Bailouts Take on a Life of Their Own

Time for me to go on a rant. The various bailouts have taken on a life of their own. The news is so outrageous, it’s almost surreal:

• Fannie Mae (FNM) says $100 billion may not be enough
• AIG needs more money, more time, lower interest rates on its loans from taxpayers, etc.
• American Express (AXP) converts to a bank to get TARP money
• GM and the basket cases that are U.S. automakers are begging for money (no hate mail on this. Long ago, I got rid of my foreign car to buy American).

Where is it going to stop?

No wonder that this is the public’s reaction. What’s amazing is that Wall Streeters think the public is mistaken. I keep hearing them say that if you skip bonuses, talented people will leave. My two-word response: To where? Are they going to leave Goldman (GS) for Merrill? Amex for Citi (C)? Bear Stearns for the Fed?  Maybe, just maybe, if you get compensation on Wall Street to a low-enough level, these so-called rocket scientists will leave Wall Street and actually become… rocket scientists! I’d say that’s a good thing!

It’s important to note that I am NOT advocating that pay be restricted on Wall Street. For instance, if Goldman was still a partnership, and not an FDIC-insured bank, Goldman can pay people whatever they want. But that’s not what we’ve got.  These bankers work for taxpayer-owned institutions now. Their survival is due to taxpayers.

One final thought. Here’s an amazing quote from an article in The Wall Street Journal:

“California accounted for about 31% of Fannie’s single-family credit losses in the third quarter, while Michigan accounted for 11%, Florida for 10% and Arizona for 9%.”

Four states, 61% of the nation’s losses.

Comments

[kurt walter:]

This bailout madness needs to stop right now. I said 3 months ago that there should be NO taxpayer funded bailouts. Banks should dilute shareholders and offer more common and preferred shares in the open market. Let investors take all the risk and reward. If some banks can't get enough investor money to stay alive, well, then go bankrupt. You are out of business. This bailout situation has become very embarrassing.

2008 Nov 12 06:46 PM