Because I refuse to be a hypocrite, MOAB got me the Mother Of All Time Outs (MOAT) from ProdigalBaby. I’ve been cussing at the television and monitor for about a week, since “the fundamentals” slipped from between McGoo’s shockingly yellow teeth. As an aside, McGigolo has a wife wearing $300K outfits and he can’t seem to get to see a dentist to get a ZOOM bleaching treatment? Anyway, while I was ranting and frothing at the Palin/McCain ticket’s inability to devise a credible coherent (any positive adjective will do here, I have none) economic plan, I was reduced to screaming “Shut up, you stupid (expletive deleted, but it was heavy duty, starts with a C and ends with a sucker) at McCadaver’s image. Unfortunately, WonderBaby happened to be in the room - fortunately, ProdigalWife was not, or I might be writing this from Guantanamo - and firmly told me that we do not use those words in our household, and that it was time for a 5 minute timeout for saying stupid, and 5 more minutes for saying shut up. Since we believe in the rule of law, I turned off the TV, and was escorted to my office to sit and reflect upon why I broke the household rules.
Follow me beyond the break and lets talk about how to provide the proper structure to MOAB.
First, a couple of stipulations: 1) I am a pragmatic free marketer. I come to it naturally, having come to age in the more or less completely unregulated markets of foreign exchange. 2) I believe that he/she who has the gold, makes the rules and the corollary that beggars can not and shall not be choosers, 3) in a large sense, it does not matter WHY we are here, but THAT we are here, 4) and in some respects, most importantly, the crucial question in the Bible was not “Quo Vadis?” but was “Am I my brother’s keeper?”
So to frame MOAB correctly, we must ask ourselves is how, given the taxpayers have the gold, how do we structure a transaction that allows we, the people to respect the social covenant with the less fortunate facing foreclosure et cetera, yet grinds the concept of “free market” into the bones of those bozos who got us into this mess,oops, I mean provides a free market-based solution to this disaster that has been in the making since the supremacy of the Ayn Rand/Leo Strauss bullshit that has warped our collective thinking for 30 years?
The implosion of the global financial system should not have snuck up on anyone who professed to being a practicioner of risk management. Roubini, Persaud, Krugman, I can name myriad economists who cautioned against the excesses of the modern Gilded Age, hell, even ProdigalWife pointed me to her blog from the middle of 2005 where she completely trashed me for not wanting to take out a huge mortgage for her dream house. That Hacktackular Hank is calling this asset bubble deflation a massive shock is completely Orwellian, given that Goldman Sachs actively and rightly bet against the continuation of the housing price gains beginning some time in 2005. As a taxpayer, the takeaway is to resist the Shock and Awe tactics. The US will not be in a depression, Great or otherwise, by Monday, or quite frankly by this time next year, should MOAB be still being finalized, because like in so many things, the Devil is in the details. Assuming that the Congress understands there is no need to dive headlong into a trillion dollars of debt, the right course is then to extract concessions from the welfare pimps on Wall Street. Trust me, if the shoe was on the other foot, we would be subject to daily cavity searches.
Of paramount concern is what exactly are we buying for our USD700,000,000,000? There has been a lot of talk of foreign banks being bailed out, but the most distressing thing is that there has been little talk of what exactly is the mechanism for pricing on this transaction. In the interest of the free market and of protecting my tax dollars, I propose we use one of, if not the last free market pricings of this Big Shitpile, as Atrios calls it, and use the sale of Merrill’s level three assets last month. The headline number was that the toxic debt sold for 22 cents on the dollar, the reality is that Merrill, to get the declining assets of their books, financed 15 cents of that 22 cents by issuing the debt for the private equity firm to move forward with the transaction. Since Merrill did not transfer the entire risk to the PE firm, we can use the very simplistic formula 22-15= 7 cents.
That’s the free market valuation of what would seem to be the riskier, but not riskiest, tranches.
Of course, that would destroy the capital structure of any bank using the MOAB facility, so in the spirit of being my brother’s keeper, a win win scenario would be that MOAB would buy the assets at 22 cents or thereabouts but of that 22 cents, 7 cents or about a third of the taxpayer expenditure, would go to purchasing preferred shares, yielding about 10 percent, much like Buffett’s deal with Goldman Sachs. That dividend would be paid before any bonuses and would be continued to be paid until such time the underlying asset backed security (ABS) reaches maturity, or an entity purchases the ABS at par value.
Of added mention, the idea of releasing the $700tn in tranches is a great idea, as is Congressional oversight. That being said, transparency should be given to every American. Post monthly results on the Treasury website, or using Census data, mail out a monthly statement. Clearly, not too many people would care, but those that had an interest would have a wealth of data to check up on their government.
While the Welfare Wall Streeters are beholden to the American taxpayer, the issue of compensation needs to be comprehensively addressed. Obviously any pig with or without lipstick that sups at the trough of the Treasury needs serious compensation reform. Since the government will own them, Wall Street compensation packages should be indexed to that of Federal employees. CEO pay would be equivalent to President Obama, and the custodial staff would get GS-1 pay. Not glamorous, but beats the hell out of unemployment wages.
To paraphrase George Clinton, the American sheeple need to free their minds. Whether or not their asses follow is a question I leave to far better philosophers than I. Nevertheless, we have to reclaim our power as We, the People, the ones who set forth to build that more perfect Union some 220 years ago.