Hold Your Nose and Go For It…

So, I got done reading my customary article or two in the Washington Post today and one was about the inevitable failure of CIT.

http://www.washingtonpost.com/wp-dyn/content/article/2009/11/15/AR2009111502280.html?hpid=topnews

If you read the article, you will see that the title to this post was a pretty encompassing quote from some under-secretary whose name really isn’t important.  The bottom line is that everyone knew from day one that all the money the tax-payer lent this bank was most likely going to go up in smoke.  Not a 50/50 chance, but closer to a 95/5 chance. 

UNACCEPTABLE – for two reasons.

First, we knew this day was coming when we would solidly see our dollars being wasted never to return (in the form of a bankruptcy restructuring for CIT).  Its now  not just an estimate, it is a locked-in reality.   They knew they were basically throwing good money after bad, and now it is certain.  Secondly, and even WORSE, the government purposely structured the debt so that the tax-payer would be the one to lose out.  It is exactly the opposite of where the government bailed out the private debt-holders ahead of share-holders (share-holders are supposed to get compensated first).  There, people who were supposed to lose out, got compensated fully.

WTF?  Why are bond holders so special and the taxpayer gets third rate deals cut for them?

  The government shouldn’t have done the bailout in the first place, but since it did, it should have put itself  first in line to get paid back…makes sese after all, right?  But no, that is not what it did.  Now because of that small fact, the government is going to lose all that money while it could have easily put a stipulation that it gets paid first should CIT fail.  It doesn’t make me feel good about the bailout or the inevitable loss, but at least it wouldn’t have been absolute and total like it now is.

That lack of acting rationally both by putting bond holders first and the the tax-payer last make me conclude that the U.S. Government/Treasury/Fed acted byond ineptitude in many of their bailouts.  It long ago crossed into willful negligence over the management of public funds.  The superlative ‘they’ would never have cut  such deals were they still running their hedge fun or Wall Street bank. 

If they wouldn’t do it for private money, why are the deals different for the US tax-payer?

-G.S.

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