The Bailout Bandwagon

Written Sept. 30th, 2008

I'm amazed so many Democrats and Republicans have jumped on the bailout bandwagon. Numerous conservative commentators I respect have all joined the Chorus, surrendering to Socialism and betraying a fundamental lack of understanding as to how markets work. There have been honorable exceptions - most notably the majority of the Republican house and surprisingly, some prominent liberal democrats - but they have been the rare exception. I myself am left with more questions than answers, but I take surprising comfort in the questions, as they leave no conclusion other than that we will be just fine without committing one stinking dime of taxpayer money to King Henry's boondoggle.

So, here we go:

- If the judgment of the High Priests of Finance (Paulson, Bernanke, et al) supporting the bailout is to be trusted, why didn't they predict this problem before it happened? If they’re so damn smart, why weren't they crapping their pants with anxiety years ago, months ago or even weeks ago? It's not like there weren't people sounding the alarm, but these jackasses weren't hearing any of it. Call me crazy, but the last person I'm trusting with what remains of my savings are the Con Men who just bilked me out of part of it on a proverbial "can't miss" real estate deal.

- Shouldn't these geniuses have seen the writing on the wall the moment they allowed an investment vehicle called a "derivative"? The word "derivative" has stink all over it, which is appropriate given its technical definition: “financial instruments whose values depend on the value of other underlying financial instruments”. Can you even repeat that without laughing? Doesn't it defy common sense to take the value of things and think you will have greater value simply by dumping more of them into one basket?

It’s important to understand that there is a limit to economic activity, and thus to the transactions that create income for the Money Changers, at least until you change the rules and start gaming the system. Derivatives are merely the latest derivative – you’ll pardon the expression – of the attempts to create an endless stream of transactions from which Paulson and his cronies extract a percentage.

- Why didn’t the High Priests raise even an eyebrow when the industry then created the “sub-prime mortgage”? Again, doesn’t that term just reek? Did they really think that people with no credit should be allowed to purchase a house with no down payment? Not really, but they knew all such loans were 100% guaranteed by the federal government, so hey, why not? Yet more transactions for the Money Changers, more churn, and more income. Not surprisingly, one of the big revelations in years to come will be the extent to which speculators - as opposed to deadbeat homeowners - have used the sub-prime mortgage to inflate the value of real estate, which is what got us into this problem in the first place.

- Why didn’t the High Priests raise an eyebrow when the investment community then decided to create Derivative packages that were larded with sub-prime mortgages? Think of these investments as aggregates of bad investments, and then ask yourself, would they do this with their own money? Of course not, but they would with Taxpayers' money.

- Why a $750 billion bailout? Why not, say, $747,675,000,000.00? Henry Paulson would have been a lot more convincing if he hadn't picked a round number. It would have at least given the impression that that figure actually came from thoughtful analysis, as opposed to him pulling it out of his ass.

- Why did the market go up 141 points after the Republicans in the House came out against the bill? Why did it go up 381 points one day after falling 700 the previous day? Could it be that investors understood - as our High Priests do not - that committing the American people to an extra $10,000.00 debt per household will actually drive the economy down? Could it be that investors respond to some other dynamic than Establishment talking points; say, making money?

- Who says credit is going away? To suggest that is to suggest that America is no longer a market for credit, and will change its consumerist ways; it is also to suggest that investors don't have any money to lend. Does anybody believe that? If they don't lend it to America, who will they lend it to for a higher return? Credit isn’t going away, it’s just taking a little holiday.

- Given the events of the last week, why does Paulson have an ounce of credibility? After having drawn his line in the sand on the $750 billion to be used as he saw fit, Paulson promptly caved once Congress dug their heels in. Now, he's perfectly fine with only $250 billion up front, congressional hearings on future disbursements, full reimbursement (in theory at least) of all monies, no golden parachutes for executives, and a long overdue investigation of the source of the problem. Those were all non-negotiable with him just a few days ago, and he came damn close to stampeding Bush and the Dems into doing it. Willie Sutton would have admired the grace and dexterity with which he attempted to steal three quarters of a trillion dollars, but lying to Congress is a federal crime.

By the way, there is little "blame to be spread around". This problem is a liberal problem, starting with the creation of Fannie Mae and Freddy Mac in the 70's. Only liberals would construct corporate entities limited to a particular service - in this case ensuring mortgage debt - and then be surprised they fail when there's a downturn in their market. Shades of the S&L crisis that we apparently didn't learn from. Ironically, the efforts of the investment banks to diversify into standard banking - so roundly criticized by the Reids and Pelosis as an effort to "escape regulatory oversight" - is exactly what any sane corporation would do to protect themselves from the vagaries and gyrations of markets. Look at it this way: if democrats tried to force you to invest in nothing but Enron for your 401k, would you be cool with that? Of course not, you would diversify. Same thing.

Only the government would create a corporation that is protected from failure by the American taxpayer. All reward and no risk means the people running the show will engage in risky behavior to enrich themselves. The program would then do what all such programs do, metastasize into a giant bloated tic on the ass of the American economy. Fannie Mae and Freddy Mac are nothing more than variations on a theme that includes Social Security, our health care system and the Department of Agriculture, to name just a few.

This problem too shall pass, and I’m not saying we won’t get our hair mussed. Times will be hard for the next year regardless of what measures are taken. My only concern is that we will once again fail to learn the necessary lesson, and allow big government liberals to once again create a huge problem, project its failure onto Capitalism, then ride to the rescue with more regulation and another spending program that only makes the problem worse. A compliant media will of course echo their talking points.

We can’t keep subsidizing other people’s incompetence, and we're spending our seed corn to do it. If we kill this bill, it might well be a wooden stake into the heart of Liberalism. Let's hope so.