house debate in progress

[solarbird]

Good morning.

Rep. Brad Sherman (D-CA) says members of the House of Representatives were threatened with Martial Law if they didn't vote "yes" last Monday. (Also here but I'm having trouble loading that copy.) I'd heard rumours of this before, but this is the first video I've seen of this allegation actually being made on the House floor.

The TED spread is hitting new highs at 3.85, as I type this sentence; the Fed actual (effective) rate overnight fell to 0.67%, a miss from target by 1.33%; since September 18th, the Fed has come within reasonable range of its target rate only once. Effectively, there has been a Fed rate - a big one - only it's not official. The dollar continues to rally, hanging around 80.6, which is quite a bit higher than recent times. But the LIBOR froze up entirely last night; Dr. Roubini calls this a disaster - the economy having had a heart attack - and outlines what actually needs to happen, including a post-passage complete reconstruction of the TARP plan about to be passed today. This one's worth reading.

While on the TARP; the GOP amendment I mentioned last night has failed; the House is currently in a 90-minute debate period with no amendments allowed. There will be a vote sometime after 9:30am Pacific Time/Noon Eastern; I'm hearing 10am as most likely. I just overheard Barney Frank (D-MA) say on C-SPAM that they need to pass this so people can buy more automobiles. What is wrong with this man?

Apparently the bill also repeals reserve requirements for banks. In theory, this is in substitute for capital requirements. But the capital requirement depends upon mark-to-market for legitimacy - and that's being suspended, too. What the hell does this mean?

In other news, Karl Denninger talks about Mark to Model here, and why it's too optimistic, getting back to the basic question of restoration of trust and transparency. Mish Shedlock take apart the latest unemployment report, noting that again - farcically - the "Birth/Death Model" is still adding jobs in places like Construction. Mish says they should be ashamed to print this data, and the actual rate (the U-6) is more like 11%.

eta: As everyone will know by now, the bill passed, and goes to Mr. Bush for signature; he's said he'll sign it. Welcome to the US$1.3T deficit.

Comments

[peakoilchaplain.livejournal.com]

Well, that's done. $700,000,000,000 down the rathole. Now, what I'm a bit mystified about is why the market indices reacted by dropping sharply immediately after the conclusion of the vote?

[daspatrick.livejournal.com]

I hope the part about the potential for Martial Law doesn't have anything to do with this: http://www.armytimes.com/news/2008/09/army_homeland_090708w/

[dogemperor.livejournal.com]

You too, eh? (And my gut feeling was telling me something like this was threatened--we wondered what the October Surprise was gonna be? :P)

[solarbird]

There aren't nearly enough troops involved; that's one brigade. But I do expect unrest is expected and will be, you know, handled.

[llachglin.livejournal.com]

Note that Nouriel Roubini describes the "necessary approval" of today's bailout bill, which confirms my suspicion that he thinks it was better than doing nothing (maybe he thought otherwise four days ago). But he's absolutely right that we need to radically redesign the plan after its passage. In short, we need:

* Recapitalization of the banks in exchange for preferred shares, or something similar.
* Real protection of homeowners through a new HOLC.
* The return of something like the Reconstruction Finance Corporation, which would lend money where private banks were unwilling or unable to do so, focusing on infrastructure projects.
* A way to pay for the upfront costs, using targeted taxes such as those suggested by Bernie Sanders (i.e. a 10% surcharge on incomes over $500k individual/$1m per couple, and a .25% transaction fee on stocks.)
* A rollback of the Bush tax cuts (this is coming anyway if Obama wins, but we might as well do it now because we need the revenue now).
* An expeditious end to the Iraq War, and a demobilization of our military force abroad in general, redirecting the tax dollars to the renewed RFC for investment.

I suspect that the first point will end in something akin to a Sweden-style nationalization of the financial industry. In my view, the faster that happens the better. We need to get the public in control of our capital system, and make sure that going forward the public profits from investments made with that capital. At the very least, public ownership should continue until the current crisis is over and the public's equity can be sold for a profit, but I think you can make the case for a continued controlling or strong-minority share in banks for the indefinite future. It would be really helpful to have a ready supply of capital for converting our economy to a post-oil, post-motoring future, and so far private ownership has failed to move quickly enough to avert even bigger disasters than what we're currently facing.

[solarbird]

Four days ago - and more recently than that - I think his opinion was clear. I suspect that he's now thinking that it has become politically necessary to Do Something, even if Something makes actual conditions worse, simply because otherwise Tantrum Tuesday would be echoed by, oh, I don't know, Fallover Friday.

Of course, the Dow has dropped 300 points from before the vote; the US dollar is down sharply; and the TED is not reacting (technically up a tick at 386 bp, but that's pretty trivial) so, well, there's certainly no immediate celebration.

[llachglin.livejournal.com]

I never thought this bill would fix the problem. It's a patch with more of a psychological benefit than anything else. Without this, the alarmist talk about four-digit multi-day drops in the DOW would probably have become reality. I suspect the "martial law" remark was a disclosure of a contingency in case that drop happened and it sparked a panic of the general population. Sometimes the best short-term thing you can do is to stop the financial panic before it spreads, buying yourself time to fix the longer-term problem.

I thought it was kind of funny that a commenter in Krugman's blog said this about the U6 graph of the last eight years: "Is it just a coincidence that the graph looks like a twisted W drawn by a drunk?"

[king-chiron.livejournal.com]

My understanding is that the bill that was just signed *allows* for recapitalization in return for preferred shares. Which is the program a critical mass of economists seem to feel is a much quicker, better and easier way to help banks out.

Note that this is one of the things the Treasury Secretary *can* do, and there's a lot of pressure from the banks *not* to go down this route (which, in my opinion means it's exactly the right path) so there needs to be pressure on the administration.

[peakoilchaplain.livejournal.com]

The news isn't all bad -- Representative McDermott actually changed his vote from Yes on Monday to No today!

[solarbird]

Huh. Go Jim.

[silussa.livejournal.com]

1 month Treasuries closed at .15% yield. And I have a posting to my own LJ that Bank of America has signs printed for a one week Bank Holiday (http://silussa.livejournal.com/314559.html). Anyone have any information that might support or deny this one?

[king-chiron.livejournal.com]

Threatened by whom? My read on the video wasn't that someone said "I'll declare martial law if you don't vote for this law" but rather "If you don't vote for this bill the sky will fall and martial law will have to be declared." Very different in my book.

Honestly I think conspiracy theories are distracting us from the real issues, just like the 9/11 conspiracy theories got in the way of finding out how the FBI and CIA screwed up pre-9/11.