Thursday, October 2, 2008

My Letter to Jim McDermott

Dear Representative McDermott,

Your trust is misplaced. I urge you to reconsider your vote concerning the use of taxpayer money to buy distressed financial assets.

In your statement of Sept. 29, you wrote: “I voted in favor of H.R. 3997 because I know with certainty that House Speaker Nancy Pelosi and Financial Services Committee Chairman Rep. Barney Frank put the American people first and negotiated a bill that would have taken a first step in restoring the faith and trust of the American people. Doing nothing sends a terrible signal.”

But Rep. Frank and Speaker Pelosi have not put the interests of the American people first. Instead they are complicit in outright theft from the people. The bill gives one man, Henry Paulson, essentially unchecked power to allocate money from the public Treasury as he sees fit. Although there are rhetorical statements in the bill which purport to provide for oversight, the bill does in 110 pages what Paulson’s original proposal did in two.

Furthermore, the bill does nothing to solve the economic troubles we face; it makes them worse. It necessarily diverts at least $700 billion dollars from productive pursuits to failed investments from the past. Paulson’s rhetoric that buying bad assets will free up capital is a distortion. In fact this action restricts capital. We are in a recession. Our economy needs that $700 billion to aid the recovery.

Yet another problem is the likely irreversible nature of this action. The banking sector is set to lose far more than $700 billion. I am certain that a few months down the road, Paulson will want to throw more money at the problem. At that point it will be difficult for Congress to reverse course. In fact, it is perplexing that Congress would consider any plan that this man proposes given that he has been consistently wrong about everything since taking office. To point out just one example, it has now been 14 days since Henry Paulson told us the world would end in a couple of days without action.

The specter of this bill has already caused great damage, as many capable financial professionals have moved to position themselves to benefit from the new law, rather than putting effort into providing solutions. The most obvious case is that of Warren Buffett’s purchase of a large stake in Goldman Sachs.

The financial industry, and American society as a whole, has made a great deal of bad investments which must be flushed out of the system. This process will take work and sacrifice. There is no easy solution. You say that doing nothing sends a terrible signal, but doing something bad is much worse. The Bush Administration has used threats and unjustified predictions of impending doom to foment fear in the American people, and the Congress is panicking and rushing to “do something.”

Don’t “do something.” Do the right thing. Vote no.


Anonymous said...

Vote No!

One thing that may come to pass, which I've read - sorry no link, is that if the gov't buys this toxic junk and values it at some value that is less than what all these financial institutions that are in trouble have on the books then we are in bigger trouble. Case in point is let say XYZ has a derivative that they value at 100 and then someone else sells a similar derivative to the Gov't for 10 then the cat is out of the bag for how much this junk is worth. So the curtain gets pulled aside for all to see the value on what is possible a qadrillion dollar market.

Google "quadrillion derivatives"

Cowbear suggests taking precautions and having enough cash to last a month or two on hand. Bad times ahead. The pastures are darkening...

Anonymous said...