More and more sensible people are coming to the forefront, like North Dakota senator Byron Dorgan, one of eight US senators voting against the 1999 repeal of Glass Steagall. I drop these names out of context, so that people will google them and see for themselves.

I like Samuelson’s article in today’s Washington Post. I call it “Uncle Sams’ Ponzi Scheme” but call it what you will–I think Samuelson quite elegantly lays out the Summers / Geithner scheme, and what is inherantly, ethically wrong with it:

March 30, 2009 (LPAC)—”Call it Uncle Sam’s hedge fund,” Robert J. Samuelson wrote in today’s Washington Post. “The rescue of the American financial system proposed by Treasury Secretary Timothy Geithner is, in all but name, a gigantic hedge fund.” “‘Leverage’—borrowing—helped create this mess. Now it’s expected to get us out,” he said.

The Geithner hedge fund scheme supposedly allows the buyers of bank assets to borrow $6 for every $1 they invest, but the real leverage is 12:1, since the Treasury will also kick in a dollar for each dollar the buyers invest. For example, a private buyer puts up $5; the Treasury will then put in $5, for a total of $10 in cash up front, and then the Fed lends the buyer 6 times that amount, or $60. That gives the buyer a total of $70 to buy assets from a bank. This is called 6:1 leverage, but the private investor is really able to borrow $60 off a $5 investment, or 12:1. If the assets turn out to be worthless, the buyer will lose his $5, and the government will eat the rest.

As the New York Times put it March 25, “the point of the exercise is to stir up a bit of greed and animal spirits, the lack of which has been holding the economy back.”

You do have to admire the brilliance of whomever dreamed up this scheme to pay a bunch of greedy rich parasites to be even more greedy. We’ve all noticed the shortage of greed these days, haven’t we? After all, it’s not like we have banks and wanna-be banks lining up like pigs at the trough to gorge themselves on public money, and derivatives traders demanding huge bonuses for blowing up the world! None of that going on around here!

Greed, we’ve got too much of already. What we need is some honesty, and some protection for the public. What the Obama Administration should—must—do, is to quit trying to lure gamblers back into the casino, and instead shut it down. The President’s job is to save the nation, not the cancer.

. . . and the one additional point which REALLY needs to be made: if the assets turn out to be worthless, the pigs will lose their $5 and it’s the TAXPAYER that will eat the $65, not the government. And it’s not $65 we’ll eat, it’s $166 trillion. But if these derivatives contracts turn out to be worth 10 cents on the dollar, the pigs will make a few bucks at 12 to 1 leverage and taxpayers only eat $150 trillion. What a plan!

This will NEVER fly at the G20 summit and America will lose credibility as a stabilizing and ethically balanced element in any attempt to salvage the global economic collapse.

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