WHOSE SIDE ARE YOU ON?

10/4/08

A few thoughts in the wake of the “freezing up” of our financial system and the subsequent bailout that, we are now (Surprise!) hearing will not be enough:

--Over the last few decades, as large portions of our manufacturing base have moved overseas and a growing piece of our service industries has followed suit in pursuit of the dream of globalization (and cheap labor), the experts told us not to worry: America’s big advantage was high tech (despite the growing proportion of foreign students in our grad and undergrad engineering programs) and our “strong, vibrant, dynamic financial system.” “Strong, vibrant, dynamic financial system?” A few bankruptcies and assorted insolvencies and illiquidities and all of the sudden our dynamo of a financial system is, if one believes Free Market Hank and the Cry Babies, imploding and no longer able to distinguish a good credit from a bad credit. This is the powerhouse of a financial system that will sustain the U.S. economy in the 21st century? Saints preserve us! It’s worse than even I thought.

--We were assured by Free Market Hank and the Cry Babies that the assets that the TARP (I still like TARF more for the word with which it rhymes, but I digress.) will be buying are fine assets that, over time, will increase in value returning most, if not all, of Hank’s $700 billion slush fund. If these are such great assets, why does the public purse have to come into play? Players in our “strong, vibrant, financial system” should be able to snuff out value and bid appropriately, perhaps at lower prices than the TARP (in order to enhance, or at least make more probable, returns), but nonetheless at some prices. One can draw one or both of two conclusions: The government is paying prices far above market (or even intrinsic value, for that matter) and thus heavily subsidizing Wall Street with your money and has little hope of seeing much of its money back or perhaps our “strong, vibrant, dynamic financial system” is not all that strong, vibrant, or dynamic and needs to man up.

--Warren Buffett stated on CNBC that he would like 1% of the profits that will be realized by TARP. Since Mr. Buffett has about $44 billion, he could easily take 1% (or more) of the $700 billion TARP action if he would like to. So perhaps he ought to step up. But I suspect Mr. Buffett is far too smart to do so and seriously regrets his statement about wanting 1% of the TARP action. He is far more comfortable on the other side of the trade, with positions in Goldman, GE, and Wachovia.

--Please read an op-ed piece on page A15 of today’s (i.e., Saturday, 10/4’s) Wall Street Journal: “Nothing’s the Matter With Kansas.” Despite the shrieks emanating from the Bushmen, the lily-livered in Congress, and a Wall Street contingent terrified at the prospect of having to, say, sell the west coast fleet of Ferraris, business is getting done. Good loans are being made. And little government intervention is necessary to accomplish this.