Tuesday, March 24, 2009

The Geithner Plan - Same Old Crap

Geithner’s new plan was presented with a complexity that seemed engineered to fool people into believing that it was not what it has always been: a direct continuation of Paulson’s original Wall Street give-away plan.

The CEO of an investment firm called “Fusion IQ”, Barry Ritholtz, said it best yesterday when he was commenting on the stock market rally:

“This is the free-money rally. Traders like the fact that there’s a boatload of cash headed their way”

At least he’s being honest about what’s going on. The “boat” is being loaded up with cash by docile American taxpayers, who have never stood up for themselves to claim their rights as citizens.

Now we're seeing the results. J.P. Morgan Chase is, again, planning to expand it's fleet of corporate jets while tent villages are growing across the country and the number of Americans without health insurance is nearing 100 million.

I would like to offer a condensed version of the plan for those who have not kept up with Geithner’s change of vocabulary (which is all it is). The plan has the following features:

- HUGE subsidies for hedge funds and other similar entities to buy toxic assets

- potential for these buyers to get almost all the gain if there eventually is one

- minimal potential for the taxpayers to get any gain if there eventually is one

- minimal risks for these investors if the investments don’t work out

- enormous risks for the taxpayers if the investments don’t work out

- borrowing from the FDIC to finance the hedge fund subsidies. This is a truly desperate move, and one which actually threatens the safety of money in everyone’s bank accounts. The FDIC is already under funded, and this move could be disastrous down the road

The government is really getting desperate. Borrowing from the FDIC is something I never imagined would happen.

By the same token, for the government to buy its own treasury bills, which was announced over the weekend, is a very desperate move, that has only happened in times of really severe crises before (like when the U.S. felt it was going to be attacked with nuclear warheads by the Soviet Union in the 60s).

I’ll make a few predictions: In a couple of years, we will have interest rates above 10%, housing prices 20% lower than today, a stagnant stock market, inflation above 5% and unemployment at sustained high levels.

Moreover, I advise that the winner-takes-all voting system should be destroyed


Anonymous said...

Isn't inflation already at about 10%?

Jacob said...

Definitey not. Inflation right now is close to zero. This is because the value of almost everything has gone down after the credit bubble popped.

However, recent actions by the government will almost inevitably lead to inflation within a few years.

Anonymous said...

So, why are things more expensive? Prices, especially of food have gone up.

Jacob said...

Food is more expensive because it is not something that people stop buying even if they have less money, unlike flashy cars for instance. Also, the cost of producing food was high when the food currently for sale was produced (fuel was much more expensive a year ago when a cow was being fed, whose meat is being sold today). there is significant lag in food prices.

As a result, we can expect food prices to start going down next year.