Bailout White Paper

[gopbuster]

Submitted by
Martin D. Weiss, Ph.D. and Michael D. Larson
Weiss Research, Inc.
to
United States Congress
Senate Banking Committee
and House Financial Services Committee
September 25, 2008

Too Little, Too Late to End the Debt Crisis;
Too Much, Too Soon for the U.S. Bond Market


http://www.weissgroupinc.com/bailout/Bailout-White-Paper-Sept-24-2008.pdf

[dweller]

1. uh oh. everyone should have a look at this

i learned more about this potential crisis and impending bailout in the first 10 pages than all week hearing NO details about the govt plan and their fearmongering.

lists threatened banks also.

my bank is in the list :scared: i don't even know of a bank that's NOT on the list...
dp

[gopbuster]

2. Yup n/t

[panAmerican]

3. The executive summary alone is very sobering.

[gopbuster]

4. III. Recommendations to Congress

III. Recommendations to Congress

In light of these facts, we have four recommendations:

Recommendation #1. To avoid a sharp rise in interest rates or a collapse in the
U.S. dollar, Congress should limit and reduce the funds allocated to any bailout as
much as possible, focusing primarily on our recommendation #4 below.

Recommendation #2. If Congress is determined to provide substantial sums to a
new government agency to buy up bad private-sector debts, that agency should
pay strictly fair market value for the debts, including a substantial discount that
reflects their poor liquidity. Further, it should be clearly understood that:
􀂃 Due to the recent sharp declines in market values and market liquidity, many of
the bad debts on the books of U.S. financial institutions are currently worth
only a fraction of their face value.
􀂃 When the government buys these debts at fair market value, it will still leave
most of these institutions with severe losses.
􀂃 Many of these institutions do not have the capital to cover their losses and will
fail despite the bailout.

Recommendation #3. Congress should clearly disclose to the public that there are
several significant risks in the financial system that the government is unable to
address with any new legislation, including the possibility of surging defaults on
debts not covered by the bailout plan, a collapse in the derivatives market, and a
chain reaction of corporate failures. It should also disclose that
􀂃 Whether the bailout legislation is adequate or not to stem the debt crisis and
prevent financial panic, the government will need to prioritize the protection of
its own credit and seek to ensure the stability of the U.S. dollar.
􀂃 The private sector, in turn, will need to handle any further spread of the debt
crisis largely without government financial assistance.

Recommendation #4. Rather than provide a safety net for imprudent institutions
and speculators, Congress should devote more effort to bolstering the safety nets
for prudent individuals and savers. These include:
􀂃 The FDIC, which insures bank depositors, but has inadequate funding and
staffing to handle a large wave of bank failures. These should be increased
substantially.

Weiss Research, Inc. 14
􀂃 Securities Investor Protection Corporation (SIPC), which was designed to
cover brokerage firm accounts, but, in practice, would not compensate
investors for losses due to brokerage firm failures in a Wall Street meltdown.
􀂃 State insurance guarantee associations, which promise to cover insurance
policyholders, but which have repeatedly failed to live up to their promise
when large insurers fail.

In conclusion, unless Congress significantly modifies its approach and priorities, it
could produce the worst of both worlds: A failure to resolve the current debt crisis
plus the creation of a new set of crises that merely spread the panic and prolong
the pain.

[gopbuster]

5. Years to unwind this thing, extremely fragile & costly........

Some snips>>>>>

6. Local governments could be a higher priority. Overlooking the debt
problems of state and local governments could also be a mistake. Indeed, given the
essential nature of their services, including the pivotal role they play in homeland
security, it could be argued that their credit challenges take priority over those
faced by banks, S&Ls and Wall Street firms.
Currently, the Fed estimates $2.7 trillion in municipal securities outstanding,15
most of which have been reliant on a bond insurance system that remains on the
brink of collapse.16
In short, to truly get to the root of the problem as the President is requesting,
Congress’ new bailout plan would have to cover a lot of ground beyond just the
banking industry.

snip>>>>>

Overall, Congress should debate the bailout issues with its eyes open, recognizing
that any bailout plan that does not include these banks and other players in the vast
market for derivatives could leave a gaping hole through which financial panic can
spread again.
Fifth, for all of these debts and derivatives, a bailout plan would, in normal
circumstances, require (a) realistic estimates of the amount that is already
delinquent or in default, and (b) reasonable forecasts of how many more are likely
to go bad in a continuing recession.
However, the only estimates currently available are those reflecting actual writedowns
recognized by large, global financial institutions — over $500 billion.23
That figure does not include the thousands of other institutions among the sectors
cited above. Nor does it include losses incurred but not yet properly booked — let
alone losses not yet incurred.
To date, no government agency is providing such estimates. But without them, any
budgetary planning for this bailout is next to impossible. No one will know, except
in retrospect, if the bailout truly removes the cancerous debts from the economic
body or leaves most of them to fester and spread.

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And they are not even sure if the market is there to sell the Treasuries to finance this thing!