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Crassus, Fire Sales, TARP, Buffett and You By Charles Payne

Much is being made about the government making money from the TARP program, while Ally (nay GMAC) is ready for a hot IPO. It really bothers me that this narrative is being pushed forward as it opens the way for future government intervention that masks power-grabs that usurp the rights of businesses and ordinary citizens. Of course, in the end, what we are seeing with TARP and other bailout schemes is the same mentality of private gains but public losses.

In other words, the banks that ran aground were saved by taxpayer money yet those same banks never shared their profits with taxpayers.

I don't want their profits, and if I do, I will invest in their stocks and bonds. By the same token, these banks and other big businesses should never have access to our tax dollars.

Interestingly, this kind of scheme isn't new. Long before Hank Paulson concocted a plan to create liquidity at banks, ostensibly by buying bad debt, another politician used a form of persuasion to create a fortune.

Marcus Licinius Crassus was born in 115 BC into an aristocratic family whose stripped wealth he was determined to regain. He became an understudy of Lucius Cornelius Sulla, the only man in history to attack Athens and Rome. In fact, in the battle between Optimates (best men) and Populares (favoring the people), he attacked Rome twice and eventually revives the title of dictator. Interestingly, Crassus eventually formed the Triumvirate with Pompey and Caesar, who later merged elements of Optimates and Populares, or naked populism with oligarchy. But this story is about Crassus, whose name only faintly floats through time and history even as the leader of the slave revolt he put down, Spartacus, is known to even small children.

Crassus built his wealth through political connections, silver mines, and slavery. In fact, it was his army of slaves that sent his wealth over the top in real estate. Rome had no public fire department so whenever a home caught fire it often meant total destruction. The only hope was the private fire department of 500 slaves run by Crassus. When he showed up at your engulfed home he made you an offer you couldn't refuse. That offer was lowball and got lower as the flames spread.
Once the home was sold, the army would swiftly put out the fire and the house was restored. The former owners could move on as their former residence was being flipped or sometimes they were allowed to stay as renters.

Some estimate Crassus was the richest man in history with his net worth reaching 200,000,000 sestertii, or in today's dollars and adjusted for inflation, $1.7 trillion...more than the entire Roman Republic.

Although he was bestowed with the title of "Magnus" or "Great One" before winning any battles, Crassus did win some battles, although "God's Crucible" (a pro-Islam book) says he lacked serious military experience save for the slaughter and crucifixion of seventy thousand rebellious slaves. The Triumvirate divvied the world, with Crassus taking Syria which would be his springboard to the East (Pompey got Spain and Caesar had Gaul). Crassus was killed in battle against the Parthian generals that used horse and camels and techniques to befuddle the normally disciplined Roman army.

But the blueprint was in place, and I contend it was employed. You could argue the goal of the Bush Administration and its implementation of TARP came from the Optimate school of thought. The Obama Administration employed Populare rhetoric even though it was bailing out the oligarchy, but is also trying to make itself rich in the process- "Rich" financially but more importantly, politically. Instead of 500 slaves carrying buckets of water, government had millions of voiceless taxpayers pouring all their hard earned funds over a fire sparked by greed and stupidity. Or, maybe, these best men just knew they would be bailed out and didn't care.

TARP was announced on October 14, 2008. The Dow closed at 9,310 that day. When it closed on October 15, 2008 the dust settled at 8,577. No matter what the government was going to buy, bad paper or stakes in banks based on loans, the price got cheaper for government. Banks were forced to take money, even those that didn't need a bailout (not sure if that's Goldman or not). Somewhere Crassus was smiling. The shock and awe of playing this out in public enhanced the spectacle and further pressured banks. Later, the so-called stress test was announced on February 10, 2009, at the time the Dow closed at 7,888, a month later it was 6,547. Of course, some banks needed to raise money; it's really amazing there weren't classic runs on all of them.

(Every bank that had to raise private capital had already gotten TARP funds: C $45.0b, BAC $45b, WFC $25b, MS $10b, PNC $7.58b, GMAC $17.3b, STI $4.85b, BBT $3.1b, FITB $3.4b and KEY $2.5B.)

So, the government yelled fire in a crowded country and fanned the flames of confusion with layers of fear and anger. Banks took on loans whether they wanted to or not. But the government knew these banks would pay them back so they threw out initial estimates of losses that would later set them up in a heroic manner when the pain wasn't as awful as advertised, and in the process, dismiss detractors.

I'm actually a bigger detractor now than I was back then. I initially thought the idea of buying "bad" paper on the cheap would allow the wheels of commerce to keep grinding away. I don't think that was ever the plan, however. I think it was all bait and switch pushed by arbitrary timelines that exacerbated the meltdown.

Now, AIG wants to buy back its paper sold to Maiden Lane II with funds printed up at the New York Fed. The entity had to cover for the $20.5 billion in CDS AIG printed up to cover collateralized debt obligations. Now that paper held is worth $12.8 billion after handsome interest payments and pieces have been sold off. AIG is proposing to take back the paper at a $1.5 billion profit to ML II. The paper is worth much more, so it seems Barclays and Credit Suisse may jump in with their own bids. (No word on ML I developed to facilitate the JPM/BSC merger, taking out $30.0 billion in debt from Bear's mortgage desk. There is also ML III that involved the Fed coughing up $24.339 billion.)

The TARP isn't a success. There will be billions of dollars lost on AIG, GM, and 142 small banks that just missed their quarterly interest payments in February up from 123 in November, 115 in August, and 91 in May. This is all without even mentioning Fannie and Freddie. Beyond the money, and even more important, we have to understand we were played. In the midst of a fire we didn't set, but were forced to put out so the populists and oligarchs could keep all their chips even as they never stopped waging their public war against each other. At some point, we will wake up and understand we are caring the buckets of water no matter who's calling the shots.

Today's Session

All the chatter is about Berkshire Hathaway (BRK) and the abrupt resignation of David Sokol, who many considered the heir apparent to Warren Buffett. There are many questions, and rightfully so, given Sokol's purchase of Lubrizol ahead of Berkshire's massive takeover bid for the company. I think the real issue is the image of Warren Buffett being a throwback to the days of the Saturday Evening Post, a down to earth billionaire who owns simple companies that employ regular Americans. Considering all the (known) baggage of other billionaires this is a guy our kids could look up to.



The question today is can you become a billionaire without harming others, crushing rivals, lying, or stealing all the way? This week it was revealed in his new book that Paul Allen felt Bill Gates was trying to steal some of his shares in Microsoft (NASDAQ:MSFT) as the co-founder was in the hospital battling cancer. The world's richest man has never taken a picture where he didn't look pissed. Carlos Slim has the eyes of someone that fears nothing...death or man. Tell me what you think. Take the poll at www.wstreet.com.

Global news is still impacting the market, but in the most subtle ways. Just think a couple of weeks ago our stock market recoiled from the thought of a lingering nuclear crisis in Japan. It wasn't long ago that bad economic news from Europe sent our stock market into a tailspin, now we know the sun will come up in the morning and there will be a sovereign debt ratings downgrade. It's interesting we have become so sanguine about these things even as worst case scenarios become realities.

I don't know if that's good or bad for the soul.
Be that as it may, we have to pay attention to Portugal, where the 2-year yield hit 8.172%, moving it above 8.102% for that nation's 10-year bond. There is palpable fear of a complete government shutdown, failure, and bankruptcy.