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    Peter R. Orszag is my new hero, because all my heroes are dead..., 2008-09-25 09:46:11 | Main | I would like to thank House Republicans for this cheap financial experiment..., 2008-09-26 11:12:14

    NO:

    The one semi-decent plan to appear this week seems to have been the one Dodd introduced the first day of the circus.

    The press now contains much discussion of the all-important pricing mechanism for the bad paper. But no matter how you set it up, the odds favor the bank because the bank knows more about the paper than the buyer of last resort.

    Who cares? When a financial institution unloads the paper on the Fed they gain solvency, to recover they need extra liquidity (your money, that is, that they'll take by borrowing from China, or some other sucker). The objective of the intervention is to make banks solvent while providing that liquidity without imposing puritan peril into the market. The bank gains solvency by dumping the paper on us, and liquidity by selling their shit to us for a price. Selling the paper for more than the bank figures it's really worth gives them the liquidity to ostensibly recover. Paying too much for a bad thing is part of the "solution".

    But when the bank recovers, we want it back. So we get "warrants" on their solvency for every poo bag we purchase. The "warrant" is a long term stock option set at the market price the day we buy, or preferably before the deal is actually rumored to be announced. When the bank recovers with the help of their ill gotten gains from the tax payer (a.k.a. China), we come back later with our stock options and cash out, defenestrating the shareholders for our (a.k.a. China's) money back. It's self-correcting, at least in part, no matter the pricing mechanism. If we get screwed hard by a firm it boosts the stock price of the firm that screwed us, and we can get payback when we collect on the option. It's a semi-virtuous circle of calamity.

    More, or less, depending on where you set the option price and that the bailout works. Barring the currency crisis radicals of every persuasion have been promising since the day we abandoned metal standards (what sets the intrinsic value of gold in relation to nuclear holocaust, anyway?), the bailout oughta work as advertised, and we'll merely suffer a long and devastating recession.

    So instead of shouting "NO!" to a bailout that is going to pass one way or the other no matter what the wealthless public thinks - all these fucks in Washington and on TV have their own wall street gift bags to salvage here, neveryoumind the campaign financing and advertising and that revolving door Paulson's skeletal eyesockets keep darting to - I guess I'd like to see streets filled with "STRIKE PRICE" placards, backed up by some "DISCOUNT THIS" affinity group cardboard.

    But I'll still take no for an answer. I'm enjoying the circus.


:: posted by buermann @ 2008-09-26 00:22:05 CST | link





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