Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24
RECESSION When Yield Curve Uninverts - 8th Sep 24
Sentiment Speaks: Silver Is Set Up To Shine - 8th Sep 24
Precious Metals Shine in August: Gold and Silver Surge Ahead - 8th Sep 24
Gold’s Demand Comeback - 8th Sep 24
Gold’s Quick Reversal and Copper’s Major Indications - 8th Sep 24
GLOBAL WARMING Housing Market Consequences Right Now - 6th Sep 24
Crude Oil’s Sign for Gold Investors - 6th Sep 24
Stocks Face Uncertainty Following Sell-Off- 6th Sep 24
GOLD WILL CONTINUE TO OUTPERFORM MINING SHARES - 6th Sep 24
AI Stocks Portfolio and Bitcoin September 2024 - 3rd Sep 24
2024 = 1984 - AI Equals Loss of Agency - 30th Aug 24
UBI - Universal Billionaire Income - 30th Aug 24
US COUNTING DOWN TO CRISIS, CATASTROPHE AND COLLAPSE - 30th Aug 24
GBP/USD Uptrend: What’s Next for the Pair? - 30th Aug 24
The Post-2020 History of the 10-2 US Treasury Yield Curve - 30th Aug 24
Stocks Likely to Extend Consolidation: Topping Pattern Forming? - 30th Aug 24
Why Stock-Market Success Is Usually Only Temporary - 30th Aug 24
The Consequences of AI - 24th Aug 24
Can Greedy Politicians Really Stop Price Inflation With a "Price Gouging" Ban? - 24th Aug 24
Why Alien Intelligence Cannot Predict the Future - 23rd Aug 24
Stock Market Surefire Way to Go Broke - 23rd Aug 24
RIP Google Search - 23rd Aug 24
What happened to the Fed’s Gold? - 23rd Aug 24
US Dollar Reserves Have Dropped By 14 Percent Since 2002 - 23rd Aug 24
Will Electric Vehicles Be the Killer App for Silver? - 23rd Aug 24
EUR/USD Update: Strong Uptrend and Key Levels to Watch - 23rd Aug 24
Gold Mid-Tier Mining Stocks Fundamentals - 23rd Aug 24
My GCSE Exam Results Day Shock! 2024 - 23rd Aug 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Washington Subsiding Failure, Handing out Taxpayer Money to Bankrupt Banks

Politics / Credit Crisis Bailouts Apr 11, 2009 - 03:11 PM GMT

By: Money_and_Markets

Politics Best Financial Markets Analysis ArticleMike Larson writes: Imagine you went to get your driver's license. You studied up on your state's requirements. You learned the rules of the road. You practiced driving in your neighborhood under the watchful eyes of your mom or dad. And then when you went to the DMV, you passed the written and driving tests with flying colors.


Now imagine that you ran into someone in the waiting room who conceded he hit the sauce before coming in. You watched him flub the written test. Then you heard he crashed into the curb twice during his driving test — and spent most of the ride hitting on his instructor.

You'd expect to get your license — and you'd expect the other guy to fail, or maybe even get hauled off to jail.

Bad banks ... good banks ... it doesn't matter. In Washington everybody passes!
Bad banks … good banks … it doesn't matter. In Washington everybody passes!

But in Washington, D.C. these days, that's not how it works. Everybody passes! It's like some perverse Lake Wobegon world, where everyone is above average (or treated that way).

And it should have you, me, and every other American taxpayer fuming.

D.C. Doling Out TARP Money to Any and All Comers

There are a lot of bad banks out there. A LOT. As Martin explained earlier this week in his special presentation (which you can access to replay online here ):

“The debt crisis is much greater than the government has reported, according to the white paper. The FDIC's “Problem List” of troubled banks includes 252 institutions with assets of $159 billion. The updated review by Weiss Research, however, shows that 1,816 banks and thrifts are at risk of failure, with total assets of $4.67 trillion, compared to 1,568 institutions, with $2.32 trillion in total assets in the prior quarter.”

But there are also literally THOUSANDS of institutions that are NOT at an elevated risk of failure.

They did NOT take on excessive, stupid risk in the derivatives market.

They did NOT make a bunch of crappy residential and commercial mortgage loans.

They did NOT buy a bunch of esoteric, hard-to-value securities in an attempt to juice up the yields they earned on their portfolios.

The same goes for the insurance industry …

We just learned this week that life insurers have joined the seemingly endless line of companies seeking — and getting — government-funded bailouts. The Treasury Department is going to infuse capital into life insurance firms that are organized as bank holding companies or that own a thrift subsidiary. Many of those firms have seen their share prices plummet and their investment portfolios come under pressure.

ut you know what? For every poorly run insurer that took on too much risk in their investments and charged too little in premiums, there's another firm that's in much better shape. They did the exact opposite of their careless competitors.

Logic would tell you the best approach is simple …

Euthanize the Weak … Support the Strong

Nurses and doctors in the ER — or medics under fire during wartime — perform a vital function. Triage. They figure out which patients have the best chance of survival, and they focus their efforts on them. Those who are unfortunately a lost cause are kept as comfortable as possible until they pass on.

That's precisely what Washington SHOULD be doing with financial firms! Policymakers should be figuring out which institutions are too weak to survive, then euthanizing them. More specifically, they should deny them bailout money … let them fail … then let stronger competitors pick over their carcasses. If need be, bolster those stronger companies with aid so that the entire system doesn't come crashing down.

Instead of euthanizing weak institutions, government officials are raining money down on any and all comers.

But again and again, Washington is doing precisely the opposite. Officials are raining money down on any and all comers. Banks and insurers that are on the ropes because they took on too much risk are getting money willy-nilly. Heck, you could argue that some of the biggest risk-takers (Citigroup, anyone?) are getting the biggest share of the bailout money. It's just like giving a driver's license to the drunk guy who failed his test and sending him out the door to do even more damage on the road.

The banking industry “stress test” is a perfect example of this ridiculous approach. The results of the tests are being compiled now, and we should have some details in the next couple of weeks. You would expect that if any of the institutions failed, they'd get taken out — forced into receivership, carved up, or otherwise dealt with in a prompt manner.

But policymakers are planning to do the exact OPPOSITE! They've said that if any institution fails the test, they'll be given several months to raise money. If that effort fails, they'll be given an injection of taxpayer-funded capital.

The folks in Washington are passing out our money like it was Halloween candy, and every American taxpayer should be fuming.
The folks in Washington are passing out our money like it was Halloween candy, and every American taxpayer should be fuming.

Does this make any sense to you? Because it sure as heck doesn't to me. It's another blatant sop to the financial industry, just like

caving in on the mark-to-market standards and the subsidy-packed plan that gives away the store to fund managers who buy toxic assets from banks (both of which I talked about in last week's Money and Markets column ).

There IS a better way to go about this process without letting the world economy and the entire financial system collapse. We provided details in our recent white paper . It's high time the folks in Washington start paying attention — because it's OUR money they're handing out like Halloween candy.

Until next time,

Mike

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

Money and Markets Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in