Wednesday, November 12, 2008
Bailout plan drops purchase of "toxic mortgage assets"; Internet gambling snuffed by fiat
Stock markets reacted negatively Wednesday when outgoing Treasury Henry Paulson announced, at a morning press conference, that none of the TARP (Troubled Asset Relief Program) money would go right now (at least in the first portion) toward purchasing “toxic assets” (securitized bad loans) to retire them. Instead they would go toward purchasing preferred shares of many banks. Paulson says that this will help banks get lending more and reduce job losses. Paulson also wants to look at auto loans, student loans and credit card debts. As of yet, he has not turned much attention to mortgages, although the FDIC itself has.
Nevertheless, investors ran for the covers, with stocks dropping during his speech. The Dow ended the day down over 400 points, getting close to testing the support levels of previous lows. They act as if they feel uneasy by Paulson’s changing plans and making different promises every time he speaks, despite the doomsday scenario when he first proposed a bailout in September as a purchase of the bad mortgages.
There is more talk of some soft of bailout of the auto industry, or perhaps a Chapter 11 bankruptcy and reorganization from which it could emerge and become profitable again. A collapse of the US auto companies, possible even before Obama takes office, could send the economy into prolonged depression.
Debeorah Solomon’s article in the Wall Street Journal is “Bailout’s Next Phase: Consumers,” link here.
CNBC has a detailed analysis of how Paulson's action could lower interest rates for consumers and stimulate the "real economy" here. Curiously, this analysis is not pessimistic the way most investor sentiment seemed to be.
Also: Bush Administration complete snuff of Internet gambling:
Curiously today, the Treasury Department issued rules, to be fully in effect by December 2009, to prevent financial institutions from processing transactions related to Internet gambling, essentially banning it. The WSJ story is by Corey Bowles and Jeff Bater, here.
Banks say that implementing the rules will be a burden when they are under financial stress. Because the rules are vague and relate to state laws, they could affect real world gambling by accident. There are also serious precedential (maybe even constitutional) questions about treating Internet business activity differently from real world activity. In the intellectual property area (as with Internet censorship and COPA) courts have generally not allowed this.
My current domain doaskdotell.com was at one time largely on a domain called hppub.com (for “High Productivity Publishing”) related to my first book. I gave up hppub in the summer of 2005, and a gambling company took it over immediately. Then that domain disappeared. Curiously, I checked it (hppub) today (on WHOIS) and found that it looks like a new webpage for the Electronic Frontier Foundation, for which I was a plaintiff in COPA. This is very interesting; I will check into why. You can find pages from my old hppub.com on the Internet Archive or "Wayback Machine".