The hubris of assuming that all you need to do to make a profit is find a spread between borrowed and lent funds should sound familiar-- that's how Wall Street (with a little grease from the Fed) got us into apocalyptic trouble.
So... Congress is going to take over the financial industry's disastrous investments, and their disastrous methods, and then, being the nation's experts on profit, quickly turn a profit. It's only a matter of deciding how to divvy up the loot.
Mutual fund manager John Hussman points out that if the Paulson plan means buying the distressed assets at distressed prices, then balance sheet deterioration continues: "The only way that buying the questionable assets will increase capital on the liability side of the balance sheet is if the Treasury overpays for them."
In other words, you can't have it both ways-- will it be a bailout, and lose money, or will it fail in its purported mission, and make a profit? (This is politics-- it'll lose money.)
But after all, there's no other choice, right? Without money and credit created out of nothing so that we have exponentially expanding debt as a stable base for the economy, and a congress to direct it all, there'd clearly be no economic activity at all. We'd all sit on our butts, suffering C-Span withdrawals-- building, creating and doing nothing.
The few lonely voices who predicted this credit collapse years ago, are now even more lonely. Jim Rogers and Peter Schiff, for example, say that doing nothing is indeed an option-- the best of a lot of bad options. American T.V. bookings for them appear to have actually gone down.
Producers had booked them in the past to keep panel discussions lively. It wasn't possible that they could actually be right (after all, they were saying bad things about Wall Street and government). Now it's either too embarrassing or too scary to invite them back. The expanded crisis coverage is dominated instead by those analysts who, with stunning brain-deadness, were forecasting even two months ago that there wouldn't be a recession. By and large it's these incorrect forecasters now demanding our attention again to tell us "there's no other choice".
The old saw that if you're in a hole, the first thing is to stop digging, can't be heard over the sound of turning shovels. Congress will manage to stagger into some sort of active crisis role. A bad bailout package is unlikely to be their last effort to throw sand in the gears, but they can always unload their failures on "the free market" (which they badly and intensively regulate).
Copyright (c) 2008 Les Lafave
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Les Lafave http://www.themaestrosrep.org The true story of how the term "free market" became history's greatest oxymoron (and some of the morons who oxed it).
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