Bailout, We don’t need no steenkin’ bailout

A commentary on learning to read tea leaves…
Wed Sep 24, 2008 at 08:09:32 AM PDT
Leane Roffey Line, Ph.D.

It was with some trepidation that I opened email this morning. A viral missive from my 80 year old Uncle (who is convinced Obama is a Muslim), quoting Ayn Rand. Oh joy. Where ever I go, I can’t seem to escape John Galt. Oh, wait a minute, I AM John Galt. In their efforts to separate themselves from the pack, old-style Repubs are pulling out all the stops.

Never mind that this morning, before Bernanke even spoke, according to Briefing.com,the Fed had set up $30 billion worth of new currency swaps with central banks in Australia and Scandinavia, as reported by Reuters. What this does is facilitates and encourage banks to lend to each other, increasing liquidity. Bernanke maintains that there are “grave threats” to US Financial Stability. I would encourage Congress that before any money is doled out, these threats be made clear.

The market is chopping around the 10800 mark today, but I expected that, having lived and brokered through the Savings and Loan crisis. As expected, existing home sales fell 2.2% to an annual seasonally adjusted rate of 4.94 million, according to the National Association of Realtors. (Sales were expected to fall 1.2%) Existing home sales remain at very low levels, but have leveled off during the past few months near the 5 million mark.

So let’s talk again about why we need this bailout?

So what questions should Congress really be asking here? How about first things first — Mr. Poulson should explain himself in even bringing this request for a bailout before Congress in the manner in which he did — which basically came across as we’ve given you three pages of everything you need, now act, you bastiches. And this after the economy was fine but a few short weeks ago! His rudeness to our elected representatives, as well as Cuomo’s is inexcusable.

I submit here that this entire scenario is massively overblown. A market correct has been due for some time, in fact, it is something upon which I am sure Graham and his cohorts were counting, in an effort to pick up the last bits and pieces of available money from the taxpayer before election day. I find Mr. Poulson’s attitudes and lack of explanations more than disturbing.

In the last long bear market, which was 1969 to 1982 about, stocks returned about 5.6% annually, after inflation, and investors lost about 2% per year. This made stocks inexpensive, and in the next 20 years we saw them go up about 19%, enough to turn a mere 10K into more than 200K. People who this year alone have withdrawn over 39 Billion out of US stock funds and some 6 Billion out of exchange traded stock funds still don’t get this. If you’re still in your savings and investing years, the bear market, as Buffet has consistently indicated, is a gift from heaven.

But back to the viral email. So, now, how is this all Democrats fault? Read for yourself. Here is the viral email in toto, coming in under the title of “Non-partisan facts on this mess”, no writer cited, so I have no idea who authored it:

Liberty means responsibility. That is why most men dread it.” – George Bernard Shaw

A half century ago, Russian-born writer Ayn Rand warned about the creeping socialism she saw in America even then. In her thousand-page tome, “Atlas Shrugged,” Rand told the story of John Galt, a shadowy figure who is so fed up with high taxes, burdensome regulations and interference from government, he secretly recruits the best and brightest of American capitalism – the captains of industry – to withdraw from society to the mountains of Colorado, leaving the growing welfare state without any visible means of support.

Imagine what Ayn Rand would say about the federal government coughing up quantities of cash even career bureaucrats didn’t talk about in the 1950s; all to bail out quasi-government entities whose overseers were complicit in the failures of those very institutions.

Republicans and Democrats alike share the blame for this mess. It was largely created out of a misguided need (mostly by Democrats) to feel as though America was actually doing something to help the poor own their own homes. This may be a worthwhile goal, but when people who have absolutely no hope of paying back loans are approved to buy a home, one has to ask, “Who is going to pick up the tab for all this?” Answer: You are, to the tune of at least a trillion dollars, a sum most of us cannot even fathom.

Over the last decade, Democrats like U.S. Rep. Barney Frank, D-MA, chairman of the House Financial Services Committee, and U.S. Sen. Christopher Dodd, D-CN, chairman of the Senate Banking Committee, have insisted that these ridiculous loans be made. Former Attorney General Janet Reno, carrying out the wishes of her boss, threatened legal action against any institution that discriminated or “redlined.” I was very disappointed to hear John McCain say on CBS’s “60 Minutes” that he admired New York State Attorney General Andrew Cuomo and would consider
him to head up the Securities and Exchange Commission. As Bill Clinton’s Secretary of Housing and Urban Development (HUD), Cuomo was up to his eyeballs pushing the sub-prime mortgages that started these dominoes tipping in the first place.

And where were Newt Gingrich and the Republicans in the 1990s when Clinton and his cronies were building this house of cards? The GOP held the House and the Senate during most of Clinton’s tenure. After 2000, they also held the White House. Why did this situation continue?

The rule in Washington seems to be this: If you squander your money and fail to provide for yourself, the government will take care of you. If you save, invest wisely and prepare for your retirement, you will be penalized in order to pay for those who did not. A perfect example was the tax increase passed by Clinton and the Democrats who still controlled Congress during the first two years of his administration. Seniors who had saved and invested for retirement, and who made more than $34,000 ($44,000 per couple) received a tax increase under that plan.


So much for emails. Look for big money to buy into the existing financials. If credit is tight, it is because Americans are overextended and have been for years. This problem has nothing to do with swaps and everything to do with just failed economic policies of BushCo for the American people. The great buys made by Buffet indicate to me that the credit markets, though they may be tight, are far from wading in kimchee. Per Briefing.com:

The TED spread — which measures the difference between what banks charge each other for 3-month loans (3-month Libor);compared to what the U.S. government pays (3-month T-bill), is up 22%, or 54 basis points, to 3.04%. This marks the highest level since multiyear highs were reached on Sept. 18 and indicates that the credit markets remain very tight.
They are very tight, not strangled. This would have happened with or without derivatives. If you don’t make anything and have to use credit on which to live, something is very wrong.

Congress need not get stymied here. Just because someone wants money doesn’t mean you have to give it to them. As a former investor, I do not want my tax money put into what is essentially vaporware on drugs. Show me the equity stick. Otherwise what you’re offering in attempting to bail these drones out is just bad risk for me. No investor in their right mind, especially one who perhaps doesn’t get into aggressive growth as daily fare, would go for this deal. It sucks.

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