phermes

The Benefits of a Bailout Plan

The bailout is not the end, it is the beginning - the "toxic" debt that exists in the world in the form of CDOs and CDSs - which Warren Buffet called "weapons on financial mass destruction" - is in the hundreds of trillions of dollars, and everyone is beginning to notice that the emperor has no money. Banks are bankrupt, with up to 30X their "reserves" out in credit (they are essentially printing money, some say counterfeiting) and leveraged to the gills on air - otherwise known as toxic debt. Who is complicit in this? From the bottom up, mortgage companies (and of course the silly subprime people who believed them - but I watched these guys at work, and the average American was no match), then the banks and investment banks who packaged this garbage into CDOs, in essence creating more "wealth" based on sheer BS. Enter the investment banks and monoline lenders with another brilliant financial instrument based on sheer nothingness - the credit default swap, essentially an insurance on your toxic debt packages - except, oops, there were no regulations in place to insure that the insurers actually had the capital to pay off when the depts went bad. (We would want some rules to spoil the fun.) Wait, I'm not done. Moody's and other credit rating agencies are in there, with AA and AAA ratings of this junk - the ratings allowed the shill game to go on. Finally, the Fed, Greenspan (as scapegoat), who kept interest low, allowing real estate prices to skyrocket to unsupportable levels while at the same time sucking in more subprime buyers. And then, congress, who allowed the whole thing to go on.

Listen, this is only a surprise (or a pretend surprise - "Gosh, how did this happen?") to pundits and commentators. I sat down with a mortgage guy 4 years ago and previewed the whole scenario - and I'm no economist; I'm a marketing person. Obviously the ARMs and other clever mortgages would not fly, obviously people would default, and they were the bottom cards in the house of cards. (It's more complex than this - overleveraged corporations with no organic growth in decades play their role, but space forbids...)

Meanwhile, we have a country that doesn't need to bailout a failed banking industry (and reward the criminals - yes, criminals; they had motive, intent, and they destroyed lives - with the ability to recoup their losses and continue on) - it needs to find a way to reinstate its stripped-mined manufacturing base, where real wealth is created. $700 billion would have gone a long way in low interest loans to viable industries, particularly leading tech in renewable energy that would place us in the lead in the vital category. Instead that money (remember, money is only potentiality - it is no longer backed by anything but faith, promise and belief) is going to the very people who created the problem. It didn't, as our politicos have said, shore up the economy. It shored up a house of cards run by greed that cares not a whit for country or people. And therefore, it shored up a system that will fail again and again in exactly the same way - this "sudden crisis" is as old as the banking industry and we have just prolonged it, maybe bought a respite, and paved the way for a worse fall that will have everyone throwing up their hands again and going, how could this have happened?

Time to wake up. If you reward bad behavior it tends to persist. I'm sorry, but people dealing in trillion dollar transactions that decide the fate of nations - and the men, women and children who live therein - need some rules to live by. So banish the word regulation from your vocabulary if it makes it impossible for you to think. And tell me, what human endeavor do you know that operates without any rules?