The Fighting 29th

All about New York's 29th Congressional District

Randy Kuhl has posted an alternative bailout plan. It's hardly a serious alternative. Here are some quotes and a few thoughts:

Require the Treasury Department to guarantee losses up to 100%, resulting from the failure of timely payment and interest from mortgage-backed securities (MBS) originated prior to the date of enactment. [...] Direct the Treasury Department to assess a premium on outstanding MBS to finance this insurance.

In 2006, the Mortgage-Backed Security market was $6.1 trillion. Let's assume that we're looking at $8 trillion today. Earlier this year, Merrill-Lynch sold some lower-grade MBS at 22 cents to the dollar. Let's assume, charitably, that 25% of entire MBS pool is bad debt. We need an insurance pool capable of taking a loss of $2 trillion. How are banks that are already broke going to pay those kind of premiums?

Immediately suspend the capital gains rate from 15% for individuals and 35% for corporations. By encouraging corporations to sell unwanted assets, this provision would unleash funds and materials with which to create jobs and grow the economy.

The "unwanted assets" that the banks would be selling aren't worth what the banks paid for them. So, there won't be any capital gains on those assets. Even if the banks sell both MBS and "good" assets, the losses from the MBS will offset the gains from the "good" assets.

Suspend “Mark to Market” Accounting: Direct the SEC to suspend the mark-to-market regulatory rules until the agency can issue new guidelines that will allow firms to mark these assets to their true economic value. The current rules contribute to a downward spiral as firms have to evaluate their assets not on the basis of their long-term investment but rather on a short-term mania.

"Mark to Market" is simply reality-based accounting. If banks are allowed to value securities at any price they think is reasonable, they'll have a major incentive to keep those assets on their books at inflated values, guaranteeing that there will be no market in them for the indefinite future. And there's no evidence that "Mark to Market" is causing a downward spiral, as Forbes notes in its story about the Merrill-Lynch sale earlier this year:

"I have previously argued that mark-to-market losses exaggerate the severity of the credit crisis," wrote investment strategist Ed Yardeni in his e-mail newsletter Tuesday. "Then again, Merrill Lynch converted its mark-to-market losses into permanent ones.... This is bad news for other investment banks and commercial banks trying to get rid of loans and securities in a market flooded with distressed assets."

The plan that failed today had many faults, but at least it was an attempt to inject some liquidity into the market. Kuhl's plan expects banks to conjure up capital from thin air, sell worthless assets at a profit, and pretend that the rest of those assets are worth far more than their real value. It's a fairy tale solution to a real world problem.

Reader Elmer sends today's Corning Leader opinion page [pdf] (and jump [pdf]), where Joe Dunning analyzes Kuhl's reluctance to debate in a public forum. He concludes that Kuhl's "accessibility has diminished" over the past two years. The whole column is worth a read.

The Messenger-Post has a long piece on the bailout. It sees local concern about Wall Street, especially among those with 401(k)s, but sees no concern in the real-estate market. It quotes Kuhl's opposition to the Paulson plan.

The Democrat and Chronicle's editorial on the bailout castigates the local Republican delegation as follows:

Moreover, most of the House Republican minority, which includes area Reps. Randy Kuhl, Tom Reynolds and Jim Walsh, say they are being led by a desire to stop a $700 billion bailout. But what they are really doing is representing the views of the same Wall Street fast-money types who created this crisis. They want government support without any strings — no restrictions on CEO pay, no taxpayer stake, no congressional oversight.

In Kuhl's case, that's just factually wrong. Kuhl has said the opposite, " I will OPPOSE the Bush Administration’s proposal if it does not include provisions to protect the taxpayer." A simple fact-check on Kuhl's latest press release takes a couple of seconds. There's no excuse for that kind of sloppiness.

Since the details of the bailout bill are not yet finalized, we don't know Randy Kuhl's position on the bailout plan. After reading his statement yesterday, which emphasized taxpayer protection and no golden parachutes, I concluded that Kuhl might well support the final bailout bill.

Today's Buffalo News story on the bailout reaches this conclusion:

In saying private companies will have to carry the financial burden of any bailout, Kuhl sided with the renegade Republicans who refused to agree with the tentative compromise leaders of both parties agreed to Thursday.

I don't think that's true. From what I've read, there are three groups of thought on this.

First, Paulson, whose plan didn't include taxpayer equity or pay caps. His plan is DOA.

The second group is a small number of Democrats and a large number of Republicans who just think the whole thing stinks. The Republicans have put out some talking points, which, as this article explains really don't make a lot of sense.

The third, and largest, group is the compromisers in both parties, who see the importance of the bailout but want to couple it with taxpayer equity in return, some form of pay caps, and tight oversight. These people are laboring to get something that's strict enough to include the nay-sayers, while still giving Paulson what he says he needs.

My guess is that Kuhl will end up in this group. I don't think he's a dead-ender. He's not a member of the Republican Study Committee, which is the 100 or so most conservative House members who have been most steadfast in their opposition to the bailout.

The Massa campaign has provided a response to Randy Kuhl's ad. They point out that Kuhl actually voted for the bill he criticizes Massa for supporting.

Only someone who's been asleep for the past few days would believe that taxes aren't going up. The question isn't whether we'll pay, but who will pay. At some point these ads will become completely ineffective. I don't know if we've reached that point, but we have to be closer than 2006.

Randy Kuhl has posted his position on the bailout. He opposes a bailout proposal "if it does not include provisions to protect the taxpayer", and if it contains golden parachutes for Wall Street executives.

Every discussion about the consensus bailout plan has included some form of taxpayer protection (such as an equity in exchange for a bailout) and has limits on executive compensation. Kuhl says he's confident that there will be a "bipartisan, bicameral" solution, so I think the signal he's sending is that he's not a GOP minority dead-ender.

I usually don't reprint letters to the Editor. I think they're basically background noise. I also think that they're mostly written by partisans and interested parties.

Here's a a prime example in today's Messenger-Post. It's from a woman who claims to have had her and her neighbor's Kuhl lawn sign stolen. That may or may not be true, but she also got a paycheck from Randy Kuhl last month and has been a fundraising consultant for Kuhl for at least a year.

The difference between a letter to the Editor and an Internet comment is the editing process that supposedly goes into picking those letters. Out of a massive stream of mail, the paper picks a half-dozen letters to print. I think this means that newspapers ought to exercise a bit of due diligence, especially around campaign time.

(Thanks to a reader who wishes to remain anonymous for the tip. For fairness sake, I'll break my LTE rule for anyone who can find a Massa LTE from someone on his payroll around the time the letter was written.)

With the announcement of the WHAM debate, it appears that the sticking point for the Kuhl campaign is having a debate audience. Both the WHAM and R-News debates are in-studio debates. TV studios in this area are too small for crowds.

The Kuhl campaign's negotiations with WETM and the Corning Leader broke down over the number of people allowed in the audience. According to WETM, Kuhl wanted a fixed allocation of seating for each candidate, with no "general public" seating. His stated fear was that Massa would "bus in" more supporters to fill the remaining seats.

In 2006, the Leader and WETM sponsored a similar debate, and it went off without a hitch. Why Kuhl would think that these two well-respected news organizations couldn't control the debate in 2008 is beyond my ken. By essentially canceling his town hall meetings, and then avoiding any debate with an audience, Kuhl leaves the impression that a few hecklers cause him to go into hiding.

Kuhl supporters have been commenting on this blog about the unruly nature of two other 2006 debates. That spin is just not supported by the facts. The 2006 Rotary and League of Women Voters debates were relatively calm events, and nothing happened there that shouldn't be expected in a healthy democracy.

Also, those events were far more placid than some floor debates in the House. If Kuhl can't handle the minor irritation of a few excited Massa supporters, is he the guy Republicans want to take on Nancy Pelosi?

As for the politics of disrespecting the best newspaper in the district, the Corning Leader, I agree with this observation made by Exile at The Albany Project:

Losing the Leader's endorsement would be a major blow for Kuhl and I don't see how any paper could endorse a candidate who thumbs his nose at the paper's debate.

Reader Vincent sends the text [pdf] of the Senate version of the bailout. Senator Chris Dodd is the chairman of the Finance Committee, where this bill originated.

The media seems to be focusing on the Democrats' demands for executive pay limits, but the real news as far as I can tell is that the Dodd bill requires banks to provide "contingent shares" in return for the Treasury buying their mortgage-backed securities. Those contingent shares are activated if the Treasury sells the securities acquired at a loss.

In other words, taxpayers get something for their money. That's huge.

The proposed bailout does a simple thing: it authorizes the Secretary of the Treasury to buy $700 billion worth of mortgage-backed securities at a price he sets. The bill is being peddled as the only solution for a crisis that may bring down our financial system.

I agree that the crisis may bring down our financial system. I think we all need to be skeptical about the idea that this is the only fix.

Read the whole thing, but don't miss these highlights:

Sec. 6. Maximum Amount of Authorized Purchases.

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

Sec. 8. Review.

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

This act makes Hank Paulson the $700 billion King of Wall Street.