Tuesday, February 10, 2009

21 Simple Steps to Fiscal Insanity

1) Congress approved a loosening up of lending regulations so that banks can extend large amounts of credit to people with bad credit ratings(the sub-prime loans). For the most part the banking world took no notice.

Well, "took no notice" like a retarded cat sneaking up on a laser light.

2) Under tremendous pressure from grass roots organizations intent of giving the poorest Americans there piece the American dream the lending institutions agree to loan out cash, but do so primarily using ARM loans so that the final payout, on the books, is a nice large number... about 12% APR equivalent in many cases.

At this point it can only be assumed that the American dream is the dream of finally getting out of appartment living and moving up to living paycheck to paycheck in McMansions.

3) The banks then sold off the bad loans in tranches that they rated AAA because the APR was so high that even an 8% default rate would make money... and the defaulted homes could be spun around and sold for a profit anyway.

Money flowed into the market like beads of sweat from the forehead of an Ecstasy binging club dancer.

4) Fast forward a few years and and you get the housing boom. The boom was primarily brought on by the "no money down" sub-primes. People were given more money than they need to buy a house, and they paid way more than they should have just to outbid people for homes far more expensive than they could afford.

Some of it was driven by the "flipping" craze where $5,000 invested and a tube of Spackle was netting investors $4 million profit on a two room shack in Appalachia.

Between 2003 and 2006 the number of sub-primes on the books jumped from 6% to an astonishing 20%.

5) The music stopped once the first ARMs started rolling in. People couldn't pay these ARMs when they matured so they began defaulting. If they still had bad credit (and most of them did) there was no way out. No worries! The banks simply took control of the homes themselves. Now they owned expensive real estate that they could now flip! Full steam ahead!

Except all the idiots already had ARM loans at this point. The market was saturated with stupid.

Unfortunately the remaining people in the market didn't want to buy a burnt down crack den for $30 million anymore.. now that huge asset on the bank's books was valueless.

6) Finally the bulk of the first half of the ARMs came due almost at once in 2008. This caused a glut of housing on the market, and a reduction in value. The default rate grew beyond the expected limit, and suddenly the AAA bond ratings were exposed for the fraud they were.

There was no longer enough house value to cover the loan.... with or without excrement stained walls.

Boom.

To make matters worse, the banks, as a way to get even more cash for these bad loans, started selling loan insurance on these tranches to ANYONE who wanted them. So for every $1 billion in bad loans there was $2 billion or more in insurance floating on it.

It was like letting the whole country take out individual homeowner insurance policies on the homes in Southern California in burn zones while there are wildfires in progress..


7) Absent any war chest the dumber banks started running out of cash to cover expenses, and failures started to eat away at the banking industry. Some banks had large enough war chests to weather the early storm, but to do so they had to also draw back on their lending. This began the market "freeze".

8) In comes Government to repair the damage caused by these critical failures of banking, policy and oversight. Their response was predictable... banks don't have any money? Give the banks money!!!

9) TARP was born. The original plan made some sense. The Federal Government would purchase the bad debt from the banks at discount rates (as low as $0.10 on the dollar was floated around), this would result in filling the banks with some much needed working capital while still making it hurt enough to learn. In turn the Federal Government could collect on these mortgages, renegotiate some of the terms, and possibly even resell some down the road for a profit.

TARP was supposed to cost $700 billion, with a possibility of earning some of that money back in a decade.... so $700 billion, but probably less.

It almost made enough sense that the general public was behind it.

And from the graves clawed the Zombie economy. Banking institutions that were not quite dead, and not quite living shambled about the market place picking sconces, art and marble tile for their new executive washrooms.

10) Well that didn't take long.... pretty soon the Auto Industry, Every lender on the planet and the porn industry stuck their hand out for some of the sweet sweet TARP cash. And most of them got it...

11) A few months into the distribution of TARP the banks that were supposed to be selling poison assets were holding the cash instead. But the majority of the money was funneled into war chests by the banking industry for two reasons: 1) They weren't obligated to loan the money they were given to loan out and 2) There was still that looming cloud of the other half of the ARMs coming due in 2009 and 2010.

So angry was the old and new administration that they both took turns wagging their finger at banking industry CEOs and gave them a stern look. Oh, they would pay... they would pay alright. Their first punishment: Take More Government Money!!


The new party in power quickly struck a deal to hold half the funds from TARP so that the new administration could spend it more wisely.

11) Now the national economy had frozen business credit, frozen housing credit, and a full fledged recession on it's hands. The president then took decisive action by issuing a directive to the House speaker to take over the job of writing a new omnibus bill to bail out everyone and everything.

It was rumored that the administration asked for the bill to stay under $800 billion, and in an amazing show of restraint they managed to get the bill done for just under $850 billion.

12) Well, that wouldn't do! The bill they presented, that was supposed to be a stimulus package for the American economy, was paying for everything from cow insurance to condoms for Mexicans in Mexico.

13) The opposition raised a royal stink over it and eventually a compromise was met. The bill was reduced to a svelte $819 billion.

14) The country was then relieved as work began in earnest to free bank assets. It was clear that the market really needed the credit problem resolved so... wait, none of that happened. Who cares about frozen banks when there is $819 billion dollars to allocate!?

Seeing the cabal for what it was the opposition party in congress put up a strong fight, and managed to rally the troops to a staggering 100% vote against the bill.

It passed 427-8. Damn majorities.....

The controlling party, in a stunningly brilliant tribute to Hippocrates, flew to an exclusive spa in Williamsburg VA to celebrate... possibly wearing togas.

15) Off to the Senate! Now in the Senate the opposition had a bit of steam to shoot down the bill. They had a citizenry that was opposed to the bailout 2 to 1.. though some would speculate as to whether people had partially come to their senses or were simply so confused that they thought they were getting a second shot at shooting down TARP... but no, this $819 billion was in addition to the $700 billion already allocated.

That's right... half the TARP was still unspent and Congress had already upped the bailout to $1.5 trillion dollars.

16) Sanity seemed to trickle into the Senate as the chances for the Bail Out passing started to drop. The opposition party started to feel their oats and decided to make an effort at changing the bill ... somewhat.

They fought so darn hard that the bill was held to just under $900 billion dollars.

17) At this point even the controlling party started to feel some guilt about the bill and, to show their good faith bi-partisanship, cuts were made!

After serious hand wringing by the Senate moderates (who weren't invited to the toga party) the $800 billion bail out was whittled down to $828 billion. Shew!!

18) Popular support for the bail out officially dropped bellow the previous presidents approval rating so the controlling party flew into action with hatchets and machetes to show the American people that they were serious about creating a lean bill. It was a fiscal blood bath.

Reports were that their diligent efforts had slashed the bill to a measly $780 billion! That's almost as affordable as BOGO at Payless Shoe Source!

But popular support remained low.

Finally the President stepped up to the microphone....

19) In his first official presidential press conference the President adeptly and fully answered all the questions he was asked ... about A-Rod. The public was left mostly with a theme of "I don't want to steal my Financial Einstein's thunder. He will Talk at length tomorrow and you will all be amazed at how much thought we put into this!"

20) The great day of enlightenment arrived to a resounding collapse in the stock market leaving many to wonder if GDP could possibly contract far enough to create black holes.

Flush with confidence in the fate of the American Economy the bail out was passed that afternoon for the low low price of $838 billion.

The $58 billion increase was apparently proactive inflation markup for the bill being passed.

21) Super Smart Financial Einstein -- a man so smart that he is almost above the law-- still had to speak. The nation waited...

When it finally came his message was simple "Hey thanks for that $838 billion, I really needed that. But what I am hear to talk about isn't the $838 billion... that is old news. I'm hear to talk about TARP1... well, no... actually TARP2... did I mention there would be a Tarp2? yeah, I'm going to need another $1 trillion dollars..."


The bailout, just in bills, now stands at $2.5 trillion dollars.....

That is 20% of the National debt added in a month if all bills pass.

Invest in gold plated canned goods.

No comments:

Post a Comment