Deliberation or debate?

It’s your money, rescuing others. So. Do you understand what your money is being used for? I’m not sure I do. I’m not sure I know who does.

Maybe the Masters of the Universe? You know, the oh-so-smarter-than-you investment bankers. They’re certainly paid more for their wisdom than you or I. A first year, just out of college, investment banker gets around $125,000 – $150,000. And, we all know how much top-of-the-line investment bankers make – just look at Henry Paulson. In 2005, as CEO and Chairman of Goldman-Sachs, it is reported he made $30 million.

Maybe Paulson knows a thing or two: “There’s no way to stabilize the markets other than through government intervention.” Did he really say that?

Ah, but Paulson started out not wanting any strings attached. No equity stakes. No dividends. No limits on CEO compensation. Otherwise, the banks won’t play. Which begs the question: if they really need the bailout/loan/subsidy, then why wouldn’t they agree to those terms? Could they really turn down the government’s offer and watch the financial system go down the gurgler? Put aside the moral outrage that would be targeted at them (let alone the odd stone projectile or two), but wouldn’t that substantially eat further into their reserves and profitability. Doesn’t sound like a wise decision, either on behalf of their stockholders or their own future.

I continue to ponder the details. Like, where does the money come from? Is the Treasury going to print more money? That leads to inflation, which makes everything more expensive for everyone. A sure recipe to a major recession. Or, is the Treasury going to borrow more and raise our already dangerously high debt level? That will drive down the dollar, making imports more expensive and weakening the status and stature of American business overseas. (Not forgetting that it would probably be foreign sovereign wealth that would finance the debt!)

And, I ponder where the money will actually go. I suspect it will be the big banks (getting bigger by the day) that gets the lion’s share. They’re the ones who made all the dodgy investments (or have bought out the guys who did). They’re the ones who were able to package them into indescribably complex securities. And, they’re the ones that probably need it least – they’re big enough to cope with the losses and ride out the slump. Small banks, on the other hand, are more at risk. But, small banks (with some notable exceptions) never had the wherewithal to make those dodgy loans. So, are we rewarding the wrong guys? Who need it least?

Maybe that small-guy investor, Warren Buffett, has it right. When a bank needs liquidity, you either loan it to them at good terms or you get preferred stock. With a 10% annual dividend, even if the price of the shares fall in market value. Using that as a model, the country’s $700 billion should earn us a cool $7 billion. Guaranteed.

Does McCain understand that? Obama? I’ll be watching the debate, hoping to find out.


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