So Here's the GOP Plan: Economic Rescue Principles: Common Sense Plan to Have Wall St Fund the

[Emit]

Recovery, Not Taxpayers

PDF Link "Economic Rescue Principles: Common Sense Plan to Have Wall Street Fund the Recovery, Not Taxpayers": http://www.usnews.com/usnews/images/news/articles/economic-rescue-principles.pdf

From this article:

Not So Fast on the Deal, House GOP Says Make Wall Street Pay
September 25, 2008 04:53 PM ET | Paul Bedard | Permanent Link

House Republicans, who've been swamped with your phone calls demanding that they reject President George Bush's historically huge $700 billion bailout of Wall Street and bad mortgage bankers, have come up with another idea: Instead of just buying the worthless mortgages, make the banks buy insurance from Washington, which would pay on those that default. It's a plan offered by House Minority Whip Eric Cantor, who's trying to come up with an alternative under orders from House Minority Leader John Boehner. Sources say his idea is a simple one, and one Treasury initially liked but rejected because just buying the bad paper was easier. The emerging plan would act just like the mortgage giant Ginnie Mae, which guarantees loans to poor buyers. It's different from the Bush-Paulson plan in that it doesn't require an upfront, tax-payer-funded kitty of $700 billion. Instead, companies with bad loans would buy insurance from the feds and the feds would turn around and sell the bad loans they end up getting stuck with. The expected result: The Treasury isn't out a ton of money upfront and is only on the hook for bad loans. And if past patterns prove true in the future, Uncle Sam could turn the bad loans into a profit.

"Our objective," said a key House GOP leader working the deal, "is we shouldn't burden the taxpayers, the people who have been living by the rules." The document, provided to Whispers, shows their major principles.

The reason for the alternative plan is simple: House members are receiving calls at a rate of 100 to 4 against the Bush-Paulson bailout. "People are angry."

~snip~

House leaders said that Treasury looked at the insurance idea and initially liked it but then went for the easier fix: Just buy bad loans. House Republicans, however, have balked at that plan, hence Boehner's call to Cantor to drum up a new idea. Insiders say that the insurance plan isn't exactly an alternative to the Bush-Paulson plan because Paulson's blueprint is written so broadly that the insurance proposals could be folded into the larger plan, leaving it up to Treasury to figure out which program to apply to each bad loan.

Will the GOP get its say? Nobody knows, and they don't think a final deal will come before Sunday. But a GOP source said that House Speaker Nancy Pelosi doesn't want her side holding the bag, so she's demanding that any final bill be supported by a majority of House Republicans.

http://www.usnews.com/blogs/washington-whispers/2008/9/25/not-so-fast-on-the-deal-house-gop-says-make-wall-street-pay.html

[anonymous171]

1. Shit. Which plan is better?

[Window]

10. It's all very confusing to me.

I just don't want the Dems to rush into this without looking at every possible outcome. If whatever they come up with doesn't work down the line, we'll be blamed and lose our political capital.

This happened on the Republicans' watch, let them come up with a plan.

[Essene]

16. The basic idea is sound but it isnt all or nothing... and it's still a corporate freebie

[Eric J in MN]

2. Vague proposal.

If the idea is that 10% of the purchase of trash would be guaranteed, that wouldn't be so bad.

If the idea is that 100% of the purchase of trash would be guaranteed, that would be as bad as Treasury buying trash.

[Indiana_Dem]

3. Well, that doesn't sound too bad as part of it.

This could be something that Obama could compromise on and be bipartisan on the issue. It's just a first read on my part, though. I may be missing the negatives.

[Whalestoe]

4. What do you guys think?

[Marsala]

5. It sounds like more of the same "logic" that sunk AIG

Insuring bad loans is just more complex than buying them, not better. It hides the direct risk. Simpler is better. We should either buy the toxic paper directly or find another solution altogether.

[dkf]

6. Isn't this a Credit Default Swap?

And isn't that the entity Warren Buffett called a weapon of financial mass destruction?

[Emit]

7. According to Wiki, sure looks like it could be, or at least close to it

Credit default swap
From Wikipedia, the free encyclopedia
Jump to: navigation, search
A credit default swap (CDS) is a credit derivative contract between two counterparties, whereby the "buyer" or "fixed rate payer" pays periodic payments to the "seller" or "floating rate payer" in exchange for the right to a payoff if there is a default<1> or "credit event" in respect of a third party or "reference entity".

If a credit event occurs, the typical contract either settles by delivery by the buyer to the seller of a (usually defaulted) debt obligation of the reference entity against a payment by the seller of the par value ("physical settlement") or the seller pays the buyer the difference between the par value and the market price of a specified debt obligation, typically determined in an auction ("cash settlement").

A credit default swap resembles an insurance policy, as it can be used by a debt holder to hedge, or insure against a default under the debt instrument. However, because there is no requirement to actually hold any asset or suffer a loss, a credit default swap can also be used for speculative purposes and it is not generally considered insurance for regulatory purposes.

~snip~

Warren Buffett famously described derivatives bought speculatively as "financial weapons of mass destruction." In Berkshire Hathaway's annual report to shareholders in 2002, he said, "Unless derivatives contracts are collateralized or guaranteed, their ultimate value also depends on the creditworthiness of the counterparties to them. In the meantime, though, before a contract is settled, the counterparties record profits and losses--often huge in amount--in their current earnings statements without so much as a penny changing hands. The range of derivatives contracts is limited only by the imagination of man (or sometimes, so it seems, madmen)." The same report, however, also states that he uses derivatives to hedge, and that some of Berkshire Hathaway's subsidiaries have sold and currently sell derivatives with notional amounts in the tens of billions of dollars.<12>

The market for credit derivatives is now so large, in many instances the amount of credit derivatives outstanding for an individual name is vastly greater than the bonds outstanding. For instance, company X may have $1 billion of outstanding debt and $10 billion of CDS contracts outstanding. If such a company were to default, and recovery is 40 cents on the dollar, then the loss to investors holding the bonds would be $600 million. However the loss to credit default swap sellers would be $6 billion. When the CDS have been made for purely speculative purposes, in addition to spreading risk, credit derivatives can also amplify those risks. If the CDS were being used to hedge, the notional value of such contracts would be expected to be less than the size of the outstanding debt as the majority of such debt will be owned by investors who are happy to absorb the credit risk in return for the additional spread or risk premium. A bond hedged with CDS will, at least theoretically, generate returns close to LIBOR but with additional volatility. Long term investors would consider such returns to be of limited value. However speculators may profit from these differences and therefore improve market efficiency by driving the price of bonds and CDS closer together.

However, CDS premiums can act as a good barometer of company's health. If investors are not sure about a firm's credit quality, they will demand protection, thus pushing up CDS spreads on that name in the market. Equity markets will then draw a cue from the credit markets and push down the stock price based on fear of corporate default. For example, the credit spread of Bear Stearns widened significantly in the period immediately prior to its being bailed out by the Fed and JP Morgan's providing equity investors with advance warning of impending problems at the company.

http://en.wikipedia.org/wiki/Credit_default_swap

[gravity]

8. This is just paying the tax later instead of upfront

and it is lacking details to actually seriously consider it.

[Whalestoe]

9. So... like putting the Bail Out on a giant credit card?

[Whalestoe]

11. Now, I was thinking and...

The real question is: Why didn't we hear anything about this today? Look at the time it was released...

It could have easily been reported on my the major news channels, but it wasn't. Maybe because in reality this plan just stinks to high hell?

[vaberella]

12. This plan is shite. We're not stupid voters....the GOP is swindling us and giving it to Corps.

We don't get the revenue/interest on bail out!!

What the fuck is private capital? Where the fuck is private capital coming from? Can I fuckin' get my hands on some private bloody capital? And why am I swapping it with tax payer capital? What makes it better?

Oh I know, I as an individual don't get my hands on the revenue and interest that's made---the private capital does. Private capital then could equate to----big business and Corps.

Am I stupid or something?!?!?!

On a side note, the first and second part is stolen from Obama's provisional calls.

[Emit]

20. vaberella, you noted

"the first and second part is stolen from Obama's provisional calls"

Can you elaborate? Do you mean that they've once again stolen some of Obama's ideas? I did notice that they keep referring to Wall St versus Main St, and wasn't it Obama who first started using this phrase a while back?

[vaberella]

22. When I said first part, that's my mistake. Obama did not support that.

I take full responsibility for reading that incorrectly. As for the last part I felt it mirrored the many of Obama's provisions. For instance "transparency". This has been the message of Obama's campaign since he even began and not relegated to his provisions over this issue.

To see Repubs screaming Transparency is nonsense. That wouldn't even need to be questioned since Obama's campaign is about this. It would go to all aspects of Government to organizations that work and deal with the government (excluding CIA/FBI/DEA <--- those types of organizations). But when your asking for bail out, Obama has said that you have to show what's going on (ie when Obama says regulations and oversight needs to be in place to protect us from these actions, taht's basically an umbrella for transparency in the company's actions).

Limit Federal Exposures to high risk loans (bs claim): Falls under the umbrella.

Wall street should not benefit excessively: Obama said this, but the GOP private capital funding actually benefits all the wall street people. When revenues and interest comes back, it goes into their pocket, not ours.

I mean to go on and on and on on the statements made in this one page paper...is ludicrous. There is zero plan. Just reiteration of Obama's plan with more words and might I add, giving priority to Corps (the GOP that is). Without equity shares, which is what Obama called for, when the revenues come we don't get a dime which means this becomes a vicious if the Corps get the money back.

Obama's Plan:

First, there must be no blank check when American taxpayers are on the hook for this much money.

Second, taxpayers shouldn’t be spending a dime to reward CEOs on Wall Street.

Third, taxpayers should be protected and should be able to recoup this investment.

Fourth, this plan has to help homeowners stay in their homes.

Fifth, this is a global crisis, and the United States must insist that other nations join us in helping secure the financial markets.

Sixth, we need to start putting in place the rules of the road I’ve been calling for for years to prevent this from ever happening again.

http://www.democraticunderground.com/discuss/duboard.php?az=show_topic&forum=132&topic_id=7136073

You can play comparisons on that. The first part is a make no sense plan and Obama did not support or say such a thing. The last is reminiscint of many of Obama's provisions, and the middle section is raping us and benefit the corporations.

[vaberella]

13. Why is no one asking what PRIVATE CAPITAL means to us?!

Where is it coming from? If we use it, who pays it back?

[Zenlitened]

14. Oh, sure. Cause the insuring of these mortgage derivatives...

... hasn't been a problem AT ALL.

Except for the fact that it's been at the very CORE of the problem.

:eyes:

Republicans are idiots. They can't be trusted to get ANYTHING done properly.

[Cessna Invesco Palin]

15. Seriously, how is this NOT a bailout.

We're talking about insuring securities that are already in default or about to go into default. Where do the insurance payouts come from? The fairy fucking godmother?

[Essene]

17. What americans want to hear: Taxpayers will get $$ back with a profit

It is that simple.

[Coexist]

19. how will taxpayers get $ back with a profit with this plan????

[pdxmom]

18. I'm one of those that is totally confused by a lot of this and, unlike

Palin, I won't pretend to know about something that I don't, but to me, this sounds like a fix that is death by a thousand cuts, instead of one fell swoop. More palatable because its cost is unknown and hidden, but it could be an equal burden on the taxpayer, but with more bureaucracy.

I'll go back to reading and trying to understand.

[seabeyond]

21. i really dont want these fuck up responsible for whether i will be able to buy bread next week

they have already proved greed is a higher priority than whether we have jobs or can put food on our table. WHY would i chose the very people that cause the problem to fix it.

this is an absurd thought