If you give a financial institution a federal guarantee, they’re going to ask for a loan.
When you give them the loan, they probably won’t ask you for, but will take anyway, a half million dollar associate’s retreat to one of the most lavish resorts in the country to go golfing and spend $150,000 on food, $10,000 on liquor and $23,000 on happy endings.
When they’re finished, they’ll ask for a napkin.
Then they will want to look in a mirror to make sure they don’t have a milk mustache or look like monolithic avatars of avarice.
When they look into the mirror, they might notice their assets need a trim. So they will probably ask you to buy their sub-prime mortgage backed securities at a loss to taxpayers and for a pair of nail scissors.
When they’re finished giving themselves a collective annual budget of over $108 billion for compensation and bonuses that is in some cases worth more than the entire market value of the company offering the bonus, they’ll want an infusion of tax dollars for a takeover procedure orchestrated on an ad hoc basis to sweep up their balance sheets. They’ll start sweeping. They might get carried away and dust up every municipal bond market in the country. They may even end up cleaning out pension funds as well!
When they’re done, they’ll probably want an injection of liquidity, an intermeeting Fed Funds Rate cut, a suspension of mark to market accounting rules, a discount window for investment banks, a ban on short-selling and a nap. You will have to fix a little box for them with a TARP and an $85 billion pillow and illegally alter the tax code by repealing the 1986 provision in Section 382 against the utilization of in-the-red companies as shell corporations for tax write-off purposes during mergers and acquisitions to facilitate their growing oligopoly. They’ll scurry in, make themselves comfortable, fluff the pillow a few times and completely misuse the TARP by sitting on it idly as a security blanket against uncertainty or even as a means to be aggressively opportunistic on the acquisition side.
They’ll probably ask you to guarantee senior unsecured debt, insure all non-interest bearing transaction accounts, change Federal Reserve policy to accept commercial paper, stocks, sub-prime mortgage-backed securities, junk bonds, whole mortgages and sub-prime credit-card receivables as collateral for loans and to read them a fairy tale before they nap. So you’ll read to them about the 5 percent annual yields they pay on common shares being more than they pay on the preferred shares they sold to the government; about some of them increasing their dividend payments even as they sit on their TARP; about the contracts they’ve signed without conflict of interest provisions; about the hedging they encourage their wealthiest clients to do by taking out credit default swaps against state issued bonds that they themselves brought to market and collected tens of millions of dollars in fees on; about that creating the illusion of increased risk in those bonds, thus driving up interest rates on future bonds and making it more likely that the states will default; and about the $2.5 trillion of mystery loans that have had their amounts, recipients, terms and collateral kept secret.
This will make them very uncomfortable, so they’ll ask for a new pillow. When you show them that you might make them a new pillow, they’ll get so excited they’ll want to draw up one of their own. They’ll ask for paper and crayons.
They’ll draw up an outline of what their pillow should look like. When their new $150 billion pillow is finished, they’ll want to sign their name with a pencil so they can erase it later if they need to.
Then they’ll want to hang their pillow around your neck. Which means they will need … a lame duck session of Congress.
They’ll hang up their pillow for the world to see and stand back to admire it. Looking at their big, new pillow around your neck will make them swell with pride, but it will make GE jealous so… they’ll ask for a federal guarantee.
And chances are if GE asks for a federal guarantee, GM, Ford, Chrysler, American Express and your mom are going to want a loan to go with it.
K.C. CODY wants a cookie. And a glass of milk. And a straw. Send him a napkin at kccody@ucdavis.edu.
