What a total disaster!
Who would have thought the House Republicans would be the ones to do it? They seriously came up with a brand new proposal AT the 4pm meeting in the White House and Shelby (Senator) walked out early and ended the meeting. Was this planned sabotage and, if so, who benefits?
Certainly JPM hit the jackpot, taking over the nation's largest bank's assets for $2Bn when they offered $12Bn for the assets and the debt in March – and that was before there was a government deal on the table. Warren Buffett must be jealous of this deal! The Congressional Republican "plan" actually calls for a 2-year suspension of capital gains tax "to encourage corporations to sell unwanted assets." What total BS! Those unwanted assets are being sold at a loss and what this really amounts to is a $1Tn tax break for the super-rich – it's UNpassable!
As Justin Fox says: "If you repealed the tax, banks would have even less incentive to sell them because they wouldn't be able use the losses to offset capital gains elsewhere." Menzie Chinn says: "My observation here is that the obstructionism of this group is either a manifestation of denial of reality, or a sheer indifference to the needs of their constituents — to the extent that House Republicans purport to represent small business Main Street." According to the NYT, President Bush said to the renegade Republicans "If money isn’t loosened up, this sucker could go down” and still they let it happen!
From the Times article:
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“We’re in a serious economic crisis,” Mr. Bush told reporters as the meeting began shortly before 4 p.m. in the Cabinet Room, adding, “My hope is we can reach an agreement very shortly.” But once the doors closed, the smooth-talking House Republican leader, John A. Boehner of Ohio, surprised many in the room by declaring that his caucus could not support the plan to allow the government to buy distressed mortgage assets from ailing financial companies.
- Mr. Boehner pressed an alternative that involved a smaller role for the government, and Mr. McCain, whose support of the deal is critical if fellow Republicans are to sign on, declined to take a stand. The talks broke up in angry recriminations, according to accounts provided by a participant and others who were briefed on the session, and were followed by dueling news conferences and interviews rife with partisan finger-pointing.
- In the Roosevelt Room after the session, the Treasury secretary, Henry M. Paulson Jr., literally bent down on one knee as he pleaded with Nancy Pelosi, the House Speaker, not to “blow it up” by withdrawing her party’s support for the package over what Ms. Pelosi derided as a Republican betrayal. “I didn’t know you were Catholic,” Ms. Pelosi said, a wry reference to Mr. Paulson’s kneeling, according to someone who observed the exchange. She went on: “It’s not me blowing this up, it’s the Republicans.” Mr. Paulson sighed. “I know. I know.”
This is total insanity people! Paul Kedrosky summed up the Republican action nicely: "Some men aren't looking for anything logical, like money. They can't be bought, bullied, reasoned or negotiated with. Some men just want to watch the world burn."
Paul continues:
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We stand at a precipice in U.S. markets. Congress is playing political brinkmanship with the biggest financial decision of our generation. We just had the largest bank failure in U.S. history. Credit spreads have widened to the point of gibbering meaninglessness. And some people are still nattering about what might be the perfect variant of the Paulson bailout plan.
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Listen. There is no perfect. As Voltaire wrote, "Le mieux est l'ennemi du bien". The perfect is the enemy of the good. No plan is perfect; no plan will be static. But standing on the precipice and inching ever closer to the abyss is stupid and suicidal. We need to ease the pressure in the system by moving to allow losses to be written off over longer periods, by getting bad paper out of institutions so counterparty trading can happen, and perhaps by some easing as well. Credit markets can't be left like this for much longer.
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Some people don't care. A few just haven't thought it through, but others are so wrapped up in their anti-Wall Street vendettas, their ideological purity and their Calvinist moralizing that they would rather see everything come down around their ears — look at all the shiny creative destruction! — than worry that it's their economy too. Fuck them. While some men want to watch the world burn, we don't need to stand idly by while they set the fire. I shouldn't be posting things tonight as I'm too tired and frustrated, but in case you can't tell, I've had it.
As you can tell by my use of other's posts tonight, I've had it too. I am so disgusted I cannot even bring myself to write about it. This is a monumental failure of government, of our leadership especially, at the exact moment we are facing the greatest crisis in our nation's history. Apparently regulators had been holding off on WM until they saw if the relief package would help them but this 4pm mutiny by Boehner and company and the FDIC decided they couldn't count on Washington anymore either and siezed $307Bn in assets (leaving the debt), selling them to JPM for $1.9Bn.
What a joke this all is. TPG Capital tried to help WM in the spring, giving them a cash infusion of $7Bn and yesterday's action WIPED THEM OUT. What sort of message are we sending to global investors when the government can take over an institution in the middle of the night, cut a secret deal with a preferred firm and leave the stock and debt holders of the firm with nothing but the debts? "JPMorgan Chase said it was not acquiring any senior unsecured debt, subordinated debt, and preferred stock of WaMu's banks, or any assets or liabilities of the holding company, Washington Mutual Inc. JPMorgan also said it will not take on the lawsuits facing the holding company."
It's a damn good thing you can't short the financials because that would be the play of the day tomorrow. The SKFs may break $200 yet, especially if the government doesn't get a deal on the table this weekend, which is going to be hard with all the radical political posturing that is now going on.
