by Joe Shea
American Reporter Correspondent
September 25, 2008
IS IT ALL OVER BUT THE CRISIS?
BRADENTON, Fla., Sept. 25, 2008 2:01PM EDT (Updated 7:50 PM EDT) -- As I write, the Dow Jones Industrial Average is up 260 points on the greedy anticipation of Wall Street that a bailout package will restore CEO salaries and bonuses, and that all their bad decisions will be rectified by the American taxpayer for just $700,000,000,000.
But what are we saving? Countrywide has been rescued by Bank of America, which has also rescued Merrill Lynch. Bear Stearns and Lehman Bros. are history. Goldman Sachs stock is selling for $136.53, up another $3.53 from yesterday's close. Morgan Stanley is up nearly 10 percent at $27.05. AIG has the $85 billion it needed. Citigroup is up nearly a buck at $19.90. Washington Mutual is in deep trouble, but afloat even at $1.77 (I know because they called me this afternoon about paying my $35 overlimit fee for being $15 over). [Just an hour or so ago, Washington Mutual agreed to sell its deposits to JPMorgan Chase, solving that piece. - J.S., 7:53PM EDT] Wachovia Bank is up $1.88 at $15.88. And when did it become the taxpayer's job to rescue every failing bank, anyway?
Let's be clear what the "crisis" is: Financial institutions are refusing to extend credit because they don't know what the value of homes included in a variety of financial instruments they have invested in are worth. Without knowing, they risk their very existence by trading them at any price. They own millions of pigs in thousands of pokes. They don't know if the pigs are fat, skinny, healthy or sick, dead or alive. All they know is that they have a huge bag full of them.
If Congress has a yen to save the American economy, here's how they can do it for a little more money with a lot more bang for their buck. Statistics provided by the National Assn. of Realtors this morning shows that there at the end of August there were 4,910,000 homes listed for sale in the United States. The average price of those homes is $245,400 (the median price is just $203,000).
For $1.2 trillion - $500 billion more - the government can buy every single one of those homes, providing instant liquidity to all housing-related securities by placing a clear value on comparable homes in every part of the country.
But much more would happen. Hundreds of thousands of construction workers, realtors, salesmen and equipment manufacturers would go back to work. Huge amounts of taxes would flow into state, county and local coffers. The homes could be rented to their current owners - or to others, if the owners don't want them. The government could arbitrarily reduce interest rates on those with upwardly-adjusted ARMs that hit outrageous levels. After 18 months or so, those who once owned those homes could buy them back if they wanted, continue to rent them, or buy another.
Compare that to the alternative. I hate to tell you this, but as soon as the bailout bill is passed, after a day or perhaps two of market euphoria and 500-point gains, the market will start to fall again and market leaders will resume their chant, "More! More! We need more!" That has been the pattern following every attempt at government or private sector intervention to slow the markets' fall.
Our politicians evidently don't work for the people who elected them. If they did, they would know that the real way out of the crisis their irresponsibility helped engender is to cut interest rates on credit cards and mortgages by fiat, i.e., by arbitrarily limiting them - as the Bible tells us to - to non-usorious rates, capped at say, 7.0 APR for credit cards and 5.0 for mortgages, and at 2.0 for car loans. Stop the $35 overlimit and $30 overdraft fees - cut them back to $5 to $10, based on the overlimit amount. Charge $1 a day up to $10 a month for late payments. America will come roaring back overnight.
The alternative is to pour $700 billion of money we cannot afford into a black hole of collaterized debt oblicgations, credit default swaps, mortgage-backed securities, reverse auctions, hedge funds, financial derivatives - stuff that is entirely abstract. Why do that, when we could have our homes and lives back, and real security for our financial markets?
Joe Shea is Editor-in-Chief of The American Reporter.