Paulson’s $700 Billion bailout bill passed the House on a 263-171 vote and the President signed it into law. Last week I promised a discussion (assuming Congress would pass the bill) on whether or not the Bill would work. So let’s get to it..
Will the Bailout Bill Work?
First, this is a false question. Paulson and Bernanke scared Congress who in turn attempted to scare the voters by painting a picture of Main Street catastrophe…businesses going bankrupt, unemployment spiraling out of control, and no lending to consumers of any kind.
To discuss whether Paulson’s bailout will work to solve these calamities is to accept the premise they exist.
They do not.
Businesses today have availability of credit. Consumers with decent credit scores can get mortgages, car loans, and credit cards as easily today as last month or last year. Returning to sound credit underwriting principals should not be mistaken for a credit freeze due to lack of liquidity.
As a matter of fact, the only institutions that can’t get credit are commercial banks seeking overnight lending from other commercial banks.
That overnight bank-to-bank lending is the only “frozen” credit market …and many believe it was Bernanke himself who drained the liquidity out of the market intentionally leading up to the first vote so every news story would be about the TED spread and a “frozen banking system”.
Bernanke drained $125 Billion of liquidity as evidenced by the Slosh Report from September 18th to September 24th at exactly the time he should have been adding.
Why would Bernanke do this?
The Fed MANUFACTURED a crisis for Paulson to fix. Fix with $700 Billion of tax payer money that is. The Fed will pump liquidity back into the system once the bill is law.
This bill was nothing more than economic extortion. If I make you think I’ve kidnapped your child when I haven’t (giving you self-created “evidence” to support the claim) and convince you for the safety of your child to pay me a ransom, I’ve committed a serious crime.
Bernanke and Paulson have done nothing less…
If Paulson and Bernanke knew the American economy was NOT headed for collapse but simply used it to lay their hands on $700 Billion, the question arises…
“What is the real reason Hank and Ben want $700 Billion?”
That question will get answered next week….and you ain’t gonna like it!