Friday, September 26, 2008

Blowing Up the Bailout Deal

Another day, another bank goes under. The New York Times has the story:
Washington Mutual, with $307 billion in assets, is by far the biggest bank failure in history...
What's remarkable is that this isn't the biggest story of the day. The big story of course is the collapse of the bailout negotiations. Congressional leaders, along with John McCain and Barack Obama, were invited to sit down with George Bush, hopefully to arrive at an agreement. The session was intended to showcase John McCain as coming to town to seal the deal, but instead he sat silent as GOP dissidents blew the whole thing up.
The New York Times reports that
Paulson was literally on his knees:
In the Roosevelt Room after the session, the Treasury secretary, Henry M. Paulson Jr., literally bent down on one knee as he pleaded with Nancy Pelosi, the House Speaker, not to "blow it up" by withdrawing her party’s support for the package over what Ms. Pelosi derided as a Republican betrayal.
"I didn’t know you were Catholic," Ms. Pelosi said, a wry reference to Mr. Paulson’s kneeling, according to someone who observed the exchange. She went on: "It’s not me blowing this up, it’s the Republicans."
Mr. Paulson sighed. "I know. I know."
McCain had said he would skip tonight's debate to help deal with the crisis. Instead, McCain arrived in Washington in time to see the whole thing fall apart. The Washington Post reports that he hardly fit the role of an effective, hands-on leader:
For much of yesterday, McCain shuttled between meetings and his Senate office, but rarely came close to the Capitol suites and committee rooms where the talks were taking place. He had returned to his Crystal City condominium by 6 p.m., where aides said he continued to work the phones in support of the deal.
Boehner and McCain discussed the bailout plan, but Republican leadership aides described the conversation as somewhat surreal. Neither man was familiar with the details of the proposal being pressed by House conservatives, and up to the moment they departed for the White House yesterday afternoon, neither had seen any description beyond news
In other words, McCain was working on behalf of a deal he didn't understand, until he was confronted with the reality that he didn't have the support of many of his House colleagues. As the Times notes, things did not turn out as they planned:
It was the very outcome the White House had said it intended to avoid, with partisan presidential politics appearing to trample what had been exceedingly delicate Congressional negotiations.
Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the Senate banking committee, denounced the session as "a rescue plan for John McCain," and proclaimed it a waste of precious hours that could have been spent negotiating.
Many suspected that McCain's stunt of suspending his campaign was meant to divert attention from his slide in the polls. Given his inauspicious foray into the banking negotiations, maybe he should get back on the trail.


Anonymous Anonymous said...

You quote the NY Times on their 307 billion in assets, which I took as true and used in one of my posts..

Yet on the next day, right here in Delaware, WaMu filed bankruptcy listing app. 33 billion in assets, and app. 8 billion in debts...

I can find no mention of the missing 274 billion. Any ideas? It's price tag was only 1.9 Billion... What a bargain.

12:09 AM, September 29, 2008  
Blogger Tom Noyes said...

The $307 billion is total assets, not net assets, at the end of the last quarter.

I don't know how $307 billion became $33 billion, though I can guess. After a prolonged bank run, quite a bit of money fled out the door. There was a mismatch between current and long term assets and liabilities ($241 billion in current liabilities compared to only $19 billion in current assets).

Also, some of those funky swaps and derivatives have lost value, particularly as counter-parties either called them in or were forced to liquidate their positions. Extreme leverage can take a bank down awfully fast.

9:04 AM, September 29, 2008  

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