Capitalism must be more regulated, says Sarkozy.
ELITSA VUCHEVA, The Euobserver, September 24, 2008

French president Nicolas Sarkozy, whose country currently holds the rotating EU presidency, on Tuesday (23 September) {in his speech before the UN General Assembly in New York City} called for an international summit to tackle the global finance crisis and its consequences, saying that capitalism should be more “regulated.”

“Let us build a capitalism where ratings agencies will be subject to controls and punished when necessary, where transparency of transactions will replace opaqueness. The opaqueness is such today that we have difficulty understanding even what is happening,” Mr Sarkozy said in a speech to the UN General Assembly, Reuters reports.

Mr Sarkozy denounced “a crazy system which has been our system for years.” (Photo: United Nations)

“I am told ‘We don’t know who is responsible.’ Oh yeah? Well let me tell you that when things were going well, we knew who got bonuses. What a strange system,” he also told journalists, denouncing “a crazy system which has been our system for years.”

Mr Sarkozy hopes to see an international meeting to discuss the crisis, the worst the world has seen, he said, since the Great Depression.


***

“I’m convinced that it’s the duty of heads of state and government of the countries most directly concerned to meet before the end of the year to examine together the lessons of the most serious financial crisis the world has experienced since that of the 1930s,” Mr Sarkozy said before the UN General Assembly, in his first public statements on the financial crisis.

At a press conference later in the day, he said he was thinking of a G8-format summit in November, gathering the world’s eight leading economic powers – namely the United States, France, Britain, Germany, Italy, Japan, Canada and Russia, but also open to “emerging countries,” such as China, India, and Brazil.

Mr Sarkozy did not specify where the summit should take place, saying that it could be anywhere from Washington or New York, to London, Brussels and Paris.

***

More regulation:

Additionally, the French president suggested a general overhaul of the financial system should be considered, where capitalism would be more “regulated.”

“Let us rebuild together a regulated capitalism in which whole swathes of financial activity are not left to the sole judgment of market operators, in which banks do their job, which is to finance economic development rather than engage in speculation,” he was reported as saying by Deutsche Welle.

His comments come just a day after MEPs also called on the European Commission to come up with legislation plans to regulate the activities of hedge funds and private equity funds.

***

However, EU internal market commissioner Charlie McCreevy told MEPs he did not believe it was “necessary at this stage to tar hedge funds and private equity with the same brush as we use for the regulated sector. The issues relating to the current turmoil are different.”

One should “analyse the impact of the existing EU provisions and of additional member states’ rules in this field before one embarks on introducing any new legislation,” said the commissioner.

***

EU-Russia economic space:

Separately, the EU president-in-office also suggested establishing “a common economic space that would unite Russia and Europe.”

However, the French president also referred to Russia’s war with Georgia this summer and underlined that the EU “cannot compromise on the principal of sovereignty and independence of states.”

The Methane Time Bomb.
Tuesday, September 23, 2008, by Steve Conner, The Independent UK.

In the past few days, researchers released that the sub-sea layer of permafrost has melted away to allow methane to rise from underground deposits formed before the last ice age.

Arctic scientists discover new global warming threat as melting permafrost releases millions of tons of a gas 20 times more damaging than carbon dioxide.

***

The first evidence that millions of tons of a greenhouse gas 20 times more potent than carbon dioxide is being released into the atmosphere from beneath the Arctic seabed has been discovered by scientists.

The Independent has been passed details of preliminary findings suggesting that massive deposits of sub-sea methane are bubbling to the surface as the Arctic region becomes warmer and its ice retreats.

They have warned that this is likely to be linked with the rapid warming that the region has experienced in recent years.

***

Methane is about 20 times more powerful as a greenhouse gas than carbon dioxide and many scientists fear that its release could accelerate global warming in a giant positive feedback where more atmospheric methane causes higher temperatures, leading to further permafrost melting and the release of yet more methane.

The amount of methane stored beneath the Arctic is calculated to be greater than the total amount of carbon locked up in global coal reserves so there is intense interest in the stability of these deposits as the region warms at a faster rate than other places on earth.

“The conventional thought has been that the permafrost ‘lid’ on the sub-sea sediments on the Siberian shelf should cap and hold the massive reservoirs of shallow methane deposits in place. The growing evidence for release of methane in this inaccessible region may suggest that the permafrost lid is starting to get perforated and thus leak methane… The permafrost now has small holes. We have found elevated levels of methane above the water surface and even more in the water just below. It is obvious that the source is the seabed.”

***

The preliminary findings of the International Siberian Shelf Study 2008, being prepared for publication by the American Geophysical Union, are being overseen by Igor Semiletov of the Far-Eastern branch of the Russian Academy of Sciences. Since 1994, he has led about 10 expeditions in the Laptev Sea but during the 1990s he did not detect any elevated levels of methane. However, since 2003 he reported a rising number of methane “hotspots”, which have now been confirmed using more sensitive instruments on board the Jacob Smirnitskyi.

Dr Semiletov has suggested several possible reasons why methane is now being released from the Arctic, including the rising volume of relatively warmer water being discharged from Siberia’s rivers due to the melting of the permafrost on the land.

The Arctic region as a whole has seen a 4C rise in average temperatures over recent decades and a dramatic decline in the area of the Arctic Ocean covered by summer sea ice. Many scientists fear that the loss of sea ice could accelerate the warming trend because open ocean soaks up more heat from the sun than the reflective surface of an ice-covered sea.

Wednesday, Sept. 24, 2008

Comrade Bush and the banks

By GWYNNE DYER, on Japan Times online.

 http://search.japantimes.co.jp/mail/eo20…
LONDON — After Comrade George W. Bush nationalized the two giants of the U.S. mortgage market, Freddie Mac and Fannie Mae, earlier this month, Anatole Kaletsky wrote in The Times of London that “the most capitalist administration ever, in the world’s most capitalist country, (has) decided to wipe out the private owners of its biggest and most important financial companies and replace them with state-appointed bureaucrats.”

Wikipedia defines “nationalization” as “the act of taking an industry or assets into the public ownership of a national government. It is a central theme of certain brands of estate socialist policy that the means of production, distribution and exchange, should be owned by the state. . . . Nationalization may occur with or without compensation to the former owners. Without compensation, it is a case of expropriation.”

***

Well, this was expropriation. When the U.S. investment bank Bear Stearns went belly up in March, the shareholders used their political influence to get the price of the buyout raised from the originally agreed $2 per share to $10 per share. By April, however, it was known that the U.S. Federal Reserve Bank was talking to the Scandinavian authorities, who had survived a rather similar crisis in 1991-93 by nationalizing their banks without compensation for shareholders.

That is essentially what happened with Freddie Mac and Fannie Mae, whose combined liabilities of $5.5 trillion were equivalent to about two-thirds of the existing U.S. national debt. Those liabilities of those two institutions, which hold around half of all U.S. mortgages, have now been added to the federal government’s debt, bringing it to about $14.8 trillion — approximately three times what it was when Comrade Bush first took office. But the shareholders got nothing.

***

In its desperate attempt to keep Freddie Mac and Fannie Mae afloat over the previous six months, the U.S. Treasury had encouraged investors to pump an extra $20 billion into them. As the likelihood of a federal nationalization without compensation loomed, Yu Yongding, former adviser to China’s central bank, warned: “If the U.S. government lets Fannie and Freddie fail and international investors are not compensated adequately . . . it is the end of the current international financial system.”

{READ - THE PRESENT CHINESE CAPITALISTS ARE NOT CRAZY TO BUY US PAPER THAT GETS NATIONALIZED IN COMMUNIST FASHION - OBAMA PLEASE READ THIS IF YOU WANT TO BUILD YOUR OWN STAND ON THESE BUSHITE POLICIES THAT WASHINGTON IS ASKING YOU NOW TO SWOLLOW! IF YOU CANNOT BORROW _ YOU WILL HAVE TO PRINT THE MONEY - AND THAT IS ALSO A WAY TO NATIONALIZE WEALTH BY REDUCING THE VALUE OF THE DOLLAR}

***

That is what actually came to pass this month, although the consequences will take years to play out fully. Then came last week’s effective nationalization of American International Group (AIG), which made the U.S. government the world’s largest insurance company.

The current proposal by the U.S. Treasury to spend $700 billion of taxpayers’ money buying up the worst of the subprime mortgages only emphasizes how far we have traveled from the triumphalism of the free-marketeers in just a few months. Just as China has developed a “socialist economy with Chinese characteristics,” so the U.S. is getting a socialist economy with American characteristics. (Indeed, the two countries even share some of the same characteristics, like the lack of a comprehensive national health service.)

The most extraordinary part of this upheaval is that there has been virtually no public outcry in the United States itself, the bastion of free-market capitalism, about these nationalizations. The word “nationalization” is never used, and the irony of such a socialist measure being implemented by this Republican administration is scarcely commented on.

****

Republican presidential candidate John McCain let a bit of the old free-market ideology show through when he told reporters that “the Federal Reserve should get back to its core business of responsibly managing our money supply and inflation,” but he is not really fighting nationalizations and government subsidies.

So will the Republicans be punished for their willful fiscal irresponsibility? Not if Obama wins the presidency, which seems the likely outcome of the November election. American voters won’t remember who actually caused the financial crisis that impoverished them. They will end up blaming the party in power, the one that actually has to try to lessen the misery and clear up the mess. The Democrats, in other words.

Gwynne Dyer is an independent journalist whose articles are published in 45 countries.

 First US greenhouse gas auction set for Thursday, September 25, 2008.

The Associated Press September 21, 2008, By MARY ESCH for BUSINESS WEEK -  from ALBANY, N.Y.

A coalition of 10 northeastern states this week will take steps to check global warming when it conducts the nation’s first carbon auction, taking the same approach that curbed lake-killing acid rain.

The cap-and-trade greenhouse gas reduction program, which aims to hold carbon dioxide emissions steady through 2014 and then gradually reduce them, is widely viewed as a model for future programs around the globe.

***

“With the leadership vacuum in Washington, it has fallen to the states to take the lead on combating climate change,” said Richard Revesz, dean of the New York University School of Law and an expert on environmental law.

Both John McCain and Barack Obama support cap-and-trade programs to reduce greenhouse gas emissions, seen as key contributors to global warming.

The approach is patterned after the acid rain-reducing program targeting sulfur dioxide that began with a New York law in 1984 and was expanded nationally with amendments to the Clean Air Act in 1990.

RGGI caps the total amount of carbon that power plants in the 10-state region can pump out of their smokestacks at the current level — 188 million tons. Electric power generators must pay for allowances covering the amount of carbon they emit and RGGI will provide a market-based auction and trading system where the generators can buy, sell and trade the emissions allowances.

The initiative will gradually reduce carbon going into the atmosphere by lowering the cap in several steps, until it is 10 percent below the current level in 2018. During that 10-year span, businesses will have to reduce their emissions. Those that can’t, because of cost or technical hurdles, can buy allowances from companies that have achieved cleaner emissions.

Companies have a financial incentive to curb emissions because they won’t have to buy as many credits and because they can sell any they don’t need. The price of credits is likely to rise as the cap is lowered. That gives companies more incentive to curb emissions sooner rather than later so they can buy and use credits at a lower price and sell them at a profit.

In addition, generators can make up for a small percentage of their emissions by purchasing narrowly defined carbon offsets, such as investing in energy-efficient building technology or planting trees to absorb carbon from the atmosphere.

The overal goal is to give utilities an economic incentive, rather than a regulatory mandate, to burn less coal, fuel oil and natural gas, while at the same time making carbon-free energy alternatives such as wind and solar power more economically attractive.

While power plants account for only a third of the carbon dioxide generated in the region, they’re the easiest source to regulate because their emissions are already monitored in other pollution programs, said Peter Iwanowicz, director of the state Department of Environmental Conservation’s Climate Change Office.

“We’re very much in favor of a national cap-and-trade system for reducing carbon emissions because we believe climate change is real and that it requires a national, and really international, solution,” said Don McCloskey, environmental policy manager for Public Service Enterprise Group, a power generator in Newark, N.J.

***

While other carbon-curtailing programs have been proposed, including a carbon tax, McCloskey said PSEG supports cap-and-trade because it allows companies to use their ingenuity and knowledge of markets to achieve environmental goals.

Proceeds of the auctions are to be invested in programs to increase energy efficiency, support non-carbon-generating renewable energy sources such as wind and solar, and develop carbon abatement technologies.

***

Peter Cramton, a professor at the University of Maryland with a research focus on emissions auctions, said the RGGI program is a good basis for a national cap-and-trade program. But he said a national program should include all sources of carbon emissions, from automobiles to industries.

The auction isn’t limited to electricity generators. Investors or public interest groups also may participate.

For the first auction, only one public interest group has registered in hopes of buying carbon credits and taking them out of circulation, Iwanowicz said.

“We want to purchase and retire some allowances,” said John Sheehan, spokesman for the Adirondack Council, a group dedicated to preserving the wilderness character of the 6-million-acre Adirondack Park. “We set a goal of 1,000 tons initially.”

Carbon dioxide emissions are of concern in the Adirondacks, Sheehan said, because global warming could transform the region’s fragile boreal ecosystem to a temperate zone similar to Richmond, Va.

Israeli city first to aim for water independence.
By Michael Green
September 16, 2008

 http://web.israel21c.net/bin/en.jsp?enDi…;

Israel may be in a severe water crisis, but in the city of Rishon LeZion the drought isn’t causing any alarm. Summer temperatures regularly soar to the upper 80s and 90s, there’s no rain for six months of the year, and the country’s key source of drinking water, the Sea of Galilee reached the critical “Red Line” in July, but still city residents remain relaxed.

That’s because Rishon LeZion, 20 kilometers south of Tel Aviv, is well on its way to becoming the “first independent municipal water economy in Israel.” It’s a groundbreaking initiative that is attracting interest from countries all over the world searching for solutions to their own water problems.

Currently, Rishon LeZion provides 70 percent of its own water from local sources such as wells, with the remainder being supplied by Mekorot, Israel’s national water company. But the city’s municipal water company, Meniv Rishon, has set itself an ambitious goal: to turn Rishon LeZion into the first city in the country to be 100% water self-sufficient.

“We want to supply all of our water needs ourselves, for industry, agriculture and for households too,” says Daniel Low, general manager of Meniv Rishon, a corporation owned by the Rishon LeZion Municipality.

A pioneer in water conservation:

Saving water may have become a hot topic in 2008, but Rishon has been pioneering water conservation since 2001 when the city’s mayor, Meir Nitzan, announced his bold new vision for the city’s water policy.

So how does one company plan to turn such an unprecedented scheme into reality? Over the coming years, Meniv intends to phase out the rest of its supply from Mekorot and replace it with a combination of locally harvested water, primarily rainwater collection and building a new desalination plant, as well as replenishing the aquifer’s underground water resources.

Since it began collecting rainwater in 1999 in a lake located between the Rishon’s western city limits and the beach, 11 million cubic meters have been filtered into the aquifer below, helping to reverse the pollution and depletion it has suffered over the years.

Thanks to a newly built 16km pipe, water collected in the lake is also being used in the northwest of the city for sprinklers and irrigation in public gardens and other open spaces, providing a vital breath of fresh air in Israel’s highly urbanized coastal plain.

Low says that this has already saved over 1 million cubic meters of water in the last year, not to mention the tidy sum of NIS 4.5 million, a figure which will rise significantly when plans for two more reservoirs in the east of the city come to fruition in the next four or five years. “But we are still losing millions of cubic meters each year from run-off,” explains Low. “We want to collect water across the entire city, not just in the northwest.”

Transforming salty water into sweet:

The next major stage is to build a desalination plant to transform salty water from four wells near the Mediterranean Sea into water for drinking or agriculture. Construction is due to get underway in the next year and once completed in 2010, it is anticipated the plant will supply 3.7 million cubic meters of water a year.

Such an ambitious scheme comes with a price tag: nearly $23 million for the desalination plant, as well as $11 to 14 million for the two new reservoirs. But Low is confident that the consumer will be the winner in the end, as the price of water in Israel, like many other countries, is due to rise sharply in the future.

“The cost of water in Rishon LeZion will go down. That’s one of the principal targets in the long-run: to make water cheaper for people,” he says, adding that water will cost between 40 to 45 cents per cubic meter when the desalination plant is operational, compared to the current cost of around 80 cents per cubic meter for water from Mekorot, a price which is predicted to rise even further in 2009.

Now the vision of Rishon LeZion is catching the imagination of other parts of Israel, such as the Arab city of Nazareth, as well as countries elsewhere around the world keen to learn a thing-or-two about water conservation, including Italy, the Ukraine and Australia, which are all coping with water crises of their own.

Even tropical Brazil, where rain is hardly in short supply, has been seeking advice from Meniv Rishon to explore innovative new systems of making additional sources of water available for the country’s citizens.

 First an anecdote that could throw some light on the problem:

The New York Times of today, in its listing of “The Shareholders at the Top” - that is the formerly extremely rich that became just rich in the unfolding events - the likes of Richard S. Fuld, who as C.E.O. of Lehman Brothers has dropped since January 2007 in his wealth from $827.1 million to a mere $2.3 million, includes also the current US Secretary of the Treasury, and Former C.E.O. of Goldman Sachs, Mr. Henry M. Paulson Jr. whose loses brought him down from $809.5 million to 523.5 million. We hope he was insured by a company other then AIG - so his loses may yet be covered in part.

It is not easy to decide if these loses in Mr. Paulson’s portfolio mean that he is indeed a very honest man, and thus the rescue program that he and Mr. Bernanke designed is an honest, impartial program, or - does this mean that Mr. Paulson did not realize what was coming - so we better worry that his just announced program is not safe enough for the rest of the Nation and the World - or it is now even a self-serving program to save those on the New York Times list?

—————

The Bush administration yesterday proposed a historic $700 billion bailout of financial firms that would let the government rather than the cold judgment of the marketplace decide the winners and losers from the crisis that has shaken the U.S. economy for the past year.

The plan, which would be the most sweeping government intervention in the markets since the Great Depression, calls for the Treasury to buy the troubled mortgage securities that have been toppling major financial firms and are at the heart of Wall Street’s turmoil.

The Washington Post printed the Administration’s take that “Millions of Americans could also benefit from other dramatic stopgap measures. Regulators announced efforts to stabilize the mortgage market; curb stock speculation; and insure money-market mutual funds with government money, seeking to protect ordinary investors and preserve a vital source of corporate finance.” But we point to the end of the sentence that gives the reason for the beginning of that sentence.

SO IT IS THE BAILOUT OF THE CORPORATIONS FOR WHICH MILLIONS OF AMERICANS ARE BEING CALLED TO CONTRIBUTE - THE CLASSIC EXPLANATION BEING GIVEN - IT IS GOOD FOR YOU!

The initiatives were precipitated in part by concern that scared investors would race to withdraw their holdings from money-market funds, which hold $3.5 trillion in investments, depleting a major source of short-term funding for corporations.

President Bush, who had remained largely silent as the crisis broadened this week, said it is a “pivotal moment for America’s economy.” In a Rose Garden speech remarkable for its grim language and ominous tone, Bush said: “This action does entail risk. But we expect that this money will eventually be paid back. . . . The risk of not acting would be far higher.”

Some lawmakers, including Sen. Richard C. Shelby (Ala.), the ranking Republican on the Senate Banking Committee, have expressed concerns about the plan’s cost, chance of success and possible unintended consequences. Such opposition could delay passage. “We are being asked to go ‘all in’ with taxpayer dollars, and once our government and the taxpayer is on the hook, there is no fallback option,” said Rep. Jeb Hensarling (R-Tex.), a leading conservative. “At the moment I remain skeptical, fearful and unconvinced that this is the proper remedy for our nation.”

The Treasury Department also announced that it would offer an insurance program for money market funds that is similar to the long-standing government guarantee of bank deposits. Funds would pay a fee in exchange; if they collapse, the government repays investors.

But the Treasury intervention threatens to drain deposits from already troubled banks because money-market funds offer higher interest rates and now will feature the same federal protection. People familiar with the matter said banking regulators were not consulted on the plan and were considering how best to limit the impact on banks.

The American Bankers Association released a letter to Bernanke and Paulson that said the government had acted in “great haste” and should reconsider. “The program announced this morning runs the risk in the long run of profoundly changing the nature of our financial system and, specifically, undermining the nation’s banking system,” wrote ABA President Edward Yingling. So, here you have the first swallow of “the law of unintended consequences” that clearly is the twin of “half-backed-suggestions.”

Paulson and Bernanke held a morning conference call with more than 100 House Republicans, making the case for their plan and describing in “strong and serious” terms the dire situation facing the financial system, according to a participant on the call.

Hours later, the House Republican leadership met with members and lobbyists to warn against cluttering the legislation with amendments or trying to delay its passage. The message, according to a person at the meeting: We want a clean bill.

The Dow Jones industrial average, which jumped between massive losses and gains this week, rose 3.3 percent yesterday to close at 11,388.44. Combined with a 410-point gain Thursday, the index ended near break-even for the week — sweeping away Monday’s 504-point loss. The Standard & Poor’s 500-stock index, a broader measure, rose 4 percent yesterday and actually posted a gain for the week.

“It’s a massive relief rally on the back of the comprehensive plan,” said Joseph Brusuelas, chief economist for Merk Investment. “If you have hundreds of millions of mortgage-backed securities on your books that you cannot value, much less sell, you can now unload them to the U.S. government.”

Investors also moved out of the safety of Treasuries and back into the broader market. On the expectation that the economy will now recover, the price of light, sweet crude oil jumped $6.67, to $104.55 a barrel, on the New York Mercantile Exchange.

—————-

Bush Requests $700 Billion for Bailout
By JULIE HIRSCHFELD DAVIS and DEB RIECHMANN
 http://news.aol.com/article/bush-request…

WASHINGTON (Sept. 20, 2008) (AP) - The Bush administration asked Congress on Saturday for the power to buy $700 billion in toxic assets clogging the financial system and threatening the economy as negotiations began on the largest bailout since the Great Depression. The rescue plan would give Washington broad authority to purchase bad mortgage-related assets from U.S. financial institutions for the next two years. It does not specify which institutions qualify or what, if anything, the government would get in return for the unprecedented infusion.
{So - temporary conclusion - Stocks rallied Friday as officials worked on a financial bailout, but that bailout could include a massive influx of government cash, funded by taxpayers.}

—————–

US Pledges Rescue Plan, but Will It Work?
By CHRIS ISIDORE, CNNMoney.com

 http://money.aol.com/news/articles/_a/bb…
Lucas Jackson, Reuters, September 20, 2008.

{Photo - Traders share a laugh in front of the New York Stock Exchange Friday as an expected plan to rescue the nation’s financial system boosted investor confidence, sending the Dow up 370 points. The surge added to a 400-point gain Thursday.}
But questions remain about whether it will prevent more failures of banks and Wall Street firms and many doubt this will lead to a quick turnaround for the battered housing market.

The broad outlines of the plan call for the federal government to buy hundreds of billions of dollars’ worth of mortgage assets held by banks, Wall Street firms and other financial institutions.

Those securities were backed by home loans, many made to buyers with bad credit or without proof of income. As housing values fell and foreclosures shot to record levels in the past two years, the value of those securities plunged. That in turn caused massive losses in the financial sector.

This week it reached a crisis situation. Banks and investment firms stopped making the loans to each other as they hoarded cash to protect against any sudden liquidity crunch as well from unknown problems on their partners’ balance sheets.
Treasury Secretary Henry Paulson  and Federal Reserve Chairman Ben Bernanke  won support for the bailout plan from Congressional leaders in a meeting Thursday night.

Friday morning, Paulson said he’ll be working through the weekend with those on Capitol Hill to hammer out legislation that could go for a vote as soon as next week. “I am convinced that this bold approach will cost American families far less than the alternative — a continuing series of financial institution failures and frozen credit markets unable to fund economic expansion,” Paulson said Friday. “I believe many members of Congress share my conviction.”
Word of the plan first leaked Thursday afternoon, causing a massive rally in stocks at the end of the day that carried over into Friday. Several economists also praised the move.
“I’m confident this will work,” said Mark Zandi, chief economist with Moody’s  Economy.com. “The federal government is committed to backstopping the nation’s financial system and will do whatever is necessary to make sure the system does not unravel. The details are important but secondary.”

The plan also won support from presidential candidates John McCain and Barack Obama.

Zandi is an informal economic advisor to the McCain campaign.

Other experts said that while there are obviously big risks to taxpayers, the federal government has little choice but to provide the assurance to financial markets.

“If this doesn’t work, we’re in trouble, because there’s not much more the government can do,” said Jaret Seiberg, a financial services analyst at the Stanford Group. “They’ve left very few arrows in the quiver.”

 ***

More Losses, Failures Expected:

But Seiberg added that the bailout won’t completely end the recent turmoil on Wall Street, a crisis that began with the Treasury’s seizure of mortgage finance giants Fannie Mae  and Freddie Mac  earlier this month and escalated this week with the bankruptcy of Lehman Brothers  and the $85 billion loan to American International Group , the world’s largest insurer, by the Federal Reserve.

“What the government is doing now is not suddenly going to make institutions profitable,” he said. “What we’re talking about is trying to make them stable. That means removing the risk from their balance sheet and putting it on the taxpayer. The government has a much better ability to hold onto that risk for an extended period of time.”

Still, Seiberg is optimistic that the bailout will help home prices finally start to recover since it should lead to lower mortgage rates and improve consumer confidence.

But others say that there are still enough fundamental problems in housing, including a huge glut of homes for sale and the likelihood of more foreclosures in the pipeline.

“It should help housing prices find a bottom but I still think it will be about a year from now — and after prices decline another 10%,” said Stuart Hoffman, chief economist for PNC Financial Services Group.

Nonetheless, even if home prices don’t stabilize soon, one expert said the bailout could be a success if it allows bank to stop hoarding cash and once again begin lending to each other, consumers and businesses.

“The one thing you don’t want is to have the economy grind to a halt because people can’t get credit,” said Dean Baker, co-director of the Center for Economic and Policy Research.

Baker predicts home prices will fall another 20% even with the bailout but said the decline could become even more severe without passage of the rescue plan.

“Housing prices were a bubble and you can’t stop them from deflating,” Baker said. “But [the bailout] might stop an uncontrolled plunge.”

***

Will Congress Pass the Bailout?

Despite the support being voiced by Democrats and Republicans for the plan on Friday, Seiberg said its chance of passage is by no means certain.

“The odds of this passing are probably around 80% - and those are pretty good odds for Washington,” he said. “But it’s not a slam dunk.”

Sen. Richard Shelby, the ranking Republican on the Senate Banking Committee, questioned the plan Friday morning, telling CNNMoney.com that he doubts it will be the last federal bailout in the sector that will be needed.

“Secretary Paulson and Chairman Bernanke have not said …this is going to contain everything,” he said. “They’re hoping it is. What they’re doing is jumping from crisis to crisis. I haven’t seen a comprehensive plan yet.”
He wouldn’t commit to supporting the measure.

“This is too big to just accept without knowing what it does, who pays for it and is this the end of it,” he said. “It’s true that there’s stress in the financial markets. But should we bail out everybody? We know it’s important to the financial system, but at what price?”

******

Please see  http://blogs.wsj.com/economics/2008/09/20/treasurys-financial-bailout-proposal-to-congress/

for the Wall Street Journal blog on the 700 Billion bill that is discussed this weekend by Congress - also the many reactions that blog picked up by people that actually read the language of the bill and try to see the implications of bailing out those that by their exaggerations caused this crash rather then going for bailing out directly the folks who did bite into the bait that was dangled before their eyes and are now losing homes and pants.

The bail out is not just for home mortgages, but also for commercial mortgages - this again an extrapolation into the domain of those that took advantage of the push to kill all regulation that created firewalls between differing sectors of the economy at large - so that insurance not be dependent on the misdeeds of the financial sector that they are supposed to insure. It is the brake down of these barriers that brought us back, technically, to similar conditions that existed before the post-great-Depression era regulation was established. Now, clearly, this creates a situation that can lead to a Global Great Depression II and thus the attempt at fast-shot survival-legislation to be rammed down the throat of the two Presidential campaigns.

***

Yesterday we posted about the reaction of the EU Commissioner:

http://sustainabilitank.info/#7083

www.sustainabilitank.info/2008/09/20/us-style-financial-socialism-not-an-option-for-europe-says-eu-commissioner-joaquin-alminia-he-is-a-spanish-socialist-and-does-not-believe-in-bailing-out-failing-companies-nevertheless-the-us-fe/

“US-Style “Financial Socialism” Not An Option for Europe Says EU Commissioner Joaquin Almunia. He Is A Spanish Socialist and Does Not Believe In Bailing Out Failing Companies. Nevertheless, The US Federal Reserve Also Pumped Multi-Billion Amounts To Other Five Central Banks That Made it Available To Their Own Internal Markets. So This Is actually US Tax-Payers Bailing Out The World That Is Source Of Money Borrowed By The US. Interesting!”

Posted on Sustainabilitank.info on September 20th, 2008
by Pincas Jawetz ( PJ at SustainabiliTank.com)

That material did not reach the US media yet. Seemingly, it is only what happens inside the US that is being discussed, but what the US Administration does outside the borders of the US is not.

If the US pumps $100 Billion Euro (in dollars we assume) to central banks in other countries in order to stabilize them, this is again an outflow of money from the US treasury - money that the US does not have and in turn borrows from those overseas. Increasing the debt ceiling of the US to a figure well above its GDP does reduce the value of the dollar in comparison to the foreign currencies. In the end this will cause the US printing presses to work overtime. What does it mean if a US stock market gets higher figures in lower value dollars? Do all the suggested gimmicks lead to better economy fundamentals, or they are just temporary steps in a nose-diving US economy in a globalized world economy? Surely, some politicians who never had a US passport might contend that reality does not exist, but can the US of today live in isolation?

Sure, this brings us back to the lack of a rational US energy policy to replace the Washington continuing belief that one can muddle through without looking reality in its face.

Do we have answers? Not easily for this whole mess - and surely not for the fact that the mess gets enlarged by the day. But we know where to start building for better answers, and we suggest that Al Gore is a good exponent of bright ideas. But all this will amount to nothing if it will be allowed to sink further in this generalized muck.

We will now look into the econmy issues as they evolve this week, as the question of Sustainable Development will get front line now, when it becomes further clear that globalization handled by unscrupulous capitalism ends up as socialized capitalism in its own country while at the same time creating heated political environments outside its own country.

This coming week we will hear of both - the Administrations plans on the economy, and the world’s Presidents spilling their own beans at the great Assembly Hall of the UN.

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As an attachment we bring here also the language, as per the Wall Street blog we quoted earlier, of the text on those $700 Billion that The White House wants to spend in order to enlarge its power over America.

September 20, 2008, 1:05 pm
Treasury’s Financial-Bailout Proposal to Congress
The following is the legislative proposal from Treasury Department for authority to buy mortgage-related assets:

Section 1. Short Title.

This Act may be cited as ____________________.

Sec. 2. Purchases of Mortgage-Related Assets.

(a) Authority to Purchase.–The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.

(b) Necessary Actions.–The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation:

(1) appointing such employees as may be required to carry out the authorities in this Act and defining their duties;

(2) entering into contracts, including contracts for services authorized by section 3109 of title 5, United States Code, without regard to any other provision of law regarding public contracts;

(3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;

(4) establishing vehicles that are authorized, subject to supervision by the Secretary, to purchase mortgage-related assets and issue obligations; and

(5) issuing such regulations and other guidance as may be necessary or appropriate to define terms or carry out the authorities of this Act.

Sec. 3. Considerations.

In exercising the authorities granted in this Act, the Secretary shall take into consideration means for–

(1) providing stability or preventing disruption to the financial markets or banking system; and

(2) protecting the taxpayer.

Sec. 4. Reports to Congress.

Within three months of the first exercise of the authority granted in section 2(a), and semiannually thereafter, the Secretary shall report to the Committees on the Budget, Financial Services, and Ways and Means of the House of Representatives and the Committees on the Budget, Finance, and Banking, Housing, and Urban Affairs of the Senate with respect to the authorities exercised under this Act and the considerations required by section 3.

Sec. 5. Rights; Management; Sale of Mortgage-Related Assets.

(a) Exercise of Rights.–The Secretary may, at any time, exercise any rights received in connection with mortgage-related assets purchased under this Act.

(b) Management of Mortgage-Related Assets.–The Secretary shall have authority to manage mortgage-related assets purchased under this Act, including revenues and portfolio risks therefrom.

(c) Sale of Mortgage-Related Assets.–The Secretary may, at any time, upon terms and conditions and at prices determined by the Secretary, sell, or enter into securities loans, repurchase transactions or other financial transactions in regard to, any mortgage-related asset purchased under this Act.

(d) Application of Sunset to Mortgage-Related Assets.–The authority of the Secretary to hold any mortgage-related asset purchased under this Act before the termination date in section 9, or to purchase or fund the purchase of a mortgage-related asset under a commitment entered into before the termination date in section 9, is not subject to the provisions of section 9.

Sec. 6. Maximum Amount of Authorized Purchases.

The Secretary’s authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time

Sec. 7. Funding.

For the purpose of the authorities granted in this Act, and for the costs of administering those authorities, the Secretary may use the proceeds of the sale of any securities issued under chapter 31 of title 31, United States Code, and the purposes for which securities may be issued under chapter 31 of title 31, United States Code, are extended to include actions authorized by this Act, including the payment of administrative expenses. Any funds expended for actions authorized by this Act, including the payment of administrative expenses, shall be deemed appropriated at the time of such expenditure.

Sec. 8. Review.

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

Sec. 9. Termination of Authority.

The authorities under this Act, with the exception of authorities granted in sections 2(b)(5), 5 and 7, shall terminate two years from the date of enactment of this Act.

Sec. 10. Increase in Statutory Limit on the Public Debt.

Subsection (b) of section 3101 of title 31, United States Code, is amended by striking out the dollar limitation contained in such subsection and inserting in lieu thereof $11,315,000,000,000  {THAT MEANS 11,315 TRILLION - if you can understand this concept - well above the GDP of the US - how much of this is supposed to come from overseas as loans and how much is the product of our printing presses?}.

Sec. 11. Credit Reform.

The costs of purchases of mortgage-related assets made under section 2(a) of this Act shall be determined as provided under the Federal Credit Reform Act of 1990, as applicable.

Sec. 12. Definitions.

For purposes of this section, the following definitions shall apply:

(1) Mortgage-Related Assets.–The term “mortgage-related assets” means residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before September 17, 2008.

(2) Secretary.–The term “Secretary” means the Secretary of the Treasury.

(3) United States.–The term “United States” means the States, territories, and possessions of the United States and the District of Columbia.