Wednesday, September 24, 2008

Dirty Diapers and Sinking Economies

Dear George,

Talk about burnishing your legacy, Paulson’s Wall Street bailout is going to make it look like a Simonized® turd.

For an administration that has hustled one scam after another, this is the mother of all scams. It’s daring and enormity awe. Wall Street shits and the public gets to change its diaper. It doesn’t get much better than that.

As one writer puts it:

America will give between US$700-$800 billion to the Treasury to buy any bank assets it wants on any terms, with no possible legal recourse. It is an invitation to abuse of power unparalleled in American history, in which ill-paid civil servants will set prices on the portfolios of the banking system with no oversight and no threat of legal penalty.

He goes on to ask why should American households struggling to get by on $50,000 a year be asked to bailout Goldman Sachs partners who make $5 million a year.

The short answer is that the struggling householder will bail the Goldman partners out because Paulson used to head up Goldman Sachs. In crony capitalism, capitalists take care of their cronies.

This same writer goes on to sketch out what a brilliant scam the bailout plan is:

Contrary to what the Bush administration says, it is not the case that the banks’ troubled mortgage assets cannot be sold in the private market. Those are the so-called “Level III” assets that the banks say they cannot value. But that is only a dodge that banks use to postpone taking losses. There is a ready bid for these assets from hedge funds in multi-hundred-billion-dollar size. The trouble is that the market bid is 25% to 30% below the prices that banks carry these assets on their books.

He explains that the funds are offering 55 to 60 cents on the dollar for the Level III assets, but the banks are holding out for 75 to 80 cents on the dollar.

So-o-o, why not have the taxpayers cough up the 75 to 80 cents?

A former International Monetary Fund (IMF) official tells us, “They presented this as a comprehensive, decisive solution, but it’s clearly not comprehensive and probably not decisive.”

Who cares? What the official doesn’t understand is that the bailout has nothing to do with resolving the financial crisis. It will probably make it worse as foreign investors decide that there are better deals besides our treasury bonds. Once our economy sinks beneath the surface, the only lifeboat still afloat will be the one carrying Wall Street executives, all of whom will be rowing madly towards the nearest foreign shore.

So get out the Simonize® and start polishing. The world is certain to remember you for all eternity.

Your admirer,
Belacqua Jones


Flimsy Sanity said...

I think I heard on the radio that Bush wanted to have the FDIC cover money market funds also but the bankers bitched because it would be unfair competition. Thanks to Clinton giving FDIC premium breaks to the big banks, there is no money in the fund anyway and it will be the next bailout.

People who lived through the last depression hate the stock market and call it gambling. Seems that is no longer true as Bush will cover your losses.

Excellent blog by the way.

Case Wagenvoord said...

He'll cover your losses only if you're leveraged 30:1.

Anonymous said...

Will he cover my retirement fund, I wonder, then? It's a 401 something, the one the professors have.

I "can't believe" they are going to do this bailout, but I guess they will. I *so* wish I owned an underground lake or something, some sort of natural resource to rent out at a high price, or gold bullion.

Case Wagenvoord said...

Seeing that our obsession wigh monoculture is expected to turn the Midwest into a desert, now might be a good time to corner the market on topsoil.