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The real reason why we are going to approve the bailout

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October 02, 2008 – Comments (0)

Too many people dressed in suits and ties depend on it. Buffett has made an $8 billion bet that the bailout will pass. Do we want to make the greatest man in the history of mankind (sarcasm intended) to look like a fool? Goldman and Sachs stand to make billions. Can we let Paulson's employer lose this great opportunity? GE and other financials are going to go up. Any company will go up when it gets to keep the profits and to put losses on the government's balance sheet. And with the companies up goes the wealth of shareholders. Of course the business America is all for it. And so should you be, provided you happen to be in the right place at the right time and own the right kind of stuff, in the right quantity. It's strictly the matter of quantity. Inflation? That's too bad. Portfolio gains? That's very good. Missed your chance to buy stocks on the cheap? That's not so good. Who benefits? Why, the one who's done with accumulation of shares and is about to get into the distribution mode. Who pays with opportunity costs? The one who's still in the accumulation mode. Who  pays the bill? The one who owns little or no shares. The wealth trickles up. The bailout rhethoric trickles down. The Congress pays lip service to free enterprise, then approves the bailout like a monk who observes his fast by crossing his meat and calling it fish. The lower classes hope for improved affordability of all things bought with credit. Sellers react by rising the ask prices. Producers look forward to the new liquidity forthcoming from consumers and nervously anticipate a higher bill for their input costs. Owners of businesses with moats smile shyly and count their gains. Bankers prepare to write more loans. Financial specialists update their models, in which new loans provide borrowers with enough money to repay the old loans. Ratings agencies prepare their explanations of why new loans never have to be paid back because they get refinanced with new loans, which then get refinanced with still newer loans. Lobbyists prepare to put the last tranche of loans on the government's balance sheet. Chinese officials report to their government how they prevented their loans to the US from going sour by writing still more loans to the US. Gold bugs are digging holes in the ground, congratulating themselves with how they are smarter than everyone else. Everybody is happy.

The bailout bill goes to Congress to be rubber-stamped with grudging approval of Joe Sixpacks sitting in from of their plasma TVs bought on credit card listening to Jim Cramer and drinking their six packs until this circulation and re-circulation of money starts to make some kind of sense. That mooing sound you heard comes from dairy cows signaling that they are ready to be milked. 

 

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