http://www.bloomberg.com/…

Treasury Secretary Henry Paulson urged banks receiving $250 billion in capital injections from the government to use the funds to spur economic growth.

“We must restore confidence in our financial system,” Paulson said at a press conference in Washington. “The needs of our economy require that our financial institutions not take this new capital to hoard it, but to deploy it.”

With the equity purchases, Paulson is using more than a third of the $700 billion in government support Congress gave him the authority to use on Oct. 3. He didn’t identify any of the lenders. People familiar with the plan said nine companies will get $125 billion: Citigroup Inc., Goldman Sachs Group Inc., Wells Fargo & Co., JPMorgan Chase & Co., Bank of America Corp., Merrill Lynch & Co., Morgan Stanley, State Street Corp. and Bank of New York Mellon Corp.

Mussolini would be tickled.

Paulson said the Treasury will dedicate $250 billion for boosting bank capital through preferred stock purchases. The regulators said in a statement that “thousands” of financial companies would participate.

Participating banks will need to accept limits on executive pay and so-called golden parachute payments. They also will need to give the Treasury warrants for an amount equal to 15 percent of the senior preferred investment, with a strike price determined by the bank’s share price at the time of issuance.

The senior preferred shares will pay a dividend of 5 percent for the first five years and 9 percent after that, the Treasury said. The purchase price of the stock will be the market price of the banks’ common shares at the time of the transaction. Companies will be able to buy back the equity at par after three years.

The possibility for this to turn out bad is pretty high. Even should the companies buy back their shares and the government get out completely from this setup… the precedent alone is incredibly dangerous. What will this mean for these corporations? How involved will the government get? Now that they are partial owners all previous barriers are gone.

It just gets worse by the day.

The Data Don’t Justify Financial-Market Panic by Robert Higgs

As the hysteria has grown in the discussion of financial markets and related government policies, I have been puzzled by the discrepancy between the best available data and the descriptions quoted in the press – statements by financial gurus, traders, and professors, as well as by government officials. To hear these spokesmen tell the story, you’d think that the world will soon go to hell in a hand basket, if it hasn’t gone there already. Yet every time I look for data to check these claims, I find nothing solid to back them up. …

Consider first the interest rates for commercial paper. For the past several weeks, 30-day nonfinancial paper has been going for about 2 percent; 60-day and 90-day loans in this market have required a slightly greater rate of interest. Financial commercial paper has been going for roughly 3 percent, give or take a few tenths of a point, with little difference among the 30-day, 60-day, and 90-day rates.

Given that the rate of inflation at present is greater than 3 percent, and presumably will remain greater than 3 percent for the next three months, these nominal interest rates on commercial paper imply that lenders are actually giving away money to corporations that sell commercial paper – the nominal rates of interest are less than the expected rate of inflation. Is this situation what one expects to see during a “credit crunch”? Hardly.

Many commentators claim, however, that virtually no transactions are occurring in this market. These claims are completely false. For the week that ended October 1, which is the most recent week currently reported, total commercial paper outstanding amounted to $1,607 billion. Yes, this amount was down from the $1,702 billion reported for the previous week, but is a 5.6 percent drop a good reason to panic? If we go back to March 2008, when nobody was talking excitedly about the commercial market’s “freezing up,” we find that the total amount outstanding, on average, was $1,822 billion, or only 13 percent more than last week. In March, the market was working fine; now it’s “locked up.” This sort of hyperbole, with which we are being bombarded hourly around the clock, is totally without a basis in the facts.

For the year 2006, when the financial markets were, for the most part, still ripping along very nicely, the total amount of commercial paper outstanding, on average, was $1,983 billion; for 2007, it was $1,781 billion. For the past seven months, on average of the monthly data, it was $1,743 billion.

Either someone is deliberately trying to spook us, or these panic-mongers have simply lost their grip on reality. Officials at the Fed and the U.S. Treasury are running around like chickens with their heads cut off. They are dragging the world’s leading central bankers and finance ministers around with them. The news media are raving like lunatics. The big unanswered question is: WHY?

I’ve been suspecting the same. I’d seen numbers here and there that didn’t seem to add up. I’m sure there are components missing to this analysis… but what?

http://www.reuters.com/…

The Federal Deposit Insurance Corporation is seeking temporary unlimited borrowing authority from the Treasury Department, according to a copy of the final Senate bailout legislation on Wednesday.

In the bill, which is expected to be voted on by the Senate later Wednesday, the FDIC is seeking the borrowing authority through the end of 2009.

The FDIC currently insures up to $100,000 per depositor and up to $250,000 per individual retirement account at insured banks.

Really just accounting tricks. The FDIC doesn’t have their own separate fund to draw from anyway so instead of the Congress borrowing they are trying to delegate the borrowing through the FDIC.

firstdraft.pdf

http://money.cnn.com/…

Among the provisions of the draft bill:

• The $700 billion would be disbursed in stages, with $250 billion made available immediately for the Treasury’s use.

• Curbs will be placed on the compensation of executives at companies that sell mortgage assets to Treasury. Among them, the bill would limit golden parachutes to executives at companies that participate; they will not be able to deduct the salary they pay to executives above $500,000.

• An oversight board will be created. The board will include the Federal Reserve chairman, the Securities and Exchange Commission chairman, the Federal Home Finance Agency director and the Housing and Urban Development secretary.

• Treasury is allowed the option to take ownership stakes in participating companies under certain circumstances.

• Treasury may establish an insurance program - with risk-based premiums paid by the industry - to guarantee companies’ troubled assets, including mortgage-backed securities, purchased before March 18, 2008.

I’m going to look through it tonight. See what they have snuck in. Some at DailyPaul.com have taken chunks of the bill to scan it quicker.

UPDATE from LewRockwell.com/blog:

New debt limit: $11,315,000,000,000.

That’s $38,000 per capita.

Update: Michael Hall writes:

Section 128 changes effective date from Oct 1 2011 to Oct 1 2008 for this section of current law:

SEC. 202. INCREASED FLEXIBILITY FOR THE FEDERAL RESERVE BOARD TO ESTABLISH RESERVE REQUIREMENTS.
Section 19(b)(2)(A) of the Federal Reserve Act (12 U.S.C. 461(b)(2)(A)) is amended–
(1) in clause (i), by striking `the ratio of 3 per centum’ and inserting `a ratio of not greater than 3 percent (and which may be zero)’; and

(2) in clause (ii), by striking `and not less than 8 per centum,’ and inserting `(and which may be zero),’.

TITLE 12 > CHAPTER 3 > SUBCHAPTER XIV > § 461
Amendment of Subsections (b) and (c)
Pub. L. 109–351, title II, §§ 201–203, Oct. 13, 2006, §§ 201–203, 120 Stat. 1968, provided that, effective Oct. 1, 2011, this section is amended— (1) in subsection (b)(2)(A), by striking “the ratio of 3 per centum” and inserting “a ratio of not greater than 3 percent (and which may be zero)” in clause (i) and by striking “and not less than 8 per centum,” and inserting “(and which may be zero),” in clause (ii); (2) in subsection (b)

This will allow banks to hold zero reserves if the fed says so.

Short sales are prohibited. JPM issues $10b in stock during that blackout. The stock price did not become diluted but on Friday rose 11% even with a threat of Q3 loss. Those who may want to short, can’t. They pick up WaMu assets dirt cheap due to the fed seizing things and claiming them effectively worthless and not allowing the market deal with their bankruptcy. Obviously that’s after the fact they’ve done this with other failed companies. Given that JPM is a partial owner of the Federal Reserve, their size, connections, and history of the Federal it’s unsurprising that Bernanke, Paulson and friends show favoritism toward them.

While I disagree with some of what he proposes I think generally he’s pointing out important aspects which need to be looked at in the least.

http://www.bloomberg.com/…

U.S. presidential candidates John McCain and Barack Obama each deserve credit for a breakthrough in talks on a $700 billion plan to revive the credit markets, their advisers said today.

Republican McCain worked with party members in the House to achieve plan changes such as government insurance of mortgage- backed securities and a phase-in of federal aid, Senator Lindsey Graham said on the “Fox News Sunday” television program.

“The fact is the House Republicans were not in the mix at all” until McCain arrived at the talks, said Graham, a South Carolina Republican. McCain “was decisive in regards to the House being involved.”

Senator John Kerry, an Obama adviser, disagreed. McCain said “he was going to interrupt his campaign to come down and save the negotiations,” according to the Massachusetts Democrat. “What he did was interrupt the negotiations to come down and save his campaign.”

Senate Banking Committee Chairman Christopher Dodd said in a CNN interview today that McCain’s trip was “a political stunt” that “delayed and slowed down this process.”

Obama was supportive of negotiations in a “mild” and constructive” way by calling in over eight or nine days of talks, said Dodd, a Connecticut Democrat.

If they want to take credit I’m happy to give it to them. When the depression comes I just hope whichever clown is in office will take the blaim.