March 27, 2009 2:00 am

Geithner's Gift to Hedge Funds

I’ve received several emails with links to Karl Denninger’s piece today. Karl is right on the money, but there is something he did not cover. If we allow this plan to move forward, the boys on Wall Street will play another side of this game and reap billions in profits . . . on both sides.

First read Karl’s piece - http://market-ticker.denninger.net/

Now consider this.

Part 1 - The slick boys on Wall Street will buy bank and insurance company stock cheap. These are the banks and insurance companies that would have been forced out of business, if Tim the Tax Cheat (T3C) had not come up with this brilliant plan that even Paulson didn’t have the guts to pull off. The Wall Street Crooks buy up the stock cheap and load up on options.

Part 2 - Now that they own the bank and insurance company stock on the cheap, they take the trillion dollars from T3C and buy the toxic assets from these banks and insurance companies at insanely inflated prices. Why? Because they want to fill the banks coffers with as much money as possible. This will drive the price of the bank stocks up . . . and the Wall Street Crooks will sell the bank stock and options to the tune of hundreds of billions in profits . . . for themselves.

Part 3 - You might think . . . but what about the losses the Wall Street Crooks are going to suffer from overpaying for the toxic assets? Ah-ha, well that is the beauty of it all. They are only going to suffer very minor losses because T3C is encouraging them to leverage up on these purchases AND go hog wild because T3C is back-stopping their losses and only requiring a pittance of a few pennies on the dollar from them. So the Wall Street Crooks lose a few pennies on the purchase of the toxic assets, but they make billions on the bank stock.

Part 4 - There are two other sides to this. The Wall Street Crooks will also be taking a skim from selling toxic assets to pension funds. This is not the big skim. The big skim is in buying up the equity in the bank stocks that they will pump with our cash. Moreover, guys like Jamie Dimon, Ken Lewis and John Mack will walk away with hundreds of millions in annual bonuses for a “job well done.”

Part 5 - So where are the toxic assets. Actually, by the time this has run it’s course, the pension funds will be holding what is left of the toxic assets and the Wall Street Crooks will have skimmed off the best assets in the barrel for just pennies on the dollar. They will reap huge profits on these good assets, but the taxpayer will not share in this . . . because the Wall Street Crooks will sell the good stuff off the their buddies and associated companies.

Part 6 - The Wall Street Crooks cash in on the T3C back stop for the losses they will take on the crap they overpaid for to pump up the bank stocks and reward their co-conspirators . . . the bank executives referenced in Part 4. T3C doesn’t have the money to pay them off, so we the taxpayer will be the ones left holding the bag. And it will be a bag that our children and our children’s children will be saddled with . . . if we don’t tear ourselves apart as a country before that.

Part 7 - The banks that will go under or be swallowed up, will be all of the well run banks. These are the guys that will pay the consequences for the bad banks. You see, they will not be able to compete with the bad banks, and the bad banks will now have the money to buy up the small banks and run them into the ground.

Market Update - The market is up 6% as I write this . . . and moving higher. We are short the markets and losing quite a bit of money today. Do we bail out? I think not. I think reality will set in. And if it doesn’t, money will not matter. We are just steps away from a complete break down in government. It may take weeks or months, but I still firmly believe the people will rise up in revolt before the end of this summer. Our financial system was all but eviscerated today when T3C decided to turn our fate over to the boys and girls that created the mess we are in. And I close with this . . . not even King Henry was prepared to pull this obscene maneuver. He knew it would end far worse than the 1930’s or Japan’s lost 20 years. T3C was out of bullets and desperate to make friends with someone.

If the plan holds up, our country will collapse. That might take a year or two, but it is inevitable. That is inevitable, as we are throwing our money at the men that created this disaster. If the plan is pulled, the markets will move lower and I would hope our government allows free markets to work, even if that means painful times. Because the pain we will suffer under the latest plan, is pain we cannot recover from withou grave social unrest.

Government needs to address the problems, not create more. Government needs to go after the Wall Street Crooks, not reward them. Government needs to claw back what they stole, put many of them in jail, regulate the conduct of business and to dish out consequences to those that created the mess . . . instead of the people that are at the wrong end of this social and economic disaster.