Financial MOAB
A few years ago, military planners got all excited over a new kind of fuel-air explosive known as MOAB — the Massive Ordnance Air Blast bomb, or informally, the Mother of All Bombs.
Welcome to Financial MOAB — the Mother of All Bailouts. All those rotten debts the finance sector has racked up? Uncle Sam will just take 'em off their hands. Voila, problem solved.
The price tag? Washington Post columnist Steve Pearlstein reckons "$200 billion to $500 billion, on top of the money already committed for Fannie Mae, Freddie Mac, AIG and Bear Stearns." Funny, there's that $200 billion figure yet again. (Update: Oh hell, let's just go for an even $1 trillion.) Feel free to place your own bets in the comments section.
How Uncle Sam proposes to pay for this, no one has adequately explained — because no adequate explanation is possible.
At least Hank Paulson and Ben Bernanke are going through the motions of getting Congress to sign off on all this. It's good to see the Fed and Treasury resort to Constitutional niceties on the really big stuff. Piddly stuff like the AIG bailout they just go off and do on their own using emergency powers they were (unconstitutionally) granted during the Great Depression.
Wall Street's reaction? A multi-hundred point rally on the Dow when word leaked yesterday an hour before the close. Asian and European markets then rejoiced and as I write the Dow is up another 250 in the opening minutes of the trading day. They don't care who's going to pay for it.
But the dollar is down. And gold is up. Currency traders and gold buyers know the score.
Warning: Monetization ahead.
Of course, Paulson and Bush will be long gone by then, and maybe Bernanke too. Someone else can take the fall for the consequences of that.
Addendum: I suppose I understand why the establishment media is making analogies between the new "Troubled Asset Relief Program" and the Resolution Trust Corporation that was formed to navigate the savings and loan crisis. But the comparison falls down on a very basic point: The RTC could sell tangible assets in the form of real estate to pay off some of the rotten paper it took onto its books. No such option exists this time.
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