September 28, 2008
Done Deal - at Least, Very Likely Done
It appears that John S. McCain's intervention has borne fruit: All of the major players -- the White House, the Senate and House Democrats, the Senate Republicans, and now even the House Republicans (HRs) -- appear to have signed off on a credit-rescue deal tonight.
As we predicted, it is basically the original deal with some of the HRs' proposals rolled in... notably the insurance option, which would be one of the choices that Secretary Henry Paulson has at his disposal and is required to set up and at least attempt before buying the toxic assets on behalf of the government:
At the insistence of House Republicans, who threatened to sidetrack negotiations at midweek, the insurance provision was added as an alternative to having the government buy distressed securities. House Republicans say it will require less taxpayer spending for the bailout.
But the Treasury Department has said the insurance provision would not pump enough money into the financial sector to make credit sufficiently available. The department would decide how to structure the insurance provisions, said Sen. Kent Conrad, D-N.D., one of the negotiators.
This story doesn't quote any House Republicans directly; but I don't think they would stay silent if they were once again being rolled by the other players. Still, the AP story is cautious -- having been fooled once by Squeaker of the House Nancy Pelosi (D-Haight-Ashbury, 93%) and Senate Majority Leader Harry "Pinky" Reid (D-Caesar's Palace, 85%):
It was not immediately clear how many House Republicans might vote for the measure. With the election five weeks away, Democrats have said they would not push a plan that appeared sharply partisan in nature.
(That is, "Fool me once, shame on you; fool me 527 times in a row, and you can call me an Obamaton.")
The New York Times story did manage to corral Rep. Roy Blunt (R-MO, 96%), lead negotiator for the HRs, but he was in a "show-me" mood:
Representative Roy Blunt of Missouri, the chief negotiator for House Republicans, who have been among the most reluctant to support the plan, expressed some satisfaction but did not commit his members’ support.
“We need to look and see where we are on paper tomorrow,” Mr. Blunt said. “We have been talking about how we can make these things work in a way that our conference can come together.”
Some other concessions to the free market and conservative principles were obtained by Blunt, McCain, and the HRs:
- The salary and bonus caps would only apply to "fired executives of financial firms, and executives of firms that go bankrupt," as AP puts it, not to every executive at every company that sells distressed securities to the federal government, as Democrats originally demanded.
- The "equity interest" that the Democrats wanted in all firms that sell assets to the resolution corporation will be limited to only some of them, but I cannot discover the criteria that will determine which do and do not have to give up some stock to the Treasury-created corporation.
- The Democrats had demanded that 20% of any profits that the feds might make on the deal, as they auction off value-added securities in an improved market, be ploughed into affordable housing -- which is what got us into this mess in the first place; but the HRs appear to have killed that provision.
- Democrats also have given up on their scheme to allow bankruptcy judges to unilaterally alter the terms of first mortgages in bankruptcy proceedings; instead, the Treasury will have the authority to attempt to renegotiate mortgage terms if that would reduce the liability facing the government by reducing the risk of default or even foreclosure. That is, only when such renegotiation is good for the United States... not whenever it's advantageous to the over-extended borrower (buying a $400,000 dream house when he really could only afford a $200,000 fixer-upper).
But for the timely intervention of John McCain, no one would have talked to the House Republicans, and none of these concessions would have been made; therefore, the deal would never have gone through. McCain has kept in constant contact with the negotiators, relaying information back and forth, pushing for the necessary compromises, and selling the HRs on the plan.
Barack H. Obama, meanwhile, has also been "active," as the Times insists:
Early in the day, the two presidential nominees were active from the sidelines. Mr. McCain telephoned Congressional Republicans to sound them out, and Mr. Obama got regular updates by phone from Mr. Paulson and top lawmakers.
Evidently, the word "active" in Obama's case means standing anxiously by the phone, waiting for a call to bring him up to speed, so he won't look ridiculous.
Finally, I find this tidbit to be most illuminating:
While Congressional Republicans sent only their chief negotiators, Mr. Blunt and Senator Judd Gregg of New Hampshire, at least nine Democrats with competing priorities piled into the meeting, surprising the Republicans but apparently not unsettling them.
It fills my heart with patriotic joy to see the Democratic Party put aside its petty, internecine differences to resolve a true national crisis.
Hatched by Dafydd on this day, September 28, 2008, at the time of 4:04 AM
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The following hissed in response by: Stephen Macklin
While this bill - if the text comes anywhere near resembling what has been reported - is better than the pure Paulson plan and much better than the Dodd version, it still seems to offer little in the way of reform.
This bail out is designed to prop up and maintain the system as it exists without doing anything to address the causes of the problem.
I do not trust that if this plan works and the crisis is averted that Congress will see any need for reform. And if they do, it will only be to further increase regulation and federal control of the financial sector. They will not address the problems inherent in using the mortgage industry as a welfare program.
The following hissed in response by: Karmi
Good job of covering such a mess.
The above hissed in response by: Karmi at September 28, 2008 8:40 AM
The following hissed in response by: hunter
If we do not extract substantial reforms from Wall Street and the mortgage banking industry, this crisis will only be prelude to a much more devastating meltdown. The benefits of this bailout will merely by the equivalent of a goose shot from a great height bouncing when it hits the ground.
And when we go to Russia, fat and rich in its neo-fascist/commie oil money, for money in the future, they will have a great idea: collateralize the aid with, say, Alaska. And toss in Hawaii, while we are at it.
Shame on the dems for resisting and rejecting reform when it would have mattered. Shame on the Republicans for not pounding the table until we all got the message when it did matter.
Shame on us all for tolerating such a dysfunctional government. WE are truly getting the government we deserve.
The following hissed in response by: Dafydd ab Hugh
I certainly agree on the need for long-term reform. There may even be some reform elements already in this package: We don't know every element of the deal, and such reforms as, e.g., greater transparency requirements for securitized mortgages or tighter standards for prime mortgages (eliminating or cutting back on interest-only ARMs, lowering the percent of purchase than can be mortgaged, mandating premium-insurance, and forbidding Fannie or Freddie from buying sub-prime mortgages, either as mortgages or even when securitized) would do a great deal to avert a similar crisis in the future, yet are not sexy enough that the media would necessarily report them.
But I agree (and wrote) that the core problem is Jimmy Carter's Community Reinvestment Act of 1977, the one that mandates giving mortgages to poor people, even when they cannot pay them; and that will be incredibly hard to change, given the political climate now and into the forseeable future.
Ronald Reagan couldn't change that (I don't think he even tried); neither did George H.W. Bush or George W. Bush. Bill Clinton changed it -- but in the wrong direction.
If John McCain is elected, I believe he will leave it where it is; but if Barack Obama is elected, I believe he will do what Clinton did... pump more steroids into it.
The above hissed in response by: Dafydd ab Hugh at September 28, 2008 12:29 PM
The following hissed in response by: snochasr
I'm not sure the deal is done as much as it is half-baked.
The following hissed in response by: SlimGuy
Dems now looking to kill the bill since all their toys have been taken away.
Dennis K last night was blaming every regulator not directly connected and putting it all on 'speculators' just like the oil issue.
Right now damage control is being done, Fix the CRA after you keep the boat from sinking.
David Gregory of CNN who replaced Olberman/Mathews is married to a lawyer who just resigned from Fannie Mae
Barney Franks old favorite squeeze worked there also.
Obamas campaign finance gal Penny Pritzker of Hyatt family fame once ran Superior Bank which stated the subprime loan thing in the early 90s as well as the idea of mortgage backed securities.
She has the failed bank on her resume to prove it.
Old man Ayers was the guy who got Obama started but Bill is now the man.
When Obama ran for the House of Rep is campaign finance manager worked for the Pritzker Real Estate Arm in his day job and set him up for Penny to revive him after the fall.
I am trying to link Obama and Ayers meeting up in NYC years.
They lived only 1/4 mile apart and Ayers was going to Banks College which was only 4 blocks from Columbia at the same time.
Ayers isn't going under the bus because he and Penny Pritzker are the power pair running the show behind Obama.
Pritzker also runs the group that took over from CAC when it went belly up.
Look close also at Valerie Jarrett friend of all this bunch and another Chicago tie in with many fingers in this pie also.
The following hissed in response by: BigLeeH
It seems like somebody ought to comment here that the deal has been defeated and the Dow is down by ... one moment while I click away... 777 points.
In his statement urging his Republican colleagues in the House to support the measure, despite the fact that it was distasteful, John Boehner described it as a "crap sandwitch." Fair enough. But we're going to miss those slices of bread.
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