Insider Notes At A Closed Treasury Dept. Briefing For Wall Streeters
From: Michael Mandeville [mwman@earthlink.net]
PHOENIX FIVE EARTH CHANGES BULLETIN
2008 by MW Mandeville (Black Canyon City, Arizona)
BULLETIN ITEM: The Great Swindle: Insider Notes At A Closed Treasury Dept Briefing For Wall Streeters
MWM: I think from this below you will get the idea that what is actually occurring and will be done under the Treasury Bailout Plan diverges from what is being described as "the crisis". I frankly believe that the effort has failed, at least for a few days. They may not be able to muster a quorum of the House until after the elections. This "break", even if for a few days, is deadly for the Swindlers. Congress Critters are going to get a second opinion or three, whether they want it or not. Everything will now shift somewhat as the gamesters try new tactics but it may just become more and more undone. In the old days, everyone in parliamentary systems would simply admit the obvious. The governing circles have lost credibility. Hence, parliament would conclude that they can no longer govern and they would appoint new people to take charge of the government or simply put things on ice until a new election could be held. Frankly, we are well advised to switch to such a parliamentary system. The Presidential system has become a dictator system and it has ruined the country.
now the insider notes:
The cronies are hard at work! Let em Burn!!!
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Monday, September 29, 2008
Mussolini-Style Corporatism in Action: Treasury Conference Call on Bailout
Bill to Analysts (Updated)
Various readers wrote us, and it was confirmed by a detailed report on the
call at DealBreaker, that the Treasury Department held a conference call
this evening for analysts on the bailout bill. A memo was evidently sent to
SIFMA members; others may have been contacted by other means. But the report
I got from one person who was on the call was the the questions came from
financial services industry members. In other words, this was most assuredly
not intended to be a call open to the public at large. If anyone from the
media or other member of the great unwashed was listening in, it was by
accident.
This is simply scandalous. To have a group of interested parties get a
privileged briefing by government officials on a matter of keen public
interest flies in the face of what a democracy is supposed to be about. The
proper method would either be a published FAQ on the Treasury website or a
briefing with the media included. But why should I be surprised? Favoritism
has been a staple of the Bush Administration.
There is a live blogging recap at DealBreaker. Someone who was on the call
is going over his notes and other recaps on the Web and sending me his
version, which I hope will add some color. Check back for that update.
Update: Here are the notes promised. Calculated Risk had put up the
conference call number. So some of this is the listener's notes, some are
hoisted from CR. They are admittedly skeletal at points, but track and
enhance the live blogging report at DealBreaker. You can download a torrent
for the call here, which I intend to do post haste and will amend the post
accordingly. I've included the long form notes below, but some items jump
out:
1. The tranching is a mere formality, and the Treasury boys as much as said
so. They could take the $700 billion max as soon as the bill has passed,
2. However, they do not plan any action immediately, will wait a couple of
weeks. They want to focus their efforts on stronger companies but also made
noise about protecting the financial system. This, by the way, is the
Japanese convoy system all over.
3. There seemed to be a lot of tap dancing about what price they will pay
for assets and no straight answer about their policy on warrants. They did
say that if the amount sold was greater than $100 million, they would take
warrants. FYI, the current draft allows them to pay up to the price at which
the assets were initially booked (yikes) . I wonder if this is obfuscation,
if they have an idea of what the plan to do but will not admit it in any
public forum.
4. As the person who listened to the call stressed, DealBreaker wasn't clear
on the bifurcated process. If you come to the Treasury and you are in
trouble, you get reamed. Bear/AIG style treatment, execs probably fired. But
if you participate on a voluntary basis, the intent is to make it very user
friendly. That is consistent with Paulson's position during the negotiations
5. The exec comp provisions sound like a joke, They DO NOT affect existing
contracts, they affect only contracts entered into during the two years of
the authority of this program and then affect only golden parachutes. More
detail on that point, but I don't need more detail to get the drift of the
gist.
Further below are the notes, admittedly somewhat cryptic at points, but
hopefully helpful. But if you have time, listen to the download. Be warned I
may revise and add to the post once I have done so.
Update 12:30 AM: Have queued up recording of conference call but not yet
listened to it. But reader and sometime contributor Lune provides a useful
take. Hoisted from comments:
1) If even the Treasury is saying tranching is a formality, then it really
is nothing. Not sure why Dems fought so hard for a fig leaf.
2) Waiting a couple of weeks because no one has any idea when or where the
next bomb will blow up. In other words, all their doomsday scenarios about
Black Monday were B.S. They screamed the check had to be written by Monday,
but now they're saying they actually have a few weeks before they need to
cash it. Plus, this will allow them to "seek guidance" from GS, JPM, and
other selfless public servants about where the money should be funneled.
3. The tap dancing is because they don't want it to get out that they'll be
giving a sweetheart deal. The public won't be following each individual
transaction to see exactly what price is being paid. So ridiculously
overpriced asset sales can be hidden in the details, and by the time some
reporter (or blogger :-) combs through and analyzes the transactions, the
deed will have been done. But if Paulson makes a statement that assets will
be bought at par before the bailout's even begun, that will be reported and
might kill the deal.
4. In other words, we need to sweeten the pot to encourage banks to come
voluntarily". Pardon my ignorance, but why the hell should we be begging
banks to borrow from us? I thought a bailout should be the absolute last
option for a bank. I.e., it should be so unpalatable, so unprofitable for a
bank and its executives that they exhaust every private means of survival
before coming for their public "reaming". I wonder if foreclosed homeowners
would rate their foreclosure process as "user friendly".
5. Of course the exec comp provisions are a joke. Who do you think is going
to be hiring all those banking cmte staffers and newly retired
congresspeople next year during the inevitable post-election turnover? Do
you really think they're going to vote to limit their salaries? Remember
that for lots of people on the Hill (including elected reps), govt work is
merely time you spend accumulating credentials in preparation for your real
life's work in the vastly richer private world.
Taxpayer losses: "golly, let's just pray to Jesus and hope he'll make sure
that in a few years our country won't be bankrupt."
Oversight: "let's appoint a committee which will file toothless reports that
no one will ever read".
I'm glad to see that while much time was spent in Exec comp. and tranching
kabuki theater, the real points of protection of taxpayer losses and
implementation of new regulation seem to be afterthoughts.
The notes on the call per our helpful anonymous reader (and former
investment banker, it turns out):
"Draft bill is very positive for both markets and our companies"
Much explanation of Executive Comp
Residential and commercial mortgages. But very importantly, it can be any
asset.
Excited about ability to guarantee assets in exchange for a guarantee fee.
Sought as much authority and as much flexibility as possible.
Eligibility: as broad participation by institutions as possible. The
more participation, the more effective it will be. Want banks of all
sizes or any financial institution that has a meaningful presence in
the US to be interested and enthusiastic.
Purpose is to help private sector clean up their balance sheets.
Highest priority: make sure it works, will attract companies to
participate. Warrants and exec comp. were very highly negotiated.
still listening ...
some1 | 09.28.08 - 9:14 pm | #
Warrants:
Direct purchases from failing institution e.g. Bear Stearns, AIG, F&F: will
do the same thing, take maybe 79.9% equity.
Market mechanism: Congress wanted taxpayer benefit in upside. Sell
warrants for assets over $100M , but the amount of warrants is still
TBD. WE want healthy institutions to participate so it should not be
punitive.
some1 | 09.28.08 - 9:17 pm | #
Exec comp.
Most difficult part of negotiation.
Direct deal: fire the management, like AIG etc.
Market mechanism: if sell over $300M into fund, some exec comp limits
come with it. For 2 years, the firm could not enter into NEW contracts
including golden parachute, for involuntary departure. And lose some
deductibility.
We feel really good that we have encouraged healthy institutions to
participate, not just bailouts of sick institutions.
some1 | 09.28.08 - 9:22 pm | #
Clawback of taxpayer losses:
1. it's a long way out, "a lot can happen in that time"
2. it's targeted at all financial institutions, not just participants! (that
means it will never happen)
3. would need more congressional and presidential action to implement this.
some1 | 09.28.08 - 9:24 pm | #
Oversight (Bob Hoyt)
1. Financial Stability Oversight Board
2. General Accountability Office and Comptroller General managing purchase
auctions
3. Special Inspector General
4. Congressional Oversight Panel
5. Reporting provisions
some1 | 09.28.08 - 9:27 pm | #
Tranching of $700B (I didn't know that was a limit)
Entire 700B is appropriated entirely by the act, no further appropriation
necessary.
Tranching: first $250B
Then Secretary determines that more is needed and tells Congress, another
$100B
Then Secretary determines that more is needed and Congress has 15 days to
refuse, the remaining $350B
No time limits. Can request all the tranches at once, no need for delays.
some1 | 09.28.08 - 9:29 pm | #
More about tranching:
To block the last $350B, Congress has to say no. Then the President can
veto that. To override that veto, Congress needs 2/3 majority.
ALL of that must happen within 15 days, otherwise the money goes out.
Can't the President wait and veto it with one minute left in the 15 days?
RTC had to go back to Congress. Kudos for making this program much EASIER!
some1 | 09.28.08 - 9:32 pm | #
Price: not a fire-sale price, not an outrageous price, a "fair" price. Firms
might get a price higher than their current mark.
(Congress will be voting on this, with this aspect totally undetermined.)
some1 | 09.28.08 - 9:35 pm | #
Not trying to maximize return to the taxpayer, but to provide liquidity to
the system as a whole.
some1 | 09.28.08 - 9:39 pm | #
They will prefer to help healthy banks become even healthier, as
opposed to rescuing a failing bank, because the healthy bank is more
likely to relend into the system.
They expect that the exec. comp. limits won't constrain the healthy banks,
since they are so light.
artichoke | 09.28.08 - 9:43 pm | #
xIt will take several weeks, before any assets can be bought, to hire asset
managers and get systems up and running.
(They're going to let the weak banks fail, then help the rest.)
artichoke | 09.28.08 - 9:45 pm | #
No provision to mandate re-lending.
Stuff that is still to be determined, will be issued as "guidelines"
therefore exempt from discussion and comment period.
About 800 people on the call.
some1 (oops;) | 09.28.08 - 9:47 pm | #