White House Overhauling Rescue Plan

[Pale Blue Dot]

Source: New York Times

WASHINGTON — As international leaders gathered here on Saturday to grapple with the global financial crisis, the Bush administration embarked on an overhaul of its own strategy for rescuing the foundering financial system.

Two weeks after persuading Congress to let it spend $700 billion to buy distressed mortgage-backed securities, the Bush administration has put that idea on the back burner in favor of a new approach, which would have the government inject capital directly into the nation’s banks — in effect, partially nationalizing the industry.

While the Treasury department says it still plans to buy up distressed assets, the scope of that plan is unclear. And the federal government meanwhile has directed Fannie Mae and Freddie Mac, the government-controlled mortgage giants, to ramp up their purchases of troubled mortgage bonds, in what could be a speedier and less formal process than the reverse auctions proposed by the Treasury.

The Federal Housing Finance Agency, which last month seized Fannie Mae and Freddie Mac and placed them into a conservatorship, has ordered the companies to buy substantially larger amounts of mortgage securities — mostly subprime or other classes of mortgages in default.

The new plan to buy stock in banks, which has become the administration’s primary focus, comes closer to a partial nationalization of the banking system than at any time since the Depression. In exchange for providing capital, the government would demand some kind of nonvoting minority stake.

Read more: http://www.nytimes.com/2008/10/12/business/12imf.html?_r=1&partner=rssnyt&emc=rss&oref=slogin

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Remember that $700B bailout we told you must pass? We're not going to use that after all. Thanks anyway!

(Although the approach they're using now may be better in the long run).

[regnaD kciN]

1. Sanity outbreak at the White House...

...for maybe the first time since 1/19/2000.

(BTW, credit Chris Dodd for this. He insisted that the bailout bill be written in such a way that the money could be spent on recapitalizing banks instead of buying up toxic mortgages.)

[EFerrari]

29. That' the rec I heard too, from an economist who used to work for the Senate.

He said these direct "injections" would do 12X the good.

[last1standing]

2. Absolutely stunning!

You said it exactly right: "Remember that $700B bailout we told you must pass? We're not going to use that after all. Thanks anyway!"

Yes, if done properly (but what has this administration EVER done properly), it could be a much better plan. However, it shows exactly what kind of bullshit we were all fed that they can now just say "Oops. Let's try this instead".

[regnaD kciN]

3. Actually, they ARE using the $700b...

...just spending it in a way that makes more sense, and that Senate Democratic leaders were advocating.

[last1standing]

4. The point is that they told us this had to be done NOW!

It couldn't wait for a proper discussion because the banks were literally DAYS from failure. It's been nearly two weeks now and they're still figuring out what they want to do.

I'm not necessarily against this new option, I just want a little more truth and a lot less artificial panic in our public policy.

[nadinbrzezinski]

6. Tell me how many banks have failed since

the passage?

by my count at least three more

And two weeks, is FAST by DC standards

[last1standing]

8. So why wasn't that 700B used to help those banks?

What I'm trying to say, apparently not well, is that we were coerced into this great rush to pass legislation without having a real public debate but it hasn't been used and now they're talking about changing the plan. Couldn't we have discussed this for these two weeks to make sure we came up with the best solution instead of just jumping blindly?

[nadinbrzezinski]

10. For the same reason small banks were allowed to fail in the great depression

it is called triage.

Not that any of these people 'xplained this well, but this bill looks eerily similar to early new deal legislation to deal with banking issues at the time as well

[last1standing]

22. This reinforces my point (at least in my head).

It's fine to support this new plan, should they take it, but it still doesn't counter my point that we could have been having a reasonable national debate over this bill for the past two weeks instead of being frightened into taking whatever came along.

I'm glad that for the first time in this administration someone seems actually willing to take a step back and consider something different. But, once again, I would rather have had all of us able to discuss the merits of any proposal before jumping in blindly as we did. Nothing has been done with the appropriated funds as yet and banks are failing as they decide. I don't know if that's good or bad but once again, why couldn't we have more time to consider our actions instead of this hurry up and wait approach?

[nadinbrzezinski]

25. The first bills passed to deal with the Depression under FDR were not ideal

either and were mostly emergency legislation

The parallels to the summer of 32 (Hoover still) and the heady days of 33 are quite stunning

Can I get off this time tunnel?

[last1standing]

26. It's hard to leave the tunnel when it's all we have for comparison.

It seems you and I do this a lot. We seem to agree but can't get past one point. I don't disagree that the new plan is better than the old one; I really don't know enough yet to judge. I just believe that we should have had a debate on the issue before passing legislation since the administration hasn't done anything with the funds anyway and is now looking at possible major changes.

There was just no need to pass this legislation in days rather than weeks that I can see. That the only thing I'm really saying.

[nadinbrzezinski]

31. The days was psychology and that failed

because anybody with knowledge of how DC works realzes that any legislation of this scope USUALLY takes two to four months to implement. They are moving in less than a month

Hey, legislation of this scope usually takes months of discussion

And due to the credit squeeze they did not have the time

Now what every body has not done in DC (and george cannot do it either since he's been a lying sac of crap for eight years) is splain to people why this was needed.

Roosevelt called the cognress to an emergency meeting and his similar legislation was passed during a bank holiday in less than a week as well...

The difference... FDR spent days splaining to people what he was doing...

[FarCenter]

30. There are about 8000 banks, which is way too many

Expect to see about 7000+ rolled up into the big banks as the little ones fail.

[chimpymustgo]

7. The Europeans are forcing them to be more sensible.

[nadinbrzezinski]

5. They ARE using the 700B and the authority to use it in this new way

is IN THE BILL.

If they didn't have it they'd need to pass it

Yes, it was painful to read that piece of crap as it grew.... but at least it has served me in good stead

[MichiganVote]

9. Oh now there's a shocker. Tell the public this-change that. Total Bush strategy.

How much is going into the McSame campaign?

[nadinbrzezinski]

11. ZERO

:banghead:

[Waiting For Everyman]

12. The IMF is apparently saying some scarey stuff,

like "global systemic failure". The G7 say they won't let any of their banks fail. Now how are they going to do that? What's the point of that anyway? Wouldn't it be better to put them into bankruptcy while operating, clean out the bad stuff, guarantee deposits, and keep loans being made?

I don't get it... what throwing money at bankrupt banks is supposed to do, when there are hundreds of trillions of bad paper floating around.

Write it down, write it off, do something with it. But certainly no one, not even all the world together, can pay it off. And why should we?

[nadinbrzezinski]

15. You recapitalize so they can start lending again

as to the end game... quite a bit of that debt will be written off... you can bet your ass on that

But that is why they need to get some money... so they can get the credit going

[sarcasmo]

13. The sad thing is now a lot more are begging for a handout, GM, AIG wants more.

Where does the Corporate bail out stop? We all know Main st won't get a dime.

[nadinbrzezinski]

17. HOPE program was expanded, but I am sure you don't know

what HOPE is or that it was expanded

They are also discussing now another main street bailout... (and we can get into policy of whether sending those checks works or not)

Oh and the Great Depression ran 1T when all was said and done, adjusted for inflation that is about 12 T

But I am sure people knew that

There are days I wonder why I bother

[sarcasmo]

18. The Home ownership preservation society, nothing like being smarmy, or maybe you don't know what

that is.

[nadinbrzezinski]

19. I know what HOPE is... far from ideal, but that is a start

I am also sure before this is over we will have a New Deal program in line to do exactly what was done back then

In fact, I am almost willing to bet that will be part of the emergency legislation Obama will have to have the new congress pass

[sarcasmo]

20. Only if they don't steal another election. Obama is our only hope for a new

New Deal.

[nadinbrzezinski]

24. What was that Carville said? Oh yes, they steal it there will be blood in the streets

It is well out of the MOE at this point

[gurthang]

27. If it helps, you can bother for people like me

I didn't know what HOPE was. I still don't know much about it, but at least I've heard of it now.

Like most, I don't know

1. What the right answer is to the current problem
2. What those with the power to do so are trying to do to solve the problem

This does appear to be a huge mess (I'm overseas at the moment and the news is full of talk of the global financial meltdown) and whatever solution is attempted is certain to affect each of us. If you have an understanding of at least one facet of the issue, then your input is welcome in my book.

[Piewhacket]

14. Huh? Buy the banckrupt banks from the criminals enterprise who bankrupted them...

yeah... and what are you going to pay with.... tax dollars?

ok, and how much will you pay to your corrupt republicronies
to facilitate their escape from the black hole of their
misfeasance? fair market, or FANTASY VALUE.

Buffit invested in a basically SOUND enterprise at a fair (non-panic) value when the
alternative would been panic collapse. is that what you plan on doing
George and Henry? stave off a collapse by prudent investment intervention
to avert a panic?

really? trust you? again?
trust the lying scum of a criminal enterprise? again?

so careful boys. corrupt use of US funds is still a crime.
careful boys... new sheriff coming to town. mob in an ugly mood.
be very fucking careful to avoid a taint that can be used to jail
you later... Hank.

So Hank, how do you like that Treasury job so far?
Cool office, cushy job, nice perks, eh?

[jwirr]

16. You know somehow that headline just does not inspire trust. I think

it is the idea that it is the white house doing this.

[babydollhead]

21. Hey! Whatever happened to

what you decide to do on a Tuesday, you still are doing on Thursday!!!! (sarcasm)

[Jacobin]

23. Keystone Cops

[harmonicon]

28. you mean there was no plan after all? really? what a surprise.

[nadinbrzezinski]

33. Yes there was, it was called TARP

and they are still going to implement it... they are just using the authority of the SOT to add to it

[TankLV]

32. Oh goodie - they finally gave it to those guys on cable...

at least they know how to take something WORTHLESS and bring in back to life...