The Mugging of America
By Jim Quinnby
-- - On Wednesday afternoon Harry Reid, Democratic Senate
Majority Leader, spoke the first truthful words from a
politician during this entire crisis:
one knows what to do. We are in new territory here. This is
a different game."
him for this comment. We have been listening to Hank Paulson
tell us that our banking system was sound for over a year. He
was the CEO of Goldman Sachs. He knew the extreme risk taking
that was going on. He was lying to the American public. Today,
he is being hailed as a hero in saving our country. We should be
very careful in declaring men such as Paulson a hero. Union
Colonel Joshua Chamberlin, who led his men in a charge down
Little Round Top at the Battle of Gettysburg and saved the Union
army, is a hero. Hank Paulson, has committed our future
generations to trillions in obligations for the sins of his
buddies on Wall Street. I know many heroes, and Hank Paulson is
Nicolas Taleb poses the following questions.
don't we realize that we are not that capable of predicting?
Why don't we notice the bias that causes us not to realize
that we're not learning from our experiences? Why do we
still keep going as if we understand them?
business leaders and government leaders had learned from the
LTCM collapse and NASDAQ collapse, we would not be experiencing
this current crisis. Instead, Wall Street, Alan Greenspan,
George Bush’s administration, and Congress attempted to put off
the pain of recession by encouraging more risk taking by
companies and citizens. We are now reaping what they have sown.
been a remarkable year. The United States has taken actions that
will change our country forever. They have taken these actions
without citizens voting or Congress passing any laws debated
upon in public view. These actions have taken place behind
closed doors and in conjunction with the bank CEOs who caused
the problems. A multi-millionaire former investment banker,
former professor of economics, and our 1st Harvard
MBA President have committed at least ONE TRILLION
of our future tax dollars to bailing out greedy incompetent
criminal millionaire investment bankers. They have done this to
avert an Armageddon type financial meltdown. I’m reminded of the
rhetoric about weapons of mass destruction before our attack of
Iraq. We needed to attack to avert a future nuclear holocaust.
Why should we believe them now? Hank Paulson and Ben Bernanke’s
commitment of your grandchildren’s future so far is as follows:
& Freddie Mac nationalization
taking bad debt off the books
when the government gives you an estimated cost, it is always
prudent to multiply it by 10 to get closer to the truth.
Let us be
perfectly clear. The U.S. government has no money. We entered
this week with a National Debt of $9.65 trillion. The
deficit for next year will surpass $600 billion. Every dime of
these bailouts will be borrowed. They will be borrowed from
China, Japan, and the Middle East. In an effort to keep our
corrupt financial system afloat, we have sold another piece of
our country. The prestige and status of the U.S. in the eyes of
the world community have suffered a catastrophic non-reversible
decline in the last nine months. "We The People" had absolutely
no say in this decision.
on what has transpired over the last nine months are as follows:
people who made the miscalculations that got the country
into this mess are the same people who did not see it
coming, denied it was a big problem, and have now come up
with the solution to the problem. This should not give
Americans a tremendous feeling of confidence in their
government has used all the missiles in Hank Paulson’s
bazooka. What if it doesn’t work? What next? I shiver at the
Republican ideology of deregulation and free markets has
been discredited and thrown into the scrap heap of history.
The total lack of regulation in the financial industry let
the inmates run the asylum and almost collapsed our
Democratic ideology of believing that every American should
own a home has proven to be one of the stupidest ideas in
the history of our country. The housing implosion, which
continues today, proves that many morons in this country
should rent forever.
current crisis proves that a "village idiot" could have done
less damage to our country if they had been CEO of any of
our financial institutions, rather than the Harvard MBAs now
in charge. Their total lack of foresight, vision, strategy,
or risk management argues for the elimination of the immoral
pay packages of all CEOs. The greed and short-term profit
motives of these CEOs and top executives leads to awful
decision-making with tragic consequences.
Reliance on computer models developed by brilliant
"scientists" that can predict all outcomes in a "Normal
Distribution" world should be discredited at this point.
Human emotions and Black Swans have proven more powerful
than any computer model. How about using thoughtful
conservative assumptions regarding any financial
transaction. I know, that sounds crazy.
Financial institutions should not create instruments that
are so complicated that they can’t even understand them.
to quote Richard Nixon, but when he was told that some
corporate goliath was "too big to fail" he responded, "Tell
it to get smaller." I am tired of hearing that every company
that has a problem is too big to fail. The government cannot
let any company become too big to fail. But, of course they
just encouraged Bank of America to buy Merrill Lynch and
become way too big to fail.
total scrapping of the bond-rating system is in order. The
companies receiving the ratings cannot be compensating the
rating agencies. The false credit ratings misled so many
into a false sense of security and contributed greatly to
this financial debacle.
should be clear to the American people that the $1.255
trillion will be borrowed from the Chinese, Russians,
Japanese, and Middle East. The United States of America is
broke. We have no money. The annual interest charge that the
American people will pay will exceed $60 billion per year,
$164 million per day, $6.8 million per hour.
Americans know, when you borrow from someone, they call the
shots. The reckless mismanagement of our country’s finances
has put us in the position of asking other countries for
favors. We are now begging for capital infusions from China.
The Chinese and Middle Eastern countries know they are
gaining more power, day by day. The U.S. Empire has begun
its long slow decline.
old dilemma for a country was whether they could fund guns
or butter. When the U.S. tried to fund both in the late
1960’s and early 1970’s it resulted in massive inflation and
a stagflation economy. With our current foreign wars,
massive unfunded liabilities, promised tax cuts from both
candidates, and now the greatest bank bailout in history, we
are trying to fund guns, butter, and banks simultaneously.
The massive issuance of Treasury bills should result in much
higher interest rates.
Consumer confidence and trust in their government will fall,
not rise because of the actions taken this week. Your
leaders have lied and misled you. The massive redemptions
from money markets were not panic. It was a rational
response to being misled by bankers that money markets were
safe and could not lose money.
on the actions taken to relieve banks of all their bad debt,
American citizens may come to the conclusion that they don’t
need to honor their own obligations. The moral hazard
message from our leaders is that bad decisions do not have
anyone really think that government will run Fannie,
Freddie, and AIG better than they were run by their previous
management? Will Hank Paulson hire the same Wall Street
cronies to manage his new investment portfolio?
Comparing this new RTC to the original RTC used for the S&L
crisis seems too simplistic. Bill Siedman, head of the
original RTC, described his job as fairly easy and it took
six years to complete. His job was to sell off land from
bankrupt S&Ls. This new RTC will be taking toxic waste
mortgage debt off the books of the banks. I doubt there will
be a line waiting to buy this crap.
congressional leaders like Christopher Dodd, Chuck Schumer,
and Barney Frank in charge during the next term I’m not
confident that we will avoid another negative Black Swan.
They have all shown a complete lack of basic financial
the government ban all selling if the market continues to
fall? Banning short-selling could result in unforeseen
results. China has not banned short selling. We certainly
won’t see any short covering rallies. It is ironic that
naked short selling by Merrill, Lehman, Goldman, and Morgan
Stanley was extremely profitable for these firms over the
last few years.
rhetoric about these programs lasting only until 2010 is a
farce. These programs will end up becoming a permanent
department. Government never contracts. It only expands.
legislation that is slapped together in the midst of a
crisis with an extremely tight timeline will be flawed and
not well thought out. There will be mistakes, omissions and
holes. Let’s hope it doesn’t cause another Black Swan to
our citizens will come to their senses and elect more patriots
like Ron Paul, whose words in Congress on September 10, 2003
foretold the future crisis:
"Despite the long-term damage to the economy inflicted by
the government's interference in the housing market, the
government's policy of diverting capital to other uses
creates a short-term boom in housing. Like all
artificially-created bubbles, the boom in housing prices
cannot last forever. When housing prices fall, homeowners
will experience difficulty as their equity is wiped out.
Furthermore, the holders of the mortgage debt will also have
a loss. These losses will be greater than they would have
otherwise been had government policy not actively encouraged
over-investment in housing. Perhaps the Federal Reserve can
stave off the day of reckoning by purchasing GSE debt and
pumping liquidity into the housing market, but this cannot
hold off the inevitable drop in the housing market forever.
In fact, postponing the necessary, but painful market
corrections will only deepen the inevitable fall. The more
people invested in the market, the greater the effects
across the economy when the bubble bursts."
September 23, 2008
Quinn [send him mail]
is Senior Director of Strategic Planning at an Ivy League
university. This article reflects the personal views of Jim
Quinn. It does not necessarily represent the views of his
employer, and is not sponsored or endorsed by them.
Copyright © 2008
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