The IUSB Vision Weblog

The way to crush the middle class is to grind them between the millstones of taxation and inflation. – Vladimir Lenin

Is the Bail-out mismanagement just a way to nationalize the banks? – UPDATED!

Posted by iusbvision on March 22, 2009

This author is not big on conspiracy theories so it is not our intention to create one. With that said we have been lied to very deliberately about the bailouts while obvious ways to help alleviate the problem are being passed up. People are suffering and there is no honest reason for it. If one had reasons other than the best intentions for the folks, the actions taken by our government make a lot more sense and this writer takes no pleasure in saying it.

Step 1:

Before the first bailout, as we reported HERE, we were told by former Treasury Secretary Hank Paulsen that the billions we spent on the first round of bailouts would be to buy up “at risk mortgages” so the government could renegotiate with the home owners to pay the government back over a longer period. Think of it as like paying a government student loan.

After the money was appropriated by Congress, the government reversed itself and decided that people like you and me who needed some mortgage help weren’t going to get it. Instead the government started picking winners and losers by using your money to buy stock in certain banks, essentially becoming part owners in them. Winner banks often used those billions and to buy up the banks that the government decided to not give money too.

Government is taking increased control over the banks they chose to survive.

There is no way to put this any other way. Your government lied to you.

Step 2:

All of the experts said that suspending the “mark to market rules” would increase the value of mortgage assets to their approximate value instead of a value of ZERO as the rules demand. This way banks would have more assets on balance and not be forced to fail in the numbers that have for being over leveraged.

What are “mark to market rules”?

What it does, according to federal accounting rules, is artificially lower the value of an asset or security that has lost value and artificially inflates an asset’s or security’s value when the market is going up. So when these mortgage securities crashed companies had to say they were worth nothing (because no one wanted to buy them) in spite of the fact that there is a house there that has some value. This problem was a real factor in why things crashed so quickly because it lowered the liquidity rating and solvency rating of those assets artificially.

When the housing market was going up the companies holding them had their rating inflated by them, making it all look dandy on paper and when they crashed they had their rating set artificially low and the company fell below solvency standards.

The experts have been screaming for this one little change, which could be done with the stroke of a pen by the government since September. So why not do this easy fix if almost everyone agrees that this would help a great deal?

This fix, combined with buying up troubled mortgage assets, would have went a long way into bring the banks solvent again, and since the mortgage securities would have value and people would see the light at the end of the tunnel for getting those mortgages paid, the impact on companies like AIG who issued credit default swaps that were harmed by the mortgage securities value being lowered to ZERO would have been mitigated.

Step 3:

As we reported HERE. Between the Federal Reserve, the Treasury and Congress we have spent, or are in the process of spending, $9 trillion on these bailouts; government buying up banks and taking an 80% share of companies like AIG. – UPDATE: now over 12 Trillion – LINK.

This is enough money to pay off 90% of every mortgage in the United States. If government did that instead of what they are doing now it would help bring the banking and credit crisis to an end. But the government didn’t even have to go thar far; like we said if the government had just bought all the at risk mortgages and offered some smart mortgage assistance this would have been a much better solution  than what we have now for regular folks, but it would not have fixed it so the government could take such large ownership stakes and control over the banks.

Step 4:

When the Obama Administration finally got around to talking about helping regular folks like you and me with mortgage assistance, they tossed up a pathetic number like $50 Billion in assistance. The plan is structured so that assistance would mostly go to those who tried to scam the system; those who lied about their income or ability to pay, or those who over leveraged themselves trying to make a fast buck with what is known as “house-flipping”.

This is why Rick Santelli & Larry Kudlow (LINK) and Jim Cramer & Pete Morici (LINK) had a fit, because they knew this plan was bogus and unfair. If you followed the two previous links (and you should and be sure to watch the video’s there) they both say that dealing with the housing issue is the first and highest priority, and that is what is obviously proved to be the governments lowest priority.

Housing is the #1 problem, yet instead of focusing on that they are spending your money to take control of the banks.

Feb 11, we posted this video (LINK) on how to help fix housing:

I loved it, so will you. – This video also tells you step by step – in a fun way, how to fix the housing industry. Any good student of economics can tell you how to do it, so why isn’t Washington even addressing it seriously?

When there are a ton of foreclosures, too much supply, low consumer confidence resulting in low demand how do you fix it – you raise the demand. How do you do that? – Watch this video.

Step 5:

So I have been asking myself, have we been scammed and has the government used this crisis, not to help us, but to help them take over the banks. Keep in mind that Fannie Mae and Freddie Mac were government sponsored enterprises and they are a huge part of the reason why we are in the mess we are now.

I have been considering writing this article for a couple of weeks and then a friend sent me the following link form

I was doing some research for a post I’m planning, and came upon an articled entitled “The optimal design of Ponzi schemes in finite economies” which Utpal Bhattacharya wrote in 2001 and published in 2002.  The summary reads as follows:

As no rational agent would be willing to take part in the last round in a finite economy, it is difficult to design Ponzi schemes that are certain to explode. This paper argues that if agents correctly believe in the possibility of a partial bailout when a gigantic Ponzi scheme collapses, and they recognize that a bailout is tantamount to a redistribution of wealth from non-participants to participants, it may be rational for agents to participate, even if they know that it is the last round. We model a political economy where an unscrupulous profit-maximizing promoter can design gigantic Ponzi schemes to cynically exploit this “too big to fail” doctrine.We point to the fact that some of the spectacular Ponzi schemes in history occurred at times where and when such political economies existed-France (1719), Britain (1720), Russia (1994), and Albania (1997).

If the language I’ve highlighted sounds familiar, it should, because it accurately predicts both the economic collapse and the bailout mentality that followed. Someone give Bhattacharya a Nobel Prize for economics, because he nailed it.

One can only wonder now if it was pure happenstance that things played out as they did, or if rational actors were gambling on the bailout Bhattacharya predicted. 


Step 6:

So does my argument have merit or am I just connecting the dots in a way to put the very worst spin on things and an I being foolish to suspect that the government is using this crisis to take further control of the private sector… I have been asking myself that question for two weeks and then I saw this…..

Now Obama is proposing to take even more control of ALL companies government wishes LINK :

The Obama administration will call for increased oversight of executive pay at all banks, Wall Street firms and possibly other companies as part of a sweeping plan to overhaul financial regulation, government officials said.

The new rules will cover all financial institutions, including those not now covered by any pay rules because they are not receiving U.S. government bailout money. Officials say the rules could also be applied more broadly to publicly traded companies, which already report about some executive pay practices to the Securities and Exchange Commission. Last month, as part of the stimulus package, Congress barred top executives at large banks getting rescue money from receiving bonuses exceeding one-third of their annual pay.

So all of this, $9 Trillion in the hole, plans to take more government control and we STILL have gotten no meaningful mortgage assistance and the housing industry problem has STILL gotten no serious attention. How much help have you gotten from these trillions spent?

UPDATE– Stuart Varney – European Financial news Analyst for Fox News –

UPDATE II The administration came out today with a new plan to help the housing and mortgage industry. It is risky and depends a great deal on the private sector’s willingness to take risk now, but it is a far better plan than the first one they floated. Since the administration put out a plan that can at least be considered seriously the stock market rallied today. We will get more details soon. LINK.

UPDATE III– Eric Cantor released his analysis of the mortgage toxic asset plan as released by Treasury Sec. Tim Geithner. He gives the same analysis that we here at IUSB Vision gave in update II. LINK There is just not enough incentive with this setup for the private investor to take the risk. The other part is that government actions are SO unpredictable lately who wants to risk their money partnering with the feds? They can change the rules of the game and you are powerless.

UPDATE IVNew York Times:

U.S. Seeks Expanded Power to Seize Firms
Goal Is to Limit Risk to Broader Economy

By Binyamin Appelbaum and David Cho
Washington Post Staff Writers
Tuesday, March 24, 2009; A01

The Obama administration is considering asking Congress to give the Treasury secretary unprecedented powers to initiate the seizure of non-bank financial companies, such as large insurers, investment firms and hedge funds, whose collapse would damage the broader economy, according to an administration document.

The government at present has the authority to seize only banks.

Giving the Treasury secretary authority over a broader range of companies would mark a significant shift from the existing model of financial regulation, which relies on independent agencies that are shielded from the political process. The Treasury secretary, a member of the president’s Cabinet, would exercise the new powers in consultation with the White House, the Federal Reserve and other regulators, according to the document.

Folks, where are all the far left commenter’s screaming FASCIST? I ask that question because the government is using a crisis to bring the private sector and the banks into the  government. By doing it this way private business keeps its form and appearance while becoming a part of the state. They will be a part of the state because the feds will have such a degree of control, and have such an ability to punish them for political reasons that what ever the government wants to do these parts of the private sector will have little choice but to be cheerleaders for it. Who was the last leader to engage in this kind of behavior?

Mini-UPDATE – Ed Morrissey at comments on this story HERE. Go read it.

Mini-UPDATE II – Speaking of uttering the word fascism, is also reporting that Obama campaign people are going door to door asking people to sign a pledge to him. Let’s put it this way, you are being asked to sign a pledge to a leader with two of his minions at your door.

Mini-UPDATE III – A friend just sent me this video link. Former Clinton Advisor Dick Morris says Obama is trying to get control of the banks. “This is a well thought out plan for bank nationalization”.

UPDATE V – Treasury realeases his proposed legislation to sieze companies it sees as a threat to the economy.

Talk about a plan that is ripe for abuse and what about the constitutions limits on government taking.

3 Responses to “Is the Bail-out mismanagement just a way to nationalize the banks? – UPDATED!”

  1. […] by iusbvision on April 4, 2009 We told you this was the plan HERE. We gave you the evidence and then with updates the evidence piled on. Now the Wall Street Journal […]

  2. 1337cshacker said

    Godspeed when it hit’s the fan everyone.

  3. Woody, youre into a little kid anymore. Don;t make Marc who strikes up a libertarian attitude around here have to monitor you and scrub off your puke from these walls. Can you at least show a minimum level of decency here and stop with all child molester insinuations? No one comes here to read that stuff. Thanks

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