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XMFSinchiruna (27.97)

Congressional Leaders were Stunned by Warnings :)

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September 19, 2008 – Comments (9)

I guess these Congressional leaders should have been reading the Motley Fool blogs... :)

In all seriousness, though, I found this article pretty interesting. The sense of shock is palpable in their words and their gestures.

http://www.nytimes.com/2008/09/20/washington/19cnd-cong.html?hp

WASHINGTON — 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.”

Mr. Schumer added, “History was sort of hanging over it, like this was a moment.”

When Mr. Schumer described the meeting as “somber,” Mr. Dodd cut in. “Somber doesn’t begin to justify the words,” he said. “We have never heard language like this.”

“What you heard last evening,” he added, “is one of those rare moments, certainly rare in my experience here, is Democrats and Republicans deciding we need to work together quickly.”

Although Mr. Schumer, Mr. Dodd and other participants declined to repeat precisely what they were told by Mr. Bernanke and Mr. Paulson, they said the two men described the financial system as effectively bound in a knot that was being pulled tighter and tighter by the day.

“You have the credit lines in America, which are the lifeblood of the economy, frozen.” Mr. Schumer said. “That hasn’t happened before. It’s a brave new world. You are in uncharted territory, but the one thing you do know is you can’t leave them frozen or the economy will just head south at a rapid rate.”

As he spoke, Mr. Schumer swooped his hand, to make the gesture of a plummeting bird. “You know we’d be lucky ...” he said as his voice trailed off. “Well, I’ll leave it at that.”

As officials at the Treasury Department raced on Friday to draft legislative language for an ambitious plan for the government to buy billions of dollars of illiquid debt from ailing American financial institutions, legislators on Capitol Hill said they planned to work through the weekend reviewing the proposal and making efforts to bring a package of measures to the floor of the House and Senate by the end of next week.

Lawmakers in both parties described the meeting in Ms. Pelosi’s office on Thursday night with Mr. Paulson and Mr. Bernanke as collaborative, and that they were prepared to put politics aside to address the needs of the American people.

While Democrats initially said after the meeting that they planned to use the administration’s proposal of a huge rescue effort to win support for an economic stimulus package, they pulled back slightly on Friday morning, saying that their top priority was to help put together the bailout package and stabilize the economy.

But it was clear they continued to examine ways to make clear that the government was stepping up not just to help the major financial firms but also to protect the interests of American taxpayers and families by safeguarding their pensions and college savings, and by preventing any further drying up of consumer credit.

In addition to potential stimulus measures, which could include an extension of unemployment benefits and spending on public infrastructure projects, Democrats said they intended to consider measures to help stem home foreclosures and stabilize real estate values.

Among the potential steps Congress can take include approving legislation to allow bankruptcy judges to modify the terms of primary mortgages — authority that the bankruptcy laws do not currently allow and that the banking industry has strenuously opposed.

But the Democrats said it was too soon to discuss such details, and that they were awaiting a draft of the proposal from the Treasury Department.

“We have got to deal with the foreclosure issue,” Mr. Dodd said. “You have got to stop that hemorrhaging..If you don’t, the problem doesn’t go away. Ben Bernanke has said it over and over again. Hank Paulson recognizes it. This problem began with bad lending practices. Those are his words, not mine, and so this plan must address that or I’ll be back here in front of a bank of microphones at some point explaining the next failure.”

Even before the drafting of the plan was complete, the Bush administration and the Fed began efforts to sell the idea of a huge rescue to potentially skeptical rank-and-file members of Congress. Mr. Paulson and Mr. Bernanke held a conference call with House Republicans to explain their thinking.

Senator Richard C. Shelby of Alabama, the senior Republican on the Senate banking committee, said in a television interview that cost to the government of purchasing bad debt could run to $1 trillion — a potential warning sign since Mr. Shelby is a longtime skeptic of government intervention in the private market.

Until Mr. Shelby was interviewed on Friday morning, officials on Capitol Hill had been careful not to discuss specific figures, though the rescue envisioned by the Treasury Department clearly entails a government appropriation of hundreds of billions of dollars.

 

9 Comments – Post Your Own

#1) On September 19, 2008 at 5:00 PM, jlynch135 (< 20) wrote:

About half way down the article - " and that they were prepared to put politics aside to address the needs of the American people."

Isn't addressing the needs of the American people in their job description? Such a self-servig group preoccupied with their own agendas that they rarley get anything done - and now caught asleep at the wheel. Regular Joes get fired for less.

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#2) On September 19, 2008 at 5:00 PM, motleyanimal (93.71) wrote:

After reading this article this is all I could think of.

http://www.youtube.com/watch?v=ZWphqA1Slrw

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#3) On September 19, 2008 at 5:01 PM, rd80 (98.69) wrote:

Guess FNM and FRE didn't include any warnings with all the checks they sent to Dodd, Schumer and company over the years.

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#4) On September 19, 2008 at 5:03 PM, jlynch135 (< 20) wrote:

About half way down the article - " and that they were prepared to put politics aside to address the needs of the American people."

Isn't addressing the needs of the American people in their job description? Such a self-servig group preoccupied with their own agendas that they rarley get anything done - and now caught asleep at the wheel. Regular Joes get fired for less.

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#5) On September 19, 2008 at 5:33 PM, jahbu (89.10) wrote:

Problem reaction solution

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#6) On September 19, 2008 at 6:31 PM, XMFSinchiruna (27.97) wrote:

John Bogle Says U.S. Government Seems `Punch Drunk' (Update3)

By Nick Baker

Sept. 19 (Bloomberg) -- John Bogle, who created the $106 billion Vanguard 500 Index Fund in 1976, said the U.S. government appears ``punch drunk'' given its proposals to rescue the financial system.

``We're playing a game of casino capitalism, interfering with the way the market is working,'' Bogle, 79, said in a telephone interview today from Valley Forge, Pennsylvania. ``The government seems punch drunk. It doesn't seem systematic.''

Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke proposed removing troubled assets from banks' balance sheets last night, while the Securities and Exchange Commission temporarily banned short sales of financial firms. The plans followed the government takeover this week of American International Group Inc., the biggest U.S. insurer, and its bailout of Fannie Mae and Freddie Mac, the largest mortgage financiers, two weeks ago.

The Standard & Poor's 500 Index rallied 4 percent today after yesterday's 4.3 percent rebound from the lowest level in three years. The gains helped send the MSCI World Index of shares in 23 developed nations to the steepest two-day surge since records begin in 1970.

``I'm obviously in the minority,'' Bogle said.

Byron Wien, the 75-year-old chief investment strategist at hedge fund Pequot Capital Management Inc., said policy makers are taking the correct approach.

Wien Disagrees

``The most important thing that Henry Paulson and the federal government could do is to keep the economy from slipping into a deep recession,'' Wien, formerly an investment strategist at New York-based Morgan Stanley, said during a Bloomberg Television interview from Paris. ``The next up is to restore stability in the financial markets.''

The U.S. stock market gained or lost more than $500 billion in value on four of the past five days, according to data compiled by Bloomberg.

``Believe me, the value of American business doesn't change that much in a day,'' said Bogle, named one of the industry's four ``Giants of the 20th Century'' by Fortune magazine in 1999.

Bogle, who retired from Vanguard Group Inc. in 1999, said he hasn't changed his personal asset-allocation target -- 35 percent in stocks and 65 percent in bonds -- since 2000. Because of price fluctuations, he currently has about 30 percent in stocks and 70 percent in bonds.

The S&P 500 jumped 6.7 percent from the low to its high yesterday, the biggest intraday swing since July 2002, according to Bloomberg data.

``We're in the most speculative market I've seen,'' said Bogle, who was born five months before the stock-market crash of 1929. ``We seem to be in the depths of despair one moment, and the heights of optimism the next.''

To contact the reporter on this story: Nick Baker in New York at nbaker7@bloomberg.net.

Last Updated: September 19, 2008 16:33 EDT

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#7) On September 19, 2008 at 7:07 PM, goldminingXpert (29.77) wrote:

Welcome back to the positive side of the 50 rating. Today's action is so ridiculous that who knows... maybe gold can get back over $940/oz. If it does, I may have to take a position bigger than just my JAG/NXG shares... if we close over $940, I'll go long in hopes of a breakout over the top. I assumed at least one member of the Bush admin knew of what happened in Weimar Germany, but apparently they really are dumber than rocks. Don't accuse me of flip-flopping... my opinion changes as facts change... I underestimated the abject stupidity of the government

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#8) On September 19, 2008 at 7:08 PM, goldminingXpert (29.77) wrote:

Welcome back to the positive side of the 50 rating. Today's action is so ridiculous that who knows... maybe gold can get back over $940/oz. If it does, I may have to take a position bigger than just my JAG/NXG shares... if we close over $940, I'll go long in hopes of a breakout over the top. I assumed at least one member of the Bush admin knew of what happened in Weimar Germany, but apparently they really are dumber than rocks. Don't accuse me of flip-flopping... my opinion changes as facts change... I underestimated the abject stupidity of the government

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#9) On September 22, 2008 at 7:44 AM, XMFSinchiruna (27.97) wrote:

goldminingXpert

hmmm... we'll see if you get off that easy.  :)  I can't keep up with where you stand on gold... For the record, it WAS just Thursday that you called for $600 gold. Yes, the bailout is huge news that will further bolster the gold price once the consequences of such an action are seen for what they will be, but that single bit of news did not suddenly make gold go from overvalued to undervalued.Gold is so obscenely undervalued at this stage already, and valid comparisons to the pre-conditions of the Weimar Republic have existed for many months already.

If you come back aboard again over $940, will you then reverse course again at $1,050 and go short? If so, don't even bother telling me about your reversals of opinion, because trading those short-term ranges has no interest whatsoever for me. This is about long-term asset protection in an economy set for a serious bout of deleveraging (which is very different from deflation!). The idea is to hold gold until the disconnect between the dollar's real value as prescribed by the actions of the gov't and the Fed, and the persent market value per the USDX begin to converge. Gold will have passed through $1,650 and more than likely well beyond $2,000 per ounce by the time we reach that point, so I am perfectly content to stand pat with the investments I have made accordingly until that time comes.

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