The Three Stooges Located...Hint: somewhere in your house
Jan 18, 2009 at 11:02 PM


Our Complete Financial Comedy Collection


Watched some three stooges this afternoon and ended up realizing that I'm a stooge along with every other taxpayer in America.  The key to the quick success of TARP was the brainwarp that financial vocabulary occasionally has on non-financial people, including 99% of our politicians.  None of these clowns felt sufficiently versed in the basic concepts of securitization to challenge the talking points from Bernanke and Paulson.  When you find yourself so clueless that you don't even know what it is that you don't know, it's safer to keep your mouth shut and occasionally grumble about the unfairness of it all.  Then vote yes anyway, because you can always remind voters that you did grumble.

Why didn't we explore the creation of 7 new banks and give each of these banks $100 billion in fresh capital.  This would have been much healthier than attempting to keep this amalgam of toxicity alive.  But for reasons still not fully explained, Bernanke and Paulson chose the path of stooges.  And here we are 3 months later, with little improvement in credit markets or lending.

Is it plausible that personal relationships helped shape our policy?  Sometime last march after the Bear Stearns rescue weekend, I believe Geithner and Paulson had a discussion and began their mental list of which banks should be saved.  At this point Lehman's fate was sealed.

Let us not forget that essentially all of the large banks and investment banks were insolvent by this juncture and what happened to Bear Stearns and eventually Lehman could have just as easily happened to Morgan Stanley and Goldman Sachs.  There was no real distinction between any of these firms.  If GS were forced to mark their level 2 and level 3 assets at real market prices, they would have been just as insolvent as Lehman or Bear.  Perhaps these first two had slightly more toxic garbage on their books than GS, but these are just different shades of insolvency.  And don't forget that the quality of their Tier 1 Capital was suspect as well.  All of these banks were using some portion of DTAs (deferred tax allowances) as Tier 1 Capital.  Let that sink in for a moment.  They were counting tax-loss carryforwards as being Tier 1 Capital.  And the regulators let them get away with it.

Meredith Whitney said in March of last year that the smart banks should sell their assets at whatever bids they could find.  She saw prudently that bids would inevitably drop for every asset class.  She was of course absolutley correct.  Back in May, UBS sold a huge portfolio of ALT A loans ($25 billion worth I think) and took a bid of .64 cents to par.  This was probably a tough decision for them as I believe UBS had these loans marked at above .90 cents at the time.  Now, eight months later it appears to have been a genius trade.  Perhaps even a company-saving trade.

So let's talk about de-leveraging for a moment. All it means is selling assets in order to reduce the amount of money that you are borrowing.  To sell an asset you must have a buyer.  But wait, what?: if everyone is leveraged up 30 times or higher, and everyone is looking to sell everything on their books, who will be the buyers?

The only natural buyers are the other banks. Hence we have seen massive price declines in every single asset class minus treasuries and the dollar, from relatively simple legacy lbo loans all the way to complex securitized products like CDOs, CLOs etc.

The answer under Bernanke and Paulson's plan is for the taxpayer to be the stooge and do the bidding.

But not at low, distressed prices like the large private equity firms have been paying...nope...not even close.  Try the opposite.  We taxpayers are being asked to pay an artificially high price under the guise of putting a floor under the market.  What a crock!  Anyone want to tell me the last time an artificial price floor actually worked anywhere in any market.  Sure it holds as long as the government bid remains, but as soon as it is removed, the price will fall to where the market dictates.

We are being played like stooges.  Instead of three, there are 300 million, and they are me, you, our friends and our children.

Where's Mo, Larry, and Curly you ask...?... Check The Basement.

Article originally appeared on The Daily Bail (
See website for complete article licensing information.