Paulson Plan In Motion
No one really knows anything for sure just now about the Paulson Plan or the markets. some uncertainty has to be accepted.
Yet the Paulson Plan, we read, was prepared over the summer and called "Break the Glass." Now that it has been authorized it turns out that it will take weeks to implement and also that its goals are not yet decided upon.
They should have broken the glass, taken it out, and finished it over the summer. It apparently wasn't so much a plan as a notion.
No point in looking backwards now, but it would be helpful if Treasury were to be much more explicit about its goals, starting tomorrow. In addition, Treasury should commence its actions under the buy-back authority, even if only on a first step, trial basis, tomorrow or Monday.
It would suffice if Treasury were to be much more detailed about its goals and means, and at the same time were to begin, even without a perfect system in place, to try out its new authority somewhere, to some limited degree, just to get started.
The perfect system can't be designed. Some learning by doing is necessary. At the same time, being much clearer about the goals and means -- equity or not, fair value or not, timing, phases -- would be very helpful in helping investors understand what to expect and in rebuilding a sense of confidence in business transactions.
Talk and try; explain and experiment. Get going: that's the thing.
Since you and Dean Baker are both on the same message, I assume these two posts are part of some coordinated insider campaign to push this message. Could you please explain the rationale for those of us who didn't get the memo?
All I see in this post are conclusions without premises - statements rather than arguments. You say Paulson should do such and such starting tomorrow. Why? The argument appears to be transparently obvious to you and Baker, but I honestly don't know what it is.
October 9, 2008 7:17 PM | Reply | Permalink
Setting aside our aluminum foil hats for the moment --
The idea behind TARP was to clean up bank balance sheets by removing hard-to-value ("toxic") assets. Thereafter, Paulson and Bernanke expected (hoped?) that private equity investors like The Carlyle Group, TPG, Bain Capital, KKR, The Blackstone Group, various sovereign wealth funds, etc. would swoop in and invest (recapitalize) in the banks.
But as Ralph Waldo said, "Events are in the saddle and ride mankind." He was probably thinking of DOW 8600 -- or a market falling 27.5% since Paulson first published his 3-page plan.
If Paulson's plan might once have worked, its prospects don't look altogether that good, today.
So -- we're all Swedes, now!
October 9, 2008 8:05 PM | Reply | Permalink
I agree. The rapid pace of events means the ground is constantly shifting, and old plans might be rendered obsolete. What I don't see is that this means Paulson should just start dishing out the $700 billion in a seat of the pants fashion.
October 9, 2008 9:30 PM | Reply | Permalink
Oh, and I don't think there is any tinfoil or aluminum hat thinking going on here, Ellen. Reed is clearly an Obama surrogate and has been identified as such in media reports, for example here. He has also been identified as one of Obama's two top advisers on telecommunications issues, and an all around heavy inside hitter for the campaign.
Wapo, 2007:
Still, Obama has lured many establishment donors and fundraisers from the former president's team. Both of the Clinton Federal Communications Commission chairmen -- Reed Hundt and William E. Kennard -- have jumped to Obama, bringing instant credibility and lengthy Rolodexes in the wealthy telecommunications and Internet industries they once oversaw.
I assume it is part of Reeds's voluntary role in the campaign to participate in blogospheric outreach by conveying some of the daily talking points to us down here in the bloggy masses. He always seems to be on message, and doesn't seem to deviate much from the line du jour.
I don't know as much about Dean Baker's role in the campaign. But I do know that he and Iowa's governor have both been working for Obama in Iowa on an Economic Security Tour.
Now this is all great, since I am a big Obama supporter as well. But when two prominent campaign insiders like Dean and Reed suddenly post back to back messages on the same topic, essentially stating the same message with the same tone, without much argument but with a certain amount of forceful rhetoric, I have to suspect that this is a message the campaign is putting out, and ask myself why this is the message they want to push.
Perhaps it is part of an effort to counter McCain's new, half-baked mortgage plan by turning up the heat and putting the focus back on the Bush administration?
October 9, 2008 10:53 PM | Reply | Permalink
I really doubt the two of them are working in cahoots.
Reed's plan, denunciation, supplication -- whatever it is, it's utterly incoherent -- is a far cry from Dean's recommendation to go "British" -- that is, to inject capital and take back equity .
If they got together to talk about the bailout (Oops! the rescue) plan, we can be confident that neither listened to the other.
October 10, 2008 3:08 AM | Reply | Permalink
Not in cahoots, but reading from the same script.
But maybe it's just that they both suddenly got very, very scared on the same day. That's not out of the question. Reed is probably watching what is happening with telecom stocks.
Dean Baker's scattershot message now seems to be:
There is no crisis!
but...
We need to address it fast!
A couple of weeks a go he was telling us this was all a scam to bilk money from taxpayers. Now it's "Faster, please!"
October 10, 2008 8:09 AM | Reply | Permalink
When did you finally get suspicions that the name of this site, "Talking Points Memo," was not intended as a parody? I'm real slow on that front, it took me a couple months into the primary before I started seeing it. :-) (I would read what the daily talking points memoes were from the Obama campaign on Ambinder or Yglesias, and then I'd come here and find them the topic du jour--except perhaps for Greg Sargent, in my experience, he tries to deconstruct talking points, hence the displeasure many commenters have with his work, depending upon whether they are supporters of the campaign being analyzed.)
October 10, 2008 11:03 PM | Reply | Permalink
LaRouche: It's The Derivatives, Stupid!
The Hyperinflationary Bomb Crushing The International Financial System
October 9, 2008 (LPAC)--Lyndon LaRouche today mocked Treasury Secretary Hank Paulson's bailout scheme, warning that “Paulson and all the other central bankers have been lying through their teeth about their ever-changing so-called bailout swindles. The real problem, that none of them wish to talk about, is the mass of derivatives obligations, that are in the quadrillions of dollars.”
LaRouche called the derivatives bubble the “hyperinflationary bomb, crushing the international financial system,” warning, “Until you just shut down the whole derivatives trade--wipe these gambling obligations off the books of the financial system--you are just kidding yourself.” LaRouche declared, “It is time to break the silence on derivatives. The true, hyperinflationary factor in the situation is the unregulated, insanely leveraged derivatives trade. This is what is killing us. This is the great crime of Alan Greenspan.”
According to the most recent data, released June 30, 2008 by the Office of the Comptroller of the Currency, the three largest American bank holding companies, JP Morgan Chase, Bank of America and Citicorp, had current outstanding derivatives contracts, totaling $179.4 trillion dollars. The three banks combined have total assets of just under $5.6 trillion!
As of Dec. 31, 2007, according to the Bank for International Settlements, the total over-the-counter and exchange-traded derivatives totaled more than $675 trillion. However, these “authoritative” figures are, according to Executive Intelligence Review analyst John Hoefle, grossly understated. The true figures, Hoefle estimated, are well-above a quadrillion dollars.
LaRouche concluded: “Unless and until you deal with this derivatives bubble, which cannot and should not be bailed out, you are just kidding yourself. It is time for Hank Paulson to swallow the only real medicine: bankruptcy reorganization of the entire, dollar-based financial system. And the first step in any such bankruptcy reorganization would be the cancellation of these quadrillions of dollars in pure gambling obligations. Without such action, this planet is doomed to a horrible dark age, just like the dark age of the 14th century, that followed the collapse of the Lombard banking system.”
October 9, 2008 7:42 PM | Reply | Permalink