(this was not written by me)
From: Travis Subject: Explaining some main aspects of the macroeconomics of the bailout. Date: Tuesday, September 23, 2008, At the bottom, there are three very short and very cogent articles by Dick McDonald that you must read. It'll help you to get a better grip of the macroeconomics around the solution to the current bad-paper hiccup of the national economy (aka "subprime mortgage meltdown"). Dick McDonald is the champion and motor behind the Rise Up America retirement plan ( www.RiseUpAmerica.us <http://www.riseupamerica.us/>). Caution: Don't be so eager to accept the "bipartisan" blame here; the real main culprits of the mess are the Democrats. It all started with the 1999 Gramm-Leach-Bliley Act that Bill Clinton signed rescinding the 1933 Glass-Steagall Act; the latter kept routine-business banks separate from big, investment banks. Specifically, the Glass-Steagall Act separated investment banking, commercial banking, and insurance services; thereafter, each of those three business activities could be offered only by separate institutions. The Gramm-Leach-Bliley Act brought down those barriers, and then hell broke loose. The Democrats then ushered the now "unshackled" investment banks into buying any paper --good or bad, practically-- from routine-business banks. At the same time and in parallel, the Democrats in Congress used Fanny Mae and Freddy Mac --two Democrat controlled outfits-- to push routine-business banks into the piñata of "ninja" mortgage business, mortgages issued to people with bad credit or no credit at all and even to people who had recently gone through bankruptcy or foreclosure. Most likely even many of those illegally in the country must have gone ninja. It was, inded, a great piñata. In the process of serving poison to the investment banks, and triggering the debacle that they could use also latter as an argument against capitalism, the Democrats facilitated at the same time an environment where Democrat insiders would linen their pockets from the coffers of Fanny and Freddy, such as the infamous Jamie Garolick (the very one who built the walls between the national security agencies, which contributed heavily to 9/11), Franklin Raines, James Johnson, Penny Pritzker and others, by the way, close to the Obama campaign. Needless is to mention that Christopher Dodd and Barack Obama are first and second in the list of politicians who have received the largest political contributions from Fanny and Freddy. The Democrats have proved that crime does pay. They generated the mess, made money out of it; they blame capitalism, mortgages at large, conservatives, and Republicans for it; and then they are adding all sort of pork to the legislation aimed at alleviating the results of their malfeasance. And the most prized reward for themselves: they moved America closer to socialism. The government not only practically owns Fanny, Freddy and AIG, but also the houses whose bad mortgages it bought. Read Cliff Kincaid article about it at http://www.aim.org/aim-column/socialism-is-coming-to-america/. That said, let's go to McDonald's three short, cogent articles: *(1)* Folks - In case you missed my latest two articles --"Old" Wall Street in Gone" on Saturday and Bail Out – Is Not a Big Deal on Sunday-- on the bad-paper hiccup (aka "subprime mortgage meltdown"), I have reproduced them below for your convenience. A short introduction fits here. Think of it this way – we have a $400 trillion country, $14 trillion income per year and old Wall Street is being "Creatively Destroyed" because some firms failed. In capitalism you win or you fold your hand – they lost. BFD. Discount brokers rule (meaning more people are calling the shots). As part of that $400 trillion America is worth, $7 trillion is in cash and marketable securities – of the $7 trillion we only have $1.7 in the quick money supply. Huge upheavals find us without enough cash to cover transactions – no sweat. Never get stampeded into thinking our markets will freeze – the Fed prints money – it can print all it needs to on a nano-second's notice. Don't fall into the trap that the bail-out is socialism and big government no matter what Newt says. It is the reverse. It is merely the reversal of the free money nonsense that Greenspan orchestrated – 1% interest rates and capitalism has a cure for that and old wall street is the disease that is being cured. Read below about how "dumb" Bush is orchestrating the ending to his Bush Boom. In the meantime Obama and McCain are wading in the shallow end. What do lawyers and jet pilots know about it anyway. Those who invested in banks and financial institutions should get hurt. How dumb can you be that 1% interest rates are sustainable. But don't worry the total cap of all the banks and financial institution are miniscule compared to the total market cap. America rocks, and may never experience a recession – the country is too busy. Don't listen to nervous nellies – they will wake up and go shopping any minute now. America belches and the world throws up – that shows you that we rule and the rest are merely bit players. And history will record what a masterful hand this cowboy from Texas played this decade in fighting two wars and avoiding a severe depression and overseeing the greatest period of wealth creation in the history of the planet. Dick McDonald Rise Up America (*aka* *"**Trickle Down" for Ordinary Americans)* *Ownership Society Institute* *www.RiseUpAmerica.us <http://www.riseupamerica.us/>* * ** (2) * *Bail Out – Is Not a Big Deal* *Dick McDonald* The American people are asking a question – why should we have to pay for the bailout of banks and financial institutions? How can the CEO's of these failed institutions walk away from these companies with millions and we get stuck with billions, maybe a trillion? Well folks the politicians are not going to tell you the truth. They want, first and foremost, to cry "fire" to insure the public continues to support them, vote for them and doesn't blame them for their myopia for failing to anticipate that letting the Federal Reserve lend money out at 1% for years was going to have serious negative repercussions. Interestingly enough both political parties are so culpable in their failures to anticipate this meltdown, the Sunday talk shows sounded like at political love fest willing to adopt George W. Bush's prescription of an immediate purchase of the bad paper and the immediate restoration of confidence in the financial markets. Regular listeners to the partisan bickering on these shows must be temporarily traumatized by the total agreement by those normally vicious pit bulls. Others will be traumatized by my crediting President Bush – and who the hell do they think is calling these shots? W's plan – so carefully presented by Hank Paulson – is a master stroke created to avoid the pain the country suffered under the last real estate meltdown. The government will not close institutions, foreclose on homes and then sell them – they will break up the portfolio into chewable chunks and appoint financial types to sell them as paper. What could be cleaner and less costly to the taxpayers. Opps! I just committed the sin I accuse others of making. The taxpayers are NOT going to pay a dime for this bail out. The Federal Reserve will "print" money for any shortfall the "financial managers" of these smaller portfolios experience. The taxpayer will never pay the piper – just like they never did pay for the $160 billion loss in the S&L crisis in the late 80's and early 90's. In the meantime the New York Times takes the "house on fire" approach to enlightening their readers. They contend that the economy is collapsing. That the government is going to tax the people unmercifully to right the economic ship. Yesterday they opined: *Q.* Who, really, is going to come up with the $700 billion? *A.* American taxpayers will come up with the money, although if you are bullish on America in the long run, there is reason to hope that the tab will be less than $700 billion. After the Treasury buys up those troubled mortgages, it will try to resell them to investors. The Treasury's involvement in the crisis and the speed with which Congress is responding could generate long-range optimism and raise the value of those mortgages, although it is impossible to say by how much. So it would not be correct to think of the federal government as simply writing a check for $700 billion. It is just committing itself to spend that much, if necessary. But the bottom line is, yes, this bailout could cost American taxpayers a lot of money. Folks, NO IT WON"T. There is a difference between "Americans will come up the money" and the "government simply writing a check…for $700 billion…if necessary". Taxpayers will never "come up with the money". There will never be a tax on individuals or corporations to cover the bail out. "If necessary" the Federal Reserve will cover the loss by "printing the money". For example, if the loss turns out to be $300 billion then theoretically the Fed will dilute the value of our country by 300/400,000 or approximately by .00008. The bailout is just the ending of a business cycle – no more. It is not the catastrophe the media and politicians want you to believe it is. So just cover your ears and enjoy your life. The American economy is not collapsing – just the minds of those who enjoy the suspension of their disbelief – like the permanent mental condition of the editorial board of the NYT. The two presidential candidates will continue to bellow political nonsense but this week they seem more irrelevant than ever. Dick McDonald Rise Up America (*aka* *"**Trickle Down" for Ordinary Americans)* *Ownership Society Institute* *www.RiseUpAmerica.us <http://www.riseupamerica.us/>* *(3)* ** *"Old" Wall Street – is Gone* *Dick McDonald* ** The Internet is at work replacing the old Wall Street firms with discount stock brokers. These old Wall Street firms have lost most of their customers. They replaced their traditional brokerage business with high-end trading in highly leveraged and very risky derivates (commodities with string-theory algorithms). The lawyers who used to run those firms really didn't understand them. As a result "old Wall Street" is suffering its own self-induced market crash. The economy hasn't crashed. New Wall Street is fine. We just have to say goodbye to the Merrill Lynch's and the Lehman Brothers and the folks we grew up worshipping. Capitalism's "creative destruction" has brought the curtain down on them. The herd instinct took hold and they all bought into the fallacies of the sustainability of 1% mortgage rates and lending to those who could not afford to buy homes. Stupid is as stupid does. Now President Bush, being a MBA, figured why go through the four-year Savings & Loan crisis of 1989, 1990, 1991 and 1992 all over again? Why not solve this crisis in 14 hours? So he sent out Hank Paulson to buy up all the bad paper and restore order to the market. The old S&L crisis was solved by a slow process of liquidating association after association. Bush said let's keep the institutions in place so we don't have to rebuild them – just buy their bad paper and make them whole. Now the President is not a lawyer – he is a business man that doesn't suffer fools. By buying all the bad paper and putting it into a "Resolution Trust" – type government entity he restores confidence in the market and at the same time pays a trillion dollars or so for the bad paper that the taxpayers will never have to pay back. *TAXPAYERS WILL NEVER HAVE TO PAY THE TRILLION DOLLARS BACK!* The taxpayers never paid a dime to solve the old S&L crisis. To the extent the assets acquired were insufficient to cover the bail out, the shortfall was covered by the Federal Reserve "printing money". It is called a monetary solution rather than a fiscal one. Fiscal solutions require the Congress to levy taxes on the people and those taxes are then used to pay bills. Monetary solutions are much cleaner and more efficient and don't take non-partisan approval and avoid the rage of the people. Now President Bush knows how to play the game. The people will scream bloody murder that they are getting slammed for the cost of this bailout. Hysteria will reign. Mysteriously the bail out will be approved by Congress and the cost to taxpayers will never come up again – *BECAUSE THEY WILL NEVER BE TAXED FOR IT.* -- *~@):~{> --~--~---------~--~----~------------~-------~--~----~ Thanks for being part of "PoliticalForum" at Google Groups. For options & help see http://groups.google.com/group/PoliticalForum * Visit our other community at http://www.PoliticalForum.com/ * It's active and moderated. Register and vote in our polls. * Read the latest breaking news, and more. -~----------~----~----~----~------~----~------~--~---
