Here is one:

Re “For Detroit, Chapter 11 Would Be the Final Chapter” (Op-Ed, Nov. 24): Spencer Abraham, like all who have spoken in support of the auto industry, talks as if Chapter 11 would kill the American auto industry. When will he and others present a more realistic scenario?

A Chapter 11 filing may be the middle ground between the government-financed “trust me,” pain-free, business-as-usual path Detroit prefers and its straw man, the draconian forecast of Chapter 7 with its accompanying specter of a near-term liquidation of the entire American auto industry. It may also be the only way the automakers can revise their contracts to shrink their businesses to the existing market.

General Motors, for one, has too many models, too many plants, too many employees and too many dealers to support the 20 percent share it has whittled itself down to over 30 years.

Its leaders must demonstrate a willingness to make what’s good for the United States taxpayer good for G.M.

Roy Fuchs
Trumbull, Conn

Read them all.

The U.S. government is prepared to provide more than $7.76 trillion on behalf of American taxpayers after guaranteeing $306 billion of Citigroup Inc. debt yesterday. The pledges, amounting to half the value of everything produced in the nation last year, are intended to rescue the financial system after the credit markets seized up 15 months ago.

The unprecedented pledge of funds includes $3.18 trillion already tapped by financial institutions in the biggest response to an economic emergency since the New Deal of the 1930s, according to data compiled by Bloomberg. The commitment dwarfs the plan approved by lawmakers, the Treasury Department’s $700 billion Troubled Asset Relief Program. Federal Reserve lending last week was 1,900 times the weekly average for the three years before the crisis.

When Congress approved the TARP on Oct. 3, Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson acknowledged the need for transparency and oversight. Now, as regulators commit far more money while refusing to disclose loan recipients or reveal the collateral they are taking in return, some Congress members are calling for the Fed to be reined in.

Read it all.
Update:Barry Ritholtz notes that “Jim Bianco of Bianco Research crunched the inflation adjusted numbers. The bailout has cost more than all of these big budget government expenditures ”“ combined”:

Ӣ Marshall Plan: Cost: $12.7 billion, Inflation Adjusted Cost: $115.3 billion
Ӣ Louisiana Purchase: Cost: $15 million, Inflation Adjusted Cost: $217 billion
Ӣ Race to the Moon: Cost: $36.4 billion, Inflation Adjusted Cost: $237 billion
Ӣ S&L Crisis: Cost: $153 billion, Inflation Adjusted Cost: $256 billion
Ӣ Korean War: Cost: $54 billion, Inflation Adjusted Cost: $454 billion
Ӣ The New Deal: Cost: $32 billion (Est), Inflation Adjusted Cost: $500 billion (Est)
Ӣ Invasion of Iraq: Cost: $551b, Inflation Adjusted Cost: $597 billion
Ӣ Vietnam War: Cost: $111 billion, Inflation Adjusted Cost: $698 billion
Ӣ NASA: Cost: $416.7 billion, Inflation Adjusted Cost: $851.2 billion

TOTAL: $3.92 trillion

______________________________________________________________________

data courtesy of Bianco Research

Read all he has to say as well.

The Federal Reserve said Tuesday that it would buy up to $600 billion in mortgage-backed assets in another attempt to deal with the financial crisis.

The Fed said it would purchase up to $100 billion in direct obligations from the mortgage finance giants Fannie Mae and Freddie Mac as well as the Federal Home Loan Banks. It also will purchase another $500 billion in mortgage-backed securities, pools of mortgages that are bundled together and sold to investors.

The $600 billion effort on mortgages came as the Fed also unveiled a program to help unfreeze the market that backs consumer debt such as credit cards, auto loans and student loans.

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The trillions of dollars in public funds U.S. officials are putting on the line to stabilize financial markets and protect the economy from a deep recession would, in normal times, inspire fear of soaring inflation and a tumbling dollar.

But these are not normal times.

“The patient’s on the floor right now. You want to get him up off the floor; then you worry about diet and exercise,” said James Horney of the Center on Budget and Policy Priorities.

Read it all. Well, the Reuters headline says it is not a worry now but it is to a lot of us, and it should be as demonstrated in this article in this past weekend’s Barrons by Jack Willoughby. Make sure to read that also–KSH.

Rushing to rescue Citigroup, the government agreed to shoulder hundreds of billions of possible losses at the stricken bank and to plow a fresh $20 billion into the company.

Regulators hope the dramatic action will bolster badly shaken confidence in the once mighty banking giant as well as the nation’s financial system, a goal that so far has been elusive despite a flurry of government interventions to battle the worst global crisis since the 1930s.

The action, announced late Sunday by the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp., is aimed at shoring up a huge financial institution whose collapse would wreak havoc on the already fragile financial system and the U.S. economy.

Read it all.

This is the real “Code Red.” As one banker remarked to me: “We finally found the WMD.” They were buried in our own backyard – subprime mortgages and all the derivatives attached to them.

Yet, it is obvious that President Bush can’t mobilize the tools to defuse them – a massive stimulus program to improve infrastructure and create jobs, a broad-based homeowner initiative to limit foreclosures and stabilize housing prices, and therefore mortgage assets, more capital for bank balance sheets and, most importantly, a huge injection of optimism and confidence that we can and will pull out of this with a new economic team at the helm.

The last point is something only a new President Obama can inject. What ails us right now is as much a loss of confidence – in our financial system and our leadership – as anything else. I have no illusions that Obama’s arrival on the scene will be a magic wand, but it would help.

Right now there is something deeply dysfunctional, bordering on scandalously irresponsible, in the fractious way our political elite are behaving – with business as usual in the most unusual economic moment of our lifetimes. They don’t seem to understand: Our financial system is imperiled.

Read it all.

Federal regulators were considering a new rescue for Citigroup on Sunday, a step that could mark a third leg of the government’s broader efforts to bolster the nation’s financial industry, according to people briefed on the plan.

Under the proposal, the government would shoulder losses at Citigroup if those losses exceeded certain levels, according to these people, who spoke on the condition that they not be identified because the plan was still under discussion.

If the government should have to take on the bigger losses, it would receive a stake in Citigroup. The banking giant has been brought to its knees by gaping losses on mortgage-related investments.

Read it all.

Whatever our personal views on this election might be, the outcome is the same for all of us. All of us, no matter what our political perspective or our hopes for our nation and our world, are in this together.

Part of the deep tradition of the Episcopal Church is to pray for our leaders: rarely if ever have these prayers been more needed. Our nation and our world face vast and staggeringly complex problems; none of which can be solved quickly and easily. The problems are economic but they are aspirational as well. Bluntly put: how do we pay for things, and why do we make the particular choices that we do. As we answer that question we raise the deepest question of all: to what end do we live and move and have our being?

These will be testing times; times that, unless we are careful, will tempt us to pit one part of the population against another. Increasingly it will become clear to all that the journey will be long and it will be difficult. Speaking in economic terms, there will be a price to be paid: no one will be exempt. That being said, it is of fundamental importance that we, as a people, not give in to the temptation to balance budgets at the expense of those who simply lack the power to make their needs heard: the poor and those who serve the poor. However, sad to say, if history is any indicator, this is exactly what will happen.

I find it more than a little ironic that when the issue of meeting basic human needs is raised: be that education, or healthcare, or housing for the homeless, a common objection is the firm and wise sounding declaration: you know, you can’t just throw money at a problem. And yet, when financial institutions are in crisis, led by the very well paid people, who did so much to bring us this crisis in the first place, when they ask for aid that is exactly what happens. Money has been thrown at the problem. And it has been thrown without a really clear understanding of exactly what it will actually accomplish. As you know so well, we’re not talking here about billions of dollars, or tens of billions, not even hundreds of billions, but, in the end, something in excess of a trillion dollars. In human terms this is more money than the human mind can fathom.

Mind you, I am not saying that this shouldn’t be done, or that it won’t work. What I am saying is that we should keep all these things in perspective and be mindful of just who finally is asked to actually pay the price for the national excess that has brought us to this sad moment.

Read it all.

You have a Treasury Secretary that seems to have left the field before the end of the third quarter.

—Charles Gabriel at Alpha Partners speaking this week about Hank Paulson

Citigroup Inc. will probably get rescued by the U.S. government after a crisis in confidence erased half its stock-market value in three days, investors and analysts said.

Citigroup has more than $2 trillion of assets, dwarfing companies such as American International Group Inc. that got U.S. support this year. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke may favor a rescue to avoid the chaotic aftermath of Lehman Brothers Holdings Inc.’s bankruptcy in September.

“There is no question that Citi is in the category of ”˜too big to fail,’” said Michael Holland, chairman and founder of Holland & Co. in New York, which oversees $4 billion. “There is a commitment from this administration and the next to do what it takes to save Citi.”

Read it all.

Clergy and congregants from more than 40 states gathered in front of the Department of Treasury on Tuesday to pray for Secretary Henry Paulson and members of Congress to put an end to the home foreclosure crisis.

PICO, a network of faith-based community organizations that helps provide affordable housing, is demanding that the Treasury require all banks receiving a chunk of the federal bailout package to adopt systematic loan modifications that could keep 2 million people from losing their homes, they said.

“We want them to look at the bigger picture. Don’t just look at Wall Street, look at Main Street. Look at the man next door who is working hard and really paying taxes,” said Marvin Webb, the assistant pastor of Peniel Full Gospel Baptist Church in El Sobrante, Calif. “We are asking the secretary and Congress to keep people in their homes.”

Read it all.

Hardline opponents of an auto industry bailout branded the industry a “dinosaur” whose “day of reckoning” is near, while Democrats pledged Sunday to do their best to get Detroit a slice of the $700 billion Wall Street rescue in this week’s lame-duck session of Congress.

The companies are seeking $25 billion from the financial industry bailout for emergency loans, though supporters of the aid for General Motors Corp., Ford Motor Co. and Chrysler LLC have offered to reduce the size of the rescue to win backing in Congress.

Senate Democrats intended to introduce legislation Monday attaching an auto bailout to a House-passed bill extending unemployment benefits; a vote was expected as early as Wednesday.

A White House alternative would let the car companies take $25 billion in loans previously approved to develop fuel-efficient vehicles and use the money for more immediate needs. Congressional Democrats oppose the White House plan as shortsighted.

Read it all. I happened to catch Senators Shelby and Levin debating this on Meet the Press on the way home from morning worship–check that out also.

You put this much leverage together with this much global integration with this much complexity and start the crisis in America and you have a very explosive situation.

If you are going to fight a global financial panic like this, you have to go at it with overwhelming force ”” an overwhelming stimulus that gets people shopping again and an overwhelming recapitalization of the banking system that gets it lending again. I just hope the U.S. Treasury has enough money to do it. When you look at the way A.I.G. and Fannie Mae and Freddie Mac are eating money, you start to wonder.

And that brings me back to Obama. We need a leader who can look the country in the eye and say clearly: “We have not seen this before. There are only two choices now, folks: doing everything we can to shore up banks and homeowners or risk a systemic meltdown.”

Yes, that may mean rescuing some bankers who don’t deserve rescuing, while also helping prudent bankers who were doing the right things. And, yes, that may mean rescuing reckless home buyers who never should have taken out mortgages and now can’t pay them back, while not aiding people who saved prudently and are still meeting their mortgage payments.

Read the whole thing.

Not so long ago, corporate giants with names like PanAm, ITT and Montgomery Ward roamed the earth. They faded and were replaced by new companies with names like Microsoft, Southwest Airlines and Target. The U.S. became famous for this pattern of decay and new growth. Over time, American government built a bigger safety net so workers could survive the vicissitudes of this creative destruction ”” with unemployment insurance and soon, one hopes, health care security. But the government has generally not interfered in the dynamic process itself, which is the source of the country’s prosperity.

But this, apparently, is about to change. Democrats from Barack Obama to Nancy Pelosi want to grant immortality to General Motors, Chrysler and Ford. They have decided to follow an earlier $25 billion loan with a $50 billion bailout, which would inevitably be followed by more billions later, because if these companies are not permitted to go bankrupt now, they never will be.

This is a different sort of endeavor than the $750 billion bailout of Wall Street. That money was used to save the financial system itself. It was used to save the capital markets on which the process of creative destruction depends.

Granting immortality to Detroit’s Big Three does not enhance creative destruction. It retards it. It crosses a line, a bright line.

Read the whole article.

[Henry] Paulson says the department plans to expand its efforts to ease the credit crunch, but his strategy for the remaining $400 billion or so in TARP may not do the trick either. In particular, we’re skeptical of Paulson’s plans to invest in credit-supplying institutions that aren’t banks — for example, giant insurance company American International Group received a $40-billion investment from TARP — and to address problems in more types of debt markets, including credit card and student-loan debt. As the Center for American Progress points out, the biggest issuers of credit card debt are bank holding companies that have already dined at the TARP trough. And the U.S. Department of Education has already agreed to provide a secondary market for student loans.

The most welcome change that Paulson promised was to use a portion of TARP to avert foreclosures in some unspecified way. That effort may prove to be as weak as the administration’s other initiatives to help homeowners, but at least it’s aimed at the root of the credit crisis.

Read it all.

Finally, the outlines of a coherent debate on the federal bailout. This comes as welcome relief from a campaign season that gave us the House Republicans’ know-nothing rejectionism, John McCain’s mindless railing against “greed and corruption,” and Barack Obama’s detached enunciation of vacuous bailout “principles” that allowed him to be all things to all people.

Now clarity is emerging. The fault line is the auto industry bailout. The Democrats are pushing hard for it. The White House is resisting.

Underlying the policy differences is a philosophical divide. The Bush administration sees the $700 billion rescue as an emergency measure to save the financial sector on the grounds that finance is a utility. No government would let the electric companies go under and leave the country without power. By the same token, government must save the financial sector lest credit dry up and strangle the rest of the economy.

Treasury Secretary Henry Paulson is willing to stretch the meaning of “bank” by extending protection to such entities as American Express. But fundamentally, he sees government as saving institutions that deal in money, not other stuff.

Democrats have a larger canvas, with government intervening in other sectors of the economy to prevent the cascade effect of mass unemployment leading to more mortgage defaults and business failures (as consumer spending plummets), in turn dragging down more businesses and financial institutions, producing more unemployment, etc. — the death spiral of the 1930s.

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Treasury Notice 2008-83 went virtually unnoticed as the government rushed to cope with the emerging financial crisis in September. And that seems to have been the point. With no public discussion, the Treasury Department gave banks a huge chunk of money ”” as much as $140 billion, by one estimate ”” by changing a tax law that had been in place, and the subject of relentless lobbying, for 22 years.

Even by today’s deficit-be-damned standards, that’s a lot of your money. It’s the size of the economic stimulus plan President Bush proposed last winter. It would repair and modernize all of America’s bridges. And it’s on top of the $700 billion financial rescue plan approved by Congress.

Tax regulations are hideously complicated, but the gist of Notice 2008-83 is that it lets healthy banks buy weak ones and take big write-offs for the weak banks’ losses. At least three banks have already taken advantage of the change. So taxpayers are funding their growth, and unlike other aspects of the bailout, they will get no return.

Read it all.

Three major American cities buffeted by the global financial crisis are requesting at least $50 billion in federal funds to help pay for infrastructure improvements, pensions and short-term borrowing.

Philadelphia, Phoenix and Atlanta are asking U.S. Treasury Secretary Henry Paulson to release funds from the $700 billion financial bailout authorized by Congress last month.

Philadelphia Mayor Michael Nutter will hand-deliver the request to Paulson on Friday, spokesman Luke Butler said. Five or six other cities, including Chicago, may also sign on, Butler added.

Read it all.

The Detroit City Council wants a $10 billion federal bail out for the city, to pay for public works projects to create jobs, such as a mass transit system, and to deal with high foreclosure rates.

The council passed the resolution today 7-1, with Councilwoman Sheila Cockrel as the only opposition. It urges Mayor Kenneth Cockrel and Council President Monica Conyers to push for the funds by meeting with Gov. Jennifer Granholm, congressional officials, President George W. Bush’s administration and President-elect Barack Obama’s transition team.

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The United States may be on course to lose its ‘AAA’ rating due to the large amount of debt it has accumulated, according to Martin Hennecke, senior manager of private clients at Tyche.

“The U.S. might really have to look at a default on the bankruptcy reorganization of the present financial system” and the bankruptcy of the government is not out of the realm of possibility, Hennecke said.

“In the United States there is already a funding crisis, and they will have to sell a lot more bonds next year to fund the bailout packages that have already been signed off,” Hennecke told CNBC.

Read or watch it all.

I am as terrified as anyone of the domino effect on industry and workers if GM were to collapse. But if we are going to use taxpayer money to rescue Detroit, then it should be done along the lines proposed in The Wall Street Journal on Monday by Paul Ingrassia, a former Detroit bureau chief for that paper.

“In return for any direct government aid,” he wrote, “the board and the management [of GM] should go. Shareholders should lose their paltry remaining equity. And a government-appointed receiver – someone hard-nosed and nonpolitical – should have broad power to revamp GM with a viable business plan and return it to a private operation as soon as possible. That will mean tearing up existing contracts with unions, dealers and suppliers, closing some operations and selling others and downsizing the company. … Giving GM a blank check – which the company and the United Auto Workers union badly want, and which Washington will be tempted to grant – would be an enormous mistake.”

I would add other conditions: Any car company that gets taxpayer money must demonstrate a plan for transforming every vehicle in its fleet to a hybrid-electric engine with flex-fuel capability, so its entire fleet can also run on next generation cellulosic ethanol.

Lastly, somebody ought to call Steve Jobs, who doesn’t need to be bribed to do innovation, and ask him if he’d like to do national service and run a car company for a year. I’d bet it wouldn’t take him much longer than that to come up with the GM iCar.

Read it all.

…here’s ABC’s Dan Arnall on whether there has been, as he puts it, a “Great TARP Bait & Switch”.

No Troubled Asset Purchases? Then what are they doing with that $700 billion blank check? They are buying bank stock, not troubled assets. We probably shouldn’t call it the TARP anymore. Instead, they are focused on a capital purchase plan (CPP) which is the widely reported $250 billion plan to use taxpayer money to purchase a stake in banks. “By October 26th we had $115 billion out the door to eight large institutions,” said Paulson. “In Washington that is a land-speed record from announcing a program to getting funds out the door. We now have approved dozens of additional applications, and investments are being made in approved institutions.” When we’ll get a list of those dozens of additional applicants which will be getting a piece of the $125 billion in remaining taxpayer case remains to be seen. The original CPP participants were told about the program at a closed-door meeting at Treasury and no minutes have been released on what was said during the meeting.

So, is this the biggest bait and switch in American history?

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Gov. Mark Sanford urged residents Monday to make their voices heard before Congress makes any more decisions about how to deal with the ailing economy.

Sanford said that ordinary taxpayers are being hoodwinked and that he believes using more government money to push the nation out of a financial mess is a big mistake.

“The federal government, and by extension taxpayers, are being gamed. I think it’s dangerous over the long run the way that taxpayers are being sapped, and this dynamic is playing out in South Carolina,” Sanford wrote in a letter Friday to U.S. Treasury Secretary Henry Paulson to alert him to unintended consequences in South Carolina.

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Reporting from Washington — In a move sure to increase pressure on the Bush administration to extend financial help to automakers and other ailing industries, federal officials this morning announced an overhaul of the government’s bailout of insurance giant American International Group. The new plan increases the cost to about $150 billion and amounts to a tacit admission that the earlier effort fell short.

In a pre-dawn announcement before AIG announced a $24.5-billion third-quarter loss, the Treasury Department said it would spend $40 billion to buy an equity share in AIG “as part of a comprehensive plan to restructure federal assistance to the systematically important company.” The money comes from the $700 Troubled Asset Relief Program approved by Congress to try to rescue the financial system.

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A number of financial experts now fear that the federal government’s $143 billion attempt to rescue troubled insurance giant American International Group may not work, and some argue that company shareholders and taxpayers would have been better served by a bankruptcy filing.

The Treasury Department leapt to keep AIG from going bankrupt on Sept. 16, and in the past seven weeks, AIG has drawn down $90 billion in federal bailout loans. But some key AIG players argue that bankruptcy would have offered more structure and greater protections during a time of intense market volatility.

AIG declined to comment on the matter.

Ugh. Read it all.

As the Treasury Department prepares a $40 billion program to help delinquent homeowners avoid foreclosure, it confronts a difficult challenge: not making the plan too tempting to people like Todd Lawrence.

An airline pilot who lives outside Norwich, Conn., Mr. Lawrence has a traditional 30-year mortgage that he has no trouble paying every month. But, thanks to the plunging real estate market, he owes more on his house than it is worth, like millions of other people.

If the banks, which frequently lent irresponsibly, and many homeowners, who often borrowed irresponsibly, are getting government assistance, Mr. Lawrence says he believes sober souls like himself are also due a break.

“Why am I being punished for having bought a house I could afford?” he asked. “I am beginning to think I would have rocks in my head if I keep paying my mortgage.”

Read it all.

The initiative could be the most sweeping government effort directed at mortgage borrowers since the financial crisis began last year. Under the plan, the government would agree to shoulder half of the losses on home loans if mortgage companies agreed to lower borrowers’ monthly payments for at least five years, according to the people briefed on the plan who asked not to be named because details were still being negotiated.

Officials from the Treasury Department and the Federal Deposit Insurance Corporation are working on the proposal and an announcement may come soon. Sheila C. Bair, the chairwoman of the F.D.I.C., has been the leading proponent of the plan and first discussed the idea publicly a week ago.

The plan could cost $40 billion to $50 billion and would be part of the $700 billion financial bailout package that Congress approved earlier this month. The money would go toward covering future losses on loans that are modified according to standards established by the government.

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Whatever the long term effect of this bailout, it should at the very least make us, as a society and as Christians in society, take a far more critical view of the culture in which we are inevitably embedded.

Most of us have very little influence on the great affairs of state; we do not run major financial institutions or multinational corporations. But we are entitled to opinions about how far the pursuit of wealth by the few should be allowed to trump their responsibilities to the many. We are entitled to take a stand on the glorification of greed in popular culture.

And we are obliged, by our discipleship, to live differently ourselves. To walk around one of our great city centres is to be exposed to a full-scale onslaught on the senses from advertisers who want us to buy things not because they are useful, but because they are desirable in themselves; a quality they acquire simply because we are persuaded that other people desire them too.

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The actions are “not what we ever wanted to do”, Mr Paulson conceded, “but today, there is a lack of confidence in our financial system ”“ a lack of confidence that must be conquered because it poses an enormous threat to our economy.”

In recent weeks, governments around the world have had to respond to the financial crisis with extraordinary measures and dizzying speed. The financial system came close to calamity in the days after the Bush administration, arguing that markets should be allowed to work difficulties through without government help, let the investment bank Lehman Brothers fail last month. Before a week was out, however, the US government had to take over the world’s largest insurance giant, AIG, and promise to guarantee all the money in the $3 trillion money market industry. Last month, it became the country’s largest mortgage lender when it took over the tottering mortgage finance giants Fannie Mae and Freddie Mac in a rescue bid that could cost taxpayers $200bn.

Almost without any thought, the actions usher in a new and unpredictable era in American capitalism.

“It wasn’t just the right move, it was the only move,” Ken Rogoff, Harvard University economist, said of yesterday’s cash injection. “Thank goodness they didn’t dally for another week to finally figure it out.”

Read the whole article.

‘It’s 3 a.m. and your children are safe and asleep. But there’s a phone in the White House and it’s ringing.” Those lines from a Hillary Rodham Clinton campaign commercial invoked images of a president responding in the dead of night to “evil” forces threatening Americans’ safety. These days, however, the 3 a.m. phone call to the White House is just as likely to come from the secretary of the Treasury, warning of an Asian stock market plummeting or a European government taking over another major bank. That’s not a political scare tactic; it’s an all-too-real consequence of the subprime mortgage fiasco.

The deepening problems in the financial markets have shifted the public’s — and the candidates’ — focus from homeland security to economic security. Rising unemployment, slowing production and stubbornly tight credit are all signs of a recession that’s not likely to be cured by the time either John McCain or Barack Obama takes the oath of office in January. As we’ve seen in recent months, even dramatic action by the Bush administration and the Federal Reserve hasn’t been able to stop the stock market from falling and credit from evaporating. We need a president with the grit and credibility to force harsh medicine into the financial system, identifying which banks are too troubled to save and making temporary, taxpayer-friendly investments in healthier institutions to jump-start lending. These efforts are fraught with risk, and they’ll inflict more pain in the short term. But it’s better to endure that pain now than to pretend the banks’ illiquid assets are worth more than the market will pay for them, as some have advocated.

Read it all.