hjmann.com Blog

Again, Mark Cuban writes, and asks a very important question:

“I dont know why anybody thinks that the Bankers who got us into this mess are going to take 700B of taxpayer money and  know how to loan us out of this mess. It makes no sense at all. We need to set standards for how the money will be used by banks”

 

My reply is below:

 

Hi Mark,

A few points to consider:

First, remember it was the Congress who mandated to Fannie and Freddie that a) their loans be 50% to minorities and the poor, and 2) that food stamps, unemployment and other transfer payments must be considered as income on the applications (NO, I AM NOT KIDDING. LOOK IT UP). So what makes you think they are smart enough to know exactly what to do to fix this? Have you met your Congressman? Like most of them are, he’s probably a moron just trying to hang onto the best job he’s ever had or ever gonna have. Not much incentive to drive real change, even if he was smart enough to do so, which he likely isn’t.

Second, while these clowns debate where and how to place the pump, the boat is taking on ever more water. Whatever they do, they better do it damn quick before the boat sinks and no amount of money will fix the problem.

Remember: the heart of this wasn’t lack of intelligence, but lack of due diligence. When these guys saw the AAA rating on these securities, they bought and sold them all over the world (foolishly as it turns out) expecting that the paper was in fact AAA. The rating agencies failed at due diligence. The banks who bought and sold these failed at due diligence. And the insurance companies who insured these (think: AIG) failed at due diligence.

Final point: It is more than possible… dare I say likely… that if managed correctly, the Feds could make alot of money on this deal. The government’s power is the length of their time horizon, and it probably would not take more than 8 or 10 years to work this completely out.

The problem the last time with the RTC? An S&L would fail and go into the Fed’s hands, and the same guys who handed the failed institution over to the feds–literally– would form another corporation, and buy back from the Fed the identical assets at pennies on the dollar. Disgusting.

Want to focus on something? Focus on who in the hell is going to manage these assets on behalf of the American people and do so in a way that gets us the maximum profit, even if it takes 10 years or more to work it all out.

 

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