Nothing is “foolproof” in the hands of a sufficiently talented fool! - GWB
If ever there was a time to “follow the money” in search of the true meaning and effect of a major historical mystery event, now is the time. The Congressional approval of a $700 Billion bailout of the financial industry has many economists shaking and scratching their heads. Under intense pressure from a Bush Administration panic campaign that the nation faced an economic collapse not seen since the Great Depression, the House of Representatives reversed course within a week and approved the amended measure. Truth be told, no one can really say whether the legislation will be effective. The simple reason is that there is so little definitive detail and guidance in the law, that no one can realistically say what steps will be taken to “rescue” the economy. That is what the Bush Administration sought and received in this latest crisis gambit the Bush administration is so famous for managing. The “mushroom cloud” images predicted and promoted in connection with the “Weapons of Mass Destruction” prepared by Saddam Hussein for launch against the US and its allies provide an apt simile.
If anyone questions whether the game is still afoot, consider the hedging coming from one hedge fund and financial market specialist:
“Investors still have to face some significant challenges in the broad economy that can’t be magically removed by a group of our Congressional leaders,” said Marc D. Stern, the chief investment officer at Bessemer Trust. “Investors have to confront a series of unknowns in the weeks ahead that can be disconcerting.”
Banking CEO’s are disembarking their perilous flights of fancy at this point because they want to cash in on the security of the multi-million dollar golden parachutes they will receive to ease their landings. And who could blame them? The recent departure of one of these "captains of industry" with a $17 Million plus severance package, after only three weeks in the job before his failed bank was sold, attests to the rampant greed and insanity that has ruled Wall Street since the removal of nearly all regulatory controls during the last eight years. If you have a truly “free market” economy, why not expect a “free lunch?”
Hank Paulson, Secretary of the US Treasury and former head of Goldman Sachs, now has the flexibility to spend as much as $700 Billion to rescue his fellow Wall Street barons from their irresponsible gambling decisions. He is authorized to relieve them of the losses from “toxic” assets [the new name for what used to be called a bad loan] and infuse their banks and financial institutions with cash that they will be free to make new loans with. Hank’s only lament is that many of his old friends have gone into seclusion as Lehman Brothers, Wachovia Bank, Merrill-Lynch, AIG and others have been sold or gone bankrupt. How sad to finally be given the keys to the vault and so few friends left to party with!
Let’s see, I extend Billions of dollars in loans to creditors that probably cannot pay them back on properties that are not really worth the inflated value ascribed to them in the loan documents, based upon traditional lending criteria. I make a profit off the interest that comes in on those loans in the short term and put that cash in offshore accounts. When the creditors lose their jobs or the housing bubble bursts so that the loans are not repaid, the taxpayers come in and buy the worthless commercial paper and I get a huge chunk of the original loan dollars put back in my bank. Now, since there has been no significant actual change in regulation, I can start all over with the lending cycle, although I will need to be careful not to extend exactly the same kind of irresponsible loan schemes that I used last time. I need to find a new scheme. Does that sound like a good plan?
One thing is mysterious, however. “Money laundering” is a crime, and is usually defined as the fraudulent manipulation of financial transactions to extract profit from unlawful activity. If a person were to make huge profits from selling cocaine, and then translate those profits into separate cash payments as “management fees,” would we hesitate to prosecute that person? Why then are the heads of these financial institutions not being prosecuted for money laundering when they have manipulated financial markets to defraud retirees and IRA account holders of Billions of dollars while lining their pockets indirectly through excessive compensation schemes and incredibly disproportionate severance payments? Are we to be persuaded that these finance executives did not know that they were trafficking in phony securities?
“Almost no one expected what was coming. It’s not fair to blame us for not predicting the unthinkable.“— Daniel H. Mudd, former chief executive, Fannie Mae
“We didn’t really know what we were buying,” said Marc Gott, a former director in Fannie’s loan servicing department. “This system was designed for plain vanilla loans, and we were trying to push chocolate sundaes through the gears.”
If so, then there must be an alternative pursuit of conduct that was in reckless disregard of their fiduciary responsibilities. We can only watch with bated breath as this “mystery” unfolds.
When October 2009 arrives, we will probably look surprised when the question is asked: “where did the money go?” This will probably be accompanied by questions about why the taxpayers are left holding Billions of dollars in worthless securities. Many economists will likely still be shaking and scratching their heads. Former heads of these financial institutions will be lolling in the sun in tropical isles or secluded palatial estates with their cell phones on speed dial to their Swiss or other private bank account managers, their names all but forgotten, like Charles Keating. Will be then be surprised? And will we be asking who really was the “fool?”
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