“You Can’t Spend Your Way Out Of Recession Or Borrow Your Way Out Of Debt” British MP Daniel Hannan, A Voice In The Wilderness

British Member Of Parliment Daniel Hannan is reaching Pop-Star type status in Britian with his calls for a return to Capitalism.

Hannan compares the present spending and “bailout” craze with the Central Planning undertaken by the old Soviet Union.

EU Presidency: Obama Plan is “A Highway to Hell’

 Fox NewsSTRASBOURG, France —  A top European Union politician on Wednesday slammed U.S. plans to spend its way out of recession as “a way to hell.”
Czech Prime Minister Mirek Topolanek, whose country currently holds the EU presidency, told the European Parliament that President Barack Obama’s massive stimulus package and banking bailout “will undermine the stability of the global financial market.”

A day after his government collapsed because of a parliamentary vote of no-confidence, Topolanek took the EU presidency on a collision course with Washington over how to deal with the global economic recession.

Most European leaders favor tighter financial regulation, while the U.S. has been pushing for larger economic stimulus plans.

Topolanek’s comments are the strongest criticism so far from a European leader as the 27-nation bloc bristles from recent U.S. criticism that it is not spending enough to stimulate demand.

They also pave the way for a stormy summit next week in London between leaders of the Group of 20 industrialized countries.

 

The United States plans to spend heavily to try and lift its economy out of recession with a $787 billion economic stimulus plan of tax rebates, health and welfare benefits, as well as extra energy and infrastructure spending.

“We need to read the history books and the lessons of history and the biggest success of the (EU) is the refusal to go this way,” he said.

“Americans will need liquidity to finance all their measures and they will balance this with the sale of their bonds but this will undermine the stability of the global financial market,” said Topolanek.

http://www.foxnews.com/story/0,2933,510445,00.html

Post Script: Apparently, Prime Minister Topolanel is a fan of the Austrailian Rock Band AC/DC.  The Prime Minister states that he has been misquoted – the statement above should read  – “Obama’s Plan will put us on the “Highway To Hell”. Something didn’t translate quite right. The Prime Minister had recently attended an AC/DC Concert and the song was stuck in his head. “Highway to Hell” references in political speeches! “Stairway to Heaven” as musak in elevators. I guess ” the times they are a changin”.      

Nobel Prize Winners Trash Geitner’s Plan For Toxic Assets

THE NEW YORK POST

Even the best and brightest brains in economics the Nobel laureates aren’t unanimous on whether the Treasury’s plan to rid banks of toxic assets will rescue the economy.

Debate arose yesterday among the more than 50 living winners of the acclaimed prize, with a lopsided ratio of 9-to-1 giving Treasury Secretary Tim Geithner’s plan a public thumbs-down.

Three Nobel winners Edward Prescott, president of the Federal Reserve Bank in Minneapolis, and economics Professors Vernon Smith and James Buchanan stood by their joint statement months ago that Congress was playing in fantasyland with the huge bailout.

They call the rescue effort “a triumph of hope over experience to believe that more government will help the United States today.”

Nobel winner and Columbia University Professor Edmund Phelps said Geithner’s plan to buy toxic bank assets “is a non-starter” despite its warm reception on Wall Street.

Nobel economist Robert Aumann said efforts by Federal Reserve boss Ben Bernanke “weren’t smart.”

“The intervention by the regulators will lead to further bankruptcies of banks and insurance companies,” he said. “They are only encouraging institutions to take more risks.”

But economist Michael Spence, a co-winner of the 2001 Nobel, came out in support of Geithner, saying his plan “could work.”

“This program is crucially dependent on the private sector,” he said.

But Spence’s co-winner, Joseph Stiglitz, isn’t so sure.

“You can take the bad assets off the banks, but where are they going to go?” Stiglitz told Bloomberg.

Meanwhile, 2008 winner and Princeton University economist Paul Krugman said he’s so sure the Geithner plan will fail “that it fills me with a sense of despair.”

http://www.nypost.com/seven/03252009/business/nobel_laureates_trash_plan_for_toxic_ass_161158.htm

Treasury’s latest “Toxc Asset” plan – The Return Of The Bush Plan – Taxpayers Take The Risk – Hedge Funds Take The Profits: By MSNBC

Treasury’s latest plan faces pitfalls

Government seeks private partners, but taxpayers bear the risks

By John W. Schoen
Senior producer
msnbc.com
After months of speculation and false starts, the Treasury Monday announced a new plan to deal with the so-called “toxic assets” that have been weighing down the financial sector and clogging global credit markets.

The announcement by Treasury Secretary Tim Geithner was greeted by a big rally on Wall Street but leaves unresolved some major hurdles that have plagued the rescue plan since October, when the Bush administration first floated the idea to deal with the troubled assets. And the new plan leaves unanswered the biggest question echoing from Wall Street to Main Street: Will it work?

With private investors still loath to step up and buy mortgage-backed securities and related assets, the latest Treasury plan shifts much of the risk to taxpayers. By partnering with the government, a few big investment funds will have a chance to profit off the toxic assets, sharing any proceeds with the government. But if the investments don’t pay off, taxpayers will bear most of the risk. [Who decides who gets to participate and have a shot at making a profit? Will politicians be rewarding their political cronies again?]

“There is no doubt the government is taking risks,” Geithner told reporters. “You can’t solve a financial crisis without the government taking risks.”

In addition to the risk of taxpayer losses, there is also the risk that the government could set such a low price on the toxic assets that it could actually worsen the credit crunch.

The new plan will draw on up to $100 billion in funds already approved by Congress under the  Troubled Asset Relief Program, as well as additional funding from the Federal Reserve. The government will match private investment dollar-for-dollar, and the Federal Deposit Insurance Corp. will put up significant backing, up to $6 for every $1 invested, in exchange for a fee.

[The Government will provide 70% to 90% funding of the “toxic asset” purchases] 

The FDIC funding will be in the form of “non-recourse” loans, meaning private investors will be allowed to walk away from their investment if it goes bad, leaving the government with the failed investment and any losses on the loan.

[This isn’t a “partnership” in a “partnership” all parties share in the “profit or loss” – generated from the relationship. This is simply a giveaway of Taxpayer Dollars under the disguise of “partnership”] 

After months of preliminary discussions with potential investors, the Treasury is now moving quickly; private firms have to apply by April 10, and the government will respond by May 1. Some of the nation’s biggest money management firms, including PIMCO and BlackRock, are considered likely candidates. The Treasury is expected to limit the list to a half-dozen firms at most. [Who deicdes who gets to participate? Blackrock or Blackrock Financial is a Hegde Fund or Holding Company. http://en.wikipedia.org/wiki/BlackRock, Black Rock was involved with “no credit score” no “FICO” Mortgage Loans in California. http://www.blackrockloan.com/ . http://www1.blackrock.com/. PIMCO is a Bond Fund – http://www.pimco.com/Default.htm, http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=PZ&date=20090320&id=9715984 ]

What’s the ‘market’ price?
At the height of the housing boom, investors couldn’t get enough of the mortgage-backed bonds Wall Street was churning out by the boatload because these investments offered a good return for what seemed like little risk. [The Plan returns to the “source” of the problem and rewards the same actors].

But when it became apparent that sloppy mortgage lenders had doled out hundreds of billions of dollars to people who couldn’t pay it back, no one wanted to touch investments backed by mortgages. With no way to sell them, banks are now stuck with trillions of dollars worth of assets they can’t properly value. That’s clogging up the global flow of credit.

WOW – at least $5 Trillion in additional Government spending – $5 Trillion in additional Tax Dollars. When will it stop.

http://www.msnbc.msn.com/id/29839898/page/2/

Though roughly 90 percent of mortgage holders are still making payments, investments backed by mortgages are selling for only 30 to 60 cents on the dollar. The reason is that — with unemployment rising and home prices falling — no one knows which mortgages will be the next to default. So banks have been forced to write down the value of these investments and take huge losses to cover the write-downs.

The Treasury is hoping that by jump-starting the private market with a massive shot of government investment and lending, prices of these assets will stabilize and banks can either sell them off or assign them a more realistic value on their books. [Why would this happen – the asssets are being purchased with Government funding, the Government funding 70% to 90% of the pruchase. The Plan will simply create two classes of investment vehilces – Risky, Government backed Mortgage based securities and risky Mortgage backed securities not backed by taxpayer dollars. To imply both groups wil be treated equally in the market place is ridiculous. Fundamental change to the Government Programs that created the “bogus bad mortgages” is what is required if one wants to restore confidence in “mortgage backed securities”. This proposal not only leaves the risk with the Taxpayer – it is a solution akin to blowing smoke away from a fire, it will give you a better look at the fire but won’t put the fire out]

The plan still faces a major hurdle that’s dogged rescue efforts since the Treasury first unveiled a plan to buy mortgage-backed bonds last October. If banks in the deepest trouble need to raise cash by unloading their troubled assets on the cheap, much the way they’re dumping foreclosed houses at distressed prices, that “market” price for one set of bad loans could force other banks to take bigger write-downs on their holdings. [So the Congress and the Treasury can send more Taxpayer Money to the Financial Institutions – What a scheme] 

Banks may also have second thoughts about selling their “toxic” investments at any price, because bankers believe that most of these assets won’t be toxic forever. Since most mortgage holders will eventually make their payments, many of these investments should recover much of their lost value once the housing market and economy stabilize. If the Treasury purchase program sets a market price that’s too low, banks could decide to sit on these investments for years — producing the opposite effect the Treasury is trying to achieve. [Payments through the Mortgage Rescue Plan – Isn’t it time to pause and let all of these programs catch up with each other, instead of pursuing this shot-gun approach that requires throwing Trillions of Taxpayer Dollars at every issue simultaneously] 

The Treasury’s buyback plan also could be affected by a proposal now working its way through Congress that would change the so-called “mark to market” accounting rules that force banks to take big losses on investments that may some day recover much of their lost value.

With Congress in an uproar over bonuses paid to executives at bailout-recipient AIG, some potential private investors also have been reluctant to sign on for fear that the rules may change after the game has begun. The Treasury is trying minimizing that risk by promising firms that participate in the purchase plan they won’t be subject to executive compensation caps added to the original TARP plan.

But some on Wall Street fear Congress may yet enact rules that undercut the appeal of partnering with the government.

“The dark cloud on the horizon is this congressional hysteria against pay and redesigning the terms of a contract after they’ve been written,” said Steve Bartlett, CEO of the Financial Services Roundtable, an industry lobbying group. “I think Wall Street is just sort of justifiably holding back because of that.”

As anger in Congress has risen, the odds have fallen on the possibility of additional bailout funding. But key portions of the Treasury’s plan don’t require congressional approval. That’s because the program draws much of its funding from the independent Federal Reserve and from the FDIC, which can draw on its own assets. [The whole program subverts the Constitutional Separation of Powers and prevents regualtion of the actions by Congress – so the same “guards” who were on duty when this mess started are in now charge and they get to choose who participates – Isn’t this a sure formula of disaster for Taxpayers]

 

 Despite the unimaginably large pile of money being funneled into the financial system, some of those involved in the plan say that — even if it works — it’s only a down payment on the eventual solution.   

“Its fair to be optimistic; that’s the way Americans should be leaning,” said Bill Gross, chief investment officer at PIMCO, one of the nation’s largest bond funds. “But the hole here is a $5 trillion-plus whole in terms of assets and capital destruction.  I think we’ve only gone about half of the way and the will be additional programs to come.”

[How much of the $5 Trillion goes to PIMCO Clients at Taxpayer Risk?] 

 

Obama’s Toxic Asset Plan – Who Benefits, The Hedge Funds – Plan To Be Announced Monday

A Trillion More In Taxpayer Money

Treasury’s toxic asset plan could cost $1 trillion

Geithner releases initial outlines of proposal to be unveiled on Monday

Treasury Secretary Timothy Geithner intends to announce Monday aims to use the resources of the $700 billion bank bailout fund, the Federal Reserve and the Federal Deposit Insurance Corp.

The plan relies on a new government entity, the Public Investment Corp. to help purchase as much as $1 trillion in toxic assets on banks’ books.

[You may have thought the Government was already doing this – for an explantion of where the money has been going up to now see: https://mcauleysworld.wordpress.com/2009/03/21/aig-cash-channelled-to-hedge-fund-millionaires/ ]

The initiative will seek to entice private investors, including big hedge funds, to participate by offering billions of dollars in low-interest loans to finance the purchases and also sharing risks if the assets fall further in value. [The same Hedge Funds that have been receiving our “Bailout Dollars” to purchase “bad debt insturments” at 100% of face value – will now use those same “bailout dollars” paid out of American Taxpayer Dollars – to repurchase the same assets – but at 20 cents on the dollar – This is a criminal conspiracy of the highest order. For the Hedge Funds who received our bailout dollars there is no “risk” at all – only more profit at taxpayer expense] 

http://www.msnbc.msn.com/id/29817617

Is Geitner complicit in this scheme or just a  “fall guy” or “patsy” to take the blame when the facts become public knowledge? Is this why he can’t find qualified individuals to join his staff at Treasury? 

BACKGROUND:

1). Banks lend money and obtain mortgages

2) Most Banks do not “hold the mortgages until they are paid off in 30 years.   The Banks “sell” the mortgages as “mortage securties” to investors – most notably “Hedge Funds” – like the ones run by Madoff and Stanford.

3). The investors/Hedge Funds ”insured” these securities through firms like AIG and Goldman Sachs. With CDOs (credit default swaps) and other “instruments”.

4). The Bailout dollars have been going in the front doors of banks and firms like AIG and straight out the backdoor to the Hedge Fund Firms and other investors. The great bulk of Taxpayer money spent to this date has not gone to restoring the economy or creating jobs but has instead gone to make the Billion dollar Hedge Funds, their Managers and Investors whole.

5). The governemnet did not even negotiate on the amounts paid out – the Hedge Funds have been paid 100 cents on the dollar. In some instances the Government overpaid by as much as 500%  – Incredible Government waste in what could be a “criminal enterprise”.

6). These same Hedge Funds, their investors and the Foreign Banks who received the Taxpayer Bailout dollars will now be offered the chance to repurchase these same “assets”, using the “bailout money” that was “channeled” to them through firms like AIG. Repurcahse the same assets at 20 cents on the dollar. An immediate 80% profit at taxpayer expense.

7). At a minimum, this effort exposes the incredible failure of the previous bailout activities and an almost unimaginable amount of Government waste. The same parties to receive the “bailout cash” are now being ”invited” to “repurchase” the same investments.

Who Do You Think Benefits From The Ongoing Bailout Schemes? Tell Congress the Bailouts Were A Bad Idea to Begin With – To Stop Them Now!       

 

AIG was a hedge fund attached to a stable insurer, says Bernanke

Wednesday, March 4, 2009

Federal Reserve chairman Ben Bernanke was widely quoted as criticising AIG in a Senate hearing yesterday. “I think if there’s a single episode in this entire 18 months that has made me more angry, I can’t think of one, than AIG,” he said, according to various press reports. He added that was angry about the way AIG had strayed from its core insurance business and took unmonitored and unnecessary risks through its financial products unit, describing AIG Financial Products as a hedge fund attached to a large and stable insurance company.  http://www.creditflux.com/Structured/2009-03-04/AIG-washedge-fund-attached-tostable-insurer-says-Bernanke

AIG Bonus Flap – Administration Emails Document Discussions In November 2008

 Treasury officials proposed limiting annual bonuses for all employees of American International Group in November, as they were negotiating the government’s first investment in the troubled firm, according to a document obtained by FOX Business.

In a Nov. 5 e-mail to a Treasury and Federal Reserve officials, an outside attorney working on the transaction wrote, “We indicated that UST (United States Treasury) … wants to put in place a limitation on annual bonuses that assure that (AIG) executives/employees will not be enriched out of TARP funds.”

But the e-mail indicates AIG officials pushed back on the proposal. In a section of the e-mail discussing proposed limits on severance packages for AIG employees, the attorney wrote, “They were slack jawed at the idea of imposing the restriction throughout the entire population, especially worldwide.” AIG proposed that Treasury apply such limits “to a class of partners and senior partners (700).”

At another spot in the e-mail, the attorney said about AIG executives, “They will think about ways to deal with the ‘no enrichment’ point. In this connection they again raised the size of the applicable group and kept coming back to ‘700’ as a meaningful, and possibly workable, group for limitations.”

The e-mail also indicates that in their deliberations, government officials were concerned about the effect of compensation on recruiting and retaining AIG employees.

“We also indicated that all parties understand that the restrictions must be designed so that the business can be operated in a reasonable way, including in terms of recruitment and retention of employees,” the attorney wrote in the e-mail.

A key argument in AIG’s defense of its bonus practices has been that bonuses are needed to recruit and retain key employees.

A Treasury official in the department’s general counsel office, Stephen Albrecht, wrote in response to the attorney’s e-mail, “See below. Looks like AIG has some creative thinking to do, but we’ll need to decide to what extent we’re willing to bend.”

Government officials eventually decided to restrict compensation at AIG to just the top 75 company executives. The Treasury agreed to invest $40 billion into AIG.

Congress is considering legislation to limit bonuses at AIG after the company and Treasury disclosed it paid $165 million in 2008 bonuses last week to 400 employees at the AIG’s financial products unit, the division that nearly put the company into bankruptcy last year because it sold insurance coverage on risky securities held by other financial firms.

The Treasury and Fed have committed more than $170 billion to AIG as it seeks to restructure and sell assets. The latest version of the bailout includes a Treasury commitment to invest another $30 billion in the company. AIG has not tapped the funds yet. Treasury officials say they are negotiating tougher limits on bonuses as a condition for dispensing it.

http://www.foxbusiness.com/story/markets/industries/finance/exclusive-treasury-officials-proposed-limiting-bonuses-aig/

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