Saturday, April 17, 2010

The Wall Street Journal's Bailout Math

On Monday, the Wall Street Journal ran an article that was one of the biggest pieces of BS and propaganda that it has ever run. It is no wonder that I read the Financial Times for my financial news and not the Wall Street Journal. The WSJ has turned into a mere mouthpiece for Wall Street.

The article declared that all of the corporate bailouts by Uncle Sam will cost less than initially feared. The article was notable not for what it included, but for what it managed to completely ignore.

There is NO mention of the trillions of dollars the Federal Reserve printed up out of thin air to buy bad assets from the banks and which are still on the Fed's books.

The ongoing costs of the the government rescue of Fannie Mae and Freddie Mac and indeed, the complete takeover of the $5 trillion in mortgages by the federal government is glossed over.

The article also somehow forgot about the cost of bailing out General Motors and Chrysler. And here are a few other items:

Depleted FDIC reserves? Not Mentioned! The tens of billions of dollars of bad loans on bank balance sheets? Ignored! The new accounting rules (FASB 157) which allowed "fantasy" bank accounting? Not a peep! The newly concentrated "to-big-to-fail" big banks with NO competition? Never Mind!

Time Magazine's Andrew Ross Sorkin did a better job in his recent article at bringing to light some items which the Wall Street Journal chose to ignore. His article did mention the following points:

Losses (so far) from Fannie and Freddie are about $320 billion; losses from insurance giant AIG (so far) are about $48 billion; and the Federal Reserve's virtually interest free "loans" to Wall Street are about $1 trillion.

That's right $1 trillion! Any wonder the stock market is up? Give me a trillion dollars and I'll show everybody a good time! What a party we'll have!

What we can honestly say about the bailouts is that we don't know what the final costs will be. Much will depend on how quickly and strongly the US economy recovers.

One thing for certain is that we have created a less competitive banking system and have allowed banks to fabricate their balance sheets.

We also no idea what the long-term repercussions and moral hazard will be in the future because of the bailouts. The best guess is that the bailouts will cause a declining dollar and higher inflation in the years ahead.

No comments:

Post a Comment