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The Senate tonight passed the “Paul Wellstone Mental Health and Addiction Equity Act of 2007″.   Why should you care?  Because it’s the single largest, most intrusive, most budget busting bill ever passed.

In case you’re wondering, the “Paul Wellstone Mental Health and Addiction Equity Act of 2007″ is the name of the Senate version of the bail out bill.   I’m serious.  And I’m serious about kicking both of my Senators (Corker and Alexander) out.  On their asses.  Hard.  Because both of their asses voted for this monstrosity.

The bill passed 74 to 25.  You can see how your Senators voted here.

Take a minute and read some of the highlights of what’s in the bill.  Here are a few quotes.  Let me know when you figure out what the hell this has to do with the “Paul Wellstone Mental Health and Addiction Equity Act of 2007″ - or how these items will somehow make the bill more palatable to House Republicans.

The package adds provisions to the House version - including temporarily raising the FDIC insurance cap to $250,000 from $100,000. It says the FDIC may not charge member banks more to cover the increase in coverage.

The bill allows the FDIC to borrow from the Treasury to cover any losses that might occur as a result of the higher insurance limit (This is the dumbest thing I’ve ever heard - prohibit the FDIC from raising insurance rates - while allowing them to “cover any losses” (yes, it’s UNLIMITED) by borrowing from us.  STUPID!)

Here are some other financial bail out items included in the bill that I’m sure Corker and Alexander think we needed….

a deduction for the purchase of solar panels….

allow individuals to deduct state and local sales taxes on their federal returns….

relief for another year from the Alternative Minimum Tax….

Here’s the kicker - and I quote “The Congressional Budget Office said it cannot estimate the net budget effects of the troubled asset program because of the many unknowns about that piece of the bill.”

The dumbass Senators who voted for this bill didn’t have a fucking clue as to what they were voting on - because “of the many unknowns” contained in the bill!

PLEASE - Call and write your Representatives.  Now.  I mean right now, not tomorrow morning, don’t wait, DO IT NOW.  This financial nightmare that’s being ramrodded down our throats can still be stopped if enough people express outrage.  If the House doesn’t pass it - it won’t become law.  It’s that simple.

God help us (and our kids) if this gigantic takeover of the private sector goes through.  I’m only 46 and there’s no way to pay for it in my lifetime - it’s borrowed from my kids and their kids.  STOP THE MADNESS NOW!

Someone must have screwed up, because when Bush made his speech the other night, he actually got part of it right.  In the past 7 years, you can probably count on one hand the number of times that has happened.  It’s probably lower than mere chance would allow!

I’ve said it before, but it bears repeating - GWB is the worst president in my lifetime - perhaps ever.  I’m 46, so that includes such fuck ups as LBJ, Nixon (who actually bears the brunt of the blame for removing us from a semi-gold standard which led to the financial mess of today) Ford, Carter (I didn’t think anyone could ever top Carter in incompetence!), and Bush I.

The Daily Show had a great segment last night comparing the speech Bush made before the start of the Iraq invasion to the one he gave Wednesday night.  Pretty hilarious!  Terms like “crisis”, “immediate action”, “urgent”, etc, were used in almost the exact same context in 2003 as they were in 2008 - and both were mostly lies.

Anyhoo - here’s the part that Bush got right.  I’ll highlight a few things that I feel are especially pertinent to this “crisis”.

Here’s part of Bush’s speech as transcribed on Whitehouse.gov:

First, how did our economy reach this point?

Well, most economists agree that the problems we are witnessing today developed over a long period of time. For more than a decade, a massive amount of money flowed into the United States from investors abroad, because our country is an attractive and secure place to do business. This large influx of money to U.S. banks and financial institutions — along with low interest rates — made it easier for Americans to get credit. These developments allowed more families to borrow money for cars and homes and college tuition — some for the first time. They allowed more entrepreneurs to get loans to start new businesses and create jobs.

Unfortunately, there were also some serious negative consequences, particularly in the housing market. Easy credit — combined with the faulty assumption that home values would continue to rise — led to excesses and bad decisions. Many mortgage lenders approved loans for borrowers without carefully examining their ability to pay. Many borrowers took out loans larger than they could afford, assuming that they could sell or refinance their homes at a higher price later on.

Optimism about housing values also led to a boom in home construction. Eventually the number of new houses exceeded the number of people willing to buy them. And with supply exceeding demand, housing prices fell. And this created a problem: Borrowers with adjustable rate mortgages who had been planning to sell or refinance their homes at a higher price were stuck with homes worth less than expected — along with mortgage payments they could not afford. As a result, many mortgage holders began to default.

These widespread defaults had effects far beyond the housing market. See, in today’s mortgage industry, home loans are often packaged together, and converted into financial products called “mortgage-backed securities.” These securities were sold to investors around the world. Many investors assumed these securities were trustworthy, and asked few questions about their actual value. Two of the leading purchasers of mortgage-backed securities were Fannie Mae and Freddie Mac. Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk.

There’s not much disagreement anyone should have with that.  One point that I want to make sure everyone understands is what started this process - the Feds lowered interest rates too far, and kept them artificially low for waaaay to long.  Individuals and institutions basically had free money to play with - and they played.

I’m in the IT business, and when we have a problem, we conduct a “root cause analysis” which examines the real cause of the problem, then we use that info to figure out how to prevent the problem from happening again - ever.

So, root cause for this “crisis” is the Federal Reserve interest rate policy from about 2002 through 2005.  Still with me?  Good.

So, what enabled the problem to continue until it reached “crisis” proportions?   Fannie and Freddie - the Government Sponsored Enterprises (GSE’s) - bought up the bad debt from the companies who originated the bad loans - enabling them to originate more bad loans because they didn’t have to worry about being paid back.

Fannie and Freddie had already paid them, so they had money to lend to make more bad loans…. Which they sold to Fannie and Freddie which enabled them to make more bad loans….  Which they sold to - I hope you get this, because I don’t want to say it again!

Ok, still with me?

There’s one last key part that needs to be mentioned.  The part where Bush said “many believed they were guaranteed by the federal government”. This is key because investors (including many foreign governments, hedge funds, and state pension funds) bought the mortgage backed securities from Fannie and Freddie specifically because they had an implicit guarantee from the federal government - after all, what does “Government Sponsored Enterprise” mean?

So what’s the key ingredient in all of these key points?  The government.  The federal government created this mess, the federal government kept it going and growing long after normal market forces would’ve caused it to slow down or stop, and the federal government got gullible investors to buy up the toxic crap, repackage it, and sell it to other (still more gullible) investors.

This same government is the one who now says they need $700 billion and a bunch of new regulations to clean up the mess.  And a bunch of people and gullible investors believe them!  Give me a break!

Here’s the gk plan - let the stupid assholes who spent more than they could afford, gave loans to people who couldn’t pay them back, and bought the loans from the people who originated them - let them all eat cake.

Let them go broke.  Wiped out.  Bankrupt, disappear, and otherwise vanish.  The are stupid and they should reap what they sowed.  Idiots!

But that’s not Bush’s plan.  His plan is to make all of us fork over our money to bail out these stupid people.  That’s a dumb plan.  I don’t care if it’s called a bail out or a rescue, it’s still a dumb plan

gk

This needs to be read by more people, so more people can contact congress to let them know what they think of it.  I’ll post the reasons for my own thoughts later (I think it sucks!) but for now, here’s the text of the proposed plan according to the NY TImes.  Please read it and let congress know what you think!

gk

LEGISLATIVE PROPOSAL FOR TREASURY AUTHORITY

TO PURCHASE MORTGAGE-RELATED ASSETS

Section 1. Short Title.

This Act may be cited as ____________________.

Sec. 2. Purchases of Mortgage-Related Assets.

(a) Authority to Purchase.–The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.

(b) Necessary Actions.–The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation:

(1) appointing such employees as may be required to carry out the authorities in this Act and defining their duties;

(2) entering into contracts, including contracts for services authorized by section 3109 of title 5, United States Code, without regard to any other provision of law regarding public contracts;

(3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;

(4) establishing vehicles that are authorized, subject to supervision by the Secretary, to purchase mortgage-related assets and issue obligations; and

(5) issuing such regulations and other guidance as may be necessary or appropriate to define terms or carry out the authorities of this Act.

Sec. 3. Considerations.

In exercising the authorities granted in this Act, the Secretary shall take into consideration means for–

(1) providing stability or preventing disruption to the financial markets or banking system; and

(2) protecting the taxpayer.

Sec. 4. Reports to Congress.

Within three months of the first exercise of the authority granted in section 2(a), and semiannually thereafter, the Secretary shall report to the Committees on the Budget, Financial Services, and Ways and Means of the House of Representatives and the Committees on the Budget, Finance, and Banking, Housing, and Urban Affairs of the Senate with respect to the authorities exercised under this Act and the considerations required by section 3.

Sec. 5. Rights; Management; Sale of Mortgage-Related Assets.

(a) Exercise of Rights.–The Secretary may, at any time, exercise any rights received in connection with mortgage-related assets purchased under this Act.

(b) Management of Mortgage-Related Assets.–The Secretary shall have authority to manage mortgage-related assets purchased under this Act, including revenues and portfolio risks therefrom.

(c) Sale of Mortgage-Related Assets.–The Secretary may, at any time, upon terms and conditions and at prices determined by the Secretary, sell, or enter into securities loans, repurchase transactions or other financial transactions in regard to, any mortgage-related asset purchased under this Act.

(d) Application of Sunset to Mortgage-Related Assets.–The authority of the Secretary to hold any mortgage-related asset purchased under this Act before the termination date in section 9, or to purchase or fund the purchase of a mortgage-related asset under a commitment entered into before the termination date in section 9, is not subject to the provisions of section 9.

Sec. 6. Maximum Amount of Authorized Purchases.

The Secretary’s authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time

Sec. 7. Funding.

For the purpose of the authorities granted in this Act, and for the costs of administering those authorities, the Secretary may use the proceeds of the sale of any securities issued under chapter 31 of title 31, United States Code, and the purposes for which securities may be issued under chapter 31 of title 31, United States Code, are extended to include actions authorized by this Act, including the payment of administrative expenses. Any funds expended for actions authorized by this Act, including the payment of administrative expenses, shall be deemed appropriated at the time of such expenditure.

Sec. 8. Review.

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

Sec. 9. Termination of Authority.

The authorities under this Act, with the exception of authorities granted in sections 2(b)(5), 5 and 7, shall terminate two years from the date of enactment of this Act.

Sec. 10. Increase in Statutory Limit on the Public Debt.

Subsection (b) of section 3101 of title 31, United States Code, is amended by striking out the dollar limitation contained in such subsection and inserting in lieu thereof $11,315,000,000,000.

Sec. 11. Credit Reform.

The costs of purchases of mortgage-related assets made under section 2(a) of this Act shall be determined as provided under the Federal Credit Reform Act of 1990, as applicable.

Sec. 12. Definitions.

For purposes of this section, the following definitions shall apply:

(1) Mortgage-Related Assets.–The term “mortgage-related assets” means residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before September 17, 2008.

(2) Secretary.–The term “Secretary” means the Secretary of the Treasury.

(3) United States.–The term “United States” means the States, territories, and possessions of the United States and the District of Columbia.

Stop me if you’ve heard this one before….  The dollar and financial stocks fall, while gold and oil rise.  Damn, you already heard that one somewhere else? 

It’s a familiar refrain that seems to keep repeating, just like an obnoxious Barry Manilow song or that annoying dog commercial that goes “there might be bugs on some of you mugs but there ain’t no bugs on me”.  (Ha - now you’ve got it stuck in your head too!)

The reason that oil and gold continue to trend higher while the dollar and financial stocks continue to trend lower is one and the same - the Federal Reserve. 

The Fed continues to flood the system with cheap and/or free money.  It’s simple supply and demand.  There are more and more dollars but there hasn’t been a corresponding increase in the demand for those dollars.  So the amount of stuff a dollar will purchase continues to fall.

It’s called inflation, and it’s always CAUSED by the same thing - too much money chasing too few goods.  The classic way to explain inflation is that inflation “is always and everywhere a monetary phenomenon” (Milton Friedman) but it’s saying the same thing.

Even though this is nothing new, I’ve found that damn few people actually understand it.  And the more involved they are in the stock market, the less likely they are to understand it.  They blame inflation on rising wages, or rising oil prices, or the rising cost of (insert commodity here). 

They don’t understand that rising prices are CAUSED by too much money.  When the Fed injects billions of dollars into the money supply (without a real demand for the money) prices HAVE to go up. 

Pretend I have a blog that lots of people read (we’re pretending!) and visit everyday.  Now I take the blog posts that I write and post them on 7 other sites as well.  Assuming more people don’t want to read what I have to say, the number of people visiting each site would go down - even though the total number may stay the same.

Ok, maybe that isn’t the best analogy…. Try this one.  8 people are standing around a barrel of oil.  They all need that barrel of oil, and they’ve all got about $5 to use to purchase it.  Guess what the price of that barrel of oil will be?  Yup, about $5.

Now imagine that Uncle Sam gives (or lets them borrow cheaply) each one of them another $5.  There’s still only one barrel of oil, and all of them still need it.  How much will that barrel cost now?

Does that help?  That’s what the Fed is doing with dollars.  Helicopter Ben is doing everything he can to keep the over-leveraged financial institutions afloat, but he’s simply buying time.  Borrowing money to pay off debt never works - it simply delays the inevitable.

As the dollar loses value (because there are more of them in circulation) the amount of “stuff” each dollar can buy MUST go down.  So things like oil and gold go up BECAUSE the dollar is worth less. 

This sometimes isn’t obvious because with commodities like oil and gold (and corn and soybeans and wheat and rice and pork bellies) demand can also fluctuate and cause price movements, but the underlying cause is the same.  Too many dollars in the system.

Anyhoo, the major financial institutions all owe waaay more than they own.  And they’re finding out that as the value of their assets (and the payments they receive from those assets) fall, they suddenly can’t make the payments on their debt anymore.  But then the Fed comes riding in and lets them borrow more money (using the same assets which are falling in value as collateral) and suddenly everything is supposed to be ok…. Brilliant! (Not!)

There was a report by Reuters today saying “Federal Reserve Chairman Ben Bernanke told Freddie Mac chief Richard Syron that his company and Fannie Mae could take advantage of the emergency discount window, according to a source familiar with the conversation.” 

Since it’s pretty obvious to everyone that Fannie Mae and Freddie Mac are insolvent and going under unless someone steps in, this report was a catalyst for a huge rebound in the market today.  Investors were grasping at straws looking for something, anything to save the sinking financial ship.  They grabbed onto this report and stocks reversed course over 200 points and were even briefly into positive territory today.

Then they realized that even if the report was true, it didn’t change a damn thing.  So the market sold off again into the close. After the markets closed, the Fed denied the story - but I won’t be surprised if the Fed takes action over the weekend like they did with Bear Stearns. 

They know the companies are technically bankrupt, and they’ve got to act at some point.  I don’t know what they’ll do, but they won’t stand by while the ship sinks.  They’ll continue to bail water, only to eventually figure out that the water is coming in much faster than they can bail it out.  The ship will still sink, but they can drag out this soap opera for months. 

In my opinion, they should let it sink now so we can start building the new ship.

gk

I’m sure Henry Paulson is a bright guy, but you’d never know it from some of his public statements.  Here’s what he said today according to FoxNews:

“There are always difficulties during periods such as this. There may be more bumps in the road,” Paulson said in a statement to reporters at the conclusion of the meeting of G7 finance ministers and central bank governors.

Duh.

After meeting with the world’s top financial guru’s, the people who are supposedly in charge of their respective countrys’ economies, that’s the best he can come up with?  Anyone who’s read a paper, seen 10 minutes of TV news, or even glanced at the front pages of the NY Times, CNN, FoxNews, ABC News, USA Today, or Google News knows this drivel.

“There may be more bumps in the road.”  Way to go out on a limb Hank.  Do you think you could be bothered to actually say something pertinent next time?  Or should we expect more enlightenment like this from you in the future?

The complete incompetence of this administration continues to astound me.  I’m basically a libertarian, so I don’t want the federal government to actually do anything about the current financial mess, but I do expect them to know what’s going on, and to make statements that give us peons a clue as to what they’re thinking - that way we can prepare for the inevitable mess they’ll make of the situation.

I say inevitable, because they can’t help themselves.  The government is basically powerless to do anything constructive to repair the mess they helped to create - but that won’t keep them from passing a bunch of stupid, worthless, costly laws that we’ll all need to spend time and money on in order to make sure we’re in compliance.

I’m talking about the current financial mess, but you could apply the same statement “The government is basically powerless to do anything constructive to repair the mess they helped to create - but that won’t keep them from passing a bunch of stupid, worthless, costly laws that we’ll all need to spend time and money on in order to make sure we’re in compliance.” to damn near anything the federal government touches.

Wow - I just quoted myself one sentence after I wrote it.  That must be some kind of record….

Anyway, thanks for the warm fuzzies Hank.  You displayed your awesome intellect with your statement today, and I’l glad that you think there “MAY be more bumps in the road.”   Good stuff, you ought to pass that line onto Bush, as it would sound even more profound coming from his mouth.

gk