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A couple of months ago Secretary of the Treasury Paulson told us the sky was falling and convinced Congress to approve the $700 billion TARP (Troubled Assets Relief Program).  The TARP would buy up all the toxic mortgages that the banks had created out of their failed attempt to satisfy their insatiable greed.  You will recall that these mortgages were given to people who often didn’t have a job and had no ability at all to repay the loans.  These loans were provided by the banks at exorbitant interest rates because the geniuses at the banks (they must be geniuses – they make $30 million or more a year in salaries and bonuses) believed that they could either flip the mortgages to some unsuspecting investors and make a huge profit, or they could hang onto the mortgages and squeeze the lifeblood out of the poor homeowners and still get astonishingly fabulous profits.  It turns out that the bankers were wrong on both counts and the banks wound up holding stunningly massive amounts of absolutely worthless mortgages (also known as Troubled Assets).

Today, Mr. Paulson advised us that regarding the TARP, he is no longer for it. He was for it, but now he’s against it. The TARP, also known as the bank bailout in Democratic circles, would not be used to buy mortgages after all – sorry Congress.  Hey, don’t get mad – it’s only $700,000,000,000.00.  Despite Congresses instructions, the money is now nothing more than a gift to the banks who can now do whatever they want with the money.  Right now they are sitting on it.  Sec. Paulson hopes, but he isn’t sure, that they will lend the money via credit cards or other loan instruments.  (I guess, if all goes well, these new loans will be at the usual extremely high, usurious, gotcha interest rates that will punish the borrowers as much as possible without actually killing them – because of course dead people can’t repay a loan.)

Our President and his administration like to think of themselves as pure Capitalists.  They put their faith in a banking system that is self-regulating, an economy of no rules, an economy that takes no prisoners and where only the strong survive.  Their faith in this is close to a religious faith and they will brook no questions about it. For them this, and only this, is the true spirit of America, and anything less is the road to Communism, let alone Socialism and all the other un-Americanisms.  It is Republicanism at its finest – rule of the wealthy, by the wealthy, and for the wealthy.

So, this is where we have landed. The President and the Secretary of the Treasury, our great defenders of Capitalism (Kapitalism?) are acting like closet Marxists.  They are using the people’s money to bail out the banking businesses, like Paulson’s old employer, Goldman Sachs, while they imply that this will help the ordinary people.  Does anyone really believe that?  It’s pretty clear that helping us, the ordinary people, is, and always has been, the very last thing on their minds. In the end we can’t call this Capitalism, we need to call it what it is; it is Socialism for the banks and Socialism for the owners of the banks.  It is unapologetic Socialism for the wealthy – at the direct expense of the U.S. taxpayer.  The question I have is this: how can our country and the world survive two more months of this selfish incompetence?

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The opinion polls indicate that over 90% of the American people are opposed to a bailout of the investment banks, banks that hold perhaps a trillion dollars worth of “worthless” mortgages. These mortgages were either given to people who were not employed and had no resources to repay the mortgage, or they were mortgages that amounted to predatory mortgages with escalating interest rates that made it impossible for the homeowners to repay.  Given that we now are in an election year and every member of the House of Representatives is up for reelection in November and about a third of the senators are up for reelection too, it’s not too surprising that the bailout process seems to have bogged down.

Secretary Paulson’s plan to stampede the Congress into bailing out Goldman Sachs (the company where he was formerly Chairman and CEO) and Morgan Stanley and perhaps a few others, has run into considerable resistance. The American public is saying we should let the banks fail – after all, isn’t that the capitalist system? Isn’t capitalism sort of Darwinian economics where the weak will surely perish and only the fit survive?  Isn’t that the wonderful thing about our system? Isn’t the marketplace sort of like an omniscient supercomputer where it decides which of the economic gladiators on Wall Street lives and which ones die?

Now Paulson and Bernanke are saying that we can’t afford to let some of these banks die. (Unlike Lehman Brothers) Are these few banks some sort of sacred irreplaceable national resource – like oil? Are there truly no other alternatives?  I have a couple of ideas for alternative solutions, and even though I have never been Chairman of the Board or CEO of Goldman Sachs, in the spirit of trying to help out, I thought I might just suggest them here for consideration.

Plan A: Let the banks fail. Meanwhile open a “U.S. Government Investment Bank” that will temporarily take over the functions of the investment banks that failed due to their own incompent investment practices. The new US GIB would provide the needed capital to existing and new businesses, via business loans, so they can continue functioning or expand and grow.  The US GIB would charge interest on loans at rates comparable to what the Wall Street banks currently charge.  As far as the U.S. businesses are concerned the whole thing would be pretty transparent – just a change in the name of the investment bank, sort of.  The profits from the interest the US GIB earns would go to the US Treasury and be used to reduce the national debt.  Then, whenever some new wealthy individuals finally come along and decide to start new investment banks the US GIB would gradually withdraw from the business and return this function to the private sector.  So what happens to all the toxic mortgages that the investment banks owned? They would probably be auctioned off at cents on the dollar. Maybe the people who originally took out the mortgages could buy them. At any rate the whole thing happens without any cost to the US taxpayer and doesn’t upset the normal course of business in the US because the US GIB temporarily replaces all the functions of the banks that have melted down.

Plan B: Hey, aren’t we in a global economy now? Whatever happened to globalization and multinational businesses? Why don’t we let the foreign banks come in and perform the functions that the US banks were clearly not competent to do? How about HSBC, the largest bank in the world? It’s now headquartered in Scotland since it moved from Hong Kong and changed its name from Hong Kong and Shanghai Banking Corporation.  Speaking of China, why not invite the Chinese banks to set up shop on Wall Street and take over the investment banking business? From everything I’ve seen the Chinese are much more aggressive and smarter capitalists than the Wall Street bankers anyway. How about the German and Swiss banks? There is plenty of money in the world – after all, despite all the meltdowns and economic disasters the total amount of money in the world hasn’t decreased – it’s just changed hands. Hooray for the global economy!!! Besides allowing almost all of our factory jobs to be exported, globalization also allows our financial jobs to go to China, India, and other places too!!  Marvelous!

So maybe we should let the new owners of the world’s money run the investment banks and let the tired old incompetent bankers just step down. Let’s just rejoice in the new, global economy.  That, after all, is the global capitalist way.

Plan C: Actually, I haven’t thought of Plan C yet. That would take another ten minutes, and I don’t have time right now; besides, it seems to me that either Plan A or Plan B would be preferable to using our tax dollars to bail out the old billionaires on Wall Street.  Let me know if you think of a plan C, D, or E. Maybe we could send them in to Congress, then we would all be doing our part to help out.

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We’re doomed.  The inmates have taken over the asylum.  Secretary of the Treasury, Henry Paulson, former Chairman and CEO of Goldman Sachs, a man whose career at Goldman Sachs spanned twenty-two years before he was appointed Secretary of the Treasury only two years ago, is now demanding that Congress immediately sign up for a $700,000,000,000 (and maybe lots more) bailout for Goldman Sachs, Morgan Stanley, and others.  Nobody is asking about the propriety of his engineering a bailout of Goldman Sachs at the expense of the U.S. taxpayer while only a week earlier he stood by and let the investment bank of Lehman Brothers, a competitor of Goldman Sachs, simply evaporate.

We’re doomed.  It’s not only those investment bank “whiners” on Wall Street, suffering from a “mental recession”, who are being bailed out by the U.S. government. Now the U.S.  government has changed the wording of the bailout bill to include any financial institution having “significant operations in the U.S.”  Swiss megabank UBS and British bank, Barclays, are already lining up.  It seems they didn’t understand what they were purchasing when they bought all those toxic mortgages, and now they want the U.S. taxpayer to reimburse them too.  It seems that the bailout is a gift from the U.S taxpayers to the poor banks.  Frankly, I would have made it a loan that starts out at 0% interest for the first three months, and then goes up to 33% interest after that, with severe penalties for late payments. I would also reserve the right to change the interest rate again, at any time, for any reason, up to any amount.  I’m sure the banks would understand.

We’re doomed.  The U.S. government has just announced that the last two remaining U.S. investment banks, Goldman Sachs and Morgan Stanley, can now become Bank Holding Companies, i.e. combined commercial and investment banks. In the wake of the 1929 Stock Market crash and the ensuing Great Depression, the U.S. Congress enacted the Glass-Steagall Act in 1935. This Act prohibited banks that lent money, as part of their business practice, from also investing money in stocks, etc. This Act essentially created two types of banks: commercial banks and investment banks. It had been found that, prior to the Depression, U.S. banks had been mixing depositors funds, like savings account money, with investment funds which led to many internal abuses and eventually the collapse of banks during the Great Depression. The Glass-Steagall Act served the country well for over sixty years, but it was repealed in 1999 via the Gramm-Leach-Bliley Act (That would be Phil Gramm of “whiner” and “mental recession” fame). Phil Gramm is now one of John McCain’s chief financial advisers.  He is also currently an investment banker at the Swiss bank of UBS.

We’re doomed.  Secretary Paulson says that we need to act immediately to bail out the investment banks so that our banking institutions will have the confidence to start lending money again and people can get mortgage loans. He believes that easy credit is critical to the functioning of our economy and that if we can just make it easier for people to get mortgage loans people will start buying houses and our economy will improve. He doesn’t understand that our economy collapsed because the housing market was a pyramid scheme and that we don’t have a true underlying economy because we have outsourced the engine of our economy to China. Think about it: When was the last time you bought something (other than food in a supermarket) that had a label saying, “Made in USA” on it?

We’re doomed.  Albert Einstein said that the definition of insanity is “doing the same thing over and over again and expecting different results”.  The inmates have truly taken over the asylum.

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Messrs. Paulson and Bernanke peered into their crystal ball late in the dimming day and, instead of seeing the tidy balance sheet of the U.S. Financial Market they had hoped for, they instead saw a frightening vision of certain doom.  Huge quantities of Old Wall Street Wealth were going up in flames. Distinguished banks, with names that hearkened back to the glory days of Scrooge and Marley, were being swallowed up in darkening pools of coagulating, red ink.  The largest insurance company in the world had collapsed into a quaking heap of rubble, its management suddenly realizing that it might actually have to pay out billions, or even trillions, of dollars in claims for millions and millions of toxic mortgages that would never, ever be repaid. Anxious investors were about to make a run on the money market funds of the biggest investment houses and everyone at the investment houses knew they couldn’t possibly be paid. The gilded facades of the brokerage houses were literally melting, and little rivulets of pure gold were turning into gushing torrents as they spilled over the curbs and drained into the dirty gutters of The Street.

An emergency, late-night, meeting of the leaders of the financial arm of the government and the leaders of Congress was convened.  The President was consulted for well over a full minute!!  Something had to be done, the solid, upper class, millionaire and billionaire investors of the United States who had expected to at least quadruple their wealth by owning vast amounts of poor people’s mortgages with ridiculously high interest rates, had instead accidentally swallowed something more deadly that Rasputin’s arsenic, something more smelly than an old cat’s hairball, something alive was living and eating them from inside their stomachs!  Something truly Alien.  They knew their sin.  They had fallen from Grace and gorged on the forbidden fruit of toxic mortgages.

The intrepid Messrs. Paulson and Bernanke addressed the crowded room of government servants and Congressmen and told them of their horrifyingly prophetic visions and the wide-eyed, quaking servants pleaded, almost with one voice, “Lords of Finance, tell us what to do!”

“Feed the toxic mortgages to the taxpayers!” was the reply.  “Feed them to the taxpayers!  It is the only way to save the Elite of the Street.”

“The taxpayers?” the servants said with a smile and looked at each other in wonder at the wisdom of the Lords.

“Indeed, but it must be done quickly for our vision is clear: before the first rays of today’s sun alight on the golden bull of the Street the damned must devour all the toxins, and it will be a burden on them and their children and their childrens’ children till the crack of doom. It must be done, or we, the Wealthy Elect, shall perish, penniless and without power.”

A hideous groan rose up from the very bowels of the servants. “Ahhh! Stop! In the name of all Republican wealth, stop! It shall be done! It shall be done!”  And so it was…

Tonight, all good Republican children can sleep soundly in their little mansions knowing that Daddy and Mommy’s millions and billions of dollars are safe once again.  The lowly Democratic taxpayers, who don’t get the life-saving tax breaks of the wealthy, have eaten the toxic mortgages by the millions, indeed they have been ingested by the hundreds of millions of taxpayers with hardly a whimper – and this is as it should be, for everything is once again in its proper place.

And now children,  all is well again all over the world.  The sun hastens to return to the the place where it last arose.  A new day is dawning, another glorious, money-making day in the golden streets of the land of the free and the home of the brave. And wealthy Republicans can breathe a sigh of relief while they dream dreams of even newer and better ways to grow and reap their fields of gold.

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Dear Messrs. Paulson and Bernanke,

First of all, please allow me to express my admiration for the skillful way in which you have kept your hand(s) on the financial tiller, so to speak, of our U.S. Ship of State as we negotiate these treacherous waters and rapids of economic uncertainty. I would like to thank you for investing, on my behalf, in the firms of Fannie Mae, Freddie Mac, and now, most recently, AIG.  Frankly, I would not have chosen these particular companies myself; perhaps because I am more of a neophyte in these things and therefore, sadly, a bit more cautious than you.  At any rate, with complete confidence in your sound investment decisions I am now proud to be a stockholder in these pillars of our financial system, based upon my status as a certified U.S. taxpayer.

I do have a couple of questions about my purchase, however, and I wonder if you might take a moment out of your busy schedules to provide me with, at least, the briefest of answers.  First, I was wondering: how have you determined my percentage ownership in these companies? Is it based upon the total amount of taxes I have paid since I was born, or is it only based upon my last year’s tax payment? I suppose you could also have decided to just divide up the shares equally among all U.S. taxpayers too.  I’m just not sure how you did it.  Could you let me know at your convenience? Also, I was wondering if I should expect my stock certificates to arrive via U.S. mail, or are you just going to credit my 401K account?  So far I haven’t noticed any new additions to this account (which, by the way seems to be getting smaller by the day).

Meanwhile, I have been giving some thought to what I might do with the shares I now own in these stalwarts of our economy.  Frankly, if you don’t mind, I think I would like to sell them.  Would that be OK with you? Here’s what I am thinking: I would like to take all my shares in these companies and combine them into a single monetary instrument and then use this new certificate to make a highly leveraged purchase of the Republic of Zimbabwe’s newly issued credit default swap derivatives that are firmly based upon the value of Zimbabwe’s currency futures.  Do you think I would be taking too much risk in making this investment? How do you think it would compare with my just holding on to these shares in F,F, & A that you have kindly purchased on my behalf? As always, I look forward to your expert opinion, knowing that you have my best interest (no pun intended) at heart.

Sincerely, etc. etc.

P.S.  I am a bit embarassed to say this but, to be perfectly honest, my 401K hasn’t been doing too well at all lately.  No doubt this is due solely to my utter mismanagement, with me being pretty much a lamb among the wolves when it comes to the stock market, so to speak. Well, I was wondering, since you have – and rightly so – shown such compassion and understanding for the failures in the investment judgments of F,F, & A and how you have bailed them out in their moment of need; I was wondering if you might consider a bailout of my 401K too.  I assure you it wouldn’t cost nearly as much as the bailout of F, F, & A and, while I do appreciate the opportunity to now be a shareholder in these institutions, a direct bailout of my 401K would be ever so much more helpful, in my case at the least.  Here’s what I’m thinking: if you could simply, in the spirit of the F,F, & A bailouts,  restore my 401K balance to somewhere near where is was about two years ago, I would be most appreciative, and I might even consider casting my vote for the Republican Party candidates this year (in case that carries any weight with you).  Thanking you in advance…I remain your humble servant.

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Help! The inmates are in control of the asylum! At least that was my first impression, and it was, I think, understandable.  Fannie Mae and Freddie Mac were drowning in all those toxic mortgages that people weren’t paying.  Meanwhile, Fannie and Freddie were telling all their friends, to whom they had sold toxic mortgages, that they didn’t have to worry about a thing.  But, everyone knew that Fannie and Freddie were in the process of going down the proverbial tubes.

Investors, worldwide, were beginning to panic.  So, over the weekend, U.S. Treasury Secretary Henry Paulson steps in and says ,”Don’t worry, I’ll save everyone in the world!  From now on the American taxpayer will pay off all, and I mean all, of those nasty, defaulted, toxic mortgages. Relax, all you rich banker folk. You won’t lose a dime!” The worldwide banking community beathed a collective sigh of relief. Stock markets skyrocketed. Financial firms that had been on the ropes saw their stock values soar Monday morning. Everybody was happy again.

“Huh?” I thought, “Henry, you want the U.S. taxpayers  to pay for all these mortgages that the deadbeats won’t pay for?  Wait a minute! It’s the U.S. taxpayers who are the deadbeats! Henry! You’re asking the deadbeats to pay for the debts of the deadbeats? How is that going to work? Isn’t that sort of like trying to go faster than 88 miles an hour in a specially equipped Delorean? I mean won’t that somehow effect the space-time continuum or something?”

Hold on. Wait a minute.  Take a deep breath…I think I’m beginning to understand the concept a little better.  Let’s see.  There are basically two types of U.S. taxpayers: 1. those people who defaulted on their toxic mortgages, and 2. those people who didn’t.  OK.  Now of those category 2 taxpayers, there are also two types : those who own houses and those who don’t.  The key thing is that none of them are mortgage deadbeats, i.e. they have money and they pay taxes.  Soooo… these people, the ones who never had any of the toxic mortgages, are the people who are going to pay off the toxic mortgages, so the bankers won’t lose any money.  Is that right, Henry?  Smart.  Real smart. Clever actually.  I stand corrected (once again).

Whew!  So, this really isn’t a case of the “inmates running the asylum” after all. Nope, it could probably be more accurately described as “Watch out!!! The fox is in the hen house!!”

As I understand it, the banks, in their ungodly haste to make billions and billions of dollars from exorbitant interest rates as part of the United States Housing Ponzi Pyramid Scheme (USHPPS), went out and made ill-advised (read “really stupid”) loans to anyone who could be certified as legally alive and breathing.  In the process, a few million deadbeats seem to have slipped through the 18 million cracks in the ceiling and received billions and billions (I’m starting to feel sort of like Carl Sagan here) of dollars worth of certified, first class, toxic mortgages. Of course they never paid them. I mean who in their right mind is going to pay off a toxic mortgage? Think about it…who would do that?  Heh heh…. Heh heh…. Thought about it yet, my little chickens?

Now, you may wonder, what about the fox? What’s in it for him? You mean foxes, my friends, foxes: the rich, old foxes who own the banks that made the bad loans to the deadbeats. And, you also mean the rich old foxes who bought the toxic mortgages from Fannie and Freddie, right? What about them? Don’t you worry your little head about them. See, those rich folk aren’t going to lose a dime, even though they made some really, really, really, stupid investment decisions. But, it’s kind of like playing a special version of Monopoly where the rich folk are playing with play money and you are playing with real money. No matter what happens, in the end you lose and they win.

It’s not like when you go to buy some stock on the stock market and it goes down and you lose money, or like when you start a small business and you put all your hard-earned money into it and you work 16 hours a day for a year and then you watch it go belly up and then you get a job at Wal-Mart or Home Depot and you wind up paying off your business loans for the rest of your life.  This is a different kind of game that the wealthy bank owners invented.  Fun, huh?

Hey, I know!  Wanna play another game?  I’ll be the banker this time…

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