We report below our current appraisal of what we discern to be the inner secret core of the bailout. We have been watching the Senate Banking Committee Hearings with rapt attention this morning. What we have just heard has compelled us to dash to our trusty old computer to share our analysis of the insight so graciously supplied to the Committee by Federal Reserve Chairman Bernanke. The initial phase of today's hearing began with statements by each member. The most interesting -- and most central question -- posed by several of the senators -- was: AT WHAT PRICE WILL THE TREASURY PURCHASE THE JUNK "ASSETS" IT IS PROPOSING TO RELIEVE THE BANKS OF? (And, if you can believe this, we are under the distinct impression that Bush/Bernanke/Paulson are also going to bail out HEDGE FUNDS whose debt-fuelled specualations have gone awry, using the money of taxpayers to do so). These very hedge funds, we would note obiter dicta, are agglomerations entrusted with part of the wealth of the upper economic orders,and tasked with making money at anyone and everyone else's cost. Nor is it any secret that the highly leveraged speculations of said entities have accentuated the speculative frenzies and disordered trading in a wide range of markets, not to mention wreaking havoc with the price and liquidity of many of those "securitized assets" and derivatives which constiute so large a share of sinking bank balance sheets. Looks to us like the Bush/Bernanke/Paulson is Robin Hood in reverse, with a coddle the white collar criminals twist: the government is rescuing the plunderers with the money of the plundered. To return to the crucial issue at hand: what price is the Treasury intending to pay for the junk "assets" it is eagerly allowing the banks (and the hedge funds too?) to unload on the taxpayer? Will the so-called "auctions" Paulson propose to hold be REAL AUCTIONS, where the government buys this junk at the lowest possible price, thereby reducing the INEVITABLE FUTURE IMMENSE LOSSES to the taxpayer, or will these be phony auctions, with Paulson paying a premium -- possibly a VERY, VERY RICH PREMIUM -- to the true market value? The answer to this question was provided by the eminent Dr. Bernanke. Bernanke expressed the "opinion" that the Treasury should pay the "mark to maturity" price. In plain English, there is to be a massive transfer of taxpayer money to the malefactors, the incompetents, the riverboat gamblers -- i.e., the banks -- which have led us to this frightful pass. This amounts, of course, to a staggering UNTAXABLE GIFT FROM THE TAXPAYERS TO THE BANKS. It is akin to saying that Mr. Homeowner, whose house has dropped in price from 200K to 140K should be paid 300K because that is what his house will be worth X number of years from now, assuming of course that A,B, and C occur between now and then. Or, to phrase it somewhat differently, current market "value" may well rise to "mark to maturity" value (with maturities being extended ad infinitum, perhaps) within the lifetime of the same type of newborn tortoise that kept Napoleon Bonaparte company on St. Helena, and who is reportedly still alive. Unfortunately, last time we checked, we were still human beings -- in some cases barely -- not tortoises. Certainly it is POSSIBLE that the yawning and unbridgable gap between current market values (and what IS the market value of junk assets for which there are NO BUYERS anyway? An asset, we believe, is worth what a buyer will pay. Since the securitized garbage the Treasury will be placing on its balance sheet is not salable, it is WORTH NOTHING). But then anything is POSSIBLE in what Candide insisted was "this best of all possible worlds." Presuming what is POSSIBLE to be fact, in contradistinction to insisting that that which is PROBABLE is more likely to be factual constitutes a primary dividing line between INSANE people and SANE folk. Moneysage 2008 © |
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