The Obama administration launched its bank recovery thingie a few weeks ago, but I doubt it’s going to work out the way the White House hopes. That’s because the president’s program seems to be two plans – one for a select few and a second for the rest of us Ordinary Schmos.
You’ve heard the spin: There is no choice. Schmos (taxpayers) must front the bank rescue as partners with private capital. But it’s worth the risk because “investments” (buying and selling toxic assets) guaranteed by tax dollars likely will pay off for everyone, and the U.S. Treasury (the Schmos’ bank) will share the profits.
We’ve heard this “everybody will share” mantra before, of course. “Trickle-down” by any other name … blah blah blah.
Although majestic as blueprints, the administration spent most of its creative sweat on plan number one – enticing private capital on board by protecting those who still have capital from losing it once they invest.
Plan two – assigned to Schmos – was designed to create the above enticement and seems vulnerable to a misfire in any one of a thousand moving parts. As a result, for a Schmo, the good ship Rescue has the look and feel of the Hindenburg attempting to dock at Lakehurst.
Color me skeptical not because I’m a trained economic wunderkind; on the contrary, I’m clueless in this quarter of the universe. But I have misgivings. First, on the day the administration launched its Rescue, the Dow Jones industrial average soared nearly 500 points – a signal that big investors were impressed with the seating arrangements.
Second and more specific, the chairman of an investment firm called “Pimco” – Bill Gross – told the New York Times that the plan was a “win-win-win policy,” and that he was “intrigued by the potential double-digit returns” that it offered.
That’s locker-room talk for “cleaning up.”
Given the current global atmospherics, I’d feel better if Gross had low-balled the potential take. No doubt he was intrigued by a plan that shifts most of the risk to Schmos while his clients reap double-digit returns. Still, a little sandbagging might have signaled some sympathy for the fact that many of those same Schmos want to set fire to Wall Street just now, while few of them likely populate Pimco’s speed-dial. That Gross’ remarks were less than subtle betrayed a Wall-Street approach to the recovery that arouses more suspicion than confidence. Pimco is part of the same “industry” that included the late Bear Stearns, Lehman Brothers, Merrill Lynch and AIG – four of the financial trolls whose collective moronism destroyed life as we know it.
Pimco (www.pimco.com) bills itself as a “global investment management firm” with 37 years of experience. You might be interested to know that among the products it offers are credit default swaps (CDS) – the hydrogen-filled investments that all went kablooey at the same instant and turned the world economy into a grease fire.
I have no idea whether Pimco belongs in the Rogue’s Gallery alongside Bear, Merrill and AIG, but the company did traffic in CDS. It not only promoted credit default swaps as a product, but a June 2006 analysis on its Web site concluded: “In the brief decade since their inception, credit default swaps have become not only a tool that effectively hedges event risk but also a flexible portfolio management tool that far exceeds that single benefit.” That analysis remains on Pimco’s Web site today; if nothing else, an imprudent reminder of its corporate judgment.
So, when Pimco expresses optimism over the new administration’s rescue plan, and couches that optimism in terms of returns, Schmos might want to examine the seating arrangements. You can bet Pimco sees no downside for itself, and that “win-win-win” is meant to convince Schmos that they, too, will benefit from the Rescue.
It should be noted that holding the bag is not a benefit when the bag is empty or – worse – filled with dog dung and real wealth is siphoned into someone else’s account.
Wall Street won’t jump aboard the Rescue as an altruistic effort to save the country or the world economy. It will participate on the same grounds that motivate firms such as Pimco to join any endeavor – the reason they exist at all: to make money for clients and profit and fiscal glory for themselves.
Ordinary Schmos are not partners; they are tools.
Welcome aboard the Hindenburg. You should have a fine view of Pimco’s galactic cruiser at it rockets into the sunset.