Tuesday, September 23, 2008

US Treasury Bailout - Mandatory Puts if US Taxpayers rescue the patient

The US Treasury proposed $700 Billion bailout of Wall St and the Financial Services industry (FSI) assumes the patient has total cancer. Implying an absolute necessity that the US taxpayer must pay good $ to the patient in exchange the people get to hold onto ONLY the cancer; something again does not pass the smell test.
MOST IMPORTANTLY - If the repercussions of not enacting are that great, then have the US taxpayer support the future issuance of credit, did you hear that? The Future issuance of student loans, car loans, mortgage loans. etc. - NOT THE BAD LOANS from the PAST!

Mandatory Puts back to Wall St!
If the US taxpayer puts up even one dollar sopping up Wall St's leveraged errors in judgment (securities) then we should insist that in 3 or 4 or 5 years time a "put" triggers Wall St or its assigns (not dischargeable in bankruptcy) repurchase from the US taxpayer with interest.

This time is DIFFERENT - make no mistake - it's not the nostalgic era of 1990's RTC; nor is it the 1987 stock market crash, nor the 1998 Russian ruble / LTCM panic; it is more like the 1930's given the elephant in the room - LEVERAGE. The public must recognize, Wall St's / FSI institutional and hedge fund leverage in the late 1980's / early 1990s was a nanospeck compared to today's $62 Trillion credit default swaps market - much of which relates to real estate and mortgage backed securities and derivatives thereon.
Reminder, implicit or explicit leverage was the "cause" of the excellent profits from back in the day AND those huge bonus checks the masters of the financial universe took home...now they cry out for the rest of us to share in the pain; hey bro we didn't begrudge your remuneration in the past so what right do you have to come to us for help now? It doesn't and shouldn't work that way.

Showdown at "Bailout Alley" - will Congress blink?
Mr Paulson and Bernanke would have us believe, if Congress does not grant these "authorities" great harm would occur to the US economy; really? Economies, sectors or industries naturally experience ups and downs, BOOMS and RECESSIONS; go ask the citizens in the Detroit and Cleveland areas. The Administration has trumpeted very recently that the economy is not in a recession and is "strong" hmmmmm.... what changed in the past 2 weeks? "What did they know and when did they know it" should jump to mind.

Bailout does not address / cure the problem for the people
Although Mr Paulson and Bernanke state "great harm" is in store for Main St. if we don't give them the $700 Billion authority
1- I'm hard pressed to find a direct cause and effect link to that premise. Very few, if any, upside down homeowners are unlikely to see ANY benefit from this "cure-all".
2- Secondly, where are those with memory? I thought we heard both of them say that Bear Stearns would be the first and last bailout, or was it Fannie and Freddie or AIG? It's beginning to look like a pattern here; or is it not a surprise that Mr Paulson is using the only tools he knows? Lets make a deal! More glaringly where was the SAME SENSE OF URGENCY during Katrina?

Many observers AND ALL WALL STREETERS know that ALL markets hit speedbumps; are NATURALLY prone to extremes: at the zenith of hope and optimism (2004 thru 2006/7) and despairs at its depths, 2008 thru ?? However, eventually begin to function again ON THEIR OWN; there is no shortage of smart people on Wall St. who could figure out how to make money.

This time is different - YES but we need to see the actual bottom first
We find ourselves in a VERY unusual UNcomfortable position - this time is different; the pain will be intense (it's only money though) in the future the recovery I believe may be the strongest ever seen; however we need to let the absolute bottom happen; push through it.
IF we let the patient recover on its own.

NO US taxpayer dollars to bail out Wall St - it simply requires a little lifestyle change from business as usual!

No comments: