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Senate To Vote on Bail Out Plan Weds. Evening

By Jeralyn, Section Legislation
Posted on Tue Sep 30, 2008 at 07:07:14 PM EST
Tags: Bailout (all tags)
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The Senate will vote on its own bailout plan tomorrow night.

Majority Leader Harry Reid and GOP Leader Mitch McConnell say, however, that they're going to add a tax cut package already rejected by the House on Monday....The Senate plan would also raise federal deposit insurance limits to $250,000 from $100,000.

Sen. Barack Obama and John McCain today both urged passage of a bill.

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    Senate To Vote on Bail Out Plan Weds. Evening | 36 comments (36 topical)

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    These are the actual tax breaks: (5.00 / 1) (#2)
    by steviez314 on Tue Sep 30, 2008 at 07:40:59 PM EST
    The Senate tax bill would cost more than $100 billion and extend and expand many individual and business tax breaks, including tax credits for the production and use of renewable energy sources, like solar energy and wind power. The bill would also extend the business tax credit for research and development, expand the child tax credit, protect millions of families from the alternative minimum tax, and provide tax relief to victims of recent floods, tornadoes and severe storms.

    It seems like they just want to pair up this tax bill with the bailout package.  There's nothing egregious in there to me.

    Are you saying (none / 0) (#3)
    by Steve M on Tue Sep 30, 2008 at 07:46:30 PM EST
    that this was a pre-existing tax relief package that was going to get passed anyway?

    Parent
    The article seemed to read like that. (none / 0) (#4)
    by steviez314 on Tue Sep 30, 2008 at 07:51:15 PM EST


    Parent
    Just re-read it. Yes, it seems like that tax bill (none / 0) (#6)
    by steviez314 on Tue Sep 30, 2008 at 07:54:24 PM EST
    has been around a while, but House centrist Dems and Steny Hoyer don't like it without offsetting tax hikes.

    So maybe it gets some more pro-business Reps and some liberal Dems.

    Parent

    Tax hikes? In an election year? (none / 0) (#13)
    by BrassTacks on Tue Sep 30, 2008 at 08:49:14 PM EST
    No one running for re-election will vote for tax hikes.  

    Parent
    But.... (none / 0) (#5)
    by CoralGables on Tue Sep 30, 2008 at 07:54:04 PM EST
    When the government is spending many billions more than it is taking in, it leads to huge deficits...and although Dick Cheney says deficits don't matter...they do.

    Parent
    It's kind of amazing (5.00 / 1) (#7)
    by Steve M on Tue Sep 30, 2008 at 07:57:20 PM EST
    that anyone would think $700 billion in new spending (although that's not actually what the bailout is, no one seems to get that) somehow becomes more palatable if you throw some tax cuts in there.  Wouldn't any rational person conclude that the tax cuts make the bill into worse fiscal policy?  Is the $700 billion magically not coming from the taxpayers any more because we threw some tax cuts in there?

    Parent
    Steve, I read recently (none / 0) (#16)
    by gyrfalcon on Tue Sep 30, 2008 at 09:15:52 PM EST
    that the way government accounting works is that since the government is buying (or will be buying) financial assets, it's not counted as an expenditure as far as the actual calculation of the national debt is concerned.

    IOW, if you use government money to buy, say, a tank or to pay docs for medical treatment under Medicare, it's an expenditure, but buying financial assets is treated simply like trading one kind of asset for another.  It doesn't get counted as an expenditure until the government resells these things somewhere down the road and takes a loss, if it does take a loss.

    This kind of thing is pretty beyond my ability to comprehend, but if that's actually the case, all the yelling and screaming about burdening everyone's grandchildren with government debt is just wrong.

    Any idea?


    Parent

    Well, maybe (none / 0) (#21)
    by Steve M on Tue Sep 30, 2008 at 09:53:51 PM EST
    I mean, that makes some sense from an accounting standpoint, but I'm not sure it alters the political salience.  I mean, at the end of the day, either the government loses money on the deal - in which case the taxpayers have to eat it at some point - or it doesn't.  The fact that the government isn't formally required to recognize a loss in the meantime doesn't really matter.

    Thing is, no one really knows what the government plans to do with all this money.  Will they buy up impaired securities with the intent of keeping them on the books for a while, maybe renegotiating some of the underlying mortgages?  Will they use the funds as capital to make a market and simply act as a pass-through for the securities?  Some combination of the two?  Who knows.  But one way or another, there will be a reckoning at some point in the not-too-distant future, and the cost to the taxpayers will have to be measured.

    Parent

    These securities have value.... (none / 0) (#28)
    by SomewhatChunky on Wed Oct 01, 2008 at 01:54:44 AM EST
    It's just not clear how much.  

    The Government's gain or loss will be largely determined by what they pay for them.  I hope they have an open auction based system or some other transparent market-based method to determine the price.  If it's a set or negotiated price, there will be tremendous pressure by the banks on the Government to pay something near the amount they are carrying them on their books.  The actual value is, in most cases, far less.

    Parent

    Uncharted territory (none / 0) (#36)
    by gyrfalcon on Wed Oct 01, 2008 at 11:31:25 AM EST
    as everybody keeps saying.  Sounds to me like they'll go at it from different directions, depending on the circumstances.  There's no "one size fits all" to begin with, and they will probably need to modify their approach depending on what happens as they go along.

    Paulson and Bernanke are talking about reverse auctions, but say that may not be the way to go in every case.

    Parent

    G my man.... (none / 0) (#34)
    by kdog on Wed Oct 01, 2008 at 08:30:57 AM EST
    I think it is safe to assume the taxpayer will end up losing money on the bailout/rescue...I mean, look who we are giving the money too, and look who will be managing the "assets" (lol) the taxpayer is buying. We know these players and their track record all too well.

    The accountants can spin it anyway they like, but increased spending (bailout) plus tax cuts is not fiscally sound...that's second grade math.  Great way to get elected, but no way to run a country.

    Quick everyday life analogy...me and my roomates decide to rent a bigger more expensive crib, while reducing our monthly contribution to the rent.  We'd be evicted in two months.

    Parent

    Sounds good to me (none / 0) (#11)
    by BrassTacks on Tue Sep 30, 2008 at 08:47:31 PM EST


    Parent
    Just say no! (5.00 / 1) (#9)
    by Romberry on Tue Sep 30, 2008 at 08:22:04 PM EST
    No bailout. Today was supposed to be a day of doom but the Dow clawed back two thirds of what it lost yesterday, the economy kept going and the sky did not fall.

    Do not let them use fear to play you for a sucker. Just say no.

    Obama already said yes (none / 0) (#12)
    by BrassTacks on Tue Sep 30, 2008 at 08:48:08 PM EST
    Isn't he supporting the bailout bills?  

    Parent
    Unfortunately... (5.00 / 1) (#25)
    by Romberry on Wed Oct 01, 2008 at 12:33:17 AM EST
    ...the answer seems to be yes. Why? I have no idea...except that he is surrounded by consummate DC insiders like Daschle and others who will personally benefit in a big way.

    Obama represents change? Not so much...

    Parent

    That's been the saddest (none / 0) (#26)
    by BrassTacks on Wed Oct 01, 2008 at 12:53:24 AM EST
    Thing about this campaign, to learn that Obama is just another politician like all the rest of them.  He won't take a strong stand on anything.  He's not a leader and he's not about change.  It stinks.  

    Parent
    we've fallen for it once more (none / 0) (#29)
    by of1000Kings on Wed Oct 01, 2008 at 03:09:39 AM EST
    every election they say they aren't just washington politicians...

    every election we are fooled...

    for one, lobbying needs to be made illegal...to me a lobbyist is worse for our culture than any drug dealer, and yet one lives fat on the farm with respect and all, and the other...well you know what happens to the other...

    I just don't understand how lobbying has had a free pass for so long....I know it's entanglement with campaign funding, but still, should't a decision be made by the politician that was elected and not the politicians wallet?

    Parent

    it would be hard to criminalize lobbying (none / 0) (#30)
    by of1000Kings on Wed Oct 01, 2008 at 03:11:08 AM EST
    with all the lobbying that lobbyists would be doing to save their butts and their 6, 7 or even 8 figure 'jobs'....

    Parent
    Well, the Senate, along with McCain and Obama, (5.00 / 2) (#14)
    by clio on Tue Sep 30, 2008 at 08:49:32 PM EST
    seem determined to do something.

    I am not convinced what they are doing could be called leadership.

    Scary.... (none / 0) (#35)
    by kdog on Wed Oct 01, 2008 at 08:33:31 AM EST
    There's a book the size of War & Peace filled with terrible legislation passed because people felt the need to "do something" in haste, without factoring in the always dangerous unintended consequences...it's one of the reasons our prisons are overflowing.

    Parent
    No matter what the Senate does (5.00 / 1) (#15)
    by TheRizzo on Tue Sep 30, 2008 at 08:54:36 PM EST
    I just can't see the house passing the bill anywhere near where it is unless the Democrats want to stick their necks out and pass it themselves.  

    Seems like putting the carriage before the horse thing tomorrow night to me.  Trying to put pressure in hopes of forcing the the house to pass it.   Argh.

    Very interesting politics in all of this (none / 0) (#17)
    by BrassTacks on Tue Sep 30, 2008 at 09:30:55 PM EST
    I wouldn't put my money on Pelosi.  She seems to get out smarted by the republicans, every, single, time.  :(  

    I see a tax cut in our future, with McCain AND Obama voting for it.

    Parent

    Oh well (none / 0) (#1)
    by Steve M on Tue Sep 30, 2008 at 07:28:31 PM EST
    so instead of going the progressive route (I'm still interested to read about this alternative bill Rep. DeFazio and others rolled out today) we're throwing in yet another tax cut in an attempt to win more Republican votes.  I can live with it, if that's the outcome, but I sure hope Obama doesn't spend too much political capital arguing for this bill.

    Gist of the DeFazio Proposal (none / 0) (#8)
    by santarita on Tue Sep 30, 2008 at 08:05:52 PM EST
    The FDIC purchases "Net Worth Certificate" in qualifying banks.  The purchase is accomplished by the FDIC issuing a promissory note in the amount of the Net Worth Certificate and at the same interest rate - so no actual $$$ change hands.  The banks get to count this Net Worth Certificate as capital for regulatory purposes.  (RAP v GAAP accounting).  The banks agree to reduce the amount of the NWC over a period of years.  This was used in the 1980's.  Banks that participate in this program agree to increased oversight and limits on Exec Compensation.

    Also DeFazio proposes codifying the ban on short-selling and re-instate the uptick rule.  

    And he proposes that the mark to market rule be temporarily suspended so that banks can do take into account actual performance on the mortgages.  (More RAP accounting).  

    The NWC idea or variations on it (eg. Krugman) is good in that it addresses the capitalization and the oversight issues.  Not so good is the introduction of  regulatory vs generally accepted accounting.  

    Oh well.  So much for transparency in the market.

    Parent

    Hm (none / 0) (#19)
    by Steve M on Tue Sep 30, 2008 at 09:36:15 PM EST
    I would be very interested in the benefit of your thoughts on my comments here.

    Parent
    My Take... (none / 0) (#22)
    by santarita on Tue Sep 30, 2008 at 10:39:59 PM EST
    Your comments about the "Net Worth Certificate' concept identify the big problem with it - everyone (banks and sophisticated investors) will  know and the banks with that kind of capital will have a big asterisk or footnote in their financials.  If, however, the program lasts 5 years or so and the bank is redeeming on schedule its Net Worth Certificates, then the stigma should diminish after the first year or so.  The first couple of years might be a little dicey until everyone can see performance.  I foresee contracts with reps and warranties regarding participation in the program.

    The NWC program doesn't really address the toxic mortgages (and securities).  But maybe it buys time so that the toxicity can work its way through the system in an orderly fashion.    

    Coupled with the suspension of the mark-to-market rule, the NWC idea really compounds the obfuscation of financial statements.  Without good supervision and courageous regulators, the NWC and suspension of mark-to-market doesn't do much more than kick the can down the road.  I think the idea of postponing the day of reckoning is ok if house prices start to stabilize and improve.

    My big question is not how our banks will look at this gimmickry but how will foreign banks and investors look at it.

    Parent

    Why would Obama argue for this bill? (none / 0) (#10)
    by BrassTacks on Tue Sep 30, 2008 at 08:46:50 PM EST
    He hasn't really argued for any bill.  Nor do I think that he should.

    My question is, can Obama not show up for this vote?  Might he say that he is too busy campaigning for America, or something like that?  Not voting at all may be the best thing for his campaign.

    Parent

    please read the news (none / 0) (#18)
    by Jeralyn on Tue Sep 30, 2008 at 09:33:02 PM EST
    they are both going to be there.

    Parent
    I just heard that on the news (none / 0) (#20)
    by BrassTacks on Tue Sep 30, 2008 at 09:47:47 PM EST
    It sounds like McCain and Obama will both vote for it, just as I said a few posts down.  Tax cuts for ALL!  With bailouts for the crooks.  Something for everyone!  That always works in an election year.  

    Parent
    BBC correspondent: there (none / 0) (#23)
    by oculus on Tue Sep 30, 2008 at 11:02:15 PM EST
    aoms nuts in there (House of Representatives).  

    WSWS: The Democratic Party and Wall Street (none / 0) (#24)
    by Andreas on Tue Sep 30, 2008 at 11:48:07 PM EST
    The WSWS writes:

    Despite their control of both houses of Congress, the Democrats never advanced their own plan to deal with the financial crisis. With Wall Street and the entire ideology of American "free market" capitalism discredited in the eyes of the American people, and popular opposition to the bailout mounting, the Democrats were in a position, as the nominal opposition party, to demand significant reforms of the banking system.

    They could have called for tougher regulation of the banks and punitive measures against the multi-millionaire architects of the financial meltdown. They did nothing of the kind.

    Instead, they took the lead in secret negotiations with Paulson to draw up legislation whose entire purpose was to protect the interests of the most powerful sections of the financial elite, such as the Wall Street giant Goldman Sachs, formerly headed by Paulson. They insisted that the crisis required a bipartisan response, and that a program to place immense public resources at the disposal of Wall Street, with the most far-reaching implications for the American people, should be excluded from the election campaign and implemented before voters could register their opposition on Election Day.

    The Democratic Party and Wall Street
    By Barry Grey, 1 October 2008

    they should have just pushed a bill (none / 0) (#31)
    by of1000Kings on Wed Oct 01, 2008 at 03:13:26 AM EST
    to nationalize the banking system...

    if it really is so easy for Dems to pass whatever they want considering the numbers...

    Parent

    Some thoughts of mine (none / 0) (#27)
    by Steve M on Wed Oct 01, 2008 at 01:12:44 AM EST
    on the alternative proposal being pushed by House progressives here and here.

    Perception is everything (none / 0) (#32)
    by mmc9431 on Wed Oct 01, 2008 at 05:19:12 AM EST
    Adding tax breaks for businesses, in a bill to bail out businesses isn't going to set well with most American's. There still is very little being offered directly to the average citizen. Granted, indirectly we'll benefit, but this still sounds like Reaganomics. We have to wait for the trickle down.

    The same administration that you Iraq (none / 0) (#33)
    by Charters on Wed Oct 01, 2008 at 08:07:37 AM EST
    No, the bail out failed to pass simply because it was (and still is) a BAD IDEA:

    Check out:

    Bailout Urgency Driven by The Fear Factor & Panics the Banking System

    and Stop The Bailout Now: Our Last Chance, Petition & Final Thoughts

    Killing the bailout (as it stood) is such a positive thing. It's a triumph really.  Giving the credit markets a chance to sort all this out itself is the single best thing that can happen for everyone in the long run. If it turns out that they can't, then the Fed can rush in, but they need to let the credit markets take the blow and try to handle it - they have more incentive than anyone to get out of the hole. For more, check out these links:

    Bernanke's Hype
    An Open Letter to the United States Congress: Stand Up for Taxpayers by Standing Against Quick-Fix Bailouts!
    Show me the crisis. In an open letter to colleagues on Tuesday, former New York Times reporter David Cay Johnston urged fellow journalists to be skeptical of the bailout proposal
    Why Just Say No!
    An Open Letter to my Friends on the Left

    Senate To Vote on Bail Out Plan Weds. Evening | 36 comments (36 topical)

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