An Experiment in Scotch

"I write to discover what I believe." Michael Lopp on Twitter

Tag: bailouts (page 2 of 2)

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.

FAIL">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.

YOURE FUCKING DOING IT WRONG!

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

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