Our financial system is quickly become a Rube Goldberg contraption of quick fixes. We have yet to see any fundamental changes to how the business of business is done. There has been one theme to the financial engineering of Wall Street: Print money and give it away
Like any Rube Goldberg contraption, it seems great when you are desperate for a solution. The problem is that in hindsight its always a mess.
If the Fed is going to give money to corporations unsecured, what happens if they cant pay it back ? Yep, I dont know either. Does the Fed ?
How much are they going to loan ? Yep, I dont know either. Does the Fed ?
Which companies will get the money ? I don’t know, but I own a bunch of corporations, can I borrow some ?
Does the Fed remember that it was leverage and the ensuing deleverage that got Investment Banks into trouble. Will there be leverage limits on corporations that can borrow money ? Just because the loans are just 3 months doesnt mean they wont be a problem./ How many times will they let a company roll over the debt ?
How will the Fed’s Special Purpose Entity (which will actually lend the money) pick which companies to lend to ? Will they be Obama or McCain supported companies ? Defense contractors who need money to supply bullets for our troops ?
If the loans are unsecured, what will the Vig be ? Cash ? Stock ? Preferred ?
Where is the transparency behind all of this ?
Call me a cynic, but I dont trust anything that doesnt offer me a realtime data stream
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That’s why my solution is to load a bunch of C-17’s with $20 bills and start air-dropping cash directly to the people. We’ve pumped hundreds of billions to the banks already in the hope that they would start lending, and the plan is to now pump $700B more with the same hope (sound like the definition of insanity to anyone beside me?).
Sounds like the banks are the problem. Solution: Take the banks out of the loop and drop the cash directly on the people. (85 tons of money per C17 works out to $1.7B per sortie … you know, it might just be cheaper than the Paulson plan).
Comment by Mike B -
The problem with the current Govt crises is a little different from Hank Paulson’s alter ego. Rube Goldberg developed comically, complicated fixes for simple problems; Hank presented a comically, complicated fix to an un-comically, complicated problem.
This was made more evident when the Fed gave AIG an additional $38B loan to cover what the $85B could not. Rube Goldberg has evolved into Hank Paulson.
Comment by TomH -
Rube Goldberg’s Alarm Clock vs Federal Reserve- Comparable?
Uh, starts in with the garbage man, picking up the garbage at six o’clock in the morning. This doesn’t move. And, as a rope goes though the window, it’s attached to a mule’s neck and it pulls the rope and the mule kicks over a pedestal with a statue of an Indian with a bow and arrow, and the bow punctures an ice bucket. And the ice falls on a set of false teeth which start to chatter, and that bites an elephant’s tail and the elephant, I hope I remember this, the elephant lifts his trunk and starts a mechanism of a toy maestro leading a sad quartet. And the quartet sings and the girl breaks down crying into a plant and the plant grows and tickles a man’s feet, who is sitting on a, a very complicated-looking apparatus, and starts rocking and, uh, that works a crane which pulls up the bed that the sleeper’s in and he slides into a pair of slippers which are on wheels and they propel him into the bathroom. [Both laugh] But this doesn’t really move. They have two there that move.
Comment by Clayton Williams -
Jack, re: your comment
Mr. Paulson has stated that he will not stay on as Sec. of Treasury in
the next administration–so you’ve got about 3+ months to trust him. He
has already assigned the management of the “rescue/bailout” to the
young man (age 35) who wrote Paulson’s original plan,
a Mr. Neel Kashkari, also formerly an employee of Goldman Sachs.
Sharp questions, Mr. Cuban.
Best of luck to all.
Comment by Lynn -
Now is not a time to assign blame. What’s done is done. We should all look towards the future. And wth a warrior like Hank Paulson in charge, i think the future looks bright.
Comment by Jack -
I guess I’m cynical too. Let see, we’re giving money to the people who got us into this mess and it’s being overseen by the people who should have been paying attention in the first place. I think were screwed.
Comment by Steff -
Guys…everbody needs to take a DEEP breath and RELAX. The financial markets are facing a bit of difficulty right now, but we have the best man on the job to tackle those problems….Hank Paulson.
Hank Paulson is one of the best money managers in the world. He has told us that he will likely earn a profit for us on these securities he will be buying from the various financial institutions. Why don’t we just let him do his job. If in 10-15 years we don’t earn any profits, then maybe we should ask for an explanation.
Otherwise, I say let the experts do their jobs, and solve the problem. Hank himself has a net worth of $700 Million. I think he may know a thing or two about making money.
Comment by Jack -
If it were possible to sell short on the bail-out, I would put about
half of what’s left in my 401(k) into it.
I was certain that Value Jet was going down in flames when their
jet crashed, and I am certain that this will go down in flames
as well. It has Charlie Foxtrot written all over it.
Comment by C Rice -
I’m adding this to my list of great quotes:
“Call me a cynic, but I dont trust anything that doesnt offer me a realtime data stream
Comment by Barry Gitarts -
Thanks for all of the information and sharing with us, you are the only guy I trust in this whole mess….
Comment by shocked and awed -
Although I agree with you 100%, there are some speed bumps; the bill
that passed is better than the one that didn’t.
1) The money will be given away in fractions–the second and third
bits will only be given away if other requirements are met.
2) The bill–supposedly–guarentees that the feds give back money
“to the taxpayers” (whatever that means practically) if they actually
MAKE money in the mid- or long-term (well, les than five or ten years
from now).
3) If Obama is elected, he will push for more regulaiton AND get it
passed, since his party will own most of Congress (probably).
Also, the market does funny things. If people can’t afford to fly,
they will spend more of their money domestically (excluding
buying plane tickets, true, which is domestic investment, but
still, they won’t be buying foreign currencies to pay for goods
oversears).
I’m trying to be optimistic, but yes, your main points are spot on.
The least the feds can do is SHOW US what is going on; maybe not
every second, but at LEAST once every 24/36 hours. I mean, in
essence, these companies are now IPOS, and the shareholders
are ALL THE AMERICANS, since it’s a burden on tax funds, either
directly or indirectly. SO yes, we need a constant info sheet
online AND available on TV to show us what’s going on.
Comment by the-cuban-responder -
Oh, I’m totally with you, Mark. This “mess” needs oversight, but frankly, I’d like the oversight to be, in part, done by the American tax payer. Let’s face it. It’s our money. I wonder when my shares will come in the mail. Hmmmm.
Comment by simply scott -
Let’s see….700bil to companies that can’t do things right and they fail because of that…or a refund of about 2300 to each citizen. I like that one better because I know I’m not going to see any return from any of this bailout stuff…and I know that might not be the way and it might be dumb of me to think of it that way, but I’d rather get some cash, than save a company.
Comment by Seth -