"The wealthy, not only by private fraud but also by common laws, do every day pluck and snatch away from the people some part of their daily living. Therefore, when I consider and weigh in my mind these commonwealths which nowadays do flourish, I perceive nothing but a certain conspiracy of rich men in procuring their own commodities under the name and authority of the commonwealth.

They invent and devise all means and crafts, first how to keep safely without fear of losing that which they have unjustly gathered together, and next how to hire and abuse the work and labor of the people for as little money and effort as possible."

Thomas More, Utopia

Wednesday, October 01, 2008

More Common Sense

The following is another interesting take on Paulson's shenanigans from a thread over at Common Dreams:

Paulson’s Great Depression:

It is difficult to believe that Paulson is not intentionally destroying the world economy, since his company, Goldman Sachs has been so intimately involved in setting the stage for this fiasco.

Goldman Sachs was involved in many sub-prime securitizations, and then was instrumental in setting up the ABX index, which Goldman then shorted to death after selling the index to its clients. By shorting the ABX index, Goldman not only made huge profits, but also eliminated all financing for real estate securities by spreading the notion that they had no resale value, because the value “indicated” by the ABX index was so low. The notion of “toxic securities” was sold to the world by Goldman and their confederates. Once new real estate lending was substantially restricted, a broad decline in real estate prices was a certainty, and recently adopted “mark-to-market” accounting rules forced lenders to report balance sheet losses even for loans that were current.
Goldman also helped develop and sell complex securities, that have magnified the extent of the damage done. Collateralized debt obligations and credit default swaps can magnify any actual loss, since there are many more credit default swaps sold than actual loans made. A $1 actual loan loss can become $10 or more of losses to one side of the swap transaction, and $10 or more of gain to the other side of the transaction.
Paulson has made the financial crisis much worse by his publicly stated intention to “punish” some companies. While Bear Stearns was “bailed out”, Lehman was allowed to fail. Fannie and Freddie were “rescued” in a way that arbitrarily removed $10 to $15 billion of capital from banks that had invested in the preferred stock, which then reduced those banks’ lending capacity by $100 billion, making the “credit crisis” much more severe than it was before the “rescue”. Instead of stopping a run on Washington Mutual by providing cash loans, Washington Mutual was unnecessarily liquidated, to demonstrate the urgency to authorize $700 billion to Paulson’s Treasury.

Of course because of credit default swaps sold around the world, financial institutions’ losses on the Washington Mutual liquidation are vastly larger than the cost of keeping Washington Mutual open as an independent entity.

Now we come to the $700 billion. If this is used SOLELY to purchase whole loans, then the institutions now holding those loans do not experience losses that get magnified by credit default securities, and the government is in a position to rework the loans with affordable payment terms, so that people keep their homes, and the government recovers its entire investment. If this money is used to purchase “downstream securities”, such as securitization interests, CDOs, and credit default swaps, then vastly more money is required, and homeowners still lose their homes.

Why would Paulson seek the authority to buy “downstream securities”? Could it be that Goldman and its confederates hold these securities, and make vastly more money at taxpayer expense by selling these securities than by allowing people to remain in their homes, eliminating the defaults that make these credit default swaps so valuable to one side of the contract, and so costly to the other side of the contract, the US taxpayer, if Paulson gets his way.

Let's work to kill this damn bill.

1 comment:

Tony Starks said...

The televised Vice Presidential debate is over, thank goodness. It was all just a show. Nothing new was really learned. Joe Biden has national experience, but has never been responsible as a chief executive for anything more than his Senate Office staff. Sarah Palin has no national experience, but at least has run an executive office for 20 months. I can't say either is ready to step in as President at a moments notice and do it all themselves.

If I didn't hear the names Biden or Palin again until after the election, I wouldn't care.

Can we now refocus our attention on the principals for this election, Barack Obama and John McCain. We look to the media to provide us with facts and unbiased analysis that will help us decide which of these two will be the next President.

Both believe that changes are needed in the way Washington has been doing things, not just over the past 8 years, but as it has evolved over the past 80 years.

Neither has executive experience and will need to depend upon their cabinet, advisors and staff to pull together their administration.

Whoever is elected will need to deal with the current economic crisis before attempting to implement whatever programs they want to enact.

Whoever is elected will also have to work with the entrenched Washington bureaucracy and a highly partisan Congress.

If the only difference between Obama and McCain the readiness of their running mate to step in, should something happen to the President.