Friday, September 19, 2008

Privatize the profits and Socialize the losses

Today is the day whatever form of crony capitalism we had was lost. King Geroge Bush has now decided to Privatize all profits and Socalize the losses.

Where was Chimpy Bush during this run up? He was signing the praises of an "ownership society". Meanwhile the fat cats on Wall Street were being paid BILLIONS in bonuses.

Now we the American taxpayer must foot the bill for this mess, while the richest of the rich get to walk away with all the profits. $1 trillion to $2 trillion will be the price tag for the bailouts of Bear Stearns, Fannie Mae, Freddie Mac, AIG, actions by the Treasury and Fed and the cost to run and step up RTC2.

Welcome to the USSRA!


OtherSideofBellCurve said...

If you want to point fingers Bush is certainly an easy target, but you have to go back a lot further into the past to find the real culprit.

Bush has been an enabler (as well as Clinton, Bush Sr, Reagan, Carter etc...)to a problem that started when our country decided the free market shouldn't be allowed to run without government intervention. Over the last 30-40 years we as a society have been moving steadily towards bigger government oversight and programs that eventually took the whole "chicken in every pot" philosophy too far.

What we have witnessed is exactly what happens when private corporations take advantage of a "free market" that's not really free. I agree that the government has no business whatsoever coming to the rescue. This country needs to feel the pain that we have brought on ourselves because of our "ownership society" philosophy.

So what do we do know? It's an important time for our country. This half ass socialism-capitalism hybird that we have created doesn't work. We have a big choice to make, go with Obama and full on socialism or McCain and hope he gets back to the roots of true conservatism. I will be going with McCain.

Ichabod said...

Come on Bakersfield Bubble. Tell us how you really feel.

Jim in San Marcos said...

Hi Bake

How about coloring the star on the flag blue and the hammer and sickle white? It would add a touch of home to the flag.

Bakonewbie said...

Aw, that is crap. This thing has little to do with Bush. This thing is ALL about housing and loans.
The simple truth is that this entire country has been living on fake income and a pyramid scheme housing market.
Now that it has come back to roost, like all pyramid schemes, someone has to take the hit. In this case the hit is huge and FAR reaching.
We got into this because people where allowed to buy houses that the NEVER could have afforded and NEVER should have been allowed to get mortgages from! This "free" money drove markets all over the country. The income to housing ratios are a joke. (look at Kern!)
Now that houses are at an all time high, due to all the free money and carefree lending, the tax payer takes the hit.

I talked about this as early as 2005 with other realtors that I worked with. It is not "news" it has been a house of cards. (bought with a liar loan!)

Can you imagine is Bush tried to pull the wheels off the gravy train 2 years ago!? He would have been tarred and feathered. The same people who seem shocked but our current situation are the same people who would have accused him of ruining the greatest thing in recent history.

No, it is not just Bush. There are so many fingers to point. From brokers who pushed this junk, to agents that knew better and said nothing, all the way up to the corps that packaged this junk and resold it as an "investment"

In a nut shell, take out the liar loans that pushed this housing market way past what people could REALLY afford and what are we left with?
Everyone is gov't who sat on their hands and watched this is at fault. (and there are many of them)

Just my 2 cents anyway!

Anonymous said...

Excellent post. I agree entirely. And...I'm an economist, used to be a regional economist in Kern county, which is why I follow your blog.

May I offer my two-cents of advice?

Get your money out of the dollar, if you haven't already.

Don't sink money into the U.S.; socialism is a losing proposition for the average person. A house, for example, is not an investment, it is an expense. Better to have a small house, and money safely invested in Asia, than a big house and your fortunes entirely at the mercy of the U.S. socialist system.

For all of our ragging on "communist China," the average Chinese is far less communist than the average American. True.

Do you realize that the nationalization of the finance industry means that Americans are, quite literally, economic slaves to the ruling rich? This bailout alone comes to about $10,000 per U.S. household...and, from now on, in perpetuity, the U.S. taxpayers must, and always will, pay more in taxes than they save every year, in order to keep the ruling elite living in luxury.

Get ready for a Soviet structure to life. The new "elitni" are your overlords.

Richard said...

The illiquid debt at banks should not be purchased and nationalized.

Apparently the banks are unable to obtain capital in the market place, so the Federal Reserve is planning to become the "bank of banks", with capital obtained from the US taxpayers.

This should not be done, because it is like you communicate, privatization of profit for bankers, and socialization of losses unto the public.

The level two assets and level three assets held by banks, investment bankers, and in real estate organizations, and state government retirement funds are irredeemable and terrifically toxic and should not be transferred to the US taxpayer.

What got us into this mess was Senator Phil Gramm working with President Bill Clinton to repeal the Glass Steagall Act so that the banks and investment bankers could get into securitization of CDOs.

Then through Alan Greenspan, the Purveyor of Credit Liquidity, stocks, bonds, and real estate bubbled up.

The Real Estate Bubble has been pricked and asset values are falling.

On Wednesday, September 17, 2008, the stock market bubble was pricked as gold soared and a liquidity meltdown occurred.

Investing died September 19, 2008 as the SEC announced a ban on short selling, and President Bush announced: "Anyone engaging in illegal financial transactions will be caught and persecuted."

The result was the mother of all short covering rallies with the Russell 2000, IWM, up 4.5% to close at 75; and the financial sector IFY rose 9%; and the Proshares 200% inverse of the financial sector SKF fell 13.5%.

The chart of US Treasuries, TLT, shows they fell 3.2% to 94; that is a lot for US Treasuries. One can truly say Peak US Treasuries occurred September 17, 2008.

It is beyond the charter of the Federal Reserve to be insuring Money Market accounts.

The banning of short selling of the financial sector means that investing as it has been know is dead, dead and dead.

The liquidity vacuum still exists and presents risk of loss of capital, if wealth is held at brokerage firms, banks and in money market funds: it is a greater risk than the deflation risk in gold.

I suggest that one go to the safe haven of gold. even though it will be finding support at $800, $750, $690 and $650.

For protection and preservation of capital, I recommend diversification of investment in gold in four locations: the GLD ETF directly through streetTRACKS Gold Trust, and not in a brokerage account; two BullionVault, three GoldMoney; and four a limited number of gold coins. This investing should be done gradually over a period of days, that is, one "dollar cost averages" the investment.

Lone Ranger said...

“What got us into this mess was Senator Phil Gramm working with President Bill Clinton to repeal the Glass Steagall Act so that the banks and investment bankers could get into securitization of CDOs.”


Over the last few months, we’ve been witness to the beginning of the end of our traditional fractional banking economic model.

The final result will be a lot of Americans far poorer than they were a generation ago.

Of course, none of this had to happen, but it is the result of Americans shirking their responsibility as members of a Democratic Republic.

Jefferson, the greatest proponent of a representative democracy, had grave doubts about the viability of our constitutional system over the long term. He wisely worried that a constituency that ignored their responsibility to stay independently informed, would eventually fall to the tyranny of the ruling class.

In our time, we are witness to his prophecy.

90% of our main stream media is now owned by four multinational corporations, and three of them are part of the Military Industrial Complex. The profit model they use requires the constant drumming of fear in the populace, hence we must be fed a constant string of propaganda, while promoting partisanship in all discussions to prevent independent and critical thought among individuals.

The resulting constant partisanship, and simplistic political argument, have allowed most members of our society to become the witless drones of their thought masters, the political parties.

Since 1980, we have been bombarded with the never ending mantra of the “free market” model. In actuality, this was nothing but a smoke screen to allow the money changers to run rampant with no regard to long term consequences.

Free markets without tight regulation to even out the playing field as much as possible, rapidly deteriorate towards crony capitalism, i.e. a particularly virulent form of junglenomics. US financial markets were the envy of the world because a whole array of professional regulators (SEC, NASD, NYSE, FRB, etc) stood ready to send in the feds and bodily carry out handcuffed perps, in full view of their co-workers and the cameras.

No, it didn't always work out as it should have and many a big fish swam away leaving the minnows to fry in the pan. But mostly it worked, and the markets were the better for it. This is no longer the case and dominant positions now exist (or existed) unchecked in most markets and crony capitalism makes itself evident in many aspects of the US economy (Bear Stearns, for example).

Some people sadly still confuse freedom with total lack of regulation, thinking oversight interferes with a "natural" right to do as they please. In that case, their proper place is up in the mountains with the rest of the wild animals (Aristotle had something to say about them, people who do not wish to participate in a cohesive society and be bound by its rules). Others place absolute faith in the invisible hand, thinking it will even out everything all by itself. Without rules, only the crooks prosper.

We stand witness to the final result of our collective folly.

A truly diversified free press, along with a responsible, educated, and motivated electorate, willing to think critically and independently, is the only long term solution.

BB, thanks for maintaining this great blog.

Adam said...

Funny someone should mention the "chicken in every pot" slogan from the 1930's. We've taken it MANY steps further, turning it into "a homeowner in every house". In 2008, apparently a chicken won't do it any more when it comes to pandering to voters.

When will people realize we don't live in Lake Woebegon (that mythical Minnesotan city in Garrison Keillor's world) where all the children are above average and everyone owns stocks which only increase in value (which is what the short selling restrictions are foolishly hoping to accomplish)?

Of course, this place cannot exist: every child can't be ABOVE average, as it ignores the very definition of what it means to be 'average'. This fallacy (the "Lake Wobegon Syndrome") was fueled when we had Greenspan praising the 'miracle' of those fancy CDOs (which were hard-to-understand, and probably why he liked them so much!). These financial miracles seemingly allowed banks to turn water into wine, and were the innovation that allowed all of these financial modern miracles to occur.

Ironic, as some 40 years ago Greenspan wrote in his PhD thesis that there were no financial perpetual motion machines which propelled houses on any ever-upward trek of appreciation. Greenspan KNEW better; he KNEW bubbles and other popular delusions had existed since Man started trading assets; they've ALWAYS existed, and this is certainly NOT the last bubble we'll see.

(Much why I was surprised when Greenspan publicly stated a few years ago that the whole mortgage crisis would be solved IF houses continued to appreciate a further 10%! SO fine, Al suppose they do: then WHAT happens?)

Throw in Bush's praise of the American "Ownership Society", and we had the makings of a perfect scam. That's right: I said 'scam'.

If anyone doesn't "get it", this whole episode was NOT an accident: the big players all knew the game-plan, they KNEW what was developing, and consciously decided to get theirs while the going was good.

Bush oversaw the vampirization of our once-great Nation, already moth-eaten by fears of a recession. Despite short-term fixes (interest rate games, creating a series of asset bubbles, AKA Ponzinomics) there's nothing left now but an empty shell....

Take Goldman Sachs, a company that is widely regarded as the smartest people on Wall St, not just for surviving, but PROFITING from the mess of the mortgage meltdown. How did they do this?

After the fact, it's now widely known that GS was shorting (uh-oh: there's that nasty word!) stocks of financial companies, while simultaneously RECOMMENDING these same stocks to their retail investors/clients from the front office.

Now that they've played the shorting game until it's nearly killed the market (and themselves! They didn't count on THAT!), GS ex-CEO Paulson is now ready to tell Wall St. that phase of the game is up, and we don't want to KILL Wall St., just give it a severe beating that brings it within an inch of it's life!

It was ALL a scam, now managed by the ex-CEO of GS who KNEW what the real point was. He helped create the mess, so who better to make sure we don't fall into the precipice, the deep chasm, that he and his kind profiting from digging?

Make no mistake: this is truly fascism, defined as government by the corporate entities FOR the benefit of corporates. If they can foist their losses off on the public (and the government allows it), then they will.

Pure socialism and pure capitalism (which don't actually exist) would NEVER do this to it's populace: instead, you'd see socializing of both profits AND losses. That's the very definition of these forms of government, which unless you're a member of the elite class, is not such a bad thing!

Funny how many people say they hate Obama since he seems 'socialist': I've got news for them, what they've seen under Bush is FAR WORSE for them than ANYTHING they'd see under Obama! Unless you're making over $250k a year, you have nothing to fear under Obama (who wants to make the rich actually PAY their share of taxes, after decades of being able to side-step taxes). IF you're making this much cash, then YES, you'd be better off voting for McCain (who wants to keep things status quo).

But back on point: this is pure 'screw you' fascism, operating under the sheep skin of 'free enterprise'. Unfortunately, most Americans are too stoopid to realize it.

It doesn't get much uglier than this.

Bakersfield Bubble said...


Excellent comments. Thanks!

I sure hope this thing does not get passed...let these entities fail and we will all be better off in the future.

Jill Stewart said...

Aren´t you a bit harsh? I´m a Canadian, so I have a different perspective. As Otherside... said, Bush is an easy target, but it is the economical society that brought this. The US had the softest and most liberal regulations for the whole mortgage and financial sector in the "capitalist" world and in time, this was bound to happen. And as a realtor, I agree with Bakonewbie. Our government was on the same path but after seeing what happened to the US it luckily realized it´s mistake and corrected it, or at least tried to some success.
Anyways, I am hopeful that things will get better. I hate to see innocent people suffer.

Steve said...

We are already in a progressive tax system where the top 20% of income earners bear 80% of the tax load. It's already unfair in that if manage to be successful then not only do you pay more as a percentage of your income, but you get to pay a higher percentage. I know people who pay almost 50 cents on the dollar in taxes. You consider this fair that because they make a lot of money? Seems counterproductive to me. The real problem with our financial system is that average person is ignorant to wise financial practice. We need to teach more common sense stuff like this in school. A more educated population in this regard will equal a more stable economy. My 2 cents

Quote: Funny how many people say they hate Obama since he seems 'socialist': I've got news for them, what they've seen under Bush is FAR WORSE for them than ANYTHING they'd see under Obama! Unless you're making over $250k a year, you have nothing to fear under Obama (who wants to make the rich actually PAY their share of taxes, after decades of being able to side-step taxes). IF you're making this much cash, then YES, you'd be better off voting for McCain (who wants to keep things status quo).