Before reading this article, please look back at three previous posts here for added context Stay the Course on Denying the Bailout, A Massive Government Bailout by any Other Name, and The Real Reason You are about to Bailout Wall Street.
We’re in the books for $3 trillion dollars now to little or no effect and rather than extend this post with a list, there is an excellent run down in an article by David Goldman on CNNMoney.
This is getting very difficult to talk about, as it has taken on the feeling of a very bad and painful joke.
The hedge fund managers sat up in front of congress yesterday and testified that they had nothing to with the financial crisis and are not asking for any money from the TARP coffers. They stated, they would also agree to some regulation, as long as it is not too transparent. In other words, they realize not agreeing to something in this environment would look suspicious, so an obfuscating “yes” serves the purpose. They also agree with Paulson’s switch from buying troubled assets through the TARP program (as originally sold) and recommend his new plan to have capital injected into the banking system in the form of debt and equity.
Of course they would. These funds are buying distressed assets from these banks today at ridiculously discounted prices, as low as 20 cents on the dollar for delinquent loans and at the high end 60-65 cents on the dollar for performing loans. The bank then takes the write-down on the loss and trots on over to TARP for a capital injection to make up the difference. The hedge funds make a killing working these loans out and the banks are no worse off (.60 from Hedge Fund + .40 from TARP = $1).
Mind you, the bank hasn’t given credit to one new borrower in this shell game, but the hedge funds are now inserted into a very profitable and non-transparent transaction. Unfortunately, there is no requirement to disclose these sales to the public. If the treasury injects equity, the bank may use the funds for any purpose and the use of taxpayer’s money is not monitored in any way whatsoever.
How convenient.
These are very smart people making another killing at the expense of the taxpayer under Paulson’s congressionally approved Ghillie Suit.
More to come as consumer loans and credit cards make their way through over the next 12 months.
I am going to highlight a few facts that portend a very sorry future for the economy over the 3-5 years. I’m going to do this in direct violation of O’Reilly’s fatherly admonition to a guest night before last to quit talking this way because we’re “scaring the people”.
In short, the first of the bailout measures were peddled to the American people as a bailout for Main Street; however, it’s a bailout for Wall Street that is now racing down the path as a bailout for any part or piece of private industry.
- AIG gets a loan for $85 billion on September 16. In less than a month, the financial wizards are back to get an additional $37.8 billion loan. On October 31, AIG heads over to the window for yet another $20.9 billion, all after this was sold as a wonderful investment and profitable transaction to the taxpayers. It’s all now being restructured to include money from the TARP bailout funds into a $150 billion package. $85 + $37.8 + $20.9 = $143.7 billion dollars to AIG.
- TARP is also going to be used for non-banks, which has absolutely nothing to do with Main Street’s credit access. It means, we have moved from convincing the public that public funds are needed to be sure they get credit, to propping up private enterprise in the name of saving jobs.
- American Express is now in the banking system and has access to the Federal Reserve’s coffers and TARP.
- CIT has applied to be in the banking system for the same.
- A second economic stimulus package is on the table to the tune of $150 billion.
- The auto industry, which is failing for reasons that will not change for at least the next two years, are at the trough for their first installment of $25 billion.
- The guarantee made by everyone involved that the TARP program had to be entirely transparent to the public, since the money is coming from the tax payers was thrown out in the first few weeks of its approval. The public is fighting to get information from the Treasury and the Federal Reserve on what and how much is going where.
- $200 billion to prop up Fannie and Freddie and asking for more.
- Credit is no more available than it was before TARP (because it can’t be).
This $3 trillion dollars doesn’t just appear out of thin air. It is “printed” and it is borrowed by the treasury with interest and principle due at some point in the future. The $3 trillion is where we are so far and unless someone calls the ball and says enough is enough, we are on our way to doubling this number. This money has to be paid back and it will happen in the form of higher taxes, higher inflation and reduced standards of living for a very long time.
The answer to the avoidance of future problems is to restrict leverage, mandate that lenders own the credit risk on the loans they make, and ban the use of leveraged-non-collateralized-synthetic assets in the banking system. We need to let private business fail now. It is going to be very painful, but we will feel the pain no matter what we do.
Hopefully, this is getting through to the public by now. We are throwing Trillions of dollars at a problem that is going to end up with the same result, whether we throw all of this bad money after bad, or not. We are just buying a postponement of judgment day.
The American people have let themselves be duped by Secretary Paulson, Ben Bernanke, Congress and the Administration. Congress gets somewhat of a pass, because if you listen to their hearings and questions, they are completely uneducated, ill-prepared and clueless about the banking and financial system. Paulson and Bernanke are taking care of their friends and the system that has provided their current and future wealth.
Companies that make the wrong decisions, bad decisions, or that even just have poor timing and bad luck, have to be allowed to fail. It is not the role of government to run or own businesses and prop up their choice of winners and losers as if we’re in some sort of free market, socialistic lottery.
The government “picks” Bear Stearns, AIG and now the auto industry to prop up and allows Lehman and others to fail. The government decides to nationalize Fannie and Freddie, wiping out the equity holders which included banks who had major investments in the stock and debt of these companies. We now have to inject more money into both.
Out of fear, the American people have abandoned the fundamental principles that our country was founded on. We have allowed ourselves to go so far down the path of socialism, that it is difficult to see how we will find our way back to our constitutional roots.
We can find our way back to our cherished values, but it will take the great will of the people which has not been shown yet. Hopefully, the truth is now self evident and the people, at great economic cost and sacrifice to themselves, will win back freedom, democracy and limited government.
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