The Big Game – Congress Plays Let’s Make a Deal

| September 28, 2008

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Sadly, there is no surprise that the current government is stalking it’s way towards the largest block grant to the wealthy ever. Word from the press that the congress has come up with a $700B plan to save the bank accounts of people who make more money in a day than many folks will see in a lifetime.

Secretary Paulson has been beating the drum for a few weeks that this giveaway was crucial to avoid a financial disaster, and now it seems congress is going to give him his prize. The entire premise of this though is insane; why should we the people shield these wealthiest of companies from the mistakes they have made? Because we fear the stock market might go down? Where is it written that Wall Street’s indexes must be maintained at all cost?

The current problems were created by more than a decade of run away greed and mismanagement. These very companies that we are going to use our future earnings to save have made hundreds of billions of dollars from their shady deals that we now have to make whole. The talking points around this massive mother of all boondoggles look a bit like this:

The Credit Markets Are Vital To Our Economy – We Must Save Them At All Costs!

Like much of the populace, many many companies have become addicted to easy credit. 30 years ago it was possible to run a good profitable company without eternal access to revolving credit. If these credit markets were to fail, many companies would be hurt badly, some fatally. While this may sound harsh – in the long run it would be a good thing. Companies are in trouble because they made some bad business decisions, and have been progressively moving further from reality. This would cause reality to re-assert itself in the hard and cold fashion that only math and physics can. It would be a lesson that would stand for a generation and help lay the foundation for a much more sound economy.

Only The Paulson Plan Can Save Us – $700B (actually $1.2T) Or Else We All Get It

As I outlined prior, $1.2 Trillion dollars is a huge amount of money, but in fact given the total derivative exposure to bad debt that it outstanding right now, it is a drop in the bucket. In fact, there is not enough money available right now to stop what was set in motion last year. Their best hope is to delay the day of settlement in hopes their positions will improve. As we have seen in headlines, the contagion is already raging in England and the EU. Once China, India and Russia go, we will see things move very quickly. The longer we put that off, the more it is going to cost.

The Taxpayer Is Going To Make Money From This!

Here is how it works. Some bank made a loan for a California McMansion with $0 down to someone who waits tables (this did in fact happen). Total cost at $1.2 Million. That person never made a single payment, and now the bank owns that house. No one wants to pay that much money for a home, and the bank is unwilling to take what the market will pay. So they have now asked you and I to become joint owners at $1.2 Million in order to cover their mistake. The bright geniuses in DC, who somehow did not see this coming, think that some day, some fool is going to pay even more than that, and as a result (say 20 years later) we the people will make money from that sale. So how will these profits be distributed? Direct Deposit? Rebate Check? Oh no, they will go straight into the federal coffers to be handed out as pork and kickbacks. In the mean time, anyone who was prudent, frugal or wise enough to stay out of the real estate nonsense now gets to pay for it.

I am so angry I could spit at the moment. Clearly the money I have been saving for decades is under threat by these actions, what possible motivation is there to invest when the game is rigged?

So let it come down to this. Someone needs to start a legal fund to attack this thing on a constitutional basis – it would seem to violate the equal protection clause.

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Category: 2008 Election, Credit Backlash, Economics, Main, Recession Watch

About the Author ()

Bruce Henderson is a former Marine who focuses custom data mining and visualization technologies on the economy and other disasters.

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