Monday, March 23, 2009

Cash for Trash

The government is counting on the mind-numbing fatigue of the depression of “animal spirits” this past nightmarish year or more to push through their latest welfare bill for bankers that act like hedge fund managers, hedge fund managers, and the assorted at-liberty investment banker and wealth-diminished high net worth individual or private equity fund.

Paul Krugman, Leo Kolivakas at and others have pretty well stated my views.

It comes down to massive moral hazard as a national ethos.  Everyone is equal, but some are more equal than others.  There are really no bad decisions, only unfortunate outcomes that the government can fix.  We don’t hold grudges against the same crowd of people who feathered their nests creating this mess, and now would like to feather them again “cleaning it up.”

The way capitalism works is that when a bank’s management screws up, among claimants equity holders take the first hit, then debtors.  Then if the bank is insolvent, you ask the government to step in.  In the old days, as Krugman says, heads would roll, the feds would come in and take the place over, then sell it off to competent managers.

The markets for toxic assets are frozen because they’re waiting for their bailout.  The commercial banks couldn’t afford to mark their toxic assets down or sell them.  Now the feds are going to provide for the banks to get somewhat higher than “market value” prices with their non-recourse leverage, but as Rolfe Winkler points out, who else without access to the funny money will be able to afford to pay the same prices?  This newly liquid market could calcify quickly.  Thus, the feds will have to pump up all the markets for the next several years to help the hedge funds find suckers to sell this stuff to.  Lots of luck.  The current market prices are probably entirely rational, looking ahead to the tsunami of rate resets and probable defaults over the next twenty-four months.

This is financial fascism, perpetrated by the New York and Washington financial oligarchy centered on Goldman Sachs.  If history rhymes, as these folks bankrupt the country and send the vast majority of Americans into heavily taxed wage-slave immiseration, with no sense of control whatsoever over their country’s government, the oligarchs will be looking for a war to send the youth of America off to fight and die in.  Look for that in about ten years.  But they may get themselves a revolution instead.

We now know that Barack Obama is no Franklin Roosevelt.


  1. The problem, if you don't mind me saying so, is pretty simple.
    There's only one business school - curriculum, that is.
    To be blunt, the way OUT of this is NOT forward.
    It is back.
    To 1933.

    When FDR was handed something called the Chicago Plan for monetary reform.
    ALL the bloggers need to understand a simple truism.
    Either we will play out PRECISELY the game you have identified, or we will have a monetary transformation in this country.
    Banks will go back to banking.
    Money-creation will be restored to the government.
    We will not pass Wall Street and pay their tax.
    We will issue our own money.
    As Milton Friedman called for in his 1948 paper:
    "A Financial and Monetary Framework for Economic Stability".
    It's the same as the progressives who wrote up the Chicago Plan identified for FDR as getting OUT of this federal reserve fiasco.
    THAT's the revolution you want.
    Either that , or immiseration.

  2. These Obama KoolAid drinkers are the end of this country as we know it. Its very sad. I hate them all for being morons.

  3. It is always deeply disturbing when I agree with Paul Krugman. But even a stopped clock is right twice a day.

  4. Its cool, I'm not paying back my student loans...

  5. Hating people for being morons is self-inditing. Hating Bush deregulating crooks is another matter.