Diary

Paulson is the Village Idiot

There have been superfluous opines and dissertations, many on this blog, about the wisdom of Paulson’s bailout plan. This would be the contrivance where we throw lots of our money to everyone with a hand out and live happily ever after. Not only is Mr. Paulson’s plan a case of “too little, too late”, but it is the wrong plan and was stated as such by several Republicans with foresight. I have purposely used the word “foresight”, since at the time of protest they were called all types of bad names by Democrats. For those of trying to conjure the ghost of Ronald Reagan and gratuitously parroting his words in a nonsensical way, the action of those few is called leadership. When a crisis grips, one grabs hold of principle as they would the mast of a ship in a hurricane. Notice I did not say one jumps overboard and become a fish. Remember, fish are slimy. Conservatism and leadership are not. They are about ideals and perseverance, not individual men or yielding in the interest of amity.

This all brings us to something that actually does not smell fishy and is very simple to grasp. It is the point at which I agree with Columbia Professor Charles Calomoris. Mr. Calomoris is the Henry Kaufman Professor of Financial Institutions at Columbia University’s business school; which means he knows a little bit about this crisis. Admittedly, we don’t always agree, but he happens to nail this head on. Witness the following from a Wall Street Journal interview with Dennis Berman;

DJ: So what’s the matter with some of Paulson’s latest ideas?CC: Warrants are a bad idea. They dilute common stock holders, and make it harder to design common equity. It’s been a design flaw all along. It’s all a part of thinking of these things in terms of deals. They’ve got Warren Buffett envy. But in terms of ways that truly recapitalize a bank, they’re truly idiotic. If you attach warrants that are dilutive, it’s harder to issue common stock. If you want to make money, go buy stock. If you want to increase the net worth of a bank, make that coupon as low as possible and require matching common stock issues. If you learn you can’t do it [the common stock match] then have to decide whether to do a common stock injection, an assisted merger, or shut the bank down.

Ouch. Does this mean there are other culprits aboard the good ship Stupid? You bet. Professor Calomoris explains to the adoring Obama fans, bailout acolytes and other big government, yes we can worshipers;

Democrats didn’t want anyone [economists] testifying because it was before an election and no one was willing to stand before that bulldozer known as Paulson. No one wanted to make tough political decision before the election. They didn’t empower any experts to come in and testify. Why is that? They were playing politics too. That’s what we’re dealing with — a complete leadership failure in Congress and the administration.

In closing, let me provide my own perspective gleaned from over 20 years in financial services. Lower taxes and across the board measures such as loss sharing would do more to help this situation than any of the fakery, panic provoking, grandstanding moves made to date. Remember, as my first mentor told me a long time ago; “the market hates uncertainty”. Ask yourself; is there anything in this economic situation toady that is certain? The rhetorical answer is a resounding no