No Plan B on Bailout

[BobinSFCA]

Another interesting article:

http://news.yahoo.com/story//politic...politico/13769

It basically says, "So what’s Plan B? There really isn’t one.
If this week’s bailout doesn’t work, the government will probably have no choice but to continue to buy assets. There’s no one left to pick up the tab. “The private sector got us into this mess,” said House Financial Services Committee Chairman Barney Frank (D-Mass.). “The government has to get us out of it.”

[phirang]

Re: No Plan B on Bailout

my understanding is it works as follows:

treasury buys stuff at x.
market stabilizes.
(hopefully), stuff at cost x develops a premium coefficient y>1.
we sell stuff at x*y to Russia, China, and GCC.
profit is (y-1)*x, redeemed to taxpayers in stimulus checks or tax rebates or something.

the PROBLEM is paulson and Ben cant publicly articulate the plan without outraging our trading partners, and so the morons in congress have an easy time at getting righetously indignant. in any case, this delay is hurting the BRIC's and everyone else more than the US at the moment, and so perhaps we'll get better terms when we sell our dogshit to them and then can force the bailout thru congress.

my question is, what sort of haircut will agencies take?

[ASH]

Re: No Plan B on Bailout

my understanding is it works as follows:

treasury buys stuff at x.
market stabilizes.
(hopefully), stuff at cost x develops a premium coefficient y>1.
we sell stuff at x*y to Russia, China, and GCC.
profit is (y-1)*x, redeemed to taxpayers in stimulus checks or tax rebates or something.

the PROBLEM is paulson and Ben cant publicly articulate the plan without outraging our trading partners, and so the morons in congress have an easy time at getting righetously indignant. in any case, this delay is hurting the BRIC's and everyone else more than the US at the moment, and so perhaps we'll get better terms when we sell our dogshit to them and then can force the bailout thru congress.

my question is, what sort of haircut will agencies take?

Sounds like a plan (and stated succinctly, may I add). But, how much credence do you give to EJ's observation that "too many things broke at once"? I think the pucker factor is north of 8 right now... could be things just fall apart. Am I wrong?

[phirang]

Re: No Plan B on Bailout

Sounds like a plan (and stated succinctly, may I add). But, how much credence do you give to EJ's observation that "too many things broke at once"? I think the pucker factor is north of 8 right now... could be things just fall apart. Am I wrong?

we may have to eat a market crash to make the dollar-stockpilers desperate enough to transfer their capital to the US... that, and to get congress out of the way.

if i were a trader, i'd definitely have a trade betting on the emerging markets crashing much, much harder than the US if TSHTF.

[jpatter666]

Re: No Plan B on Bailout

Seeing how bad everything is failing (and thinking about the imminent post on capital controls) I have to ask a question.

What if (again) the government makes it illegal to own gold (and perhaps oil proxies as well).

FDR did it -- so there is precedent.

[phirang]

Re: No Plan B on Bailout

Seeing how bad everything is failing (and thinking about the imminent post on capital controls) I have to ask a question.

What if (again) the government makes it illegal to own gold (and perhaps oil proxies as well).

FDR did it -- so there is precedent.

with COMEX futures, u can make gold worthless by having naked shorts sit on it.

[jtabeb]

Re: No Plan B on Bailout

my understanding is it works as follows:

treasury buys stuff at x.
market stabilizes.
(hopefully), stuff at cost x develops a premium coefficient y>1.
we sell stuff at x*y to Russia, China, and GCC.
profit is (y-1)*x, redeemed to taxpayers in stimulus checks or tax rebates or something.

the PROBLEM is paulson and Ben cant publicly articulate the plan without outraging our trading partners, and so the morons in congress have an easy time at getting righetously indignant. in any case, this delay is hurting the BRIC's and everyone else more than the US at the moment, and so perhaps we'll get better terms when we sell our dogshit to them and then can force the bailout thru congress.

my question is, what sort of haircut will agencies take?

No question of descent into Facism here? (Voluntarily, I might add?) WTF?

[*T*]

Re: No Plan B on Bailout

Where is the upside if the taxpayer is buying at "hold-to-maturity" prices?

[ASH]

Re: No Plan B on Bailout

Seeing how bad everything is failing (and thinking about the imminent post on capital controls) I have to ask a question.

What if (again) the government makes it illegal to own gold (and perhaps oil proxies as well).

FDR did it -- so there is precedent.

Not sure why they'd bother. We're already off the gold standard, so the government can inflate the money supply without confiscating gold. That's why FDR did it; Bush or his successor won't have to.

I can only think of one reason why the government would wish to confiscate gold -- and "to screw me personally" isn't it. The government might need to confiscate gold if it was preventing them from controlling the currency. That means if gold was the basis of the currency, they'd have to confiscate it in order to reprice it. Alternatively, if gold started to get established as an alternative currency, they'd want to stamp that out. The thing is -- Greshman's law pretty much ensures that gold won't become an alternate means of exchange inside the US, because as long as fiat currency "is legal tender for all debts public and private", people will hoard gold as a store of wealth while paying for stuff with paper.

Okay -- now that my tinfoil hat is properly seated on my head, I can think of one other scenario in which gold might be confiscated: a complete collapse of the dollar. If the government needs a hard basis for either (a) booting a new money system, or (b) vital international trade, then perhaps gold would be confiscated "for the public good". However, I think that either of these could be accomplished without confiscating gold. For instance, if the dollar is no longer accepted as a medium of international trade, then we are more likely to export for other fiat currencies and trade in those currencies than we are to go back to a gold-based system. Internally, a "new dollar" doesn't necessarily have to be based on gold.

That said -- not all my eggs are in the "don't worry" basket.

[jimmygu3]

Re: No Plan B on Bailout

my understanding is it works as follows:

treasury buys stuff at x.
market stabilizes.
(hopefully), stuff at cost x develops a premium coefficient y>1.
we sell stuff at x*y to Russia, China, and GCC.
profit is (y-1)*x, redeemed to taxpayers in stimulus checks or tax rebates or something.

the PROBLEM is paulson and Ben cant publicly articulate the plan without outraging our trading partners, and so the morons in congress have an easy time at getting righetously indignant. in any case, this delay is hurting the BRIC's and everyone else more than the US at the moment, and so perhaps we'll get better terms when we sell our dogshit to them and then can force the bailout thru congress.

my question is, what sort of haircut will agencies take?

Reminds me of Cheney telling senators that Saddam was a lot closer to nukes than we were telling the public. Nudge nudge, wink wink. This is all about saving the fat cats' asses and nothing about maximizing taxpayer returns. Why wouldn't he come out and say "When the market stabilizes and begins to go back up, the Treasury may sell some or all of the assets at a profit. That profit will be equally distributed to US citizens." Why? Because that's a lie even he hasn't thought of.

[c1ue]

Re: No Plan B on Bailout

ASH,

There are reasons beyond the government needing to confiscate gold in order to form a new gold standard dollar.

For one thing - should inflation continue to grow, people will start keeping all of their liquid assets in PMs.

This hurts the bankster and overall economy because this PM-ized liquidity cannot be used to make loans from (as deposits in banks are) nor shell gamed as assets (as AIG-rescue clause now permits).

The existence of gold or anything else of value in private hands is not itself the problem, it is the fact that there would then be a widespread alternative to the dollar even inside the US.

It is important to distinguish the differences with the past gold actions: FDR's outlawing of bullion gold was in context of a government mandated inflation. Nixon's exit from the gold standard, on the other hand, was a conversion from any semblence of a 'hard' currency into a fiat one.

But the problem with a fiat currency is that ultimately it is belief which gives said currency its value. An inflationary spiral with a fiat currency can become unstoppable, especially if there are ways for some significant number of people to avoid its effects.

It is this aspect which I worry about: capital control in the fascist sense (as opposed to capital control for flight prevention purposes, although also fascist)

[Tulpen]

Re: No Plan B on Bailout

After seeing the CSPAN dog and pony show it is crystal clear to me that the package is going to be passed in the house by Friday.

That means only one thing for me and that is that this is good for financial equities.

Went long financials near the close of today.

A no brainer in my mind.

[phirang]

Re: No Plan B on Bailout

After seeing the CSPAN dog and pony show it is crystal clear to me that the package is going to be passed in the house by Friday.

That means only one thing for me and that is that this is good for financial equities.

Went long financials near the close of today.

A no brainer in my mind.

WE'VE GOT GOSBANK!

YES!!!

[Tulpen]

Re: No Plan B on Bailout

WE'VE GOT GOSBANK!

YES!!!

Not really, we got private banks who just got an opportunity to unload everything they do not like to the government. Good for the banks and the private financial industry, very bad for the government and taxpayer, but I have no stock in the government!

[ASH]

Re: No Plan B on Bailout

ASH,

There are reasons beyond the government needing to confiscate gold in order to form a new gold standard dollar.

For one thing - should inflation continue to grow, people will start keeping all of their liquid assets in PMs.

This hurts the bankster and overall economy because this PM-ized liquidity cannot be used to make loans from (as deposits in banks are) nor shell gamed as assets (as AIG-rescue clause now permits).

The existence of gold or anything else of value in private hands is not itself the problem, it is the fact that there would then be a widespread alternative to the dollar even inside the US.

It is important to distinguish the differences with the past gold actions: FDR's outlawing of bullion gold was in context of a government mandated inflation. Nixon's exit from the gold standard, on the other hand, was a conversion from any semblence of a 'hard' currency into a fiat one.

But the problem with a fiat currency is that ultimately it is belief which gives said currency its value. An inflationary spiral with a fiat currency can become unstoppable, especially if there are ways for some significant number of people to avoid its effects.

It is this aspect which I worry about: capital control in the fascist sense (as opposed to capital control for flight prevention purposes, although also fascist)

I'm not sure I follow 100%, but I get your drift.

I'm having a conceptual problem appreciating your point about liquid assets. Before this all went down, most of my money was in stocks and bonds; now it is in PM. At neither point was my money primarily on deposit at a bank. My bank account is for immediate expenses, which will remain true unless there's a complete system failure; PM is taking the place of "wealth-building" investments. Mechanistically, is there some way that my ownership of, say, shares of an energy mutual fund was used as a capital base from which to lend? I suppose the bonds are a lot more important, given the difference in size between the bond and equity markets. If a lot of money goes out of the bond market and into hard assets, that starves the economy of credit, which isn't good for business or government. Is that the main angle here -- having an alternative to bonds as a store of wealth? Is this a realistic concern, given the disparity in size between the PM market and either equities or bonds?

Also, regarding your point about what gives fiat its value... What you say is ultimately true in extremity, but up until that point, I'm not sure it's the whole story. I think that the state's monopoly of force also gives fiat its value (within the national borders). Up to a point, the government can force you to accept fiat currency as payment for goods and services. The value of fiat is tied to the government's role in enforcing contracts. However, you are right -- if it does this in extremity, during hyperinflation and without public confidence -- you get Zimbabwe. "Informal" black market transactions become the norm, and a lot of economic activity shuts down, because although the government can force you to accept fiat for goods or services, it takes one step further to force you to provide same if you don't think the compensation is adequate.

Where I end up is that if it looks like the system will actually break -- hyperinflation rather than a major inflation -- then gold confiscation might be on the menu. Perhaps the same applies if movement of money into PM interferes significantly with reflation efforts, or endangers the bond market. Still, the respective sizes of the bond market and PM market are so different that I have a hard time conceiving of this happening.