Here is a part of the recent IBD editorial that asks the a great question:

"The result of (Fannie's and Freddie's) rapid growth unconstrained by market forces and a weak regulator was years of mismanagement, flagrant earnings manipulation, and systems-and-controls problems.

Managements of both companies were forced out, earnings were misstated by an estimated $16 billion, fines exceeding one-half billion dollars were imposed, and remedial costs will exceed $2 billion."

Yet Congress did nothing. Fannie and Freddie continued to enjoy a virtual monopoly of the housing finance market, holding nearly half the nation's $12 trillion in mortgage assets in 2007.

And what happened to Fannie's and Freddie's top executives, almost all with deep ties to the Democratic Party?

Did they get perp-walked to prison like WorldCom's Bernie Ebbers, Tyco's Dennis Koslowski, Adelphia's John Rigas, ImClone's Sam Waksal, or any of the others who did time for corporate misdeeds in the early 2000s?

No. Jim Johnson, former Walter Mondale aide, became head of Barack Obama's vice presidential search committee. Franklin Raines, who headed Fannie from 1998 to 2004, the years of its worst excesses, pocketed nearly $100 million in pay and bonuses from Fannie. He, too, became an adviser to Obama.

Other Fannie-Freddie alumni did equally well.

Rep. Rahm Emanuel has been front and center in crafting a new rescue bill. Ex-Clinton Justice official Jamie Gorelick careens from career catastrophe to catastrophe, and still gets top jobs. It pays to have ties.

Meanwhile, as previously documented, Rep. Barney Frank and Sen. Chris Dodd repeatedly thwarted reforms. Yet today they stand front-and-center as Democrats try to "fix" a problem they created.

As such, any investigation into Fannie and Freddie must include Congress, both current and past.

There's lots of evidence that the two mortgage giants had become little more than taxpayer-guaranteed front companies for Democrats, who used them to reward supporters with cheap loans and to provide jobs for out-of-work politicians."

Wow. Imagine if Enron executives had done this, oh wait, they did and went to jail!

I so sick of this BS. Congress should never agree to take worthless assets. Its just free money to the wealthy, who cheated. Basically the wealthy in this country knew this bailout would happen. So they pumped the value of the assets then sold them via the bailout to the government. Crooks the whole lot.... Period. STOP THIS MADNESS!!!!!!

Rather than blaming Barney Frank and the Democrats for the financial collapse under the Bush administration, Bill Fleckenstein, who wrote a book on our former Fed chairman, blames Alan Greenspan:

Alan Greenspan is the man who, during his nearly 20 years in charge at the Fed, did the most to help create the predicament that is our decimated financial system and warped economy.

The sorry state that we find ourselves in is a function of the Fed's interest-rate-targeting policies. More specifically, it was caused by the policies of Alan Greenspan, the Fed chief from 1987 to 2006.....

.........When Greenspan was in office he went to great lengths to suggest that housing couldn't experience a bubble. And, as The Journal pointed out, he also tried to make the case in 2004, when many of us were already certain a disastrous bubble was in full bloom, that "a national severe price distortion seems most unlikely in the United States, given its size and diversity."

This illustrates my strongly held (and well-documented) view that when it comes to matters of economics, Greenspan is utterly clueless and unable to learn from his mistakes.

link to Fleckenstein articles on MSN:

http://articles.moneycentral.msn.com/Commentary/ByAuthor/BillFleckenstein.aspx

So in terms of drilling down, I can comment on one aspect of the Fannie/Freddie piece, and I just want to make ABSOLUTELY SURE everyone understands this particular specific. It's part of the reason I think that taxpayers should rescue bad mortgages (and the possibly bad people who entered into them) rather than handing money straight to the people who set this thing up. In a lesser of two evils scenario, helping people pay off crazy mortgages is definitely better than buying the debt that the crazy mortgages represent.

Many mortgages (not necessarily subprime but questionable/no doc) undertaken during the height of the housing bubble, were insured/guaranteed by Fannie Mae, which the taxpayers now effectively own. The way these mortgages work is that if the homeowner defaults, the loan servicer can foreclose on what is now presumably a near-worthless piece of property, then turn around and get the FULL ORIGINAL RETAIL PRICE of the property plus interest, from Fannie Mae (or from you the taxpayers depending on how you look at it) because Fannie Mae insured the loan and the Republicans were dumb (or smart) enough to take Fannie Mae on without conditions.

To add insult to taxpayer injury, then the loan servicer can sell the property and add the proceeds to whatever it makes. Yay! Selling gutted houses for pennies on the original dollar is fun!

The short story here is that taxpayers are about to bail out (or keep in business) the companies who not only set this up, but who may well spend the next few years billing taxpayers AT FULL RETAIL VALUE, for mortgages undertaken during the housing bubble! And the taxpayers won't even own the houses.

Wondering why no loan servicers seem to want to write down mortgage principals? This is why. Forcing people into foreclosure is a huge cash cow if the mortgage was guaranteed. And forcing subprime lenders and pre-bubble lenders into foreclosure chums the waters--i.e makes it more likely that more of those juicy bubble prime loans will drop into foreclosure too.

Is it any wonder taxpayers have a bad feeling about this bill?

If I'm wrong about how this works, or if there are only, like, three of these loans on the planet, please enlighten me, but I think taxpayers have a right to be wondering what the heck our elected officials are doing "fixing the credit crunch" instead of taking care of bad mortgages on behalf of everyone.

(LPAC)--Lyndon LaRouche responded promptly to the House of Representatives' defeat of the Paulson bailout swindle, declaring this afternoon that ``I am on the case. Now, with the defeat of the bailout scheme, the way is open for my own three-step recovery plan, based on a bankruptcy reorganization of the hopelessly gone post-Bretton Woods speculative system. I shall present my action plan during my October 1, 2008 international webcast.'' Internet participants were able to submit questions to Mr. LaRouche, during the three-hour event, which has been archived with links now made available at

http://www.larouchepac.com/news/2008/10/01/larouche-webcast-now-more-ever-big-four.html

When Greenspan was in the private market, in the 80s, he wasn't so good at predicting either what the Fed would do or where the market was going.

As Fed chairman he has never seen a bubble that he didn't promote or, ironically, a burst he didn't misuse Keynesian economics to over promote.

The succeeding bubbles of 1991, 2001 and 2007 have accumulated debt and poor capital ratios to a level that now can't be extended. Greenspan goes down as a loser chairman. Bernanke is no better. He has no practical clue.

It's all pretty simple and it's about banking capital and capital ratios. Not anything I've heard our legislators talk about!

Part of what inflames hostility between the Left and the Right is the tendency to say "This is YOUR fault not ours!"

The last week or two should be more than enough indication that Republicans and Democrats both played some part in this debacle.

To me, it doesn't really matter whose fault this is ... I want someone to make sure it never happens again.

Unfortunately, it appears that we have hundreds spineless jellyfish representing us in Congress. And even more distressing they are lead by incompetent or self-serving egomaniacs.

I don't support this bailout in its current form. If it fails, I will not be voting for the Democratic incumbent come primary season in 2010.

In fact, the bailout bill isn't really taxpayer supported. It will be funded by additional federal debt, issued mostly to foreign governments -- especially the Chinese and in the Middle East.

And as you wisely point out, our foreign policy towards China and the Middle East is altered again because they will hold more of our debt. As easily as the Congressional Democrats folded on this issue, I'm not optimistic that they will spearhead any reform agenda driven by anger over this disaster. I only hope that an Obama Administration will push through strong reforms on Wall Street and reduce the gap between rich and poor. The voters have their say on November 4th and we'll see who gets the blame.

I hope Mr. Reich is right. As The Clash sang it, "Anger is a power, if you know that you can use it."

Here's an interesting argument for anyone who needs support for his or her conclusion that we are ruled by fools.

Simply put, the argument says that if Paulson really wanted to help the economy -- that is, provide working capital for businesses (oh, my God; the banks aren't loaning!) -- he couldn't have chosen a worse method.
Why?

Ordinary businesses borrow working capital (payrolls, inventory, seller financing) from banks. The banks get the funds to loan out from commercial money market accounts.

But anxious investors have been putting their funds in treasury/agency money market accounts and those types of funds don't loan money to banks.

Of course with the increased demand for government paper from those funds, rates have gotten very low. Ordinarily, it would be expected that investors would move their government money market funds over to commercial money market funds to get the higher rates. Then, these commercial money market funds will loan to the banks which will loan to the businesses.

But Paulson's about to sell $350 billion of what will be short term USTs.

The result? Rates on government money market funds will rise; investors will stay in those funds; assets of commercial money market funds won't increase; and there won't be more money available to the banks to loan out to businesses.

Ah, those old unintended consequences.

To date, our misadventure into Iraq has an estimated price tag of about $700 billion. What a coincidence, that's the cost of the bailout.

Go figure.

After almost 8 years:"They resent what they perceive as extortion by the Masters of the Universe"
Don't like that term masters of the universe but we all get the point.
But why after all this time? Is it because this was so out front? As if the selling of the desert mess with fear wasn't?
Don't ever forget dickman planned all this in secret from the start using the same playbook as kenron lay, the guru of greed.
No more need to wonder why it was all done in secret right from the start.

I supported the Sanders version and emailed my Senators (Durbin and Obama) daily. My problems with this bill are:
1) Unless I missed something, Obama's proposal for an independent commission to oversee management of the money was NOT included. Instead, the same people who brought us this crisis (Paulson, Cox, other Bush appointees) are the oversight. This is ludicrous. (Please correct me if I'm wrong.)
2) The Chinese will now carry even more of our debt, which I consider to be a serious national security concern.
3) There are no tax increases for the wealthy, as porposed by Sanders, so essentially the rich will just get richer.

Talk about a "crap sandwhich".

What do the people of Colorado want? The more I study the electoral map, the more I'm convinced that no matter what else he is able to do, McCain can't win unless he wins Colorado. I'm curious to know if there is anything about the bailout that is particularly good or bad for Colorado voters.

The IBD editorial page could easily be written by a high school student. It is the shallowest, one sided piece of shit rag I've ever read. The investment ideas are great. They should stick to that.

It is a bailout, though. I don't think Reich should imply otherwise. We're being asked to take on the burden of a risk that the banks don't want. Sure, maybe the Treasury will make money on it but if the banks really believed that, they would just hang onto the securities. Regulators could just change the capitalization or reporting rules to allow the banks to hang on until the securities are worth something again.

Instead, we're being asked to do what the banks won't. If the banks are smarter than the Treasury then we are buying bad securities on margin and stand to lose way more than $700 billion.

So with a REAL Attorney General, let us hope that every current member of the bush administration who is not pardoned will go to jail!

I agree with those upthread that lament the lack of progressive thinking in this Congress, which seems to have so utterly failed to produce a plan that focuses on the problems faced by average Americans. Primarily, how to deal with the millions of bad mortgages out there. Nor have they produced a plan that reforms this house of mirrors of a system that piles credit on credit without accountability or risk. It is a shame this has occurred so close to Election Day, because it has severely limited Sen. Obama's options. I can easily see Senator Obama being one of those pushing a different sort of plan, and I can easily see him as one of the "NO" votes had he not been running for President. He is of course, as we are What troubles me is precisely that. He played it safe because the political risks around this issue were so great. This was the ultimate situation he could not control. So he played it as safe as possible, and now must hope this plan has a positive impact. The only saving grave here is McCain's "YES" vote. I fully expected him to take one more wild swing at it, and vote no. Imagine if he had. He could be out there on a limb, railing like a populist right now, and would look like a genius should the economy continue to sink. Luckily, he too is a part and parcel of this Corporate Welfare State and couldn't abandon his pals.

I am of the mind that something had to be done, but I can't pretend to understand enough about the problem to know precisely what that should be. There is something fundamentally disconcerting though, that this plan focuses on the financial markets, and those that run them, and is heralded as the only way to fix the problem. Are we so beholden to this financial system that Main St. is just a hapless bystander? Wouldn't a plan that addresses the problem, mortgage defaults, be the best solution? Shouldn't we let Goldman, Merrill, etc. fail, and dispense with this entire way of doing business? Are we so linked up in this, and living so far above our means, that we are looking at an inevitable and painful retraction?

This makes me very worried about the future. People over 60 own 50% of all equities, and they are losing value quickly. This places an ever greater burden on Social Security and a younger generation to pick up the slack. Demographics show a huge influx of Baby Boomers retiring over the next 15-20 years, and the group of Gen X and Gen Y'ers are failing to outpace their parents success. This country is in for a very difficult time. I am praying for an Obama victory and then I plan on being very loud in asking him to deliver on that "change" he has made the cornerstone of his campaign.

Mr. Reich,

I really respect your opinion, but the confusion about whether the Treasury will hold reverse auctions or buy securities outright exists because the bills I've seen don't say. They leave the question up to Paulson.

It's not clear to me that he can't even buy credit default swaps with this money if he wants as long as the swaps are based on mortgage securities.

Plus, alot of these securities, as I understand it, have been run up in price so far beyond what they could ever be worth that even 50 cents on the dollar would be paying too much.

As you say, there's no market for these things and so no real price for them, which means that no matter what we pay, it's really going to be nothing more than a price that was pulled out of thin air.

Finally, what does this really do to address the problem of derivites, which is the $400 trillion elephant (worldwide) that few news medias types outside financial publications and angry bloggers are talking about.

I frankly think it won't work and it will make things worse by putting us further in debt. Can you tell me why I'm wrong?

"the bailout bill isn't really taxpayer supported"

I think the outrage is based on a growing awareness that the general trend of things is to benefit the rich, influential, and powerful at the expense and/or exclusion of everyone else. We're not all invited to the party.

I don't think that who's to blame is really relevant to the outraged. I believe the outrage is fueled by the sentiment that all the perceived "elites" are responsible.

One of the ways that "the people" have been controlled was with the promise that they too could aspire and attain membership in the "elite' club and reap the benefits.

"The people" are starting to understand that by and large that is a myth and that actually their destiny is probably more "downward" then "up."

Once that dream/myth is shattered anger sets in - totally justified.

Like Enron serving as the "sacrificial lamb" to quell the masses once too much light had been cast on the crimes and the powers that be were forced to do something, I predict that in this latest bambozzlement there will be a few "bones" tossed to quiet the outraged in the form of some sort of "relief" for the little guys and another "lamb" or two going down.

All of it will amount to very little as business will eventually go on as before.

An interesting aside revealed on "Democracy Now" that Obama told Democrat "elites" that he didn't want bankruptcy terms for homeowers changed or addressed in this "bailout" bill.

Now why would he say that?

As I've been sayig "forever" - the Democrats and the Republicans aren't two different sides of the same coin, they are just two different parts of the same side of the coin.

"The people," I believe, are starting to understand just how screwed they really are.

Roubini forecasts "the mother of all bank runs" in Bloomberg radio interview

http://search.bloomberg.com/search?q=roubini+silent+run&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date%3AD%3AS%3Ad1&submit.x=0&submit.y=0&submit=submit

Sir, here is what I want to know.

You are an Obama economic adviser.

1) What is the internal campaign discussion about this since Obama has come out very very strongly for this bill. Why have your arguments failed to sway him and what does that tell you about him?

2)In light of 1, why would Obama mobilize angry populists?

Exactly, dkmich!

dkmich is right.

I will take an honest Markist over all these squishy Dem and Repub liars who say they are for the "free market" and then regulate and tax us all into the rice fields!

For a long time modern liberalism has been tied specifically to SOCIAL liberalism, and severed from the the baser human needs of the common populace. After all, the populace as a whole is pretty iffy when it comes to issues of tolerance and social harmony. So that up to now, the only liberals our Congressmen and Congresswomen have taken very seriously were the social liberals, especially ones packing large bank accounts.

Populism was dismissed as a synonym for racism and no-nothingism, and so racists and no-nothings have had the field all to themselves.

Yet the Wall Street stars that wrote checks to homeless charities and banned discrimination based on color and gender in their firms have relentlessly promoted a "fairer" type of discrimination, one that targeted a wide array of people in a way not categorizable by race or ethnicity, religion or sexuality. This was - is - a discrimination based on the presence or absence of the arcane skills solely required in a financial meritocracy. Adherence to this narrow set of principals was relentlessly promoted as the key to all economic life, even as economic life has grown to encompass every waking hour.

A story is told about a high-powered liberal attorney in Houston of the go-go 90's. At the time his right hand man was gay, and when the man's lover of twenty years died, the attorney dealt with this HR problem the way he dealt with every other. His assistant got the day of the funeral off. Only. He was to be in the very next.

Enlightenment, it seems, ends at the bottom line in the go-go world.

Those left behind in this world have only themselves to blame, in the go-go view, and so its promoters on the liberal side continue to look themselves in the mirror and praise themselves as good idealistic citizens. These are, after all, not the same as the right-wing nuts who profit by a cruder application of the very same principals.

Our champions hire and reward ANYONE that works relentlessly to enrich them, and in return they promote tolerance in and out of the workplace, universal health-care (when the numbers work out in their favor), and much that is good. Who can fault them?

I wonder if financial ruin might be a cure for such vanity?

Unfortunately, the ruin would have to be shared by all. Yet, in my mind, I toy with the notion, and I am afraid others do as well.