Hyperinflation?

Sunday I said “the money must come from somewhere and we don’t have the savings to do it, so our creditors get a veto too.” Well now Bloomberg is reporting that “Asia Needs Deal to Prevent Panic Selling of U.S. Debt.” This is just spiraling out of control and our elected nitwits aren’t helping.

Doubling down on misery

I watched President Bush’s speech and still think the plan will not work. If the government borrows that much money the value of the dollar will fall causing commodities such as oil and food to rise; pushing families off the precipice and previously performing mortgages into default. Then we are back to the cascading wave of
Failures we are facing now, only in a much worse position.

The problem is not declining home values:

The problem is too much leverage.
The problem is Bear Sterns at levered at 50 to 1
The problem is Fannie Mae and Freddy Mac at 60 times leverage
The problem is Lehman Brothers levered at 40 to 1.

Banks are falling in direct proportion to their leverage, with normal reserve requirements the GSEs would have been first.

More borrowing will not fix this and deleveraging is inevitable thus a recession is inevitable. Attempting to maintain the unsustainable status quo will only draw out the misery.

Scandalous!

Paulson Debt Plan May Benefit Mostly Goldman, Morgan, according to Jeffrey Rosenberg, Bank of America's head of credit strategy research

Not too long ago the ethics rules were bent so Ken Wilson a Goldman Sachs banker could join the Treasury to help with the crisis. The concern most likely set aside was for a conflict of interest with stock options or ownership of Goldman stock.. My gut feeling is that he is leading that twit Paulson down the primrose path and looking out for himself at the expense of the nation. Thus, It also means this whole deal isn’t just stupid it’s dirty as hell.

Paulson’s rescue plan is insane.

As stated there is no way if could work; if he buys the securities at market prices then the investment banks must realize the loss and they are insolvent, if they could sell them at market value they would have no problem doing so in the existing market it is the need to sell them at above market value that makes them illiquid. On the other hand if Paulson buys them at above market prices to recapitalize the banks then we get left holding the bag and the federal government is not big enough to sweep this under the rug.

The money must come from somewhere and we don’t have the savings to do it, so our creditors get a veto too. Why would anyone finance the recapitalization of insolvent firms, to do so is to throw ones money away? Moreover, if the dollar starts to tank the first ones out the door will be better off then those who come later. Thus, there is no reason to expect anything other than a mad rush to the door once it becomes apparent that the US is insolvent and this has the potential to make us insolvent.

When someone drops a knife the prudent thing to is get out of the way and let it find the floor all by itself, and that is what I am asking you to consider doing. There is no need to fly off the precipice in a mad panic as a herd of buffalos will.

If the government is to have a roll in this mess let it rebuild our infrastructure. It is sorely needed and unlike throwing good money after bad it will generate real wealth while simultaneously putting a floor in leaving us better off on the other side of the recession. It will help keep the economy moving while changing perceptions about the future allowing us to maintain our credit rating and borrow at rates approaching zero as we will have a prudent plan amongst the turmoil. It seems that it will be all but impossible to do nothing thus if we are going to take on debt at least get real assets in return.

It could be the difference between an L shaped recession where the economy goes down and stays down and a V shaped recession where it comes back.

No worries folks

Now flush with public loot Fannie Mae’s first act was to announce that they would be resuming business as usual; no pause to reflect on what went wrong, no change in plans just straight back to loosing money. If they keep doing what they have been doing why should we expect them to not need another bailout? Is this twice round, first as tragedy and then as farce?

If that wasn’t enough they then turned around and announced they would be paying dividends! A bankrupt company paying dividends with my tax money! Money I worked hard for and that was coerced out of my hand under duress!

I am livid! This can not stand!