Doing it Right (Part One)

With money in hand, oversight provided in at least a limited way, it is time to see what the Federal government, notably the Department of the Treasury, actually does to implement the rescue plans. Money is still much too tight and there are still accelerating foreclosures. The market fell as the bill passed, as the financial world expressed its skepticism that what was passed is what will work. We all knew “something” had to pass or what we’ve seen so far would seem like the “good ole days.”

If the $85 billion AIG bailout which preceded the $700 billion “rescue” plan is any indication, we have some serious work to do. AIG is that mega-huge insurance company that slorped up those flimsy mortgage-backed securities (those “derivatives”) like a dehydrated athlete sucks down Gatorade. Insurance companies don’t make money from the premiums they charge – they make money from the investments they make with those premiums, and let’s just say AIG totally blew it. But since they insure lots of people, the government gave them cash to tide them over.

Trouble is, we gave them that money to repackage the various businesses within AIG and sell these units off in an orderly, non-panicked manner, and no one has got the money or the borrowing power it seems to buy these pieces. So AIG has already sucked down $61 billion of that “bridge” loan from the government, but it’s using that cash to survive – about $53 billion to shore up the side of the company that made the stupid financial decisions, and the rest for operations. They weren’t supposed to use that much that fast. More tea leaves to read: the credit rating agencies – like Standard and Poor’s – have downgraded AIG based on that excessively huge slorp of $61 billion. In short, this one isn’t going well.

So Dekom, the broken record, speaks again. The Treasury has got to drill down fast and stop the mortgage hemorrhaging ASAP. Foreclosures make those “derivatives” worth even less, and the government is planning on buying them with the bailout money. We, the taxpayers, need the government to buy assets than can be made to be worth more… not dwindling down as time passes. Let’s make them shore up home values that support those “bad” mortgages by placing an immediate moratorium on foreclosures, just long enough for us to create better oversight (so AIG blunders don’t happen) and a real plan on how to reawaken the sleeping and snoring giant of an economy we once had.

I’m Peter Dekom, and I approve this message.