Bailout Could Deepen Crisis, CBO Chief Says

[seafan]

Source: Washington Post

The director of the Congressional Budget Office said yesterday that the proposed Wall Street bailout could actually worsen the current financial crisis.
During testimony before the House Budget Committee, Peter R. Orszag -- Congress's top bookkeeper -- said the bailout could expose the way companies are stowing toxic assets on their books, leading to greater problems.

"Ironically, the intervention could even trigger additional failures of large institutions, because some institutions may be carrying troubled assets on their books at inflated values," Orszag said in his testimony. "Establishing clearer prices might reveal those institutions to be insolvent."

In an interview later yesterday, Orszag explained using the following example: Suppose a company has Asset X, whose value is recorded on the books as $100. Because of the current economic decline, Asset X's real value has dropped to $50. If the company takes part in the government bailout and sells Asset X for $50, the company has to report a $50 loss on its books. On a scale of millions of dollars, such write-downs could ruin a company.

Such companies "look solvent today only because it's kind of hidden," Orszag said. "They actually are insolvent" already, he said.

Read more: http://www.washingtonpost.com/wp-dyn/content/article/2008/09/24/AR2008092402799.html?hpid=topnews

[gopbuster]

1. could expose the way companies are stowing toxic assets on their books"

wouldn't want that!

[sweettater]

2. "kind of hidden"

good god almighty.....who are these experts? 5 year olds????????????? I have never in my entire 61 years seen the likes of these idiots!!!!!!!!!! :banghead:

[unblock]

3. well ... if that's the case, these companies should fail. drawing it out is not necessarily good

if this is correct, the bailout will merely reveal the situation for what it already is. if it's worse than we realize, we'll find out.

that doesn't mean the bailout will CAUSE things to be worse.

i have many problems with the bailout, but this isn't one of them.

[Chan790]

8. Because these companies wouldn't likely fail.

The value of asset X is depressed by the state of the economy alone...once the economy corrects, asset X will rise in value back to or above its' initial value.

A parallel...I'm assuming you own your house. There is pretty much a 100% that your house is not worth what you paid for it right now. Do you care? No...because you're not looking to sell it. But what if you were required to revalue it at its' lowest point...meaning right now...viola! You're bankrupt.

[Yavin4]

11. The Operative Phrase in Your Post: "once the economy corrects"

That's just it. This economy is indeed correcting, but the correction is not going to be positive. We're going to see less jobs and much lower wages for the forseeable future, which means that housing will continue to tank.

[unblock]

18. i agree than companies in no need to sell are in no danger

after all, they can simply choose not to sell to the bailout fund.

my post was in response to the op article claiming that companies that did this might fail. which raises the question as to why they would participate in the bailout, but that's another story.

[galileoreloaded]

20. I LOVE the definition of Equity and Net Worth........

People are severely misguided at looking as the home they live in as a portion of net worth, by counting on the EQUITY as part of net worth.

The term EQUITY, today, has been bastardized from the original, fundamental meaning of EQUITY in that properly measured, it applies to the amount of return and income provided from say a mine, or a farm.

EQUITY should be evaluated in a price times forward earnings model, not a measure of perceived value. See, your home is a necessity, albeit a tangible one, but not having any truly measurable EQUITY, unless the property produces a relatively short term return.

If you look at your home as having equity, you are a speculator, as most homes have no real income producing potential.

A 700T, or as we are now hearing, 1.5 Trillion dollar bail out neither preserves equity, nor increases income. It is money thrown down a hole, but will sure make us feel better.

[Indenturedebtor]

4. Shhhh it's a secret!

:eyes:

Lets just run our entire economy as a ponzi scheme shall we? FFS can it be saved? Should it be saved?

[anarch]

10. 1. done! 2. doubtful 3. meh...probably not

not to say that something shouldn't be saved...just not the ridiculous, unsustainable and unfair system that we have now.

[Indenturedebtor]

12. Hah well said. I always appreciate a numbered response n/t

[Supersedeas]

29. money first, truthiness later

[LonelyLRLiberal]

5. From his full comments, it sounds like there is no real solution.

Very very scary. The entire Bush administration needs to be arrested for treason.

[fascisthunter]

6. Those Who Want This Bailout Don't Really Give a Damn

about the actually health of this economy. They are fixated on retooling it all by destroying if first.... agenda: make this unfixable. Then privatize everything, the fascist dream.

[ronnie624]

15. My thought also.

The goal for many of those who now occupy positions of power in the U.S. government, is to destroy all government funded social programs, and devote the revenue to rebuilding a global geopolitical landscape through militarism. They were kind enough to let us in on their plans in PNAC.

[Nihil]

17. +1

> Those Who Want This Bailout Don't Really Give a Damn
> about the actually health of this economy.

They only want the bailout to give them enough chance to cash
or transfer their own holdings out and then they'll not only
let "the economy" drop, they'll stomp on its head with glee.

:grr:

[glitch]

36. Absolutely agreed. nt

[lurky]

7. They can't hide it forever.

If a company is doing this, they are going to fail. Period. It's just a matter of timing.

[BanzaiBonnie]

9. That's what my financial advisor says

Too much, too late. Let it ride now.

[customerserviceguy]

13. One way or the other

we're all going to go back to barter, it's all a matter of whether or not the rich get one last shot at cashing in their chips if they can get the Dow back to 13,000 again.

[Joe Chi Minh]

14. Thank good they're getting information from every angle, with so much

at stake.

[dawgmom]

16. CBO isn't part of the Executive Branch

This isn't to the original poster, but to some who responded, just to clarify: the CBO isn't part of the Executive Branch. It's the investigative arm of the Congress -- Director appointed by the Speaker of the House and the President Pro Tem. Orszag was appointed in 2007.

I tend to trust what comes out of the CBO -- they are highly independent.

http://www.cbo.gov/aboutcbo/factsheet.shtml

[GinaMaria]

24. Is anyone listening to them?

I feel like we will take on a burden that will be the ultimate undoing of everything we know and love about this country.

[David__77]

19. The crisis is coming, one way or the other.

There was a tremendous, unprecedented speculative bubble in this country. Deflating it will be painful but necessary. This measure, like the ones before it, will not stop the inevitable.

[greyghost]

38. Damn straight! They are only forestalling the inevitable.

[Sam Ervin jret]

21. If Bush says it's VITAL to do the bailout that's reason enough to go slow and believe the opposite

must be true.

Why would or could anyone believe anything any of this administration says? This toxic bunch must leave office before anything can be done. If they want action now they can make the legislation so as it does not take effect until after the election has been certified to be legal.

I do not trust this bunch of proven criminals. Not with the election and not with hundreds of billions of dollars. And especially not when they have moved our own military into our own country to handle "civil unrest." Are they planning on doing something that would cause such unrest? There are no coincidences. Where are they going with this logic. Where are the troops being sent?

All of this stinks to high heaven. I hope I'm being paranoid and this is all just crazy thinking. But do you think Bush and Cheney will go quietly into that good night?

:hide:

[snappyturtle]

22. Wonder if bush has any signing statements, EOs or PDs in his twisted

little mind?

[dipsydoodle]

27. I'd say its pretty certain

he'll simply delete what he doesn't want and insert what he does.

[snappyturtle]

34. Yep. That's what I think too. n/t

[K8-EEE]

32. right, it reminds me of the leadup to the Iraq war Do Something!

Don't do NOTHING...do SOMETHING!

They have to get a little more specific than that.

[GinaMaria]

23. My latest batch of emails

Subject: HELP Please!

I feel sick at the news about the Congress being close to a bailout plan for Bush, the boy who cried 'wolf'. That you will agree to saddle us and the next how ever many generations with this debt is distressing. How was $700B arrived at? Who did the math? What does it include? What evidence do we have that bailouts work? So far all we have seen is that they don't work. Why not start with $50 billion and see if there is any improvement? Why not make a profit and not just take toxic debt? Wouldn't it be nice if the government could issue dividends to the citizens they expect to foot the bill for this? We should all share in the profits if we have to assume debt that is NOT ours. Please think this through. Do not hand over a blank check. Do not settle for maybe a little oversight. Think about the people you are burdening with this massive debt. Please act according to our interests and not the banking industry's interests.

[yurbud]

25. Mike Ruppert wrote about Wall Street cooking the books years ago

and covering their tracks with drug money.

[dipsydoodle]

26. Then its enema time

Good.

[GinaMaria]

28. Don't give up

Keep up the pressure. Here are resources for you to contact people in DC. These resources were shared in another thread by multiple DUers. http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=102&topic_id=3506709&mesg_id=3506709

You can send a message through
www.congress.org
or
http://www.democrats.com/stop-paulsons-plunder

http://www.democraticunderground.com/discuss/duboard.ph...

United States Senate Switchboard
[phone]

House Financial Services Committee
Democratic Staff
2129 Rayburn House Office Building, Washington, DC 20515
Ph: [phone]
Fax: [phone]

Keep the pressure on!

www.faxzero.com to fax committee free of charge (limit 2 free faxes per day).

And one more...
http://congressorg.capwiz.com/congressorg/issues/alert/...

[bushmeister0]

30. Anyone notcie the bit in the article about the Fed doing all interbank transfers?

What's that all about?

"He said that the Treasury was acting as a go-between in short-term lending between banks. Instead of Bank A lending directly to Bank B, as is customary, Bank A no longer had confidence that Bank B could repay the loan. (Yikes!}

So Bank A would give the money to the Treasury, which issued a security that was put into the Federal Reserve, which then issued the cash to Bank B.

The LIBOR system has failed. No worries there.

See HAMDENRICE's excellent description of how the system which allows us to get our money out of ATMs and even cash our pay checks is in danger of meltdown.

Well, was in danger when HR wrote this, but now has happened.

http://journals.democraticunderground.com/HamdenRice/37

Nothin to see here move along . . . look over there, it's Sarah Palin, she's shooting a moose!

[northernlights]

31. ok, I've read Hamden Rice's explanation of overnight lending

which leads me to what seems like should be obvious.

The overnight lending situation was to alleviate the burden physical settlement and physical transfer of physical $$.

But it's all on computer now, happening near the speed of light. Why can banks not let computers do either realtime or end of day (or combination thereof) settlements and end the overnight loan practice for good?

[bushmeister0]

33. I'm no expert, but I think the deal is that the banks don't trust each other.

As I understand it, you take your money out of another bank's ATM and your bank reimburses them. Now, what's happening is your bank doesn't trust the ATM's bank to be solvent in the morning, so they're now relying on the FED to make sure they get that $ back.

[mzmolly]

35. ...but let's rush it through before McCain swoops in to "save the day."

I expect that McCain will vote against the bail out and attempt to gain political advantage while saying he stood up to Bush and Wall Street.

[greyghost]

37. Such companies "look solvent today only because it's kind of hidden," "They actually

are insolvent."

Damn straight Skippy.

These morons want a VERY expensive feel good moment and our expense.


Please utilize the following info, your grandchildren will thank you for it:

http://www.democraticunderground.com/discuss/duboard.ph...

You can send a message through
www.congress.org
or
http://www.democrats.com/stop-paulsons-plunder

http://www.democraticunderground.com/discuss/duboard.ph ...

United States Senate Switchboard
[phone]

House Financial Services Committee
Democratic Staff
2129 Rayburn House Office Building, Washington, DC 20515
Ph: [phone]
Fax: [phone]

Keep the pressure on!

www.faxzero.com to fax committee free of charge (limit 2 free faxes per day).

And one more...
http://congressorg.capwiz.com/congressorg/issues/alert /