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Thursday, November 13, 2008

The Coming $700 Billion Boondoggle

Let's review. In September, the President went on national television and said that the financial system was holding onto "toxic" paper full of bad mortgages. He asked for the staggering sum of $700 billion in order for the Treasury to buy this "toxic" paper from these banks. The President assured us that once this toxic paper was removed from the portfolios of financial institutions they would lend again which was necessary to move the economy. Furthermore, the President asserted that the Treasury would be able to hold onto this "toxic" paper long term and so hopefully it could still be sold at a profit. In other words, banks and financial institutions were in trouble. Because they were in trouble, they weren't lending. In order to get them to lend, the Treasury needed to remove what was ailing them. Since the Treasury could afford to wait long term, it was even possible that this would one day soon become a profitable venture for the Treasury, and by extension the tax payer.

Yesterday, the Treasury stunned the country by breaking one of the basic tenets for the bailout.

Treasury Secretary Henry Paulson said Wednesday that original plan to purchase distressed mortgage assets from Wall Street firms is not the best use of the $700 billion financial rescue package, and officials will now focus on direct capital injections into the struggling financial firms.

No longer would the Treasury buy the "toxic assets". Instead, they would just give all of these financial institutions a bunch of money. This is not some inconsequential point. The tax payers agreed, in part, to this "bailout" because there was at the time a great chance that some, all, or even more of it would eventually be recovered. Now, these financial institutions are simply getting a handout.

Now, some politicians want to divert some of the bailout to the automakers.

Congressional Democrats are marshaling support for a rescue package to pump $25 billion in emergency loans to U.S. automakers in exchange for a government ownership stake in the car companies.

That may lead them into a showdown with congressional Republicans and President Bush as positions on an auto bailout evolve.

Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, and Sen. Carl Levin, D-Mich., are developing legislation that would let the auto industry tap into the $700 billion Wall Street rescue money, approved by Congress last month, to fund their business operations.

Suffice to say, the automakers don't make loans, well a few, and so once again, we, the tax payers, have been lied to. This money wasn't supposed to go to industry. This money was supposed to go to those that lend because they weren't lending. Now, this money is going to bailout mismanagement automakers.

Now, the state of California wants a piece.

Assembly Speaker Karen Bass, a Los Angeles Democrat, has drawn up a partial solution anyway: Federal money.

Use some of those Wall Street taxpayer $700 billion bailout bucks on California!
Bass has urged the federal government to hand over the money to states — well, her state anyway — as well as those rich Wall Street banks in another coastal state. Why should New York get it all?

With federal money it won’t really cost anything, see? And she won’t have to explain voting for more taxes back home come next election. It’s the least Americans can do for the sunshiney state they love to hate.

The state of California does no loans. Now, federal tax money is going to bailout a single, MISMANAGED, state. The tax payers are lied to again.

Here's the worst part.

The government’s program of using taxpayer funds to bolster banks’ capital was supposed to be "passive" -- meaning, Uncle Sam wasn’t going to take an active role in managing the businesses.But a joint statement today from the Treasury, the Federal Reserve and the Federal Deposit Insurance Corp. on bank lending hardly sounds passive.

In the statement -- titled, "Meeting the Needs of Creditworthy Borrowers" -- regulators’ frustration with still-frozen credit markets is evident. And they’re now essentially demanding that banks boost lending.

Tony Crescenzi, bond market strategist at Miller, Tabak & Co., calls the statement "a strong-arm tactic that ostensibly takes advantage of the power that the government now has over banks and other financial institutions."

These banks were supposed to use this money to lend. Now, the regulators are urging them to do it. Why should they be urged to do anything? It isn't their money they are now working with. They are working with tax payer money. They need not be urged, but mandated. The money isn't even being used to lend to others. It's mostly being used to buy up other financial institutions.

For an idea of just how bad it is, here is what the person in charge of oversight recently said.

It's a mess," said Eric M. Thorson, the Treasury Department's inspector general, who has been working to oversee the bailout program until the newly created position of special inspector general is filled. "I don't think anyone understands right now how we're going to do proper oversight of this thing."

As such, $700 billion was approved, and the structure of the deal was immediately changed. Then, new players are constantly being added for inclusion in the bailout. Now, the whole purpose of the bailout is being dismissed by those receiving it. That, everyone, is a boondoggle, a $700 Billion boondoggle.

If the Feds were serious about making this work, each and every Dollar would be accounted for. They would post on line where each and every Dollar of the $700 Billion went. Furthermore, they would demand, not ask, that each bank and financial institution post where each and every Dollar they received went. We shouldn't be finding out in the media that bailout money is going to bonuses and retreats. That should be available on line for every tax payer to see. Furthermore, every top level manager of every company receiving a bailout should be dismissed. If they got the company into this mess, why in the world should the tax payers trust them to get the company out?

Instead, news trickles out day by day that gives another glimpse that nothing about this bailout is as it was advertised. The goal posts change slightly each day, until we look up about two months later and realize the goal posts have been moved to the other end zone. We have been had folks. This government bailout is nothing more than a $700 Billion boondoggle.

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