top Republican on the committee, said the senator "profoundly disagrees with the decision to use taxpayer dollars to bail out a private company" and is upset the government has sent an inconsistent message to the markets by bailing out AIG after it just refused to save investment bank Lehman Brothers from bankruptcy.

"The American taxpayer should not be asked to unwillingly assume the inordinate risks that financial experts knowingly undertook, particularly when taxpayer exposure is increased by the ad hoc manner in which these bailouts have been engineered," said Shelby's aide, Jonathan Graffeo.

Silly GOP lawmakers. You don't matter to Bush. You never did. Asking Congress for permission to use money is so 19th Century.

Preznitman does what the hell he wants to. And so will McSame and Palin when they are in charge.

John McSpain

Seems the old man forgot where the hell Spain is. John Aravosis at AmericaBlog has the story.

As I reported last night, John McCain recently did an interview with a large newspaper from Spain, El Pais, and seemed to not know that Spain was in Europe. The interviewer kept asking specifically about "Spain," and McCain kept responding about Mexico and Latin America and "the hemisphere." McCain then refused to say whether he would be willing to meet with the President of Spain should McCain win the presidency, oddly setting down the precondition that the President of Spain would first have to embrace democracy and human rights before McCain would meet him (the president of Spain already does embrace both of those, and in fact, this past April McCain did another interview with El Pais in which he said he'd be happy to meet with the President of Spain). Huffington Post has more.

It's clear that McCain had no idea she was talking about Spain, or the president of Spain, even though the interviewer repeatedly told him she was asking about "Spain" and "the president of Spain." This isn't a case of McCain forgetting something. He quite literally didn't comprehend what this woman was saying. His mind was gone, he was on auto-pilot, giving pat answers because he seemingly didn't understand what Spain was.

Scared yet?
The idea of President Sarah Palin taking over becuase McSame is senile should terrify you even more.

Global No-Confidence Vote: Deal Or No Deal Pt 4

Another major Deal and a new pair of contestants this morning in the great game of Deal or No Deal.

First, the overnight deal...and it's a massive one. All the world's Bankers have combined forces for a massive "liquidity bomb" on the world markets.

The Fed, which is adding $50 billion into its own banking system today, will spray dollars around the world via swap lines with other central banks. They can then auction them in their own markets. The ECB, Bank of England and Swiss National Bank allotted a total of $64 billion for one day today.

``The timing, so early in the trading day, shows both the severity of the strains in the interbank market and as well the authorities' determination to resuscitate orderly functioning of the money markets,'' said Julian Callow, head of European economics at Barclays Capital in London.

Under the new arrangements, the ECB doubled the limit of dollars it can get from the Fed to $110 billion and Switzerland's central bank can offer $27 billion, an extra $15 billion. New swap facilities with the Bank of Japan, the Bank of England and the Bank of Canada amount to $60 billion, $40 billion and $10 billion, respectively. The arrangements are authorized until Jan. 30.

Up to $247 billion in liquidity is being injected into the world markets in order to try to free up the totally locked system.

The London Inter-Bank Overnight Rate (LIBOR) is what global banks charge for loaning each other cash on a daily basis. That LIBOR number went through the roof yesterday because global banks simply don't trust each other.

They don't trust each other because nobody wants to be the next Lehman Bros. disaster. Nobody wants to go under, and that mistrust was represented by a LIBOR of over five percent, which is the equivalent of highway robbery.

The injection of cash loosened up the LIBOR to under four percent, still brutally high but not as bad as yesterday. European shares have muddled through to a dead cat bounce stage.

But that brings us to today's contestants on Deal or No Deal, Washington Mutual and Morgan Stanley. Both are looking for a Deal. WaMu has lost 95% of its value and is on the brink, going from $40 a share to $2. It's auctioning itself off, but so far buyers don't seem to be terribly interested.

At the same time Morgan Stanley is looking to also get a Deal while the dealmaking is good, looking to hook up with a bank like Wachovia.

It wasn't too many years ago that some federal regulators fretted about the dangers of letting commercial banks merge with the big investment houses on Wall Street. But in the current financial crisis, those mergers might be the only thing that saves some of Wall Street's most storied firms, such as Morgan Stanley (MS) and a troubled lender like Washington Mutual (WM).

With Lehman Brothers (LEH) now history, panicked Wall Street investors sold off shares in both Morgan Stanley and Goldman Sachs (GS), despite the fact that both firms reported relatively strong earnings in recent days. Morgan Stanley's shares plunged 24% on Sept. 17, as investors worried the white-shoe firm would suffer the same liquidity crisis that felled Lehman and threatened Merrill Lynch (MER). Morgan Stanley executives rushed to condemn the short-sellers they said were driving the sell-off. In a memo to employees (BusinessWeek.com, 9/17/08), Morgan CEO John Mack expressed his view that the firm was "in the midst of a market controlled by fear and rumors, and short-sellers are driving our stock down."

There's one huge problem however.

WaMu is the country's largest S&L. If it does go under without a deal, it'll be the largest consumer bank failure America has seen so far, and it will be the FDIC that has to cover deposits for WaMu customers...to the tune of billions.

Wachovia would have the same issue if they take over Morgan Stanley. They would then be on the hook for Morgan Stanley's losses...and that means the FDIC would be on the hook for Wachovia AND Morgan Stanley's losses as well. That's going to be a lot for anti-trust regulators to swallow.

Because again, the FDIC is almost broke.

BE very, very careful. There are reports the US Federal Deposits Insurance Commission is running out of money. Chairman Sheila Blair has been forced to issue a statement. "US banks are overwhelmingly safe and sound and the Government fund used to cover insured deposits will be adequate to absorb any losses, even high losses," she says.

But Brian Bethune, US economist at consulting company Global Insight, said: "Additional failures of large banks or savings and loans companies seem likely, and that could overwhelm the FDIC's insurance fund."

Christopher Whalen, senior vice-president and managing director of Institutional Risk Analytics, said: "We've got a ... retail bank run forming in this country."

On Monday, US Treasury Secretary Henry Paulson said the nation's commercial banking system "is safe and sound", and that "the American people can be very, very confident about their accounts in our banking system".

FDIC officials say 98% of US banks still meet regulators' standards for adequate capital.

Associated Press reported that the FDIC was down to $US45.2 billion ($A57 billion) - the lowest level since 2003.

Whalen then wrote that reports the FDIC was running out of cash had no basis.

His statement said: "It is essential that people realise the US Treasury will advance whatever cash is needed by FDIC to address bank failures and make good the deposit insurance guarantee. There is no issue regarding the bank insurance fund, but unfortunately most of the public do not understand this. The FDIC needs to make this clear in all of its public statements."

IRA has been constantly in contact with the FDIC and other regulators and knows more about this situation, I would suggest, than the US Government.

The situation may not have been helped by a report from American Banker concerning the deal by Bank of America, the FDIC's biggest customer, with 10% of the nation's deposits, to take over Merrill Lynch saying "it is unclear how much that acquisition would increase B of A's risk profile"

If the FDIC goes, then bank runs will send us into a depression, period. It wasn't the 1929 stock market crash that caused the Great Depression, but the bank runs that resulted from the bank failures in 1930-1931.

If the FDIC has to make good on billions, confidence in banks will plummet and lead to massive withdrawals, further crippling the system. It won't take much in the environment we're in currently. Cash on hand reserves for most banks are well below 1% of assets. The rest is tied up in risky investments.

If even 1% of depositors take out their cash money on the same day, the bank has to turn people away. This causes a bank run, and people will panic.

IndyMac bank went under because people started making withdrawals. It didn't need much. Imagine that multiplied by hundreds, if not thousands of banks...and imagine the billions if not trillions it would take to cover those deposits.

Now remember the FDIC is down to $45 billion or so. AIG took more than that to save...for one company.

What happens when the Full Faith And Credit Of The United States Of America backing up your bank deposits aren't worth the paper it's printed on?

What happens when Deal or No Deal runs out of money to play? Everything the Fed has done up until now has failed. If the FDIC is challenged and even 1% of America withdraws their funds, the bank runs will collapse the economy overnight. Period.

Phil Gramm was partially right: This is a "mental recession". Only America being blithely unaware of how precarious the financials really are is saving the country from a massive bank run.

Be prepared.

Cross-posted at the Frog Pond.