Put $700 Billion in the Bag & NO One Gets Hurt

Put $700 Billion in the Bag & NO One Gets Hurt.
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http://articles.moneycentral.msn.com/Investing/StrategyLab/Rnd18/P3/allstarteamjournal20080926.aspx
http://www.informationclearinghouse.info/article20884.htm
http://hiddenmysteries.net/geeklog/article.php?story=2008092717494554

Saturday, September 27 2008 @ 05:49 PM CDT
Contributed by: Admin
Views: 12

$700 billion or Armageddon? Sounds like sci-fi

The more I hear about Henry Paulson's plan,


the less convinced I am it's worth $2,000 from every American.
The predictions of financial Armageddon without it don't ring true.

By Ken Kam

"MSN Money" -- - Put $700 billion in the bag and no one gets hurt.

That's pretty much what I'm hearing as the reason
for pushing through a $700 billion bailout for the financial industry.
We are told that the situation is so dire that we must accept
Treasury Secretary Paulson's plan or face financial Armageddon.

Of course, when Ben Bernanke was asked what would happen
if Paulson's plan was not approved, he said car loans and
student loans would be more difficult to get, and businesses
would find it harder to borrow money. Perhaps he was trying
to downplay the consequences so as not to start a panic,
but that doesn't sound like Armageddon to me.
-
In fact, it doesn't sound like it's worth
spending $700 billion to avoid.
-
Using $700 billion of taxpayer money is a huge decision,
or at least it ought to be.
It's more than $2,000 for every man, woman and child in the U.S.
It makes me angry to think that they want my 4-year-old daughter
to contribute $2,000 to a plan which, at least originally,
would have allowed bank executives to keep
their compensation packages and their golden parachutes.
-
Earlier this week it looked like Congress would fairly quickly
agree to use $700 billion of taxpayer's money to implement
Henry Paulson's plan to resolve the credit crisis. But Democrats and
Republicans in Congress both demanded concessions and, heading
toward the weekend, no one seemed to know what would happen.
-
Such a deal for taxpayers?
-

As details of the Paulson plan emerged, however, I become less
confident that it would be the end of the crisis even if it passed..
Nevertheless, I expect that the news would send the market up,
at least for a few days.
-
As I've listened to Paulson and Fed chief Ben Bernanke explain
their proposal, I am left with the impression that protecting taxpayers
is a lower priority for them than protecting banks. This is the only way
I can make sense of their proposal to use taxpayer money
to buy mortgage securities from banks at a higher price
than anyone else would pay, without even asking for
an equity kicker -- part of the company -- to offset the risk.
-
Then there are the claims put forward by Wall Street insiders
including Andy Kessler, a hedge fund manager, who writes
in the Wall Street Journal that this is going to be a great deal
for the Treasury -- akin to the purchase of Alaska for $7 million in 1867.
Those billions of bad loans we're buying
will be money makers soon enough.
-

If that's so, I want to know why Mr. Kessler's hedge fund,
or any other hedge fund, is not willing to do the same deal?
I've never know them to turn down easy money.
-
Why is it a good deal for my daughter's money,
but not a good deal for his money?
-
Is there a better alternative?
-
If the primary objective is to recapitalize the banking system,
as Bernanke testified to Congress, it seems to me that there
might be a better way to use $700 billion to accomplish this.
Morgan Stanley (MS, news, msgs) was said to be looking
at a good bank/bad bank structure when it was considering
a merger with Wachovia (WB, news, msgs). As I understand it,
Morgan Stanley would have bought the "good bank"
from Wachovia's shareholders, leaving Wachovia's shareholders
with cash and all the bad loans -- the "bad bank."
-
Why couldn't the Treasury use the $700 billion to do something
similar -- splitting out the "good banks" from the banking system
while paying cash and leaving the bad loans to existing shareholders?

I suspect that using the money to set up a number of "good banks"
will do more to restart the flow of credit than Paulson's plan
to buy the bad loans at favorable prices. This plan would
save the part of the banking system that is healthy
and empower it to continue making good loans.
In contrast, Paulson's plan rewards the part
of the banking system that made the worst loans.

To my knowledge such a plan has not been considered,
and that feeds my impression that the taxpayers' interests
are a low priority. (For another idea, read
"A credit-crisis fix for banks and homeowners."


Getting our goat

The situation reminds me of a portion of the
Douglas Adams novel "The HitchhikerοΏ½s Guide to the Galaxy,"
in which the leaders of the planet Golgafrincham
decided to get rid of the least useful third of their population.
This was accomplished by making up a story
about a giant space goat coming to eat their planet
and convincing all of the people they wanted
to get rid of to board Ark-B, the first of three giant spaceships
that would take them all to a new planet.
The other two-thirds of the population, of course, did not follow.

The way that Paulson and Bernanke have described the problem,
I cannot shake the feeling that my wife, daughter and I
are being told to board Ark-B.
Tell me again what the problem is
that is so severe that it justifies taking $2,000
from every man, woman and child in the country?

Nevertheless, this train has left the station.
No matter what we think, Paulson is going to have $700 billion
to fix the credit crisis as he sees fit. It's a lot of power
to give one man, especially one who was NOT Elected
and who has the gall to tell us
he doesn't want there to be any oversight.

I am insulted that they think they can scare the money out of me
without offering a good explanation. Maybe there are good reasons
why each of us should give them $2,000, but I haven't heard them yet.

There is only one thing that politicians respond to
more than money -- your votes. Whether you agree with me or not,
I hope this makes you angry enough to vote.
If the politicians who did this are returned to office,
at least I'll feel that they really did represent their constituents
instead of the interests of a very small group of people
who think they can scare us out of $700 billion.

Thank goodness there is an election coming up.

All-Star Team Ken Kam
Round 18
strat labTotal current numberFlow
$94,764.045.24%

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