The Great Financial Unravelling

By BJ

Something seems a little off-kilter here.

By a margin of almost two-to-one the American public thinks the government is doing the right thing in investing billions of dollars to try to keep financial institutions and markets secure. Reacting to initial reports of the federal bailout plan over the weekend, 57% said the government was doing the right thing, while 30% said it was doing the wrong thing.

Americans oppose government rescues of ailing financial companies by a decisive margin, and blame Wall Street and President George W. Bush for the credit crisis.

By a margin of 55 percent to 31 percent, Americans say it's not the government's responsibility to bail out private companies with taxpayer dollars, even if their collapse could damage the economy, according to the latest Bloomberg/Los Angeles Times poll.

Confused yet?

If your not, then there plan may not be working as well as they’d hoped. (Granted this does assume they have a plan, which is as ever debatable. It is just that it is hard to believe they could screw up everything so badly by accident.)

This whole mad rush to DO SOMETHING! and push through a $700 billion dollar taxpayer give-away without oversight or review before anyone thought to question why they need that much money or what it will be used for. (And don't even answer why you happen to need that much!) It seems they may have failed to do that, but odds seem good that some sort of handout to the biggest screw-ups will still be in the offing.

One of the biggest problems with this proposed scheme is that so far it really doesn’t deal with any of the root problems that have led to the mess. The financial institutions are in trouble because they took a bunch of bad mortgages and sliced, diced, and repackaged them so many times that nobody seems entirely certain where all the bad debt really is any more. Rather than creating anything of real value, they made money by pushing the same piece of paper around four, five or six times in creative ways that they could attach fees to.

Dumping all that paper onto the taxpayers is just a massive waste of money as the mortgages will remain bad. The bail-out just becomes a black hole to stuff worthless financial instruments nobody wants anymore.

Add to that that this effectively rewards the people who screwed up the biggest and gives an incentive for institutions to make their finances appear worse than they really are to take advantage of the government's largess, and the price tag for this scheme just starts looking bigger and bigger.

And to top things off, there are the truly laughable attempts to sell this plan as somehow being profitable for "Main Street". If the banks could afford to offload the paper at discounted rates that somebody else could profit from, there wouldn't be any need for a government bail-out The whole reason the government has to get involved is that if the financial institutions were to try and sell the paper at a deeply discounted rate rational investors would be willing to spend, they'd still end up bankrupt.

Whatever the bail-out package winds up being, kiss the money good-bye and apologize to your grandkids for the debt load you've just dumped on them.

Also, you might want to start thinking about the answers to these questions.