±«Óătv

There should also be a conflict of interest clause where hanky panky and his mateys donate the upside in their portfolios (thanks to the 700B)to the homeless! ?
Would that be Christian??

All the politicians seem out of their depth and relying on US Treasury advice, which on recent past form isn’t that reassuring. The $700bn is plan A; is there a plan B in any shape or form or is this a one shot gamble?

And can the US Govt. actually afford to give away $700bn? What will this mean for future spending plans?

People used to hate and look down on Used Car salesman - now it's Bankers.

Perhaps this particular global financial system, which promotes short-termism and greed, doesn't warrant saving.

It is a good opportunity to review how to amend capitalism to ensure that it works towards common goals.

You can fool all of the people one time..
what a genius, Dubya has feathered his already well fluffy nest and ensured his septic mates are set for the next few months as they gradually withdraw / move their stocks or ensure they are part of the well paid 'consultation'/oversight groups..

His legacy is that whomever succeeds him looks like they will be drinking deep from the world's largest poison chalice..

Frankly, given what's being asked of the US taxpayer, I'd consider these concessions to be the bare minimum.

Limits on the pay of the executives of bailed-out banks - why the hell not. How can bankers expect to be bailed out by the taxpayer without paying a price.

The US government taking an equity stake in the rescued organisations - again, a perfectly logical and reasonable demand in the circumstances.

Whether the plan will ultimately work remains to be seen, but I cannot see how either of these concessions would undermine its effectiveness - unless, as Robert suggests, the bankers are mad enough to reject the plan rather than limit their pay, in which case they would surely be seen (by just about everyone, including shareholders) as no longer fit to run the banks.

i think the biggest risk is that the bailout is enough to stop the crisis (and therefore remove political impetus to do more), but is not enough to stop a prolonged period of stagnation a la japan. making it piecemeal (which arguably both paulson and congress have done) just increases this risk.

if too little debt is sucked out of the system (and all 700 may be too little, as many have commented), then the banks are left to slowly restructure their balance sheet over a long period of time on their own. their balance sheets may not be so bad that they are at risk of imminent bankruptcy. but they may be bad enough that the banks become super-conservative about lending. this could dampen the demand side of the us economy for a long long time.

even without this bailout, the us twin deficits (and therefore the supply of us treasuries) are already massive. i believe the government deficit is projected to hit 6% next year (happy to be corrected on this) without the bailout. moreover, the appetite of foreigners to finance all this borrowing is questionable, indicating there may be a collapse of the dollar in the near term. in such circumstances, it is very difficult to see how either monetary or fiscal policy can be used to help stimulate the demand side of the economy. and imo without jm keynes' tools available, the risk of the great depression (lite) would therefore be very high.

"Stinking septic bank"?
"Armegeddon skirted - for now "?

Journalistic hyperbole or what?

During the last US financial downturn the US created another "stinking septic bank" called the Resolution Trust Corporation to resolve the issue of failed housing loans, which successfully navigated its way to profit for the US taxpayer.

The toxic derivative trades with exotic names instigated by Wall Street "investment" banks are of course of a different order and like gamblers losses will never be repaid. Hence these banks have had to fold or change their status. To avoid their liabilities?

Given their activities they should have had addresses in Las Vegas not New York.

Does Robert Peston propose a socialist model of nationalisation for the banking system and means of production?

Argue about the warefores and whynots if you like - but we all know deep down that doing nothing will be much, much worse for everyone - and that includes the US Tax-payers I saw moaning about bailing out Wall Street on the TV news tonight.

I don't blame them for feeling sore, but I am afraid not bailing out Wall Street really could quite easily lead to the meltdown of their own job!

I go with the flow on this - $700bn or whatever the final figure is, is very probably the cheapest option!

ps: Its $700bn Robert - you have a typo in there that reads ÂŁ700. Quite a different amount! :)

Whether the concessions are real or just fig leafs to keep the voters calm, I'm not sure. Whatever! The reaction from outside the US must be extreme caution. The US has lived on foreign money. That money, trillions of dollars, is gone. Now, what needs to be made sure is that this does not happen again. Making it happen again will however be exactly what "Paulson's Plan" is all about.

why not nationalise the stock market?

What dilemma? The whole point about capitalism is that failed systems fail, isn't it? The bailout shouldn't "punish" anyone. The bailout shouldn't exist at all, if the tenets of capitalism are correct. Why do we wish to save the "global financial system" if it doesn't work?

But I'm just teasing. I know that as a hard-pressed taxpayer, paying 40% more this year for every staple I have to buy, it's my duty to pay the bonuses of the bankers (Cockney rhyming slang) who have brought us to this pass. Otherwise the "global financial system may fail.

Who do I vote for to throw the "global financial system into the recycle bin?

Chelyabinsk

Before suggesting that Mr Peston is biaised or guilty of lazy reporting, why don't you go read the terms of the RTC and see if you can work out what the difference between that and Paulson proposal is ?

I'll give you a hint; its the entire point of the blog......

Realistically, Paulson only needs this to work until February 2009 then it's no longer his problem (unless he is reappointed). Or am being too cynical this time?

For a while I've been fretting about why the US taxpayer is having to pick up the cost, but I've just realised that they are the most indebted nation on the planet and have been for far too long living way beyond their means. They also elected the current administration which has long ignored calls for regulation of the financial industry.

I just hope that it is only America which picks up the cost of the financial mess that we're in and not the rest of the world (although the UK has binged on many of the same cocktails so maybe we shouldn't be immune).

We all, governments included, need to stop borrowing and pay back the debt we've racked up. This bailout is yet more debt and I can't see that additional debt is going to solve the problem. Let's live within our means for a change, buy things we have saved for and fix it the right way!!!

i wonder why $700 billion, where did this figure come from?As even the banks don't seem to know what the toxic debt is, this amount may be totally inadequate. If so, can they come back for more, stating once again that the world will end if you don't cough up. The whole thing is flawed, if i go to Las Vegas and lose a million dollars can i then ask the tax payer to bail me out? of course not, so what is the difference, these people have gambled and lost. News just in, is that the beleaguered Washington Mutual is to sell its deposits and some branches to JPMorgan Chase, so once again, as in the case of Lehmans, the world hasn't ended, the market has sorted out the problem.

Robert, the text of the draft legislation (reproduced on FOX News website) read:

"The Secretarys authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding AT ANY ONE TIME"

Emphasis mine.

This is a rotating credit facility through which debt can be funneled without limit on total size, so long as no more than $700bn is present on its balance sheet at any one moment. It is like a credit card. Trillions of dollars can be moved through this.

Given the kind of loss estimates being bandied about on Bloomberg and CNBC, trillions is what we can expect. It has escaped most commentators' notice, but that loophole is the real mechanism, the real meat of the bill, and is essential to the plan's intended function. The banks will charge their bad debt to the card, and the taxpayer will pay it off again and again. Alternatively, monetisation in installments.

Please check the wording of the proposal. How would $700bn being a size of installment rather than final bill affect your support for this proposal?

Punishing? Isn't is called 'avoiding moral hazard'?

As far as I can tell the main reason some Republicans don't like the idea of the Treasury taking an equity stake is that they government even less than the bankers. Nice to see that the right can do self-loathing, too.

Septic Bank.

Brilliant, the imagery it conjures up is so apt.

There is already a market model for assistance, Warren Buffet's deal with Goldmans.

A slug of preference shares at a guaranteed 10% coupon with a guaranteed 10% premium to buy them back plus options on terms to buy more. If this is what GS were prepared to accept (and by most accounts they are in a position to strike a good deal compared to many banks), why should the taxpayer bailing out lesser institutions take a rougher deal?

The naked cynicism of Paulsons attempted unfettered grab of taxpayers money almost (but not quite) defies belief. I have never been a conspiracy theorist, but I'm getting there!

Abraham Lincolns comments on the Money Power seem prophetic, "I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. As a result of the war,
corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed. I feel at this moment more anxiety for the safety of my country than ever before, even in the midst of war.

...and in one case...

"These capitalists generally act harmoniously and in concert to fleece the people, and now that they have got into a quarrel with themselves, we are called upon to appropriate the people's money to settle the quarrel."

This is all a moral question.
Is it right to do this from an ethical standpoint.
Does capitalism work, if not then get agreement from these fiscally adventurous companies en-mass to change it.
Then give them the bail out with a new social aspect to the profits.

Personally I believe these CEO's and senior bankers who have for years claimed the morality of the markets in setting remuneration and agressive pricing and manipulations should die by their own swords.

Either we have a big mess that is allowed to resolve itself as markets do, taking with it the crappiest of those involved, or we end up sharing the pain and prolonging it for possibly decades (it has been alluded to here already with the staglation economy that has plagued Japan for over a decade).

Personally since I have never perceived myself benefitting from the vast market forces (my pension after 13 years invested in the equities issued by these organisations is still worth less than the physical cash that was placed into it, partial blame for that is due at the doors of one insurance company "Legally" not obliged to honour any promises it 'Generally" made when the policy was sold), I would prefer to see a slate wiping resolution, and a natural rebuild.

Be men and have faith in your markets, not Boys running off to nanny state.

If Congress has any balls, they will not allow this to pass at any price.

I simply don't believe that $700 billion dollars will cover this crisis. It is a woefully small figure. All this is about is increasing the US national debt to even higher levels so the Federal Reserve can charge the US government interest on it as usual, and for some unnamed individuals to buy assets at rock bottom prices with taxpayer funds and make a killing later. It will not be the US taxpayer, or the ordinary person, who will benefit. The whole plan is bare faced and breath taking in its audacity.

The vast majority of people simply do not understand that the Federal Reserve makes money off the back of US national debt, and there are decades of political manoeuvring and posturing involved in this whole situation, quite apart from any crisis that might be going on.

Juts read WerringtonSilent's comment. Yes, it is basically a revolving door of credit, not one lump sum.

A small correction, Mr Peston. The campaigner against filth was Mrs Whitehouse. The place from which this particular bit of toxicity has emerged is the White House - two words.

The fact that this is all hapening now just 40 days before the USA elections ,means that the voters will get to decide which of the contending parties is greediest [apart from themselves]after examining the terms of the bail out agreement as it is hammered out

Obama vs Paulson David vs Goliath

Until the banks are recapialized the credit markets will not be able to make provision for significant reamortisation and new housing loans ,on which the whole structure of debt and its associated risk can be reevaluated

The much hyped for evolution within an unregulated market environment , exaserbated by a pervasive nihilism sweeping into the new century ,has proved to be a delusionall and self destructive tragi/ comedy making the western developed world apear a laughing stock to the east

A virtuoso performance from Robert Peston last night who crucialy avoided the blame game , for those of you who missed it .

Interesting that the ±«Óătv only shows a statement from Obama and not from McCain. Another example of the leftwing press.

Bailout vs doing nothing is a false choice. There are alternatives. The stronger banks should be recapitalised from the remnants of the weaker ones. Seeing the bad debt exposed and the fittest survive will restore confidence in the market.

Otherwise when this comes here, ask yourself how much additional tax you are willing to pay and what public service you are willing to lose. Why not find a buy-to-let investor and help them pay their mortgages? Without the Treasury middleman that is where a bailout leaves you.

...'US taxpayers may well feel that their pockets have been picked, and that the Whitehouse has allowed the perps to run off with the spoils.'

In any version of this scheme, our pockets have been picked by an unholy alliance between the bankers, brokers, congress and executive branch. They have been picking us clean for some time now, but very few of us noticed.

We were working too hard making money for luxuries such as food, fuel, clothes and books for the kid, and let us never forget the tax burden imposed at all levels of governance.

Only when the bankers themselves began falling prey to their own folly was a 'financial crisis' declared. We are now told that the only way to help the economy recover from the outrageous bubble based on borrowed money is to go borrow more money to continue to inflate the bubble.

So, how to recapitalize a market?

1. Eliminate the capital gains tax, for everyone. Watch the cash flow in from all corners of the planet!

2. Freeze all government spending(save defense) for five years.

3. Immediately open all possible oil drilling, coal mining, nuclear and every other energy option to development. The environmental 'activists' can go take a hike--somewhere far far away.

This doesn't require anyone to borrow a penny--and the legislation to make this happen can be drafted and passed within a week.

It just requires intelligence and leadership, both of which are totally lacking in the Beltway.

Ref 3 comments made against this particular blog entry :-

#9 - "ps: Its $700bn Robert - you have a typo in there that reads ?700. Quite a different amount! :)"
(? was the symbol for sterling)

#17 - "Robert, the text of the draft legislation (reproduced on FOX News website) read: 'The Secretarys authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding AT ANY ONE TIME' Emphasis mine"

#24 - "A small correction, Mr Peston. The campaigner against filth was Mrs Whitehouse. The place from which this particular bit of toxicity has emerged is the White House - two words"

So we have a significant typo, a significant additional detail, and an insignificant - but accurately noted - misuse of parlance.

Which leads me to think, that apart from giving the readers of this blog somewhere to vent their opinions in a place where they are far more likely to get read by others (e.g. rather than their own personal blogs), whether Robert ever bothers to read the comments his posts generate? I have read his blog and subsequent comments for some weeks (though not months) and I wonder if he has ever responded to anyone's points - and in particular those pointing out factual in-accuracies. It would be nice if the moderation function picked up on these and notified the author (e.g. Robert) for a correction/update, though I understand that to be something out of their scope - again a shame as it indicates that the moderator isn't really taking any notice of what they read.

happy to stand corrected if someone can confirm this has happened in the past; in their posts many people refer to 'Robert' as if he's a personal friend, and though often personal opinion some of the comments made back to him are well thought out, constructive and challenging (desperately seeking a build from the great man himself) - so what a shame it would be to know this is all a one-way street.

It seems an ideal time to impose tighter regulation and curbs on the excessive bonuses and incentive structures that created the problem in the first place - they can be forced on the bankers as part of the package right now, as in boom times, no one wants to know!

Government intervention in business, especially banking means the end of the free market for that sector.

That may not be a bad thing for the financial sector which has been seen as THE economy in the west for over 40 years now.

The bubble, like that of the South Seas many years ago is bursting and hopefully governments will realise that the real economy is manufacturing; producing, actually doing things instead of pushing paper around and gambling on it.

We have been living in a false monetary system for years and it is now time to re model the system using the best of capitalist ideas and the security of regulated and controlled institutions,as they are not normal businesses, such as banking, energy, utilities, education.

The public conception of bankers has certainly changed.

There use to be an unkind joke about former Prime Minister John (now Sir John) Major: He is the only man I know who ran away from the circus to join a bank. This used to imply that JM was a timid wimp; a "grey" man. Now it would suggest that he had forsaken a respectable trade and taken to organized crime.

Here in New Zealand the national news barely even covers this crisis, and what it does cover is watery and overly optimistic, for example - the mid afternoon news on TV1 today says the U.S and the world "might be in for a hard few months" the WAMU takeover story was hardly a sentence long ("Ahh, in other news, Washington mutual has been taken over by the U.S government")
and 3 news didn't even cover it... I don't know if its all a cover-up or if their thick, or if they think it won't affect us. They hardly mentioned the Northern rock incident either.

There's even a story on the TVNZ One News website blaming low consumer spending in Australia for the sky rocketing food prices and the market "recession". What the hell do Australians buy from New Zealand? Milk? Sheep? How does that make a $1 loaf of bread jump to $1.40 in the last year?

However, I do find it odd that both of the main news broadcasters here have offices in parliment. Actually inside it. Hmm.... I smell a conspiracy..

Just because I'm paranoid doesn't mean there's nobody following me....

>So one unanswerable question is whether poisoned banks will refuse to detox because the price of doing so - in respect of pay cuts and wealth reduction for their shareholders - would be too great?

Of course, they WILL take the deal. Just take a look how much Goldman Sachs was willing to give up to Warren Buffet for his $5 billion.
I can see why the republicans are holding out for a better deal with the banks.

The extra conditions that Congress have imposed seem entirely reasonable. They are similar to the conditions that the Swedish Government imposed when they bailed out the swedish banks in 1992-3.

The Swedes were generous but ruthless - whilst depositors, lenders and trading partners were protected, one major bank and a number of larger companies and finance houses went to the wall. The government also took an equity stake in all the banks they rescued at the expense of existing shareholders (the government ended up owning 22% of the banking industry), but only after the banks had come clean about their debts. Dodgy debts were placed in one of two government holding agencies for later realisation, with the rest left with the recapitalised banks. The rescue worked surprisingly well, but it was not cheap (the equivalent cost today for the US would be about $850bn) and whilst the government recovered most of their money over the next 15 years, the net cost to the state is still reckoned to be about 4% of GDP.

They key lessons from the Swedish bank rescue are that it needs to be done quickly and ruthlessly, that the guilty must suffer (and be seen to suffer) - and that it isn't cheap. Paulson and the banks may not like the conditions that Congress have imposed, but they are necessary to convince the public - who are those paying for this in the short term - that those responsible for the mess will suffer. And the alternatives could be much much worse.

WE HAVE TO SAVE OUR BANKS.
WE DO NOT HAVE TO SAVE OUR BANKERS.

The American public wants blood.
They want prosecutions.
They want seizure of assets.
They want forfeiting of pensions.
And for the very worst offenders (those who have done the most harm to the public good by their greed and incompetence)...they want jail.
THEN YOU WILL GET YOUR BAIL OUT AGREEMENT.

Why not give a ÂŁ1000 to every one who is registered to vote. Some will spend it, some will put it in a savings account at the bank,both will help the economy.This will give us workers a chance to help our country.Do not give any thing to the fat cat stockbrokers or bankers to line there pockets.

I was an Inter Dealer Broker for ten years - a long time ago...

Septic or rather Septics was our nickname for our correspondents in New York. Cockney rhyming slang - Septic Tank - Yank!

The Septic Bank is therefore funny on so many levels!

The ongoing debate shows that the average American doesn't know what it is all about. In the best scenario, Americans will have to endure four or five years of stagnation and deterioration of their standard of living as they repay what they have (over)borrowed from the Rest of the World. Only a very small minority of Americans seem to be aware of the perspective that the Rest of the World may not be so compliant in the future as it has been until now. Optimism is a Good Thing, but there can be too much of a good thing.
This thoughtlessness may cause the Senate and House to deny Paulson the $700bn he's asking for. While it's true that the scheme benefits the rich and greedy, like most other measures the current Administration has taken, this is immaterial to the issue, as the alternative is an economic meltdown that it would take decades to sort out.

It is important to remember that should these Banks make a profit, they will have to pay taxes on it.

Should they make losses or go under the tax payer loses big time in all the fallout.

Not to mention the effects of job losses in other sectors that have relied on business finance.

But it is still unknown exactly how much of the toxic debt actually is toxic.

If the Treasury buys at seventy percent of face value and it turns out to be worth eighty percent then they will make a profit.

And not all bonds will be that impaired.

This is the trouble no one is exactly sure.

But the Fed can create money, temporarily to sort this out, it need not come out of the tax payers pocket at all.

All though as a shareholder who has lost significantly on what should have been staid and dull investments, I am starting to enjoy the discomfiture of the wall street banks.

Especially the investment banks who have been hoist by their own petards.

The beggar thy neighbour attitude continues though in the way analysts are talking down certain institutions at the moment.

Perhaps if these analysts are so well informed they should be subpoena'd to provide their information and sources to the FBI investigators.

Afterall, it is becoming increasingly clear that certain parties in the financial world knew precisely what was going on, long before it actually happened.

If their has been any kind of conspiracy to defraud, (pension funds, small shareholders etc) then the law enforcement agencies must get to the bottom of it.

The one thing I am sick of hearing is that the "taxpayer" does not understand the workings of the City and therefore their concerns should not be listened to. We are stupid and we do not understand that if the bailout does not go through restriction-free we will all lose our jobs.

This has been bandied out time and again over the past 25 years, whenever criticism has been raised over executive pay, insider trading, short selling, derivatives markets.

Governments have fallen overthemselves to under-regulate, under-tax and under-capitalise banks and their employees for fear that they will up sticks and take their brilliance elsewhere.

Now that they have single-handedly destroyed the US economy and those most closely affiliated to it, we are now being told that we must continue to treat them in the manner to which they have become accustomed, or they will refuse to sort out the mess they have created.

If we accept Paulson's unconditional bailout of his friends and ex-colleagues, then we are just the fools they believe us to be.

There are some terrifying points embedded in this article.

It is argued by the US Govt. that a $700 billion bailout is a necessary requirement to prevent complete financial meltdown. This article suggests that any attempt to limit executive pay may cause the management of key institutions to choose not to participate in the bailout. Logically such non participation would lead to the financial meltdown that the $700 billion is calculated to avoid.

It is accepted that such a strategy is not rational but it is suggested that the key decision makers inside the financial institutions are not rational.

What possible argument is there to make available vast amounts of money to people who are considered mad and irrational?

Alternatively maybe this is all "noise" designed simply to confuse and befuddle the "bewildered herd" that is assumed to be the general population. Any fool know that there is unlikely to be any effective method available to enforce limits on executive pay.

Similarly any fool know that the issuing of a further $700 billion of US debt will likely lead to higher oil prices - a cost that will need to be met by the same people who are ultimately going to provide the $700 billion. No doubt the genius commentators who opine that maybe there will be no long term cost to the US taxpayer have fully factored into their calculations all such consequential costs.

I agree, if Buffet can get a wonderful deal, why can't the US government too? I saw Paulson on TV when he first announced the package, he looked completely arrogant, dishing out the deal like, "take it or leave it, you are not worth my time and effort to try to explain to you".

Surely the first step in sorting out this mess should be the immediate removal from any position of power of the regime, private and public, which led the banks to this mess?

We are asking the wolves to repair the damage to the flock?!

The Americans are surely naive...

This comment was removed because the moderators found it broke the house rules. Explain.

Re comment 34 - Warren Buffell was investing as an individual with a much more hard-bitten approach and with a much smaller amount - "Take it or leave it". Governments have already indicated a willingness to lend more so there is more scope for the Banks to challenge the support conditions.

I accept the blog comments about the purchase price needing to be attractive enough "for Banks to lend with confidence". However, much of the malaise has been caused by over confidence and it sticks in my craw to think that these idiot bankers (I know - I used to be one but I'm better now), having made such awful lending decisions will be given fresh capital to do it all over again. They will then be lecturing small businesses about their inadequacies and lack of expertise as they first of all bleed them dry by hiking prices for all transactions/lending and other banking facilities and then pulling the plug on the hapless business owners. All this financed by the taxes paid by the Bank customers.

Given the UK credit crunch, I make my plea now - "Gordon Brown - my business is showing signs that it will be affected by the recession - how much will my bail-out be and at which Post Office (don't trust the Banks) can I cash it?".

As Gordon Brown knows, we say in Scotland "God loves a trier"

#28 - "eliminate Capital Gains Tax" ??? On what capital gains ??

The Poulson Plan is to save his mates on Wall Street and leave the rest to die on the vine !! The "grab the money and run and may the Devil take the hindmost" attitude is no different from the bankers who created this mess in the first place !! I am not surprised that it got shot down in flames. The cynicism of the Bush administration beggars believe; far out-stripping even that of the Great Gordo's !!

Thankfully, cooler and wiser heads have torpedoed that plan because the consequences of this cynical plan will be the collapse of the US$ when the foreigners lose their trust in the US economy. With US$ trillions of debt already hanging over their heads, they simply cannot afford to lose that trust, their one lifeline.

Bush will go down in history as the president who destroyed the US economy !!

#44 and others - There is an actual and real method to limit the "fabulous earnings" of the bankers and other salesmen (snake-oil or otherwise) !! Make sure that they are rewarded based on *total* final realised profits and not on paper or book profits !! The "total" meaning taking the profits and offsetting the losses to come to the final figure !! Currently, and still ongoing, the thinking is to pay remunerations on profits but the company to swallow the losses !! It is those losses that choked so many of these companies to death !!

It is interesting to note that the tax payers of america benefited from the tax revenues generated by the creation of the toxic debt.

Unfortunately, the tax payers of america will lose out from america's loss of status in the world.

If america does not deal with the bad debts it has created, the repercussions for america in terms of international trade, will be very dramatic.

I think it was the ancient greeks who used to say that a people get the government they vote for.

Perhaps the american voter is culpable for voting time and again for governments that are too deregulating, and laissez faire.

Anyhow, be that as it may be, America will now have to pick up the pieces.

Just noticed a typo in my Post 47 - should have typed "Buffet" instead of "Buffell". Missed a chance to comment about "No such thing as a free lunch" - damn!

Why if Gordon Brown or the treasury felt that short selling was a bad thing did they not stop it last year when Northern Rock became a victim? If it was not contributary to Northern Rock's situation are the treasury not able to make a risk assessment of possible threats to other banks going forward in a crisis?

It is common in property deals to make contigencies on loans. Why does the BOE/US Treasury not lend these funds with conditions which say, having released you from all these septic funds you may now trade relatively normally, but we want a slice of your profit on future lending as we facilitated your situation? It can of course be gradually reduced ovr time in order to return the banks to their previous market position.

This is a basic tenet of business, the funders should look to mitigate their risk and impove the prospects of returns on their lending.

Martin Bunney

What is the difference between the Zimbabwean dollar and the US dollar?

For 700 billion Zimbabwean dollars you can buy a decent meal in a restaurant. 700 billion US dollars will only buy a pile of junk.

$700 Billion Bailout

The Brown curse seems to be working for the US Treasury’s $700 billion bailout. Since he recommended it to everybody on Wednesday the deal seems to be collapsing.

The $700 billion bail out will not work and here’s why. If, for example, Goldman Sachs puts $1 billion of bad debts into the Bad Bank nobody will know whether it has all been put in. They may have another $5 billion they are keeping.

In fact, since the Bad Bank is likely to buy debts at a discount and may take a stake in the ownership of the bank, there is a big incentive for the banks to only put a minimum amount in and hope that sometime later the bad debts they are keeping will recover in value. Just another trick to try to restore “confidence”.

To have any chance of working the Bad Bank would have to buy the bad debt at more or less full value or to make it clear that a bank only has one chance to sell its debts. Even this latter condition is unlikely to work as there is always another last chance in this crazy financial mess.

Ebenezer Bean
www.ebenezerbean.co.uk

*Yawn*

All this political posturing is starting to get tedious. Its a simple choice

1. Bail out the banks, reward them for incompetence and put the burden onto the taxpayer, but you just might avoid a Financial crisis.

2. Don't bail out the banks, some of them will certainly go bust, meltdown is likely and there will probably be pain for many people accross the globe but at least the incompetents will get their just desserts.

It's a simple choice make it - one or the other - It's what politicians get paid (also quite well) to do. Let's just get on with it. There is no way you are going to be popular, well liked or thought to be competent which ever way you choose.

Wipe out the toxic debt and banks will be able to start lending again?

To who? If there was a huge reserve of credit worthy would be buyers of their product (who havent already maxed out their ability to service loans) then the banks wouldnt have been casting their nets into the subprime market in the first place

This deal simply rewinds the clock from the day they ran out of confidence, back to the day they ran out of credit-worthy buyers

If the government US bailout fails to appear as now seems more and more likely this lunchtime, shouldn't we all now be withdrawing our money from the banks before they finally collapse when the markets reopen on Monday?

If there's a run on any of the banks next week the UK government doesn't have the resources to do anything but shut the doors and wait out the panic. Then without access to cash or credit, people are going to struggle, and the whole economy is going to look like a disaster movie!

Hey taxpayer I've got these fivers I'm selling for a tenner.

Wanna buy?

I'm sure I could comment at length on all this, so I'll limit the scope to just a few points.
1) It is now apparent to all of us that far too many of the bankers have traded on the basis of the impact on their own bonus, rather than the overall welfare of the bank or institution they work for. The Paulson plan and Septic Bank do not create a compelling reason why this would change, as it must do.
2) Sooner or later the availability of easy credit had to be reined in; it is not a sustainable solution for people to live beyond their means, but it is hard to criticise the many who will gladly do so if given the view that they can do so with relative impunity, especially if the alternative is to watch their peers living the high life.
3) Unfortunately, the extent to which people have been living on credit was allowed to go way too far to stop it easily. Although we know that this way of thinking needs to change, if it is done forcibly and quickly, many innocent people will be caught up by the recession which will necessarily ensue.
4) There is another fundamental change which is required, and it is to pensions.
Over the last twenty years or so we have seen pension funds raided (Robert Maxwell at the Mirror Group is the most famous example, though by no means the only one), or devalued by the activities of the pension company (Equitable). Furthermore, many benefits throughout life are means tested, which means that those who are prudent enough to live within their means are effectively punished for doing so.
The lesson this teaches, rightly or wrongly, is that it is not necessarily a good idea to sock away money for your pension. The fact that the FTSE is still substantially lower than it was in 1999 shows that the stock market is not necessarily the place for pension funds to operate. Any annuity which you could purchase at this time would be substantially lower than that available to someone who was luckier with their retirement date. Frankly, it terrifies me that all my efforts to save for my retirement might well be undone by something entirely outside of my control.
I do have a possible solution.
Why not use pension funds as a source of loan capital to sound, credit-worthy people and businesses, and use the interest earned to provide annuity-type incomes? You should also only be able to borrow from the fund into which your pension savings are being directed. As long as risk is properly assessed, this should be far safer than the stock market, provide reliable returns, and actually encourage people to put money into pension funds (and repay their debts).
Trouble is, it makes sense and won't pay enough to satisfy the unbelievably greedy people who run the City.

Real interests rates set by commercial lenders are going to rise into double digits over the next 6 to 10 months. This will rain fall-out throughout the world economy, particularly the UK. Abu Dhabi Utd, and other points East are the emerging giants in the financial banking sector. We are witnessing a hegemonic shift similar to that from London the New York at the time of the Boer War.

Robert,

It is clear that John McCain, the Republican candidate for the US Presidency, has played an extraordinarily destructive role in the course of the last twenty-four hours.

The US Executive branch lacks the political muscle needed to deliver Republican support in Congress on anything like the scale that is required to persuade Democrats that a bailout scheme can be fashioned and agreed that can be owned jointly with the Republicans.

As McCain became a deal breaker he opened a new political front that may - fleetingly - give him the appearance of a key player with something to contribute. Unfortunately, for the rest of us, his posturing and intellectual disengagement have turned him from a disgruntled bystander into a major obstacle to the -admittedly- rapidly receding prospect of market stabilisation.

How on earth can the losses be so large ?
If 50 million americans had sub prime mortgages on properties valued at even
half a million dollars (very unlikely) the total
would only be $25m.
In June Prof Geof Whittington told me that
the sub prime element was bundled up
with lots of better securities. However, I have never seen any proper details.
No financial journalist seems to be doing a proper job.

#62, well, its quite simple really. The sub-prime mortgage problem is merely a scape-goat, and only represents 10% or less of the toxic debt problem. Mr Henry Paulson, for some weird and undoubtedly wonderful reason thinks that fixing said problem will free up enough liquidity to get the big capitalistic wood-chipper up and running again.

For how long who knows - That's assuming the bailout even works in the first place. Its most likely a temporary fix.

re comments about Paulson having to make sure the banks can benefit from the deal. It is the buyers job, the buyer being Congress, to get as much as possible for the money put on the table. The minute the buyer tries to benefit the seller the deal will start to unravel and will be attacked by political activists (and cannot be defended). It is the banks job as seller to get as high a price as possible and not to be interested in the buyers subsequent problems, if any. The buyer should not be interested in the sellers subsequent problems, if any. It is a straight numerical evaluation by people on both sides. If there is a gap between valuations then there is no deal and things worsen until fear drives both sides closer. Que another bank imploding etc etc, fear mounts, impact spreads etc etc. Bringing morals, vengence, buyer-helps-seller, etc into it just damages the process. The proposed staged intervention presumably with variability built into it is a good mechanism. The banks have to make a loss on the toxic stuff which they balance by uplift elsewhere, congress have to ensure toxic stuff can reasonably come good with a stable economy and property price projections etc etc. It is a transaction not grant aid. Anyway I don't think there is much lets help the banker mood about. If the banks don't like the price they don't sell.

post 17 Seems to be getting to the knub of things The central banks and the other banks have to prevent the colapse of the financial system [and their bonuses] by recycling all revenues produced from it

to do this it has to appear to be a battery that will store a charge [even debts that are unrecoverable]and pay out in the future with greater interest [adjusted for inflation ] than other systems


The banks based on fractional reserve banking have potential nearly %100 toxic waste due to variations in investor confidence affecting market values of assets

Theirfore the proposed $700000000000 septic recycling bank can purchase and sell back at full book value the dodgy debts now causing knock on problems in the associated derivatives market, thus allowing the banks to maintain the illusion [of being a pretty harlot]of solvency to foreign investors and sovreign wealth funds


Conclusion The septic bank USSAR is not for the purpose of removing toxic waste[anything that wouldnt sell for mark to model value] but for recycling toxic waste at original book value [thus establishing book value as market value and stop the panic selling at fire sale prices] and incidently and significantly support the derivatives market related to it [that is too complex and expensive to be immediately unwound ] .


If the bank is maintained in perpetuity its $700billion at 5%will cost $35 billion dollars per anum for taxpayers payable to the sovereign wealth funds that purchase the treasuries that finance it ,plus of course bonuses to the pop eye bankerrs that are successful with their spin age .


Banks refusing to buy back their toxic waste at book value will be publicly castigated

The American public are waking up to the fact that Wall Street has become a giant leech.
(We have the same problem in the UK.)
Wall Street has been sucking the life out of their savings, pensions and investments for years, and sticking it in its pockets.
Now it wants cash-direct from the average joe to save its a**e.
Surely Middle-America has the right to say...NO MORE BONUSES FOR THE NEXT 5 YEARS.

Checking the numbers on post 62, 50 million mortgages at $500,000 each comes to $25,000 billion. If each property lost 20% of its value, that is a loss of $5,000 billion. So it is quite easy to understand a loss of $700 billion to date as domestic property values in the USA decline. Commercial property will also probably be suffering in the same way, especially as retailers go out of business as they seem to be doing in the UK at the present time.
Perhaps the way to put pressure on banks and their excessive rewards to top management is for us all to start calling them asking for higher interest rates on our savings and lower interest rates on our borrowings. Banks are probably not used to being squeezed by retail customers.

I like a term coined by Pres. Roosevelt in 1930's about Wall St. speculators- "banksters"

To introduce myself I am a Korean War vet who served on the USS Oriskany, (sorry blokes if that name brings back painful memories) which came very close to ramming one of your cruisers. To any who were aboard I apologize, even as I had no say about the ships direction.

Being a liberal Independent I favor social services over wars and Wall St. bailouts. We have a bloated military and low tax rates for the rich which combined leaves little room for schools, child health care, veterans care and such. I think we run a deficit even discounting the Iraq War.

There is strong opposition to the Bush/Paulson plan from liberals and congressional Republicans. I would not be surprised that if a plan is not passed by EOQ 30/9/08 then one will not be passed untill after the elections.

If the American Banks need money because of people defaulting on their morgage,then why doesnt the American Government give the money to the defaulters so they can pay their mortgage and have a roof over their heads,the banks get their money,and i bet it will work out a lot less than 700 Billion ?......or would the Bankers lose out on their Bonuses????

Now there is an interesting question? The FBI is currently investigating the "demised" financial institutions, such as Lehman, Bear Stearns etc. for unlawful actions which might have contributed to their downfall. Even though Goldman Sachs did not fall, such unlawful actions might still have taken place there as well. If yes, then they might have taken place under the leadership of Henry Paulson, the very man running the "damage limitation" show.
The mind boggles!

I have been reading the draft of the bill for the bail out, that was published by CNN this morning, and I am worried by the following section that seems to give Mr. Paulson carte blanche to let banks cook their books!
What does anyone else think of this:

"
8 SEC. 132. AUTHORITY TO SUSPEND MARK-TO-MARKET AC
9 COUNTING.
10 (a) AUTHORITY.—The Securities and Exchange Com
11 mission shall have the authority under the securities laws
12 (as such term is defined in section 3(a)(47) of the Securi
13 ties Exchange Act of 1934 (15 U.S.C. 78c(a)(47)) to sus
14 pend, by rule, regulation, or order, the application of
15 Statement Number 157 of the Financial Accounting
16 Standards Board for any issuer (as such term is defined
17 in section 3(a)(8) of such Act) or with respect to any class
18 or category of transaction if the Commission determines
19 that is necessary or appropriate in the public interest and
20 is consistent with the protection of investors.
21 (b) SAVINGS PROVISION.—Nothing in subsection (a)
22 shall be construed to restrict or limit any authority of the
23 Securities and Exchange Commission under securities
24 laws as in effect on the date of enactment of this Act."

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[DISCUSSION DRAFT]
110TH CONGRESS
2D SESSION H. R.