Sunday, March 29, 2009

Bailouts and Gambling

So much of the problems in the current economy were caused by banks placing large bets on uncertain propositions with high risk on the chance of an upside while the bubble lasted, so it's with a certain amount of irony that the government is pushing its new "public/private partnership" plan as the latest effort to pump more taxpayers money into the zombie banks while they continue shoveling it out the back door to their executives while they still can. See, the plan relies on private investors taking a gamble, hoping that the "bubble" will hold long enough for them to realize a profit, but potentially risking their long-term viability if it doesn't.

But wait, you say, aren't they getting heavily subsidized by the government, so much so that it's practically a no-brainer to participate, since the government is taking all the risk (with taxpayer money, of course, not their own personal money or anything crazy like that) and giving the private investors all the potential reward? Well, yes, the numbers do work out that way, and any idiot can see this is another thinly veiled effort to funnel more money to zombie banks and their executives. However, the premise that there's no downside assumes the bubble state holds, kinda like leveraged investments in CDO's were a no-brainer during the housing bubble: you got rich from bonuses for making millions for the bank, as long as the bubble held. So what's the bubble now?

Well, the bubble now is the concept of a free market for the investors, specifically an environment where the government doesn't just decide how much you're going to make, what you're going to do, and how all your investments are going to fare. Make no mistake: we're in a bubble right now, left over from when we had a capitalist economy; but it is only a matter of time before that bubble goes away and the government takes over all private investment. The Treasury has already asked for broad oversight powers, the public is ready to let Obama and the socialists punish the evil capitalist bankers, AIG bonuses were the canary, and the writing is on the wall. When the bubble bursts, you really don't want to be in the front row (or anywhere in the country for that matter, but front row will get hosed first); in this case, that means as far away from "public/private partnership" investments as possible. After all, a partnership is give and take, and when the socialists are really hitting their policy stride, they're going to be taking all your money and giving you public condemnation (if not jail time, or worse).

It will be interesting to see how much up-take their is with the latest plan. Of course the large banks will likely participate if allowed, since they're already neck-deep in TARP manure, and they'll be gambling with your money anyway. As they say: in for a dime, in for a trillion dollars. However, if I were a hedge fund manager I'm not sure I'd be rushing into the gas chamber, no matter how sweet the money inside looks... when the bubble bursts, you're going to want to have an exit strategy, monetarily and physically, and getting in bed with maniacal homicidal uncle Sam just doesn't seem like a good idea, even if he's throwing out money like a printing press hooked to a leaf-blower. Like the song goes: the times, they are a-chang'in.

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