The Hype Surrounding the $800 Billion Stimulus Bill

I think it is comical that the PR folks behind the Republicans will dig through a bill and find a couple programs they think will raise the hair on the backs of the right wing and make the media circus / circle on all the right talk shows, news columns etc to push back a bill and tout the one line the Republicans know, "cut taxes" (well they know defense welfare and enemy creation pretty good also).

We had 12 years of cutting taxes under Reagan / Bush then 8 more under Bush II (along with enemy creation and bloated defense welfare) while both drove the deficit to new remarkable highs, the earnings of the top 1% to the stratosphere (65% of who's income comes from cap gains) and the plight of the working / middle class of America in the toilet.

Personally, I have not agreed with anything Wall Street insider Hank Paulson did, I think Bernanke is fixated on the depression, the unregulated markets should be shut down and anyone holding a credit derivative forced to call the counterparty and negotiate a settlement and if they can't do it, force a settlement and retire the paper. In the mean time, the industry needs regulated, a transparent platform and products only written by those who can comply with capital requirements etc. Unregulated markets and unregulated products should NEVER grow to the extent they are widely invested in by regulated banks, industries, governments, pension funds and others who hold money in the trust of the taxpayer / citizen. This is a no brainer and for us to be in the mess we are in now because of it is a travesty. There are hosts of people who would do us better if they were planting rice in the California dessert and that includes Paulson and all of his cronies (Having said that I don't fault Paulson for doing what he thought was right and working tirelessly to try and put out fires as he did during his last year on the job).

Back to the Obama Bill. While I have respect for Obama and understand his desire to "do something" to help our economy, the best thing he could do is something like what I mentioned above. No "bad bank" will work. These are not tangible assets / loans on tangible assets that one can track down and take possession of and sell to the highest bidder. We are talking about esoteric products derived by mathematicians involving contracts the size of encyclopedias. The "bad bank" idea is moot.

Shoring up capital of the banks is also moot. The size of the BS assets these supposed smart guys paid good money for (and leveraged extensively to bloat their returns) are far to extensive and worth garbage. The money has been spent. It is not recoverable. Banks should fail and depositors reimbursed, Period. Do it quickly. We are printing so much damn money right now and the Fed is on the hook for so much debt and holding so much potentially worthless collateral, there is little more harm that could be done by just letting the companies go under and allowing new ones to take their place. If you are counting, the Fed and Treasury are on the hook for about $9 Trillion (yes Trillion) in loans, guarantees, stakes, you name it to the financial world right now. They have been allowing everyone and their mother become a bank at a time when the few "real" banks out there are struggling to attain deposits and stay afloat creating even more competition for scarce deposits. Their next idea, to put $200 Billion out there by lending it to anyone (including unregulated hedge funds) who agrees to turn around and buy consumer debt. They are immediately assuming a 10% write off.

You tell me, these guys are absolutely out of touch. If they are admitting off the top they will loose 10% on consumer debt, they are reflecting the reality in the market, that the Capital One's, AmEx's, and Banks with large credit card operations are going to end up loosing 10% of what they advance to their consumers (and right now the numbers are approaching 8% at all these firms based on 4th quarter 2008 numbers) they are admitting that the "real" credit market will NOT lend to these companies at less than high single digits or more. This shows up in the numbers. Since October 2008 total credit offered to this market was $9 Billion. Yes $9 Billion in THREE MONTHS time. This market used to average $50-$60 Billion A MONTH.

On top of this the Fed is trying to force /coax banks to lend to consumers 30 year mortgages at 4.5% by influencing the market for mortgage paper. I am telling you right now, within 18 months to two years max, we will look back and see this as the biggest swindle every because we are recreating the debacle we had in the 1980's when S&L's had billions of dollars of low interest mortgages on their books when rates rose to the teens and their entire business model collapsed ultimately leading the S&L collapse (many factors in play there but the same elements are being set up now). The market is not willing to lend at low rates of interest now and for the Fed to be spending so much money trying to force rates down going to fail and fail BIG.

The Fed right now IS the credit market. They cannot print enough money to "become" the credit market for much longer. I predicted in 2005-2006 we had until spring 2008 at the most to avoid a full financial collapse. We now have until April for the markets to turn around or at the idiotic rate we are going now with the idiotic policies we are pursuing to "solve" the credit crises, we will be out of options and be nationalizing all major banks, printing money like water, and creating a complete lack of confidence in the fiat currency system. We will be in deep S***.

So, while I understand people wanting to debate and discuss the $800 Billion stimulus package coming from Washington, this is a BS bill that it does not matter if we build bridges, build power grids, build solar power stations, build roads, buy school supplies, finance a few artists (by the way, for a major "wealthy" industrial nation entering the age of the Creative Economy it is absolutely shameful how little of our citizens money is distributed to the arts community in this country, shameful, there is no other word) or plant damn trees. This is a drop in the bucket (10% of what has been allocated thus far to prop up our financial markets) and will do NOTHING to solve the financial crises we are now in.

So word of advise, don't waste your or my time with this "debate". It is meaningless. All that matters right now is how to rid ourselves of a couple trillion dollar unregulated market (hedge fund market leveraged now a modest 7 to one so lets say $10-14 trillion in financial leverage) which in the age of the 21st Century with over 6 billion people on the planet and completely interconnected trade and finance, serves NO USEFUL PURPOSE TO MANKIND. Secondly, how to force the termination of all of the derivative contracts and regulate the markets. Third, to allow the financial institutions that bought into this garbage to go under, pay the depositors off (yes printing or borrowing money will be required to do this because the FDIC is already technically bust, but it is money worth borrowing because it is yours and mine whether it truly "exist" on the balance sheets of the banks or not) and lets see the creation of new banking institutions that are regulated properly (undue the banking deregulation acts of 1999 and beyond and reinstall the 1930's regulations that separated different types of financial institutions and forced the breakup of the early versions of the CityGroups of today).

Don't follow the media hype.

Patrick