Busted: Bankers and The Global Economy

January 18, 2009

Economic Panic: Frying Pan to the Fire

As the economy risks spinning out of control and banks continue to run up multi-billion dollar losses, the Obama administration will face tough choices with the $350 billion remaining in the bailout plan. With the bailout of General Motors by converting it to a bank holding company, some boundaries were set where corporate welfare is concerned. This has stopped most of big corporate Main Street from expecting direct government bailouts so far. There are many institutions that still want a piece of the bailout pie. The result is likely to be a shortage of bailout money.

The rumor is that the Troubled Asset Relief Program (TARP) will be used to build a “bank” that holds the toxic debt, a repository of toxicity that moves those debts firmly into government hands. The government is hoping beyond hope that at some time in the future, those debts will increase in value once the recession is in hand and the economy has returned to health.

paulson-frozen-banking-toxic-assetsHenry Paulson, the outgoing U.S Treasury Secretary has been looking at ideas to leverage the remaining bailout funds to deal with banks’ illiquid assets. Paulson is thinking like the quintessential Wall Street banker. Leveraging assets has never proven to work in such unknown difficult circumstances using such esoteric banking debt that bankers and financial geniuses don’t claim to fully understand. Paulson and Bernanke can’t get their minds around creative banking, so how do they expect to leverage such unknowns? One of the problems with the failures of Wall Street was the intensive leveraging of debt. Leveraging is at best a band-aid solution for gangrene.

Bernanke is preparing to setup a program to back U.S. consumer debt in an effort to bolster the sagging market. Paulson wants the Federal Reserve to accept riskier collateral assets for banking loans like commercial mortgage-backed securities. There are plenty of those securities sitting around gumming up the financial works. So far, the entire process has been a shell game as the financial powers that be move toxic debt around, but never take the loss by removing it from the system. Most Americans are thoroughly peeved about proposing more unsucessful bailouts at their expense.

The government has been notoriously slow and double-minded about the bailout. Previous bailout measures counted on stability, either a stable U.S. economy with reasonable consumer spending or a stable international economy. Those bright spots have eroded into oblivion. Because of the intensive delays in action, the previous mindset of the bailout has become heavily weakened at best. Now job losses are mounting and a growing number of American citizens are falling behind on personal mortgages, credit cards and other loan payments.

economic-crisis-american-taxpayerAmericans are looking to President Obama to spend taxpayer money on home foreclosures that has been slow in coming so far. The public line is that other matters have been more pressing. “There’s no doubt that we needed to stabilize the banking system.” Unfortunately, that stabilization is temporary at best. Now banks and experts are calling for capital infusions in the banking system, which can only result in monetary deflation over the long haul and increase the chances of a protracted economic depression. Obama has been quoted as saying that it is crucial to help the banks and get them lending to consumers and small businesses again.

What America needs is financial motivation on the grass roots level. Americans have been discouraged from taking business risks with their money and resources beyond handing money to experts and government for ‘investment’. The government through the IRS has put and continues to put the thumbscrews on the creativity and business ability of Americans and real small business. Americans have been told to get 9 to 5 corporate jobs where jobs no longer exist. How will politicians get America moving? Millions of Americans and businesses no longer qualify for the coveted credit that politicians recommend as the economic cure. Politicians still aren’t out of the mindset of borrowing and lending America out of a depression, which can only take the country where it doesn’t want to go: the throws of the greatest depression since the Great Depression. ~ E. Manning

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