Friday, May 15, 2009

Thugonomics


http://zerohedge.blogspot.com/2009/05/foia-disclosure-busts-paulson-geithner.html

Judicial Watch, which lucked out majorly on a FOIA request to the Treasury, has received several hundred pages of stunning revelations, among which are that Hank Paulson essentially used the same tactics that he used on Ken Lewis on a group of nine bankers at the October 13 meeting which apportioned government investments to the various "critical" banking institutions. The major disclosure was captured in a memo called CEO Talking Points, which delineates the continuous use of strongarming tactics by not just Paulson, but by Tim Geithner, and Sheila Bair, who were also present at the meetings. According to one of the Talking Points:

“If a capital infusion is not appealing, you should be aware that your regulator will require it in any circumstance. We don’t believe it is tenable to opt out because doing so would leave you vulnerable and exposed.”

Opting out would also implicate the banks that didn't opt out as being in worse shape thus exposing them to possible runs (either the kind of "silent run" that hit Continental Illinois in 1984 or something more overt). Put all the banks in the same boat and you make it less likely that money will run from the bailout queens to the ones that opted out. Not exactly the kind of openness and disclosure we were promised.

Meanwhile…

http://finance.yahoo.com/tech-ticker/article/248205/%22That%27s-Not-the-American-Way%22-Chrysler%27s-Bailout-and-the-Road-to-Ruin

Chrysler's plan to close about 25% of its dealers is the natural outcome of a series of very unnatural events surrounding its bankruptcy, says Howard Davidowitz, chairman of Davidowitz & Associates.

Specifically, Davidowitz was speaking about how the Chrysler bankruptcy was "hijacked" by the Federal government, which allegedly threaten creditors "if they didn't go along with the fiasco of turning the company over to the unsecured lenders."

Barack Obama's plan is to "sustain the union" in an effort to secure future votes in five key Midwestern states, Davidowitz says, without hesitation. "We the taxpayers are bailing out the union [and] bailing out Chrysler, which is an inefficient company that shouldn't survive and can't survive in the long run, anyway."

[…]

By propping up inefficient companies and keeping zombie banks alive, Davidowitz says "we are exactly on the same path as Japan," which is now two decades into its economic malaise.

But there's one key difference between the U.S. and Japan: While they had about $16 trillion in savings and a 19% savings rate when their bubble burst in 1989, the U.S. savings rate was negative a year ago, a now a relatively meager 4.2%.

"You know what we need to fix it: pain! We need 12-13% unemployment… Then in two years you can start to recover. We're never going to recover because the debt doesn't go away."

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