For many years now we’ve all seen the reckless use of taxpayer funds by Washington. This irresponsible and unaccountable waste of tax dollars has been particularly prominent during President Bush’s tenure - from billions going to blow up bridges, roads and buildings in Iraq, only to rebuild them - to the Department of Homeland Security, which is no more than a joke. Meanwhile, America’s own infrastructure is in badly need of repair, with current estimates anywhere between $1.5 to $3 trillion and growing each day.
Has anyone asked where this money is going to come from? I guess it seems like a trivial issue given the current problems. But it’s going to be a big problem in the not-so-distant future. My guess is that Washington’s inability to pay for these repairs will ultimately lead to the privatization of the transportation department, prison system and many more services expected by taxpayers.
Of course Washington will spread the myth that “we will have much better roads and bridges and a more efficient prison system when they are under the control of the free markets.” Sure we will, just like what the “free markets” have done to the energy, healthcare and financial industries. It’s going to represent another gravy train for those involved.
We’ve also seen the absence of any accountability whatsoever from Halliburton’s fraudulent activities in Iraq, not to mention hundreds of government contracts automatically awarded to Halliburton uncontested. Perhaps, it is only a mere coincidence that Vice President Dick Cheney was the former CEO of the company.
Still, the abuse continues, from virtually every major drug company defrauding Medicare and Medicaid of billions, HMOs gauging prices and refusing coverage while employers shift higher costs to employees, CEOs destroying companies and leaving with dynasties, while the most fortunate segment of the working class continues the Bush-era trend of benefit cuts and no wage growth, while struggling to pay for food, gas and healthcare. Others have lost their jobs as corporations dump them for the cheap labor created by unfair free trade policies endorsed by Washington.
Of course, this is old news but it is a reminder that these issues remain unchallenged. And we should not forget them. We should demand an immediate resolution and prosecution of all who have defrauded taxpayers. It’s easy to forget so many of the devious and fraudulent activities of Washington, corporate America and Wall Street.
When the media isn’t distracting you with Britney Spears, Paris Hilton, Hannah Montana and O.J. Simpson, they are broadcasting shills and morons who lie about the real situation in the economy. Combine these smoke signals with the fact that Americans are struggling more than any time in at least the past three decades, and it’s easy for people to forget the source of the abuse. I’m here to remind you.
We are now seeing America’s collapse. There is no way America will ever rebound from the reckless actions of the Fed, the U.S. Treasury and Washington unless radical change happens, and soon. That I will guarantee. Unfortunately, even Obama does not offer the kind of change needed to fix the problems. He simply lacks a sufficient understanding of the problems. McCain would obviously be a disaster for everyone except corporate America and the wealthy.
You might not feel the full effects now or even next year. But I can guarantee you this is going to go down in history as the straw that broke America’s back. These clowns in Washington don’t care about tomorrow. All they’re concerned with is today. That same mentality is precisely the reason why America has been on a collision course with disaster for many years.
You Now Own Junk Bonds
Taxpayers have even more pain to endure. It’s now official. If you are a taxpayer, you are now an investor in the insurance, banking and mortgage industries. But you don’t own profitable businesses. You own their worst debt – junk bonds. Washington has engaged in the biggest bailout of private industry in history and you can bet it’s not over yet. Do you really think taxpayers are on the hook for only $25 billion for the Fannie-Freddie bailout and $85 billion for AIG?
And for all of those “buyouts” you are hearing about, they aren’t really buyouts. As I mentioned in a previous article, they are really bailouts disguised as buyouts. Why do I say this? Well, consider that the Fed is providing the banking cartel (not the mid or small banks, just the big guys who own them) with $200 billion each month from America’s best Treasury securities in exchange for “investment-grade” debt, including mortgage debt. However, ask yourself who was responsible for rating this debt investment grade. Might it be the same credit agencies that once placed AAA ratings on mortgage debt that are now junk bonds? Of course.
Instead of shuttling your tax dollars into solid investments, they have been handed out to companies on the verge of collapse. In exchange for your tax dollars, you get bonds that are likely to turn into junk. But Washington is not finished.
The U.S. Treasury is now proposing a complete bailout of the entire financial system by creating the Resolution Trust Corporation as it did in the 1980s as a result of the Savings and Loan crisis. This will be an official exchange of taxpayer dollars for the entire pool of junk bonds held by the financial and mortgage industries. While the official approval has not yet come, I am certain it’s on the way.
In the end I would this RTC will initially consume around $800 billion in taxpayer money. Later, Washington will most likely ask for more and will easily surpass $1 trillion. Assuming the junk from Fannie, Freddie and AIG is not shuttled into this Repository Trust, I would conservatively estimate the total cost to taxpayers to be an additional $400 to $600 billion.
Add in the $29 billion for Bear Stearns and the $1.4 trillion already loaned to banks and you are looking at over $3 trillion taxpayers could lose. But don’t forget the $2 trillion plus provided by the Treasury to money markets, some of which could be lost. Most likely, several private firms will buy off some of the debt and try to salvage it. The more they buy the worse taxpayers will suffer.
But this historic bailout won’t save the economy. It will only weaken the foundations of America. All the bailout is doing is keeping the credit markets going. Understand that corporate defaults will soar even further, creating a huge junk bond market. And much of that junk is likely to be held by the U.S. Treasury.
Once again, as I have been saying for months now, I can guarantee you corporate earnings are going to meltdown and corporate defaults are going to soar, causing a massive junk bond market, so get ready. But that’s only the tip of the iceberg. Once defaults spiral out of control we are likely to see the implosion of the $65 trillion Credit Default Swaps market.
What kind of bozos are running this country? Washington can’t even manage its huge annual deficits. The national debt is already $10 trillion. The entitlements programs over the next few decades is in deficit by up to $71 trillion (in present day dollars), the Iraq War is expected to cost taxpayers a total of over $3 trillion, $3.3 trillion is missing and another $3 trillion is needed to repair the nation’s infrastructure.
And now taxpayers are on the hook for the mistakes of the world’s largest insurance and mortgage companies and the worst junk held by the financial industry? The Fed has already loaned the banks over $1 trillion! Good God. This is indeed America’s financial apocalypse unfolding before your very eyes.
Even if these investments pan out do you really think you will benefit? Even if these companies made a turnaround in a few years, if you are expecting some type of tax rebate as a return on this investment you are dreaming. Sure, Washington will tell you that these companies will turn around. They will tell you that this will be a great investment and you will be rewarded with tax cuts. Think again. The only winners in this massive socialistic bailout will be the banks and the CEOs who will escape criminal prosecution.
You can bet Bill Gross plans to get his hands on the best of this debt. Bill why don’t you try earning your hedge fund-like management fees for a change instead of charging over 30% of gross returns (around 2% total fees on 6% gross returns) for managing what has mostly been AAA bonds and returning an average of less than 4% (before taxes) annually over the past 5 years to shareholders in your Total Return fund.
The bailout will give Gross a chance to cherry-pick the best debt to manage. Maybe he will start earning these outrageous and what I would consider illegal fees. If so, it will be a bailout for his investors at the expense of taxpayers. It’s shocking to see how this can be the world’s largest mutual fund. Talk about dumb investors.
Delaying the Destruction
Washington cannot stop the effects of bad bets made by the financial industry. And to stick trillions to taxpayers is insane. Once again a moral hazard has been confirmed by this bailout. Let’s have a look at the long-term cost of this bailout. As I have discussed in “America’s Financial Apocalypse” and reiterated in previous articles, Washington’s mandatory expenditures are going to shrink the budget until nothing is left for discretionary items.
You can bet this will mean higher taxes, continued cuts to Medicare and Medicaid and low cost of living adjustments to Social Security. But still, there is no way out of this mess without radical changes to U.S. economic policy. Soon, Americans will be reliant on foreign nations to loan Washington money to pay for Medicare, Medicaid and Social Security benefits. Added with the interest expense on the banking bailout, the problem has been made worse.
Finally, understand that the estimates made by the GOA are in my opinion very conservative. The real numbers will be much worse. Ultimately what this means is you had better start making friends with Asia because they will be sending your Social Security checks.
More Soft Talk
Despite the fraud, Washington puppets and CEOs remain above the law, which very rarely leads to real penalties for those most responsible for the destruction. McCain latest attempts to show he means business give you an idea what he plans.
“Honest people on Wall Street, and there are many, will have a friend in the White House when I am president.”
Yea, okay…like a secret fraternity handshake, what he means is….“Guys I’m on your side; don’t worry, it’ll be business as usual if you elect me.”
There are “many honest people on Wall Street”? How would he know? Has McCain worked on Wall Street? Maybe McCain is defining honest using his own standards, which appear to be quite low. I worked on Wall Street, and I’ll tell you right now - they’re all crooks; well 99% of them anyway. That’s precisely why I left.
As a former Wall Street colleague once told me, “If you have a brain and a conscious you don’t stay in this business (Wall Street).”
Why can’t Obama be a man and just say it – America’s free market economy is broken and badly need of repair. Instead, he points out the problem but stays clear of any solutions. "Let's be clear," he said, "what we've seen the last few days is nothing less than the final verdict on an economic philosophy that has completely failed."
As far as I’m concerned, anyone who doesn’t conduct a full investigation of this charade leading to several CEOs and other executives in prison with all of their assets being shuttled into America’s bailout fund doesn’t have what it takes to lead America anywhere except on its current course – downward. But it doesn’t really matter at this point anyway. Washington and the greedy bankers have ensured the end of what was once a great and proud nation filled with hope and opportunity.
The Blame Game Has a Purpose
All of you democrats and republicans out there, it’s time to wake up and smell the stench. The blame game will get you nowhere. It only serves as a scapegoat to place blame on the other party. You need to realize this is a problem with both parties. It is a problem with Washington.
Based upon all that has happened…soaring gas prices, record foreclosures, massive taxpayer fraud, ridiculous bailouts, exportation of jobs, cancellation of pensions promised decades ago, Wall Street and bank scandals that go unpunished, I am shocked there have been no protests in Washington.
See Our Copyright Policy
Copyright © 2008-2014. AVA Investment Analytics, LLC. All Rights Reserved.
Restrictions Against Reproduction: No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without the prior written permission of the copyright owner and the Publisher.
These articles and commentaries cannot be reposted or used in any publications for which there is any revenue generated directly or indirectly. These articles cannot be used to enhance the viewer appeal of any website, including any ad revenue on the website, other than those sites for which specific written permission has been granted. Any such violations are unlawful and violators will be prosecuted in accordance with these laws.
Article 19 of the United Nations' Universal Declaration of Human Rights:
Everyone has the right to freedom of opinion and expression; this right includes freedom to hold opinions without interference and to seek, receive and impart information and ideas through any media and regardless of frontiers.
More On Economics