Bailout: We're All Socialists Now

We're all socialists now.

With a government Wall Street bailout package larger than the annual budget of Homeland Security, Social Security or the Defense Department —it is pretty deluded to believe otherwise.

And then they loaned $25 billion to the moribund auto industry, since SUV's are not selling these days, and they continue to get their butts wiped by Toyota, Honda, et al.

I am no longer going to argue that it is necessary for the government to live within its means. If people want to bring in Obama and all his spiffy programs—how can anyone tell them with a straight face we can't afford it?

If people want to delude themselves into believing that McCain is going to save the day by scrubbing a few earmarks, while beefing up the military—that's fine.

We will pay the price when the dollar tanks—they always say an alchie has to hit rock bottom before they can be helped.

My promise to you dear readers is I will not mention this bailout again—until it becomes obvious it is ineffective and detrimental. Then I will not be able to resist an “I told you so” moment and will link back to this post and here and here and here and here and here and here.

On September 18 Ben Bernanke and Hank Paulson stood on the precipice and looked into the abyss and saw the collapse of America. The reason was a tightening up of the commercial paper market, which if allowed to continue, industry would have to cut back--- throwing us into a recession.

Well, the statistics of the last two weeks are not really all that ominous.

For those with less than perfect credit the interest rate on commercial paper jumped from about 2% to as high as 4.5%.

The size of the commercial paper market has shrunk by about 6% -- $110 billion, to $1.7 trillion –not an insignificant sum. And some of that reduction is due to companies switching to long term debt.

We are really not in danger of the ATM's running out of money or our credit cards being denied. My cousin is a banker in Seattle. He specializes in small business loans. I was talking with him on Friday, and he had just got home from doing a three million dollar loan to a new customer.

There is much greater panic in the Halls of Washington then on Wall Street or Main Street.

As smart as they are, Ben Bernanke and Hank Paulson are not the repository of all wisdom in the world. One hundred economists, from various universities, are on record opposing this bailout.

In order to evaluate the value of Messrs. Bernanke and Paulson's opinion you have to take in account where these two gentlemen come from.

When I first saw Wall Street I was shocked---it is a little tiny alleyway—most unimpressive--almost always in the dark , due to the high buildings that shade it. I turned to my father and asked “That's it?” The point is, it is an intimate hood—they all eat at the same delis and drink at the same bars.

Hank Paulson comes from that life .In fact he was the CEO of Golden Sucks. He, like everyone on Wall Street, see themselves as the center of the financial world. What is good for them is good for America and the world. Vice versa bad stuff.

Osama bin Laden knew this when he targeted the financial center of America. 9-11 would not have had anywhere near the impact it did if it had happened in Boulder, Colorado or Oklahoma City. Indeed, the stock market barely blipped when Oklahoma City's federal building was bombed.

But, amongst the other evil it did to America, the crash in Wall Street's backyard caused investors to crash the market. The Fed, headed by the “Man Who Saved the World” , lowered interest rates and encouraged mortgage backed securities and the wave of credit, debased dollars and empty profits that were bound to come tumbling down some day.

But, none of this was necessary. Yes the folks in New York were bummed out, but the financial and industrial infrastructure of America remained unchanged.

So when Paulson sees his buddies, the Masters of the Universe, hurting-- he sees the end of the world—it would be strange if he did not feel that way. Paulson feels it is essential for the government to help them out--it's crony socialism.

Bernanke is a wonky professor. He has devoted his life to the study of how the Great Depression could have been avoided. For his life to have meaning he is going to do whatever he can to avoid a recession on his watch.

His theory (which is far from universally accepted by economists)is that if the Fed had lowered interest rates earlier after the crash of 1929 and there had been greater government spending—the problems on Wall Street would not have spread to the rest of the economy, and the depression would have been avoided. He is going to keep spending and debasing the currency in an existential effort to avoid a fatal repudiation of all that he stands for.

And so here we are.

George Bush has shown a remarkable gift in getting Congress (including the Democrats) to go along with his disastrous policies e.g. No Child Left Behind, Patriot Act, Medicare Drug Insurance, Iraq War, Protect America Act, Military Commissions Act, telecom amnesty....

and now this.

A sorry lot of politicians.

And a sad day for America.