The Bailouts Are Doomed - All of Them 49 comments
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A confession: I am fascinated by scams and frauds. Give me a National Geographic TV segment with Interpol following an art forger across Europe and I am a captive, even through the commercial breaks.
I anticipate years of television shows exploring the still smoldering Mortgage Meltdown. Indictments, law suits, and exposes of the criminality embedded in this travesty will intrigue me with the same frisson as do WWII spy documentaries or reenactments of The Brink's Job.
I have written here before about the two simultaneous bailouts engineered by bank lobbyists in the 1980s. The first bailout scam came "out of the blue" in 1982 when Mexico defaulted on its multi-billion dollar loans, some of the dozens made by New York banks to corrupt Third World governments in the 1970s.
The US Congress needed a public relations hook to vote against any regulation of those loans to military juntas. The lobbyists were happy to give it to them: the loans would "improve the standard of living of the developing countries." How could anyone want to stop that? Not a dime ever served that purpose of course.
After Mexico, then Brazil, Argentina and other countries defaulted. The money centers turned their pockets inside out and said "we never expected governments to default and so we never kept sufficient reserves." Then came the familiar "if Congress doesn't bail us out, the banking system will crash."
I was in Havana in 1985 at Fidel Castro's Third World Debt Repudiation Conference. Both Castro, and his unlikely literary ally in this matter, the National Review, correctly predicted massive government bailouts for the third world debt bubble as well as for the even bigger money center bank created scam, The S&L fraud. I wrote about this last year as Paulson and his banking buddies were readying the still-fast-asleep Congress into signing off on this current mother of all bailouts.
Incidentally, the hook for Congress to keep their hands off of the 1980s' S&L fraud was "banks are loaning to small businesses all over the nation without all of those cumbersome regulations." That too sounded great, didn't it?
The current bailout scam began with the same lobbyists slapping congressional hands away from predatory loan regulation, while crafting the new theme; "these loans are to help minority and working class families buy houses and live the American Dream." Simple, easy to understand, and of course, self serving. They were ably assisted by the Bushes, a family that has loved every unfettered giveaway they could get their hands around. (Two of the Bush boys were responsible for $1.5 billion in government payouts to their friends and associates in the S&L fraud.)
In 2006, some (myself included) wrote about the massive fraud expected from the bailouts to come. I imagined that, during a decade without any oversight, some mortgage "packagers" must have slid the same sure-to-default mortgage into as many packages as they could. Who would ever know if the same mortgage was in an Oslo fireman's pension fund and in a boutique Tokyo bank's portfolio?
Whatever regulators were still around had been lulled to sleep with visions of $1 million a year private sector jobs (SEC attorneys cost a little more). While this particular scam has not yet been uncovered, dozens of similar ones are already percolating to the surface.
This is why the bailouts will do little except to enrich those who can get their fingerprints on the funds. Simply put; who is going to provide oversight?
Three Quotes That Tell Us the Bailouts Are Doomed
1. "The air was sucked out of the room." (Senator Christopher Dodd)
On an evening in September, members of Congress came out of a meeting with Bernanke and Paulson, during which they were given "grim news" about the state of the economy. Paulson, despite his supposed ideological opposition to government intervention, had unfurled a $700 billion bailout bomb. Contemptuous of his hapless prey he even insisted that Congress deal themselves out of oversight of the funds.
Sen. Chris Dodd, who gets my vote for congress' biggest dolt, offered the tired cliche; "when we heard about the actual state of the economy the air was sucked out of the room." Really? Where was this Chairman of the Senate Banking Committee for the past 8 years?
Why should he be "shocked?" Why should the air have been "sucked out of the room;" a room filled with so many participants in the previous two bailouts!
My quick count of a US Congressional seniority roster indicates that 38 current members of the Senate had signed off on one or both of the 1980s bailouts, and the several fundings of the Resolution Trust Corporation that, when its doors finally closed in 1995, had left billions unaccounted for.
Were any of these senators, or the 163 (!!!) members of the House of Representatives (out of 435),who were there for those role calls, not aware that another bailout was being cued up by the same lobbyists using "the banking system will crash if we don't....." sound bites? Or did they really believe up until that Grim Meeting that the economy was "fundamentally sound" as Bush and McCain kept repeating, right up until the huge bailout request was made?
Didn't the retreaded sound bite from the 80s; "a bailout now will cost less than it will cost later without a bailout" sound familiar to any of them? Will they be "disappointed" and "angry" this time around when the initial bailout estimates once again prove to be vastly understated and the funds once again untraceable.
2. "We need to get this bailout approved by Monday morning before the Asian markets open." Secretary of the Treasury Henry Paulson
In this one simple sentence Paulson expressed his low esteem for the Congresspeople sitting across the table from him. Similar perhaps to an auto salesman telling a customer that his manager will get a monthly bonus with just one more closing and so they will give him/her a "special deal" if a sale is made immediately. The Asian markets? Who cares about the Asian markets? So what if the Shanghai stock market went down for the day, or week? Yet this preoccupation was repeated several times by the legislators as a consideration in their hasty deliberations.
Paulson, and all of the CEOs appearing before congress, understand that government bureaucrats are no match for corporate accountants, lawyers, and lobbyists who have spent years sidestepping regulations, evading taxes and when challenged, mounting overwhelming defenses to whatever agency manifests a bit of curiosity.
Even a more benign view of the relationship between congress and bankers would have to take into account that the RTC (which is now being seen as a model for bailout oversight) had in 1991 over 8,000 employees. Many of them were drawn from the FDIC. They were from the beginning overwhelmed by their own inability to evaluate existing deals and often couldn't determine which branch of the RTC had authority to manage a specific "resolution."
Into what monstrous size and shape will this New Age RTC have to morph in order to administer bailouts of $$ trillions, instead of $$ billions?
Management of current bailout funds will have even more difficult challenges; instead of selling off just S&L assets, this new bureaucracy will have to unravel thousands of deals between investment banks,central banks, mortgage bankers, and also contracts of the auto manufacturers with their legions of vendors, and of course any other industries whose lobbyists can extract funds this year.
Who will judge the appropriateness of a now all-but-bankrupt bank's short position in the gold futures market, for instance? Or the purchase of a foreign auto plant by one of our home grown Big Three dead whales? Barney Frank? He sadly waddles after the Treasury, trying to extract "oversight" provisions after he signs off on deals.
3. "We wanted to change some of the credit card regulations but the credit card industry strongly objected." Senator Christopher Dodd
Yes, Senator Dolt, a truth you must bravely confront is that the "credit card industry," i.e. their lobbyists, are supposed to object strongly to proposals that will negatively affect their clients' business models. That, Senator, is exactly what they are paid to do.
You however are paid to withstand their objections and to proceed with legislation that protects the public. Even you lifers in congress, who have been wined and dined by every lobbyist in Washington, should consider at some point attempting to rise to the occasion.
Every attempt to manage the bailout funds will be fought by recipients emboldened by the simple fact that the money is already in their pockets. Congress and their appointed watchdogs will be shown, once again, to be as hapless and as outflanked as ever. Sad, isn't it?
It is clear that corporate America has learned how to improve the bailout scam with each successful application far better than befuddled Congress has ever learned how to prevent it.
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This article has 49 comments:
Sadly, we as a nation have long ingnored these facts.
Great atricle.
Congress has largely given up their role of protectors of the public purse. In so being, the committee members have long adjusted to the poor dupe role and play it ohhh so well.
If you want to see real mayhem, just let elected officials keep doing what they are doing. The depression is caused by a complete loss of faith in money and trust. Realizing your leaders are incompetent, unwilling to tackle the issues at hand, and unable to do anything is the first and final step towards that economic nightmare. Sound economics and good government go hand in hand. The reverse also applies.
It is frightening how easily the public swallows the whole show with no more than a bit of grumbling. People are so short-sighted and disinterested only because the costs to them don't show up on their next monthly bill. It requires less effort to be uninformed than outraged. Every dollar stolen or misappropriated does go on our tab eventually. The People should be outraged.
It always seems to be the same case.
One of the most ridiculous things this this lobbying, which unfortunately is also starting to get around in Europe. We are starting to implement laws against this, and I hope it will catch.
I hope the US will find laws to eliminate this to some extent.
e.g. each politician has to show his personal income during and yearly audit.
In Europe parties are by absolute no means allowed to receive funding by private companies
Politics have to be strongly isolated from the industry.
It is not our European social system that is not working, it is the US political system.
There are too many lobbyists and too many are afraid to stand up and make the right decision for the country if it impacts their chances of re-election negatively.
There are too many ammendments to bills which cater to particular members of the senate and congress in order to get their support.
These are the tax loopholes that Obama promised to eliminate in order to put the government on a sounder fiscal setting and to fund tax cuts and other incentives.
Time for a fundamental change.....how do we do this?
Re: Vienna: "I hope the US will find laws to eliminate this [lobbying/corruption] to some extent.
There are hundreds of laws. The only one that matters - on any continent - is the law of cash flows.
Re: elroy: "Time for a fundamental change.....how do we do this?"
Go door-to-door, as I and a hundred others did. We removed the largest % of incumbents in our state assembly in a century.
Show people what the incumbents did and ***put a dollar amount on it.***
That is how you do it.
The kakistocracy must be fought.
The Good Republican Senator Shelby of Alabama was the Chairman of the Senate Banking Committee prior to Dodd and it should be that same Senator you cast your blame on.
Perhaps you have been distracted in the last 8 years, the Republican Party has been in total control of the money and how it was spent! None of the Major committees had Democratic leadership until November 2007.
it works for the fed...
it works for all the establishment con artists...
So..name ONE investible idea from that lengthy rendering..That's what I thought..What investment consequences will the failure of the bailouts have..specifically?? That's what I thought....
If the bailouts weren't done how would YOU have handled the mess? Let the market work itself out? Like the Great Depression did (15 years later)??
That is bound to lead to incredible credit creation and currency depreciation..that was the POINT of the whole exercise...I'd strongly suggest people take that lesson away and find something that will insulate them from this horrible consequence...How about gold? Sounds more constructive than pissing up a tree......
On Jan 05 10:08 AM market ace wrote:
> Amen. I agree totally with your fine article and the related comments,
> but sadly I see no hope for changing gov't in America. It is fine
> to say vote out incompetent incombents, but they are all oppossed
> by rookie, incompetents - so where is the choice? The Roman Empire
> gives concrete examples of what will happen in Washington and eventually
> the nation when corrupt bankers and politicians combine to fleece
> the country, just as Jefferson warned hundreds of years ago.
The plan the think tank is discussing is about building open source software that facilitates the typical functions of a blogging website but also facilitates and automates political filings (unless you wish to be jailed by violating McCain/Feingold), provides demographic voting analysis with visual output display, ability to contact Representatives easily and has functionality to streamline actionable plans by the citizenship. It is the next generation of political software/sites that allow any individual to build a constituent base and pressure Washington. Think of this innovation as a printing press. Sure, government can crush an individual group such as a Raging Debate but cannot crush 1 million political activists harnassing the collectives of 50 million citizens using a software tool.
Many of you would recognize the current members of the think tank which are about 20. Here's the real problem: It's the upper middle class that funds such educational services for the public in the past when the U.S. went through harsh fiscal crisis. However, businessmen often run businesses. I am in that boat myself, lending technology/sweat equity and some data assets to this project while running a Consumer Healthcare business. In addition, it comes down to public mood and sentiment and timing. A sizeable portion of our population believes Obama will pay there mortgages and gas bills for them and do not even realize Congress runs the economy, NOT THE PRESIDENT. What I mentioned is a work in progress, call progress getting most of the way through the "R" stage of R&D.
On Jan 05 10:19 AM elroy wrote:
> Although they might take exception to my comments, it is obvious
> that our elected representatives are more interested in being elected
> representatives more than anything else. They are certainly not fiscally
> responsible to the US taxpayer.
>
> There are too many lobbyists and too many are afraid to stand up
> and make the right decision for the country if it impacts their chances
> of re-election negatively.
>
> There are too many ammendments to bills which cater to particular
> members of the senate and congress in order to get their support.
>
> These are the tax loopholes that Obama promised to eliminate in order
> to put the government on a sounder fiscal setting and to fund tax
> cuts and other incentives.
>
> Time for a fundamental change.....how do we do this?
The bailout orgies I described occurred over 25 years. They spanned Democrat and Republican administrations.My point was that they all were asleep, or hypnotized by the lobbyists. And remain so.....
On a personal note, I never voted for a Republican in my life. I expect giveaways to banking conmen and defense contractors from them;
I expect exactly what they unfortunately delivered over the past eight years.
However Frank and Dodd's race to "get out in front" of the crisis after being lulled to sleep was a sad spectacle...for me. Someone once said that there is nothing more dangerous than a politician who "needs to do something."
You did mention Senator Shelby; his recent opposition to the bailouts made me wish he was a Democrat.
Thanks again for your comments.
On Jan 05 12:18 PM Lets just tell facts wrote:
> Christopher Dodd was NOT the Chariman of the Senate Banking committe
> for the past 8 years, in fact Senator Dod has only been chairman
> since the fall of 2007.
> The Good Republican Senator Shelby of Alabama was the Chairman of
> the Senate Banking Committee prior to Dodd and it should be that
> same Senator you cast your blame on.
>
> Perhaps you have been distracted in the last 8 years, the Republican
> Party has been in total control of the money and how it was spent!
> None of the Major committees had Democratic leadership until November
> 2007.
The Emperor has new clothes!
What I am saying, overall, is that that we have not seen the end of the bad news by any means. There is also a glut of commercial office space in many areas, not to mention warehousing and service companies. All these are just beginning to be affected. I believe the Bush Depression (it started in his administration) could end up as bad or worse than the Hoover Depression. God help us.
in the meantime.. people like me .. what is my motivation to save in US dollars?? they are getting more and more worthless..
who the heck is running this country?
and now the inexperienced and incompetent messaih, who has barely 143 days in the Senate.. is going to solve this?? HE IS DIGGING US DEEPER INTO THIS HOLE!!!!!!!!!!!!!!!!!!...
fairtax.org
I really hope we all wake up *soon* to the fact that the money center banks, the World Bank, IMF, etc., and yes, Paulson and chums...are all in this together. It's a big game of "let's churn the loans and scrape money from the working classes into our pocketses...and change interest rates as needed to inflate/deflate currencies as needed to retain control of the game."
Do not say it was a choice of the lesser of two evils either. That is just a cop out. We have a choice, its called write in voting. Anyone who did their due diligence on the candidates would know the only one worth a vote was Dr. Ron Paul. He is the only one who has said all along the financial system was going to fail, has maintained his efforts to block these bailouts, works at reducing the size of government, and much more that is in the best interests of the people of the USA. Period. We need ethical leadership that follow the rules laid out in the Constitution, not the rules bent and changed with each passing Congress to their liking. Where were you people at election time? Who did you vote for? Obama with no idea of how he will be used and manipulated? Or wet-noodle McCain who is more a puppet than a person after his many years in office? Or Ron Paul who has tirelessly questioned the FED and their monetary policies, introduced many pieces of good legislation that would reduce much corruption in Washington. Wants to move the US back onto the gold standard to force the government to limit their spending and balance budgets. Give Americans security in our savings and investments.
With money valued upon only the faith of the US government, and the govt. spending more than it can print, and the money worth less than the paper it is printed on, we are in for bad stuff very soon. The devaluation of 50% of the market was nothing compared to what happens when the currency is found to be worthless. Gold sounds better and better every passing day. I guess that is what it is going to take to get rid of the worthless ones on capitol hill
You're right, Ron Paul was the only candidate worth a vote. We should heed his advice on foreign affairs as well. Unfortunately the majority of our once great country are either complicit, fools, or easily hoodwinked.
We wanted something for nothing.
We wanted world beating prosperity without hard work. If there was hard,manual labor to do, we wanted the Chinese or the Mexicans to do it. We also wanted honest hard working non corrupt government without PERSONAL involvement. We wanted someone else to do it all. And so they have. The crooks moved in since we abandoned our civic duty regarding the oversight of our government. Our government is now just a corrupted mafia, most of it. We even catch them now and again with payoffs, drug running, and a host of other scandals. For each one caught, 10 or 20 snake by, yet we sit there and watch. We don't demand change, we demand more of the same. We want to believe in fantasy because with head in the sand we don't have to see the ugly truth.
The real problem is not the economy. That is just the tip of the iceberg. The real problem is that we are losing our freedom. We are watching the crooks dissolve the constitution. We are watching cow eyed, all of us, while this happens.
There is nothing that Ron Paul can do about the economy in the short term. That die is cast and a major crash is unavoidable now. But he and people like him CAN stop the erosion of our freedom.
1 year ago people would have laughed had you said the economy was going to tank like 1929. Now I don't hear any laughing. I am saying now that there is great danger that we are going to lose our personal freedoms unless we collectively act to save them. The US military will be turned against the population before this is over and we will understand what a 3rd world dictatorship feels like first hand.
Don't laugh. Remember how others laughed about the economy. Lenin said that "fascism is capitalism in decline". Still think it's impossible or that it can't happen to us? If so I would say "think again" but if you don't get it by now then the appropriate advice is simply "think".
I know this is a business forum, can can anyone else see the religious implications of what is being discussed?
On Jan 06 11:11 AM User 332097 wrote:
> This whole thing is a moral problem. It'll never get solved until
> we deal with the real issues.
>
> I know this is a business forum, can can anyone else see the religious
> implications of what is being discussed?
For over 50 years, US education in math and science has been among the poorest compared to developed and developing nations. The irrationality of US consumerism demonstrates stupidity.
As does our dependence on immigrant medical professionals, scientists and engineers. Without these immigrants, the US would be a third world country.
Meanwhile, our high school and college graduates compete for menial jobs
On Jan 05 09:59 AM Vienna wrote:
> When the first bailout plans where laid down, Germany was still working
> on the concept. And of course, US was again shouting: what are you
> waiting for !!
>
> It always seems to be the same case.
>
> One of the most ridiculous things this this lobbying, which unfortunately
> is also starting to get around in Europe. We are starting to implement
> laws against this, and I hope it will catch.
>
> I hope the US will find laws to eliminate this to some extent. <br/>e.g.
> each politician has to show his personal income during and yearly
> audit.
> In Europe parties are by absolute no means allowed to receive funding
> by private companies
>
> Politics have to be strongly isolated from the industry.
> It is not our European social system that is not working, it is the
> US political system.
WE DON'T NEED GOOD PAYING JOBS...WE DO NEED ANOTHER STIMULUS CHECK TO BUY A CHINESE FLAT SCREEN TV!
GENTLEMEN WE HAVE A PROBLEM!!!!!!!!!!!
now we’re left with a ton of credit cards and wallmart wages..and we wonder what went wrong?
Thing about it..WHAT ARE WE FIGHTING OVER? wages…we want workers to earn less?
compete with china,s wages? .33/hr, Mexico $1.50/hr? India .99/hr?…
WAKE UP AMERICA.
They also think that whatever they say is FAR more important than what we can understand.
Hence their manipulation of us all.
Frankly, I am pi--ed off with them all and I take great exception to being treated in this way. I attended a great university and have the benefit of a Doctorate in my chosen profession. which is more than the majority of our politicians have, and I consider it a privalege to have been given the benefit of the insight of some of the very best minds of our people.
So, let's see what our leaders are proposing to do to get us out of the mire they have got us into. Firstly, if they had been doing to job for which they are paid, there is no way any Bank should have been allowed to A) enable all and sundry to borrow money without sufficient collateral, to back the borrowing and B) allowed the Banks to lend at a multiple of their cash in hand.
In addition, anybody caught allowing false information to be presented to secure a loan should have been immediately sent to jail. Presumably the real estate industry could then be forced to operate out of state jails as there would not be anyone left outside.
Let's not forget, we are talking about OUR MONEY. the state has no money of its own, just OURS, generated from taxes WE pay.
So we should all start asking the right questions. How dare the politicians and their departments allow OUR money to be squandered in the way it has. Let's go for their throats.
Of course they are now using OUR Money to bail out the profligate Banks and financial institutions, so we are in effect, suffering two major attacks on our money and I am not hearing many complaints to this abuse.
Whatever happened to the independent watchdogs that are appointed to ensure OUR money is spent wisely and appropriately? No doubt they are being paid to say nothing and not to upset the apple-cart.
Frankly we need a change of government procedures for the future management of our country. Clearly our appointed leaders are not up to the tasks, so lets establish a system whereby voting on each major issue can be undetaken by the majority of the population. After all, we have the network infrastructure to support widespread voting and we should use it. Our appointed officials should be there to prepare documentations on each proposal so that the voters can make an informed decision through an ectronic ballot box. This way, we can run our country they proper way, and with toatl responsibilty which has been missing for the past two hundred years.
The senate needs to go and our appointed representatives are only there to perform the analysis we need to make our informed decions. This would change our world for the better as the majority of our people are far more intelleigent than the politicians give us creedit for.
We need to regain control of our future and not allow anybody to dictate to us.
On Jan 05 06:22 PM overtaxed42long wrote:
> I just have to ask the question......With every single commentator
> of this article being of the opinion it is correct and that we need
> to rid ourselves of these corrupt incumbents, why do so many seem
> able to win their election? When everyone seems to think that all
> politicians are corrupt and do not perform their duties in the nations
> best interest, how are these same still in office?
> Do not say it was a choice of the lesser of two evils either. That
> is just a cop out. We have a choice, its called write in voting.
> Anyone who did their due diligence on the candidates would know the
> only one worth a vote was Dr. Ron Paul. He is the only one who has
> said all along the financial system was going to fail, has maintained
> his efforts to block these bailouts, works at reducing the size of
> government, and much more that is in the best interests of the people
> of the USA. Period. We need ethical leadership that follow the rules
> laid out in the Constitution, not the rules bent and changed with
> each passing Congress to their liking. Where were you people at election
> time? Who did you vote for? Obama with no idea of how he will be
> used and manipulated? Or wet-noodle McCain who is more a puppet than
> a person after his many years in office? Or Ron Paul who has tirelessly
> questioned the FED and their monetary policies, introduced many pieces
> of good legislation that would reduce much corruption in Washington.
> Wants to move the US back onto the gold standard to force the government
> to limit their spending and balance budgets. Give Americans security
> in our savings and investments.
> With money valued upon only the faith of the US government, and the
> govt. spending more than it can print, and the money worth less than
> the paper it is printed on, we are in for bad stuff very soon. The
> devaluation of 50% of the market was nothing compared to what happens
> when the currency is found to be worthless. Gold sounds better and
> better every passing day. I guess that is what it is going to take
> to get rid of the worthless ones on capitol hill
Sad, but hardly grounds for despair. If Congressional watchdogs were omniscient, then government would also be omnipotent - and while a government of angels might be desirable, sadly, we're stuck with mortals, and it's not always a bad thing when one set of mortals working for the government are outmaneuvered by another group that isn't.
On Jan 05 12:18 PM Lets just tell facts wrote:
> Christopher Dodd was NOT the Chariman of the Senate Banking committe
> for the past 8 years, in fact Senator Dod has only been chairman
> since the fall of 2007.
> The Good Republican Senator Shelby of Alabama was the Chairman of
> the Senate Banking Committee prior to Dodd and it should be that
> same Senator you cast your blame on.
>
> Perhaps you have been distracted in the last 8 years, the Republican
> Party has been in total control of the money and how it was spent!
> None of the Major committees had Democratic leadership until November
> 2007.
Without any oversight or transparency, why should anyone borrow or lend money or invest? Just stick you money in a lockbox somewhere.
In less than a year:
o Commodities prices have quintupled and come back down.
o Gasoline went from more than $4 to less than $1.50 on a mere 3% reduction in consumption.
o Insurance companies can't manage risk anymore and need a bailout for their ineptitude.
o The whole mortgage fiasco shows that nobody in the whole chain can be trusted anymore.
o The financial statements are lies: What's "goodwill" worth when your company is losing money?
o toxic assets are another name for liabilitiies that would be worth more if they were bulldozed -- and somebody loaned money on it.
This is not a free market, no, not even close.
Fantastic article. I will print and distribute it.