The Biggest Bailout Plan In The History Of The United States
In today's semi-political investment environment, it starts to become a little hazy whether we've staved off Wall Streets biggest scam since the Great Depression, or whether we're still headed for an even worse market crash (meaning a bailout plan is passed).
Press reports have praised the work of Treasury Secretary Henry Paulson and Congress, (the one's who created this so called crisis) for diverting the economy from what they term, "a new version of the Great Depression."
The good news for consumers is the plan has not yet been adopted,(and in a perfect world, it never will be passed.)
It still must run the gauntlet of the U.S. Congress. Anyone who knows something about politics understands that trying to get a bill passed is like playing a grown up version of telephone, you may not get out what you put in.
Here is what we know so far. While the plan has been dubbed the "son of RTC", referencing the independent Resolution Trust Corporation that bought the assets of failed savings and loans in the 1980s, it will be very different from the RTC.
While the RTC took the assets of defunct savings and loans, wiping out shareholders, The Paulson plan is looking to protect Wall Street. The U.S. Treasury Department will give Paulson,(the man who helped engineer this scam), $700 billion dollars to buy as much toxic assets from institutions of Paulson's choice, (with absolutely no oversight and no accountability), that are still solvent. Shareholders in the bailout firms will have their equity cut, but not destroyed.
Unfortunately, this will protect the same corporate dynasties that ran many of these firms into the ground with excess leverage, greed and corruption. It also moves these depreciating assets onto the balance sheet of the U.S. government, adding to the middle class taxpayers already over burdened tax load.
The Risks of a Bailout Plan
By holding "reverse auctions," secretary Paulson plans to buy these loan portfolios from multiple banks. But the greatest danger is Paulson buying assets that no one understands. How much they are really worth? Banks could offload non-performing assets with larger risks than currently disclosed.
When risks are divorced from investments, you naturally have an increased opportunity for fraud.
In my opinion, the wholesale nationalization of much of the mortgage market and many banks sets a bad precedent. And the plan's insuring of money-market funds guarantees managers taking more risks will climb and the due diligence of the buyers will fly out the window. Before long, all of Wall Street, big business, and FORIENG BANKS will be selling bad assets here.
America has over 200 years of bankruptcy law that should be governing these transactions. If managers who accumulated too much risk by not adequately qualifying lenders are allowed to continue in their jobs, we are doing a disfavor to the intelligent managers, of smaller local banks, who accepted lower returns for more prudent lending practices.
I believe the shareholders and executives at these mismanaged firms should be wiped out. These investments have clearly failed, and management and our government is to blame. It's the risk we all take, and the risk of investing. However, by allowing these banking, mortgage, and insurance giants to be wiped out, it allows new managers and companies to fill the void. This type of creative destruction, however painful, (especially to the corporate elite), always strengthens the economy in the long run. The market will right its self.
If Congress and the administration really wanted to help main street, instead of rewarding criminals to the tune of $700 billion plus, they should put together a bailout plan for victims of the fraudulent and criminal mortgage and banking companies. Our government should put together a plan that would help homeowners in jeopardy of losing their homes. It would help the home owners, help the economy, and save billions of taxpayer dollars. It's the only RIGHT thing to do. Any thing less, or any bailout for Wall Street or "golden parachutes" for criminal CEO's and managers would be a crime against Americans by our so called political leaders!
Basically what Congress is trying to do is spend billions, even trillions of
taxpayers dollars to fix the roof.
For example: You own a house, you've ignored it for years. Now you can't ignore it any more...you have to fix it. Your house has two major problems:
1) A crumbling foundation. 2) A weak and sagging roof. Which do you fix first? Obviously, you fix the foundation first, because without a solid foundation, no matter how much money you put into the roof the house is going to collapse anyway!
And that is what Congress, Bush, Paulson, and Nancy "I'll promise everything and do nothing" Pelosi are trying to do. They want to invest billions of taxpayer dollars into fixing the roof (wall street wealthy elite) and ignor the foundation, (the housing market). By doing this, the house (the economy), is going to collapse. No matter how much money they put into the roof, (wall street), the economy won't be able to hold the weight and will collapse!
The only real way to fix this problem is to fix the foundation, (the housing market). By fixing the crumbling housing market, and bailingout victims of the criminally corrupt banking and mortgage industry, we will save billions and the market will be able to start stablizing and maybe even start to grow again.
