"We've had an intellectual breakthrough," he said. "It's changed our credit philosophy."
[...]
"The poor are honest,"

And then they're trying to blame the poor for all this, as if the poor are somehow exploiting the rich by taking out more loans than they can pay. Yesterday, Senator McCain said--he warned that all of this debt was going to be paid by the future generation, and we're exploiting them. But that's not how to think of it at all. When you have a debt that goes to a future generation, you have taxpayers paying to bondholders, just like in the nineteenth century you had the western states paying to the eastern states. So what you've done is given $12 trillion to the richest one percent--or ten percent of the population, and you've indebted the economy and the government to them for the next hundred years. You've created a new class of ruling families.

And Obama has--by doing this, he's broken with every president in history. Whenever the debts have exceeded the ability to pay, they've been written down to the ability to pay, either through bankruptcy or through conscious government write-down. But instead of writing down the debts, he says the creditors are not going to lose money, despite what Mr. Roubini said. They may have lost money, but they will be made whole by the government. And that's crazy. That's why every economic chart you see, there will be a gradual rise and then a sudden collapse. Everything is turned into a vertical fall. Prices, international shipping, employment, profits, they've all hit a wall. And there's no way that the economy can recover when people have to pay interest and amortization instead of buying goods and services, or companies will have to pay their junk bond holders instead of investing in new equipment.

Incidentally, suckers, executive pay caps are cut.

| APF | 12 Feb 2009

Lawmakers removed the provision without explanation in closed-door talks this week. Hoelzer said several senators had questioned whether the provision was legal, since Congress had not limited the bonuses in approving the original legislation last October.

It's not really that the Poor are more or less honest than the rich . . .

A number of years ago, there was one of those human interest stories that caught my eye. Some kid somewhere who delivers bagels (it was probably in the Washington Post, because I lived in Northern Virginia at the time) noted that people are generally honest and generous with tips, with the exception of executives. Not only were executive types stingy, but the only real problem with pilfering and short-changing the kid said he had was when he was dealing with executives.

Makes sense to me, looking at the personality traits of executive types according to the Myers-Briggs typology. And the poor being more charitable and honest is also a theme Steinbeck repeats a number of times in Grapes of Wrath.

Here's the patter talk you can expect, with the usual Orwellian euphemisms. The "rescue the homeowners" PPP, a veritable Savior Bank, will go to a family strapped by its home mortgage debt and feeling more and more desperate as the price of its major asset plummets deep into Negative Equity territory. An offer will be made: "We've got a deal to save you. We'll renegotiate your mortgage down to $250,000, the current market price, and we'll also lower your interest rate to just 5.50 per cent. This will cut your monthly debt charges by nearly two thirds. You will escape from negative equity, and you can afford to stay in your home."

The family probably will say, "Great."

But they will have to make a concession. That's where the new public/private partnership makes its killing. Its Savior Bank, funded with private money that is to take the "risk" (and also the rewards) will say to the family that agrees to renegotiate its mortgage: "Now that the government has taken a loss while we've let you stay in your home, we need to recover the money that's been lost. So when the time comes for you to sell, or to renegotiate your mortgage, our Savior Bank will receive the capital gain up to the original amount written off. If we've made you whole, we want to be made whole too."

In other words, if the homeowner sells the property for $400,000, the Savior Bank will get $150,000 of the capital gain. If the property sells for $500,000, the bank will get $250,000. And if it sells for more, thanks to some new clone of Alan Greenspan acting as bubblemeister, the capital gain will be split in some way. If the split is 50/50, then if the home sells for $600,000, the owner at that time will split the $100,000 further capital gain with the Savior Bank. The Savior Bank will thus make much more through its share of capital gains than it extracts in interest!

This plan will be even better for Wall Street than the Greenspan bubble was! Last time around, it was the middle class that got the gains. To be sure, it really was the bank that got the gains, because mortgage interest charges absorbed the entire rental value. But at least homeowners had a chance at the free ride, if they didn't squander their money in refinancing their mortgages. And many did use their homes "like a piggy bank" to support their living standards.

But this time around, Wall Street is not obliged to make its money by making middle class homeowners rich. Debt-strapped homeowners are willing to settle merely for a plan that leaves them in their homes! It can get for itself the capital gains that have been the driving force of U.S. "wealth creation," Alan Greenspan bubble-style.

I was unimpressed with Geithner from what I have seen of him in interview.  His body language denoted uncertainty and dishonesty.  He seems to me better suited to be the brilliant young point man for some leader with gravitas than to be the person who is supposed to inspire confidence.  If he can sell this plan I will have to reclassify him as The Pied Piper of Wall Street, charming all of the homeowner rats into following him to their doom.  Instead of having some equity from their homes when it comes time to retire, that will belong to the bank.  Hope they are prepared to live on Social Security.  Sure glad I sold when I did.

"It is not necessary to have hope in order to persevere."

When my colleague told me this remarkable theory, after politely replacing my jaw (Marley style), I said that the author must be either a loan shark or the consigliere for loan sharks.

What we have right now is the messy end state of an economy run by and for loan sharks.  Usury was rightly, imho, regarded as criminal in previous centuries.

The difference between theory and practise in practise ...