Tuesday, October 14, 2008

Bailout Now Equals Federal Banks

Is it truly in our best interest to own preferred equity stakes in eight different banks / Wall Street firms? The American taxpayer will be proud owners of $25B in preferred stock in Bank of America (including Merrill Lynch and WaMU), J.P. Morgan and Citigroup; between $20-25B in Wells Fargo; $10B in Goldman Sachs and Morgan Stanley; $3B in Bank of New York Mellon; and about $2B in State Street?

Also announced was a fee-based new debt guarantees called senior unsecured debt issued by banks and thrifts (a supposed three year program). Regulators hope that this will remove the fear among financial institutions that it is unsafe to lend to each other even for periods of a few days; hoping to see the Libor rate decrease.
The FDIC is also temporarily offering banks unlimited deposit insurance for non-interest bearing bank accounts typically used by small businesses, through 2009. This would be voluntary for banks, and would extend the $250,000 per depositor limit lawmakers agreed on two weeks ago. To use these new powers, the FDIC is invoking a "systemic risk" clause in federal banking law that allows it to take extreme steps to prevent shocks to the economy.
President Bush claims it is "not intended to take over the free market but to preserve it."
"Government owning a stake in any private U.S. company is objectionable to most Americans -- me included," Treasury Secretary Henry Paulson said in announcing the initiative. "Yet the alternative of leaving businesses and consumers without access to financing is totally unacceptable."
Sounds like snake oil to me. What the government takes, they take forever -- tightening the socialist noose. Yesterday's 900+ point DOW rise was one sliver of hope certainly, but today it when up and down ending slight down after profit taking actions.

Many, including me, feel the markets will return, but I am beginning to question this misguided hope. I have followed a plan of building a well-diversified portfolio; re-balancing annually; investing regularly. That philosophy must certainly be re-evaluated.

The current federal position relative to the government possibly assuming partial ownership of the banks is another major “inroad” Marx would recognize as a “means of entirely revolutionizing” our economy.
Ultimately, the money power seeks for and lusts after political power. Karl Marx, the godfather of modern statist ideologies, who lived on the generosity of other wealthy individuals so that he could articulate ways for them to destroy the middle class, outlined ten basic steps for wresting property away from the petty bourgeoisie.

The process in the United States has been gradual when it comes to building total power in the state. With this latest economic crisis, the steps are more bold – the bigger the assumed crises, the bigger the steps they can take to build power.

Business Week's cover depicting Bernanke as some kind of “Reluctant Revolutionary” is deceitful. Bernanke, Paulson, and their corporate socialist allies are pushing forward at a sprinters’ pace.

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