WPCNR NEWS COMMENT. By John F. Bailey. September 24, 2008: It was very revealing watching the Senate Banking Committee Hearings yesterday on C-Span. A little too revealing. Though our Senators huffed and puffed, out local representatives expressed self-righteous indignation, but indicated Paulson’s Ploy was going to go through, perhaps by Friday.

The Senate Hearing on the Bailout In Session Tuesday

Even the most outspoken Senators from Montana, Tennessee (I loved  Senator Jim Bunning, the old righthander from Tennessee, who expressed incredulity that Mr. Paulson did not seem to know about the loosey-goosey regulation of Default Credit Swaps when he was Chairman of Goldman-Sachs.He threw the best high hard ones. You could see the head of Wall Street’s Division of “SPECTRE” inwardly seething. Paulson also would not be forthcoming with Senator Bunning that credit card debt and student loan debt were or were not on the table for financial acquisition by the government.)

The self-described “dirt farmer” from Montana, Senator Jon Tester, said “Every time in government we’ve been forced to do something quickly, it’s been a wreck,” put yesterday’s proceedings into perspective. That’s how we got into Vietnam. (Remember the Tonkin Gulf resolution?) How we got into Iraq the second time (remember WMDs?) How we got into surveillance of citizens (Remember the Patriot Act that Congress has perpetuated?)

Henry Paulson and Fed Chair Ben Bernanke Tuesday

But despite the Senators saying all the insulting things to Ben Bernanke and Henry Paulson, no one put their finger on what’s really been wrong with the rescues, the Fannie and Freddie takeover, the AIG rescue and the Merrill Lynch “correction.” I love that word that Wall Street uses for what are investor losses, don’t you?

Those fixes did not work. They have not worked, ladies and gentlemen.

Why do Paulson and Bernanke think, and why should we believe them that this will work?

No Strings -- Are you Kidding?

Not one Senator in the hot air circus yesterday asked why the money Mr. Paulson’s and Mr. Bernanke’s plan wants to distribute does not come with the stipulation – the imperative – that if  companies take “Bernanke Bucks” for their smokey assets they must in turn lend it out as soon as possible to make mortgages, extend credit to the community and businesses to free the credit jam  the Bernanke and Paulson team say is afflicting the market.  

Bernanke and Paulson did not say their plan requires the money to be redistributed. Isn’t any one on that panel of Senators asking why the stimuli of Fed Rate cuts has not arrested the recession? It’s because the banks getting the money from the cuts in the discount rate are keeping it to make their sorry balance sheets look good. Instead of loosening credit requirements, they’ve tightened them. Instead of stopping foreclosures, they’ve stepped them up.

No Senator demanded that all of the $700 Billion or a good portion of it would come with the imperative it be put out there and not “used” as an asset by the firms that get it. No Senator whom I listened to asked how can we assure this $700 Billion will find its way back into commerce. They took Paulson and Bernanke at face value that it would. How you can trust these guys – these experts – when they have been wrong three times. Bernanke has been wrong on the rate slashes. They did not work. They’ve been wrong on Bear Sterns, AIG, Merrill, Lehman – the muffs on the economy have been one after another by these guys. Why will this bailout work?

The answer, we do not know.

Second, the Senators are being blackmailed. To hear Bernanke and Paulson tell it, if we don’t do this bailout, it will be dire. There will be runs on the banks and money markets, retirements will evaporate. Maybe. The sky will fall. Newsweek has even written an apologist scenario this week talking about last week’s run on money market funds. Bernanke and Paulson say unless congress does this essentially we are dooming American markets. Haven’t we heard this before?

Well to prevent runs from happening, the government must seize assets of Money Market funds and keep them as a trusteeship to prevent the big money firms from getting their money out at the little investors’ expense. But you can’t do that? Why can’t you?  Or as one London economist suggested, turn all the debt into equity on the balance sheets, and suddenly what are liabilities become assets. It’s all perception, isn’t it?  

That is the main reason Secretary Paulson and Mr. Bernanke say we should do this to restore confidence in the markets. Well, I have no confidence that the businesses who get this money will invest it in us, the business marketplace,  the homeseekers, without being forced to do so. They’ll invest it in themselves.  

A Little Market Manipulation that Means Business

If we are so afraid of the stock market plunging to zero. Close the markets. Manipulate them. Limit the amount of loss the markets can endure in a week (to short circuit runs).  Eliminate the opportunity to make money in a down market by  eliminating short-selling permanently – which is essentially using a stock or asset you do not own and making money from it.

But, I digress. To be blunt, Bernanke and Paulson, and the expert pundits on MSNBC last night are saying you have to do the bailout or the markets will fail, retirements lost. (Read “we’ll stop making money.” Read -- "your retirement nest egg is doomed.")

But neither Bernanke or Paulson have said how new jobs will be created, how new mortgages will be made, how foreclosures will stop, how business will be invested in again. They hope it will.

WPCNR says, hope is not good enough, guys.

This is a pig in a poke.

 You’re just trying to bail out your Wall Street pals on this and keep the financial status quo free to lie, cheat, insider trade, and plunder widows and orphans again. I cannot tell you the number of desperate calls I get from investment firms pleading with me to buy stock these days.  They are hucksters. It’s not for me. Buying stock is for them. Never forget that.

The bailout is for them it is not for Mr. and Mrs. and Ms. America.

However, to hear Barney Frank of the House of Representatives talk on Public Radio’s Marketplace last night, he  and the rest of the house is all for the bailout,  as is Senator Clinton and Senator Schumer, as long as the right amount of "pork" is tied with it. 

 Frank said that by the weekend it could be passed, if congress adds more money for repair of infrastructure, aid for foreclosures, medicare relief – all the pork barreling that both houses of congress will find very acceptable to explain away this giveaway.

No  structure for procedure?  No time frame? How daft.

There’s also no explanation coming from Bernanke and Paulson at this time as to how the assets would be revalued, auctioned.

There was no explanation of when this money would wend into the marketplace either.

If congress passes this by the weekend, then Mr. Paulson says it would take time to auction the assets and time to assess them. Not one Senator asked how soon the auctions could be held.

Come on, Senators! That is the key question.

Here you have the Wall Street rats scurrying around their carpeted clubs and villas, cocktailing in the Hamptons Riviera,  squealing you have to do something now. Restore confidence. Give us money to save our sorry firms.

But, it’s going to take time, Paulson says to arrange these auctions?

So could any Senator ask how fast the stimulus of $700 Billion is going to get out there?

How about a simple market freeze, money market freeze or something like that to “stabilize” the market? It would cost a lot less than $700 Billion.

If you need it now -- is it going out now?

But, again – the question remains if you need $700 Billion to stabilize the markets now, where is the logic to the statement, but it will take time to evaluate the toxic assets and auction them off. When does it become too much time, and provide too little too late.

Paulson, a real “smoothie” drops the ball on his logic here.  If you need it now, you have to get the money out there now.

So forget about buying assets. Just distribute the money in the amount of the assets to all who have them – say next week. Then revaluate them in the auction. Is that what they are really planning on doing?

Bail out now and auction later?

You have to present more of a plan. Paulson and Bernanke did not put on a time frame.

"Even if it's not true. It becomes true."

Representative Frank said of the need for a bailout as pleaded by Bernanke and Paulson “Even if it’s not true. It becomes true.”

That is a classic statement. So we have Representative Frank saying we'd rather believe a lie that may or may not come true, and burn money so we can say "we tried" rather than working hard and making Wall Street accountable for where this money goes once it departs the goverment printing presses or is acquired from China, Russia, Saudi Arabia, or God knows where?

The stench of fear

Watching those hearings, the smell of fear on that Senate panel came right through the television screen.

Today three World War II bombers and a Mustang fly into Westchester County Airport. They are reminders of a time when Americans were not afraid of losing their money, working 24 hour shifts, giving their lives, and their way of life to fly into certain death for truth, justice and the American Way.

We need just a tad of that courage now, Senators and Congresspersons to say “Nuts!” to those who would blackmail us and say, “Your money or you go broke!”

Mr. Bernanke and Mr. Paulson's plan is a travesty that has not been thought out at all.

Otherwise we'd have more details.

This is our best and brightest?

It's sole purpose is to save their buddies on Wall Street, so they can  continue to loot.