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  • November 12, 2008 03:08 PM EST by Elizabeth MacDonald

    The United States of Bailouts

    Dear Dazed and Confused,

    Why not declare to the Federal Reserve that you and your family now face "unusual and exigent circumstances" and that you would now like to register with the government as "Home Sweet Home Bank"?

    You deserve a break, you deserve some government money just like every other sector now holding out a tin cup to the government, right? 

    Why not, as the government's bailout keeps "evolving", as the government's economic rescue squad seems to now be careening around worse than the Jamaican Olympic bobsled team?

    The part of the $700 bn bailout plan, the Troubled Asset Relief Program, the part of TARP that would buy Kryptonite mortgages and real estate bonds from banks, has just been TARP-edoed.

    Instead, the name of the game is to become a bank to get a government capital infusion. So why not you, given that Social Security and Medicare reform are so far on the back burner, they're off the stove?

    As TARP has slipped free of its sponsoring facts, as its once resounding authority has dwindled into so many solemn doodles on a government yellow pad, why not join in and become a bank?

    Why not do it now, since the government's escape hatch is going to splinter into smithereens soon, as the government is now inviting a traffic jam with an expansion of its TARP rescue to include other nonbank financial institutions, such as life insurers like Hartford Financial Services and Lincoln National, even Prudential, and specialty-finance companies like CIT Group? They, too, will get a bailout, my sources tell me, under the watery terms of the government's $250 bn capital purchase program.

    So why not become a bank too, and join other insurers like Allstate and MetLife, which own thrifts, on the TARP bailout line?

    Why, and how can they get at money thought to be reserved for banks? Because the insurers, are getting in through the back door by quickly buying savings and loans, turning themselves into, effectively, bank holding companies.

    Sure, you'd be running through a very crowded door here, joining in a fellowship of juvenilia with the likes of GMAC, Chrysler Finance, Morgan Stanley, Goldman Sachs and American Express, who are also now hanging out a bank shingle to put an extra snap in their wilted yellow suspenders with taxpayer money because didn't you know that Amex and GMAC pose a systemic risk to the U.S. economy?

    And once you become a bank, you would get to pal around with the truly big cheeses on Wall Street, you'd be running with the wolves just like you have always wanted. Like KKR Financial, the finance arm of leveraged buyout vultures Kohlberg Kravis Roberts, which reportedly has said that the "changing environment" was leading it to consider transforming itself into a bank to get at deposits.

    And who knows, you may soon be joining everyone's favorite store, Wal Mart, which could one day realize its dream of buying a bank just to declare that it, too, faces "unusual and exigent"  circumstances as consumers clap their wallets shut. Wal Mart too could declare that a big unit of itself is now the Wal Mart Savings & Loan, so it, too, can get its day in the sun, all in the World According to Tarp.

    You would have lots of fun because you may soon be joined on the Federal Tin Cup Line by very colorful companies who could one day soon also call themselves banks because they own, just like Goldman, Morgan and Amex, industrial loan outfits, otherwise called industrial banks. They include Target Corp, Nordstrom, Harley-Davidson, First Data, UnitedHealth Group, BMW, and Sallie Mae, documents indicate.

    And you may also soon be joined by the Blue Cross and Blue Shield Association, Ceridian Corp., and Home Depot, all of which at one time wanted their very own industrial loan company, too.

    Like I said, the TARP line is growing, TARP creep is here. So far, 52 financial institutions have reportedly received preliminary or final approval for about $172 bn of the $250 bn available under the government's capital-infusion program, according to Keefe, Bruyette & Woods, with another 23 companies that have submitted applications for an additional $4.6 bn.

    Again, why shouldn't you get government help too? Why not dive through that widening loophole of an "exigent" escape hatch defined by the Federal Reserve?

    Perhaps just like the banks, you haven't saved a nickel, thinking like all of Wall Street that the asset inflation of your house and stocks counted as savings.

    And just like the banks, your debt has wormed through your cash. But alas, unlike them, you were responsible and good and more even keel, your debt to income ratio is at 37%, not so eye-watering, however, too low to qualify for a bank loan workout.

    But, hey, why should you be held to higher standards when Wall Street isn't?

    Why shouldn't you be allowed to cry "victim" just like the major perpetrators of the credit crisis?

    All of Wall Street, along with Fannie Mae (FNM), Freddie Mac (FRE) and American International Group (AIG), all sluiced their bad credit through the vomitoria portals of the credit markets. All of these publicly traded companies placed bad bets on a government-distorted housing market that is now getting a government bailout.  

    They built rickety mortgage bonds based on zero history of market downturns, derivatives built on quicksand. And now these companies are no longer run for profit, they are run as government policy shops to prop up the housing and banking sector.

    All happening now as the US economy continues to lope right into the rear rotary blades of an Apache helicopter as 8.5 mn homeowners are expected to default on their mortgages from now until 2010 and as the bailout grows to $2 tn.

    So go tell the Federal Reserve that your daughter Sally's toothache poses a systemic risk to your personal housing system, as Bear Stearns bellyached last March.

    Tell the central bank that your son Billy's constant tuba playing is pounding out so much noise pollution that his disruption risks sowing "mayhem in your global financial housing system," as AIG did when it threatened collapse.

    Go tell the Fed that your deafness from all this ruckus won't make for good income streams and ensuing federal tax payments, because for God's sakes, you want taxpayers to profit from your Home Sweet Home Bank.

    Heck, Amex CEO Kenneth Chenault gave you a template you can use to harrumph as your official statement, when he explained Amex's move to hold out a bank shingle on Monday:

    "We want to be best positioned to take advantage of the various programs the federal government has introduced or may introduce to support US financial institutions. We will continue to build a larger deposit base to broaden our funding sources. With Federal Reserve oversight we should gain greater access to the capital on offer under the current and any future government-sponsored programs."

    So you'd tell the Fed:

    "My family and I want to be best positioned to take advantage of the various programs the federal government has introduced or may introduce to support US families as we turn blue holding our breath."

    You'd then say:

    "We will continue to build a larger piggybank deposit base to broaden our funding sources to pay for Sally's and Billy's bicuspids and for things like rising college tuition costs to support the economy and fat cat academics sitting on gigantic honeypot endowments moldering in bank accounts. With Federal Reserve oversight we should gain greater access to the capital on offer under the current and any future government-sponsored programs."

    Then sign off with: "God Bless the United States of Bailouts. Amen."

    And once you do that, you can next stand in line for what economist Edward Yardeni dubs CARP, the Car Rescue Program, in which the government may nationalize the auto industry. You should then try to nationalize your automobile loan right there along with GM, Ford, and Chrysler.

    Maybe one day soon you could sell your car loan payment into an off-balance sheet special vehicle (pun intended) at the Fed, which already has special purpose vehicles to warehouse bad paper in the form of rotten mortgage-backed securities from Bear Stearns ($29 bn now dropped to $27 bn) and clunkers related to AIG ($52.5 bn).  

    But be warned, you will have to keep your cakehole shut and not lobby for gimmes, like Fannie and Freddie were supposedly ordered to do when they got their $200 bn.

    Even though no one in Congress is talking about stopping GM, Ford and Chrysler from lobbying after they get their $50 bn plus in taxpayer loans to cover union retirees' medical costs and retool plants to build more-efficient vehicles--something they should have done decades ago.

    Even though the car makers' lobbying machine, with the help of their elected officials, over the last four decades has gotten the government to not impose on them things like the Clean Air act, fuel efficiency standards, alternative fuel cars, cars that get at least 90 miles to the gallon, you name it. 

    Become a bank now. Why not?

    Because anyway, you can expect to hear this soon from the Democrats in government, much like FDR said when he took office, that you have a right to everything. And anything. Period.

    That means you should have the right to not let a stock market bottom rear-end you. You should have the right to make sure Congress measures out your tax dollars like a stingy pharmacist.

    And when it doesn't, then you should have the right to be an active participant in the United States of Bailouts.

    Sincerely, EMac aka Elizabeth MacDonald, Concerned Citizen and US Taxpayer

RSS Subscribe to Comments

Ted Sherman

Elizabeth, I am not for these bailouts but we must remember some important facts. Everybody is talking like this is just a bad recession. It isn't. It is a government created recession. It started with Fannie and Freddie. Everything that has collapsed stems from that mess. Would retail chains be hurting if it was not for this or would the cities be hurting for money if banks didn't have any of these toxic assets? The car companies I hate to tell people were making cars the public wanted up until the oil crisis that put gas at $4.00 a gallon. I don't like this bailout, but we have to be cognizant of the underling reason for the mess. President Bush is trying to do the best he can under circumstances he tried to warn us about. You should have Frank, Dodd, and the other democrats on air and ask how they sleep at night for the mess they helped create. You business anchors now the right questions to ask so ask these criminals. NOW!!!!!!!!!!!

November 14, 2008 at 4:32 pm

Ken Kesler

Let's drop back a moment. The ONLY culprit in all of this is the US Congress. They voted (were bribed) in 1977 and again in 1999 to destroy Glass Steagall and then encouraged mortgages be made available to anyone regardless of their ability to pay. To be sure this was taken advantage of but they only did what congress encouraged them to do. Solution: Never, ever vote for an incumbent politician again. Secondly there has not been one word about what would happen if we just did nothing and let capitalism run it's course. The Gvt is living proof of the "Law of Unintended Consequences". They just do not understand that you cannot "help" in one area without hurting something else.

November 13, 2008 at 2:21 pm

TERRENCE

This story made me feel woozy. Wonder why GM is losing "billions"?? Would you believe that 12,000 workers who were "laid off" and replaced with robots on the assemsbly line are/were still being paid. Nice union benefit, eh? They were paid $73 per hour (which included the monetary equivalent to their "benefits"). Do the math, and you can see why GM must declare bankruptcy, evict the union thugs, and rebuild a legitimate organization. Many of those "poor" workers, may find employment when a better company emerges. Maybe all Americans should declare bankrupcty too and wait for "our bailout plan". What a disgrace! How could we have fallen so far down this slippery slope? Why do I sense the coming of a new American revolution? God help us....and for all of those who defy His existence, just keep waiting for our new and bigger government to help you.

November 13, 2008 at 2:05 pm

Randy

EMac, Weren't you one of those preaching about how important this Capitol Infusement was? About how people against this were wrong, and would smirk every time someone(Cody) had something negative to say about this Handout, Bailout, Robbery, which you said was a Loan/Investment (?) to buy Distressed Mortgages and sell for a profit later. THIS IS, this is why I was against this Handout, Bailout, Robbery from the beginning. You agreed that the Tax Payers should foot this bill. Did you really think it was a One-shot deal? What did you think was going to happen with Big Government? I want the Fed to stop printing money for these companies! This is criminal and you were on board from the beginning. Save your victim speech for those less attentive and gullible. Randy

November 13, 2008 at 1:00 pm

John

This is what happens when you have an ever growing government that has become so big and vested to the minorities that it cannot manage anything but SPENDING MORE. Get ready to hang on - cause in late January it will start getting worse. This is getting so ingrained in our society that the only solution may be R2, should we, those that pay for it all, desire to do that.

November 13, 2008 at 12:26 pm

A Capitalist

Capitalism causes poorly run, non-competitive companies to go out of business. This saves everyone money since it rewards the best quality vs. cost producers. It over the long run lowers prices for all and then frees up capital and labor to be reinvested in more profitable areas and even new areas that previously didn't exist. The alternative is a world where we all endure higher prices and less efficiencies because gov't props up failing companies. Can you imagine if the gov't propped up horse buggy makers when Henry Ford was churning out Model A's and T's. Had this happened, it would've taken away money from people to buy cars and away from Henry Ford to re-invest into making a more efficient factory. Also, there'd eventually be a bunch of horse buggies sitting around that nobody wanted. Or worse, they'd sell the horse buggies really cheap and make it yet harder for the more productive and consumer desired car factory. In America the free market is made up mainly of the middle class. We are voting with our dollars against the bailout every day that someone pays less for a GM vehicle than what it takes for GM to make a competitive profit, or we don't buy one at all in favor of another brand. Let GM and any other automaker go into bankruptcy protection, reorganize and re-emerge more competitive. If they can't reorganize because they're in worse shape than we believe, let them go under. This will free up capital and labor to be used in more efficient/profitable pursuits.

November 13, 2008 at 11:52 am

Bobby V

Hey guess what, the Waltons do own a chain of banks called ARVEST!!! In a way, Wal-Mart is already in the banking business through the Walton Family, which owns 96% of Arvest Bank. Arvest operates over 200 branches in several states including in some Wal-Mart stores. Still this is not enough for a company that likes to conduct all of its business under one roof.

November 13, 2008 at 10:42 am

Pat

Right on Jason! (comment at 4:40pm on Nov 12th)I agree with your completely and I believe there are a large number of us out here that support your position on these issues. What a resounding message to our inept leaders in DC if a million or so Americans withheld our income tax until those dimwits become accountable. Would I continue to give my kids a weekly allowance if they were spending it irresponsibly? What is the difference....my young ones or the kids on Pennsylvania Ave? We the people do have the power if we can mobilize and collectively speak up to these crooks who refer to you and me as their constituents!!

November 13, 2008 at 10:21 am

Kim

There is more going on here than meets the eye. While we're handing money hand over fist to big banks, their competition is slowly falling to the wayside. Mortgage brokers are not receiving bailout money, by the way, and new legislation being introduced will wipe out who remains. Banks receiving millions and zero competition...what a plan! Almost half of republicans voted against this bailout and I think it's time we started bombarding our representatives with our unhappiness. They need to be worrying about their jobs, too. Or make a run on a bank that is still paying big bonuses. There are things we can do to protect ourselves with organization. We have to somehow be heard!

November 13, 2008 at 10:09 am

Kathy Kimball

Love the idea of a recall on our elected Congress. Please start with Pelosi. A true embarrassment to the female gender!!!!

November 13, 2008 at 10:00 am

Average Joe

This is really starting to look like corporate hostage holding for ransom. Let's call it what it really is folks. No need to super analyze it. If you employ many people, and claim that you will go under if the government doesn't give you money, isn't it the same as saying,"Give us money OR ELSE..."? Their bargaining chip is the the Average Joe's job, which sheds a little light on the real intentions of the Executive teams running these "businesses". One or more of these companies needs to learn that poor or illegal decision making doesn't get a government payout at the expense of the taxpayer. It gets you what you wanted when you started the company, a REAL free market which includes both a chance to succeed, and THE CHANCE TO FAIL.

November 13, 2008 at 9:57 am

KristaB

I think we need to let the Auto Makers fail. They have already received one bailout check. It's like blackmail, it will never be "enough". I am a hard working American and I pay my bills on time, and I know the consequences if I don't. No one is here to bail me out.

November 13, 2008 at 9:41 am

Tom from Georgia

To Comment by Steve Nov 12th, 2008 at 3:26 pm This country lost its way when it strayed from the foundations that made us what we were. Now, we aimlessly move about not knowing which direction to take and we make it up as we go. therein lies the problem. We’ve nothing to guide us. Not spiritually, not morally, and certainly not governmentally. I fear we are going to experience pain unlike any other time in our countries history. Bank on it - no pun intended. =================================================================== I agree completely with you but lets remember a few additional things. We have a huge population of people that don't want a moral code to live by. If they had one then they would have to be accountable for actions, decisions, etc. Many don't want that kind of responsibility. Secondly, we never learn from history and unfortunately because of ego and other hinderences we will never learn. Generation after generation will make the same mistakes of the past because they think they can handle it and do it better. Third, we have become inept, lazy and ineffective as a society. Look at how many company's are in trouble but the CEO and other high ranking people are getting sizable bonuses. This is greed and its considered acceptable. Besides this, it is acceptable to ignorantly blame the government for corporate problems. If you don't know why something happened and who is really responsible then you can't solve the problem.... In order for us to be a country we must define ourselves as a people. We refuse to do so because it wouldn't be politically correct. We will get out of this mess albeit it will takes at least a decade (likely to be longer). Later on in the 21st. century we'll make the same mistake again.

November 13, 2008 at 9:39 am

KT

Has to be done, no matter who was right or wrong. The problem is...there is one huge huge problem that Main Street USA has not yet felt the full implications of. The real trick here is how the Govt. moves forward and ensures all these companies are held accountable, cannot profit from this assistance and ensures the money they do get back comes with a large fee / interest comparable to what CC companies charge. Hopefully the Govt. will then use those funds to a.) pay off their debt and b.) put all "profit" into SS and medicare. It is a tough task and could turn out to be a master stroke or absolute nightmare. Let's trust it is the former.

November 13, 2008 at 9:13 am

MAtt R

The economic Whack-A-Mole must stop. During the election it seemed that small businesses were more important then the big businesses, so whose bailing out all of the "Joe the Plumbers" out there? No one.

November 13, 2008 at 9:07 am

Ken

Push NAFTA and free trade and bail out the companies it caused to go under. How smart is that? Free trade or buy USA, you can not be fair and have both.

November 13, 2008 at 8:58 am

Jan Ohio

I think the auto makers should get the bailout. They are the heart of this country, without them where would we be? Besides I think people think this is free money they are asking for. THIS IS JUST A LOAN.. THEY WILL HAVE TOO PAY THIS BACK.

November 13, 2008 at 8:51 am

Larry

What a great article. Just enough biting wit to help you smile as you read into what might not be too far off from our future as the United States of Bailouts.

November 13, 2008 at 8:39 am

D. Kirby

It is high time the UAW took a cut and tightened their belts like the rest of us. It is hi9gh time that ALL companies stop big bonuses for execs and do away with 2/3 of them. It's high time ALL you economic geniuses out there realize that a great majority of small businesses support the auto indrustry. It's high time we all realize that to build alternate fuel cars of the future, we will need someone who knows how to build cars in the first place....the BIG THREE!!!!!

November 13, 2008 at 8:37 am

D. Kirby

Why in the world would we give AIG another penny to send their execs on luxury outings to eat lobster! We need to let AIG drop dead and send the bailouts to GM, For and Chrysler. GM for one has made the decision NOT to put on an elaborate show and send its execs to LA for that auto show. Instead they will do the show in Detroit and save tons of money in the process. that way the execs can eat dinner in their own homes. To let the big three crash is criminal. Johnathon Honigman, on FOX Business, said "it's too bad that a lot of jobs will be lost but we can do without the big three". Is he a NAZI? Who's gonna build the battery and hydrogen cars of the future you moron? Save lives, bail out the big three and ask them to pay it back like Iacocca did in the seventies.

November 13, 2008 at 8:25 am

Ken

So let the car manufacturers fail and put the proposed money into unemployment benefits. Let Wall Street take its losses and dump the trillion dollars back to the taxpayers. It is nuts to reward the idiot companies who dug their own graves - especially with MY money.

November 13, 2008 at 7:14 am

michael stephenson

You have not seen anything yet. Wait unitl our newly selected president takes office and implements his 1 trillion dollar spending plan on top of the "bail out" plan. My advice to him and the Pelosi Cronnie Congress....SPEND BABY SPEND. After all is this not the americian way to cure our problems.

November 13, 2008 at 6:54 am

Capitalist1

I have been outraged from the start of this whole bailout process, but now it has gone too far. Who in the world can justify bailing out AMEX,a company who charges rates like these taken from their website: "The APR for Cash Advances is determined monthly by adding 17.99% to the Prime Rate. The APR for defaulted accounts is determined monthly by adding 23.99% to the Prime Rate." When they have taken you for all they can personally, they get the government to help them take more? Adam Smith was right, an economy left to itself, can heal itself. But government enablement turns big business into that sibling or neighbor you despise. You know the thirty year old who works maybe part-time, has the worst "luck" and parents who make more excuses than you can imagine. And Tom, who cares whether we pay these people unemployment or pay them to produce cars no one wants? With unemployment, their need for money will drive them to seek new sources of revenue. Auto employees are overpaid to begin with. Maybe they should have spent more of their time learning how to save a rainy day fund rather than helping their union demand a higher paycheck so they could have a fancier dinner. Everyone is in this mess together, it's time we all lie in the beds we made. Every, and I mean every, time the government steps in to a situation, they make it unfair to the majority. As a resident of NC, I know what happens when industries fail. What happened to our furniture and textile industries? What happens is, the prices of everything come into check and people become entrepreneuers. Which is why NC still has a thriving workforce. BTW, you might want to spend some time researching why those two industries fail to begin with, it was when our gov't changed the rules of the economic game. When are they ever going to learn to keep their hands off? Maybe when they have nothing to gain from their manipulations of the market?

November 13, 2008 at 4:19 am

Chris

Why don't we as citizens contact all of our representives in DC, and inform them to stop the bail out NOW!!!! If this dosent' work, contact them a second time informing them that in 7 or 10 days, all of us will go on strike from whatever jobs we have left. No one goes back to work until they stop all of the foolishness. If you need food or clothes, go take them. The police will be gone within a few weeks. Once enough of us quit paying all of our bills, all of the states will start to go broke. I know that my state only gets income from sales tax and property tax. How are they going to collect it if none of us are working and paying bills and we are taking what we need instead of buying it? Whats next the SBOP (State Bail Out Package)????? If they gave all citizens that actually have a job and actually pay taxes some of these billions, and then put us in charge we would not be in this mess to begin with. Why keep giving billions and billions to "children"???????? Does the goverment want anthor Boston Tea Party??? Are we going to have to start burning money as fuel because it ends up worth less than a fricken Peso? Or do they want to do control everything like Hitler and Mussileni? Are they going to make us start anthor civil war as an act of mercy? Do we really need to actually Read the Constitution and understand that goverment is supposed to be For The PEOPLE not for the Bad Companys!!!!!!!!!!!!!!!!!!!!!!!! sorry for the long rant!!!!

November 13, 2008 at 2:58 am

Dave DuPree

Great piece, Elizabeth! A lot of pent-up frustration got released by reading this one. Perhaps the only silver lining in the coming Cat 5 storm will be the handful of gifted analysts who will continue to size things up and put into words – beautifully – what so many of us are thinking. This is one for the archives... to be read someday by a future Treasury Secretary or Federal Reserve Chairman who is writing his/her master’s thesis on how the Great Crater of 2008 could have been averted.

November 13, 2008 at 1:06 am

about this blog

  • Elizabeth MacDonald is the stocks editor for Fox Business Network. She is recognized as one of the top prize-winning business journalists in the country, and has received 14 awards, including the top prize in business journalism, the Gerald Loeb Award for Distinguished Business Journalism, and the Newswomen's Club of New York Front Page Award for Excellence in Investigative Journalism.

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