"Paulson's plan - do it or not?"

Discussion in 'Business & Economics' started by Billy T, Sep 27, 2008.


"Paulson's plan - do it or not?"

Poll closed Oct 27, 2008.
  1. Yes, as it is now modified. Speed is most important.

    0 vote(s)
  2. No, but quickly with the mods suggested in my post.

  3. No, problem is not so bad that market can not fix.

  4. No, There is no point. USA and EU are doomed.

  1. Businesswiz Registered Senior Member

    Well look at history, the way we got ourselves out of the Depression was through the war, made money at the cost of lives, and put a halfassed smile on people's faces.

    I believe society can handle a different type of war, of production of unity, and that is human advancement, that is alot of work in itself, it is a massive undertaking in which people have to explore our galaxy the universe we live in. This will create a one world union for a common cause. This cause will need accountants, scientists, weapons manufacturers can apply their technologies im sure, in the making of fast projectiles that wont tear through flesh but space. Population problems will be solved with the occupation of new planets.

    When people realize that we are all different and must compete with ourselves, we will be infinite. There is too much lost time of warmongering, that time could have been spent on something worth while. I know that these mongeres at their deathbed, are miserable and full of regrets, think of that.

    I'm rooting for us humans, I really am.
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  3. TruthSeeker Fancy Virtual Reality Monkey Valued Senior Member

    You are not alone. I, also, don't see the artificial boundaries that we have created to separe ourselves and preserve our autonomy. Those boundaries were erected for several reasons, including to facilitate government. But as time progresses, we need them less and less, and they become more of a problem then a solution.

    It's time for a change in paradigm. It's time for species-thinking.
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  5. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    Many are now recognizing how stupid Paulson's plans were (as I indicated in the OP before Congress even appropriated the $700 billion). See:


    Which starts:
    "... It's something any bank would demand to know before handing out a loan: Where's the money going? But after receiving billions in aid from U.S. taxpayers, the nation's largest banks say they can't track exactly how they're spending the money or they simply refuse to discuss it.

    "We've lent some of it. {Billy T insert: Not telling to whom} We've not lent some of it. We've NOT given any accounting of, 'Here's how we're doing it,' " said Thomas Kelly, a spokesman for JPMorgan Chase, which received $25 billion in emergency bailout money. "We have not disclosed that to the public. We're declining to."

    Billy T comment /opinion: They are "declining to tell" because they:
    (1) Just kept the funds on the books (at least thru end of 2008) to make balance sheets look better in annual reports.
    (2) Invested in non-US regions, like China and Dubai, where the potential yields are several times greater.
    (3) Paid a relative small part to executives in multi-million dollar bonuses. For example, Golden Sacks CEO got 54 million dollars and the top four under him got an average of 47 million dollars each in salary plus bonus. That is 242 million paid to just five incompent guys, who are refusing to tell the AP what they did with billions of the public's money! (This despite turning in the ONLY losing quarter in the history of Goldman!)

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    I would like to get 54 million dollars for that performance, wouldn't you?

    The link above then continues:

    "... The Associated Press contacted 21 banks that received at least $1 billion in government money and asked four questions: How much has been spent? What was it spent on? How much is being held in savings, and what's the plan for the rest?

    NONE of the banks provided specific answers. "We're not providing dollar-in, dollar-out tracking," said Barry Koling, a spokesman for Atlanta, Ga.-based SunTrust Banks Inc., which got $3.5 billion in taxpayer dollars. Some banks said they simply didn't know where the money was going. ..."

    Billy T comment /opinion:
    The net effect of spending 350 billion as Paulson has has probably aidded China and hurt the USA, at least in the job creation area. Obama's plan is a great improvement - somewhat* like in concept I suggested in the OP, in that it at least attacks the causes of the crisis, instead of only treating a symptom of it as all verision of Paulson's constantly changing plan have.
    *Actually Obama's plan is better than mine - I only aidded the homeonwners going to foreclosure and did nothing to create jobs (many of which were in factories and paid well, but the "Trickle Down" FDI to China built more modern ones there.)
    Last edited by a moderator: Dec 22, 2008
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  7. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    More confirmation that the banks used the TARP funds as I said they would. (For their benefit, not that of the US economy) Paulson’s plan was not only stupid (as I stated in OP of this thread) but not even well executed as ALL CONTROLS on what the banks did with the tax-payer funds were ABSENT!
    Quote below from:

    "The U.S. Treasury Department has done nothing to make sure $700 billion in taxpayer-provided bailout money is used to buttress the weak U.S. mortgage market, which was the catalyst for the growing global financial crisis, congressional watchdog Elizabeth Warren said Friday.

    Warren, who heads a congressionally appointed oversight panel, told ABC News there was no evidence the Treasury had used money from the Troubled Assets Relief Program (TARP) to put a floor under the falling U.S. housing market by avoiding preventable foreclosures. "The TARP funds themselves have not been used in this way despite congressional statutes requiring them to do so." ...
    The congressional investigation is just the latest in a series of revelations demonstrating the misallocation of the taxpayer-provided bailout money. An ongoing investigation by Money Morning has detailed how banks have used the first $350 billion: They’ve used the capital to finance investments in other banks – including an investment in China – and to pay bonuses to executives. Then they audaciously refused to say where the money went, or how it was used,..
    The Congressional Oversight Panel has now added to that list of criticisms. In a draft of a report released Friday, the panel said the Treasury Department has failed to reveal its strategy for stabilizing the financial system and had done little to track how the money was used. ... The report also questioned whether Treasury fulfilled the promises made to Congress when it pushed for lawmakers to approve the rescue funds. ..."
    Billy T comment: This was just more of the SOP (std.op.procedures) under GWB. I.e. regulations, and accountability were impediments to capitalists who made the economy grow. - The “best government is the least government idea”, very common among the neocons and current Republicans, who IMHO are renegades not true to the original Republican principles.

    I am only glad that the magnitude of the economic disaster (a global depression for most western countries, especially US and EU where the debt is greatest) is becoming clear to all while GWB is still president. As leader in the civil rights movement of the 1960s, I feared that the cause of the coming Republican / neocon/ GWB’s depression would not be obvious until after Obama was POTUS and he would be blamed for it.
  8. 2inquisitive The Devil is in the details Registered Senior Member

    Billy T,
    Billy, either intentionally or unintentionally, you are misrepresenting political idiologies. Neoconservatives are not traditional paleoconservatives. They formed from disillusioned intellectual liberals. Some people think that the name 'neocon' is synonymous with ultra-conservative. Nothing could be further from the truth.

    Traditionally, Democrats favor Big Government, with lots of social spending and programs. The usual method to pay for this spending is through increased taxation to balance the budget. Traditional conservative Republicans believe in small government and less taxation, with fewer social programs paid for by the government, and a balanced budget. Neocons do not object to social programs as long as they do not have to pay for the programs through higher taxes. Their preferred method of paying for the social programs was through growing the economy, in other words, they believed that by growing the total wealth of the country, the social spending could be paid for by increased tax collections without increasing the rate of taxation. Of course, that is what led to the dot.com bubble, the housing bubble, the stock market bubble, etc.

    Alan Greenspan, who served under both Clinton and Bush, was more responsible for these bubbles than anyone else. Back during his iron-fisted rule, most everyone thought he was doing a great job, the 'economy' was growing by leaps and bounds. They did not recognize the bubble they were in, just as many countries did not recognize the recent oil and commodities bubble, they thought everything would just keep increasing in price, that their national economies would just keep getting wealthier. And, Billy, your 'BRICK' countries will suffer too, they are not immune to the collapse of the global economic bubble.

    Why I am going through this is because of your inference that it was only because of 'GWB', neocons and conservative Republicans that the US economy is in the shape it is in. Bush did surround himself with neocons in his adminstration instead of conservative Republicans, including keeping the very-popular-at-the-time Greenspan on as Federal Reserve chairman. Conservative Republicans did not support the TARP bailout, in fact they fought against it. Remember, their ideology is for small government and non-intereference by government. I am not arguing that doing nothing to prop up the financial sector, the automotive industry, etc. would have been the correct thing to do, but you can't attribute the bailouts and all those problems to the conservatives in congress. TARP was passed through an alliance between the neocons in the Bush adminstration and the Democrats in congress.

    I think it is necessary, but what Obama has proposed is more akin to the current neocon agenda than either the non-interference conservative Republican philosophy or the tax and spend Democratic philosophy. Obama proposes to decrease taxation and increase spending, a neocon philosophy that ignores a balanced budget. Normally both Democrats and conservative Republicans strive for balanced budgets, but a balanced budget is a secondary consideration in the current neocon-Democratic alliance. Libertarians and conservatives are both galled by the budget deficits in both the Bush/congressional plans and Obama's plan.
  9. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    I agree with all of this. If you look at the thread Ï started about two years ago ("the 6L cycle" -or some such name) you will see that I too palce the blame on Greenspan's continuation of the low interest ratres. - I forget just now exactly, but the first "L" was Low cost Loans, and the second was Leverage, I think.

    My complaints about GWB and neocons centers on two main points:
    (1) reducing taxes on the already rich
    (2) making needless wars (to get the lucrative oil contracts that the French and Russians had for Haliburton, etc.)

    Both (1) & (2) (plus some other closely related factors - see next two paragraphs for one) rapidly converted Clinton's surpluses into huge deficits.

    (1) also worsen the trade inbalance. The justification for (1) is the "trickle down" theory, and it is true that if you give money to people and firms that are doing well they will invest it -WHERE THEY THINK THE RETURNS WILL BE GREATEST. - That was mainly in China during GWB's terms. I.e. the growth of china's industrial capacity was mainly built by FDI, much of it as "trickle down." Instead of giving tax relief to corporations and the already rich and increaseing the debt that money would have been much better used if simply tossed out of Ben's helicopter over poor neighborhoods. At least then it would not have made the modern factories in China that via competion closed many older ones in the USA.

    With closing US factories, and displace workers taking lower paying jobs, the IRS's revenues were adversly affected. -Just at the time when they needed to be increaasing to cover the growing Social Security cost of the starting to retire "baby boomers." GWB is not resposible for the fact that these Baby boomers ceased to be in their peak earning years and became "negative savers" as well as net collectors of funds from Uncle Sam, instead of one of the bigger tax payers; However, this was 100% foreseeable and should have discouraged the reckless wars and tax reduction GWB made.
    I agree that in "normal times" the government should try to balance the budget, but these are far from "normal times," thanks mainly to Greenspan and GWB, IMHO. These are "Keysian times." Obama has no choice but to spend more money the US does not have. I like many others fear that if the depression is avoided, it will surely be at the expense of hyper (by US standards) inflation. I have done two things based on this belief. One to protect myself and the other to try to help the US.

    (1) For me, as told slightly more than a year ago, I put 100% of my main retirement plan into TIAA/CREF's Inflation protected fund (mainly TIPs) - this not only will help when the inflation hits, but mainly by luck, got me out of stock investments before the big slide down started. (I still own about 30 early stage drug developers. Again, as told before, because they have very high risk already factored in and also because following them (via presentations they make to finacial community - JP Morgan now) I learn a lot of facinating biological details I never knew. So far I have had net income for last three years, as larger drug firms ave taken over one of more of my holdings, but I will be happy to reguard even some net losses as the fee for tis education I am recieving.

    (2) to help the US I thought about the problem of urgent need to spend more (print dollars) and the resulting inflation printing press money always causes. The result was my "red dollar" plan, posted not only here but sent to many including Obama several times, made as comment in the Economist, to Forbes, etc. for at least a dozen more (most were to authors of Bloomberg articles as they always give their Email address at end of their articles.) See it at:


    Note also there is a thread on the red dollar plan, in which I respond to some concerns and misunderstandings about it.

    I am busy now so will leave my typos and mis-spellings etc. uncorrected. Try to get back later.
    Last edited by a moderator: Jan 13, 2009
  10. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    "“A lot of work has been done on an aggregator bank” and other ways of using the $700 billion financial-rescue fund “to let it go further when it comes to dealing with illiquid assets,” Treasury Secretary Henry Paulson told reporters today in Washington. FDIC Chairman Sheila Bair praised the idea in an interview on CNBC, saying it might have “some merit.”

    From: http://www.bloomberg.com/apps/news?pid=20601087&sid=aCcNKVDnUKMA&refer=home

    If they keep working at it, eventually they will come to the simple, easy to implement plan of the OP.

    I.e. only guarantee that all mortgages in the complex tranches that were constructed will be paid. - Then the "toxic trash" is no longer toxic. Yet none of it is purchased by the government. - Government only buys the homes that are under water AND being foreclosed (for the unpaid mortgage balance, IFF no bidder bids that high.) and takes them off the "for sale" market for a few years by renting them. - This breaks the downward price spiral the growing surplus of unsold homes is making.

    It is all automatic - no government rep needs to go to even one foreclosure auction. - Very low administrative cost and does not have the impossible problem of trying to set a "fair" value on the toxic trash. See OP for more details.
  11. TruthSeeker Fancy Virtual Reality Monkey Valued Senior Member

    Does GWB know ANYTHING about Macroeconomics and making economic and monetary management decisions?

    Oh wait, that's correct. His dad was president at a time, therefore GWB has "experience"....

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  12. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    More than a million in bonuses to each of 400 at AIG (your tax dollars at work, under Paulson).
    Fire* this bunch who help make this mess - don't give them more than a million dollars EXTRA each!

    Note the plan of the OP this thread does not even require these derivatives to have any price set on them!

    "... Jan. 27 (Bloomberg) -- American International Group Inc., the insurer saved from collapse by government money after losses on credit-default swaps, offered about $450 million in retention pay to employees of the unit that sold the derivatives, according to two people familiar with the situation.

    About 400 workers at the financial products unit may get the money in two installments, said the people, who declined to be named because details of the payments were confidential. The business was responsible for about $34 billion in writedowns since 2007 as the market value of swaps AIG sold to banks plunged amid the subprime mortgage market collapse.

    The payments bring to more than $1 billion the amount AIG has committed to keep its employees from leaving. ..."

    Read more at: http://www.bloomberg.com/apps/news?pid=20601087&sid=avGnUgGMu1q4&refer=home

    *Actually, if a legal way can be found, I would like to get them all new jobs in the prison laundry. Paulson's plan only makes sure it will all happen again if and when the US recovers - Rewards instead of punishment for evil greed tends to do that.
    Last edited by a moderator: Jan 27, 2009
  13. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

  14. Carcano Valued Senior Member

    Obama spoke out on this today...and said hes going to inform the bankers that theyve been very naughty boys.

    Problem solved. :bugeye:
  15. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

  16. Xelios We're setting you adrift idiot Registered Senior Member


    Anyone surprised about the bonuses?
  17. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    No, I am not surprized. Someone, who hands out money with no strings or obligations attached, calling those who take it "idiots" does surprize me - Congress must be looking into a mirror. What did they expect? CEOs, with rare exceptions, have a long history of "feathering their own nest."
  18. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    It is very frustrating to me to read things like the following quote in blue when the OP of this thread has simple plan that keeps many unsold homes off the market and is cheaper than buying toxic assets for a "bad bank" as it only buy the non-performing mortgages, not ALL THE MORTGAGES included in the toxic trash "tranches" and goes directly to the heart of the crisis problem: The bad mortgages, before they were put into tranches with typically 30 fold leverage that has greatly increased to cost of the "toxic trash." None-the-less this simple plan solves the "liquidity problem" of banks as when FHA buy all homes with mortgages that do default, then the toxic trash becomes non-toxic. (Not even the expected default rate occurs in the tranches.)

    Also plan in the OP is much easier to implement as there is no need to place any value on the complex tranches that are in the toxic trash. - FHA just buys the defaulting mortgage houses for the still unpaid balance of the mortgage. Does not even need to go to the auctions - if bank forced auction does not draw bid equal to the unpaid balance due, bank takes back ownership (just as it now does) and send deed plus bill for the mortgage balance to the FHA. US gets homes, not toxic trash, which it rents, often to the current occupant who could not buy, as he had hoped, but can afford to rent.

    "... A record 19 million U.S. houses stood empty at the end of 2008, including properties for sale and for rent, as banks seized homes faster than they could sell them and prices continued to fall. ...

    The worst U.S. housing slump since the Great Depression is deepening as foreclosures drain value from neighboring homes and make it more likely owners will walk away from properties worth less than their mortgages. ...

    “When you’re underwater and prices continue to fall, you tend to walk,” Miller said in an interview. “It’s a downward spiral that’s tough to stop because it feeds on itself. Foreclosures encourage other foreclosures and falling prices discourage buying.”

    Billy T: DAM IT; DO MY PLAN as in the OP.

    Quote in blue above is from: http://www.bloomberg.com/apps/news?pid=20601087&sid=a8SoNNq.FFoM&refer=home
    Last edited by a moderator: Feb 3, 2009
  19. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    Year ago I made new thread "How dumb can US voters be?" Perhaps it is now time to ask: "How dumb can the US government be?"

    US is slowly approaching my plan of the OP. It is about half way there now that they have finally realized it is too expensive and stupid to buy ALL the toxic assets when only a small fraction of their contained mortgages will default. It is also essentially impossible as there is no way to set a "fair" price."(Too low and the banks still go belly up. Too high and taxpayers never recover from the over payment. No one knows what is "Just right," or even if such a price exists.)

    Now all they need to understand is that the toxic trash they are thinking of guaranteeing is a symptom, not the root of the problem. Too many homes were sold to people who could not afford to buy them, but did as very "creative mortgages" were made and immediately sold away to avoid losses for the writer as they defaulted. There was no regulation by GWB's SEC, so they were resold and re-packaged again and again into ever more complex "tranches" until the leverage was > 33 fold! (Then a 3% default rate crashes the whole house of card to zero value.)

    Instead of guaranteeing that no mortgage will default, simply buy those that do at foreclosure auctions and get ownership of the house, which FHA can rent - keeping it off the resale market for a few years. Even though the cost of buying the house for unpaid mortgage is the same as just paying the bank that amount under a guarantee when its mortgage defaults, the cost of my plan is slightly less as there is no new mortgage guarantee insurance organization to set up.

    It is so simple: As I said in my last post: No FHA rep even needs to go to the foreclosure auctions. - If the bank’s foreclosure auction does not draw any bid equal to the unpaid balance due, The bank takes back ownership (just as it does now) and send deed plus bill for the mortgage balance to the FHA. The US gets homes, not toxic trash, which it rents, often to the current occupant who could not afford to buy, as he had hoped, but can afford to rent. (If he cannot even afford that rent, he moves into less house or even a trailer he can afford at least to rent, but renting to current occupant is best socially and also avoids the “eviction rage” that often leaves all the toilets smashed, the washing machines and refrigerator sold, profanity painted on the walls etc.)

    Here is evidence that the US now understands half what it should do. (I.e. will guarantee no mortgage defaults and yet not buy toxic trash.):

    "... The Obama administration, aiming to overhaul the $700 billion financial-rescue program, is refocusing on an effort to guarantee illiquid assets against losses without taking them off banks’ balance sheets.
    Treasury Secretary Timothy Geithner is skeptical of setting up a so-called bad bank to hold the toxic securities, an option that still may form part of the final package, people familiar with the matter said. Senator Charles Schumer yesterday said debt guarantees are becoming “a favorite choice” of options because a bad bank would be too costly. ..."

    From: http://www.bloomberg.com/apps/news?pid=20601087&sid=arG13cCBPnHY&refer=home

    I wonder how much longer it will take the US to realize that the government can buy the defaulting homes instead of just pay off the defaulting mortgages and have nothing to show for the same cost! (Or slightly lower cost as no new insurance corp. to set up)

    Billy T: DAM IT; DO MY PLAN as in the OP.
    Last edited by a moderator: Feb 4, 2009
  20. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    "... {new limits on Bonuses, etc.} won’t be retroactive to companies that have already taken rescue money, although those companies must agree to strict monitoring and oversight, ..." - http://www.bloomberg.com/apps/news?pid=20601087&sid=a7RNlu85M_m4&refer=home

    OK, but let’s have the IRS go over their CEO et. al. tax returns for the last 7 years with a fine tooth comb; IF their CEOs, etc. do not "voluntarily" return ALL "over the limit" bonuses, golden parachute, etc. funds to their companies.

    I would like to send some go to jail, like Dillinger who was never convicted on any crime, except for IRS rules he violated.
  21. Carcano Valued Senior Member

    Billy, isnt that exactly what the government did in the 1930's...bought the defaulting mortgages ONLY and reset them for lower monthly payments?
  22. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    I do not know my history well enough to answer but I am suggesting the FHA buy houses, not mortgages.

    I.e. when house does not draw any bid at foreclosure auction as large as the unpaid mortgage, it is not sold for less, but taken back by the bank (or holder of the mortgage). This all exactly as it is often today. I.e. house ownership reverts back to the bank. Now the bank has the option of sending title (deed) of house to FHA and bill for the unpaid mortgage balance - knowing that bill will be paid and FHA become the owner of the house. Or the bank can keep ownership and hope that the housing market improves and they can sell for even more than the unpaid balance later, but few bamks will do this as banks are not managers of rental property and want to get money to lend or invest - that is their business.

    FHA and current occupant try to agree on monthly rental (not much below the going market rate). If they can - good. If not, then current occupant has up to 12 months to find home he can afford to rent, and the rent he should have paid for the months in which he lived in the house while looking (12 months or less) is like a small 5-year mortgage for him to pay to the FHA.

    I.e. the FHA (US tax payers) gets real rentable property, not toxic trash, AND the house does not go on the "for sale" market to continue depressing the price of all other houses. This helps the local government not lose so much in real estate taxes and is very desirable socially compared to immediate eviction.

    I.e. This should almost eliminate "eviction rage" destruction of homes.

    Also as explained in the OP, the current "over his head in debt" home owner can also just sign over the deed to the FHA, which pays off the mortgage holder (to clear the title) and walk away debt free.* His doing so saves all the expense of the auction. To encourage this, the FHA may send him a check years later when it does sell the house, if the FHA has fully recovered for the tax payers the mortgage paid and interest lose on that money if it had been put into 30 year T bonds. I.e. all above that is the value of the check later sent to owners who walked away after deeding house to FHA.
    *If he just walks away, without going thru formal bankruptcy (few walkers do), then the mortgage holder can come after him for the rest of his life! This alone is good reason to send FHA the deed to the house, even if there were no hope of getting a check years later from the FHA.

    Billy T: DAM IT; DO MY PLAN as in the OP.
    Last edited by a moderator: Feb 5, 2009
  23. Carcano Valued Senior Member

    The government doesnt want to own deeds anymore than the banks do...so why wouldnt it be simpler just to buy ONLY those mortgages that are in default and reset the rates?

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