Bailout- What They Say When We Aren't Listening

Quote:
Various readers wrote us, and it was confirmed by a detailed report on the call at DealBreaker, that the Treasury Department held a conference call this evening for analysts on the bailout bill. A memo was evidently sent to SIFMA members; others may have been contacted by other means. But the report I got from one person who was on the call was the the questions came from financial services industry members. In other words, this was most assuredly not intended to be a call open to the public at large. If anyone from the media or other member of the great unwashed was listening in, it was by accident.

This is simply scandalous. To have a group of interested parties get a privileged briefing by government officials on a matter of keen public interest flies in the face of what a democracy is supposed to be about. The proper method would either be a published FAQ on the Treasury website or a briefing with the media included. But why should I be surprised? Favoritism has been a staple of the Bush Administration.

Link

Someone somehow ended up making a rough recording of this conference call (and making notes which are below. I'm uploading the mp3 on our server if you want to download it, it's 17mb and 42 mins long. You can download if from RR's server here, or you can download the torrent here.

This is really shady and should not be allowed, especially when so much of our tax payer dollars are at stake.

Remember that we, the public weren't supposed to hear these things, and it's because of these very issues that I'm glad the bill failed. But they're going to continue pushing for this crap, and we need to call our congresspeople and our newspapers and let everyone know about this and what they're really planning when they don't think the public is listening. This will be the biggest financial giveaway in American history. Feel free to forward this!

Notes people have made upon listening to the call..I am posting a few, you can read them all at the original post...My additions in red:

1 The tranching is a mere formality, and the Treasury boys as much as said so. They could take the $700 billion max as soon as the bill has passed,

5. The exec comp provisions sound like a joke, They DO NOT affect existing contracts, they affect only contracts entered into during the two years of the authority of this program and then affect only golden parachutes (definition of golden parachutes). More detail on that point, but I don't need more detail to get the drift of the gist.

2) Waiting a couple of weeks because no one has any idea when or where the next bomb will blow up. In other words, all their doomsday scenarios about Black Monday were B.S. They screamed the check had to be written by Monday, but now they're saying they actually have a few weeks before they need to cash it. Plus, this will allow them to "seek guidance" from GS, JPM, and other selfless public servants about where the money should be funneled.

The tap dancing (reason they are saying they aren't going to act for a couple of weeks even though this is some huge crisis) is because they don't want it to get out that they'll be giving a sweetheart deal. The public won't be following each individual transaction to see exactly what price is being paid. So ridiculously overpriced asset sales can be hidden in the details, and by the time some reporter (or blogger Smile combs through and analyzes the transactions, the deed will have been done. But if Paulson makes a statement that assets will be bought at par before the bailout's even begun, that will be reported and might kill the deal. (Thats why this conference call was supposed to be private)

If you come to the Treasury and you are in trouble, you get reamed. Bear/AIG style treatment, execs probably fired. But if you participate on a voluntary basis, the intent is to make it very user friendly. (They actually say that in the call, they want to make it user friendly...what is this, some sort of tea party??) That is consistent with Paulson's position during the negotiations.

In other words, we need to sweeten the pot to encourage banks to come "voluntarily". Pardon my ignorance, but why the hell should we be begging banks to borrow from us? I thought a bailout should be the absolute last option for a bank. I.e., it should be so unpalatable, so unprofitable for a bank and its executives that they exhaust every private means of survival before coming for their public "reaming". I wonder if foreclosed homeowners would rate their foreclosure process as "user friendly".

Eligibility: as broad participation by institutions as possible. The
more participation, the more effective it will be. Want banks of all
sizes or any financial institution that has a meaningful presence in
the US to be interested and enthusiastic. (Can you say massive giveaway?!)

Purpose is to help private sector clean up their balance sheets. (I have debt, but I don't see them wanting to help clean up MY balance sheet.)

Market mechanism: Congress wanted taxpayer benefit in upside. Sell
warrants for assets over $100M , but the amount of warrants is still
TBD. WE want healthy institutions to participate so it should not be
punitive. (Why not punitive? If I don't pay my bills, I get in trouble. But not big time banks that rape homeowners with outlandish mortgages and lines of credit they know people can't afford..nah, they get bailouts.)

Quote from the call: It requires us to take warrants at the Secretary's discretion ... in the direct case [i.e. a seizure of a failing institution] we will be very aggressive in taking warrants for the taxpayer benefit. ... Companies that sell over $100 million dollars into this fund must give warrants.

The warrants we can set at whatever level we want to set, it's not specified. We want to set that at a level so there is some upside for the taxpayers, but also encourages all firms to participate. This goes back to the spirit that we don't want just failing institutions to participate but also healthy firms to participate. Having that discretion was very very important to us.

Healthy firms are not only able but encouraged to come in and take taxpayers for $100 million, with no downside for them and no upside for us. (we're basically giving $100 million to any bank for free, no need to pay back as long as it's not over $100 million) While the Treasury will be very aggressive about taking stock options on failing institutions, when healthy institutions come for their checks, the Treasury will set the price of the warrant at whatever level is high enough to keep the firm at the trough. (The point should be to save sick institutions, not just have a massive giveaway program to banks that aren't in crisis!)

Clawback of taxpayer losses:
1. it's a long way out, "a lot can happen in that time"
2. it's targeted at all financial institutions, not just participants! (that means it will never happen)
3. would need more congressional and presidential action to implement this.

Tranching of $700B (I didn't know that was a limit)

Entire 700B is appropriated entirely by the act, no further appropriation necessary.

Tranching: first $250B
Then Secretary determines that more is needed and tells Congress, another $100B
Then Secretary determines that more is needed and Congress has 15 days to refuse, the remaining $350B

No time limits. Can request all the tranches at once, no need for delays.

To block the last $350B, Congress has to say no. Then the President can
veto that. To override that veto, Congress needs 2/3 majority.

ALL of that must happen within 15 days, otherwise the money goes out.

Can't the President wait and veto it with one minute left in the 15 days?

I want to thank Lindsey and The People Speak Radio for passing this along.