Hank a lot (Mother of all Bail-outs)

Over the weekend, Treasury Secretary Hank Paulson deviced a $700 billion bail-out package for all the banks, to take on the underperforming mortgage securities on their balance sheet. Christmas came to the Wall Street early this year. Hank a lot, Paulson!

Most striking is the boldness of Paulson's request. He basically asked for a blank check to do whatever he sees fit. He specifically requested that no court oversight should be allowed! Yeah, we should all trust that Hank Paulson won't do anything hanky panky with his old Wall Street pals. Give me a break! Talking about put a fox to guard hen house!

The reason for the bail out sounded very solid. They have depicted a near apocalyptic outcome if the bailout is not done right now: financial melt down, multi-year depression, loss of jobs, close of factories, end of the civilization as we know it. Fear. No, even more than that. Terror. They want to terrorize all of us into submission (accepting the bailout proposal). I think they have done similar thing very successfully: they have used our fear of terrorism to slowly take away the liberty from us. They have succeeded in doing that. Now they will succeed in taking away our hardly earned savings! American people are gullible sheep! High finance is so complex and who understands it? Let's just trust that these people are doing the right thing and have us taxpayers' interest at their hearts. LOL.

Is this $700 B bail out necessary? Absolutely no. The only argument for the bailout is that: banks have all but stopped lending, even after the Fed vowed to wide open its check book to offer low-interest loans for these banks (through the Fed discount window). So the thinking goes like this: if banks stop lending, economy will grind to a standstill.

Not so fast. As I have pointed out, consumers are de-leveraging: not borrowing! Corporations other than the financial industry are in very good shape. Most of them have sufficient cash cushion to weather the storm. In fact, Microsoft just announced today it is using the cash on its balance sheet to buy back $40 Billion worth of its own stock. So corporation can live without borrowing at least for now.

So it is not end of the world if banks stop lending. Banks will never stop lending anyway. It is their business. If some banks stop doing that, that will cause their own demise. Why would they do that? They are doing it now ONLY TO HOLD THE PUBLIC HOSTAGE. They are acting like cry baby: woo, woo, if you don't bail us out, we will not lend.

We should not cave in. We should not allow them to socialize their losses. When they were making huge profits, they did not ask us to share with them. They dished out hundreds of millions dollars of bonuses to their top executives. Now they are asking us the poor taxpayers to rescue them! Take a hike! You could die. There will be others taking your place! Capitalism does not lack risk takers.


The moral hazard is tremendous. They are all trying to get big so they will be regarded to be too big to fail. Bank of America has bought MBNA, CountryWide, and Merrill Lynch. Wachovia does not want to stay behind. It is trying to buy Morgan Stanley. Nobody wants to end up like poor Lehman, right?

All these banks seem to have a put option written for them against the taxpayers, if you understand what a put option means. This all started from 1998 LTCM bail-out engineered by Alan Greenspan. They used to call it "Greenspan put". More accurately, it should be called "taxpayer put".

Now the $700B bailout package seems to be set in stone. I still think it could work in taxpayers favor if sufficient oversight and accountability are present. We cannot let these banks to dump their bad debts to us at inflated prices. And we also need to make sure we can sell these debts at fair market value later on. If we can accomplish that, the taxpayers may not lose too much in the end. If we allow Hank to do whatever pleases him, then we will have a big bill to pay, for generations to come.

We know American households are broke, and the government is even more broke. We don't have the $700B. We did not have the $39B used to bail out Bear Stearn. Neither the $200B plus for Fannie and Freddie. Nor the $85B for AIG. Where is the money coming from? Printing press. We live in a fiat money system. Worthless paper can turn into green dollars, not so magically. It is a form of stealth tax. We all pay for it, not knowingly. It is reflected in higher prices we pay for food, energy, and everyday stuff. In another word, it is called "inflation". Instead of letting the asset (real estate asset) bubble to burst completely, the Fed is trying to print more money to keep it inflated. No wonder oil price today rocketed up more than $16 to >$120/barrel, largest single jump ever! Hank a lot, Paulson! Way to go Ben!