This opinion piece in Bloomberg is worth repeating in its entirety. Kudos to Jonathan Weil for calling a spade a spade. The bailout is hyper-inflationary ‘my friends.’ Out of dollars and into gold. I am buying CEF, SKF, SRS and EEV. I don’t think enough people understand the relevance and magnitude of what is going on. Alarmist? Nah, we are basically screwed.
“Maybe Congress isn’t so dumb after all.
The fatal flaw in Treasury Secretary Hank Paulson’s $700 billion bailout plan was that it wouldn’t fix the problem: Too many important financial institutions don’t have enough capital.
If the government wants to save dying banks before they take others down with them, it should choose the clean and direct path: Inject capital into them. Take ownership stakes in return. And, where that’s not feasible, seize them and sell their assets in an orderly way, just as the Resolution Trust Corp. did after the 1980s savings-and-loan crisis.
Only after a company’s shareholders and debt holders have been flattened should taxpayers take a hit. And for a $700 billion investment, U.S. taxpayers should get a lot more in return than a gargantuan pile of toxic waste.
For that much money, at yesterday’s prices, the government could buy 23 of the 24 banks in the KBW Bank Index, including Bank of America Corp. and Wells Fargo & Co. And it still would have money left to buy a stake in JPMorgan Chase & Co., the largest company in the index.
Infusing capital directly, though, was too simple for Paulson. It lacked subterfuge. He decided the way to save the financial system from the evils of structured finance was through more structured finance.
Instead of asking Congress to let Treasury recapitalize needy banks, he proposed buying some of their troubled assets at above-market prices. This would have let other banks create phony capital by writing up the values of similar assets on their own balance sheets, using Treasury’s prices as their guide.
Small Wonder
In short, Paulson’s plan was one part robbery (with the banks doing the robbing) and one part accounting sleight of hand. No wonder House members rejected it.
If Paulson or congressional leaders devise a Plan B, they should look to the example of Fortis, Belgium’s biggest financial-services company. This week, the governments of Belgium, the Netherlands and Luxembourg invested 11.2 billion euros ($16.3 billion) in Fortis. In exchange, they got ownership of almost half its banking business.
That’s how a government intervention is supposed to work. The company gets fresh capital, which has the added benefit of not being fake. The buyers get equity. Legacy shareholders get slammed with dilution. And if the company recovers, the government can sell shares to the public later, maybe even at a profit.
Such simplicity might feel unnatural to someone like Paulson, who used to run Goldman Sachs Group Inc., or a congressman such as Barney Frank who depends on campaign checks from bankers like an infant needs mother’s milk. And lots of taxpayers might object anyway, because it still would involve sending big checks to banks.
Gaining Understanding
At least voters could understand a plan in the European mold, which might lead them to be more forgiving about any unpleasant details. That’s better than trying to scare the public into supporting a bailout that doesn’t make sense.
As for the illiquid assets still on banks’ balance sheets, the best way to find out what they’re worth is to start disclosing every conceivable piece of data about them, right down to the daily cash flows they produce. A big reason subprime mortgage-related securities aren’t selling is that outsiders can’t see what’s underlying them on a timely basis.
Remove the kimonos, and capitalism will take its course. At some price, buyers will emerge, once they can see what they’re buying. Banks could clear their books. The companies that are able to attract fresh capital would survive. And the ones that couldn’t would die, as they should.
What Congress must remember is that Americans don’t exist at the pleasure of the country’s banks. It’s supposed to be the other way around. There’s still time for the politicians to come up with a rescue plan that will work. The important part is making sure you and I get something of value in return for our money.”
Click here for original article in Bloomberg
And for some true bipartisanship… both Ron Paul and Dennis Kucinich say the bailout plan is bullshit.
Contact your representative right now and tell them not to pass the bailout in its current form. Or sit there and get robbed while handing massive debt to your children, debasing your currency and delaying and exasperating the inevitable.
I totally agree. The bailout is crap. I’m fairly certain it will pass today in the House but I think it’s wrong.
Subterfuge is right. And I’m totally ticked that so many in the house are ignoring the cause of the problem is a government all the way back to Clinton era that foisted all these bad loans on banks. And wouldn’t fix the problem when it was presented to them in 2004/2005.
Gold is certainly a worthy investment I think. As is silver.
Some people have no idea what they are talking about. They sound like a maroon.Let me explain to you. Everybody is blamming the republicans but in reality the united states government is raping the american people and we don’t even get a say! You all think electing a presedent matters? I don’t care who you put in the whitehouse, its not gonna change the fact that you have poloticians who have been in washington too long and change will never ever come. Repub lican democrat it doesn’t matter as long as you let polotitions sit in the the same seat until they die. Thats the problem, everyone in washington has been there way to long. In my opinion a senater a congressman should only be able to hold a chair for two years at the most. That would light a fire under so many asses we would finally see some real change. Not just the same old shit we’ve been seeing for a lifetime. This country is going to hell in a hand basket and nobody gives a damn!
I would go that far. Many of us care but when you have a Congress that can vote on it’s own terms, salaries etc. etc. it becomes difficult if not impossible to stop them. The positions attract the same types of people & therefore elections are mostly irrelevant. I agree that term limits should exist but we, the American people, are merely a means to an end for our “leaders”. Our power to vote means little if there is nobody worth voting for. It is time for the dictatorship sponsored by the 2 major parties to end. The major parties are becoming our own worst enemies.
Sorry. I meant to say I wouldn’t go that far. Freudian slip I guess.
I can not believe that the tax paying Americans are going to have to pay for these criminals wrong doings!! The smart thing to do to fix the economy would be to take that 700 billion in bailout money and divide it equally among the real Americans.. The middle class taxpayers!! The folks who got screwed by the bad home loans and such.. Allow them to put that money back into the economy in the way that they choose..
The main problem and cause is this corrupt republican administration who has been more concerned with pushing their agenda and their special interests rather than actually paying attention to real issues that have been right in front of their faces the whole time.. like the economy!!!
hmmm.. Lets all think about this one.. In addition the loss of so many American lives, the war in Iraq has racked up a bill of something like 690 billion dollars of taxpayers money.. Seems strange to me that the economy bailout is for 700 billion? It’s not hard to see where the problem lies.. Wake up morons!! Health care and the medicare system is next!!
Actually, we currently have a democratic congress. Therefore, in this situation it is the democrats who voted for the bailout. However, the problem is not related to any particular party pushing their agenda, the problem is due, in general, to greedy politicians (please take note of the spelling of “politicians”). These greedy politicians have put a lot of “pork barrels” into the bill which created a bill that does not benefit us, but rather a few select companies and individuals who are fortunate enough to have the ability to influence these politicians either with their money or their power. I am very concerned because middle class America will be the first to be harmed by these poor decisions, and the politicians and the rich will be the last to be harmed. Consequently, we will have many struggles ahead of us before it gets bad enough for the politicians to attempt to repair the mistakes they have made. I would suggest that many of you bloggers go educate yourselves and respond accordingly by preparing yourselves for some tough times ahead.
The thing about this bailout is that it will cost a lot to the taxpayers , and later to everybody through inflation. And knowing that the sum of derivative garbage is estimated at more than a quadrillion dollars, it’s going to flush trough the market as quickly as Obama and McCain accepted the big banks checks for their campaigns.
We are doomed. 2-party monopoly plus greedy politicians and special interest/lobbyists have gutted the country. I agree that voting is absolutely pointless if the candidates are both equally corrupt and arrogant and stupid. I haven’t voted in almost 16years(the first and last time was for ross perot) and I feel no guilt over it. It wouldn’t have changed anything. The masses are so gullible and weak that they bicker over republican vs. democrat and keep prolonging the insult that is our government. No my friends, this train won’t stop until it hits REVOLUTION station… Get ready for hyper-inflation, gas rationing, empty supermarket shelves, riots, violence, anarchy and the possible breakup of the united parking lot of america. We deserve it. Oh, a quick thank you to the baby boomers that sold out and destroyed the country and their children’s future. Hope it was worth it. Gotta go stock up on ammo and MRE’s now. Bye.
[...] no strings attached never seemed like a good idea. We wrote about it back in October of 2008 in this article. And despite some 80% of Americans being against the bailouts, our elected officials decided to [...]
[...] no strings attached never seemed like a good idea. We wrote about it back in October of 2008 in this article. And despite some 80% of Americans being against the bailouts, our elected officials decided to [...]
Nothing fails like success.
I too agree this bailout is a crock of shit. I am a poor american who is becoming poorer as we speak. The government is now stealing funds from unemployed individuals who are in the lowest categories of salary. Three times now I have been cut short by the government each time taking more and more until the last time thay took all of my money from unemployment. For those of you in the middle class you have no idea how hard it truly is to make it in this econimy being in the poor class that I am. Another thing that I am pissed about is the fact that the government continues to borrow my money to pay back their bailout program, but when I try to apply for a loan I dont even come close to qualifying. What the fuck is wrong with ou government?