Bailout Plan Fails to Lift Stocks- APWall Street fell Monday as investors nervously awaited further news about the government's plan to buy $700 billion in banks' mortgage debt. The Dow Jones industrials were down more than 200 points while the credit markets remained nervous, but not showing the signs of panic that Treasury trading saw last week.

• Goldman, Morgan Change Status to Bank Holding Cos.- AP
• Morgan Stanley to sell 20 pct stake in itself to MUFG- AP
• Microsoft to buy back $40 billion of stock- AP
• World stocks mixed on proposed US bailout- AP
• Unrest has investors questioning risk fundamentals- AP
• Oil nears $107 as investors weigh US bank bailout- AP
• Hewlett-Packard board OKs $8B stock buyback- AP
• Nike announces $5 billion buyback program- AP
• Wall Street R.I.P.- Tech Ticker

Playing Depression-Era Monopoly - Lawrence Lindsey, Weekly Standard
We've Shunned Free-Market Capitalism - Irwin Stelzer, New Republic
Bank Rescue a Political, Bureaucratic Nightmare - John Berry, Bloomberg
The Race to Rescue Wall Street - T. Francis & J. Sasseen, Business Week
Short Sellers Keep Markets Honest - James Chanos, Wall Street Journal
During Crisis, U.S. Still Dominates - Rosemary Righter , Times of London
U.S. Gov't Default No Longer Unthinkable - Liam Halligan, Daily Telegraph
The Shadow Banking System Is Unraveling - Nouriel Roubini, FT
California's Hedge Fund King Supports Higher Taxes - Lashinsky, Fortune
Higher Taxes Would Bring Recession - Louis Woodhill, RealClearMarkets
$700B Plan Should Be Called 'Cash for Trash' - Paul Krugman, NY Times
Rough Week, But America's Era Goes On - Niall Ferguson, Washington Post

Looks like, at midday, NY found something to hang on.

"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."



WARNING


This doesn't limit the bailout to a total of $700 billion.

It limits payments for the bailout to $700 billion PER DAY.

And at the end of the day ...






Won't get fooled again!

The trainwreck is still coming... we are just watching the slow-mo now...

Congress, Bush team OK bailout terms; Stocks sink

By JULIE HIRSCHFELD DAVIS, Associated Press Writer 22 minutes ago

Scrambling for a quick accord on the $700 billion bailout, the Bush administration and leading lawmakers have agreed to include mortgage aid and strong congressional oversight along with unprecedented help for failing financial institutions, a key lawmaker said Monday.

Unimpressed, investors sent stocks plummeting anew, pushed oil up $16 a barrel and propelled gold prices ever higher as they searched for a safe place to park their money.

President Bush prodded Congress to pass the administration's rescue plan quickly, declaring, "The whole world is watching." And there did seem to be movement in talks between the White House and Capitol Hill.

Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, said "a great deal of progress has already been made." And a government official with knowledge of the talks said the administration had agreed to create a plan to help prevent foreclosures on mortgages it acquires as part of the bailout — a key demand of Democratic lawmakers.

Under other additions the Democrats are asking to the administration package, according to a draft of the plan obtained by The Associated Press:

• Judges could rewrite mortgages to lower bankrupt homeowners' monthly payments.

• Companies that unloaded their bad assets on the government in the massive rescue would have to limit their executives' pay packages and agree to revoke any bonuses awarded based on bogus claims.

The proposal by Sen. Chris Dodd, D-Conn., the Banking Committee chairman, would give the government broad power to buy up virtually any kind of bad asset — including credit card debt or car loans — from any financial institution in the U.S. or abroad in order to stabilize markets.

But it would end the program at the end of next year, instead of creating the two-year initiative that the Bush administration has sought. And it would add layers of oversight, including an emergency board to keep an eye on the program with two congressional appointees, and a special inspector general appointed by the president.

The plan also would require that the government get shares in the troubled companies helped by the rescue.

Wall Street didn't seem comforted. The Dow Jones industrials were down nearly 400 points near the end of the trading day.

Investors were uncertain just how successful the administration's plan will be in unfreezing credit markets, which many businesses depend on to fund day-to-day operations, and for propping up the still-weak housing market.

Congressional aides said the House could act on a bailout bill as early as Wednesday.

Bush said, "Obviously, there will be differences over some details, and we will have to work through them. That is an understandable part of the policy making process." But he also said, "It would not be understandable if members of Congress sought to use this emergency legislation to pass unrelated provisions, or to insist on provisions that would undermine the effectiveness of the plan."

The proposal that Dodd sent to Treasury Secretary Henry Paulson would let judges modify the mortgages of homeowners in bankruptcy to allow them to keep their homes.

It also would require that the government come up with "a systematic approach for preventing foreclosure" on the mortgages it acquires as part of the bailout. That would include the home loans held by Fannie Mae and Freddie Mac, the troubled mortgage giants now under the control of a government regulator.

Treasury spokeswoman Brookly McLaughlin said, "We are confident that we can get a bill done this week."

The fast-moving negotiations between the administration and Congress unfolded a day after the government approved a request by investment houses Goldman Sachs and Morgan Stanley to change their status to bank holding companies.

That change will allow the two venerable institutions to set up commercial banks that will be able to take deposits, significantly bolstering the resources of both institutions. It will also grant them permanent access to emergency loans supplied by the Fed rather than the temporary loan status they have had since last March when the Fed moved to prop up investment banks following the forced sale of Bear Stearns.

Frank said that lawmakers "are building strong oversight" into the new bailout measure.

"The private sector got us into this mess," he said, "The government has to get us out of it. We do want to do it carefully."

Republican presidential candidate John McCain, speaking Monday on NBC's "Today" show, said, "We are in the most serious crisis since World War II."

I think the initial authorizing request is for $1.5 trillion, with a start of $700 billion.

Following the saying "The market is always right." ...

... it appears quite obvious that $700 billion is not even close to pay out the junk credit banks built up in the last 10 years.

How Congress Intends To Waste $1.8 Trillion

The size of the bailout is growing by leaps and bounds. Inquiring minds are asking A $1.8 Trillion Bailout: Where the Money's Going?

—Up to $700 billion to buy assets from struggling institutions. The plan is aimed at sopping up residential and commercial mortgages from financial institutions but gives Treasury broad latitude.

—Up to $50 billion from the Great Depression-era Exchange Stabilization Fund to guarantee principal in money market mutual funds to provide the same confidence that consumers have in federally insured bank deposits.

—The Fed committed to make unspecified discount window loans to financial institutions to finance the purchase of assets from money market funds to aid redemptions.

—At least $10 billion in Treasury direct purchases of mortgage-backed securities in September. In doubling the program on Friday, the Treasury said it may purchase even more in the months ahead.

—Up to $144 billion in additional MBS purchases by Fannie Mae and Freddie Mac.The Treasury announced they would increase purchases up to the newly expanded investment portfolio limits of $850 billion each. On July 30, the Fannie portfolio stood at $758.1 billion with Freddie's at $798.2 billion.

—$85 billion loan for AIG, which would give the Federal government a 79.9 percent stake and avoid a bankruptcy filing for the embattled insurer. AIG management will be dismissed.

—At least $87 billion in repayments to JPMorgan Chase (JPM) for providing financing to underpin trades with units of bankrupt investment bank Lehman Brothers (LEH).

—$200 billion for Fannie Mae and Freddie Mac. The Treasury will inject up to $100 billion into each institution by purchasing preferred stock to shore up their capital as needed. The deal puts the two housing finance firms under government control.

—$300 billion for the Federal Housing Administration to refinance failing mortgage into new, reduced-principal loans with a federal guarantee, passed as part of a broad housing rescue bill.

—$4 billion in grants to local communities to help them buy and repair homes abandoned due to mortgage foreclosures.

—$29 billion in financing for JPMorgan Chase's government-brokered buyout of Bear Stearns in March. The Fed agreed to take $30 billion in questionable Bear assets as collateral, making JPMorgan liable for the first $1 billion in losses, while agreeing to shoulder any further losses.

—At least $200 billion of currently outstanding loans to banks issued through the Fed's Term Auction Facility, which was recently expanded to allow for longer loans of 84 days alongside the previous 28-day credits.

A quick check of the totals shows that is $1.809 trillion dollars that Congress is hell bent on wasting.

Stay tuned in. Very shortly I will have a complete email and fax list for every senator in the country, including a list used by various software programs that will allow blasting every senator at once with a fax.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Sorry Snuffy, let me correct what I said then ...


Following the saying "The market is always right." ...

... it appears quite obvious that $1.5 trillion is not even close to pay out the junk credit banks built up in the last 10 years.