The Scam
Step right up and test your skill. All you have to do is hit the target and you’ll win the little lady a Cupie Doll.
The barkers at the carnival always make it sound so easy. That’s how he suckers you in to try it in the first place. Then after each turn he assures you that you are getting better and before long you’ve spent $20 to win a $3 stuffed animal. It’s a scam. We know it’s a scam. We like being part of the scam. But most importantly, we think we can beat the scam.
That pretty much sums up today’s long awaited speech by Treasury Secretary Tim 1040 Geithner. The problem is that this scam isn’t going to cost us $20. It’s more along the lines of $500 billion, with an anticipated end value of $2 trillion dollars.
As President Barack Hussein Obama toured the countryside in the opening salvo of his 2013 reelection campaign Tim 1040 laid out the “new” Financial Stability Plan. This much anticipated plan left most of Wall Street feeling like they had just gotten off the Tilt-A-Whirl. In a less than enthusiastic response the markets immediately headed in a precipitous downward direction to end the day down big with the Dow, Nasdaq and S&P 500 each shedding about 4.5% of their value. If this speech was a Broadway play it would have closed on opening night.
While President Obama stated last night that his number one priority is to create jobs, the real number one priority for this administration should be to free up the credit markets. Once you do that the private sector can get back to creating real jobs versus the government’s reheated New Deal WPO.
The new plan calls for an estimated $1 trillion dollars to prop up the Fed’s Term Asset-backed Securities Loan Facility or TALF. The plan then envisions another $1 trillion in private equity to buy up the toxic debt bonds that are handcuffing bank’s balance sheets.
These toxic assets are sitting like a bad burrito in the colon of most major lending institutions making them afraid to even move much less lend. Due to the mark to market requirements of valuing these assets, and seeing as there is no current market for them to be marked against, most banks have written them down to zero making them much more of a liability than an asset. And therein lays the rub. How does the Fed begin to logically and realistically value these assets?
The Obama administration is looking for this new plan to become an instrument to facilitate the sale of these contaminated assets to the private sector. The obvious problem is that there already is an instrument to do that, it’s called the market. And because it is impossible to discern the good assets from the bad assets the market considers them to be worthless. Now because these are mortgage backed securities there is obviously some value attached to them, but trying to figure out what that could be is like trying to figure out why Tom Daschle would give up a career that paid him $5 million a year in apparently tax free income to be Secretary of Health and Human Services.
Somebody is going to have to pick a number to value these things. It won’t matter if they spin the big wheel or draw it out of a fish bowl, because no matter how they pick that number it will be a complete scam.
It’s not so much that picking the number will affect the possible sale of the assets to the private market that is the problem. The problem comes in that once the government summarily picks the value it immediately changes the assets mark to market basis value allowing banks to artificially inflate their plus column of the ledger.
It’s time to put the smoke and mirrors back in the Fun House and focus on the task at hand. It was the federal government that created this problem with the welfare infection of the mortgage markets and it must be the federal government that buys back their mistakes.
All the roads and bridges projects in the world won’t matter if the only people using the road to get to work are the road building crew. Forget the near $1 trillion dollar spending package the ever campaigning BHO is pushing and focus that money plus whatever other stimulus money toward the mandatory repurchase of these toxic assets. They can be valued at a number that benefits both the bank and the government, recapitalizing the banks which will allow these currently toxic assets to actually begin to accrue value. Only then should the government look to private equity to begin buying them as actual investments.
The time for the scam is over.
Now gimme my damn Cupie Doll.
