“Most illiquid bond assets are illiquid because they are not worth anything.” - Ron Paul
When this was forecast below was written a few weeks ago it was not with the idea that the 'offer' would be coming so quickly. But with McCain lagging badly in the polls, it looks like the money powers decided it was time to act just ahead of a congressional recess. "When the banks make us an offer they think that we cannot refuse, we will be at the crossroads and will decide what we wish to be: slaves [to fear] or free men. Yes, it really is that simple."
Death of Capitalism: Financial Tsunami Incoming - 8 Sept 2008
How did we know this was coming? Because the setup really is that obvious. These guys are not clever, they are shameless.
What is most surprising has been the enormous response from the public to the Congress since Paulson's Treasury made their arrogant proposal to the country last week on behalf of Wall Street. Aides report that it is running solidly 99 to 1 against. The common sense of the people is a sleeping giant and has apparently been awakened by this outrage. Not completely, but stirring. We don't have any illusions. Its hard to stand up to the Big Lie. The Banks will get something.
The banks have mispriced assets on their books. They will never be worth what they thought they would be, where they marked them with the cooperation of the ratings agencies, if they hold them until kingdom come.
This is why they do not wish to hold them on their books. They want to sell them, but they do not wish to accept the price that an informed market will offer, now or in the near future.
Its hard to understand this unless you accept the inherently fraudulent nature of much of the paper that was packaged and put together for sale to others. This latest bubble fell apart prematurely when the market for this junk collapsed and the banks were left holding the bag.
Provide liquidity to the banks at a price. Put four hundred billion dollars into the FDIC to insure the savers' bank accounts and increase it to one million dollars per person. Put another three hundred billion in the Small Business Administration and Office of Thrift Supervision and the FHA if necessary to make loans to small businesses and consumers that cannot obtain market liquidity through the regional banks, which should be the key to the rebuilding of our financial system. Provide large amounts of liquidity to the healthy banks in the quantities required to support economic activity.
But do NOT buy this junk from the Wall Street banks, especially the investment banks. Allow the tide to continue to go out and let's see who is wearing what. If we provide a bailout to this crowd while they continue to pay out fat dividends and capital gains and outrageous salaries we deserve what we will most surely get in return.
The Wall Street banks are an inefficient, manipulative, overly-expensive, oversized, and a hopelessly broken mechanism for the rational allocation of capital. A number of those banks need to be broken apart and liquidated, not replenished with increasingly scarce public capital. We need to cut out the parts that are hopelessly rotten, save what is good, and rebuild together from there."Last year Goldman paid its employees $20 billion, 44 percent of the firm's revenue. Chief Executive Officer Lloyd Blankfein took home $68.5 million, and many otherwise ordinary human beings took home $10 million or more.
This inspired young people everywhere, many of whom may have privately wondered whether it was still worth their time to become investment bankers. Torn between a future in, say, the law and the manufacture of mezzanine CDOs they sucked up their courage and plunged onto Wall Street. And thank God for that: we needed the best and the brightest to get us into this mess, and we'll need the best and the brightest to get us out of it."
America Must Rescue the Bonuses at Goldman Sachs - Michael Lewis
What would we do if the oil companies said "Give us the Artic Wildlife refuge and 700 billion in public money to develop it or we won't give you any gas starting next month. We'll send it all to China and Europe."
What if the drug companies said, "Give us free malpractice insurance and accelerated drug approvals and scrap the FDA and 700 billion for research and development or you won't get any more medicine next week."
Or GM and Ford said "Give us 700 billion to retool to meet industry standards and pay off our healthcare and pensions or we stop fixing and shipping cars and crash the manufacturing industry."
Why is it when it comes to Wall street that people lose all perspective?What would you do if your your teenager said they wanted a $7000 home entertainment system or they would throw themselves on the ground and make an embarrassing scene?
What are we going to do when the Big Banks come back in six months and say, "the 700 billion was not enough, we ran through it already. We need another 700 billion or the markets will crash and we will stop lending money."
Decisions made under the duress of dire threats and political blackmail never work out as intended, and never stop there, because appeasement does not work.
If we do not invade Iraq the first warning we will get about their WMDs will be a mushroom cloud. If you do not pass the Patriot Act immediately hidden sleeper cells will rise up and bomb the shopping malls.
We need to fix this problem, not just throw money at it and hope it goes away. Maybe there is a good case to be made for a capital infusion but we certainly have not heard it explained. So far all we have are demands and threats as this site predicted we would receive weeks ago.
ProPublica - History of US Government Bailouts
