When A Billion Isn’t Big Anymore

Not so long ago, a billion dollars was a lot of money. Now? Not so much. This morning, news on the wire says Obama is setting aside $75 billion to slow foreclosures. First of all, where did that $75 billion come from that he’s setting aside? Oh yeah: “committing $75 billion of taxpayer money to back the initiative.” Tax payer money. Right. Yours and mine. Helping slow down foreclosures.

Second, what’s the plan gonna look like?

“The plan I’m announcing focuses on rescuing families who have played by the rules and acted responsibly: by refinancing loans for millions of families in traditional mortgages who are underwater or close to it; by modifying loans for families stuck in sub-prime mortgages they can’t afford as a result of skyrocketing interest rates or personal misfortune; and by taking broader steps to keep mortgage rates low so that families can secure loans with affordable monthly payments,” President Barack Obama said in prepared remarks.

That sounds awesome. It’s a plan for people who played by the rules and acted responsibly. Anyone could support that, right? Oh wait a minute. “Refinancing loans for millions of families in traditional mortgages who are underwater or close to it”? Why would we do that? If they are in traditional mortgages, their payments aren’t going up and they aren’t at risk for foreclosure. They just happen to have an asset that is worth less than they paid for it. Why in God’s name would we try to artificially support the price of those assets? All that part of the plan will do is tempt normal people to try and get in on the government teat for a little milky goodnesss.

What about this part? “by modifying loans for families stuck in sub-prime mortgages they can’t afford as a result of skyrocketing interest rates or personal misfortune;” Hold it right there. Those people didn’t play by the damn rules. They bought too much house and they should be foreclosed on. They didn’t act responsibly. They acted irresponsibly. We’re rewarding people for being stupid which will only serve to encourage people to act stupidly in the future. Our government is like anti-evolution.

And that last sentence? “and by taking broader steps to keep mortgage rates low so that families can secure loans with affordable monthly payments,” In the name of all that is holy, that is the dumbest thing I have ever seen written in public. A) Mortgage rates are at AN ALL TIME LOW! Is the man so empty that he doesn’t know that? Or is he just counting on the fact that the American populace has become so numb and stupid to the entire fiasco that nothing will happen when he says something so stupid? On top of that, we don’t need broad steps to secure loans with affordable monthly payments. Throughout time immemorial, people had affordable monthly payments without 75 bill-ya-fucking-dollars worth of taxpayer money. They did that by BUYING HOMES THEY COULD AFFORD.

Here’s what we’re doing. We have a damn crisis that was caused by greed, stupidity and a whole wad of cheap money courtesy of Alan Greenspan. We’re fixing the crisis by giving stupid people more money instead of looking at them in the eye and saying, you are a stupid fool and you need to learn from this mistake. I cannot believe that people aren’t rioting in the streets over things like this. What scares me is that some day they will be. But it will be because the government has finally turned off the spigot and people, who by that time will have become surgically attached to the government largesse, will riot because they think they deserve a free ride.

I hope I live in Belize by then.

Bailout FAIL

So let me get this straight. Given how well the past 5 or 6 bailouts have worked, our government has come up with a new one that will “bolster consumer financing“. The theory (horrible though it is) is that by giving lots of money to banks, they will make financing and credit available to consumers so that they can borrow more money (even though the average consumer is up his testicles in debt) to spend while the bank then charges an exorbitant interest rate in the meantime. I have 5 words to sum this theory up.


Understand, the money that our government would give to the banks that can’t keep their balance sheets clean is OUR MONEY TO BEGIN WITH! It’s taxpayer money. We gave (and I use the term “gave” rather pejoratively) that money to the government and now they want to give it to Citibank so that they can loan our own damn money back to us at 16% interest. How can the US consumer and citizen not see through this? Why aren’t we rioting at the gates? Have we become so immune to this kind of horrible representation that we just don’t care anymore?

God, this crap is starting to infuriate me. I try to be measured and reasonable but seriously, when my own government tries to loan me my own money through an intermediary who charges me loan shark type interest, I lose all sense of measure and reason. Fucking assholes. Give me my money back directly and dispense with the bailout crap. WTF. Idiots. We are being governed by idiots who are taking pails of shit from the financial pig pen, throwing it at the wall and trying to see what sticks while interpreting the Shit Rorschach to determine what pail to try next. Idiots.

Wells Fargo Chairman Prefers To Save His Own Ass

Bloomberg is reporting that Wells Fargo Chairman Richard Kovacevich prefers the latest plan from the US to invest directly in banks through stock purchases over the original plan to buy up toxic assets from troubled banks. Of course he prefers this plan, it’s the one that works best for him as the CEO of a major bank. However, it’s also the plan that bends the American taxpayer over and has him grab his ankles for the next 5 years or so.

In case you hadn’t heard, Hank Paulson is now selling us on this plan to partially nationalize the banks of the nation as a way to get the economy going again. The problem is, we’re getting practically nothing out of our $250 billion dollar investment. We’re not buying preferred shares, we’re not getting a guaranteed interest rate, we’re not getting seats on any of the boards of these banks. We’re just a really big investor, nothing special at all. Warren Buffett got an infinitely better deal when he bought into Goldman Sachs a few weeks ago because he got preferred shares paying a 10% dividend plus the option to buy more shares at 10% below the strike price of the shares he bought. He got all this with a mere $5 billion dollar investment.

The American taxpayer, via our buddy Hank Paulson, is investing 50 TIMES THAT AMOUNT and yet we’re getting a much, much worse deal. We can’t force the banks to use the money to lend, we don’t have the option to buy more shares at a lower price and since we’re not getting preferred shares, we get a shitty interest rate return. There is nothing good about this plan for us and everything good for people like Wells Fargo Chairman Richard Kovacevich who gets a basic free $25 billion investment.

And the dog-shit icing on the elephant turd cake is that we’re not even solving the right problem. It’s not a liquidity problem that is causing the economic markets to tighten up their collective lending assholes, it’s a trust problem. We’re basically throwing a trillion dollars at the wrong problem. Anna Schwartz talked about this in this weekend’s Wall Street Journal. I strongly urge you to read that article to understand why we’re in so much trouble. We’re being led by people who don’t seem to be able to determine what the problem is, much less how to solve it. Either that or they are kowtowing to public opinion and when the original plan, which did address the correct problem, didn’t serve to immediately relieve the financial markets, they folded like a house of cards and went looking for a way to get immediate gratification.

Back to the original theme of this post, in the original plan to buy toxic assets from banks, we would have been addressing the central problem of trust. Currently, banks don’t know who to trust so they are refusing to loan to other banks. They have this sense of distrust because they have no way of knowing how much worthless shit is sitting on the other banks’ balance sheets. Until that distrust is resolved, we’re likely to continue to have a very cold credit market. If Paulson and Bernake would have stuck to their guns to buy toxic assets, at least banks could start to feel comfortable lending to other banks. Once that happened, the credit markets would start to loosen and money could start to flow again. It was a bailout that actually had a chance of working.

As it is, we’re about to flood the system with an insane amount of money, probably leading to a scenario where hyper-inflation terrorizes the dollar in a year or two and on top of that, we the taxpayers are getting a deal that’s almost guaranteed to not make us money. Welcome to your US government. It’s gonna be a fun ride.

Root Causes

I’ve been reading a lot of articles lately related to the bailout specifically and our crappy economy in general. More and more, a nefarious little meme is showing up and it’s starting to drive me insane. Tim at The Mess That Greenspan Made has been harping on it as well. It’s usually subtle, placed 7 or 8 paragraphs in and you can easily glide over it and never notice. That meme is that the root cause of all our problems is falling house prices. Which is ridiculous. That’s like saying the root cause of the stock crash in 2000 was falling stock prices. Guess what? That’s just a symptom, a happy after effect of the old “What goes up must come down” saying.

Falling house prices aren’t the root cause. House prices rose too far, too fast in much of the country and what we’re seeing now is a much needed correction. The root cause of the problem is the easy credit lifestyle and cheap money that’s been going on since the 80s and 90s. Too much money is chasing too few assets and this results in huge bubbles like we’ve seen in the stock market and the housing market. Until you have some semblance of sanity at the Fed, we’re going to continue to be in problem because even if house prices stabilize and start going up, the real root cause is still going to exist and will create another bubble somewhere else.

Until we have an economy that isn’t driven by consumers spending money they don’t have on things they don’t need, we will continue to see bad economic times. Sadly, I think that may not ever change and that eventually, demand for government intervention will grow so high that we’ll operate in a market much more like Europe than America. Hopefully, I’m just being pessimistic.

The Bailout (the short version)

Via The Mess That Greenspan Made