It was a room full of people who rarely hold their tongues. But as the Fed chairman, Ben S. Bernanke, laid out the potentially devastating ramifications of the financial crisis before congressional leaders on Thursday night, there was a stunned silence at first.
Mr. Bernanke and Treasury Secretary Henry M. Paulson Jr. had made an urgent and unusual evening visit to Capitol Hill, and they were gathered around a conference table in the offices of House Speaker Nancy Pelosi.
“When you listened to him describe it you gulped,” said Senator Charles E. Schumer, Democrat of New York.
As Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the Banking, Housing and Urban Affairs Committee, put it Friday morning on the ABC program “Good Morning America,” the congressional leaders were told “that we’re literally maybe days away from a complete meltdown of our financial system, with all the implications here at home and globally.”
I do not think many people realized just how serious the situation was on Wednesday and Thursday of this past week, and that Senator Dodd is not exaggerating (look for example at what happened to [url=http://finance.yahoo.com/echarts?s=STT#chart1:symbol=stt;range=5d;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined”]State Street Bank[/url]). [url=http://www.nytimes.com/2008/09/20/washington/19cnd-cong.html?hp]Read it all, and spare a prayer or two for the national leaders involved in all this–it matters[/url][/i].
Before we get too sanguine about the effects of Fed action, remember the phrase, “the devil’s in the details.” I was shocked that in the recent Fannie/Freddie takeover was a virtually unpublicized provision that requires them to reduce their portfolios by TWO-THIRDS! Given that Fannie Freddie is the only fully-functional secondary market in the US, can you imagine what the effect of requiring them to go from @5.1 Trillion to $1.7 Trillion? While the reduction does not begin immediately, its effect will be huge unless a replacement develops.
1. Who knows, a non-government market might spring up. Again.
A bit of Senate history: On May 25, 2006, a senator spoke about the Federal Housing Enterprise Regulatory Reform Act of 2005, noting, “Fannie Mae employees deliberately and intentionally manipulated financial reports to hit earnings targets in order to trigger bonuses for senior executive.” Later, the senator warned, “If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.”
That frighteningly accurate prediction came from Senator John McCain.
The #2 Senate recipient of millions of Fannie Freddie political dollars? Senator Barack Obama. And his campaign advisor, Franklin Raines, made @$50 mil as head of Fannie, as did another advisor and former Fannie head, Jim Johnson. [Mc Cain got a reported $20K in contributions.]
In “All the President’s Men” Deep Throat [my client btw] warns, “Follow the money.” [He says he never really said that.] That is good counsel for something that dwarfs ENRON.
Why anyone is listening to Chris Dodd and Barney Frank is beyond me. After being warned for several years by the administration and others in Congress, warnings which they ignored as they accepted huge campaign contributions from Freddie/Fannie and financial firms, they now present themselves as experts. Please!
I have to say that I fear Congress is being panicked into allowing the shoveling out of another trillion dollars by Mr. Bernanke and Mr. Paulson to the big financial institutions. It seems strange to me that Congress is taking the word of these two individuals about what the situation is and what must be done about it without demanding proof that the situation is that dire and that this is the only solution to it. Neither of the individuals is an elected official and Mr. Bernanke does not even represent the federal government as he is chairman of the Federal Reserve which is a private institution owned by a group of private banks. His loyalty is to them. Mr. Paulson is a Goldman Sachs man and a long time big Wall Street player. Perhaps it would be wise for Congress to do some serious investigating before allowing these two men to shovel out a trillion dollars more in bailouts.
Nw let’s all remember how for years now we’ve been told that we don’t have the money to fix Social Security.
It’s amazing how they find money for the “right people.”
#6 Imagine if we have privatized social security!
#6 SS is self funding, by law. Given that SS has been in surplus to date, there has been no need for a “fix”. The need for a “fix” is in the future, and the simple method for doing so is to raise taxes. That can be done by either raising the SS tax rates, or by increasing the pool of incomes being taxed. Either way, there has been always and always will be enough money to “fix” SS, assuming you don’t object to higher taxes.
Your convolving the SS problem with bailing out banks, which is not a normal part of the federal government’s mission, is confused at best, and erroneous at worst. The point of the top level is that the banks’ situation was as bad as it was, that the government had caused it indirectly, and that a totally abnormal response by the government was needed. The SS situation is clear to anybody with a grasp of simple demographic and economic trends. The banking situation apparently eluded the understanding of most of the government, or at least Congress.
#7 again, SS and banking bailouts are not the same issue; anyway [url=http://www.usatoday.com/news/opinion/2005-03-15-benefits-reform-galveston_x.htm] you don’t have to totally privatise SS to fix it.[/url]