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.
*sigh*
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.)
He says:
“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.
[snip]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????
This post is long overdue and I’m so glad to see it here. Amen and excellent job.
Tracey I am sure you saw this coming along with many others who were aginst the bailout to begin with. Sad thing is no Democrat will say it was there fault for the screw up. They will blame Bush and the Republican party.
It would have been cheaper and more expedient to just give every man woman and child in the US, whether taxpayer, hobo or illegal, a cheque for a billion dollars.
The end result of soaring hyperinflation and destruction of the economy would be the same, it just wouldn’t take as long to get there, and would have cost less to accomplish.
When does it stop??
Sadly, I do not see it stopping. With each bailout, they are digging the whole deeper. They started with a shovel, and now they are digging with heavy equipment.
This little piece from The Onion is very appropriate:
http://www.theonion.com/content/video/in_the_know_should_the_government
That was GREAT! I had to repost in my blog. The best line was the last “If you love America, you throw money in its hole!”
That is just SAD… Very true but sad.
I also agree with Lee. Next time just give the money to the poeple and let them waste it.
Personally if the Government wanted to save the mortgage industry they should have just paid the mortgages that were faultering… Not paid them off but put money in and let the people refinance to get better intrest rates to lower the payments… and let the banks deal with the people who should never have been given the loans to begin with (especially for the amounts they were getting). Sure this is still a waste of money and would never solve the problems were having but it would have given people a chance to get their homes sold… sure many would be losing money on the deals but atleast they would not be messing up their credit or their homes compleatly. I have a family member getting ready to purchas a home for about $200,000.00 less than the previous owner paid for the home just 3 years ago. Does that tell you how over inflated things got. Banks had a lot to do with that over inflated price… and never should have given that much money for a home of it’s size regardless of where the home was located.
“It is the derivatives stupid”!
The CDS, or credit default swaps are 60 Trillion Dollars of Gamnbling on these defaults – CDO’s or collaterlaized Debt Obligations.
When People Default, the CDO’s default, and the CDS’s held by the Gamblers hit the Jackpot, and they get more rich…
So, Paulson, basically gives the banks the money, to pay the Gamblers..
So, check who the Gamblers are who had these bets…
The Treasury is making sure that there is enough money to pay them as the CDO’s default…! And by the way, the holders of these CDS contracts are mostly speculators, and have nothing to do with the original CDO holders who used the CDS’s for hedging…
So, the speculators are bankrupting the system, sucking the liquidity, and the Government is feeding them from the taxpayers money!
There are 2 possible solutions in my humble view:
1- Declare all CDS’s other than the Hedge ones by the CDO Holders, NULL and VOID! Whatever premiums paid by the speculators is a XMAS gift to the world!
2- CDS Sellers to Pay Back CDS Premiums, and tear down the whole CDS crap! If they can’t then Gov can fund the premium refunds over a five year period.
Any solution other than the above will mean Bail out after bail out… The betters cash in, and the taxpayers foot the bill… till 20 or thirty trillion are paid out by you and your grand kids!
It is a blackmail system… allowing corporates to twist arms, either get the money, or face the CDS claims flood if they defualt…
Hope it is clear and someone can have Obama’s ears !
my apologies for the typos and poor structure! CDS Fatigue 🙂