Just in case you did not understand lastime!

Ok Ok so you did not follow yesterdays post on the bailout. Let's try it one more time and I will keep it simple.

Case in Point: Bank of America

1) The government gives Bank Of America 25 billion dollars and says go forth and lend. Being prudent bankers, they are not about to loan that money to anybody. After all they may not pay it back.
2) B of A now has $25 Bil. burning a hole in it's pocket, and goes looking for a bargain to buy. Yes this is the same money they were supposed to be lending to their customers.
3) Merrill Lynch is in trouble because of poor business practices and can be bought for a mere $50 billion.
4) B of A knows a good deal when they see one, so they buy Merrill. I mean in reality who could resist, that Merrill logo of a big raging bull is really cool.
Now don't get the wrong idea, B of A did not take the check Uncle Sam gave them and write their own check to buy Merrill. After all they were still 25 billion short right. No like any good company they just issued more shares and exchanged those shares for Merrill shares, so they got Merrill and still have the 25 billion we gave them. Now that is one smart deal.
5) The deal closes 12/31/08. Somebody deserves a big bonus!
6) January 14, oops we did not look at Merrill close enough. Turns out in the last 14 days we have discovered they are losers.
7) Hello Uncle Sam, can you please send us a few more billion dollars, we are a little short. We need to keep that balance sheet strong.
8) Uncle Sam says sure, we got your back on this deal, who could have seen this coming. You guys sorta messed up here so somebody needs to be punished, at least a little.
9) B of A says sure, we understand. How about we all keep our year end bonuses but we cut the dividend of all of our unsuspecting stockholders by 50%?
10) Uncle Sam says, it really hurts me to get tuff, but we must. That dividend reduction may not be enough punishment, you acted irresponsibly.
11) B of A says we understand we are willing to sacrifice more in the way of dividends to our stockholders if we have to. We understand somebody must be made to pay.
12) Uncle Sam says, call me if you need more, my pocket is always open!

I am sure no in the government or anyone at Bank of America sees it this way. I am sure both would say this is way to simplistic, and that I just don't understand. I will confess that I truly do not understand, do you?

All I know, is if the president of B of A or somebody from the Treasury had to got to Mrs. Jones 3rd grade class and explain this deal, and he wasn't directly involved - -I think explain it like I just did.

Buy the way, the porn industry has a lobbyist asking for several billions to save jobs in that industry. I am sure that in Washington it will sound perfectly reasonable, and may even be considered.

I just think if you can't justify it to a 3rd grader, it may not be a good deal for the taxpayers.

Just say no! Stop the borrowing!

Act I
It seems widely accepted that we are in this financial mess for 3 reasons: One, we allowed people to borrow money that they could not pay back to buy houses that they could not afford. Two, house prices had become inflated because anybody could borrow all the money they wanted, credit worthy or not. Three, we allowed wild speculation in the financial market with the creation of financial instruments that nobody understood or regulated. "Credit Default Swap" The very name should have raised regulators eyebrows. Trading bad debt for bad debt is good business somehow? I think most high school students would have questioned that one!

Act II
The government told us that if we did not spend $700,000,000,000 right now (not next week), that the world as we know it would end. Total financial melt down. No one would be able borrow money, we would all lose our jobs, we would all be eating out of garbage cans, if we could find one.

Act III
90 days later, $350 billion spent by TARP, and additional trillions of dollars pumped into banks, mortgage house, and insurance companies by the Federal Reserve. (the Fed can spend all they want with NO approval so I am not sure why we needed TARP's $700 Billion) You still can't borrow money, big bonuses are still being paid to the people who blew the deal in the first place. Unemployment is 7%!

ACT IV
In comes the new president and says please release the other $350 billion so that I can make things better, and save our citizens. I know how to spend it "wisely", and we will keep a ledger of where we spent it so we will be accountable. What!

Act V
Who actually got the money? I didn't get any of it, and I am sure that you did not either. But somebody had to have gotten it right? Our 401K got killed, my wife who worked for 35 years is likely to lose her pension and insurance benefits. Our political leaders now call that a "legacy cost" that must be abandoned by the automakers for them to survive. Beware of ever being branded as a "legacy cost". Once that occurs you are no longer a human being. It is much easier to cast aside a legacy cost than a human being.

Act VI
50 years in the future- Our children and grandchildren are still trying to pay off the debt we left them. Their standard of living is not close to what ours is because their tax burden to pay off this debt is huge.

The question is: If this mess was caused by excessive borrowing by un-credit worthy people, how can an un-credit worthy government (we the people) borrow our way back into propriety?

The answer is simple, and every body knows it in their heart of hearts - - -you can't. We just don't like the answer so we turn our heads and let it continue.

Albert Einstein gave the following definition: Insanity- doing the same thing over and over again and expecting different results.

Einstein was no economist, but I think all the economist have already left the building!