Goodbye Bailout!

Ok, so the bailout isn't truely dead. In fact, it's a given some version will pass. And maybe something needs to be done. It's just this version was phenomenally vague in its specifics, and looked like it could dramatically alter the nature of American capitalism. Oh yeah, and raise the national debt while we are at it.

My objection isn't simply an economic one, although that is a valid point. The brilliant John Hussman wrote a wonderful piece titled You Can't Rescue the Financial System if You Can't Read a Balance Sheet, explaining why this does little to improve bank balance sheets and the likelihood they will fail.

My objection isn't even centrally the price tag, although $700 billion is enough to make you gasp for air. That works out to $5,072 per taxpayer in the US to buy distressed assets and flip them.

What I really dislike is that Uncle Sam would actually own the debt and potentially the stock of American companies. YUCK! For how long? What would the process be to unload these investments? As someone in most developing countries will attest, once the feds take a stake, privatization is not simple. That means we could see a landscape where we have companies with substantial governmental ownership in the US of A!

When the government maintains ownership, even if it is a modest minority stake, how does that influence government policy? As anyone with concerns about US beef will attest, the dual role of the US Dept of Agriculture in regulating and marketing beef often raises questions about the regulatory environment. On the other hand, government ownership could result in politicians trying to twist arms of the corporate leaders for political gains.

And how does the process of government divesture work? If the government sells, would it be perceived as a vote of no-confidence? What might be the rumblings of that? The government is no ordinary trader.

The stock markets have to fall. Earnings have been inflated by artificial methods and will have to normalize. But to save the taxpayer some, the Feds would do better to put a temporary hold on the 'mark-to-market' accounting rule, so they can look into other methods of valuation. 'Mark-to-model' was always bad, especially if there was no regulatory control of the model, but this mark-to-market nonsense is just as bad. Just because someone claims your house is worth $100,000 doesn't mean it is! There is a cash flow stream that has a value - maybe the accounting boards just need to firm up the assumptions used in their DCF model.

Meanwhile I won't hold my breath that another phenomenally bad bill doesn't emerge. All I hope is that the House Republicans managed to prevent the socialization of America! (Senate Repubs, way to show spine!)