Money, Money, Money!!! (think of the Song)

Felix Salmon comes up with an effective Answer to the Question of the quality and effectiveness of Credit Default Swaps. It has been clearly revealed How CDSs can be misused, and it remains a little hard to explain how the Swaps have been a Help. We do know that a select group of people made an excess amount of money creating and dealing with these things. We do know a great number of people were allowed to borrow great amounts of money, while later finding it impossible to pay back the loans. We do know that CDSs made it possible for Banks to claim that the Risk taken by other Banks was a creditable Investment; an examination of which meant they were Betting on the loan policies of each other; such policies undergoing an outright degradation by bank officers in personal hopes of great Bonuses. Government tax policy sought to underwrite or subsidize Mortgage payments, and all Taxpayers desired to maximize those Payments; Credit Default Swaps ensuring that Banks could not run out of Cash, as Banks could translate Risk into Investment reserves. It all sounded Good, but was like the later Bush’s administrations–the famous Texas Blue Sky!

Try working your way through this List sometime, and then do a little Math. The interesting point I find, with no other Guide to check my evaluation, is the requested TARP funds equal about what these Banks would have claimed in Profits through the Bush years. I am not talking about the pitiful amounts received by the smaller Banks, but seems relatively true if billions are utilized to describe TARP Payouts, rather than millions. Remember that I have looked nowhere else to vindicate my suspicion, and one can easily check Public Tax records; one should be reminded that I am writing on a Saturday morning with no desire for any Research at all. Who knows, it might only equal the funds paid out to Bank officers as Bonuses during the Bush years. We do know it is the amounts the Banks are short of, and Everyone ate extremely well, before Starvation set in at the Mortgage level.

Daniel Gross would have Us believe that the economy’s success revolves around Mergers. I am not quite so sure. Mergers always consist of a constant set of Capital assets, huge Borrowing to purchase that Capital, payment to current Stockholders, and an increased Debt load on the Profits coming from that set of Capital. There is invariably a decrease in actual Research and Development after such a Merger, with a decrease in Quality Control during Production to maximize Profits in the Production operations; previously sound Production operations endure less Product reliability and increased liability. The Debt outstanding against Company operations is always too excessive for unique Profitability, and Stockholders never see any appreciation in either Dividends or Stock Pricing. It is a beautiful Way to Live! lgl