Sep 17, 2008

Bailing



Alright, I've held my wagging tongue too long on the Fail Street situation.
What kind of bullsh*tter would I be if I didn't bitch about it at least a little?
(you'll notice the rarely photographed side of the Wall Street Bull)

This has been the week of bailing. Bailing out water from Galveston and Houston, bailing water out of the basements of Chicago, bailing out AIG, the Lehman bankruptcy, a sale of Merrill Lynch to bloated BoA, plummeting oil prices and Fed lending facilities. Whew.

The goofy part? The economy is not the problem; lousy lending standards and the excessive use of leverage are the problem. "Waves" of punitive destruction are knocking down one investment bank after another, while "gales" of creative destruction continue to move the economy forward. In fact, real gross domestic product (GDP) has grown 2.2 percent in the past year and accelerated to a 3.3 percent growth rate in the second quarter!

The unbelievable part of the story is that this stupid financial 'hurricane' isn't going to sink the entire economy. Huh?

But first how did it get this bad?

It all starts in the housing market...
This is not that hard to figure out. Consider all the sh*tty loans that were being put out there. Some oily idiot gave a mortgage to Barney. Barney's name has been changed, and you all know who Barney is. Barney's your fat idiot unemployed old fraternity brother who mooches every beer and smoke - wait, that's me! - Okay. Bad example.

Simply put, Barney is the guy who shouldn't qualify to RENT a place, as he would not have passed the credit check process. But suddenly some greedy, oily someofabitch in a used Cadillac made a loan to Barney. Clearly that allows Barney to spend more than he had earned, or would ever earn.

Everyone involved, from the guy who closed Barney's house, to the guy who sold it - then attached a bond-like security to the mortgage (that everyone knew or should have known would eventually default), then selling those bundled piles of useless paper to foreigners, then AIG insuring the whole thing so that no one ever had any risk - because there's Uncle Sam opening up his purse to save all these dumbasses -- wait... they're not dumbasses at all. Evil greedy pricks, yes, but because there was never any risk, and since the tax payers are bailing them out -- they're coming out clean! Evil or taking advantage of an unregulated loophole? Yes to both.

Would some or more oversight or regulation gone over to Barney's house to see that he's a drunken unemployed idiot? No. But there would have been more checkpoints and a tiny bit more red tape to go through... maybe? Actually, it's a little less likely. But there probably could have been a little more accountability if there was actual risk by the oily greedy pricks if it was THEIR money tangled up in all this.

The hurricane is a great parallel to what's going on in Texas, and also Wall Street. They've already rebuilt Galveston TX a couple times. Just wait for Uncle Sam, and a decade or two later when Hurricane XXX (yes, in ten years there will be naming rights for hurricanes) wipes them off the island again, Uncle Sam will be there to bail them out again and help them rebuild. There's already been the Savings and Loan bail out as a textbook on how to do it correctly. They teach this crap in business school. The good ones, anyway.

They found a spot to make unchecked millions, with no risk. Oh, the tax payers will bail them out, for sure. Too big to fail? Absolutely, especially after that huge campaign contribution. Well, it doesn't hurt, does it?

And because of the US Government bailing out the over-greedy little yuppie pricks on Wall Street, we've pulled back the curtain to show the world that we're not that great Ayn Rand and Milton Friedman capitalist society that we pretended we were... in fact, we're a socialist nation - but only for the top 1%. The rest of us are the rubes who keep letting them drink our milkshakes.

You know what the best, best part is? It was the government that encouraged all this in the first place! So after all that, now the government is going to regulate it? The government is going to get more involved?

I'll have to get into that later. I gotta go. Have to keep bailing more water.

3 comments:

Ron Santo said...

I blame it on the White Sox and their fans who all have inferiority complexes.

DAVID FRUM said...

From every side we suddenly hear people calling for more regulation of financial markets. The calamity on Wall Street has brought to public attention the frightening risk-taking of firms like Lehman Brothers, which lent money against assets at a rate of 35 to 1.

Something must be done! The government must put a stop to this!

But in the excitement of scapegoat-hunting, something important is forgotten: Wall Street was doing exactly what the government wanted it to do. Almost all the exotic credit instruments now wreaking havoc trace back to the simplest of all assets: the single-family home.

Insurance giant AIG, for example, held almost $100 billion in mortgage-backed securities when the market began to fall last year -- and almost one-third of those securities were based on subprime loans.

The United States takes pride in high home ownership rates. Over the past decades, administrations of both parties encouraged ever looser lending standards in order to push the home ownership rate higher and higher still.

You don't have to be a Wall Street wizard to predict what comes next. When you are extending mortgages to the 65th, 66th, and 67th percentiles of credit-worthiness, you are going to encounter more and more people with low and variable incomes -- no down payment -- and uncertain credit history.

To serve this population, you are going to have to shift far away from the old-fashioned 30 percent down, 30-year fixed-rate amortizing loan. And over a decade, politicians and regulators prodded and pulled mortgage writers to do just that.

The mortgage writers happily obliged. After all, they weren't going to keep those loans. Wall Street would repackage and resell the loans to investors worldwide. One loan might go bad. But multiply that loan by a million -- and then subdivide it again into a million parts -- and you had a bond that looked, well, as safe as houses, as the British say. And after all, there was a government guarantee. Wasn't there?

This crisis was enabled and intensified by government. So how does it make sense to say that the solution to the crisis is still more government?

rushsays said...

Yes, we are on the verge of becoming a socialist country. This election puts the private sector directly at odds with the public sector and we are about to find out which will control the vast majority of jobs and wealth creation in this country.

Barack Obama is not just the most liberal senator in the country. Barack Obama is a committed socialist.