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U.S. Treasury Plans to Outsource the Entire $700 Billion Bailout

by Magnifico Tue Oct 7th, 2008 at 03:13:24 PM EST

There are a couple of stories regarding the $700 billion bailout today that really should raise the eyebrows of Americans who have lived through and witnessed the Bush years. Especially taking into consideration the over-reliance on private contractors, financial mismanagement, and loose accounting practices in Iraq and elsewhere with taxpayer money that have been a hallmarks of the Bush administration.

The NY Times reports Treasury sets timetable to pick managers. "The Treasury Department put its $700 billion bailout on a fast track on Monday, asking companies to submit bids for running the system by Wednesday and announcing its plan to select winners on Friday."

Yes, the Treasure Department will take only one day to review bids before awarding contracts. Hey, at least Treasury Secretary Henry Paulson didn't just announce no-bid award to, say, Paulson's old company, Goldman Sachs. See if this sounds familiar --

Administration officials plan to outsource almost the entire project, which will largely rely on "reverse auctions" in which the government accepts bids from financial institutions that want to sell their troubled assets.

The Treasury said it intended to hire one company as a "financial agent" to set up the basic system, which would include running the auctions, keeping track of the various portfolios and overseeing all the operational issues.


The plan is to have the "subprime mortgages, mortgage-backed securities and derivative instruments like collateralized debt obligations" the government purchases will the $700 billion bailout money also be handled by private investment mangers. These managers would then be tasked with devising "investment strategies" and make trades that will involve possibly "multibillions of dollars... on a single day." Private management, the Treasury Department, claims will "minimize the government's losses and possibly generate a profit for taxpayers."

With only one day planned to review the application, the Treasury Department is likely to make mistakes. Unless, of course, Paulson and friends have been planning this for months. The NY Times notes:

One of the biggest challenges will be preventing conflicts of interest. The Treasury is accepting bids only from experienced investment managers, almost all of which are likely to be either sellers or buyers of mortgage-backed securities.

So, on the face of it, it seems Paulson is asking for bids to mitigate the finacial crisis from the very same investment managers who helped create the money meltdown in the first place!

Yesterday, Paulson announced that Neel Kashkari, a former Goldman Sachs banker with only six years of experience in the financial sector, will be in charge of the $700 billion bailout.

The Treasury Department plans to have 24 government officials overseeing the all the work done by the private financial contractors and hold its first auction for "bad paper" in six weeks.

So, the Paulson "plan" is to put bailout management in the hands of private financial mercenaries. More than likely, Paulson and Kashkari will hire some of the same people who built and detonated this economic time bomb. Likely, they will hire more former colleagues cronies from Goldman Sachs. (No wonder, Warren Buffett had Berkshire Hathaway invest $5 billion into the Wall Street firm.) The Treasury Department is acting fast and Congress is effectively in recess for the November 4th elections.

Meanwhile in another related story, the NY Times reports the Federal Reserve announces a plan to buy short-term debt. In a "radical" new plan, the Fed will "buy large amounts of short-term debt in an effort to stimulate the credit markets".

While the move will put more taxpayer dollars at risk, it underscores the growing sense of urgency felt by policy makers in a climate where lending has virtually dried up.

The Fed is willing to risk more taxpayer money because of the cratering markets. "The Fed's plan to buy commercial paper was formulated amid cascading losses in global stock markets, as the banking crisis spread across Europe and investors feared dire consequences for the world economy."

Instead of defending the taxpayers by decoupling American retirement from the markets by strengthening Social Security by removing the payroll cap and increasing payments to retirees, the Bush administration and the Fed wants to keep throwing money down the rathole.

Buying commercial paper could open the Fed to difficult conflicts of interest, because it would be juggling the goals of protecting its investment portfolio with its traditional goals of promoting stable prices and low unemployment...

The Federal Reserve has already stretched its resources to the limit by providing hundreds of billions of dollars in short-term loans to banks, Wall Street firms and money market funds.

America is being deliberately drowned in a sea of bad debt.

Meanwhile, The Guardian reports IMF urges rapid, coordinated international response to financial crisis. The International Monetary Fund raised its "estimate of losses to the US banking system to around $1.4 trillion... , 45% up from the $945 billion it estimated in April and reaffirmed just two months ago." The IMF "also estimated that the major global banks need to raise some $675 billion in new capital in the next few years."

Is the best way to protect Americans really to keep trying to keep the markets from correcting from the trickle-down, borrow-and-spend, deregulate, Reaganomics-Bush economic bubble? The bottomless pit keeps growing. Retirement, for one, needs to be decoupled from the markets. Since the banks need to large cash influxes, why are we not nationalizing them?

I believe we're all in this together and I think we need to think about how we can help everyone, rather than save the very few.

Cross-posted from Docudharma and at Daily Kos.

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Iraq was just a dry run.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue Oct 7th, 2008 at 04:05:24 PM EST
Well judging from Iraq, the refugees who got out first are the ones who are best off. Maybe it's time. America already has people who have lost their homes living in tent cities.

Bush only has 104 days left, but a lot of damage can still be done in that time.

by Magnifico on Tue Oct 7th, 2008 at 04:15:27 PM EST
[ Parent ]
The plan is to have the "subprime mortgages, mortgage-backed securities and derivative instruments like collateralized debt obligations" the government purchases (with?) the $700 billion bailout money also be handled by private investment mangers.
My worst fears!  The first thing they will buy is the most toxic CDOs and derivatives from institutions slated to survive.  Even if they put a wrapper around them and stamp them AAA, who will want to take them?  They could blow throught $700 billion before the election and have nothing of real value to show for it.  What fools we mortals be.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Oct 7th, 2008 at 08:16:14 PM EST
<head explodes>

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Thu Oct 9th, 2008 at 10:42:53 AM EST
[ Parent ]
No. Madness implies incompetence and unawareness. The problem isn't that they're incompetent and blind. The problem is that they're corrupt and evil.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Oct 11th, 2008 at 01:02:47 PM EST
[ Parent ]
I pointed this out the other day with this Oct 3 Bloomberg article, which is worth looking through:

Bloomberg.com: Worldwide

Oct. 3 (Bloomberg) -- Treasury Secretary Henry Paulson is hiring as many as 10 asset-management firms to join the lawyers and bankers he is recruiting to jumpstart the government's new $700 billion bank-rescue program.

The Treasury began implementing the plan within an hour of the House of Representatives vote giving Paulson the extraordinary powers he had sought to combat the U.S. financial crisis. Paulson is seeking to assemble a team to determine which toxic securities to target, how to value them and how to arrange purchases.

``This is something that, for a typical company, would take no less than five years,'' said Lynn Turner, a former chief accountant at the Securities and Exchange Commission. ``Anyone who thinks they can do this in two weeks is insane.''

The two Treasury overseers of the bailout (Paulson and the unfortunately-named Kashkari) are former Goldman Sachs people. Under them will be a team mostly composed of hand-picked Wall Street insiders. They will be sifting the Shitpile™ and choosing who loses, who wins.

It'll be the GS version of tomorrow's new, purged Wall Street -- if it works. Even if the abominable stench of the Shitpile™ is too overpowering and the bailout doesn't work, there's a good chance GS will be left standing thanks to Paulson.

(Final paragraph ©W. Buffett ;))

by afew (afew(a in a circle)eurotrib_dot_com) on Wed Oct 8th, 2008 at 02:11:37 AM EST
Oh, and valuating those rather complicated investment vehicles takes time in itself. At the bank I was working for, some of the valuations took all of the night. It seems they don't even intend to do that kind of valuation...

Un roi sans divertissement est un homme plein de misères
by linca (antonin POINT lucas AROBASE gmail.com) on Wed Oct 8th, 2008 at 03:21:49 AM EST


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