The Bailout to End All Bailouts 20 comments
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Another weekend has come and gone and yet another rescue has been put into place. While Secretary Paulson’s new “RTC” like proposal may seem like just another rescue in a long line of dramatic rescues, bailouts and deal makings this summer, it represents a proactive step in bringing an end to the credit crunch and its many symptoms. The proposed $700 billion bailout is the right plan for the right time and I hope that lawmakers move swiftly to enact it.
The fact of the matter is that no other option had a legitimate chance at bringing about an orderly resolution to the profound risk of systematic financial collapse. When financial markets cease to function they cannot be relied upon to solve the issues that they were built to resolve.
While noticeable pressure was brought onto the credit market by the failure of Lehman (LEH), the sale of Merrill (MER) and the near failure of AIG (AIG), the most dramatic impact of their failure and near failure was the fear they instilled on Wall Street, Main Street & around the world. This fear, coupled with the impact that their respective demises had on the credit markets, put extreme pressure on money markets funds, and the inability of select few to hold up as advertised caused gargantuan outflows and threatened the ability of businesses large and small to conduct their operations. Had the run on the money market funds continued, their forced sale of illiquid and liquid credit securities in markets that was previously frozen would have led to a system wide collapse that would have moved the crisis on Wall Street to the door step of every American.
The government bailout fund, while having noticeable risks, is the best option available at this point and the only one that can be relied upon to speed our nation's economic recovery. In attempting to radically speed up the bailout we will hopefully avoid a decade lost to financial reorganization. While I rarely say this about anything the Bush administration does, I am truly impressed by their realization that our country needs proactive solutions instead of reactive responses.
We live in a world where we cannot be limited by dogma and ideology. Secretary Paulson, Chairman Bernanke & the Bush administration have realized this and we should all be thankful. In my article on moral hazard and the bailout of Lehman Brothers I expressed a deep frustration that the Bush Administration was not doing enough to save our financial system and our way of life, I would now like to just take a moment to applaud these men for their foresight and their move away from reactive responses to this financial crisis.
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This article has 20 comments:
Too big to exist.
you wouldn't happen to work for banksters would you?
In the most rosy picture, toxic debt will rise with at least 900 billion US$ a year for the next two years.
Let me explain:
The US financial sector is about 20% of the US economy and as such is about 2800 billion US$ a year in gross domestic product terms.
The total debt of the US fin sector is right now 16507.5 billion US$.
That is far above the GDP and in the most rosy picture it grows on exponentially with 5.4% a year.
Since it is above the GDP and grows faster than the GDP, large parts of the 16507.5 debt are in fact toxic.
5.4% is about 900 billion new debt, hence toxic debt grow in the fin sector is at least 900 billion a year.
__________
At last: The toxic debt that is bought by Paulson is mostly consumer related; houses, cars, student loans and so on.
All in all: 700 billion is not enough, 2500 billion or more would be better...
By WilliamBanzai7
Wall Street never changes. The pockets change, the suckers change, the stocks change, but Wall Street never changes because human nature never changes. - Jesse Livermore
The public’s annual loss to Wall Street has usually been estimated in former years at $100,000,000 per annum, but owing to the more recent enterprising methods of the “Street” in manipulating the game, this estimate is now far to small as we shall see.-Franklin Keyes (1904)
Conceit of the Street
Shortly after the explosion of the great “dot.com” bubble something happened that was to change the monetary affairs of all men on Earth.
The investment banking tribes had once again begun to proliferate and fill the Street. They spoke a new tongue--the tongue of rampant financial innovation. It was a strange tongue with words like synthetic CDOs, conduiting, CLOs, SIVs, bespoke swaps, CDOs squared, negative default correlations, binomial expansions and stochastic modeling. A tongue curiously reminiscent of the tongue of the House of ENRON.
The generations of bankers before the “dot.com” bubble, were believers in the fundamental laws of securities valuation and diversification. They were believers in the book of Graham and Dodd.
But the new generation of investment bankers was different. They stressed an opposite code of investing. The smart investor did not count. Their game was a vast pyramid of derivatives and mortgage backed securities. Had they confined themselves to this kind of financial life in a modest fashion, all might have been well. But the obscene fee income made possible by cheap leverage, financial engineering and securitization techniques made them ever greedier and in their hubris they thought they could beat the financial laws of thermodynamics.
They decided to build a great Tower of mortgage backed securities. With the Tower they would pillage the housing markets and at the same time seemingly eliminate all risk for themselves. Heads we win, tails you lose; that was their credo. The symbol of their invincible wealth, as they thought, was to be built in the shadow of the House of Greenspan. It would be squeezed out of Joe Public who was long disdained and exploited by the Lords of the Street. This time they would build tempt Joe with reckless mortgage loans supported by an “irrationally exuberant” real estate market.
According to the Lords of the Street, a new paradigm had emerged: financial risk could be sliced and diced into oblivion, cheap leverage is here to stay and housing prices can only go up. Many foresaw the folly of this enterprise. Buffet, the great chief of the House of Berkshire Hathaway, called the new instruments of invincible wealth, financial weapons of mass destruction. But the aging House of Greenspan was oblivious to the great folly unfolding before its jaundiced eye. The unbelievers were admonished to stay in Nebraska where they belonged.
Their Punishment
Finally, the Market decided to punish the arrogance of the bankers by destroying the tower. First, it, confused them by splitting them up into many greedy tribes, each with a tongue and agenda of its own, (hence the name Babel, meaning “confusion”). A new tribe, the Shorts, arrived and the hunters soon became the hunted. Alas, they were forced to subjugate their vast pools of CDOs and CDSs to the divine force of the Market. This ultimate humiliation came to be known as the “great MTM slaughter.”
When this happened, the Tower had to be abandoned. The various bankers would migrate in different directions. Many were fired. Others headed West to the Valley of Silicon, no doubt dreaming of other Babels ripe for exploitation—nanotech, infotech, biotech and cleantech to name but a few .
The Tower itself was partly burned and partly swallowed by the great Houses of Morgan, Barclay’s and BOA. As for the Great Houses of Goldman and Morgan, they were forced to pledge themselves to the Fed, under the wise and benevolent protection of Gentle Ben, the new master of the House of Greenspan. He who would later come to be known as “Father Moral Hazard”.
(Adapted by WilliamBanzai7 from the Biblical story of the Tower of Babel)
That includes their bundling into derivatives, of course.
That should raise a fair few billions in contributions to clearing up the mess they have made,
Hopefully they will join the homeless who suffer for their reckless endangerment of the financial system.
A little fairer than charging people who have in no way profited from these scams, I think.
Too big to fail? Then bankrupt them and split them up.
Liquidity should be injected into the system through new institutions set up for the purpose who would buy the assets of the failed institutions at their true market rate.
If anyone disagrees and thinks that taxpayers money should be used to prop up the present system, then they should be given the opportunity of leading the charge by putting up their own assets.
It's only forestalling the inevitable collapse of an economic system of the privileged, for the privileged and by the privileged with the complicity of a corrupt two party political system.
NO BAILOUTS!
The government wants to pony up $700B to save the very crooks that robbed us in the first place! This is the dumbest thing I've ever seen. If we are so stupid not to see this, we deserve to get hosed again.
It's time to bite the bullet, let the system fail and washout all the criminals and crooked politicians.
Banza.
A master piece .
Hows about changing the money bucket fire brigade . Instead of buckets of money , change to clubs and torches.
".......clubs and torches" Hmmm.....I think I like that.
(Tune of Beverly Hillbillies)
Come and listen to a story about a fine komrad named Hank
A szwanky Goldman banker, who ably kept his partners fed,
Then one day he was laughin at some AIG fools,
And up through the ground came a toxic derivative krude.
CDSs that is, fools gold, Wall Street tea.
Well the first thing you know ol Hank buys billionz of CDOz n szhares,
Taxpayers said "Hank move away from here"
Said Zheleznodorozhny is the place you ought to be"
So he loaded up the junk and shipped it overseas (to Moscow that is).
Szwimming pools, Oligarchs , and everything.
Well now its time to say good by to Hank and all his bailout kin.
And they would like to thank you kapitalist fools fer kindly droppin in.
You're all invited back again to this socialist locality
To have a heapin helpin of state hospitality
Set a spell, Take your white shoes off.
Do swidania, y'hear?.
williambanzai7.blogspo.../
(Charge of the Light Brigade, Alfred Lord Tennyson)
(Modified by WilliamBanzai7)
Half a trillion, half a trillion,
Give or take 200 billion, onward!
All in the valley of Balance Sheet Death
Rode the seven hundred billion tax dollars.
"Forward, the TARP Brigade!"
"Charge for the ABS Credit Default Swaps!" Hank said:
Into the valley of Balance Sheet Death
Rode the seven hundred billion taxpayer dollars.
"Forward, the TARP Brigade!"
Was there a politician dismay'd?
Not tho' the Congress knew
Some guy named Hank had blunder'd:
Their's not to make reply,
Their's not to reason why,
Their's but to do and die:
Into the valley of Balance Sheet Death
Rode the seven hundred billion taxpayer dollars.
CDOs to right of them,
CDSs to left of them,
AIG and the GSEs in front of them
Volley'd and thunder'd;
Storm'd at with Wall Street shot and shell,
Boldly that load of Federal largesse rode and well,
Into the jaws of Balance Sheet Death,
Into the mouth of subprime contagion Hell
Rode the seven hundred billion taxpayer dollars.
Flash'd all the workout sabres bare,
Flash'd as they turn'd in air,
Sabring the asset backed losses there,
Charging an army of tawdry bankers, accountants, and shysters, while
All the world wonder'd:
Plunged in the seedy subprime-smoke
Right into the red numbers they broke;
Lehman and Bear Stearns
Spared from the sabre stroke
Shatter'd and sunder'd.
Then they rode back, but not
Not the seven hundred billion.
Subprime CDOs to right of them,
Subprime CDSs to left of them,
Fat Wall Street advisory fees behind them,
Volley'd and thunder'd;
Storm'd at with derivative losses, asset backed shot and shell,
While level 3 zeros fell,
They that had fought so well
Came thro' the jaws of Balance Sheet Death
Back from the mouth of subprime contagion Hell,
All that was left of it?
Nothing left of seven hundred billion buckaroos!
When can its glory fade?
O the wild loss charges!
All the world wondered.
Honor the huge expenditures they made,
Honor the TARP Brigade,
Noble seven hundred billion taxpayer dollars.
(TARP--Troubled Asset Relief Plan of 2008)
williambanzai7.blogspo.../