Kudlow: 'Me Sucky-Sucky Wall St. Real Good, Long Time!'

I can't even... This is just... Oh, gag me.  Read this and make up your own already-made-up mind.  (Raaaalph!)


A Paulson-Cantor Plan Is a Win-Win
By Lawrence Kudlow
September 27, 2008 |  National Review

The single-biggest mistake in the Paulson bank-rescue-plan marketing effort has been the failure to explain clearly how taxpayers are going to recoup $700 billion used to buy toxic assets at auction in order to unfreeze the banking system. In other words, folks don't understand how taxpayers will be paid back, and may actually make profits, which will enable the new government debt to be erased after the Treasury bank-rescue is completed.

Here's the key point: Any loan package bought by the Treasury will be 100 percent taxpayer owned. Period.

[Yeah, and any losses on that bad paper will be 100% taxpayer-owned!  We don't know how much those bad loans are worth, Kudlow!  You can't say how much the market is willing to pay for that bad debt when the investment banks haven't been willing to sell it on the free market.  Be honest, for crapsakes! -- J]

Let's walk through this hypothetical for a moment. Through a market-driven auction, the Treasury will purchase some dollar amount — say $100 billion — of loans that banks will sell. The Treasury will then buy those loans at the prices that fill the auction, starting with the lowest prices and working up. Now, the Treasury will hold those bonds either to maturity or for a sale in the open market if rising prices in the market make that sale attractive. In other words, suppose the Treasury buys a bond package at 20 cents on the dollar. They hold it for a while, and if market conditions improve, they sell it for 50 cents on the dollar to some buyer (e.g., an investment fund, a private-equity fund, a hedgie). The Treasury will make the sale at the higher price in order to gain a profit for taxpayers.
 

In the meantime, as the Treasury holds the loans, the government will get monthly cash-flows coming in on the mortgages, or on any other loans that it owns. So it is win-win for taxpayers. First, taxpayers get the cash flow generated by the assets. (Something like a 10 percent interest rate.) Second, if the loan is sold for profit, the taxpayers will own that profit. And the new law must of course stipulate that all the cash flows and/or profits go for debt-reduction to protect taxpayers.

[If the profits from these bad loans are such a surefire cinch, why do we need to buy them off Wall Street in the first place?  It doesn't make any sense! -- J]

 

I don't think a lot of folks understand this win-win scenario. Let me repeat: The taxpayers own the bonds the Treasury buys; the taxpayers own the cash flows generated by the bonds; the taxpayers own the profits when the bonds are sold; and the taxpayers benefit when the profits and cash flows are used to pay-down government debt.

[Yeah, you folks are too stupid to understand this.  Bad paper owned by Wall Street = imminent crisis.  Bad paper owned by the US Government = guaranteed profits. Get it?  No?  Oh, well, you're just financial ignoramuses.  Just trust the titans of finance to tell you how to spend $700 billion of your money.  -- J]

 

Actually, for taxpayers, it's a win-win-win-win.

 

Think about this. The troubled assets purchased by the Treasury right now are likely to be very under-priced because of the chaotic and frozen market conditions. But over time, through monthly cash-flow payments or through loan sales, taxpayers will get all their money back and in great likelihood a handsome profit.

[I repeat myself.  If they're underpriced, then what's the f-ing problem?  Let the investment banks hold onto this debt and sell it for what it's worth, instead of the U.S. taxpayer taking it off their greedy hands.  -- J]

 

I have been in conversation with leading House Republicans all day. And they understand these key points. Unfortunately, this understanding did not materialize in their original meeting with Mr. Paulson a few days ago. But now the actual reality is sinking in.

 

Another point: Republican leader Eric Cantor has an excellent idea for a federal bond insurance guarantee for straight mortgage-backed paper, financed by private-sector insurance premiums. That will improve investor confidence in mortgage bonds and will make those bonds highly marketable. Importantly, senior Treasury officials have told me that Mr. Paulson will accept the insurance idea as an option in the final bill, alongside the ability of the Treasury to purchase distressed assets.

[Oh, thank God Mr. Paulson will accept that idea.  I mean, he's like, the boss, right?  Seriously though, who the f*&# is Henry Paulson?  He's an appointed bureaucrat.  And his track record aint all that great.  Who the f&%# cares what Paulson will or won't accept?  What will Bush accept?  What will Congress accept?  That's what matters.  Paulson is a loser.  -- J]

 

Sources also tell me that other conditions will be necessary to bring the House GOP along. First, the ACORN slush fund must be removed. Second, the so-called union proxy to run a slate of corporate directors is a big problem. Third, all profits from the Treasury rescue mission must be used to reduce the national debt — 100 percent. Fourth, Republican members are opposed to bankruptcy judges setting mortgage terms and interest rates (Sen. Obama also is opposed). Fifth, the so-called government equity ownership of banks is distasteful because it effectively creates a corporate tax increase on banks at a time when they are struggling. And last, the Treasury secretary's request for $700 billion is regarded as way too high.

 

Essentially, House Republican leaders want a slimmer, cleaner Paulson plan supplemented by Mr. Cantor's mortgage-bond insurance program. I think it's a good package that would be great news for stock and bond markets that are now ailing badly. It would set the stage for a gradual return to normalcy on the part of bank lenders, including loans to small businesses, consumers, and homeowners. It would be a pro-growth package at a time when the economy desperately needs a prosperity tonic.

Kudlow: Give my johns on Wall Street more cash

Below is incontrovertible proof that Lawrence Kudlow is the media's biggest Wall Street whore.  Ever.  Whatever's good for Wall Street, in Kudlow's view, is good for the economy, and therefore good for you and me.  And naturally, when Wall Street's happy, they leave bigger tips on the dresser for Kudlow.  That's the sum of Kudlow's financial knowledge and conservative ideology.  

If you can read this without throwing up in the back of your mouth, you've got a stronger stomach than I do.

Give Paulson a Clean Bill

By Larry Kudlow

September 23, 2008 | National Review

Honestly. A clean bill as requested by Treasury man Henry Paulson, along with John McCain's oversight board, can help fix the credit-crunch problem. It needn't be this hard.

According to the Paulson plan, distressed assets will be sold by banks through a reverse auction (the low bid wins) to various investment funds, hedgies, private-equity boys, and other banks. And taxpayers will have a strong ownership position in these asset sales. When the assets are worked out over time — as they will be once housing and the economy recover — taxpayers will actually make money on the deal. 

[Oh, wonderful!  See, we'll make money on this bailout!  Hooray for financial crises and bailouts!  Why didn't we think of this before?  We could have been raking it in all this time, instead of the investment banks! -- J]

This is similar to the RTC story twenty years ago, when Bill Seidman presided over similar asset sales from bankrupt S&Ls and wound up making money for Uncle Sam and his taxpayers. A long prosperity wave followed. 

[Yeah, remember that long, uninterrupted prosperity wave since 1988?  I mean... except for those 2 recessions and a credit crisis that destroyed the Wall Street investment banks. -- J]

In fact, industry insiders tell me the Federal Reserve and the SEC may be moving toward a five-to-seven year amortization plan for the scoring of bank losses from the sale of this distressed paper. This is very constructive. Fed head Ben Bernanke also is talking about getting rid of mark-to-market accounting and moving towards "hold to maturity." This is good.

But the credit arteries are now clogged with a terrible virus that can be removed by the Paulson rescue plan. And as the problem is solved, credit and loans will be made more available to Main Street homeowners, small businesses, and consumers of every type. Credit markets will gradually unfreeze. It can be done. A deep recession can be avoided.

And maybe along the way we can get a strong King Dollar to fight inflation and attract international investment. And perhaps, just perhaps, we can get more drilling to reduce gas prices at the pump — a big recovery tonic. And, dare I hope, maybe we even can get corporate tax reform with lower tax rates, which along with energy deregulation will spur jobs and wage growth.

But after Tuesday's Senate hearing I'm very concerned. The bells and whistles that would be attached to Paulson's plan by our Democratic friends are anti-capitalist and anti-opportunity. 

[Just to clarify, $1-2 trillion bailouts of Wall Street are pro-capitalist and pro-opportunity.  Just in case you were wondering. Now read on and absorb more of Kudlow's Wall Street wisdom, you financial ignoramuses! -- J]

Capping compensation for both the selling and purchasing institutions? What? Salaries and bonuses are no business of the government. People go to work for profits. For opportunities. It's at the heart of our free-market capitalist system.

Now, I can understand companies like AIG, Fannie, and Freddie, which effectively have been nationalized. That's different. I don't care if they all make $75,000 a year, just like the regulators. But to stretch this to the banks that are selling or buying the assets goes beyond the pale. It's France. But it's France heading toward the old Soviet Union, or at least Tsar Putin's Russia. 

[Yeah, the difference in socialistic France or Russia is, when the taypayers ante up several hundred $ billion to invest in a company, they get to OWN it.  And that's just 'nuts.' Don't believe me?  Keep reading! -- J]

And then there's the ownership question. Some Democrats want Uncle Sam to take an ownership position in all the selling and purchasing banks. This is nuts. In America, this is nothing but property confiscation. It also will sharply curb buyers of the distressed assets. 

[Yeah, giving Wall St. $ billions for nothing in return is capitalistic, because the alternative would be 'property confiscation.'  Are you getting this?  It's Economics 101, folks.  I'm embarrassed that Kudlow even has to explain this to you.  -- J]

You think Henry Kravis or Steve Schwarzman are gonna take a salary cap and lose an ownership share of the private-equity funds they themselves created and built? They shouldn't and they won't.  And these funds are crucial to the new process. The only banks that will sell in this over-regulatory environment are the absolute, near-bankruptcy turkeys. 

[No way, nuh-uh, Henry Kravis and Steve Schwarzman aren't gonna stand for that!  They'll get Bush, Paulson, and Bernanke on the phone and chew them a new a-hole if that's Congress' proposal.  Yeah, Kravis and Schwarzman will tell our President, the Fed, and Congress what's what.  They're financial geniuses.  They built their private equity funds from nothing and zero equity into huge funds with zero equity.  They're Wall St. titans!  -- J]

Meanwhile, Sen. McCain apparently has proposed that the buying and selling banks have comp-levels no higher than the top paycheck in the U.S. government, which I guess is the president's at around $400,000 a year. Hey, I've got an idea. Let's raise the chief executive's pay to $50 million. He probably earns it anyway. 

[Another genius idea for running our government more like a business, straight from Wall Street!  I mean, if we paid Bush $50 million a year, this would be following Wall Street's results-driven pay scale: the CEO who racks up the biggest debt in the company's history gets the highest salary, preferred stock options, and a generous pension.  It's only fair! -- J]

It's these congressional bells and whistles that really trouble me. And they also trouble the stock market. Stocks absolutely roared last Thursday and Friday when they got wind of Paulson's program. But Monday and Tuesday, as the new details leaked out and various Democratic senators put their ideas on the table, shares plunged big time. What does that tell you? 

[It tells me that Congress better make with the bailing-out, stop demanding conditions as if they were Mao or Stalin, and stop telling Wall Street how much to pay its financial whizzes!  -- J]

I can understand legitimate concerns about a big-government intervention and a giant $700 billion number. There's a shock effect here. But once in a while the financial center of capitalism goes into panic mode and something has to be done. 

[True, big numbers do scare you people.  But you people are dumb.  You're easily shocked by lots of zeroes after the dollar sign, but that's just because you're not rich Wall St. geniuses like Kudlow and his buddies Kravis and Schwarzman.  You simple folk will forget all about this soon enough... just in time for the next panic when 'something has to be done.' -- J]

Actually, it's a marvel that we permit government to infrequently come to the rescue of our credit system. It doesn't happen everyday. But it has been necessary going all the way back to Alexander Hamilton's original rescue of our failing debt system in the 1790s.

[Yes, it is indeed amazing that in our capitalistic, free-market, freedom-loving, pull-yourself-up-by-your-own-bootstraps country, we don't allow Big Gubument to come to the rescue of our credit system more often.  But that's just because so many people don't understand capitalism and economics, not like Kudlow and the geniuses on Wall Street do. -- J]

Understanding this history, conservatives should not panic or walk away from the Paulson assistance plan. It would be great to avoid either a deep credit-driven recession or a global banking meltdown — or both. Paulson has always viewed his rescue plan as an economic-growth tool. I think he's right. 

[See?  Doesn't that make you feel better?  This bailout is going to grow our economy.  In fact, Paulson has 'always' seen this bailout as an economic-growth tool.  Always. Ever since he was Chairman and CEO at Goldman Sachs, probably, that's what he's thought about this bailout plan.  Jeez, I'm just in awe of the brains of these guys on Wall Street always thinking 10 steps ahead! -- J]