No Runny Eggs

Consider the following sequence of events:

1. $700 Billion “bail out” package was passed because it was “urgent,” “essential,” “markets would fail without it!”
2. Wells Fargo, one of the few banks who were smart enough to avoid getting entangled in the subprime messes was “forced” to accept the government’s infusion of capital, even though they didn’t believe they needed it, because if they didn’t accept it now,
   

   If the company found it needed capital later and Mr. Kovacevich couldn’t raise money privately, Mr. Paulson promised the government wouldn’t be so generous the second time around.

3. When queried on Friday about the status of the $700 Billion “bail out”, White House spokesperson Dana Perino, said:
   

   Well, we’ve looked for an opportunity — ever since the bill passed said it was going to take a little bit of time for all of us to dot the I’s and cross the T’s to get all of the policies in place. And that’s taking place right now. We’ve had Neel Kashkari, who is the Assistant Acting Secretary for the rescue package implementation, was on Capitol Hill yesterday talking about the progress.

   What we tried to warn people about across the country is that it’s going to take a little bit of time. We weren’t talking weeks, we’re not talking months — we’re talking just a few weeks for us to be able to hire the contractors. There are so many people that have to be hired and they have to — we have to make sure that we’re getting the right people. And before money can go out the door we want to make sure that those contracts are rock solid and that we’re doing the best we possibly can to make sure the taxpayers are paid back.

   So we’re in that period right now where — we’re waiting for that implementation. We’re closer than we were yesterday. They work as hard as they possibly can. So what I would ask is that Americans be a little bit patient with this program. We do think it is big enough to solve this big problem; it’s just going to take us a little while to get through it.

In the mean time, we have the report from the Federal Reserve Bank of Minneapolis, I referenced it here, that questions whether there ever was a need for the “bail out.” We also have “invested” banks using their funds to buy competitors rather than increasing loans.

All this leads me to this article from the Financial Times:

Credit markets hit by bank debt guarantee

This article outlines how normal, private debt markets are having trouble functioning.   Why?   Well simply because the government has stepped in and made substantial debt guarantees here, there and everywhere.   As a lender, if you have the choice to lend into situations where the government is guaranteeing your loan or lending normally with assets as collateral, you will either only loan with the guarantee or demand such a premium for the asset backed variety that it becomes unworkable.

I’ll admit it’s anecdotal, so was the evidence supporting the cries of urgency, but as time goes on I’m less and less convinced that the “bail out” was/is a good thing.   Commercial lending doesn’t seem to have ever been interrupted; certainly not to the point that Paulson and company led us to believe.   Interbank lending appears to have restarted.   We were told that the “bail out” was essential to save both of those functions yet according to Dana Perino, Paulson was so convinced of its “need” that he didn’t bother to get major parts of the plan in place, let alone details, even 3 weeks after the plan was approved.   Geez, at least the Marx Brothers’ repetitive ineptness was just for movies!

Admittedly, I’ve never been a big government guy.   I’ve cheered on principle, when either the State or Federal government has had to “shut down” due to some budget issue.   But seriously, can someone explain what I’m missing in this and why we should have any confidence that any of these clowns (Democrat or Republican) have a clue that involves anything other than their own political survival?