In the latest installment of insanity relating to the financial crisis, a New York Times article says the Obama administration is encouraging large investment companies to create bailout funds similar to the war bonds of World War I.
"The idea is that these investments, akin to mutual funds that buy stocks and bonds, would give ordinary Americans a chance to profit from the bailouts that are being financed by their tax dollars."
This is an opportunity to forge an alliance between Main Street, Wall Street and K Street," said Steven A. Baffico, an executive at BlackRock, referring to the Washington address of many lobbying firms. BlackRock, a giant money management firm, is playing a central role in the government’s efforts and is considering creating a bailout fund. It’s giving the guy on Main Street an equal seat at the table next to the big guys, he said.
An equal seat at the table?!? I’ve got two words for Steven Baffico: F**k You.
Yeah okay, me pumping 100 dollars into some bailout mutual fund is going to give me an equal seat at the table to the Masters of the Universe. But before I even get into that, I have another question for you Steven, WHY DON’T I ALREADY HAVE AN EQUAL SEAT AT THE TABLE? What do the American people have to do exactly? What a trillion dollars and counting wasn’t enough? My fellow taxpayers and I basically own the financial industry but that means shit apparently. What amount of money will it take for the concerns of the American people to be placed on equal footing with those of Wall St.? Never mind being placed above Wall Street’s concerns, just once I would like to see politicians pay as much deference to their constituents, as they do kissing ass on Wall St. I used to think it was the money but now we are the ones shelling out the cash and we are still getting screwed.
Besides the fact that we should already have an equal seat at the table, this is a terrible proposal. Before I go on I have to thank thereisnospoon for posting this diary"The Most Important Financial Crisis Article You Haven't Read."If you have not read the three articles he cites and his own analysis you really should, they greatly increased my knowledge of the financial crisis. The times article explains the proposal,
The funds, the thinking goes, would buy troubled mortgage securities from banks, enabling the lenders to make the loans that are needed to rekindle the economy. Many of the loans that back these securities were made during the subprime era. If all goes well, the funds will eventually sell the investments at a profit.
If all goes well.... Who at this point really thinks all is going to go well? This is all based on the fact that we know how much these toxic assets are worth and that we can get some value out of them. The problem is, as thereisnospoon points out in his diary, we don’t.
Nobody has any idea what these things are worth. No one EVER DID. And without Li's hopelessly naive Gaussian copula formula, an entirely new method of calculating the value of these "toxic assets" will have to be found. But like trying to predict the long-term weather of any given local area, correlative influences and a lack of relevant predictive data make that task essentially impossible--almost as impossible as, say, attempting to predict the stock market or the probability that the Knicks will cover the spread against the Lakers on any given night.
If you haven’t read his diary that won’t make a lot of sense, but the point is Wall St. and the Government is asking the taxpayer to take a massive risk again. We are just supposed to trust them, AGAIN. The government is supposedly going to see returns from the ownership stake that is taken in these companies, the taxpayer will benefit that way, we should not have to expose our personal income to losses.
The audacity of this plan is astounding. Think about the sequence of events that lead to this. You are given a loan on your house that you probably should not have been given. You default on the loan. You lose your house. Bank A had a CDS on a CDO from your loan from AIG. AIG owes them the full value of your loan. AIG did this too many times so they are on the verge of bankruptcy. They receive a bailout from your taxpayer money. Your tax dollars are going to pay back Bank A for a loan they never should have given you in the first place. Meanwhile all of this is wreaking havoc on the stock market and you have lost most of the value in your current mutual funds and 401k.
So after you have lost your house, your tax dollars, and a significant portion of your savings they ask you to invest in them again. And for what? Well the end of the Times article gives us a clue,
BlackRock and Pimco, Legg Mason, another big mutual fund company, and BNY Mellon Asset Management, a big asset manager, have said they are interested in starting retail investment funds to participate in the government’s plan.
For the investment managers, the benefits are potentially large. These big firms can charge healthy fees to investors for taking part. They will also have the marketing prestige of being the firms the government turns to at a time of crisis to help sort out the country’s financial mess.
Fool me once ...