bailout

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Negotiations

December 9, 2008 in Consumption Junction by Ben

Just in case you were wondering why the automaker bailout talks seem to be taking so long, have you ever been able to deal with automakers quickly?

I imagine it’s going like this:

Automakers (A): So, how can we make a sale today?

Congress (C): Oh, we’re really just looking. Not interested today.

A: Are you sure? We’ve got the new models in. We’ll make you a deal! This one goes Zero to Bankrupt in 60 days. Over hear we have a new Canyonero Hybrid, it gets half a MPG more than a standard Canyonero, with half the cargo room and only twice the cost!

C: Mmm, OK. That one looks shiny. How much?

A: Well, how much are you looking to spend?

C: No, I asked you how much.

A: We’ll get to that. Our finance department will surely get you the payments you are looking for. Would you like to upgrade to leather seats?

C: No, er, wait. Is a sunroof an option?

A: If you get the stereo upgrade and SuperChrome lugnuts. (whispering) And I know Doris in the parts department, we’ll even throw in a free undercoat, as long as you get pinstripes. Just don’t tell anyone you’re getting this sweet deal, I’d go out of business if I did this for everybody.

C: Okay, wow, this is gonna be great! How much is it again?

A: (fiddling with adding machine) Looks like after tax and title and our ‘documentation fee’, it’ll be $100 billion.

C: Whoa, that’s a lot more than I wanted to spend. How much was that documentation fee?

A: (Ignoring the question). Tell you what, we can work this out with some payments. (more Adding Machine Fu) How about $30 billion down, then $2 billion a month for 48 months.

C: That’s a little better, but still kinda steep.

A: What if we throw in the Platinum Extended Drivetrain Warranty for half price?

C: Now we’re talking. What does it cover?

A: Pretty much nothing, unless something breaks while driving on the moon on a Sunday during Lent, but it’s half price. What a deal!

C: Not sure… I’m gonna have to think about it for a couple days. You know, maybe we can just keep our old one for a bit longer… (starts to get up)

(ring ring)

A: Hang on, that was my manager on the phone and he wanted to talk to you before you left.

Manager (M): Now, we aren’t going anywhere until we see Madame Speaker from California smile. What do we need to do to close this deal tonite? How about a key fob?

C: No, (it’s hardball time) – we need two key fobs. And a free oil change.

M: I think we have ourselves a deal! (shakes hands)

C: Oooh, shiny!

A: (cackles with glee)

Taxpayers: Why does my bum hurt all of a sudden?

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what bailout?

October 14, 2008 in Political Crap by Ben

a must read.

You’ve been violated America, and you have not only tolerated it you’ve cheered while it happened.

See, buried in that bill was a nasty little catch-all “any other asset the Treasury says promotes financial stability.”

One little sentence, with which you surrendered forever the principles of economic capitalism and replaced them with government totalitarianism.

Fascism.

And a week later half of that money was instead spent on a massive bailout of Wall Street through the injection of perpetual preferred stock, saving every single nickel of executive stock and options. No dilution of existing shareholders, nor any haircut for their bondholders, thereby preventing the capital structure of the firms from absorbing the losses as is intended and required under the law.

In other words, you, The Taxpayer, have been intentionally looted by the puppet-masters at Treasury (Hank Paulson) and The Fed (Bernanke, Geithner, et.al) to the tune of $250 billion dollars, while these folks in the so-called “private sector” keep each and every nickel of the money they stole from you while peddling their fraudulently-sold and packaged subprime and Option ARM mortgages.

Law standing for more than 200 years intended to guarantee that the stockholders and bondholders of a firm stand in a carefully-chosen capital structure as the cushion when a firm becomes incapable of providing for itself was destroyed not through the operation of law or statute, but by executive fiat. Instead of being forced to accept the loss that should have come from the imprudent and even felonious acts of these firms and their executives, we, the taxpayer, are instead having our pockets picked, with our children and grandchildren, along with those not yet born, being forced to absorb the bill. Instead of those stockholders being expected to shoulder the loss as a direct consequence of their refusal to hold management accountable for its bad conduct, we the people are handed that loss in the form of foreclosures, higher interest rates and insane inflationary spirals.

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Quit horsing around

September 30, 2008 in Educational, Political Crap by Ben

Great analogy/summary of the situation from THE AUTOMATIC EARTH

If you go to the racetrack and bet on a horse, you receive a piece of paper that confirms the bet you made. There are many different varities of bets possible; for now, let’s say you simply bet on one specific horse to win the race.

After the race is over, you have either won your bet or lost it. There’s nothing difficult about the process, anyone can -learn to- understand it, and everyone, except in very rare circumstances, accepts it, both the winners and the losers.

What is happening in world finance these days is that a group of very heavy betters have become very heavy losers, and they have done so with borrowed money. In the past few years, in order to hide their losses, they have turned to a very clever little trick: they want to make us believe that the race is not over, even though we can all see that it is. In fact, if they have their way, the race will never be over, unless and until their horse wins.

The US government has joined the argument on the side of the losing betters. They have allowed the losers – who are their friends-, for years, to hide their predicament, their losing tickets, through Level 3 and off-balance sheet “creative accounting”. Now that the government’s betting buddies’ creditors are losing patience, and demand their money back, which the buddies don’t have, the Fed and Treasury want to buy all those losing tickets, with money that belongs to the taxpayers whose best interests they are presumed to represent.

And they up the ante today: the president declares that this will cost the taxpayer nothing; and if you believe that one, you’ll like the guys who claim that there are profits to be made on this avalanche of losing bets.

Now there’ll be plenty of “experts” who are more than willing to tell you that comparing mortgage-backed securities -to take just one sort of bet- with horse racing is inherently flawed. Their argument will be that there is true value behind the securities: the homes that were purchased with the underlying mortgages.

At first glance, that may look plausible: it seems clear that the homes are not all of a sudden worthless, so how could the mortgages and securities be? My first thought is that the horse you bet on is not worthless either just because it lost one race. But that doesn’t make you win your bet, does it? And the horse is still tired.

There are deeper problems with the “the home still has value” argument. The most flagrant is the actual purchase prices, which doubled or tripled in a decade, while no value was added to the home itself. From that follows that many homes were sold at prices that people couldn’t truly afford. The US has for that reason already seen milllions of foreclosures, with many more inevitably to come. And the elevated prices, of course. are also the ones the securities are based on.

So perhaps at some time in the future your losing horse might win a race, and perhaps at one point some money can be made on a new mortgage for a foreclosed home. But that makes no difference for your losing bet, and neither does it make the securities valuable again. Both races are over. For good. Which makes it impossible for the US taxpayer to play even on the losing betting tickets their government is about to buy with their money, while making a profit on them is too ridiculous to seriously discuss.

If home sales ever recover to any kind of extent, it will be at prices that are far lower than they have been so far in this millenium. That is the only way to make them affordable. And even if it happens, it is going to take years. In the meantime, the gambling losses will have to be paid.

Your government tries to convince you that your life will be miserable without their losing betting buddies. If you ask me, it will be much worse with them, because if you want to keep them around, you’ll have to pay their debts. And they’ll just use the money to go bet on the next race. Maybe you should keep the money and buy your own tickets. That way you get to keep the profits too, if there are any.

But if I were you, I’d lay off the gambling for a while. It looks to me like a sure bet that you’re going to need every penny you have just to feed your children.

(many thanks to BrianT, who posted the above at The Oil Drum.)

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