Q: Why Did Bush/Paulson Wait Until Now To Approach Congress With $700Bil Bailout Request?

[Blackhatjack]

Paulson did not wake up one morning and say 'things sure got bad since I went to bed last night, I gotta go to the top Congressional Leaders today and tell 'em we are going to need $700bil for Wall Street, and we're gonna need it right now with no haggling, no oversight, and no review by the courts.

Is it not reasonable to suspect that the 'urgency' aspect of the request was manufactured, or at the least allowed to happen, so that Congress could be bullied into handing over the cash with no strings attached?

[DJ13]

1. I've heard he had been working on this "plan" for 5 weeks

If thats true (and I dont know for sure) then this certainly is NOT the immediate crisis he's claiming.

[Blackhatjack]

3. 5 weeks??? I'd say it is no crisis at all if Paulson waited 5 weeks to bring it to Congress...

I don't trust Paulson here at all ... certainly not with unfettered access to $700bil to spend as he chooses.

[MissWaverly]

2. and no oversight and no one can ever question his decision

even in the courts, it sounds fishy to me. Public funds are just that public, if corporations have to make information public then so should the Sec. for the Treasury. Who do they think they are? I like DK's assessment:
cash for trash.

[gopbuster]

4. market capitalizations were getting decimated as their stocks

were being shorted into oblivion and as their shadow market losses were coming to light? It could no longer be hidden and was dragging down the rest of the market with it. Also was freezing up liquidity
in the credit markets.

My guess is another few days or a week of selling and the financial stocks would have been destroyed in the stock market which effects these companies valuations and the rest of the general stock market companies as well.

But I agree, they tried to use the crisis opportunity to usurp more power.

They still have a ways to go for the uncertainty to work its way out of the stock market itself.

[karynnj]

5. Because making it a rus makes it likely they can push

Congress to agree to something that they would likely change with more time - just like the IWR and the torture bill before 2002 and 2006 respectively

[curious one]

6. Oct. surprise came early.

[scheming daemons]

7. In order to pass, they need the electorate scared to death..... mission accomplished

They've got me petrified.

[ProgressiveEconomist]

8. IMO, Bernanke must have panicked because the Fed CLEARLY was losing control over the Federal

Funds overnight interest rate last week.

Someone should ask Senator Dodd AGAIN to explain just what convinced him last week there was a severe sudden financial crisis. We have to guess because when someone did yesterday (I believe it was on either MTP or FTN), he just mumbled something about confidentiality. I'm surprised that has been allowd to stand.

However, I don't think it would be the end of the world if the Fed DID lose a little control of the financial system for a period of time. And I believe there are much better short-term alternative actions than a two-year $700 billion no-strings blank check for all financial institutions, healthy and unhealthy alike.

Imagine you are trying to drive your car down a stright-line road. Suddenly, your steering wheel loses its responsiveness, and you find yourself making 360-degree turns of your steering wheel every few seconds, just to stay on the pavement. That's what appeared to happen to Bernanke last Monday and Tuesday.

IMO, Bernanke panicked because he wanted to continue playing the game Fed Chairmen have been playing since before World War II, and his stash of chips was running out at the rate of 12 percent a day last week.

For many decades, the Fed has focused on daily Open Market Operations to keep overnight loans between banks at its target rate (currently 2 percent). It buys bonds from banks to lower rates, and sells bonds to banks to raise it. Before last Tuesday, open market operations seldom reached $15 million a day.

On Monday-Tuesday, Sept 15th-16th, the Fed pumped $120 billion of its $900 billion in unborrowed reserves into open market operations, and still did not hit its upside target (see the table at http://www.newyorkfed.org/markets/omo/dmm/fedfundsdata.cfm ).

IMO, we do have a real crisis, and the Fed well may lose substantial control over interest rates for a period of time. But I think there are much less costly strong steps that could be taken instead of the blank check for $700B the WH insists be offered to financial institutions, healthy and unhealthy alike.

My alternative interim proposal would be (1) to follow Obama's principles and (2) put so many restrictions on companies that would sell illiquid assets to the Treasury that only the sickest of institutions would step up to sell.

[nolabels]

9. Could end up like "the boy who cried wolf" but only in reverse

So instead of that proverbial wolf coming everybody might just get up and spank the boy blue for telling all those lies