Sep 22, 2008

On the $700 Billion Bank Bailout and Business as Usual

As an American taxpayer, it is with more than a little suspicion that I view the proposed $700 billion "rescue plan" cobbled together over the weekend by Treasury Secretary Henry Paulson and the so-called Financial Services Roundtable. I find it especially ironic that Wall Street bankers - ostensibly some of the most fervent worshippers at the altar of what I like to call the Cult of the Invisible Hand - turn to the federal government when times get tough.

The assumption by the federal government of the "toxic debt" at the root of the financial meltdown means that every man, woman, and child in the United States - over 300 million of us - is on the hook for over $2300 apiece. Of course, given the fact that those who actually pay federal taxes is much smaller (one estimate places the number of Americans outside of the federal income tax system at 120 million people), the burden on taxpayers will likely be double the above amount.

Of course, ultimately the cost of the bailout will find its way into higher prices, so those lower-income people who dodge the tax bill will just get soaked in other ways.

In essence, the bailout is a form of financial extortion being used against ordinary Americans who pay their bills, save for the future, and have some assets at jeopardy in the event of a global financial implosion. Should the government fail to act, argue the supporters of this financial largess, there will be danger to every retirement account, every dollar of home equity, and every nickel not stuffed in a mattress.

So it is with considerable anger that I write these words: my vitriolic tirade I direct against members of Congress, our President, and the federal agencies that are supposed to be monitoring the financial markets. I have no choice and only a small voice in the resolution of this matter, and once again I have to watch the federal government step in to fix a mess created by wealthy bankers with the complicity of our elected officials.

Yet the federal government can while away and ignore reforms of such items as the national health care system and Social Security for decades. Support for education continues to languish, and good-paying manufacturing jobs disappear to low-wage employees in distant nations at an alarming rate.

The genuflection of the administration and Congress at the feet of the crooked financiers is yet another piece of evidence of how the middle and lower classes in the United States get screwed to line the pockets of the wealthy elites. This is a rigged game, folks, and anyone who believes otherwise is a naïve fool.


dr-exmedic said...

I'm actually writing my reps; I don't imagine we can stop a bailout, but it would be nice if we can at least keep it from screwing us as much as the most recent plan.

A bunch of people smarter than I am weigh in on this here.

historymike said...

Thanks for the link, Dr. Ex-Medic. An interesting comment in the discussion revolved around the fact that libertarians AND social progressives should oppose this bailout - libertarians on free market principles, and social progressives because of the one-sided nature of relief to the wealthy bank owners, with nothing for the homeowners who are in foreclosure or who face foreclosure soon.

Interesting, too, that banks making the bad loans are often portrayed as unwitting victims, but homeowners in one of these loans are chastised by many for exercising financial irresponsibility or a lack of due diligence.

microdot said...


Dear Mr. American,

Good day and compliments.

I am HENRI PAULSON, the Ministry of the Treasury of the Republic of America, and the personal financial adviser to GEORGE W. BUSH (the eldest son of the former dictator of America, GENERAL GEORGE HUSSEIN WALKER BUSH).

This letter will definitely come to you as a huge surprise, but I implore you to take the time to go through it carefully as the decision you make will go off a long way to determine the future and continued existence of the entire members of my country.

It is with deep sense of purpose and utmost sincerity that I have the privilege to write you this letter knowing full well how you will feel as regards to receiving a mail from somebody you have not met or seen before. There is no need to fear, I got your address from a Wall Street business directory which lends credence to my humble belief. I also assure you of my honesty and trustworthiness. I need to ask you to support an urgent secret business relationship with a transfer of funds of great magnitude.

During the last Military Regime here in America, the Government officials set up companies and awarded themselves contracts which were grossly over-invoiced in various ministries. My country has had great crisis that has caused the need for large transfer of funds of US$800,000,000,000.00 (eight hundred billion US dollars) in cash for safe-keeping. If you would assist me in this transfer, it would be of most profitable for you.

I am working with the honourable MR. PHIL GRAMM, lobbyist for UBS, who will be my replacement as Ministry of the Treasury in January. As Senator, you may know him as leader of the American banking deregulation movement in the 1990s.

This is a matter of great urgence. We need a immediate blank cheque. We need the funds as quickly as possible. We cannot directly transfer these funds in the names of our close friends because as civil servants we are constantly under surveillance by Democratic members of Congress, the media, and the American public. My family lawyer, MR. RICK DAVIS, advised me that I should look for a reliable and trustworthy person who will act as a next of kin so the funds can be transferred.

Please note that this transaction is 100% safe and we hope to commence the transfer latest seven (7) banking days from the date of the receipt of the following information: all of your bank account, IRA and college fund account numbers and those of your children and grandchildren to so that we may transfer your commission for this transaction. This way we will use your country's name to apply for payment in your name. After I receive that information, I will respond with detailed information about safeguards that will be used to protect the funds. That's all. Let me know what you think about this.

We are looking forward to doing this business with you and solicit your confidentiality in this transaction.

May Allah show you mercy as you do so?

Your faithfully,

Dr. Minister of Treasury Paulson

Anonymous said...

From Engineer of Knowledge

Paper currency will eventually return to its original value. A Piece of Scrap Paper!

dr-exmedic said...

OMG microdot, I almost died laughing right there!

libertarians AND social progressives should oppose this bailout - libertarians on free market principles, and social progressives because of the one-sided nature of relief to the wealthy bank owners, with nothing for the homeowners

Actually, to a libertarian, they're pretty much one in the same--if you have a government small enough, it won't have the power to screw the little people, which is really more likely to result in "social justice" than any other form of government. Any form of government that is conditioned with "as long as the right people are running it making the right decisions" is doomed to screw the poor and middle class.

Mad Jack said...

If you subscribe to John Maynard Keynes, as all good, intelligent people do, you would have seen this train wreck coming years before it happened. I saw the train, but I can't seem to rise to a vantage point high enough to take in the entire wreck. Probably better for me that I can't.

The banking business in general was never meant to grow beyond a certain size. Consider Toledo with a population of, what, 300,000 and still falling? How many banks serve Toledo? Instead of the six or eight the city actually has, the city should have well over 100. Prospective customers should be inundated with different banking offers, each one from a local bank – not part of a huge chain. From a purely selfish standpoint this would put an end to the snooty bank teller that refuses to cash a cheque for an account holder on some pretext or other, or the loan officer that condescendingly offers usury rates for an auto loan because the client hasn't been with the bank long enough. Furthermore, should one bank fail it wouldn't cost the taxpayer his next ten years annual salary to bail out a failed business and support a fat executive with a diamond studded parachute.

Consider the airline industry for a moment. Anyone old enough to remember what it was like to fly when the industry was regulated can tell you what a pleasant experience commercial flying was. The reason flying was pleasant was because of regulation. Airlines were prohibited from competing on price, so they competed with service. The results benefited the consumer, not the airline and certainly not the airline executives. Once the airlines were deregulated, pleasant flying became a thing of the past. Now flying the friendly skies is pure myth.

When the finance industry was deregulated, we didn't lose service. We lost a large part of our economy. We have the United States Congress to thank for this, along with the United States House of Representatives and the President of the United States. We can also thank their predecessors.

Getting out of the coming depression will take time and a new regime. Neither presidential candidate is up to the task, and in fact if a man could be found that was up to the task, he wouldn't be foolish enough to take the job. Moreover, he'd likely be a man that no one has ever heard of.

Mind you, if we don't change Congress in a major way, we won't recover. Ever. Why? Because the government won't keep its hands off the economy, so natural recovery will never happen. What we'll have is a form of socialism with most of us living on the dole from womb to tomb, complete with government medical care; dental and optical optional and extra. Hope you like false teeth, because it's cheaper to pull them than to fill or crown them.

As an aside to Froggy/Microdot, you're not funny. This situation isn't funny.

Peahippo said...

GuestZero here. I've been watching the Great Depression II roll in as scheduled, and the public denial is still strong as ever. I don't think people are smart at all; they can't admit the seeds of their own, restricted prosperity gave root to the current troubles.

Well, I'm out there in those small crowds in the house auctions, looking to pick up a way to live cheaply for all the capital I've accumulated (no thanks to the Bush Doctrine), while your fucking ROME burns. Maybe I'll play a flute instead of the violin.

Watching my so-called fellow Americans burn in the flames of their own making is at the same time delicious and depressing. It's now gone so far that watching you kill yourselves is about the only thing that will make me feel better. Imperials should simply suffer and die, and the Holy American Empire is what actually exists here.

P.S. Mike, wake the fuck up. A "homeowner" can't face foreclosure. You're only talking about a homeDEBTor. Read your Orwell again. The language has controlled the thinking.

microdot said...

I am well aware that this situation is not funny, but your inability to look at the piece I wrote without replying to it with an insuult is pretty telling.
I am an American citizen. I pay taxes in the United States and in France.
I write "funny" stuff that tries to provide another way of seeing things.
I am acutely concerned regarding the welfare and future of America as it affects the welfare and future of the entire planet.

Now I'm watching in horror as McCain tries to grandstand to use the meltdown as a photo op visit to a disaster area.
Will you let him?

Mad Jack said...

You're an "American" citizen living in France and you pay taxes. How noble of you.

oengus said...

Even the Nickel in the mattress will be worth less, currency is falling as well.

It cannot be as simple as handing the money over, it is about assuming the obligation for the homes and then about being able to maintain that responsibility.

Paulson and Bernanke allude to some sort of E bay auction type site? I think oh boy that so odd of thing to say, they really do not realize that these are homes and not financial vehicles. They are also contributors to local economizes property taxes….

Each county records the lien it is an entry into a parcel data base, that the problem the process used to turn around the properties is not fast enough. You have all kinds of information here or there, not all in one place. The mortgages in some cases represent a person that may have equity or not, they may actually be able to sustain under different terms or not. The property may be very marketable or not, some of these mortgages where much more maniacal then you may imagine, that because some originators wrote paper on abandoned homes for ridiculous amounts.

Time for reform of the county systems, and also time for regional mass audits of real residential property.

I would suggest that approach, each county having a regional system upgrade for recording real property and the process of registering the liens. That same data base could replace the ones used by realtors such as Multiple Listing Services. Since local government use these properties as source for taxes, then it should be obvious that the value of them is insured and valid. The liens should not be unrealistic and that lead into the credit agencies and how we get qualified.

If the county had a good set of data then that could be used in a relational data set, that being linked to other data sets.

Do we all understand what is relational, I would define it as a precursor or a prerequisite of what is systemic.

This may confuse some or not?

What you earn and what obligations you have. It is not just PMI it is consumption of fuel now the amount the home consumes, you commute consumes as well as you auto loans and credit cards even reoccurring subscriptions charges. A ratio and criteria that really needs to be real and real time.

I would take very different approach to this matter, I would mandate the formation of regional agencies that operate as central tax agencies at the county level. These should replace all tax agencies and be the regional collector of taxes local, state and federal one process one filing.

That could really be a catalyst to streamline government, the formation of larger regional governments at the county level.

I believe that Cuyahoga county could go back to the townships as districts and then build off those as sub regional districts of a large regional system.

Efficiency and an intelligent design.

A larger system at the local level with a high degree of data security and very risk adverse. If you wish to have your name on a parcel it comes with a set of real obligations and some of them include code enforcement, that are being completely ignored. It is why we have blight.

Some may say I want it all…but obviously you may not truly be able to afford it. I have to wonder what we are thinking if a person that buy a home that is falling apart…do they have the resources to repair it?

All acquisitions should go through a standard process, a standard application and the systems used need to be highly accurate and fraud should be just that fraud and it is a felony.

microdot said...

Geez, Mr. Jack, I'm sorry I pissed you off because more often than not I find myself agreeing with the comments you post on this blog.

If you find my living in France offensive, then so be it. I live my life and the course of it ended up here and you live yours and live in America.

It's all just words in hyperspace.

dr-exmedic said...

Airlines were prohibited from competing on price, so they competed with service. The results benefited the consumer, not the airline and certainly not the airline executives.
Well, that sure benefited the few consumers who could actually afford air travel back then; now that airlines can compete on price, normal people like myself can finally afford to fly places. How the previous model benefited middle-class people like me is beyond my grasp. And if that setup didn't benefit the airlines as well, how come I don't remember them going bankrupt until after deregulation?

Keynes is a nice theory for people who are good and intelligent enough to build a nuclear reactor out of two coconuts and some duct tape, but are unable to tie their own shoes. The real world answer is: our government is too blunt a tool, and our economy too large, to effectively pull off a Keynesian plan.

Ben said...

I really have no idea what the right thing to do here is, either financially or politicaly. It seems to me something has to be done, I just dont know the answer.

Mad Jack said...

MicroDot: Where you live and why doesn't matter much to me one way or the other. The financial situation in the US along with my tax bill leaves me nauseous and angry with a government that has completely failed in a primary responsibility: to protect the many citizens against the few. My vitriolic response was misplaced, and for that I am truly sorry.

dr exmedic: The previous model benefited consumers by providing a better value for each dollar spent. Not everyone was supposed to be able to afford to fly where ever they wanted, when ever they chose to do so. On the rare occasions that you did fly somewhere, the entire experience was very pleasant. Unlike today, when the sweating cattle are herded to the rear of the plane and crammed together in seats large enough to easily accommodate an average jockey. Flight attendants snarl and try to clip a stray knee or elbow with the beverage cart. Baggage handlers damage passenger luggage beyond repair, and the airline denies any responsibility for a claim. TSA goons strip search attractive women in private, confiscate valuable items in the name of national security and rummage through personal items in search of loose change. Airline representatives are rude, crude and obstructive. Flying today is reminiscent of riding the Greyhound in the 1960s, complete with homeless people and extended families inflicting their squalling cretins and dysfunctional relationships on the rest of the world, trapped in quarters as close as a WWII submarine.

And the worst of it is, this particular situation does not have to exist.

microdot said...

Mad Jack, the political and financial situation of the USA makes me angry.
It makes me crazy!
One way I cope with it is to write humorously about it occasionally.
The piece I wrote went viral and lot of people connected with it.

blogging has given me callouses.