Sunday, March 22, 2009

TALF = Total, Apparently Legal Fraud

If all of you are suffering from outrage fatigue, I am sympathetic. Outrage is exhausting, and with banks and the Administration working overtime designing creative and opaque new policies to deal with existing outrages, while inevitably, inadvertently, through the law of unintended consequences, create a dozen new outrages, it is tough to keep up. Personally, I have began about a dozen posts over the last year that were intended to shred the latest government proposal, but I usually gave up after a few sentences, certain that the exhaustion I felt at detailing the outrage was probably only slightly greater than the exhaustion you would feel after reading it. Everyone gets numb to the drumbeat of bad news after a while, so I wanted to save my bullets.

I am using one now. The latest Treasury plan as I understand it constitutes the single biggest fraud and theft of taxpayer dollars I can remember. The leaders of Treasury, especially Geithner, are either galacticly stupid, or alternatively, should they actually understand what they are creating, bigger criminals than anyone in Nixon's posse.

Let's begin with the basics. Here is the plain vanilla news story explaining the upcoming announcement of the program. Try to read it. My guess is that your eyes will glaze over within a couple of paragraphs. I fear that is completely intentional.

The fact is that this may be the single greatest opportunity to game the system that the government has ever created. There are probably several dozen different ways banks and hedge funds can game this legislation to basically create a heads-I-win, tails-you-lose arrangement. In essence, if the assets under discussion appreciate, banks and hedge funds will make windfall profits. If the assets continue to depreciate, the taxpayer will bear virtually all the losses.

Here is some relevant discussion from the blogs...
Zero Hedge: The Amazing TALF bait and switch
Naked Capitalism: One would have to be a criminal to participate in this

Even Krugman, the Keynesians' chirpy pet parakeet, hates the plan.

If you care at all about fairness, justice, your tax dollars, etcetera, etcetera, you should be writing an email to your local Congressmen right now trying to stop this plan.

On the other hand, if it passes, you might as well buy bank stocks. If your tax dollars are going to be used for a wholesale bailout that saves shareholders and bondholders, you might as well share in some of that upside, because you are definitely in for lots of downside.

2 comments:

Aztec Tomb said...

Yeah, I'm not a big fan of the plan either. Krugman is correct in saying that we need to nationalize some of the more troubled institutions like Reagan and Bush did during the S&L crisis (another example of unintended consequences of deregulation).

Is there any doubt that the Swedish Model is the appropriate course here? Wouldn't it be economic waste to allow a large portion of the county's financial infrastructure to simple evaporate?

Of course political partisanship is the Obama's Administration's main impediment to its implementation of an effective solution.

Al Powell said...

TALF sucks for the taxpayers. Burn-Baby-Burn or The Swedish model appear to the only ways out. What we're doing now is more akin to Japan in the 90's, and we all know how well that went.

What I can't figure out is why the Obama Administration is so against temporary bank nationalization. I actually don't think it's political partisanship. Both Alan Greenspan and Richard Shelby have both weighed in favorably on the idea. Is it because, as Bernanke said, they don't have the "legal tools" in place to take over such large institutions? So get to work creating whatever tools you need!

Meanwhile, the MSM is almost totally out to lunch. The stock market's up! This must be a good idea!