Schmucks At The Helm

At the rate we're going, we'll be lucky if the White House isn't in the middle of foreclosure by January 20th. Emperor Paulson and his merry band of geniuses are making the same bad bets with taxpayer money as the investment banks did to get us here in the first place.

Stock intended to eventually earn taxpayers a profit as part of the Bush administration's massive bank bailout has lost a third of its value — about $9 billion — in barely one month, according to an Associated Press analysis. Shares in virtually every bank that received federal money have remained below the prices the government negotiated.

Stocks dropped again Friday after the government reported a larger-than-expected number of job losses in November, but a top Treasury Department official told the Mortgage Bankers Association that the tax dollars are being invested in "very high-quality institutions of all sizes."

"We're not day traders, and we're not looking for a return tomorrow" said Neel Kashkari, the director of Treasury's Office of Financial Stability, which oversees the $700 billion financial rescue fund. "Over time, we believe the taxpayers will be protected and have a return on their investment."

That would be more reassuring if I believed you had the first clue what you were doing, Neel (also if your name wasn't "Neel"). I mean, this latest plan to reinflate the housing bubble in a desperate attempt to get out of the Treasury Department alive is completely absurd.

Treasury Secretary Henry Paulson is considering a new plan to reduce mortgage rates in another bid to revive the U.S. housing market, a government official said.

The Treasury, which already has a program to buy mortgage- backed securities issued by Fannie Mae and Freddie Mac, could step up those purchases to drive down interest rates on some loans to 4.5 percent, the official said on condition of anonymity. The plan is preliminary and could change.

Note the words "some loans". Anyone that would qualify for these rates would not need the rate reduction, and there's no indication that those rates would be fixed. What's more, this would not apply to those who are upside down in their homes and looking to restructure their payments. While some homeowners have been able to refinance, in the main that is largely not those homeowners at risk, which is why you're seeing defaults at stratospheric levels, something like 10% of the market. And anyway, this just prolongs the inevitable. Running the US economy on home-buying is unsustainable. Houses are in most cases still overvalued.

(By the way, I'm also very concerned that Treasury Secretary nominee Tim Geithner, who's been in on a lot of the decisions made by Paulson and others, may be trying to force out Sheila Bair, practically the only person in the government who's focusing on the foreclosure side of the equation. The article contains a bit of hearsay, but I hope it's wrong and Bair is retained at the FDIC.)

Thankfully, some members of Congress are figuring out that Paulson and his cadres don't know what the hell they're doing and need to be swiftly separated from any future taxpayer funds:

Dec. 4 (Bloomberg) -- Senate Banking Committee Chairman Christopher Dodd said he opposes giving the Bush administration the second half of the $700 billion financial rescue plan, joining Republicans upset with how it is being managed.

“I would be a very hard person to convince that this crowd deserves to have their hands on the next $350 billion,” Dodd, a Connecticut Democrat, told reporters today in Washington after a hearing on whether automakers should get government aid. “I am through with giving this crowd money to play with.”

Good. There are about 299,999,999 million other people I could think of that would manage this bailout money better. Instead of rebuilding the same failed institutions and putting no new restrictions on them, we need to restore competition to the marketplace, break up the concentrations of financial sector wealth, significantly reduce the leverage that these behemoths take on, and never again get ourselves in a situation where companies are too big to fail. We're in this mess because the financial industry was allowed to play all kinds of games with our collective future. Now the Treasury Department is doing virtually the same thing in restoring them.

We have to break this cycle.