Friday, September 19, 2008

Republican Deregulation To Cost Taxpayers $1.5 Trillion in Wall Street Bailouts

CNBC says the bailouts have cost taxpayers over $900 billion, so far:
The U.S. Federal Reserve stepped in to rescue insurance giant American International Group from bankruptcy with an $85 billion loan on Tuesday, the latest in a series of bailouts and loans for the financial and housing sectors. The action brings the total tab for government rescues and special loan facilities this year to more than $900 billion.
  • $200 billion for Fannie Mae and Freddie Mac...
  • $300 billion for the Federal Housing Administration to refinance failing mortgage[s]...
  • $4 billion in grants to local communities to help them buy and repair homes...
  • $85 billion loan for AIG...
  • At least $87 billion in repayments to JPMorgan Chase for providing financing to underpin trades with units of bankrupt investment bank Lehman Brothers...
  • $29 billion in financing for JPMorgan Chase's government-brokered buyout of Bear Stearns...
  • At least $200 billion of currently outstanding loans to banks issued through the Fed's Term Auction Facility...


The Newest Wall Street Bailout Plan announced yesterday to cost taxpayers an Additional Half Trillion Dollars:

Treasury Secretary Hank Paulson briefed Congressional leaders on plans to address the "illiquid assets" on U.S. financial institutions' balance sheets, possibly including the creation of a government facility to take on financial firms' bad debts.

The proposal to create a massive facility to buy mortgage-backed securities could cost as much as a half-trillion-dollars and would involve the purchase of both private-label and government-guaranteed mortgages, according to an administration official.

The plan would have two parts. The largest part would be the purchase of private-label (those underwritten by Wall Street) mortgages by some as-yet unnamed vehicle. Financing would occur through the sale of treasuries, the official said. That part of the plan would require congressional approval. The idea is to hold the securities to maturity. The average mortgage has a life of about 7 years.

A second part of the plan would involve the purchase by Treasury of additional government-backed (Fannie Mae and Freddie Mac) under a plan it announced several weeks ago to rescue the two government-sponsored entities. Back then, it said it would purchase $5 billion initially. The idea is to ramp up those purchases more quickly. It does not require approval by Congress. ...

CNBC first reported the creation of a Treasury plan, similar to the Resolution Trust Corp., that would take mortgage backed securities off the market. ...

A federal government plan could also involve FDIC-type protection for money market funds, according to a report in the Wall Street Journal.

It is the Republican Party's Hoover-like philosophy of no government regulation and the 1999 Financial Services Modernization banking system deregulation legislation written by McCain adviser Phil Gramm and pushed by McCain himself that helped pave the way for the 2008 financial system collapse. That deregulatory legislation allowed the very financial companies that have collapsed during 2008, to become mega-giant companies laden with self-destructing loans and investments.

Not only did McCain, and the Republican Party as a whole, push these destructive anti-regulation policies, Bush administration officials failed to step in to aggressively address the financial crisis’s first warning signs in 2007. Stephanie Pomboy, the founder of the economic consulting firm MacroMavens that has been forecasting the housing and credit crises, told Barron’s,

"We can’t resist pointing out had [President Bush's third U.S. Treasury Secretary, Henry "Hank"] Paulson and his bailout crew used their powers for ‘good’ from the get-go, they could have saved a lot of time, energy and, most importantly, money. Had they simply established a fund to buy up the surplus housing inventory, presently valued at just over $1 trillion, they could have stitched up this wound for less than they’ve spent layering Band-Aid after Band-Aid on top of it."

Alas, Paulson and the entire Bush Administration is stuck in the Republican "no government regulation" philosophical rut just like McCain, all of McCain's advisers and conservative legislators like Republican incumbent for the U.S. 3rd Texas Congressional District, Sam Johnson, age 78, Republican incumbent for the U.S. 4th Texas Congressional District, Ralph Hall, age 85, and Republican incumbent Senator John Cornyn.

Even as Paulson told congressional leaders Thursday night, "that we’re literally maybe days away from a complete meltdown of our financial system, with all the implications here at home and globally,” McCain said at a campaign stop, that the Federal Reserve needs to stop bailing out failed financial institutions and get back to "its core business of responsibly managing our money supply and inflation."

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