I’m writing this post on Sunday night, just hours after the U.S Congress tapped into our wallets for up to $700 billion in funds to bail out Wall Street for its addictive reliance on bad loans and risky credit deals.
In the process, and what you won’t read or see in the mainstream media, Congress bailed itself out, or tried to, anyway. Nancy Pelosi and Barney Frank can rail against deregulation all they want, but the real culprit in this historic economic slide was Washington’s political wish that everyone own a home. To that end, both the Clinton and Bush administrations used Fannie Mae and Freddie Mac to buy up mortgages after encouraging lenders to loosen lending rules to make sure even people with bad credit and who didn’t have a down payment could buy a home.
Investment bankers were only too happy to comply, mindful of a thirty-year run where housing prices rose steadily, thus feeding the tragically-misplaced perception that the good times would never end. At least President Bush, for all his faults, attempted to ring the bell and alert Congress in 2003, 2005 and 2007 (and finally, once again in 2008 that led to some reforms against Fannie and Freddie, but by then it was too late) about the cancer that had stricken both mortgage agencies.
Now we’re left with what one Republican GOP leader accurately called a “crap sandwich). Here are the details, based on a rundown tonight from the Associated Press.
“Under the Emergency Economic Stabilization Act of 2008, which is expected to come to a vote in the House on Monday, the Treasury Department gets $250 billion immediately to start buying up banks' and other financial institutions' least valuable mortgages and complex financial instruments backed by those mortgages.”
“If needed, an additional $100 billion is available at the discretion of the president, and a final $350 billion is on the table, unless Congress resolves to take it back. The president has the authority to veto such a resolution.”
“The measure also proposes limited caps on the pay and benefit packages of companies who receive the government rescue, strengthens government oversight of the program and adds an insurance program for financial companies' bad assets.”
“The plan, which still needs approval from both houses of Congress, would give the administration broad power to use taxpayers' money to purchase billions of home mortgage-related assets held by cash-starved financial firms. But it includes stronger spending controls at the insistence of lawmakers.”
Hmmm. The words “spending” and “controls’ are two we rarely see in the same sentence coming from Congress. But, time was short, we’re told, and Congress had to act (or react, as usual). We were assured by U.S. Treasury Henry Paulsen and Federal Reserve Chairman Ben Bernanke that, if no action, were taken, lenders would refuse to lenders, borrowers would be thrown under the bus, the stock market would tank, and dogs and cats would start living together. In other words, mass chaos.
Theoretically, you’d think that the global financial markets would be erupting in joy tonight. After all, this was the life saver that Wall Street and global markets were bleating for.
So far, all have in the early hours of Asian trading is a massive shrug. At 11 PM, EST in the U.S., Tokyo's benchmark Nikkei 225 index was up 0.46 percent at 11,947.65, but gains were limited by doubts over the effectiveness of the plan and lingering concerns about a global economic slowdown, analysts say. Hong Kong was worse off, as the Hang Seng index fell 2 percent, and South Korea's Kospi lost 0.8 percent. Benchmarks in Australia and Singapore were also down.
It just doesn’t add up. If the bailout agreement was supposed to trigger a market snapback, it hasn’t so far. I suspect that professional traders realize that there’s more, much more, under the surface in terms of toxic lending paper that is going to pin the global economy down for months, if not years.
We’ll know more after the European, and then the U.S. markets, open tomorrow.
But this whole thing stinks. And Congress, which had a huge role in getting us into this mess, is the last institution I trust to get us out.