Rest in Peace, Bailout

Apparently our Congressional leadership contracted a virulent strain of common sense today. At least enough were stricken to defeat what may well have been the most ill-conceived fiscal act since , well, ever. While the bailout bill was defeated, it’s narrow margin of competence reveals the severe lack of fiduciary responsibility that exists within the modern body politic.

A Better Plan

The deficiencies of the $700 billion plan are most apparent in the lack of the second part of the plan. That would be the “plan” part. They had the money thing nailed. Someone had said $700 billion. It was a nice round number, so they went with it. After days of haggling over how to waste such a considerable sum, they finally reached an accord on which crook to pay first and proudly assembled to vote away our grandchildren’s livelihood. It was at this point that some maintenance worker shut of the stupid gas being pumped into the building and some semblance of reason began to creep back into the herd and the bill was voted down.

Good riddance to bad rubbish. At best, the bill would have given the frontloaded cronies a great day trade. At worst, it could have fed enough capital into the system to allow the majority holders of the bad debt instruments (the sub-prime CDO’s) the cash infusion to make mass exodus palatable and the resulting financial mayhem that would then ensue would make the last few weeks look like a kindergartner’s paper trade account.

The last thing that needs to happen is a taxpayer funded cash infusion into the debt markets without strict rules for its use and a clear path for the repayment of said taxpayer. The financial whiz kids have already proven that they can not be trusted with other peoples money. The creation of a $360 trillion problem from a $6 trillion bad debt base is ample evidence of the fiscal irresponsibility of the Wall Street fat cat’s.

Plan the Trade, Trade the Plan

Below is an outline of what a responsible effort to correct or at least mitigate the financial crisis should look like. All in my humble opinion, of course.

1. A federal moratorium prohibiting the redemption of the toilet paper sold by Wall Street as investment grade debt for 90 days. An interest rate equal to the inflation rate at implementation of the plan can be applied to sovereigns and mutual fund holders to compensate for the liquidity freeze. This buys our leaders 90 days to find a way out of this mess with some degree of decorum and should soothe the frayed nerves of many of the larger holders of the trash foisted upon them. Cost: Roughly $26 billion.
2. Fire the rascals. Every single one. No severance. No lay off slip. No golden parachute. Void the employment contracts by executive order in the interest of national security and send the bums packing. This mess was created by selling the same asset over and over and over, last time I looked this was still fraud. Once the bums can no longer harm our national financial interests, let the FBI have a field day. Cost: I don’t know. How much does it cost to write an executive order and send a Marshall out to plant a boot in some over dressed backside?
3. Do a forensic accounting of the evolution of the sub-prime waste paper. Track it from origination to current holder. Evaluate the collateral for each loan and roll back the value to the appraised value at origination. Cancel out any amount over appraisal. This is a loss to the originator (the bank) , call it a stupid tax. This revalues the underlying asset to a more realistic level. Cost: Maybe $100 million. Benefit: A real world assessment of the true depth of the problem, and a drastic reduction in the face value of the CDO’s.
4. Evaluate each mortgage under realistic terms. If the mortgage was originated under NINJA terms and the mortgagee has not improved his circumstance enough to afford the debt without federal or state assistance, remove it from the CDO pool. This is a loss to the originator. Call it a stupid tax. Re-write the terms for the mortgages that are current to current market value on a fixed 30 year and give those people a chance. They’ve been busting their butt to have the dream and have done so in the face of a deliberate corporate attempt to make them fail. God bless them all. The NINJA loans that are 90 days or more behind, foreclose and liquidate. Cost: Maybe $50 billion, probably less. Benefit : Actual equity in the CDO pool, and a societal benefit of rewarding those that pull themselves up by the bootstraps and a putting on notice of those that suck at the teat of nanny government. The salad days of Uncle Sugar are over.
5. Congress, you now have 90 days. You have a handle on the scope of the problem. The problem has been reduced to a real world valuation. Now deal with it. It will not be easy, there are no quick fixes to a problem that was years in the making. But we are Americans, as a nation we have faced and defeated adversity every time we tried. Solving this one will take time, effort, thought, and yes, lots of money. In the end though, our economic pillars will be stronger, our noses will be more attuned to sniffing out bull from our corporate and regulatory leaders, and our standing as the global driver of the money boat will be restored.

Illusion or Hallucination

I am not under any illusion that my suggestions will be seen, heard or heeded by anyone that could implement them as a rude starting point for solving the financial crisis we face. I have no clue as to whether this poor attempt at fiscal policy would work or not. I do know that I have written a plan that is more of a plan, at far less taxpayer cost, than the $700 billion Paulson No-plan Plan that was voted down today. While I fully expect congress to enact a bailout plan that royally screws the American taxpayer yet again, it is nice to dream, isn’t it?

God Bless and Good Luck…… We’re going to need both.