Bail Out!

Last week I was too busy praying for our entire financial system not to collapse to even think about posting about the debacle that was unfolding on Wall Street. In case you still do not know, the system is completely broken and it started to fall apart last week. Banks: Where The Money's Not neatly acts as a refresher course on how everything "works" today and in the end sums up why I have been thinking of taking all my investments (currently sitting mostly in cash) and buying hard gold bullion. It is very possible that the dollar is going to be seriously devalued as this plays out over the next 3-10 years. When a plain slice of pizza costs $8, don't say nobody warned you.

Many of the Fed's recent actions literally reverse hundreds of years of previous economic policies. They have turned the US into a walking economic hypocrite. For example, the US is doing exactly what we told South Korea they could not do during the late 90's Asian financial crisis. We, the US, made the IMF put certain restrictions on the aid that was given to South Korea and these restrictions are being flat out ignored right now (i.e. government interfering with markets to prevent certain companies from failing) and South Korea is probably more than a little pissed at us. I'll try to cover all of the things that fly in the face of convention (i.e. now French protectionist economists are praising how much the Fed has gotten involved) in a future post.

For now, let's focus on how our fearless leaders are jamming a "solution" down the throats of all Americans without a proper review process taking place. Let's concentrate on how our lovely President all but said that Congress is unpatriotic if they do not pass his bailout package in one week's time. Does this sound familiar? It should.

There are echoes of Iraq in the way Bush is handling the mortgage crisis. The analysis is that another 'trust me' remedy is getting rushed before lawmakers. Tom Schlesinger, head of the nonprofit research group Financial Markets Center in Howardsville, Va. boils down to "give me the money and trust me."

One issue is that Treasury Secretary Henry Paulson came up with a three-page plan to spend $700 billion on toxic mortgage debt that was very spare on key details. James Angel, a professor of finance at Georgetown University, said the White House appears to be "flying by the seat of their pants." Doesn't that inspire confidence?

The WSJ Marketwatch article goes on to say that,

Economists said there was a central problem to the Paulson plan. Most of the toxic waste in question does have some price, but it has been too low for the financial institution holding them to accept. So the government buyout would only work if taxpayers overpay for the assets.

Who doesn't like to overpay right? You have a policy that automatically adds a 25% gratuity for parties bigger than 6 that I cannot do anything about even though your service sucked? Sure! At least in that instance you have the option of never eating in that restaurant again. Here, we have no option except to either become a citizen of another country or to not pay taxes and as Wesley Snipes has shown, if you don't pay taxes, the Man will eventually bring you down to Chinatown.

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