It takes no college degree and very little common sense to come to the conclusion that spending $7.4 trillion of taxpayer money on these “bailout” efforts is idiotic. It was easy to see what a slippery slope all of this bailout nonsense could easily become. And it has.
A few billion here, several billion there… And pretty soon we’re over $7 trillion with this nonsense.
And who’s the fool we should blame for it? Definitely Henry Paulson. Of course, our lawmakers are to blame for giving this clown all this power in the first place. He was basically given a bunch of blank checks to do whatever he saw fit.
The original $700 billion that was supposed to create some liquidity in the credit market for consumers? Gone. And not for liquidity. For banks to buy one another. Money above and beyond that given to cesspools like Citigroup so they can get the garbage off their balance sheets and let taxpayers foot the bill. Now there’s another $800 billion that’s being pledged to help get banks lending to consumers again.
Wait a second. Wasn’t that what they said about the $700 billion? The $700 billion that wasn’t used for that?
Maybe this is one of those “NEVERMIND” moments when we’re supposed to pretend to be silly little consumers with no remedial math or reading skills. And just trust that our “leaders” will do what’s in our best interest.
Today Charles Calomiris, the Henry Kaufman Professor of Financial Institutions at Columbia University’s business school, states the obvious: Hank Paulson is a complete moron. (Okay, he didn’t use that word. But he meant to.)
“This whole thing has been complete nonsense. We did it in the 1930s ten times better than this. This isn’t complicated.”
Here are some of the better parts of his interview with the Wall Street Journal:
Deal Journal: What the heck is going on out there? The Citigroup bailout isn’t a good sign of confidence in the overall financial system, is it?
Charles Calomiris: The key thing we’ve learned during the downward spiral of confidence is that you have to deal with the problem in the mortgage market directly. There are probably 18 million subprime and Alt-A mortgages out of 57 million total. Probably half will end up in foreclosure.
In the middle of a financial crisis, we’re using half measures designed in an inappropriate way, and we don’t accompany them with other measures. This has just been a completely mismanaged policy response.
DJ: So what’s the matter with some of Paulson’s latest ideas?
CC: Warrants are a bad idea. They dilute common stock holders, and make it harder to design common equity. It’s been a design flaw all along. It’s all a part of thinking of these things in terms of deals. They’ve got Warren Buffett envy.
But in terms of ways that truly recapitalize a bank, they’re truly idiotic.
If you attach warrants that are dilutive, it’s harder to issue common stock. If you want to make money, go buy stock. If you want to increase the net worth of a bank, make that coupon as low as possible and require matching common stock issues. If you learn you can’t do it [the common stock match] then have to decide whether to do a common stock injection, an assisted merger, or shut the bank down.
DJ: Why isn’t anyone listening to these ideas?
CC: The point is that they have made huge errors in the design of their assistance plan and they were forecastable errors.
For instance, Paulson doesn’t want there to be a stigma [around capital injections.] Does he really believe that by getting J.P. Morgan to participate, he creates the perception that JPM and Citi are the same?
Does he really believe that injecting preferred stock into banks is socialism but buying assets at above market price isn’t? Does he really believe that?
There actually is a stock of knowledge about this. The scandal is that when Congress has been considering this, not one independent economist has been allowed to testify. Do you know why they weren’t? Paulson and Bernanke didn’t want anyone causing problems.
DJ: Wait, that sounds like a conspiracy.
CC: Democrats didn’t want anyone [economists] testifying because it was before an election and no one was willing to stand before that bulldozer known as Paulson. No one wanted to make tough political decision before the election. They didn’t empower any experts to come in and testify. Why is that? They were playing politics, too. That’s what we’re dealing with–a complete leadership failure in Congress and the administration.
Don’t underestimate the role of politics in the decision not to fix things.
When does this stop????