All in the Name of Financial Stability

So far, we’ve approved a $750 billion bailout package, a $800 billion stimulus package, and set aside $750 billion for more bailouts.  Also, the Federal Reserve has expanded its balance sheet by over a trillion dollars of printed money, and the FDIC has changed its rules to insure hundreds of billions more than before.

All of this has been done in the name of “Financial Stability,” but the economy has been anything but stable since the Federal Government started getting involved.  They keep talking about the disaster that will happen if they don’t intervene.  Do they not realize we are in the worst recession since the Great Depression?  Their constant meddling and half-baked plans have prolonged the recession and could lead to the demise of our economy.

Now, we have Treasury Secretary Tim Geithner announcing some new plan where the government will form a public/private partnership with investors to buy $1 trillion in bad debts from banks.  Supposedly, for every $100 in bad loans, the government will put in $7, a private investor will put in $7, and the FDIC will provide insurance or loans for the other $86.

The big problem is that we still have not set a price for these securities, and that will be a big factor in how this plays out.  If we they are bought at an inflated price, the government and the taxpayers will definitely be footing the bill.  Geithner has crafted this plan exactly how his Wall Street and hedge fund buddies want – no risk for them and unlimited risk for the taxpayer.

Today, Geithner also plans to ask Congress for new powers, allowing the Treasury to intervene in “troubled” businesses early on, restructure them and sell assets, all in the name of “financial stability.”  Who knows what “troubled” means?  Does it mean their favorite firms?  Does it mean letting their old competitors fail?  Will the books of every company be open to the Fed to review whenever they want?  This is a dangerous power grab by the Executive Branch, and Congress, led by blowhard airheads Pelosi and Reid, is sure to just roll over.

Geithner’s partner in crime, Fed Chairman Ben Bernanke is also calling for more regulation to prevent excessive bonuses and to prevent another recession, in the name of “financial stability.”  Why must we always place regulations after the fact?  Just like after the Enron debacle, we created Sarbanes-Oxley, which put an enormous burden on US companies, and made a few big software companies a ton of money.

There are already ways to discourage the kind of behavior that led to the crisis we’re in.  They’re called bankruptcy and fraud.  If we let firms fail, businesses in the future will know they cannot take excessive risks and invest in all sorts of complicated investments.  If we let them fail, then the government can get involved cleaning up the mess, not trying to prop up and save a sinking ship.  The bankruptcy system works!  It allows us to get rid of debt that will not be repaid and cleanses the system of all of these “toxic assets.”

Also, we need to charge all of these executives of big banks, ratings agencies, and hedge funds for fraud.  How did all of these subprime loans end up rated AAA?  How did all of these complex derivatives get sold and rated?  Because all of the players were in bed together.  We hear Obama talk all the time about how greed got us here, and that’s true.  Some of this greed was illegal, and we need to bring those to justice, not punish the taxpayers!

If we keep going about the bailouts the way we are now, we will keep throwing our money away.  We’ve already wasted trillions of dollars in the name of “financial stability” and it has made our economy worse.  We need to let firms fail and bring those who were responsible for this to justice.

If we do this, firms in the future will not make these bad decisions again.  Since we are just letting everyone get away with it, though, we are creating a moral hazard where those that made bad decisions get all the help.

The path we are going down will do anything but lead to “financial stability” and the unintended consequences are going to lead to more power for the executive branch and less freedom and liberty for the American people.

Why We Need to Abolish the Fed

The Federal Reserve, led by Ben Bernanke is going to kill America.

We had been inching ourselves closer to the abyss, but today’s announcement by the Federal Reserve has put us right on the brink.

The Fed is going to buy $300 billion in long-term US treasury bonds, and $750 billion in mortgage backed securities from Fannie Mae and Freddie Mac.  Their goal is to drive down interest rates to stimulate the economy.  The unintended consequence of their actions is the destruction of the dollar and life as we know it.

With our previous stimulus packages, we have been selling Treasury bonds to foreign countries to fund our spending.  China, Japan, and Saudi Arabia have been acting as our creditors.  Even though we were going deeper into debt, at least there was a method to the madness.

The new program by the Fed uses money created out of thin air to buy bonds from our government.  If that sounds fishy to you, it should!  What happened to our creditor nations?  Did they cut us off?  Is there something more going on here?

Most empires end with the collapse of their currency and the bankrupting of the nation.  Many times this has to do with a bloated foreign military presence as well.  This is exactly what is happening right now.  We are borrowing from ourselves with printed money.  At what point will inflation explode and our dollars become worthless?

Our standard of living is going to be compromised and we will no longer be the leading economy in the world.  We will have to get used to less growth and more of the same malaise we’re in now.

However, the silver lining to the impending collapse could be the return of sound money, savings, and production in the United States.  Maybe this is really a blessing in disguise that will destroy our consumer based economy and replace it with a production and capital based one.  Maybe that’s wishful thinking, but I’m trying to find a silver lining here.

If there was ever a reason to take the controls of the printing press away from the Fed, this is it.  We need to abolish the Fed now and let sound economic principles guide the way, not the whim of a Harvard professor.  This is a critical point in the history of our nation, and we are making all the wrong choices.

Step One in Screwing the Taxpayers

When President Bush was pushing for his massive bank bailout plan, the concept was for the government to take a stake in the failing banks and eventually make money for taxpayers.  I was not in favor of the bailout  because I knew that in the end, the taxpayers would get nothing.

The new scheme for Citi to get more government funding is step one in this process of screwing over the taxpayers.

When the government gave Citi $45 billion of taxpayer dollars in the TARP package, it got warrants for preferred shares.  These could be converted to common stock, which could then be sold by the government, hopefully at a profit.

Now, Citi is in need of more money, and their plan is to have the government to convert their preferred shares of common stock, at or close to the current share price of $2.50.  This will give Citi about $45 billion in cash and the government would become the shareholder of 40% of the company.

When the TARP was enacted, Citi’s share price was just below $20, so in order for the taxpayers to make money, we would have to convert the shares above that price.  By converting them at $2.50, we are taking a 88% loss! 

Serving the best interest of Citi is NOT the protection taxpayers were supposed to receive in the TARP program!

Also, the bigger side effect of the government becoming a 40% shareholder in Citi is that we will not be able to let it fail or nationalize it.  If either of those occur, shareholders (taxpayers) are wiped out.  We will have to keep pumping more money into the failed bank, keeping it on life support.

The bank bailout was a horrible program and idea from the start.  We were sold the fact that the taxpayers would be protected by taking a stake in the failing banks, and then selling the stake for a profit down the road.  This new plan by Citi is a direct contradiction of these protections, and is the first step of screwing over the taxpayers.  This turns the plan into a huge transfer of wealth and a direct giveaway to banks.  We will never see a penny of returns on the $700 billion we “invested” in the failing banking industry.

The Case for $350 Billion – New York Times Style

Here’s a very interesting “News Analysis” from the NY Times that reads more like a big government propaganda piece than an actual analysis.  It makes the case for giving banks more money, and how the TARP plan so far has pretty much done it’s job.

I started reading it, and a couple of paragraphs really got me going.  Here’s the first one:

The most glaring example that the banking system needs even more help is Citigroup. Though it already has received $45 billion from the Treasury, it is in such dire straits that it is breaking itself into parts

Huh?  That’s why the banking system needs to get fixed?  So what if it is breaking itself up?  It got into this mess by comingling their investment banking and commercial banking.  If they have to break up, then at least they can separate their good units from the ones that are strapped with bad debt and underperforming assets.  That’s a good thing!

Here’s another gem:

Even some of the bailout program’s harshest critics acknowledge that things most likely would be even worse without it, and that the bailout had accomplished its most important goal, which was to prevent a complete collapse of the financial system.

However, they don’t name any names or quote anyone here.  It’s just what these “news analysts” want to say.  You can’t definitively say that we’re better off after the bailout.  Maybe the banks are better, but you and me?  We’re still screwed.  The financial collapse didn’t happen overnight like it would have without a bailout.  Instead, we’re making it happen over months, and dragging the process out, leading to more hardship for all of us.

And here’s some pure comedy:

Regulators require banks to keep a healthy cushion of capital. But this time around, the banks are struggling to plug their deepening holes. Private investors are scarce. For all but a small group of healthy banks, bankers and analysts say, the government may be the only investor left.

Obviously, the authors of the article have no idea of how the US banking system works at all.  The first line is a dead give away.  Healthy cushion of capital?  You mean that 10% of all the money they loan out?  Fractional reserve banking does not require that much of a cushion.

This is an article full of stuff, but little substance.  It reads like an article trying to dumb down things enough to sway people to the views of the author, and it is not very persuasive.  The more I read the NY Times, the more I realize how their “analysis” is really written with a pro big government stance.  Please go out and educate yourself and read other sources of news and learn about our consumer based economy and our sham of a banking system.  Then you won’t be swayed by propaganda from news agencies like the New York Times.

Obama to the World: Our Dollars are Worthless

Someone needs to tell Barack not to tell the world that we are going to be running “trillion dollar deficits for years to come” like he did today.

What kind of message is that sending to the rest of the world?  What kind of message is that sending to American businesses and the rest of the population?

First, how are we going to finance all this spending?  Are we going to keep borrowing money from China and Japan?  What happens when China finally wakes up and realizes that they are getting paid back in dollars that are worth less and less?  The fact that Obama is announcing to the world that we are going to be fiscally irresponsible and are going to keep printing money is going to accelerate the East’s rejection of our dollars.

Second, why would any business spend to hire new employees, give raises and bonuses, or buy new equipment when their leader is telling them that recovery is years away?  Everyone is waiting for government’s next move, hoping it’s the cure all.  News Flash – the government actions are making things worse!  The sooner Obama and the Feds get out of the way and let the markets correct themselves the better.  If we do get out of this by printing money, we will only be setting ourselves up for complete and total collapse a few years down the line.

My industry is tied to real estate development, whether it’s apartments or commercial centers.  Right now, no one wants to lend money because there is too much uncertainty, and because the commercial real estate developers want their own bailout.  There are projects ready to go, that need to start so they are built when the economy recovers, but no one wants to lend money to get them going.  The shoot from the hip fiscal policy of the Federal government is only making the lenders more fearful and more reluctant to lend.

And finally, why is so much of the blame being placed on the reluctant American Consumer?  Do you think something is wrong when two-thirds of our economy is based on consumer spending?  We don’t make anything, we import everything, and buy things we don’t need on credit.  Sounds like an awesome system.  The American consumer is tapped out and is unwilling to go deeper into debt when they are fearful they are going to lose their job.  Obama blabbing about running trillion dollar debts for years is not helping restore confidence.

We need real leadership right now and a government that is willing to make a stand and stick to it.  If they are going to bailout companies, then they need a real plan.  They can’t have one plan then another and then change that one half way through.  That approach has just made things more messed up.  Unfortunately, Obama and his team seem more than willing to throw money around without a clear plan as well.  We can’t keep running these deficits forever and we shouldn’t announce it to the world.  We need to restore faith in our currency and our economic system, and Obama’s comments are leading more fear and an even longer recession.

What a Suprise. No One Can Find the Bailout Money!

Is anyone really suprised that we have no idea where our tax dollars involved in the TARP bailout are going?

The propenents of the TARP like Bernanke and Paulson agreed to all sorts of transparency but they won’t say where the money is going and what assets they have taken in return as collateral.  The Federal Reserve is a bank.  Or at least that’s what it is supposed to be.  If you were lending the money out, wouldn’t you want to know where it was going?

The banks are also playing dumb.  They just say it is pooled with all their other money and they can’t define exactly where it has gone.  What a joke!  They had no money to begin with!  Why else are they taking BILLIONS of dollars?

This is exactly why the recession we’re in isn’t getting any better.  There is no faith in the system at all.  We have no idea when the government is going to run out of ink for their printing press, and we have no idea if where all this money has gone.  Maybe it’s gone into the abyss that Paulson was warning us about.

If the Fed announced they would stop spending money tomorrow, interest rates would shoot up and we would have to find a way through the mess we’re in.  Companies would go bankrupt and there would be a huge initial hit to our entire economic system.  But after that quick hit, we could start to pick up the pieces and rebuild.  The high interest rates might restrict borrowing, but they would encourage lending.  We would come out on the other end as a completely different economy for the better.  Instead, we are just trying to hide the problems behind mountains of printed money.  We aren’t addressing any of the problems we are facing.

The TARP plan has to be one of the worst government interventions of all time.  It was passed by Congress using fear tactics and scare mongering.  It was poorly crafted and had no clear goal or intent, and it has changed since it was approved.  I’m not suprised one bit that no one knows where the money went, because no one knew where it was supposed to go to help in the first place.  It’s been an enormous failure and a waste of $350 billion so far, and no one is that mad about it because we all knew it would fail all along.

Like Recessions? Better Get Comfy!

This is awesome!  Today, the genius Ben Bernanke announced that we will officially be in the longest recession in American history!  As much as I love worrying about my job and scrimping and saving to pay the bills, I can’t wait for it to get worse!  I hope I get to eat Hamburger Helper and Ramen every night!  Better get used to those PB and J’s!

I really can’t believe how bad of job Bernanke is doing.  He is driving this county off a cliff, and instead of applying the brakes, he’s stepping on the gas.  Remember the “financial abyss” Paulson warned us about when Congress didn’t approve the TARP bailout the first time?  We’re there, and Helicopter Ben is taking us all down with him.

I guess I have to cut him a little slack because he was only a professor at Harvard.  He never got any real world experience, so I guess he never really actually got to apply any of his theories until now.  The old saying is “those that can’t, teach.”  I respect elementary, junior, middle and high school teachers.  They believe in what they do and are trying to help make the world better.  However, everyone wants to have a cush job like a college professor.  You get tenured, you can’t get fired, you get fat pay, great benefits, 3 months a year off, paid sabaticals and a great pension.  I’m sure glad we picked such an idiot to run our financial system.

Ben was supposedly an expert on the Great Depression in his research as a professor.  I guess he didn’t study an recent history like the Lost Decade in Japan.  Can the problem be any similar?  Cheap credit, a real estate bubble, a credit crisis, a central bank that cut it’s rate to zero, and then a 15 year recession.  Wow.  Sounds like a blast.  Maybe Ben wanted to relive the Depression first hand!

Here’s a quote from Yahoo! Finance:  “Given how low interest rates are, the central bank said it planned to use a variety of unconventional methods to flood the banking system with credit and drive interest rates lower.”

Sounds like that’s exactly what we need right now.  More and more credit.  Floods of it to be exact.  Isn’t that how we got here in the first place?  How is it going to get us out of it?  It’s like telling someone who’s drunk that what they need is more tequila, not trying to sober up.

The American consumer is being criticized right now for cutting back, being frugal, and not buying big ticket items (with debt) like cars and appliances.  They should be lauded for setting a great example.  Helicopter Ben should realize what everyone, from banks to lenders to consumers, wants is a stable economic policy.  We don’t need more reckless spending and more and more debt.

I wonder what Ben’s personal finances look like.  If he practices what he preaches, he must have 10 maxed out credit cards and no savings.  He probably has all new appliances on the store’s credit card and he has huge car payments each month.  That’s supposedly what is good for the economy because he’s spending.

What we need right now is for Ben to make an early exit, and for Obama to name a new person to run the Fed, not this Geithner clown who shares Ben’s affinity for the printing press.  We need someone who will run our economy like we all have to run our houses.  We need to live within our means and manage our debt.  We can’t rely on printing new money whenever we get in a bind.  Why should the Fed be any different?

All I know is that right now, all the actions of the Fed and Washington have failed miserably.  Ben the Genius keeps thinking that more debt and credit will right the ship.  We have a credit crisis, but the underlying problem is a complete and total lack of confidence in our economic system.  The government also has a huge credibility problem because it has no plan, is running around like a chicken with it’s head cut off, and pumping trillions of dollars into the system.

Until we get a policy that restores confidence in the system and faith in our government, we won’t get out of this.  So grab a chair and a blanket, sit back, and enjoy your Hamburger Helper.

Another Treasury Department Patch Job

This one will cost us $800 billion to buy troubled assets from banks to free up consumer lending.  Wasn’t this what the original TARP was supposed to do? 

Let me get this straight, Congress first rejected and then approved $750 billion to buy troubled assets and toxic paper, but the Treasury went their own way and just gave money to big banks, whether they wanted it or not.  Now they are coming back with a new $800 billion bailout to do what the first one was supposed to do, except this time it’s bigger and doesn’t need any Congressional approval.

This is just another hack job by the two guys who are supposed to be running our economy.  Instead, they are ruining it.  They both admitted that they have no idea what they’re doing and just keep going with the flow, printing money left and right, changing their minds, and not even having a plan to stick with.

People right now are not borrowing because they can not meet their existing debt service or they want to save money.  Pumping hundreds of billions of dollars into the system might encourage some companies to lend money, but who is going to borrow money right now?  Also, why would these institutions lend when they have no confidence in the borrower?  Forced lending and borrowing by the government is just going to lead to more malinvestment and an even longer recession.

Our economy is driven by spending and racking up huge debts, by everyone from the government to big busness to individual families.  Rather than pumping more money into the system and encouraging more debt, we should be seizing this opportunity as a nation to return to a culture of thrift, savings, and production.  The system as we know it is broken, and now is the perfect time to fix it.

Bernanke Admits He’s an Idiot

From Bloomberg.com:

Bernanke Tells New York Times He Underestimated Housing Meltdown

by Daniel Whitten

Nov. 23 (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke said he underestimated the impact subprime mortgages would have on the economy, according to an interview to appear in the New Yorker magazine’s Dec. 1 edition.

“I and others were mistaken early on in saying that the subprime crisis would be contained,” Bernanke said. “The causal relationship between the housing problem and the broad financial system was very complex and difficult to predict.”

Widespread failures of U.S. subprime mortgages, home loans to borrowers with poor credit records, started in 2007, touching off a financial crisis that has spread to other sectors of the world economy.

The article, entitled “Anatomy of a Meltdown,” said Bernanke and Treasury Secretary Henry Paulson tried what Bernanke and his Fed colleagues called a “finger-in-the-dike” strategy to keep the financial sector operating long enough so that it could repair itself. As recently as this Sept. 1, the article said, Bernanke thought that strategy would work.

Can someone tell me how Helicopter Ben Bernanke was qualified to be in charge of the money supply of the United States?  Obviously, his college professor background made him a great choice because of all the real world experience he had.

He knew exactly what was going on with the housing bubble and all of the mortgage backed securities and he chose to let it happen.  His interests are aligned with big banks and the government, not the economy of the United States.

What a joke!  How do we get rid of this idiot?