If it's for free, it's for me!!!

Well, here we go.

Government gives out free money to everybody on Wall Street who wants it. 9 banks get billions from you and me. GM, $15 billion. No fine print... this is too good to be true... we are so getting hosed.

Can I get some love from the USG? Can I get a couple hundred grand? I mean, really. Give me an effin' beak. Banks and insurance companies - all of whom had a near-death experience - are sucking on the government teat so they can continue doing what they do. Do you actually think these banks are going to actually spread this cash around? Hardly. Does the word "Hoard" ring a bell with anyone?

Gawd, I want to strangle some of these knuckleheads. And I am not being a populist here. I would like to think that I am being pragmatic. FULL DISCLOSURE: I am not an economist. But I pay taxes ... a lot of taxes ... and I am pissed that my tax dollars are going to help Bank A do a merger deal with Bank B so they can have your deposits to make them more solvent than they were before the merger. I am pissed that AIG is getting a ton of cash because they are "to big to fail" or some other such moniker.

Viva la Credit Union and Community Bank. These guys actually do due diligence.

Heard on the Street: "These guys are worse than crack whores"

IN the midst of the worse financial crisis arguably since (a) 1987 (b) 1973-74 (c) 1929, The US Senate has served up the quintessential "Pork Pie" and once again demonstrated they just can't resist loading up crucial legislation with perks for their pals. (For a great analysis, check out this post from our pals at Hoosier Access)

$193M (USD) for PR Rum? Hey, I like a cocktail just as much as the next guy - maybe more - but c'mon! Captain Morgan and ol' Ron Bacardi already have a corner on the Rum market. I know, "one man's pork is another man's project" and everybody earmarks, yeah, yeah ... just not in this kind of bill. Let's just have a clean bill with a responsible - market approach to stabilizing this thing.

Markets hate uncertainty. These traders are big Dudes (and Dudettes) and they can take bad news with the good. So let's give them the rules they need to play by and get the heck outta the way! Remember, the markets work because there is an equilibrium between Greed and Fear. The more you are willing to risk, the more you can gain - or lose. So let the losers lose, lick their wounds, then get back in the pit and fight their way out.

Changing Gears for Just a Moment:

This just popped into my mind. Let's just think for a minute about what happens when the USG takes over all these bad mortgages. Who's gonna manage all these properties? Whose going to fix the broken windows? Mow the grass? The mortgage holders are responsible, you know. Are we going to set up another bureaucracy? Will we create the National Real Estate Management and Disposal Administration? Does anybody think the USG can actually do this?

What about taking ownership stakes in private companies? Do we have some third tier appointees at Treasury sitting on the corporate boards? Does the USG get veto authority over the compensation committee? May I remind you, fellow taxpayers, that the Post Office is run by government bureaucrats. Anyone care to take a stab at the last time they turned a profit? (So much for the taxpayer making money on this deal.)

Back on Message:

So these freakin' Senators lard up this bailout - which, come to think of it, shouldn't be a news flash - almost as shamelessly as they turned every bloody personal pet project into a "National Security Priority" after 9-11-01.
Then, they get everybody going on TV and screaming "the world as we know it will come to an end" if we don't pass this "crap sandwich" by Midnight! If the bill was so bad the first time, what makes it less bad now? It's the same friggin' bill except now they have provisions for mental health insurance parity, an AMT patch, and all that pork. Hey look, I'm willing to argue that some or all of these things may or may not be good things. They deserve to be debated and voted on ... maybe ... but not in this bill! In fact, I don't even think this is a good bill. There is nothing in here but a taxpayer funded government takeover of the credit/commercial paper markets ... and all that pork.

In the end:

Bad News: Do we lose some value in our 401(k)'s? Likely. Will we lose some jobs? Yep. Will the really rich guys still be really rich? Count on it.

Good News: Gas is getting cheaper because oil is falling below 90/bbl. which means that Chavez and the Arabs are losing their shirts. See, there's a silver lining in every cloud.

In closing, I find myself asking "Where are all the limited government, free-market conservatives?" I see all these pols on TV saying things like, "I'm a free-market conservative, and I just hate this thing, but ..." But what? You either believe in these principles or you don't Senators. Stand for something and think about the next generation instead of the next election ... or your next fix, you pantie wastes.

THIS JUST IN ... (UPDATED 3:31pm EST) from the LA Times: "The bill wending its way through Congress would provide tax breaks worth more than $470 million over the next decade for movie and TV producers that shoot in the U.S."

Folks, that's $47M (USD)/year to shoot TV in the USA. Well, color me stupid, don't they do most of that here anyway? Gawd, it just keeps getting "worser and worser" as time goes by. These guys really are worse than crack whores - and that's almost insulting to the crack whores. Does anyone still wonder why these guys have a 15% approval rating?

Solving the Market Instability Problem: My Two Cents.

I am not an Economist/Banker/Investment Professional. Having said that, let me take a stab at offering a solution to the current market instability problem.

Banks are not willing to lend to each other because they do not know who will survive the weekend. Some analysts envision a possibility that 100-150 could fail in the foreseeable future. But, rather than simply infuse $700B into the system by lending U.S taxpayer money to buy problem loans, might I suggest that the Treasury set up a “distressed fund” (sometimes referred to as a “vulture investment fund”) with the money in which these firms can negotiate for the capital they need and the investment fund (read: “taxpayer”) gets “convertible preferred stock w/ some percentage coupon” (similar to the deal Warren Buffett recently made with Goldman Sachs). Thereby, we the people are getting a preferred equity position that allows taxpayers to be paid interest each period while they wait for the companies to increase their equity value at which point the government will do a public offering and the taxpayers will enjoy the proceeds along with the management of the organization.

Given that total Credit Market Debt as a percentage of GDP is currently 348.5%, and Household Income to Debt = 102%, everybody is at the limit. Consumers are maxed out and in total the financial service system is essentially insolvent (total liabilities exceed total assets), so just throwing money into the system without a structure that is understood by all the participants risks could be catastrophic.

“The bankers are scared and the government is in the driver’s seat on this thing”. We have the opportunity to both stabilize the system and extract our (the taxpayers) “pound of flesh” if we give them a reasonable offer. We can reinstate the greed/fear equilibrium back into the model, or a carrot and stick, whatever you want to call it, and protect the taxpayer. Remember now, only 25% of America supports a "bail-out" of these knuckleheads.

Once the “Distressed Fund” is established, we suggest the government hire an “investment banker” to execute the distributions and build an incentive plan to get the “smart people who know how to do this to do it” – which may mean hiring back some of the knuckleheads that created this mess to unravel it – but with the ability to set compensation that might reward performance (say, stock options in the “new company”) that can be exercised only once the taxpayer is made whole and the new company goes “public” again. Governments around the world are clients of these big investment banks, so there is nothing new here. They know how to do it.

Additionally, if we, the taxpayer, are going to "buy" assets it should not be just the junk but a position in the whole company so the taxpayer does not get left holding the bag. The other benefit is that it might soften the impending failure of non-financial corporations, which would create a spike in unemployment and a further contraction in the economy.

In any event, the policy decisions made after the crisis management phase will be equally critical to the decisions made during this crisis management phase. While recessions are a necessary part of the economic model, the government (remember the CRA?) and the Fed have artificially “softened” these recessionary periods since 1990-91 and the result has been the excesses we are experiencing now. With essentially free money, the tech bubble and the mortgage crisis were inevitable. Therefore, if I understand it, managing the recession correctly will allow for the necessary “cleansing of the system” without reaching near-catastrophic levels not seen since 1973-74.

As a comparison, the 1929 crash resulted in an approximately 25% contraction of GDP, approximately 25% unemployment, and some 14,000 banks failed (We can check with Ben Bernancke’s office for specifics, he apparently is the world’s leading expert on the Crash/Depression). 1973-74 it was approximately a 4-5% contraction in GDP, something like 10 or 11% unemployment, and not nearly the catastrophic bank failures of the 30's. Today, we have 6% unemployment, and we'll lose a couple hundred banks, and it remains to be seen what happens to GDP. We are going to be somewhere north of that 4% number of 1973-74. The question is: How far North?

In any case, there is no need to rush into a $700B deal without really knowing what the heck we're getting ourselves into. Japan in the '90s ... anyone? Buehler? If Wall Street thinks Washington doesn't understand it, and Washington thinks that Wall Street doesn't get it; What makes them think they can sell it to Main Street?

Let's take a deep breath. Let's stop trying to boost ratings and circulation by making comparisons to the Great Depression. Let's let the markets work and put the taxpayers money in where and when it will make the biggest difference. We're America. We can do it.