Wednesday, October 1, 2008

Turning a Lose-Lose into a Win-Win

Dear George,

The way I see it, the biggest problem you have when trying to ram unpopular legislation through Congress is deciding who the biggest wuss is, Pelosi or Reid. I’m not sure if you’re trying to force the Bankers’ Bailout Bill through the Senate because you think Reid is wussier, or whether it’s the only course of action open to you.

The Senate version of the bailout certainly reveals the core of your economic strategy: borrow $700 billion for the bailout, increase the FDIC exposure to failed banks from $100,000 to $250,000, throw in $78 billion in renewable energy incentives, and then cut taxes. Oh, I almost forgot, slip a sentence into the bill that extends the existing tax cuts that have done so much to swell the deficit.

Given Congress’ sweat-soaked panic, the bill is a win-win.

Just make sure that Congress doesn’t find out that the SEC has made a bailout unnecessary. One of the big reasons for the credit freeze is that banks are forced to value their toxic assets on a “mark to market” value, ie, a fire sale, price. The SEC has changed that rule by saying “that management’s internal assumptions can be used to measure fair value when relevant market evidence does not exist.”

This adds an element to the economy that is sure to save it: fiction. By allowing the banks to make up the value of their toilet paper, the banks will increase their assets, thus allowing them to lend even more money to heavily leveraged financial institutions. This will allow the credit bubble to continue unabated until it finally pops big time.

I can already hear a collective sigh of relief from our international creditors who will now fight for a place in line to lend us even more money, thus insuring that we will have the $5 trillion the bailout will eventually cost once the dust has settled.

It makes sense. What would any banker rather have: a fiat currency of questionable value or assets whose values are based on make-believe? That one’s a no-brainer.

The longer you are in office, George, the more your stature swells as you increase the temperature of the hot air that drives you. You are who Naomi Klein had in mind when she wrote “The Shock Doctrine”. Somewhere in heaven, Saint Milton of Friedman is smiling.

Your admirer,
Belacqua Jones

No comments: