The Blog @ Spolitics

Bailout or Investment

It appears the key issue with the bailout plan is what price the government will pay for these garbage loans that are clogging up the financial system. If the government approaches this with the mindset that this isn’t free money they get to play with, then it’s possible the endeavor would turn a profit. That’s not a bailout as much as it’s the Uncle Sam engaging in a little opportunistic capitalism. Here’s how Warren Buffett put it:

You have all the major institutions in the world trying to deleverage. And we want them to deleverage, but they’re trying to deleverage at the same time. Well, if huge institutions are trying to deleverage, you need someone in the world that’s willing to leverage up. And there’s no one that can leverage up except the United States government. And what they’re talking about is leveraging up to the tune of 700 billion, to in effect, offset the deleveraging that’s going on through all the financial institutions. And I might add, if they do it right, and I think they will do it reasonably right, they won’t do it perfectly right, I think they’ll make a lot of money. Because if they don’t — they shouldn’t buy these debt instruments at what the institutions paid. They shouldn’t buy them at what they’re carrying, what the carrying value is, necessarily. They should buy them at the kind of prices that are available in the market. People who are buying these instruments in the market are expecting to make 15 to 20 percent on those instruments. If the government makes anything over its cost of borrowing, this deal will come out with a profit. And I would bet it will come out with a profit, actually.

So far, it looks like Paulson and Bernanke want to overpay rather than insisting that the banks take the hit they deserve. If done that way, it’s a bailout and it’s letting the companies off the hook for their greed and making the taxpayers take the hit.

The other big issue is who is going to be administering this plan and deciding — not only the price — but whose instruments to buy? It’s ripe for crony-ism and corruption.

If you happen to be in the Washington D.C. area right now, be sure to keep an eye out for the impending lobbyist stampede.

Someone Knew What to Do. It Just Wasn’t The Democrats.

The Bush Administration proposed a plan to get the economy back on track and the markets have responded with huge gains — the Dow jumped almost 800 points in two days. This just one day after Harry Reid and Nancy Pelosi said that they and their Democrat colleagues in Congress wanted to go home because no one knew what to do about the problem. I guess that’s why they’re called the “Do Nothing” Congress.

It also lends credibility to the claim that they want to economy to struggle because they believe it will help them win the election. So much for leadership and the good of the nation.

Meanwhile, don’t expect Barack Obama to comment on the plan any time soon. He’s still trying to decide his position on the AIG bailout. But don’t worry. Once it all plays out and he knows what the right decision was, he’ll be sure to tell us that’s what he believed all along. He’s good like that.

Update: The Wall Street Journal has a riveting article about the turmoil of the past week and how administration officials were scrambling to address it.

WaPo: Obama Was Notably Silent on New Regulations for Fannie and Freddie

After giving him a pass for so long, WaPo finally decided to vet Obama’s recent claims about the current financial crisis and found them lacking in honesty. Obama likes to pretend he foresaw the problem, but he didn’t foresee it as much as he simply responded after it was already too late. The bad loans infecting the market right now were made in 2005 and 2006. By 2007, when Obama came onto the scene proposing legislation to fight mortgage fraud, it was already way too late. Bear Stearns had already melted down and capital was drying up causing the liquidity crisis. Mortgage fraud was no longer a problem because nobody could afford to make loans anymore anyway.

However, John McCain did foresee the problem and proposed legislation to do something about it:

In 2006, [McCain] pushed for stronger regulation of Fannie Mae and Freddie Mac — while Mr. Obama was notably silent. “If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole,” Mr. McCain warned at the time.

Why was Obama silent? Because Fannie and Freddie were stuffing his mouth full with campaign cash. His silence was bought and paid for by the very people who helped create this mess. Now they work as advisers on Obama’s campaign and bundle campaign contributions for him.

Meanwhile, Obama has dug up an old regulatory repeal co-written by a McCain adviser and tried to blame everything on it — without any substantiation. Of course, he can’t substantiate it because it’s nothing but an empty, partisan argument. Even more comical, his advisers backed it as well:

Would it be churlish to point out that another author of the Gramm-Leach-Bliley law is former congressman Jim Leach, a founder of Republicans for Obama? Or that Obama advisers Lawrence H. Summers and Robert E. Rubin supported the repeal — which was signed by President Bill Clinton?

Obama tells him us that words matter. But when American needed him to speak up, he was silent.