Sunday, February 8, 2009

The bank bailout trial balloons

Treasury Secretary Geithner is now going to give his speech on the bank bailout Tuesday, as it appears there now are many moving parts to the bailout of the banking system, so Treasury is doing what politicians do best.

Throw some trial balloons out in the Sunday paper to gauge the public's response.

And say that Geithner is needed for the stimulus package Monday instead of the banking solution. Yes, that stimulus plan, created to offset the banking crisis, while Treasury floats trial balloons.

Why don't they trot out Bernanke to go and endorse this stimulus plan? Last January, when we were already in a recession, Bernanke said that Bush's stimulus plan would help the nation avoid a recession and job losses. Then he said, "We’re not forecasting recession but, rather, at this point, slow growth." Spend two minutes to watch a clip from Bernanke here!

Look at a couple of these beauties these geniuses have come up with in their new plan. First they are going to rename the (TARP) Troubled Asset Relief Program, to improve the bailout image!

Is that suggestion for real? If they want to improve the bailout image, they just need to help homeowners with substantial loan modifications instead of jamming them into foreclosure.

They are also thinking of expanding the power of the FDIC, to help dismantle large financial firms. Their thinking is that if such an institution was in place, they could of done something with institutions like AIG or Lehman.

Is that suggestion for real? $150 billion and counting for AIG, and bonds that paid less than .08 cents on the dollar for Lehman in credit default swap land, while wiping out every other holder of Lehman's paper, and these people want us to believe that they could of prevented this?

Government meddling in the liquidation process only guarantees one thing. That the assets will be disposed of in a firesale manner that will cost the taxpayer money, and once the new institution has the assets, the goods loans will be cherry picked, and the bad loans will be backstopped by the FDIC. The FDIC doesn't care one iota of helping the homeowner. That is just for show. They are only concerned about pretending that the system is functioning, even if it means you have to have a gigantic transfer of wealth from the taxpayer to the wealthy acquiring institutions.

But that's my opinion. To placate Wall Street, I'll quote the IMF: (I'd give you the link, but the IMF took the paper down from it's website! So you have Google cache instead.)

Existing empirical research has shown that providing assistance to banks and their borrowers can be counterproductive, resulting in increased losses to banks, which often abuse forbearance to take unproductive risks at government expense. The typical result of forbearance is a deeper hole in the net worth of banks, crippling tax burdens to finance bank bailouts, and even more severe credit supply contraction and economic decline than would have occurred in the absence of forbearance...

All too often, central banks privilege stability over cost in the heat of the containment phase: if so, they may too liberally extend loans to an illiquid bank which is almost certain to prove insolvent anyway. Also, closure of a nonviable bank is often delayed for too long, even when there are clear signs of insolvency.

Government entities are run for show, and are all fluff and no substance. Let's use Madoff as an example. The SEC had the complete story of this $50 billion dollar ponzi scheme handed to them on a silver platter, by Markopolus and they do nothing. When the SEC testified before Congress, every individual from there opened their statement with this:

"...was not permitted to speak about the current investigation involving Madoff, or any previous investigations or incidents involving the SEC and Madof.."

If you missed that hearing, you can watch it in it's entirety here:

But catch a $44 million stock selling scheme to European investors with inflated commissions and their headlines are, "SEC Halts Massive International Boiler Room Scheme."

And now, we have the Treasury Secretary floating trial balloons as the solution to the crisis!

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