by Josh Sidman
April 8, 2009
The “almost” is due to my firm belief that electing John McCain would have led to World War III. That being said, in terms of the economy, I don’t believe McCain could possibly have done worse than Obama is doing.
Those who read my blog regularly may have noticed that despite supporting Obama in the election, I quickly became critical of him when he took office. I felt somewhat bad about doing so – as if he deserved some kind of “grace period”. So, although I made a number of criticisms, I felt conflicted – like maybe I was being a little too hard on the guy. As of now though, I am convinced that Obama is either a) incompetent, or b) a bought-and-paid-for stooge of the banking industry.
The new Geithner Plan is an unmitigated disaster. I haven’t heard one reasonable defense of the glaring injustices at the heart of this plan. In essence, the plan boils down to an illegal subversion of Congress in order to improperly transfer wealth from the general public to large financial institutions. There are two aspects of the plan that ought to outrage every citizen of this country. The first is how the plan works, and the second is how the Administration is using the FDIC to circumvent Congress.
The essence of the plan is to encourage large financial institutions to make enormous bets which, if they turn out well will earn giant profits, and if they turn out badly will dump the losses on the American public. The plan selects a few large institutions and allows them to buy the so-called “toxic assets”, but it only requires them to put up around 5% of the purchase price (while the companies and the government share the profits 50/50). The government then guarantees that it will absorb 90% of any losses on these investments. (Keep in mind, this opportunity isn’t available to you or me – or even to medium-sized banks – its only for the very largest institutions.)
As an analogy, imagine that I was offered the opportunity to bet $100 on the Super Bowl, but I only had to put up $5 of my own money. If I win, I get $50 (the other $50 goes to the bookie), and if I lose I’m only out my original $5. With such ridiculous terms, I don’t need to be a football expert to make a profitable bet. In fact, I don’t even need to know who’s playing.
So, of course the Geithner Plan will generate a lot of enthusiasm among financial institutions. They are being offered the bonanza of a lifetime. But the truly disgusting aspect of the plan is the way it is implemented at the governmental level.
As everyone knows, the FDIC has one basic function. It insures depositors against bank failures. The Geithner Plan gives the FDIC a function that it was never intended to have. It uses the FDIC as the agency that will backstop the $1 trillion in toxic-asset purchases. The reason for doing so is that it enables the Administration to guarantee the asset purchases without the approval of Congress.
And hey, what about the recent talk of the FDIC itself becoming insolvent? How is a nearly insolvent agency supposed to backstop over a trillion dollars of highly questionable assets? Well, obviously it can’t, but we all know what will happen if push comes to shove. If the FDIC runs out of money, Congress will have no choice but to recapitalize it. The alternative would be financial Armageddon.
Truly, this kind of disregard for our system of checks-and-balances is every bit as blatant as the abuses of the Bush Administration. All I can say is, Mr. Obama, I am very disappointed in you.