Fed’s $85M loan to AIG; Time to fire Paulson & Bernanke

TUESDAY – 11 PM

I’m pissed.

While I certainly don’t condone physically acting-out, when I heard Charlie Gasparino break the story on CNBC tonight regarding the fed’s decision to extend an $85 billion loan to AIG, I sincerely had to resist the temptation to swipe everything off my desk in sheer anger at the incompetency and lack of fiduciary responsibility Bernanke and Paulson showed in handling taxpayer dollars.

Thankfully, my rational side prevailed, and I instantly realized I’d just have to clean-up my own mess.

And speaking of messes, I’m now convinced that the only way to even make a dent in clearing-up the mess in the economy on Main Street and the “crisis” on Wall Street is to remove Paulson and Bernanke – immediately.

Though I don’t have any psychic ability or a direct line to Paulson or Bernanke — I’d take the bet that the spin we’ll hear for days to come is that they really-really-really didn’t want to do this deal, and that they tried to get investment banks to assist AIG in securing needed funds from private equity — but were unsuccessful — so they “had” to step-in to save AIG.

They’ll likely add that if the company had to file bankruptcy, the ramifications from Wall Street to Main Street and to markets abroad would have been insurmountable.

Yup, that’s pretty darn close to the spin we’ll hear.

And, guess what?

It will be a load of crap.

Would there have been ramifications if AIG declared bankruptcy?

Sure.

Would they have been insurmountable?

Absolutely not.

When the fed stepped-in to help Bear Stearns, I knew they were headed down a dicey road.

But I believed Paulson last week, after the bailout of Fannie and Freddie, when he told us straight-up that there would be no more Wall Street bailouts.

When the fed turned its back on Lehman — I was thrilled.

That doesn’t mean I’m heartless, and don’t feel for each and every employee who no longer has a job — but while Lehman’s may have for many years been one of the “top 5” on the street — it’s still just a business.

And when a business gambles on high risk investments, they must also accept the fact they may get burnt.

Putting up an “out of business” sign should be the same for Lehman’s as it is for a mom and pop hardware store that’s forced to close its doors when it sadly can no longer compete with the big guys.

In fact, I’d rather see the fed use my money — and, remember, they are playing with your money and mine in the Treasury — to extend an olive branch to a mom & pop business that’s floundering through no fault of its own, than to bail-out a Wall Street firm that got caught up in the sleazy sub-prime meltdown.

If the terms that have been leaking out, albeit unconfirmed as yet, that the $85 bridge loan comes with stipulations that the government gets warrants for most of the equity and it includes incentives for quick asset sales — it will have Paulson’s fingerprints all over it.

And it will only make this pill that much harder to swallow.

As someone who has never owned a share of AIG — I can guarantee you that if they were currently reaping profits, they wouldn’t be sending me dividend checks in the mail.

So why am I now forced to have a piece of the hot potato no one else wants in terms of AIG’s credit default swaps?

If no hedge fund or private equity investor wants to step up to the plate for a bite of AIG — I certainly don’t, either.

I could take a bet that New York’s governor did some arm twisting to get the fed to help prevent AIG from filing for bankruptcy — and Paulson may think he’s saving face with all the stipulations he’s attached to the deal, that ultimately hurt AIG shareholders — but as a taxpayer, I’m none too happy that my money is going to pay for yet another Wall Street bailout — especially a private company that is not a bank.

After all, the Federal Reserve Act does state that before agreeing to a loan, “the Federal reserve bank shall obtain evidence that such individual, partnership or corporation is unable to secure adequate credit accommodations from other banking institutions.

Remember: J.C. Flowers made an equity offer to AIG that they nixed, and then AIG turns around and announces they’re going to the fed window, without receiving a nod from the fed that they were welcome.

Paulson and Bernanke appear to be in way over their heads and are no longer able to see the forest through the trees.

Worse yet, they appear to constantly be seeking advice from the players on Wall Street who got us into this mess to begin with.

So here’s my advice to them that I learned when I was a 5-year-old helping my mother bake a cake:

When you put the wrong ingredients into the bowl and keep stirring — you only exacerbate the problem. The best thing to do is to throw out the mess, and begin all over again with fresh ingredients.

It’s time for Bernanke and Paulson to heed that advice and let the cards fall where they will on these large Wall Street businesses that were over-leveraged in high-risk investments.

They gambled — they lost — game over!

Furthermore, if there was even a .001 percent chance the fed was going to step-in with any sort of bailout — the time to have done so was last Sunday night when it would have cost more in the neighborhood of $20B to seal the deal.

When the fed nixed this deal and AIG went scrambling for private equity investors — and let’s not forget AIG recently turned down J.C. Flowers’ influx of cash — the market immediately priced in the demise of AIG.

The market doesn’t wait days, weeks, months or years — it reacts immediately.

The market took a huge hit Monday to the tune of 500 points.

I lost money on funds completely unrelated to financials simply because of the pullback in the overall market on this news — and so didn’t many other citizens of the U.S. — even those who falsely believe they’re not in the market — despite the fact they likely have 401K’s and pension plans heavily vested in the market.

So, how dare Paulson and the fed begrudgingly wait two entire days — a lifetime on the street — let everyone take a hit in the market by the pullback — wait until the S&P and Moody’s issued their downgrades, causing more immediate pullbacks in the market — and then tell us that they really didn’t want to do it — but they had no other choice than to step-in and hand over over four times what they could have sealed the deal with two days earlier — to the tune of $85 billion dollars! — and then try to tell us they were doing this to protect the worldwide economy.

Bull!

Paulson, Bernanke and the fed are not playing “fast and loose” with our treasury dollars — it’s much worse — they’re playing “too slow and loose” with it.

I would never hand over a penny of my money to a fund that was being so mismanaged as Paulson is running the Treasury.

He must be fired — immediately!

And take Bernanke with him!

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One Response

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