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Thursday, September 18, 2008

Bailout Bullshit

A few questions about the bailout:

1. What's the pound of flesh?

With AIG, the government got 80%. Lehman went bankrupt. Bear Stearns shareholders got hosed. Do shareholders and management get a free pass under this bailout?

Personally, I wouldn't suggest a pound of flesh. I'd suggest $10 billion a finger. Any CEO who wants to foist $10 billion face value of junk paper on the government should be willing to part with a finger. Maybe there are other suggestions, but this one's handy.

2. What's the price?

The talking heads on TV are saying nobody wants to buy this stuff because nobody knows what it's worth [either now or on a discounted cash flow basis after mortgage repayment]. But the financial firms have had years to study this stuff, and have detail on each mortgage.

The suspicion is that they know what it's worth (22 cents on the dollar, according to a recent Merrill Lynch sale), and it's not much. But they aren't saying what it's worth. How's the government to know?

Could they just turn over the bad paper now, and trust that the government will pay them what it turns out to be worth in due course? [Insert laughter here.] Or, agree to a long-term (30 year?) payback to the government for the majority of any loss the government may incur? If the problems are really just short term lack of confidence, wouldn't this make sense?

3. Will it work?

The talking heads really don't know.

4. Exactly how is this really like the RTC?

The Resolution Trust Company took assets the government ALREADY OWNED, because the ALREADY INSURED savings and loans had ALREADY FAILED. They then disposed of them and lost $billions.

We don't own the bad mortgages YET. We DIDN'T insure them. The main thing this has in common is that we'll likely lose $billions. (given the banks are the only ones that have the repayment information and it's the government that's later selling the assets)


Yes, I've written my congressman and both senators.

Note I have already found somebody who agrees with me: Luigi Zingales, a finance professor at the University of Chicago, has posted similar concerns, phrased in a more academic tone (he doesn't mention the finger part).


Update 2, Saturday morning Sept 20:

Now there's an AP story about the actual proposal, but

"The proposal does not specify what the government would get in return from financial companies for the federal assistance."

"Rep. Brad Sherman, D-Calif., who participated in the conference call. [said] "You give them good cash; they give you the worst of the worst," Sherman said. A critic of the plan, he complained that Bush and his economic advisers were trying to panic lawmakers into rubber-stamping it."


  1. Anonymous4:29 PM

    Bailing out companies full of rich executives is not capitalism. Let them go under! They are spending more on bailouts than all the money spent on education, healthcare, energy, etc. We could have nationally funded the entire healthcare of every american citizen for less money. But nobody wants to help the average guy. Our politicians on both sides are obviously nothing more than crack whores for the super-wealthy.

  2. Anonymous6:05 PM

    Anonymous is right...this is going to cost the American taxpayer far more than is currently projected...and these morons on Wall Street are going to get the Golden Parachute! Maybe they should get the Golden Kick In The A--.

  3. Anonymous12:15 PM

    In the wording of the bailout it also reads - "Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency." Gee, wonder why they put that in there. I believe its because after the scare tactics work and people start realizing what just happenned, the taxpayers will want justice. However, they won't find it, because section 8 states that the secretary of treasury is above the law and the whole bailout cannot be reviewed.

  4. Anonymous4:43 PM

    After listening to Bush's teleprompter read last night, this is beginning to sound more and more like "Saddam has nukular weapons and we must act now!" What kind of system is it when an handful of large companies hit the skids and the entire country is suddenly in economic peril? Bailout bullshit is right!

  5. Anonymous6:41 PM

    People really should check what Ron Paul had to say about all of this crap...The Federal Reserve is the root of 95% of the B.S. that happens to this country...you don't own ANYTHING!

  6. Anonymous7:44 PM

    I was a good boy during this period of greed. I drive a 16 year old Honda and live with no debt and even have a little nest egg. I have no big SUV or live in a house I could never afford hoping it would keep going up in value with an intrest only loan. So the question is...why the hell am I going to have to shell my tax dollars to save a bunch of greedy morons?

  7. Anon: "why the hell am I going to have to shell my tax dollars to save a bunch of greedy morons?"

    Why, indeed!

    But you won't have to pay all of them. With hundreds of billions of dollars in debt, there will be plenty for your children and grandchildren to pay.

  8. Anonymous12:01 PM

    Even when the banks do go "under", another bank buys the assets. Plus the stock market isn't nearly as bad as they say it is. I would rather sees these banks change hands like Washington Mutual did, rather than to just give the super wealthy 700 billion of tax dollars for no reason. When have these banks ever gotten together and given free money to tax payers?

  9. Anonymous9:18 PM

    People on both poles are talking about socialism and capitalism as if these are the ideas in play. The facts show that the derelict bastard is the offspring of them both. The power players use ideology in expediency and it is no suprise the result is bastardization. Know;
    Washington acts in expediency, and not without pork will she be satisfied.