Hank Pauson's latest proposal to mug us and our next 3 generations, is without precedent in stupidity and cruelty. He is building a bridge across a moat of fire by filling it in with living people so a few banksters can escape.
Here is just one comment about his plan from a recipient of his largess - this comment is from JP Morgan CEO Jamie Dimon:
Dimon said he is not yet sure how JPMorgan specifically will use its $25 billion, but that he intends to use it to benefit shareholders and customers.
"It's clear that the government would like us to use the money to make loans," Dimon said. But, he added, "I don't think the government is telling us what to do with the capital."
He just laughed in your face.
He just spat on your spouse and kicked your kid in the head.
You would be so lucky if he loaned you your money back.
Here is another interesting comment from this WSJ article:
"It looks like a pretty good deal for the recipients and probably a pretty tough deal for taxpayers," said John Kanas, who was CEO of North Fork Bancorp until selling it to Capital One Financial Corp. in 2006. "It seems quite explicit that there's no strings attached to this money...It seems like a gift."
Here is a comment Paulson made in an interview yesterday:
"What we're doing is making clear to the banks how important it is to deploy the capital," Treasury Secretary Henry Paulson said in an interview.
But then he also said this yesterday:
"We're not looking to come in and take meaningful ownership percentages," he said. "We're looking to put in place a very good private-sector money manager to manage these equities to be sold."
Collectively, these statements make me question if he is just an incompetent manager and professional liar, or if he might be legally stealing vast amounts of taxpayer money to ensure Evil Incorporated is not hurt too badly in the event of a depression. If doing so brings about a depression, does it really matter? As long as Evil Inc. survives, then anything goes.
Do you know what happens when you pour good money into a failed company? You double your losses.
Why 'buy' a stake in all these failed companies? This 'preferred' stock carries no voting rights, which means it cannot influence in the slightest how a bank allocates resources. Does that sound like righting the ship? Please! Be honest; in what way does this action aid in solving the credit lockup or protecting our 'investment'?
Paulson's plan has a laughable executive compensation clause in it. There is a restriction which says that any bonuses paid to executives will have a $500,000 limit on tax deductibility. They can use as much of our money as they want to pay bonuses, but don't try to write it all off.
Firms are also restricted from increasing dividends while the treasury holds a stake. They are free to pay existing dividends using your money, just not increase them.
How about this for a novel idea: since we are the shareholders, how about they do whatever the fuck we tell them to. Paulson is a corrupt pussy. There should be a perp walk for him where we can throw rocks at him.
In typical Orwellian doublespeak, Bush has stated these actions are being taken to preserve the free market. If that really is a goal, then jailing Paulson would be a much more effective step.
The true, ultimate goal of buying up the toxic bank assets is still in play. This is exactly the worst thing that can be done at this juncture, and I'll tell you why: once it is started, Paulson will claim it is almost working and if congress doesn't fund another $2 trillion right away, then it will have wasted $850 billion and a systemic collapse will surely be right around the corner. The problem is, there is not enough trees in Oregon to print the money to buy all the troubled assets because more and more are becoming troubled every day.
Other than a token gesture, no plan has been floated for any kind of bottom-up rescue for the economy. There is nothing to prevent the floor from caving in under the souring assets. Sub-prime yesterday, prime, commercial, and credit cards tomorrow.
Now there is even FDIC protection for new debt issued by the banks until the end of June. This is the ultimate moral hazard; what is preventing banks from floating bonds with huge coupons to attract 'private' capital. There is no downside to buying them - the taxpayer is going to pay them even if they default.
The losses are going to start accelerating quite fast now. There will shortly be a wave of hedge fund failures which might trigger more CDS events - it's hard to tell because nobody fucking regulated them. They are off the scale in lethality compared to anything Bin Laden could ever dream up, and the government helped nurture these things. McCain's little shit-hole friend in particular should have his citizenship revoked.
I suspect we will see the government trying to stem this tide too, and I suspect we will see the government running something in the order of a $6-8 trillion dollar deficit for the year.
If they just followed the rules months ago, as painful as it would have been, by forcing mark-to-market accounting on the toxic assets and created full transparency, then our ears would be ringing from the explosion, but the system could very well have been in the process of establishing a new set of banks with absolutely no risk of insolvency. The new banks would all be happily lending to each other with the FDIC-rescued accounts and maybe some government capital.
They can still do it. They can call a halt to market trading right now, force the banks to mark their assets, and FDIC can swoop in on the accounts in the banks that come up in the red. The board that votes on whether or not a CDS default event happened could be threatened with death if they vote yes on an event. Pick an excuse - any excuse to prevent it. Tell them their charter doesn't cover fair, free market actions, and since this was an honest accounting for the banks, it is therefore not eligible as an event and now the CDS's are worthless.
Yes, a boatload of investors will get hammered and many corrupt and fraudulent banks will fail, but the system itself will live on, and the far larger number of innocent people in society will not pay for the sins of the greedy.
DO IT!
Can it be any worse than what we are doing in slow motion?
Update: I was just looking at Mish's excellent financial blog and he has a post about the near-collapse of the Baltic shipping index. This is considered a bellweather for trade, and you should see the chart.
Things could deteriorate faster than would normally be expected in a downturn.