Wednesday, November 12, 2008

Congress 1, Paulson 2

Nonono, just kidding. Hah, I fooled you, you sumumabitches. This is what Paulson must be snickering to himself after successfully executing an all-time bait-and-switch job.

"...purchasing illiquid mortgage-related this not the most effective way to use TARP funds, but we will continue to examine whether targeted forms of asset purchase can play a useful role, relative to other potential uses of TARP resources, in helping to strengthen our financial system and support lending."

Paulson turns around and, fuck what he told Congress, he's got something better to do with the money. After he made sure his homies were satisfied, the rest of the money will go to:
  • "...use the TARP to encourage private investors to come back to this troubled market, by providing them access to federal financing while protecting the taxpayers' investment..."

  • "...carefully evaluating programs which would further leverage the impact of a TARP investment by attracting private capital, potentially through matching investments...we will also consider capital needs of non-bank financial institutions not eligible for the current capital program..."

That sounds suspiciously like he's got more homies with their hands extended. Oh, and this shit will now cost (moves pinkie towards mouth) $3.5T...and they've already spent it. From Yahoo's TechTicker:

"...the tally so far is nearly $3.5 trillion, and that's before a likely handout for the auto industry.
Yes, $3.45 trillion has already been spent, as details:

  • $2T Emergency Fed Loans (the ones the Fed won't discuss)
  • $700B TARP
  • $300B Hope Now (the government's year-old attempt at mortgage workouts)
  • $200B Fannie/Freddie
  • $140B Tax Breaks for Banks (WaPo has the details)
  • $110B: AIG (with it's new deal this week, the big insurer got $40B of TARP money, plus $110B in other relief)

"Approximately 40 percent of U.S. consumer credit is provided through securitization of credit card receivables, auto loans and student loans and similar products. This market, which is vital for lending and growth, has for all practical purposes ground to a halt. Addressing these two priorities will have powerful impacts on the overall financial system, the strength of our financial institutions and the availability of consumer credit."

Let's not bullshit each other here. Of course, consumption drives the economy. It has fueled over 25 years of virtually continuous economic growth. If we stop spending, it would do far more harm than a few bad mortgages are doing. If the default rate on credit cards were to reach, say, (pulls number out of nearest trash bin) 15%, the credit markets will seize up like fuckinfuggedaboudet.

Aside - The median real wage has held steady for 40 years, meaning Average Joe's grandson is no better off than Average Joe. The growth has come at the top of the ladder, as the boss-to-shlub salary ratio has gone from 50:1 to 500:1. At the same time, public debt has increased from <$100B to >$10T (see debt clock). Taken simply, it's like the government has taken $10T and given it to the bosses.

The wrinkle is that consumption comes at the expense of saving and we passed the point where we spend more than we make a LONG time ago. At some point, the debt burden becomes too much to bear. Anyone with any economic sense knows that a day of reckoning is coming. If that people tighten up on their spending as necessary to tame consumer debt, it would scuttle US economy.

Tangent alert!!!

It doesn't even need to get that point. Corporations, especially publicly traded ones, have rosy assumptions of sustained growth factored into their planning (not to mention their stock price). When the outlook becomes less than rosy, like the Mafia after someone gets clipped for something that can get back to the boss, people get clipped left and right. Companies were cutting to the bone last time around, when the New Economy dream cloud was eviscerated, then evaporated in the smoke-screen of 9/11. This time around is already lot worse than last time around, as companies are positioning for the second round of job cuts.

As far as were concerned, it's like these corporations, having gotten people to flip into new cars every three years instead of five, and buying a new flatscreen every two years, by living outside their means, started factoring that these same indebted people will now flip into up-model cars every two years and by a bigger and better LCD every year. Apply a similar analogy to other industries. When putting off the saturation point becomes too much of a challenge, their strategy resorts to denying (to themselves) its existence.

For the banks>>brokerage houses>>investment bankers responsible for this clusterfuck, securitized debt is their LCD, and it's all dependent upon people speding beyond their means. Defaults are a temporary issue; not having debt to securitize is the long-term problem.

Remember Milken with the junk bonds? This is 5000 Milkens. This is a whole economy of Milkens.

Paulson and his homies know this and, as the powers that be have always done, are just trying to put off legitimate pain, both for themselves and, by coincidence, for us. I think I've told y'all this before; the foundation of all mental illness is the unwillingness to experience pain or legitimate suffering or discomfort. They've been putting off experiencing such pain for so long, call it Percocet for the economy, and most of us are so beholden to our debt, that we couldn't bear the pain.

End of tangent alert.

To get out of this pickle, they're going to have to find a way to put more money on the table for the American consumer. Unfortunately, since the system has been bleeding us dry for years, other than by stimulus packages, the modern day equivalent of caesar throwing loaves of bread into the crowd, they've probably got no clue how to get it done. I'd suggest, but they'd never do it. I'll rather save it for another time.

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