Friday, September 19, 2008



Thanks to the free market Bush administration and the “get the government out of my life” GOP, we are all socialists now. Where do I begin pointing out the downside of the many steps announced in the last 36 hours or so?

Let me begin by saying something good about the plan. This is better than the haphazard, case-by-case, ad hoc approach that was being pursued before the modified RTC approach was unveiled: Bear gets bailed out, F&F sort of get bailed out, Lehman is let go, AIG is bailed out. The casual, or even the careful, observer is left to wonder if there is rhyme or reason to this approach. The critical observer is left somehow unsatisfied by the callow explanations offered by Free Market Hank, Obsequious Ben, and the other rogue’s gallery behind this effective government takeover of the financial industry. And it doesn’t take too much of a cynic to wonder if the campaign donor rolls were, or certainly could be, examined before the decision is made regarding who gets taxpayer financed succor. While I would have preferred the government do nothing (What a concept! Let the market work even when we don’t like the outcomes.), a modified RTC is better than the previous approach. But one also supposes that a life sentence is preferable to getting the final shot in the arm.

Time and the inability to say anything original on certain aspects of the bailout and the attendant actions behoove me to limit my comments to the following:

--The government has temporarily forbidden short selling in certain financial stocks. One can infer that, since the government can determine that the stock market is too low and short selling must be stopped, the government can also determine that the market is too high and that buying must thus be stopped. Crazy? Perhaps not. The Bush administration has apparently determined that the government knows best.

--Setting up the RTC II structure is supposed to unclog the financial system and get banks and other financial institutions lending again. But is the government, in all its wisdom, sure this will be the outcome? Are there enough good credits with good collateral out there to justify an expansion of prudent lending? Surely there are some, to use a currently fashionable and fast becoming nauseating expression, positive feedback loops from freeing up lending, but will they be enough with a weakening economy, spent consumers with precious little equity in their homes, and precarious commercial borrowers? Or are these merely minor details and thus the soundness of the lending being encouraged, or sought, is inconsequential? If the latter is the case, is the government thus encouraging careless lending, apparently on the theory that our Potemkin economy requires it? These questions boil down to: What if this doesn’t work? Or what if it works and its “working” constitutes encouraging new bout of reckless lending, surely landing us in this putrid brine again? What will we have accomplished then?

--The RTC II will supposedly buy assets at fair market value and the sellers (Wall Street and other financial geniuses) will thus take a hit. This is clearly specious. If the prices paid are genuine market prices, what need is there for such a Rube Goldberg structure? A market price means a price that a ready, willing, and able buyer will pay; if there are buyers at these prices, what need have we of the government? To ask the question is to answer it. The prices paid cannot be market prices and the sellers will thus receive a massive subsidy…thank you very much, Mr. and Mrs. Taxpayer. And, no, you can’t have any piece of the astronomical bonuses these financial wunderkinds were paid to destroy several of the nations’ venerable financial institutions.

--A large chunk of my money is in money market funds, as is a large chunk of yours, I would suppose. I knew these funds weren’t insured when I bought my shares, and so did you. We paid our money, we took our chances, and, so far, in this instance, doing so has worked out well. Why the busy-bodyism? Are Free Market Hank and his boss just reflexive busybodies?

--What if the government can’t afford this? What happens to Treasury’s international credit standing and the dollar? Is the pool bottomless? One wonders.

--To think I was once a Republican! (Seem like ages ago.) How can anyone who believes in free people and free markets continue to support this shameless band of hypocritical Janus-faces?

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