Friday, March 20, 2009

History made Under the Radar

Every body is talking about AIG and retention bonuses. Congress has made a complete spectacle of itself over the whole deal with their populist "outrage". They are on the one hand responsible for the whole mess through one of the hidden gems tucked into their (non) Stimulus Bill. But despite this revalation, they are trying to lead the public like an angry mob with pitchforks to slay the evil capitalist pigs who dare follow the laws that congress wrote to protect them.

This idea to tax the bonuses retroactively at "90%" is despicable. It's the sort of behaviour a looter displays. Stealing on behalf of "the People".

It's really a microcosm of the burst to the housing bubble and this whole banking "crisis".
Think about it. Government writes laws that encourage bad business practices. Banks are encouraged to make loans to people, not based on ability to repay, but on the assumption that home ownership is a right. So then anyone can get a loan, and quasi governmental/private firms such as Fannie mae are encouraged by government to hold over 60% of their assets in sub prime loans. Credit becomes cheap and easy and demand for homes skyrockets. The law of supply and demand causes home prices to inflate at an unbelievable pace.

Then reality strikes. It turns out that a very large percentage of people can't repay their loans and have to default, or are hovering near the point of it. Meanwhile, firms such as Fannie Mae and Freddie Mac, and AIG are encouraged by lawmakers to slice up each loan and repackage them and tuck them in with other assets. Kind of like creating new pies from the slices of many different pies, some of them rotten, some of them good. When the bubble bursts, every one is holding these packages, and no one really knows who is holding pieces of what pies. Now this drags down the whole package and it's worth less than everyone thought it was worth. And no one seems to be holding any whole mortgages, because they have been cut up so many times and redistributed all over the banking world. Now we have a banking Crisis. Thanks Uncle Sam!
If course, congress, the ones that enabled and encouraged this behaviour starts blaming free markets and begins a war on capitalism. They blame it on the banks, and everybody grabs their pitchforks and call for regulation. We should be firing our lawmakers instead. They caused this mess! They meddled into the market and broke the laws of free markets in order to help the down trodden. As usual, it backfired, and now the poor are going to be the hardest hit.
AIG is like that in miniature.

But that's not the History I am speaking of. The Government has just borrowed a Trillion dollars from itself! That's right. From itself. The Fed can’t lower interest rates any further.
And they printed a trillion dollars to dump on the market to cause inflation to stave off the deflation we are experiencing. The money has been created out of thin air, no real value lies underneath it.
It has never worked anywhere any time it has ever been tried!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!


It has been tried, oh yes, it has been tried, with catostrophic results. Ever hear of the Weimar Republic? It tried the same thing. And the result was horrendous. A bad economy became the worst western economy ever.

This step is one of panic by the Feds. It is essentially a last resort. What they are saying by doing this is that everything else has failed......let's try the last resort. The money has been created out of thin air, no real value lies underneath it.

I am praying it works. I even hope Geithner isn't fired in the hope he will be able to pull it back in the knick of time. If he doesn't, it's very dangerous. VERY dangerous. Now is not the time to try to replace Geithner, even if he is the worst pick for this job, as I have already said previously.

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