Passing the Buck
A man with a briefcase can steal millions
more than any man with a gun
The best, first stimulus may be money policy
Ranger is not an economist -- that is only one aspect of modern America he does not understand -- but he really does not understand the interest-only mortgages that were so popular and which helped fuel the subprime mortgage meltdown.
The subprime mortgages were a Ponzi scheme enacted by bankers and facilitated by government encouragment and negligence. The mortgagee could not afford a prime mortgage or saw fit not to use one (flipping) based upon the assumption that holding the property for a short period would ride the spiralling market to a big paper profit. Money for nothing.
It was part of a New America where profits grew on mortgages that one could not afford, yet felt entitled to. Those with interest-only mortgages were making money with funds they didn't have on certificates they could not pay when the imaginary profits failed to materialize. The only way they could pay is if they "flipped" the property, continuing their small part in the pyramid project.
This was all done with government concurrence and sponsorship. The same government that recently indicted Mr. Madoff for doing the very same thing.
When it was reported A.I.G. would pay $165 million in bonuses to executives in the financial products division -- the unit that brought the company to the brink of collapse last year -- Edward M. Liddy, the government-appointed chairman of A.I.G., said "at least some bonuses were needed to keep the most skilled executives" (AIG Bonuses).
Liddy wrote Treasury secretary Geithner, “We cannot attract and retain the best and the brightest talent to lead and staff the A.I.G. businesses — which are now being operated principally on behalf of American taxpayers — if employees believe their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury”
One could substitute "slimiest weasels" for best and brightest. (The financial products division "wrote trillions of dollars’ worth of credit-default swaps that protected investors from defaults on bonds backed in many cases by subprime mortgages.") Maybe we need to let the rats jump ship.
Yet America hopes not to rock the boat too much. It had a great scheme going for a while, until they didn't. Richard Cohen wrote in the WaPo, "The financial instruments that Wall Street firms were both peddling and buying are the functional equivalent of particle physics. To this day, no one knows their true worth" (Don't Blame Jim Cramer).
Many would like to build the same house up again. However, like so many children's building blocks, they are destined to tumble down again.
It seems to Ranger that the stimulus package and bailouts are exactly the same thing as interest-free loans to private borrowers. Our elected leaders are attempting to build or salvage a national economy with money that we do not have on businesses which have already failed, hoping that when the note comes due the people will be able to absorb the note.
We do not have the money to finance the stimulus program, nor does it appear that any thought is being given to the pay-off on the note -- the looming balloon payment. The printing presses roll on, the national debt increases, and we cannot even pay off the interest.
The U.S. is operating as the citizen who finds himself at the Payday Loan Office, or signing that interest-only mortgage.
What is left to cover the balance due? Politicians always pass the bill, and accountability remains for some down the road moment. This is why Madoff went to jail; his scam caught up with him.
Our national financial policy is like the interest-only mortgage. The $787 Billion is not correcting the core problem. It pays the interest on a loan we cannot amortize.
How do our politicians differ from the infamous Mr. Madoff?