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It’s difficult not to feel pity for auto executives. If only they had hired a bunch of creative writers to invent sophisticated sounding acronyms, it’s likely that instead of getting the cold shoulder from the Obama administration, they may have joined their banking brethren in looting the US taxpayer.

DMV and Treasury to Team Up to Buy Unsold US Autos

So my brief suggestion to the auto industry is simply to rename the auto bailout, to the Lemon Aid Repair Program, or LARP for short. The LARP would essentially be a joint venture between the Department of Motor Vehicles and the Treasury. The aim of the program would be to break the negative economic cycle caused by the “lemon legacy” problem.

As a result of the current economic downturn, unsold vehicles have been piling up at auto manufacturers and dealers. These autos, despite being best of breed, are wrongly perceived by consumers to be lemons. As a result, nobody is buying cars, and the inventory of cars is increasing dramatically. However, these “lemons” create uncertainty around the auto industry, compromising their ability to raise capital and the willingness of auto executives to increase manufacturing of more lemons, and pay themselves outrageous salaries.

Hedge Funds Will Help Price Lemon Cars and Government Will Pay for Fuel as Funds Test Drive Lemons

Under the LARP, the DMV and Treasury would team up with private capital to purchase a $1 trillion of unsold vehicles from auto manufacturers and dealers. The Treasury and DMV will supply 95% of the capital to buy these cars, while private investors would put up 5%. Private investors will have the right to drive the cars they buy via the partnership for as long as they please, and the government will pay for all fuel and insurance expenses. Should they wish, private investors can sell back the cars to dealers, the government, or directly to consumers and keep 50% of all profits. In the worst case, the Federal Reserve has already agreed to provide another $1 trillion dollars to buy vehicles back from the DMV and private investors, in the case any of the cars truly are lemons.

The partnership with private investors is vital to reduce the likelihood that the government will overpay for these lemons. With private sector investors competing with one another, a fair price will be established for these legacy lemons.
This approach is superior to the alternatives of either hoping for auto manufacturers to gradually sell these lemon cars over time, or of the government purchasing the autos directly. Simply hoping for auto companies to work legacy lemons off over time risks further prolonging the lemon problem, and if the government acts alone in directly purchasing lemon cars, taxpayers will take on all the risk of such purchases – along with the additional risk that taxpayers will overpay if government employees are setting the price for these cars. Have you seen the types of cars we drive in the government?

Economic Recovery Guaranteed as Fake Sales Boost Consumer Buying and Government Increases Buying of All Useless Products

It is hoped that by purchasing unsold vehicles from auto manufacturers and dealers, the LARP, will create the impression that cars are flying off the shelve at auto dealers, convincing consumers to quickly max out their credit to buy that new car they’ve always wanted and don’t need. As consumers are tricked into buying cars because of the sales churning of the LARP, prices of cars will rise fueling an economic recovery.

In addition, by creating a bunch of phony sales for auto manufacturers and paying them for cars that nobody wants, it is certain that auto companies will return to profitability and the need for additional capital at the auto manufacturers will be greatly diminished. Auto executives also will be encouraged to pay their employees millions of dollars in bonuses for their helping to unload these lemons to the government at inflated prices. It’s a tough job selling lemons to the government, and we need to do everything we can to retain the brilliant employees who make this essential economic work possible.

It should be noted, that it appears that the LARP is already working, as it has been reported that several auto manufacturers and dealers have already started buying their own cars in anticipation of selling these cars back to the government.

Once the LARP is firmly established, it is the intent of the Treasury and Federal Reserve to form additional partnerships with private investors for the purchase of unsold HDTV’s, iPod’s, Crocs, diamond rings, and any other product that is deemed to be completely useless for the social and economic well-being of US citizens. It is believed that the work needed to build the warehouses that will store the trillions of products purchased by the government will create millions of new jobs, fueling economic growth in the US.

While there has been much discussion over the potential economic outcome of Geithner’s new toxic asset plan, there has been little attention paid to the crafty use of new terminology to justify the largest theft in the history of capitalism. One wonders not about the short-term economic effects of such a plan, but rather the long-term social implications of this brazen attempt by the government to pull the wool over the eyes of a myriad of hard-working, entrepreneurial, smart, and risk-taking Americans who do not labor in the financial industry, and are faced with a true economic crisis.

In case you missed it, I highly recommend you read up on the two-part plan at the Treasury website. Here is the link: http://www.treasury.gov/press/releases/tg65.htm . I think you’ll be fascinated by the ingenuous use of new words to justify questionable actions and whitewash the key figures whose activities have caused this crisis.

Toxic Has Morphed into Legacy

Notice for example, how the government has deftly redefined the debate from a discussion over toxic assets and a financial crisis, to one of troubled legacy loans, and legacy securities. Legacy presumably has a much more positive ring to it than toxic or better yet, liar loans, the more apt description for many of these securities.

Surely legacy engenders emotions of pity, as opposed to outrage, for the unfortunate situation of banks who find themselves in the terrible situation of having to hold these loans after they have already cashed in to the tune of trillions, when many of these loans were first originated.

But, even though a bank and its employees have already profited handsomely from these troubled loans, rest assured that the government stands ready to provide a second payout under the legacy loan program, the first part of the Geithner plan. This program is supposed to, “cleanse bank balance sheets of troubled legacy loans and reduce the overhang of uncertainty associated with these assets,” via public/private partnership.

With Infinite Capital Who Needs a 7% Partner?

As explained in the press release, on a sample $84 purchase price, a private investor partner must put up $6, or 7%, of the total, while the government, via the FDIC and the Treasury, will fund the rest.

Leaving aside again the issue of whether this type of structure will actually work to clean up bank balance sheets (of course it will), and how easy it is for any idiot to game this type of program, the more poignant questions are:

1. How exactly is this a partnership, if the private party is putting up 7% of the total capital, and assuming virtually no risk?
2. Seeing that the government via the Fed and Treasury has the complete authority to readily print trillions of dollars no questions asked, providing the taxpayer with unlimited capital, one wonders why there is even a need for private capital? If the government thinks the assets should be removed from the banks balance sheets, why doesn’t the government itself buy the assets? Why is there a need for a partner?

If Government Employees Are So Stupid, What Does That Say About Our Treasury Secretary

Anticipating these simple questions, the government has dutifully provided us with the following inane justification for the partnership: “But if the government acts alone in directly purchasing legacy assets, taxpayers will take on all the risk of such purchases – along with the additional risk that taxpayers will overpay if government employees are setting the price for those assets.”

One sincerely hopes that nobody from the government actually reads this passage, which must rank as the most public slight yet to the intellectual capabilities of government employees. Ironically, isn’t the Treasury Secretary himself and Bernanke, the head of the Fed, also government employees? Aren’t they the ones who actually wrote this plan? If in the role of government employees, they don’t have the intellectual capacity to not overpay for legacy loans, how on earth are we giving them the responsibility to actually run our economy? In reading this, it’s of course not surprising that Geithner has had a difficult time hiring more staff to work for the Treasury. Apparently, the entire intellectual brain trust of our nation resides with a bunch of gamblers on Wall Street.

The Least Risky Alternative: Pay the Market Price or Lower Stupid

But don’t worry, in case your as stupid as I am, and can’t understand how not to overpay for complex assets, that for two years already have challenged some of our best economic minds, and that only a combination of prophets and crooks could possibly value, some geniuses from some hedge funds are here to help for 7% . Sorry, I think I’ll pass and take on another whopping 7% of risk, and eliminate any worry of the overpaying risk, by taking the obvious, and least risky alternative, of simply paying the market price, or more appropriately lower than the market price, for these assets!

The Transfer of $1 Trillion for No Risk and No Economic Output

If after this most basic deconstruction of the Geithner plan, you’re tempted to delve into the second part of the program, the so-called Legacy Securities, we’ll save you the trouble. It’s full of the same nonsense as the first part, and cloaked in similar misleading wording.

Pulling away the veil from the fancy terminology, one is forced to the following simple summary of Geithner’s program: The Government is going to Print and/or Borrow (simply choose the term that rings better to you) another $1 Trillion, and Simply Transfer the $1 Trillion to Businesses that take on virtually no Quantifiable Risk and Provide No Useful Products/Services in Return.

Where does the government get this $1 trillion? Presumably it comes from taxpayers. But why would taxpayers give away $1 trillion to people who don’t take on any risk and provide no economic output? Obviously they won’t. Which is why they have not been asked to provide the $1 trillion. Instead, they are being told to give the $1 trillion or else? In other words, the taxpayer has been robbed.

If You Can’t Beat Em’ Then Join Em’: How Do We All Get in on Geithner’s Public/Private Taxpayer Pilfer Program?

But, now that we know that we’ve been fleeced, and there is nothing we can do about it, what’s the best way of joining in on this scheme.

Well first of all, it’s not entirely clear why any rational person can feel motivated any longer to produce anything real for the economy.

If certain companies and individuals can simply receive $1 trillion in free government aid for doing nothing but showing up at the doorstep and offering to buy piles of crap, then why should any company produce anything remotely useful to society? Everyone should just go into partnership with the government to buy crap assets. It requires no special skills, virtually no capital, no risk, and is completely guaranteed by the government. Can there be a better business?

So if you’re thinking of getting in on that new construction project, think again. There is a simpler and more profitable opportunity available: Buying crap assets.

If you’re thinking of operating a solar energy panel manufacturing business, think again. Times are tough. Close up shop and get in on the risk-free Geithner program.

You see if Rewarding Fraud and Failure, Manipulating Asset Prices, and Printing Money to Provide Free Capital to Businesses that Take No Risk and Provide No Economic Output, are the accepted solutions to our economic crisis, then it’s fair to say that the next logical steps are the cessation of business activity in the country. Anyone who engages in a real non-financial business attempting to make a profit is surely a fool or a masochist.

The True Foundation of Capitalism

The goal of capitalism is the pursuit of profit by individuals who take a risk, both financial and personal, to develop and provide real products and services to society. In encourages fiscal discipline, and the calculation of fair, not inflated, assets values based upon a careful analysis of expected future cash-flows.

Any program that shakes these foundations of capitalism, and seeks to: provide profit without risk, reward subsidies in the event of abysmal failure and fraud, and set inflated pricing for garbage assets, will surely ruin capitalism and ultimately render all financial asset values meaningless. In so doing it returns us to a pre-capitalist society replete with massive poverty, income inequality, and its associated enormous social ills.

How Can We Get Out of This Mess? Finance as a Means, Not an End

Ultimately, the whole problem with solutions to the financial crisis to date, is that the key powers in the government, namely Bernanke and Geithner, labor under the false notion that the financial economy drives the real production economy. But, nothing could be farther from the truth.

While, it’s true that the financial economy has grown so enormous, with its complex derivatives and imaginary financial products, so as to completely dwarf the world GDP, this situation is highly anomalous and particularly dangerous as we’ve recently experienced.

Throughout the history of capitalism, finance was used to support the production economy, not usurp it. In that role of support, finance plays a crucial role in driving innovation forward to the benefit of society. But, finance is merely a means, not an end. Banks do not create the economy, the economy creates the banks!

If finance becomes the end, as is now the case, then finance by its nature becomes divorced from reality and implodes on itself.

I sincerely hope that at least someone in the government wakes up and puts a stop to these reckless financial bailouts and programs. It is high time for the government to support a return to real capitalism and instead of expanding finance, shrink it back to its prior, and still highly useful and profitable, role of providing support to entrepreneurs and larger enterprises, in their quest to build businesses that provide real products and services. It is time to reign in the Fed and the Treasury, both of whom now operate above the law, and fail to uphold the key tenets of a democratic society, by rewarding those few who do nothing, to the detriment of the many who do everything.

There is a great article today in the WSJ by HERNANDO DE SOTO, advocating more government regulation of the derivatives markets.

De Soto suggest that:

“to bring derivatives under the rule of law, governments should ensure that they conform to six longstanding procedures that guarantee the value and legitimacy of any kind of paper purporting to represent an asset… Every financial deal must be firmly tethered to the real performance of the asset from which it originated. By aligning debts to assets, we can create simple and understandable benchmarks for quickly detecting whether a financial transaction has been created to help production or to bet on the performance of distant “underlying assets.”

One small problem: Derivatives are the primary source of profit for big banks, precisely because they can make up whatever price they want for these securities. The imaginary pricing is the source of the gigantic bonuses that bankers bring in. Now the Fed and the Treasury have also put their stamp of approval on pie-in-the-sky pricing for complex securities that nobody understands. So will the government now regulate derivatives and destroy our nation’s most cherished enterprise? Not a chance.

If analyses of Geithner’s plan are accurate, the really interesting question to ponder is: Why is this called a public-private partnership, when private capital is only putting up 3%? And if private capital is only putting up 3%, why do we need them at all? Surely the government doesn’t need the money, with Bernanke at the helm. Why doesn’t the government just give another $1 trillion to the banks directly, and forget about all this public-private hocus pocus?

But, then of course, we’d be back to TARP. Wait, TARP didn’t work and our TARP stash is running dry. Surely, if we dilute TARP by 3%, and call it TALF, we’ll be better off?

Krugman and Naked Capitalism go into great detail explaining why Geithner’s now fully-released public-private investor partnership, with the full stamp of approval from Obama, is ridiculous and, dare I say, criminal. Of course, if you’ve read some philosophy, you won’t be shocked by this, since you’ll most assuredly be familiar with Balzac’s well-known line that: “Behind every great fortune, lies a great crime.”

If you want to take the more optimistic route, I guess the only explanation for supporting this plan is that Obama is making a big bet on the “trickle down” economic theory. While playing lip service to social causes, Obama seems to really believe that awarding $1 trillion in free money to hedge funds will somehow trickle down and help the entire economy. I believe he said, “Main Street has to understand, unless we get these banks moving again, then we can’t get this economy to recover.”

So will the already disproven theory of trickle down economics magically regain effectiveness? I think we all know the answer to that question since we’ve seen this game before. Unless Main Street is planning on cashing in on some townhouses in Manhattan or selling some Picasso’s, it’s highly unlikely they will feel any benefit from this plan.

In arguing for a reigning in of the Federal Reserve, perhaps we should consider that we don’t need humans, or at least economists, running the Federal Reserve and monitoring our nation’s money supply (and whatever else the Fed actually does). Actually, I’m convinced it should be quite easy to program a computer to do the job of the Fed. Surely if a computer can play chess like a grandmaster, it could do the job of the Federal Reserve, which seems much less complex than a game of chess.

How to start: The government could hire a few of the programmers from the famous quant funds, like Renaissance, to create algorithms for controlling the Fed funds rate and the myriad of other actions the Fed currently undertakes. These quant funds are surely are up the task, given their proven ability to already completely game the world stock markets with their algorithms.

By getting a computer to run our monetary system, we’d surely prevent crises like the current one, simply because we would not be making decisions based on cronyism and false emotional fear (i.e. “If we don’t get $750 billion now, the world will fall apart.”). In other words, computers, as long as they are secure, are unlikely to be corrupted or tricked by irrational emotions. And corruption/fraud combined with powerful emotional appeals to basic human fears, are at the root of every financial crisis.

The main people, , of course, who would be against having a computer run the Federal Reserve would be those funds, like Pimco, who by nature of their connections, currently profit enormously from the unpredictable actions of the Fed. If computers ran the Fed, there would, in theory, be more predictability in the economy since presumably the algorithms would be made public. So to the extent that a vast amount of money is still made based on insider information, a computer would be seen as a serious threat. It’s also hard to see how Wall Street would be able to make money under a more stable economic environment. It is the creation of uncertainty that engenders the volatility that Wall Street so desperately needs to profit.

Last week, in the midst of defending Geithner’s handling of the AIG bonus scandal, President Obama stated, that he’d take full responsibility for the AIG disaster. “I’m the President, The Buck Stops with Me,” Obama said.

I found that statement quite amusing, as it is becoming clearer by the day that, in truth, the Buck Stops with Bernanke.  The leader of the US, at least as far as the financial crisis is concerned, is undoubtedly Bernanke, and his cohorts at the Fed.

Unlike the President or any other member of the government, Bernanke is able to issue orders and execute any ridiculous financial scheme, such as printing another $1 trillion to bail out fraudulent banks, without any oversight or regulation.
I tend to believe, that The Fed, as it is currently constituted, may have served its purpose in a more simple financial system, but in the currently complex financial environment, with the dominance of securitization and derivatives, its role is surely too large, and too risky for the welfare of the majority of the nation.