Put the Banks Out of Their Misery Already
It appears that central bankers, and even the Obama administration, is considering upping the bailout ante by attempting to buy all the banks’ bad investments without liquidating them in the process.
This is a horrible, horrible idea and will cost taxpayers trillions more with little-to-nothing to show for it. Paul Krugman, who I don’t always agree with, explains quite lucidly the state of our banking system and why this latest “voodoo economic” plan won’t work:
But recent news reports suggest that many influential people, including Federal Reserve officials, bank regulators, and, possibly, members of the incoming Obama administration, have become devotees of a new kind of voodoo: the belief that by performing elaborate financial rituals we can keep dead banks walking.
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Sheila Bair, the chairwoman of the Federal Deposit Insurance Corporation, recently tried to describe how this would work: “The aggregator bank would buy the assets at fair value.” But what does “fair value” mean?In my example, Gotham group is insolvent because the alleged $400 billion of toxic waste on its books is actually worth only $200 billion. The only way a government purchase of that toxic waste can make Gotham solvent again is if the government pays much more than private buyers are willing to offer.
Now, maybe private buyers aren’t willing to pay what toxic waste is really worth: “We don’t have really any rational pricing right now for some of these asset categories,” Ms. Bair says. But should the government be in the business of declaring that it knows better than the market what assets are worth? And is it really likely that paying “fair value,” whatever that means, would be enough to make Gotham solvent again?
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Why go through these contortions? The answer seems to be that Washington remains deathly afraid of the N-word — nationalization. The truth is that Gotham group and its sister institutions are already wards of the state, utterly dependent on taxpayer support; but nobody wants to recognize that fact and implement the obvious solution: an explicit, though temporary, government takeover. Hence the popularity of the new voodoo, which claims, as I said, that elaborate financial rituals can reanimate dead banks.Unfortunately, the price of this retreat into superstition may be high. I hope I’m wrong, but I suspect that taxpayers are about to get another raw deal — and that we’re about to get another financial rescue plan that fails to do the job.
We’re down to two choices here people:
1. Let the banks fail and do nothing
2. Let the banks fail and have a national bank be the stopgap
Either way the banks will fail - it’s time to stop wasting taxpayer money on ridiculous bouts of financial “engineering”…
Inauguration Thoughts
For many this is a day to celebrate and over a million people will likely be present to witness this historic inauguration. For me, I just can’t do it.
Regardless of the changing of the guard, I simply cannot stomach the idea that one of the worst criminal organizations in the history of this country will be allowed to simply wash their hands of the destruction they have wrought the last 8 years.
The only way Bush, Cheney, Gonzales, Rumsfeld, et al should’ve been allowed to leave office was in shackles. If I believed in the death penalty then I’d say these treasonous bastards would deserve the same noose they hung around Saddam’s neck. But alas I do not, so I’d settle for sending them to Guantanamo or some other extraordinary rendition tortuous black site they helped create.
While this may be the dawn of a new day the scars of the past are slow to heal. And I for one cannot bring myself to celebrate…
The Speech
Full text of Martin Luther King Jr.’s speech, given on August 28, 1963:
I am happy to join with you today in what will go down in history as the greatest demonstration for freedom in the history of our nation.
Five score years ago, a great American, in whose symbolic shadow we stand today, signed the Emancipation Proclamation. This momentous decree came as a great beacon light of hope to millions of Negro slaves who had been seared in the flames of withering injustice. It came as a joyous daybreak to end the long night of their captivity.
But one hundred years later, the Negro still is not free. One hundred years later, the life of the Negro is still sadly crippled by the manacles of segregation and the chains of discrimination. One hundred years later, the Negro lives on a lonely island of poverty in the midst of a vast ocean of material prosperity. One hundred years later, the Negro is still languishing in the corners of American society and finds himself an exile in his own land. So we have come here today to dramatize a shameful condition.
Another Crackpot Idea From the Financial Wizards
A couple of months ago I had a phone conversation with Mike Sylvester where we discussed the original “95 cents on the dollar” government bailout - aka the TARP program. I told Mike that I thought the treasury department would eventually come back around to the idea of a reverse auction to buy up the worthless toxic assets owned by the national banks. While this seemed like a terrible idea it did seem better than a direct capitalization (i.e. handing them money) of the banks.
The reasoning was relatively simple. Until we remove the problem - the bad assets - giving banks more money wasn’t going to do anything. Of course that reasoning ignores the myriad of problems associated with buying the bad assets in the first place. The biggest problem is this - banks cannot financially engineer themselves out of this mess. There are real losses that are going to take place and that means some of these national banks are going to fail. The government has been unwilling to deal with that reality - Bernanke and Paulson continue to think that we can save them all. It will NEVER happen; something has to give.
So what is the latest crackpot “save them all” idea? Well, the original TARP idea of buying the bad assets is back in vogue but this time we’re going to have a national bank buy the garbage. This is truly the idiotic idea to end all idiotic ideas. Even uber-Keynsian Paul Krugman thinks it’s a bad idea:
The “bad bank” will pay “fair value”, whatever that is, for the assets. But how does that help the situation?
It looks as if we’re back to the idea that toxic waste is really, truly worth much more than anyone is willing to pay for it — and that if only we get the price “right”, the banks will turn out to be solvent after all. In other words, we’re still in Super-SIV territory, the belief that fancy financial engineering can create value out of nothing.
Color me skeptical. I hope the buzz is wrong, and that something more substantive is being planned.
Here’s the reality that we’re heading towards - a national bank. Yea, yea, yea, “the government shouldn’t run banks”, “it will be inefficient and wasteful”, etc, etc. Have you not been paying attention? The government already owns some of the major banks - some of them 10 times over. But we don’t need a national bank to buy worthless crap just to prop up failing private banks.
We need a national bank to
start from a clean slate. A national bank can take up the slack when the major private banks begin to fail. It’s a stop-gap against a complete monetary collapse as opposed to a long-term solution. If When things turn around the national bank can sell its assets to whatever private banks are left standing.
The only question left in my mind is how many trillions of dollars are we going to waste before we reach the only logical conclusion?
Economic Term of the Day
L-shaped Recession - defined via PennyJobs.com:
The L-shape recession is a recession that goes down and then stays there for a long period of time without a recovery. An L-shaped recession could last 20 years. An example would be the recession suffered by Japan in the 90’s, which they are still recovering from 25 years later.
This is the nightmare that nobody even wants to talk about. The Japan recession started when their economy was flying high and looked to be the next economic superpower. And it all started with a housing market meltdown which a few years later resulted in a stock market meltdown. The combination brought their economy to its knees.
Sound familiar? Here’s what PennyJobs wrote back in June:
The parallels of the housing market crash and the teetering stock market are staggering - especially if you add the other fundamental weaknesses plaguing our economy. The current economy downturn doesn’t have a shinny spot anywhere. America just maybe headed for an L-shaped recession, which will drastically reduce the average standard of living. Last week the nation’s net worth declined for a second straight month, declining by $1.7 trillion dollars.
So what can you do? Bail if you can:
As an investor, you have to get out of the country and out of dollars. If the government is going to let inflation destroy the value of the dollar, then you have to get your money out of dollars. This is very hard to accept as an American who believes in America and its ability to rebuild and adjust to any difficulty. The only way around this is to only invest in American companies that produce products for the rest of the world, because companies that produce products for American consumers are headed for bankruptcy.
Behold your future…
Obama nominee for Secretary of the Treasury, Timothy Geithner
Timothy Geithner has made some relatively significant errors on his tax returns.
The US tax code is so complicated that a person who works for an international organization like the International Monetary Fund should always hire an accountant to help them prepare their taxes.
Timothy Geithner made glaring errors on several years of his tax returns. This is understnadable in many cases because of the complexity of the US tax code.
Timothy Geithner has no excuse for not paying his payroll taxes since the IMF sent him a letter four times a year specifically reminding him to pay his payroll taxes.
Ignorance is one thing; however, he was sent four letters per year.
This is not a man I want to be in charge of the IRS.
He should not be confirmed. In fact, it is almost as bad as Charlie Rangel and all of his tax errors…
Mike Sylvester
More Democratic foolishness from the US Senate
The Roland Burris saga has not only been difficult to watch; it has been embarrassing for the Democratic Party.
He was appointed to fill Barrack Obama’s Senate seat by corrupt Democratic Governor Rod Blagojevich. Governor Balgojevich was asked not to appoint a Senator and every Democrat in the US Senate signed a letter telling him he should not appoint a Senator and that if he did they would not seat him.
It looks like they have now changed their minds…
In my opinion I feel that the appointment of Roland Burris by Governor Rod Blagojevich is legal and should stand as long as it is properly authorized by the State of Illinois through its normal legal process. To date, this has not been done; however, if it is done I feel Roland Burris should be seated.
The appointment process is the business of the State of Illinois and is not the business of the US Senate. The fifty Democratic Senators should learn the rules before they head for the microphones…
What a mess.
Mike Sylvester
Digital Television
Anyone who pays attention to either newspapers, television, or radio knows that on February 17th, 2009 the nation is switching from analog to digital television. The government has done everything in its power to educate the public on this matter.
I cannot imagine how anyone could not realize that this change is coming in a few weeks.
The Government is so worried that people will be angry about the switch that the Government put aside 1.34 billion dollars to help subsidize the change to digital television. Basically consumers can apply for up to two coupons per household. The converter boxes cost $40 - $80 dollars each and the coupon is for $40.
Basically the Government has decided to help consumers switch to digital television.
When did it become the Government’s job to ensure Americans can watch television?
Please realize that Congress agreed to the change back in 2005. This is something that has been in the works for about four years…
As of January 4th, 2009 the Government ran out of coupons…
So now the president elect’s transition team wants to postpone the switch to analog television. The head of the president elect’s transition team (John Podesta) said this in a letter to Congress:
“With coupons unavailable, support and education insufficient, and the most vulnerable Americans exposed, I urge you to consider a change to the legislatively mandated analog cutoff date.”
I am just curious, is there ANYONE reading this blog, even die hard Democrat Kevin Knuth, who thinks this is a reasonable request from the Obama transition team?
Good grief, we have serious problems in this country and these morons are worried about people who are too ignorant to ensure that their televisions will work…
Mike Sylvester
Local car dealers excited by Federal bailout of GMAC
GMAC mostly handles car loans for GM.
Due to the “credit crisis” GMAC tightened their lending standards over the last couple of months so that you could only finance a new car if your credit score was 700 or higher. Note that 58% of Americans have a credit score of 700 or higher.
The Federal Government got involved and used six billion dollars from the TARP program to bailout GMAC. GMAC is now extnding new car loans to Americans with credit scores of 621 or higher. This expands the percentage of Americans who would qualify from 58% to 79%.
Much of the downturn we have experienced is due to loosened lending standards. In its infinite wisdom the Government is giving GMAC money so they will lower their lending standards.
Why are the inmates running the asylum in Washington DC?
Please speak up if you think the Government should have given GMAC money so they would lower their lending standards.
Mike Sylvester
Minnesota Senate Seat
The race for the Senate in Minnesota in November of 2008 was extremely close. Infact Coleman (The Republican) led by a couple of hundred votes immediately after the election. A recount was performed and after that recount Franken (The Democrat) now leads by 225 votes.
I have followed this recount by reading Republican and Democratic news sources.
Both candidates and their campaigns have acted in an insulting fashion and have attempted to get certain votes counted they felt would favor them while at the same time trying to get votes they feel would help that other candidate eliminated.
The Secretary of State has closed the recount and determined that Franken (The Democrat) won by 225 votes. There were a couple of million votes cast in this contest. It was an extremely close race.
I feel that Al Franken (The Democrat) should be seated and that the State of Minnesota should carefully analyze their election process and see what they can do to improve it. They especially need to look at how their absentee ballots are handled.
I now hear that some of the Senate Republicans may filibuster the seating of Al Franken (Democrat) until Coleman’s legal challenges are resolved.
The Senate Republicans need to get a grip and move on. Elections are handled by the States and the Secretary of State of Minnesota has certified Al Franken (D) as the winner.
Al Franken should be seated and the Republicans should move on.
Mike Sylvester
