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View Full Version : An Open Letter to the U.S. Congress Regarding the Current Financial Crisis



chux03
23rd September 2008, 15:38
John P. Hussman, Ph.D.

In 2006, the president of the Federal Reserve Bank of St. Louis noted “Everyone knows that a policy of bailouts will increase their number.” This week, Congress is being asked to hastily consider a monstrous bailout plan on a scale nearly equivalent to the existing balance sheet of the Federal Reserve.

As an economist and investment manager, I am concerned that the plan advocated by Treasury is essentially a plan to bail out the bondholders of financial institutions that made bad lending decisions, with little help to homeowners that are actually in financial distress. It is difficult to believe that the U.S. government is contemplating taking on the bad assets of these institutions at probable taxpayer loss and effectively immunizing the bondholders (and shareholders) of these companies.

While it is certainly in the public interest to avoid the dislocations that would result from a disorderly failure of highly interconnected financial institutions, there are better ways for public funds to accomplish this, other than by protecting corporate bondholders while homeowners remain in distress.

Consider a simplified balance sheet of a typical investment bank:

Good assets: $95

Assets gone bad: $5

TOTAL ASSETS: $100

Liabilities to customers/counterparties: $80

Debt to bondholders of company: $17

Shareholder equity: $3

TOTAL LIABILITIES AND EQUITY: $100
Now, as these bad assets get written off, shareholder equity is also reduced. What has happened in recent months is that this equity has become insufficient, so that the company technically becomes insolvent provided that the bondholders have to be paid off:

Read the complete article here:

http://www.hussmanfunds.com/wmc/wmc080922.htm

thetackle
23rd September 2008, 17:53
WASHINGTON — U.S. Sen. Jim Bunning blasted the Federal Reserve for bailing out insurance and finance giant American International Group and introduced legislation Wednesday that would strip the agency of its power to conduct future bailouts.


"The greed on Wall Street is only exceeded by the stupidity of the Treasury secretary and the chairman of the Federal Reserve," Bunning said in a statement that also equated the Federal Reserve with Venezuelan President Hugo Chávez.

“Instead of celebrating the Fourth of July next year Americans will be celebrating Bastille Day; the free market for all intents and purposes is dead in America,” Bunning said. “The action proposed today by the Treasury Department will take away the free market and institute socialism in America. The American taxpayer has been mislead throughout this economic crisis. The government on all fronts has failed the American people miserably."

"I have said on more than one occasion that I don't think the Federal Reserve can handle the powers they have, and this irresponsible bailout just proves my point," he said.


Bunning's bill, introduced late Wednesday, would take away the Federal Reserve's ability to make loans to non-banks, a power that Bunning says prior to the bailout of Bear Stearns had not been used since the Great Depression.


"Once again the Fed has put the taxpayers on the hook for billions of dollars to bail out an institution that put greed ahead of responsibility and used their good name to take risky bets that did not pay off," Bunning said. "The only difference between what the Fed did and what Hugo Chavez is doing in Venezuela is, Chavez doesn't put taxpayer dollars at risk when he takes over companies — he just takes them."


Can Jim Bunning hurry up and run for President with Ron Paul as VP????

Kelly
23rd September 2008, 18:27
Excellent! Which state does Bunning represent? And do you have any idea what the number is on the bill he introduced to congress? It would be interesting to look it up and see how it's worded. If it's a good bill, I'm sure people on this forum will write their congressmen experessing their support for it.

thetackle
23rd September 2008, 18:32
Excellent! Which state does Bunning represent? And do you have any idea what the number is on the bill he introduced to congress? It would be interesting to look it up and see how it's worded. If it's a good bill, I'm sure people on this forum will write their congressmen experessing their support for it.
He is the Senator from Kentucky. Some of his other comments can be found through CNN.com. I hope that others are paying attention to his point of view.

thowze
23rd September 2008, 20:23
After the 5 hour grilling Henry Paulson, Ben Bernanke, Christopher Cox and James Lockhart received from the Senate Banking Committee today, an article came out from Forbes. At the end of the article it had this to say:


Dodd says that in speaking with his Senate colleagues, all are agreed on three issues: that a bailout bill include some oversight accountability for the Treasury, protection for taxpayers and that it address the continuing foreclosure problem.

He also points to one other concern: Paulson, the bill's chief architect, is scheduled to leave office in just four months.

"I'm not about to give a $700 billion appropriation to a secretary I don't know yet," says Dodd.

Article Link: http://www.forbes.com/home/2008/09/23/bailout-paulson-congress-biz-beltway-cx_jz_bw_0923bailout.html

So this $700 billion blank check idea may not go too much further.

chux03
23rd September 2008, 22:31
But...won't that be...financial Armageddon?

Probably for them...for me?? Probably not. Those guys were about as nervous as a whore in church. I thought Ron Paul was a member of the Banking Commitee. Isn't he? I wonder why he'd pass up such a wonderful opportunity to question his old buds Ben and Hank. If it were me, I would had have had a pair of handcuffs on display, with plenty of police looking dudes all over the place and a few pair of orange jump suits in various sizes...of course for display purposes only. Also, I wouldn't have been so nice in my questioning either.
Ben didn't look well either, to my eye. They were probably peering into that crystal ball again, trying to divine the future and maybe even their...health. They KNOW what happens (eventually) to bankers that outgrow and break their leash. History is full of examples and none are especially good. Didn't someone back in time nuetter (as in castrate them) all the bankers as punishment for some similar infraction? That's the guy who should have been asking the questions...ponder THAT for a moment. :)

thetackle
23rd September 2008, 22:39
He is the Senator from Kentucky. Some of his other comments can be found through CNN.com. I hope that others are paying attention to his point of view.
I have looked for the Bill Number, but have yet to find it. There are many references about it, but no number. I will continue to look. I did call his Washington office as well as my Reps office to voice my displeasure at the "hurry up and pass it while no one is looking approach". Why does a situation that is allowed to go on and on need to have a resolution passed within an hour and a half. Sounds eerily like the Patriot Act. Hurry up and jam a BS "solution" down our throats without us ever seeing it until it is too late.

I am changing my name to "Tired of these A$$holes"

Trvlr45
24th September 2008, 01:58
Keep in mind everyone that Chrisopher Dodd and Barney Frank who sat on comittees that were supposed to be policing these institutions looked the other way while this went on.

Dodd and Frank need to be in jail along with Franlin Raines, Jim Johnson and Jamie Gorellic who were ALL paid millions to cook the books at Fanny and Freddy. That is what is really criminal about all this. The instigators are walking around loose and two of them are pretending to fix the problem when in reality all they are doing is covering their own butts just as Gorellic has done in the past by sitting on the 911 commission.

This goes all the way back to The Community Re-Investment Act brought into being under Carter in 1977. Fanny and Freddy never should have existed in the first place and they were misused as a place for criminals to make millions over the years just like every other social program backed with our tax dollars.

Trvlr45
24th September 2008, 02:01
I am changing my name to "Tired of these A$$holes"

Hey Tackle,

If you get in touch with the guy up in New York who, after they raised his taxes again changed his name to, "Kiss My Ass" maybe he can tell you how to do it.