Citigroup to buy Wachovia

Citigroup to buy Wachovia banking operations

This might be the end of the crisis - Wachovia is gone.

Paulson Says Bailout's Exec Pay Provisions Will Be Addressed

Bailout: Accord on chiefs' pay, Bush on TV tonight: "Treasury Secretary Henry Paulson said he was agreeing to demands from critics in both parties to limit the pay packages of Wall Street executives whose companies would benefit from the proposed bailout."

No word on the attempt to end-run the United States Constitution with the Section 8 ploy, but there are rumors on the blogs that Paulson is claiming that he was not aware of the provision (the whole bill is only a couple of pages long) and that he believes that Congress should draft the oversight provisions.

Caught with his hand in the cookie jar.......twice.

As for the problems with the executive compensation, if the executives of the companies who are receiving the benefits of the bailouts do not want to agree to lower their pay packages, there is a simple solution - tell their shareholders that they are not going to accept any help from the government, that they will work the company out of the mess that they created, and don't take advantage of the bailout funds. Not a problem.

Republicans and Democrats Angry Over Bailout

With Bernanke and Paulson speaking today, there is quite a bit of news out there about the bailout, and it seems pretty clear that some members of Congress are pretty angry with the proposal to allow the executive branch of government to use $700 billion to maybe, bolster the economy.

The AP story Bailout plan draws bipartisan anger at Capitol has a bunch of great quotes by a number of Republicans and Democrats, all of whom are against the bailout, and at least one who gets the constitutional issue that so many legal bloggers have been discusing.

Quoting Senator Dodd, the head of the Senate Banking Committee

Dodd and others indicated that the stakes are too high for Congress not to act, but they made clear they would insist on changes in the administration's weekend changes. Dodd said the administration's initial proposal would have allowed the Treasury secretary to 'act with utter and absolute impunity — without review by any agency or court of law' in deciding how to administer the envisioned bailout program.

'After reading this proposal, I can only conclude that it is not just our economy that is at risk, Mr. Secretary, but our Constitution, as well,' Dodd said."

Paulson and Bernanke push bailout as Lehman assets sold

The Internet is full of commentary regarding the bailout. I am not an economist, and couldn't possibly comment on the correctness of the proposal (except for the constitutional issues noted earlier.

Part of me wonders why a Republican Administration, who is, in theory, anti-regulation and anti-big government, is pushing this proposal, but a great question has been asked of Paulson and Bernanke, in Paulson and Bernanke push bailout as Lehman assets sold - Yahoo! News:

You two gentlemen have been wrong about the housing crisis, missed the leverage problem, and understated the derivative issue,' said Barry Ritholtz, director of research at Fusion IQ, an investment firm in New York. 'Indeed, you two have been wrong about nearly everything since this crisis began years ago. Why should we trust your judgment on the largest bailout in American history?

Paulson and Bernanke are certainly at the center of this crisis. Their answer will be interesting.............if they ever answer.

Mushroom Cloud over Wall Street as US Constitution Burns

Mushroom Cloud over Wall Street as US Constitution Burns:

These are dark times. While you were sleeping the cockroaches were busy about their work, rummaging through the US Constitution, and putting the finishing touches on a scheme to assert absolute power over the nation's financial markets and the country's economic future. Industry representative Henry Paulson has submitted legislation to congress that will finally end the pretense that Bush controls anything more than reading the lines from a 4' by 6' teleprompter situated just inches from his lifeless pupils. Paulson is in charge now, and the coronation is set for sometime early next week. He rose to power in a stealthily-executed Bankster's Coup in which he, and his coterie of dodgy friends, declared martial law on the US economy while elevating himself to supreme leader.

Wall Street Bailouts

There is, of course, much talk about the past, pending and proposed "bailouts" of Wall Street and AIG, and I have consistently taken the position that these bailouts are not actually bailouts, they are in effect, guarantees by the government. Not one taxpayer dime has been spent in these "bailouts."

While I am still undecided about whether these guarantees are the right thing to do, the new, and true, bailout is coming down the pike. The Bush Administration is working on a $700 BILLION dollar bailout...a true bailout. There are about a trillion things wrong with the proposed bailout, including the fact that Wall Street executives are going to be hired as consultants to decide which of them get the money, but the most outrageous part of the package is the soon-to-be-infamous, Section 8.

Bush's proposed bailout will be administered by Secretary of the Treasury Paulson. Nevermind the fact that he shares some of the blame for the current mess we are in, the proposal contains the following statement, labeled Section 8:

Decisions by the Secretary pursuant to the authority of this Act are
non-reviewable and committed to agency discretion, and may not be reviewed
by any court of law or any administrative agency

Over the past 8 years we have seen constant attacks on the Constitution,
but this one is the mother of all attacks, and is a flagrent, unabashed and outrageous attempt to re-write the Constitution. There was a time when certain factions in the government was embarrased about trashing the Constitution, and it did so in private, behind closed doors, in secret whispers. No more.

Now they have given up all pretenses - the decisions by the Secretary are non-reviewable by any court of law.

Nevermind that the first court to decide this issue will strike that provision in a heartbeat, are our Republican and Democratic Senators and Congressmen going to pass a bill that totally violates the doctrine of separation of powers and judicial review?

My hair is standing on end. We are going to use 700 BILLION DOLLARS to bail out Wall Street (it will actually be much more than 700 billion, as the power of the Secretary is only limited to 700 billion at any one point in time. He can buy 700 billion in assets from a failed bank, sell those assets for 200 billion, and do it all over again). Forget that for the moment, forget whether the bailout is a good idea or not (just for a moment), the Secretary of the Treasury, who is partly responsible for the crisis, is going to hire Wall Street executives to distribut the funds, to other Wall Street executives, and his actions are not reviewable by anyone in the government?

And even if you think Paulson is the greatest financial genius of the modern age - we are going to have a new Secretary of the Treasury in a few months. There is nothing that says that McCain will keep him, and surely Obama will not.

I am sorry to say it, but this is yet another example of the "politics before country" doctrine that has become so prevalent in Washington. Screw everyone, lets make sure we stay in power (or get the power), control the government and turn billions over to our supporters and cohorts.

This bill needs to be quashed, and quashed fast. There is no excuse, no justification, no reason, for this disregard of the Constitution; even assuming that the bailout is a great idea.

Update: We are not the only one outraged by this in-your-face attack on the Constitution:

The National Review: The Bailout

The National Review - Newt Gingrich: Before D.C. Gets Our Money, It Owes Us Some Answers

The Conservative Voice: The Mother Of All Frauds

Huffington Post: Dirty Secret Of The Bailout: Thirty-Two Words That None Dare Utter

The Nation: Is Paulson's Bailout Proposal Constitutional? No

Global Economic Analysis Blog: Weep For The Unites States of America

OpEdNews.com: The Bailout Bamboozle

McCain says he would fire SEC head Christopher Cox

This is what we are going to get for President? McCain loses it, goes off message and threatens to fire one of the best heads of the SEC (at least from a Republican standpoint.

McCain says he would fire SEC head Christopher Cox -- Newsday.com: "McCain says he would fire SEC head Christopher Cox"
Check out google on this. He is way off base, and way off message for his campaign..again.

Is Morgan Stanley Next?

Morgan Stanley in talks as fear grips financials

According to a report this morning from Reuters, Morgan Stanley is discussing a deal with Wachovia, and CNBC said HSBC Holdings and China's CITIC Group were also eyeing Wall Street's second-largest investment bank.

We lost #3, #4 and #5 in the last few months. #2 is about to go?

Well, "go" and "lost" may not be exactly right, since ML didn't go anywhere, it was sold.

What a mess.

Where were the regulators during all of this subprime nonsense?

Money Market Fund Halts Sales

During the auction rate securities crisis, when investors were complaining that no one told them that the auctions could fail, or that their investment might be illiquid, I often commented that the reason no one told them that was that auctions hadn't failed in decades, and the possibility was remote. I would then ask, "has anyone told you that your money market funds might not be liquid? Has anyone told you that your money market funds might go below a dollar a share?" The answer is always "No."

Well, both events can happen. We treat money market funds as cash - a completely liquid investment that you can cash in at any time, write a check against any time you want, just like cash in your checkbook. But it just ain't so. Read a prospectus for a money market fund. Those funds are not federally insured, and they could go below $1 per share, and there could be a freeze on liquidations.

We don't think about it, because it never happens. In my 25+ years working with the securities industry, I vaguely recall one money market fund going under a buck, and I also recall that the firm that ran the fund put additional money in to bring the NAV back to a dollar.

Liquidation freezes on money market funds just don't happen. Money market funds with an NAV of less than a dollar just don't exist.

Oh yes they do on both counts. MarketWatch is reporting that one of the largest money market funds has put a seven-day freeze on investor redemptions after the net asset value of its shares fell below $1, a rare event known as "breaking the buck."

According to MarketWatch, Primary Fund, a $64 billion fund managed by money market fund inventor The Reserve, said late Tuesday that its $785 million holding of Lehman Brothers Holdings debt has been valued at zero.

As of 4 p.m., the value of the fund's share was 97 cents.

This is a very significant event, and perhaps it will correct itself if Lehman's assets get sold, and its debt instruments regain their value, but the fact that it happened is going to cause tremors throughout the investing community.

One has to question why a money market fund is holding debt of a public company, rather than government bonds, and that in and of itself may lead to some significant lawsuits, depending on the disclosures made in the prospectus. And it also raises questions of where the heck is the SEC on this. They have been asleep at the wheel through all of this, and are apparently still sleeping.

Still, it is still not time to panic. It seems that The Reserve is a pure money market house, without sufficient cash to pump into a failing fund. Not so everywhere else.

According to the article, the large fund families are not having this issue. The article says that Fidelity Investments said that it was not having problems with its money market funds, and quotes a Fidelity spokesperson - "[w]e can state unequivocally that Fidelity's money market funds and accounts continue to provide security and safety for our customers' cash investments," and "[w]e have been proactive in keeping our money market funds safe and in protecting the $1 net asset value, which has always been our number one objective in managing these funds."

Hopefully that is a true statement, but in the interim, anyone have a prospectus for Primary Fund?

Lehman Files for Bankruptcy

This is a historic day. Today, the fourth largest brokerage firm, one that has existed for over 150 years, has filed for bankruptcy. Lehman Brothers filed a bankruptcy petition this morning.

It is a Chapter 11 liquidation, which means that assets will be sold, and parts of Lehman will remain as other firms purchase the assets, but Lehman is gone.

Brokers are, and have been scrambling for new positions and to get their customers to new firms, and I suppose this will all shake out, and it might even ultimately be a good thing. But for investors in Lehman, and its thousands of employees, who have lost a significant part, if not all, of their retirement funds, it will never be a good thing.

The full story at MarketWatch - Lehman Files for Bankruptcy

Bank of America to buy Merrill for $29 a share

While Lehman goes under, Bank of America buys Merrill Lynch.

We are witnessing historic changes in our financial system, which will result in a call for more regulation.


Bank of America to buy Merrill for $29 a share