Of course Congress had to wait till October to pass the $700 billion socialization of the American economy: October is, after all, the month best known for the Bolshevik revolution that brought Vladimir Lenin and gang to power in Russia.

How fitting, then, that the Senate and then the House will no doubt approve a measure that will have taxpayers bailing out bankers and putting the U.S. government into the business of running banks and mortgage houses (of course, it already does so with Fannie Mae and Freddie Mac and AIG.)

No one seems to be talking about the hidden cost of going from school to school and library to library to purge them of ancient texts that actually refer to the United States as having a free market place.

One thing that should by now be readily apparent: this crisis is really not about subprime mortgages and really never was. It is about the invention of a alternate banking system that was not regulated or really supervised in any way…a system that operated at a level of greed and probable criminality the likes of which we haven’t really seen in this country since the days of the robber barrons.

And, guess what? The robbery is still ongoing! Of course the bailout will end up costing $700 billion and probably more, even though we are being told it is unlikely to in the end.

Of course taxpayers won’t get their money back. Of course the proposed limits on executive pay will be worthless; companies will skirt this by just paying executives more with things such as stock options in place of straight salary, thus getting around the rule (provided it passes, of course.)

If Lenin weren’t so waxed lying in state in Red Square, he’d be smirking at what is happening in the U.S.

But as the great-grandfather of the October Revolution, he would certainly understand.

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Tags: $700 billion, bailout, fannie, freddie, housing bailout, mortgage bailout, paulson

Greetings from the metropolis of Cedar Crest, NM.  Where my weekends are filled with  youth football, soccer…and then some.  As I yell at my boys from the sidelines to hustle and tackle and kick….the number 700 billion creeps into the forefront of my mind.  What in the heck is 700 billion?

What can one say about 700 Billion?

 
What does that number mean?  I cannot even fathom seven hundred billion.  I am used to using such a label on the number of stars in a constellation (I am sure I am off a billion or so).  How about the number of grains in a sand pile.   How about how old the earth is (okay…I am exaggerating now…right?)  How about the number of cells in one’s body?

Next question is …how does someone come up with the number “700 billion” as the magic number to bailout our financial institutions?

Am I the only one that finds that odd…? “Oh….700 billion should do the job!”  What is the bank failure formula?

Either way…something must be done….right?  Either way….we are going to pay for it right?  By the time this blog is posted….congressional leaders will have approved a bailout plan of some sort….at least some of us hope so.

I am not sure where I stand on this….and I realize that it does not matter.  But what I do know is there will be a lot of opportunity for those who prepared for this.  Everyone else will be in survival mode.

What is the truth?

The urgency of our congressional leaders to act was strongly worded by Bernanke during a commercial break at the most recent congressional testimony……..

“Senators, we live in a world that has bonds and bad construction loans and those assets need to be bought by men and women with balance sheets. Who’s going to do it - you, Chairman Dodd? You, Senator Schumer? I have a greater responsibility than you can’t possibly fathom. You weep for Bear Sterns and curse the banks just trying to get their collateral; you have that luxury. You have the luxury of not knowing what I know: that Lehman’s bankruptcy, while tragic, probably saved firms and that my existence, while grotesque and incomprehensible to you, saves markets. You don’t want the truth, because deep down in places you don’t talk about at parties, you want me buying assets - you need me buying assets. We use words like “foreclosure,” “Discount Window” and “TARP.” We use them as the backbone of a life trying to defend something. You use them as a punch line. I have neither the time nor the inclination to explain myself to a group of media hungry politicians who rise and sleep under the blanket of the very liquidity I provide and then question the manner in which I provide it. I would rather you just said “thank you,” and went on your way. Otherwise, I suggest that you purchase a defaulted option arm and pay par. Either way, I don’t give a dang what you think the American taxpayer is entitled to.”

Well….700 Billion seems to be the magic number NOW……unfortunately….there will probably be another magic number in the near future.

Until next time…..rob

Photo Courtesy: Jakerome - No way, no how, no bailout.

Tags: $700 billion, bailout, bailout bill, bank, banking, mortgage bailout

We all know by now about the $700 Billion Paulson rescue plan he’s been attempting to stampede through Congress for the last week. But do you really know what’s in it? Do you know what those against it want in the plan before they sign on?

What Hank Wants

Let’s take a look at the three most important measures in the Paulson Plan:

(1)The Treasury Secretary is authorized to buy up to $700 billion of any mortgage-related assets [Sec. 6].

Let’s look at this more closely. This measure will allow him to purchase the mortgage “related” securities. The verbiage is really important here. Notice the plan doesn’t say “mortgage-back securities or whole mortgage, but mortgage “related” securities. The reason for this is the truly underwater investments crippling the balance sheets of investment institutions and banks, is the mortgage derivative investments.

A mortgage derivative is an investment product that really increase returns when things go well, and REALLY rack up loses when things don’t. Racks up losses so quickly and so large it freezes the whole secondary market function for mortgage capital…at least that’s what Paulson is contending. These investments are then sliced and diced into sub-products many of which are worthless now with no hope of recovery.

Can buying worthless investments make the banks whole again and by proxy then free up the secondary mortgage market? If you were contemplating bankruptcy due to some bad “investment/purchase” decisions and decided to have a garage sale to unload all your bad choices. Do you think selling me your 50 inch Plasma TV for $100 is going to make you whole again?

It won’t…but I digress. I’ll discuss whether the plan “works” or not next week.

(2) The ceiling on the national debt is raised to $11.3 trillion to accommodate this scheme [Sec. 10];

Pretty self-expalinatory…the Fed lends the US the money and in order to allow the Fed to print the money, the national debt ceiling must be raised. This is what puts taxpayers on the line for the payment of this rescue plan.

(3) best of all: “Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency” [Sec. 8].

This proviso is what I call the “Hank as King” measure allowing the Treasury Secretary to act without impunity, supervision, or regulation with his decisions on what to buy, what to pay, and what to ask for in return.

Isn’t it the lack of oversight, regulation, and prudent financial choices that created this mess in the first place. Now we are being asked to allow it again?

Wow! Paulson has no shame adding that power in to Section 8. It’s funny a “Section 8″ is also the code which allows for a military discharge for being crazy…and I think Hank is a little crazy if he thinks anyone is going to sign on to this!

Want Dissenters Want

The Congressional leaders who are currently voicing opposition to the rescue plan say they won’t pass anything that doesn’t contain provisions that have some accountability, require the government to negotiate an equity position in exchange for their investment (ala AIG), limit corporate executive compensation and/or the paying of dividends to stockholders, and mandate loan modifications to help home owners in foreclosure on mortgage assets the government buys.

Time will tell if this is more grand-standing than real objections.

Would this Paulson rescue plan work even if it passed? Could it make things worse?

That’s the topic for next week…so stay tuned…

Tags: $700 billion, bailout, Economy, Hank Paulson, housing, mortgage bailout, paulson, rescue plan