Wednesday, September 24, 2008

Don't Bail Me Out, Bro! (part 3)

Whoa is me. There is a lot of anger growing about this bailout, especially about how it is getting rushed through Congress right now. Let's look at some of the quotes coming out.

Tony Fratto, the White House spokesman said that delaying this bill would be "unthinkable." He later described their intentions on getting a "clean bill" out and that he wanted to "remind everyone that just recently we passed a very large housing bill to help homeowners" and that if we don't pass this bill quickly, our economy would be in "a very very serious situation." That's two very's for the easily intimidated. C'mon, Tony, relaaax, have a drink!

I thought our economy was already in a serious situation. I thought gas prices and food prices were going up. I thought jobs were going overseas as they have been for decades (where's my bail out there?). And wait just a minute, back up, when did it become the federal government's job to manage the economy?

The facts seem to suggest that the policies that got us here -- the policies that are only sustainable by borrowing money from taxpayers and giving it to the financial community in ever-larger amounts -- are the only way we can continue to stay drunk on wall street. If you have any investments, you know that financial firms have been raking in money hand over fist. Are 20% annual returns a normal thing when you're not actually producing anything? I doubt it. Can anyone distinguish between the stock market and a form of regulated gambling these days? Most of these companies don't even pay dividends and their price per share/earnings per share ratios are so far off, you need the Hubble telescope to graph them.

And now that these guys are taking it in the neck, we are supposed to lend them money? Although $700 billion is on the table, the final cost of this hangover should easily reach $1 trillion of brand new money borrowed from us in the form of printing it, lending it, taking on the risk of default and then having the inflation trickle down like a bad game of Plinko.

Here is the sad truth. There is no good way out of this for any of us. The question is do we keep our $1 trillion in our pockets and gut this thing out, or do we lend it to rich, bad judgement guys, buy the debt no one else will pay that much money for, and hope they will spur the economy in a magic way that will promote growth (which is better known in Communism as Price Fixing)? That's been our model, by the way, to incur huge amounts of federal and personal debt and then justify it by "growing" our economy through consumption. But there is no intrinsic value in that, as anyone knows. No one has ever grown their wealth by buying stuff, especially on credit.

Our country needs to go through some tough times, whether we admit it or not; whether we do it now in an abrupt, honest way by saying "thanks but no thanks," or set ourselves and our kids up for something worse by shrinking our pain today into just a government regulated headache. Housing prices and wall street prices need to correct themselves. The massive public and private debt need to be paid down, not expanded.

Here is some language in the bill that is actually getting some Congressmen a little nervous:

** This bill authorizes the Treasury Secretary to purchase up to $700 billion in mortgage-related assets at any one time. That means $700 billion is only the very beginning of what wil hit us.

** Financial institutions are "designated as financial agents of the Government." Hooray for socialism! I thought we had fought Communism in the 80's, not embraced it.

** "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." This would make the Treasury Secretary, a non-elected bureaucrat, the most powerful man in our economy.

Jim Rogers, a really rich guy, said a month or so ago that the "US is more Communist than China right now." But Warren Buffet can't be wrong can he? He's certainly on the up and up, after all he just put $5 billion into Goldman Sachs. Looks like we need more and more regulation, eh?

I guess that means we're already on the hook for this thing. Warren Buffet never takes the losing side of bets.

Don't lose all faith. Only 7% of the American Public is for this thing. If you believe in democracy and local government, shoot off an email to your Congressmen and Senators and let them know how you feel about this deal.

Also, if you like drinking games, crack open a beer and tune in to President Bush's apologetics, which he is preparing now. Take a drink every time he says the following words or phrases:

"tough choices"
"toxic assets"
"can't afford"
"Great Depression"
"Secretary Paulson"
"Chairman Bernanke"
"make no mistake"

and if he mentions the war on terror or national security, finish your six pack.


Roller said...

Is it true that you're writing all these consecutive installments to keep Coovo from writing about the Cubs? I can see it now, Oct. 30, "Don't Bail Me Out, Bro! (part 42) - Dude, I just tried to get a loan for a new robot and no dice. What the hell am I paying taxes for?!?!?"

Another good post. Really.

In your last comment on the previous post, you speculated the the damage from a no bailout would be mostly contained to the financial industry.

I can't disagree with that, but I can't agree with it either. The truth is that I really don't know what to believe. I've heard a number of really smart people who do make their living in finances explain why there shouldn't be a bailout, and the same number of the same type of people take the opposite side. These people study this for a living; I don't.

So... my gut is against the bailout. This probably stems from the fact that I've been responsible with my finances and it bothers me to hear promises that the FHA will be helping people out who were willingly irresponsible with theirs.

But if someone were to ask me to explain why a non-bailout wouldn't have significant effects outside of the financial industry, I couldn't.

If I stated that students would still be able to get loans for college, people could buy cars, businesses could pay their employees would be a guess. As would stating the reverse.

Like I said, my gut says no. But it looks like it will get done, so I sure hope Warren Buffet is right.

Nicole said...

You are my new favorite person for writing all of these. You make more sense than any of the people on TV.

What are your thoughts on the politics driving this here and now? Watching G W Bush on TV tonight made me want to crawl out of my skin. (Mostly because anytime he says anything with "conviction" it convinces me of the opposite position). But, what thinks Sir Ryan of the timing and how the rhetoric is intended to effect the presidential race?

And, what will good old fashioned free market, anti-regulation, small government conservatives (are there any of those left?) make of the governments decision to nationalize the mortgage industry? Will they all just decide to forget about their fiscal conservatism and hold on tight to their guns, their millions and their pictures of Sarah Palin?

Ryan said...

Don't Bail Me Out, Bro! (Part 33): CUBs blow it again!

Rollerz, clearly, everyone is just speculating now as to what the damage would look like.

Intuitively, though, what should be happening now in normal business practice is that the business who are owed money should be canabalizing the businesses who owe them the money, going after their assets. I would also suspect that in more than a few cases, some men should be going to jail for fraud. And this is the situation we are being asked to infuse money into.

It would tighten the credit market in every aspect. But it would not eliminate the credit market. So, probably it would be harder to get the loans you speak of, meaning standards would be raised. That is probably a good thing for the long term, although it shoots are business model of growing our economy through rapid inflation through the foot.

It would hurt wall street. But this is a false hurt, since the prices are already inflated. The wealth there isn't real in most cases. The only way to prop up prices in the market is to inflate the dollar. Which is to say "we can keep your wealth gains of 20% annual returns, but only if we shrink the value of the dollar by 20%".

It's a no win situation.

$700 billion is primarily a guess that Paulson came up with (apparently) in like 2 hours. He has no idea. But just like the every day homeowner now who is trying to sell, they have to discount the price. These toxic assets have value, so the question is why should we give Hank Paulson authority with our money to make the best offer on Wall St. for these things?

Given enough time or a low enough price, the market will figure this out on their own.

Warren Buffet is acting in his own long-term interest. I have a feeling his investment is bailout-proof. Goldman is attracting investments from Japan as well.

Ryan said...

Nic, I didn't get a chance to watch Prez Bush on the boob tube last night but plan to watch it on the internet and review it in another installment.

The politics behind all of this is a great aspect of it. The conservative movement is alive and well, though just not entrenched in current power. At this point, all we can do is debate and educate and try not to make things worse.

(Someone did forward me a picture of Sarah Palin in a stars and stripes bikini at a backyard pool party holding a rifle. It was too good to be true, but a great photoshop job. How I hope that woman holds on to what I believe might be real conservative beliefs she is having to hide for McCain.)

Austin said...

No such thing as a bad game of Plinko.