DealZone

Before the Bell: Bailouts and Buyouts

By Reuters Staff
September 29, 2008

pelosi.jpgSince socialism is always more palatable when it bails out rich people, Henry Paulson’s $700 billion financial rescue package arrives in Congress today after round-the-clock negotiations over the weekend and exhortations from presidential candidates. But even as Congress prepared to vote, across the ocean the financial crisis rattled several European institutions.

The governments of Belgium, the Netherlands and Luxembourg moved to partially nationalize Fortis with an injection of over $16 billion. Also German lender Hypo Real Estate secured a credit line from the German government and banks up to 35 billion euros. And Britain nationalized mortgage lender Bradford & Bingley. Meanwhile shares in French bank Dexia fell on reports that it may need emergency capital. Rescue deals also emerged in Iceland, Russia and Denmark.

Citigroup will buy Wachovia Corp’s banking business, further consolidating power among three megabanks: Citigroup, JPMorgan and Bank of America.

The stock market was poised to open lower, on fears that the bailout plan would not be enough to rescue the economy. Treasuries and the dollar were up, but pared their gains after the Citigroup announcement.

- Derek Caney

Comments
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For 28 years, Mr. & Mrs. Reader, the Middle Class has been making the Privileged Class (PC) wealthier and wealthier. Why is that, you may very well ask. Because of RR. No, not Ronald Reagan per se. Rather, it has been the 28-years long UNTAXED RR-W (Reagan Redistribution of wealth) from the Middle Class to the PC.

As I understand it from the NY Times this morning, Mrs. Nancy Pelosi (Speaker of the House) is proposing a tax on Wall Street if after 5 years, Main Street doesn’t get its $250 Billion + $100 Billion + $350 Billion = $700 Billion = $.7 Trillion loan back from the PC’s whose unregulated greed is at the root of current mess. Yes, there is also regulated greed. However, unregulated avarice won out over the usual regulated variety.

I’m for a Wall Street tax. As a matter of fact, I think that the PC members of congress and the PC president ought to enact a tax surcharge on the Privileged Class right now today. Said PC surcharge would wipe out the national debt and the annual spending deficit over the next 8 years.

All it would cost the 15 million (top 5%) richest PC taxpayers is $125,000 a year.

$125,000 per year x 8 years = $1 Million x 15 million PC taxpayers = $15 Trillion = National Debt + Annual Spending Deficits until the budget is balanced.

Naturally, the budget can be balanced once the Privileged Class starts paying the top marginal personal/corporate/capital gains federal income tax rates that existed as Jimmy Carter was leaving office and Ronald Reagan was coming in, e.g., the top marginal personal tax rate was at that time 70% (and had been since 1964).

By the time the dust settled during Ronald Reagan’s second term in 1986, the top marginal rate was reduced to 28% (a 60% reduction since 1981 for already wealthy Americans). On the other hand, the bottom rate was increased to 15% (a 36% increase) for Middle Class Americans.

In essence, the Privileged Class was asked (by a PC congress & president) to be less patriotic in their contribution toward paying America’s bills…and the Middle Class was asked to be more patriotic in that regard. This, even though the original intent of the progressive income tax in 1913 was just the opposite.

In addition, of course, the Middle Class and Working Class are always the ones who contribute their lives, limbs, sight, hearing and mental & physical health to ensure that Wall Street remains safe from the bad guys.

It’s time for Wall Street to make some sacrifices…as well as Pennsylvania Avenue. So, bring on the Wall Street tax…and the PC tax surcharge…and the PC tax rate increase for those who can most afford to demonstrate their patriotism in this dark time…the dark time that was created by Wall Street’s & Pennsylvania Avenue’s PC’s in the first place!

Hey PC’s! We’re not asking for patriotic blood here…just patriotic greenbacks! You won’t miss it and you know it. I mean, how much wood can a woodchuck chuck anyway?

When the dust settles by 2016, you will be even wealthier than you are now…because with the national debt paid off and no more deficit spending, the Dow will probably hit at least 17,000 by the time Mr. Obama is about to leave office (60% above where it is at this very moment, i.e., 10,700). This will more than compensate you for your wallet-sized patriotism.

OK Jack

 

Just a comment on your picture of Nancy Foolosi. Why would anyone choose to make a partisan speech when they are trying to pass a bipartisan bill? Amazing! Californians should dump her as soon as they can. What a disgrace to America!

Posted by Cliff Weaver | Report as abusive
 

Today’s drama means one thing. It is time to stop the blame game. It is time to get serious about understanding the anatomy of failure – what I call the Lethal Jackpot. See here – http://www.avivshahar.com/the-key-the-le thal-jackpot/

We need to get serious about creating real solutions!

 

I heard a CNN pundit (on the Wall Street payroll perhaps) say today that penalizing Wall Street will penalize Main Street. Here’s the rationale, Mr. & Mrs. Reader: Because Middle Class (and perhaps some Working Class) retirement investments (individual plans and pensions) have been invested on Wall Street…penalizing Wall Street as a whole is like shooting oneself in the foot.

Beware propaganda that diverts your attention from the straight skinny!

To paraphrase one of Ronald Reagan’s one or two zingers that made sense (most didn’t), “There they go again.” The other good one was comparing one’s well-being of today with one’s well-being of 4 years ago.

Forget 4 years ago! Are you better off today than you were even 4 days ago, Mr. & Mrs. Reader?

At the root of the problem is unregulated greed.

A root cause is 100% mortgages (almost always 80%/20%) extended by mortgage brokers (e.g., the infamous CountryWide) and wrapped up in the pretty ribbons, buttons & bows of extremely high risk mortgage backed securities peddled to greedy (and now known to be stupid) investors by Wall Street investment firms. Naturally, these stupid investors won’t appear to be totally stupid, if the $700 Billion residing on Pennsylvania Avenue bails them out by purchasing their near worthless paper at any price they can get from YOU that is above $0.

The second root cause is banks making high risk 100% loans (80%/20%) and either holding on to the paper (both mortgages)…or FNMA/FHLMC purchasing the 80% mortgages in direct violation of their own underwriting guidelines, i.e., borrowers borrowing the 20% down payment. Perhaps the banks didn’t divulge this little fact to Fannie/Freddie. I think they did though.

The third root cause is lenders not sticking to fixed rate/fixed term loans, i.e., selling borrowers on ARM’s (Adjustable Rate Mortgages) that were sure to put borrowers on the street because of built-in interest rate escalator clauses, i.e., monthly payments rising by 50%-100%.

Couple the preceding 3 root causes with the following volatile formula: Loans inflated to include excessive lender profits in the form of discount points and other forms of upfront interest such as “loan fees” + the fact that the common sense underwriting guideline of monthly PITI not exceeding 33%-40% of Gross Monthly Income was ignored = a personal (times in-the-millions) and then Wall Street & Pennsylvania Avenue financial debacle of monumental proportions.

OK Jack

 

@OK Jack

Here, Here! I don’t know what those fact cats we’re thinking but they really put our financial system up in turmoil and hopefully it won’t get so bad that I’ll be standing in a long line waiting for soup. It was confirmed my mom and I were getting a fixed rate loan (which we did qualify for) and when we get to the signing table it’s an 80/20. The good news we didn’t buy a home we couldn’t afford so we’re not struggling in that way and our loan was written were our maximum rate change was only $80 more which since that moment our adjustable rate has been going down since then. But the point is, they were pushing for this bad deal to make money. My mom’s friend owns several homes which I know 2 of them paid for and sold one to buy another, and they too have always qualified for a fixed and when they bought there current home, they were put on this 80/20. All I can say is, were suffering for the consequences of the the greedy who made money and show no remorse for robbing the middle class. Don’t get me wrong, I’m all about taking the opportunities of the American dream, but not at the expense of others.

Posted by Trasa | Report as abusive
 

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