Bail Me Out

Okay, so everyone’s asking what I think of the bailout. Let me get this on the record: I don’t know. The fact is, nobody knows. That’s one really, really good reason to vote “no”.

Most people are a lot like me; they don’t really know what the bailout contains, so they’re generally opposed to it because this is not what government is supposed to be doing (or, alternatively, this IS what government is supposed to be doing, but it should be doing it for ME, and not for other people, depending on your home base on the political spectrum). But they also recognize that something is very, very wrong with the world financial system, and the only people that seem interested or capable of doing something about it are the people in Congress. So we’d like to see something happen, and sooner rather than later.

Several comments need to be made here:

1. It’s silly, and I mean really silly, to blame Republicans for the bailout not passing. If you’re Speaker of the House, you have to get more than 60% of your own party on board. No, the GOP isn’t helping you, or the President, who is supposed to be a member of their party. Guess what? Right now he’s ideologically closer to you than to them, Nancy, a point which I guarantee you won’t be emphasizing in the next 5 weeks.

2. Early reaction is that the Republicans are going to catch it for voting this thing down. Nah. There are two reasons this is incorrect: one, the fact is that most of the nation, and by far the majority of people likely to be voting in November, were not supporting this bill, and two, something is finally going to get passed, and if it’s even marginally better than what failed, the GOP comes off looking like Horatio at the Bridge. This will not be good for the Democrats.

3. There is a lot being made of how this bill would cost taxpayers $700 billion. This is just silly. It wouldn’t cost even close to that much. [note: I am not saying this to support the bailout. I am saying it because it is true. I don't like winning arguments using bad facts or bad logic, even if I can win that way. There are reasons not to vote for the bailout, but this isn't one of them.] The government would be buying assets (at least some of what they spend will buy straight mortgages, for instance), and those assets have value. In fact, they almost certainly have greater value than their cost. I predict that if the bailout finally passes, that the government will eventually turn a substantial profit on the deal. This is actually worse than if the government lost money, and I’ll elaborate below.

4. There is at least one plan I have heard that makes much more sense (I think) than what was voted down on Monday. That plan would still authorize the expenditure of hundreds of billions, but would require that those billions be spent exclusively on the whole mortgage notes being held by banks, and not on the Collateralized Debt Obligations (CDOs)those mortgages ostensibly back, much less other debt that banks are holding. This does several positive things, in my opinion. First, it allows the government to demonstrably spend our money on things with real value. Not 100% of face value, I grant this, but some value. Even houses in downtown Detroit or suburban Cleveland have some value. The mortgages can be bought cheap and the value maximized by, second, negotiating the terms of the note with the homeowner when he’s in default, to allow him to stay in the house. In a rising market, foreclosure is a good option for recovery of value. In a declining market, it sucks. It not only loses immediate value on the note itself, but it exacerbates the decline of property value across the board, further harming the asset value of your other mortgages. The government has been yammering at mortgage servicers to undertake this negotiative process; this plan would allow the government to just do it themselves. Second sub a, it would put shims under dropping property values by reducing foreclosures. Third, it would pour liquid cash into banks, which is desperately needed, and fourth, it would put a floor under the CDOs, because the bad mortgages that have destroyed their value would now be backstopped by the government. Those notes would therefore begin to trade again, and the machine would re-start.

This plan, I suspect, has no possible chance of being enacted. It would still have two bad effects; one, it would give government a huge windfall if it did its job properly and two, it still isn’t what government should be doing with taxpayer money. But since it is going to do something with it, this seems the least harmful in the long run.

5. When the government makes money on an investment, it spend it on some pet project it couldn’t get taxpayers to back. This is true at every level of government. Did you know that the Chrysler bailout in the 80s produced a $500 million windfall? No? YOu don’t remember getting a check for your share? Darn right you don’t. And if the government succeeds in getting this bailout to pass, and if it works, the government will get a profit that will dwarf the Chrysler windfall and make Exxon-Mobil look like a kid’s lemonade stand. If the government gets these assets at .20 on the dollar, which seems likely, and they are worth .45 on the dollar, which, if the bailout is successful, also seems likely, the government will make a trillion-dollar profit. That money will not be paid out to you and me. It will instead be used to fund all the pet projects Congress can’t get popular support for, like, most certainly, universal health care, among many many others. It will also lead Congress to believe that other intervention in other markets can have the same effect, and what you will get is socialism on a grand scale and the destruction of the free world. I do, in fact, predict that this is what will happen.

6. Europe is supposed to be immune to this cycle of crash and boom, because of its superior controls (read: socialism) provided by the government. Haha. Watch the news. The problems in Europe are worse, and they have no way to fight them. The EuroFed is only supposed to keep inflation in check, and has no mandate to stabilize markets. Oh, inflation is in check all right. It usually is when you have rising unemployment. The EU needs a bailout package as badly as we do, but they don’t have any mechanism for getting one.

7. From a free-market perspective, the best thing to do is nothing at all, or to repeal some of the stupid regulations that contributed mightily to the current crisis. If the government will stop “rescuing” some things and not rescuing others, so that everyone knows they have to win or lose by these rules that exist right now, things will get worse very fast and better starting fairly shortly. I will lose my business, but I’m volunteering to do that if it will help convince the government to force the market to deal with its own problems. I’m not advocating some nebulous “hard time” for others; this would be my own financial ruin, despite my not having contributed in any way to the crisis. But it’s the right thing and the best thing.

Instead, what we’ll do is keep the comatose patient alive until all the organs fail at once and we have global meltdown and blood in the streets.

8. This brings me to the religious portion of this post, which you may skip if you don’t care for that sort of thing. We know that this kind of financial meltdown is going to happen eventually. Most of us will have no idea it’s happening until it’s too late, which is why we are advised to be ready at all times. As the canary in the coalmine, so to speak, let me say that I do not think that this is the “big one”. I think this is a head fake. It is a very clear, very obvious, somewhat painful warning that God is not kidding around when He tells us to be ready. But it is not going to be the beginning of the end. It is, however, the beginning of the beginning of the end. It is the day and a night and a day with no darkness. Right now, it’s really obvious that the warnings we’ve been given to prepare are serious, but the signs will fade and things will go back to “normal”, and we will forget, and the shock will be somewhat complete when, a few years from now, we get the three days of darkness and the tempests and the floods and the earthquakes. DO NOT FORGET. No matter what semblance of “normalcy” we get from whatever bailout passes, we must not forget. Get out of debt. Get food and water stored up. Lean on Christ and come to know Him well. Get close to the Spirit and listen to his voice. We have been warned.

And that’s it for the longest post of my career. Let the comment wars begin.

3 Responses to “Bail Me Out”

  • Alison Wonderland says:

    Ooo, comment wars! And I have a front row seat!

    Oh and right on, brother!

  • Scott says:

    You totally lost me on the CDO thing, but I’m sure it was right on point as was the rest of the post. Glad to know you don’t think this is the “big one” because you and mom are the two people I’m counting on to let me know when it is. You should make up a rate watch for that!

  • Cj says:

    You’re counting on ME for that? Dude, you can do better than that. Mom, yeah, whether yours or mine, will do very nicely. But me? I hope to be completely oblivious when it happens, puttering around in my garden.

    Thanks for the kind words.

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