Look at Me!

Look at me when you are lying.

Not everyone is good at detecting snake oil salesmen. If so, our current political race would be different. I wonder if Citizens of the U.S. are getting a gut feel the politicians are lying? In mass, we have said, “no bailout.”

Why, if there are such dire conditions, why not throw money at it? Why are we balking at this? Can it be that we are not being told the truth? By whom? By anyone?

Nothing makes sense in the situation.

Yesterday the Federal Reserved pumped $600 billion in the capital markets. Yes, $600 billion, which is very close to the $700 they want to charge us for a bailout. And the result on the “frozen” credit market—nothing. Why? If $700 billion will fix all our woes, then why didn’t $600 billion in one shot do it? Curious, eh?

What if the toxic waste or rather toxic paper they keep talking about is held inside the “Sacred Five.” What if Goldman Sachs, Morgan Stanley, JP Morgan, Bank of America, and CitiBank held a larger percentage of the toxic paper? Those five institutions are being protected by the government.

Here’s the scenario—

Bear Stearns was going under, we needed to save the market. U.S. government gave JP Morgan $35 billion to absorb Bear Stearns. That was to end our problem.

But then we found out Freddie/Fannie were bankrupt, so we bailed them out. That would solve the problem.

But wait there’s more from Wall Street. Lehman Brothers, a storied institution, so famous and powerful it was too big to fail, yet it was allowed to fail. Why? Is there bad blood between Hank Paulson and Lehman at some level, so he let it go down? Seems suspicious based on all his other actions.

Hours later, AIG became too big to fail, so we rescued them, otherwise the sky would fall and we would all be living in cardboard boxes. Billions more of our money pumped into a private institution which was nationalized. Why AIG and not Lehman. People on Wall Street are still asking that question.

Up pops, Hank Paulson again, crying doom, with his faithful sidekick Ben Bernanke offering to rescue us again. This time it was to buy toxic paper which was clogging up the arteries of the market. Without this bail out we’d all be living in cardboard boxes.

While the democrats tried to figure out how to gain political advantage for bailing out Wall Street, Washington Mutual was driven to the brink. JP Morgan to the rescue again. This time the shareholders were wiped, the U.S. government made over a billion dollars in a transfer fee and JP Morgan got a great deal on WaMu.

Do you see a recurring theme here? JP Morgan arrives to save the day, only after getting a sweetheart deal. Granted this time the taxpayers did good, but the shareholders were destroyed so JP Morgan could profit.

Everyone knew Wachovia was the next to fall. Over the week end the government lined up CitiBank to take over Wachovia. Why? Because whenever short selling was allowed CitiBank was going down. Wall Street knew CitiBank was in trouble, so did Paulson.

Unlike the WaMu destruction, CitiBank gave ownership to U.S. government in exchange for protection above the $42 billion in Wachovia liabilities. Strange deal isn’t it. And even stranger when toxic paper from CitiBank gets shuffled into the Wachovia pile for the U.S. taxpayers to cover.

I may be way off base here but it looks like, as CNBC calls them, a “boys club” at work. The name in Hank Paulson’s circle of friends is Goldman Sachs where he was the CEO before taking a government job. And did he take it because he knew that to save his portfolio, he or some else would need to be in the government?

Add to the circle Morgan Stanley which along with Goldman Sach was allowed to become a federally chartered bank over night without going through any due diligence. Why? To put them on the protected list and justify Paulson bailing them out.

With both Goldman Sachs and Morgan Stanley all but dead, the Security and Exchange commission was told to stop short selling against financials. Perfect timing both Wall Street firms were saved.

And then there was Bank of America, who just happened to buy both Country Wide Financial a major player in non-creditworthy loans, and Merrill Lynch another Wall Street Investment bank. While everyone said BOA was very solid, the absorbion of all the toxic paper from both those institution has to threaten their balance sheet. Over time BOA would be under attack but the Bail Out is designed to prevent that.

With checkbook in hand, Paulson can buy the toxic assets from the “Boys Club.” That saves his portfolio and makes him a friend for life with the chosen few. He will be privy to inside deals that no other human on earth will see for as long as he has a nickel to invest.

How does Ben Bernanke fit into this? Like all faithful companions he is just window dressing. While he may currently be the most powerful man in the world as Chairman of the Federal Reserve the most powerful bank in the world, he is a wimp. The man has nothing going for him except his position. Paulson uses Bernanke like a cheap suit dress up this dog and pony show.

Is the Bail Out what we the citizens believe it to be, Hank Paulson rescuing himself and his friends or is it something which will save Mainstreet? If it is why then didn’t the $600 billion yesterday help?

My newest theory—the majority toxic paper is held by the five members of the “Boys Club.” No one is lending because they understand the Protected Five, who are the major players in every aspect of the U.S. markets, are toxic. Rather than risk being involved with a possible loss other players are sitting on the hands and their money.