"The action I am taking is no more than a radical measure to hasten the explosion of truth and justice. I have but one passion: to enlighten those who have been kept in the dark, in the name of humanity which has suffered so much and is entitled to happiness. My fiery protest is simply the cry of my very soul. Let them dare, then, to bring me before a court of law and let the enquiry take place in broad daylight!" - Emile Zola, J'accuse! (1898) -

Thursday, October 2, 2008

We Won’t Duck Any Idea Here Regarding The Current Financial Controversy And Lyndon LaRouche Has Some Things To Say On The Financial Crisis Worth Considering.

LaRouchePAC.com (Video Below)


Don't Make Working People Bail Out Wall Street

If There Must Be a Bailout, Here's How to Do It: Jonathan Weil

Commentary by Jonathan Weil

Oct. 1 (Bloomberg) -- Maybe Congress isn't so dumb after all.

The fatal flaw in Treasury Secretary Hank Paulson's $700 billion bailout plan was that it wouldn't fix the problem: Too many important financial institutions don't have enough capital.

If the government wants to save dying banks before they take others down with them, it should choose the clean and direct path: Inject capital into them. Take ownership stakes in return. And, where that's not feasible, seize them and sell their assets in an orderly way, just as the Resolution Trust Corp. did after the 1980s savings-and-loan crisis.

Only after a company's shareholders and debtholders have been flattened should taxpayers take a hit. And for a $700 billion investment, U.S. taxpayers should get a lot more in return than a gargantuan pile of toxic waste.

For that much money, at yesterday's prices, the government could buy 23 of the 24 banks in the KBW Bank Index, including Bank of America Corp. and Wells Fargo & Co. And it still would have money left to buy a stake in JPMorgan Chase & Co., the largest company in the index.

Infusing capital directly, though, was too simple for Paulson. It lacked subterfuge. He decided the way to save the financial system from the evils of structured finance was through more structured finance.

Instead of asking Congress to let Treasury recapitalize needy banks, he proposed buying some of their troubled assets at above-market prices. This would have let other banks create phony capital by writing up the values of similar assets on their own balance sheets, using Treasury's prices as their guide.

Small Wonder

In short, Paulson's plan was one part robbery (with the banks doing the robbing) and one part accounting sleight of hand. No wonder House members rejected it.

If Paulson or congressional leaders devise a Plan B, they should look to the example of Fortis, Belgium's biggest financial-services company. This week, the governments of Belgium, the Netherlands and Luxembourg invested 11.2 billion euros ($16.3 billion) in Fortis. In exchange, they got ownership of almost half its banking business.

That's how a government intervention is supposed to work. The company gets fresh capital, which has the added benefit of not being fake. The buyers get equity. Legacy shareholders get slammed with dilution. And if the company recovers, the government can sell shares to the public later, maybe even at a profit.

Such simplicity might feel unnatural to someone like Paulson, who used to run Goldman Sachs Group Inc., or a congressman such as Barney Frank who depends on campaign checks from bankers like an infant needs mother's milk. And lots of taxpayers might object anyway, because it still would involve sending big checks to banks.

Gaining Understanding

At least voters could understand a plan in the European mold, which might lead them to be more forgiving about any unpleasant details. That's better than trying to scare the public into supporting a bailout that doesn't make sense.

As for the illiquid assets still on banks' balance sheets, the best way to find out what they're worth is to start disclosing every conceivable piece of data about them, right down to the daily cash flows they produce. A big reason subprime mortgage-related securities aren't selling is that outsiders can't see what's underlying them on a timely basis.

Remove the kimonos, and capitalism will take its course. At some price, buyers will emerge, once they can see what they're buying. Banks could clear their books. The companies that are able to attract fresh capital would survive. And the ones that couldn't would die, as they should.

What Congress must remember is that Americans don't exist at the pleasure of the country's banks. It's supposed to be the other way around. There's still time for the politicians to come up with a rescue plan that will work. The important part is making sure you and I get something of value in return for our money.

(Jonathan Weil is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: Jonathan Weil in New York at jweil6@bloomberg.net

What Comes After Senate Approval of the Bailout Bill?

With the Senate’s passage of the bailout bill, 74 to 25, Democrats in Congress need to begin preparing right now for a second package to do the job properly. They also need to begin the tightest possible monitoring of Secretary Paulson’s actions and their effects on financial markets. Here is what is likely to unfold over the next few weeks:

The House will pass the bill after at least twenty more Republicans agree to support it. A few more Blue Dog Democrats may switch their votes to no, in protest against the trillion dollars of tax breaks added by the Senate as sweeteners for Republicans.

But Speaker Nancy Pelosi is now under severe pressure to deliver at least the 140 Democrats that she produced on the last vote, which failed because only 66 Republicans voted aye. If the measure were to fail again, this time because of Democratic defections, the Democrats would get the blame for the deepening financial carnage.

After the bill passes, we will see short-lived euphoria. The stock market will rally, and credit will begin to unlock. The overnight borrowing rate between banks will temporarily drop. But, after a week or two, as Paulson begins using his authority to buy up bad paper, the bloom will be off the rose—because there still so many unexploded grenades in the financial system.

Hedge funds will likely be the next casualty, as investors begin withdrawing large sums of money and the funds need to sell assets at depressed prices. Hedge funds typically prohibit their investors from withdrawing funds for a set period, called a lock-in, often two years. This allows hedge funds to pursue highly speculative strategies, knowing that their investors won’t sell out when times get rough. By coincidence, the lock-in period for many hedge fund investors begins expiring this week.

It will also be clear that relieving banks of bad mortgage-backed bonds is not solving the underlying foreclosure crisis. And even if the Securities and Exchange Commission uses its new authority to suspend “mark-to-market” accounting rules, so that banks do not have to downgrade the value of the junk still on their books, it won’t change the underlying reality that banks have taken huge losses and are now severely undercapitalized.

So what should the congressional leadership do? (More…)

Responsibility and the Bailout: Will They Resign If It Fails?

The Almost-Done Deal, and the Era of Angry Populism

Report Implicates White House

In 18 months of searching, Justice Department Inspector General Glenn A. Fine and Office of Professional Responsibility chief H. Marshall Jarrett have uncovered new e-mail messages hinting at heightened involvement of White House lawyers and political aides in the firings of nine federal prosecutors two years ago.

But they could not probe much deeper because key officials declined to be interviewed and a critical timeline drafted by the White House was so heavily redacted that it was "virtually worthless as an investigative tool," the authorities said.

"We were unable to fully develop the facts regarding the removal of [David C.] Iglesias and several other U.S. Attorneys because of the refusal by certain key witnesses to be interviewed by us, as well as the White House's decision not to provide . . . internal documents to us," the investigators concluded in their report.

The standoff is a central reason that Attorney General Michael B. Mukasey on Monday named a veteran public-corruption prosecutor, Nora R. Dannehy, to continue the investigation, directing her to give him a preliminary report on the status of the case in 60 days.

But lawmakers who helped expose irregularities in the ouster of the prosecutors say they are concerned about more delays.

Yesterday, Sen. Sheldon Whitehouse (D-R.I.) wrote Mukasey a letter asking whether Dannehy would have the authority to compel documents from the White House and testimony from former presidential aide Karl Rove and former White House counsel Harriet E. Miers, who rejected invitations to meet voluntarily with the inspector general.

He also expressed concern that any information Dannehy may obtain would be kept under wraps because of grand jury secrecy rules, leaving members of the public in the dark. "There are a lot of questions that need to be answered," Whitehouse said.

Justice Department spokesman Peter Carr said that Dannehy will "have the same authority as any prosecutor to pursue this investigation wherever the facts and the law require."

Investigators urged Dannehy to focus on the dismissal of Iglesias in New Mexico. He was the subject of repeated complaints by Republican lawmakers to White House and Justice Department officials in 2005 and 2006 over not bringing voter-fraud and corruption charges against Democrats. Their report said the internal probe at Justice could not reach Miers and Rove, "both of whom appear to have significant first-hand knowledge regarding Iglesias's dismissal."

The report depicts a steady drumbeat of pressure leading up to the 2006 elections. Republican former state senator Mickey D. Barnett e-mailed Rove in October to complain about the pace of a federal bribery probe that Iglesias's office was conducting against a Democratic rival. Barnett wrote that he had already complained to Justice Department White House liaison Monica M. Goodling and Sen. Pete V. Domenici (R-N.M.).

That same month, President Bush and Rove both spoke to Attorney General Alberto R. Gonzales about rampant voter fraud in three cities, one in New Mexico, Gonzales told investigators.

In November, Domenici's chief of staff, Steven Bell, e-mailed Rove seething about voting issues in New Mexico and expressing "worry" about Iglesias. Rove advised Bell to have Domenici reach out to the attorney general. Around the same time, Deputy Attorney General Paul J. McNulty received a phone call from Miers, who passed along complaints about Iglesias that she had heard from Rep. Heather A. Wilson (R-N.M.)

At a White House breakfast in mid-November, Wilson approached Rove to tell him that the U.S. attorney was a "waste of breath," according to her interview with investigators. She said Rove told her: "That decision has already been made. He's gone."

Less than three hours later, a Justice Department official forwarded a firing list to the White House Counsel's Office on which Iglesias's name appeared, giving rise to questions about how Rove learned about its contents in advance, and whether the department ultimately fired Iglesias for improper political reasons.

Robert D. Luskin, an attorney for Rove, said: "We'll look forward to the opportunity if the circumstances are appropriate of Rove being able to cooperate voluntarily. Rove has nothing to fear from truthful testimony."

"If, in the course of her investigation, she needs information, we will certainly want to accommodate her," White House spokesman Tony Fratto said of Dannehy. A lawyer for Miers did not return calls seeking comment.