America, a farce in
2 3 several acts.
[A Special Sunday Edition; don't expect one every week.]
Seat of all Power: Try to remember that the Federal Reserve is a private bank.
Paper Moon: The Treasury plan is an attempt to restore confidence in the financial system, to convince creditors (and investors) that everything is okay with financial institutions. This will work only if the Treasury pays more than the current market price for the assets it buys. Either way, its a con job.
New Contest: Pick the date of the Crash of 08 and the December 31 close of the Dow, if any. Usual disclaimer, prizes.
Look Behind the Curtain: Money Market insurance is a scam. The gov says it will guarantee $1 for $1 in participating money market funds. It says it will do so for a fee. It will not say which MMs are insured, so the customer won't know. If you were a MM manager, would you waste your money on the insurance?
$700,000,000,000.00: Rising long term interest rates are a sure bet; housing prices will tank further. First class to the lifeboats, second class gets life preservers, steerage gets swimming lessons.
Rooting Around: Either they've forgotten that the root cause of all the trouble is overpriced housing finding a more realistic price level, or they are hoping that we don't remember.
Player to be named later: One part of the Fed's current initiative extends 'non-recourse loans' at the Fed Funds rate (2%) to 'depository institutions and bank holding companies' so they can buy asset-backed commercial paper from money market mutual funds. This is a round-about way to bail out the car loan and credit card receivables markets.
Unconstitutional: Giving Paulson unlimited and unchallengeable power over the entire US economy might well be challenged.
Money Laundering: The Fed is buying Fannie and Freddie's debt from 'primary dealers' "to aid market liquidity." So one part of the government is going to write iffy paper and sell it to Joe, then another part of the government is going to give Joe real money in exchange for the iffy paper just he just bought. Oh, Joy.
No Thanks: Unless the Treasury can explain exactly how this bit of legerdemain is going to work so the taxpayer doesn't pay too much for toxic paper, it is going to be a hard sell. And if the real solution is recapitalization of the banks, why not a more direct and honest approach?
Please Explain: The Usual Suspects keep saying "this will cost the tax payer less than the alternative". Why should it cost the taxpayers anything at all?
Locating Locution: The trillion dollar gift to the rich will not save the economy. Paulson is trying to keep the banks lending. House prices will continue to fall, and the economy will follow. The Paulson plan does not address this.
Silver Lining: Buy bonds. Grab up financial stocks. Either things will soon recover smartly and you'll be set for life, or they won't and the loss of a few bucks will be dwarfed by all your other problems.
Assumption: The TARP program is aimed at increasing liquidity. The problem is not liquidity, it is solvency. How will paying a fair market price for worthless paper prevent the collapse of an institution that needs far more money than 'fair market value' will provide?