Sunday, October 19, 2008

John Maudlin - Fear Peddling Elitist

I want y'all to read these excerpts I culled from John Maudlin's e-newsletter on September 26th, 2008. It was written in the middle of the Congressional debate over the $700 billion Wall Street *bailout*; and in the middle of a stock market plunge.

My comments are [bracketed]:

Who's Afraid of a Big, Bad, Bailout?

It is at least ten to one against supporting this bill [the $700 billion bailout], and that is probably typical of the phones all across this country.

And watching the debates, it reminds us that one should never look at how sausages and laws are made. It is a very messy process. [Translation - avert your eyes and trust the experts, i.e. trust "us".]

But the media (apart from CNBC) has simply not gotten this story right. It is not just a crisis on Wall Street. Left unchecked, this will morph within a few weeks to a crisis on Main Street. [Here comes the fearmongering...]

First, let's stop calling this a bailout plan. It is not. It is an economic stabilization plan. [And the euphemisms...]

Run properly, it might even make the taxpayers some money. If it is not enacted very soon (Monday would be fine), the losses to businesses and investors and homeowners all over the US (and the world) will be enormous. Unemployment will jump to rates approaching 10%, at a minimum. [The government will profit?]

The second part of the problem is a little more complex. [Translation - you lumpen masses are too ignorant to understand.]

At first, banks were able to raise new capital. But now, many banks are finding it very difficult to raise money, and that means they have to reduce their loan portfolios. [This is bullsh*t. BAC, WFC, JPM, GS, STT and other multi-billion dollar bailout recipients CAN RAISE EQUITY - they just HAVE CHOSEN NOT TO; many haven't even cut staff or bonuses; they haven't even really cut their dividends for crying out loud.]

Typically the TED spread is 50 basis points (0.50%) or less. When it spikes up, it is evidence of distress in the financial markets. The last time the TED spread was as high as it is now was right before the market crash of 1987. This is a weekly chart, which does not capture tonight's (Friday) change, which would make it look even worse. Quite literally, the TED spread is screaming panic. [John, you are the one screaming panic here.]

Unless something is done, businesses all over the US are going to wake up in a few weeks and find they simply cannot transact business as usual. This is going to put a real crimp in all sorts of business we think of as being very far from Wall Street. [The barrage of fearmongering will be relentless.]

Suffice it to say that the current climate in the financial market is the worst since the 1930s. [What? According to the government, GDP is growing and unemployment is historically low.]

Cheap loans with small down payments are the life blood of the auto selling business. That is going to change dramatically unless something is done to stabilize the markets. [Why is having average Americans driving $30,000 cars so VITAL to our economy? We are dumb, but a little elaboration would be appreciated.]

We are in a recession. Unemployment is going to rise to well over 6%. Consumer spending is going to slow. [Scary!]

Recessions are part of the normal business cycle. But it takes a major policy mistake by Congress or the Fed to create a depression. Allowing the credit markets to freeze would count as a major policy mistake. [No John, nationalizing the banking industry would be A MAJOR POLICY MISTAKE.]

Why do we need this Stabilization Plan? Why can't the regular capital markets handle it? The reason is that the problem is simply too big for the market to deal with. It requires massive amounts of patient, long-term money to solve the problem. And the only source for that would be the US government. [It's still unclear to me how homes and assets re-pricing to affordable levels is such a *problem".]

There is no reason for the taxpayer to lose money. Warren Buffett, Bill Gross of PIMCO, and my friend Andy Kessler have all said this could be done without the taxpayer losing money, and perhaps could even make a profit. [Aren't they the most SELF-INTERESTED parties in financial asset inflation on Earth?]

Again, the US government is the only entity with enough size and patience to act. We do not have to bail out Wall Street. [But give Wall Street money, right? That's an odd way of *not bailing* them out.]

What happens if we walk away? Within a few weeks at most, financial markets will freeze even more. We will see electronic runs on major banks, and the FDIC will have more problems than you can possibly imagine. The TED spread and LIBOR will get much worse. Businesses which use the short-term commercial paper markets will start having problems rolling over their paper, forcing them to make difficult cuts in spending and employment. Larger businesses will find it more difficult to get loans and credit. [So *easy* credit is not to be regulated, but *difficult* credit is a public crisis? Why the asymmetry? Oh, that's right, the former puts $$$ in your pocket.]

The average voter? They will see stock market investments off another 25% at the least. Home prices will go down even more. Consumer spending will drop. What should be a run-of-the-mill recession becomes a deep recession or soft depression. Yes, that may be worst-case scenario. But that is the risk I think we take with inaction. [And the risks of *action* are....?]

A properly constructed Stabilization Plan hopefully avoids the worst-case scenario. It should ultimately not cost the taxpayer much, and maybe even return a profit. The AIG rescue that Paulson arranged is an example of how to do it right. My bet is that the taxpayer is going to make a real profit on this deal. We got 80% of AIG, with what is now a loan paying the taxpayer over 12%, plus almost $2 billion in upfront fees for doing the loan. That is not a bailout. That is a business deal that sounds like it was done by Mack the Knife. [John, merely two weeks later AIG hit up the taxpayers for an additional $37.8 billion. Are you going to re-run your 12% ROI calculation? Yeah,'s the public that's dumb!]

This deal needs to be done by Monday. Every day we wait will see more and more money fly out the doors of the banks, putting the FDIC at ever greater risk. [Plutocrats hiding their interests behind the original!]

Joe, I am telling you that the markets are screaming panic. Yes, Senator Richard Shelby has his 200 economists saying this is a bad deal. But they are ivory tower kibitzers who have never sat at a trading desk. [And 99% of trading desk savants have never opened a history book.]

Every sign of potential disaster is there. You and the rest of the House have to act. It has to be bipartisan. This should not be about politics (even though Barney Frank keeps talking bipartisan and then taking partisan shots, but I guess he just can't help himself). It should be about doing the right thing for our country and the world. [Hard to keep up with all the things these days I've been instructed to do to *save the world*.]

Now just because John Maudlin is a *nice* guy, it doesn't preclude him from being an *elitist*. In this world, powerful people should be judged on their actions - not on their packaging.

One last comment. Maudlin, just like all these *interventionists*, invoked the "market failure" argument. He insists that only the government is large enough to *fix* broken markets.

But really, *market failure* is a just euphemism for *Ponzi scheme exhaustion*.

If he or the venal pols were screaming, "We need to extend this Ponzi scheme! We need more debt to pay off our debts, that were taken on to pay off the original debts,..."

...If the *bailout* rhetoric were framed with accuracy, they'd have a much harder time robbing the taxpayer blind. That's why they opted for the fearmongering and the misdirection - as they always do.

You'd think that investors like Bill Gross, Warren Buffett, and John Maudlin would be licking their chops in these ravaged markets. You'd think they'd be excited to re-jigger their portfolios and scoop up "bargains".

But no, these guys are more AFRAID than any schmo on the street. And they rightfully should be as they're holding the mortgage on this house of cards.

Addendum - I smacked John Maudlin a mere three weeks before this e-newsletter. Waaaay back on September 6th, he was waxing hysterical about the urgent need to bailout Fannie Mae. I'm anxiously awaiting his next must-do *bailout* which should be in my inbox any minute.

Who's Afraid of the Big Bad Bailout, John?

How about this wolf metaphor instead:


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