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Whose side is the Treasury on?


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2008 Oct 15, 3:09pm   41,572 views  353 comments

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Traitor!

According to this article in the NY-Times:
http://tinyurl.com/3hzwmp

In its latest questionable tactic, the Treasury is forcing banks to take billions of taxpayer dollars and lend it out - effectively trying desperately to blow some air back into the lending bubble. They know it will ultimately lead to an unsustainable debt burden on the US taxpayer, and very likely US government default but they don't care. This can't just be stupidity or greed - it is treason.

(Mish's take on this is over here: Compelling Banks To Lend)

The actions taken by the Treasury in recent days show a pattern of putting U.S. citizens/taxpayers under a huge public debt burden, and also encourage every possible way to get them into private debt. Simultaneously, avenues that would _reduce_ private debt, or reduce risk to taxpayers are being blocked, derailed or discouraged.

Why?

Why is there a systematic policy bias towards forcing the US into default? Why is the Treasury making decisions that push generations of Americans into debt-slavery and eventual destruction of US sovereign currency?

Which team is Paulson batting for?

SP

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1   slumlord   2008 Oct 15, 4:46pm  

Apparently not ours.....

2   OO   2008 Oct 15, 4:55pm  

destruction of US sovereign currency? Not true, right now USD is on steroid reinforced Viagra, you can't blame Paulson can you? Look, the strong dollar is working, what is your problem?

3   justme   2008 Oct 15, 10:53pm  

Well. let me count the ways the treasury loves the banks more than the people:

1. We get 5% dividend on preferred stock in Morgan Stanley, but Mitsubishi gets 10%.

2. We get 15% warrants in Morgan Stanley, but Mitsubishi gets 100% convertible stock.

3. We do not know what price we are paying for preferred stock, but Mitsubishi just re-negotiated its conversion price from 30+ to $25.25.

4. We get 5% divident on Goldman Sachs preferred stock, Warren Buffett gets 10%.

And so it goes, on and on and on. The gang-of-9 bank CEOs just signed 1-page contracts with Henry Paulson and the Treasury on Sunday. The terms have not been disclosed to the public, which is already and, but how on earth can a single page contract possibly protect the public taxpayer??

Paulson is batting for his cronies, and should be fired.

4   justme   2008 Oct 15, 11:02pm  

OT:

I passed two Tesla Roadster electric cars with dealer plates on freeway 101 south at about Sunnyvale or Santa Clara last night after dark. One car was silver and the other was white, I think, and the cars had dealer (DLR) plates. One man and one woman were driving.

This morning Tesla Motors announced the CEO was leaving and also layoffs of workers.

5   justme   2008 Oct 15, 11:06pm  

--which is already and
++which is already BAD

6   kewp   2008 Oct 16, 12:23am  

To play devil's advocate; they may actually know what they are doing.

If we let the market sort this out its going to be an almost total economic collapse. Every business thats dependent on short-term credit will go under and lay off all their employees. This in turn will bankrupt every local municipality, S&L and ultimately the federal government.

Essentially; whomever out there that has cash reserves and is self-sufficient would be able to essentially buy America for pennies on dollar. This could be a consortium of wealthy Americans or, more likely, a SWF composed of not-very-nice people. Or we could end up with martial law as the government seizes the banking system, as there would be riots in the streets once ATM cards stopped working.

If we can manage an orderly deflation of real-estate, while keeping the dollar strong and unemployment low, then disaster may be averted.

What I do think the Fed needs to do is stop robbing the taxpayers, take over a big national bank and start lending directly to citizens and businesses. Give the commercial banks some competition and incentive to start lending again.

7   Malcolm   2008 Oct 16, 12:39am  

OO Says:
October 15th, 2008 at 11:55 pm
"destruction of US sovereign currency? Not true, right now USD is on steroid reinforced Viagra, you can’t blame Paulson can you? Look, the strong dollar is working, what is your problem?"

OO, you're kidding right? The scary thing, some of my logic is mixed in there.

8   MST   2008 Oct 16, 12:58am  

OO:
Isn't it always "strong dollar compared to what?" Compared to other world currencies the Buck has spiked up strongly, but isn't that because they're in worse shape than we are? (By the way, while GBP and Euro holders have been running to the exits, the yen sits there quietly at about 100 to the Dollar. Japs learned their lesson 15 years ago?)

Also, looking at commodities, stocks, etc., it looks to me like these things are simply returning to par, and what is getting "destroyed" is the inflationary easy capital that had bubbled first dotcoms, then RE, then Commodities, and all the while Stocks. This "return to par" is deflationary only in the sense that yes, prices were high, and now they are returning to a more normal position on historic average curves. Par means Median Housing = 3.5 X Median Household Inc. Stocks with not much more than a P/E of 15. Commodities holding relative values in keeping with historic values.

No doubt, lots of folks are getting their fingers pinched for having assumed that prices never come down. Call it the Ytivarg theory.

We're having a reality reset. The more fiat TPTB shovel at it, the longer it'll take to get there. Just yank out the frickin' tooth already!

9   Peter P   2008 Oct 16, 1:20am  

Tesla is not a auspicious name. Look what happen to poor Nikolas?

Yep. He died a POOR man.

I don't care about the merits of AC versus DC, Thomas Edison was highly successful.

10   justme   2008 Oct 16, 1:35am  

Kewp, I can agree that to an extent they "know what they are doing". It certainly helped that the Bush/Paulson Treasury changed direction from buying bad assets to buying preferred stock.

In my view, the problem now is that they are getting bad or at the very least subpar deals for the tax-paying public. This is a real problem.

11   MST   2008 Oct 16, 1:37am  

Peter:

While Tesla died poor, he sold his patents to George Westinghouse who died rather un-poor. Whose patents made more money, Edison's or Tesla's? Dunno. Probably Edison as he was much more diversified.

12   Peter P   2008 Oct 16, 1:38am  

True, but Tesla did die poor. His work did not get him anything. Sad, but this is the real world. :(

13   FuzzyMath   2008 Oct 16, 1:54am  

I think this is the best idea I've read so far...

http://faculty.chicagogsb.edu/luigi.zingales/research/PSpapers/plan_b.pdf

It barely puts the taxpayer at risk, and everyone gets what they want. Homeowners get help, the people on the sidelines get affordable housing literally overnight, and most importantly, it stops the problem in it's tracks.

Instead, our government has stolen our money, increased moral hazard, and has literally brought this country to the brink of social unrest. Many people are disillusioned, and close to just bucking the whole system altogether. In a capitalist society, you need to have fairness.

14   Peter P   2008 Oct 16, 2:02am  

In a capitalist society, you need to have fairness.

But true capitalism is as rare as true communism.

In any system, wealth and influence always go from weak hands to strong hands.

15   MST   2008 Oct 16, 2:26am  

In a capitalist society, you need to have fairness.

How do you define 'fairness"? Same result for everyone or same rules for everyone? Equality of condition, or equality before the law?

The first is socia!ism, the second is classic liberalism (as in 19th C.)

16   Peter P   2008 Oct 16, 2:28am  

RE: fairness

The world is never fair to losers. Therefore, the only way to be fair is to win.

17   FuzzyMath   2008 Oct 16, 2:33am  

I define fairness as being the same rules for everyone.

Right now they are completely fucking (1) Homeowners (2) Savers and (3) Taxpayers.

In a "fair" society, the banks would be required to help the people they fucked over, while at the same time be on trial for fraud. The government and Fed would also need to be held accountable for their mismanagement in the form of impeachment.

These moves would improve sentiment, as the people will feel that someone is backing them up. Right now, they feel as they've been kicked and left out in the cold to die.

If this is the type of system we are trying to protect, then fuck it. Let it burn.

18   Peter P   2008 Oct 16, 2:39am  

It is called Capitalism Without Failure, aka socia!ism for the rich.

19   MST   2008 Oct 16, 2:54am  

Peter:
lol. Yeah, but it's damned hard to win when yesterday's rules were backgammon and today's are poker, and tomorrow's might be Cricket.

Fuzzy: My definition, too. If I can't write insurance policies on whether you are going to blog three times today, rather than five, sell it to somebody else, and collect the cash, pay out a little interest, then declare bankruptcy when you blog the fifth time 'casue I don't have anything backing the policy, but Lehman Brothers can do that (why? well, 'cause they can), it's not fair. In the first instance it's called bookmaking. In the second, a CDS.

But don't confuse fairness with justice. Fairness may be served by letting everybody off the hook equally. Justice would prefer that we hang up the perps by the short hairs. One problem there is that we have a limited supply of short-hair-hangers and the perps (of one degree or another) constitute a quarter of the population.

20   Peter P   2008 Oct 16, 2:55am  

lol. Yeah, but it’s damned hard to win when yesterday’s rules were backgammon and today’s are poker, and tomorrow’s might be Cricket.

So there are no rules.

21   snmr   2008 Oct 16, 2:57am  

RE: fairness

A perfectly fair Society is a Myth ! It can never happen.
For that to happen , all the citizens need to have equal oppurtunity, IQ , capital , background and information. Any imbalance in one of those causes the system to move away from euilibirium. Ex : Imbalances in IQ causes information to be processed differently and thus affects decision making even in a perfect democracy.Some people can make better decisions for themselves .Others can really screw themselves up. IQ is a bell curve and you cannot fix it.The powerful always take advantage of others.This has been true through out our history without exception.
The question is , how much room the system gives them to take advantage ( No regulation , jungle style free markets, communism..etc??)
Forget about a perfectly fair society. Just accept the reality.
Instead, we should strive to make the society as fair as possible.

22   Peter P   2008 Oct 16, 3:01am  

Exactly. Don't fight inequalities. Join the right side of the inequalities.

23   HeadSet   2008 Oct 16, 3:02am  

So there are no rules.

Oh yeah? Just you try some bookmaking and see how fast you are incarcerated. You would need bail, they would get bailed out.

It is like playing poker when certain opponents get to declare wild cards after they see what cards they drew.

24   Peter P   2008 Oct 16, 3:04am  

Having no rules does not mean you can do whatever you want. You just need a different mindset.

"Rules" are guidelines for reactions to actions.

25   HeadSet   2008 Oct 16, 3:13am  

Right now they are completely fucking (1) Homeowners (2) Savers and (3) Taxpayers.

Who'd have thought that those three would turn out to be the "bad guys" in need of punishment, thus having thier wealth removed and handed to reprobate like overspenders, corporate looters, and assorted political cronies.

By the way, you are not being "fair." You left "responsible renters" off the list. :p

26   justme   2008 Oct 16, 3:20am  

Fuzzy,

I like PlanB, too. But I think I need to read it a few more times to see if there are any holes in it.

It's always been pretty clear that the crisis will not be over until houses trade at the trendline that represent real historical value and sustainable prices with 20% down required.

I think one big question is whether the scheme will work based on the value of Case-Schiller TODAY. The index can still drop, since prices will take some time to stabilize. I think the biggest challenge for PlanB would be to synchronize all the moving parts of the proposed system, and avoid disruptive speculation and gaming during the process.

27   FuzzyMath   2008 Oct 16, 3:20am  

Headset, I would include "responsible renters" under the "savers" category.

And of course a perfectly fair society is just an ideological goal, but it should still be strived for. And really, our government isn't even trying anymore.

I still maintain that while they socialized our financial system, rewarded crooks that should be in jail, and fucked over the American public, they forgot the most important wild card of them all. The people need to believe in them. If that trust is lost, the whole thing collapses.

They are on the brink of this now. One more shot to the face for all of us will eradicate all trust.

Now people should fully understand why we have the right to bear arms. It is not for domestic violence incidents, but to overthrow our own government when they stop representing us.

28   FuzzyMath   2008 Oct 16, 3:23am  

justme, I would propose that some standardized metric be used which can calculate where the bottom would end up being with ALL ELSE BEING EQUAL.

For instance, Stockton right now might already be at it's bottom. San Jose is nowhere near it's bottom.

This shouldn't be that hard to figure out. It would basically be the point at which both the banks and the homeowners feel like they're getting fucked. That would be the sweet spot.

29   justme   2008 Oct 16, 4:00am  

Fuzzy, I think what you are referring to could be called the Pareto-optimal point of homeowner pain versus bank pain. :-)

Know we just need an objective measure of pain.

30   justme   2008 Oct 16, 4:00am  

Know -= Now

31   justme   2008 Oct 16, 4:26am  

Fuzzy,

And of course a perfectly fair society is just an ideological goal, but it should still be strived for. And really, our government isn’t even trying anymore.

Totally agree. Also agree that rules should be the same for all, but just as important is that the rules are sensible and equitable in the first place. Defining what is meant by sensible and equitable is what political life is SUPPOSED to be about, I think.

snmr, IQ is an initial condition of each person in the dynamical system that is the world as we know it. I agree that IQ is not "fair", but neither are mutations. Some aspects of life will always have no rules, I do not think we can do anything about that. Fairness to me is that people get to be the best that they can given their natural abilities.

32   Peter P   2008 Oct 16, 4:27am  

And of course a perfectly fair society is just an ideological goal, but it should still be strived for. And really, our government isn’t even trying anymore.

Sometimes, striving for an impossible ideological goal does more harm than good.

33   kewp   2008 Oct 16, 4:44am  

In my view, the problem now is that they are getting bad or at the very least subpar deals for the tax-paying public. This is a real problem.

We are getting exactly what we deserved for putting those creeps in public office.

All citizens get the government they deserve.

34   Peter P   2008 Oct 16, 4:46am  

I still think IQ is just another measure developed by underachievers to make themselves feel good.

Fairness to me is that people get to be the best that they can given their natural abilities.

Ever wonder why 'fairness' and 'fairy' share so many consecutive alphabets?

35   Peter P   2008 Oct 16, 4:48am  

All citizens get the government they deserve.

Are you blaming voters or democracy in general? Or both?

36   snmr   2008 Oct 16, 5:15am  

ONE measure of unfairness in a society is wealth disparity.

If there is a sustained bubble in wealth disparity based on historical trends , we know that the society is no longer fair.

In a fair society, wealth bubbles should not exist too long as equal oppurtunity and competition should diffuse it very soon.

Maybe we should have an index (based on historic data) on wealth disparity just like case-schiller housing index, to measure fairness :-)

37   FuzzyMath   2008 Oct 16, 5:17am  

"Maybe we should have an index (based on historic data) on wealth disparity just like case-schiller housing index, to measure fairness"

That's not a bad idea at all. At least then I would have a reasonable hedge against getting fucked out of my job, house, and savings.

And right now, I'd be long on unfairness for sure.

38   Peter P   2008 Oct 16, 5:19am  

If there is a sustained bubble in wealth disparity based on historical trends , we know that the society is no longer fair.

All bubbles are unsustainable.

Throughout history, except during a few shocks like communism, wealth disparity tends to widen by itself. This is due to the human hierarchy.

In a fair society, wealth bubbles should not exist too long as equal oppurtunity and competition should diffuse it very soon.

Quite the contrary. Asset bubbles allow certain ordinary people to obtain otherwise unobtainable wealth. So if one wants "fairness" one better pray for more bubbles.

39   snmr   2008 Oct 16, 5:35am  

Peter P says :
When Asset bubbles allow certain ordinary people to obtain otherwise unobtainable wealth.So if one wants “fairness” one better pray for more bubbles.

I don't believe its fair when ordinary people can obtain otherwise unobtainable wealth.
I don't think it results in reducing wealth disparity in anyway.
When ordinary people can make money easily due to asset bubbles , think of the powerful and well connected.

40   Peter P   2008 Oct 16, 5:39am  

When ordinary people can make money easily due to asset bubbles , think of the powerful and well connected.

True enough. This brings us to the question... why would the powerful and well-connected allow a 'fair' world?

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