Buying Good Intentions

[Editors Note]: What follows is the last contribution I received from my blogging partner The Rigorist from back last September. Perfectionist that he is, he requested that it not be published until he had worked on it some more. Since he has been away  from the blog for some time now, and his comments have become timely once again in light of the impending Geithner TARP part 2, I am publishing this article now. Rigorist, if you’re out there, accept my apologies for moving forward without you. To my readers, feel free to comment but understand that I can’t speak for the author.

From the desk of The Rigorist
September, 2008

Since my last post, I have been trying to find a way to address the “Bailout” illustratively.  Searching past the wailing and the warnings of impending doom, I have been reading other people’s attempts to do the same thing, to describe the elements and the mechanics and the issues to the deliberately uninformed.  It is the deliberately uninformed who present the challenge.  Their attempts fail and I shall do no better.

To those that embrace Capitalism, and understand it as a human right as fundamental as speech and faith, explanations are easy.  The existence and nature of such things as money, contract, and insurance do not fundamentally contradict the rest of their view of the world.  The complexity of the mechanics of Fannie Mae and Freddie Mac can be made simple.  The issues can be argued from one side or the other.

But to those who find Capitalism hard to accept because it is predatory, or unfair, these things must not be understood.  Their worldview doesn’t permit them.

It was a friend of mine, David, who showed me a way.

What the government is buying in  the “Bailout” — brace yourself — is other people’s good intentions.  I am terribly serious, and this description is terrifyingly accurate.  President Bush, Secretary Paulson, Federal Reserve Chairman Bernanke, and, hopefully, minorities in both houses of Congress are proposing to pay $700 billion for other people’s good intentions  in order to mitigate a forthcoming recession.

A good intention is an element a liberal can understand whereas contract or loan or debt give them problems because the creditor is being uncharitable when demanding payment. Usually, there is no trouble in buying someone’s good intention.  If someone has the good intention to give me $120 (thousand) in a year or two, any problem I have with buying that good intention for, say, $100 (thousand) is solved by giving me partial ownership in something I think is valuable.

What has happened is Fannie Mae has bought all whole bunch of other people’s good intentions, who unfortunately are having trouble.  What has made this a crisis is that Fannie Mae screwed up in evaluating the value of the thing they got part ownership of.  She’s a trusting soul, full of hope

What Freddie Mac does for a living is take bets that people like Fannie Mae will screw up just like Fannie Mae did.  Yes, Freddie Mac is a professional gambler. He’s not one of those “gaming” weenies that put up casinos in Las Vegas, either.  Freddie Mac is hard-core.

Well, Freddie Mac hasn’t been hard-core enough.  He now finds himself in possession of a whole lot of good intentions and  partial ownership in things that aren’t particularly valuable.

So, what is being proposed is that Uncle Sam ( the federal government ), who is a close relative of Freddie Mac, will buy — paying full price no less —  all those good intentions — of people who can’t make good on them — and partial ownerships — of things that really aren’t very valuable.

AIG is a gambler just like Freddie Mac, but the good intentions he got are actually pretty good, and the partial ownerships are in things that are valuable.  He’s just looking for a loan until payday,  but nobody is in a hurry to loan a gambler money especially when he isn’t family.

People think Uncle Sam can afford this because he’s got a money printing press. He’s not a counterfeiter, but he might as well be for the effect this deal will have. It’s not all that bad, really. He does this sort of thing, running the money printing press into the night, all the time. People get grumpy about inflation, and feel all recessed — that’s a recession joke, it’s OK to smile — but they get over it.

This is a good place for a break. Can you non-Capitalists get the what and the how, understand the elements and mechanics, from this? Can any Capitalist point out where I have erred?

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19 thoughts on “Buying Good Intentions

  1. I suppose Geithner is more like the common man, having filed incorrect tax returns ( at the very least ) and can more deeply understand the over complexity and perhaps the injustice of the current system.

    If you are counting on him to be wiser than Paulson about macro economics, the results will change your feelings. He will reflect the President’s paradigm. There isn’t a nickel’s worth of difference between the foundations of President Bush’s TARP and President Obama’s stimulus package and the value of a nickel is going to take a dive.

  2. First, good to see you here Rigorist! I was hoping you’d surface to answer any comments this entry might get.

    I may be mistaken but I think both you and Tom are slightly missing the point. Geithner’s effort is not synonymous with the stimulus package. The stimulus package being voted on in Congress is one leg of an overall economic program. The efforts announced today by Geithner concern how we’re going to handle the next dose of TARP money that will go out the door. That is not the $800 billion being voted on by Congress this week.

    As for Geithner’s economic philosophy, clearly Paulson’s macro economic prowess did nothing to ensure the success of TARP I. It was an unmitigated disaster financed by tax payers. Real shame!

    So, putting semantics aside, I do hope that Tom is right and that Geither can guide us out of this morass.

  3. damn…..rigorist is sure a punctual mofo… i think the ancient and sacred Hindu Vedas were finished in a timelier fashion…

  4. LOL, no hits on Rigorist’s timing allowed. I will take a hit for being overly considerate to his perfectionism. I should’ve published this back last September and taken my hit from him back then.

    Still, with TARP II on the way, I think Rigorist’s views are once again very topical and timely.

    So tell me DR, how do you feel about more money going to the banks provided this time we actually keep track of where the money is going?

  5. R, I honestly just don’t know. Except for some of that business with the banks spending money on retreats in Vegas and what not, I can only assume the rest of the money from TARP I still exists. In other words, if you had a massive bucket of change, and I poured some more change in the bucket, shook it up and then demanded to know where my change is, I guess you would have problems. Isn’t that whats going on here?

    I’m lost on money policy. I don’t understand how we won’t sooner or later be ravaged by run away Zimbabwean inflation to be honest.

    I was so in the dark, I’ve just recently learned how money is truly created. I always thought most money is printed. To my shock only around 10% is. The rest simply appears out of thin air when a bank gives out a loan. Did you guys know that?

  6. I’m lost on money policy. I don’t understand how we won’t sooner or later be ravaged by run away Zimbabwean inflation to be honest.

    You are quite correct Brother Rabbit. As we speak, Tex is trying to figure out how to capitalize on runaway inflation like the Jimmah Carter days – because that is exactly where we are headed.

    Sooner or later, we meet the wall of reality. You can’t simply print funny money to finance pork packages like we just did starting this afternoon. And in fairness to the Rutherford, you can’t pay for wars or Homeland Security that way either.

    What is even more frightening to me than the stock market collapse which I’ve personally been killed, or Obama being the President, or even jihadists running through my backyard? Nobody, but nobody that I have read is addressing our most pressing issue(s). It’s the big white elephant in the room nobody wants to mention because every elected official from Obama to the lowly clerk is too cowardly to address it.

    Runaway entitlements. I see very, very dark times for our country and soon.

  7. Rabbit, money is created when the guy working the make line assembles your Whopper. When the waitress brings your coffee, she creates money. What those loans do is create fiat currency.

    What TARP ( it doesn’t matter which one ) will do is create boxcar loads of fiat currency.

    There is a some slop and lag before we arrive at a value for that currency in terms of Whoppers, competent service, or what not, but we do approach it pretty quickly.

    We’re going to get an extra trillion or so in currency, with absolutely no associated production of value, and the value of those dollars will be proportionately less. Try reading this. Pay close attention to M0, M1, M2, and M3.

    BTW, the embarrassing error in this post is the description of Fannie Mae. I screwed that up completely. She and Freddie Mac are both gamblers and it would be more accurate to say that the banks were buying all those good intentions.

    Tex, movie production typically does well during hard times along with discount retail, also businesses addressing regulation compliance, rather than the production of any real value. Commodities will over-correct and there will be opportunities as we ( if we ) come off the bottom.

    I suspect there may be a boom in low quality nursing homes as inflation eviscerates the hopes of baby boomers on fixed incomes and they flee the more lethal national health care facilities that are to come.

    Whee!

  8. I suspect there may be a boom in low quality nursing homes as inflation eviscerates the hopes of baby boomers on fixed incomes and they flee the more lethal national health care facilities that are to come.

    Whee!

    😆

    The question I’ve got to ask myself now is it better to be the patient or guardian in one of those low quality nursing homes? I’m ready for somebody to take care of me for awhile.

    Great idea about movie theaters. It seems no matter how hard-up the American public becomes, you can always count on the obscenely obese to be packing down $7.00 tubs of stale popcorn with the $4.00 drink in hand, watching some flick not worth 50¢ but paying $9.00 bucks.

    I’ve gotten to the point of being so poor, I’ve reverted to the NetFlix routine several months back, only to discover after renting several movies, there are a very finite number of things I care to watch.

  9. I left this post at my local paper this morning. I’m afraid many of the left have gone apoplectic over it – wailing and gnashing of teeth abounds and I thought I heard the sound of skulls popping.

    Some of it a little redundant from a previous post. Mea culpa.

    ———————–

    If anything good has come out of this downturn, it has been the closer analysis of the patron saint of the Democratic 20th century patron saint FDR.

    Upon closer scrutiny, he’s not looking quite the giant we’ve all been led to believe. Not only did FDR’s economic models help prolong the Depression, but upon further examination Roosevelt entered WWII way too late. Now, we can add to the fact that it has become apparent a large part of FDR’s popularity is based on a simple fact that Obama has now seized upon: subsidizing votes.

    If you want to see a real model of failure based on the same failed economic principles now proposed, check out LBJ’s Great Society economic model of failure.

    “The Roman Republic fell, not because of the ambition of Caesar or Augustus, but because it had already long ceased to be in any real sense a republic at all. When the sturdy Roman plebeian, who lived by his own labor, who voted without reward according to his own convictions, and who with his fellows formed in war the terrible Roman legion, had been changed into an idle creature who craved nothing in life save the gratification of a thirst for vapid excitement, who was fed by the state, and who directly or indirectly sold his vote to the highest bidder, then the end of the Republic was at hand, and nothing could save it. The laws were the same as they had been, but the people behind the laws had changed, and so the laws counted for nothing.” ~ Teddy Roosevelt and his comments on the Fall of the Republic.

  10. “It seems no matter how hard-up the American public becomes, you can always count on the obscenely obese to be packing down $7.00 tubs of stale popcorn with the $4.00 drink in hand, watching some flick not worth 50¢ but paying $9.00 bucks.”

    for some reason that made me laugh out loud….i’m one of those guys 😦

  11. Tex, DR and Rigorist, would you all be willing to admit that one of the beneficiaries of the “bought vote” style of Washington D.C. are the lobbyists who basically run the town?

    You see, I always cringe at the word “entitlements” because there is always this sense, sometimes overt, sometimes not, that poor people, truly disadvantaged people, want to milk the gov’t for all it’s worth. I don’t often hear the anti-entitlement bunch yell and scream about all the special interest groups (I’m not sure on this but isn’t farming one of them?) who truly exert huge amounts of pressure in Washington to decide what gets legislated and what does not … and where the money goes.

    I think the elephant in the room is that the fat cat constituency that the Republican party has traditionally sucked up to, are the ones who have brought us to ruin. Yes, I know we spent a lot of time lending money to people who should never have stopped renting, but that’s only a slice of the pie.

    So tell me gentlemen, just how far into entitlements are you willing to cut? Do you stop at welfare or do you dig a bit deeper?

  12. Lending money to people who should never have stopped renting IS the pie. Now we can debate why this happened: who gained, both politically, economically and in at least one case, sexually. But that is the pie.

    As I slowly become more educated about this mess, I’m starting to think our monetary policy is flawed. That the Fed shouldn’t be toying with rates. Ron Paul might be right (he did predict this entire melt down to a tee). I suppose that’s a libertarian point of view.

    It’s hard to debate this because it takes so much knowledge of macro-economics. I’m hurting in this department while you choose to remain almost oblivious to it.

    You’re naive if you think fat cats don’t suck up to the democratic party, particularly those involved in the regulation of loans. That’s funny.

    So tell me R…exactly who are these fat cats that seem to only be in the fart sack with republicans?

    You’re one USA Today article a week on the economy isn’t cutting it anymore.

    Who ever thought the world would come to a point when guys like me tell guys like you to get educated.

    If you think you are going to regurgitate generalities in the form of questions while firmly saddled on your Utopian unicorn while we message makers post away real world responses, your crazy. Do some homework yourself dude. Give me some real details, something real to work with.

  13. I think the elephant in the room is that the fat cat constituency that the Republican party has traditionally sucked up to, are the ones who have brought us to ruin.

    Fat cats like George Soros? Or Robert Rubin? Or Bernie Madoff?

    So tell me gentlemen, just how far into entitlements are you willing to cut? Do you stop at welfare or do you dig a bit deeper?

    I wasn’t even thinking of welfare or SSI. I was considering Medicare, Medicaid, and Social Security.

  14. DR, I’ll grant you that I argue economics from my gut which does not do the subject justice. It is certainly fair to say that Dem’s are as much in the pocket of lobbyists as Republicans are. My only point was that the lobbyists have been running Washington, not the poor and needy.

    Tex, you and I are closer to getting social security than probably either of us is willing to admit. You really wanna screw with that program? 😉

  15. “R”,

    I don’t think much of it is going to be there for us. Maybe 50% of what they project on those statements?

    I just looked at my wife’s SS letter today which I suppose is as high as you can get since she maxes the limit every year, and I thought, “yeah, that will be the day.”

  16. “Dodd, Conrad told deals were sweetened…

    …Rep. Darrell Issa of California, the senior Republican on the House Oversight Committee, had his investigators question Feinberg as part of a broader investigation into Countrywide’s VIP program.

    Other names that have surfaced as “friends” of Mozilo include James Johnson, a former head of Fannie Mae who later stepped down as an adviser to Barack Obama’s presidential campaign, and Franklin Raines, who also headed Fannie Mae. Still other “friends” included retired athletes, a judge, a congressional aide and a newspaper executive… ”

    http://www.breitbart.com/article.php?id=D99N143G3&show_article=1

    The truth is slowly coming out on this. Chris Dodd, in charge of regulating banks, is getting sweet heart deals. Dodd, who helped prevent additional oversight of Freddie and Fannie, is a key architect of the financial disaster we find ourselves in.

    Financially corrupt.

    Barney Frank, the other idiot responsible for the debacle we’re in has also gone out of his way to ensure that there be no additional oversight of Freddie and Fannie.

    On C-Span at the National Press club, Frank said this:
    FRANK: I’ve had people come to us and complain, “Well, if you do that, I can’t make any money.” The answer is that’s not my job. We’re not here to help you make money. We are here to help have a system in which you will make money as an incident of your providing funds to those who will use it productively.

    Intellectually corrupt.

    This is an out and out Marxist comment if ever there was one. Business is to provide funds so government can use it productively? ‘Productively’ is a word that should never be in the same sentence as ‘government’.

    It is worth noting that second only to Dodd on financial contributions from Fannie and Freddie was/is Obama.

    This whole thing reaks of dishonesty and corruption…

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