A Very Special Episode

Here at ICEBERGCARWASH we like to shake things up a bit. So, today, we present you with a guest contributor. As per all things of this nature, ICEBERGCARWASH does not neccesarily endorse, agree or disagree with the contents of this post. And we promise, no one will get drunk, or abused, no parents will divorce, and no main characters will die.....Happy Reading:

The political-financial news becomes more unbelievable every day. The week started out with the blockbuster collapse of iconic Lehman Brothers and the apparent unwillingness of the federal government to stay the event. At the same time, the other shoe, so to speak, was ready to drop. The market reacted in expected capitalist fashion, punishing the bad guys for their poor judgement and finding safer places for their money. Then Richard the Lion hearted comes back to England and saves the country from the evil John Lackland. The federal government decides that AIG is too big to fail and lends it $85 billion dollars in exchange for hefty interest and 80% ownership of the company. Hank Greenberg has the effrontery to wail about “nationalization” while this is the one thing protecting him from the consequence of his buccaneering.

The market is not impressed, realizing that this is just a band-aid and reacts in expected capitalist fashion, punishing the bad guys for their poor judgement and finding safer places for their money. In fact the market is now in panic mode. It continues into the next day, when a late day rumor that the results of all the risks, gambling and irresponsible financial behavior that has enriched many thousands with tens and even hundreds of billions of dollars but has left many investors holding the empty shells of once solid companies, will have no impact on either the risk takers or the investors because the poor beleaguered taxpayers of this country will take all the losses and the perpetrators can keep all their gains. Sort of like OJ Simpson being acquitted and the Goldmans and Browns staring forlornly at Lance Ito.

Is this capitalism?

Let’s go back a bit. Comrades Bush and Paulson felt they should shore up the capital markets by guaranteeing Morgan’s purchase of Bear Stearns at a price that Morgan would probably consider their greatest coup even without the federal guarantee. The professionals of Wall street must really have been laughing up their sleeves at the Soviet style federal incompetence. Then the Saturday night (or Sunday morning) massacre which was the Mexican style takeover of Fannie Mae and Freddie Mac actually got the approval of the vast majority of Americans. Shame on them. You see how greed, the result of corruption, breeds more corruption. At this point, I don’t know what caused the government to sit out the Lehman bankruptcy (anti-semitism some will say) but AIG really was a problem and everyone knew it. If AIG failed it really would bring down the whole house of cards, built on the foundation of free money distributed to anyone who asked for it, no questions asked, as long as there was a piece of real estate, regardless of value, attached to the request. So comrades Bernanke and Paulson, once again decided to open the coffers of the federal government to immunize the financial community from being responsible for their actions. And now, ultimately, seeing that Bush, Bernanke and Paulson are now committed to state capitalism (a la Nazi Germany) they will relieve everyone from further responsibility or culpability for years of criminal mismanagement of funds entrusted to them by others. The taxpayers will again, after only about 30 years, have to pay for losses caused by others even though, at the time of the S & L crisis, we swore it wouldn’t happen again.

Let me remind you of the S & L crisis and its aftermath. It started out the same way as the current crisis. Too much money lent on inadequate collateral. When the government’s Resolution Trust took over, it cost the taxpayers about $80 billion dollars and many of the properties were sold at about 5% of their values, making some individuals and corporations very rich. The government shouldn’t be in business and business should not be involved in public policy.

It’s time for the people who make the mistakes to pay for them themselves, not to slough it off on others. Let them go bankrupt. Let them suffer from their self-inflicted wounds.

Ah, but you say, “where will the liquidity come from?” A good question to which I have a good answer. Every business needs liquidity and the bigger the business, the more cash it needs. The imminent collapse of AIG was perceived, rightly, as a disaster which could bring down the whole structure of corporate America and even the world global economy. The last time I looked, companies like GE, GM, Verizon, Caterpillar, Boeing, Microsoft and thousands of others were still paying dividends to their shareholders. So, seeing that these companies’ welfare is directly related to the need for financial sector companies to keep running, the dividends should be diverted from the shareholders to help shore up the banks’ balance sheets. The taxpayers would not have to pay for business incompetence and those responsible would hurt a bit.

In capitalism, there are rewards for being right, but there has to be pain for being wrong.

-fil