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Mom was right "Never light a match near a politician. Poof!" Notice all the blowhard politicians running around like chickens with their heads cut off. Some of these guys are responsible for some aspect of this financial mess in the first place and have no business trying to help us out of this mess now.
Say we go into business together. You have to dig the earth, plant the seeds, plow the fields and reap the harvest. All I have to do is take the product to the market and sell it and I get to keep 100% of the profits. You would tell me to take a hike. Why then does the government think the taxpayers should bail out Wall Street and it gets to keep 100% of the profits?
If Main Street has to bail out Wall Street then the taxpayers should get 100% of the profits.
Warren Buffett lent $3 billion to General Electric and $5 billion to Goldman Sachs. He invested $3 billion in GE's preferred stock. This meant that he was last in line should GE fail and first I line if they showed a profit. The preferred stock pays a dividend of 10 percent, and GE can purchase the shares back from Buffett after three years by paying a 10 percent premium of $300 million for a total of $3.3 billion.
But the icing on the cake is when GE's stock rebounds. Buffett's Berkshire Hathaway is receiving warrants to purchase $3 billion worth of GE common stock for $22.25 a share, at any time over the next five years. His investment of $5 billion in Goldman Sachs is also a sweetheart deal for him.
AIG, Freddie Mac and Fannie Mae should be taken over and the taxpayers should get 100% of the profit in the form of dividends. We could call these dividends something patriotic like American Liberty Dividends. We can negotiate a deal with terms similar or better than the deal Buffett arranged with GE and Goldman Sachs. The taxpayer could be a preferred shareholder: the first in line in the event of a profit and the last in line in the event of a failure. Instead of it being a rescue or a bailout – it can be a business deal that favors the taxpayer.
This will help invigorate the economy by putting money into the taxpayer's hands. They can purchase appliances, invest, save, buy cars etc and this in turn will help create jobs, banks will be more forthcoming to lend money, all of which is much better than the one-time Bush $600 tax-rebate deal. What this proposal also does that is not being addressed right now is that it will slow down foreclosures. People who are in trouble with their home loans will have some money from these dividends to right themselves or at least buy some more time. More importantly, perhaps, is that it allows the housing sector to find the bottom and allows it to recover naturally without false intervention from the government which always leads to unintended disastrous consequences.
Now if you want Barney Frank and Christopher Dodd to implement this program go to the back of the classroom and be quiet. Instead, let's form a dream-team to implement this and manage this process. First, get Warren Buffett and Pimco's guru Bill Gross ( he already said yes to helping) to handle the financial aspects and terms of this deal. Then bring aboard Jack Welsh, former head of General Electric to manage this complex reversal. Sole accountability for its success or failure with only a yes or no vote from congress and no pork.
Their combined salaries would be $0.
Wall Street will love the deal and this will begin the healing needed to take place. But we all need to be reminded that government intervention can and does have negative unintended consequences. Having Janet Reno tell the banks that they better lend more money for homes to people who could not afford it in the first place is a recipe for disaster. Politically speaking, the republicans can shake their fingers at the democrats for implementing such a foolish plan. But before the GOP bursts its inflated ego, the democrats can bring out their matchbooks and remind the GOP that it all happened on their watch. POOF!
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