Big, 'Healthy' Banks get $125 Billion of the Bailout Package

Full story - Economic Policy Journal

"For the good of the American financial system," Treasury Secretary Paulson has told the big banks they must take his $125 billion (Give or take a billion or two) handout, reports NYT.

Citigroup and JPMorgan Chase were told they would each get $25 billion; Bank of America and Wells Fargo, $20 billion each (plus an additional $5 billion for their recent acquisitions); Goldman Sachs and Morgan Stanley, $10 billion each, with Bank of New York Mellon and State Street each receiving $2 to 3 billion. Wells Fargo will get $5 billion for its acquisition of Wachovia, and Bank of America the same for amount for its purchase of Merrill Lynch. So much for bailing out the mortgage market.

The day Americans went broke

Full article - Brasscheck.tv

Over 9,000 banks failed in the US during the 1930s. By 1933, over $140 billion in depositors' money went up in smoke. This was in an era when you could buy a luxury car for less than $1,000 and a mansion for $20,000.

Three interesting things about this talk:

1. It's coherent and detailed.

2. The government at the time seemed to have the capacity to rapidly evaluate the soundness of banks throughout the nation

3. The currency sent to replenish bank supply was, according to FDR, backed by sound assets.

Today we have idiots in the White House who can't string two sentences together that make sense; the government not only can't seem to examine banks, it doesn't seem to feel a responsibility to; and in today's case - Version 2008 - we're creating new money based on assets we already know are garbage.

New Bailout Opposed by Dozens of Established Economists

Full Letter and Signatures

As economists, we want to express to Congress our great concern for the plan proposed by Treasury Secretary Paulson to deal with the financial crisis. We are well aware of the difficulty of the current financial situation and we agree with the need for bold action to ensure that the financial system continues to function. We see three fatal pitfalls in the currently proposed plan:

1) Its fairness. The plan is a subsidy to investors at taxpayers’ expense. Investors who took risks to earn profits must also bear the losses. Not every business failure carries systemic risk. The government can ensure a well-functioning financial industry, able to make new loans to creditworthy borrowers, without bailing out particular investors and institutions whose choices proved unwise.

2) Its ambiguity. Neither the mission of the new agency nor its oversight are clear. If taxpayers are to buy illiquid and opaque assets from troubled sellers, the terms, occasions, and methods of such purchases must be crystal clear ahead of time and carefully monitored afterwards.

3) Its long-term effects. If the plan is enacted, its effects will be with us for a generation. For all their recent troubles, America's dynamic and innovative private capital markets have brought the nation unparalleled prosperity. Fundamentally weakening those markets in order to calm short-run disruptions is desperately short-sighted.

Treasury Pulled '$700 Billion' number out of thin air

George Washington's Blog

As Forbes writes:
In fact, some of the most basic details, including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy."It's not based on any particular data point," a Treasury spokeswoman told Forbes.com Tuesday. "We just wanted to choose a really large number."