The new bailout for banks ...

So ... let me get this straight ...

We package these toxic assets ... and put them up for bid ... in an auction where the bidders only have to put up 15% of their winning bid? And the government will match the private money of the bidders dollar for dollar, up to 15%? And the government will loan up to 85% of the purchase price — the winning bid — in a non-recourse loan? (Isn't that one that doesn't have to be paid back?) And this is supposed to provide a market to properly value these assets? Are you kidding me?

A nonrecourse debt or non-recourse debt or nonrecourse loan is a secured loan (debt) that is secured by a pledge of collateral, typically real property, but for which the borrower is not personally liable. If the borrower defaults, the lender/issuer can seize the collateral, but the lender's recovery is limited to the collateral. If the property is insufficient to cover the outstanding loan balance (for example, if real estate prices have dropped), the lender is simply paid out the difference. Thus, non-recourse debt is typically limited to 80% or 90% loan-to-value ratios, so that the property itself provides "overcollateralization" of the loan. The purpose of non-recourse debt is to require lenders to underwrite their loans on a sustainable and prudent basis since the lender is in the first-loss position with these loans, not the borrower.

wikipedia.com

B-b-bu-but the government is simply going to underwrite whatever the winning bid/purchase price is. How is that sustainable or prudent?

In this auction the only thing determining the bid will be what 15% dollar amount are the banks willing to lose to gain the 85% remainder? Gee, I wonder.

See, the banks are going to get paid off at 100% of the purchase price. Now, if a bank loaned the 15% for the private equity in this deal to some type of limited liability company that used the toxic asset to balance whatever liability it carries on their books ... then if the LLC goes belly up when the toxic asset defaults ... well, all the bank would lose is its 15% ... and if Bank A loans the 15% to X LLC that purchases the toxic assets from Bank B, and Bank B loans the 15% to Y LLC that purchases the toxic assets from Bank A ... so it all looks impartial ...

Are you kidding me?

And Geithner or Bernake or Summers are going to coordinate this for the banks?

Are you kidding me?!

Oh ... and check this out: http://www.msnbc.msn.com/id/3036789/#29875591

Variations on a Ponzi theme

Harvard economist Kenneth S. Rogoff, who with Carmen M. Reinhart of the University of Maryland has analyzed 800 years of banking crises. “You can study all the financial crises, and there is a common pattern, that the faster you mark down the assets in the financial system and recapitalize the banks,” the sooner the economy recovers, he says. “As long as you leave the banking system sick, you’re not going to have sustained growth.”

Macroegonomics by Virginia Postrel, an Atlantic contributing editor

There you have it. The financial gurus create the illusion of wealth with variations of Ponzi schemes and other manipulations of the velocity of money and leverage aka borrowing against assets until the bubble they are blowing up can no longer be sustained by the market value of the underlying goods and services we actually need and want ... and the whole thing explodes, forcing the pricing of these goods and services at real market value ... what people are really willing to pay for them outside the illusion of increased value created by the financial schemers aka bankers.

It isn't so much about curing the banks, as it is about getting their excessive illusory wealth wrung out of the money supply, and returning money to its useful place of facilitating the exchange of goods and services that do have value ... their real market value.

Anyone who still thinks the cure is to get the banks to start lending again for the purchase of this generation of goods and services rather than the production of the next generation of goods and services that will in turn create demand ... is out of their ever-loving mind.

Obama picked the wrong players for his economic team

Hey, of course the coach has to take responsibility for the team ... but if you're losing with the players on the floor, shouldn't you be thinking about making some substitutions? Or, is this the best you can do? And what does that say about you?

As Frank Rich writes in his NY Times OpEd column, Has a ‘Katrina Moment’ Arrived?:

"We must have governance to match the message."

We have a ways to go before we reach bottom ...

Together with other Fed programs, the aim is to lower borrowing costs for consumers, businesses and the government. More borrowing and spending, in turn, would bolster the impact of the fiscal stimulus package passed in February.

Unfortunately, there is no guarantee that this will work. With unemployment rising, debt loads high and household wealth falling, consumers may be reluctant to resume spending anytime soon, no matter how low rates and prices go. And even if consumers and businesses want to borrow, banks — stung by their own losses — may not be willing to lend.

The Fed Does Battle, Again
The New York Times Editorial
Published: March 20, 2009

Is the Fed crazy? Borrowing and spending what we borrowed got us into this mess. Somehow the financial sector brilliant idiots still think that their pieces of paper actually create wealth ... and not the illusion of wealth ... the bubble.

Until folks are working at jobs that actually create wealth — the goods and services that have value in a transparent and well-regulated market (everyone uses the same weights and measures, for instance) — and are paid a fair return for their labor — the mental and physical effort used in creating that wealth with its historical investment — there is not going to be a turn around.

And as we are still losing jobs faster than we are creating them ... we still have a ways to go before we hit bottom.

Is Obama's credibility now DOA?

If Secretary of the Treasury Timothy Geithner and Larry Summers, Director of the White House's National Economic Council for President Barack Obama, aren't gone in 60 days then the credibility of Barack Obama's presidency is permanently DOA ... before the end of the initial 100 days of his presidency.

IMHO ...

A few things about us ...

Let's get a few things straight.

We are a tribal animal. How do I (we) know that? We cannot survive as an individual nor as a family. With a solitary human being the future is obvious. The future ends in that person's death. With a family we now know that the gene pool is not robust enough to perpetuate the species.

We are a hunting animal. I would suggest that the biological basis of our human society is caught up in the alpha person leading the hunt ... and then fairly dividing the spoils of the hunt according to tribe's "rules".

Those tribal rules that increased the success of tribal activity led to a more successful tribe.

America's political genius was giving everyone in the hunt a fair reward out of the spoils of the hunt ... the counterpoint to slavery and indentured servitude.

No matter how complex things seem to get, they really stay pretty simple ... if you pay attention.

The lesson of these United States of America is simple

The lesson of these United States of America is simple. Reward the individual fairly out of the material wealth his/her labor creates and the dynamism created in the agrregate of individual motivation within our society will create (created) the greatest society known to the human race.

Some thoughts on the subject ...

Material wealth for human beings is produced by the mental and physical effort of human beings.

The mental and physical effort of human beings is what we define as labor.

The primary economic concern of a just society is the fair distribution of material wealth for the labor that created it.

If in a given society the material wealth contained in the assets of production — the land, buildings, and equipment — becomes more and more centralized in their ownership among fewer and fewer individuals, creating a classification of stored wealth separated from the labor that produced those assets, then that society is no longer just in relationship to a fair distribution of material wealth based on the labor that produced that wealth.

And ... if the centralized accumulation of the assets of production attenuates the fair distribution of material wealth, then the dynamism of our society will also be diminished.

Dah!