Today's Stories

September 25, 2008

Michael Hudson
The Insanity of the $700 Billion Giveaway

Sharon Smith
Democrats and Corporate Bailouts

Ralph Nader
Who Will Show Some Backbone Against the Bailout?

September 24, 2008

Paul Craig Roberts
The Bitter Fruits of Deregulation

Nikolas Kozloff
Palin at the UN: a Tutorial from Uribe

Robert Weissman
The Financial Crisis: How and Why Congress Should Play for Time

Andy Worthington
The Guantánamo Trials: Govt. Says Six Years Not Long Enough to Prepare Evidence

Steve Conn
Will Nader's Warning be Acknowledged in the Presidential Debates?

Karyn Strickler
The $700,000,000,000 Power Punch

Diane Farsetta
Stealth Marketers Gone Wild

Dennis Loo
Poisoned Legacy

John Halle
Wealth Tax Now!

Khalil Nakhleh
Palestinians Under the Occupation

Website of the Day
Nader: Debate Crasher

September 23, 2008

Rev. Jesse Jackson, Sr.
Bail Out on This Bailout

Michael Hudson
Henry Paulson and the New Yazoo Land Scandal

Tariq Ali
Why was the Marriott Targeted?

Patrick Dyer
A Death Row Visit with Troy A. Davis

Franklin Lamb
Hezbollah and the Palestinians

Joshua Frank
Oppose Barack Obama? How Dare Thee!

Alan Farago
Pushing the Referees: How the Financial Crisis Occurred

Dave Lindorff
The Bailout Will Kill the Dollar

Tanya M. Kerssen /
Roger Burbach
Bolivia's Popular Upheaval

Harvey Wasserman
Nuclear Power Liabilities Dwarf Bush's Wall Street Bailout

Website of the Day
Hammered by the Irish: the Video

September 22, 2008

Michael Hudson
The Paulson-Bernanke Bank Bailout Plan: Will the Cure be Worse Than the Crisis?

Mike Whitney
Mushroom Clouds Over Wall Street

Christopher Ketcham
Let It Collapse!

Ron Jacobs
The Predators' Bailout

Anne-Marie McManus
Lost in the Rhetoric of Crisis

Robert Weitzel
The Twin Terrors of the Holy Land: a Sexy Fundamentalist and a White-Haired Zionist

Wajahat Ali
An Interview with Howard Dean

John Ross
A New Cold War Comes to Latin America

Steve Breyman
Does the U.S. Really Need Cluster Bombs?

Patrick Bond
On the Bellies of the Filth

Uri Avnery
Fly, Tzipora, Fly

Carl J. Mayer
An Open Letter to Michael Moore (AKA God's Pen Pal): Whatever Happened to Voting Your Conscience?

Website of the Day
Stop the Execution of Troy Anthony Davis

September 20 / 21, 2008

Alexander Cockburn
Is This the Stake Through Neoliberalism's Heart?

Michael Hudson
America's Own Kleptocracy

Pam Martens
The Wall Street Model: Unintelligent Design

Lila Rajiva
Putting Lipstick on an AIG

Mike Whitney
Full-Spectrum Breakdown

Richard Rhames
A Bailout to Nowhere

Bill Moyers /
Michael Winship
The NY Yankees and the U.S. Economy

Bill and Kathleen Christison
The Making of Recent U.S. Middle East Policies: a New Study of Neocon Influence

Susan Block
Palin as Venus in Furs: the Dominatrix Politics of Drilling and Killing

Robert Fantina
Republicans and Subpoenas: Never the Twain Shall Meet

Heidi Walters
Hung Up on Route 36: an 18-Wheeler and a Nuclear Cask

David Yearsley
Germany's Lost Organs: When Bigger Was Better

Raymond J. Lawrence
The Politics of Tribulation: Sarah Palin and the Rapture

David Rosen
One Billion Pills Later: Viagra at 10

David Michael Green
Living in Sarah Palin's America

Anthony Papa
Imprisoned Voters and the Elections

Niranjan Ramakrishnan
Freddie, Fannie, Daddy, Nanny

Howard Lisnoff
When We Notice the Homeless

John Goekler
Leaving Every Child Behind

Missy Beattie
Impalement

Dave Zirin
Leave Josh Howard Alone

Charles R. Larson
Holden Caulfield, Rest in Peace

Tim Matson
Too Big for His Birches: Woodlot Economics

Susie Day
Attack of the Angry Fetus

Poets' Basement
Corseri, Gibbons, Jenkins and Ford

Website of the Weekend
Dylan & Baez: Deportees

September 19, 2008

Steven T. Banko
McCain's Passion Play

Mike Whitney
The Point of No Return

Michael Hudson
The Dow Jones' Wonderfully Cheesy Addition

William Kaufman
Shattering the Glass-Steagall Act: the Bi-Partisan Origins of the Financial Crisis

Brenda Norrell
The Fall of Lehman Bros.: Blowback for Black Mesa?

Keeanga-Yamatta Taylor
The New Rhetoric of Racism: Why Won't Obama Call It Out?

Clifton Ross
Bolivia: Cleaning Up the Bull Ring

Dave Lindorff
Hang On to Your Wallets: the Government's About to Rescue Us!

Cynthia McKinney
Seize the Time!

Susan Hurlich
Storm Survivors: a Dispatch from Cuba

Michael Donnelly
Let's Hand It All Over to the Democrats (They Helped Create This Mess)

Website of the Day
The Crisis Explained

September 18, 2008

Benjamin Dangl
The Machine Gun and the Meeting Table

Harvey Wasserman
The Senate's Drill, Drill, Drill Scam

Susan Abulhawa
The Lobby Has Spoken: Biden and Israel

Robert Weissman
After the Fall: the Financial Re-Regulatory Agenda

Anne-Marie McManus
McCain's Cinderella: the Fetishization of Sarah Palin

Corey D. B. Walker
The Poverty of 21st Century Progressivism

William S. Lind
Senator O'Bush: Why Obama is Wrong on Iran and Afghanistan

Ron Jacobs
Washington's False Logic of Torture

Dave Lindorff
American and China: Joined at the Hip

Binoy Kampmark
How Damien Hirst Got Away With It

Website of the Day
An Invisible Army

September 17, 2008

Stephen Conn
Palin and the Politics of Big Oil

Forrest Hylton
Reactionary Rampage in Bolivia

Patrick Cockburn
Petraeus Leaves Iraq

Gregory Elich
Inside North Korea

Ralph Nader
How the U.S. Auto Industry Wrecked Itself

Franklin Lamb
The Palestinians of Shabra-Shatila

Pam Martens
The Gang's All Here: Bush, McCain and the Old Iran/Contra Team

Dave Lindorff
The End of the Blue Chip Economy

Peter Morici
The Damage Deepens

Stanley Heller
The Killing of Count Folke Bernadotte

Douglas Valentine
Rambling David Foster Wallace

Website of the Day
Free Cindy McCain!

September 16, 2008

Paul Craig Roberts
US Economy: Rudderless and Reeling from Direct Hits

Tiphaine Dickson
Citizen Palin: Why Sarah Palin Quoted Westbrook Pegler

Stan Goff
America is Now Rome: an Open Letter to Christian Troops in Iraq and Afghanistan

Uri Avnery
Tzipi's Choice

Michael Winship
Lipstick on Polar Bears

Jeff Halper
Warehousing Palestinians

Patrick Irelan
Bolivia Versus the Empire

Oscar Gonzalez
Who's Dumber? Ike's Refugees or Wall Street's?

Binoy Kampmark
Cheney and His Records

Fatemeh Keshavarz
Muslims are at Peace with You

Sen. Russ Feingold
Restoring the Rule of Law

Website of the Day
The Next Great Rock Band?

September 15, 2008

Mike Whitney
The Tumbrils Roll at Dawn

Peter Morici
Toxic Lehman

Patrick Cockburn
Take Another Look at the Surge

Charles R. Larson
The Maverick Has No Clothes

Jonathan Cook
The Expulsion of Palestinians from Jaffa

Nikolas Kozloff
Racist Rhetoric in Bolivia

Roger Burbach
Morales Confronts the Insurrection: Bolivia and the Echoes of Allende

Helen Redmond
Where's the Health Care Bailout?

David Michael Green
The Democrats Do Poland

David Macaray
The Boeing Strike

Ralph Nader
Remembering Peter Camejo

Website of the Day
The Ballad of Sarah Palin

September 25, 2008

In the Footsteps of Warren Buffett

A Better Bailout Plan

By DAVID ESTABROOK

Taxpayers receive preferred stock and collateral from a bank borrowing from the taxpayers, both in the full amount of the loan sought by the bank. In other words, stock plus collateral in double the amount of the loan. Taxpayers profit from a bailout before anyone else does.

Thanks to Warren Buffett and Goldman Sachs for the heads-up by disclosing the terms of their deal, which should be the low water mark for any taxpayer bailout. A higher water mark would be the terms suggested above, which are not uncommon in private equity deals and chapter 11 bailouts.

***

Paulson's plan calls for him to buy assets of an unknown but admittedly low value, at an inflated book value, for cash, from the member institutions of his own industry, with other folks' money (ours). He sees his industry and its member institutions as too important to fail. With all due respect, Paulson cannot claim to be objective or disinterested.

Paulson's plan pays in cash the price on the bank's books for the subprime mortgage-based assets. The book value is probably a high percentage of the total balances owed on the underlying mortgages.

Paulson's price for the subprime mortgage-based assets is favorable to the banks. If Paulson's price for the subprime mortgage-based assets was not favorable to the banks, the banks would not sell.

Neither Paulson nor the banks have presented any rationale, much less a convincing argument, for the proposition that the US is on the brink of financial chaos. They have declared it to be so. If you believe them, the banks are on the brink of failure without a bailout. If you believe them. One of the benefits of the better plan is to put that proposition to the test. To accept the terms of the better plan, the banks will have to be on the brink of failure. Otherwise they will not seek a loan, and a new equity participant, under the terms of the better plan that will enable them to survive.

Does the banks' condition put the US on the brink? What, because the banks won't lend without a bailout? I don't believe so. The banks remind me of the Sheriff in Blazing Saddles who takes himself hostage. The banks commit suicide by not lending. The banks won't lend without a bailout? Fine. Don't lend, banks. Don't lend starting now. You already have? Huh. Most banks in the DC area are advertising that they are not holding subprime mortgage-based assets and open for business to make loans.

If the banks won't lend and there is money to be made lending, someone else will lend, like the banks that are advertising. That's the free market, and the creative destruction should start now. If things are so bad that banks won't lend, the Taxpayers would be stupid to do so without the substantial potential for profit that the better plan provides. Paulson's plan provides only certainty, the certainty of losses. Why would anyone buy high for the certainty of selling low?

Hidden in the courts is another problem. The banks own securities. The value of the securities is based on subprime mortgages. The banks do not hold the subprime mortgages, or the notes secured by the subprime mortgages; they hold securities. A trustee for the issuer or the underwriter holds the notes and the equitable interest in the mortgages. Independent trustees hold the legal interest in the mortgages and the power to foreclose. The mortgages for any particular issue of securities were assembled -- without much forethought -- from all over the country. How many mortgages were bundled to offer one issue of the securities? Lots. Securitizing a whole bunch of mortgages at once reduced the relative amount of the soft costs necessary to pay the lawyers, underwriters, accountants and auditors necessary for the issue of the securities. There are many different issues of subprime mortgaged-based securities.

So for each issue of subprime mortgage-based securities, here's the cast of characters and their problems: the banks (from all over the country) holding a particular issue of securities, the issuer and the underwriter in say, NY, the issuer's or underwriter's trustee in say, DE, and the numerous trustees on the individual mortgages (from all around the country where the individual mortgaged properties are located) are difficult to assemble anywhere, and if assembled might fill the Yale Bowl, especially if the meeting is open to the homeowners. Many of the trustees for the issuers and underwriters did not receive the original notes at closing, and many of the original notes can't be found. Banks have attempted to foreclose on the mortgages and sue homeowners for deficiencies after foreclosure, only to be turned away by the courts for lack of standing because they don't hold the mortgages and cannot produce the original mortgage notes in court. The trustees won't act for lack of clear authority from anyone to tell them what to do. Courts, banks, issuers, underwriters, holders, trustees, homeowner-mortgagors and mortgagees, oh my.

Paulson's plan, with Taxpayers' money, makes a fool's bet, "Heads you win tales I lose," with no upside for the foolish Taxpayers. No one is guaranteeing that any recovery can be made on the subprime mortgage-based assets (in excess of the cost of collection), no one is guaranteeing that the banks will lend after a bailout, and nobody is even suggesting that this bailout, the one currently proposed, is the only one that will be necessary. The precedent for others will be set by this one. What about the securitized commercial mortgages of say, shopping centers in neighborhoods decimated by foreclosures? What about the securitized asset-based lending of say, department stores' inventories that can't be sold because consumers are paying their variable rate mortgages instead of buying new washing machines? What about the securitized credit cards that consumers are not paying to pay their mortgages instead, after maxing out their credit cards to pay the mortgage? Tune into call-in shows on radio or TV and hear the financial experts tell consumers to not pay credit cards and mortgages in order to feed their families. I have. The owners of securitized variable rate secured debt in any form (guess who?) are all out there, awaiting the denouement of the current drama and preparing their own play for the same treatment. The banks will be back again for more bailouts after this one. By definition, Paulson's plan creates a moral hazard, and the speculative trading of the subprime mortgage-based assets and securitized variable rate secured debt has already begun.

The better plan calls for the Taxpayers to receive a first priority lien on fairly appraised collateral, along with an equity kicker. After the Taxpayers receive the preferred stock interest valued at their investment, the subprime mortgage-based assets could be the collateral at their appraised value for the loan. The value of the subprime mortgage-based assets as collateral is their appraised value, which may be ten or twenty times the total balances remaining on the underlying mortgages and is not likely to be the value of the assets carried on the bank's books. Understand that the loan and the investment are the same money in the better plan, and if the bank is able to repay the loan, the Taxpayers could double their money because they will still own the equity kicker. If the bank can't repay the loan, Taxpayers recover on their collateral and share, as the most favored shareholder, in the liquidating dividend. BTW, where are the government's bank examiners requiring the write-down of the value of the banks' books of the subprime mortgage-based assets? I think they work for Paulson. Seriously, I do.

No more private profit at Taxpayers' risk. Under Paulson's plan, we are about to nationalize the almost certain losses incurred in running the banks badly, and at the same time we leave the banks, without their losses, with more money, in the hands of the folks who ran them badly. The only thing we have socialized in this country, after the bailout, will be the (mostly) unrecoverable losses of banks, acquired for cash at book value. Somebody else already got the profit and the fees from making the subprime mortgage loans and from issuing the securities. After the bailout, the banks will have shed their private losses, and received a premium of public cash for doing so. Private profit, public losses, all around.

A bank seeking the Taxpayers' loan is not an admitting bankruptcy; the terms are merely a recognition of the risk in the loan that requires a private equity kicker to attract the lender (us). Private equity is not bankruptcy. The terms would be appropriate, for example, if I approached you to purchase an apartment building, me being broke. You would put up the money for a first trust and a preferred ownership position for receipt of income, get paid in full first with interest, and end up with 50% of the apartment building and its appreciation, all your money paid back with interest, and half the income stream. I would have 50% of the apartment building and its appreciation and share in the income stream once you are paid off in full with interest. I have represented clients in similar leveraged deals where the financier (you, in my example) gets first payout on cash loaned (not contributed) and 50% of the equity in the deal.

For example, the financier in one deal (which involved a third party 80% first mortgage for the purchase of a real estate portfolio appraised at $70M) put up $14M, was paid back in full with interest in five (5) years, and retained a 50% interest in a real estate portfolio and its appreciation and income stream. 14M up, 14M with interest back plus 35M with appreciation and half the income stream off 70M. At ten percent interest on the loan and a market appreciation of 1% on the portfolio, my client's deal paid the financier, on a $14M loan (in simplistic terms), $1.4M per year in interest, $350K per year in appreciation, and $14M on the fifth anniversary, a total payout of $22,750,000 in five years, with an equity kicker of a $35M interest in a real estate portfolio, the income stream it creates and its appreciation. The bank does not have to borrow from the Taxpayers if they don't like our terms.

Buffett is not paying book value in cash for subprime mortgage-based assets, with no equity kicker or even a loan structure. Buffett is buying into value. Goldman Sachs has an international name with the best talent to run a highly leveraged portfolio and assets to match his buy-in twelve times over. GS is poised to convert to a money center bank, among other options open to it, and would likely survive were there no bailout and no Buffett. Buffett is not buying subprime mortgage-based assets, or even lending money. He is buying a preferred class of stock issued for him, which has first priority above all other owners. In other words, Buffett is secured by all of GS assets, including the money he is paying in, if anything goes wrong, before any other owner gets paid. If things go right, he receives a 10% annual dividend before anyone else on the equity side gets paid plus the value of his preferred stock. If the Taxpayers have a chance to take Buffett's deal with Goldman Sachs they should take it. Investing in Goldman Sachs preferred stock is not the same as investing in or lending to a bank with subprime mortgage based assets, much less buying the subprime mortgage-based assets at book value without an interest in the bank or a note from the bank to pay the money back.

David Estabrook is a Washington DC area attorney whose practice is particularly concerned with real estate. He can be reached at david.estabrook@gmail.com.

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