Posts Tagged ‘Paulson’

Step One in Screwing the Taxpayers

February 26, 2009

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.

Spiraling into the Abyss

January 17, 2009

The government’s bailout spiral continued yesterday, with Bank of America getting it’s own special bailout deal, Congress allowing the second $300 billion of the TARP to be released, and Congress unveiling the Obama $825 billion stimulus package.

The circumstances behind the Bank of America deal was remarkable.  CEO Ken Lewis said the company was fine and didn’t need any TARP money.  Then they met in secret in mid-December with the Treasury and basically told the government that they needed their own bailout, or else they would not be able to complete the Merrill Lynch deal.  Then, almost a month later, they announce that they got their deal.  As a publicly traded company, I have no idea how they got away with this.  That is material information, that directly effects their share price.  Millions of investors were duped into thinking their company was safe, when behind closed doors, they were clamoring for taxpayer money.  Can you say, “lawsuit?”

The terms of the B of A bailout are crazy as well.  They get a $20 billion direct infusion, and they are only responsible for the first 10 percent of the Merrill losses.  The government will shield the company from the rest of the losses, which could amount to over $100 billion!  This is all on top of the TARP money they have already received.

When are all the bailouts going to stop?  The problem with all these direct infusions is that it is like a dog chasing it’s tail.  As more losses mount from the banks’ bad bets, the more money they need.  It’s an endless cycle.  I’ve been reading a lot of articles about deflation, and they all call it the “death spiral,” but I think the current direction of the Federal Government is the real death spiral.

In retrospect, the original TARP plan looks much better than the one Paulson single-handedly enacted.  The TARP was meant to buy the troubled assets off of the banks’ books, allowing them to basically clear themselves of all the bad debt they are still strapped with.  By directly putting money into banks, it allowed them to pad their balance sheets, but didn’t rid them of bad assets.  Now, as the assets cause more and more losses, we are having to give out more and more money.  It could take trillions to finally get it to balance out, and it looks like our government will do anything and everything to save the banking industry.

The government and the big banks have us believing that our economy and banking industry are one in the same.  They aren’t.  If the banks fail, our economy won’t stop.  There would be some pain as a new system emerges, but eventually a new model would have arisen.  Maybe this is showing us that fractional reserve banking isn’t the best idea, and that a Central Bank, like the Federal Reserve, can cause huge booms and bigger busts.  At what point do we look at the system and realize that it is too broken to fix?

Instead, our government is willing to pump trillions of taxpayer dollars into these banks, trying to prop up the failed model.  Also, with all these bailouts and backstops (like the FDIC), we are inviting banks to make bad investments because they know the Federal Government will be there to save them.

At what point is enough enough?  There are already signs that a private lending industry could be forming.  The Carlisle Group supposedly has over $40 billion in cash they are waiting to put to use.  If big banks won’t lend, high-net worth individuals and private firms will eventually fill the void.  They will lend at interest rates that will allow them to account for the risk they are taking, not one that is artificially set by the Federal Reserve.  Instead of encouarging this kind of competition, the government instead is focusing it’s efforts and our money trying to bring a corpse back to life.

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

December 22, 2008

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.

Problem with the Big Three Bailout

December 14, 2008

There was one huge problem with the Big Three Bailout from the start:  They didn’t ask for enough.

Look at the TARP, the 700+ billion dollar bailout of the fiancial system.  They had the balls to come to the table asking for almost a trillion dollars.

Everyone was so scared, “Jeez, they need $700 billion!  It must be serious!”  Paulson kept saying words like “abyss” and “crisis” and Bush eloquently said “this sucker could go down.”  They duped Congress and the Senate by asking for a number so astronomical, they couldn’t say no.

If the Big Three had come in and asked for $200 billion from the start and talked about falling into an abyss, I bet they would have had a bailout already!

Another Treasury Department Patch Job

November 25, 2008

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.

When a TARP isn’t a TARP

November 12, 2008

Last month, Congress approved the $700 billion, tax-payer financed bailout, known as the Troubled Asset Relief Program, or TARP.  The goal was to buy “toxic” assets from financial institutions to help restore their balance sheets.  We were told that some banks would still fail but this would help clear banks of their “illiquid assets.”

Also, in the TARP plan, Congress basically gave the Treasury Department unlimited power on how to use the $700 billion.  There was supposed to be oversight by Congress and transparency by the Treasury, but this merely leads to some meetings and Q & A sessions between Congress and Treasury chief Henry Paulson.

Today, Paulson presented to Congress his revised TARP plan which isn’t a TARP.  He says the most effective way to spend the taxpayer money is to invest directly in banks by buying stock.  

So, now the program that was lobbied for and sold to Congress and the American public has been switched on the whim of a former Wall Street CEO.  Do you really think his loyalties are to the US public at large?  Or is it to the Wall Street banks?  

We were told that some of the banks would still fail under the TARP program because they would just have too many bad assets.  Did Paulson realize that some of his buddies on Wall Street would go broke with the original TARP program?  Who really benefits from the Treasury buying stakes in Wall Street?  It’s definitely the banks first, then the American population.

This is the exact problem with one person, with unlimited power, without any checks and balances.  There is no control over his actions and what he can and cannot do.  Congress has been handing over more and more power like this to the central government for the last decade.  

Obama or the next President will not suddenly declare the US a dictatorship.  However, the power of Congress and the system of checks and balances written into the Constitution is slowly eroding away.  With every piece of legislation that hands power over to a Federal department, our rights of self governance are taken away.  

We need to stand up and stop the power-grabbing by our Washing politicians.  The Constitution was set up for a small, weak central government and we have strayed so far away from that goal.  It might take years to unwind the huge government programs, but the sooner we start the better our future will be.

What Happened to the Bailout?

November 6, 2008

So, after the big uproar over the need for the $700 billion, tax-payer funded bailout, I’m wondering what happened to it.

Didn’t Paulson warn us about falling into the “abyss” if it wasn’t approved?  Didn’t we fall into that abyss anyway?  We approved the bailout and a few weeks later, our stock markets tanked 25 percent!  

Seriously, what the hell is happening?  Have they spent the money? Have they done anything?  Have they even named who’s in charge yet?  

This bailout reeked of an exectutive branch power grab from the beginning, and now that’s all it looks like it was meant to be all along.  If this bailout was so urgent, wouldn’t they have done something by now?  Before the bailout, they were throwing billions of dollars around, taking over Fannie and Freddie, AIG and arranging deals between banks.  Now that they have the bailout?  Nothing!

The real goal of the whole $700 billion bailout was four words:  Office of Financial Stability.

While it might not sound that important, it gives the Exectutive Branch of our government the right to intervene in the financial markets without any sort of Congressional review.  While the Federal Reserve has been intervening in our markets for decades, it was technically still a private bank.  The bailout puts the power directly in the hands of unelected, Presidential appointees.

Look at all of the power we have handed over to the government recently.  After 9/11 they created the Department of Homeland Security and the National Security Agency, who have the power to search your internet records and listen to your phone calls without a warrant.  Also, Congress let the President have the power to go to war without officially declaring war.  Now we are handing the Exectutive Branch the power to intervene in our markets in the name of “stability”.

How much bigger are we going to let our government get?  This country was founded on principles of limited government.  The Colonies were seceding from a monarchy.  The last thing they wanted was a strong central government that governed from thousands of miles away, but that is exactly where we are at and where we are headed.  We can turn this ship around, but we need to get back to basics and start following our Constitution and stop giving the central government more and more power.

Rate Cuts… AGAIN?

October 29, 2008

Well, the Dow and the markets had a nice up day today.  However, the buying came on the expectation of a big rate cut coming from the Federal Reserve, perhaps to an all time low under 1%.  This is like fighting fire with fire.

As I’ve stated in previous posts, the 1% rate will encourage BORROWING, but will not encourage LENDING.  We need lenders to regain confidence in the people or entities they are lending to.  You can have borrowers lined up around the block, but if you aren’t getting a sufficient interest rate for the risk you are taking, you aren’t going to lend the money.

What we really need right now is for the market to set interest rates higher.  Once again, the Federal Reserve is artificially setting interest rates way too low.  If lenders could get 10% on their money, I bet a whole lot more of them would be making loans.  Right now though, prime is 4.5%.  That is not enough of a return for a lender to make a loan.

We keep hearing about how the free market and capitalism has failed.  We haven’t had capitalism and a free market since 1913 when the Federal Reserve was created.  What has failed is the inflationary policies of the Fed.  Their constant intervention and recent philosophy of low rates as a “cure all” is going to destroy this country’s economy.

Also, I read today that the Federal Government is strongly urging banks to lend money.  Banks have been injected with capital from the Federal Reserve, but instead of lending, the banks are using this money to help their balance sheets.

We need healthy financial institutions.  We do not need ones that are not healthy lending money because the government says so.  Again, the government is intervening, trying to fix things for tomorrow, while not thinking about next week.

This is the hazard of the government indiscriminately throwing money around to any financial institution.  They gave money to the good and the bad, and now they want them to start lending this money.  Rather than taking equity stakes, the government needed to let the bad banks get weeded out before they starting handing out funds.  Then, only the ones with strong balance sheets, that were well managed, and had sufficient funds would have survived.  They could have given the funds to these companies, and they would have been able to lend, rather than padding their balance sheets.

The actions of the Federal Reserve and Treasury Department have been a complete, unorganized failure.  Nothing they have done has worked, and rather than recognizing their failures and changing course, they have decided to start intervening more and throwing even more money at the problem.   At a time when we need leadership from the leaders of our economy, we have a reactionary policy that just compounds the problems, rather than fixing them.

We Need to Act Now!

September 24, 2008

Why do you think Henry Paulson, Ben Bernake, and the Bush Administration keep saying, “We must act now!” and “We must act quickly!”?

It is because in times of crisis, the administration sees a chance to strip more freedoms and liberties from the American people.  

They use a “trust us, we know what we’re doing, now get out of our way” mentality and it has worked so far.

Finally, Congress is putting pressure on them and fighting back.

We’ll see though, when it comes to a vote, how many of our leaders will actually back up their talk and how many will cave and vote the bailout through.

Welcome to the New Financial Order

September 22, 2008

So, now we know.  Seven Hundred BILLION taxpayer dollars.  Wow.

The Federal Government, led by Treasury Secretary Henry Paulson, is going to spend that amount to buy up bad debt and illiquid securities from banks and financial institutions.

The first question that pops into my head, is that if this debt is so bad and so “toxic” that banks can’t give it away, why the heck is the government buying it for $700 billion?  That just doesn’t make any sense at all.

Also, along with this new, at least somewhat thought out, bail out scheme, the Treasury Secretary and only the Treasury Secretary will have the power to allocate and spend the money.  This power will have no checks and balances, and the plan spells out that the Treasury can not be reviewed or have any legal action taken against it.

With these new powers, our entire economic future rests in the hands of two unelected officials, the head of the Federal Reserve, and the head of the Treasury.

The Federal Reserve already has an exempt status from any checks and balances.  It can not be audited, and has absolutely zero transparency.  In fact, they do not even report how much money is in the financial system any more.  So nobody knows how much of an impact their printing of hundreds of billions dollars is really having on the overall money supply.  How much sense does this make?

Also, the Treasury Secretary Henry Paulson was the COO of Goldman Sachs before taking the public job.  Who do you think his allegiance is to?  How can he bail out big Wall Street banks without any regulation?  He’s a Wall Street insider with unbridled power to give our tax dollars away to his buddies at Goldman and other firms!

I’m not an economist in any way, but it seems that things are broken.  And all I hear is that Wall Street needs more oversight.  This is a diversion so the Fed and now Treasury Department can run our financial system like a dictatorship.

It was not Wall Street’s fault for the mess we’re in.  The Federal Reserve is the biggest culprit.

Former Fed Chair Alan Greenspan artificially lowered interest rates to 1% at a time when borrowing should have gotten more costly.  This led to easy credit and increased borrowing by everyone, from home owners to banks.  The entire system got flooded with so much debt that when they had to finally pay the bills, they couldn’t.  People are losing their homes to foreclosure and banks are failing or being bought out.

Then to make matters worse, rather than letting the market take it’s course, the Fed has been printing billions and billions of dollars trying to put a band aid on a huge problem.

Here’s what needs to happen:

1.  Take the money printing power away from the Federal Reserve.  Only Congress can print money, according the Constitution.  That money is supposed to be based on gold or silver as well, but that is probably impossible to go back to at this point.  Congress granted the power of creating money to the Fed, but that does not mean that Congress isn’t still responsible.

If bills come to my house in my name, but I tell my wife to pay them and she forgets, it still effects me.  Just because I passed responsiblity doesn’t mean I’m off the hook.  Congress shouldn’t be given a free pass either.  There needs to be more accountablity.

2.  Make the Fed more transparent.  We need to know how much money is in the system at least once a year.  Then we will know how much of an effect their printing of billions of dollars has on the money supply.

Every dollar the Fed prints makes the money in our bank accounts worth less.

As American citizens and taxpayers, we should be allowed to know exactly what the Fed is doing.

3.  Cap the amount of money that can be printed every year.  Once we know how much money is out there, Congress should impose a cap on how much money can be created.  Maybe it’s nothing.  Maybe it’s 1%.  But we need a limit.

How is anyone around the world going to have faith in the dollar if we keep creating more out of thin air.  If they knew that no more dollars were going to be printed, they would have faith that their money would increase in value over time.

This would be a great start to re-establishing the dollar in the eyes of the rest of the world.  It would also put more buying power in the bank accounts of every American.  Sure, there are more problems with the system that I will address in later posts.  But this is a start.  What do you think?