Barack Obama: Principles for the Nationalization of Mortgage Finance

Barack Obama Says:

Below is a Statement of Principles for the Treasury Proposal from Senator Barack Obama:

• No blank check. If we grant the Treasury broad authority to address the immediate crisis, we must insist on independent accountability and oversight. Given the breach of trust we have seen and the magnitude of the taxpayer money involved, there can be no blank check.

• Rescue requires mutual responsibility. As taxpayers are asked to take extraordinary steps to protect our financial system, it is only appropriate to expect those institutions that benefit to help protect American homeowners and the American economy. We cannot underwrite continued irresponsibility, where CEOs cash in and our regulators look the other way. We cannot abet and reward the unconscionable practices that triggered this crisis. We have to end them.

• Taxpayers should be protected. This should not be a handout to Wall Street. It should be structured in a way that maximizes the ability of taxpayers to recoup their investment. Going forward, we need to make sure that the institutions that benefit from financial insurance also bear the cost of that insurance.

• Help homeowners stay in their homes. This crisis started with homeowners and they bear the brunt of the nearly unprecedented collapse in housing prices. We cannot have a plan for Wall Street banks that does not help homeowners stay in their homes and help distressed communities.

• A global response. As I said on Friday, this is a global financial crisis and it requires a global solution. The United States must lead, but we must also insist that other nations, who have a huge stake in the outcome, join us in helping to secure the financial markets.

• Main Street, not just Wall Street. The American people need to know that we feel as great a sense of urgency about the emergency on Main Street as we do the emergency on Wall Street. That is why I call on Senator McCain, President Bush, Republicans and Democrats to join me in supporting an emergency economic plan for working families – a plan that would help folks cope with rising gas and food prices, save one million jobs through rebuilding our schools and roads, help states and cities avoid painful budget cuts and tax increases, help homeowners stay in their homes, and provide retooling assistance to help ensure that the fuel-efficient cars of the future are built in America.

• Build a regulatory structure for the 21st Century. While there is not time in a week to remake our regulatory structure to prevent abuses in the future, we should commit ourselves to the kind of reforms I have been advocating for several years. We need new rules of the road for the 21st Century economy, together with the means and willingness to enforce them.

Comments

[T Griffin]

Sunlight is the best disinfectant. Paulson should be required to fully reveal what he has done and the processes he will use.

A business model is a technology. And that technology evolves just like "real technology." Sometimes people create technology (e.g., derivatives) that can create massive negative externalities for society as whole. And regulators fail to grok that technology- until things happen that are very very painful. When you go grok it, you need to react-- but not fool yourself that you will see it before the fact next time. To help with this "technology moving faster than regulators problem" you need to create transparency via regulation. Not just tranparency to regulators like the people in the givernmnet agency who failed to regulate Fannie and Freddie, but the public.

If you take a complex adaptive system, and central banks flood the system with money to make it more stable when a problem happens (repeat this time after time) you may just be setting yourself up for the really big shock (you are deferring adjustments and making them cumulative not eliminating them). As Taleb says, "fewer but massive shocks".

Without regulation, that creates transparency (which is needed for trust, which is society's foundation), you get this as described below (circa 2002).

...“Charlie Munger and I are of one mind in how we feel about derivatives and the trading activities that go with them,” wrote Buffett.. “We view them as time bombs, both for the parties that deal in them and the economic system.”

[MobiusKlein]

That's one Senator. Can we count on Hilary, Boxer, and a few others.

Time for a headcount.

[Colin Danby]

Politics aside, how do you square point 4 with a systemic solution? A lot of households have assumed debt they can't pay and should probably move and deleverage, no? I worry about a Paulson Put on housing.

[Samdog]

'...As Taleb says, "fewer but massive shocks."'

Speaking of Brother Nassim, has anyone heard his take on the recent convergence of cataclysmic forces?

"--The investment bankers have dug their graves, and now the taxpayers must be made to lie in them"

[low-tech cyclist]

This all sounds good, but is Obama willing to fight for it? Because in reality, this is the first major battle of the Obama Administration.

And Barack Obama had better think of this as the first major battle of the Obama Administration, or he'll be screwed before he's sworn in.

If Congress writes a blank check for $700,000,000,000, you know the Broderellas will mightily kick ass to defeat any major expansion of access to health care, crying that it's unaffordable due to the monumental deficits. And they'll almost surely carry the day. All the Republicans will be opposed anyway, and they'll persuade enough Blue Dogs to sink the thing.

Same deal with any other Obama proposals that require nontrivial Federal dollars.

Is there any doubt about that? It's hard NOT to see this one coming a mile away.

So if Obama actually wants to get anything done during his Presidency, he'd better kick ass and take names NOW. He'd better have his team counting votes and twisting arms in both houses of Congress, and reminding them of who's going to be President in four months - if they're lucky.

[Altoid]

One point Obama missed: Republicans-- administration and congresscritters-- have to sign a public pledge, cross their hearts, pinkies to the skies, that they'll actually support equitable and adequate taxation to pay off this staggering liability they're signing us on to.

For over 25 years they've been moaning, pissing, crying over taxes, and for the last 15 years they've actively obstructed and destroyed exercise of the government's taxing powers.

Well, now they're relying on the "full faith and credit" of the federal government to save the world's economic system from their own follies. Except that they've crippled the full credit of the federal government, because its credit only comes from its taxing power. It comes full circle for them right here.

They have to sign on promote taxation. If not, no deal.

[donna]

Write and call your congress creatures, NOW.

[bigTom]

I have a problem with point 6. The reason this crisis is so serious is that the government is already effectively broke. Having to deal with an imploding financial sector just clinches what I've been saying for a long time, there will be no money for any grandiose programs social or otherwise for quite a while. I suppose it is too much to expect any politician -especially before an election to level with the people about just how screwed we all are. But, I would at least hope to not raise false expectations. One proper measure would be a 75% cut in military/security/intelligence spending. But I don't expect to hear of even small cuts, as the people haven't given up on the "America must be strong" meme.

[LRHafe]

Re 4th principle: There's plenty to argue about in the weighting of homeowner responsibility for the mortgages going bad -- greedy, delusionary, financially illiterate, defrauded, unlucky.... I don't think one characteristic fits them all, but even if they were all simply greedy I'd still agree with Obama's #4.

The issue is that too many foreclosed homes a) devastate local economies & provide hotspots for crime; and b) glut the housing market, depressing housing prices further & putting even more pressure on so-far solvent homeowners. Then there's the downstream impact on the economy of huge numbers of people with impaired credit.

People certainly need to be forced to pay as much as they reasonably can -- no need to create any more moral hazard than absolutely necessary. But the more owners who're paying at least something on their mortgages, keeping the houses occupied, their taxes paid & their houses off the market, the better.

Mortgage workouts are nothing new. They're WAY more complicated with securitization, but the reasons for doing them are still the same.

[Debtpocalypse]

The last time the administration invoked "armageddon" and demanded Congress do its bidding without question, our armed forces ended up indefinitely deployed to Iraq.

Paulson earned hundreds of millions running one of the primary benefactors of The Great Credit Greed, Goldman Sachs.

When the credit crisis began, he insisted at every stage that the worst was behind us, and/or that the policy steps taken would prove sufficient.

This is the same greedy liar that we are supposed to believe when he says, "Give me $700 billion, or the economy dies."

If it's me, I take my chances, and tell the Paulson Administration to stick their demands where the sun don't shine. To paraphrase Jefferson, "A little financial destruction is now & then is a good thing."

Keep thieves scared. Keep market participants honest.

Debtpocalypse

[SocraticGadfly]

I disagree strongly with the "there's not time right now" claim of point No. 7. Obama here is sounding like he's just going to kick the regulatory can down the road, but this shouldn't be surprising.

A lot of House and/or Senate Dems have a crappy past history on either the the Private Securities Litigation Reform Act of 1995, Newt Gingrich’s Contract with America-promised “tort reform” legislation (Dodd a cosponsor, for example!) or Gramm-Leach-Bliley, or both.

http://socraticgadfly.blogspot.com/2008/09/why-you-should-not-trust-dems-in.html

In short, you should NOT trust the Democrats in Immunity 2.0 until they actually prove out. (Remember the FISA 45 percenters in the CURRENT Dem Congress.)

http://socraticgadfly.blogspot.com/2008/09/passive-pelosi-promises-financial.html

And, speaking of “Immunity 2.0,” I wonder if Paulson actually talked to Mukasey about that immunity idea.

[toolate]

Can someone please point out something substantive in this?
This sounds like Pelosi light to anyone who can read beyond the political rhetoric. NO call for taxpayers to get an equity stake for their investments, no suggestion about what oversight could possibly mean in light of the past 8 years, no limit on compensation for wrongdoers, just more pablum.

[Erich Riesenberg]

Distressed borrowers should take their losses and move.

This plan is nonsense. The only way it benefits the investors being bailed out is by overpaying for assets. There is no way to turn that into a benefit for the overpaying purchasers.

[Sriram]

Well, benefitting investors should not be the goal of a bailout, which is the biggest issue one can have with the Paulson plan. Investors are guaranteed nothing -- that is the nature of investment. So the company goes belly up - oh bother. What needs protecting are the implications of such massive concurrent collapses on the everyday economy. This plan ONLY protects investors by overpaying the companies for their crappy balance sheets. Taxpayers get no benefit from this in terms of either a stake in the upside or increased federal regulation. This is not a negotiated settlement with a derelict industry ... it is a gift, and that is not right.

[M Warhurst]

People forget that the underlying problems are two not just one. First came off-shoring of manufacturing jobs which caused many people to be unable to afford normal mortgages. Creativity, a willingness to self-serve and lack of regulation in the financial sectors provided the second punch that has nearly destroyed the American economy.
The Republicans are big on helping the greedy and inept on Wall Street but they have no plan at all to fix the underlying problem of un and under employment thanks to wanton exporting of good paying industrial and manufacturing jobs; never mind the old fashioned idea of protecting jobs to protect the economy.
Our economy will come back when legislators start protecting American jobs and repatriating them from China and India. The Republicans and our ass-whipped newsmedia will never even speak of protecting jobs to protect the economy. Economy is built from the bottom up and the neocon agenda is set on ignoring simple reality and insisting that the only way to help the economy is to fill the pockets of the rich on top.
Galbriath calls this the horse and pigeon system. You know, where if we feed the horse enjough oats he'll leave something on the road for the pigeons.
Seems to me that Hoover tried the same thing some time ago and it was an unmitigated disaster! Welcome to the new unmitigated disaster!

[sanjay sathe]

lets remember once the capital of the banks is wiped out it is the depositors who take it on the chin. These are people who were just looking for a safe place to park their money. If the problem is bad as Paulson says it (i don't believe it) it must mean that there is not capital in the banking system and therefore depositors are in fact at risk. Therefore the "let markets work it out" just benefits the vulture investors looking to buy assets at heavily discounted prices the price of which will be paid by innocent depositors.

Having said that there is no reason to capitulate to the blackmail of Paulson and cronies. As in any hostage situation there is the choice of rescuing the innocents by eliminating the hostage taker (the equity investors and managers of these Ponzi entities).

[sanjay sathe]

lets remember once the capital of the banks is wiped out it is the depositors who take it on the chin. These are people who were just looking for a safe place to park their money. If the problem is bad as Paulson says it (i don't believe it) it must mean that there is not capital in the banking system and therefore depositors are in fact at risk. Therefore the "let markets work it out" just benefits the vulture investors looking to buy assets at heavily discounted prices the price of which will be paid by innocent depositors.

Having said that there is no reason to capitulate to the blackmail of Paulson and cronies. As in any hostage situation there is the choice of rescuing the innocents by eliminating the hostage taker (the equity investors and managers of these Ponzi entities).

[sanjay sathe]

lets remember once the capital of the banks is wiped out it is the depositors who take it on the chin. These are people who were just looking for a safe place to park their money. If the problem is bad as Paulson says it (i don't believe it) it must mean that there is not capital in the banking system and therefore depositors are in fact at risk. Therefore the "let markets work it out" just benefits the vulture investors looking to buy assets at heavily discounted prices the price of which will be paid by innocent depositors.

Having said that there is no reason to capitulate to the blackmail of Paulson and cronies. As in any hostage situation there is the choice of rescuing the innocents by eliminating the hostage taker (the equity investors and managers of these Ponzi entities).

[MsAnnaNOLA]

I think that the next bailout may be the millions of homeless people that this crisis creates.

Yes right now these folks are in their homes, but when the banks finally forclose and kick them out where are these people going to live.

We need to save some money to help the homeless.

[joebhed]

peepeedicking, a.k.a. no big deal, really.

Debt.
Is the Problem.

ALL NEW MONEY IS CREATED AS DEBT.
That's WHY we have the problem of too much debt.

Equity positions, reduced leverage, transparency represent the tinkering at the edges.

If you want to address the root cause of the crisis, you must reform the federal monetary system, and repudiate the right granted to private bankers to create ALL NEW MONEY AS DEBT.

Initiate a government-issue, debt-free money creation system.
Put the people back in control of their money system and their government.

The American Monetary Reform Act is available here.
http://www.monetary.org/amacolorpamphlet.pdf

The rest is the illusion of reform.

[Little drummer boy]

Im doing school work. this does not help.