CNBC, the broadcaster that so graciously gave Bill Gross near endless airtime to propagandize for an unfettered bailout of all debt holders of Fannie Mae and Freddie Mac, permitting his company PIMCO, the nation's largest bond trader to clear between 1.7 and 1.8 billions in profits on the backs of American taxpayers, is at it again. This afternoon at around 2pm (please see "CNBC's Fawning Coverage Helping Bond Billionaires Fleece Main Street," 09.15.08) Gross has been invited back on CNBC to give his insights on the current bailout plan.
http://www.huffingtonpost.com/raymond-j-le...a_b_128880.html
CNBC's Fawning Coverage Helping Bond Billionaires Fleece Main Street
On Thursday, the Wall Street Journal's lead editorial. "Bailout for Billionaires" pointedly questioned Mr. Paulson's motivations in giving "subordinated debt holders an entirely free pass". That, according to the WSJ, the subordinated debt hardly posed a systemic risk given that it represented only 1% of senior debt. It is debt that carries a higher rate of return but therefore carries a higher risk which is why it is held by deep pocketed investors better able to absorb potential losses. As the situation at Fannie and Freddie deteriorated investors reasonably feared a sub debt wipe out or at the very least a significant restructuring proposal asking "for some cash and giving them a new piece of paper" otherwise termed as a "haircut".
But wait. That kind of thinking doesn't apply to the powerful such as Pimco and especially if you have almost unlimited access to an influential and widely followed broadcaster on matters business and finance such as CNBC. Yes, the very same network whose hysterical oil reporting over the past couple of years has helped nudge prices to previously unimagined levels to $147 a barrel, exemplified by their recent reporting on the advent of hurricane Gustav and its prospective impact on the price of oil. With Gustav barreling along a few weeks back, CNBC commentators were more interested in drama than a cool analyses of the facts (please see "Gustav and Oil Price Hysteria" 09.01.08)
http://www.huffingtonpost.com/raymond-j-le...e_b_126385.html
Even if the bill had had some means in it to revitalize the U.S. banking system, this still would not have happened. The simple reason for this is that the bailout was much too small to have had any significant impact. At no point in the verbose discussions and pontifications in the congressional hearings did anyone specify approximately how large the problem was that this bill was trying to address. I personally had no problem of finding an estimate of $13 trillion of bad loans (which I think is much too low).
http://nyinvestingmeetup.blogspot.com/2008...all-street.html
We are told that "low interest rates" led to excessive borrowing, but we are not told how these low interest rates came about. They were a deliberate policy of the Federal Reserve. As always, artificially low interest rates distort the market. Entrepreneurs engage in malinvestments - investments that do not make sense in light of current resource availability, that occur in more temporally remote stages of the capital structure than the pattern of consumer demand can support, and that would not have been made at all if the interest rate had been permitted to tell the truth instead of being toyed with by the Fed. Not a word about any of that, of course, because Americans might then discover how the great wise men in Washington caused this great debacle. Better to keep scapegoating the mortgage industry or "wildcat capitalism" (as if we actually have a pure free market!).
Speaking about Fannie Mae and Freddie Mac, the president said: "Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk." And of course, by bailing out Fannie and Freddie, hasn't the federal government shown that the "many" who "believed they were guaranteed by the federal government" were in fact correct? Doesn't that prove the foolishness of chartering Fannie and Freddie in the first place? Doesn't that suggest that maybe, just maybe, government may have contributed to this mess?
Then come the scare tactics. If we don't give dictatorial powers to the Treasury Secretary "the stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet." As for home prices, they are obviously much too high, and supply and demand cannot equilibrate if government insists on propping them up. Left unsaid, naturally, is that with the bailout and all the money and credit that must be produced out of thin air to fund it, the value of your retirement account will drop anyway, because the value of the dollar will suffer a precipitous decline.
http://nyinvestingmeetup.blogspot.com/2008...ilout-plan.html