Bailing On The Bailout Bill–UPDATED

24 Sep, 2008 by Melissa Clouthier

Print this article Font size -16+

It’s 700 Billion. Today. Assuming…do I need to finish that sentence?

It’s getting porkified.

It rewards stupidity.

It ties Republicans to Bush-Pelosi.

It turns American banking into a socialist enterprise.

It means trusting Paulson.

It has Democrats licking their FDR-loving, bacon dripping chops.

It will, somehow, make those who get paid for failure, even richer.

It reveals the crass political class, yet again.

It means it’s time to get educated about economics.

It reveals American greed. Ace says:

If the federal government were guaranteeing a trillion new dollars for no-money down car purchases with no credit checks or proof of employment or income, what do you think would happen to the price of cars?

They’d triple. For a while.

Housing market turns into dangerously overinflated bubble. Which is what always happens when a trillion fresh, cheap, easy dollars flow into a sector and begin chasing the same limited pool of goods.

[I’d like to point out, as a complete aside, that higher education is inflated in exactly this way. What happens when the government gets out of the student loan business? Why, colleges stop building their edifices and competition enters the market. Right now, tuition is soaring because of student loans.]

It all started with a Democrat policy that was to induce “fairness” and by forcing banks to loan to those who couldn’t afford to pay back the loans, NOW you, taxpaying fool that you are, should pay back the loans someone else couldn’t make.

I’m beginning to think this bill is a bad idea.

UPDATED:

Ben Stein’s take.

Because these giant financial companies never dreamed that the subprime mortgage securities could fall as far as they did, they did not enter a potential liability for these CDS policies anywhere near their true liability – which again, is virtually bottomless. They do not have a countervailing asset to pay off the liability.

This is what your humble servant, moi, missed. This is what all of the big investment banks and banks and insurance companies missed. This is what the federal government totally and utterly missed. This is what the truly brilliant speculators in these instruments did not miss. They could insure a liability they could also create and control. It is as if they could insure a Cadillac for its value upon theft – but they could control what the value the insurer had to pay off was. The insurer thought it might be fifty thousand dollars – but it was manipulated into being two million.

This is the whirlpool sucking down finance.

Now, we are about to have a similar phenomenon happen with commercial mortgage debt, debt from mergers and acquisitions, credit card debt, and car loan debt. Many trillions of dollars in Credit Default Swaps have been sold on all of this, and the prices of all of them have fallen and can be made to fall more.

As I said, the pit of loss is bottomless. Warren Buffett, the smartest man of all time in the world of finance, has called financial derivatives – of which Credit Default Swaps are a prime example – “weapons of financial mass destruction.” And so they are. As with the hydrogen bomb, no one thought they would ever be used to end the world. But unless someone figures a way out – and maybe the new RTC is and maybe it isn’t – we are in real peril. This should never have happened. Now that it did happen, should the taxpayer pay to make the billionaire speculators whole on their bets? What the heck is to be done?

You mean, you don’t know, Ben? Heaven help us. How is the average person supposed to know. In frightening situations, animals fight or flight or freeze. Right now, the collective world is staring, frozen in fear at what we think we might be beholding. Problem is, no one is quite sure what they see. Is this the end of the world as we know it? We don’t know.

Is a bailout the answer? That seems to me to be “fighting”.

Doing nothing, is that fleeing? There will be a run on the banks if this goes south and all the money dries up. Pure. Panic.

Mary Katherine Ham has what the players are saying.

So, I’m still trying to figure out what to do about this mess. If, as a business owner, you extended credit to those who couldn’t pay (and we all have), it’s a right off. But too many bad clients or charity cases makes for an insolvent business and it doesn’t matter how many paying customers you have. You cease to be able to make overhead and can’t produce anything because you don’t have enough money to make your product.

What happens? You go out of business or go beg for money from someone else to keep you solvent while you change your ways. Wall Street is asking for the latter because if they go out of business, they suck much of the economy with them.

But the problem, fundamentally, seems to be that too many Americans are wallowing in debt–not just those unqualified for homes. So, this problem is emblematic of how many Americans are living–way above their means. And this cultural problem extends from the average person all the way up. That is, the debt to income/capital ratio is off for everyone.

If you have money in stocks, you’ve already lost your money unless you’re big enough to be invested with Warren Buffett. So that’s gone for a while. What’s left? Your money market, credit cards, your home (but no one is giving loans against those now), and your cash flow. But you won’t have cash flow if there is a bank run. Is this doomsday scenario possible? That’s the question no one seems to be able to answer.

Cross-posted at MelissaClouthier.com