Rescue Plan released; What does it mean?

[Kidlicious]

Originally posted by Zkribbler
George Soros has proposed a simple, easy to understand and effective plan:

The banks need money (i.e. liquidity). Fine, give them money in exchange for some of their stock.

Take them over?

[DinoDoc]

Originally posted by Zkribbler
George Soros has proposed a simple, easy to understand and effective plan:

The banks need money (i.e. liquidity). Fine, give them money in exchange for some of their stock.

Do you really think the US government is competent to manage a nationalized financial sector?

[Zkribbler]

No. But I have hopes that it would have enough intelligence to obtain this bank stock at a low price, and then when the banks recover, sell it at a high price.

[DinoDoc]

Originally posted by Zkribbler
No. But I have hopes that it would have enough intelligence to obtain this bank stock at a low price, and then when the banks recover, sell it at a high price.

These are the same people that thought it would be a good idea to force banks to not look at credit ratings or income when making loans. I wouldn't have the highest opinion of thier intellect if I were you.

[Kidlicious]

Originally posted by Zkribbler
No. But I have hopes that it would have enough intelligence to obtain this bank stock at a low price, and then when the banks recover, sell it at a high price.

Do you have hopes that pigs will fly?

[Aeson]

Originally posted by DirtyMartini
Warren Buffett thinks the rescue plan must pass -- does that change anyone's opinion?

No. Buffet can be wrong. The plan fixes nothing.

[Kidlicious]

Z,

But I see you don't like the idea of buying toxic assets anymore though.

[Kidlicious]

Soros plan

Instead of just purchasing troubled assets the bulk of the funds ought to be used to recapitalise the banking system. Funds injected at the equity level are more high-powered than funds used at the balance sheet level by a minimal factor of twelve - effectively giving the government $8,400bn to re-ignite the flow of credit. In practice, the effect would be even greater because the injection of government funds would also attract private capital. The result would be more economic recovery and the chance for taxpayers to profit from the recovery.

This is how it would work. The Treasury secretary would rely on bank examiners rather than delegate implementation of Tarp to Wall Street firms. The bank examiners would establish how much additional equity capital each bank needs in order to be properly capitalised according to existing capital requirements. If managements could not raise equity from the private sector they could turn to Tarp.

Tarp would invest in preference shares with warrants attached. The preference shares would carry a low coupon (say 5 per cent) so that banks would find it profitable to continue lending, but shareholders would pay a heavy price because they would be diluted by the warrants; they would be given the right, however, to subscribe on Tarp’s terms. The rights would be tradeable and the secretary of the Treasury would be instructed to set the terms so that the rights would have a positive value.

Private investors, including me, are likely to jump at the opportunity. The recapitalised banks would be allowed to increase their leverage, so they would resume lending. Limits on bank leverage could be imposed later, after the economy has recovered. If the funds were used in this way, the recapitalisation of the banking system could be achieved with less than $500bn of public funds.

[Zkribbler]

I thought (and think) something must be done.

We had the Repub's insurance plan, which I didn't understand at all, and which a lot of people in the know said wouldn't work.

We had the Paulson Plan, the Paulson Plan 2.0 defeated by the House, and now the Paulson Plan 2.1, passed by the Senate. As indicated by the title of this thread -- I'm having a hard time getting my head around it.

Soros's Plan is easy to understand. It would work. It doesn't have all the remedies (i.e pork) that the Senate Plan has, but right now, we're just trying to fix the problem in the credit market.

[Aeson]

The main problem with government holding equities is that they will lose any semblance of impartial oversight and regulation. I'd rather we just lost the $700bn honestly.

Lack of oversight and regulation is part of this mess. Lack of impartiality on the part of what oversight we had (eg. Just about everyone in Congress being paid off by F&F) is part of this mess. Overvaluing assets based on guarantees of payout (F&F legislated to buy crap loans, CDS, MBS backed by houses that were assumed would never go down in value) is part of this mess.

And our "cure" is to have government replicate or extend the scope of all of these problems.

[Kidlicious]

I think a bailout has to be accompanied by regulation. I don't trust the government to give us regulation after the bailout regardless.

[Timexwatch]

I'm glad somebody on the Democratic side actually has some friggin sense to conduct the vote on the bailout sensibly:

CQ TODAY ONLINE NEWS – ECONOMIC AFFAIRS
Oct. 2, 2008 – Updated 2:15 p.m.
Second House Vote on Bailout Hinges on Whip Count, Hoyer Says
By Edward Epstein, Lydia Gensheimer and Benton Ives, CQ Staff

House Majority Leader Steny H. Hoyer, D-Md., said leaders of both parties are working hard to pass revised financial bailout legislation Friday. But he warned he will not call up the bill until that outcome is assured.

“I have to be pretty confident we have the votes to pass this before I put it on the floor,” Hoyer told reporters Thursday. House leaders do not want to risk a second defeat of the plan, which could touch off a panic in financial markets.

He said he hoped for passage Friday. “I think there’s a good prospect of getting this done,” Hoyer said.

Speaker Nancy Pelosi, D-Calif., called the revised bill “much improved,” and said, “We’re working hard to pass it.”

On Monday, Sept. 29, the House rejected, 205-228, the original version of the bill (HR 3997).

Negotiators went back to the drawing board and added an increase in Federal Deposit Insurance Corp. coverage for bank accounts to $250,000 per account, from $100,000. The Senate last night called up a House-passed mental health parity bill (HR 1424) and attached the modified bailout package and extensions of expired or expiring tax breaks. The Senate passed the new package by 74-25, with majorities of both parties backing the proposal.

Hoyer said that he still hopes the House can take up an extension of unemployment benefits for workers whose benefits will expire this month. He said “we have to get agreement” with Republicans, adding “and it would be separate from the bailout.”

President Bush again urged Congress to complete action quickly on the financial rescue package. He met with business representatives at the White House and warned of the consequences of the credit squeeze for the Main Street economy.

Bush said the Senate-passed bill “is the bill that has the best chance of providing credit, providing liquidity” to the financial system and the broader economy.
Winning Over Votes

Hoyer said he didn’t know if Democrats could produce more than the 140 votes they mustered for first bailout bill on Monday. He stressed it is up to Republicans to provide the votes needed for passage. Only 65 Republicans voted for the plan on Sept. 29, while 133 opposed it.

“We expect there to be many more Republican votes for this to pass,” he said. “We need a significantly greater number of Republicans. I don’t want to put a number on it.”

Although the Senate included tax break extensions without full offsets to pay for them, Hoyer said he doubted that move would have much impact on the Democratic vote count, even where fiscally conservative Blue Dogs are concerned.

On Monday, 25 Blue Dogs voted for the original bailout bill and 24 opposed it. Hoyer said he doesn’t expect that breakdown to change much. “I think the Blue Dogs who voted for it feel the responsible vote is to continue to support it,” he said.

He also said it’s possible that the Senate’s inclusion of a $500 property tax deduction for taxpayers who do not itemize could help attract votes from some members of the all-Democratic Congressional Black Caucus. “Have we gone as far as some people want? No we haven’t,” he said, referring to CBC members who wanted new bankruptcy protections for homeowners in danger of losing their houses.

But CBC Chairwoman Carolyn Cheeks Kilpatrick, D-Mich., said she was not yet won over. “I haven’t decided. It still does not protect the American citizen as I would like to see it do,” she said.

He told reporters that incoming phone calls and e-mails from his constituents had changed from about 6-to-1 against any bailout before to about 3-to-1 against today. “I think people saw on Monday that it had a direct effect on them” as the stock market dropped and small businesses around the country began to feel a credit pinch.

“People feel we should act, but don’t know what to do. That puts them in the same boat as members of Congress,” he added.

Also, the bill could be on for tonight if they have the votes and rule:

CQ TODAY ACTION ALERTS
Oct. 2, 2008 – 11:46 a.m.
House Rules Sets 4 p.m. Meeting on Bailout Package

The House Rules Committee scheduled an emergency meeting for 4 p.m. to set guidelines for consideration of HR 1424. The bill, which the Senate passed by 74-25 last night, would extend expiring tax provisions, authorize a $700 billion financial system rescue plan and require mental health parity in insurance coverage.

[Aeson]

The Senate last night called up a House-passed mental health parity bill (HR 1424) and attached the modified bailout package and extensions of expired or expiring tax breaks.

/me looking forward to seeing Stewart and Colbert's take on this

[Aeson]

Did Paulson say he would recommend a veto of the bill if it included any language that restricted foreign investors from moving assets from outside the US to inside the US (through a subsidiary located in the US) to sell to the treasury (under TARP)?

I watched a video where Brad Sherman (D, California) claimed that Paulson said that, and that the bill has been carefully worded to allow for it.

http://www.cnbc.com/id/15840232?video=873682522

[snoopy369]

I actually could support Soros' plan, I think. Not that they'll pass it or anything, but I think it's much better than what they have now...