Structured Thought . ORG

I remember a long time ago, I saw a bumper sticker that said “If you’re not angry, you’re not paying attention.” That might not be the exact wording, but you get the general idea, which is: If you’re not looking critically at the current situation(s), you’re not going to realize how screwed up things really are. If you understand how fundamentally borked things are at the moment, then you will be angry. Very, very angry.

I understand (to a degree) how fundamentally screwed up things are right now. And I am also very angry.

I’m not going to get into the specifics of things because I’m not a financial expert, nor do I purport to be anything other than an outside observer. But here’s the gist of things:

Some very large corporations (Lehman Brothers, AIG, WaMu, etc) made some very bad decisions based on the fact that they apparently are unable to see beyond the $s clouding up their vision. They invested heavily into some extremely bad loan products because the housing market was such that it was easy to turn a foreclosure into profit. Housing was in demand, and it truly was a sellers market.

But, because of the risk, however small at the time, involved in taking on these risky loan products, many of these companies sought to find a way to offset the appearance of risk, and improve the overall appearance of their balance sheets. They did this by purchasing insurance against the potentially bad loans, called ‘Credit Default Swaps’. These swaps are unregulated contracts of undetermined length or value that were able to fly under the regulation radar. It is estimated that these swaps insure more than $60 trillion.

Now, we have a failed housing market (a house in my neighborhood just sold for $95,000. 5 years ago, that same house would have sold (quickly) for $150,000+), 5 and 7 year ARMs coming due, tightened credit, and a mass of foreclosures that hasn’t been seen in a very long time. People who entered into these ARMs with the understanding (and prodding from their mortgage ‘professional’) that the market was always going to rise, and before the ARM was up, they would have no problem selling or refinancing with a net profit, were now left facing the triple-whammy of doubled (or even tripled in some aggregious cases) mortgage payments, a tightened credit market (no, you can’t refinance right now), and lower selling prices (sorry, your $150k house is now only worth $120k, and your mortgage payoff is $145k). Suddenly, these companies are starting to realize (to the swap-sellers horror, no less) that they’re actually going to need to exercise those swaps.

In short, the proverbial poo has hit the proverbial fan. And in this case, it’s a very large pile of poo.

This week, our beloved Treasury Secretary Henry Paulson urged congress to fast-track an emergency $700,000,000,000 bailout of these companies that got themselves into such dire condition. Let me emphasize this. Seven hundred BILLION dollars. That’s a seven followed by ELEVEN zeroes. That’s $2,000 for EVERY LIVING MAN, WOMAN, AND CHILD in the country. That’s roughly $110 for EVERY PERSON ON THE PLANET. Are you getting the magnitude of this? Here’s one more: The FY2008 federal budget was $2.66 trillion dollars. This bailout is more than 25% of the ENTIRE NATIONAL BUDGET. Congress was urged to punch this through with no debate and urged them to essentially not even read the plan, just approve it.

Now, dear readers, I ask you the question for which the answer is painfully obvious: Where is this $700,000,000,000 going to come from? That’s right, kids, our very own pockets. But not just our pockets. Our children’s pockets. Our grandchildren’s pockets. Our great-grandchildren’s pockets, even.

Now, who do you think this is going to affect the most?

How about Martin J Sullivan, former CEO of AIG? He made $14 million dollars in 2008. $14 million dollars directing a company so far down a bad path that we, the American taxpayers, now effectively own his company. Something tells me he’ll be pretty safe from this.

So, I ask you: Are you paying attention?

Are you angry yet?