“The biggest surprise was how quickly it went from ‘I don’t need this,’ to ‘How do I get in?
-Michele A. Davis, Treasury Department, head of public affairs
A truisim of all bailouts: Enormous amounts of taxpayer cash attracts all manner of unsavory, undeserving characters. What was supposed to be a narrow and limited attempt to reduce the systemic risk of a financial collapse has become a taxpayer funded free-for-all.
Like hyenas trying to steal the kill from a lion, the mere scent of this enormous pile of loot starts attracts the scavengers. They cannot help themselves, for it is their essence, and who they are.
Just as the dreaded 17 year locust devours all before it, so Lobbyists too, are swarming the capital. Never before has a trillion dollars been authorized so quickly. Never before has so much money been spent with so little oversight, controls, or transparency.
Now, on top of the negligent manner in which this money has been thrown about, come the latest jackals drawn in by the scent of easy money.
American Express (AXP) — a credit card company which, last I checked had little or no exposure to mortgages — is now a bank, for the sole purpose of tapping some of that free money. The thinking seems to be, “Big pile-o-cash? Gots to gets me some of that!”
Next pig at the trough is the heinous derivatives hedge fund, formerly-known-as-AIG. They were taken over so quickly, with so little oversight and essentially no due diligence, that the price tag on this has already doubled. What no one at the NY Fed is likely to tell you anytime soon is that this price tag is very likely to double yet again.
Here’s a forecast: After the eventual investigation and audit at Maiden Lane, someone will go to jail. (You read it here first).
And now, along comes General Motors. They are unique corporate citizens, demonstrating a shocking incompetence in not one but two entirely separate industries. They have shown an unsurprising inability to manage a finance company (GMAC), and a remarkable incapacity to run an automobile company (GM). And, like AMEX, they smell blood in the water.
They have already managed to wrest $25 billion in taxpayer monies for hybrid technology research. Do you suspect those monies would have been more efficiently spent if it went to MIT and Stanford, and to the many small innovative firms that have pioneered work in this area? Or, is the best way to generate progress in this technology to give it to a bloated, debt ridden, poorly run, dinosaur?
Do you even have to answer that question?
Imagine if during WWII, instead of putting the Manhattan project in the hands of the scientists that had an expertise in nuclear physics and atomic technology, we instead trusted the project to GM. How might that have worked out? What language do you think we would speaking in the US today instead of English?
Systemic risk? Financial armegeddon? Economic crisis? Don’t bother me with that, its a tax-payer funded buffett — and we are in line at the trough.
Last month, I suggested the bailout plan might cost as much as 3 trillion dollars. At the presnt rate, this will scale up to 8-10 trillion dollars before long. We could even end up spending a full year’s GDP before its all said and done.
Unregulated, Free market capitalism, anyone?
Sources and select media excerpts below.
From today’s WSJ:
Banks in the U.S. and abroad are among the biggest winners in the federal government’s revamped $150 billion bailout of American International Group Inc.
Many banks that previously bought protection from the insurer on securities backed by now-troubled mortgage assets stand to recoup the bulk of their investments under a plan by AIG and the Federal Reserve Bank of New York to buy around $70 billion of those securities via a new company. These securities are collateralized debt obligations backed by subprime-mortgage bonds, commercial-mortgage loans and other assets.
When the government said it would spend $700 billion to rescue the nation’s financial industry, it seemed to be an ocean of money. But after one of the biggest lobbying free-for-alls in memory, it suddenly looks like a dwindling pool.
Many new supplicants are lining up for an infusion of capital as billions of dollars are channeled to other beneficiaries like the American International Group, and possibly soon American Express.
Of the initial $350 billion that Congress freed up, out of the $700 billion in bailout money contained in the law that passed last month, the Treasury Department has committed all but $60 billion. The shrinking pie — and the growing uncertainty over who qualifies — has thrown Washington’s legal and lobbying establishment into a mad scramble.
U.S. government’s financial-system rescue plans are coming under pressure as a growing array of distressed companies signal the need for assistance.
On Monday, mortgage giant Fannie Mae said it is losing money so rapidly it may need a cash infusion from the Treasury Department by year’s end. The funds would come from a special $100 billion pool Treasury set aside back in September to aid the company. Fannie Mae had a loss of $29 billion for the third quarter.
In another sign of the stress on financial-services companies, American Express Co. won swift approval from the Federal Reserve to become a bank-holding company. The move paves the way for the credit-card giant to get a taxpayer-funded capital infusion from the Treasury.
Federal Reserve is seeking to become the lead regulator for clearing trades in the $33 trillion credit-default swap market, according to people with knowledge of the proposal.
The Fed, the U.S. Securities and Exchange Commission, the Treasury Department and the Commodity Futures Trading Commission are discussing a memorandum of understanding that lays out oversight of clearinghouses that would become the central counterparty to credit-default swap trades, said the people who asked not to be named because the discussions are private.
Strains Mount on Bailout Plans
American Express Gets Quicker Access to U.S. Cash; Fannie Mae May Need More Help
DEBORAH SOLOMON, JAMES R. HAGERTY and MICHAEL CRITTENDEN
WSJ, NOVEMBER 11, 2008
New AIG Rescue Is Bank Blessing
Buyers of Insurer’s Default Swaps Would Recover Most of Their Money
SERENA NG and LIAM PLEVEN
WSJ, NOVEMBER 12, 2008
Lobbyists Swarm the Treasury for a Helping of the Bailout Pie
MARK LANDLER and DAVID D. KIRKPATRICK
NYT, November 11, 2008
Bailout Critic: Plan Could Cost $3 Trillion
ABC NEWS Business Unit Oct. 13, 2008
Fed Said to Seek Oversight of Credit-Default Swap Clearinghouse
Bloomberg, November 12, 2008