Bad Assets and Band-Aids

(A slightly different version of this post appears at NolanChart.com )

The government’s plan to fix the financial crisis? Buy the bad assets.

Last night, an emergency Capitol Hill meeting was called to address the nation’s financial crisis.

One theory behind this solution is that by cutting financial institutions free from the mortgages in default, banks will be free to make investments and loan money out to get businesses and individuals back on their feet.

You can’t make this stuff up! But, apparently it can be pulled from thin air.

Where will our drowning-in-debt government find the money to make this purchase? It’s simply not there. This burden is going to be reshuffled to the taxpayer by way of inflation – because even in 2008, even though “green” investments are en vogue, we still can’t grow money from trees. Every action has an equal and opposite reaction. The money has to come from somewhere.

Even scarier than inflation, this bad assets solution requires the unconstitutional nationalization of financial institutions. I wonder if the act of Congress will include an amendment? How will Congress legally get away with this otherwise? It will be an entertaining song and dance for sure – the opening act to a muddy Presidential election.

The press conference following the meeting between Nancy Pelosi, House Financial Services Chairman Barney Frank, Senator Majority Leader Harry Reid, other Senate and House leaders from both political parties, Federal Reserve Chairman Ben Bernanke, and SEC Chairman Christopher Cox made me cringe. Was it really necessary to polish everyone’s accolades during the introductions?

Was it not Barney Frank who said in 2003, rejecting the Republican’s plan to buy Fannie Mae and Freddie Mac, “”These two entities, Fannie Mae and Freddie Mac, are not facing any kind of financial crisis,” Frank said. He added, “The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

Does it help you sleep more soundly knowing that Henry Paulson, United States Treasury Secretary, worked for Nixon, and then spend much of his career as Chairman and CEO of Goldman Sachs? His wiki page goes on to state that he, “Paulson has personally built close relations with China during his career. In July 2008 it was reported by The Daily Telegraph that: “Treasury Secretary Hank Paulson has intimate relations with the Chinese elite, dating from his days at Goldman Sachs when he visited the country over 70 times.” It was China who was pressuring the United States to bail out Fannie Mae and Freddy Mac, as China owns 40% of the debt!

Pelosi (whose top-list campaign contributors include Wells Fargo) and bedfellows aren’t asking for bi-partisanship in a thinking sense, they’re asking congress to turn a blind eye and grant the Federal Reserve amazing power.

Debt makes for slavery. It makes me have to ask, is there an underlying, perhaps even sinister, purpose to acquiring more debt? If China owns so much of the debt, would they not benefit from pressuring our government into nationalizing the financial institutions?

Forget Obama’s tax increase on the wealthy to and redistribution of wealth to the middle class – we’re talking about a national debit increase of a half-trillion dollars. How is any candidate going to be able to bail us (the taxpayer, who essentially will be part-owners of these failed mortgages) out of this debt? The campaign solutions are the equivalent of putting a cartoon-embellished Band Aid on a kid’s “boo-boo” to distract them from the realization that they’ve been shot. What trickery!

Yet, Americans are greedily buying into this no-accountability government-to-the-rescue mentality, selling their souls for tax breaks, stimulus checks, and the ability to keep McMansions that they never should have been able to purchase in the first place.

McCain and Obama are either really naive, or they’re going to get very rich off of this bail-out deal.

Here’s a hint – follow the money.

McCain’s Top Contributors:
Merrill Lynch $366,035
Citigroup Inc $317,751
Goldman Sachs $305,015
Morgan Stanley $253,871
JPMorgan Chase & Co $207,728
Credit Suisse Group $178,825
UBS AG $178,515
Pinnacle West Capital $164,050
Bank of America $160,625
PricewaterhouseCoopers $134,050
Lehman Brothers $128,550
Wachovia Corp $121,346

Obama’s Top Contributors:
Goldman Sachs $693,830
JPMorgan Chase & Co $454,921
Citigroup Inc $420,499
Lehman Brothers $365,922
Morgan Stanley $314,638

I rest my case.