View From Table 9

September 24, 2008

Between a Rock and a Voting Booth

Oh I nearly died laughing when I saw an ad by McCain claiming that Obama would mean Big Government and he wouldn’t. What he heck do you call creating a new oversight to bail out your rich friends and spending to the high heavens in debt the likes of which we’ve never seen in the history of our country?  Government is gigantic and getting bigger.  Really funny.

What’s really interesting is the bind our Congress is in. On the one hand, they REALLY want to adjourn so they can all campaign for the upcoming elections.  On the other hand, they ‘get’ that if they don’t fix this the right way, it could mean their heads.

And there’s lots of tricky questions. Like:

1. What mortgage backed securities will we buy?  There are literally thousands of configurations out there.

2.  For how much?  Remember, we have no idea how much many of the notes packaged are worth since, well, um, the people who wrote the paper lied so much.   Many are worth zero, so why would anyone pay anything for them?  Capital markets won’t.

3. From whom?  Investment Banks (oh yeah, aren’t any now).  Standard banks?  Hedge funds?  Foreign banks? Foreign funds?  Pension funds?

3.  What do we get in exchange (note: Rich guys do NOT want to give up any ownership stake, control, stocks, etc. to the taxpayers).

4.  How would this stop any foreclosures and should it?  What will the taxpayer do with a bunch of bad debt and the properties used to secure the debt?

5.  Where in the Constitution or the current code can we draw power from (hint: Nowhere) in managing the affairs of the private marketplace?

6.  Will this actually calm the markets and allow capital to flow again?  Right now the crux of the problem is that because there’s so much garbage and gross breaches of fiduciary responsibility mixed with lies that nobody trusts anybody.   So nobody’s lending anybody money, and without that most of the markets can’t survive long.

7. How do we spin this to our political advantage so we don’t get fired in 6 weeks from our jobs by the very taxpayers we wish would just shut up and trust us even though we may not have their best interest at heart? (Maybe we should just say 9/11 and that Osama Bin Laden is behind the mortgage meltdown)

The real risk here is that credit won’t free up by this action, meaning we really have thrown good money after bad.   Worse, that if credit doesn’t free up, that this ‘crisis’ really will begin to affect the average American.  Because so much of our capital infrastructure relies on credit – retail stores borrow to buy inventory, sell for a profit, then pay back the retail loan.  Farms borrow against future crop revenue to purchase capital equipment.  Governments borrow against future tax revenue.  Businesses ‘sell’ their future revenue in exchange for cash infusions needed for operations and improvements.  If that system isn’t restored to health, we will see potentially catastrophic job loss as businesses collapse.   Then we really do have the Great Depression all over again.  Except this time with Medicaid and Medicare and Unemployment Insurance and Social Security and food stamps and other safety-net programs which would be accessed by more and more people (all of which are funded by taxpayer dollars, of which there’d be fewer because of the collapse).

For once, I’d rather they not rush this so they can get back to politicking. I believe it may be the only way to really potentially save their own skins.

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