Credit Union Times - October 1, 2008 - (Page 35) NEWS PAULSON: Secretary’s Bailout Plan Slams Into a Congressional Speed Bump (Continued from page 1) of relief and resignation that something had to be done ruled the day. Paulson allowed Lehman to collapse into bankruptcy, and free-market thinkers applauded, while others considered it just desserts for an arrogant, clueless CEO. Then on Sept. 16 came the unprecedented nationalization of American International Group. The Federal Reserve spent $85 billion to gain an 80% stake in the giant, teetering insurer. And the next day the markets swooned. The Dow Jones Industrial Average plunged 449 points. Fear, approaching terror, gripped other markets. Some investors sought shelter by buying gold. And a rampage of investors ran, as if their hair were on fire, to Treasuries. The herd drove down the yield on three-month bills to five basis points above zero. A Financial Times headline called it “The End of American Capitalism,” and even that seemed like an understatement. The credit market froze that day, and, as banks refused even to lend to one another, the market came perilously close to total collapse. Meanwhile, the muted calls for less one-off actions by government officials and more aggressive and “comprehensive” solutions began to take center stage. House Financial Services Committee Chairman Barney Frank lashed out. “It was kind of odd to have this unelected official, the chairman of the Federal Reserve, sort of going around deciding when he would extend the loan and when he wouldn’t with the Secretary of the Treasury cheering him on,” he said in an interview with C-SPAN on Sept. 19. He called Fed Chairman Ben Bernanke “the Lone Ranger,” but pulled back from completing the analogy by referring to “his faithful companion Paulson” rather than Tonto. Later Frank said he would hold hearings on the formation of a Resolution Trust-type funding agency that could buy up the toxic securities that lard the books of the nation’s financial institutions. Paulson saw the writing on the wall and that same day said he might back the creation of a new Resolution Trust Corp. In addition, he, Bernanke and Securities and Exchange Commission Chairman Christopher Cox trekked to Capitol Hill to discuss a range of measures and possible legislation. So, the trial balloon was successfully launched and the stock and capital markets stepped back from the abyss. Having bought himself and the markets some time, Paulson and his team spent the next two days transforming a nebulous proposal into a sketchy, three-page plan. In the process word leaked out that the Treasury secretary would seek authority to spend $150 billion on busted securities. Later, the price tag grew to $300 billion and would only bail Union banks. Still 9/10/08 3:41 PM to $700 ReD-141:Credit out U.S. Times 10/1 later, the price jumped Page 1 billion and could include the near-worthless bonds and instruments held by the U.S. units of foreign banks. No one from the Treasury or the Federal Reserve could be enticed to use the T-word (trillion). Surely, Paulson believes in his savvy political skills. No one rises to be chief of Goldman Sachs without being a player. Now it was time for Paulson to show his political chops. Just in time for the Sunday morning talk fests, Paulson was ready, willing and able to hawk his plan. (Continued on next page) We see things in card numbers you can’t. For over 20 years Retail Decisions (ReD) has processed card not present transactions for some of the world’s largest retailers. Our systems currently monitor in excess of 14 billion card transactions annually, saving our clients an estimated $1.2 billion in fraudulent purchases. For information on how Retail Decisions can protect your business, call 732-452-2440 or visit us at www.redplc.com. MAKING PAYMENTS SIMPLE & SECURE cutimes.com Credit Union Times, October 1, 2008 35 http://www.redplc.com http://www.redplc.com http://www.cutimes.com
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