Thursday, September 25, 2008

Wall Street Bailout Must Not Happen

I am sick of hearing the "suits" spouting off their "end of the world" and "worst ever" right before they restate their demand for $700 billion.

How will Treasury buy these assets? Will they use an open auction - allowing private people to bid on these bank securities? Why does all $700B need to be allocated at once?

We know the holders of these sub-prime mortgages and bonds cannot sell them. They had to mark these down to market level. Accounting rules freeze them in the marketplace.

What if they changed the "mark to market accounting" rule for the sub-primes only and not force them to mark them down to market value. Instead, just let them hold on to them for some predetermined period of time to free up the market. This may solve half the problem; certainly at a much lower cost.

Paulson and Bernanke are looking out for themselves and all of their Wall Street buddies. Bush is clueless. They want the taxpayers to lend the money -- no collateral of course. They will get these assets at pennies on the dollar. Over time, they will sell them, obviously at a rate higher than they bought them. There will be a profit. But will that money go back to the taxpayer? Absolutely not.

Regardless of whose in power, that profit money will go to their favorite government programs. Perhaps to establish socialized medicine; perhaps to make solvent social security; perhaps to fund carbon trading.

I care less about golden parachutes -- don't like it but that the least of our problems.

We already are on the hook for Freedie and Fannie. What was allowed to go on there was just criminal. The politicians seem reluctant to back away from assuming it is our Constitutional right to own a home; with nothing down; if you can't pay, the government will help you out -- rather those that are meeting their debt obligations and who made prudent financial decisions will help you out.

The consumers who made these leveraged purchases knowing they could not pay but felt is was a good deal at the time, because real estate only increases in value, right? These are often the same people who used their homes as a virtual ATM machine -- refinance after refinance -- for "life's necessities."

S&P, Moody's and Fitch all got it wrong on the assigned risks associated with debt securities. This forced the banks to recognize the losses associated with these assets, in many cases erroneously.

Ironically, the most regulated banks made the worst mortgage investments. You think maybe because of the failed "everyone must own a home" policy? The 1977 Community Reinvestment Act was another failed liberal government program.

The Bear Stearns bail out -- to the tune of $29B guarantee -- sent the wrong signal to the other investment banks. Bear still has some extremely valuable assets. Although Lehman was the unlucky one, they will live to fight another day if Paulson has anything to say about it. The $85B loan to AIG weakens the Federal Reserve's position significantly; though it does make us the proud owner of an insurance company.

Goldman Sachs and Morgan Stanley chose to swallow the banking poison instead of having it legislated upon them or being forced to merge like Merrill Lynch did with BOA. As banks -- they can now accept consumer deposits. Their risks will be lower along with their profits and personnel payouts, but they will survive.

The very people who created the mess are the ones asking to be bailed out and who are structuring the bailout. That's one reason they should not be allowed to prosper and steal money from the American people.

I am not panicking; though I know many have. I will stay firm. I wish I were in a position to buy. I am in this for the long term. If I don't make up my losses in 5-10 years, then so be it.

PS - in all of this mess, I have not heard one politician talk about reducing spending. Spending and debt is the main problem here. This bailout is more debt with no intention or ability to ever pay it off. The dollar may take a long time to recover.

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