Feet on the ground – head in the clouds.

Naked shorts, and other perverse translations

leave a comment »

I’ve had a few friends express their inability to understand the current economic crisis and thought a post was probably due. There are a few things I’d say to set the stage. The situation is intentionally complicated and hard for the layman to understand. People like Senator Phil Gramm, lobbyists Rick Davis and Steve Schmidt, Charles Keating and cohort have, over time, chipped away at the protections for investors and borrowers in favor of lenders and brokers. 

Now for two definitions — for people from my neck of the woods — to better understand this Wall Street/Washington doublespeak. Naked shorts — the practice of selling a stock short without first borrowing the shares or ensuring that the shares can be borrowed as is done in a conventional short sale (Wikipedia) — or selling someone else’s stuff. What might happen if you sold your neighbor’s car and had them pick it up from the neighbor? Should you be bailed out?

Sub-prime lending is basically risky lending. They call it sub-prime when banks do this. Before banks got into loansharking, lenders would wreck their kneecaps — not the economy — if borrowers were unable to pay up. I’m not saying people shouldn’t be allowed to buy a home, I’m just saying I shouldn’t be getting offers to buy a home. People in my financial situation shouldn’t need to (at best) throw millions of pounds of paperwork away each year or (at worst) open the ‘loanshark on bank letterhead’ offer to buy a home with no proof of creditworthiness.

The Secretary of the Treasury is the principal economic advisor to the President and plays a critical role in policy-making by bringing an economic and government financial policy perspective to issues facing the government. The Secretary is responsible for formulating and recommending domestic and international financial, economic, and tax policy, participating in the formulation of broad fiscal policies that have general significance for the economy, and managing the public debt. The Secretary oversees the activities of the Department in carrying out its major law enforcement responsibilities; in serving as the financial agent for the United States Government; and in manufacturing coins and currency. US Department of the Treasury

We’ve got Henry Paulson. If you watched his testimony this morning, you saw a mirror image of President Bush. He wants all $700 billion now, with oversight to be determined later. He estimates they will spend approximately $50 billion per month, and he has already stated he’ll not stay in office after President Bush leaves in January. Senator Chuck Schumer from New York asked the ultimate question from a taxpayer’s perspective today, asking if the Treasury could deal with an authorization of $150 billion now with a review in January. The response, no, Paulson needs all of it now. I don’t think anyone in their right mind would be able to ignore the fact that the person asking for complete and total control over $700 billion of taxpayer money plans to quit in the next four months.

Since July 10, 2006 Henry Paulson has had the opportunity to take measures to prevent this situation. He has offered no warning and done nothing. Now he wants a blank check to try “various market-based approaches” to fix his own mess. As the ‘principal economic advisor to the President’ it’s clear that failure in this administration touches all aspects of the government. (See Alberto Gonzales, Michael Chertoff, Michael Brown, Donald Rumsfeld)

Paulson also oversees the “major law enforcement responsibilities”, and therefore was the ‘Sheriff’ when Wall Street got out of control. He let the party get out of control, we cannot give him more money than he expects to lose. Here’s a question for parents: when your child throws a party while you’re away, do you double the money you leave him next time you’re out of town?

Let’s rewind this situation a bit, to the past year when Americans constantly questioned Washington about a solution to the crisis so they could avoid losing their homes. Washington ignored these calls, and the President went into recluse mode. The Hurricane season has shown us just how much President Bush has learned about the office he holds and the responsibilities it bears. He’s learned that he must make more effort to appear to care, or his party will suffer. He has not learned how to truly look out for the interests ofall Americans, not just his millionaire friends.

Today, Senator Obama spoke in Florida about four key points of the rescue effort. Although he was certainly reading notes, he no doubt sought guidance on these issues and is probably better to get everything right than to attempt to turn economics into prose. The four points, however, were clear and sounded like exactly what Americans (as a lending institution) need in order to hand over that much of the taxpayers’ money. (looking for the full video)


Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: